UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period endedJune 30, 2015

OR

For the transition period fromto

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 4, 2015, there were outstanding 16,037,71116,052,979 shares (excluding treasury shares of 1,029,2941,029,638) of the registrant’s Common Stock, $0.001 par value per share.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

See accompanying notes to unaudited condensed consolidated financial statements

See accompanying notes to unaudited condensed consolidated financial statements

See accompanying notes to unaudited condensed consolidated financial statements

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)

The Providence Service Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

March 31,June 30, 2015

(in thousands, except share and per share data)

1. Basis of Presentation, Description of Business and Recent Accounting Pronouncements

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “consolidated financial statements”) include the accounts of The Providence Service Corporation (“theProvidence,” “the Company,” “our,” “we” and “us”) and its wholly-owned subsidiaries. Investments in non-consolidated investeesentities over which the Company exercises significant influence but does not control are accounted for under the equity method.

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 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 service revenue as one line item, servicesservice expense as one line item, and loss on foreign currency translation as a component of other expenses. Additionally, the Company’s legacy workforce development businesses have been reclassified from the Human Services segment to the Workforce Development Services segment.

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 liabilitiescertain disclosures 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, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2015. 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, 2014 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, 2014.

Description of Business

The Company provides and manages health and human services through non-emergency transportation, community and behavioral health, workforce development and health assessment offerings. At March 31, 2015, theThe Company operatedoperates in four segments, Non-Emergency Transportation Services (“NET Services”), Human Services, Workforce Development Services (“WD Services”) and Health Assessment Services (“HA 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 the Human Services segment, 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, disabilities or court order. The WD Services segment provides outsourced employability and legal offender rehabilitation case management services, primarily to the eligible participants in government sponsored programs. The HA Services segment primarily provides comprehensive health assessments (“CHAs”), for members enrolled in Medicare Advantage (“MA”) health plans, in patient’s homes or nursing facilities.

Recent Accounting Pronouncements

In NovemberMay 2014, the FASB issued Accounting Standards Update (“ASU”) NoNo. 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: 

 Publicly held entities must apply the new revenue standard to interim reporting periods within annual reporting periods beginning after December 15, 2017. Early adoption of the standard is permitted, but not before annual periods beginning after December 15, 2016. The Company is currently evaluating the impact ASU 2014-09 will have on its consolidated financial statements.

In November 2014, the FASB issued ASU No. 2014-16,Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity(“ASU 2014-16”).This update requires an entity to determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument issued in the form of a share, including the embedded derivative feature that is being evaluated for separate accounting from the host contract when evaluating whether the host contract is more akin to debt or equity. In evaluating the stated and implied substantive terms and features, the existence or omission of any single term or feature does not necessarily determine the economic characteristics and risks of the host contract. Although an individual term or feature may weigh more heavily in the evaluation on the basis of facts and circumstances, an entity should use judgment based on an evaluation of all the relevant terms and features. ASU 2014-16 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, early2015. Early adoption is permitted. The Company adopted ASU 2014-16 effective January 1, 2015 and applied the literature to determine the accounting for its convertible preferred stock.stock issued in 2015. The adoption of ASU 2014-16 did not impact the Company's existing financial instruments.

In April 2015, the FASB issued ASU No. 2015-03,Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments is permitted for financial statements that have not been previously issued. The amendments should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This ASU will impact the Company’s financial statements, as the Company has approximately $4,867$4,485 of debt issuance costs at March 31,June 30, 2015 that are classified as “Other assets” in the accompanying condensed consolidated balance sheet. The result of the application of this guidance would be to reduce the “Other assets” balance, with a corresponding reduction to “Long-term obligations, less current portion” in the condensed consolidated balance sheet. The Company expects to adopt ASU 2015-03 on January 1, 2016.

2. Concentrations

Contracts with domestic governmental agencies and other domestic entities that contract with governmental agencies accounted for approximately 61.2% and 78.5%78.0% of the Company’s domestic revenue for the threesix months ended March 31,June 30, 2015 and 2014, respectively. Contracts with foreign governmental agencies and other foreign entities that contract with governmental agencies accounted for approximately 95.5%95.2% and 92.3% of the Company’s foreign revenue for the threesix months ended March 31, 2015. The Company’s international presence was not material for the three months ended March 31, 2014.June 30, 2015 and 2014, respectively. Additionally, approximately 52.6%44.8% of our WD Services revenue for the threesix months ended March 31,June 30, 2015 and 2014 was generated from one foreign payer.

At March 31,June 30, 2015, approximately $37,811,$46,651, or 12.4%14.5%, of the Company’s net assets were located in countries outside of the US. At December 31, 2014, approximately $40,213, or 18.2%, of the Company’s net assets were located in countries outside of the US.

3. Equity Investment

The Company entered into a joint venture agreement in November 2014 to form Mission Providence Pty Ltd (“Mission Providence”). As of July 2015, Mission Providence will deliverdelivers employment services in various regions in Australia. The Company has a 60% ownership in Mission Providence, and has rights to 75% of Mission Providence’s distributions of cash or profit surplus twice per calendar year. The Company provided and will continue to provide capital contributions to Mission Providence in exchange for its equity interests.

The Company determined it has a variable interest in Mission Providence. However, it does not have unilateral power to direct the activities that most significantly impact Mission Providence’s economic performance, which include budget approval, business planning, the appointment of key officers and liquidation and distribution of share capital, and, as a result, the Company is not the primary beneficiary of Mission Providence. The Company accounts for this investment under the equity method of accounting and the Company’s share of Mission Providence’s losses are recorded as “Loss on equity investment” in the accompanying condensed consolidated statements of income.

At March 31, 2015,The following table summarizes the Company had a negative investmentcarrying amounts of the assets and liabilities included in the Company’s condensed consolidated balance sheet and the maximum loss exposure related to the Company’s interest in Mission Providence totaling $2,092, which is included in “Accrued expenses” in the accompanying condensed consolidated balance sheet. at June 30, 2015:

Under the terms of the joint venture agreement, the Company iswill be required to make future financial contributions, based on the capital needs of Mission Providence. Currently, the Company has committed to contributing $14,637these future expected contributions are included in “Other Assets” and “Accrued Expenses” in the second quarter of 2015, and may commit to additional investment beyond its current commitment.table above.

4. 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 under certain acquisition agreements based on the achievement of certain earnings targets by the acquired businesses. 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 $2,623$2,611 at March 31,June 30, 2015, which is included in “Other long-term liabilities” in the condensed consolidated balance sheets. The fair value of the Company’s contingent consideration was $10,549 at December 31, 2014, of which $7,767 iswas included in “Accrued expenses” and $2,782 iswas included in “Other long-term liabilities” in the condensed consolidated balance sheets. The decrease in the contingent consideration since December 31, 2014 is attributable to payments totaling $7,496 made in the first quarter of 2015 and changes in the foreign currency translation rate.

5.Long-Term Obligationsand Note Payable to Related Party

          The Company’s long-term obligations were as follows:

           The carrying amount of the long-term obligations approximated their fair value at March 31,June 30, 2015 and December 31, 2014. 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.

Related party unsecured subordinatedbridgenote

On October 23, 2014, the Company issued to Coliseum Capital Management, LLC and certain of its affiliates (“Coliseum”), a related party, a 14.0% Unsecured Subordinated Note in aggregate principal amount of $65,500 (the “Note”) due September 30, 2018. The Note was repaid in full on February 11, 2015, with the proceeds from a registered rights offering of convertible preferred stock (“Rights Offering”) and a related standby purchase agreement.

6. Stock-Based Compensation Arrangements

           The Company issues both option awards and restricted stock to employees and non-employee directors. Option awards and restricted stock vest commensurate with the respective award agreements. 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 expense of unvested restricted stock grants was determined based on the closing market price of the Company’s common stock on the date of grant.grant and is recognized as stock based compensation expense over the vesting period. 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:

7.Convertible Preferred Stock, Net

The Company completed a Rights Offering, on February 5, 2015, providing all of the Company’s existing common stock holders the non-transferrable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price equal to $100 per share. The convertible preferred stock is convertible into shares of Providence’s common stock at a conversion price equal to $39.88 per share, which was the closing price of the Company’s common stock on the NASDAQ Global Select Market on October 22, 2014.

Stockholders exercised subscription rights to purchase 130,884 shares of the Company's convertible preferred stock. Pursuant to the terms and conditions of the Standby Purchase Agreement (the “Standby Purchase Agreement”) between Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest, L.P. and Blackwell Partners, LLC (collectively, the "Standby Purchasers") and the Company, the remaining 524,116 shares of the Company's preferred stock were purchased by the Standby Purchasers at the $100 per share subscription price. The Company received $65,500 in aggregate gross proceeds from the consummation of the Rights Offering and Standby Purchase Agreement. Additionally, on March 12, 2015, the Standby Purchasers exercised their right to purchase an additional 150,000 shares of the Company’s convertible preferred stock, at a purchase price of $105 per share, of the same series and athaving the same conversion price as the convertible preferred stock sold in the Rights Offering.

The Company may pay a noncumulative cash dividend on each share of convertible preferred stock, when, as and if declared by its board of directors, at the rate of five and one-half percent (5.5%) per annum on the liquidation preference then in effect. On or before the third business day immediately preceding each fiscal quarter, the Company must determine its intention whether or not to pay a cash dividend with respect to that ensuing quarter and will give notice of ourits intention to each holder of convertible preferred stock as soon as practicable thereafter.

In the event the Company does not declare and pay a cash dividend, the Company will pay paid in kind (“PIK”) dividends by increasing the liquidation preference will be increasedof the convertible preferred stock to an amount equal to the liquidation preference in effect at the start of the applicable dividend period, plus an amount equal to such then applicable liquidation preference multiplied by eight and one-half percent (8.5%) per annum, computed on the basis of a 365-day year and the actual number of days elapsed from the start of the applicable dividend period to the applicable date of determination.

Cash dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on April 1, 2015, and, if declared, will begin to accrue on the first day of the applicable dividend period. Paid in kind (“PIK”)PIK dividends, if applicable, will accrue and be cumulative on the same schedule as set forth above for cash dividends and will also be compounded at the applicable annual rate on each applicable subsequent dividend date. PIK dividends are paid upon the occurrence of a liquidation event, conversion or redemption in accordance with the terms of the convertible preferred stock. Cash dividends totaling $594 and $1,104 were paid to preferred stockholders on April 1, 2015.2015 and July 1, 2015, respectively.

The convertible preferred stock is accounted for as mezzanine equity as it could be redeemed upon certain change in control events that are not solely in the control of the Company. Dividends are recorded in stockholders equity and consist of the 5.5%/8.5% dividend. Additionally, mezzanine equity includes a discount on preferred stock related to beneficial conversion features that arose due to the closing price of the Company’s common stock being higher than conversion price of the convertible preferred stock on the commitment date. The amortization of this discount is recorded in stockholders’ equity.

Convertible preferred stock, net at March 31,June 30, 2015 consisted of the following:

8. Stockholders’ Equity

The following table reflects changes in common stock, additional paid-in capital, accumulated deficit, accumulated other comprehensive loss and treasury stock for the threesix months ended March 31,June 30, 2015:

9. Earnings Per Share

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

For the three and six months ended March 31,June 30, 2015, 805,000 and 2014, employee stock options to purchase 300,000 and 198,261 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. For the three months ended March 31, 2015, 381,000594,171 shares of convertible preferred stock, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

10. Income Taxes

           The Company’s effective tax rate from continuing operations for the three and six months ended March 31,June 30, 2015 was 55.9% and 54.9%, respectively. The Company’s effective tax rate from continuing operations for the three and six months ended June 30, 2014 was 53.9%45.3% and 40.1%42.9%, 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 expenses. Non-deductible expenses for the three and six months ended March 31,June 30, 2015 included the loss on equity investment.

11. Commitments and Contingencies

On June 15, 2015, a putative stockholder class action derivative complaint was filed in the Chancery Court of the State of Delaware, captioned In re The Providence Service Corporation Derivative Litigation, Case No. 11149.  The complaint names Richard A. Kerley, Kristi L. Meints, Warren S. Rustand, Christopher Shackelton (the “Individual Defendants”) and Coliseum Capital Management, LLC (“Coliseum LLC”) as defendants, and the Company as a nominal defendant.  The complaint states direct claims alleging that the dividend rate increase term in the Company’s outstanding convertible preferred stock is an impermissibly coercive measure that impairs the voting rights of the Company’s stockholders on the removal of certain voting and conversion caps (“Caps”) currently applicable to the preferred stock, and that Individual Defendants have breached their fiduciary duties by approving the dividend rate increase term and attempting to coerce the stockholder vote relating to the Company’s preferred stock, and by failing to disclose all material information necessary to allow the Company’s stockholders to cast an informed vote on the Caps. The complaint states derivative claims alleging that the Individual Defendants breached their fiduciary duties to the Company by entering into the subordinated note and standby agreement with Coliseum LLC, and granting Coliseum LLC certain stock options.  The complaint further alleges that Coliseum LLC has aided and abetted the Individual Defendants in breaching their fiduciary duties and that demand on the Board is excused as futile.  The complaint seeks, among other things, an injunction prohibiting the stockholder vote relating to the dividend rate increase, a finding that the Individual Defendants are liable for breaching their fiduciary duties to the Company and the Company’s stockholders, a finding that Coliseum LLC is liable for aiding and abetting the Individual Defendant’s breaches of their fiduciary duties, a finding that Coliseum LLC is liable for unjust enrichment, a finding that demand on the Board is excused as futile, a revision or rescission of the terms of the Subordinated Note and preferred stock as necessary and/or appropriate, a requirement for the Company to reform its corporate governance profile to protect against future misconduct similar to that alleged by the putative stockholder class, a certification of the putative stockholder class, costs and disbursements (including expenses, attorneys’ and experts’ fees), and any other and further relief as is just and equitable.  On June 26, 2015, the Court entered a schedule governing expedited proceedings as agreed to by counsel for the parties. A hearing on plaintiff’s motion to enjoin the stockholder vote is scheduled for September 10, 2015. The Company believes the plaintiffs’ allegations lack merit and will vigorously contest them. Accordingly, the Company has not recorded any liabilities related to this matter as the probability and range of a settlement cannot be determined.

The Company is involved in other 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 $1,337$1,461 and $1,432 at March 31,June 30, 2015 and December 31, 2014, respectively.

12. Transactions with Related Parties

On October 23, 2014, the Company issued to Coliseum, a related party, a 14.0% Unsecured Subordinated Note in aggregate principal amount of $65,500. Interest from the issuance date to, but excluding, the 120th day after the issuance date, was paid in cash in the amount of $3,015 on the issuance of the Note. Coliseum held approximately 15% of our outstanding common stock as of October 23, 2014 and is the Company’s largest shareholder. Additionally, Christopher Shackelton, who serves as the Company’s Chairman of the board of directors and since June 1, 2015 has served as interim Chief Executive Officer of the Company, is also a Managing Partner at Coliseum Capital Management, LLC.

The Note was repaid in full on February 11, 2015, with the proceeds from a registered Rights Offering and related standby purchase commitment described above, which allowed all of the Company’s existing common stock holdersstockholders the non-transferrable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price of $100 per share, as further described above.

In connection with the anticipated Rights Offering, on October 23, 2014, the Company entered the Standby Purchase Agreement with the Standby Purchasers, pursuant to which the Standby Purchasers agreed to purchase, substantially simultaneously with the completion of the Rights Offering, in the aggregate, all of the available preferred stock not otherwise sold in the Rights Offering following the exercise of the subscription privileges of holders of the Company’s common stock. As consideration for entering into the Standby Purchase Agreement, on October 23, 2014, the Company paid the Standby Purchasers a fee of $2,947, which is included in “Convertible Preferred Stock, Net” in the condensed consolidated balance sheet at March 31,June 30, 2015. In addition the Standby Purchasers had the additional right, exercisable within 30 days following the completion of the Rights Offering, to purchase additional preferred stock valued at $15,000 at a price per share equal to 105% of the Subscription Price,$105 which was exercised on March 12, 2015. Preferred stock dividends earned by Coliseum during the six months ended June 30, 2015 totaled $1,616.

13. Acquisitions

On October 23, 2014, the Company acquired all of the outstanding equity of CCHN Group Holdings, Inc. (“Matrix”), the parent company of Community Care Health Network, Inc. (dba Matrix Medical Network ), pursuant to an Agreement and Plan of Merger, dated as of September 17, 2014. There have been no changes to the estimatedThe purchase price or estimatedof Matrix is calculated as follows:

The table below presents Matrix’s net assets based upon a preliminary estimate of their respective fair values of assets acquired and liabilities assumed since December 31, 2014.values:

The above fair value estimates as of December 31, 2014 represent the preliminary fair value estimates as the valuation of intangible assets has not been finalized.

The preliminary fair value of intangible assets is as follows:

Pro forma information

The amounts ofRevenue and net income attributable to Ingeus Limited and its wholly-owned subsidiaries (“Ingeus”), which the Company acquired on May 30, 2014, and Matrix revenue and net income included in the Company’s condensed consolidated statements of income for the three and six months ended March 31,June 30, 2015 and 2014, and the pro forma revenue and net income of the combined entity had the acquisition dates beenthese acquisitions occurred as of January 1, 2014, are:

The pro forma information above for the three and six months ended March 31,June 30, 2014 includes the elimination of acquisition related costs, adjustments for compensation and stock-based compensation expense related to employment agreements effective upon consummation of the acquisitions, additional interest expense on the debt issued to finance the acquisitions, 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 transactiontransactions been affectedconsummated on January 1, 2014.

14. Business Segments

The Company’s operations are organized and reviewed by management along its service lines. The Company operates in four segments, HumanNET Services, NETHuman Services, WD Services and HA Services. NET Services includes managing the delivery of non-emergency transportation services. Human Services includes government sponsored 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 workforce development, case management and outsourced employability programs. HA Services provides CHAs for MA health plans in enrolled members’ homes or nursing facilities.

Historically, the Company reported its segment activities under a full absorption method, where all corporate direct and indirect costs were allocated to the reporting segments. The Company began analyzing the results of the segments exclusive of the allocation of indirect corporate costs on January 1, 2015. Corporate costs that represent a direct expense of a segment continue to be allocated to the respective segment. The segment results for the quarterthree and six months ended March 31,June 30, 2014 have been restatedrecast to reflect management’s current internal method of segment reporting. The Corporate and Other column includes certain general and administrative costs that are not directly attributable to a specific segment, such as executive, accounting, technology, legal and other costs, as well as consolidation and elimination amounts and the activities of the Company’s wholly-owned captive insurance subsidiary. Additionally, beginning January 1, 2015, oversight of the Company’s legacy workforce development businesses (those that existed prior to the acquisition of Ingeus) was transferred to the management of the WD Services segment. The financial results of these legacy workforce development businesses have been reclassified from the Human Services segment to the WD Services segment in the table below.

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, 2015 and 2014.