BILL.L Regulatory News (BILL)

For Immediate Release

Billing Services Group Limited

("BSG" or the "Company")

Audited results for the year ended December 31, 2013

CONTINUING STRONG CASH FLOW ALLOWS FURTHER DEBT REDUCTION

TRADING IN LINE WITH EXPECTATIONS

(March 25, 2014) San Antonio, Texas and London, England -- BSG, a leading provider of clearing and financial settlement products, Wi-Fi data solutions and verification services, today announces its audited results for the year ended December 31, 2013.

(1) EBITDA (a non-GAAP measure) is computed as earnings before interest, income taxes, depreciation, amortization and other non-cash and nonrecurring expenses

(2) Excludes changes in restricted cash balances

· Generated $13.5 million of cash from operations, of which $2.0 million arose from transactions which increased restricted cash (2012: $28.5 million, including $14.3 million of transactions which increased restricted cash)

· Improved gross profit margin by 3.4 percentage points (45.1% in 2013 vs. 41.7% in 2012), largely as the result of higher-margin services provided to the wireless market by Connection Services Limited ("CSL" now "BSG Wireless"), acquired in August 2012

· Ended 2013 with $28.3 million of restricted cash and other credits available to satisfy potential indemnification liabilities to two local exchange carrier ("LEC") defendants in two consumer class action litigations (2012: $26.3 million)

· Retired $15.9 million of debt, resulting in a year-end outstanding balance of $16.0 million (December 31, 2012: $31.9 million)

· Reduced operating expenses by $1.7 million ($11.9 million in 2013 vs. $13.6 million in 2012) through reduction of personnel and other cost containment actions

· Recognized an $8.8 million non-cash goodwill impairment charge related to the discontinuation of enhanced service billing operations in two business entities

Operational Highlights

· Increased our Wi-Fi network partners' footprint to over six million hotspots

· Consolidated and updated data centers in the U.K. and U.S. in line with the CSL acquisition plan

· Continued development of mobile device applications supporting the latest operating systems, including iOS 7, Android 4.4, Windows 8 and Blackberry 10

· Expanded the product line with the introduction of a white-labelled Directory service, allowing mobile carriers to act as a vertical channel for BSG Wireless

· Signed 15 new third-party verification agreements, including 10 within the energy industry

Current Trading

· Current trading remains in line with the Board's expectations and consistent with the recent trading conditions experienced by the Company

· The Company expects that revenue and EBITDA in 2014 will continue to be affected by the secular decline in the volume of billable long distance and operator service calls initiated on landline phones, partially offset by higher revenue and EBITDA from services to the wireless sector

· For the year ending December 31, 2014, the Company expects revenue to be between $45.0 million and $48.0 million and EBITDA to be between $8.5 million and $9.5 million

Commenting on the results, Pat Heneghan, Non-Executive Chairman, said: 

"Our management has implemented a thoughtful business plan in light of business conditions over the past few years. Emphasis, as in the past, is on actions to enhance cash flow, reduce debt and diversify revenue sources to include wireless network services. The 2013 results demonstrate success in each of these areas." 

INQUIRIES:

Billing Services Group Limited +1 210 949 7000

Norman M. Phipps

finnCap Limited +44 (0) 20 7220 0500

Stuart Andrews/Henrik Persson

BSG Media Relations +1 210 326 8992

Leslie Komet Ausburn

About BSG:

BSG has locations in San Antonio, Texas, USA and London, United Kingdom. The Company is traded on the London Stock Exchange (AIM: BILL). For more information on BSG, visit (www.bsgclearing.com).

Chief Executive's Statement

Our 2013 results reflect a revised business strategy adopted in response to changes in the industry and the regulatory environment. Most notably, we diversified revenue sources by adding a portfolio of services for the wireless market and aggressively reduced expenses in U.S.-based operations. 

Revenues of $53.9 million in 2013 compare to $70.3 million in 2012. The decrease was expected, due in large part to the discontinuation of billing for enhanced service transactions, combined with the secular decline in landline phone usage. The decline in revenues had a corresponding effect on EBITDA, which was $12.4 million in 2013 compared to $15.8 million in 2012. 

Some key metrics, however, reflect the success and promise of our revised business strategy:

· Gross profit margin rose by 3.4 percentage points, due largely to the effect of higher margin services offered to the wireless market

· Cash flow from operations (adjusted for additions to restricted cash) was 21% of revenue in 2013 compared to 20% in 2012

· The ratio of senior debt to EBITDA at the end of 2013 was 1.3, compared to 2.0 at the end of 2012

The net loss of $6.2 million for the year arose in large part as the result of an $8.8 million non-cash goodwill impairment charge. The related goodwill had been recorded in 2003 when the Company purchased one of its clearing and settlement businesses serving wireline service providers. At that time, goodwill was allocated to each of the Company's operating entities. During 2013, the Company consolidated its business activity into fewer operating units and recognized an impairment charge on the portion of goodwill which had been allocated to two entities previously engaged in enhanced services billing.

Execution of Business Model

Last year, I commented that the core objectives of our business model are not complicated. They are worth repeating: generate cash; pay down debt; develop or purchase businesses which will diversify our revenue stream away from the U.S. wireline market; and distribute surplus cash to shareholders. These concurrent goals require appropriate balancing with due consideration to prudence, appropriate capital structure, banking and legal requirements. 

The backbone of our business model is cash flow. In 2013, the Company generated $11.5 million of cash from operations (adjusted for additions to restricted cash) and paid down $15.9 million in debt, reducing outstanding debt to $16.0 million. The Company ended the year with $12.7 million of unrestricted cash.

We anticipate the business will continue to generate a favorable cash flow over the foreseeable future. Based on our required debt amortization, and assuming no voluntary prepayment of debt in 2014, we project our December 31, 2014 debt balance at $6.4 million. We expect to retire this remaining debt balance by the middle of 2015. The Board and management team will continue to work on ways to enhance shareholder value as our debt is repaid. In the interim, capital structure and capital management are pivotal issues in the execution of the business model.

Current Trading

· Current trading remains in line with the Board's expectations and consistent with the recent trading conditions experienced by the Company.

· The Company expects that revenue and EBITDA in 2014 will continue to be affected by the secular decline in the volume of billable long distance and operator service calls initiated on landline phones, partially offset by higher revenue and EBITDA from services provided to the wireless sector. We expect 2014 revenue to be between $45.0 million and $48.0 million and EBITDA between $8.5 million and $9.5 million.

· As previously announced, we have been managing numerous governmental litigation issues and two class action litigation settlements. Further updates will be made as additional information becomes available.

Special Thanks

Our talented employees have once again distinguished themselves in their commitment to make our business better. Through absolute dedication and nimbleness, they have done more with less. For that, I am most grateful and proud of their accomplishments.

The Board of Directors continues to be a valuable source of counsel to the management team. The directors are highly engaged. Their independent input, reflecting a collective wealth of experience, has made the business stronger. As previously announced, Mr. Rayan Joshi resigned as a non-executive director this February. We are most appreciative of Rayan's service since May 2011. His insights and wisdom will be missed.

Norman M. Phipps

Chief Executive Officer

FINANCIAL REVIEW

Financial Review of the Year Ended December 31, 2013

The Company's audited results for the year ended December 31, 2013 are compared against the year ended December 31, 2012 in the accompanying financial statements. BSG's consolidated financial statements are prepared in conformity with United States generally accepted accounting principles ("GAAP").

Certain Terms

Revenues.  Revenues are derived primarily from fees charged to wireline and wireless service providers for data clearing, financial settlement, information management, payment and financial risk management, third-party verification and customer service functions.

Cost of Services and Gross Profit. Cost of services primarily includes fees charged by local exchange carriers ("LECs") for billing and collection services. Such fees are assessed for each record submitted and for each bill rendered to end-user customers. BSG charges its customers a negotiated fee for LEC services. Accordingly, gross profit is generally dependent upon transaction volume, processing fees charged per transaction and any differential between the LEC fees charged to customers by BSG and the related fees charged to BSG by LECs.

Cash Operating Expenses.  Cash operating expenses include all selling, marketing, customer service, facilities and administrative costs (including payroll and related expenses) incurred in support of operations and settled through the payment of cash.

Depreciation and Amortization.  Depreciation expense applies to software, furniture and fixtures, telecommunications and computer equipment. Amortization expense relates to definite-lived intangible assets that are amortized in accordance with Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other. These assets consist of contracts with customers and LECs. Assets are depreciated or amortized, as applicable, over their respective useful lives. Deferred finance fees are amortized over the term of the related loans.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA").  Earnings before interest, income taxes, depreciation and amortization, a non-GAAP metric, is a measurement of profitability often used by investors and lenders. EBITDA also excludes non-cash charges and nonrecurring items.

Third-Party Payables.  Third-party payables include amounts owed to customers in the ordinary course of clearinghouse activities and additional amounts maintained as reserves for retrospective charges from LECs. In its clearinghouse business, the Company aggregates call records submitted by its customers and submits them to LECs for billing to end-user customers. The Company collects funds from LECs each day and, approximately ten days later, distributes to customers the collected cash, net of withholdings, under weekly settlement protocols. The Company withholds a portion of the funds received from the LECs to pay billing and collection fees of LECs, to pay the Company's processing fees and to serve as a reserve against retrospective charges from LECs. Depending upon the timing of receipts, weekly settlements and reserve releases, both cash and third-party payables can fluctuate materially from day-to-day.

When LECs make payments to the Company, they withhold funds to cover a variety of expenses and potential retrospective charges. As noted above, the Company similarly withholds funds from its clients to cover expenses and retrospective charges. The third-party payable balance is computed as the net excess of funds owed to clients (recorded as a liability) over reserves withheld by LECs (recorded as an asset).

Comparison of Results for the Year Ended December 31, 2013 to the Year Ended December 31, 2012

Total Revenues. Total revenues of $53.9 million in 2013 were $16.4 million, or 23%, lower than the $70.3 million of revenues recorded during 2012. The $16.4 million decrease reflected lower transaction volumes across all wireline-related clearing and settlement services and related declines in chargeable customer service activities, offset in part by additional revenue provided by BSG Wireless (acquired in August 2012).

Revenue from enhanced service offerings declined by $9.1 million. Revenue from the Company's other service offerings declined by a net of $7.3 million. The preceding revenue amounts are inclusive of customer service-related activities (including complaint and recourse fees).

The decline in revenue from enhanced service transactions reflected the disruption that began in 2010 when the largest LEC in the United States placed new restrictions which effectively eliminated billing for certain newly marketed enhanced services. As disclosed in previous announcements, the Company ultimately discontinued billing for enhanced service transactions. The decline in revenue from wireline-related clearing and settlement services, excluding enhanced service transactions, reflected the ongoing secular decline in U.S. landline usage.

Cost of Services and Gross Profit. Cost of services in 2013 was $29.6 million, compared to $40.9 million in 2012. The $11.3 million, or 28%, decrease in cost of services largely reflected lower LEC fees for billing and collection services related to the lower level of transaction volume. The Company generated $24.3 million of gross profit in 2013, compared to $29.3 million in 2012. The gross profit margin of 45.1% in 2013 is 3.4 percentage points higher than the 41.7% margin achieved in 2012, largely as the result of a mix of services favoring higher margin offerings, including BSG Wireless' data clearing services.

Cash Operating Expenses. Cash operating expenses were $11.9 million in 2013, compared to $13.6 million in 2012. The $1.7 million, or 13%, decrease largely reflected $2.8 million of expense reduction in the U.S.-based clearing, settlement and third-party verification businesses, offset by $1.1 million of incremental expenses at BSG Wireless. Expense reductions in the U.S.-based clearing, settlement and third-party verification businesses are largely attributable to lower compensation costs, legal fees and marketing costs. The incremental expenses at BSG Wireless reflect the inclusion of 12 months of expenses in 2013, compared to four months of post-acquisition expense in 2012.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA").  The Company generated $12.4 million of EBITDA, adjusting for nonrecurring expenses, during 2013, compared to $15.8 million during 2012. A reconciliation of net loss and EBITDA in each period is as follows:

Depreciation and Amortization Expense. Depreciation and amortization expense (excluding amortization of deferred finance costs) totaled $11.8 million in 2013, compared to $13.4 million in 2012. The $1.6 million reduction resulted from the lower gross carrying value on intangible assets arising after recognition of an impairment loss in 2012 (see Impairment Charge - Intangible Assets).

Impairment Charge - Goodwill. During 2013, the Company recorded an $8.8 million non-cash impairment charge against goodwill. The charge related to goodwill which arose in 2003 in connection with the purchase of one of the Company's clearing and settlement businesses for wireline service providers. In 2003, the aggregate goodwill which arose from the transaction was allocated to each of the Company's operating entities. In 2013, the Company consolidated its business activity into fewer operating units, and it accordingly recognized an impairment charge on the portion of goodwill which had been allocated to two entities involved in enhanced services billing for which cash flows generally ceased during 2013.

Additionally, the Company reduced goodwill by $0.3 million in 2012 related to the amortization of tax goodwill in excess of book goodwill in connection with a prior acquisition.

The impairment charges, all of which were non-cash, were not included as a deduction to earnings for purposes of calculating EBITDA.

Impairment Charge - Intangible Assets. During 2012, the Company recorded a $3.7 million non-cash impairment charge against intangible assets. The $3.7 million charge reflected a write-off of the unamortized carrying value of contracts with LECs and customers related to the provision of billing and collection services for enhanced service transactions. The write-off resulted from the Company's discontinuation of acceptance and billing for enhanced service transactions.

The impairment charge, all of which was non-cash, was not included as a deduction to earnings for purposes of calculating EBITDA.

Restructuring Expense.  In 2012, the Company recorded $0.7 million of restructuring charges related to a cost reduction program. The restructuring charges primarily consisted of severance and related compensation costs paid or reserved for terminated employees. Given its nonrecurring nature, the expense was not included as a deduction to earnings for purposes of calculating EBITDA.

Gain on Purchase of CSL.  In 2012, the Company recognized a $3.0 million gain arising from the purchase of the business assets of CSL. The acquisition occurred on August 31, 2012. An independent valuation of the assets purchased, particularly the value of customer contracts, indicated an aggregate fair value which was $3.0 million in excess of the purchase price. The purchased assets are carried at fair value, and the fair value in excess of purchase price was recognized as a gain. Given its nonrecurring nature, the gain was not included as an addition to earnings for purposes of calculating EBITDA.Nonrecurring Expense. In 2012, the Company recognized $13.9 million of other nonrecurring expense, including a $12.0 million charge related to its obligation to indemnify two LECs for their expenses under two consumer class action litigations and $1.9 million of expense in connection with other litigation. The Company incurred the $12.0 million charge related to its indemnification obligation when it released its claim on $12.0 million of reserves with LECs in exchange for $12.0 million of credits against the indemnification obligation. The Company had recorded the reserves as an account receivable (reflected as a contra-liability in third-party payables - see Third-Party Payables within "Certain Terms" above). Given its nonrecurring nature, the expense was not included as a deduction to earnings for purposes of calculating EBITDA.

Stock-based Compensation Expense. The Company recognized $0.1 million of non-cash compensation expense during each of 2013 and 2012. Stock-based compensation expense, all of which is non-cash and related to stock options, was not included as a deduction to earnings for purposes of calculating EBITDA.

Interest Expense.  Interest expense was $0.9 million during 2013, compared to $1.4 million during 2012. Interest expense includes cash payments of interest on borrowed money and amortization of deferred finance fees. The $0.5 million of lower interest expense during 2013 reflected a reduced level of outstanding debt (during 2013, the average debt outstanding was $22.7 million, compared to an average of $33.0 million in 2012).

Change in Cash. BSG's cash balance at December 31, 2013 was $12.7 million, compared to $19.1 million at December 31, 2012. The $6.4 million decrease in cash during 2013 is attributable to $15.9 million in principal payments on long-term debt, a $2.0 million addition to restricted cash, $1.1 million in capital expenditures, a $0.5 million increase in receivables purchased from customers and $0.4 million of payments to the sellers of CSL, offset by $13.5 million of cash flow from operations. 

Change in Restricted Cash. In the ordinary course of business, LECs withhold funds from their payments to the Company in order to create a reserve securing potential future obligations of the Company to the LEC. During 2012, the Company reached an agreement with one LEC pursuant to which the LEC released $14.3 million of cash reserves and concurrently transferred $14.3 million of cash into a restricted Company bank account which will be used for funding the Company's indemnification obligation under pending class action litigation against the LEC. During 2013, the LEC released a net additional $2.0 million of cash reserves, which was transferred to the restricted Company bank account. The Company's resulting $16.3 million of restricted cash at December 31, 2013, combined with $12.0 million of indemnification credits recorded in 2012 (see Nonrecurring Expense above), resulted in a total of $28.3 million of liquid resources available at December 31, 2013 to satisfy the Company's indemnification obligations associated with class action litigation. 

Change in Third-Party Payables (see "Third-Party Payables" within "Certain Terms" above). Third-party payables at December 31, 2013, inclusive of long-term liabilities, were $18.6 million, compared to $21.2 million at December 31, 2012. The $2.6 million decline in third-party payables during 2013 resulted from a $2.9 million reduction associated with ordinary course settlement activities, offset by a $0.3 million increase arising from an increase in purchased receivables. 

When the Company purchases receivables from a customer, the Company typically advances approximately 50% of the gross receivable amount to the customer. The remaining approximate 50% is classified as a third-party payable until the Company completes settlement activities related to the purchased receivable. During 2013, the Company increased purchased receivables by $0.5 million, which resulted in a $0.3 million increase in third-party payables. 

Change in Accrued Liabilities. Accrued liabilities at December 31, 2013 were $26.5 million compared to $26.2 million at December 31, 2012. The $0.3 million increase in accrued liabilities resulted largely from a $2.0 million net increase in reserves for indemnification obligations to LECs under pending class action litigation, offset by $1.7 million of net payments for other accrued liabilities in the ordinary course of business. It is anticipated that at least $16.3 million of accrued liabilities will be paid from restricted cash. 

Capital Expenditures. During 2013, the Company invested $1.1 million in capital expenditures, primarily for capitalized software development costs. 

Cash Flows for the Year Ended December 31, 2013

Cash flow from operating activities. Net cash provided by operating activities was $13.5 million during 2013. Net cash provided was principally attributable to $11.9 million of depreciation and amortization, an $8.8 million non-cash impairment charge and a $7.1 million decrease in income taxes receivable, offset by a $6.2 million net loss, a $5.2 million decrease in net deferred tax liabilities and a $2.6 million decrease in third-party payables.

Cash flow from investing activities. Net cash used in investing activities was $1.7 million, largely reflecting $1.1 million of capital expenditures and $0.5 million of net advances for purchased receivables.

Cash flow from financing activities. Cash used in financing activities was $18.3 million, including $15.9 million of principal payments on long-term debt, $2.0 million of transfers to restricted cash and $0.4 million of payments in connection with the purchase of CSL. 

******************************'

A copy of this statement is available on the Company's website (www.bsgclearing.com), and copies are available from BSG's Nominated Advisor at the address below:

Billing Services Group Limited

c/o finnCap Limited

60 New Broad Street

London EC2M 1JJ

United Kingdom

Forward Looking Statements

This report contains certain "forward‑looking" statements and information relating to the Company that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward‑looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitation, competitive factors, general economic conditions, customer relations, relationships with vendors, borrowing arrangements, interest rates, foreign exchange rates, litigation, governmental regulation and supervision, seasonality, product introductions and acceptance, technological change, changes in industry practices, one-time events and other factors described herein and in other announcements made by the Company. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward‑looking statements.

Continued on following page

Billing Services Group Limited

Consolidated Balance Sheets (continued)

(In thousands, except shares)

See accompanying notes.

Billing Services Group Limited

Consolidated Statements of Operations

(In thousands, except per share amounts)

Continued on following page

Billing Services Group Limited

Consolidated Statements of Operations (continued)

(In thousands, except per share amounts)

See accompanying notes.

Billing Services Group Limited

Consolidated Statements of Changes in Shareholders' Equity

(In thousands)

See accompanying notes.

Billing Services Group Limited

Consolidated Statements of Cash Flows

(In thousands)

Continued on following page

Billing Services Group Limited

Consolidated Statements of Cash Flows (continued)

(In thousands)

See accompanying notes.

Billing Services Group Limited

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

1. Organization and Summary of Significant Accounting Policies

Organization

Billing Services Group Limited (the "Company" or "BSG Limited") commenced operations effective with the completion of its admission to AiM (a market operated by the London Stock Exchange plc) on June 15, 2005. The Company was formed to succeed to the business of Billing Services Group, LLC and its subsidiaries. Through its operating entities, the Company provides clearing and financial settlement products, innovative Wi-Fi roaming solutions to mobile carriers and network operators and third-party verification services to the telecommunications, cable and utilities industries. The Company was incorporated and registered in Bermuda on May 13, 2005.

Principles of Consolidation

The Company's consolidated financial statements include the accounts of the Company and its subsidiaries, Billing Services Group North America, Inc. ("BSG North America") and BSG Wireless Ltd. ("BSG Wireless"), and their respective subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

On August 31, 2012, BSG Wireless purchased the stock of Connection Services Holdings Limited ("CSL"), a provider of Wi-Fi roaming solutions for mobile carriers and network operators. The results of operations for CSL have been included in the accompanying consolidated financial statements from that date forward. The acquisition was made for the purpose of expanding the Company's line of services.

The purchase included all intangible assets customary in such a transaction, plus tangible property and equipment and certain assumed liabilities. The identifiable intangible assets with future economic value were recorded at their fair values at the date of purchase. The base purchase price was $0.8 million, as well as the assumption of CSL's net liabilities of $1.2 million. The Company recorded software and intangible assets with an aggregate estimated fair value of $3.8 million and recognized a $3.0 million gain on the purchase.

1. Organization and Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

Cash and cash equivalents include all cash and highly liquid investments with original maturities of three months or less. The Company holds cash and cash equivalents at several major financial institutions in amounts that often exceed Federal Deposit Insurance Corporation insured limits for United States deposit accounts. The Company has entered into control agreements with its lenders and certain financial institutions covering certain deposit accounts.

Restricted Cash

Restricted cash represents deposits made under the deposit account security and control agreement (the "Deposit Agreement") discussed in Note 8.

Purchased Receivables

The Company offers advance funding arrangements to certain customers. Under the terms of the arrangements, the Company purchases the customer's accounts receivable for an amount equal to the face amount of the call record value submitted to the local exchange carriers ("LECs") by the Company, less various deductions, including financing fees, LEC charges, rejects and other similar charges. The Company advances 20% to 75% of the purchased receivable to the customer and charges financing fees at rates up to 8% per annum over prime (prime was 3.25% per annum at December 31, 2013 and 2012) until the funds are received from the LECs. The face amount of the call record value is recorded as purchased receivables in the consolidated balance sheets.

Financial Instruments

Due to their short maturity, the carrying amounts of accounts and purchased receivables, accounts payable and accrued liabilities approximated their fair values at December 31, 2013 and 2012. The fair value of long-term debt approximated its face value and is based on the amounts at which the debt could be settled (either transferred or paid back) in a current transaction exclusive of transaction costs.

1. Organization and Summary of Significant Accounting Policies (continued)

Concentration of Credit Risk and Significant Customers

At December 31, 2013, ten customers represented approximately 50% of accounts receivable, and ten customers represented approximately 99% of outstanding purchased receivables. At December 31, 2012, ten customers represented approximately 57% of accounts receivable, and ten customers represented approximately 99% of outstanding purchased receivables. Credit risk with respect to trade accounts receivable generated through billing services is limited as the Company collects its fees through receipt of cash directly from the LECs. The credit risk with respect to the purchase of accounts receivable is reduced as the Company only advances 20% to 75% of the gross accounts receivable purchased. Management evaluates accounts receivable balances on an ongoing basis and provides allowances as necessary for amounts estimated to eventually become uncollectible. In the event of complete nonperformance of accounts receivable, the maximum exposure to the Company is the recorded amount shown on the balance sheet. For the year ended December 31, 2013, twenty customers represented approximately 74% of consolidated revenues. For the year ended December 31, 2012, twenty customers represented approximately 66% of consolidated revenues.

Property, Equipment and Software

Property, equipment and software are primarily composed of furniture and fixtures, telecommunication equipment, computer equipment and software and leasehold improvements, including capitalized interest, which are recorded at cost. The cost of additions and substantial improvements to property and equipment, including software being developed for internal use, is capitalized. The cost of maintenance and repairs of property and equipment is charged to operating expenses. Property, equipment and software are depreciated using the straight-line method over their estimated useful lives, which range from three to seven years. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Upon disposition, the cost and related accumulated depreciation are removed from the accounts, and the resulting gain or loss is reflected in other income (expense) for that period.

1. Organization and Summary of Significant Accounting Policies (continued)

Capitalized Software Costs

The Company capitalizes the cost of internal-use software that has a useful life in excess of one year. These costs consist of payments made to third parties and the salaries of employees working on such software development. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred.

The Company also develops software used in providing services. The related software development costs are capitalized once technological feasibility of the software has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when the Company has completed all planning and high-level design activities that are necessary to determine that the software can be developed to meet design specifications, including functions, features and technical performance requirements. Capitalization of costs ceases when the software is available for use.

Capitalized software development costs for completed software development projects, including capitalized interest, are transferred to computer software, and are then depreciated using the straight-line method over their estimated useful lives, which generally range from four to seven years. When events or changes in circumstances indicate that the carrying amount of capitalized software may not be recoverable, the Company assesses the recoverability of such assets based on estimates of future undiscounted cash flows compared to net book value. If the future undiscounted cash flow estimates are less than net book value, net book value would then be reduced to estimated fair value, which generally approximates discounted cash flows. The Company also evaluates the amortization periods of capitalized software assets to determine whether events or circumstances warrant revised estimates of useful lives.

For the years ended December 31, 2013 and 2012, the Company capitalized $1.6 million and $0.6 million of software development costs, respectively. During 2013 and 2012, the Company transferred $0.7 million and $0.2 million, respectively, of software development costs to computer software. Depreciation expense on computer software was $4.6 million and $4.5 million for the years ended December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, the Company had undepreciated software costs of $6.0 million and $9.0 million, respectively.

1. Organization and Summary of Significant Accounting Policies (continued)

Intangible Assets and Goodwill

The Company classifies intangible assets as definite-lived, indefinite-lived or goodwill. The Company accounts for its intangible assets and goodwill in accordance with the provisions of Accounting Standards Codification ("ASC") 350, Intangibles - Goodwill and Other.

Definite-lived intangible assets consist of customer and local exchange carrier contracts, both of which are amortized over the respective lives of the agreements. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived assets. These assets are recorded at amortized cost.

The Company tests for possible impairment of definite-lived intangible assets whenever events or changes in circumstances, such as a reduction in operating cash flow or a material change in the manner for which the asset is intended to be used, indicate that the carrying amount of the asset may not be recoverable. If such indicators exist, the Company compares the undiscounted cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the undiscounted cash flow amount, an impairment charge is recorded in amortization expense in the consolidated statements of operations for amounts necessary to reduce the carrying value of the asset to fair value. The Company's indefinite-lived intangible assets consist of trademarks, which were originally recorded at their acquisition date fair value. The Company's indefinite-lived intangible assets are not subject to amortization but are tested for impairment at least annually.

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not subject to amortization, but is tested for impairment at least annually. Impairment may exist when the carrying amount of the reporting unit exceeds its estimated fair value. Assessing the recoverability of goodwill requires the Company to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on its budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management's judgment in applying these factors.

1. Organization and Summary of Significant Accounting Policies (continued)

The Company tests goodwill for impairment using a two-step process. The first step, used to screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill becomes its new accounting basis. Subsequent reversal of a previously recognized goodwill impairment loss is prohibited.

Third-Party Payables

The Company provides clearing and financial settlement solutions to telecommunications and other service providers through billing agreements with LECs, which maintain the critical database of end-user names and addresses of the billed parties. The Company receives individual call records from telecommunications and other service providers and processes and sorts the records for transmittal to various LECs. Invoices to end-users are generated by the LECs, and the collected funds are remitted to the Company, which in turn remits these funds to its customers, net of fees, reserves, taxes and other charges.

Reserves represent cash withheld from customers to satisfy future obligations on behalf of the customers. These obligations consist of bad debt, customer service and other miscellaneous charges. The Company records trade accounts receivable and service revenue for fees charged to process the call records. When the Company collects funds from the LECs, the Company's trade receivables are reduced by the amount corresponding to the processing fees, which are retained by the Company. In certain instances, the Company also retains a reserve from its customers' settlement proceeds to cover the LECs' billing fees and other charges. The remaining funds due to customers are recorded as liabilities and reported in third-party payables in the consolidated balance sheets.

1. Organization and Summary of Significant Accounting Policies (continued)

Revenue Recognition

The Company provides its services to telecommunications and other service providers through billing arrangements with network operators. Within its clearing and settlement business, the Company recognizes revenue from its services when its customers' records are processed and accepted by the Company. For its Wi-Fi roaming solutions and third-party verification businesses, the Company recognizes revenue when services are rendered.

Earnings Per Share

The Company computes earnings per share under the provisions of ASC 260, Earnings per Share, whereby basic earnings per share are computed by dividing net income or loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Diluted earnings per share are determined in the same manner as basic earnings per share except that the number of shares is increased to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase would be anti-dilutive.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, and gains and losses be included in net income. Although certain changes in assets and liabilities, such as translation gains and losses, are reported as a separate component of the equity section on the balance sheet, such items, along with net income, are components of comprehensive income.

Income Taxes

The Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes, utilizing the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.

1. Organization and Summary of Significant Accounting Policies (continued)

Stock-Based Compensation

Under the fair value recognition provisions of ASC 718-10, Compensation - Stock Compensation, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense on a straight-line basis over the vesting period. Determining the fair value of stock-based awards at the grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors.

Foreign Currency

Results of operations of the Company, as appropriate, are translated into U.S. dollars using the average exchange rates during the year. The assets and liabilities of those entities are translated into U.S. dollars using the exchange rates at the balance sheet date. The related translation adjustments are recorded in a separate component of shareholders' equity, "Accumulated other comprehensive income." Foreign currency transaction gains and losses are included in operations.

Advertising Costs

The Company records advertising expense as it is incurred.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

1. Organization and Summary of Significant Accounting Policies (continued)

New Accounting Standards and Disclosures

Goodwill

In July 2012, the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other, which amends the accounting guidance on testing indefinite-lived intangible assets for impairment. The amendments in this ASU are intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. The amendments also enhance the consistency of impairment testing guidance among long-lived asset categories by permitting an entity to assess qualitative factors to determine whether it is necessary to calculate the asset's fair value when testing an indefinite-lived intangible asset for impairment, which is equivalent to the impairment testing requirements for other long-lived assets. The amendments in this ASU are effective for interim and annual impairment tests performed for fiscal years beginning after September 15, 2012. The Company adopted this guidance for the year ended December 31, 2013. The Company tests its indefinite-lived intangible assets for impairment annually on October 1, or more frequently when events or changes in circumstances indicate that impairment may have occurred.

Subsequent Events

Subsequent events were evaluated through March 24, 2014, the date at which the consolidated financial statements were available to be issued.

2. Property, Equipment and Software

Property, equipment and software consisted of the following:

Depreciation expense was $5.0 million for the years ended December 31, 2013 and 2012.

3. Intangible Assets and Goodwill

Definite-lived intangible assets consist of customer and local exchange carrier contracts, which are amortized over their respective estimated lives. The weighted-average amortization period is approximately ten years.

Indefinite-lived intangible assets consist of trademarks. Trademarks are not subject to amortization but are tested for impairment at least annually. In 2012, the Company recorded an impairment charge of $0.7 million related to the ESBI trademark. The impairment resulted from the discontinuation of billing for enhanced service transactions. ESBI is a subsidiary of BSG North America.

3. Intangible Assets and Goodwill (continued)

The following table presents the gross carrying amount and accumulated amortization for each major category of intangible assets:

Total amortization expense from definite-lived intangibles was $6.8 million and $8.4 million for the years ended December 31, 2013 and 2012, respectively. The Company recognized an impairment loss for definite-lived intangibles of $3.0 million in 2012 associated with the discontinuation of billing for enhanced service transactions. The estimate of amortization expense for the five succeeding fiscal years for definite-lived intangibles is $0.7 million for 2014 and $0.6 million for each of 2015, 2016, 2017 and 2018.

During 2012, the Company made an adjustment to reduce goodwill by $0.3 million related to the amortization of tax goodwill in excess of book goodwill in connection with a prior acquisition.

During 2013, the Company made an adjustment to reduce goodwill by $8.8 million related to the 2003 purchase of one of the Company's clearing and settlement businesses for wireline service providers. In 2003, the aggregate goodwill which arose from the transaction was allocated to each of the Company's operating entities. During 2013, the Company consolidated its business activity into fewer operating units, and accordingly recognized an impairment charge on the portion of goodwill which had been allocated to two entities involved in enhanced services billing for which cash flows generally ceased during 2013. These two entities were substantially liquidated as of December 31, 2013.

3. Intangible Assets and Goodwill (continued)

The following table presents the change in carrying amount of goodwill for the years ended December 31, 2013 and 2012:

4. Debt

Long-term debt is as follows:

On June 30, 2011, the Company refinanced its debt and entered into a $48 million credit agreement (the "Term Loan Facility"). The Term Loan Facility is secured by all of BSG North America's assets and guarantees from most of the Company's subsidiaries.

In August 2012, the Company borrowed $3.5 million to facilitate its purchase of CSL (the "CSL Loan"), and in December 2012, the Company borrowed $2.8 million in connection with a dividend payment (the "Dividend Loan"). Both the CSL Loan and the Dividend Loan were repaid in February 2013.

4. Debt (continued)

Interest under the Term Loan Facility, the CSL Loan and the Dividend Loan is charged, at the Company's option, at the U.S. prime rate plus a specified margin, or the London Interbank Offered Rate ("LIBOR") plus a specified margin, and if the LIBOR option is selected, a LIBOR floor of 0.75% per annum. The margin is determined based on the Company's leverage ratio, as defined in the credit agreement. At December 31, 2013, the interest rate on the Term Loan Facility was 3.75% per annum.

The Term Loan Facility requires quarterly principal payments of $2.4 million through March 2015 and a payment of any remaining outstanding balance at its maturity in June 2015. It also requires mandatory prepayments relating to (i) 75% of BSG North America's excess cash flow, as defined; and (ii) certain other occurrences for which mandatory prepayment is a usual and customary consequence in credit agreements of this nature. Outstanding loans may be prepaid at any time without prepayment premium or penalty.

The CSL Loan and the Dividend Loan each had a maturity date of March 31, 2013. As noted above, these loans were repaid in February 2013.

During 2013 and 2012, the Company did not generate any consolidated excess cash flow, as defined in the Term Loan Facility. Accordingly, no additional principal payment was required.

The Term Loan Facility includes covenants requiring the Company to maintain certain minimum levels of debt service coverage and maximum levels of leverage and capital expenditures. The agreement also includes various representations, restrictions and other terms and conditions that are usual and customary in credit agreements of this nature.

Future maturities of long-term debt as of December 31, 2013 are as follows:

5. Income Taxes

The components of the Company's income tax expense (benefit) are as follows:

The income tax provision differs from amounts computed by applying the U.S. federal statutory tax rate to income before income taxes as follows:

5. Income Taxes (continued)

Deferred income taxes result from temporary differences between the bases of assets and liabilities for financial statement purposes and income tax purposes. The net deferred tax assets and liabilities reflected in the consolidated balance sheets include the following amounts:

At December 31, 2013, BSG North America had state net operating loss credit carryforwards of approximately $0.5 million, which will expire in 2026. At December 31, 2013, BSG Wireless also has a net operating loss of $2.9 million that has no expiration.

5. Income Taxes (continued)

Realization of deferred tax assets is dependent upon, among other things, the ability to generate taxable income of the appropriate character in the future. Management is of the opinion that it is more likely than not that deferred tax assets will be fully realized.

At December 31, 2012, the Company had a reserve for uncertain tax positions of $0.5 million. This reserve was eliminated during 2013 due to the expiration of the statute for the tax year ended December 31, 2009. It is the Company's policy to recognize interest and penalties related to uncertain tax positions in the provision for income taxes in the consolidated statements of operations.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits follows:

BSG North America is currently under an Internal Revenue Service ("IRS") examination for the tax years 2010, 2011 and 2012. While the examination is not complete, management does not anticipate significant additional taxes will be assessed. The Company is no longer subject to examination by most state tax authorities for years before 2009.

6. Earnings Per Share

Earnings per share are calculated based on the weighted-average number of shares of the Company's common stock outstanding during the period.

The following is a summary of the elements used in calculating basic and diluted loss per share:

7. Commitments

The Company leases certain office space and equipment under various operating leases. Annual future minimum lease commitments as of December 31, 2013, are as follows (in thousands):

Rental expense under these operating leases approximated $0.7 million and $0.6 million for the years ended December 31, 2013 and 2012, respectively.

8. Contingencies

The Company is involved in various claims, legal actions and regulatory proceedings arising in the ordinary course of business. The Company believes it is unlikely that the final outcome of any of the claims, litigation or proceedings to which the Company is a party will have a material adverse effect on the Company's consolidated financial position or results of operations; however, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company's consolidated financial position and results of operations for the fiscal period in which such resolution occurs.

In June 2012, the Company executed an agreement regarding reserves (the "Reserve Agreement") as well as a deposit account security and control agreement (the "Deposit Agreement") with one of the largest U.S. LECs. These agreements were prompted by this LEC's intention to settle a nationwide class action and the resulting indemnification obligations that would be owed by the Company to the LEC as a result of the settlement. The Reserve Agreement permits this LEC to deduct funds from amounts otherwise payable to the Company to cover obligations under the Billing and Collection Agreement between the Company and the LEC. The Deposit Agreement permits this LEC to deposit amounts in an account held in the name of both the LEC and Company; however, funds can only be released at the sole direction of the LEC. The amount of restricted cash as indicated on the consolidated balance sheets represents the net deposits made by the LEC in connection with the Deposit Agreement.

Included in accrued liabilities at December 31, 2013 and 2012 are approximately $23.2 million and $21.3 million, respectively, in reserves which are comprised of these deposits and other payables.

During 2012, as an initial contribution toward its indemnification obligations, the Company agreed to write-off $10.3 million due from this LEC under the Reserve Agreement. In addition, the Company wrote-off $1.7 million of amounts owed to the Company by another LEC. Both these amounts, as well as $1.9 million in payments for legal and settlement costs for an unrelated claim, are included in nonrecurring expense on the consolidated statements of operations. The Company believes all funds collected pursuant to the Reserve and Deposit Agreements, as well as the $1.7 million write-off, will be used to satisfy obligations under the billing and collection agreements with these LECs.

9. Employee Benefit Plan

A Company subsidiary sponsors a 401(k) retirement plan (the "Retirement Plan"), which is offered to eligible employees. Generally, all U.S.-based employees are eligible for participation in the Retirement Plan. The Retirement Plan is a defined contribution plan, which provides that participants may make voluntary salary deferral contributions, on a pretax basis, in the form of voluntary payroll deductions, subject to annual IRS limitations. The Company matches a defined percentage of a participant's contributions, subject to certain limits, and may make additional discretionary contributions. During each of the years ended December 31, 2013 and 2012, the Company's matching contributions totaled $0.1 million and $0.2 million, respectively. No discretionary contributions were made in either period.

10. Stock Option Plans

The Company adopted a stock option plan in 2005. On August 15, 2008, the Board of Directors adopted resolutions to amend and restate both the Billing Services Group Limited Stock Option Plan and the BSG Clearing Solutions North America, Inc. Stock Option Plan (the "BSG Limited Plan" and the "BSG North America Plan," respectively). In December 2012, the Company's shareholders approved a resolution to amend the BSG Limited Plan and the BSG North America Plan. This resolution enables the Company's directors, under the BSG Limited Plan and the BSG North America Plan, to grant options up to an aggregate amount of 15% of the number of common shares in issue at the time of the proposed grant. Prior to this resolution, the aggregate number of options granted was limited to 10% of the number of common shares in issue at the time of the proposed grant.

Options may be granted at the discretion of the remuneration committee to any director or employee and are generally granted with an exercise price equal to or greater than the market price of the Company's stock at the grant date. Directors may be granted options in the BSG Limited Plan and employees may be granted options in the BSG North America Plan. Options granted under the BSG North America Plan are exercisable into shares of the Company.

10. Stock Option Plans (continued)

Outstanding options generally vest over a three-year period following the grant date. One-quarter of the total number of options typically vest on the grant date, and the remaining 75% of options vest in equal tranches on the first, second and third anniversary of the grant. Generally, an option is exercisable only if the holder is in the employment of the Company or one of its affiliates (or for a period of time following employment, subject to the discretion of the remuneration committee), or in the event of a change in control of the Company. Upon a change in control, generally, all options vest immediately. The options have a contractual life of ten years.

The fair value of the options is computed using the Black-Scholes option pricing model. The following table sets forth the assumptions used in arriving at the fair value of the options granted during 2013 and 2012:

Risk-free interest rates reflect the yield on the ten-year U.S. Treasury note. Expected dividend yield presumes no set dividend paid. Expected volatility is based on implied volatility from historical market data for the Company. The expected option lives are based on a mathematical average with respect to vesting and contractual terms.

10. Stock Option Plans (continued)

The following is a summary of option activity:

All of the options granted during 2013 and 2012 were granted under the BSG North America Plan.

As of December 31, 2013, there was $0.1 million of total unrecognized noncash compensation cost related to nonvested share-based compensation arrangements granted under the BSG North America Plan. That cost is expected to be recognized during 2014 through 2015.

11. Restructuring Expense

In 2012, the Company implemented cost reduction actions largely designed to reduce personnel-related expenses. In connection with this plan, the Company recorded a $0.7 million restructuring charge, principally to cover severance and related compensation costs for terminated employees. Of this amount, $0.1 million was paid in 2013.