BILL.L Regulatory News (BILL)

For Immediate Release

Billing Services Group Limited

("BSG" or the "Company")

Audited results for the year ended December 31, 2012

ROBUST CASH FLOW STRENGTHENS FINANCIAL POSITION

TRADING IN LINE WITH EXPECTATIONS

(March 28, 2013) 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, 2012.

Financial Highlights

(All amounts in US$)

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

·; Generated $28.5 million of cash from operations, of which $14.3 million resulted from an increase in restricted cash (2011: $22.6 million)

·; Reached favorable agreements with two local exchange carrier ("LEC") defendants in two consumer class action litigations resulting in the availability of $26.3 million of restricted cash and other credits to satisfy potential indemnification liabilities

·; Distributed $2.8 million ($0.01 per share) as a special dividend

·; Retired $4.1 million of debt, net of additional borrowings, resulting in a year-end outstanding balance of $31.9 million (December 31, 2011: $36.0 million)

·; Reduced overhead expenses by $2.9 million ($13.6 million in 2012 vs. $16.5 million in 2011) through reduction of personnel and other cost containment actions

·; Recognized a $3.7 million impairment loss on intangible assets as a result of the announced discontinuation of billing for enhanced service transactions

·; Recognized a $3.0 million gain related to the excess of an independently determined fair value of acquired assets over the purchase price

Operational Highlights

·; Acquired Connection Services Holdings Limited, allowing the Company to expand its product line and customer base into the wireless data market

·; Expanded the eZ-WiTM relationship with AT&T Mobility

·; Signed nine new third party verification ("TPV") contracts with energy providers, further expanding our market position in this TPV vertical

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 2013 will continue to be affected by (i) the secular decline in the volume of billable long distance and operator service calls initiated on landline phones and (ii) the cessation of billing for enhanced service transactions during 2012.

·; For the year ending December 31, 2013, the Company expects revenue to be between $55.0 million and $58.0 million and EBITDA to be between $11.5 million and $12.5 million.

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

"Our management has acted decisively and effectively in dealing with the challenges of the past three years. Through focused execution of a revised business model and continued emphasis on cash flow, BSG achieved a 22% EBITDA margin and completed a strategic acquisition. A robust cash flow from operations allowed the Company to reduce debt by $4.1 million (net of additional borrowings), distribute a $2.8 million ($0.01 per share) cash dividend and effect the purchase of Connection Services."

INQUIRIES:

About BSG:

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

Chief Executive's Statement

2012 was a tumultuous year, but also one of substantial progress and accomplishment. The Company continued to generate solid cash flow from operations and skillfully addressed the acute challenges which have arisen over the past three years.

Revenues of $70.3 million and EBITDA of $15.8 million in 2012 were 27% and 30% lower, respectively, than the prior year. Although a reduction from 2011, the results were generally in line with expectations after taking into account the expected EBITDA loss of $0.6 million at Connection Services. The decline in revenues and EBITDA reflected the well-established pattern of secular decline in long distance and operator service calls initiated on landline phones, combined with the previously announced discontinuation of billing for enhanced service transactions. Aggressive cost reductions limited the decrease in EBITDA.

Management's longstanding focus on cash flow, however, resulted in noteworthy accomplishments in several critical areas, including the following:

·; Generated $28.5 million of cash flow from operations, which included an increase in restricted cash of $14.3 million. This increase to restricted cash, supplemented by $12.0 million of other credits from LECs, is available to satisfy up to $26.3 million of indemnification obligations under pending class action litigation

·; Completed the acquisition of Connection Services, part of an overall strategy to expand BSG's leadership in mobile data and Wi-Fi network roaming

·; Paid a $2.8 million ($0.01 per share) special dividend

·; Reduced debt by $4.1 million, net of new borrowings

·; Added $8.2 million to unrestricted cash, ending the year with $19.1 million

We were gratified with the demonstration of confidence from our bank syndicate, which advanced $6.3 million in 2012 for the acquisition of Connection Services and for payment of the cash dividend. The $6.3 million loan was repaid in full in February 2013 from the proceeds of a tax refund as previously announced, reducing debt to $25.6 million after such payment.

Current Trading and Prospects

The secular decline in landline phone usage will restrain revenue and earnings again during 2013. We are taking appropriate countermeasures to ensure profitability, debt reduction and enhancement of shareholder value.

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

Our employees have done an outstanding job in revising and executing a business model buffeted by unprecedented external challenges. Their longstanding commitment to a robust information system platform has allowed us to leverage resources, think strategically and act quickly.

Norman M. Phipps

Chief Executive Officer

FINANCIAL REVIEW

Financial Review of the Year Ended December 31, 2012

The Company's audited results for the year ended December 31, 2012 are compared against the year ended December 31, 2011 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 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. The assets are depreciated or amortized, as applicable, over their respective useful lives. In addition, original issue discount on debt and 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 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. Historically, reserves were generally released to customers over an 18-month period, based upon loss experience. 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, 2012 to the Year Ended December 31, 2011

Total Revenues. Total revenues of $70.3 million in 2012 were $26.5 million, or 27%, lower than the $96.8 million of revenues recorded during 2011. The $26.5 million decrease largely reflects the elimination of billing for enhanced services, lower transaction volumes across all other clearing and settlement services and related declines in chargeable customer service activities. As previously announced, revenues associated with Connection Services since its acquisition effective September 1, 2012 were not material in this reporting period.

Revenue from enhanced service offerings declined by $14.0 million. Revenue from the Company's other service offerings (excluding enhanced services) declined $12.8 million. The preceding revenue amounts are inclusive of customer service-related activities, including complaint and recourse fees.

The $14.0 million decline in revenue from enhanced service transactions reflects the disruption that began in 2010 when the largest LEC in the U.S. placed new restrictions which effectively eliminated billing for certain newly marked enhanced services. The Company discontinued billing for all enhanced services transactions during 2012. The $12.8 million decline in revenue from long distance, operator service, third party verification and other ancillary service offerings reflects the ongoing secular decline in U.S. landline usage.

Cost of Services and Gross Profit. Cost of services in 2012 was $40.9 million, compared to $57.7 million in 2011. The $16.8 million, or 29%, 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 $29.3 million of gross profit in 2012, compared to $39.1 million in 2011. The gross margin of 41.7% in 2012 compared favorably to the 40.4% margin achieved in 2011, largely as the result of a mix of services favoring higher margin offerings.

Cash Operating Expenses. Cash operating expenses were $13.6 million in 2012, compared to $16.5 million in 2011. The $2.9 million, or 18%, decrease largely reflects $2.2 million in lower compensation expense in the U.S. business attributable to headcount reductions, a $0.5 million reduction in bad debt expense, a $0.4 million reduction in outsourced call center expenses due to lower transaction volume and a $0.3 million reduction in legal and professional fees, offset by $0.8 million of incremental expense from Connection Services, which was acquired during 2012.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). The Company generated $15.8 million of EBITDA during 2012, compared to $22.6 million during 2011. A reconciliation of net (loss) income and EBITDA is as follows:

Depreciation and Amortization Expense. Depreciation and amortization expense (excluding amortization of deferred finance costs and original issue discount on outstanding debt) totalled $13.4 million in both 2012 and 2011. The absence of a net change in 2012 reflects a $0.3 million reduction in amortization of intangibles, largely attributable to a lower gross carrying value arising after recognition of an impairment loss in 2012 (see Impairment Loss), offset by $0.3 million of additional depreciation expense attributable to equipment placed in service during 2011 and 2012.

Impairment Charge. In 2012, the Company recorded a $3.7 million non-cash impairment charge against intangible assets. The $3.7 million expense reflects a complete write-off of the unamortized carrying value of contracts with LECs related to their 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 in 2012. In 2011, the Company recorded a trademark impairment charge of $1.1 million related to its Billing Concepts, Inc. trademark. The impairment resulted from lower projected revenues related to this business.

Goodwill was not impaired in either period; however, the Company reduced goodwill by $0.3 million in 2012 and by $0.1 million in 2011, related to the amortization of tax goodwill in excess of book goodwill in connection with a prior acquisition.

Impairment loss, all of which is 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 consist 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 Connection Services Limited. In 2012, the Company recognized a $3.0 million gain arising from the purchase of the business assets of Connection Services. 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 nonrecurring expense, reflecting a $12.0 million charge related to its obligation to indemnify LECs for their expenses under consumer class action litigation 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 and $0.5 million of non-cash compensation expense during 2012 and 2011, respectively. The reduction in expense in 2012 resulted from a substantially lower average number of unvested stock options outstanding during the period. Stock-based compensation expense, all of which is non-cash, was not included as a deduction to earnings for purposes of calculating EBITDA.

Interest Expense. Interest expense was $1.4 million during 2012, compared to $5.1 million during 2011. Interest expense includes cash payments of interest on borrowed money, amortization of original issue discount ("OID") and amortization of deferred finance fees. The $3.7 million of lower interest expense during 2012 reflected a reduced level of outstanding debt, a lower effective interest rate on borrowed money and lower levels of amortization of OID and deferred finance fees.

During 2012, the average of debt outstanding was $33.0 million, compared to an average of $49.9 million in 2011. Additionally, the effective interest rate on borrowed money was approximately 180 basis points lower in 2012, as the result of more favorable terms under a credit agreement which became effective on June 30, 2011. Amortization of OID and deferred finance fees was $2.1 million lower in 2012, due largely to accelerated amortization in 2011 of OID and deferred finance costs related to debt which was fully repaid during the year. The replacement debt was issued without OID.

Settlement and Mark-to-Market of Derivatives. The Company borrows funds on a floating rate basis, typically related to the London Interbank Offered Rate ("LIBOR"). As required by its former credit agreement, the Company was obligated to enter into interest rate swap contracts which had the effect of fixing the interest rate on a portion of outstanding debt. In 2011, the Company incurred a $1.8 million expense in connection with its election to terminate interest rate swap contracts covering a notional principal amount of $35 million. This expense was essentially a discounted payment of future interest expense associated with the swaps. Due to its non-operational nature, the charge is not included as a deduction to earnings for purposes of computing EBITDA.

Change in Cash. BSG's cash balance at December 31, 2012 was $19.1 million, compared to $10.9 million at December 31, 2011. The $8.2 million increase in cash during 2012 is largely attributable to $28.5 million of cash flow from operations, $6.3 million of new borrowings and a $2.7 million reduction in receivables purchased from customers, offset by a $14.3 million addition to restricted cash, $10.4 million in principal payments on long-term debt, a $2.8 million cash dividend, $1.1 million of loan payoffs and other payments related to the purchase of Connection Services and $0.8 million in capital expenditures.

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 solely for funding the Company's indemnification obligation under pending class action litigation against the LEC. The $14.3 million of restricted cash, combined with the $12.0 million of indemnification credits described above (see Nonrecurring Expense above), resulted in a total of $26.3 million of liquid resources available to satisfy the Company's indemnification obligations associated with class action litigation.

Change in Third Party Payables (see description of "Third Party Payables" within "Certain Terms" above). Third party payables at December 31, 2012, inclusive of long-term liabilities, were $21.2 million, compared to $18.9 million at December 31, 2011. The $2.3 million increase in third party payables during 2012 resulted from a net increase of $5.0 million related to the pending class action litigation offset by a $1.4 million reduction associated with ordinary course settlement activities and a $1.3 million reduction arising from net collections of 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 2012, the Company reduced purchased receivables by $2.7 million, which resulted in a $1.3 million reduction in third party payables.

Change in Accrued Liabilities. Accrued liabilities at December 31, 2012 were $26.2 million compared to $1.2 million at December 31, 2011. The $25.0 million increase in accrued liabilities resulted largely from a $23.6 million increase in reserves for indemnification obligations to LECs under pending class action litigation. It is anticipated that at least $14.3 million of accrued liabilities (indemnification obligations) will be paid from restricted cash.

Capital Expenditures. During 2012, the Company invested $0.8 million in capital expenditures, primarily for capitalized software development expense, telecommunications and computer equipment.

Cash Flows for the Year Ended December 31, 2012

Cash flow from operating activities. Net cash provided by operating activities was $28.5 million during 2012. Net cash provided was principally attributable to a $25.0 million increase in accrued liabilities, $13.9 million of nonrecurring expense, $13.4 million of depreciation and amortization, a $4.9 million decrease in accounts receivable and $3.7 million in non-cash impairment loss, offset by an increase of $11.4 million in third-party payables, an $8.9 million net loss, a $5.6 million increase in income taxes receivable, a $4.1 million reduction in trade accounts payable, and a $3.0 million non-cash gain arising from the purchase of Connection Services.

Cash flow from investing activities. Net cash provided by investing activities was $1.9 million, reflecting a $2.7 million decrease in purchased receivables offset by $0.8 million in capital expenditures.

Cash flow from financing activities. Cash used in financing activities was $22.2 million, reflecting $14.3 million of transfers to restricted cash, $10.4 million of principal payments on long-term debt, a $2.8 million dividend distribution and $1.1 million of loan payoffs and other payments in connection with the purchase of Connection Services, offset by $6.3 million of additional loans and $0.1 million of proceeds from issuance of common stock.

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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.

Billing Services Group Limited

Consolidated Balance Sheets(In thousands, except shares)

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)

See accompanying notes

Billing Services Group Limited

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

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. In addition, as part of the purchase, contingent consideration is due to the sellers based on a revenue target. Based on current estimates, management does not anticipate that the Company will be required to pay any future contingent consideration.

As a result of the acquisition, the Company recorded software and intangible assets with an aggregate estimated fair value of $3.8 million and recognized a gain on the purchase of CSL of $3.0 million.

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.

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 items, including financing fees, LEC charges, rejects, and other similar items. 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, 2012 and 2011) 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, 2012 and 2011. The fair value of long-term debt approximates 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.

Prior Period Reclassification

Certain prior period balances have been reclassified to conform to the current year presentation.

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

Concentration of Credit Risk and Significant Customers

At December 31, 2012, ten customers represented approximately 57% of accounts receivable, and ten customers represented approximately 99% of outstanding purchased receivables. At December 31, 2011, ten customers represented approximately 44% of accounts receivable, and ten customers represented approximately 89% 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, 2012, twenty customers represented approximately 66% of consolidated revenues. For the year ended December 31, 2011, twenty customers represented approximately 57% 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, 2012 and 2011, the Company capitalized $0.6 million and $1.7 million of software development costs, respectively. During 2012 and 2011, the Company transferred $0.2 million and $1.8 million, respectively, of software development costs to computer software. Depreciation expense on computer software was $4.5 million and $4.2 million for the years ended December 31, 2012 and 2011, respectively. At December 31, 2012 and 2011, the Company had undepreciated software costs of $9.0 million and $12.4 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)

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.

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.

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

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.

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.

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. If actual results differ significantly from these estimates, the Company's results of operations could be materially impacted.

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

Derivative Instruments and Hedging Activities

The provisions of ASC 815, Derivatives and Hedging, require the Company to recognize all of its derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. For derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company formally assesses both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If a derivative ceases to be a highly effective hedge, the Company discontinues hedge accounting. The Company does not enter into derivative instruments for speculation or trading purposes.

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. The Company incurred $0.2 million and $0.1 million in advertising costs for the years ended December 31, 2012 and 2011, respectively.

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

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.

New Accounting Standards and Disclosures

Comprehensive Income

In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011‑05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The ASU requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The changes apply for interim and annual financial statements and must be applied retrospectively, effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this guidance for the year ended December 31, 2012.

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

New Accounting Standards and Disclosures (continued)

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 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 27, 2013, 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 and $4.7 million for the years ended December 31, 2012 and 2011, respectively.

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 10 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. In 2011, the Company recorded impairment charges of $1.1 million related to the BCI trademark. The impairment resulted from lower projected revenues related to this business. ESBI and BCI are subsidiaries of BSG North America.

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 $8.4 million and $8.7 million for the years ended December 31, 2012 and 2011, respectively. The Company recognized an impairment loss 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 $6.8 million for the year 2013, $0.7 million for 2014, $0.6 million for each of 2015, 2016 and 2017.

3. Intangible Assets and Goodwill (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.

The Company performs its annual goodwill impairment test on October 1 of each year. In 2012 and 2011, the first step of the goodwill impairment test resulted in the fair value of the Company being in excess of the carrying amount of the Company. Therefore, the second step of the goodwill impairment test was not required. The Company may incur impairment charges in the future to the extent the Company does not achieve its expected financial performance and to the extent that market values and long-term interest rates, in general, decrease and increase, respectively.

During 2012 and 2011, the Company made an adjustment to reduce goodwill by $0.3 million and $0.1 million, respectively, related to the amortization of tax goodwill in excess of book goodwill related to a prior acquisition.

The following table presents the change in carrying amount of goodwill for the years ended December 31, 2012 and 2011:

4. Debt

Long-term debt is as follows:

On June 30, 2011, the Company refinanced its debt and entered into a new credit agreement. The new credit agreement consists of a $48 million term loan (the "Term Loan Facility"). The Term Loan Facility refinanced in entirety the Company's previous credit facility (the "Former 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.

At December 31, 2012 and 2011, borrowings were $31.9 million and $36.0 million, respectively. The borrowings at December 31, 2012 included both the CSL Loan and the Dividend Loan.

Loans under the Term Loan Facility had no original issue discount. Loans under the Former Loan Facility were issued net of an original issue discount of $4.5 million. 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, 2012, the interest rate on the Term Loan Facility was 4.0% per annum, and the interest rate on the CSL Loan and the Dividend Loan was 4.75% per annum.

4. Debt (continued)

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 2012, the Company made no voluntary prepayments. During 2011, the Company made voluntary prepayments of $8.8 million.

During 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.

During 2011, the Company generated $1.1 million of consolidated excess cash flow, as defined in the Company's Term Loan Facility. As a result, the Company made an additional principal payment of $0.8 million in March 2012.

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, 2012 are as follows:

5. Financial Instruments

Interest Rate Swaps

In connection with the refinancing under the Term Loan Facility in 2011, the Company cancelled interest rate swap contracts and paid $1.8 million in connection with this cancellation.

The Company's interest rate swap contracts were designated as a cash flow hedge, and the effective portion of the gain or loss on the swap was reported as a component of other comprehensive income. Ineffective portions of a cash flow hedge's change in fair value were recognized as income or expense in the period of ineffectiveness. No ineffectiveness was recorded related to interest rate swap contracts during 2011. Interest expense associated with these interest rate swaps included $0.7 million of realized losses reclassified into earnings in 2011.

The Company entered into the swaps to effectively convert a portion of its floating-rate debt to a fixed basis, thus reducing the impact of interest rate changes on future interest expense. The Company assessed at inception, and on an ongoing basis, whether its interest rate swap agreements were highly effective in offsetting changes in the interest expense of its floating-rate debt.

The Company adopted ASC 820, Fair Value Measurements and Disclosures, on January 1, 2008, and certain of the relevant disclosure provisions in ASU No. 2010-06, Improving Disclosures about Fair Market Measurements, on January 1, 2010. ASC 820-10-35 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets, Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, and Level 3, defined as unobservable inputs in which little or no market data exist, therefore requiring an entity to develop its own assumptions.

The swap agreements were valued using a discounted cash flow model that took into account the present value of the future cash flows under the terms of the agreements by using market information available as of the reporting date, including prevailing interest rates and credit spreads.

Because the inputs to the model used to estimate fair value of the Company's interest rate swap contracts were either directly or indirectly observable, the Company classified the fair value measurements of these agreements as Level 2.

6. 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:

6. 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, 2012, the Company had state net operating loss credit carryforwards of approximately $0.5 million, which will expire in 2026, and $0.1 million of capital loss credit carryforwards, which will expire in 2013. At December 31, 2012, BSG Wireless also has a net operating loss of $.02 million that has no expiration.

Realization of deferred tax assets is dependent upon, among other things, the ability to generate taxable income of the appropriate character in the future. At December 31, 2009, management established a valuation allowance related to the capital loss carryforward, as it does not believe the benefit will be realized in the future. Management is of the opinion that it is more likely than not that all other deferred tax assets will be fully realized.

6. Income Taxes (continued)

The total reserve for uncertain tax positions as of December 31, 2012 is $0.5 million and is included with other liabilities in the accompanying consolidated balance sheets. There was a reduction in the reserve from 2011 to 2012 of $0.9 million due to the expiration of the statute for the tax year ended December 31, 2008. The Company does not expect the liability to change significantly over the next twelve months. 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. During each of the years ended December 31, 2012 and 2011, the Company recorded $30 thousand and $0.1 million in interest and penalties, respectively.

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

As indicated in the table above, at December 31, 2012, there were $0.5 million of tax benefits that if recognized in 2012, would reduce the Company's annual effective tax rate.

With few exceptions, the Company is no longer subject to examination by the federal and most state tax authorities for years before 2009.

7. 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) income per share:

8. Commitments

The Company leases certain office space and equipment under various operating leases. Annual future minimum lease commitments as of December 31, 2012, are as follows (in thousands):

Rental expense under these operating leases approximated $0.6 million and $1.0 million for the years ended December 31, 2012 and 2011, respectively.

9. 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 ("Reserve Agreement") as well as a deposit account security and control agreement ("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 deposits made by the LEC in connection with the Deposit Agreement. Included in accrued liabilities at December 31, 2012 is approximately $21.3 million in reserves which is comprised of these deposits and reclassification of other payables to customers.

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.

10. 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 Internal Revenue Service 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, 2012 and 2011, the Company's matching contributions totaled $0.2 million. No discretionary contributions were made in either period.

11. 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 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.

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.

11. Stock Option Plans (continued)

The fair value of the options is computed using the Black-Scholes option pricing model. The weighted-average grant-date fair value of options granted during May 2012 amounted to 2.5 pence per share. The following assumptions were used in arriving at the fair value of options granted during May 2012: risk-free interest rate of 1.93%; dividend yield of 0%; expected volatility of 105.4%; and expected lives of five years and nine months.

The weighted-average grant-date fair value of options granted during August 2012 amounted to 2.2 pence per share. The following assumptions were used in arriving at the fair value of options granted during August 2012: risk-free interest rate of 1.57%; dividend yield of 0%; expected volatility of 102.5%; and expected lives of five years and nine months.

The weighted-average grant-date fair value of options granted during June 2011 amounted to 3.3 pence per share. The following assumptions were used in arriving at the fair value of options granted during June 2011: risk-free interest rate of 3.2%; dividend yield of 0%; expected volatility of 44.5%; and expected lives of five years and nine months.

The weighted-average grant-date fair value of options granted during December 2011 amounted to 5.3 pence per share. The following assumptions were used in arriving at the fair value of options granted during December 2011: risk-free interest rate of 1.9%; dividend yield of 0%; expected volatility of 48.7%; and expected lives of five years and nine months.

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.

11. Stock Option Plans (continued)

The following is a summary of option activity:

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

As of December 31, 2012, there was $0.2 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 2013 through 2015.

12. 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 will be paid in 2013.