v2.4.0.6
Document and Entity Information Document (USD $)
12 Months Ended
Dec. 31, 2012
Mar. 15, 2013
Jun. 30, 2012
Entity Information [Line Items]      
Entity Registrant Name EBIX INC    
Entity Central Index Key 0000814549    
Current Fiscal Year End Date --12-31    
Entity Filer Category Accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2012    
Document Fiscal Year Focus 2012    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Common Stock, Shares Outstanding   37,147,313  
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Public Float     $ 464,704,986
v2.4.0.6
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Operating revenue $ 199,370 $ 168,969 $ 132,188
Operating expenses:      
Costs of services provided 38,133 33,589 29,599
Product development 24,825 19,208 13,607
Sales and marketing 16,687 13,642 6,372
General and administrative 33,562 26,268 24,065
Amortization and depreciation 9,155 7,514 6,038
Total operating expenses 122,362 100,221 79,681
Operating income 77,008 68,748 52,507
Interest income 441 557 519
Interest expense (1,541) (759) (902)
Other non-operating income 190 647 6,319
Foreign exchange gain 1,931 4,302 1,211
Income before income taxes 78,029 73,495 59,654
Income tax provision (7,460) (2,117) (635)
Net income $ 70,569 $ 71,378 $ 59,019
Basic earnings per common share (in dollars per share) $ 1.91 $ 1.89 $ 1.69
Diluted earnings per common share (in dollars per share) $ 1.80 $ 1.75 $ 1.51
Basic weighted average shares outstanding (in shares) 36,948 37,742 34,845
Diluted weighted average shares outstanding (in shares) 39,100 40,889 39,018
v2.4.0.6
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Net income $ 70,569 $ 71,378 $ 59,019
Other comprehensive income (loss):      
Foreign currency translation adjustments (2,394) (11,403) 6,530
Total other comprehensive income (loss) (2,394) (11,403) 6,530
Comprehensive income $ 68,175 $ 59,975 $ 65,549
v2.4.0.6
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Current assets:    
Cash and cash equivalents $ 36,449 $ 23,696
Short-term investments 971 1,505
Trade accounts receivable, less allowances of $1,157 and $1,719, respectively 37,298 31,133
Deferred tax asset, net 1,835 2,981
Other current assets 5,116 4,502
Total current assets 81,669 63,817
Property and equipment, net 10,082 8,834
Goodwill 326,748 259,218
Intangibles, net 52,591 38,386
Indefinite-lived intangibles 30,887 30,453
Deferred tax asset, net 11,245 9,412
Other assets 3,724 1,062
Total assets 516,946 411,182
Current liabilities:    
Accounts payable and accrued liabilities 15,497 11,129
Accrued payroll and related benefits 5,431 5,034
Short term debt 11,344 6,667
Contingent liability for accrued earn-out acquisition consideration 3,265 7,590
Current portion of long term debt and capital lease obligation, net of discount of $13 and $0, respectively 915 165
Deferred revenue 19,888 16,460
Current deferred rent 237 266
Other current liabilities 113 2,468
Total current liabilities 56,690 49,779
Revolving line of credit 37,840 31,750
Other long term debt and capital lease obligation, less current portion, net of discount of $78 and $0, respectively 31,592 8,468
Contingent liability for accrued earn-out acquisition consideration 14,230 0
Put option liability 1,186 0
Deferred revenue 375 328
Long term deferred rent 1,449 939
Other liabilities 6,429 3,803
Total liabilities 149,791 95,067
Commitments and Contingencies      
Temporary Equity, Redemption Value 5,000 0
Stockholders’ equity:    
Convertible Series D Preferred stock, $.10 par value, 500,000 shares authorized, no shares issued and outstanding at December 31, 2012 and 2011 0 0
Common stock, $.10 par value, 60,000,000 shares authorized, 37,131,777 issued and 37,091,268 outstanding at December 31, 2012 and 36,418,385 issued and 36,377,876 outstanding at December 31, 2011 3,709 3,638
Additional paid-in capital 164,346 179,518
Treasury stock (40,509 shares as of December 31, 2012 and December 31, 2011) (76) (76)
Retained earnings 201,094 137,559
Accumulated other comprehensive loss (6,918) (4,524)
Total stockholders’ equity 362,155 316,115
Total liabilities, temporary equity and stockholders’ equity $ 516,946 $ 411,182
v2.4.0.6
Consolidated Balance Sheets (Parentheticals) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Current Assets:    
Allowance for doubtful accounts $ 1,157 $ 1,719
Unamortized debt discount, current 13 0
Unamortized debt discount, noncurrent $ 78 $ 0
Stockholders' Equity:    
Preferred stock, par value (per share) $ 0.1 $ 0.1
Preferred stock, shares authorized 500,000 500,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (per share) $ 0.1 $ 0.1
Common stock, shares authorized 60,000,000 60,000,000
Common stock, shares issued 37,131,777 36,418,385
Common stock, shares outstanding 37,091,268 36,377,876
Treasury stock, shares 40,509 40,509
v2.4.0.6
Consolidated Statements Stockholders' Equity (USD $)
Total
Common Stock
Treasury Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Beginning Balance, Value at Dec. 31, 2009 $ 170,743,000 $ 3,443,000 $ (76,000) $ 158,404,000 $ 8,623,000 $ 349,000
Beginning Balance, Issued Shares at Dec. 31, 2009   34,474,608        
Beginning Balance, Treasury Shares at Dec. 31, 2009     (40,509)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 59,019,000       59,019,000  
Cumulative translation adjustment 6,530,000         6,530,000
Exercise of stock options, Shares   1,252,785        
Exercise of stock options, Value 1,236,000 125,000   1,111,000    
Stock Repurchased and Retired During Period, Shares   (669,978)        
Stock Repurchased and Retired During Period, Value (10,650,000) (67,000)   (10,583,000)    
Stock Issued During Period, Shares, Conversion of Convertible Securities   760,040        
Stock Issued During Period, Value, Conversion of Convertible Securities 1,712,000 76,000   1,636,000    
Deferred compensation and amortization related to options and restricted stock 1,850,000     1,850,000    
Share subscribed for business acquisition, Value 828,000     828,000    
Vesting of restricted stock, Shares   240,336        
Vesting of restricted stock, Value 0 25,000   (25,000)    
Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested 0          
Dividends paid 0          
Ending Balance, Value at Dec. 31, 2010 231,268,000 3,602,000 (76,000) 153,221,000 67,642,000 6,879,000
Ending Balance, Issued Shares at Dec. 31, 2010   36,057,791        
Ending Balance, Treasury Shares at Dec. 31, 2010     (40,509)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 71,378,000       71,378,000  
Cumulative translation adjustment (11,403,000)         (11,403,000)
Exercise of stock options, Shares   69,509        
Exercise of stock options, Value 51,000 8,000   43,000    
Stock Repurchased and Retired During Period, Shares   (3,510,973)        
Stock Repurchased and Retired During Period, Value (63,659,000) (351,000)   (63,308,000)    
Stock Issued During Period, Value, Conversion of Convertible Securities (1,851,000)     (1,851,000)    
Deferred compensation and amortization related to options and restricted stock 2,205,000     2,205,000    
Share subscribed for business acquisition, Shares   3,650,914        
Share subscribed for business acquisition, Value 87,476,000 365,000   87,111,000    
APIC adjustment for stock options 2,111,000     2,111,000    
Vesting of restricted stock, Shares   151,144        
Vesting of restricted stock, Value 0 14,000   (14,000)    
Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested 0          
Dividends paid (1,461,000)       (1,461,000)  
Ending Balance, Value at Dec. 31, 2011 316,115,000 3,638,000 (76,000) 179,518,000 137,559,000 (4,524,000)
Ending Balance, Issued Shares at Dec. 31, 2011 36,418,385 36,418,385        
Ending Balance, Treasury Shares at Dec. 31, 2011     (40,509)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income 70,569,000       70,569,000  
Cumulative translation adjustment (2,394,000)         (2,394,000)
Exercise of stock options, Shares   1,361,542        
Exercise of stock options, Value 1,020,000 137,000   883,000    
Stock Repurchased and Retired During Period, Shares   (983,818)        
Stock Repurchased and Retired During Period, Value (18,374,000) (99,000)   (18,275,000)    
Deferred compensation and amortization related to options and restricted stock 2,083,000     2,083,000    
Share subscribed for business acquisition, Shares   296,560        
Share subscribed for business acquisition, Value 0 30,000   (30,000)    
APIC adjustment for stock options 1,162,000     1,162,000    
Vesting of restricted stock, Shares   89,308        
Vesting of restricted stock, Value 0 8,000   (8,000)    
Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested, Shares   (50,200)        
Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested (992,000) (5,000)   (987,000)    
Dividends paid (7,034,000)       (7,034,000)  
Ending Balance, Value at Dec. 31, 2012 $ 362,155,000 $ 3,709,000 $ (76,000) $ 164,346,000 $ 201,094,000 $ (6,918,000)
Ending Balance, Issued Shares at Dec. 31, 2012 37,131,777 37,131,777        
Ending Balance, Treasury Shares at Dec. 31, 2012     (40,509)      
v2.4.0.6
Consolidated Statements of Cash Flow (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Net income $ 70,569,000 $ 71,378,000 $ 59,019,000
Adjustments to reconcile net income to cash provided by operating activities:      
Depreciation and amortization 9,155,000 7,514,000 6,038,000
Provision for doubtful accounts 442,000 976,000 1,143,000
Provision for deferred taxes (4,760,000) (5,727,000) (2,753,000)
Unrealized foreign exchange (gain)/losses on forward contracts 0 2,346,000 (1,304,000)
Unrealized foreign exchange (gain)/losses 443,000 (5,795,000) (598,000)
Unrealized gain on put option (191,000) (537,000) (6,059,000)
Share-based compensation 2,083,000 2,205,000 1,850,000
Debt discount amortization on convertible debt 39,000 21,000 327,000
Reduction of acquisition earn-out contingent liability (699,000) (2,847,000) (1,500,000)
Changes in current assets and liabilities, net of acquisitions:      
Accounts receivable (2,023,000) (2,903,000) (3,018,000)
Other assets (371,000) 1,647,000 (955,000)
Accounts payable and accrued expenses 730,000 1,525,000 (356,000)
Accrued payroll and related benefits (594,000) (532,000) 165,000
Deferred rent (132,000) (261,000) (125,000)
Other liabilities (2,384,000) 836,000 (61,000)
Deferred revenue (12,000) 796,000 (35,000)
Net cash provided by operating activities 72,295,000 70,642,000 51,778,000
Cash flows from investing activities:      
Purchases of marketable securities (785,000) (3,098,000) (11,507,000)
Maturities of marketable securities 1,466,000 7,600,000 7,006,000
Capital expenditures (1,965,000) (2,829,000) (1,754,000)
Net cash used in investing activities (63,375,000) (13,320,000) (24,406,000)
Cash flows from financing activities:      
Proceeds from / (Repayment) to line of credit, net 6,090,000 6,750,000 1,900,000
Proceeds from term loan 45,000,000 16,250,000 10,157,000
Proceeds from the issuance of note payable 161,000 0 0
Principal payments on term loan obligation (19,125,000) (6,407,000) (5,000,000)
Repurchase of common stock (18,374,000) (63,659,000) (10,650,000)
Settlement on conversion of convertible debt 0 (6,761,000) (22,521,000)
Payments of long term debt (600,000) 0 0
Payments for capital lease obligations (284,000) (300,000) (804,000)
Excess tax benefit from share-based compensation 1,044,000 644,000 1,001,000
Proceeds from exercise of common stock options 1,020,000 51,000 1,236,000
Forfeiture of certain shares to satisfy exercise costs and the recipients income tax obligations related to stock options exercised and restricted stock vested (992,000) 0 0
Dividends paid (7,034,000) (1,461,000) 0
Net cash provided (used) by financing activities 6,906,000 (54,893,000) (24,681,000)
Effect of foreign exchange rates on cash and cash equivalents (3,073,000) (2,130,000) 1,479,000
Net change in cash and cash equivalents 12,753,000 299,000 4,170,000
Cash and cash equivalents at the beginning of the year 23,696,000 23,397,000 19,227,000
Cash and cash equivalents at the end of the year 36,449,000 23,696,000 23,397,000
Supplemental disclosures of cash flow information:      
Interest paid 1,350,000 710,000 526,000
Income taxes paid 8,590,000 3,796,000 2,396,000
BSI [Member]
     
Cash flows from investing activities:      
Payments to Acquire Businesses, Net of Cash Acquired (992,000) 0  
Taimma [Member]
     
Cash flows from investing activities:      
Payments to Acquire Businesses, Net of Cash Acquired (5,003,000) 0  
Fintechnix [Member]
     
Cash flows from investing activities:      
Payments to Acquire Businesses, Net of Cash Acquired (4,713,000) 0  
Planetsoft [Member]
     
Adjustments to reconcile net income to cash provided by operating activities:      
Unrealized gain on put option (191,000)    
Cash flows from investing activities:      
Payments to Acquire Businesses, Net of Cash Acquired (35,078,000) 0  
TriSystems [Member]
     
Cash flows from investing activities:      
Payments to Acquire Businesses, Net of Cash Acquired (9,277,000) 0  
Curepet, Inc. [Member]
     
Cash flows from investing activities:      
Payments to Acquire Investments (2,000,000) 0 0
ADAM
     
Cash flows from investing activities:      
Investment, net of cash acquired 0 3,529,000 0
MCN
     
Cash flows from investing activities:      
Investment, net of cash acquired (1,537,000) (381,000) (2,931,000)
Trades Monitor [Member]
     
Cash flows from investing activities:      
Investment, net of cash acquired 0 0 (2,749,000)
Connective Technologies [Member]
     
Cash flows from investing activities:      
Investment, net of cash acquired 0 0 (1,337,000)
USIX [Member]
     
Cash flows from investing activities:      
Investment, net of cash acquired (1,466,000) 0 (7,131,000)
E Trek [Member]
     
Cash flows from investing activities:      
Investment, net of cash acquired 0 0 (1,011,000)
Health Connect Systems [Member]
     
Cash flows from investing activities:      
Investment, net of cash acquired (2,000,000) (17,945,000) 0
ConfirmNet
     
Cash flows from investing activities:      
Investment, net of cash acquired 0 (184,000) (2,975,000)
Periculum [Member]
     
Cash flows from investing activities:      
Investment, net of cash acquired 0 0 (6,000)
Facts [Member]
     
Cash flows from investing activities:      
Investment, net of cash acquired $ (25,000) $ (12,000) $ (11,000)
v2.4.0.6
Supplemental Schedule of Noncash Financing Activities
12 Months Ended
Dec. 31, 2012
Supplemental Cash Flow Elements [Abstract]  
Supplemental Schedule of Noncash Financing Activities
Supplemental schedule of noncash financing activities:
Effective June 1, 2012, Ebix acquired PlanetSoft, Inc. for aggregate consideration in the amount of $40.0 million. Under terms of the merger agreement, the former PlanetSoft shareholders received, as part of the aggregate purchase consideration, 296,560 shares of Ebix common stock with a fair value of $5.0 million.
        
Effective February 7, 2011, Ebix acquired ADAM, Inc. for aggregate consideration in the approximate amount of $88.4 million. Under the terms of the merger agreement, all of the ADAM shareholders received 3.65 million shares of Ebix common stock with a fair value of $87.5 million as part of the purchase consideration.
During 2010 Whitebox VSC, Ltd and IAM Mini-Fund 14 Limited elected to fully convert all of their August 26, 2009 Convertible Promissory Notes. The Company settled these conversion elections by paying $20 million in cash with respect to the principal component, paying $2.5 million in cash for a portion of the conversion spread (that being the excess of the conversion value over the related original principal component), and issuing 283,378 shares of Ebix common stock for the remainder of the conversion spread.
During the year ended December 31, 2010 Whitebox VSC, Ltd., converted the remaining $4.4 million of outstanding principal and accrued interest in the amount of $62 thousand regarding their July 11, 2008 Convertible Promissory Note into 476,662 shares of Ebix common stock.
v2.4.0.6
Description of Business and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2012
Accounting Policies [Abstract]  
Description of Business and Summary of Significant Accounting Policies
Description of Business and Summary of Significant Accounting Policies
Description of Business— Ebix, Inc. and its subsidiaries (“Ebix” or the “Company”) is an international supplier of on-demand software and e-commerce solutions to the insurance industry. Ebix provides various software solutions and products for the insurance industry ranging from data exchanges, carrier systems, and agency systems, to custom software development for business entities across the insurance and financial industries. The Company's products feature fully customizable and scalable on-demand software designed to streamline the way insurance professionals manage distribution, marketing, sales, customer service, and accounting activities. The Company has its headquarters in Atlanta, Georgia and also conducts operating activities in Australia, Canada, China, India, Japan, New Zealand, Singapore, United Kingdom and Brazil. International revenue accounted for 29%, 29%, and 25% of the Company’s total revenue in 2012, 2011, 2010 and respectively.
The Company’s revenues are derived from four product/service groups. Presented in the table below is the breakout of our revenue streams for each of those product/service groups for the years ended December 31, 2012 , 2011 and 2010.
 
For the Year Ended
 
December 31,
(dollar amounts in thousands)
 
2012
 
2011
 
2010
Exchanges
 
$
159,678

 
$
130,638

 
$
94,212

Broker Systems
 
18,612

 
18,006

 
13,841

Business Process Outsourcing (“BPO”)
 
16,140

 
14,944

 
15,586

Carrier Systems
 
4,940

 
5,381

 
8,549

Totals
 
$
199,370

 
$
168,969

 
$
132,188



Summary of Significant Accounting Policies
Basis of Presentation— The consolidated financial statements include the accounts of Ebix and its wholly owned subsidiaries.  The effect of inter-company balances and transactions has been eliminated.

Use of Estimates—The preparation of consolidated financial statements in conformity with generally accepted accounting principles ("GAAP") in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of revenue and expenses during those reporting periods. Management has made material estimates primarily with respect to revenue recognition and deferred revenue, accounts receivable, acquired intangible assets, contingent earnout liabilities in connection with prior business acquisitions, business investments, and the provision for income taxes. Actual results may be materially different from those estimates.
     
ReclassificationCertain of the prior year or prior quarters within 2012 balances including the notes thereto have been reclassified to conform to the current year presentation. In particular the short-term and long-term portions of the contingent liability for accrued earn-out acquisition consideration is now disclosed separately in the respective sections of the consolidated balance sheets rather than in other current liabilities or other liabilities. Also the excess tax benefits from share-based compensation is now reported as a component of financing cash flows rather than being netted against the provision for deferred taxes as a component of operating cash flows in the consolidated statements of cash flows. Finally, as discussed in Note 20 "Temporary Equity," common stock that is redeemable for cash at the option of the holders, and not within control of the Company, is presented outside of the stockholders equity section of the consolidated balance sheet, and shown as a separate line referred to as "temporary equity" on the consolidated balance sheet appearing after liabilities, and before the stockholders equity section
Segment Reporting—Since the Company, from the perspective of its chief operating decision maker, allocates resources and evaluates business performance as a single entity that provides software and related services to a single industry on a worldwide basis, the Company reports as a single segment. The applicable enterprise-wide disclosures are included in Note 16.
Cash and Cash Equivalents—The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Such investments are stated at cost, which approximates fair value. The Company does maintain cash balances in banking institutions in excess of federally insured amounts and therefore is exposed to the related potential credit risk associated with such cash deposits.
Short-term Investments—The Company’s short-term investments consist of certificates of deposits with established commercial banking institutions with readily determinable fair values. Ebix accounts for investments that are reasonably expected to be realized in cash, sold or consumed during the year as short-term investments that are available-for-sale. The carrying amount of investments in marketable securities approximates fair value. The carrying value of our short-term investments was $971 thousand and $1.5 million at December 31, 2012 and 2011, respectively.
Fair Value of Financial Instruments—The Company follows the relevant GAAP guidance regarding the determination and measurement of the fair value of financial instruments in which fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction value hierarchy which requires an entity to maximize the use of observable inputs when measuring fair value. The guidance describes the following three levels of inputs that may be used in the methodology to measure fair value:
Level 1 — Quoted prices available in active markets for identical investments as of the reporting date;
Level 2 — Inputs other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date; and,
Level 3 — Unobservable inputs, which are to be used in situations where there is little or no market activity for the asset or liability and wherein the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
As of December 31, 2012 and 2011 the Company has the following financial instruments to which it had to consider fair values and had to make fair assessments:
Common share-based put option for which the fair value was measured as Level 2 instrument.
Short-term investments for which the fair values are measured as a Level 1 instrument.
Contingent accrued earn-out business acquisition consideration liabilities for which fair values are measured as Level 3 instruments. These contingent consideration liabilities were recorded at fair value on the acquisition date and are remeasured periodically based on the then assessed fair value and adjusted if necessary. The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels and changes in assumed discount periods and rates. As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3.

Other financial instruments not measured at fair value on the Company's consolidated balance sheets at December 31, 2012 and 2011 but which require disclosure of their fair values include: cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, accrued payroll and related benefits, capital lease obligations debt under the revolving line of credit and term loans with Citibank and business investments. The estimated fair value of such instruments at December 31, 2012 and 2011 reasonably approximates their carrying value as reported on the consolidated balance sheets.
Additional information regarding the Company's assets and liabilities that are measured at fair value on a recurring basis is presented in the following table:

 
 
Fair Values at Reporting Date Using*
Descriptions
 
Balance at December 31, 2012
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Unobservable Inputs (Level 3)
 
 
(In thousands)
Assets
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
Commercial bank certificates of deposits ($213 thousand is recorded in the long-term sections of the consolidated balance sheets)
 
$
1,184

$
1,184

$

$

Total assets measured at fair value
 
$
1,184

$
1,184

$

$

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Derivatives:
 
 
 
 
 
Common share-based put option (a)
 
$
1,186

$

$
1,186

$

Foreign exchange contracts (b)
 




Contingent accrued earn-out acquisition consideration (c)
 
17,495



17,495

Total liabilities measured at fair value
 
$
18,681

$

$
1,186

$
17,495

 
 
 
 
 
 
(a) In connection with the acquisition of PlanetSoft effective June 1, 2012, Ebix issued a put option to the PlanetSoft's three shareholders. The put option, which expires in June 2014, is exercisable during the thirty-day period immediately following the two-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying 296,560 shares of Ebix common stock they received as part of the purchase consideration, back to the Company at a price of $16.86 per share, which represents a 10% discount off of the per-share value established on the effective date of the closing of Ebix's acquisition of PlanetSoft. In accordance with the relevant authoritative accounting literature a portion of the total purchase consideration was allocated to this put liability based on its initial fair value, which was determined to be $1.4 million using a Black-Scholes model. The inputs used in the valuation of the put option include term, stock price volatility, current stock price, exercise price, and the risk free rate of return.
(b) The market valuation approach is applied and the valuation inputs include foreign currency exchange spot rates, forward premiums, forward foreign currency exchange rates, term, and maturity dates. As of December 31, 2012 all the Company's derivative instruments in the form of foreign currency hedge instruments had been settled.
(c) The income valuation approach is applied and the valuation inputs include the contingent payment arrangement terms, projected cash flows, rate of return, and probability assessments.
* During the year ended December 31, 2012 there were no transfers between fair value Levels 1, 2 or 3.

     For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the year.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 
 
Contingent Liability for Accrued Earn-out Acquisition Consideration
 
 
(in thousands)
 
 
 
Beginning balance at January 1, 2012
 
$
7,590

 
 
 
Total remeasurement adjustments:
 
 
       (Gains) or losses included in earnings **
 
(699
)
       (Gains) or losses recorded against goodwill
 

       Foreign currency translation adjustments ***
 
(143
)
 
 
 
Acquisitions and settlements
 
 
       Business acquisitions
 
16,258

       Settlements
 
(5,511
)
 
 
 
Ending balance at December 31, 2012
 
$
17,495

 
 
 
The amount of total (gains) or losses for the year included in earnings or changes to net assets, attributable to changes in unrealized (gains) or losses relating to assets or liabilities still held at year-end.
 
$
(802
)
 
 
 
** recorded as an adjustment to reported general and administrative expenses
*** recorded as a component of other comprehensive income within stockholders' equity

Quantitative Information about Level 3 Fair Value Measurements
The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:
  
 
 
 
 
 
 
(in thousands)
 
Fair Value at  December 31, 2012
 
             Valuation Technique
 
Significant Unobservable
Input
Contingent acquisition consideration:
(USIX, HealthConnect, Taimma, PlanetSoft, and TriSystems acquisitions)
 
$17,495
 
Discounted cash flow
 
Annualized revenue and probability of achievement



Sensitivity to Changes in Significant Unobservable Inputs
As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are annualized revenue forecasts developed by the Company's management and the probability of achievement of those revenue forecasts. The discount rate used in these calculations is 1.75%. Significant increases (decreases) in these unobservable inputs in isolation would result in a significantly (lower) higher fair value measurement.
Revenue Recognition and Deferred Revenue—The Company derives its revenues primarily from professional and support services, which includes revenue generated from subscription and transaction fees pertaining to services delivered over our exchanges or from our application service provider (“ASP”) platforms, software development projects and associated fees for consulting, implementation, training, and project management provided to customers using our systems, and business process outsourcing revenue ("BPO"). Sales and value-added taxes are not included in revenues, but rather are recorded as a liability until the taxes assessed are remitted to the respective taxing authorities.
The Company follows the relevant technical accounting guidance regarding revenue recognition as issued by the Financial Accounting Standards Board ("FASB") and the Securities and Exchange Commission's ("SEC"). Company considers revenue earned and realizable when: (a) persuasive evidence of the sales arrangement exists, (b) the arrangement fee is fixed or determinable, (c) service delivery or performance has occurred, (d) customer acceptance has been received or is reasonably assured, if contractually required, and (e) collectability of the arrangement fee is probable. The Company typically uses signed contractual agreements as persuasive evidence of a sales arrangement. We apply the provisions of the relevant FASB accounting pronouncements related to all transactions involving the license of software where the software deliverables are considered more than inconsequential to the other elements in the arrangement. For contracts that contain multiple deliverables, we analyze the revenue arrangements in accordance with the appropriate authoritative guidance, which provides criteria governing how to determine whether goods or services that are delivered separately in a bundled sales arrangement should be considered as separate units of accounting for the purpose of revenue recognition. Deliverables are accounted for separately if they meet all of the following criteria: a) the delivered item has value to the customer on a stand-alone basis; b) there is objective and reliable evidence of the fair value of the undelivered items; and c) if the arrangement includes a general right of return relative to the delivered items, the delivery or performance of the undelivered items is probable and substantially controlled by the Company. Under the relevant accounting guidance, when multiple-deliverables included in an arrangement are to be separated into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on fair values as regarding the relative selling price hierarchy. We determine the relative selling price for a deliverable based on vendor-specific objective evidence of selling price (“VSOE”), if available, or third-party evidence ("TPE") in the alternative if available, or finally our best estimate of selling price (“BESP”), if VSOE or TPE is not available.
The Company begins to recognize revenue from license fees for its ASP products upon granting customer access to the respective processing platform. Transaction services fee revenue for this use of our exchanges or ASP platforms is recognized as the transactions occur and are generally billed in arrears. Revenues from BPO arrangements, which include data entry and call center services, and insurance certificate creation and tracking services, are recognized as the services are performed. Service fees for hosting arrangements are recognized over the requisite service period. Revenue derived from the licensing of third party software products in connection with sales of the Company’s software licenses is recognized upon delivery together with the Company’s licensed software products. Fees for training, data conversion, installation, and consulting services fees are recognized as revenue when the services are performed. Revenue for maintenance and support services are recognized ratably over the term of the support agreement.
Software development arrangements involving significant customization, modification or production are accounted for in accordance with the appropriate technical accounting guidance issued by the FASB using the percentage-of-completion method. The Company recognizes revenue using periodic reported actual hours worked as a percentage of total expected hours required to complete the project arrangement and applies the percentage to the total arrangement fee.
Deferred revenue includes payments or billings that have been received or made prior to performance and, in certain cases, cash collections and pertain to maintenance and support, initial setup or registration fees under hosting agreements, and software license fees received in advance of delivery and acceptance. Approximately $7.0 million and $8.3 million of deferred revenue were included in accounts receivable at December 31, 2012 and 2011, respectively.
Accounts Receivable and the Allowance for Doubtful Accounts Receivable—Reported accounts receivable as of December 31, 2012 include $28.5 million of trade receivables stated at invoice billed amounts net of the estimated allowance for doubtful accounts receivable, and $8.8 million of unbilled receivables. At December 31, 2011 the Company had $25.9 million of trade receivables stated at invoice billed amounts net of the estimated allowance for doubtful accounts receivable, and $5.2 million of unbilled receivables. The unbilled receivables pertain to certain professional service engagements and long-term development projects for which the timing of billing it tied to contractual milestones. The Company adheres to such contractually stated performance milestones and accordingly issues invoices to customers on a timely basis as per contract billing schedules. Accounts receivable are written off against the allowance account when the Company has exhausted all reasonable collection efforts. Management specifically analyzes accounts receivable and historical bad debts, write-offs, customer concentrations, customer credit-worthiness, current economic trends, and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Bad debt expense was $442 thousand, $1.0 million, and $1.1 million for the year ended December 31, 2012, 2011, and 2010 respectively.
Costs of Services Provided—Costs of services provided consist of data processing costs, customer support costs including personnel costs to maintain our proprietary databases, costs to provide customer call center support, hardware and software expense associated with transaction processing systems and exchanges, telecommunication and computer network expense, and occupancy costs associated with facilities where these functions are performed. Depreciation expense is not included in costs of services provided.
Goodwill and Indefinite-Lived Intangible Assets— Goodwill represents the cost in excess of the fair value of the identifiable net assets from the businesses that we acquire. In accordance with the relevant FASB accounting guidance, goodwill is tested for impairment at the reporting unit level on an annual basis or on an interim basis if an event occurred or circumstances change that would indicate that fair value of a reporting unit decreased below its carrying value. Potential impairment indicators include a significant change in the business climate, legal factors, operating performance indicators, competition, and the sale or disposition of a significant portion of the business. In 2011 the Company applied the new guidance concerning goodwill impairment evaluation. In accordance with this new technical guidance the Company first assessed certain qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of any of our reporting units was less than their than its carrying amount. If after assessing the totality of events or circumstances, we were to determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then we would not perform the two-step quantitative impairment testing described further below.
The aforementioned two-step quantitative testing process involves comparing the reporting unit carrying values to their respective fair values; we determine fair value of our reporting units by applying the discounted cash flow method using the present value of future estimated net cash flows. If the fair value of a reporting unit exceeds its carrying value, then no further testing is required. However, if a reporting unit’s fair value were to be less than its carrying value, we would then determine the amount of the impairment charge, if any, which would be the amount that the carrying value of the reporting unit’s goodwill exceeded its implied value. Projections of cash flows are based on our views of growth rates, operating costs, anticipated future economic conditions and the appropriate discount rates relative to risk and estimates of residual values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. The use of different estimates or assumptions for our projected discounted cash flows (e.g., growth rates, future economic conditions, discount rates and estimates of terminal values) when determining the fair value of our reporting units could result in different values and may result in a goodwill impairment charge. We perform our annual goodwill impairment evaluation and testing as of September 30 each year. During the years ended December 31, 2012, 2011, and 2010, we had no impairment of our reporting unit goodwill balances.
During 2012 the Company recorded $3.2 million of goodwill in connection with the acquisitions of Benefit Software, Inc. ("BSI") acquired in March 2012, $7.6 million of goodwill in connection with the acquisitions of Taimma Communications, Inc. ("Taimma") acquired in April 2012, $44.1 million of goodwill in connection with the acquisition of PlanetSoft Holdings, Inc. ("PlanetSoft") acquired June 2012, $3.7 million of goodwill in connection with the acquisitions of Fintechnix Pty Limited ("Fintechnix") acquired June 2012, and $8.8 million of goodwill in connection with the acquisition of TriSystems, Ltd. ("Trisystems") acquired August 2012. During 2011 the Company recorded $60.1 million of goodwill in connection with the acquisitions of ADAM, Inc. ("ADAM") acquired in February 2011 and $20.4 million of goodwill in connection with the acquisition of Health Connect Systems ("HCS") acquired in November 2011. Also during 2011 the Company recognized a net reduction in the amount of $257 thousand in regards to adjustments to recorded goodwill in connection with business acquisitions made during the years 2008 to 2010.
Changes in the carrying amount of goodwill for the years ended December 31, 2012 and 2011 are as follows:

 
December 31, 2012
 
December 31, 2011
 
(in thousands)
Beginning Balance
$
259,218

 
$
180,602

Additions, net (see Note 3)
67,401

 
80,259

Foreign currency translation adjustments
129

 
(1,643
)
Ending Balance
$
326,748

 
$
259,218



The Company’s indefinite-lived assets are associated with the estimated fair value of the contractual customer relationships existing with the property and casualty insurance carriers in Australia using our property and casualty ("P&C") data exchange and with ten corporate customers using our client relationship management (“CRM”) platform in the United States. Prior to these underlying business acquisitions Ebix had pre-existing contractual relationships with these carriers and corporate clients. The contracts are renewable at little or no cost, and Ebix intends to continue to renew these contracts indefinitely and has the ability to do so. The proprietary technology supporting the P&C data exchange and CRM platform, and used to deliver services to these carriers and corporate clients, cannot feasibly be effectively replaced in the foreseeable future, and accordingly the cash flows forthcoming from these customers are expected to continue indefinitely. With respect to the determination of the indefinite life, the Company considered the expected use of these intangible assets, historical experience in renewing or extending similar arrangements, and the effects of competition, and concluded that there were no indications from these factors to suggest that the expected useful life of these customer relationships would be finite. The Company concluded that no legal, regulatory, contractual, or competitive factors limited the useful life these intangible assets and therefore their life was considered to be indefinite, and accordingly the Company expects these customer relationships to remain the same for the foreseeable future. The fair values of these indefinite-lived intangible assets were based on the analysis of discounted cash flow (“DCF”) models extended out fifteen to twenty years. In that indefinite-lived does not imply an infinite life, but rather means that the subject customer relationships are expected to extend beyond the foreseeable time horizon, we utilized fifteen to twenty year DCF projections, as the valuation models that were applied consider a fifteen to twenty year time frame to be an indefinite period. Indefinite-lived intangible assets are not amortized, but rather are tested for impairment annually. We perform our annual impairment testing of indefinite-lived intangible assets as of September 30th of each year. During the years ended December 31, 2012, 2011, and 2010, we had no impairments to the recorded balances of our indefinite-lived intangible assets. We perform the impairment test for our indefinite-lived intangible assets by comparing the asset’s fair value to its carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value.
Purchased Intangible Assets—Purchased intangible assets represent the estimated fair value of acquired intangible assets from the businesses that we acquire in the U.S. and foreign countries in which we operate. These purchased intangible assets include customer relationships, developed technology, informational databases, and trademarks. We amortize these intangible assets on a straight-line basis over their estimated useful lives, as follows:
 
Life
Category
(yrs)
Customer relationships
7-20

Developed technology
3-12

Trademarks
3-15

Non-compete agreements
5

Database
10


Intangible assets as of December 31, 2012 and December 31, 2011, are as follows:
 
December 31,
 
2012
 
2011
 
(In thousands)
Finite-lived intangible assets:
 
 
 
Customer relationships
$
57,638

 
$
40,289

Developed technology
14,025

 
11,640

Trademarks
2,638

 
2,188

Non-compete agreements
538

 
418

Backlog
140

 
140

Database
212

 
207

Total intangibles
75,191

 
54,882

Accumulated amortization
(22,600
)
 
(16,496
)
Finite-lived intangibles, net
$
52,591

 
$
38,386

 
 
 
 
Indefinite-lived intangibles:
 
 
 
Customer/territorial relationships
$
30,887

 
$
30,453



Income Taxes— The Company follows the asset and liability method of accounting for income taxes pursuant to the pertinent guidance issued by the FASB. Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities, and operating loss and tax credit carry forwards, and their financial reporting amounts at each period end using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is recorded for the portion of the deferred tax assets that are not expected to be realized based on the levels of historical taxable income and projections for future taxable income over the periods in which the temporary differences will be deductible.
The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. The guidance utilizes a two-step approach for evaluating tax positions. Recognition (“Step 1”) occurs when an enterprise concludes that a tax position, based solely on its technical merits is more likely than not to be sustained upon examination. Measurement (“Step 2”) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured at the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon final settlement. As used in this context, the term “more likely than not” is interpreted to mean that the likelihood of occurrence is greater than 50%.
Foreign Currency Translation—Historically the functional currency for the Company's foreign subsidiaries in India and Singapore had been the Indian rupee and Singapore dollar, respectively. As a result of the Company's rapid growth, including its recent acquisition of PlanetSoft, and the expansion of its intellectual property research and development activities in its Singapore subsidiary, and its product development activities and information technology enabled services for the insurance industry provided by its India subsidiary in support of Ebix's operating divisions across the world (both of which are transacted in U.S. dollars), management undertook a reconsideration of functional currency designations for these two foreign subsidiaries in India and Singapore, and concluded that effective July 1, 2012 the functional currency for these entities should be changed to the U.S. dollar. Management believes that the acquisition of PlanetSoft in combination with the other four business acquisitions completed during the current year and the cumulative effect of business acquisitions made over the last few years which in turn has necessitated the rapid growth of the Company's operations in India and Singapore, were indicative of a significant change in the economic facts and circumstances that justified the reconsideration and ultimate change in the functional currency. Had the change in the functional currency designation for our India and Singapore subsidiaries not been made, the Company would have incurred and recognized approximately $49 thousand of additional foreign currency exchange gains during the year ended December 31, 2012. Furthermore, a portion of monetary assets and liabilities for these two foreign subsidiaries that are denominated in foreign currencies are re-measured into U.S. dollars at the exchange rates in effect at each reporting date. These corresponding re-measurement gains and losses are included as a component of foreign currency exchange gains and losses in the accompanying Consolidated Statements of Income and amounted to a $151 thousand loss for the year ended December 31, 2012.
The functional currency of the Company's other foreign subsidiaries is the local currency of the country in which the subsidiary operates. The assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at the rates of exchange at the balance sheet dates. Income and expense accounts are translated at the average exchange rates in effect during the period. Gains and losses resulting from translation adjustments are included as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets. Foreign exchange transaction gains and losses that are derived from transactions denominated in a currency other than the subsidiary's functional currency are included in the determination of net income.
Advertising—Advertising costs are expensed as incurred. Advertising costs amounted to $1.4 million, $1.0 million, and $973 thousand in 2012, 2011, and 2010, respectively, and are included in sales and marketing expenses in the accompanying consolidated statements of income.
Sales Commissions —Certain sales commission paid with respect to subscription-based revenues are deferred and subsequently amortized into operating expenses ratably over the term of the related customer subscription contracts. As of December 31, 2012 and 2011, $442 thousand and $402 thousand, respectfully, of sales commissions were deferred and included in other current assets on the accompanying consolidated balance sheet. During the years ended December 31, 2012 and 2011 the Company amortized $1.1 million and $465 thousand, respectively, of previously deferred sales commissions and included this expense in sales and marketing costs on the accompanying consolidated statements of income.
Property and Equipment—Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the assets estimated useful lives. Leasehold improvements are amortized over the shorter of the expected life of the improvements or the remaining lease term. Repairs and maintenance are charged to expense as incurred and major improvements that extend the life of the asset are capitalized and depreciated over the expected remaining life of the related asset. Gains and losses resulting from sales or retirements are recorded as incurred, at which time related costs and accumulated depreciation are removed from the Company’s accounts. Fixed assets acquired in acquisitions are recorded at fair value. The estimated useful lives applied by the Company for property and equipment are as follows:
 
Life
Asset Category
(yrs)
Computer equipment
5
Furniture, fixtures and other
7
Buildings
30
Leasehold improvements
Life of the lease

Recent Accounting Pronouncements
The following is a summary brief discussion of recently released accounting pronouncements that are pertinent to the Company’s business:
In July 2012, the FASB issued new technical guidance regarding an entity's evaluation of indefinite-lived intangible assets for possible impairment. Under this new guidance an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance the related technical accounting guidance. Under this guidance an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. This new technical guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company has not yet adopted this new guidance, and accordingly applied quantitative methods to evaluate its indefinite-lived intangible assets for impairment during 2012. The Company will adopt the new technical guidance in 2013.
In June 2011, the FASB issued new financial reporting guidance regarding the reporting of "other comprehensive income, or (OCI)". This guidance revises the manner in which entities present comprehensive income in their financial statements. The new guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income, or (2) two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used currently, and the second statement would include components of OCI. Under either method, entities must display adjustments for items that are reclassified from OCI to net income in both net income and OCI. The new reporting guidance does not change the items that must be reported in OCI. This new reporting standard is effective for interim and annual periods beginning after December 15, 2011, however, the FASB recently decided to defer the effective date for the part of this new guidance that would require adjustments of items out of accumulated other income to be presented as components of both net income and other comprehensive income in financial statements. Those changes would have been effective for annual and interim periods beginning on or after December 15, 2011, but are now deferred until FASB can adequately evaluate the costs and benefits of this presentation requirement. After adoption, the guidance must be applied retrospectively for all periods presented in the financial statements. The Company adopted this new guidance during 2012. It did not have a material impact on our financial position or operating results as the only element of comprehensive income relevant to Ebix is in regards to cumulative foreign currency translation adjustments.
In September 2011, the FASB issued new technical guidance regarding an entity's evaluation of goodwill for possible impairment. Under this new guidance an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step quantitative impairment test is unnecessary. This new technical guidance was effective for fiscal years beginning after December 15, 2011. Early adoption was permitted for annual and interim goodwill impairment evaluations performed as of a date before September 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued. The Company elected to adopt early and accordingly applied this new guidance to its 2011 annual impairment evaluation of goodwill, and its adoption did not have a material impact on the Company's statements of financial position or operations.
In December 2010, the Emerging Issues Task Force of the FASB reached consensus regarding the disclosure of pro forma information for business combinations. This new guidance addressed the diversity in practice concerning the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The guidance specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments affect any public entity that enters into business combinations that are material on an individual or aggregate basis. The new guidance was applicable to business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after December 15, 2010. The Company adopted this new guidance in 2011 and applied it to the disclosures regarding our recent acquisitions of ADAM, Health Connect, BSI, Taimma, PlanetSoft, Fintechnix, and TriSystems.
In January 2010, the FASB issued new guidance regarding disclosures about fair value measurements. The guidance requires additional disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in earlier related guidance. Specifically this new guidance requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. Also a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This new guidance was effective for interim and annual reporting periods beginning after December 15, 2009. The Company adopted and applied this technical guidance in 2010.
v2.4.0.6
Earnings per Share
12 Months Ended
Dec. 31, 2012
Earnings Per Share [Abstract]  
Earnings Per Share
Earnings per Share

The basic and diluted earnings per share (“EPS”), and the basic and diluted weighted average shares outstanding for all periods as presented in the accompanying Consolidated Statements of Income are shown below :
 
 
For the year ended
December 31,
 
 
(In thousands, except per share amounts)
Earnings per share:
 
2012
 
2011
 
2010
Basic earnings per common share
 
$
1.91

 
$
1.89

 
$
1.69

Diluted earnings per common share
 
$
1.80

 
$
1.75

 
$
1.51

Basic weighted average shares outstanding
 
36,948

 
37,742

 
34,845

Diluted weighted average shares outstanding
 
39,100

 
40,889

 
39,018


To calculate diluted earnings per share, interest expense related to convertible debt excluding imputed interest, was added back to net income as follows:
 
 
For the year ended
December 31,
 
 
(in thousands, except per share amounts)
 
 
2012
 
2011
 
2010
Net income
 
$
70,569

 
$
71,378

 
$
59,019

Convertible debt interest (excludes imputed interest)
 

 

 
10

Net income for diluted earnings per share purposes
 
$
70,569

 
$
71,378

 
$
59,029

Diluted shares outstanding
 
39,100

 
40,889

 
39,018

Diluted earnings per common share
 
$
1.80

 
$
1.75

 
$
1.51



Basic EPS is equal to net income divided by the weighted average number of shares of common stock outstanding for the period. Diluted EPS takes into consideration common stock equivalents which for the Company consist of stock options, restricted stock, and convertible debt. With respect to stock options, diluted EPS is calculated as if the Company had additional common stock outstanding from the beginning of the year or the date of grant or issuance, net of assumed repurchased shares using the treasury stock method. With respect to convertible debt, diluted EPS is calculated as if the debt instrument had been converted at the beginning of the reporting period or the date of issuance, whichever is later. Diluted EPS is equal to net income plus interest expense on convertible debt, divided by the combined sum of the weighted average number of shares outstanding and common stock equivalents. At December 31, 2012, 2011, 2010 there were 90,000, 90,000, and 0 potentially issuable shares with respect to stock options which could dilute EPS in the future but which were excluded from the diluted EPS calculation because presently their effect is anti-dilutive. Diluted shares outstanding determined as follows for each years ending December 31, 2012, 2011, and 2010.

 
 
For the year ended
December 31,
 
 
(in thousands)
 
 
2012
 
2011
 
2010
Basic weighted average shares outstanding
 
36,948

 
37,742

 
34,845

Incremental shares for common stock equivalents
 
2,152

 
3,147

 
4,173

Diluted shares outstanding
 
39,100

 
40,889

 
39,018




v2.4.0.6
Business Acquisitions
12 Months Ended
Dec. 31, 2012
Business Combinations [Abstract]  
Business Acquisitions
Business Acquisitions
The Company’s business acquisitions are accounted for under the purchase method of accounting in accordance with the FASB’s accounting guidance on the accounting for business combinations. Accordingly, the consideration paid by the Company for the businesses it purchases is allocated to the assets and liabilities acquired based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. Recognized goodwill pertains to the value of the expected synergies to be derived from combining the operations of the businesses we acquire including the value of the acquired workforce.

The Company's practice is that, immediately, after a business acquisition is consummated, to tightly integrate all functions including infrastructure, sales and marketing, administrative, product development, so as to ensure that efficiencies are maximized and redundancies eliminated. The Company also centralizes certain key functions such as product development, information technology, marketing, sales, human resources, finance, and other general administrative functions after an acquisition, in order to rapidly leverage cross-selling opportunities and to quickly realize cost efficiencies. By executing this integration strategy it is becomes neither practical nor feasible to accurately and separately track and disclose the earnings from the business combinations we have executed after they have been acquired.
The Company executes accretive business acquisitions in combination with organic growth initiatives as part of its comprehensive business growth and expansion strategy. The Company looks to acquire businesses that are complementary to Ebix's existing products and services.
A significant component of the purchase price consideration for many of the Company's business acquisitions is a potential future cash earnout based on reaching certain specified future revenue targets. The Company recognizes these potential obligations as contingent liabilities as reported on its consolidated balance sheets. As discussed in more detail in Note 1, these contingent consideration liabilities are recorded at fair value on the acquisition date and are remeasured quarterly based on the then assessed fair value and adjusted if necessary. As of December 31, 2012, the total of these contingent liabilities was $17.5 million, of which $14.2 million is reported in long-term liabilities, and $3.3 million is included in current liabilities in the Company's Consolidated Balance Sheet. As of December 31, 2011 the total of these contingent liabilities was $7.6 million which were included in current liabilities in the Company's consolidated balance sheet.
    During 2012 the Company received a termination fee in connection with a failed business acquisition. In this regard the Company recorded a reduction to general and administrative expense in the approximate amount of $971 thousand (net of directly related internal operating costs incurred by the Company and a portion of the fee that was paid to our investment banker).
2012 Acquisitions
    During 2012 the Company executed and completed five business acquisitions including PlanetSoft, Inc. which is discussed below; the other acquisitions were not material individually or in the aggregate. The Company accounted for these other four immaterial business acquisitions by recording in the aggregate $23.3 million of goodwill, $7.6 million of intangible assets pertaining to customer relationships, $1.8 million of intangible assets pertaining to acquired technology, $436 thousand of intangible assets for acquired trade names, and $118 thousand of intangible assets for non-compete agreements.
PlanetSoft — Effective June 1, 2012 Ebix closed the merger of California based PlanetSoft Holdings, Inc. ("PlanetSoft"). Under the terms of the merger agreement the former PlanetSoft shareholders received $35.0 million cash and 296,560 shares of Ebix common stock valued at $16.86 per share or $5.0 million in the aggregate. The cash portion of the cash purchase consideration was funded using internal cash reserves and available capacity from the Company's commercial bank revolving line of credit. Furthermore, under the terms of the agreement the PlanetSoft shareholders hold a put option exercisable during the thirty-day period immediately following the two-year anniversary date of the business acquisition, which if exercised would enable them to sell the underlying shares of common stock back to the Company at a 10% discount off of the per-share value established on the effective date of the closing of Ebix's acquisition of PlanetSoft. The initial fair value of this put option liability was determined to be $1.4 million. This put option is described in more detail in Note 11. PlanetSoft is in the business of powering data exchanges that streamline core insurance operations in the areas of client acquisition, underwriting, and distribution management. $11.4 million of PlanetSoft's operating revenues recognized since June 2012 were included in the Company's revenues reported in its consolidated statement of income for the year ended December 31, 2012. The revenue derived from PlanetSoft's operations is included in the Company's Exchange division. The Company accounted for this acquisition by recording $44.1 million of goodwill, $9.8 million of intangible assets pertaining to customer relationships, and $540 thousand of intangible assets pertaining to acquired technology. The former shareholders of PlanetSoft retain the right to earn up to an additional cash consideration if certain incremental revenue targets are achieved over the two-year anniversary date subsequent to the effective date of the acquisition. The Company has tentatively determined that the approximate fair value of this contingent consideration liability is to be $10.2 million.
2011 Acquisitions
Health Connect Systems. — Effective November 15, 2011, Ebix acquired Health Connect Systems, Inc. (“Health Connect”). Health Connect, with operations based out of Fresno, California, is a leading online Exchange for buyers and sellers of health insurance and employee benefits. Ebix acquired all of the outstanding stock of Health Connect for aggregate cash consideration in the amount of $18.0 million, which was funded with internal resources using available cash reserves. The former shareholders of Health Connect also retained the right to earn up to an additional $4.0 million if certain incremental revenue targets are achieved over the two-year anniversary date subsequent to the effective date of the acquisition, of which $1.2 million has been earned and paid. The Company accounted for this acquisition by recording goodwill in the amount of $20.4 million, and definite lived assets with respect to acquired customer relationships in the amount of $1.2 million and acquired developed technology in the amount of $256 thousand.

ADAM, Inc. —Effective February 7, 2011 Ebix closed the merger of Atlanta, Georgia based ADAM, Inc. ("ADAM")
with a wholly owned subsidiary of Ebix. Under the terms of the merger agreement, all of the ADAM shareholders received 3.65 million shares of Ebix common stock with a fair value of $87.5 million pursuant to the merger. In addition Ebix paid approximately $944 thousand in cash for then unexercised ADAM stock options. ADAM was a leading provider of health information and benefits technology solutions in the United States. $23.1 million of ADAM's operating revenues recognized since February 7, 2011 were included in the Company's revenues reported in its consolidated statement of income for 2011. Correspondingly included in the Company's revenues as reported in its consolidated statement of income for 2012 is $23.5 million of ADAM's operating revenue for the year 2012. The revenue derived from ADAM portfolio of products and services is included in the Company's Exchange division. The Company accounted for this acquisition by recording $60.1 million of goodwill, $15.4 million of intangible assets pertaining to customer relationships, $2.1 million of intangible assets pertaining to acquired technology, and $2.0 million of intangible assets pertaining to acquired trademarks.

The following table summarizes the net assets acquired as a result of the acquisitions that occurred during 2012 and 2011:
 
 
December 31,
(in thousands)
 
2012
 
2011
Current assets
 
$
6,262

 
$
9,710

Property and equipment
 
1,328

 
1,626

Intangible assets
 
20,246

 
20,970

Deferred tax asset, (net)
 

 
9,294

Other assets
 
202

 

Goodwill
 
67,376

 
80,516

Total assets acquired
 
95,414

 
122,116

Less: liabilities assumed
 
(34,302
)
 
(15,696
)
Net assets acquired
 
61,112

 
106,420



The following table summarizes the separately identified intangible assets acquired as a result of the acquisitions that occurred during 2012 and 2011:
 
 
December 31,
 
 
2012
 
2011
 
 
 
 
Weighted
Average
 
 
 
Weighted
Average
Intangible asset Category
 
Fair Value
 
Useful Life
 
Fair Value
 
Useful Life
 
 
(in thousands)
 
(in years)
 
(in thousands)
 
(in years)
Customer relationships
 
$
17,365

 
10.9
 
$
16,594

 
11.7
Developed technology
 
2,327

 
4.5
 
2,406

 
5.3
Non-compete agreements
 
118

 
5.0
 

 
0.0
Trademarks
 
436

 
10.0
 
1,970

 
13.4
Total acquired intangible assets
 
$
20,246

 
10.1
 
$
20,970

 
11.2

Estimated aggregate future amortization expense for the intangible assets recorded as part of the business acquisitions described above and other prior acquisitions is as follows:
Estimated Amortization Expenses (in thousands):
 
For the year ended December 31, 2013
$
7,067

For the year ended December 31, 2014
6,688

For the year ended December 31, 2015
6,024

For the year ended December 31, 2016
5,705

For the year ended December 31, 2017
5,226

Thereafter
21,881

 
 

 
$
52,591

 
 


The Company recorded $6.1 million, $4.8 million, and $3.7 million of amortization expense related to acquired intangible assets for the years ended December 31, 2012, 2011, and 2010, respectively.