Providence Service Corp.
Annual Report 2015

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-34221 The Providence Service Corporation(Exact name of registrant as specified in its charter) Delaware86-0845127(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 44 East Broadway Blvd. Suite 350,Tucson, Arizona85701(Address of principalexecutive offices)(Zip code) Registrant’s telephone number, including area code(520) 747-6600 Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which registeredCommon Stock, $0.001 par value per share The NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No 1 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates based on the closing price for suchcommon equity as reported on The NASDAQ Global Select Market on the last business day of the registrant’s most recently completed second fiscalquarter (June 30, 2015) was $607.3 million. As of March 8, 2016, there were outstanding 14,866,327 shares (excluding treasury shares of 2,332,679) of the registrant’s Common Stock, $.001 parvalue per share, which is the only outstanding capital stock of the registrant. DOCUMENTS INCORPORATED BY REFERENCE All or a portion of items 10 through 14 in Part III of this Form 10-K are incorporated by reference to our definitive proxy statement on Schedule14A for our 2016 stockholder meeting; provided that if such proxy statement is not filed on or before April 30, 2016, such information will be included inan amendment to this Report on Form 10-K filed on or before such date. 2 TABLE OF CONTENTS Page No.PART I Item 1.Business4 Item 1A.Risk Factors15 Item 1B.Unresolved Staff Comments29 Item 2.Properties29 Item 3.Legal Proceedings29 Item 4.Mine Safety Disclosures30 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities31 Item 6.Selected Financial Data33 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations36 Item 7A.Quantitative and Qualitative Disclosures About Market Risk61 Item 8.Financial Statements and Supplementary Data62 Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure117 Item 9A.Controls and Procedures117 Item 9B.Other Information118 PART III Item 10.Directors, Executive Officers and Corporate Governance119 Item 11.Executive Compensation119 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters119 Item 13.Certain Relationships and Related Transactions, and Director Independence119 Item 14.Principal Accounting Fees and Services119 PART IV Item 15.Exhibits, Financial Statement Schedules119 SIGNATURES127 EXHIBIT INDEX 3 PART I Item 1.Business. Background The Providence Service Corporation (the “Company” or “Providence”), a Delaware corporation formed in 1996, is a holding company, whosesubsidiaries provide critical healthcare and workforce development services. The Company operates within two key industry sectors-US healthcare andglobal workforce development-through its three operating segments: Non-Emergency Transportation Services (“NET Services”), Workforce DevelopmentServices (“WD Services”) and Health Assessment Services (“HA Services”). NET Services coordinates non-emergency transportation for individualswhose limited mobility and/or financial resources would otherwise hinder them from accessing necessary healthcare and social services. WD Servicesprimarily provides employability and offender rehabilitation services to eligible participants of government sponsored programs. HA Services, providescare optimization and delivery solutions, including comprehensive health assessments (“CHAs”) for health plans as well as in-home care managementofferings. Ingeus Proprietary Limited and its wholly and partly-owned subsidiaries and associates (collectively, “Ingeus”) was acquired on May 30, 2014,and is included in WD Services. CCHN Group Holdings, Inc. and its wholly-owned subsidiaries and affiliates operating under the tradename Matrix(“Matrix”) was acquired on October 23, 2014, and is included in HA Services. On November 1, 2015, we completed the sale of the Human Servicessegment, which is accounted for as a discontinued operation. As of December 31, 2015, we operated in 44 states and the District of Columbia in the United States (“US”), and in 11 countries outside of the US. Holding Company Strategy Our holding company strategy is designed to increase shareholder value through positive returns on invested capital and free cash flow generation,which in turn is predicated upon the continued development and efficient delivery of critical and high quality services. Our current service offerings arebased upon a common purpose of delivering exceptional value in the healthcare and workforce development service industries, primarily in a communityor home setting. In order to meet our goal of increasing shareholder value, we have established certain priorities at both the holding company and segmentleadership levels. The priorities of our leadership at the holding company level include: 1) pursuing the highest standards of governance, values andcompliance, 2) ensuring operating excellence by attracting, developing, and retaining empowered and accountable segment level leadership with deepindustry experience, and 3) allocating capital opportunistically in markets that may be inefficient or where we have an ability to invest at a discount tointrinsic value, particularly where our experience, analysis, and long-term perspective can provide an advantage over competitors. As demonstrated in2015 with the divestiture of our Human Services segment, we also may dispose of current or future investments based on a variety of factors, includingavailability of alternative opportunities to deploy capital or otherwise maximize shareholder value as well as other strategic considerations. Within our current segments, we seek to leverage our market reputation, customer relationships, and core competencies to capture growthopportunities within our current markets and service lines. We also intend to utilize these assets to expand organically and through acquisitions intoadjacent markets and complementary service lines. Our core competencies include developing and managing large provider networks, tailoringhealthcare and workforce development service offerings to the unique needs of diverse communities and populations, and designing service deliverymodels to achieve superior outcomes in low cost settings. We also continuously strive to capture service delivery efficiencies while also improving thequality of our offerings. 4 Holding Company Competition In identifying, evaluating and selecting strategic opportunities, we may encounter intense competition from other entities having similarbusiness objectives, such as strategic investors, private equity groups and special purpose acquisition corporations. Many of these entities are wellestablished and have extensive experience identifying and effecting transactions directly or through affiliates. These competitors may possess greaterhuman and other resources than us, and our financial resources may be relatively limited in comparison. Any of these factors may place us at acompetitive disadvantage in contrast to our competitors. Holding Company Employees In the execution of our holding company strategy, our 30 person holding company staff utilizes their investment experience in both public andprivate markets, previous operational leadership in a variety of industries, as well as other typical public holding company capabilities, includingcompetencies in the areas of accounting, tax, human resource, information technology and legal. Our colleagues may also supplement our segmentleadership teams in the areas of strategic development, operational and financial improvement, and cross segment sales or operational synergies on aselective basis. During 2016, we intend to relocate our executive offices to700 Canal St., Stamford, CT, 06901. Financial information about our segments The Company operates in three segments, NET Services, WD Services and HA Services. Financial information about segments and geographicareas, including revenues, operating income (loss), and long-lived assets of each segment and geographic information is included in Note 23, Segments,of our consolidated financial statements presented elsewhere in this report and is incorporated herein by reference. Additionally, see Item 1A, RiskFactors, for a discussion of risks related to our operations. Effective November 1, 2015, we sold our Human Services segment. The operating results of the Human Services segment have been reclassified intodiscontinued operations in the consolidated financial statements in all periods presented. Our Operating Segments NET Services Services offered. NET Services provides non-emergency transportation solutions to clients in 39 states and the District of Columbia. As ofDecember 31, 2015, approximately 24.8 million individuals were eligible to receive our transportation services. For 2015, 2014 and 2013, NET Servicesaccounted for 63.9%, 77.8% and 96.4%, respectively, of our consolidated revenue. NET Services contracts with state and regional Medicaid programs, local government agencies, hospital systems, and managed care organizations(“MCOs” and collectively “NET payers”) for the coordination of their members’ (“NET end-users”) non-emergency transportation needs. NET end-usersare typically Medicaid or Medicare eligible members, whose limited mobility and/or financial resources would otherwise hinder their ability to accessnecessary healthcare and social services. We believe our transportation services not only improve the quality of life and health of the populations weserve, but also keep individuals in their homes and out of more expensive institutional care settings. To fulfill the transportation needs of NET end-users, we have established a contracted network of approximately 5,000 independent transportationproviders, including operators of wheelchair equipped vehicles, multi-passenger vans, taxis, and ambulances. To ensure the safety, quality, andcompliance of our network, each of our transportation providers undergoes an in-depth credentialing process, including: (i) criminal background checks,driving record checks, and drug testing of drivers; (ii) driver training on first aid, patient sensitivity, and cultural diversity; (iii) inspections of vehiclesand communication systems; and (iv) demonstration of adequate insurance coverage. We receive transportation requests directly from NET end-users ortheir representatives, such as social workers, through our call/support centers and utilize a proprietary technology platform to coordinate trips in anefficient and user friendly manner. A significant percentage of our transports are standing orders, mostly for patients who require frequent, recurringservices such as dialysis treatment, mental health services, physical therapy, or adult day care services. Non-standing orders include more ad hoc needs fortransportation including doctor visits, dental appointments, and hospital discharges. 5 Revenue and payers. We contract primarily with state and local government entities and MCOs. Contracts with state Medicaid agencies representthe largest source of our revenue. State payer contracts are typically for three to five years with renewal options. NET Services derived approximately15.0%, 17.0% and 15.3% of revenue from a single state payer for the years ended December 31, 2015, 2014 and 2013, respectively. The next four largestNET payers in the aggregate comprised approximately 24.2%, 26.2% and 28.4% of NET Services’ revenue for the years ended December 31, 2015, 2014and 2013, respectively. Approximately 83.6% of NET Services’ revenue in 2015 was generated under capitated contracts where we assume the responsibility of meeting thecovered healthcare related transportation requirements of a specific population. Capitated contracts are generally structured with fixed per member, permonth payment rates based upon the defined scope of work, actual historical transportation data for the defined population and geographical region to beserved, future assumptions on key costs which includes the purchase price of various levels of transport as well as the program population’s futurebehavior and the necessity of the program. Historically, under a majority of the contracts, we received payment at the outset of the contract month.However, recently certain states have introduced reconciliation contracts, whereby payment is received after the contract month, based upon areconciliation of the member count. Approximately 14.0% of NET Services’ revenue in 2015 was derived from fee for service and flat fee contracts, underwhich fees are generated based upon billing rates for specific services or defined membership populations. Seasonality. The quarterly operating income and cash flows of NET Services normally fluctuate as a result of seasonal variations in the business,principally due to lower NET end-user demand during the holiday and winter seasons. While revenue is generally fixed, primarily as a result of thecapitated nature of the majority of our contracts, service expense varies based on NET end-user utilization of our services. Thus, we experience quarterlyfluctuations in operating income as a result of this seasonal demand. Competition. We compete with a variety of organizations that provide similar healthcare and social services related transportation, such asAmerican Medical Response, Inc., Medical Transportation Management Inc., and SoutheasTrans, Inc. as well as local and regional providers. Most localcompetitors seek to win contracts for specific counties or small geographic territories whereas we and other larger competitors seek to win contracts for anentire state or large regional area. Historically, we have been successful in competitively bidding for state-wide or other large Medicaid populationprograms. We compete based on our technical expertise and experience, which is delivered in a high service, competitive price environment, although weare not necessarily the lowest priced provider in many instances. Business development. In states where we have regional contracts, we generally seek to expand our services to additional regions in these statesand in contiguous states, in order to improve operating efficiencies and opportunities for our existing operational network. We make decisions aboutwhich RFPs to consider centrally, selectively targeting contracts based on our profitability goals and service capabilities. HA Services Services offered. HA Services provides care optimization and delivery solutions, which primarily includes comprehensive health assessments(“CHAs”), but also includes in-home and community-based care management offerings. HA Services utilizes a national network of approximately 800nurse practitioners (“NPs”), located across 35 states, to provide its services primarily to members of Medicare Advantage (“MA”) health plans. For 2015and 2014, HA Services accounted for 12.8% and 3.8%, respectively, of our consolidated revenue. The increase in revenue is due to the acquisition ofMatrix in October 2014. HA Services primarily generates revenue from CHAs, which capture a health plan members’ health, social, environment and medication risks. Ourservices typically commence with a member analysis that utilizes client data, such as medical claims data, to maximize our ability to improve client andmember outcomes as a result of the assessment process. 6 Through our contact centers, which include almost 165 colleagues, we pursue additional data collection and schedule assessments. Our NPs thenspend up to 60 minutes in the member’s home conducting a comprehensive CHA, which is comprised of a number of distinct components. In addition tochecking vital signs and performing a physical examination, our NPs review the member’s health history and medical prescriptions, conduct a depressionscreening, evaluate the immediate residential setting for any physical safety issues, review recommended screening tests, and conduct a series of geriatricscreens for fall risks, nutrition, and cognitive function. As the evaluation is intended to provide a complete clinical assessment, our NPs are also trained torecord all diagnoses of medical conditions. The data collected during the CHA is captured electronically on a portable tablet. The CHA process is specifically designed to engage andcoordinate with the member’s full care network in order to facilitate follow-up care and treatment. Following each CHA, educational and clinicalinformation is shared with the member, the member’s primary healthcare provider and health plan to identify and close gaps in care. The CHA capturesaccurate and detailed health diagnoses, which also assists our health plan customers in determining the appropriate reimbursement levels for their memberbase. In addition to identifying opportunities to improve and optimize care, our service offering can deliver immediate impact on care outcomes. In addition to our primary CHA services, we launched a chronic care management offering in 2015. With data provided by our health planclients, we utilize analytics to determine which members we can most effectively lower costs and improve outcomes through face-to-face engagementswith clinicians. Each program is customized and is served by a comprehensive team of case managers, nurse practitioners, registered nurses, and trainedcall center colleagues. We anticipate our chronic care management offering will become an increasing proportion of HA Services’ revenue over the nexttwo to three years. Revenue, payers and clients. As of December 31, 2015, HA Services’ customers included approximately 40 health plans, including for profitmulti-state health plans and non-profit health plans that operate in only one state or several counties within one state. HA Services serves many of thelargest and most prestigious health plans and health systems in the US. For the year ended December 31, 2015, HA Services’ top five customers accountedfor approximately 73.6% of its revenue, and its largest customer accounted for approximately 31.1% of its revenue. HA Services enters into annual ormulti-annual contracts with its customers under which it is paid on a per assessment basis. Seasonality. Historically, we have experienced higher CHA volume in the second half of the calendar year as a result of an accelerating demandtowards calendar year-end. However, in 2015, CHAs were performed more evenly throughout the year as we worked to balance our volume to moreefficiently utilize our NPs. Competition. We believe that Matrix and CenseoHealth are the largest independent providers of CHAs to the health plan market. There are manysmaller volume competitors, including Advance Health, EMSI Healthcare Services, MedXM, and Inovalon, Inc. Some plans in-source CHA services fortheir members through their own network of NPs, including some plans which also utilize our services Our services are often priced at a premium relativeto our competitors, and we believe we will continue to maintain a pricing differential as a result of: (i) our national footprint across 35 states, (ii)sophisticated stratification techniques to identify gaps in data and care, (iii) multi-channel member engagement capabilities, (iv) the benefits of HAServices’ community-based NPs, (v) greater control, uniformity and consistency in delivering high quality services for beneficiaries, and (vi) our abilityto execute and deliver the assessment goals of our customers. Our chronic care management competitors include Landmark Healthcare, PopHealthcareand Optum. Business development. Our business development capabilities are key to capitalizing on our significant market and growth opportunities. Whilewe have historically been led by a small team of account managers and sales personnel, we believe that additional strategic investments in sales andmarketing will enable us to increasingly seize on the healthcare industry’s need for expanded assessment offerings and chronic care managementsolutions. To that end, we are expanding our dedicated sales personnel, which includes focused sales professionals who have expertise in certain fields,including chronic care management. Marketing strategies include sponsorship and partnership of key industry conferences, client-focused events andprograms, and face-to-face marketing. 7 WD Services Services offered. WD Services provides workforce development and offender rehabilitation services, both of which include employmentpreparation and placement, apprenticeship and training, and certain health related services, such as employee assistance programs. For 2015, 2014 and2013, WD Services accounted for 23.3%, 18.4% and 3.6%, respectively, of our consolidated revenue. The growth in revenue is principally due to theacquisition of Ingeus in May 2014. WD Services’ end user client base (“WD end-users”) is broad, and includes both the recently and long-term unemployed, disabled, and unskilledindividuals, as well as individuals that are coping with medical illnesses, are newly graduated from educational institutions, or have been released fromincarceration. As of December 31, 2015, WD Services operated across 12 countries, including the United Kingdom (“UK”), Australia, France, Saudi Arabia, SouthKorea, Canada, the US, Germany, Poland, Spain, Sweden, and Switzerland. However, the operations in Sweden will cease during 2016. Revenue, payers and clients. The majority of our revenues are generated by providing employability and training programs with nationalgovernment entities seeking to reduce unemployment or recidivism rates. For the years ended December 31, 2015 and 2014, approximately 75.5% and66.6%, respectively, of WD Services’ revenue was derived from operations in the UK. Additionally, approximately 40.0% and 57.2% of our WD Services’revenue was derived from a single government customer during the years ended December 31, 2015 and 2014, respectively. During the year endedDecember 31, 2015, approximately 28.2% of WD Services’ revenue was derived from the second largest WD Services customer. The nature of services offered by WD Services often relies on our ability to improve a certain set of outcomes at a reduced cost versus previouslyutilized in-sourced delivery models. As a result, as we commence new contracts with new transformational delivery models, we are required to investsignificant upfront capital for information technology, facilities and transformational costs, such as consultants and redundancy payments. The level ofupfront funding required is dependent upon the size and nature of the contract. Although significant upfront funding may be required, revenues are oftenpayable only as services are delivered and in some cases only after incentive measures have been achieved. As a result of these two factors, there can besignificant variability in our earnings from quarter to quarter, and from year to year. Thus, we measure our contracts success over the term of the contractand believe the financial results of WD Services are best viewed over a multi-year perspective. Seasonality. While there has been period-to-period variability in WD Services’ earnings due to the factors discussed above and also set forth inItem 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – How We Earn our Revenue – WD Services,” there hasnot been a material seasonal effect on the WD Services’ results of operations. Competition. In the UK, Australia and Saudi Arabia, the workforce development and offender rehabilitation market is served primarily by largemulti-national corporations that provide a wider range of outsourced services than we offer. In Canada, France, Germany, South Korea, Spain, Sweden,Switzerland, and the US, our competition primarily consists of small, privately owned companies. Our larger competitors include Maximus, Capita, G4S,Sodexo, Interserve and Serco. The market for services to governments is competitive and subject to change and pricing pressure, particularly during the bidding for contractrenewals. However, due to the critical nature of our offerings and the end-users we serve, market entry can be difficult for new entrants or those withoutprevious examples of service excellence. In addition, due to the complexity, significant upfront investment, and long-term nature of the contracts, barriersto entry exist for those potential new competitors without prior, relevant experience. Business development. Our business development activities are performed at both the local level as well as centrally in WD Services’ Londonheadquarters. Through local and global networks and relationships, we become aware of new opportunities for which we develop bids throughcompetitive processes. The nature of the competitive processes varies from highly competitive to being one of a few, or the sole, service providers to bidon a contract. 8 Our primary focus is on expanding our portfolio of national contracts within our areas of expertise. However, other key elements of our long-termstrategy include leveraging our expertise in certain adjacent niche or inefficient markets, expanding our services to private corporations, and increasingthe provision of skills and training services as well as health-related services. In addition, in late 2015, our bidding process was reviewed and transformedwith an improved focus on pursuing only those contracts where we can estimate financial outcomes within our investment and risk criteria and where wecan demonstrate differentiated and improved outcomes for our clients. Employees As of December 31, 2015, we employed approximately 9,072 clinical, client service and administrative personnel. Of these employees, 3,668 workin our NET Services segment, 4,325 work in our WD Services segment and 1,049 work in our HA Services segment. We believe that our employee relations are good because we offer competitive compensation, including stock-based compensation to keyemployees, training, education assistance and career advancement opportunities. By offering competitive compensation and benefit packages to ouremployees, we believe we are able to consistently deliver high quality service, recruit qualified candidates and increase employee confidence,satisfaction and retention. None of our US employees are members of a union. We have nearly 3,000 and 370 full-time employees in the UK and France, respectively. Certainof our UK employees are members of the NAPO and Unison unions and certain of our employees in France are members of the Confederation Generale duTravail. Unionized employees in both countries have collective bargaining rights. Participation in unions is confidential under European employmentlaws. We believe we have good relationships with our employees, both unionized and non-unionized, in the US and internationally. Regulatory Environment Overview We are subject to numerous federal, state and local laws and regulations. These laws and regulations significantly affect the way in which weoperate various aspects of our business. We must also comply with state and local licensing requirements and requirements for participation in Medicare,Medicaid, requirements for contracting with MA plans, and contractual requirements imposed upon us by the state and local agencies with which wecontract for such healthcare and human services. Failure to follow the rules and requirements of these programs can significantly affect our ability to bepaid for the services we provide. In addition, our revenue is largely derived from contracts that are directly or indirectly paid or funded by government agencies, including Medicareand Medicaid. A significant decline in expenditures, or shift of expenditures or funding, could cause payers to reduce their expenditures under thosecontracts or not renew such contracts, either of which could have a negative impact on our future operating results. As funding for our contracts isdependent in part upon federal funding, such funding changes could have a significant effect on our business. The healthcare industry is highly regulated and the federal and state laws that affect our business are significant. Federal law and regulations arebased primarily upon the Medicare and Medicaid programs, each of which is financed, at least in part, with federal money. State jurisdiction is basedupon a state’s authority to license certain categories of healthcare professionals and providers and the state’s interest in regulating the quality ofhealthcare in the state, regardless of the source of payment. The significant areas of federal and state regulatory laws that may affect our business, include,but are not limited to the following: ●false and other improper claims; ●the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its privacy, security, breach notification and enforcementand code set regulations, along with evolving state laws protecting patient privacy and requiring notifications of unauthorized access to,or use of, patient medical information; ●civil monetary penalties law; ●anti-kickback laws; ●the Stark Law and other self-referral and financial inducement laws; ●CMS regulations pertaining to Medicare as well as CMS releases applicable to the operation of MA plans, such as reimbursement rates, riskadjustment methodologies, adjustments to quality management measurements and other relevant factors; and ●state licensure laws. 9 A violation of any law could result in civil and criminal penalties, the refund of monies paid by government and/or private payers, our exclusionfrom participation in federal healthcare payer programs, and/or the loss of our license to conduct business within a particular state’s boundaries. Althoughwe believe that we are able to maintain material compliance with all applicable laws, these laws are complex and a review of our practices by a court, orapplicable law enforcement or regulatory authority, could result in an adverse determination that could harm our business. Furthermore, the lawsapplicable to our business are subject to change, interpretation and amendment, which could adversely affect our ability to conduct our business. Federal Law Federal healthcare laws apply in any case in which we are providing an item or service that is reimbursable by a federal healthcare payerprogram. The principal federal laws that affect our business include those that prohibit the filing of false or improper claims with federal healthcare payerprograms and those that prohibit unlawful inducements for the referral of business reimbursable under federal healthcare payer programs. False and Other Improper Claims Under the federal False Claims Act (31 U.S.C. §§ 3729-3733) and similar state laws, the government may impose civil liability on us if weknowingly submit, or participate in submitting, any claims for payment to the federal or state government that are false or fraudulent, or that contain falseor misleading information. The False Claims Act defines a claim as a demand for money or property made directly to the government or to a contractor,grantee, or other recipient if the money is to be spent on the government’s behalf or if the government will reimburse the contractor or grantee. Liabilitycan be incurred for submitting (or causing another to submit) false claims with actual knowledge or for submitting false claims with reckless disregard ordeliberate ignorance. Liability can also be incurred for knowingly making or using a false record or statement to receive payment from the federalgovernment or for knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the government.Consequently, a provider need not take an affirmative action to conceal or avoid an obligation to the government, but the mere retention of anoverpayment from the government could lead to potential liability under the False Claims Act. If we are ever found to have violated the False Claims Act, we could be required to make significant payments to the government (includingdamages and penalties in addition to the return of reimbursements previously collected) and could be excluded from participating in federal healthcareprograms. Many states also have similar false claims statutes. In addition, healthcare fraud is a priority of the US Department of Justice, Office of InspectorGeneral and the Federal Bureau of Investigation and state Attorneys General. These agencies have devoted a significant amount of resources toinvestigating healthcare fraud. While the criminal statutes generally are reserved for instances evidencing fraudulent intent, the civil and administrative penalty statutes arebeing applied by the federal government in an increasingly broad range of circumstances. Examples of the types of activities giving rise to liability forfiling false claims include billing for services not rendered, misrepresenting services rendered (i.e., mis-coding) and applications for duplicatereimbursement. Additionally, the federal government takes the position that a pattern of claiming reimbursement for unnecessary services violates thesestatutes if the claimant should have known that the services were unnecessary. The federal government also takes the position that claimingreimbursement for services that are substandard is a violation of these statutes if the claimant should have known that the care was substandard. Criminalpenalties also are available in the case of claims filed with private insurers if the federal government shows that the claims constitute mail fraud or wirefraud or violate any of the federal criminal healthcare fraud statutes. State Medicaid agencies and state Attorneys General also have authority to seek criminal or civil sanctions for fraud and abuse violations. Inaddition, private insurers may bring actions under state false claim laws. In certain circumstances, federal and state laws authorize private whistleblowersto bring false claim or “qui tam” suits on behalf of the government against providers and reward the whistleblower with a portion of any final recovery. Inaddition, the federal government has engaged a number of private audit organizations to assist it in tracking and recovering claims for healthcare servicesthat may have been improperly submitted. 10 Governmental investigations and whistleblower “qui tam” suits against healthcare companies have increased significantly in recent years, andhave resulted in substantial penalties and fines. Although we monitor our billing practices for compliance with applicable laws, such laws are verycomplex, and we might not be able to detect all errors or interpret such laws in a manner consistent with a court or an agency’s interpretation. Health information practices Under HIPAA, the US Department of Health and Human Services (“DHHS”) issued rules to define and implement standards for the electronictransactions and code sets for the submission of transactions such as claims, and privacy and security of individual health information in whatever mannerit is maintained. The Final Rule on Enforcement of the HIPAA Administrative Simplification provisions, including the transaction standards, the security standardsand the privacy rule, published by DHHS addresses, among other issues, DHHS’s policies for determining violations and calculating civil monetarypenalties, how DHHS will address the statutory limitations on the imposition of civil monetary penalties, and various procedural issues. The rule extendsenforcement provisions currently applicable to the healthcare privacy regulations to other HIPAA standards, including security, transactions and theappropriate use of service code sets. The Health Information Technology for Economic and Clinical Health Act, (“HITECH”), enacted as part of the American Recovery andReinvestment Act of 2009, extends certain of HIPAA’s obligations to parties providing services to healthcare entities covered by HIPAA known as“business associates,” imposes new notice of privacy breach reporting obligations, extends enforcement powers to state attorney generals and amends theHIPAA privacy and security laws to strengthen the civil and criminal enforcement of HIPAA. HITECH establishes four categories of violations that reflectincreasing levels of culpability, four corresponding tiers of penalty amounts that significantly increase the minimum penalty amount for each violation,and a maximum penalty amount of $1.5 million for all violations of an identical provision. With the additional HIPAA enforcement power underHITECH, the Office of Civil Rights of the Department of Health and Human Services and states are increasing their investigations and enforcement ofHIPAA compliance. We have taken steps to ensure compliance with HIPAA and we are monitoring compliance on an ongoing basis. Additionally, the HITECH Final Rule imposes various requirements on covered entities and business associates, and expands the definition of“business associates” to cover contractors of business associates. We are continuing to assess our compliance obligations under HIPAA as modified byHITECH, and are implementing operational and systems changes, associate education and resources. There is no guarantee that we will be able toimplement them adequately given HIPAA’s complexity and the recently finalized HIPAA and HITECH regulations, which may be subject to changingand perhaps conflicting interpretation. Our ongoing ability to comply with all of the HIPAA requirements is uncertain, which may expose us to thecriminal and increased civil penalties provided under HITECH and may require us to incur significant costs in order to seek to comply with itsrequirements. Federal and state anti-kickback laws Federal law commonly known as the “Anti-Kickback Statute” prohibits the knowing and willful offer, solicitation, payment or receipt of anythingof value (direct or indirect, overt or covert, in cash or in kind) which is intended to induce: the referral of an individual for a service for which paymentmay be made by Medicare, Medicaid or certain other federal healthcare programs; or the ordering, purchasing, leasing, or arranging for, or recommendingthe purchase, lease or order of, any service or item for which payment may be made by Medicare, Medicaid or certain other federal healthcare programs. Interpretations of the Anti-Kickback Statute have been very broad and under current law, courts and federal regulatory authorities have stated thatthis law is violated if even one purpose (as opposed to the sole or primary purpose) of the arrangement is to induce referrals. Even bona fide investmentinterests in a healthcare provider may be questioned under the Anti-Kickback Statute if the government concludes that the opportunity to invest wasoffered as an inducement for referrals. 11 This act is subject to numerous statutory and regulatory “safe harbors.” The safe harbor regulations, however, do not cover all lawful relationshipsbetween healthcare providers and referral sources. Failure of an arrangement to satisfy all of the requirements of a particular safe harbor does not mean thatthe arrangement is unlawful. However, it may mean that such an arrangement will be subject to scrutiny by the regulatory authorities. While we believe that our operations are in compliance with applicable Medicare and Medicaid fraud and abuse laws, there can be no guarantee.We seek to structure all applicable arrangements to comply with applicable safe harbors where reasonably possible. There is a risk however, that thefederal government might investigate such arrangements and conclude they violate the Anti-Kickback Statute. If our arrangements are found to violatethe Anti-Kickback Statute, we, along with our clients would be subject to civil and criminal penalties, which may include exclusion from participation ingovernment reimbursement programs, and our arrangements would not be legally enforceable, which could materially and adversely affect our business. Many states, including some where we do business, have adopted anti-kickback laws that are similar to the federal Anti-Kickback Statute. Some ofthese state laws are very closely patterned on the federal Anti-Kickback Statute; others, however, are broader and reach reimbursement by private payers.If our activities were deemed to be inconsistent with state anti-kickback or illegal remuneration laws, we could face civil and criminal penalties or bebarred from such activities, any of which could harm our business. Federal and State Self-Referral Prohibitions We may be subject to federal and state statutes banning payments for referrals of patients and referrals by physicians to healthcare providers withwhom the physicians have a financial relationship. Section 1877 of the Social Security Act, also known as the “Stark Law”, prohibits physicians frommaking a “referral” for “designated health services” for Medicare (and in many cases Medicaid) patients from entities or facilities in which suchphysicians directly or indirectly hold a “financial relationship”. A financial relationship can take the form of a direct or indirect ownership, investment or compensation arrangement. A referral includes the requestby a physician for, or ordering of, or the certifying or recertifying the need for, any designated health services. Certain services that we provide may be identified as “designated health services” for purposes of the Stark Law. We cannot provide assurance thatfuture regulatory changes will not result in other services we provide becoming subject to the Stark Law’s ownership, investment or compensationprohibitions in the future. Many states, including some states where we do business, have adopted similar or broader prohibitions against payments that are intended toinduce referrals of clients. Moreover, many states where we operate have laws similar to the Stark Law prohibiting physician self-referrals. We contractwith a significant number of human services providers and practitioners, including therapists, physicians and psychiatrists, and arrange for theseindividuals or entities to provide services to our clients. While we believe that these contracts are in compliance with the Stark Law, no assurance can bemade that such contracts will not be considered in violation of the Stark Law. Healthcare Reform On March 23, 2010, the President of the United States signed into law comprehensive health reform through the Patient Protection andAffordable Care Act (Pub. L. 11-148) (“PPACA” or “ACA”). On March 30, 2010, the President signed a reconciliation budget bill that includedamendments to the PPACA (Pub. L. 11-152). These laws in combination form the “Health Care Reform Act” referred to herein. The changes to variousaspects of the healthcare system in the Health Care Reform Act are far-reaching and include, among many others, substantial adjustments to Medicarereimbursement, establishment of individual mandates for healthcare coverage, extension of coverage to certain populations, expansion of Medicaid,restrictions on physician-owned hospitals, and increased efficiency and oversight provisions. Some of the provisions of the Health Care Reform Act took effect immediately, while others will take effect later or will be phased in over time,ranging from a few months following approval to ten years. Due to the complexity of the Health Care Reform Act, it is likely that additional legislationwill be considered and enacted. The Health Care Reform Act requires the promulgation of regulations that will likely have significant effects on thehealthcare industry and third party payers. Thus, the healthcare industry and our operations may be subjected to significant new statutory and regulatoryrequirements and contractual terms and conditions, and consequently to structural and operational changes and challenges. 12 The Health Care Reform Act also implements significant changes to healthcare fraud and abuse laws that will intensify the risks andconsequences of enforcement actions. These include expansion of the False Claims Act by: (a) narrowing the public disclosure bar; and (b) explicitlystating that violations of the Anti-Kickback Statute trigger false claims liability. In addition, the Health Care Reform Act lessens the intent requirementsunder the Anti-Kickback Statute to provide that a person may violate the statute without knowledge or specific intent. The Health Care Reform Act alsoprovides new funding and expanded powers to investigate fraud, including through expansion of the Medicare Recovery Audit Contractor (“RAC”)program to Medicare Parts C and D and Medicaid and authorizing the suspension of Medicare and Medicaid payments to a provider of services pendingan investigation of a credible allegation of fraud. Finally, the legislation creates enhanced penalties for noncompliance, including increased criminalpenalties and expansion of administrative penalties under Medicare and Medicaid. Collectively, such changes could have a material adverse impact onour operations. Surveys and audits Our programs are subject to periodic surveys by government authorities and/or their contractors to ensure compliance with various requirements.Regulators conducting periodic surveys often provide reports containing statements of deficiencies for alleged failures to comply with various regulatoryrequirements. In most cases, if a deficiency finding is made by a reviewing agency, we will work with the reviewing agency to agree upon the steps to betaken to bring our program into compliance with applicable regulatory requirements. In some cases, however, an agency may take a number of adverseactions against a program, including: • the imposition of fines or penalties; • temporary suspension of admission of new clients to our program’s service; • in extreme circumstances, exclusion from participation in Medicaid, Medicare or other programs; • revocation of our license; or • contract termination. While we believe that our programs are in compliance with Medicare, Medicaid and other program certification requirements and state licensurerequirements, failure to comply with these requirements could have a material adverse impact on our business and our ability to enter into contracts withother agencies to provide services. Billing/claims reviews and audits Agencies and other payers periodically conduct pre-payment or post-payment medical reviews or other audits of our claims. In order to conductthese reviews, payers request documentation from us and then review that documentation to determine compliance with applicable rules and regulations,including the eligibility of clients to receive benefits, the appropriateness of the care provided to those clients, and the documentation of that care. Anydetermination that we have not complied with applicable rules and regulations could result in adjustment of payments or the incurrence of fines andpenalties, or in situations of significant compliance failures review or non-renewal of related contracts. Corporate practice of medicine and fee splitting Some states in which we operate prohibit general business entities, such as we are, from “practicing medicine,” which definition varies from state tostate and can include employing physicians, as well as engaging in fee-splitting arrangements with these healthcare providers. Among other things, wecurrently contract with and employ NPs to perform CHAs. We believe that we have structured our operations appropriately; however, we could be allegedor found to be in violation of some or all of these laws. If a state determines that some portion of our business violates these laws, it may seek to have usdiscontinue those portions or subject us to penalties, fines, certain license requirements or other measures. Any determination that we have actedimproperly in this regard may result in liability to us. In addition, agreements between the corporation and the professional may be considered void andunenforceable. 13 Professional licensure and other requirements Many of our employees are subject to federal and state laws and regulations governing the ethics and practice of their professions. For example,our mid-level practitioners, e.g., NPs, are subject to state laws requiring physician supervision and state laws governing mid-level scope of practice. As theuse of mid-levels by physicians increases, state governing boards are implementing more robust regulations governing mid-levels and their scope ofpractice under physician supervision. Our ability to provide mid-level practitioner services may be restricted by the enactment of new state lawsgoverning mid-level scope of practice and by state agency interpretations and enforcement of such existing laws. In addition, professionals who areeligible to participate in Medicare and Medicaid as individual providers must not have been excluded from participation in government programs at anytime. Our ability to provide services depends upon the ability of our personnel to meet individual licensure and other requirements. International Regulation of WD Services segment As a provider of WD services in multiple international jurisdictions, we are subject to numerous national and local laws and regulations. Theselaws and regulations significantly affect the way in which we operate various aspects of our business. We must also comply with contract-specifictechnical and infrastructure requirements. Failure to follow the rules and requirements of these programs can significantly affect our ability to be paid forthe services we provide. In addition, our revenue is primarily derived from contracts that are funded by national governments that are seeking to reducethe overall unemployment rate, or improve job placement success for targeted cohorts, and the recidivism rate. Further, the revenue we receive from thesecontracts is typically tied to milestones that are largely uncontrolled by us. Such milestones include the job placement success of clients, duration andtenure of clients in jobs once they are placed, and various other market and industry factors including the overall unemployment rate. A significantdecline in national and local government initiatives to provide funding for employment programs, or shift of expenditures or funding, could causegovernment sponsors to reduce their expenditures under those contracts or not renew such contracts, either of which could have a negative impact on ourfuture operating results. Our WD Services segment is also subject to the European Union’s and other countries’ data security and protection laws and regulations. Theselaws and regulations may restrict the flow of information, including information about employees or service users, from this segment to the Company inthe United States. In certain instances, informed consent to the data transfer must be given by the affected employee or service user. Compliance with suchlaws and regulations may make it more difficult for the Company to gather data necessary to ensure the appropriate operation of its internal controls or todetect corruption resulting in the need for additional controls or increasing the Company’s costs to maintain appropriate controls. Failure to comply withsuch laws and regulations could result in fines or penalties against the Company. Further, our international operations are subject to various US and foreign statutes that prevent bribery and corruption, including the US ForeignCorrupt Practices Act and the UK’s Bribery Act. These statutes generally prevent the provision of anything of value to government officials for thepurposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment and require the maintenance ofadequate record-keeping and internal accounting practices to accurately reflect transactions. In addition, many countries in which we operate haveantitrust or competition regulations which prohibit collusive tendering or bid-rigging behavior. Failure to comply with any of these statutes andregulations could result in fines or penalties and could have a negative impact on our future operations. Additional Information Our website is www.prscholdings.com. We make available, free of charge at this website, our annual report on Form 10-K, quarterly reports on Form10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the United States Securities and ExchangeCommission. The information on the website listed above is not and should not be considered part of this annual report on Form 10-K and is notincorporated by reference in this document. In addition, we will provide, at no cost, paper or electronic copies of our Forms 10-K, 10-Q and 8-K andamendments to those reports filed with or furnished to the Securities and Exchange Commission. Requests for such filings should be directed to DavidShackelton, Chief Financial Officer, telephone number: (520) 747-6600. 14 Item 1A.Risk Factors. The following risks should be read in conjunction with other information contained, or incorporated by reference, in this report, including the“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and our consolidated financial statements andrelated notes. If any of the following risks actually occurs, our business, financial condition and operating results could be adversely affected. General Risks Our annual operating results and stock price may be volatile or may decline regardless of our operating performance. Our annual operating results and the market price for our common stock may fluctuate significantly in response to a number of factors, most of whichwe cannot control, including: •changes in rates or coverage for services by payers; •changes in Medicare, Medicaid or other federal or state rules, regulations, policies or applicable foreign regulations; •the development of increased competition; •price and volume fluctuations in the overall stock market; •changes in the competitive landscape of the market for our services, including new entrants to the market; •market conditions or trends in our industry or the economy as a whole; •increased competition in any of our segments, including through insourcing of services by our clients; •other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events; and •changes in accounting principles. In addition, the stock markets, and in particular the NASDAQ Global Market, have experienced considerable price and volume fluctuations that haveaffected and continue to affect the market prices of equity securities of many companies. In the past, stockholders have instituted securities class actionlitigation following periods of market volatility. If we become involved in securities litigation, we could incur substantial costs, and our resources and theattention of management could be diverted from our business. We obtain a significant portion of our business through responses to government requests for proposals and we may not be awarded contracts throughthis process in the future, or contracts we are awarded may not be profitable. We obtain, and will continue to seek to obtain, a significant portion of our business from national, state, and local government entities. To obtainbusiness from government entities, we are often required to respond to RFPs. To propose effectively, we must accurately estimate our cost structure forservicing a proposed contract, the time required to establish operations and the terms of the proposals submitted by competitors. We must also assembleand submit a large volume of information within rigid and often short timetables. Our ability to respond successfully to RFPs will greatly impact ourbusiness. We may not be awarded contracts through the RFP process, and our proposals may not result in profitable contracts. If we fail to establish and maintain important relationships with officials of government entities and agencies, we may not be able to successfullyprocure or retain government-sponsored contracts, which could negatively impact our revenues. To facilitate our ability to procure or retain government-sponsored contracts, we rely in part on establishing and maintaining relationships withofficials of various government entities and agencies. These relationships enable us to provide informal input and advice to the government entities andagencies prior to the development of an RFP or program for privatization of healthcare and workforce development services and we believe they enhanceour chances of procuring contracts with these payers. The effectiveness of our relationships may be reduced or eliminated with changes in the personnelholding various government offices or staff positions. We also may lose key personnel who have these relationships. We may be unable to successfullymanage our relationships with government entities and agencies and with elected officials and appointees. Any failure to establish, maintain or managerelationships with government and agency personnel may hinder our ability to procure or retain government-sponsored contracts. 15 Government unions may oppose privatizing government programs to outside vendors such as us, which could limit our market opportunities. Our success depends in part on our ability to win contracts to administer and manage programs traditionally administered by governmentemployees. Many government employees, however, belong to labor unions with considerable financial resources and lobbying networks. These unionscould apply opposing political pressure on legislators and other officials seeking to privatize government programs. Union opposition could result in ourlosing government contracts or being precluded from providing services under government contracts, or maintaining or renewing existing contracts. Theability to renew and obtain new contracts is critical to our financial success. If we could not renew certain contracts, or obtain new contracts, due toopposition political actions, it could have a material adverse impact on our operating results. Inaccurate, misleading or negative media coverage could damage our reputation and harm our ability to procure government sponsored contracts. The media sometimes provides news coverage about our contracts and the services we or our competitors provide to clients in our sectors. Thismedia coverage, if negative, could influence government officials to slow the pace of privatizing or retendering government services. Moreover,inaccurate, misleading or negative media coverage about us could harm our reputation and, accordingly, our ability to obtain government sponsoredcontracts. Our business is subject to risks of litigation. The services we provide across our three segments are subject to lawsuits and claims. A substantial award could have a material adverse impact onour operations and cash flows, and could adversely impact our ability to continue to purchase appropriate liability insurance. We can be subject to claimsfor negligence or intentional misconduct (in addition to professional liability type claims) by an employee or a third party we engage to assist with theprovision of services, including but not limited to claims arising out of accidents involving vehicle collisions, workforce development placements orCHAs and various claims that could result from employees or contracted third parties driving to or from interactions with clients and while providingdirect client services. We can be subject to employee related claims such as wrongful discharge or discrimination or a violation of equal employment lawsand permitting issues. While we are insured for these types of claims, damages exceeding our insurance limits or outside our insurance coverage, such as aclaim for fraud, certain wage and hour violations or punitive damages, could adversely affect our cash flow and financial condition. We face substantial competition in attracting and retaining experienced professionals, and we may be unable to sustain or grow our business if wecannot attract and retain qualified employees. Our success depends to a significant degree on our ability to attract and retain highly qualified and experienced professionals who possess the skillsand experience necessary to deliver high quality services to our clients. Our objective of providing the highest quality of service to our clients is asignificant consideration when we evaluate education, experience and qualifications of potential candidates for employment as direct care andadministrative staff. To that end, we attempt to hire professionals and others with requisite educational backgrounds and professional certifications. Theseemployees are in great demand and are likely to remain a limited resource for the foreseeable future. The performance in each of our business segments also depends on the talents and efforts of our highly skilled intellectual technologyprofessionals. Competition for skilled intellectual technology professionals can be intense. Our success depends on our ability to recruit, retain andmotivate these individuals. Our ability to attract and retain employees with the requisite experience and skills depends on several factors including, but not limited to, ourability to offer competitive wages, benefits and professional growth opportunities. Some of the companies with which we compete for experiencedpersonnel have greater financial, technical, political and marketing resources, name recognition and a larger number of clients and payers than we do. Theinability to attract and retain experienced personnel could have a material adverse effect on our business. 16 Our success depends on our ability to manage growing and changing operations. Since 1996, our business has grown significantly in size and complexity, most recently with the acquisitions of Ingeus and Matrix in 2014. Thisgrowth has placed, and is expected to continue to place, significant demands on our management, systems, internal controls and financial and physicalresources. In addition, we expect that we will need to further develop our financial and managerial controls and reporting systems to accommodate futuregrowth. This could require us to incur significant expense for, among other things, hiring additional qualified personnel, retaining professionals to assistin developing the appropriate control systems and expanding our information technology infrastructure. The nature of our business is such that qualifiedmanagement personnel can be difficult to find. Our inability to manage growth effectively could have a material adverse effect on our financial results. Our success depends on our ability to compete effectively in the marketplace. We compete for clients and for contracts with a variety of organizations that offer similar services across all of our segments. Many organizations ofvarying sizes compete with us, including local not-for-profit organizations and community based organizations, larger companies, organizations thatprovide similar NET management services to Medicaid eligible beneficiaries in local markets, large multi-national corporations that provide WD servicesand CHA providers. Some of these companies have greater financial, technical, political, marketing, name recognition and other resources and a largernumber of clients or payers than we do. In addition, some of these companies offer more services than we do. We have experienced, and expect tocontinue to experience, competition from new entrants into the markets in which we operate. Increased competition may result in pricing pressures, loss ofor failure to gain market share or loss of clients or payers, any of which could have a material adverse effect on our operating results. Our business could be subject to security breaches and attacks. We provide services to individuals, including services that require us to maintain sensitive and personal client information, including informationrelating to their health, social security numbers and other identifying data. Therefore, our information technology systems store client informationprotected by numerous federal, state and foreign regulations. Further, our systems include interfaces to third-party stakeholders, often connected via theInternet. As a result of the data we maintain and third-party access, we are subject to increasing cyber security risks. The nature of our business, whereservices are often performed outside a secured location, adds additional risk. While we have implemented measures to detect and prevent securitybreaches and cyber-attacks, our measures may not be effective. Criminals are constantly devising schemes to circumvent information technology securitysafeguards, and other companies have recently suffered serious data security breaches. If unauthorized parties gain access to our networks or databases,they may be able to steal, publish, delete or modify our private and sensitive third-party information, including personal identification information. Inaddition, employees may intentionally or inadvertently cause data or security breaches that result in the unauthorized release of personal or confidentialinformation. Our WD Services segment has operations in many countries in Europe and these operations have access to significant amounts of sensitive personalinformation about individuals. In Europe, these operations are subject to European and national data privacy legislation, which imposes significantobligations on data processors and controllers with respect to such personal information. Similar regimes exist in other WD Service jurisdictions such asAustralia, Canada and South Korea. In addition, our contractual obligations with customers can require additional, stringent commitments in the handlingof such information, which are subject to client audit procedures and other checks, often with severe contractual penalties in the case of breach. As a result of any security breach, or loss or mishandling of data, we could incur liability, regulatory actions, fines, contractual deductions,enforcement orders or litigation, which could increase our costs and have a material adverse effect on our operating results. Further, any such breach, orloss or mishandling of data could impact our business reputation and could result in the loss of contractual relationships or make it more difficult toobtain new contracts, having an adverse effect on our business and financial performance. 17 We depend on our key personnel. Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain highly skilled individuals, with thecontinued contributions of our senior management being especially critical to our success. Competition for well-qualified employees across Providenceand its various businesses is intense and our continued ability to compete effectively depends, in part, upon our ability to attract new employees. Whilewe have established programs to attract new employees and provide incentives to retain existing employees, particularly our senior management, wecannot assure you that we will be able to attract new employees or retain the services of our senior management or any other key employees in the future.Effective succession planning is also important to our future success. If we fail to ensure the effective transfer of senior management knowledge andsmooth transitions involving senior management across our various businesses, our ability to execute short and long term strategic, financial andoperating goals, as well as our business, financial condition and results of operations generally, could be adversely affected. Regulatory Risks We conduct business in a heavily regulated healthcare industry. Compliance with existing regulations is costly, and changes in regulations orviolations of regulations may result in increased costs or sanctions that could reduce our revenue and profitability. The healthcare industry is subject to extensive federal and state regulations relating to, among other things: ●professional licensure; ●conduct of operations; ●addition of facilities, equipment and services, including certificates of need; ●coding and billing for services; and ●payment for services. Both federal and state government agencies have increased coordinated civil and criminal enforcement efforts related to the healthcare industry.Regulations related to the healthcare industry are extremely complex and, in many instances, the industry does not have the benefit of significantregulatory or judicial interpretation of those laws. The Patient Protection and Affordable Care Act has also introduced some degree of regulatoryuncertainty as the industry does not know how the changes it introduces will affect many aspects of the industry. Medicare and Medicaid anti-fraud andabuse laws prohibit certain business practices and relationships related to items and services reimbursable under Medicare, Medicaid and othergovernmental healthcare programs, including the payment or receipt of remuneration to induce or arrange for referral of patients or recommendation forthe provision of items or services covered by Medicare or Medicaid or any other federal or state healthcare program. Federal and state laws prohibit thesubmission of false or fraudulent claims, including claims to obtain reimbursement under Medicare and Medicaid. We have implemented compliancepolicies to help assure our compliance with these regulations as they become effective; however, different interpretations or enforcement of these lawsand regulations in the future could subject our practices to allegations of impropriety or illegality or could require us to make changes in our facilities,equipment, personnel, services or the manner in which we conduct our business. Our HA Services segment operates in a heavily regulated healthcare industry, and changes to the regulatory landscape could have a material adverseeffect on our results of operations and financial condition. The CHA services industry is primarily regulated by federal and state healthcare laws and the requirements of participation and reimbursement ofthe MA Program established by CMS. From time to time, CMS considers changes to regulatory guidelines with respect to prospective CHAs. CMS couldadopt new guidelines that may, for example, increase the costs associated with CHAs or limit the opportunities and settings available to administer CHAs.Further, changes in or adoption of new state laws governing the scope of practice of mid-level practitioners, or more restrictive interpretations of suchlaws, may restrict our ability to provide services using nurse practitioners. Any such implementation of additional regulations on the CHA industry byCMS or other regulatory bodies or further regulation of mid-level practitioners could have a material adverse impact on our HA Services segment’srevenues and margins, which could have a material adverse impact on our consolidated results of operations. 18 In our WD Services segment, we conduct business in several countries, each with its own system of regulation. Compliance with existing regulations iscostly, and changes in regulations or violations of regulations may result in increased costs or sanctions that could reduce our revenue andprofitability. In 2015, our WD Services segment operated in 11 countries outside the US. Each of these countries has its own national and municipal laws andregulations, and some countries such as Australia, Germany and Switzerland, have both federal and state regulations. These laws can differ significantlyfrom country to country. In addition, in Europe, countries (including the United Kingdom) are subject to European Union laws and rules. We haveimplemented compliance policies to help assure our compliance with these laws and regulations as they become effective; however, differentinterpretations or enforcement of these laws and regulations in the future could subject our practices to allegations of impropriety or illegality or couldrequire us to make changes in our facilities, equipment, personnel, services or the manner in which we conduct our business. We could be subject to actions for false claims if we do not comply with government coding and billing rules, which could have a material adverseimpact on our operating results. If we fail to comply with federal and state documentation, coding and billing rules, we could be subject to criminal and/or civil penalties, loss oflicenses and exclusion from the Medicare and Medicaid programs, which could have a material adverse impact on our operating results. In billing for ourservices to third-party payers, we must follow complex documentation, coding and billing rules. These rules are based on federal and state laws, rules andregulations, various government pronouncements, and industry practice. Failure to follow these rules could result in potential criminal or civil liabilityunder the federal False Claims Act, under which extensive financial penalties can be imposed and/or under various state statutes which prohibit thesubmission of false claims for services covered. Compliance failure could further result in criminal liability under various federal and state criminal orcivil statutes. In the WD Services segment, particularly in Europe, our contracts are subject to stringent claims and invoice processing regimes which varydepending on the customer and nature of the payment mechanism. Under European procurement legislation which has been implemented in eachEuropean Union member state, any conviction for fraud can result in a ban from participating in public procurement tenders for up to five years, or untilthe organization in question has put in place “self clean” measures to the satisfaction of the procuring authority. This could significantly affect ourbusiness given that most of our customers in Europe are governmental organizations. Any such breaches or deficiencies in paperwork associated withbilling may also be subject to contractual claw back regimes and penalties, which can be enforced many years after the revenue has been paid by therelevant authority. While we carefully and regularly review our documentation, coding and billing practices, the rules are frequently vague and confusing and wecannot assure that governmental investigators, private insurers or private whistleblowers will not challenge our practices. Such a challenge could result ina material adverse effect on our financial position and results of operations. If we fail to comply with the federal Anti-Kickback Statute, we could be subject to criminal and civil penalties, loss of licenses and exclusion from theMedicare and Medicaid programs, all of which could have a material adverse impact on our operating results. The federal Anti-Kickback Statute prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for referring, ordering,leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of items or services payable by a federally funded healthcareprogram. Any of our financial relationships with healthcare providers will be potentially implicated by this statute to the extent Medicare or Medicaidreferrals are implicated. Violations of the Anti-kickback Statute could result in substantial civil or criminal penalties, including criminal fines of up to$25,000 per violation, imprisonment of up to five years, civil penalties under the Civil Monetary Penalties Law (42 U.S.C. 1320a-7a) of up to $50,000 perviolation, plus three times the remuneration involved, civil penalties under the False Claims Act of up to $11,000 for each claim submitted, plus threetimes the amounts paid for such claims and exclusion from participation in the Medicare and Medicaid programs. Any such penalties could have asignificant negative effect on our operations. Furthermore, the exclusion, if applied to us, could result in significant reductions in our revenues, whichcould materially and adversely affect our business, financial condition and results of our operations. In addition, many states have adopted laws similar tothe federal Anti-Kickback Statute with similar penalties. 19 If we fail to comply with physician self-referral laws, to the extent applicable to our operations, we could experience a significant loss ofreimbursement revenue. We may be subject to federal and state statutes and regulations banning payments for referrals of patients and referrals by physicians to healthcareproviders with whom the physicians have a financial relationship and billing for services provided pursuant to such referrals if any occur. Violation ofthese federal and state laws and regulations, to the extent applicable to our operations, may result in prohibition of payment for services rendered, loss oflicenses, fines, criminal penalties and exclusion from Medicare and Medicaid programs. To the extent we do maintain such financial relationships withphysicians, we rely on certain exceptions to self-referral laws that we believe will be applicable to such arrangements. Any failure to comply with suchexceptions could result in the penalties discussed above. Our WD Services segment operates internationally, which exposes the group to risks of bribery, corruption and collusive tendering practices withrespect to public officials and tenders. As an international business whose customers are largely in the public sector, the WD Services segment generally wins work through public tenderprocesses. Various statutes, such as the UK’s Bribery Act and the Foreign Corrupt Practices Act in the US, prohibit us from providing anything of value toforeign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. Thesestatutes require us to maintain adequate record-keeping and internal accounting practices to accurately reflect our transactions. In addition, manycountries in which we operate have antitrust or competition regulations which prohibit collusive tendering or bid-rigging behavior. Policies andprocedures we implement to prevent bribery, corruption and anti-competitive conduct may not effectively prevent us from violating these regulations inevery transaction in which we may engage, and such a violation could adversely affect our reputation, business, financial condition and results ofoperations. Further, our WD Services segment is subject to the European Union’s and other countries’ data security and protection laws and regulations.These laws and regulations may restrict the flow of information, including information about employees or service users, from this segment to theCompany in the US. In certain instances, informed consent to the data transfer must be given by the affected employee or service user. Compliance withsuch laws and regulations may make it more difficult for the Company to maintain the records and internal accounting practices necessary to ensure theappropriate operation of our internal controls or to detect corruption. Any breach of bribery, corruption and collusive tendering laws could also exposeour operations in Europe to a ban from participating in public procurement tenders for up to 5 years, or until the organization in question has put in place“self clean” measures to the satisfaction of the procuring authority. We are subject to regulations relating to privacy and security of patient information. Failure to comply with privacy regulations could result in amaterial adverse impact on our operating results. There are numerous federal and state regulations addressing patient information privacy and security concerns. In particular, the federal regulationsissued under (“HIPAA”) contain provisions that: ●protect individual privacy by limiting the uses and disclosures of patient information; ●require the implementation of security safeguards to ensure the confidentiality, integrity and availability of individually identifiablehealth information in electronic form; and ●prescribe specific transaction formats and data code sets for certain electronic healthcare transactions. Compliance with state and federal laws and regulations is costly and requires our management to expend substantial time and resources. Further, theHIPAA regulations and state privacy laws expose us to increased regulatory risk, as the penalties associated with a failure to comply, even ifunintentional, could have a material adverse effect on our results of operations. We have an internal committee to maintain our privacy and security policies regarding client information in compliance with HIPAA. Thiscommittee is responsible for training our employees, including our regional and local managers and staff, to comply with HIPAA and monitoringcompliance with the policy. The costs associated with our ongoing compliance could be substantial, which could negatively impact our results ofoperations. Our WD Services segment has operations in many countries in Europe, and internationally, and these operations have access to significant amountsof sensitive personal information about individuals. In Europe, these operations are subject to European and national data privacy legislation whichimposes significant obligations on data processors and controllers with respect to such personal information. Some countries, such as France andGermany, have particularly strong privacy laws which impose even greater obligations on people handling personal information. There are proposedamendments being suggested to European data privacy legislation which could significantly increase the fines for any breaches. In addition to finingpowers, information privacy regulators in Europe have significant powers to require organizations that breach regulations to put in place measures toensure that such breaches do not occur again, and require businesses to stop processing personal information until the required measures are in place.Such orders could significantly impact our business given we are required to handle personal information as part of our service delivery model. 20 As a government contractor, we are subject to an increased risk of litigation and other legal actions and liabilities. As a government contractor, we are subject to an increased risk of investigation, criminal prosecution, civil fraud, whistleblower lawsuits and otherlegal actions and liabilities that are not as frequently experienced by companies that do not provide government sponsored services. Companiesproviding government sponsored services can also become involved in public inquiries which can lead to negative media speculation or potentialcancellation or termination of contracts. In our WD Services segment in Europe, European procurement regulations in force in each European Unionmember state require public procurement authorities to impose a ban from participating in public procurement tenders for up to five years, or until theorganization in question has put in place “self clean” measures to the satisfaction of the procuring authority where companies are found guilty of fraud orcertain other criminal offenses. Authorities can also exercise their discretion to blacklist companies for up to two years where they believe they have beeninvolved in acts of gross misconduct or until the organization in question has put in place “self clean” measures to the satisfaction of the procuringauthority. The occurrence of any of these actions, regardless of the outcome, could disrupt our operations and result in increased costs, and could limit ourability to obtain additional contracts in other jurisdictions. Our business could be adversely affected by future legislative changes that hinder or reverse the privatization of NET services or WD services. The market for certain of our services depends largely on government sponsored programs. These programs can be modified or amended at any time.Moreover, part of our growth strategy includes aggressively pursuing opportunities created by government initiatives to privatize the delivery of NETservices and WD services. However, there are opponents to the privatization of these services and, as a result, future privatization is uncertain. Ifadditional privatization initiatives are not proposed or enacted, or if previously enacted privatization initiatives are challenged, repealed or invalidated,there could be a material adverse impact on our operating results. Our business is subject to licensing regulations and other regulatory provisions, including regulatory provisions governing surveys and audits.Changes to, or violations of, these regulations could negatively impact our revenues. In many of the locations where we operate, we are required by local laws (both US and foreign) to obtain and maintain licenses. The applicable stateand local licensing requirements govern the services we provide, the credentials of staff, record keeping, treatment planning, client monitoring andsupervision of staff. The failure to maintain these licenses or the loss of a license could have a material adverse impact on our business and could preventus from providing services to clients in a given jurisdiction. Most of our contracts are subject to surveys or audit by our payers. We are also subject toregulations that restrict our ability to contract directly with a government agency in certain situations. Such restrictions could affect our ability tocontract with certain payers, and could have a material adverse impact on our results of operations. Financial Risks Changes in budgetary priorities of the government entities that fund the services we provide could result in our loss of contracts or a decrease inamounts payable to us under our contracts. Our revenue is largely derived from contracts that are directly or indirectly paid or funded by government agencies. All of these contracts aresubject to legislative appropriations and state or national budget approval. The availability of funding under our contracts with state governments isdependent in part upon federal funding to states. Changes in Medicaid methodology may further reduce the availability of federal funds to states inwhich we provide services. Among the alternative Medicaid funding approaches that states have explored are provider assessments as tools for leveragingincreased Medicaid federal matching funds. Provider assessment plans generate additional federal matching funds to the states for Medicaidreimbursement purposes, and implementation of a provider assessment plan requires approval by the Centers for Medicare and Medicaid Services in orderto qualify for federal matching funds. These plans usually take the form of a bed tax or a quality assessment fee, which were historically required to beimposed uniformly across classes of providers within the state, except that such taxes only applied to Medicaid health plans. 21 However, the Deficit Reduction Act of 2005 (“Deficit Reduction Act”) requires states that desire to impose provider taxes to impose taxes on allMCOs, not just Medicaid MCOs. This uniformity requirement as it relates to taxing all MCOs may make states more reluctant to use provider assessmentsas a vehicle for raising matching funds and, thus, reduce the amount of funding that the states receive and have available. Moreover, under the DeficitReduction Act, states may be allowed to reduce the benefits provided to certain Medicaid enrollees, which could affect the services that states contract forwith us. We cannot make any assurances that these Medicaid changes will not negatively affect the funding under our contracts. As funding under ourcontracts is dependent in part upon federal funding, such funding changes could have a significant effect upon our business. Currently, many of the US states and overseas countries in which we operate are facing budgetary shortfalls or changes in budgetary priorities.While many of these states are dealing with budgetary concerns by shifting costs from institutional care to home and community based care such as weprovide, there is no assurance that this trend will continue. Likewise, in many of the overseas countries addressed by our WD Services segment, a continued focus on austerity measures following the globalfinancial crisis to reduce national and local budget deficits could lead to further spending cuts or changes to welfare arrangements. This may makeavailability of funding for outsourcing of such services more difficult to obtain from relevant government departments, which may lead to morechallenging terms and conditions including pressure on prices or volumes of services provided. Consequently, a significant decline in government expenditures, shift of expenditures or funding away from programs that call for the types ofservices that we provide, or change in government contracting or funding policies could cause payers to terminate their contracts with us or reduce theirexpenditures under those contracts, either of which could have a negative impact on our operating results. We derive a significant amount of our revenues from a few payers, which puts us at risk. Any changes in the funding, financial viability or ourrelationships with these payers could have a material adverse impact on our results of operations. We generate a significant amount of the revenues in our segments from a few payers under a small number of contracts. For example, for the yearsended December 31, 2015, 2014 and 2013, we generated approximately 52.8%, 56.2% and 61.8%, respectively, of our revenue from our top ten payers.Additionally, our top five payers related to our NET Services operating segment represent, in the aggregate, approximately 39.2%, 43.2% and 43.6%,respectively, of our NET Services operating segment revenue for the years ended December 31, 2015, 2014 and 2013. The top payer related to our WDServices operating segment represented 40.0% and 57.2% of our WD Services operating segment revenue for the years ended December 31, 2015 and theperiod from May 31, 2014 to December 31, 2014, respectively. Additionally, the top payer related to our HA Services operating segment represented31.1% and 43.2% of our HA Services operating segment revenue for the year ended December 31, 2015 and the period from October 24, 2014 toDecember 31, 2014, respectively. The loss of, reduction in amounts generated by, or changes in methods or regulations governing payments for ourservices under these contracts could have a material adverse impact on our revenue and results of operations. 22 Changes to the fee structure in our workforce development contracts with the UK Department of Work & Pension could have a material adverse effecton our operating results. Approximately 40.0% and 57.2% of WD Services’ revenues for the year ended December 31, 2015 and the period from May 31, 2014 to December31, 2014, respectively, are derived from seven standardized regional contracts with the Department of Work & Pension (“DWP”) under the WorkProgramme, whereby services are provided to long-term unemployed individuals to place them into jobs. Under the terms of the contracts with the DWP,effective July 1, 2014, the fee structure has changed, eliminating certain upfront payments and discounting certain other fees. As a result, going forward,WD Services will receive the majority of its revenue under these contracts only upon demonstrating the client’s continued employment for a substantialperiod of time and upon achievement of incentive measures over the defined measurement periods. However, a substantial portion of the total cost ofproviding services to clients is incurred in the period between referral and job placement. The loss of, continued reduction in amounts generated by, orchanges in methods or regulations governing payments for our services under these contracts with the DWP could have a material adverse impact on ourWD Services segment’s revenue and margins, which could have a material adverse impact on our consolidated results of operations. Our contracts in certain of our segments can be terminated prior to expiration, without cause and without penalty to the payers. There can be noassurance that out contracts will survive until the end of their stated terms, or that upon their expiration these contracts will be renewed or extended.Disruptions to our contracts could have a material adverse impact on our results of operations. With respect to many of our contracts, the payer may terminate the contract without cause, at will and without penalty to the payer, eitherimmediately or upon the expiration of a short notice period in the event that, among other reasons, government appropriations supporting the programsserviced by the contract are reduced or eliminated. The failure of payers to renew or extend significant contracts or their early termination of significantcontracts could adversely affect our financial performance. We cannot anticipate if, when or to what extent a payer might terminate its contract with usprior to its expiration or fail to renew or extend its contract with us. Our contracts are subject to audit and modification by the payers with whom we contract, at their sole discretion. Our business depends on our ability to successfully perform under various government funded contracts. Under the terms of these contracts, payerscan review our performance, as well as our records and general business practices at any time, and may, in their discretion: • suspend or prevent us from receiving new contracts or extending existing contracts because of violations or suspected violations ofprocurement laws or regulations; • terminate or modify our existing contracts; • reduce the amount we are paid under our existing contracts; and/or • audit and object to our contract related fees. If payers have significant audit findings, or if they make material modifications to our contracts, it could have a material adverse impact on ourresults of operations. If we fail to satisfy our contractual obligations, we could be liable for damages and financial penalties, which may place existing pledged performanceand payment bonds at risk as well as harm our ability to keep our existing contracts or obtain new contracts and future bonds. Our failure to comply with our contract obligations could, in addition to providing grounds for immediate termination of the contract for cause,negatively impact our financial performance and damage our reputation, which, in turn, could have a material adverse effect on our ability to maintaincurrent contracts or obtain new ones. Our failure to meet contractual obligations could also result in substantial actual and consequential financialdamages. The termination of a contract for cause could, for instance, subject us to liabilities for excess costs incurred by a payer in obtaining similarservices from another source. In addition, our contracts require us to indemnify payers for our failure to meet standards of care, and some of them containliquidated damages provisions and financial penalties that we must pay if we breach these contracts. 23 If we fail to estimate accurately the cost of performing certain contracts, we may experience reduced or negative margins. Approximately 83.6%, 84.1% and 83.4% of our NET services revenue during 2015, 2014 and 2013, respectively, was generated under capitatedcontracts with the remainder generated through fee for service (“FFS”) and flat fee contracts. Our WD Services segment also provides services under FFSand flat fee contracts. Under most of our capitated contracts, we assume the responsibility of managing the needs of a specific geographic population bycontracting out transportation services to local van, cab and ambulance companies on a per ride or per mile basis. We use a “pricing model” to determineapplicable contract rates, which takes into account factors, such as estimated utilization, state specific data, previous experience in the state and/or withsimilar services, medical covered programs outlined, identified populations to be serviced, estimated volume and availability of mass transit. The amountof the fixed per member, per month fee is determined in the bidding process, but predicated on actual historical transportation data for the subjectgeographic region (provided by the payer), actuarial work performed in-house as well as by third party actuarial firms and actuarial analyses provided bythe payer. If the utilization of our services is more than we estimated, the contract may be less profitable than anticipated, or may not be profitable at all.Under our FFS contracts, we receive fees based on our interactions with government sponsored clients. To earn a profit on these contracts, we mustaccurately estimate costs incurred in providing services. Our risk on these contracts is that our client population is not large enough to cover our fixedcosts, such as rent and overhead. Our FFS contracts are not reimbursed on a cost basis and therefore, if we fail to estimate our costs accurately, we mayexperience reduced margins, or even losses on these contracts. Our results of operations will continue to fluctuate due to seasonality. Our quarterly operating results and operating cash flows normally fluctuate as a result of seasonal variations in our business. Our NET Servicesoperating segment experiences fluctuations in demand for its non-emergency transportation services during the summer, winter and holiday seasons. Dueto higher demand in the summer months and lower demand in the winter and holiday seasons, coupled with a primarily fixed revenue stream based on aper member, per month payment structure, our NET Services operating segment normally experiences lower operating margins in the summer season andhigher operating margins in the winter and holiday seasons. Our HA and WD Services operating segments typically do not experience seasonalfluctuations in operating results, however, quarterly volatility in revenue and earnings is common due to uneven customer demand in our HA Servicessegment and the timing of commencement and expiration of certain major contracts in our WD Services segment. Our reported financial results could suffer if there is an impairment of goodwill or other intangible assets. Goodwill may be impaired if the estimated fair value of one or more of our reporting units is less than the carrying value of the respective reportingunit. Because we have grown in part through acquisitions, goodwill and other intangible assets represent a significant portion of our assets. We performan analysis on our goodwill balances to test for impairment on an annual basis. Similarly, interim impairment tests may also be required in advance of ourannual impairment test if events occur or circumstances change that would more likely than not reduce the fair value, including goodwill, of one or moreof our reporting units below the reporting unit’s carrying value. Such circumstances could include but are not limited to: (1) loss of significant contracts,(2) a significant adverse change in legal factors, government regulations, or in the climate of our business, (3) unanticipated competition, (4) an adverseaction or assessment by a regulator, or (5) a significant decline in our stock price. If events occur or circumstances change, we may be required to recordan impairment adjustment to our goodwill or other intangible assets which could have a material adverse impact on our results of operations and financialposition. We may incur costs before receiving related revenues, which could result in cash shortfalls. When we are awarded a contract to provide services, we may incur expenses before we receive any contract payments. These expenses includeleasing office space, purchasing office equipment, instituting information technology systems, and hiring personnel. As a result, in certain large contractswhere the government does not fund program start-up costs, we may be required to invest significant sums of money before receiving any related contractpayments or sufficient payments needed to cover start-up costs. In addition, payments due to us from payers may be delayed due to billing cycles or as aresult of failures to approve government budgets in a timely manner. Moreover, especially under FFS arrangements, any resulting cash shortfall could beexacerbated if we fail to either invoice the payer or to collect our fee in a timely manner. This could have a material adverse impact on our ongoingoperations and our financial position. 24 We have a substantial amount of debt, which could impair our financial condition. We have a significant amount of indebtedness. As of December 31, 2015, we had approximately $305.0 million of total indebtedness andapproximately $212.1 million of available letter of credit and borrowing capacity under our credit facilities. Our substantial level of indebtednessincreases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. Our substantial indebtedness couldhave other important consequences on our business. For example, it could: • make it more difficult for us to satisfy our obligations; • limit our ability to borrow additional amounts to fund working capital, capital expenditures, debt service requirements, execution of ourbusiness strategy or acquisitions and other purposes; • require us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on our debt, which would reduce thefunds available to us for other purposes; • make us more vulnerable to adverse changes in general economic, industry and competitive conditions, as well as in government regulationand to our business; • expose us to risks inherent in interest rate fluctuations because some of our borrowings are at variable rates of interest, which could result inhigher interest expenses in the event of increases in interest rates; and • make it more difficult to satisfy our financial obligations. Our ability to satisfy and manage our debt obligations depends on our ability to generate cash flow and on overall financial market conditions. Tosome extent, this is subject to prevailing economic and competitive conditions and to certain financial, business and other factors, many of which arebeyond our control. Our business may not generate sufficient cash flow from operations to permit us to pay principal, premium, if any, or interest on ourdebt obligations. If we are unable to generate sufficient cash flow from operations to service our debt obligations and meet our other cash needs, we maybe forced to reduce or delay capital expenditures, sell or curtail assets or operations, seek additional capital, or seek to restructure or refinance ourindebtedness. If we must sell or curtail our assets or operations, it may negatively affect our ability to generate revenue. In addition, on February 11, 2015 and March 12, 2015, we issued $65.5 million and $15.8 million, respectively, of convertible preferred stock. Theterms of the convertible preferred stock require us to pay mandatory quarterly dividends, either in cash or through an increase in the stated principal valueof such stock. Our ability to satisfy and manage our obligations under our outstanding preferred stock depends, in part, on our ability to generate cashflow and on overall financial market conditions and the other factors discussed above. We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligationsunder our indebtedness, which may not be successful. Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance,which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyondour control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to fund our day-to-day operations or topay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and couldbe forced to reduce or delay investments and capital expenditures or to sell assets or operations, seek additional capital or restructure or refinance ourindebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful,such alternative actions may not allow us to meet our scheduled debt service obligations. Our credit facility restricts our ability to dispose of assets and use the proceeds from any such dispositions and may also restrict our ability to raisedebt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtainproceeds in an amount sufficient to meet any debt service obligations then due. 25 Our variable-rate indebtedness exposes us to interest rate risk, which could cause our debt service obligations to increase significantly. Borrowings under our credit facility are subject to variable rates of interest and expose us to interest rate risk. If interest rates increase, our debtservice obligations on our variable-rate indebtedness would increase and our net income would decrease, even though the amount borrowed under thefacilities remained the same. As of December 31, 2015, we had $305.0 million outstanding variable-rate borrowings under our credit facility. Borrowingsunder our credit facilities accrue interest at LIBOR plus 3.0% per annum as of December 31, 2015. An increase of 1% in the LIBOR rate would cause anincrease in interest expense of approximately $6.8 million over the remaining term of the Amended and Restated Credit Agreement, which matures in2018. Restrictive covenants in our credit facility may limit our current and future operations, particularly our ability to respond to changes in our business orto pursue our business strategies. The terms contained in the agreements that govern certain of our indebtedness, and the agreements that govern any future indebtedness of ours mayinclude, a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to take actionsthat we believe may be in our best interest. These agreements, among other things, limit our ability to: • incur additional debt; • provide guarantees in respect of obligations of other persons; • issue redeemable stock and preferred stock; • pay dividends or distributions or redeem or repurchase capital stock; • make loans, investments and capital expenditures; • enter into transactions with affiliates; • create or incur liens; • make distributions from our subsidiaries; • sell assets and capital stock of our subsidiaries; • make acquisitions; and • consolidate or merge with or into, or sell substantially all of our assets to, another person. A breach of the covenants or restrictions could result in a default under the applicable indebtedness. Such default may allow the creditors toaccelerate the related debt and may result in the acceleration of any other debt to which a cross acceleration or cross-default provision applies. In theevent our lenders and note holders accelerate the repayment of our borrowings, we cannot assure that we and our subsidiaries would have sufficient assetsto repay such indebtedness. Our use of a reinsurance program to cover certain claims for losses suffered and costs or expenses incurred could negatively impact our business. We reinsure a substantial portion of our automobile, general liability, professional liability and workers’ compensation insurance. We also reinsuredthe general liability, professional liability, workers’ compensation insurance, automobile liability and automobile physical damage of various membersof the network of subcontracted transportation providers and independent third parties over various policy years under reinsurance programs through ourtwo wholly-owned captive insurance subsidiaries. However, effective February 15, 2011, we did not renew our reinsurance agreement and do not assumeliabilities for policies that cover the general liability, automobile liability, and automobile physical damage coverage of our independent third partytransportation providers after that date. We will continue to administer existing policies for the foreseeable future and resolve remaining and future claimsrelated to these policies. In the event that actual reinsured losses increase unexpectedly and substantially exceed actuarially determined estimatedreinsured losses under the program, the aggregate of such losses could materially increase our liability and adversely affect our financial condition,liquidity, cash flows and results of operations. In addition, as the availability to us of certain traditional insurance coverage diminishes or increases incost, we will continue to evaluate the levels and types of insurance we include in our reinsurance and self-insurance programs. Any increase to theseprograms increases our risk exposure and therefore increases the risk of a possible material adverse effect on our financial condition, liquidity, cash flowsand results of operations. 26 Any acquisition that we undertake could be difficult to integrate, disrupt our business, dilute stockholder value or have a material adverse impact onour operating results. We have made, and anticipate that we will continue to make, strategic acquisitions as part of our growth strategy. We have made a number ofacquisitions since our inception. The success of these and other acquisitions depends in part on our ability to integrate acquired companies into ourbusiness operations. There can be no assurance that the companies acquired will continue to generate income at the historical levels on which we basedour acquisition decisions, that we will be able to maintain or renew the acquired companies’ contracts, that we will be able to realize operating andeconomic efficiencies upon integration of acquired companies, or that the acquisitions will not adversely affect our results of operations or financialcondition. We continually review opportunities to acquire other businesses that would complement our current services, expand our markets or otherwise offerprospects for growth. In connection with our acquisition strategy, we could issue stock that would dilute existing stockholders’ percentage ownership, orwe could incur or assume substantial debt or contingent liabilities. Acquisitions involve numerous risks, including, but not limited to, the following: • challenges assimilating the acquired operations; • unanticipated costs and known and unknown legal or financial liabilities associated with an acquisition; • diversion of management’s attention from our core businesses; • adverse effects on existing business relationships with customers; • entering markets in which we have limited or no experience; • potential loss of key employees of purchased organizations; • the incurrence of excessive leverage in financing an acquisition; • failure to maintain and renew contracts of the acquired business; • costs associated with litigation or other claims arising in connection with the acquired company; • unanticipated operating, accounting or management difficulties in connection with an acquisition; and • dilution to our earnings per share. We cannot assure you that we will be successful in overcoming problems encountered in connection with any acquisition and our inability to do socould disrupt our operations and adversely affect our business. Moreover, we rely heavily on the representations and warranties and related indemnitiesprovided to us by the sellers of acquired companies, including as they relate to creation, ownership and rights in intellectual property and compliancewith laws and contractual requirements. Our failure to address these risks or other problems encountered in connection with past or future acquisitions andinvestments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities and harm ourbusiness generally. Contract profitability may decline due to actions by governmental agencies. In our WD Services segment, our operating costs and profitability may be significantly impacted by actions required by a government agency, suchas the availability of information systems maintained by the government to streamline enrollment into our service programs. In addition, certain contractsmay require that we hire former government employees, in relation to offering our service programs. Lastly, revenue under certain contracts may beadjusted prospectively if client volumes are below expectations. If the Company is unable to adjust its costs accordingly, profitability is negativelyimpacted. Our estimated income taxes could be materially different from income taxes that we ultimately pay. We are subject to income taxes in both the US and numerous jurisdictions abroad. Significant judgment and estimation is required in determiningour provision for income taxes and related matters. In the ordinary course of our business, there are many transactions and calculations where the ultimatetax determinations are uncertain or otherwise subject to interpretation. Our determination of our income tax liability is always subject to review byapplicable tax authorities and we are currently subject to audits in a number of jurisdictions. Although we believe our income tax estimates and relateddeterminations are reasonable and appropriate, relevant taxing authorities may disagree. The ultimate outcome of any such audits and reviews could bematerially different from estimates and determinations reflected in our historical income tax provisions and accruals. Any adverse outcome of any suchaudit or review could have an adverse effect on our financial condition and results of operations. 27 Significant commercial arrangements could result in operating and financial difficulties. In 2014 we entered into a joint venture in order to bid on a new contract. Our future growth may depend, in part, on future similar arrangements, anyof which could be material to our financial condition and results of operations. The success of these arrangements will depend in part on the satisfactoryperformance of contractual obligations by our partners, over which we will not have control. Further, challenges may arise relating to such arrangements,such as governance, accountability and decision-making conflicts, which may be costly to resolve or may make the arrangement less successful. International Risks There are risks associated with our international operations that are different from the risks associated with our operations in the US, and ourexposure to the risks of a global market could hinder our ability to maintain and expand international operations. We have operation centers in Australia, Canada, France, Germany, Poland, Saudi Arabia, South Korea, Spain, Sweden, Switzerland, the UnitedKingdom and the US. In implementing our international strategy, we may face barriers to entry and competition from local companies and othercompanies that already have established global businesses, as well as the risks generally associated with conducting business internationally. The successand profitability of international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as: • political or economic instability; • changes in governmental regulation or taxation; • currency exchange fluctuations; • difficulties and costs of staffing and managing operations in certain foreign countries; • work stoppages or other changes in labor conditions; and • taxes and other restrictions on repatriating foreign profits back to the US. In addition, changes in policies and/or laws of the US or foreign governments resulting in, among other changes, higher taxation, tariffs or similarprotectionist laws could reduce the anticipated benefits of international operations and could have a material adverse effect on our results of operationsand financial condition. We have currency exposure arising from both sales and purchases denominated in foreign currencies, including intercompanytransactions outside the US, and we currently do not conduct hedging activities. We cannot predict with precision the effect of future exchange-ratefluctuations on our business and operating results, and significant rate fluctuations could have a material adverse effect on our results of operations andfinancial condition. We operate and are in a taxable income position in multiple tax jurisdictions, and face the risk of double taxation if one jurisdiction does notacquiesce to the tax claims of another jurisdiction. We currently operate in the US and 11 foreign countries and are subject to income taxes in those countries and the specific states and/or provinceswhere we operate. In the event one taxing jurisdiction disagrees with another taxing jurisdiction, we could experience temporary or permanent doubletaxation and increased professional fees to resolve taxation matters. Our revenues and expenses are subject to foreign economic and currency risks due to our operations outside of the US. We have operations in 11 countries outside the US. The value of the US dollar against other foreign currencies has seen significant volatilityrecently. Our reported financial condition and results of operations are reported in multiple currencies, and are then translated into US dollars at theapplicable exchange rate for inclusion in our consolidated financial statements. Appreciation of the US dollar against these other currencies will have anegative impact on our reported net revenue and operating income while depreciation of the US dollar against such currencies will have a positive effecton reported net revenue and operating income. 28 Item 1B.Unresolved Staff Comments. None. Item 2.Properties. As of March 2016, our holding company headquarters was located in an owned building in Tucson, Arizona. In December 2015 we signed a leasefor additional holding company office space in Stamford, Connecticut. In 2016, we intend to relocate principal executive offices into this new officespace located at 700 Canal St., Stamford, CT, 06901. We intend to also maintain our holding company office space in Tucson, Arizona. NET Servicesleases space in approximately 38 locations, WD Services leases space in approximately 299 locations, and HA Services leases space in approximatelythree locations. The lease terms vary and we believe are generally at market rates. We believe that our properties are adequate for our current businessneeds, and believe that we can obtain adequate space, if needed, to meet our foreseeable business needs. Item 3.Legal Proceedings. On June 15, 2015, a putative stockholder class action derivative complaint was filed in the Court of Chancery of the State of Delaware, (the“Court”), captioned Haverhill Retirement System v. Kerley et al., C.A. No. 11149-VCL. The complaint names Richard A. Kerley, Kristi L. Meints, WarrenS. Rustand, Christopher Shackelton (the “Individual Defendants”) and Coliseum Capital Management, LLC (“Coliseum”) as defendants, and theCompany as a nominal defendant. The complaint purported to allege that the dividend rate increase term originally in the Company’s outstandingconvertible preferred stock was an impermissibly coercive measure that impaired the voting rights of the Company’s stockholders in connection with thevote on the removal of certain voting and conversion caps previously applicable to the preferred stock (the “Caps”), and that the Individual Defendantsbreached their fiduciary duties by approving the dividend rate increase term and attempting to coerce the stockholder vote relating to the Company’spreferred stock, and by failing to disclose all material information necessary to allow the Company’s stockholders to cast an informed vote on the Caps.The complaint also purports to allege derivative claims alleging that the Individual Defendants breached their fiduciary duties to the Company byentering into the subordinated note and standby agreement with Coliseum, and granting Coliseum certain stock options. The complaint further allegesthat Coliseum has aided and abetted the Individual Defendants in breaching their fiduciary duties and that demand on the Board is excused as futile. Thecomplaint sought, among other things, an injunction prohibiting the stockholder vote relating to the dividend rate increase, a finding that the IndividualDefendants are liable for breaching their fiduciary duties to the Company and the Company’s stockholders, a finding that Coliseum is liable for aidingand abetting the Individual Defendant’s breaches of their fiduciary duties, a finding that Coliseum is liable for unjust enrichment, a finding that demandon the Board is excused as futile, a revision or rescission of the terms of the subordinated note and preferred stock as necessary and/or appropriate, arequirement for the Company to reform its corporate governance profile to protect against future misconduct similar to that alleged by the putativestockholder class, a certification of the putative stockholder class, compensatory damages, together with pre- and post-judgment interest, costs anddisbursements (including expenses, attorneys’ and experts’ fees), and any other and further relief as is just and equitable. On August 31, 2015, after arms’ length negotiations, the parties reached an agreement in principle and executed a memorandum of understandingproviding for the settlement of claims concerning the dividend rate increase term and stockholder vote and related disclosure. The Memorandum ofUnderstanding stated that the Defendants have entered into the partial settlement of the litigation solely to eliminate the distraction, burden, expense, andpotential delay of further litigation involving claims that have been settled. Pursuant to the partial settlement, the Company agreed to supplement thedisclosures in its definitive proxy statement on Schedule 14A (“Definitive Proxy Statement”), Coliseum and certain of its affiliates and the Companyentered into an amendment to that certain Series A Preferred Stock Exchange Agreement, by and among Coliseum Capital Partners, L.P., ColiseumCapital Partners II, L.P., Coliseum Capital Co-Invest, L.P., Blackwell Partners, LLC, and The Providence Service Corporation dated as of February 11,2015 described in the Definitive Proxy Statement, and the Board of Directors of the Company agreed to adopt a policy related to the Board’sdetermination each quarter as to whether the Company should pay cash dividends or allow dividends to be paid in the form of PIK dividends on thepreferred stock, as further described in the supplemental proxy disclosures. On September 2, 2015, Providence issued supplemental disclosures through aSupplement to the Proxy Statement. On September 16, 2015, Providence stockholders approved the removal of the Caps. 29 The settlement provided for, among other things, the release of any claims based on alleged coercion and disclosure related to the stockholder voteon the removal of the Caps. On November 13, 2015, the Court issued an order setting out the schedule related to application for court approval of theproposed settlement and plaintiffs’ counsel’s request for attorneys’ fees and expenses related to the settlement as provided for in the Memorandum ofUnderstanding (“MOU”). The Company provided notice of the proposed partial settlement to Providence’s shareholders by December 11, 2015. At ahearing on February 9, 2016, the court denied approval of the settlement. The Court indicated that plaintiff’s counsel could petition the Court for amootness fee, and that defendants would have the opportunity to oppose any such application. On January 12, 2016, plaintiff filed a verified amended class action and derivative complaint. In addition to the defendants named in the earliercomplaint, the amended complaint names David Shackelton, Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC,Coliseum Capital CO-Invest, L.P. (collectively, and together with Coliseum Capital Management, LLC, “Coliseum”) and RBC Capital Markets, LLC,(“RBC Capital Markets”) as additional defendants. The amended complaint purports to allege direct and derivative claims for breach of fiduciary dutyagainst some or all of the Individual Defendants and David Shackelton (collectively, the “Amended Individual Defendants”) regarding the approval ofthe subordinated note, the rights offering, standby agreement with Coliseum, and grant to Coliseum of certain stock options. The amended complaint alsopurports to allege an additional derivative claim for unjust enrichment against Coliseum regarding the subordinated note, the rights offering, and standbyagreement with Coliseum, and stock options. The amended complaint further alleges that Coliseum and RBC Capital Markets aided and abetted theAmended Individual Defendants in breaching their fiduciary duties and that demand on the Board is excused as futile. The amended complaint seeks (a) findings that (i) the Amended Individual Defendants are liable for breaching their fiduciary duties to theCompany and the putative stockholder class, (ii) Coliseum and RBC Capital are liable for aiding and abetting such alleged breaches of fiduciary duties,(iii) Coliseum is liable for unjust enrichment, (iv) certain stock options awarded to Coliseum were the product of waste, and (iv) demand on the Board isexcused as futile, (b) revision or rescission of the terms of the subordinated note and preferred stock as necessary and/or appropriate, (c) a requirement thatthe Company reform its corporate governance profile to protect against future misconduct similar to that alleged by the putative stockholder class, (d)certification of the putative stockholder class, (e) compensatory damages, together with pre- and post-judgment interest, costs and disbursements(including expenses, attorneys’ and experts’ fees), and (f) any other and further relief as is just and equitable. Item 4.Mine Safety Disclosures Not applicable. 30 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for our common stock Our common stock, $0.001 par value per share, our only class of common equity, has been quoted on NASDAQ under the symbol “PRSC” sinceAugust 19, 2003. Prior to that time there was no public market for our common stock. As of March 8, 2016, there were 26 holders of record of our commonstock. The following table sets forth the high and low sales prices per share of our common stock for the period indicated, as reported on NASDAQ GlobalSelect Market: High Low 2015 Fourth Quarter $56.92 $41.80 Third Quarter $53.49 $39.08 Second Quarter $55.99 $40.52 First Quarter $53.60 $36.03 2014 Fourth Quarter $48.70 $34.03 Third Quarter $49.41 $35.70 Second Quarter $43.35 $28.07 First Quarter $29.00 $23.91 Stock Performance Graph The following graph shows a comparison of the cumulative total return for our common stock, NASDAQ Health Index and Russell 2000 Indexassuming an investment of $100 in each on December 31, 2010.  Dividends We have not paid any cash dividends on our common stock and do not plan to pay dividends on our common stock in the foreseeable future. Inaddition, our ability to pay dividends on common stock is limited by the terms of our credit agreement. The payment of future cash dividends, if any, willbe reviewed periodically by the Board and will depend upon, among other things, our financial condition, funds from operations, the level of our capitaland development expenditures, any restrictions imposed by present or future debt instruments and changes in federal tax policies, if any. 31 Issuer Purchases of Equity Securities Period Total Numberof Shares ofCommon StockPurchased (1) Average PricePaid perShare Total Number ofShares of CommonStockPurchased as PartofPubliclyAnnouncedProgram (2) MaximumNumber ofShares of CommonStockthat May Yet BePurchasedUnder Program(3) Maximum DollarValue ofShares of CommonStockthat May Yet BePurchasedUnder Program (2)(in thousands) Fourth quarter: October 1, 2015 to October 31, 2015 751,061 $41.23 - 243,900 $- November 1, 2015 to November 30,2015 59,818 $46.97 54,100 243,900 67,489 December 1, 2015 to December 31,2015 55,481 $47.24 55,050 243,900 64,887 Total 866,360 $42.01 109,150 243,900 $64,887 ______________________ (1)Includes (i) shares that were acquired from employees in connection with the settlement of income tax and related benefit withholdingobligations arising from vesting in restricted stock awards; (ii) common stock retained by us for the payment of the exercise price uponthe exercise of stock options; (iii) the repurchase of 707,318 shares of our common stock for approximately $29.0 million that was notsubject to a specific plan; and (iv) the repurchase of shares under the repurchase program authorized by the Board of Directors onNovember 4, 2015. For more information on these repurchases, see Note 12, Stockholders’ Equity, in the notes to consolidated financialstatements. (2)On November 4, 2015 our Board of Directors authorized the Company to engage in a common stock repurchase program to repurchaseup to $70.0 million in aggregate value of the Company’s common stock during the twelve-month period following November 4, 2015.As of December 31, 2015, we have spent approximately $5.1 million to purchase 109,150 shares of our common stock under this plan. (3)Our Board of Directors approved a stock repurchase program in February 2007 for up to one million shares of our common stock.Through December 31, 2012, we spent approximately $14.4 million to purchase 756,100 shares of our common stock on the openmarket under this program. No purchases have been made under the program since 2012. This program was formally cancelled by theCompany in January 2016. 32 Equity Compensation Plan Information The following table provides certain information as of December 31, 2015 with respect to our equity based compensation plans. Plan category Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand rights Weighted-averageexercise price ofoutstandingoptions, warrantsand rights (a)Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans (excludingsecuritiesreflected incolumn (a)) Equity compensation plans approved by security holders (1) 505,452 $34.84 1,262,626 Equity compensation plans not approved by security holders — — — Total 505,452 $34.84 1,262,626 (1) The number of shares shown in column (a) represents the number of shares available for issuance pursuant to stock options and otherstock-based awards that could be granted in the future under the 2006 Long-Term Incentive Plan, as amended. Item 6.Selected Financial Data. We have derived the following selected financial data from the consolidated financial statements and related notes. The information set forth belowis not necessarily indicative of future results. This information should be read in conjunction with our consolidated financial statements and the relatednotes, and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all of which are included elsewhere in thisreport. 33 Year Ended December 31, 2015 (1)(2)(3)(8) 2014 (1)(4)(5) 2013 (1)(7)(8) 2012 (1)(6)(8) 2011 (1)(9) (dollars and shares in thousands, except per share data) Statement of operations data: Service revenue, net $1,695,446 $1,136,211 $798,766 $777,010 $623,814 Operating expenses: Service expense 1,544,365 1,023,785 736,669 732,242 578,612 General and administrative expense 73,616 44,501 25,590 27,011 21,870 Depreciation and amortization 53,469 22,833 9,331 9,606 8,716 Asset impairment charges - - - 2,506 - Total operating expenses 1,671,450 1,091,119 771,590 771,365 609,198 Operating income 23,996 45,092 27,176 5,645 14,616 Other expenses: Interest expense, net 16,213 13,122 6,921 7,513 10,009 Loss on extinguishment of debt - - 525 - 2,463 Equity in net loss of investee 10,970 - - - - Gain on foreign currencytransactions (857) (37) - - - Income (loss) from continuingoperations, before income taxes (2,330) 32,007 19,730 (1,868) 2,144 Provision for income taxes 16,276 8,090 6,625 494 77 Income (loss) from continuingoperations, net of tax (18,606) 23,917 13,105 (2,362) 2,067 Discontinued operations, net of tax 101,800 (3,642) 6,333 10,844 14,873 Net income 83,194 20,275 19,438 8,482 16,940 Net loss attributable to noncontrollinginterests 502 - - - - Net income attributable to Providence $83,696 $20,275 $19,438 $8,482 $16,940 Diluted earnings per common share: Continuing operations $(1.45) $1.59 $0.95 $(0.18) $0.15 Discontinued operations 5.75 (0.24) 0.46 0.82 1.12 Total $4.30 $1.35 $1.41 $0.64 $1.27 Weighted-average number ofcommon shares outstanding: Diluted 15,961 15,019 13,810 13,225 13,322 As of December 31, 2015 (1) 2014 (4)(5) 2013 (7) 2012 2011 (9) (dollars in thousands) Balance sheet data: Cash and cash equivalents $84,770 $135,258 $75,156 $26,250 $21,840 Total assets 1,053,976 1,168,934 425,954 391,737 379,053 Long-term obligations, includingcurrent portion 303,845 574,613 123,500 130,000 150,493 Other liabilities 382,423 372,907 151,817 143,050 119,537 Convertible preferred stock 77,576 - - - - Total stockholders' equity 290,132 221,414 150,637 118,687 109,023 34 (1)On November 1, 2015, we completed the sale of our Human Services segment. Accordingly, the results of operations and financial condition of ourHuman Services segment have been presented in discontinued operations for all periods presented. Included in 2015 is a gain on the sale of theHuman Services segment, net of tax, totaling approximately $100.3 million. (2)The Company incurred approximately $20.9 million of accelerated expense related to restricted shares and cash placed into escrow at the time ofthe Ingeus acquisition. The shares and cash were placed into escrow concurrent with the payments of the acquisition consideration paid for Ingeus;however, because two sellers of Ingeus remained employees post acquisition, the value of the shares and cash was recognized as compensationexpense over the escrow term. Acceleration was triggered when the two sellers separated from the Company. In addition, in 2015 and 2014,respectively, the Company incurred $5.9 million and $4.5 million of expense prior to the separation of these two employees. Benefits of $2.5million and $16.1 million associated with the reduction in the fair value of Ingeus contingent consideration are included in general andadministrative expenses for 2015 and 2014, respectively. 2015 expenses also include $12.2 million of WD Services’ redundancy costs and $2.4million in Ingeus transaction related expenses, whereas 2014 includes $11.8 million in acquisition costs primarily related to the acquisitions ofIngeus and Matrix. (3)The loss on equity investments relates to our investment in Mission Providence. Mission Providence began providing services in July 2015 andhas incurred substantial start-up and administrative costs to date. (4)Two significant acquisitions were completed during 2014. We acquired Ingeus effective May 30, 2014 and we acquired Matrix effective October23, 2014. These acquisitions resulted in the creation of two new segments in 2014, WD Services and HA Services. These acquisitions affect thecomparability of the information reflected in the selected financial data. See the year on year analysis included in Item 7 “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” of this report for more information. (5)On May 28, 2014 we entered into the first amendment to our credit facility which increased the aggregate amount of the revolving credit facilityfrom $165.0 million to $240.0 million. On October 23, 2014, we entered into the second amendment to our credit facility which added anadditional term loan in the amount of $250.0 million. Additionally, on October 23, 2014, we entered into a 14.0% unsecured subordinated relatedparty note in the aggregate principal amount of $65.5 million. The unsecured subordinated related party note was repaid on February 11, 2015with proceeds from the issuance of $65.5 million of convertible preferred stock. The increases in our debt balances resulted in an increase ininterest expense in 2014 over 2013. Additionally, 2014 includes approximately $4.5 million of financing fees that were deferred and fullyexpensed within interest expense in the fourth quarter of 2014 in relation to bridge financing commitments and approximately $3.0 million ofthird party financing fees that are included in general and administrative expense. (6)As a result of changes in the market environment in British Columbia, we initiated intangible asset impairment valuations of our Canadianbusiness and, based on the results, we recorded impairment charges totaling approximately $2.5 million related to our intangible assets other thangoodwill for the year ended December 31, 2012. (7)On August 2, 2013, we executed a new credit facility and paid all amounts due under the then existing credit facility with proceeds from the newcredit facility. In conjunction with the termination of the previous credit facility, we recorded a loss on extinguishment of debt in 2013 ofapproximately $0.5 million. (8)We incurred expense (net of benefit of forfeiture of stock-based compensation) of approximately $0.7 million, $1.3 million and $1.3 million in2015, 2013 and 2012, respectively for severance and retirement payments related former executive officers and key employees. (9)On March 11, 2011, we executed a new credit facility and paid all amounts due under the then existing credit facility with cash in the amount of$12.3 million and proceeds from the new credit facility. In conjunction with the termination of the previous credit facility, we recorded a loss onextinguishment of debt in 2011 of approximately $2.5 million. 35 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6, “SelectedFinancial Data” and our consolidated financial statements and related notes included in Item 8 of this report. This discussion and analysis containsforward-looking statements that involve risks, uncertainties and assumptions. Certain risks, uncertainties and other factors, including but not limited tothose set forth in Item 1A, entitled, “Risk Factors” and elsewhere in this report may cause actual results to differ materially from those projected in theforward-looking statements. Overview of Our Business Please refer to Item 1. “Business” of this Form 10-K for a discussion of the Company’s services and corporate strategy. The Providence ServiceCorporation is a holding company that owns and manages diverse operating subsidiaries, comprised of providers of health care and workforcedevelopment services to a variety of end markets. Our operations are currently organized into three principal business segments: NET Services, WDServices, and HA Services. Business Outlook Our performance is affected by a number of trends that drive the demand for our services. In particular, the markets in which we operate are exposedto various trends such as government outsourcing and health care cost management. Over the long term, we believe there are numerous factors that couldpositively drive demand and affect growth within the industries in which we operate, including (i) an aging population, which will increase demand forhealth care services, (ii) budget pressure on governments, which may increase the use of private corporations to provide necessary services and (iii) care athome, driven by cost pressures on traditional reimbursement models and technological advances enabling remote engagement. Recently, our company has grown through acquisitions, primarily in the WD Services and HA Services segments. Historically, our segments havegrown through organic expansion into new markets and service lines, organic expansion within existing markets and service lines, increases in thenumber of clients served under contracts we have been awarded, the securing of new contracts, and through acquisitions. We continue to selectively identify and pursue the acquisition of attractive businesses that are complementary to our business strategies. Revenues and Expense NET Services We provide non-emergency transportation management services under contracts with state Medicaid and local agencies, hospital systems or privatemanaged care organizations (“MCOs”). Most of our contracts are capitated, which means we are paid on a per member, per month basis for each eligiblemember. For most contracts, we arrange for transportation of members through our network of independent transportation providers, whereby we remitpayment to the transportation providers. However, for certain contracts, we only provide management services, and do not contract with transportationproviders for the actual transportation. WD Services We provide workforce development and offender rehabilitation services on a global basis that include employment preparation and placement,apprenticeship and training, and certain health related services, such as employee assistance programs. Our client base for workforce developmentservices is broad and includes long-term unemployed, disabled, and unskilled individuals, as well as individuals that are coping with medical illnesses,are newly graduated from educational institutions, and those that have been released from incarceration. We contract primarily with national governmententities that seek to reduce the unemployment and recidivism rates. We are paid largely based on job placement and job sustainment success, but are alsopaid attachment fees based on the admission of clients into our programs, as well as incentive fees that are usually paid at the end of defined measurementperiods based on direct and indirect variables. We also earn revenue under fixed fee for service arrangements, based upon contractual rates established atthe outset of the applicable contract year, although the rate may be prospectively adjusted during the contract year based upon actual volumes. We billaccording to contractual terms, typically after proof of services have been achieved. 36 As described above, when WD Services enters into new markets and service lines, it often experiences significant costs which are expensed asincurred, whereas revenue may not be realized until a later date. As a result, WD Services experiences significant variability in its financial results and,therefore, we believe the results are best viewed over a multi-year perspective. HA Services We contract with health plans to provide CHAs for their MA members that meet certain pre-determined criteria. A CHA is a comprehensive physicalexamination of an individual performed by one of our nurse practitioners (“NPs”), typically in the home setting. The CHA process is specifically designedto engage and coordinate with the member’s full care network in order to facilitate follow-up care and treatment. In addition to our primary CHA services, we launched a chronic care management offering in 2015. With data provided by our health plan clients,we utilize analytics to determine which members we can most effectively lower healthcare costs and improve outcomes through face-to-face engagementswith clinicians. Each program is customized and is served by a comprehensive team of case managers, nurse practitioners, registered nurses, and trainedcall center colleagues. We anticipate our chronic care management offering to becoming an increasing proportion of HA Services’ revenue over the next2-3 years. Classification of Operating Expenses Our “Service expense” line item includes the majority of the operating expenses of our segments as well as our captive insurance company, with theexception of certain costs which are classified as “General and administrative expense”, including facilities and related charges and contingentconsideration adjustments. Service expense also excludes asset impairment charges and depreciation and amortization expenses. In the discussion below,we present the breakdown of service expense by the following major captions: purchased services, payroll and related costs, other operating expenses andstock-based compensation. Purchased services includes the amounts we pay to third-party service providers and are typically dependent upon servicevolume. Payroll and related costs include all personnel costs of our verticals, while other operating expenses include general overhead costs of ourverticals. Stock-based compensation represents the stock-based compensation expense associated with stock grants to employees of our segments. Our “General and administrative expense” primarily includes the operating expenses of our corporate office, excluding depreciation andamortization, as well as facilities and related charges of our segments and contingent consideration adjustments. Critical Accounting Policies and Estimates Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statementsbecause they require that we use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanyingnotes in accordance with generally accepted accounting principles in the United States (“GAAP”). Preparation of the consolidated financial statementsand accompanying notes requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. Webase our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actualresults may differ from our estimates under different assumptions or conditions. There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. Weconsider an accounting estimate to be critical if: • It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at thetime we were making the estimate; and • Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition orresults of operations. For more information on each of these policies, see Note 2, Significant Accounting Policies, in the notes to consolidated financial statements. Wediscuss information about the nature and rationale for our critical accounting estimates below. 37 Transportation Accrual We accrue the cost of transportation expense within NET Services based on the amount we expect to be billed by transportation providers, as wegenerally only pay transportation providers for completed trips based upon documentation submitted. The transportation accrual requires significantjudgment, as the accrual is based upon contractual rates and mileage estimates, as well as a rate for unknown cancellations, as members may haverequested transportation but not notified us of cancellation. Based upon historical experience and contract terms, we estimate the amount of expense weexpect to incur for invoices which have not been submitted. Actual expense could be greater or less than the amounts estimated due to changes inmember or transportation provider behavior. Business Combinations We assign the value of the consideration transferred to acquire a business to the tangible assets and identifiable intangible assets acquired andliabilities assumed on the basis of their fair values at the date of acquisition. Any excess purchase price over the fair value of the net tangible andintangible assets acquired is allocated to goodwill. When determining the fair values of assets acquired and liabilities assumed, management makessignificant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include but arenot limited to future expected cash flows from customer relationships and trade names, and discount rates. Management’s estimates of fair value are basedupon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ fromestimates. Recoverability of Goodwill and Indefinite and Definite-Lived Intangible Assets Goodwill. We assess goodwill for impairment annually, or more frequently, if events and circumstances indicate impairment may have occurred. Inthe evaluation of goodwill for impairment, we typically first perform a qualitative assessment to determine whether it is more likely than not that the fairvalue of the reporting unit is less than the carrying amount. If so, we perform a quantitative assessment and compare the fair value of the reporting unit tothe carrying value. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and weproceed to step two of the impairment analysis. In step two of the analysis, we will record an impairment loss equal to the excess of the carrying value ofthe reporting unit’s goodwill over its implied fair value should such a circumstance arise. Periodically, we may choose to forgo the initial qualitativeassessment and perform quantitative analysis to assist in our annual evaluation. We may base our measurement of fair value of reporting units the present value of future discounted cash flows, a market valuation approach, or ablended approach. The discounted cash flows model indicates the fair value of the reporting units based on the present value of the cash flows that weexpect the reporting units to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost ofcapital; long-term rate of growth and profitability of our business; and working capital effects. The market valuation approach indicates the fair value ofthe business based on a comparison of the Company to comparable publicly traded firms in similar lines of business. Our significant estimates in themarket approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return oninvestment and assessing comparable revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples in estimating thefair value of the reporting units. In addition to measuring the fair value of our reporting units as described above, we consider the combined carrying and fair values of our reportingunits in relation to the Company’s total fair value of equity plus debt and preferred equity as of the assessment date. Our equity value assumes our fullydiluted market capitalization, using the stock price on the valuation date. The debt value is based on the highest value expected to be paid to repurchasethe debt, which represents the principal of each debt instrument. The fair value of the Company's reporting units were substantially in excess of thecarrying value at December 31, 2015. 38 Indefinite-Lived Intangible Assets. We base our measurement of fair value of indefinite-lived intangible assets, which consists of a trade name usingthe relief-from-royalty method. This method assumes that the trade name has value to the extent that their owner is relieved of the obligation to payroyalties for the benefits received from them. This method requires us to estimate the future revenue for the related brand, the appropriate royalty rate andthe weighted average cost of capital. Definite-Lived Intangible Assets. We review the carrying value of long-lived assets or asset groups to be used in operations whenever events orchanges in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairmentassessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or thebusiness climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such factsindicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds thesum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life ofthe primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate thefair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Anyimpairment would be measured as the difference between the asset groups carrying amount and its estimated fair value. The use of different estimates or assumptions in determining the fair value of our goodwill, indefinite-lived and definite-lived intangible assets mayresult in different values for these assets, which could result in an impairment or, in the period in which an impairment is recognized, could result in amaterially different impairment charge. Income Taxes We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation of the future tax consequences oftemporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We determine deferred income taxes based on thedifferences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset orliability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income andexpense. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experienceby jurisdiction, expectations of future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other relevantfactors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due toinherent complexities arising from the nature of our businesses, future changes in income tax law, tax sharing agreements or variances between our actualand anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates. We record liabilities to address uncertain tax positions we have taken in previously filed tax returns or that we expect to take in a future tax return.The determination for required liabilities is based upon an analysis of each individual tax position, taking into consideration whether it is more likelythan not that our tax position, based on technical merits, will be sustained upon examination. For those positions for which we conclude it is more likelythan not it will be sustained, we recognize the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimatesettlement with the taxing authority. The difference between the amount recognized and the total tax position is recorded as a liability. The ultimateresolution of these tax positions may be greater or less than the liabilities recorded. 39 Reinsurance and Self-Insurance Liabilities The Company reinsures a substantial portion of its automobile, general and professional liability and workers’ compensation costs underreinsurance programs through the Company’s wholly-owned subsidiary, Social Services Providers Captive Insurance Company (“SPCIC”), a licensedcaptive insurance company domiciled in the State of Arizona. In addition, the Company maintains a self-funded health insurance program with a stop-loss umbrella policy with a third party insurer to limit the maximum potential liability for individual claims and for a maximum potential claim liabilitybased on member enrollment. The Company utilizes independent actuarial reports to determine the expected losses and in order to record the appropriateentries. The Company regularly analyzes its reserves for incurred but not reported claims, and for reported but not paid claims related to its reinsuranceand self-funded insurance programs. The Company believes its reserves are adequate. However, significant judgment is involved in assessing thesereserves such as assessing historical paid claims, average lags between the claims’ incurred date, reported dates and paid dates, and the frequency andseverity of claims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included inexpense once a probable amount is known. Revenue Recognition NET Services segment Capitation contracts. The majority of NET Services revenue is generated under capitated contracts with payers where we assume the responsibilityof meeting the covered transportation requirements of a specific geographic population based on per-member per-month fees for the number of membersin the payer’s program. Revenue is recorded based upon the amount earned per period. Fee for service contracts. Revenues earned under fee for service (“FFS”) contracts are based upon contractually established billing rates. Revenuesare recognized when the service is provided based upon contractual amounts. Flat fee contracts. Revenues earned under flat fee contracts are recognized ratably over the covered service period based upon contractuallyestablished fees which do not fluctuate with any changes in the membership population who are eligible to receive the transportation services. For most contracts, we arrange for transportation of members through our network of independent transportation providers, whereby we remitpayment to the transportation providers. However, for certain contracts, we only provide management services, and do not contract with transportationproviders for the actual transportation. Workforce Development Services segment WD Services revenues are generated from providing workforce development and offender rehabilitation services, both of which includeemployment preparation and placement, apprenticeship and training, and certain health related services, such as employee assistance programs. While thespecific terms vary by contract and country, the Company often receives four types of revenue streams under contracts with government entities:attachment fees, job placement/job outcome fees, sustainment fees and incentive fees. Attachment fees are typically upfront payments that are payablewhen a client is referred by the contracting government entity and the person enters the program, and cover the overall services provided under theprogram. Job placement fees are typically payable when a client is employed. Job outcome fees are typically payable when a client is employed, andremains employed for a specified period of time. Sustainment fees are typically payable upon certain employment tenure milestones. Incentive fees aregenerally based upon a calculation that includes a variety of factors and inputs, such as average sustainment rates and client referral rates. Incentive feesvary greatly by contract. Attachment fee revenue is recognized ratably over the period of service, based upon an estimate of the period of time general services will beprovided (i.e. the person is placed in a job or reaches the maximum time period for the program). The estimate of the period of time services will berendered is based upon historical data. Job Placement, Job Outcome and Sustainment Fee revenue is recognized when certain milestones are achieved,and amounts become billable. Incentive Fee revenue is generally recognized when the revenue is fixed and determinable, frequently at the end of thecumulative calculation period, unless the contractual terms allow for earned payments on a fixed or ratable basis. Revenue is also earned under fixed fee for service arrangements, based upon an expected volume of services to be performed. The expected volumeof services is generally agreed at the outset of the contract year. Revenue under these contracts may be adjusted prospectively during the contract year, orfor future contract years, if actual volumes are below expected levels. 40 Health Assessment Services segment The HA Services segment contracts with health plans to provide clinical assessments for their MA members that meet certain pre-determined criteriaas defined by the providers. An assessment is a comprehensive physical examination of an individual performed by one of the Company’s nursepractitioners. The MA clients for whom the Company performs these examinations use the assessment reports to impact care management of the MAmember and properly report the cost of care of those members. Revenue is recognized in the period in which the services are rendered. Deferred Revenue At times the Company may receive funding for certain services in advance of services being rendered. These amounts are reflected in theconsolidated balance sheets as “Deferred revenue” until the services are rendered. Stock Based Compensation Our primary form of employee stock-based compensation is stock option awards and restricted stock, including certain awards which vest basedupon performance conditions. We measure the value of stock option awards on the date of grant at fair value using the appropriate valuation techniques,including the Black-Scholes and Monte Carlo option-pricing models. We recognize the fair value, net of estimated forfeitures, as stock-basedcompensation expense over the remaining term on a straight-line basis. The pricing models require various highly judgmental assumptions includingvolatility and expected option term. If any of the assumptions used in the models change significantly, stock-based compensation expense may differmaterially in the future from that recorded in the current period. We record stock-based compensation expense net of estimated forfeitures. In determining the estimated forfeiture rates for stock-based awards, weperiodically conduct an assessment of the actual number of equity awards that have been forfeited to date as well as those expected to be forfeited in thefuture. We consider many factors when estimating expected forfeitures, including the type of award, the employee class and historical experience. Theestimate of stock awards that will ultimately be forfeited requires significant judgment and to the extent that actual results or updated estimates differfrom our current estimates, such amounts will be recorded as a cumulative adjustment in the period such estimates are revised. Restructuring and Related Reorganization Costs The Company has engaged in employee headcount rightsizing actions within the WD Services segment which require management to estimate thetiming and amount of severance and other employee separation costs for workforce reduction. The Company accrues for severance and other employeeseparation costs under these actions when it is probable that a liability has been incurred and the amount is reasonably estimable. The amounts used indetermining severance accruals are based on an estimate of the salaries and related benefit costs payable under existing plans for the number of employeesimpacted, but the final determination of the actual employees to be terminated is subject to a customary consultation process. The estimate of costs thatwill ultimately be paid requires significant judgment and to the extent that actual results or updated results differ from our current estimates, suchamounts will be recorded as a cumulative adjustment in the period such amounts are determined. 41 Results of operations Segment reporting. Our operations are organized and reviewed by management along our segment lines, which are: NET Services, WD Services, andHA Services. Effective November 1, 2015, we completed the sale of our Human Services segment. The Human Services segment results of operations areseparately discussed in the “Discontinued operations, net of tax”, section set forth below. Segment results are based on how our chief operating decision maker manages our business, makes operating decisions and evaluates operatingperformance. The operating results of the Segments include revenue and expenses incurred by the segment, as well as an allocation of direct expensesincurred by our corporate division on behalf of the segment. Indirect expenses, including unallocated corporate functions and expenses, such asexecutive, finance, human resources, information technology and legal, as well as the results of our captive insurance company (the “Captive”) andelimination entries recorded in consolidation are reflected in Corporate and Other. Note that in prior periods, the Company reported its segment activitiesunder a full absorption method, where all corporate direct and indirect costs were allocated to the reporting segments. Additionally, the oversight of twolegacy businesses was transferred to the management of WD Services in 2015. The segment results for the years ended December 31, 2014 and 2013 havebeen recast to reflect the current management of the segments. Year ended December 31, 2015 compared to year ended December 31, 2014 The following table sets forth results of operations and the percentage of consolidated total revenues represented by items in our consolidatedstatements of income for 2015 and 2014 (in thousands): Year ended December 31, 2015 2014 $ Percentageof Revenue $ Percentageof Revenue Service revenue, net 1,695,446 100.0% 1,136,211 100.0% Operating expenses: Service expense 1,544,365 91.1% 1,023,785 90.1% General and administrative expense 73,616 4.3% 44,501 3.9% Depreciation and amortization 53,469 3.2% 22,833 2.0% Total operating expenses 1,671,450 98.6% 1,091,119 96.0% Operating income 23,996 1.4% 45,092 4.0% Non-operating expense: Interest expense, net 16,213 1.0% 13,122 1.2% Equity in net loss of investee 10,970 0.6% - 0.0% Gain on foreign currency transactions (857) -0.1% (37) 0.0% Income from continuing operations before income taxes (2,330) -0.1% 32,007 2.8% Provision for income taxes 16,276 1.0% 8,090 0.7% Income (loss) from continuing operations (18,606) -1.1% 23,917 2.1% Discontinued operations, net of tax 101,800 6.0% (3,642) -0.3% Net income 83,194 4.9% 20,275 1.8% Net loss attributable to noncontrolling interest 502 0.0% - 0.0% Net income attributable to Providence 83,696 4.9% 20,275 1.8% 42 Service revenue, net. Consolidated service revenue, net for 2015 increased $559.2 million, or 49.2%, compared to 2014. Revenue for 2015compared to 2014 includes an increase in revenue attributable to HA Services of approximately $174.1 million, as a result of the acquisition of Matrix onOctober 23, 2014, as well as an increase in revenue of WD Services of approximately $186.3 million, as a result of the acquisition of Ingeus on May 30,2014. Additionally, NET Services experienced an increase in revenue of approximately $198.7 million. Total operating expenses. Consolidated operating expenses for 2015 increased $580.3 million, or 53.2%, compared to 2014. Operating expensesfor 2015 compared to 2014 included an increase in expenses attributable to HA Services of approximately $154.1 million and an increase in expensesattributable to WD Services of approximately $246.2 million, due primarily to the acquisitions discussed above, and an increase in expense attributableto NET Services of $195.2 million. Partially offsetting these expense increases was a decrease in Corporate and Other expenses of approximately $15.2million. Operating income. Consolidated operating income for 2015 decreased approximately $21.1 million, or 46.8%, compared to 2014. The decrease wasprimarily attributable to the decrease in the operating income of WD Services in 2015 as compared to 2014 of approximately $59.9 million. This decreasewas partially offset by an increase in HA Services operating income of approximately $20.0 million, increased operating income of NET Services ofapproximately $3.5 million and decreased expenses for Corporate and Other of approximately $15.3 million. Interest expense, net. Consolidated interest expense, net for 2015 increased approximately $3.1 million, or 23.6%, compared to 2014. The increaseis primarily related to the increase in outstanding debt incurred primarily to fund our acquisitions, as well as the amortization of deferred financing feesrelated to the debt refinancing in October 2014. Loss on equity investments. Loss on equity investments relates to our investment in Mission Providence. Mission Providence began providingservices in July 2015 and has incurred significant start-up and administrative costs to date. We record 75% of Mission Providence’s profit or loss. Gain on foreign currency transactions. The foreign currency gain of approximately $0.9 million and $0.04 million for 2015 and 2014,respectively, were primarily due to translation adjustments of our foreign subsidiaries. Provision for income taxes. Our effective tax rate for 2015 exceeded 100%. The effective tax rate exceeded the United States federal statutory rateof 35% primarily due to foreign net operating losses (including equity investment losses) for which the future income tax benefit currently cannot berecognized, significant losses in foreign jurisdictions with tax rates lower than the US rate of 35%, state income taxes, and certain non-deductibleexpenses, including significant amounts of compensation expense related to two former shareholders of Ingeus who reside in Australia, for which no taxdeduction may be claimed. The Company’s effective tax rate for 2014 was 25.3%, due primarily to the reduction in fair value in contingent considerationfor the Ingeus acquisition, which is not treated as taxable income. 43 Discontinued operations, net of tax. The following table summarizes the major classes of line items included in income from discontinuedoperations, net of tax, and the percentage of service revenue from discontinued operations, for 2015 and 2014 (in thousands): Year Ended December 31, 2015 2014 $ Percentage ofRevenue $ Percentage ofRevenue Service revenue, net 291,510 100.0% 344,960 100.0% Service expense 264,293 90.7% 315,008 91.3% General and administrative expense 14,975 5.1% 19,134 5.5% Asset impairment charge 1,593 0.5% 6,915 2.0% Depreciation and amortization 4,831 1.7% 6,655 1.9% Interest expense, net 2,829 1.0% 1,478 0.4% Income from discontinued operations before provision for incometaxes 2,989 1.0% (4,230) -1.2% Gain on disposition 123,129 42.2% - 0.0% Benefit (provision) for income taxes (24,318) -8.3% 588 0.2% Discontinued operations, net of tax 101,800 34.9% (3,642) -1.1% The results above include an allocation of interest expense related to 50% of the net proceeds from the sale of the Human Services segment, whichwas required to be repaid by the lenders under the credit facility. The $24.3 million provision for income taxes for the year ended December 31, 2015includes a tax provision of $22.8 million related to the gain on disposition. Net loss attributable to noncontrolling interest. We have minority interests, some of which are in companies that are currently experiencing lossesdue to start-up costs. As such we have a net loss attributable to noncontrolling interests. Segment Results. The following analysis includes discussion of each of our segments. NET Services NET Services financial results are as follows for 2015 and 2014 (in thousands): Year Ended December 31, 2015 2014 $ Percentage ofRevenue $ Percentage ofRevenue Service revenue, net 1,083,015 100.0% 884,287 100.0% Service expense 991,659 91.6% 800,454 90.5% General and administrative expense 10,704 1.0% 8,406 1.0% Depreciation and amortization 9,429 0.9% 7,699 0.9% Operating income 71,223 6.6% 67,728 7.7% Service revenue, net. Services revenue, net for 2015 increased $198.7 million, or 22.5%, compared to 2014. The increase was primarily related tothe full year impact of new state contracts which commenced in 2014 in Texas, Maine, Illinois, and Rhode Island; new state and MCO contracts whichcommenced in 2015 in Florida, California, New York, and Texas; increased membership under state and MCO contracts in New Jersey, Florida,California, Michigan and New York; and higher rates in certain existing markets. The increase in revenue was partially offset by the termination of ourcontracts in Mississippi and Connecticut partway through 2014. 44 Service expense. Service expense is comprised of the following for 2015 and 2014 (in thousands): Year Ended December 31, 2015 2014 $ Percentage ofRevenue $ Percentage ofRevenue Purchased services 814,632 75.2% 657,979 74.4% Payroll and related costs 141,669 13.1% 111,212 12.6% Other operating expenses 34,634 3.2% 30,676 3.5% Stock-based compensation 724 0.1% 587 0.1% Total service expense 991,659 91.6% 800,454 90.5% Service expense for 2015 increased $191.2 million, or 23.9%, compared to 2014. The increase in service expense is primarily attributable to anincrease in purchased transportation services due primarily to higher volume. Purchased transportation services as a percentage of revenue increasedslightly, primarily as a result of an increase in utilization, including Medicaid expansion members as they become more familiar with the availability oftransportation services. Additionally, our payroll and related costs increased for 2015 as compared to 2014 due to additional contracts and increased callvolume due to the increased utilization. Our other operating expenses also increased in 2015 as compared to 2014 due to volume, although it decreasedslightly as a percentage of revenue. General and administrative expense. General and administrative expenses in 2015 increased $2.3 million, or 27.3%, as compared to 2014, due toincreased facility costs resulting from the overall growth of our operations, including the opening of a new call center in Arizona. Depreciation and amortization expense. Depreciation and amortization expenses increased approximately $1.7 million primarily due to theaddition of long-lived assets in our expanded call centers. As a percentage of revenue, depreciation and amortization remained constant at approximately0.9%. WD Services WD Services’ comparative results are significantly impacted due to the acquisition of Ingeus in May 2014. The results presented below includeIngeus for the full-year 2015 as compared to the post-acquisition period in 2014. WD Services financial results are as follows for 2015 and 2014 (inthousands): Year Ended December 31, 2015 2014 $ Percentage ofRevenue $ Percentage ofRevenue Service revenue, net 395,059 100.0% 208,763 100.0% Service expense 393,803 99.7% 184,919 88.6% General and administrative expense 29,846 7.6% (2,072) -1.0% Depreciation and amortization 13,776 3.5% 8,406 4.0% Operating income (loss) (42,366) -10.7% 17,510 8.4% Service revenue, net. Service revenue, net in 2015 increased $186.3 million, or 89.2%, compared to 2014. The increase in 2015 compared to 2014 isprimarily related to the inclusion of Ingeus since May 30, 2014, as Ingeus contributed $367.4 million in 2015 compared to $179.3 million in 2014.Additionally, WD Services experienced revenue growth due to a significant new offender rehabilitation program which began in 2015, offset by revenuedeclines associated with declining referrals and reduced unit pricing under one of its primary employability programs in the United Kingdom. AssumingIngeus was acquired on January 1, 2014, WD Services revenue in 2014 would have been approximately $361.2 million on a pro forma basis. 45 Service expense. Service expense is comprised of the following for 2015 and 2014 (in thousands): Year Ended December 31, 2015 2014 $ Percentage ofRevenue $ Percentage ofRevenue Payroll and related costs 249,130 63.1% 105,436 50.5% Purchased services 78,498 19.9% 48,114 23.0% Other operating expenses 45,418 11.5% 27,938 13.4% Stock-based compensation 20,757 5.3% 3,431 1.6% Total service expense 393,803 99.7% 184,919 88.6% Service expense in 2015 increased $208.9 million, or 113.0%, compared to 2014. The increase in 2015 compared to 2014 is primarily related to theIngeus acquisition. Payroll and related costs increased primarily as a result of new headcount for a new offender rehabilitation program. Generally, undernew contracts, headcount costs increase as new employees are hired and trained prior to significant revenue being earned, resulting in an increase inpayroll and related costs as a percentage of revenue. Payroll and related costs for the year ended December 31, 2015 include approximately $12.2 millionin termination benefits primarily related to two redundancy plans designed to better align headcount with service delivery volumes and the impact ofutilization of new information technology systems. Certain redundancy costs were anticipated in developing our estimate of costs when bidding for newcontracts. The majority of these redundancy benefits are expected to be paid during 2016. Additionally, on October 15, 2015, we entered into SettlementDeeds whereby two Ingeus executives’ (who were also selling shareholders of Ingeus) employment agreements were terminated by mutual agreement. Thetermination of the employees’ employment agreements resulted in approximately $4.8 million of accelerated compensation expense and $16.1 million inaccelerated stock-based compensation from restricted shares and cash placed into escrow in 2014, in conjunction with the payment of acquisitionconsideration of Ingeus. These amounts would otherwise have been recognized over the four year vesting period, which was scheduled to end in May2018. In addition, in 2015 and 2014, respectively, the company incurred $5.9 million and $4.5 million of expense prior to termination. WD Services alsoincurred approximately $2.4 million in other costs associated with the separation with these two employees which is included in other operating expensesin the table above. General and administrative expense. General and administrative expense in 2015 increased $31.9 million compared to 2014. $13.6 million of theincrease relates to the impact of the reduction in the fair value of contingent consideration, as the reduction recorded in 2015 was $2.5 million ascompared to the reduction in 2014 of $16.1 million. The fair value of the contingent consideration is zero at December 31, 2015. Additionally, facilitycosts increased $18.3 million, to $32.3 million in 2015 from $14.0 million in 2014 primarily due to the Ingeus acquisition, as well as growth associatedwith our new programs. Depreciation and amortization expense. Depreciation and amortization expense for 2015 increased approximately $5.4 million compared to 2014,principally attributable to the full year of activity in 2015 for Ingeus. 46 HA Services HA Services comparative results are significantly impacted due to the acquisition of Matrix in October 2014. The results presented below includeMatrix for the full-year 2015 as compared to the post-acquisition period in 2014. HA Services financial results are as follows for 2015 and 2014 (inthousands): Year Ended December 31, 2015 2014 $ Percentage ofRevenue $ Percentage ofRevenue Service revenue, net 217,436 100.0% 43,331 100.0% Service expense 163,211 75.1% 35,185 81.2% General and administrative expense 2,630 1.2% 421 1.0% Depreciation and amortization 29,472 13.6% 5,619 13.0% Operating income 22,123 10.2% 2,106 4.9% Service revenue, net. HA Services revenue in 2015 increased $174.1 million, or 401.8%, as compared to 2014. The increase was primarilyattributable to the inclusion of the results of Matrix for the full year of 2015. Assuming Matrix had been acquired on January 1, 2014, HA Servicesrevenues in 2014 would have been approximately $211.4 million on a pro forma basis. In addition to the impact due to the acquisition, the increase wasalso due to increased volume offset by a slight decline in pricing. Service expense. Service expense is comprised of the following for 2015 and 2014 (in thousands): Year Ended December 31, 2015 2014 $ Percentage ofRevenue $ Percentage ofRevenue Payroll and related costs 132,939 61.1% 27,571 63.6% Purchased services 1,305 0.6% 356 0.8% Other operating expenses 28,859 13.3% 7,258 16.8% Stock-based compensation 108 0.0% - 0.0% Total service expense 163,211 75.1% 35,185 81.2% Service expense in 2015 increased $128.0 million compared to 2014 due primarily to the Matrix acquisition. General and administrative expense. General and administrative expense in 2015 increased $2.2 million compared to 2014 due to increased facilitycosts, which were approximately $2.6 million and $0.4 million for 2015 and 2014, respectively. Depreciation and amortization expense. Depreciation and amortization expense in 2015 increased $23.9 million compared to 2014. Depreciationand amortization includes approximately $26.1 million and $5.0 million of amortization of intangible assets acquired in the Matrix acquisition for 2015and 2014, respectively. 47 Corporate and Other Corporate and Other includes the headcount and professional service costs incurred at the holding company level, the Company’s captive insurancecompany, and elimination entries to account for inter-segment transactions. Corporate and Other financial results are as follows for 2015 and 2014 (inthousands): Year Ended December 31, 2015 2014 $ $ Service revenue, net (a) (64) (170) Service expense (a) (4,308) 3,227 General and administrative expense 30,436 37,746 Depreciation and amortization 792 1,109 Operating loss (26,984) (42,252) (a) Negative amounts are present for this line item due to elimination entries that are included in Corporate and Other. Offsettingamounts are reflected in the financial results of our operating segments. Operating loss. Corporate and Other operating loss in 2015 decreased by approximately $15.3 million as compared to 2014, due primarily todecreased expenses. Service expense for 2015 decreased $7.5 million as compared to 2014 due to favorable claims history in 2015 for our self-insuranceand reinsurance programs, as well as a decrease in certain payroll and related costs of $3.8 million primarily due to positions eliminated in 2014. General and administrative expenses in 2015 decreased approximately $7.3 million, or 19.4%, compared to 2014. The decrease was primarilyrelated to a decrease in acquisition costs of approximately $11.2 million, which were incurred in relation to the acquisitions of Ingeus and Matrix.Additionally, the year ended December 31, 2014 included approximately $3.0 million in financing fees associated with the debt refinancing completedin October 2014. Offsetting these decreases in expenses were increased legal fees in 2015 as compared to 2014, of which approximately $0.8 millionrelated to legal fees associated with a putative stockholder class action derivative complaint. Additional increases in general and administrative expensesrelated to additional accounting and compliance related fees, recruiting, professional fees and payroll related costs of approximately $5.2 million dueprimarily to increased costs to integrate Ingeus and Matrix into our internal controls program as well as increased audit costs related to the new companiesacquired. We also incurred expense attributable to stock award modifications in the amount of approximately $0.7 million related to a separationagreement with our former Chief Executive Officer. In addition, in 2015 we incurred approximately $1.4 million in general and administrative expenserelated to a new stock-based long-term incentive plan designed to provide long-term performance based awards to certain executive officers ofProvidence. 48 Year ended December 31, 2014 compared to year ended December 31, 2013 The following table sets forth results of operations and the percentage of consolidated total revenues represented by items in our consolidatedstatements of income for 2014 and 2013 (in thousands): Year Ended December 31, 2014 2013 $ Percentageof Revenue $ Percentageof Revenue Service revenue, net 1,136,211 100.0% 798,766 100.0% Operating expenses: Service expense 1,023,785 90.1% 736,669 92.2% General and administrative expense 44,501 3.9% 25,590 3.2% Depreciation and amortization 22,833 2.0% 9,331 1.2% Total operating expenses 1,091,119 96.0% 771,590 96.6% Operating income 45,092 4.0% 27,176 3.4% Non-operating expense: Interest expense, net 13,122 1.2% 6,921 0.9% Loss on extinguishment of debt - 0.0% 525 0.1% Gain on foreign currency transactions (37) 0.0% - 0.0% Income from continuing operations before income taxes 32,007 2.8% 19,730 2.5% Provision for income taxes 8,090 0.7% 6,625 0.8% Income from continuing operations 23,917 2.1% 13,105 1.6% Discontinued operations, net of tax (3,642) -0.3% 6,333 0.8% Net income 20,275 1.8% 19,438 2.4% Service revenue, net. Consolidated service revenue, net for 2014 increased $337.4 million, or 42.2%, compared to 2013. 2014 includes an increasein revenue attributable to the 2014 acquisitions of Ingeus and Matrix of $179.3 million and $43.3 million, respectively. Additionally, NET Servicesexperienced an increase in revenue of approximately $114.0 million. Total operating expenses. Consolidated operating expenses for 2015 increased $319.5 million, or 41.4%, compared to 2013. 2014 includes anincrease attributable to Ingeus and Matrix of $164.1 million and $41.2 million, respectively. Additionally, NET service expense increased $89.7 millionin 2014 as compared to 2013 and Corporate and Other operating expenses increased $23.5 million. Operating income. Consolidated operating income for 2014 increased approximately $17.9 million, or 65.9%, compared to 2013. The increase wasattributable to the addition in 2014 of Ingeus’s operating income of $15.1 million and Matrix’s operating income of $2.1 million. Additionally, NETServices experienced an increase in operating income of $23.4 million. These increases in operating income were partially offset by the increase inoperating loss for Corporate and Other of $23.5 million. Interest expense, net. Consolidated interest expense, net for 2014 increased $6.2 million, or 89.6%, compared to 2013 due to an increase in debt.Current and long-term debt obligations increased to $575.2 million at December 31, 2014, from $123.5 million at December 31, 2013. In addition,interest expense includes $4.5 million of financing fees which were fully expensed in the fourth quarter of 2014 in relation to bridge financingcommitments. Gain on foreign currency transactions. The gain on foreign currency of approximately $0.04 million for 2014 resulted primarily from translationadjustments of our foreign subsidiaries. Loss on extinguishment of debt. Loss on extinguishment of debt of approximately $0.5 million for 2013 resulted from the write-off of deferredfinancing fees related to our credit facility that was repaid in full in August 2013 with proceeds from our amended and restated credit facility. As currentand previous credit facilities were loan syndications, and a number of lenders participated in both credit facilities, the Company evaluated the accountingfor financing fees on a lender by lender basis and recorded a charge accordingly. 49 Provision for income taxes. Our effective tax rate for 2014 and 2013 was 25.3% and 33.6% respectively. Our effective tax rate was lower than theUS federal statutory rate of 35.0% for 2014 due primarily to the impact of the non-taxable nature of a favorable contingent consideration adjustmentrelated to the Ingeus acquisition. Discontinued operations, net of tax. The following table summarizes the major classes of line items included in income from discontinuedoperations, net of tax, and the percentage of service revenue from discontinued operations, for 2014 and 2013 (in thousands): Year Ended December 31, 2014 2013 $ Percentage ofRevenue $ Percentage ofRevenue Service revenue, net 344,960 100.0% 323,916 100.0% Service expensez 315,008 91.3% 283,382 87.5% General and administrative expense 19,134 5.5% 23,043 7.1% Asset impairment charge 6,915 2.0% 492 0.2% Depreciation and amortization 6,655 1.9% 5,541 1.7% Interest expense, net 1,478 0.4% (27) 0.0% Income from discontinued operations before provision for incometaxes (4,230) -1.2% 11,485 3.5% Provision for income taxes (588) -0.2% 5,152 1.6% Discontinued operations, net of tax (3,642) -1.1% 6,333 2.0% The results above include an allocation of interest expense related to 50% of the net proceeds from the sale of the Human Services segment, whichwas required to be repaid by the lenders under the credit facility. Segment Results. The following analysis includes discussion on each of our segments. NET Services NET Services segment financial results were as follows for 2014 and 2013 (in thousands): Year Ended December 31, 2014 2013 $ Percentage ofRevenue $ Percentage ofRevenue Service revenue, net 884,287 100.0% 770,246 100.0% Service expense 800,454 90.5% 710,755 92.3% General and administrative expense 8,406 1.0% 7,397 1.0% Depreciation and amortization 7,699 0.9% 7,725 1.0% Operating income 67,728 7.7% 44,369 5.8% Service revenue, net. Service revenue, net for 2014 increased $114.0 million, or 14.8%, compared to 2013. The major drivers of theincrease include increased membership under our New Jersey contract, a new contract with the state of Rhode Island, additional members added underboth new and expanded contracts in Michigan, implementation of various new managed care contracts across the country, and expansion of our contractswith the states of Maine and Texas. Additional membership increases were experienced in a number of other states such as Delaware, Georgia, Nevada andSouth Carolina. This revenue growth was partially offset by the elimination of our contracts in Wisconsin, Mississippi, and Hartford, Connecticut. 50 Service expense. Service expense is comprised of the following for 2014 and 2013 (in thousands): Year Ended December 31, 2014 2013 $ Percentage ofRevenue $ Percentage ofRevenue Purchased services 657,979 74.4% 591,864 76.8% Payroll and related costs 111,212 12.6% 92,550 12.0% Other operating expenses 30,676 3.5% 25,261 3.3% Stock-based compensation 587 0.1% 1,080 0.1% Total service expense 800,454 90.5% 710,755 92.3% Service expense for 2014 increased $89.7 million, or 12.6%, compared to 2013. The increase in service expense is primarily attributable to theincrease in payroll and related costs and purchased transportation services due primarily to volume. The increase in payroll and related costs was due tothe hiring of additional staff for new contracts in Maine, Texas and Utah, expansion efforts across several other markets, and additional staffing needed forexpansion of the California ambulance commercial and managed care lines of business. The increase in purchased services is attributable to additionalpurchased service costs for our expanded business and new contracts covering Hawaii, Kansas, Louisiana, Maine, Michigan, New Mexico, Ohio, Texas,Rhode Island, New York, and Utah, as well as further expansion in the California commercial and managed care markets. These increases were partiallyoffset by decreases related to the termination of a contract with the City of Hartford, several managed care contracts, our Wisconsin contracts, and theState of Mississippi Medicaid and End Stage Renal contracts. Additional decreases in purchased services costs were caused by the transition to anadministrative services only contract in Connecticut. Additionally, as a percentage of NET Services’ revenue, purchased services decreased toapproximately 74.4% for 2014, from 76.8% for 2013. This decline in purchased services expense as a percent of NET Services’ revenue is due tomembership expansion in existing contracts with lower utilization levels than the historical trend. General and administrative expense. General and administrative expense in 2014 increased $1.0 million, or 13.6%, as compared to 2013 due to anincrease in facility costs due to volume, which were $8.4 million and $7.4 million for 2014 and 2013, respectively. Depreciation and amortization expense. Depreciation and amortization expense remained relatively constant at approximately $7.7 million for2014 and 2013. WD Services WD Services comparative results are significantly impacted due to the acquisition of Ingeus in May 2014. The results presented below includeIngeus for the post-acquisition period in 2014. 2013 results include two legacy businesses which were previously managed as part of the Human Servicessegment. WD Services segment financial results were as follows for 2014 and 2013 (in thousands): Year Ended December 31, 2014 2013 $ Percentage ofRevenue $ Percentage ofRevenue Service revenue, net 208,763 100.0% 28,671 100.0% Service expense 184,919 88.6% 24,650 86.0% General and administrative expense (2,072) -1.0% 1,888 6.6% Depreciation and amortization 8,406 4.0% 573 2.0% Operating income (loss) 17,510 8.4% 1,560 5.4% Service revenue, net. Service revenue, net in 2014 increased $180.1 million compared to 2013, primarily due to the acquisition of Ingeus. 51 Service expense. Service expense is comprised of the following for 2014 and 2013 (in thousands): Year Ended December 31, 2014 2013 $ Percentage ofRevenue $ Percentage ofRevenue Payroll and related costs 105,436 50.5% 16,775 58.5% Purchased services 48,114 23.0% 2,523 8.8% Other operating expenses 27,938 13.4% 5,352 18.7% Stock-based compensation 3,431 1.6% - 0.0% Total service expense 184,919 88.6% 24,650 86.0% Service expense in 2014 increased $160.3 million compared to 2013. The increase in service expense in 2014 compared to 2013, primarily as aresult of the acquisition of Ingeus. General and administrative expense. General and administrative expense in 2014 decreased $4.0 million compared to 2013, reflecting a $16.1million reduction in the fair value of contingent consideration for the Ingeus acquisition, partially offset by an increase in facility costs, which were $14.0million and $1.9 million for 2014 and 2013, respectively. Depreciation and amortization expense. Depreciation and amortization expenses for 2014 increased by approximately $7.8 million compared to2013, primarily due to the acquisition of Ingeus, including the amortization of intangible assets acquired in the acquisition. HA Services HA Services was formed with the acquisition of Matrix in October 2014, and thus the comparative results are not meaningful. HA Services financialresults were as follows for 2014 and 2013 (in thousands): Year Ended December 31, 2014 2013 $ Percentage ofRevenue $ Percentage ofRevenue Service revenue, net 43,331 100.0% - 0.0% Service expense 35,185 81.2% - 0.0% General and administrative expense 421 1.0% - 0.0% Depreciation and amortization 5,619 13.0% - 0.0% Operating income 2,106 4.9% - 0.0% Service revenue, net. Service revenue, net represents revenue attributable to Matrix, which we acquired on October 23, 2014. The 2014revenue includes revenue from October 23, 2014 to December 31, 2014 primarily derived from providing CHAs. 52 Service expense. Service expense is comprised of the following for 2014 and 2013 (in thousands): Year Ended December 31, 2014 2013 $ Percentage ofRevenue $ Percentageof Revenue Payroll and related costs 27,571 63.6% - 0.0% Purchased services 356 0.8% - 0.0% Other operating expenses 7,258 16.8% - 0.0% Total service expense 35,185 81.2% - 0.0% The increase in service expense in 2014 compared to 2013 was related to the acquisition of Matrix. General and administrative expense. General and administrative expense includes approximately $0.4 million of facility costs for the period ofOctober 23, 2014 through December 31, 2014. Depreciation and amortization expense. Depreciation and amortization expense includes approximately $5.0 million of amortization of intangibleassets acquired in the Matrix acquisition. Corporate and Other Corporate and Other includes the costs of the holding company, the Company’s captive insurance company, and elimination entries to account forinter-segment transactions. Corporate and Other financial results were as follows for 2014 and 2013 (in thousands): Year Ended December 31, 2014 2013 $ $ Service revenue, net (a) (170) (151) Service expense 3,227 1,264 General and administrative expense 37,746 16,305 Depreciation and amortization 1,109 1,033 Operating loss (42,252) (18,753) (a)Negative amounts are present for this line item due to elimination entries that are included in Corporate and Other.Offsetting amounts are reflected in the financial results of our operating segments. Operating loss. Corporate and Other operating loss in 2014 increased by approximately $23.5 million as compared to 2013. The increase wasprimarily a result of increased general and administrative expense which included approximately $11.8 million in acquisition related costs, $3.0 millionin third party fees related to our debt financing and $0.8 million in integration and restructuring costs incurred during 2014. Additionally, there was anincrease in stock based compensation expense of approximately $2.2 million and $1.5 million related to stock options and stock appreciation rights,respectively, primarily due to awards granted to an executive officer, key employees and a director for efforts made in connection with the Ingeus andMatrix acquisitions during the third quarter of 2014, one-third of which vested upon grant. 53 Seasonality Our quarterly operating results and operating cash flows normally fluctuate due in part to seasonal factors and uneven demand for services and thetiming of new contracts, which impact the amount of revenues earned and expenses incurred. NET Services experiences fluctuations in demand during thesummer, winter and holiday seasons. Due to higher demand in the summer months and lower demand in the winter and holiday seasons, coupled with aprimarily fixed revenue stream based on a per member, per month payment structure, NET Services normally experiences lower operating margins in thesummer season and higher operating margins in the winter and holiday seasons. HA Services experiences quarterly volatility in revenue and earnings dueto uneven demand for services. WD Services is impacted by the timing of commencement and the expiration of major contracts. Under many of WDServices’ contracts in new service lines, we invest significant sums of money in personnel, leased office space, purchased or developed technology, andother costs, and generally incur these costs prior to commencing services and receiving payments. This results in significant variability in its financialperformance and cash flows between quarters and for comparative periods. It is expected that future contracts will be structured in a similar fashion. Liquidity and capital resources Short-term capital requirements consist primarily of recurring operating expenses, new contract start-up costs, including workforce restructuringcosts, commitments to fund investments, and debt service requirements. We expect to meet these requirements through available cash on hand, thegeneration of cash from our operating segments, and borrowing capacity under our revolving credit facility. On September 3, 2015, we entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”), pursuant to which we agreed to sellall of the membership interests in Providence Human Services, LLC and Providence Community Services, LLC, comprising our Human Services segment,in exchange for cash proceeds of approximately $200.0 million prior to adjustments for estimated working capital, certain seller transaction costs, debtassumed by the buyer, plus a $20.1 million cash payment received for the Providence Human Services cash and cash equivalents on hand at closing, withan additional $10.0 million held in an indemnity escrow. Additionally, in November 2015, we used $206.0 million of the cash received from the sale of our Human Services segment to pay down a portionof the outstanding borrowings under our revolving credit facility (only 50% of our net cash proceeds were required to be used to pay down our revolvingcredit facility). In October 2015, we repurchased 707,318 shares of our common stock for approximately $29.0 million from cash on hand and borrowings underour revolving credit facility. In addition, we repurchased 109,150 shares of our common stock for approximately $5.1 million, under a plan approved bythe Board of Directors on November 4, 2015. On February 5, 2015, we completed a sale of convertible preferred stock, which was initiated in 2014. $80.7 million of net proceeds from the sale ofconvertible preferred stock were realized and used to repay a $65.5 million unsecured subordinated bridge note due to a related party. Cash flow from investing activities was our primary source of cash in 2015 due to the sale of our Human Services segment. Our balance of cash andcash equivalents was $84.8 million and $135.3 million at December 31, 2015 and 2014, respectively, including $37.5 million and $42.7 million held inforeign countries, respectively. Such cash is generally used to fund foreign operations, although it may be used also to repay intercompany indebtednessexisting between Providence and its foreign subsidiaries. In addition, we had restricted cash of $20.1 million and $18.0 million at December 31, 2015 and2014, respectively, related to contractual obligations and activities of our captive insurance subsidiaries and other subsidiaries. At December 31, 2015and 2014, our total debt was $305.0 million and $576.1 million, respectively. The reduction is primarily a result of the pay down of a portion of ourrevolving credit facility with the proceeds from the sale of our Human Services segment as well as scheduled principal payments under our debtagreements, and the repayment of the related party loan as discussed above. We believe we can access capital markets to raise equity or debt financing for various business reasons, including required debt payments andacquisitions. The timing, term, size, and pricing of any such financing will depend on investor interest and market conditions, and there can be noassurance that we will be able to obtain any such financing. The cash flow statement for all periods presented includes both continuing and discontinued operations. 54 Year ended December 31, 2015 Cash flows Operating activities. We generated net cash flows from operating activities of $13.2 million for 2015. These cash flows included net income of$83.2 million, which includes a non-cash net of tax gain on sale of our Human Services segment of $100.3 million. In addition, non-cash items include,$38.1 million of amortization expense, $26.6 million in stock-based compensation expense, $20.2 million of depreciation expense, and an $11.0 millionloss on equity investments. Significant non-cash activity from our discontinued operations included $2.4 million of depreciation, $2.5 million ofamortization, and $1.6 million of asset impairment charges. Changes in working capital items, include the following significant items: ●$86.6 million use of cash due to the increase in accounts receivable, the majority of which is due to an increase in NET Services’ accountsreceivable of $48.0 million due primarily to timing, as two significant customer balances increased at year-end, but were subsequentlycollected as of February 2016. In addition, $16.2 million of the increase in NET Services’ accounts receivable is due to amounts owedunder capitated reconciliation contracts, whereby funds are received after a final reconciliation of the number of members served.Historically, funds were received for the majority of capitated contracts at the beginning of the contract month. Such reconciliationcontracts are becoming more prevalent in NET Services. Additionally, WD Services accounts receivable increased $20.4 million due toadditional revenue contracts in place during 2015 as compared to 2014. The accounts receivable of Human Services, our discontinuedoperation, increased $9.9 million from December 31, 2014 to the time of sale, which is reported as a use of cash from operations in thestatement of cash flows. ●$19.0 million source of cash due to the increase in deferred revenue, of which approximately $15.7 million related to WD Services inassociation with cash received in advance of services being rendered for two large contracts. Investing activities. Net cash generated by investing activities totaled $143.3 million for 2015. The sale of our Human Services segment effectiveNovember 1, 2015, resulted in cash proceeds from investing activities of $199.9 million. $35.1 million of cash was used to purchase property andequipment primarily to support the growth of our continuing operations, and $16.1 million was used to fund our equity investment in MissionProvidence. Purchases of property and equipment by our discontinued operations totaled approximately $2.2 million. Financing activities. Net cash used in financing activities totaled $231.3 million for 2015. We repaid a net amount of $182.0 million under ourrevolving credit facility during 2015, primarily with the use of a portion of our proceeds from the sale of our Human Services segment. Additionally,scheduled term loan payments totaled $23.6 million. We also repaid the $65.5 million unsecured subordinated related party bridge note from the netproceeds of $80.7 million received from the issuance of preferred stock. Additional use of funds included stock repurchases of $36.8 million, a contingentconsideration payment related to the Ingeus acquisition of approximately $7.5 million and preferred stock dividend payments of $3.9 million. Cashproceeds from the exercise of employee stock option exercises were $4.9 million. Year ended December 31, 2014 Cash flows Operating activities. We generated net cash flows from operating activities of approximately $55.2 million for 2014. These cash flows included netincome of approximately $20.3 million. In addition, non-cash items include, $15.4 million of amortization expense, $7.6 million in stock-basedcompensation expense, $14.1 million of depreciation expense, ($16.3) million from the reduction in fair value of contingent consideration and ($5.2)million from deferred taxes. Significant non-cash activity from our discontinued operations included $3.2 million of depreciation, $3.5 million ofamortization, and $6.9 million of asset impairment charges. The balance of the cash provided by operating activities is primarily due to the net effect ofchanges in other working capital items, including the following significant items: ●$17.2 million increase in accounts receivable primarily due to a $10.9 million increase in the discontinued operation Human Services’accounts receivable balance and an $11.0 million increase in NET Services’ accounts receivable balance. $2.8 million of the increase inHuman Services’ accounts receivable balance was due to increased sales volume associated with two acquisitions completed by thesegment in 2014. The majority of the remaining increase in Human Services’ accounts receivable balance was attributable to slowercollections of fourth quarter revenue in 2014 versus 2013. The increase in NET Services’ accounts receivable balance was primarily dueto two large payers that had amounts due as of December 31, 2014 that were subsequently collected at the beginning of 2015; ●An approximate $8.0 million increase in prepaid and other assets primarily related to a $3.6 million increase in prepaid income taxesassociated with our discontinued operation Human Services and NET Services segments, a $2.9 million preferred share backstop feepaid to a related party in association with the financing of our acquisition of Matrix, and $1.8 million of prepaid compensationassociated with the acquisition of Ingeus; and ●An approximate $28.5 million increase in accounts payable and accrued expenses primarily attributable to the timing of paymentsrelated to non-emergency transportation contract reimbursements due to a change in the timing of our provider payments for our NETServices segment which resulted in significant provider payments being paid in January as opposed to December in the prior year. 55 Investing activities. Net cash used in investing activities totaled $443.4 million primarily due to acquisitions completed in 2014. $352.1 million ofcash was paid in the acquisition of Matrix, approximately $55.1 million, net of cash acquired, was paid in the acquisition of Ingeus and $9.8 million ofcash was paid for two Human Services businesses acquired through asset purchase agreements in 2014. Additionally, $23.2 million was used to purchaseproperty and equipment to support the growth of our operations. Purchases of property and equipment by our discontinued operations totaledapproximately $4.8 million. Financing activities. Net cash provided by financing activities totaled $453.1 million. Under the Second Amendment to our credit facility, weborrowed $250.0 million under a term loan. Additionally, we borrowed $185.7 million from our revolving credit facility, and borrowed $65.5 million onan unsecured subordinated related party bridge note. We paid scheduled principal term payments of $48.6 million. In conjunction with the refinancing ofour debt, we paid $12.8 million of financing fees. Cash proceeds from the exercise of employee stock option exercises totaled $11.0 million. Obligations and commitments Credit facility. On August 2, 2013, we entered into an Amended and Restated Credit Agreement (as amended, supplemented, or modified, the“Credit Agreement”) with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, SunTrust Bank, as syndicationagent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and SunTrust Robinson Humphrey, Inc., as joint lead arrangers and joint book managers andother lenders party thereto. The Credit Agreement provided us with a senior secured credit facility, or the Credit Facility, in aggregate principal amount of$225.0 million, comprised of a $60.0 million term loan facility and a $165.0 million revolving credit facility. The Credit Facility includes sublimits forswingline loans and letters of credit in amounts of up to $10.0 million and $25.0 million, respectively. On August 2, 2013, we borrowed the entire amountavailable under the term loan facility and $16.0 million under our revolving credit facility and used the proceeds thereof to refinance certain of ourexisting indebtedness. On May 28, 2014 we entered into the first amendment (the “First Amendment”) to our Credit Facility. The First Amendment provided for, amongother things, an increase in the aggregate amount of the revolving credit facility from $165.0 million to $240.0 million and other modifications inconnection with the consummation of the acquisition of Ingeus. On October 23, 2014, we entered into the Second Amendment to the Amended and Restated Credit and Guaranty Agreement and Consent (the“Second Amendment”) to amend the Credit Facility to (i) add a new term loan tranche in aggregate principal amount of up to $250.0 million to partlyfinance the acquisition of Matrix, (ii) provide the consent of the required lenders to consummate the acquisition of Matrix, (iii) permit incurrence ofadditional debt to fund the acquisition of Matrix, (iv) add an excess cash flow mandatory prepayment provision and (v) such other amendments which arebeneficial to us and provided greater flexibility for our future operations. On September 3, 2015, we entered into the Third Amendment and Consent to the Amended and Restated Credit and Guaranty Agreement (the“Third Amendment”) to amend the Credit Agreement. Pursuant to the Third Amendment, the lenders under the Credit Agreement consented toProvidence’s sale of the Human Services segment, provided that a minimum amount equal to 50% of the net cash proceeds, as defined in the CreditAgreement, of the sale was applied pro rata to the prepayment of revolving loans and swingline loans under the Credit Agreement. Further, the lendersconsented to our use of 50% of the net cash proceeds of the sale to make restricted payments to repurchase common stock pursuant to a Providence stockrepurchase program. The Third Amendment provided for appropriate amendments to the terms of the Credit Agreement to reflect such consents. TheCredit Facility defines “net cash proceeds” to include cash proceeds or cash equivalents actually received in a disposition such as the sale, net of directcosts incurred, taxes paid or payable as a result of the disposition, the amount of required payments on indebtedness as a result of the disposition, and theamount of any reasonable reserve established in accordance with generally accepted accounting principles for contingency payments, such asindemnification obligations. 56 Under the Credit Facility we have an option to request an increase in the amount of the revolving credit facility and/or the term loan facility fromtime to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75.0 million with either additionalcommitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to the administrativeagent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. We may not be able to access additionalfunds under this increase option as no lender is obligated to participate in any such increase under the Credit Facility. The Credit Facility matures on August 2, 2018. We may prepay the Credit Facility in whole or in part, at any time without premium or penalty,subject to reimbursement of the lenders’ breakage and redeployment costs in connection with prepayments of London Interbank Offered Rate, or LIBOR,loans. The unutilized portion of the commitments under the Credit Facility may be irrevocably reduced or terminated by us at any time without penalty. Our obligations under the Credit Facility are guaranteed by all of our present and future domestic subsidiaries, excluding certain domesticsubsidiaries, which includes our insurance captives. Our obligations under, and each guarantor’s obligations under its guaranty of, the Credit Facility aresecured by a first priority lien on substantially all of our respective assets, including a pledge of 100% of the issued and outstanding stock of ourdomestic subsidiaries, excluding our insurance captives, and 65% of the issued and outstanding stock of our first tier foreign subsidiaries. Interest on the outstanding principal amount of the loans accrues, at our election, at a per annum rate equal to LIBOR, plus an applicable margin orthe base rate plus an applicable margin. The applicable margin ranges from 2.25% to 3.25% in the case of LIBOR loans and 1.25% to 2.25% in the case ofthe base rate loans, in each case, based on our consolidated leverage ratio as defined in the Credit Agreement. Interest on the loans is payable quarterly inarrears. The interest rate applied to our term loan at December 31, 2015 was 3.33%. In addition, we are obligated to pay a quarterly commitment fee basedon a percentage of the unused portion of each lender’s commitment under the revolving credit facility and quarterly letter of credit fees based on apercentage of the maximum amount available to be drawn under each outstanding letter of credit. The commitment fee and letter of credit fee range from0.25% to 0.50% and 2.25% to 3.25%, respectively, in each case, based on our consolidated leverage ratio. The $60.0 million term loan is subject to quarterly amortization payments, which commenced on December 31, 2014, so that the followingpercentages of the term loan outstanding on the closing date plus the principal amount of any term loans funded pursuant to the increase option arerepaid as follows: 7.5% between December 31, 2014 and September 30, 2015, 10.0% between December 31, 2015 and September 30, 2016, 12.5%between December 31, 2016 and September 30, 2017, 15% between December 31, 2017 and June 30, 2018 and the remaining balance at maturity. The $250.0 million term loan is subject to quarterly amortization payments, which commenced on March 31, 2015, so that the followingpercentages of the term loan outstanding on the closing date plus the principal amount of any term loans funded pursuant to the increase option arerepaid as follows: 7.5% between March 31, 2015 and December 31, 2015, 10.0% between March 31, 2016 and December 31, 2016, 12.5% between March31, 2017 and December 31, 2017, 15.0% between March 31, 2018 and June 30, 2018 and the remaining balance at maturity. The Credit Facility also requires us (subject to certain exceptions as set forth in the Amended and Restated Credit Agreement) to prepay theoutstanding loans in an aggregate amount equal to 100% of the net cash proceeds received from certain asset dispositions (or 50% of net cash proceeds inthe case of the sale of the Human Services segment), debt issuances, insurance and casualty awards and other extraordinary receipts. 57 The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions onour ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assets, and mergeand consolidate. We are subject to financial covenants, including consolidated net leverage and consolidated fixed charge covenants. We were incompliance with all covenants as of December 31, 2015. We had $19.7 million of borrowings outstanding under the revolving credit facility as of December 31, 2015. $25.0 million of the revolving creditfacility is available to collateralize letters of credit. As of December 31, 2015, eight letters of credit in the amount of approximately $8.2 million wereoutstanding. At December 31, 2015, our available credit under the revolving credit facility was $212.1 million. Rights offering. We completed a Rights Offering, on February 5, 2015, allowing all of the Company’s existing common stock holders the non-transferrable right to purchase their pro rata share of $65.5 million of convertible preferred stock at a price equal to $100.00 per share. The convertiblepreferred stock is convertible into shares of our common stock at a conversion price equal to $39.88, which was the closing price of our common stock onthe NASDAQ Global Select Market on October 22, 2014. Stockholders exercised subscription rights to purchase 130,884 shares of the Company's convertible preferred stock. Pursuant to the terms andconditions of the Standby Purchase Agreement between Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest,L.P. and Blackwell Partners, LLC (collectively, the "Standby Purchasers") and the Company, the remaining 524,116 shares of the Company's preferredstock was purchased by Standby Purchasers at the $100.00 per share subscription price. The Standby Purchasers beneficially owned approximately 94%of our outstanding convertible preferred stock after giving effect to the Rights Offering and the Standby Purchase Agreement. The Company received$65.5 million in aggregate gross proceeds from the consummation of the Rights Offering and Standby Purchase Agreement, which it used to repay therelated party unsecured subordinated bridge note that was outstanding as of December 31, 2014. Additionally, on March 12, 2015, the Standby Purchasers exercised their right to purchase an additional 150,000 shares of the Company’sconvertible preferred stock at a $105 per share subscription price. We may pay a noncumulative cash dividend on each share of convertible preferred stock, when, as and if declared by our board of directors, atthe rate of five and one-half percent (5.5%) per annum on the liquidation preference then in effect. Following the issue date of the convertible preferredstock, on or before the third business day immediately preceding each fiscal quarter, we will determine our intention whether or not to pay a cashdividend with respect to that ensuing quarter and will give notice of our intention to each holder of convertible preferred stock as soon as practicablethereafter. In the event we do not declare and pay a cash dividend, the liquidation preference will be increased to an amount equal to the liquidationpreference in effect at the start of the applicable dividend period, plus an amount equal to such then applicable liquidation preference multiplied by eightand one-half percent (8.5%) per annum, computed on the basis of a 365-day year and the actual number of days elapsed from the start of the applicabledividend period to the applicable date of determination. Cash dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on the first calendar day ofthe first January, April, July or October following the date of original issuance of the convertible preferred stock, and, if declared, will begin to accrue onthe first day of the applicable dividend period. Paid in kind (“PIK”) dividends, if applicable, will accrue and be cumulative on the same schedule as setforth above for cash dividends and will also be compounded at the applicable annual rate on each applicable subsequent dividend date. PIK dividendsare paid upon the occurrence of a liquidation event, conversion or redemption in accordance with the terms of the convertible preferred stock. Cashdividends were declared each quarter for the year ended December 31, 2015 and totaled approximately $3.9 million. 58 Contingent obligations. We maintain a 409(A) Deferred Compensation Rabbi Trust Plan for highly compensated employees of our NET Servicesoperating segment. Benefits are paid from our general assets under this plan. Reinsurance and Self-Funded Insurance Programs Reinsurance We reinsure a substantial portion of our NET Services’, HA Services’, and historical Human Services’ automobile, general and professional liabilityand workers’ compensation costs under reinsurance programs through Social Services Providers Captive Insurance Company (“SPCIC”), a wholly ownedsubsidiary of the Company. The decision to reinsure our risks and also to provide a self-funded health insurance program to our employees was madebased on current conditions in the insurance marketplace that have led to increasingly higher levels of self-insurance retentions, an increasing number ofcoverage limitations, and fluctuating insurance premium rates. SPCIC, which is a licensed captive insurance company domiciled in the State of Arizona, reinsures third-party insurers for general and professionalliability exposures for the first dollar of each and every loss up to $1.0 million per loss and $5.0 million in the aggregate. At December 31, 2015, thecumulative reserve for expected losses since inception in 2005 of this reinsurance program was approximately $2.3 million. The excess premium over ourexpected losses may be used to fund SPCIC’s operating expenses, fund any deficit arising in automobile and workers’ compensation liability coverage,provide for surplus reserves, and fund any other risk management activities. SPCIC reinsures a third-party insurer for workers’ compensation insurance for the first dollar of each and every loss up to $0.5 million per claim. Thecumulative reserve for expected losses since inception in 2005 of this reinsurance program at December 31, 2015 was approximately $9.1 million. SPCIC also reinsures a third-party insurer for automobile liability exposures up to $250,000 per claim. The cumulative reserve for expected lossessince inception in 2013 of this reinsurance program at December 31, 2015 was approximately $1.6 million. Based on an independent actuarial report, our expected losses related to workers’ compensation, automobile and general and professional liabilityin excess of our liability under our associated reinsurance programs at December 31, 2015 was approximately $6.7 million. We recorded a correspondingreceivable from third-party insurers and liability at December 31, 2015 for these expected losses, which would be paid by third-party insurers to the extentlosses are incurred. We have an umbrella liability insurance policy providing additional coverage in the amount of $25.0 million in the aggregate inexcess of the policy limits of the general and professional liability insurance policy and automobile liability insurance policy. SPCIC had restricted cash of approximately $19.5 million and $17.5 million at December 31, 2015 and 2014, respectively, which was restricted tosecure the reinsured claims losses of SPCIC under the automobile, general and professional liability and workers’ compensation reinsurance programs.The full extent of claims may not be fully determined for years. Therefore, the estimates of potential obligations are based on recommendations of anindependent actuary using historical data, industry data, and our claims experience. Health Insurance We offer our NET Services’, HA Services’ and corporate employees an option to participate in self-funded health insurance programs. Additionally,we also historically offered this option to our Human Services’ employees. During the year ended December 31, 2015, health claims were self-funded witha stop-loss umbrella policy with a third party insurer to limit the maximum potential liability for individual claims to $275,000 per person and for amaximum potential claim liability based on member enrollment. Health insurance claims are paid as they are submitted to the plan administrator. We maintain accruals for claims that have been incurred but not yetreported to the plan administrator, and therefore, have not been paid. The incurred but not reported reserve is based on an established cap and currentpayment trends of health insurance claims. The liability for the self-funded health plan of approximately $2.4 million and $2.0 million as ofDecember 31, 2015 and 2014, respectively, was recorded in “Reinsurance liability and related reserve” in our consolidated balance sheets. 59 We charge our employees a portion of the costs of our self-funded group health insurance programs. We determine this charge at the beginning ofeach plan year based upon historical and projected medical utilization data. Any difference between our projections and our actual experience is borne byus, up to the stop-loss limit. We estimate potential obligations for liabilities under this program to reserve what we believe to be a sufficient amount tocover liabilities based on our past experience. Any significant increase in the number of claims or costs associated with claims made under this programabove what we reserve could have a material adverse effect on our financial results. Contractual cash obligations. The following is a summary of our future contractual cash obligations as of December 31, 2015: At December 31, 2015 Contractual cash obligations (000's) Total Less than1 Year 1-3Years 3-5Years After 5Years Debt $304,950 $31,375 $273,575 $- $- Interest (1) 27,530 11,404 16,126 - - Purchased services commitments (2) 3,895 1,952 1,461 482 - Equity investment capital contributions 4,654 4,654 - - - Guarantees (3) 34,586 34,036 550 - - Letters of credit (3) 8,233 4,360 280 - 3,593 Operating Leases (4) 73,569 25,864 25,268 13,403 9,034 Total $457,417 $113,645 $317,260 $13,885 $12,627 (1)Future interest payments have been calculated at the current rates as of December 31, 2015.(2)Our purchase obligations represent the minimum obligations we have under agreements with certain of our vendors. These minimum obligationsare less than our projected use for those periods. Payments may be more than the minimum obligations based on actual use.(3)Guarantees and letters of credit (“LOCs”) are commitments that represent funding responsibilities that may require our performance in the event ofthird-party demands or contingent events. Guarantees include surety bonds we provide to certain customers to protect against potential non-delivery of our non-emergency transportation services. Of the outstanding balance of our stand-by LOCs, $8.2 million directly reduces the amountavailable to us from our revolving credit facility. The surety bonds and LOC amounts in the above table represent the amount of commitmentexpiration per period.(4)The operating leases are for office space and related office equipment. We account for these leases on a monthly basis. Certain leases containperiodic rent escalation adjustments and renewal options. Other than the items described above, we do not have any off-balance sheet arrangements as of December 31, 2015. Stock repurchase programs Our board of directors approved a stock repurchase plan on February 1, 2007. Under this stock repurchase program we spent approximately$14.4 million to purchase 756,100 shares of our common stock on the open market. We did not purchase shares of our common stock during the period2008 through 2011 or during the period of 2013 through 2015 under this plan. This plan was formally cancelled in January 2016. On November 4, 2015, our board of directors authorized the Company to engage in a common stock repurchase program to repurchase up to $70.0million in aggregate value of the Company’s common stock during the twelve-month period following November 4, 2015. Purchases under the commonstock repurchase program may be made from time-to-time through a combination of open market repurchases (including Rule 10b5-1 plans), privatelynegotiated transactions, and accelerated share repurchase transactions, at the discretion of the Company’s officers, and as permitted by securities laws,covenants under existing bank agreements, and other legal requirements. During 2015, the Company spent approximately $5.1 million to purchase109,150 shares of our common stock under this plan. Off-balance sheet arrangements As of December 31, 2015 and 2014, we did not have any relationships with unconsolidated entities or financial partnerships, such as entitiesreferred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheetarrangements or other contractually narrow or limited purposes. 60 New Accounting Pronouncements The new accounting pronouncements that impact our business are included in Note 2, Significant Accounting Policies and Recent AccountingPronouncements, of our consolidated financial statements presented elsewhere in this report and are incorporated herein by reference. Forward-Looking Statements Certain statements contained in this report on Form 10-K, such as any statements about our confidence or strategies or our expectations aboutrevenues, liabilities, results of operations, cash flows, ability to fund operations, profitability, ability to meet financial covenants, contracts or marketopportunities, constitute forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the SecuritiesExchange Act of 1934. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about ourbusiness and our industry. You can identify forward-looking statements by the use of words such as “may,” “should,” “will,” “could,” “estimates,”“predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future,” and “intends” and similar expressions which are intended toidentify forward-looking statements. The forward-looking statements contained herein are not guarantees of our future performance and are subject to a number of known and unknownrisks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause our actual results or achievements todiffer materially from those expressed, implied or forecasted in the forward-looking statements. These risks and uncertainties include, but are not limitedto the risks described under Part I Item 1A of this report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionarystatements contained above and throughout this report. You are cautioned not to place undue reliance on these forward-looking statements, which speakonly as of the date the statement was made. We do not intend to update publicly any forward-looking statements, whether as a result of new information,future events or otherwise. Item 7A.Quantitative and Qualitative Disclosures About Market Risk. Foreign currency risk As of December 31, 2015, we conducted business in 11 countries outside the US. As such, our cash flows and earnings are subject to fluctuationsfrom changes in foreign currency exchange rates. We do not currently hedge against the possible impact of currency fluctuations. For 2015, we used 11functional currencies and generated approximately $378.1 million of our net operating revenues from operations outside the US. As we expand furtherinto international markets, we expect the risk from foreign currency exchange rates to increase. A 10% adverse change in the foreign currency exchange rate from Great British Pounds to US Dollars would have a $29.8 million impact onconsolidated revenue, [and a $[ ] impact on net income]. A 10% adverse change in other foreign currency exchange rates would not have a significantimpact on the Company. We assess the significance of foreign currency risk on a periodic basis and may implement strategies to manage such risk as we deem appropriate. Interest rate and market risk As of December 31, 2015, we had borrowings under our term loans of $285.3 million and borrowings under our revolving line of credit of $19.7million. Borrowings under the Credit Agreement accrue interest at LIBOR plus 3.00% per annum as of December 31, 2015. An increase of 1% in theLIBOR rate would cause an increase in interest expense of approximately $6.8 million over the remaining term of the Amended and Restated CreditAgreement, which expires in 2018. We do not currently hedge against the possible impact of interest rate fluctuations. We assess the significance of interest rate market risk on a periodic basis and may implement strategies to manage such risk as we deem appropriate. 61 Item 8.Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Management’s Report on Internal Control Over Financial Reporting62 Reports of Independent Registered Public Accounting Firm63 Consolidated Balance Sheets at December 31, 2015 and 201465 For the years ended December 31, 2015, 2014 and 2013: Consolidated Statements of Income66 Consolidated Statements of Comprehensive Income67 Consolidated Statements of Stockholders’ Equity68 Consolidated Statements of Cash Flows69 Notes to Consolidated Financial Statements71 62 Management’s Report on Internal Control Over Financial Reporting Our management has the responsibility for establishing and maintaining adequate internal control over financial reporting for the registrant, as suchterm is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Under the supervision and with the participation of our principal executive officerand principal financial officer, we conducted an assessment, as of December 31, 2015, of the effectiveness of our internal control over financial reportingbased on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control–Integrated Framework(2013). We designed our internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financialstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective canprovide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate. Based on our assessment, we concluded our internal control over financial reporting is effective as of December 31, 2015. KPMG LLP, an independent registered public accounting firm, which audited our consolidated financial statements included in this report onForm 10-K has issued an audit report on the effectiveness of our internal control over financial reporting. KPMG LLP’s audit report is also included in thisreport on Form 10-K. 63 Report of Independent Registered Public Accounting Firm The Board of Directors and StockholdersThe Providence Service Corporation: We have audited the accompanying consolidated balance sheets of The Providence Service Corporation and subsidiaries (the Company) as ofDecember 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each ofthe years in the three-year period ended December 31, 2015. In connection with our audits of the consolidated financial statements, we have also auditedthe financial statement schedule in Item 15(a)(2). These consolidated financial statements and the financial statement schedule are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedulebased on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The ProvidenceService Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financialstatement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material aspects, theinformation set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internalcontrol over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 11, 2016 expressed an unqualified opinion onthe effectiveness of the Company’s internal control over financial reporting. /s/ KPMG LLP Phoenix, ArizonaMarch 11, 2016 64 Report of Independent Registered Public Accounting Firm The Board of Directors and StockholdersThe Providence Service Corporation: We have audited The Providence Service Corporation’s (the Company) internal control over financial reporting as of December 31, 2015, based oncriteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessmentof the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over FinancialReporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. In our opinion, The Providence Service Corporation maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of The Providence Service Corporation and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income,comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and our report datedMarch 11, 2016 expressed an unqualified opinion on those consolidated financial statements. /s/ KPMG LLP Phoenix, ArizonaMarch 11, 2016 65 The Providence Service CorporationConsolidated Balance Sheets(in thousands except share and per share data) December 31, 2015 2014 Assets Current assets: Cash and cash equivalents $84,770 $135,258 Accounts receivable, net of allowance of $5,587 in 2015 and $4,515 in 2014 178,049 107,565 Other receivables 16,298 5,314 Prepaid expenses and other 30,718 43,134 Restricted cash 4,012 3,234 Deferred tax assets 5,877 4,148 Current assets of discontinued operations - 75,993 Total current assets 319,724 374,646 Property and equipment, net 57,787 42,648 Goodwill 340,029 342,412 Intangible assets, net 285,951 323,904 Other assets 34,399 18,812 Restricted cash, less current portion 16,044 14,764 Deferred tax asset 42 - Non-current assets of discontinued operations - 51,748 Total assets $1,053,976 $1,168,934 Liabilities and stockholders' equity Current liabilities: Current portion of long-term obligations $31,375 $24,588 Note payable to related party - 65,500 Accounts payable 30,007 46,557 Accrued expenses 130,552 99,273 Accrued transportation costs 64,537 55,492 Deferred revenue 28,667 10,743 Reinsurance and related liability reserves 10,134 11,077 Current liabilities of discontinued operations - 26,228 Total current liabilities 295,272 339,458 Long-term obligations, less current portion 272,470 484,525 Other long-term liabilities 25,052 25,974 Deferred tax liabilities 93,474 96,928 Non-current liabilities of discontinued operations - 635 Total liabilities 686,268 947,520 Commitments and contingencies (Note 19) Reedeemable convertible preferred stock Convertible preferred stock, net: Authorized 10,000,000 shares; $0.001 par value; 803,518 and 0issued and outstanding; 5.5%/8.5% dividend rate 77,576 - Stockholders' equity Common stock: Authorized 40,000,000 shares; $0.001 par value; 17,186,780 and 16,870,285 issuedand outstanding (including treasury shares) 17 17 Additional paid-in capital 293,012 261,155 Retained earnings (accumulated deficit) 69,209 (13,366)Accumulated other comprehensive loss, net of tax (16,831) (8,756)Treasury shares, at cost, 1,895,998 and 1,014,108 shares (54,823) (17,686)Total Providence stockholders' equity 290,584 221,364 Noncontrolling interest (452) 50 Total stockholders' equity 290,132 221,414 Total liabilities and stockholders' equity $1,053,976 $1,168,934 See accompanying notes to the consolidated financial statements 66 The Providence Service CorporationConsolidated Statements of Income(in thousands except share and per share data) Year Ended December 31, 2015 2014 2013 Service revenue, net $1,695,446 $1,136,211 $798,766 Operating expenses: Service expense 1,544,365 1,023,785 736,669 General and administrative expense 73,616 44,501 25,590 Depreciation and amortization 53,469 22,833 9,331 Total operating expenses 1,671,450 1,091,119 771,590 Operating income 23,996 45,092 27,176 Other expenses: Interest expense, net 16,213 13,122 6,921 Equity in net loss of investee 10,970 - - Loss on extinguishment of debt - - 525 Gain on foreign currency transactions (857) (37) - Income (loss) from continuing operations before income taxes (2,330) 32,007 19,730 Provision for income taxes 16,276 8,090 6,625 Income (loss) from continuing operations, net of tax (18,606) 23,917 13,105 Discontinued operations, net of tax 101,800 (3,642) 6,333 Net income 83,194 20,275 19,438 Net loss attributable to noncontrolling interests 502 - - Net income attributable to Providence $83,696 $20,275 $19,438 Net income available to common stockholders (Note 15) $68,601 $20,275 $19,438 Basic earnings (loss) per common share: Continuing operations $(1.45) $1.62 $0.97 Discontinued operations 5.75 (0.25) 0.47 Basic earnings per common share $4.30 $1.37 $1.44 Diluted earnings (loss) per common share: Continuing operations $(1.45) $1.59 $0.95 Discontinued operations 5.75 (0.24) 0.46 Diluted earnings per common share $4.30 $1.35 $1.41 Weighted-average number of common shares outstanding: Basic 15,960,905 14,765,303 13,499,885 Diluted 15,960,905 15,018,561 13,809,874 See accompanying notes to the consolidated financial statements 67 The Providence Service CorporationConsolidated Statements of Comprehensive Income(in thousands) Year Ended December 31, 2015 2014 2013 Net income $83,194 $20,275 $19,438 Net loss attributable to noncontrolling interest 502 - - Net income attributable to Providence 83,696 20,275 19,438 Other comprehensive loss: Foreign currency translation adjustments, net of tax (8,075) (7,337) (526)Other comprehensive loss (8,075) (7,337) (526)Comprehensive income 75,119 12,938 18,912 Comprehensive income attributable to noncontrolling interest 508 - - Comprehensive income attributable to Providence $75,627 $12,938 $18,912 See accompanying notes to the consolidated financial statements 68 The Providence Service CorporationConsolidated Statements of Stockholders' Equity (in thousands except share data) Common Stock AdditionalPaid-In RetainedEarnings(Accumulated AccumulatedOtherComprehensiveLoss, Net of Treasury Stock Non-Controlling Shares Amount Capital Deficit) Tax Shares Amount Interest Total Balance at December 31, 2012 13,785,947 $14 $180,778 $(53,079) $(893) 928,478 $(15,094) $6,961 $118,687 Stock-based compensation - - 3,079 - - - - - 3,079 Exercise of employee stockoptions, including net taxbenefit of $437 592,126 - 10,506 - - - - - 10,506 Restricted stock issued 99,239 - - - 27,964 (547) - (547)Foreign currency translationadjustments, net of tax - - - - (526) - - - (526)Net income attributable toProvidence - - - 19,438 - - - - 19,438 Balance at December 31, 2013 14,477,312 14 194,363 (33,641) (1,419) 956,442 (15,641) 6,961 150,637 Stock-based compensation - - 7,562 - - - - - 7,562 Exercise of employee stockoptions, including net taxbenefit of $2,683 512,927 - 13,702 - - - - - 13,702 Restricted stock issued 74,714 - - - - 18,504 (524) - (524)PSC of Canada Exchange Corp.shares exchanged 261,694 1 6,960 - - 39,162 (1,521) (6,961) (1,521)Restricted shares issued relatedto Ingeus acquisition,unvested 596,915 1 (1) - - - - - - Restricted shares issued relatedto Matrix acquisition,unvested 946,723 1 38,569 - - - - - 38,570 Other - - - - - - - 50 50 Foreign currency translationadjustments, net of tax - - - - (7,337) - - - (7,337)Net income attributable toProvidence - - - 20,275 - - - - 20,275 Balance at December 31, 2014 16,870,285 17 261,155 (13,366) (8,756) 1,014,108 (17,686) 50 221,414 Stock-based compensation - - 26,622 - - - - - 26,622 Exercise of employee stockoptions, including net taxbenefit of $2,706 247,333 - 7,899 - - 5,718 (299) - 7,600 Restricted stock issued 65,447 - - - - 15,961 (759) - (759)Stock repurchase - - - - - 816,468 (34,111) - (34,111)Shares surrendered byemployees to pay employeetaxes related to sharesreleased from escrow - - - - - 43,743 (1,968) - (1,968)Conversion of convertiblepreferred stock to commonstock 3,715 - 150 - - - - - 150 Beneficial conversion featurerelated to preferred stock - - 1,071 - - - - - 1,071 Convertible preferred stockdividends - - (2,814) (1,121) - - - - (3,935)Accretion of convertiblepreferred stock discount - - (1,071) - - - - - (1,071)Foreign currency translationadjustments, net of tax - - - - (8,075) - - - (8,075)Noncontrolling interests - - - - - - - (502) (502)Net income attributable toProvidence - - - 83,696 - - - - 83,696 Balance at December 31, 2015 17,186,780 $17 $293,012 $69,209 $(16,831) 1,895,998 $(54,823) $(452) $290,132 See accompanying notes to the consolidated financial statements 69 The Providence Service CorporationConsolidated Statements of Cash Flows(in thousands) Year Ended December 31, 2015 2014 2013 Operating activities Net income $83,194 $20,275 $19,438 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 20,234 14,051 7,738 Amortization 38,067 15,437 7,134 Provision for doubtful accounts 2,539 2,589 3,245 Stock-based compensation 26,622 7,562 3,079 Deferred income taxes (10) (5,208) (3,282)Amortization of deferred financing costs and debt discount 2,041 5,561 960 Loss on extinguishment of debt - - 525 Excess tax benefit upon exercise of stock options (2,857) (2,722) (1,120)Gains on remeasurement of contingent consideration (2,469) (16,314) - Asset impairment charge 1,593 6,915 492 Equity in net loss of investee 10,970 - - Gain on sale of business (123,129) - - Income taxes payable on gain on sale of business 22,797 - - Other non-cash charges (credits) (419) 3,088 364 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (86,627) (17,208) 7,186 Other receivables (5,104) 327 1,199 Restricted cash (20) 266 (141)Prepaid expenses and other 19,778 (7,954) (856)Reinsurance liability reserve (611) 3,761 (19)Accounts payable and accrued expenses (21,900) 28,483 18,863 Accrued transportation costs 9,045 530 (6,354)Deferred revenue 19,043 (3,454) (3,366)Other long-term liabilities 463 (790) 152 Net cash provided by operating activities 13,240 55,195 55,237 Investing activities Purchase of property and equipment (35,072) (23,242) (10,183)Net increase (decrease) in short-term investments (18) (19) 177 Acquisitions, net of cash acquired (3,433) (416,986) (989)Sale of business, net of cash sold 199,943 - - Equity investment (16,072) - - Restricted cash for reinsured claims losses (2,058) (3,108) (2,848)Net cash provided by (used in) investing activities 143,290 (443,355) (13,843)Financing activities Proceeds from issuance of preferred stock, net of issuance costs 80,667 - - Preferred stock dividends (3,928) - - Repurchase of common stock, for treasury (36,838) (524) (547)Proceeds from common stock issued pursuant to stock option exercise 4,894 11,019 10,069 Excess tax benefit upon exercise of stock options 2,857 2,722 1,120 Proceeds from long-term debt 34,000 501,200 76,000 Repayment of long-term debt (305,125) (48,625) (82,500)Payment of contingent consideration (7,496) - - Debt financing costs (286) (12,769) (2,082)Capital lease payments and other - 73 (9)Net cash provided by (used in) financing activities (231,255) 453,096 2,051 Effect of exchange rate changes on cash (911) (3,525) (313)Net change in cash (75,636) 61,411 43,132 Cash at beginning of period 160,406 98,995 55,863 Cash at end of period $84,770 $160,406 $98,995 See accompanying notes to the consolidated financial statements 70 The Providence Service CorporationSupplemental Cash Flow Information(in thousands) Year Ended December 31, Supplemental cash flow information 2015 2014 2013 Cash included in current assets of discontinued operations held for sale $- $25,148 $23,839 Cash paid for interest $16,699 $10,726 $5,839 Cash paid for income taxes $21,555 $18,389 $13,395 Accrued unfunded future equity investment capital contributions $4,654 $- $- PSC of Canada Exchange Corp. shares exchanged $- $6,961 $- PSC of Canada Exchange Corp. shares converted to treasury shares for fulfillment ofobligation by sellers of WCG related to dispute with British Columbia $- $1,521 $- Acquisitions: Purchase price $- $525,596 $989 Less: Cash acquired - 37,159 - Common stock issued for acquistions of business - 38,570 - Contingent consideration - 30,095 - Note payable to former shareholder - 600 - Amount due to former shareholder - 2,186 - Working capital adjustments to purchase price (3,433) - - Acquisitions, net of cash acquired $3,433 $416,986 $989 See accompanying notes to the consolidated financial statements 71 The Providence Service Corporation Notes to Consolidated Financial Statements December 31, 2015 (in thousands except years, share and per share data) 1. Organization and Basis of Presentation Description of Business The Providence Service Corporation (the “Company” or “Providence”) is a holding company, whose subsidiaries provide critical healthcare andworkforce development services. We operate in three segments: Non-Emergency Transportation Services (“NET Services”), Workforce DevelopmentServices (“WD Services”) and Health Assessment Services (“HA Services”). NET Services coordinates non-emergency transportation for individualswhose limited mobility and/or financial resources would otherwise hinder them from accessing necessary healthcare and social services. WD Servicesprimarily provides employability and offender rehabilitation services to eligible participants of government sponsored programs. HA Services, providescare optimization and delivery solutions, including comprehensive health assessments (“CHAs”) for health plans as well as in-home care managementofferings. Ingeus Proprietary Limited and its wholly and partly-owned subsidiaries and associates (collectively, “Ingeus”) were acquired on May 30, 2014,and is included in WD Services. CCHN Group Holdings, Inc. and its wholly-owned subsidiaries and affiliates under the tradename Matrix (“Matrix”) wereacquired on October 23, 2014, and is included in HA Services. On November 1, 2015, we completed the sale of the Human Services segment, which isaccounted for as a discontinued operation. As of December 31, 2015, the Company operated in 44 states and the District of Columbia in the United States (“US”), and in 11 other countriesoutside of the US. Sale of Human Services On November 1, 2015, the Company completed the sale of the Human Services segment. The assets and liabilities of the Human Services segmentare classified as held for sale in the consolidated balance sheet for the year ended December 31, 2014. Additionally, the operating results of this segmentare reported as discontinued operations, net of tax in the consolidated statements of income for the years ended December 31, 2015, 2014 and 2013. SeeNote 22, Discontinued Operations. Basis of Presentation The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB establishes accountingprinciples generally accepted in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) underauthority of federal securities laws are also sources of authoritative GAAP for SEC registrants, which the Company is required to follow. References toGAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification (“ASC”), which serves as a single source ofauthoritative non-SEC accounting and reporting standards to be applied by non-governmental entities. All amounts are presented in US dollars, unlessotherwise noted. Seasonality The Company’s quarterly operating results and operating cash flows normally fluctuate due in part to seasonal factors and uneven demand forservices and the timing of new contracts, which impact the amount of revenues earned and expenses incurred. NET Services experiences fluctuations indemand during the summer, winter and holiday seasons. Due to higher demand in the summer months and lower demand in the winter and holidayseasons, coupled with a primarily fixed revenue stream based on a per member, per month payment structure, NET Services normally experiences loweroperating margins in the summer season and higher operating margins in the winter and holiday seasons. HA Services experiences quarterly volatility inrevenue and earnings due to uneven demand for services. WD Services is impacted by the timing of commencement and the expiration of major contracts.Under many of WD Services’ contracts in new service lines, the Company invests significant sums of money in personnel, leased office space, purchasedor developed technology, and other costs, and generally incur these costs prior to commencing services and receiving payments. This results insignificant variability in its financial performance and cash flows between quarters and for comparative periods. It is expected that future contracts will bestructured in a similar fashion. 72 2. Significant Accounting Policies and Recent Accounting Pronouncements Principles of Consolidation The accompanying consolidated financial statements include The Providence Service Corporation, Inc., our wholly-owned subsidiaries, and entitieswe control, or in which we have a variable interest and are the primary beneficiary of expected cash profits or losses. We record our investments in entitiesthat we do not control, but over which we have the ability to exercise significant influence, using the equity method. We have eliminated significantintercompany transactions and accounts. Accounting Estimates The Company uses estimates and assumptions in the preparation of the consolidated financial statements in accordance with GAAP. The estimatesand assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidatedfinancial statements. These estimates and assumptions also affect the reported amount of net income or loss during any period. The Company’s actualfinancial results could differ significantly from these estimates. The significant estimates underlying our consolidated financial statements includerevenue recognition; allowance for doubtful accounts; accrued transportation costs; accrued restructuring; income taxes; recoverability of current andlong-lived assets; intangible assets and goodwill; loss contingencies; accounting for business combinations, including amounts assigned to definite andindefinite lived intangibles and contingent consideration; loss reserves for reinsurance and self-funded insurance programs; and stock-basedcompensation. Cash and Cash Equivalents Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. Investments incash equivalents are carried at cost, which approximates fair value. The Company places its temporary cash investments with high credit quality financialinstitutions. At times, such investments may be in excess of the federally insured limits. At December 31, 2015 and 2014, approximately $37,467 and $42,651, respectively, of cash was held in foreign countries. Such cash is generallyused to fund foreign operations, although it may be used also to repay intercompany indebtedness or similar arrangements. 73 Restricted Cash At December 31, 2015 and 2014, the Company had approximately $20,056 and $17,998, respectively, of restricted cash: December 31, 2015 2014 Collateral for letters of credit - Reinsured claims losses 3,033 3,033 Escrow/Trust - Reinsured claims losses 17,023 14,965 Subtotal restricted cash for reinsured claims losses 20,056 17,998 Total restricted cash 20,056 17,998 Less current portion 4,012 3,234 $16,044 $14,764 Of the restricted cash amount at December 31, 2015 and 2014: ●approximately $3,033 in both periods served as collateral for irrevocable standby letters of credit to secure any reinsured claims lossesunder the Company’s reinsurance program; ●of the remaining $17,023 and $14,965: oapproximately $2,125 and $2,800, respectively, was restricted and held in a trust for historical reinsurance claims losses under theCompany’s general and professional liability reinsurance program; oapproximately $565 and $493, respectively, was restricted under a historical auto liability program associated with the NETServices segment that ceased providing reinsurance on new claims in 2011; and oapproximately $14,333 and $11,672, respectively, was restricted and held in a trust for reinsurance claims losses under theCompany’s workers’ compensation, general and professional liability and auto liability reinsurance programs. Accounts Receivable and Allowance for Doubtful Accounts The Company records accounts receivable amounts at the contractual amount, less an allowance for doubtful accounts. The Company maintains anallowance for doubtful accounts at an amount it estimates to be sufficient to cover the risk that an account will not be collected. The Company regularlyevaluates its accounts receivable, especially receivables that are past due, and reassesses its allowance for doubtful accounts based on specific clientcollection issues. In circumstances where the Company is aware of a specific payer’s inability to meet its financial obligation, the Company records aspecific allowance for doubtful accounts to reduce the net recognized receivable to the amount the Company reasonably expects to collect. TheCompany also provides a general allowance, based upon historical evidence. The Company’s provision for doubtful accounts expense for the years ended December 31, 2015, 2014 and 2013 was $1,388, $1,232 and $1,270,respectively. Property and Equipment Property and equipment are stated at historical cost, net of accumulated depreciation, or at fair value if the assets were initially recorded as the resultof a business combination. Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Maintenance and repairsare expensed as incurred. Gains and losses resulting from the disposition of an asset are reflected in operating expense. 74 Recoverability of Goodwill and Indefinite-Lived Intangible Assets The Company analyzes the carrying value of goodwill and indefinite-lived intangible assets at the end of each fiscal year, and more frequently ifevents occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Suchcircumstances could include, but are not limited to: (1) the loss or modification of significant contracts, (2) a significant adverse change in legal factors orin business climate, (3) unanticipated competition, (4) an adverse action or assessment by a regulator, or (5) a significant decline in the Company’s stockprice. When analyzing goodwill for impairment, the Company first assesses qualitative factors to determine whether it is necessary to perform the two-stepquantitative goodwill impairment test described below. If the Company determines, based on a qualitative assessment, that it is more likely than not thatthe fair value of a reporting unit is less than its carrying amount, then the Company performs a two-step quantitative goodwill impairment test. Inconnection with its analysis of the carrying value of goodwill, the Company reconciles the aggregate fair value of its reporting units to the Company’smarket capitalization, including a control premium that is reasonable within the context of industry data on premiums paid. When determining whethergoodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carryingamount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, then the Company completes a second step, and the amountof the impairment loss is calculated by comparing the implied fair value of the reporting unit goodwill to its carrying amount. In calculating the impliedfair value of the reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on theirfair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill.An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Company did not record anyimpairment charges for continuing operations for the years ended December 31, 2015 and 2014. Recoverability of Intangible Assets Subject to Amortization and Other Long-Lived Assets Intangible assets subject to amortization and other long-lived assets are carried at cost and are amortized on a straight-line basis over their estimateduseful lives of 3 to 15 years. The Company reviews the carrying value of long-lived assets or asset groups, including property and equipment, to be usedin operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Companyassesses whether any relevant factors limit the period over which acquired assets are expected to contribute directly or indirectly to future cash flows foramortization purposes. While the Company uses discounted cash flows to value the acquisition of intangible assets, the Company has elected to use thestraight-line method of amortization to determine amortization expense each period. If indicators of impairment exist, the Company assesses therecoverability of the unamortized balance of its long-lived assets based on undiscounted expected future cash flows. Should this analysis indicate that thecarrying value is not fully recoverable, the excess of the carrying value over the fair value of any intangible asset is recognized as an impairment loss. Accrued Transportation Costs NET Services contracts with third-party providers for transportation services. Eligible members schedule transportation through the Company’scentral reservation system. The cost of transportation is recorded in the month the services are rendered, based upon contractual rates and mileageestimates. Transportation providers provide invoices once the trip is completed. Any trips that have not been invoiced require an accrual, based upon theexpected cost as well as an estimate for cancellations, as the Company is generally only obligated to pay the transportation provider for completed trips.These estimates are based upon the historical trend associated with each contract’s population and the transportation provider network servicing theprogram. There may be differences between actual invoiced amounts and estimated costs, and any resulting adjustments are included in expense. Therewere no significant out-of-period adjustments recorded for the years ended December 31, 2015, 2014 and 2013. Accrued transportation costs were$64,537 and $55,492 at December 31, 2015 and 2014, respectively. Deferred Financing Costs and Debt Discounts The Company capitalizes direct expenses incurred in connection with its credit facilities and other borrowings, and amortizes such expenses overthe life of the respective credit facility or other borrowings. Fees charged by third parties are recorded as deferred financing costs and fees charged bylenders are recorded as a debt discount. Deferred financing costs, net of amortization, totaling approximately $3,774 and $5,284 at December 31, 2015and 2014, respectively, are included in “Other assets” in the consolidated balance sheets. Debt discount, net of amortization, totaling approximately$1,105 and $1,462 at December 31, 2015 and 2014, respectively, is included in “Long-term obligations, less current portion” in the consolidated balancesheets. 75 Revenue Recognition We recognize revenue when it is earned and realizable based on the following criteria: persuasive evidence that an arrangement exists, serviceshave been rendered, the price is fixed or determinable and collectability is reasonably assured. NET Services segment Capitation contracts. The majority of NET Services revenue is generated under capitated contracts with payers where we assume the responsibilityof meeting the covered transportation requirements of a specific geographic population based on per-member per-month fees for the number of membersin the payer’s program. Revenue is recorded based upon the amount earned per period. Fee for service contracts. Revenues earned under fee for service (“FFS”) contracts are based upon contractually established billing rates. Revenuesare recognized when the service is provided based upon contractual amounts. Flat fee contracts. Revenues earned under flat fee contracts are recognized ratably over the covered service period based upon contractuallyestablished fees which do not fluctuate with any changes in the membership population who are eligible to receive the transportation services. For most contracts, we arrange for transportation of members through our network of independent transportation providers, whereby we remitpayment to the transportation providers. However, for certain contracts, we only provide management services, and do not contract with transportationproviders for the actual transportation. Workforce Development Services segment WD Services revenues are generated from providing workforce development and offender rehabilitation services, both of which includeemployment preparation and placement, apprenticeship and training, and certain health related services, such as employee assistance programs. While thespecific terms vary by contract and country, the Company often receives four types of revenue streams under contracts with government entities:attachment fees, job placement/job outcome fees, sustainment fees and incentive fees. Attachment fees are typically upfront payments that are payablewhen a client is referred by the contracting government entity and the person enters the program, and cover the overall services provided under theprogram. Job placement fees are typically payable when a client is employed. Job outcome fees are typically payable when a client is employed, andremains employed for a specified period of time. Sustainment fees are typically payable upon certain employment tenure milestones. Incentive fees aregenerally based upon a calculation that includes a variety of factors and inputs, such as average sustainment rates and client referral rates. Incentive feesvary greatly by contract. Attachment fee revenue is recognized ratably over the period of service, based upon an estimate of the period of time general services will beprovided (i.e. the person is placed in a job or reaches the maximum time period for the program). The estimate of the period of time services will berendered is based upon historical data. Job Placement, Job Outcome and Sustainment Fee revenue is recognized when certain milestones are achieved,and amounts become billable. Incentive Fee revenue is generally recognized when the revenue is fixed and determinable, frequently at the end of thecumulative calculation period, unless the contractual terms allow for earned payments on a fixed or ratable basis. Revenue is also earned under fixed fee for service arrangements, based upon an expected volume of services to be performed. The expected volumeof services is generally agreed at the outset of the contract year. Revenue under these contracts may be adjusted prospectively during the contract year, orfor future contract years, if actual volumes are below expected levels. Health Assessment Services segment The HA Services segment contracts with health plans to provide clinical assessments for their Medicare Advantage (“MA”) members that meetcertain pre-determined criteria as defined by the providers. An assessment is a comprehensive physical examination of an individual performed by one ofthe Company’s nurse practitioners. The MA clients for whom the Company performs these examinations use the assessment reports to impact caremanagement of the MA member and properly report the cost of care of those members. Revenue is recognized in the period in which the services arerendered. 76 Deferred Revenue At times the Company may receive funding for certain services in advance of services being rendered. These amounts are reflected in theconsolidated balance sheets as “Deferred revenue” until the services are rendered. Stock-Based Compensation The Company follows the fair value recognition provisions of ASC Topic 718 – Compensation – Stock Compensation (“ASC 718”), which requirescompanies to measure and recognize compensation expense for all share based payments at fair value. The Company calculates the fair value of stockoptions using the Black-Scholes option-pricing formula. The fair value of non-vested restricted stock grants is determined based on the closing marketprice of the Company’s common stock on the date of grant. Stock-based compensation expense charged against income for stock options and stock grantsis based on the grant-date fair value, based upon the number of awards expected to vest. Forfeitures estimated at the time of grant are revised as necessarybased upon actual vesting. The expense for stock-based compensation awards is amortized on a straight-line basis over the requisite service period, whichis typically the vesting period. We record RSUs that may be settled by the holder in cash, rather than shares, as a liability and we remeasure theseliabilities at fair value at the end of each reporting period. Upon settlement of these awards, our total compensation expense recorded over the vestingperiod of the awards will equal the settlement amount, which is based on our stock price on the settlement date. Performance-based RSUs vest uponachievement of certain company-based performance conditions. On the date of grant, we determine the fair value of the performance-based award basedon the fair value of our common stock at that time and we assess whether it is probable that the performance targets will be achieved. If assessed asprobable, we record compensation expense for these awards over the estimated performance period. At each reporting period, we reassess the probabilityof achieving the performance targets and the performance period required to meet those targets. The estimation of whether the performance targets will beachieved and of the performance period required to achieve the targets requires judgment, and to the extent actual results or updated estimates differ fromour current estimates, the cumulative effect on current and prior periods of those changes will be recorded in the period estimates are revised, or thechange in estimate will be applied prospectively depending on whether the change affects the estimate of total compensation cost to be recognized ormerely affects the period over which compensation cost is to be recognized. The ultimate number of shares issued and the related compensation expenserecognized will be based on a comparison of the final performance metrics to the specified targets. The Company follows the short-cut method prescribed by ASC 718 to calculate its pool of excess tax benefits available to absorb tax deficienciesrecognized subsequent to the adoption of ASC 718 (“APIC pool”). There was no effect on the Company’s financial results for 2015, 2014 or 2013 relatedto the application of the short-cut method to determine its APIC pool balance. Income Taxes Deferred income taxes are determined by the liability method in accordance with ASC Topic 740 - Income Taxes (“ASC 740”). Under this method,deferred tax assets and liabilities are determined based on differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes and are measured using the enacted tax rates and laws that are expected to be in effect when thedifferences are expected to reverse. The Company considers many factors when assessing the likelihood of future realization of deferred tax assets,including recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available for tax reportingpurposes, as well as other relevant factors. The Company establishes a valuation allowance to reduce deferred tax assets to the amount that is more likelythan not to be realized. Due to inherent complexities arising from the nature of the Company’s businesses, future changes in income tax law or variancesbetween the Company’s actual and anticipated operating results, the Company makes certain judgments and estimates. Therefore, actual income taxescould materially vary from these estimates. The Company has recorded a valuation allowance which includes amounts for net operating losses and tax credit carryforwards, as more fullydescribed in Note 18, Income Taxes, for which the Company has concluded that it is more likely than not that these net operating loss and tax creditcarryforwards will not be realized in the ordinary course of operations. 77 The Company recognizes interest and penalties related to income taxes as a component of income tax expense. Residual US income taxes have not been provided on undistributed earnings of the Company’s foreign subsidiaries. These earnings are consideredto be indefinitely reinvested and, accordingly, no provision for US federal and state income taxes will be provided thereon. Upon distribution of thoseearnings in the form of dividends or otherwise, the Company may be subject to both US income taxes and withholding taxes payable to various foreignjurisdictions less an adjustment for foreign tax credit, although funds utilized to repay intercompany amounts are not subject to withholdingrequirements. Because of the availability of US foreign tax credits, it is not practicable to determine the US federal income tax liability that would bepayable if such earnings were not reinvested indefinitely. The Company accounts for uncertain tax positions based on a two-step process of evaluating recognition and measurement criteria. The first stepassesses whether the tax position is more likely than not to be sustained upon examination by the tax authority, including resolution of any appeals orlitigation, based on the technical merits of the position. If the tax position meets the more likely than not criteria, the portion of the tax benefit greaterthan 50% likely to be realized upon settlement with the tax authority is recognized in the consolidated financial statements. Foreign Currency Translation Local currencies generally are considered the functional currencies outside the US. Assets and liabilities for operations in local-currencyenvironments are translated at month-end exchange rates of the period reported. Income and expense items are translated at the average exchange rate foreach applicable month. Cumulative translation adjustments are recorded as a component of accumulated other comprehensive loss, net of tax, instockholders’ equity. Loss Reserves for Certain Reinsurance and Self-Funded Insurance Programs The Company reinsures a substantial portion of its automobile, general and professional liability and workers’ compensation costs underreinsurance programs through the Company’s wholly-owned subsidiary, Social Services Providers Captive Insurance Company (“SPCIC”), a licensedcaptive insurance company domiciled in the State of Arizona. The Company and its subsidiaries enter into insurance arrangements with third-party insurers. SPCIC reinsures these third-party insurers for generaland professional liability exposures for the first dollar of each and every loss up to $1,000 per loss and $5,000 in the aggregate. SPCIC also reinsuresthird-party insurers for automobile liability exposures for $250 per claim. Additionally, SPCIC reinsures a third-party insurer for worker’s compensationinsurance for the first dollar of each and every loss up to $500 per occurrence. As of December 31, 2015 and 2014, the Company had reserves ofapproximately $12,988 and $12,750, respectively, for the automobile, general and professional liability and workers’ compensation programs (net ofexpected losses in excess of the Company’s liability which would be paid by third-party insurers to the extent losses are incurred). The reserves areclassified as “Reinsurance liability reserves” and “Other long-term liabilities” in the consolidated balance sheets. Based on an independent actuarial report, the Company’s expected losses related to workers’ compensation, automobile and general andprofessional liability in excess of its liability under its associated reinsurance programs at December 31, 2015 and 2014 was approximately $6,745 and$5,525, respectively. The Company recorded a corresponding receivable from third-party insurers and liability at December 31, 2015 and 2014 for theseexpected losses, which would be paid by third-party insurers to the extent losses are incurred. The Company utilizes analyses prepared by third party administrators and independent actuaries based on historical claims information withrespect to the general and professional liability coverage, workers’ compensation coverage, automobile liability, automobile physical damage, and healthinsurance coverage to determine the amount of required reserves. The Company also maintains a self-funded health insurance program with a stop-loss umbrella policy with a third party insurer to limit themaximum potential liability for individual claims to $275 per person and for a maximum potential claim liability based on member enrollment. Withrespect to this program, the Company considers historical and projected medical utilization data when estimating its health insurance program liabilityand related expense. As of December 31, 2015 and 2014, the Company had approximately $2,351 and $1,973, respectively, in reserve for its self-fundedhealth insurance programs. The reserves are classified as “Reinsurance and related liability reserves” in the consolidated balance sheets. 78 The Company regularly analyzes its reserves for incurred but not reported claims, and for reported but not paid claims related to its reinsuranceand self-funded insurance programs. The Company believes its reserves are adequate. However, significant judgment is involved in assessing thesereserves such as assessing historical paid claims, average lags between the claims’ incurred date, reported dates and paid dates, and the frequency andseverity of claims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included inexpense once a probable amount is known. There were no significant out-of-period adjustments recorded in the periods covered by this report. Restructuring and Related Reorganization Costs The Company has engaged in employee headcount rightsizing actions within the WD Services segment which require management to estimate thetiming and amount of severance and other employee separation costs for workforce reduction. The Company accrues for severance and other employeeseparation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. The amounts used indetermining severance accruals are based on an estimate of the salaries and related benefit costs payable under existing plans, and are included in accruedexpenses to the extent they have not been paid. Non-controlling Interests Non-controlling interests represent the non-controlling holders' percentage share of income or losses from a subsidiary in which the Company holdsa majority, but less than 100 percent, ownership interest and the results of which are consolidated and included in our consolidated financial statements.The Company has a 90 percent ownership in The Reducing Reoffending Partnership Limited (“RRP”). Discontinued Operations In determining whether a group of assets disposed (or to be disposed) of should be presented as a discontinued operation, we make a determinationof whether the criteria for held-for-sale classification is met and whether the disposition represents a strategic shift that has (or will have) a major effect onthe entity’s operations and financial results. If these determinations can be made affirmatively, the results of operations of the group of assets beingdisposed of (as well as any gain or loss on the disposal transaction) are aggregated for separate presentation apart from continuing operating results of theCompany in the consolidated financial statements. See Note 22, Discontinued Operations, for a summary of discontinued operations. Earnings Per Share We compute basic earnings per share by taking net income attributable to the Company available to common stockholders divided by the weightedaverage number of common shares outstanding during the period including restricted stock and stock held in escrow if such shares are participatingsecurities. Diluted earnings per share includes the potential dilution that could occur from stock-based awards and other stock-based commitments usingthe treasury stock or the as-if converted methods, as applicable. For additional information on how we compute earnings per share, see Note 15, EarningsPer Share. Fair Value of Financial Instruments We disclose the fair value of our financial instruments based on the fair value hierarchy using the following three categories: Level 1 – Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are notactive; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. 79 The Company may be required to pay additional consideration in relation to certain acquisitions based on the achievement of certain earningstargets. Acquisition-related contingent consideration is initially measured and recorded at fair value as an element of consideration paid in connectionwith an acquisition with subsequent adjustments recognized in “General and administrative expense” in the consolidated statements of income. TheCompany determines the fair value of acquisition-related contingent consideration, and any subsequent changes in fair value using a discountedprobability-weighted approach. This approach takes into consideration Level 3 unobservable inputs including probability assessments of expected futurecash flows over the period in which the obligation is expected to be settled and applies a discount factor that captures the uncertainties associated withthe obligation. Changes in these unobservable inputs could significantly impact the fair value of the obligation recorded in the accompanyingconsolidated balance sheets and operating expenses in the consolidated statements of income. The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair value becauseof the relatively short-term maturity of these instruments. Recent Accounting Pronouncements In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 2015) andProperty, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). ASU 2014-08 changes the requirements for reporting discontinued operations. Under the ASU discontinued operations is defined as either a: ●Component of an entity, or group of components that ohas been disposed of, meets the criteria to be classified as held-for-sale, or has been abandoned/spun-off; and orepresents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results, or ●Business or nonprofit activity that, on acquisition, meets the criteria to be classified as held-for-sale. This ASU is effective for publicly held companies prospectively for all disposals (or classifications as held for sale) of components of an entity thatoccur within annual periods beginning on or after December 15, 2014, and interim periods within those years, and all businesses that, on acquisition, areclassified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. TheCompany adopted this accounting literature effective January 1, 2015 and has accounted for the sale of its Human Services segment in 2015 under thisguidance. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASU 2014-09”). This ASU will supersedethe revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is thatan entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to whichthe entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: ●Step 1: Identify the contract(s) with a customer. ●Step 2: Identify the performance obligations in the contract. ●Step 3: Determine the transaction price. ●Step 4: Allocate the transaction price to the performance obligations in the contract. ●Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. 80 In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Topic 606 which deferred the effective date of ASU2014-09. The amendments in this update allowed publicly held entities to apply the new revenue standard for annual reporting periods (including interimperiods within those annual periods) beginning after December 15, 2017. Early adoption of the standard is permitted, but not before annual periodsbeginning after December 15, 2016. The Company will begin evaluating the impact ASU 2014-09 will have on its consolidated financial statementsduring 2016. In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”), whichchanges the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decisionmaker or service provider are variable interests in a variable interest entity (“VIE”), and (c) variable interests in a VIE held by related parties of thereporting enterprise require the reporting enterprise to consolidate the VIE. It also eliminates the VIE consolidation model based on majority exposure tovariability that applied to certain investment companies and similar entities. The new guidance excludes money market funds that are required to complywith Rule 2a-7 of the Investment Company Act of 1940 and similar entities from the U.S. GAAP consolidation requirements. The new consolidationguidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. The Company adoptedASU 2015-02 effective January 1, 2016 and will re-evaluate its existing VIEs for consolidation accordingly during the three-month period ending March31, 2016 and prospectively apply the guidance when evaluating potential new VIEs for consolidation. In November 2014, the FASB issued ASU No 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a HybridFinancial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity (“ASU 2014-16”). This update requires an entity to determine thenature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument issued in the form of a share,including the embedded derivative feature that is being evaluated for separate accounting from the host contract when evaluating whether the hostcontract is more akin to debt or equity. In evaluating the stated and implied substantive terms and features, the existence or omission of any single term orfeature does not necessarily determine the economic characteristics and risks of the host contract. Although an individual term or feature may weigh moreheavily in the evaluation on the basis of facts and circumstances, an entity should use judgment based on an evaluation of all the relevant terms andfeatures. ASU 2014-16 is effective for publicly held business entities for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2015. Early adoption is permitted. The Company adopted ASU 2014-16 effective January 1, 2015 and applied the literature to determinethe accounting for its convertible preferred stock issued in 2015. The adoption of ASU 2014-16 did not impact the Company’s existing financialinstruments. In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of DebtIssuance Costs (“ASU 2015-03”). The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in thebalance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurementguidance for debt issuance costs are not affected by the amendments in this ASU. For publicly held business entities, the amendments are effective forfinancial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of theamendments is permitted for financial statements that have not been previously issued. The amendments should be applied on a retrospective basis,wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. TheCompany adopted ASU 2015-03 on January 1, 2016 and will reclassify debt issuance costs as contra-liability accounts. In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-PeriodAdjustments (“ASU 2015-16”) which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-periodadjustments that occur in periods after a business combination is consummated. The ASU is effective for public business entities for annual periods,including interim periods within those annual periods, beginning after December 15, 2015, early adoption is permitted. The Company adopted ASU2015-16 on January 1, 2016. The adoption of the ASU will impact the Company’s accounting and disclosures related to future business acquisitions. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”)which changes how deferred taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to presentdeferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred taxassets and liabilities as noncurrent. The amendments apply to all organizations that present a classified balance sheet. For public companies, theamendments are effective for financial statements issued for annual periods beginning after December 16, 2016, and interim periods within those annualperiods. The Company intends to adopt ASU 2015-17 on January 1, 2017. This ASU will impact the Company’s financial statements, as the Company hasapproximately $5,877 of current deferred tax assets, at December 31, 2015. The result of the application of this guidance would be to reclassify thecurrent deferred tax assets to long-term deferred tax assets in the consolidated balance sheet. 81 In February 2016, the FASB issued ASU No. 2016-02, Leases: Topic 842 (“ASU 2016-02”). Under the new guidance, lessees will be required torecognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligationto make lease payments arising from a lease, measured on a discounted basis; and right-of-use asset, which is an asset that represents the lessee’s right touse, or control the use of, a specified asset for the lease term. The new lease guidance simplified the accounting for sale and leaseback transactionsprimarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Lessees (for capital and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, thebeginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transitionaccounting for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. ASU2016-02 is effective for publicly held entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e.,January 1, 2019, for a calendar year entity). Early application is permitted. The Company will begin evaluating the impact ASU 2016-02 will have on itsconsolidated financial statements during 2016. 3. Equity Investment The Company entered into a joint venture agreement in November 2014 to form Mission Providence Pty Ltd (“Mission Providence”). MissionProvidence delivers employment services in Australia. The Company has a 60% ownership in Mission Providence, and has rights to 75% of MissionProvidence’s distributions of cash or profit surplus twice per calendar year. The Company provided $16,072 in capital contributions in 2015 to MissionProvidence, and will continue to provide further contributions in exchange for its equity interests. The Company determined it has a variable interest in Mission Providence. However, it does not have unilateral power to direct the activities thatmost significantly impact Mission Providence’s economic performance, which include budget approval, business planning, the appointment of keyofficers and liquidation and distribution of share capital. As a result, the Company is not the primary beneficiary of Mission Providence. The Companyaccounts for this investment under the equity method of accounting and the Company’s share of Mission Providence’s losses are recorded as “Equity innet loss of investee” in the accompanying consolidated statements of income. Cash contributions made to Mission Providence in exchange for its equityinterests are included in the consolidated statements of cash flows as “Equity investments”. The investment is accounted for as part of the WD Servicessegment. The following table summarizes the carrying amounts of the assets and liabilities included in the Company’s consolidated balance sheet and themaximum loss exposure related to the Company’s interest in Mission Providence as of December 31, 2015: Assets Liabilities Other Assets AccruedExpenses MaximumExposure toLoss $9,324 $4,654 $9,324 Accrued Expenses relates to the remaining funding committed and required under the joint venture agreement pursuant to the Company’s 60%equity interest. The commitment is denominated in Australian dollars at an amount of AUD $6,397. In addition to the committed contributions which areincluded in “Other Assets” and “Accrued Expenses” in the table above, the Company may need to make additional capital contributions. 82 Summary financial information for Mission Providence is as follows: December 31,2015 Current assets $7,789 Long-term assets 8,869 Current liabilities 10,488 Long-term liabilities - Year endedDecember 31,2015 Revenue $11,206 Operating loss (19,397)Net loss (13,106) 4. Prepaid Expenses and Other Prepaid expenses and other were comprised of the following: December 31, 2015 2014 Prepaid income taxes 1,607 13,865 Prepaid insurance 3,714 4,293 Prepaid taxes and licenses 4,895 4,672 Prepaid rent 2,246 2,288 Deposits held for leased premises and bonds 3,622 3,249 Preferred share backstop fee paid to related party - 2,947 Other 14,634 11,820 Total prepaid expenses and other $30,718 $43,134 5. Property and Equipment Property and equipment consisted of the following: EstimatedUseful December 31, Life (in years) 2015 2014 Land -- $1,182 $1,182 Building 39 5,215 5,215 Computer and telecom equipment 3-5 32,961 24,293 Software 3-5 30,728 11,172 Leasehold improvements Shorter of 7 yearsor lease term 17,436 14,220 Furniture and fixtures 5-10 7,739 6,434 Automobiles 5 3,471 2,986 Construction in progress -- 3,446 2,858 102,178 68,360 Less accumulated depreciation 44,391 25,712 Total property and equipment, net $57,787 $42,648 Depreciation expense from continuing operations was approximately $17,858, $10,848 and $5,288 for the years ended December 31, 2015, 2014and 2013, respectively. 83 6. Goodwill and Intangibles Goodwill Changes in goodwill were as follows: NETServices WDServices (1) HAServices ConsolidatedTotal Balances at December 31, 2013 Goodwill $191,215 $9,916 $- $201,131 Accumulated impairment losses (2) (96,000) (6,041) - (102,041) 95,215 3,875 - 99,090 Ingeus acquisition - 35,484 - 35,484 Matrix acquisition - - 210,576 210,576 Foreign currency translation adjustment - (2,738) - (2,738)Balances at December 31, 2014 Goodwill 191,215 42,662 210,576 444,453 Accumulated impairment losses (2) (96,000) (6,041) - (102,041) 95,215 36,621 210,576 342,412 Matrix acquisition adjustments - - (505) (505)Foreign currency translation adjustment - (1,878) - (1,878)Balances at December 31, 2015 Goodwill 191,215 40,784 210,071 442,070 Accumulated impairment losses (2) (96,000) (6,041) - (102,041) $95,215 $34,743 $210,071 $340,029 (1) The goodwill for WD Services has been recast from the prior year presentation to reflect the classification of two legacy workforcedevelopment businesses from the Human Services segment to the WD Services segment as further described in Note 23, Segments. (2) Accumulated impairment losses relate to impairment charges incurred during the year ended December 31, 2008. 84 The total amount of goodwill that was deductible for income tax purposes related to acquisitions as of December 31, 2015 and 2014 wasapproximately $5,217. Intangible Assets Intangible assets are comprised of acquired customer relationships, trademarks and trade names, and developed technology. Intangible assetsconsisted of the following: December 31, 2015 2014 EstimatedUsefulLife (in years) GrossCarryingAmount AccumulatedAmortization GrossCarryingAmount AccumulatedAmortization Customer relationships 15 $47,973 $(26,804) $48,258 $(23,939)Customer relationships 10 219,989 (27,662) 221,701 (5,830)Trademarks and Trade Names Indefinite 25,900 - 25,900 - Trademarks and Trade Names 10 15,935 (2,523) 16,724 (976)Developed technology 5 43,841 (10,698) 44,016 (1,950)Total $353,638 $(67,687) $356,599 $(32,695) The weighted-average amortization period at December 31, 2015 for intangibles with a definite life was 10.1 years. No significant residual value isestimated for these intangible assets. Amortization expense from continuing operations was approximately $35,612, $11,985 and $4,042 for the yearsended December 31, 2015, 2014 and 2013, respectively. The total amortization expense is estimated to be as follows for the next five years and thereafteras of December 31, 2015: Year Amount 2016 $35,458 2017 35,458 2018 35,458 2019 33,527 2020 26,689 Thereafter 93,461 Total $260,051 85 7. Accrued Expenses Accrued expenses consisted of the following: December 31, 2015 2014 Accrued compensation $27,546 $33,185 NET Services accrued expenses 26,669 27,380 Taxes payable 24,302 3,678 Contingent consideration - 7,767 Other 52,035 27,263 Total accrued expenses $130,552 $99,273 Additional information included in Note 9, Fair Value Measurements, regarding the contingent consideration liability. 8. Restructuring and Related Reorganization Costs In the fourth quarter of 2015, WD Services approved two redundancy plans. The first plan relates to the termination of employees currentlydelivering services under a new offender rehabilitation program. The second plan primarily relates to the termination of employees delivering servicesunder the Company’s employability and skills training programs and certain other employees in the UK. The Company recorded severance and relatedcharges of approximately $10,551 as of December 31, 2015 relating to termination benefits associated with these two plans which is recorded as “Serviceexpense” in the accompanying consolidated statements of income. The cost is estimated based upon the employee groups impacted, average salary andbenefits, and redundancy benefits pursuant to the existing policies. The final identification of the employees is subject to customary consultationprocedures. Summary of Severance and Related Charges January 1,2015 CostsIncurred CashPayments OtherAdjustments December 31,2015 Charges related to new offender rehabilitation program $- $8,465 $(1,839) $(88) $6,538 Charges related to UK restructuring - 2,086 - (27) 2,059 Total $- $10,551 $(1,839) $(115) $8,597 The total of accrued severance and related costs of $8,597 is reflected in “Accrued expenses” in the consolidated balance sheets. The amountaccrued as of December 31, 2015 is expected to be settled primarily in 2016. 86 9. Fair Value Measurements Liabilities measured at fair value on a recurring basis were as follows: December 31, 2015 Level 1 Level 2 Level 3 Total Contingent consideration liabilities $- $- $- $- December 31, 2014 Level 1 Level 2 Level 3 Total Contingent consideration liabilities $- $- $10,549 $10,549 There were no transfers between Level 1 and Level 2, or into or out of Level 3, during 2015 and 2014. The changes in Level 3 liabilities measured at fair value on a recurring basis were as follows: Contingent Consideration Liabilities December 31, 2015 December 31, 2014 Balance at the beginning of year $10,549 $- Initial valuation upon acquistion - 30,095 Payments (7,496) - Gain in general and administrative expense (2,469) (16,314)Foreign exchange revaluation (584) (3,232)Balance at end of year $- $10,549 The fair value of the Company’s contingent consideration was $10,549 at December 31, 2014, of which $7,767 is included in “Accrued expenses”and $2,782 is included in “Other long-term liabilities” in the consolidated balance sheets. During 2015, it was determined the fair value under remainingcontingent consideration arrangements was zero, and “General and administrative expense” reflects a gain of $2,469. The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements were as follows: December 31, 2015 Fair Value Valuation Technique SignificantUnobservable Inputs Value Contingent consideration liabilities $- Discounted probability-weighted approach Discount rate 14.12% December 31, 2014 Fair Value Valuation Technique SignificantUnobservable Inputs Value Contingent consideration liabilities $10,549 Discounted probability-weighted approach Discount rate 15.25% Financial instruments that were not remeasured at fair value were as follows: December 31, 2015 December 31, 2014 Fair ValueLevel CarryingValue EstimatedFair Value CarryingValue EstimatedFair Value Financial assets Cash and cash equivalents 1 $84,770 $84,770 $135,258 $135,258 Financial liabilities Long-term obligations 3 $304,950 $308,892 $576,075 $576,075 87 10. Long-Term Obligations and Note Payable to Related Party The Company’s long-term obligations were as follows: December 31,2015 December 31,2014 $240,000 revolving loan, LIBOR plus 2.25% - 3.25% (effective rate of 3.41% at December 31, 2015) withinterest payable at least once every three months through August 2018 $19,700 $201,700 $250,000 term loan, LIBOR plus 2.25% - 3.25% (effective rate of 3.33% at December 31, 2015), withprincipal payable quarterly beginning March 31, 2015 and interest payable at least once every threemonths, through August 2018 231,250 250,000 $60,000 term loan, LIBOR plus 2.25% - 3.25% (effective rate of 3.33% at December 31, 2015), withprincipal payable quarterly beginning December 31, 2014 and interest payable at least once every threemonths, through August 2018 54,000 58,875 14.0% unsecured related party, subordinated bridge note with principal due September 30, 2018, andinterest payable quarterly - 65,500 304,950 576,075 Unamortized discount on debt (1,105) (1,462) 303,845 574,613 Less current portion 31,375 90,088 Total long-term obligations, less current portion $272,470 $484,525 Annual maturities of long-term obligations as of December 31, 2015 are as follows: Year Amount 2016 31,375 2017 39,125 2018 234,450 Total $304,950 Credit Facility On August 2, 2013, the Company entered into an Amended and Restated Credit Agreement (as amended, modified or supplemented, the “CreditAgreement”) with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, SunTrust Bank, as syndication agent,Merrill Lynch, Pierce, Fenner & Smith Incorporated and SunTrust Robinson Humphrey, Inc., as joint lead arrangers and joint book managers, and otherlenders party thereto. The Credit Agreement provided the Company with a senior secured credit facility in the aggregate principal amount of $225,000,comprised of a $60,000 term loan facility and a $165,000 revolving credit facility. The Credit Facility includes sublimits for swingline loans and lettersof credit in amounts up to $10,000 and $25,000, respectively. On August 2, 2013, the Company borrowed the entire amount available under the term loanfacility and $16,000 under the revolving credit facility and used the proceeds thereof to refinance certain of the Company’s existing indebtedness. On May 28, 2014 the Company entered into the first amendment (the “First Amendment”) to the Credit Agreement. The First Amendment providedfor, among other things, an increase in the aggregate amount of the revolving credit facility from $165,000 to $240,000 and other modifications inconnection with the consummation of the acquisition of Ingeus. On October 23, 2014, the Company entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) to amend the CreditFacility to (i) add a new term loan tranche in the aggregate principal amount of up to $250,000 to partly finance the acquisition of Matrix, (ii) provide theconsent of the required lenders to consummate the acquisition of Matrix, (iii) permit incurrence of additional debt to fund the acquisition of Matrix, (iv)add an excess cash flow mandatory prepayment provision and (v) such other amendments which the Company believes are beneficial to the Companyand provide greater flexibility for our future operations. 88 On September 3, 2015, the Company entered into the Third Amendment and Consent to the Credit Agreement (the “Third Amendment”) to amendthe Credit Agreement to (i) allow the lenders under the Credit Agreement to consent to the Company’s sale of the Human Services segment, provided thata minimum amount equal to 50% of the net cash proceeds, as defined in the Credit Agreement, of the sale is applied pro rata to the prepayment ofrevolving loans and swingline loans under the Credit Agreement and (ii) allow the lenders to consent to the Company’s use of 50% of the net cashproceeds of the sale to make restricted payments to repurchase common stock pursuant to a Providence stock repurchase program. The Third Amendmentprovides for appropriate amendments to the terms of the Credit Agreement to reflect such consents. The Credit Facility defines “net cash proceeds” toinclude cash proceeds or cash equivalents actually received in a disposition such as the sale, net of direct costs incurred, taxes paid or payable as a resultof the disposition, the amount of required payments on indebtedness as a result of the disposition, and the amount of any reasonable reserve establishedin accordance with generally accepted accounting principles for contingency payments, such as indemnification obligations. Under the Credit Facility, as amended, the Company has an option to request an increase in the amount of the revolving credit facility and/or theterm loan facility from time to time (on substantially the same terms as apply to the existing facilities) in an aggregate amount of up to $75,000 witheither additional commitments from lenders under the Credit Agreement at such time or new commitments from financial institutions acceptable to theadministrative agent in its reasonable discretion, so long as no default or event of default exists at the time of any such increase. The Company may notbe able to access additional funds under this option as no lender is obligated to participate in any such increase under the Credit Facility and new lendersmay not be identified. The Credit Facility matures on August 2, 2018. The Company may prepay the Credit Facility in whole or in part, at any time without premium orpenalty, subject to reimbursement of the lenders’ breakage and redeployment costs in connection with prepayments of London Interbank Offered Rate, orLIBOR, loans. The unutilized portion of the commitments under the Credit Facility may be irrevocably reduced or terminated by the Company at anytime without penalty. The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s present and future domestic subsidiaries, excludingcertain domestic subsidiaries which include our insurance captives. The Company’s obligations under, and each guarantor’s obligations under itsguaranty of, the Credit Facility are secured by a first priority lien on substantially all of the Company’s respective assets, including a pledge of 100% ofthe issued and outstanding stock of the Company’s domestic subsidiaries, excluding the Company’s insurance captives, and 65% of the issued andoutstanding stock of the Company’s first tier foreign subsidiaries. Interest on the outstanding principal amount of the loans accrues, at the Company’s election, at a per annum rate equal to LIBOR, plus anapplicable margin, or the base rate as defined in the agreement plus an applicable margin. The applicable margin ranges from 2.25% to 3.25% in the caseof LIBOR loans and 1.25% to 2.25% in the case of the base rate loans, in each case, based on the Company’s consolidated leverage ratio as defined in theCredit Agreement. Interest on the loans is payable quarterly in arrears. The interest rate applied to the Company’s term loan at December 31, 2015 was3.33%. In addition, the Company is obligated to pay a quarterly commitment fee based on a percentage of the unused portion of each lender’scommitment under the revolving credit facility and quarterly letter of credit fees based on a percentage of the maximum amount available to be drawnunder each outstanding letter of credit. The commitment fee and letter of credit fee range from 0.25% to 0.50% and 2.25% to 3.25%, respectively, in eachcase, based on the Company’s consolidated leverage ratio. The $60,000 term loan is subject to quarterly amortization payments, which commenced on December 31, 2014, so that the following percentagesof the term loan outstanding on the closing date plus the principal amount of any term loans funded pursuant to the increase option are repaid as follows:7.5% between December 31, 2014 and September 30, 2015, 10.0% between December 31, 2015 and September 30, 2016, 12.5% between December 31,2016 and September 30, 2017, 15.0% between December 31, 2017 and June 30, 2018 and the remaining balance at maturity. The $250,000 term loan is subject to quarterly amortization payments, which commenced on March 31, 2015, so that the following percentages ofthe term loan outstanding on the closing date plus the principal amount of any term loans funded pursuant to the increase option are repaid as follows:7.5% between March 31, 2015 and December 31, 2015, 10.0% between March 31, 2016 and December 31, 2016, 12.5% between March 31, 2017 andDecember 31, 2017, 15.0% between March 31, 2018 and June 30, 2018 and the remaining balance at maturity. 89 The Credit Facility also requires the Company (subject to certain exceptions as set forth in the Amended and Restated Credit Agreement) to prepaythe outstanding loans in an aggregate amount equal to 100% of the net cash proceeds received from certain asset dispositions (or 50% of net cashproceeds in the case of the sale of the Human Services segment), debt issuances, insurance and casualty awards and other extraordinary receipts. The Credit Agreement contains customary affirmative and negative covenants and events of default. The negative covenants include restrictions onthe Company’s ability to, among other things, incur additional indebtedness, create liens, make investments, give guarantees, pay dividends, sell assetsand merge and consolidate. The Company is subject to financial covenants, including consolidated net leverage and consolidated fixed chargecovenants. The Company had $19,700 of borrowings outstanding under the revolving credit facility as of December 31, 2015. $25,000 of the revolving creditfacility is available to collateralize certain letters of credit, As of December 31, 2015, eight letters of credit in the amount of approximately $8,233 wereoutstanding. At December 31, 2015, the Company’s available credit under the revolving credit facility was $212,067. The Company incurred fees of approximately $12,738 to refinance long-term debt during 2014. The Company has accounted for fees related to therefinancing of its long-term debt, as well as unamortized deferred financing fees related to the Credit Facility, under ASC 470-50 – Debt Modificationsand Extinguishments. As both credit facilities were loan syndications, and a number of lenders participated in both credit facilities, the Companyevaluated the accounting for financing fees on a lender by lender basis. Of the total amount of fees incurred for the refinancing of debt, approximately$5,224 was deferred as deferred financing fees or debt discount, and is amortized over the life of the loans, approximately $4,500 was deferred and fullyexpensed in the fourth quarter of 2014 in relation to bridge financing commitments and approximately $3,014 was immediately expensed in 2014. Related party unsecured subordinated bridge note On October 23, 2014, the Company issued to Coliseum Capital Management, LLC and certain of its affiliates (“Coliseum”), a related party, a14.0% Unsecured Subordinated Note in the aggregate principal amount of $65,500 (the “Note”) due September 30, 2018. Interest from the issuance dateto, but excluding, the 120th day after the issuance date, was paid in cash in the amount of $3,015 on the issuance of the Note, of which $1,281 is includedin “Prepaid expenses and other” in the consolidated balance sheet as of December 31, 2014. Coliseum held approximately 15% of the Company’soutstanding common stock as of October 23, 2014 and is the Company’s largest shareholder. Additionally, Christopher Shackelton, who serves on theCompany’s board of directors, is also a Managing Partner at Coliseum Capital Management, LLC. The Note was repaid in full on February 11, 2015, with the proceeds from a registered rights offering (“Rights Offering”) and a related standbypurchase agreement. The Rights Offering allowed all of the Company’s existing common stock holders the non-transferrable right to purchase their prorata share of $65,500 of convertible preferred stock at a price of $100 per share, as further described in Note 11, Convertible Preferred Stock, Net. As such,the Note was classified as a current liability at December 31, 2014. 11. Convertible Preferred Stock, Net The Company completed a rights offering on February 5, 2015 providing all of the Company’s existing common stock holders the non-transferrable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price equal to $100 per share. The convertible preferredstock is convertible into shares of Providence’s common stock at a conversion price equal to $39.88 per share, which was the closing price of theCompany’s common stock on the NASDAQ Global Select Market on October 22, 2014. Stockholders exercised subscription rights to purchase 130,884 shares of the Company's convertible preferred stock. Pursuant to the terms andconditions of the Standby Purchase Agreement (the “Standby Purchase Agreement”) between Coliseum Capital Partners, L.P., Coliseum Capital PartnersII, L.P., Coliseum Capital Co-Invest, L.P. and Blackwell Partners, LLC (collectively, the "Standby Purchasers") and the Company, the remaining 524,116shares of the Company's preferred stock were purchased by the Standby Purchasers at the $100 per share subscription price. The Company received$65,500 in aggregate gross proceeds from the consummation of the Rights Offering and Standby Purchase Agreement. Additionally, on March 12, 2015,the Standby Purchasers exercised their right to purchase an additional 150,000 shares of the Company’s convertible preferred stock, at a purchase price of$105 per share or a total purchase price of $15,750, of the same series and having the same conversion price as the convertible preferred stock sold in theRights Offering. 90 The Company may pay a noncumulative cash dividend on each share of convertible preferred stock, if and when declared by its Board of Directors,at the rate of five and one-half percent (5.5%) per annum on the liquidation preference then in effect. On or before the third business day immediatelypreceding each fiscal quarter, the Company must determine its intention whether or not to pay a cash dividend with respect to that ensuing quarter andwill give notice of its intention to each holder of convertible preferred stock as soon as practicable thereafter. In the event the Company does not declare and pay a cash dividend, the Company will declare a paid in kind (“PIK”) dividend by increasing theliquidation preference of the convertible preferred stock to an amount equal to the liquidation preference in effect at the start of the applicable dividendperiod, plus an amount equal to the liquidation preference then in effect multiplied by eight and one-half percent (8.5%) per annum, computed on thebasis of a 365-day year and the actual number of days elapsed from the start of the applicable dividend period to the applicable date of determination. Allholders of the Company’s preferred stock are able to convert their preferred stock to shares of common stock at a rate of approximately 2.51 shares ofcommon stock for each share of preferred stock. As of December 31, 2015, 1,482 shares of convertible preferred stock were converted to 3,715 shares ofcommon stock. Cash dividends are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, which commenced on April 1, 2015, and, ifdeclared, will begin to accrue on the first day of the applicable dividend period. PIK dividends, if applicable, will accrue and be cumulative on the sameschedule as set forth above for cash dividends and will also be compounded at the applicable annual rate on each applicable subsequent dividend date.Cash dividends totaling $594, $1,104, $1,116, and $1,114 were paid to preferred stockholders on April 1, 2015, July 1, 2015, October 1, 2015 andJanuary 1, 2016, respectively. The convertible preferred stock is accounted for outside of stockholders’ equity as it could be redeemed upon certain change in control events thatare not solely in the control of the Company. Dividends are recorded in stockholders’ equity and consist of the 5.5%/8.5% dividend. At the time ofissuance of the preferred stock, the Company recorded a discount on preferred stock related to beneficial conversion features that arose due to the closingprice of the Company’s common stock being higher than the conversion price of the convertible preferred stock on the commitment date. Theamortization of this discount was recorded in stockholders’ equity. The discount was fully amortized as of December 31, 2015. The following table summarizes the convertible preferred stock activity for 2015: Dollar Value Share Count Beginning Balance $- - Shares issued 81,250 805,000 Issuance costs (3,531) - Beneficial conversion feature (1,071) - Amortization of beneficial converstion feature 1,071 - Conversion to common stock (149) (1,482)Allocation of issuance costs 6 - Ending Balance $77,576 803,518 As of December 31, 2015, the 803,518 outstanding shares of convertible preferred stock are convertible into 2,014,840 shares of common stock. 12. Stockholders’ Equity The Company’s second amended and restated certificate of incorporation provides that the Company’s authorized capital stock consists of40,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of convertible preferred stock, $0.001 par value per share. At December 31, 2015 and 2014 there were 17,186,780 and 16,870,285 shares of the Company’s common stock issued, respectively, including1,895,998 and 1,014,108 treasury shares at December 31, 2015 and 2014, respectively. At December 31, 2015 and 2014 there were 803,518 and 0 sharesof convertible preferred stock issued and outstanding, respectively. 91 Subject to the rights specifically granted to holders of any then outstanding shares of the Company’s preferred stock, the Company’s commonstockholders are entitled to vote together as a class on all matters submitted to a vote of the Company’s stockholders, and are entitled to any dividendsthat may be declared by the Company’s board of directors. The Company’s common stockholders do not have cumulative voting rights. Upon theCompany’s dissolution, liquidation or winding up, holders of the Company’s common stock are entitled to share ratably in the Company’s net assets afterpayment or provision for all liabilities and any preferential liquidation rights of the Company’s preferred stock then outstanding. The Company’scommon stockholders do not have preemptive rights to purchase shares of the Company’s stock. The issued and outstanding shares of the Company’scommon stock are not subject to any redemption provisions and are not convertible into any other shares of the Company’s capital stock. The rights,preferences and privileges of holders of the Company’s common stock will be subject to those of the holders of any shares of the Company’s preferredstock the Company may issue in the future. During the year ended December 31, 2014, the sellers of WCG International Consultants Ltd. (“WCG”) surrendered 39,162 exchangeable shares ofPSC of Canada Exchange Corp. (“PSC”) to fulfill their obligation to the Company for the settlement of a dispute and the reimbursement of legal fees.These shares were converted to shares of the Company and transferred to treasury. Additionally, 222,532 exchangeable shares of PSC were exchangedinto shares of common stock of the Company and distributed to the sellers of WCG, thus eliminating the related non-controlling interest balance as ofDecember 31, 2014. During the year ended December 31, 2014, the Company issued stock, with certain escrow restrictions, in conjunction with the acquisitions ofIngeus and Matrix. See additional information on these acquisitions in Note 21, Acquisitions. The following table reflects the total number of shares of the Company’s common stock reserved for future issuance as of December 31, 2015: Shares of common stock reserved for: Exercise of stock options and restricted stock awards 556,461 Conversion of preferred stock to common stock 2,014,840 Issuance of Performance Restricted Stock Units 122,151 Total shares of common stock reserved for future issuance 2,693,452 Share Repurchases On October 14, 2015, the Company entered into an agreement to repurchase 707,318 of its common stock held by former stockholders of Matrix foran aggregate purchase price of $29,000 (or $41.00 per share). The Company funded this purchase through a combination of borrowing on its revolvingcredit facility and cash on hand. The purchase of these shares was completed on October 30, 2015. On November 4, 2015, the Company’s Board of Directors authorized the Company to engage in a common stock repurchase program to repurchaseup to $70,000 in aggregate value of the Company’s common stock during the twelve-month period following November 4, 2015. As of December 31,2015, the Company has spent approximately $5,111 to repurchase 109,150 shares. During the years ended December 31, 2015, 2014 and 2013, the Company repurchased 15,961 shares, 18,504 shares and 27,964 shares,respectively, from employees to cover the settlement of income tax and related benefit withholding obligations arising from vesting of restricted stockawards. In addition, in 2015, the Company withheld 5,718 shares for the payment of the exercise price upon the exercise of stock options and 43,743shares to cover the settlement of income tax and related benefit withholding obligations arising from shares held by employees that were released fromescrow related to the Matrix acquisition, which shares are treated as treasury stock. On February 1, 2007, the Company’s Board of Directors approved a stock repurchase program for up to one million shares of its common stockunder which the Company spent approximately $14,376 to purchase 756,100 shares of its common stock in the open market since the inception of thisstock repurchase program through December 31, 2012. No repurchases have been made since 2012. This program was formally terminated in January2016. 92 13. Stock-Based Compensation and Similar Arrangements The Company provides stock-based compensation to employees, non-employee directors, consultants and advisors under the Company’s 2006Long-Term Incentive Plan (“2006 Plan”). Upon stockholder approval in May 2006, the 2006 Plan replaced the former 1997 Stock Option and IncentivePlan (“1997 Plan”) and 2003 Stock Option Plan (“2003 Plan”). The 2003 Plan and the 1997 Plans have expired and no awards were outstanding under theplans as of December 31, 2015. To achieve the purposes of the Company’s stock-based compensation program described above, the 2006 Plan allows the flexibility to grant oraward stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units including restricted stock units and performance awards toeligible persons. The following table summarizes the activity under the 2006 Plan as of December 31, 2015: Number of shares Number of shares of the Company's of the Company's common stock common stock remaining Number of shares of the Company's authorized for available for common stock subject to issuance future grants Options Stock Grants 2006 Plan 4,400,000 1,262,626 505,452 173,160 The following table reflects the amount of stock-based compensation, for share settled awards, recorded in each financial statement line item for theyears ended December 31, 2015, 2014 and 2013: Year ended December 31, 2015 2014 2013 Service expense $21,588 $4,019 $1,054 General and administrative expense 5,027 3,537 1,421 Discontinued operations, net of tax 7 6 604 Total stock-based compensation $26,622 $7,562 $3,079 Stock-based compensation included in service expense is related to the following segments: Year ended December 31, 2015 2014 2013 NET Services $724 $587 $1,054 WD Services (a) 20,756 3,432 - HA Services 108 - - Total stock-based compensation in service expense $21,588 $4,019 $1,054 (a)WD Services includes $16,078 related to the acceleration of awards pursuant to the separation agreement of two executives. The amounts above exclude the tax benefit of approximately $2,322, $1,570 and $909 for the years ended December 31, 2015, 2014 and 2013,respectively. For the years ended December 31, 2015, 2014 and 2013, the amount of excess tax benefits resulting from the exercise of stock options wasapproximately $2,857, $2,722 and $1,120, respectively. For the years ended December 31, 2015, 2014 and 2013, the Company had tax shortfallsresulting from the exercise of stock options of approximately $151, $38 and $683, respectively. The excess tax benefits resulting from the exercise ofstock options are reflected as cash flows from financing activities for the years ended December 31, 2015, 2014 and 2013 in the consolidated statementsof cash flows. 93 Stock Options During the year ended December 31, 2015, the Company granted a total of 294,294 stock options under the 2006 Plan to purchase the Company’scommon stock at exercise prices equal to the market value of the Company’s common stock on the date of grant. The options were granted to executiveofficers and certain key employees. As approved by the Compensation Committee of the Board of Directors, in order to promote stock ownership andalign the goals of senior management with investors, the grants were comprised of 147,147 special stock options, and 147,147 matching stock options.The special stock options were immediately vested, but the life of the option was 10 days. Thus, the grantees had 10 days from the grant date to exercisethe special stock options in a buy and hold transaction. If the grantees did not exercise their special stock options within the 10-day period, the optionsexpired and an equal number of matching stock options were forfeited. The option exercise price for all options granted ranged from $44.17 to $45.59. Atotal of 33,957 special stock options were exercised, and 113,190 special stock options expired. 33,957 of matching stock options remain outstanding,and 113,190 were forfeited. The matching stock options cliff vest on the third anniversary of the grant date and expire five years after the grant date.However, the matching stock options are subject to forfeiture if the holder of the matching options sells any stock of the Company during the three yearvesting period, subject to certain limited exceptions, on a one option for each share sold basis. The weighted-average fair value of these options totaled$8.77 per share. The fair value of each stock option awarded is estimated on the date of grant using the Black-Scholes option-pricing formula based on thefollowing assumptions: Year ended December 31, 2015 2014 Expected dividend yield 0.0% 0.0% Expected stock price volatility 33.84%-46.14% 45.6%-50.25% Risk-free interest rate 0.35%-1.35% 1.1%-1.88% Expected life of options 10 days-4 years 3.25-5.47years The risk-free interest rate was based on the US Treasury security rate in effect as of the date of grant which corresponds to the expected life of theaward. The expected lives of options and the expected stock price volatility were based on the Company’s historical data, or the Company’s best estimatewhere appropriate. The Company determined the expected life of the matching options granted in 2015 by using the mid-point of the vesting period andcontractual life of the award, as the Company’s historical information did not provide a reliable expected life. During the year ended December 31, 2015, the Company issued 196,823 shares of its common stock in connection with the exercise of employeestock options, including the 33,957 of special options exercises discussed above, under the Company’s 2006 Plan. In addition, during the year endedDecember 31, 2015, the Company issued 50,510 shares of its common stock in connection with the exercise of employee stock options under the 2003Plan. 94 The following table summarizes the stock option activity for the year ended December 31, 2015: Year ended December 31, 2015 Weighted- Number Weighted- average of Shares average Remaining Aggregate Under Exercise Contractual Intrinsic Option Price Term Value Balance at beginning of period 813,622 $30.77 Granted 294,294 44.28 Exercised (247,333) 21.00 Forfeited/Cancelled (213,691) 43.18 Expired (113,440) 44.28 Shares modified and settled in cash (28,000) 36.27 Outstanding at end of period 505,452 $34.84 3.8 $6,106 Vested or expected to vest at end of period 480,847 $34.68 3.8 $5,887 Exercisable at end of period 336,994 $32.77 3.9 $4,768 The weighted-average grant-date fair value for options granted, total intrinsic value and cash received by the Company related to optionsexercised during the years ended December 31, 2015, 2014 and 2013 were as follows: Year ended December 31, 2015 2014 2013 Weighted-average grant date fair value $8.77 $17.09 Not Applicable Options exercised: Total intrinsic value $6,659 $9,107 $4,544 Cash received $4,895 $11,019 $10,069 During 2013, no stock options were granted. Stock Option Modifications During the second quarter of 2015, Warren Rustand terminated his role as Chief Executive Officer (“CEO”) and board member of the Company, butremained employed as a Senior Advisor through the end of 2015. As a result of Mr. Rustand’s termination as CEO, a Separation Agreement was enteredinto between the Company and Mr. Rustand. As a result of this Separation Agreement, Mr. Rustand’s outstanding stock options from his grant of 200,000stock options on September 11, 2014 were modified to accelerate the vesting date for the second tranche of options from June 30, 2015 to June 5, 2015,and the exercise period for all vested options of 133,332 was lengthened. As a result of the modifications to the terms of the original stock optionsgranted to Mr. Rustand, the Company recognized additional stock-based compensation expense of $737 as of December 31, 2015. Additionally, during the second half of 2015, in conjunction with the sale of the Human Services segment, the awards for 28,000 stock options weremodified and resulted in these awards being settled in cash. Restricted Stock Awards During the year ended December 31, 2015, the Company granted 33,356 shares of restricted stock awards (“RSAs”) to non-employee directors of itsboard of directors, executive officers and certain key employees. The awards primarily vest in three equal installments on the first, second and thirdanniversaries of the date of grant, with the exception of one award which vests in three equal installments over an approximate seven-month vestingperiod. 95 During the year ended December 31, 2015, the Company issued 65,447 shares of its common stock to non-employee directors, executive officersand key employees upon the vesting of certain RSAs granted in 2015, 2014, 2013 and 2012 under the Company’s 2006 Plan. An additional 6,827 RSAsvested during the year but were not released to the participant due to an additional holding period required by the grant agreement. In connection withthe vesting of these RSAs, 15,961 shares of the Company’s common stock were surrendered to the Company by the recipients to pay their associatedtaxes due to the federal and state taxing authorities during 2015. These shares were placed in treasury. The following table summarizes the activity of the shares and weighted-average grant date fair value of the Company’s non-vested restrictedcommon stock during the year ended December 31, 2015: Weighted-average grant date Shares fair value Non-vested at beginning of period 91,347 $21.44 Granted 33,356 $50.51 Vested (72,274) $21.71 Forfeited or cancelled (8,247) $44.24 Non-vested at end of period 44,182 $38.67 As of December 31, 2015, there was approximately $2,307 of unrecognized compensation cost related to unvested share settled stock options andRSAs granted under the 2006 Plan. The cost is expected to be recognized over a weighted-average period of 1.79 years. The total fair value of stockoptions and RSAs vested was $3,709, $4,155 and $3,642 for the years ended December 31, 2015, 2014 and 2013, respectively. Other Restricted Stock Award Grants During the year ended December 31, 2014, the Board of Directors approved the grant of 596,915 RSAs to two individuals in connection with theIngeus acquisition. The grants were made outside of the 2006 Plan, as they were related to the acquisition. However, since the term of the awards providedfor vesting based on continued employment, the awards were accounted for as stock-based compensation. The shares necessary to settle these awards wereplaced in an escrow account in 2014, and were releasable from escrow in accordance with the vesting of the awards. Per the original terms of theagreements, the awards vested upon continued employment of the grantees, in four equal installments on the anniversary date of the grant. However, onOctober 15, 2015, the Company entered into Settlement Deeds whereby the executives’ employment was terminated by mutual agreement and vestingwas no longer based upon continued employment. The Company recognized approximately $16,078 in stock-based compensation expense at the time ofthe modification, which otherwise would have been recognized over the remainder of the vesting period. Additionally, the Company recognizedaccelerated deferred compensation expense of $4,714 related to the Settlement Deeds. As of December 31, 2015, 447,686 underlying shares to settle theawards are held in the escrow account. Performance Restricted Stock Units The Company had 122,151 performance restricted stock units (“PRSUs”) outstanding at December 31, 2015. These awards will vest upon meetingcertain performance criteria over a set performance period. 99,979 of the outstanding PRSUs at December 31, 2015 have a performance criteria tied to theCompany’s return on equity (“ROE”), with performance periods ending on December 31, 2015, 2016 and 2017. The grantees will earn 33% of PRSUsgranted if the ROE is 12% but less than 15%, and 100% of the PRSUs granted if the ROE is 15% or more. 22,172 of the outstanding PRSUs at December31, 2015 have a performance criteria tied to the NET Services segment’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) andthe Company’s EBITDA performance with performance periods ending on December 31, 2015, 2016 and 2017. Compensation expense related to theseawards totaled $613, ($162) and $162 for the years ended December 31, 2015, 2014 and 2013, respectively. 96 Cash Settled Awards During the years ended December 31, 2015 and 2014, respectively, the Company issued 4,000 and 6,195 stock equivalent units (“SEUs”), whichsettle in cash, to Coliseum Capital Partners, L.P., in lieu of a grant to Christopher Shackelton, Chairman of the Board of Directors, that vest one-third uponeach anniversary of the vesting date. The fair value of the SEUs is based on the closing stock price on the last day of the period and the completedrequisite service period. During the year ended December 31, 2014, the Company issued 200,000 stock option equivalent units (“SOEUs”), with anexercise price of $43.81 per share, which settle in cash, to Coliseum Capital Partners, L.P in lieu of a grant to Mr. Shackelton. This award vests one-thirdupon grant, one-third on June 30, 2015 and one-third on June 30, 2016. No additional SOEUs were granted during the year ended December 31, 2015. Forthe SEUs, the Company recorded approximately $588 and $375 of expense during the years ended December 31, 2015 and 2014, respectively. For theSOEUs, the Company recorded $1,888 and $1,249 of expense during the years ended December 31, 2015 and 2014, respectively. The expense is includedin “General and administrative expense” in the consolidated statements of income. The fair value of the unvested SEUs was determined based on theCompany’s closing stock price on December 31, 2015. The fair value of the SOEUs was estimated as of December 31, 2015 and 2014 using the Black-Scholes option-pricing formula and amortized over the option’s graded vesting periods with the following assumptions: Year ended December 31, 2015 2014 Expected dividend yield 0.0% 0.0% Expected stock price volatility 43.75%-45.30% 46.75%-50.1% Risk-free interest rate 1.24%-1.70% 1.3%-1.76% Expected life of options (in years) 2.75-4.75 3.75-5.75 As of December 31, 2015, the Company had a short-term liability of $3,555 in “Accrued expenses” in the consolidated balance sheet related tounexercised vested and non-vested cash settled share-based payment awards. The cash settled share-based compensation expense in total excluded a taxbenefit of approximately $990 and $650 for the years ended December 31, 2015 and 2014, respectively. The unrecognized compensation cost is expectedto be recognized over a weighted average period of .52 years; however, the total expense will continue to be adjusted for the unexercised vested SOEUsuntil they are exercised. Holdco Long-Term Incentive Plan On August 6, 2015 (the “Award Date”), the Compensation Committee of the Board of Directors adopted the 2015 Holding Company LTI Program(the “HoldCo LTIP”) under the 2006 Plan. The LTIP is designed to provide long term performance based awards to certain executive officers ofProvidence. Under the program, executives will receive shares of Providence common stock based on the shareholder value created in excess of an 8.0%compounded annual return between the Award Date and December 31, 2017 (the “Extraordinary Shareholder Value”). The Award Date value is calculatedon the basis of the Providence stock price equal to the volume weighted average of the common share price over a 90-day period ending on the AwardDate. The value as of December 31, 2017 will be calculated on the basis of a similar 90-day volume weighted average common share price. A pool for usein the allocation of awards will be created equal to 8.0% of the Extraordinary Shareholder Value. Participants in the HoldCo LTIP will receive apercentage allocation of any such pool and, following determination of the size of the pool, will be entitled to a number of shares equal to their pro rataportion of the pool divided by the volume weighted average of the Company’s per share price over the 90-day period ending on December 31, 2017. Ofthe shares allocated, 60% will be issued to the participant on or shortly following determination of the pool, 25% will vest and be issued on the one-yearanniversary of such determination date, subject to continued employment, and the remaining 15% will be issued on the second anniversary of thedetermination date, subject to continued employment. As of December 31, 2015, 85% of the award pool had been granted to executives andapproximately $1,353 of expense is included in “General and administrative expense” in the consolidated statements of income for the year endedDecember 31, 2015. As of December 31, 2015, there was approximately $8,257 of unrecognized compensation cost related to non-vested Holdco LTIPshares granted under the 2006 Plan. The cost is expected to be recognized over a weighted-average period of 2.55 years. These awards are equityclassified and the fair value of the awards was calculated using a Monte-Carlo simulation valuation model. 97 14. Vertical Long-Term Incentive Plan The Company established new Long-Term Incentive Plans (“Vertical LTIPs”) for the Company’s three operating segments, or verticals, during thefourth quarter of 2015. The three plans are consistent in their basic terms, but each have been customized for specific aspects of the associated vertical.The awards pay in cash, however up to 50% of the award may be paid in unrestricted stock if the recipient elects this option when the Vertical LTIP offerletter is received. In addition, at the discretion of the Company, the recipients may be able to elect unrestricted stock in lieu of cash compensation at alater date. The baseline value is six times the starting Adjusted EBITDA for the vertical plus the investment made in any equity method joint ventures.The determination date is December 31, 2017. The amount of money in the Vertical LTIP pool is set as of the determination date and is equal to the sumof the Value Creation Pool (including any Acquisition Value Creation Pool) and the Free Cash Flow (“FCF”) Pool (whether positive or negative). TheValuation Creation Pool is an amount determined by the Administrator according to a set table based on the vertical’s compound annual growth rate(“CAGR”) of adjusted EBITDA as applied by the Administrator to the baseline value. The FCF Pool is the product of the vertical’s FCF for theperformance period and the percentage used to determine the Value Creation Pool (i.e., the Value Creation Pool divided by the lesser of the ValueCreated, or the value created over the baseline value when increased by 40% compound annual growth in Adjusted EBITDA). The participationpercentage awarded at the effective date of each plan was set at 80%. Future participants may be added to each plan, however, the total payout cannotexceed 100% of the pool. The Company’s Adjusted EBITDA Margin, for the twelve-month period beginning on either October 1, 2015, January 1, 2016or January 1, 2017 must be equal to or exceed two percent for an amount to be payable under each of the Vertical LTIPs. The awards vest in threeinstallments: 60% of the award will pay out immediately following December 31, 2017, 25% one year following the performance period (i.e. December31, 2018) and 15% two years following the performance period (i.e. December 31, 2019). Payout is subject to the employee remaining employed by theCompany. For the year ended December 31, 2015, approximately $575 of expense is included in “Service expense” in the consolidated statements ofincome related to this plan. 98 15. Earnings Per Share The following table details the computation of basic and diluted earnings per share: Year ended December 31, 2015 2014 2013 Numerator: Net income attributable to Providence $83,696 $20,275 $19,438 Less dividends on convertible preferred stock (3,935) - - Less accretion of convertible preferred stock discount (1,071) - - Less income allocated to participating securities (10,089) - - Net income available to common stockholders $68,601 $20,275 $19,438 Continuing operations $(23,110) $23,917 $13,105 Discontinued operations 91,711 (3,642) 6,333 $68,601 $20,275 $19,438 Denominator: Denominator for basic earnings per share -- weighted-average shares 15,960,905 14,765,303 13,499,885 Effect of dilutive securities: Common stock options - 236,538 292,937 Performance-based restricted stock units - 16,720 17,052 Denominator for diluted earnings per share -- adjusted weighted-average sharesassumed conversion 15,960,905 15,018,561 13,809,874 Basic earnings (loss) per share: Continuing operations $(1.45) $1.62 $0.97 Discontinued operations 5.75 (0.25) 0.47 $4.30 $1.37 $1.44 Diluted earnings (loss) per share: Continuing operations $(1.45) $1.59 $0.95 Discontinued operations 5.75 (0.24) 0.46 $4.30 $1.35 $1.41 The accretion of convertible preferred stock discount in the table above related to a beneficial conversion feature of the Company’s convertiblepreferred stock that was fully amortized as of June 30, 2015. Income allocated to participating securities is calculated by allocating a portion of netincome less dividends on convertible stock and amortization of convertible preferred stock discount to the convertible preferred stock holders on a pro-rata basis; however, the convertible preferred stockholders are not required to absorb losses. For the years ended December 31, 2015, 2014 and 2013, employee stock options to purchase 19,226, 92,054 and 452,421 shares, respectively, ofcommon stock were not included in the computation of diluted earnings per share as the exercise prices of these options was greater than the average fairvalue of the common stock for the period and, therefore, the effect of these options would have been anti-dilutive. For the year ended December 31, 2015,700,241 shares of convertible preferred stock were excluded from the calculation of diluted earnings per share because their inclusion would have beenanti-dilutive. Additionally, for the year ended December 31, 2015, employee stock options to purchase 154,699 shares of common stock were notincluded in the computation of diluted earnings as the Company recorded a net loss available to common stockholders from continuing operations for thecurrent year and as such, all potentially dilutive securities were anti-dilutive. The effect of issuing 1,139,145 shares of common stock on an assumedconversion basis related to the 6.5% Convertible Senior Subordinated Notes due in 2014 (“Senior Notes”) was not included in the computation of dilutedearnings per share for the years ended December 31, 2013 as it would have been antidilutive. 99 16. Leases The Company has non-cancellable contractual obligations in the form of operating leases for office space, related office equipment and otherfacilities. The leases expire in various years and generally provide for renewal options. In the normal course of business, it is expected that these leaseswill be renewed or replaced by leases on other properties. The operating leases provide for increases in future minimum annual rental payments based on defined increases in the Consumer Price Index,subject to certain minimum increases. Several of these lease agreements contain provisions for periods in which rent payments are reduced. The totalamount of rental payments due over the lease term is being charged to rent expense on a straight-line basis over the term of the lease. The differencebetween rent expense recorded and the amount paid, for continuing operations, as of December 31, 2015 and 2014 was approximately $2,190 and $1,645,respectively, and is included in "Other long-term liabilities” in the consolidated balance sheets. Also, the lease agreements generally require theCompany to pay executory costs such as real estate taxes, insurance, and repairs. Future minimum payments under non-cancelable operating leases for equipment and property with initial terms of one year or more consisted of thefollowing at December 31, 2015: Operating Leases 2016 $25,864 2017 14,578 2018 10,690 2019 7,837 2020 5,566 Thereafter 9,034 Total future minimum lease payments $73,569 Rent expense for continuing operations related to operating leases was approximately $38,272, $17,042 and $8,279, for the years endedDecember 31, 2015, 2014 and 2013, respectively. 17. Retirement Plan The Company maintains a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (“IRC”), forall employees of its NET Services operating segment and corporate personnel. The Company, at its discretion, may make a matching contribution to theplan. Any matching contributions vest over five years. Unvested matching contributions are forfeitable upon employee termination. Employeecontributions are fully vested and non-forfeitable. The Company’s contributions to the plan for continuing operations were approximately $221, $180and $153, for the years ended December 31, 2015, 2014 and 2013, respectively. The Company also maintains defined contribution plans, for the benefit of eligible HA Services’ employees under the provision of Section 401(k)of the IRC. The Company, at its discretion, may make a matching contribution to the plan. Any matching contributions vest over three years. Unvestedmatching contributions are forfeitable upon employee termination. Employee contributions are fully vested and non-forfeitable. The Company’scontributions to these plans were approximately $1,257 and $299 for the years ended December 31, 2015 and 2014, respectively. WD Services’ employees are entitled to benefits under certain retirement plans. The WD Services’ segment has separate plans in each country itoperates. The defined contribution plans receive fixed contributions from WD Services’ companies and the legal or constructive obligation is limited tothese contributions. The Company’s contributions to these defined contribution plans were approximately $10,331, $2,424 and $20 for the years endedDecember 31, 2015, 2014 and 2013, respectively. On August 31, 2007, the Board adopted The Providence Service Corporation Deferred Compensation Plan (the “Deferred Compensation Plan”) forthe Company’s eligible employees and independent contractors of a participating employer (as defined in the Deferred Compensation Plan). Under theDeferred Compensation Plan participants were able to defer all or a portion of their base salary, service bonus, performance-based compensation earned ina period of 12 months or more, commissions and, in the case of independent contractors, compensation reportable on Form 1099. This plan wasterminated in December 2015. 100 The Company also maintains a 409 (A) Deferred Compensation Rabbi Trust Plan for highly compensated employees of NET Services. This plan wasput in place to compensate for the inability of highly compensated employees to take full advantage of the Company’s 401(k) plan. Additionalinformation is included in Note 19, Commitments and Contingencies. 18. Income Taxes The following table summarizes our US and foreign income (loss) from continuing operations before income taxes: Year ended December 31, 2015 2014 2013 US $51,362 $16,151 $19,466 Foreign (53,692) 15,856 264 Total $(2,330) $32,007 $19,730 The federal and state income tax provision is summarized as follows: Year ended December 31, 2015 2014 2013 Federal: Current $16,595 $8,189 $8,888 Deferred (321) (1,619) (2,662) 16,274 6,570 6,226 State: Current $2,174 $2,644 $829 Deferred (594) (1,104) (412) 1,580 1,540 417 Foreign: Current $523 $(616) $(19)Deferred (2,101) 596 1 (1,578) (20) (18) Total provision for income taxes $16,276 $8,090 $6,625 101 A reconciliation of the provision for income taxes with amounts determined by applying the statutory US federal income tax rate to income (loss)from continuing operations before income taxes is as follows: Year Ended December 31, 2015 2014 2013 Federal statutory rates 35% 35% 35%Federal income tax at statutory rates $(816) $11,203 $6,905 Change in valuation allowance 3,812 1,813 - Change in uncertain tax positions 236 (1,681) - State income taxes, net of federal benefit 759 1,342 340 Difference between federal statutory and foreign tax rate 4,642 (353) 15 Stock compensation (184) (524) (862)Meals and entertainment 260 157 61 Amortization of deferred consideration 9,444 1,574 - Transaction costs (447) 1,769 - Contingent consideration liability reversal (854) (5,748) - Nontaxable interest income (965) (660) - Tax credits (1,065) - - Legal expense 284 - - Depreciation 649 - - Equity in net loss of investee 366 - - Other 155 (802) 166 Provision for income taxes $16,276 $8,090 $6,625 Effective income tax rate (699)% 25% 34% The Company recognized an income tax provision for the year ended December 31, 2015 despite having a loss from continuing operationsbefore income taxes. Because of foreign net operating losses (including equity investee losses) for which the future income tax benefit currently cannotbe recognized and non-deductible expenses such as amortization of deferred consideration related to the Ingeus acquisition, the Company recognizedestimated taxable income upon which the estimate income tax provision for financial reporting is calculated. 102 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financialreporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are asfollows: December 31, 2015 2014 Deferred tax assets: Net operating loss carryforwds $18,357 $21,746 Tax credit carryforwards 1,093 2,288 Accounts receivable allowance 829 3,835 Accrued items and reserves 15,877 4,164 Stock compensation 3,226 2,043 Deferred rent 858 717 Deferred financing costs 127 906 Deferred revenue - 320 Other 582 181 40,949 36,200 Deferred tax liabilities: Prepaids 1,181 1,698 Property and equipment depreciation 6,441 2,375 Goodwill and intangibles amortization 97,926 111,120 Other 273 165 105,821 115,358 Net deferred tax liabilities (64,872) (79,158)Less valuation allowance (22,683) (13,622)Net deferred tax liabilities $(87,555) $(92,780)Current deferred tax assets, net of valuation allowance of $583 and $2,811 for 2015 and2014, respectively $5,877 $4,148 Net noncurrent deferred tax assets, net of valuation allowance of $21,513 for 2015 42 - Net noncurrent deferred tax liabilities, net of valuation allowance of $587 and $10,811 for2015 and 2014, repectively (93,474) (96,928) $(87,555) $(92,780) At December 31, 2015, the Company had approximately $578 of federal net operating loss carryforwards which expire in years 2018 through 2035,and $12,239 of state net operating loss carryforwards which expire as follows: 2016 $1,469 2017 - 2018 69 2019 - 2020 - Thereafter 10,701 $12,239 The Company had net operating loss carryforwards in the following countries which can be carried forward indefinitely: Australia $42,349 Canada 241 France 3,998 Sweden 1,251 UK 2,886 In addition, affiliates of Matrix file separate tax returns and have federal and state net operating loss carryforwards of $2,541 and $1,989,respectively, which expire in years 2019 through 2035. Realization of the Company’s net operating loss carryforwards is dependent on generating sufficient taxable income prior to expiration of the losscarryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized, to theextent they are not covered by a valuation allowance. The amount of the deferred tax asset considered realizable, however, could be reduced in the nearterm if estimates of future taxable income during the carryforward period are reduced. 103 The net change in the total valuation allowance for the year ended December 31, 2015 was $9,061, of which $3,812 related to current operationsand $5,249 related to the adjustment of Ingeus and Matrix balances upon acquisition. The valuation allowance includes $21,513 primarily for Australiaand France net operating loss carryforwards, and $1,170 for federal and state net operating loss and tax credit carryforwards for which the Company hasconcluded that it is more likely than not that these net operating loss and tax credit carryforwards will not be realized in the ordinary course of operations.The Company will continue to assess the valuation allowance, and to the extent it is determined that the valuation allowance should be changed, anappropriate adjustment will be recorded. The Company recognized certain excess tax benefits related to stock option plans for the years ended December 31, 2015, 2014 and 2013 in theamount of $2,857, $2,722 and $1,120, respectively. Such benefits were recorded as a reduction of income taxes payable and an increase in additionalpaid-in-capital and are included in “Exercise of employee stock options” in the accompanying statements of stockholders’ equity and comprehensiveincome. The Company recognized a tax shortfall related to stock option plans for the years ended December 31, 2015, 2014 and 2013 in the amount of$151, $38 and $683, respectively. This was recorded as a reduction of deferred tax assets and a decrease to additional paid-in-capital and is included in“Exercise of employee stock options” in the accompanying statements of stockholders’ equity and comprehensive income. The Company expects no material amount of the unrecognized tax benefits to be recognized during the next twelve months. The Companyrecognizes interest and penalties as a component of income tax expense. During the years ended December 31, 2015, 2014 and 2013, the Companyrecognized approximately $27, $14 and $76, respectively, in interest and penalties. The Company had approximately $48 and $24 for the payment ofpenalties and interest accrued as of December 31, 2015 and 2014, respectively. A reconciliation of the liability for unrecognized income tax benefits is asfollows: December 31, 2015 2014 2013 Unrecognized tax benefits, beginning of year $1,165 $414 $254 Balance upon acquisition (51) 2,432 Increase (decrease) related to prior year positions (75) 14 82 Increase related to current year tax positions 389 160 78 Statute of limitations expiration (77) (1,855) - Unrecognized tax benefits, end of year $1,351 $1,165 $414 The Company is subject to taxation in the US and various foreign and state jurisdictions. The statute of limitations is generally three years for theUS, two to five years in foreign countries and between three and four years for the various states in which the Company operates. The Company is subjectto the following material taxing jurisdictions: US, United Kingdom, Australia, France, Saudi Arabia and Korea. The tax years that remain open forexamination by the US and various foreign countries and states principally include the years 2011-2015. 19. Commitments and Contingencies Legal proceedings On June 15, 2015, a putative stockholder class action derivative complaint was filed in the Court of Chancery of the State of Delaware, (the“Court”), captioned Haverhill Retirement System v. Kerley et al., C.A. No. 11149-VCL. The complaint names Richard A. Kerley, Kristi L. Meints, WarrenS. Rustand, Christopher Shackelton (the “Individual Defendants”) and Coliseum Capital Management, LLC (“Coliseum”) as defendants, and theCompany as a nominal defendant. The complaint purported to allege that the dividend rate increase term originally in the Company’s outstandingconvertible preferred stock was an impermissibly coercive measure that impaired the voting rights of the Company’s stockholders in connection with thevote on the removal of certain voting and conversion caps previously applicable to the preferred stock (the “Caps”), and that the Individual Defendantsbreached their fiduciary duties by approving the dividend rate increase term and attempting to coerce the stockholder vote relating to the Company’spreferred stock, and by failing to disclose all material information necessary to allow the Company’s stockholders to cast an informed vote on the Caps.The complaint also purports to allege derivative claims alleging that the Individual Defendants breached their fiduciary duties to the Company byentering into the subordinated note and standby agreement with Coliseum, and granting Coliseum certain stock options. The complaint further allegesthat Coliseum has aided and abetted the Individual Defendants in breaching their fiduciary duties and that demand on the Board is excused as futile. Thecomplaint sought, among other things, an injunction prohibiting the stockholder vote relating to the dividend rate increase, a finding that the IndividualDefendants are liable for breaching their fiduciary duties to the Company and the Company’s stockholders, a finding that Coliseum is liable for aidingand abetting the Individual Defendant’s breaches of their fiduciary duties, a finding that Coliseum is liable for unjust enrichment, a finding that demandon the Board is excused as futile, a revision or rescission of the terms of the subordinated note and preferred stock as necessary and/or appropriate, arequirement for the Company to reform its corporate governance profile to protect against future misconduct similar to that alleged by the putativestockholder class, a certification of the putative stockholder class, compensatory damages, together with pre- and post-judgment interest, costs anddisbursements (including expenses, attorneys’ and experts’ fees), and any other and further relief as is just and equitable. 104 On August 31, 2015, after arms’ length negotiations, the parties reached an agreement in principle and executed a memorandum ofunderstanding providing for the settlement of claims concerning the dividend rate increase term and stockholder vote and related disclosure. TheMemorandum of Understanding stated that the Defendants have entered into the partial settlement of the litigation solely to eliminate the distraction,burden, expense, and potential delay of further litigation involving claims that have been settled. Pursuant to the partial settlement, the Company agreedto supplement the disclosures in its definitive proxy statement on Schedule 14A (“Definitive Proxy Statement”), Coliseum and certain of its affiliates andthe Company entered into an amendment to that certain Series A Preferred Stock Exchange Agreement, by and among Coliseum Capital Partners, L.P.,Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest, L.P., Blackwell Partners, LLC, and The Providence Service Corporation dated as ofFebruary 11, 2015 described in the Definitive Proxy Statement, and the Board of Directors of the Company agreed to adopt a policy related to the Board’sdetermination each quarter as to whether the Company should pay cash dividends or allow dividends to be paid in the form of PIK dividends on thepreferred stock, as further described in the supplemental proxy disclosures. On September 2, 2015, Providence issued supplemental disclosures through aSupplement to the Proxy Statement. On September 16, 2015, Providence stockholders approved the removal of the Caps. The settlement provided for, among other things, the release of any claims based on alleged coercion and disclosure related to the stockholdervote on the removal of the Caps. On November 13, 2015, the Court issued an order setting out the schedule related to application for court approval of theproposed settlement and plaintiffs’ counsel’s request for attorneys’ fees and expenses related to the settlement as provided for in the MOU. The Companyprovided notice of the proposed partial settlement to Providence’s shareholders by December 11, 2015. At a hearing on February 9, 2016, the courtdenied approval of the settlement. The Court indicated that plaintiff’s counsel could petition the Court for a mootness fee, and that defendants wouldhave the opportunity to oppose any such application. On January 12, 2016, plaintiff filed a verified amended class action and derivative complaint. In addition to the defendants named in the earliercomplaint, the amended complaint names David Shackelton, Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Blackwell Partners, LLC,Coliseum Capital CO-Invest, L.P. (collectively, and together with Coliseum Capital Management, LLC, “Coliseum”) and RBC Capital Markets, LLC,(“RBC Capital Markets”) as additional defendants. The amended complaint purports to allege direct and derivative claims for breach of fiduciary dutyagainst some or all of the Individual Defendants and David Shackelton (collectively, the “Amended Individual Defendants”) regarding the approval ofthe subordinated note, the rights offering, standby agreement with Coliseum, and grant to Coliseum of certain stock options. The amended complaint alsopurports to allege an additional derivative claim for unjust enrichment against Coliseum regarding the subordinated note, the rights offering, and standbyagreement with Coliseum, and stock options. The amended complaint further alleges that Coliseum and RBC Capital Markets has aided and abetted theAmended Individual Defendants in breaching their fiduciary duties and that demand on the Board is excused as futile. The amended complaint seeks (a) findings that (i) the Amended Individual Defendants are liable for breaching their fiduciary duties to theCompany and the putative stockholder class, (ii) Coliseum and RBC Capital are liable for aiding and abetting such alleged breaches of fiduciary duties,(iii) Coliseum is liable for unjust enrichment, (iv) certain stock options awarded to Coliseum were the product of waste, and (iv) demand on the Board isexcused as futile, (b) revision or rescission of the terms of the subordinated note and preferred stock as necessary and/or appropriate, (c) a requirement thatthe Company reform its corporate governance profile to protect against future misconduct similar to that alleged by the putative stockholder class, (d)certification of the putative stockholder class, (e) compensatory damages, together with pre- and post-judgment interest, costs and disbursements(including expenses, attorneys’ and experts’ fees), and (f) any other and further relief as is just and equitable. 105 The Company has recorded approximately $1,435 in legal expenses, $1,275 in settlement expenses and $310 of indemnified legal expenses ofthe Standby Purchasers as set forth in the Standby Purchase Agreement related to this case. Additionally, the Company recorded an offsetting receivableof approximately $2,210 in “Other receivables” in the consolidated balance sheet at December 31, 2015, which is expected to be reimbursed throughinsurance proceeds. In addition to the matter described above, in the ordinary course of business, we are a party to various lawsuits. Management does not expectthese lawsuits to have a material impact on the liquidity, results of operations, or financial condition of Providence. We also evaluate other potentialcontingent matters, including ongoing matters of our acquired companies which arose prior to our date of purchase. Our indemnification agreements orother agreements may not protect us from liability, even though the matter occurred prior to our ownership of the Company. As of December 31, 2015, HAServices has certain malpractice claims which arose prior to our date of purchase. We believe it is reasonably possible that a loss has occurred; however,we are not able to reliably estimate the amount of loss. We do not believe the aggregate amount of liability that could be reasonably possible with respectto these matters would have a material adverse effect on our financial results; however, litigation is inherently uncertain and the actual losses incurred inthe event that our legal proceedings were to result in unfavorable outcomes could have a material adverse effect on our business and financialperformance. Indemnifications The Company has provided certain standard indemnifications in connection with the sale of the Human Services segment. All representation andwarranties made by the Company in the Membership Interest Purchase Agreement (the “Purchase Agreement”) to sell the Human Services segmentsurvive through the 15 month following the closing date. However, certain representations, including tax representations, survive until the expiration ofapplicable statutes of limitation, and healthcare representations survive until the third anniversary of the closing date. The Company is not aware of anyindemnification liabilities that require accrual at December 31, 2015. The Company has indemnified the Standby Purchasers from and against any and all losses, claims, damages, expenses and liabilities relating toor arising out of (i) any breach of any representation, warranty, covenant or undertaking made by or on behalf of the Company in the Standby PurchaseAgreement and (ii) the transactions contemplated by the Standby Purchase Agreement and the Note (as defined in Note 20), except to the extent that anysuch losses, claims, damages, expenses and liabilities are attributable to the gross negligence, willful misconduct or fraud of such Standby Purchaser.During the year ended December 31, 2015, $310 of indemnified legal expenses of the Standby Purchasers have been expensed by the Company as furtherdiscussed above. Deferred Compensation Plan The Company has one deferred compensation plan for management and highly compensated employees of NET Services as of December 31, 2015.The deferred compensation plan is unfunded, and benefits are paid from the general assets of the Company. As of December 31, 2014, the Company hadtwo deferred compensation plans for employees of NET Services and Human Services, which was sold in 2015. The total of participant deferrals, which isreflected in “Other long-term liabilities” in the consolidated balance sheets, was approximately $1,600 and $1,432 at December 31, 2015 and 2014,respectively. 20. Transactions with Related Parties On October 23, 2014, the Company issued to Coliseum Capital Management, LLC and certain of its affiliates (“Coliseum LLC”) a 14.0%Unsecured Subordinated Note in aggregate principal amount of $65,500 (the “Note”). Interest from the issuance date to, but excluding, the 120th dayafter the issuance date, was paid in cash in the amount of $3,015 on the issuance of the Note. Coliseum LLC held approximately 15% of our outstandingcommon stock as of October 23, 2014 and is the Company’s largest shareholder. Additionally, Christopher Shackelton, who serves as Chairman of theboard of directors, is also a Managing Partner at Coliseum Capital Management, LLC. The Note was repaid in full on February 11, 2015, with the proceeds from a registered rights offering and related standby purchase commitment(“Rights Offering” described in Note 11, Convertible Preferred Stock, Net), which allowed all of the Company’s existing common stock holders the non-transferrable right to purchase their pro rata share of $65,500 of convertible preferred stock at a price of $100 per share. 106th In connection with the anticipated Rights Offering, on October 23, 2014, the Company entered the Standby Purchase Agreement with the StandbyPurchasers, pursuant to which the Standby Purchasers agreed to purchase, substantially simultaneously with the completion of the Rights Offering, in theaggregate, all of the available preferred stock not otherwise sold in the Rights Offering following the exercise of the subscription privileges of holders ofthe Company’s common stock. As consideration for entering into the Standby Purchase Agreement, on October 23, 2014, the Company paid the StandbyPurchasers a fee of $2,947, which are partially treated as issuance costs and thus included in “Convertible preferred stock, net” in the consolidatedbalance sheet at December 31, 2015. In addition, the Standby Purchasers had the right, exercisable within 30 days following the completion of the RightsOffering, to purchase 150,000 additional shares of preferred stock at a price per share of $105 per share, which was exercised on March 12, 2015. Preferredstock dividends earned by Coliseum during the year ended December 31, 2015 totaled $3,739. The Company also incurred legal expenses under an indemnification agreement with the Standby Purchasers as further discussed in Note 19,Commitments and Contingencies. The Company operates a call center in Phoenix, Arizona. The building in which the call center is located was leased to the Company from VWPMcDowell, LLC (“McDowell”) until July 2014, at which time McDowell sold its interest in the property. Certain immediate family members of the ChiefExecutive Officer of NET Services had a partial ownership interest in McDowell. In the aggregate these family members owned an approximate 13%interest in McDowell directly and indirectly through a trust. For 2014 and 2013, the Company expensed approximately $234 and $412, respectively, inlease payments to McDowell. 21. Acquisitions Ingeus On May 30, 2014, the Company acquired all of the outstanding equity of Ingeus, a workforce development and outsourced services company and amarket leader in outsourced employability programs, operating in the social improvement, employment, offender rehabilitation and welfare servicesmarkets. Ingeus has operations in 10 countries and four continents. The acquisition expanded the Company’s presence into international markets,diversified its customer base, and enhanced its workforce development expertise globally. The purchase price was comprised of (i) a GBP £35,000, plus adjustments, cash payment on May 30, 2014 ($92,279, after increase for customaryadjustments), (ii) contingent consideration of up to GBP £75,000 ($125,978), payable over a five year period, based on the achievement of certain Ingeusmilestones, including the achievement of certain levels of Ingeus’s earnings before interest, taxes, depreciation and amortization and other definedcriteria and (iii) contingent consideration of £5,000 ($8,399) upon successful award of a specified customer contract. In addition, on May 30, 2014, theCompany issued restricted shares of the Company’s common stock and agreed to make cash payments to the former shareholders, including twoemployees, of Ingeus with a combined value of GBP £14,346 ($24,097), subject to a vesting schedule of 25% per year over a four-year period which isaccounted for as a compensatory arrangement. The foreign currency translations above were based on the conversion rate on May 30, 2014. The Company incurred acquisition and related costs of $4,311 during the year ended December 31, 2014, which are included in “General andadministrative expenses” in the consolidated statements of income. The final purchase price of Ingeus is calculated as follows: Cash $92,279 Cash - Adjustment amount (1) 2,180 Fair value of contingent consideration 29,893 Total purchase price $124,352 107 The table below presents Ingeus’s net assets based upon final assessment of their respective fair values: Cash $37,159 Accounts receivable 34,125 Other current assets 14,343 Property and equipment 10,501 Intangibles 65,700 Goodwill (2) 35,484 Current liabilities (49,026)Other non-current liabilities (23,934)Total $124,352 (1) Includes final working capital and other closing account true-ups.(2) The goodwill was allocated to the Company's WD Services segment. The goodwill is not expected to be deductible for taxpurposes. Goodwill includes the value of the purchased assembled workforce. The fair value of intangible assets is as follows: Type Life (in years) Value Customer relationships Amortizable 10 $43,700 Trademarks and trade names Amortizable 10 18,000 Developed technology Amortizable 5 4,000 9.7* $65,700 *Weighted-average amortizationperiod Matrix On October 23, 2014, the Company acquired all of the outstanding equity of CCHN Group Holdings, Inc. (“CCHN”), the parent company ofCommunity Care Health Network, Inc. (dba Matrix Medical Network), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated asof September 17, 2014, referred to herein as the Matrix Acquisition. Matrix is a provider of CHAs for MA health plans and risk bearing providers and hada national footprint across 33 states at the time of acquisition. The acquisition expanded the Company's clinical capabilities and home based serviceswith the addition of operations which included approximately 700 nurse practitioners. Pursuant to the Merger Agreement, the Company paid consideration of $354,637 in cash (including working capital adjustments) and 946,723shares of the Company’s common stock (with an aggregate value of $40,000 based on the closing price of the Company’s common stock on the NASDAQStock Market on September 17, 2014). Pursuant to the Merger Agreement, at the Closing, subject to the escrow arrangements described in the MergerAgreement, each share of CCHN then outstanding immediately prior to the closing and each vested stock option of CCHN then outstanding immediatelyprior to the closing was converted into the right to receive the merger consideration described above. The cash required to complete the MatrixAcquisition and fund certain related expenses was derived from (1) the cash proceeds from the new $250,000 term loan under the Second Amendment tothe Credit Agreement (as discussed above), (2) the cash proceeds from an approximately $23,400 draw down from the Company’s revolving creditfacility, (3) the cash proceeds from the issuance of the Note (as discussed above) and (4) approximately $48,000 of cash on hand. The cash considerationpaid for CCHN was subject to certain customary adjustments for working capital purposes. 108 The Company incurred acquisition and related costs for this acquisition of $7,360 during year ended December 31, 2014, which are included in“General and administrative expenses” in the consolidated statements of income. The final purchase price of Matrix is calculated as follows: Cash (including working capital adjustment) $354,637 Equity consideration (valued using October 23, 2014 stock price) 38,569 Total purchase price $393,206 The table below presents Matrix’s net assets based upon the final estimate of the respective fair values: Accounts receivable (1) $21,546 Other current assets 11,253 Property and equipment 4,293 Intangibles 247,500 Goodwill (2) 210,071 Other non-current assets 3,953 Deferred taxes, net (80,681)Accounts payable and accrued liabilities (24,175)Other non-current liabilities (554)Total $393,206 (1)The fair value of trade accounts receivable acquired in this transaction was determined to be approximately $21,546. The grossamount due with respect to these receivables is approximately $22,745, of which approximately $1,199 is expected to beuncollectible.(2)The goodwill was allocated to the Company's HA Services segment. Goodwill totaling $995 is expected to be deductible for taxpurposes. Goodwill includes the value of the purchased assembled workforce. 109 The fair value of intangible assets is as follows: Type Life (in years) Value Trademarks and trade names Indefinite Lived N/A $25,900 Customer relationships Amortizable 10 181,300 Developed technology Amortizable 5 40,300 9.1* $247,500 *Weighted-average amortization period for intangible assets withdefinite lives Pro forma information The amounts of Ingeus’s and Matrix’s revenue and net income included in the Company’s consolidated statements of income for the years endedDecember 31, 2014 and 2013, and the unaudited pro forma revenue and net income of the combined entity had the acquisition date been January 1, 2013,are: Year ended December 31, 2014 2013 Actual Ingeus: Revenue $179,307 $- Net income $13,936 $- Actual Matrix: Revenue $43,331 $- Net income $1,348 $- Proforma: Revenue $1,456,736 $1,312,332 Net income $43,868 $20,103 Diluted earnings per share $2.74 $1.31 The pro forma information above for the year ended December 31, 2014 includes the elimination of acquisition related costs. Adjustments for allperiods include compensation and stock-based compensation expense related to employment agreements effective upon consummation of theacquisitions, additional interest expense on the debt issued to finance the acquisitions, amortization and depreciation expense based on the estimated fairvalue and useful lives of intangible assets and property and equipment and related tax effects. The pro forma financial information is not necessarilyindicative of the results of operations that would have occurred had the transaction been affected on January 1, 2013. Additionally, during the second and fourth quarters of 2014, the Company acquired two human services businesses through asset purchaseagreements. The Company has not disclosed purchase information or the pro forma impact of these acquisitions as it is immaterial to the Company’sfinancial position and results of operations. The operations of these two acquisitions are include in discontinued operations, net of tax. 22. Discontinued Operations On September 3, 2015, the Company entered into a Purchase Agreement, pursuant to which the Company agreed to sell all of the membershipinterests in Providence Human Services, LLC and Providence Community Services, LLC, comprising the Company’s Human Services segment, inexchange for cash proceeds of approximately $200,000 prior to adjustments for estimated working capital, certain seller transaction costs, debt assumedby the buyer, and a $20,099 cash payment received for the Providence Human Services cash and cash equivalents on hand at closing. The net proceedsare approximately $230,703, although $10,000 is held in an indemnity escrow and recorded within “Other assets”. Proceeds include a customary workingcapital adjustment of approximately $13,246. 110 The Company’s cash and cash equivalents of $135,258 at December 31, 2014 excludes $25,148 of cash and cash equivalents pertaining to theHuman Services segment which are classified as “Current assets of discontinued operations held for sale” in the Consolidated Balance Sheets. Inaccordance with the Purchase Agreement, the amount of the Human Services segment cash and cash equivalents on hand as of the closing date was toremain in the Human Services segment entities as a closing accommodation. The buyer paid the Company for the Human Services segment cash and cashequivalents at closing in addition to the net cash sale proceeds. Results of Operations The following table summarizes the results of operations classified as discontinued operations, net of tax, for the years ended December 31, 2015,2014 and 2013: December 31, 2015 2014 2013 Service revenue, net $291,510 $344,960 $323,916 Operating expenses: Service expense 264,293 315,008 283,382 General and administrative expense 14,975 19,134 23,043 Asset impairment charge 1,593 6,915 492 Depreciation and amortization 4,831 6,655 5,541 Total operating expenses 285,692 347,712 312,458 Operating income (loss) 5,818 (2,752) 11,458 Other expenses: Interest expense, net 2,829 1,478 (27)Income (loss) from discontinued operations before gain ondisposition and income taxes 2,989 (4,230) 11,485 Gain on disposition 123,129 - - (Provision) benefit for income taxes (24,318) 588 (5,152)Discontinued operations, net of tax $101,800 $(3,642) $6,333 The $24,318 provision for income taxes for the year ended December 31, 2015 includes a tax provision of $22,797 related to the gain ondisposition. Asset impairment charge In connection with classifying the Human Services segment as a discontinued operation, the Company was required to compare the estimatedfair values of each reporting unit of the underlying disposal group, less the costs to sell, to the respective carrying amount. As a result of this analysis, theCompany recorded a non-cash goodwill impairment charge of $1,593 for the year ended December 31, 2015, which is included in “Asset impairmentcharge” in the table above. The impairment charge was related to the Company’s Maple Star reporting unit. We estimated the fair value of each reporting unit within the Human Services segment based on both a market-based valuation approach and anincome-based valuation approach. The valuation methodology applied was consistent with our methodology for the 2014 and 2013 annual goodwillimpairment assessments. Under the market approach, the fair value of the reporting unit is determined using one or more methods based on current valuesin the market for similar businesses. Under the income approach, the fair value of the reporting unit is based on the cash flow streams expected to begenerated by the reporting unit over an appropriate time period, and then discounting the cash flows to present value using an appropriate discount rate.The income approach is dependent on a number of significant management assumptions, including estimates of future revenue and expenses, growth ratesand discount rates. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including ourinterpretation of current economic indicators and market valuations, and assumptions about our strategic plans with regard to our operations. 111 Additionally, in conjunction with its annual review of goodwill impairment as of December 31, 2014, the Company performed the two-stepimpairment analysis and determined that goodwill was impaired for two of its Human Services segment reporting units. The goodwill impairment in theMaple Star reporting unit was attributable to declines in forecasted referrals, leading to a decline in projected future cash flows of the entity. TheCompany recorded an impairment charge of $3,810 related to the Maple Star reporting unit. The impairment for the second reporting unit was attributableto lower than expected performance during 2014 in the Providence of Idaho reporting unit, as well as a lower than expected projections in future years.An impairment charge of $2,815 was recorded related to the Providence of Idaho reporting unit. Additionally, based on a triggering event for one of theHuman Services segment reporting units, the Company recorded a goodwill impairment charge of approximately $290 prior to conducting its annualasset impairment test. Interest expense, net The Company allocated interest expense to discontinued operations based on the portion of the revolving line of credit that was required to bepaid with the proceeds from the sale of the Human Services segment. The total allocated interest expense was $2,871 and $1,519, respectively, for theyears ended December 31, 2015 and 2014, and is included in “Interest expense, net” in the table above. Assets and Liabilities of Discontinued Operations The following table summarizes the carrying amounts of the major classes of assets and liabilities of the discontinued operations in theconsolidated balance sheet as of December 31, 2014: December 31, 2014 Cash and cash equivalents $25,148 Accounts receivable, net of allowance of $1,518 43,779 Other receivables 1,552 Prepaid expenses and other 3,023 Restricted cash 573 Deferred tax assets 1,918 Current assets of discontinued operations $75,993 Property and equipment, net $14,500 Goodwill 13,229 Intangible assets, net 16,769 Deferred tax liabilities 3,689 Other assets 3,561 Non-current assets of discontinued operations $51,748 Current portion of long-term obligations $600 Accounts payable 1,504 Accrued expenses 22,584 Deferred revenue 1,502 Reinsurance liability reserve 38 Current liabilities of discontinued operations $26,228 Other long-term liabilities $635 Non-current liabilities of discontinued operations $635 112 Cash Flow Information The following table presents depreciation, amortization, capital expenditures, and significant operating noncash items of the discontinuedoperations for the years ended December 31, 2015, 2014 and 2013: December 31, 2015 2014 2013 Cash flows from discontinued operating activities: Depreciation $2,376 $3,202 $2,450 Amortization 2,455 3,453 3,091 Asset impairment charge 1,593 6,915 492 Stock based compensation 7 6 604 Deferred income taxes (5,680) (1,155) 2,257 Cash flows from discontinued investing activities: Purchase of property and equipment $2,224 $4,766 $2,452 23. Segments The Company has three reportable and operating segments: NET Services, WD Services and HA Services. Segment results are based on how ourchief operating decision maker manages our business, makes operating decisions and evaluates operating performance. The operating results of thesegments include revenue and expenses incurred by the segment, as well as an allocation of direct expenses incurred by Corporate on behalf of thesegment. Indirect expenses, including unallocated corporate functions and expenses, such as executive, finance, human resources, informationtechnology and legal, as well as the results of our captive insurance company (the “Captive”) and elimination entries recorded in consolidation arereflected in Corporate and Other. Note that in prior periods, the Company reported its segment activities under a full absorption method, where allcorporate direct and indirect costs were allocated to the reporting segments. Additionally, the oversight of two legacy businesses was transferred to themanagement of WD Services in 2015. The segment results for the years ended December 31, 2014 and 2013 have been recast to reflect the currentmanagement of the segments. 113 The following table sets forth certain financial information attributable to the Company’s business segments (excluding the Human Servicessegment which has been classified to discontinued operations) for the years ended December 31, 2015, 2014 and 2013. Year Ended December 31, 2015 NET Services WD Services HA Services Corporate andOther Total Service revenue, net $1,083,015 $395,059 $217,436 $(64) $1,695,446 Service expense 991,659 393,803 163,211 (4,308) 1,544,365 General and administrative expense 10,704 29,846 2,630 30,436 73,616 Depreciation and amortization 9,429 13,776 29,472 792 53,469 Operating income (loss) $71,223 $(42,366) $22,123 $(26,984) $23,996 Loss on equity investment $- $10,970 $- $- $10,970 Total assets $296,591 $213,042 $477,206 $67,137 $1,053,976 Long-lived asset expenditures $12,232 $11,869 $8,079 $668 $32,848 Year Ended December 31, 2014 NET Services WD Services HA Services Corporate andOther Total Service revenue, net $884,287 $208,763 $43,331 $(170) $1,136,211 Service expense 800,454 184,919 35,185 3,227 1,023,785 General and administrative expense 8,406 (2,072) 421 37,746 44,501 Depreciation and amortization 7,699 8,406 5,619 1,109 22,833 Operating income (loss) $67,728 $17,510 $2,106 $(42,252) $45,092 Total assets $279,604 $190,167 $506,069 $65,353 $1,041,193 Long-lived asset expenditures $12,477 $104,594 $459,991 $473 $577,535 Year Ended December 31, 2013 NET Services WD Services HA Services Corporate andOther Total Service revenue, net $770,246 $28,671 $- $(151) $798,766 Service expense 710,755 24,650 - 1,264 736,669 General and administrative expense 7,397 1,888 - 16,305 25,590 Depreciation and amortization 7,725 573 - 1,033 9,331 Operating income (loss) $44,369 $1,560 $- $(18,753) $27,176 Long-lived asset expenditures $5,308 $86 $- $3,326 $8,720 114 Geographic Information The following table details the Company’s revenue from continuing operations and long-lived assets by geographic location. For the year ended December 31, 2015 United United Other Consolidated States Kingdom Foreign Total Service revenue, net $1,317,354 $298,386 $79,706 $1,695,446 Long-lived assets (b) 42,576 11,173 4,038 57,787 For the year ended December 31, 2014 United United Other Consolidated States Kingdom Foreign Total Service revenue, net $945,749 $139,065 $51,397 $1,136,211 Long-lived assets (b) 33,114 7,292 2,242 42,648 For the year ended December 31, 2013 United United Other Consolidated States Kingdom Foreign (a) Total Service revenue, net $788,204 $- $10,562 $798,766 (a)Consists of Canadian operations. (b)Represents property and equipment, net. Domestic service revenue, net, totaled 77.7%, 83.2% and 98.7% of service revenue, net for the years ended December 31, 2015, 2014 and 2013,respectively. Foreign service revenue, net, totaled 22.3%, 16.8% and 1.3% of service revenue, net for the years ended December 31, 2015, 2014 and 2013,respectively. At December 31, 2015, approximately $108,587, or 29.5%, of the Company’s net assets from continuing operations were located in countriesoutside of the US. At December 31, 2014, approximately $109,423, or 49.4%, of the Company’s net assets from continuing operations were located incountries outside of the US. Customer Information Contracts with domestic governmental agencies and other domestic entities that contract with governmental agencies accounted for approximately54.5%, 69.2% and 78.3% of the Company’s domestic revenue for the years ended December 31, 2015, 2014 and 2013, respectively. Contracts withforeign governmental agencies and other foreign entities that contract with governmental agencies accounted for approximately 95.3%, 94.5% and97.8% of the Company’s foreign revenue for the years ended December 31, 2015, 2014 and 2013, respectively. Additionally, approximately 40.0% and57.2% of our WD Services revenue for the years ended December 31, 2015 and 2014, respectively, was generated from one foreign payer. Approximately 13.2% and 14.7% of the Company’s consolidated revenue was derived from one US state for the years ended December 31, 2014and 2013, respectively. Approximately 10.7% of the Company’s consolidated revenue was derived from the one UK governmental agency for the yearended December 31, 2014. 115 24. Quarterly Results (Unaudited) Quarter ended March 31, June 30, September 30, December 31, 2015 (1) 2015 (1) 2015 (1) 2015 (1)(2)(3)(8) Service revenue, net $419,829 $418,238 $432,450 $424,929 Operating Income (loss) 20,773 15,137 7,037 (18,951)Income (loss) from continuing operations, net of tax 5,856 4,843 (3,622) (25,683)Discontinued operations, net of tax 394 1,732 (1,791) 101,465 Net income attributable to Providence 6,236 6,634 (5,571) 76,397 Earnings (loss) per common share (9): Basic $0.32 $0.26 $(0.41) $4.07 Diluted $0.32 $0.26 $(0.41) $4.07 Quarter ended March 31, June 30, September 30, December 31, 2014 (4) 2014 (4) (5) 2014 (4) (6) 2014 (4) (7) (8) Service revenue, net $205,558 $252,869 $309,474 $368,310 Operating Income 11,902 10,556 2,448 20,186 Income (loss) from continuing net of tax 6,201 5,111 1,252 11,353 Discontinued operations, net of tax 86 1,561 (986) (4,303)Net income 6,287 6,672 266 7,050 Earnings per common share (9): Basic $0.45 $0.47 $0.02 $0.46 Diluted $0.44 $0.46 $0.02 $0.45 (1)Includes equity in net loss of investee of approximately $2,483, $1,059, $4,465 and $2,962, for the quarters ending March 31, 2015, June 30,2015, September 30, 2015 and December 31, 2015, respectively, related to our investment in Mission Providence which incurred significant start-up costs during 2015. (2)The Company incurred approximately $20,944 of expense related to restricted shares and cash placed into escrow at the time of the Ingeusacquisition. The shares and cash were placed into escrow concurrent with the payment of the acquisition consideration paid for Ingeus; however,because two sellers of Ingeus remained employees post acquisition, the value of the shares and cash was recognized as compensation expenseover the escrow term. Acceleration of this expense was triggered when the two sellers separated from the Company. (3)Includes gain on disposition, net of tax, of $100,332, in relation to the sale of the Company’s Human Services segment. (4)Includes acquisition costs of approximately $1,829, $2,496, $3,686 and $3,827, for the quarters ending March 31, 2014, June 30, 2014,September 30, 2014 and December 31, 2014, respectively, in relation to the acquisitions of Ingeus and Matrix. (5)The Company purchased Ingeus on May 30, 2014. Results of operations include Ingeus from the acquisition date. (6)Includes approximately $3,294 of compensation expense related to the immediate vesting of certain equity based compensation awards grantedin the third quarter of 2014. (7)The Company purchased Matrix on October 23, 2014. Results of operations include Matrix from the acquisition date. (8)Includes a gain due to a reduction in the estimated fair value of contingent consideration of $2,469 in 2015 and $16,314 in 2014 primarily relatedto the Ingeus acquisition. (9)Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of quarterly earnings per share may not equalthe total computed for the year. 116 Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 9A.Controls and Procedures. (a) Evaluation of disclosure controls and procedures The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financialofficer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rule 13a-15(e) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (December 31, 2015) (“Disclosure Controls”).Based upon the Disclosure Controls evaluation, the principal executive officer and principal financial officer have concluded that the DisclosureControls are effective in reaching a reasonable level of assurance that (i) information required to be disclosed by the Company in the reports that it files orsubmits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and ExchangeCommission’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Actis accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or personsperforming similar functions, as appropriate to allow timely decisions regarding required disclosure. (b) Changes in internal controls The principal executive officer and principal financial officer also conducted an evaluation of the Company’s internal control over financialreporting (“Internal Control”) to determine whether any changes in Internal Control occurred during the quarter ended December 31, 2015 that havematerially affected or which are reasonably likely to materially affect Internal Control. Based on that evaluation, it was identified that in connection withthe Company’s integration of the businesses of Ingeus and Matrix, acquired in 2014, with the Company’s legacy operations, the Company hasestablished or enhanced internal controls over the period-end close, consolidation, financial reporting processes, and certain significant accounts of thesebusinesses. Additionally, with the Providence Human Services divestiture, the Company deployed new information technology servers upon which itsfinancial accounting and reporting applications operate, and separated its historically combined databases from those of the divested subsidiary. TheCompany also implemented or changed information technology controls primarily related to system access and change management controls resultingfrom these changes in the Company’s internal control environment. (c) Limitations on the Effectiveness of Controls Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that theobjectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in acost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations of itsinternal controls to enhance, where necessary, its procedures and controls. (d) Management’s report on internal control over financial reporting Management’s report on internal control over financial reporting is presented in Part II, Item 8, of this report and is hereby incorporated byreference. (e) Audit report of the registered public accounting firm The audit report of the registered public accounting firm is presented in Part II, Item 8, of this report and is hereby incorporated by reference. 117 Item 9B.Other Information. None. 118 PART III Item 10.Directors, Executive Officers and Corporate Governance. This Item is incorporated by reference to our definitive proxy statement on Schedule 14A for our 2016 stockholder meeting; provided that if suchproxy statement is not filed on or before April 29, 2016, such information will be included in an amendment to this Report on Form 10-K filed on orbefore such date. Code of Ethics We have adopted a code of ethics that applies to our senior management, including our chief executive officer, chief financial officer, controller andpersons performing similar functions. Copies of our code of ethics are available without charge upon written request directed to Ann Mullen, EthicsProgram Manager, at The Providence Service Corporation, 44 East Broadway Blvd. Suite 350, Tucson, AZ, 85701. Item 11.Executive Compensation. This Item is incorporated by reference to our definitive proxy statement on Schedule 14A for our 2016 stockholder meeting; provided that if suchproxy statement is not filed on or before April 29, 2016, such information will be included in an amendment to this Report on Form 10-K filed on orbefore such date. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. This Item is incorporated by reference to our definitive proxy statement on Schedule 14A for our 2016 stockholder meeting; provided that if suchproxy statement is not filed on or before April 29, 2016, such information will be included in an amendment to this Report on Form 10-K filed on orbefore such date. Item 13.Certain Relationships and Related Transactions, and Director Independence. This Item is incorporated by reference to our definitive proxy statement on Schedule 14A for our 2016 stockholder meeting; provided that if suchproxy statement is not filed on or before April 29, 2016, such information will be included in an amendment to this Report on Form 10-K filed on orbefore such date. Item 14.Principal Accounting Fees and Services. This Item is incorporated by reference to our definitive proxy statement on Schedule 14A for our 2016 stockholder meeting; provided that if suchproxy statement is not filed on or before April 29, 2016, such information will be included in an amendment to this Report on Form 10-K filed on orbefore such date. PART IV Item 15.Exhibits, Financial Statement Schedules. (a)(1) Financial Statements The following consolidated financial statements including footnotes are included in Item 8. • Consolidated Balance Sheets at December 31, 2015 and 2014; • Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013; • Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013; • Consolidated Statements of Stockholders’ Equity at December 31, 2015, 2014 and 2013; and • Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013. 119 (2) Financial Statement Schedules Schedule II Valuation and Qualifying Accounts Additions Balance at Charged to Charged to Balance at beginning of costs and other end of period expenses accounts Deductions period Year Ended December 31, 2015: Allowance for doubtful accounts $4,515 $1,818 $1,152 (1) $1,898 (2) $5,587 Year Ended December 31, 2014: Allowance for doubtful accounts $2,465 $1,099 $3,915 (1) $2,964 (2) $4,515 Year Ended December 31, 2013: Allowance for doubtful accounts $1,724 $1,184 $3,418 (1) $3,861 (2) $2,465 Notes: Schedule above has been recast from prior year to exclude activity related to discontinued operations. (1)Amounts primarily include the allowance for contractual adjustments related to our non-emergency transportation services operating segment thatare recorded as adjustments to non-emergency transportation services revenue. (2)Write-offs, net of recoveries All other schedules are omitted because they are not applicable or the required information is shown in our financial statements or the related notesthereto. 120 (3) Exhibits ExhibitNumber Description2.1(19) Share Sale Agreement, dated as of March 31, 2014, by and among The Providence Service Corporation, Pinnacle AustraliaHoldco Pty Ltd, Thérèse Virginia Rein, Gregory Kenneth Ashmead and GK Ashmead Holdings Pty Limited (as trustee ofthe GK Ashmead Nominees Trust). 2.2(19) Australian Share Sale Agreement Side Deed, dated as of March 31, 2014, by and among Providence, Pinnacle AustraliaHoldco Pty Ltd, Thérèse Virginia Rein, Gregory Kenneth Ashmead, GK Ashmead Holdings Pty Limited (as trustee of theGK Ashmead Nominees Trust) and Deloitte LLP. 2.3(21) Agreement and Plan of Merger, dated as of September 17, 2014 by and among The Providence Service Corporation, MatrixAcquisition Co., CCHN Group Holdings, Inc. and the Holders' Representative named therein. 2.4 (31) Membership Interest Purchase Agreement, dated September 3, 2015 by and among The Providence Service Corporation,Ross Innovative Employment Solutions Corp. and Molina Healthcare, Inc. 2.5(32) Amendment to Membership Interest Purchase Agreement, dated October 30, 2015, by and among by and among TheProvidence Service Corporation, Ross Innovative Employment Solutions Corp. and Molina Pathways, LLC, as assignee ofMolina Healthcare, Inc. 3.1(1) Second Amended and Restated Certificate of Incorporation of The Providence Service Corporation, including Certificateof Designation of Series A Junior Participating Preferred Stock, as filed with the Secretary of State of Delaware onDecember 9, 2011. 3.2(2) Amended and Restated Bylaws of The Providence Service Corporation, effective March 10, 2010. 3.3(17) Certificate of Elimination of Series A Junior Participating Preferred Stock of the Providence Service Corporation, dated asof March 27, 2014. 3.4(27) Certificate of Designations of Series A Convertible Preferred Stock of The Providence Service Corporation, dated as ofFebruary 6, 2015 3.5(28) Certificate of Amendment of the Certificate of Incorporation of The Providence Service Corporation, dated as of May 6,2015. 4.1(3) Convertible Senior Subordinated Note Indenture, dated November 13, 2007, between The Providence Service Corporationand The Bank of New York Trust Company, N.A., as Trustee. 4.2(4) Form of Note (included as Exhibit A to the Indenture, listed as Exhibit 4.1 hereto). 121 4.3(5) Amended and Restated Rights Agreement, dated as of December 9, 2011, by and between The Providence ServiceCorporation and Computershare Trust Company, N.A., as Rights Agent. 4.4(17) Amendment and Termination of Rights Agreement, dated as of March 27, 2014, by and between The Providence ServiceCorporation and Computershare Trust Company, N.A., as Rights Agent. +10.1(6) The Providence Service Corporation Stock Option and Incentive Plan, as amended. +10.2(7) 2003 Stock Option Plan, as amended. +10.3(33) The Providence Service Corporation 2006 Long-Term Incentive Plan, as amended. +10.4(9) Amended and Restated Providence Service Corporation Deferred Compensation Plan. 10.5(3) Registration Rights Agreement, dated November 13, 2007, by and among The Providence Service Corporation and thePurchasers named therein. 10.6(13) Amended and Restated Credit and Guaranty Agreement dated as of August 2, 2013 among The Providence ServiceCorporation, Bank of America, N.A. SunTrust Bank, BMO Harris Bank, Merrill Lynch, Pierce, Fenner & Smith Incorporatedand SunTrust Robinson Humphrey, Inc. 10.7(13) Amended and Restated Pledge Agreement dated as of August 2, 2013 by and among The Providence Service Corporation(including its subsidiaries) and Bank of America, N.A., as administrative agent. 10.8(13) Amended and Restated Security Agreement, dated as of August 2, 2013, by and among The Providence ServiceCorporation (including its subsidiaries) and Bank of America, N.A., as administrative agent. 10.9(20) First Amendment to Amended and Restated Credit and Guaranty Agreement and Consent, dated as of May 28, 2014,among The Providence Service Corporation, the Guarantors named therein, the New Subsidiaries named therein, Bank ofAmerica, N.A., the Lenders named therein and HSBC Bank USA, National Association. 10.10(22) Second Amendment, dated as of October 23, 2014, to the Amended and Restated Credit and Guaranty Agreement, dated asof August 3, 2012by and among The Providence Service Corporation, the Guarantors stated therein, Bank of America,N.A., SunTrust Bank, Royal Bank of Canada, BMO Harris Bank, N.A., HSBC Bank USA, National Association, the otherLenders named therein, the New Lenders named therein, Merrill Lynch, Pierce, Fenner & Smith Incorporated, SunTrustRobinson Humphrey, Inc., and RBC Capital Markets. 10.11(22) 14.0% Unsecured Subordinated Note, dated October 23, 2014, by and among The Providence Service Corporation,Coliseum Capital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest, L.P., and BlackwellPartners, LLC. 10.12(22) Standby Purchase Agreement, dated October 23, 2014, by and among The Providence Service Corporation, ColiseumCapital Partners, L.P., Coliseum Capital Partners II, L.P., Coliseum Capital Co-Invest, L.P., and Blackwell Partners, LLC. 10.13 (31) Third Amendment and Consent to the Amended and Restated Credit and Guaranty Agreement dated as of September 3,2015, by and among The Providence Service Corporation, the guarantors named therein, Bank of America, N.A., Sun TrustBank, Royal Bank of Canada, BMO Harris Bank, N.A., HSBC Bank USA, National Association, the other lenders namedtherein, Merrill Lynch Pierce, Fenner & Smith Incorporated, Sun Trust Robinson Humphrey, Inc. and RBC CapitalMarkets. 122 +10.14(10) Amended and Restated Employment Agreement dated May 17, 2011 between The Providence Service Corporation andFred D. Furman. +10.15(15) Separation and General Release Agreement dated December 31, 2013 between The Providence Service Corporation andFred D. Furman. +10.16(10) Amended and Restated Employment Agreement dated May 17, 2011 between The Providence Service Corporation andCraig A. Norris. +10.17(12) Employment Agreement dated May 7, 2013 between The Providence Service Corporation and Warren S. Rustand. +10.18(14) Employment Agreement dated September 13, 2013 between The Providence Service Corporation and Robert E. Wilson. +10.19(16) Letter Agreement dated March 14, 2014, amending the Amended and Restated Employment Agreement, dated May 17,2011 between The Providence Service Corporation and Craig A. Norris. +10.20(18) Employment Agreement dated March 24, 2014 between The Providence Service Corporation and Herman Schwarz. +10.21(20) Executive Service Agreement, dated as of April 10, 2014, by and between Ingeus Europe Limited and Thérèse Rein. +10.22(23) Employment Agreement, dated January 14, 2015, by and between The Providence Service Corporation and JamesLindstrom. +10.23(24) Employment and Separation Agreement, dated February 2, 2015, by and between The Providence Service Corporation andRobert E. Wilson. +10.24(28) Separation and General Release Agreement, by and between The Providence Service Corporation and Warren S. Rustand,dated May 29, 2015. +10.25(29) Employment Agreement, dated August 6, 2015, by and between The Providence Service Corporation and JamesLindstrom. +10.26(33) Employment Agreement, dated as of September 28, 2015, by and between The Providence Service Corporation and DavidShackelton. +10.27(26) Letter Agreement regarding Offer of Employment, effective as of January 6, 2014, by and between The Providence ServiceCorporation and Michael-Bryant Hicks. +10.28(26) Letter Agreement regarding Offer of Employment, dated as of January 5, 2015, by and between The Providence ServiceCorporation and Michael Fidgeon. +10.29(11) Form of Restricted Stock Agreements, as amended. +10.30(11) Form of Stock Option Agreements. 123 +10.31(11) Form of 2011 Performance Restricted Stock Unit Agreements. +10.32(1) Form of 2012 Performance Restricted Stock Unit Agreements. +10.33(12) Form of 2013 Performance Restricted Stock Unit Agreements. +10.34(27) Form of 2014 Performance Restricted Stock Unit Agreements. +10.35(26) Form of 2015 Performance Restricted Stock Unit Agreements. +10.36(30) 2015 HoldCo LTI Program of Providence Service Corporation. +10.37(30) Form of Special Incentive Stock Option Award Agreement. +10.38(30) Form of Matching Incentive Stock Option Award Agreement. * 12.1 Statement re Computation of Ratios of Earnings to Fixed Charges. *21.1 Subsidiaries of the Registrant. *23.1 Consent of KPMG LLP. *31.1 Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer. *31.2 Certification pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer. *32.1 Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, ofthe Chief Executive Officer. *32.2 Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, ofthe Chief Financial Officer. 101. INS XBRL Instance Document. 101.SCH XBRL Schema Document. 101.CAL XBRL Calculation Linkbase Document. 101.LAB XBRL Label Linkbase Document. 101.PRE XBRL Presentation Linkbase Document. 101.DEF XBRL Definition Linkbase Document. +Management contract or compensatory plan or arrangement. *[Filed herewith] (1)Incorporated by reference from an exhibit to the registrant’s annual report on Form 10-K for the year ended December 31, 2011 filed with theSecurities and Exchange Commission on March 15, 2012. 124 (2)Incorporated by reference from an exhibit to the registrant’s annual report on Form 10-K for the year ended December 31, 2009 filed with theSecurities and Exchange Commission on March 12, 2010. (3)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onNovember 15, 2007. (4)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onNovember 7, 2007. (5)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onDecember 9, 2011. (6)Incorporated by reference from an exhibit to the registrant’s registration statement on Form S-1 (Registration No. 333-106286) filed with theSecurities Exchange Commission on June 19, 2003. (7)Incorporated by reference from an exhibit to the registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2005 filed with theSecurities and Exchange Commission on August 9, 2005. (8)Incorporated by reference from an appendix to the registrant’s definitive proxy statement on Schedule 14A filed with the Securities andExchange Commission on April 20, 2011. (9)Incorporated by reference from an exhibit to the registrant’s annual report on Form 10-K for the year ended December 31, 2009 filed with theSecurities and Exchange Commission on March 11, 2011. (10)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onMay 19, 2011. (11)Incorporated by reference from an exhibit to the registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2011 filed with theSecurities and Exchange Commission on May 6, 2011. (12)Incorporated by reference from an exhibit to the registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2013 filed with theSecurities and Exchange Commission on May 10, 2013. (13)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onAugust 5, 2013. (14)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onSeptember 17, 2013. (15)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onJanuary 1, 2014. (16)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onMarch 20, 2014. (17)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onMarch 27, 2014. (18)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onMarch 28, 2014. (19)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onApril 1, 2014. 125 (20)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onJune 3, 2014. (21)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onSeptember 18, 2014. (22)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onOctober 24, 2014. (23)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onJanuary 21, 2015. (24)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onFebruary 6, 2015. (25)Incorporated by reference from an exhibit to the registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2015 filed with theSecurities and Exchange Commission on May 11, 2015. (26)Incorporated by reference from an exhibit to the Amendment No. 1 registrant’s annual report on Form 10-K/A for the year ended December 31,2014 filed with the Securities and Exchange Commission on April 30, 2015. (27)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exhibit Commission onMay 7, 2015. (28)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onJune 2, 2015. (29)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onAugust 11, 2015. (30)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onSeptember 8, 2015. (31)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onNovember 5, 2015. (32)Incorporated by reference from an exhibit to the registrant’s quarterly report on Form 10-Q for the quarter ended September 30, 2015 filed withthe Securities and Exchange Commission on November 9, 2015. (33)Incorporated by reference from an exhibit to the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission onNovember 20, 2015. 126 THE PROVIDENCE SERVICE CORPORATION By: /s/ James Lindstrom James LindstromChief Executive Officer SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. Dated: March 11, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date /S/ JAMES LINDSTROM Chief Executive Officer and Director March 11, 2016James Lindstrom (Principal Executive Officer) /S/ DAVID SHACKELTON Chief Financial Officer March 11, 2016David Shackelton (Principal Financial and AccountingOfficer) /S/ CHRISTOPHER SHACKELTON Chairman of the Board March 11, 2016Christopher Shackelton /S/ RICHARD A. KERLEY Director March 11, 2016Richard A. Kerley /S/ KRISTI L. MEINTS Director March 11, 2016Kristi L. Meints /S/ LESLIE V. NORWALK Director March 11, 2016Leslie V. Norwalk 127Exhibit 12.1 Providence Service CorporationRatio of Earnings to Fixed Charges For the Years Ended December 31, 2011 2012 2013 2014 2015 (in thousands, except ratios)Earnings: Pre-tax income (loss) from continuing operations beforeadjustment for loss from equity investee $2,144 $(1,868) $19,730 $32,007 $8,640 Add: Fixed charges 14,447 12,818 12,330 24,141 43,668 Less: Noncontrolling interest in pre-tax income (loss) ofsubsidiaries that have not incurred fixed charges - - - - (502)Earnings $16,591 $10,950 $32,060 $56,148 $52,810 Fixed charges: Interest expense $10,199 $7,636 $7,032 $13,328 $16,832 Interest element of rentals 4,248 5,182 5,298 10,813 22,901 Preferred dividend - - - - 3,935 Fixed charges $14,447 $12,818 $12,330 $24,141 $43,668 Ratio of earnings to fixed charges 1.15 0.85 2.60 2.33 1.21 EXHIBIT 21.1 Name of SubsidiaryState/Country of Incorporation 0798576 B.C. LTDCanada PSC of Canada Exchange Corp.Canada WCG International ConsultantsLtd.Canada Health Trans, Inc. Delaware LogistiCare Solutions, LLCDelaware Provado Technologies, LLCFlorida Provado Insurance Service, Inc.South Carolina Red Top Transportation, Inc.Florida LogistiCare SolutionsIndependent Practice Association,LLCNew York Ride Plus LLCDelaware Pinnacle Acquisitions LLCDelaware Pinnacle Acquisitions C.V.Netherlands Pinnacle UK Bidco LimitedUnited Kingdom Pinnacle Australia Bidco Pty LtdAustralia Pinnacle Australia Holdco Pty LtdAustralia Ingeus Pty LimitedAustralia Ingeus Australasia Pty LtdAustralia Mission Providence Pty LtdAustralia Ingeus Australia Pty LtdAustralia Ingeus Victoria Pty LtdAustralia Ingeus Europe LimitedUnited Kingdom Ingeus Investments LimitedUnited Kingdom  Ingeus UK LimitedUnited Kingdom Ingeus Training LimitedUnited Kingdom Zodiac Training LimitedUnited Kingdom The Reducing Reoffending Partnership LimitedUnited Kingdom The Derbyshire Leicestershire Nottinghamshire & Rutland CommunityRehabilitation Company LimitedUnited Kingdom The Staffordshire and West Midlands Community RehabilitationCompany LimitedUnited Kingdom Ingeus SAS (France)France Ingeus GmBH (Germany)Germany Ingeus AB (Sweden)Sweden Ingeus Co. Ltd. (Korea)Korea Ingeus Sp z.o.o. (Poland)Poland Ingeus AG (Switzerland)Switzerland Ingeus LLC (Saudi Arabia)Saudi Arabia Ingeus S.L. (Spain)Spain Mission Medical Group of Alabama, L.L.C.Alabama Matrix Medical Network of Arizona, L.L.C.Arizona Matrix Medical Foundation, Inc.Arizona Regional Physician Services of California, P.C.California Matrix Medical Network of Colorado, L.L.C.Colorado Regional Physician Services Connecticut, P.C.Connecticut Ascender Software, Inc.Delaware CCHN Holdings, Inc.Delaware CCHN Group Holdings, Inc.Delaware Community Care Health Network, Inc.Delaware  MMNRA, LLCDelaware Votiva Health, LLCDelaware Matrix Medical Network of Florida, L.L.C.Florida Matrix Medical Network of Georgia, L.L.C.Georgia Regional Physician Services of Idaho, P.C.Idaho Regional Physician Services of Illinois, P.C.Illinois Matrix Medical Network of Indiana, P.C.Indiana Matrix Medical Network of Kansas, P.A.Kansas Matrix Medical Network of Kentucky, LLCKentucky Mission Medical Group of Louisiana, L.L.C.Louisiana Regional Physician Services of Massachusetts, P.C.Massachusetts Matrix Medical Network of Michigan, P.C.Michigan Regional Physician Services of Minnesota, P.C.Minnesota Matrix Medical Network of Missouri, LLCMissouri Mission Medical Group, P.A.Mississippi Matrix Medical Network of North Carolina, PCNorth Carolina Matrix Medical Network of New Jersey, P. C.New Jersey Matrix Medical Network of New Mexico, L.L.C.New Mexico Matrix Medical Network of Nevada, L.L.C.Nevada Matrix Medical of New York, PCNew York Regional Physician Services, P.C.New York Regional Physician Services of Ohio, P.C.Ohio Matrix Medical Network of Oklahoma, L.L.C.Oklahoma Matrix Medical Network of Oregon, L.L.C.Oregon Regional Physician Services Pennsylvania, P.C.Pennsylvania  Regional Physician Services Rhode Island, P.C.Rhode Island Regional Physician Services South Carolina, P.C.South Carolina Matrix Medical Network of Tennessee, P.C.Tennessee Regional Physician Services of Texas, P.A.Texas Matrix Medical Network of Utah, L.L.C.Utah Matrix Medical Network of Virginia, L.L.C.Virginia Matrix Medical Network of Washington, L.L.C.Washington Matrix Medical Network of Wisconsin, S.C.Wisconsin Matrix Medical Network of West Virginia P.C.West Virginia Social Services Providers Captive Insurance Co.Arizona Ross Innovative Employment Solutions Corp.Delaware Ingeus America, LLCDelaware Exhibit 23.1 Consent of Independent Registered Public Accounting Firm The Board of DirectorsThe Providence Service Corporation: We consent to the incorporation by reference in the registration statement Nos. 333-183339, 333-166978, 333-151079, 333-135126, and 133-145843 onForm S-8 of The Providence Service Corporation and subsidiaries (the Company) of our reports dated March 11, 2016, with respect to the consolidatedbalance sheets of the Company as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income,stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and the effectiveness of internal control overfinancial reporting as of December 31, 2015 which reports appear in the December 31, 2015 annual report on Form 10-K of the Company. /s/ KPMG LLP Phoenix, ArizonaMarch 11, 2016  Exhibit 31.1 CERTIFICATIONS I, James Lindstrom, certify that: 1. I have reviewed this annual report on Form 10-K of The Providence Service Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) forthe registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 11, 2016 By:/s/ James Lindstrom James Lindstrom Chief Executive Officer (Principal Executive Officer)  Exhibit 31.2 CERTIFICATIONS I, David Shackelton, certify that: 1. I have reviewed this annual report on Form 10-K of The Providence Service Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) forthe registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 11, 2016 By:/s/ David Shackelton David Shackelton (Principal Financial and Accounting Officer)  Exhibit 32.1 THE PROVIDENCE SERVICE CORPORATION CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersignedofficer of The Providence Service Corporation (the “Company”), does hereby certify with respect to the Annual Report of the Company on Form 10-K forthe year ended December 31, 2015 (the “Report”) that, to the best of such officer’s knowledge: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 11, 2016 /s/ James Lindstrom James Lindstrom Chief Executive Officer (Principal Executive Officer)  Exhibit 32.2 THE PROVIDENCE SERVICE CORPORATION CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersignedofficer of The Providence Service Corporation (the “Company”), does hereby certify with respect to the Annual Report of the Company on Form 10-K forthe year ended December 31, 2015 (the “Report”) that, to the best of such officer’s knowledge: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 11, 2016 /s/ David Shackelton David Shackelton (Principal Financial and Accounting Officer) 

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