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EBIX INC - 10-K/A - : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Edgar Online, Inc.

As used herein, the terms "Ebix," "the Company," "we," "our" and "us" refer to Ebix, Inc., a Delaware corporation, and its consolidated subsidiaries as a combined entity.


The information contained in this section has been derived from our historical
financial statements and should be read together with our historical financial
statements and related notes included elsewhere in this document. The discussion
below contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements involve risks
and uncertainties including, but not limited to: demand and acceptance of
services offered by us, our ability to achieve and maintain acceptable cost
levels, rate levels and actions by competitors, regulatory matters, general
economic conditions, and changing business strategies. Forward-looking
statements are subject to a number of factors that could cause actual results to
differ materially from our expressed or implied expectations, including, but not
limited to our performance in future periods, our ability to generate working
capital from operations, the adequacy of our insurance coverage, and the results
of litigation or investigation. Our forward-looking statements can be identified
by the use of terminology such as "anticipates," "expects," "intends,"
"believes," "will" or the negative thereof or variations thereon or comparable
terminology. Except as required by law, we undertake no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.

OVERVIEW

Ebix, Inc. is a leading international supplier of on-demand software and
e-commerce solutions to the insurance industry. Ebix provides various
application software products for the insurance industry ranging from carrier
systems, agency systems and exchanges to custom software development for all
entities involved in the insurance and financial industries. Approximately 80%
of the Company's revenues are of a recurring nature. Rather than license our
products in perpetuity, we typically either license them for a few years with
ongoing support revenues, or license them on a limited term basis using a
subscription hosting or ASP model. During the year 2011 combined
subscription-based and transaction-based revenues grew to 83% of the Company's
total revenues, as compared to 74% in the year 2010, and in particular
subscription-based revenues grew to 65% of total revenue in 2011 versus 56% in
2010. Our goal is to be the leading powerhouse of backend insurance transactions
in the world. The Company's technology vision is to focus on convergence of all
insurance channels, processes and entities in a manner such that data can
seamlessly flow once a data entry has been made. Our customers include many of
the top insurance and financial sector companies in the world.

The insurance industry has undergone significant consolidation over the past
several years driven by the need for, and benefits from, economies of scale and
scope in providing insurance in a competitive environment. The insurance markets
have continuously increased their demands for cutting edge solutions to reduce
paper based processes and improve efficiency both at the back-end side and at
the consumer end side of their insurance transaction processing. Such
consolidation has involved both insurance carriers and insurance brokers and is
directly impacting the manner in which insurance products are distributed.
Management believes the world-wide insurance industry will continue to
experience significant change and the need for increased efficiencies through
online exchanges and streamlined processes. The changes in the insurance
industry are likely to create new opportunities for the Company.

Management focuses on a variety of key indicators to monitor operating and financial performance. These performance indicators include measurements of revenue growth, operating income, operating margin, income from continuing operations, diluted earnings per share, and cash provided by operating activities. We monitor these indicators, in conjunction with our corporate governance practices, to ensure that our business is efficiently managed and that effective controls are maintained.

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The key performance indicators for the twelve months ended December 31, 2011, 2010, and 2009 were as follows:



                                                                 Key Performance Indicators
                                                              Twelve Months Ended December 31,
(Dollar amounts in thousands except per share data)        2011               2010             2009
Revenue                                                 $   168,969         $ 132,188        $ 97,685
Revenue growth                                                   28 %              35 %            31 %
Operating income                                        $    68,748         $  52,507        $ 39,256
Operating margin                                                 41 %              40 %            40 %
Net Income                                              $    71,378         $  59,019        $ 38,822
Diluted earnings per share *                            $      1.75         $    1.51        $   1.03
Cash provided by operating activities                   $    71,286         $  52,779        $ 33,877




*   Adjusted to reflect the effect of the 3-for-1 stock split dated January 4,
    2010


RESULTS OF OPERATIONS



                                    Year Ended          Year Ended          Year Ended
                                   December 31,        December 31,        December 31,
                                       2011                2010                2009
                                                      (In thousands)
 Operating revenue:               $      168,969      $      132,188      $       97,685
 Operating expenses:
 Costs of services provided               33,589              29,599              21,274
 Product development                      19,208              13,607              11,362
 Sales and marketing                      13,642               6,372               5,040
 General and administrative               26,268              24,065              16,798
 Amortization and depreciation             7,514               6,038               3,955

 Total operating expenses                100,221              79,681              58,429

 Operating income                         68,748              52,507              39,256
 Interest income (expense), net             (202 )              (383 )              (871 )
 Other non-operating income                  647               6,319                  89
 Foreign exchange gain                     4,302               1,211               1,358

 Income before taxes                      73,495              59,654              39,832
 Income tax expense                       (2,117 )              (635 )            (1,010 )

 Net income                       $       71,378      $       59,019      $       38,822


TWELVE MONTHS ENDED DECEMBER 31, 2011 AND 2010

Operating Revenue


The Company derives its revenues primarily from professional and support
services, which includes subscription and transaction fees pertaining to
services delivered over our exchanges or from our ASP platforms, revenue
generated from software development projects and associated fees for consulting,
implementation, training, and project management provided to customers using our
systems, and business process outsourcing revenue. Ebix's revenue streams come
from four product channels. Presented in the table below is the breakout of our
revenues for each of those product channels for the years ended December 31,
2011 and 2010.



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  Table of Contents
                                                     For the Year Ended
                                                        December 31,
            (dollar amounts in thousands)            2011          2010
            Exchanges                              $ 130,638     $  94,212
            Broker Systems                            18,006        13,841
            Business Process Outsourcing ("BPO")      14,944        15,586
            Carrier Systems                            5,381         8,549

            Totals                                 $ 168,969     $ 132,188



During the twelve months ended December 31, 2011 our total revenue increased
$36.8 million or 28%, to $169.0 million compared to $132.2 million in 2010. The
increase in revenues is primarily the result of revenue from the acquisition of
ADAM since February 2011, revenue from business acquisitions made during 2010,
and continued growth achieved in our Exchange channel. $23.1 million of ADAM's
operating revenues recognized since February 7, 2011 are included in the
Company's revenues reported in its consolidated statement of income for the year
ended December 31, 2011. The Company continues to immediately and efficiently
leverage product cross-selling opportunities across all channels, as facilitated
by our operating philosophy and business acquisition strategy. With respect to
business acquisitions completed during the fiscal years 2011 and 2010 on a pro
forma basis, as disclosed in the table in Note 4 "Pro Forma Financial
Information" to the enclosed consolidated financial statements, combined
revenues increased 2.8% for the year 2011 versus full year 2010, whereas there
was a 27.8% increase in reported revenues for the same comparative periods. The
2.8% increase in pro forma revenues was associated with a 0.7% decrease in full
year 2011 versus 2010 revenues pertaining to the businesses acquired during the
years 2010 and 2011(i.e. ADAM, HealthConnect, MCN, Trades Monitor, Connective
Technologies, USIX, and E-Trek), offset by a 3.5% increase in revenues
associated with Ebix's legacy operations preceding these business acquisitions.
The cause for the difference between the 27.8% increase in reported 2011 revenue
versus 2010 revenue, as compared to the 2.8% increase in 2011 pro forma versus
2010 pro forma revenue is due to the effect of combining the revenue derived
from those businesses acquired during years 2010 and 2011 with the Company's
pre-existing operations. Also partially effecting reported revenues was the
impact from fluctuations in the exchange rates of the foreign currencies in the
countries in which we conduct operations. During each of the years 2011, 2010,
and 2009 the change in foreign currency exchange rates increased/(decreased)
reported consolidated operating revenues by $4.2 million, $4.6 million, and
$(1.9) million, respectfully. The specific components of our revenue and the
changes experienced during the past year are discussed further below.

Exchange division revenues increased $36.4 million or 39% due to net increases
of approximately $5.0 million in the life and annuity sector, $7.2 million in
the property and casualty insurance sector, $22.0 million in the health services
sector, and $2.4 million from the customer relationship insurance "CRM" services
sector and $(218) thousand from the risk management & workers compensation
sector .

BPO division revenues decreased slightly by $642 thousand or 4% due to reduced
demand for some of our insurance certificate creation and tracking services. The
Company's performance in this product channel is still marginally affected by
the downturn in the commercial and residential housing industry which accounts
for almost a third of the insurance certificates created, although the Company
has recently experienced some improvement in this market segment.

Broker Systems division revenue increased $4.2 million or 30% due to growth
realized in our both our Asia-Pacific markets, regarding services delivered by
on-demand back-end systems, and in our domestic U.S. market regarding systems
designed for use by insurance brokers.

Carrier Systems division revenue decreased $3.2 million or 37% due to the lack
of demand by large insurance carriers for perpetually licensed back-end systems.
The Company is developing and launching new on-demand products and services for
prospective clients in this market that are designed to facilitate a
subscription-based recurring model. We expect insurance carriers to deploy these
new technologies and increase their spending for system development, and that
our revenues from this channel will increase over the next few years.

Costs of Services Provided

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Costs of services provided, which includes costs associated with customer
support, consulting, implementation, and training services, increased $4.0
million or 13%, from $29.6 million in 2010 to $33.6 million in 2011. This
increase is due to additional personnel, facility, and customer support costs
associated with the acquisition of ADAM and other expenses in support of our
increasing revenue streams.



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Product Development Expenses


Product development expenses increased $5.6 million or 41%, from $13.6 million
in 2010 to $19.2 million in 2011. The Company's product development efforts
continue to be focused on the development of new technologies for insurance
carriers, brokers and agents, and the development of new data exchanges for
domestic and international insurance markets. The cost increase incurred in 2011
was associated with the expansion of our research and development efforts
dedicated to the provision of additional on-demand based products and services
in support of each of our product channels, and is primarily attributable to the
associated incremental staffing and facilities costs that were incurred during
the year.

Sales and Marketing Expenses

Sales and marketing expenses increased $7.3 million or 114%, from $6.4 million
in 2010 to $13.6 million in 2011. Approximately half of this increase is
associated with the acquisition of ADAM and the remaining increase in expenses
is attributable to additional sales personnel that have been hired to support
the continued expansion and increase in revenues generated by our Exchange,
Broker System, and BPO channels.

General and Administrative Expenses


General and administrative expenses increased $2.2 million or 9%, from $24.1
million in 2010 to $26.3 million in 2011. This increase is primarily due to
additional staffing necessary to fill critical positions, and increased
corporate and employee health insurance costs. Partially offsetting these cost
increases was a $2.8 million net expense decrease associated with reductions to
previously recorded contingency based earnout accruals pertaining to business
acquisitions made during 2010. The Company reduced these estimated accruals
after considering both information available at the date the business
acquisitions were made and analyzing the ongoing performance of these businesses
since they were acquired.

Amortization and Depreciation Expenses


Amortization and depreciation expenses increased $1.5 million, or 24%, from $6.0
million in 2010 to $7.5 million in 2011. This increase is primarily due to
additional amortization costs associated with the customer relationship,
developed technology, and trademark intangible assets that were recognized in
connection with the acquisition of ADAM, and $376 thousand of additional
depreciation expenses in connection with the purchases of equipment and
facilities necessary to support our continued expanding operations.

Interest Income


Interest income increased $38 thousand or 7% from $519 thousand in 2010 to $557
thousand in 2011 primarily due to earnings realized on funds invested in foreign
banks.

Interest Expense

Interest expense decreased $143 thousand or 16% from $902 thousand in 2010 to
$759 thousand in 2011. This decrease is primarily due to the conversion of the
Company remaining $5.0 million of convertible debt that occurred in April 2011
thereby ceasing further recognition of the imputed interest expense associated
with this debt instrument, and also due a lower rate of interest incurred with
our revolving line of credit.

Other Non-Operating Income


Other non-operating income of $647 thousand for the year ending December 31,
2011 consists of a $537 thousand gain recognized in regards to the net decrease
in the fair value of the put option that was issued to the two former
stockholders of E-Z Data whom received shares of Ebix common stock as part of
the acquisition consideration paid by the Company; this put option expired on
October 31, 2011. Also in addition to this gain on the put option was a $108
thousand gain that was recognized upon the settlement of a $5.0 million
convertible note that was fully converted and settled in April 2011.

Foreign Exchange Gain


Net foreign exchange gains of $4.3 million for the year ended December 31, 2011
consisted of $6.9 million of gains recognized upon the re-measuring of certain
intercompany debt obligations partially offset by $2.6 million of losses
recorded in connection with the changes in the fair value of related derivative
instruments the Company holds to hedge the impact of fluctuations in the
exchange rates in the foreign jurisdictions in which we certain international
operations.



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Income Taxes


The Company recognized a net tax expense of $2.1 million for the year ended
December 31, 2011. The Company's tax provision for the year, before the effect
of discrete items, was an expense of $6.9 million and reflects an effective tax
rate 9.5% as compared to the 4.8% effective tax rate for the same period a year
earlier. The effective rate increased primarily due to an increased proportion
of our taxable income having been generated in jurisdictions with higher tax
rates. Included in the discrete items recognized during the year ended
December 31, 2011 were the releases of the remaining valuation allowances held
against deferred tax assets associated with tax net operating losses carry
forwards obtained from earlier business acquisitions. The valuation allowances
were released based on analysis of the levels of taxable income being generated
by these business units, available prudent and feasible tax planning strategies,
and an analysis of the relevant income tax regulations. As a result of the
release of the valuation allowances the Company recognized a tax benefit of $6.6
million. Also included in recognized discrete items was a $1.9 million income
tax expense pertaining to charges associated with windfall gains realized from
tax deductions in connection with exercised stock options and vested restricted
stock grants, and a $233 thousand income tax benefit from certain enhanced
research and development tax deductions realized in our foreign operations.
Facilitating our relatively low consolidated world-wide effective tax rate is
the advantages the Company realizes from conducting activities in certain
foreign low tax jurisdictions. The pre-tax income from and the applicable
statutory tax rates in each jurisdiction in which the Company had operations for
the year ending December 31, 2011 was as follows:



                                   United                     Latin                                             New
                                   States       Canada       America        Australia        Singapore        Zealand        India        Sweden        Total
Pre-tax income                    $ 12,043      $   831      $  1,260      $     2,734      $    18,084      $     488      $ 31,715      $ 6,340      $ 73,495
Statutory tax rate                    35.0 %       30.5 %        34.0 %           30.0 %           10.0 %         30.0 %          -  %         -  %

TWELVE MONTHS ENDED DECEMBER 31, 2010 AND 2009

Operating Revenue

Presented in the table below is the breakout of our revenues from each of our four product channels the years ended December 31, 2010 and 2009.



                                                 For the Year Ended
                                                    December 31,
               (dollar amounts in thousands)      2010          2009
               Exchanges                       $   94,212     $ 60,764
               Broker Systems                      13,841       11,599
               BPO                                 15,586       14,698
               Carrier Systems                      8,549       10,624

               Totals                          $  132,188     $ 97,685



During the twelve months ended December 31, 2010 our total revenue increased
$34.5 million or 35%, to $132.2 million compared to $97.7 million in 2009. The
increase in revenues was principally a result of the impact from strategic
business acquisitions made during 2010 and 2009 in our Exchange and BPO
channels, and continued growth realized in our Exchange channels. Our ability to
quickly integrate business acquisitions into existing operations was
instrumental to achieving these results. The specific components of our revenue
and the changes experienced during the past year are discussed further below.

Exchange division revenues increased $33.4 million or 55% primarily due to net increases of approximately $17.9 million in the life and annuity sector, $13.4 million in the property & casualty sector, and $2.6 million from the health insurance sector.


BPO division revenues increased $880 thousand or 6% due to greater demand for
our insurance certificate creation and tracking services. The Company's growth
in this channel was strongly impacted by the downturn in the commercial and
residential housing industry, which drove down the transaction volume derived
from clients associated within the construction industry, which traditionally
accounts for approximately 35% of the insurance certificates in the United
States.

Broker Systemsdivision revenue increased $2.2 million or 19% principally due to
further expansion into the international markets, and the associated growth of
our on-demand back-end systems designed for use by insurance brokers.





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Carrier Systems division revenue decreased $2.1 million or 20% due to continued
delays in capital spending decisions related to large investments in perpetually
licensed back-end systems designed for use by large insurance companies.

Costs of Services Provided


Costs of services provided, which includes costs associated with customer
support, consulting, implementation, and training services, increased
$8.3 million or 39%, from $21.3 million in 2009 to $29.6 million in 2010. This
cost increase was attributable to additional personnel, professional services,
and facility costs associated with our 2009 acquisitions of E-Z Data and Peak,
the 2010 expansion into the Latin America market.

Product Development Expenses


Product development expenses increased $2.2 million or 20%, from $11.4 million
in 2009 to $13.6 million in 2010. The Company's product development efforts are
focused on the development new technologies for insurance carriers, brokers and
agents, and the development of new exchanges for international and domestic
markets. This cost increase was associated with the expansion of our technical
operations in India in regards to increased research and development efforts
towards designing new futuristic on-demand based services, and our expanding
intellectual property management operations in Singapore, both in support of the
Company's Exchange, Broker Systems, and Carrier Systems divisions.

Sales and Marketing Expenses


Sales and marketing expenses increased $1.3 million or 25%, from $5.1 million in
2009 to $6.4 million in 2010. This expense increase was primarily attributable
to additional personnel, marketing, consulting, and facility related costs in
support of the increased revenues generated by our Exchange and Broker Systems
channels.

General and Administrative Expenses


General and administrative expenses increased $7.3 million or 43%, from
$16.8 million in 2009 to $24.1 million in 2010. This increase was primarily
associated with additional personnel, increased health and business insurance
costs, additional consulting services, increased business travel costs, and
additional share-based and discretionary bonus compensation. Also a factor
contributing the net increase to general and administrative expenses was the
$822 thousand of bad expense that was recognized in connection with the
Company's decision to increase its reserve for doubtful accounts receivable.
Partially offsetting these increases in general and administrative expenses was
a $1.5 million benefit associated with the reversal of a previously recorded
contingent liability earnout obligation associated with our October 2009
acquisition of Peak, because during the subsequent 2010 earnout period the
defined revenue targets was not achieved by the Peak operations.

Amortization and Depreciation Expenses


Amortization and depreciation expenses increased $2.1 million, or 54%, from
$3.9 million in 2009 to $6.0 million in 2010. This increase was due to
$1.3 million of additional amortization expense incurred in connection with the
customer relationship, developed technology, and non-compete intangible assets
that were recognized in connection with our 2010 business acquisitions of MCN,
Trades Monitor, and USIX, and our 2009 business acquisitions of E-Z Data, Facts,
and Peak. We also incurred increased depreciation expense amounting to $795
thousand related to additional capital equipment expenditures in support of our
growing businesses.

Interest Income

Interest income increased $320 thousand or 161% from $199 thousand in 2009 to
$519 thousand in 2010 primarily due to earnings realized on funds invested in
foreign banks.

Interest Expense

Interest expense decreased $168 thousand or 16% from $1.1 million in 2009 to
$902 thousand in 2010. This decrease was primarily due to the full conversion of
$20.0 million of convertible debt during the third and fourth quarters thereby
ceasing further recognition of the imputed interest expense associated with
these debt instruments.

Other Non-Operating Income


Other non-operating income of $6.3 million for the year ending December 31, 2010
consisted of a $6.0 million gain recognized for the decrease in the fair value
of the put option that was issued to the two former stockholders of E-Z Data
whom received shares of Ebix common stock as part of the acquisition
consideration paid by the Company, and a $262 thousand gain realized upon the
sale of a building.



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Foreign Exchange Gain


Net foreign exchange gains decreased $147 thousand or 11% from $1.4 million in
2009 to $1.2 million in 2010. This net decrease is due to the $949 thousand
impact of re-measuring certain intercompany debt obligations largely offset by
$802 thousand of gains recorded in connection with the changes in the fair value
of the related derivative instruments the Company holds to hedge the impact of
fluctuations in the exchange rates in the foreign jurisdictions in which we
conduct our international operations.

Income Taxes


The Company's income tax provision, exclusive of discrete items, for the year
ended December 31, 2010, was an expense of $2.9 million which was reflective of
an 4.8% effective tax rate. Included in the discrete items recognized during the
2010 were was the benefit recognized from the $2.3 million release of the
remaining valuation allowance that had been held against certain cumulative net
operating loss ("NOL") carryforwards in the United States. This valuation
allowance was released at that time as management believed that the
uncertainties that had existed regarding the performance of our health benefits
exchange operating segment in connection with the potential adverse impacts
associated with the than pending health care legislation were no longer
relevant. Net of discrete items income tax expense was $635 thousand for the
year 2010, which was $375 thousand, or 37%, lower than the $1.0 million income
tax expense recognized in 2009, and during which year the Company had a 2.5%
effective tax rate. Also facilitating the relatively low consolidated world-wide
effective tax rate are the advantages the Company realizes from conducting
activities in certain foreign low tax jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES


Our ability to generate significant cash flows from operating activities is one
the Company's fundamental financial strengths. Our principal sources of
liquidity are the cash flows provided by our operating activities, our revolving
credit facility, and cash and cash equivalents on hand.

We intend to utilize cash flows generated by our ongoing operating activities,
in combination with possibly expanding our commercial lending facility, and the
possible issuance of additional equity or debt securities to fund capital
expenditures and organic growth initiatives, to make strategic business
acquisitions, to retire outstanding indebtedness, and to possibly repurchase
shares of our common stock as market and operating conditions warrant.

In the 4th quarter of 2011 the Company paid its first quarterly dividend in the
amount of $0.04 per common share, paying $1.5 million in the aggregate in
regards to this dividend issuance. This same quarterly dividend per share was
paid in February 2012. The Company intends to use a portion of its operating
cash flows to continue issuing dividends to its shareholders in the foreseeable
future, while remaining dedicated to using most of its cash to generate
improvement in future earnings by funding organic growth initiatives and
accretive business acquisitions.

We believe that anticipated cash flows provided by our operating activities,
together with current cash balances and access to our credit facilities and the
capital markets, if required, will be sufficient to meet our projected cash
requirements for the next twelve months, and the foreseeable future thereafter,
although any projections of future cash needs, cash flows, and the general
market condition for credit and equity securities may be subject to substantial
uncertainty. In the event additional liquidity needs arise, we may raise funds
from a combination of sources, including the potential issuance of debt or
equity securities. However, there are no assurances that such financing
facilities will be available in amounts or on terms acceptable to us, if at all.

We continue to strategically evaluate our ability to sell additional equity or
debt securities, and to expand existing or obtain new credit facilities from
lenders in order to strengthen our financial position. The sale of additional
equity or convertible debt securities could result in additional dilution to our
shareholders. We regularly evaluate our liquidity requirements, including the
need for additional debt or equity offerings, when considering potential
business acquisitions, development of new products or services, or the
retirement of debt. During 2012 the Company intends to utilize its cash and
other financing resources towards making strategic accretive acquisitions in the
insurance data exchange arena, to fund new product development and service
offerings, and to fund other organic growth initiatives.



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Our cash and cash equivalents were $23.7 million and $23.4 million at
December 31, 2011 and 2010, respectively. The Company holds material cash and
cash equivalent balances overseas in foreign jurisdictions. The free flow of
cash from certain countries where we hold such balances may be subject to
repatriation tax effects and other restrictions. Furthermore, the repatriation
of earnings from some of our foreign subsidiaries would result in the
application of withholding taxes at source as well as a tax at the U.S. parent
level upon receipt of the repatriation amounts. The approximate cash, cash
equivalents, and short-term investments balances held in our domestic U.S.
operations and each of our foreign subsidiaries as of March 12, 2012 is
presented in table below (figures denominated in thousands):



                                  United                    Latin                                          New
                                  States       Canada      America       Australia       Singapore       Zealand       India      Sweden       Total
Cash and ST investments           $ 9,356     $    751     $  1,067     $     7,605     $     1,962     $     861     $ 9,962     $    15     $ 31,579


Due to the effect of temporary or timing differences resulting from the
differing treatment of items for tax and accounting purposes and minimum
alternative tax obligations in the U.S. and India, future cash outlays for
income taxes are expected to exceed current income tax expense but will not
adversely impact the Company's liquidity position. Specifically our operations
in India benefit from a tax holiday which will continue through 2015; as such
the Company's local India taxable income, other than passive interest and rental
income, is not taxed. After the tax holiday expires taxable income generated by
our India operations will be taxed at 50% of the normal 33.99% corporate tax
rate for a period of five years. During the year 2011 this tax holiday had the
effect of reducing tax expense by $11.1 million. The Company also has a
relatively low income tax rate is in Singapore in which our operations are taxed
at a 10% marginal tax rate as a result of concessions granted by the local
Singapore Economic Development Board for the benefit of in-country intellectual
property owners. The concessionary 10% income tax rate will expire after 2015,
at which time our Singapore operations will be subject to the prevailing
corporate tax rate in Singapore, which is currently 17%, unless the Company
reaches a subsequent agreement to extend the incentive period and the then
applicable concessionary rate. The concession granted by the EDB improved net
income by $1.1 million.

Our current ratio declined to 1.28 at December 31, 2011 as compared to 1.56 at
December 31, 2010 and our working capital position declined to $14.0 million at
December 31, 2011 as compared to $21.7 million at the end of the 2010. The
reduction in our short-term liquidity position is primarily due to increased
trade accounts payable and an increase in deferred revenue liabilities
associated with our growing business. We believe that our ability to generate
sustainable and robust cash flows from operations will enable the Company to
continue to fund its current liabilities from current assets including available
cash balances for the foreseeable future.

Business Acquisitions


On February 7, 2011Ebix closed the merger of Atlanta, Georgia based ADAM, Inc.
("ADAM") with a wholly owned subsidiary of Ebix. Under the terms of the merger
agreement, ADAM shareholders received, at a fixed exchange ratio, 0.3122 shares
of Ebix common stock for every share of ADAM common stock. Ebix issued
approximately 3.65 million shares of Ebix common stock pursuant to the merger.
This issuance of shares increased the Company's diluted common share count to
approximately 42.07 million shares as of the acquisition date. In addition Ebix
paid approximately $944 thousand in cash for unexercised ADAM stock options.
ADAM is a leading provider of health information and benefits technology
solutions in the United States.

On November 15, 2011, Ebix acquired Health Connect Systems, Inc. ("Health
Connect"). Health connect, with operations based out of Fresno, California, is
leading online Exchange for buyers and sellers of health insurance and employee
benefits. Ebix acquired all of the outstanding stock of Health Connect for
aggregate cash consideration in the amount of $18.0 million, which was funded
with internal resources using available cash reserves.

Operating Activities


For the twelve months ended December 31, 2011, the Company generated $71.3
million of net cash flow from operating activities compared to $52.8 million for
the year ended December 31, 2010, representing a 35% increase. The major sources
of cash provided by our operating activities for 2011 was net income of $71.4
million, net of $(4.0) million of net non-cash gains recognized on derivative
instruments and foreign currency exchange, $(5.1) million of deferred tax
benefits, $7.5 million of depreciation and amortization, $2.2 million of
non-cash compensation, $(2.8) million of acquisition earnout reductions, and
$2.1 million provided by sources of working capital primarily increased trade
accounts payable and increased deferred revenue liabilities.

For the twelve months ended December 31, 2010, the Company generated
$52.8 million of net cash flow from operating activities. The major sources of
cash provided by our operating activities in 2010 was net income of
$59.0 million, net of $(8.0) million of net non-cash gains recognized on
derivative instruments and foreign currency exchange, $(6.2) million of working
capital requirements primarily associated with payments of trade payables and
increased outstanding trade receivables, $6.0 million of depreciation and
amortization, and $1.9 million of non-cash compensation.



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Investing Activities


Net cash used for investing activities totaled $13.3 million for the twelve
months ended December 31, 2011. During the year the Company used $17.9 million
to acquire Health Connect Solutions in November 2011 (net of $55 thousand cash
acquired), and $3.5 million was obtained from the February 2011 acquisition of
ADAM (net of $944 thousand used to settle outstanding ADAM stock options). Also
during this past year in the aggregate $577 thousand was paid in connection with
the fulfillment earnout payment obligation from certain prior business
acquisitions made in 2008, 2009, and 2010. Also during the year $4.5 million was
provided from maturities of marketable securities (specifically bank
certificates of deposit), net of purchases, and $2.8 million was used for
capital expenditures in connection with purchases of operating equipment to
enhance the performance of our technology platforms and to support the continued
growth of our businesses.

Net cash used for investing activities totaled $24.4 million for the twelve
months ended December 31, 2010 of which $7.1 million was used for the
September 2010 acquisition of USIX, $1.0 million was used for the July 2010
acquisition of E-Trek, $1.3 million was used for the May 2010 acquisition of
Connective Technologies, $2.7 million was used for the April 2010 acquisition of
Trades Monitor, and $2.9 million was used for the January 2010 acquisition of
MCN. Also during 2010 $3.0 million was used to fulfill earnout payment
obligations to the former shareholders of ConfirmNet (a 2008 business
acquisition), $4.5 million was used towards investments in marketable securities
(specifically bank certificates of deposit), net of maturities, and $1.8 million
was used for purchases of operating equipment and investments in our technology
platforms and to support the growth of our businesses.

Financing Activities


Net cash used for financing activities during the twelve months ended
December 31, 2011 was $55.5 million. This financing cash outflow was comprised
of $63.7 million was used to complete open market repurchases of our common
stock, $6.8 million used to settle a previously issued convertible debt
instrument, $1.5 million used to pay cash dividends in November 2011 to the
holders of our common stock, and $300 thousand was used to service existing
capital lease obligations. Partially offsetting these financing cash outflows
was $9.8 million of proceeds (net of $6.4 million of principal repayments) from
our term loan facility with Bank of America, N.A. ("BOA"), and $6.8 million of
proceeds (net of $33.5 million of repayments) from our revolving credit facility
with BOA.

Net cash used for financing activities during the twelve months ended
December 31, 2010 was $25.7 million. This financing cash outflow was comprised
of $22.5 million used for the settlement of previously issued convertible debt
instruments, $10.7 million used to complete open market repurchases of our
common stock, and $804 thousand was used to service capital lease obligations.
Partially offsetting these financing cash outflows was $5.2 million of proceeds
(net of principal repayments) from our term loan facility with Bank of America,
N.A. ("BOA"), $1.9 million of proceeds (net of repayments) from our revolving
credit facility with BOA, and $1.2 million from the exercise of stock options.

Commercial Bank Financing Facility


On April 20, 2011 the Company entered into a seventh amendment to a credit
agreement (the "Seventh Amendment") with Bank of America, N.A. ("BOA"), as
administrative agent, which materially amended the initial credit agreement
dated February 12, 2010. The Seventh Amendment increased the existing revolving
credit facility from $25 million to $35 million with its term ending on
April 20, 2014, and the $10 million secured term loan was increased to $20
million and amortizing over a three year period with quarterly principal and
interest payments that commenced on June 30, 2011 and a final payment of all
remaining outstanding principal and accrued interest that will be due on
April 20, 2014. The entire credit facility has a variable interest rate
currently set at LIBOR plus 1.50%. The Company deferred the origination costs in
connection with this expanded and amended credit facility, and is amortizing
these costs into interest expense over the three-year life of the credit
agreement. The revolving credit facility is used by the Company to fund working
capital requirements primarily in support of current operations, expanding
operations and associated growth, and strategic business acquisitions. The
underlying financing agreement contains financial covenants regarding the
Company's annualized EBITDA, fixed charge coverage ratio, and leverage ratio, as
well as certain restrictive covenants pertaining to such matters incurring new
debt, the aggregate amount of repurchases of the Company's equity shares, and
the consummation of new business acquisitions. The Company currently is in
compliance with all such financial and restrictive covenants, and there have
been no violations thereof or in the event of noncompliance, appropriate waivers
having been obtained.



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Originally in February 2010 the Company entered into the initial credit facility
with BOA. The financing was comprised of a two-year, $25 million secured
revolving credit facility, and a $10 million secured term loan which amortized
over a two year period with quarterly principal and interest payments that
commenced on March 31, 2010 and a final payment of all remaining outstanding
principal and accrued interest that was to be due on February 12, 2012. The
interest rate applicable to the entire BOA credit facility was LIBOR plus 1.50%.

At December 31, 2011 the outstanding balance on the revolving line of credit was
$31.8 million and the facility carried an interest rate of 1.75%. This balance
is included in long-term liabilities section of the Condensed Consolidated
Balance Sheet. During the twelve months ending December 31, 2011 the average and
maximum outstanding balance on the revolving line of credit was $20.9 million
and $34.8 million, respectively.

At December 31, 2011, the outstanding balance on the term loan was $15.0 million
of which $6.7 million is due within the next twelve months. This term loan also
carried an interest rate of 1.75%. During the twelve months ended December 31,
2011 payments in the aggregate amount of $6.3 million were made against the term
loan.

Convertible Debt

In August 2009 the Company entered into a Convertible Note Purchase Agreement
with the Rennes Foundation in an original amount of $5.0 million, which amount
is convertible into shares of common stock at a conversion price of $16.66 per
share (the "Note"). The Note had a 0.0% stated interest rate and no warrants
were issued. The Note was to be payable in full at its maturity date of
August 25, 2011. The Company applied imputed interest on this convertible note
using an interest rate of 1.75% and discounted their carrying value accordingly.
During the twelve months ending December 31, 2011 the Company recognized $21
thousand of interest expense on the Note. With respect to this convertible note,
and in accordance with its terms, as was understood between the Company and the
holder, upon a conversion election by the holder, the Company had to satisfy the
related original principal balance in cash and could satisfy the conversion
spread (that being the excess of the conversion value over the related original
principal component) in either cash or stock at option of the Company. On
April 18, 2011, the Rennes Foundation elected to fully convert the Note. The
Company settled this conversion election by paying $5.00 million in cash with
respect to the principal component, and paying $1.8 million in cash with respect
to the conversion spread.

Also in August 2009 the Company issued two convertible promissory notes raising
a total of $20.0 million. Specifically the Company entered into a Convertible
Note Purchase Agreement with Whitebox in an original amount of $19.0 million,
which amount was convertible into shares of common stock at a conversion price
of $16.00 per share. The note had a 0.0% stated interest rate and no warrants
were issued. The note was to payable in full at its maturity date of August 26,
2011. Also at this time the Company entered into a Convertible Note Purchase
Agreement with IAM Mini-Fund 14 Limited, a fund managed by Whitebox, in an
original amount of $1.0 million, which amount was convertible into shares of
common stock at a conversion price of $16.00 per share. The note had a 0.0%
stated interest rate and no warrants were issued. The note was to be payable in
full at its maturity date of August 26, 2011. The Company also applied imputed
interest on these convertible notes using an interest rate of 1.75% and
discounted their carrying value accordingly. During the twelve months ending
December 31, 2010 the Company recognized $328 thousand of interest expense in
regards to these notes. With respect to each of these convertible notes, and in
accordance with the terms of the notes, as understood between the Company and
each of the holders, upon a conversion election by the holder the Company was to
satisfy the related original principal balance in cash and could satisfy the
conversion spread (that being the excess of the conversion value over the
related original principal component) in either cash or stock at option of the
Company. On November 10, 2010Whitebox VSC, Ltd and IAM Mini-Fund 14 Limited
elected to fully convert all of the remaining Convertible Promissory Notes. The
Company settled these conversion elections by paying $20 million in cash with
respect to the principal component, paying $2.5 million in cash for a portion of
the conversion spread, and issuing 283,378 shares of Ebix common stock for the
remainder of the conversion spread.

The Company also previously had a $15.0 million convertible note with Whitebox,
originally dated July 11, 2008. On February 3, 2010, Whitebox fully converted
the remaining principal on the $15 million note in the amount of $4.39 million
and accrued interest in the amount of $62 thousand into 476,662 shares of the
Company's common stock.

As of December 31, 2011 the Company has no remaining convertible debt obligations.

Contractual Obligations and Commercial Commitments


The following table summarizes our known contractual purchase obligations and
other long-term obligations as of December 31, 2011. The table excludes
commitments that are contingent based on events or factors uncertain at this
time.



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                                                                Payment Due by Period
                                                   Less Than                                           More than
                                      Total         1 Year         1 - 3 Years       3 - 5 Years        5 years
                                                                    (in thousands)
Short and Long-term Debt             $ 46,750     $     6,667     $      40,083     $          -      $        -
Operating leases                       16,487           4,196             6,104             2,941           3,246
Capital Leases                            346             198               148                -               -

Total                                $ 63,583     $    11,061     $      46,335     $       2,941     $     3,246


Off Balance Sheet Transactions

We do not engage in off-balance sheet financing activities.

Inflation

We do not believe that the rate of inflation has had a material effect on our operating results. However, inflation could adversely affect our future operating results.

RECENT ACCOUNTING PRONOUNCEMENTS

The following is a brief discussion of recently released accounting pronouncements that are pertinent to the Company's business:


In June 2011, the FASB issued new financial reporting guidance regarding the
reporting of "other comprehensive income, or (OCI)". This guidance revises the
manner in which entities present comprehensive income in their financial
statements. The new guidance requires entities to report components of
comprehensive income in either (1) a continuous statement of comprehensive
income, or (2) two separate but consecutive statements. Under the two-statement
approach, the first statement would include components of net income, which is
consistent with the income statement format used currently, and the second
statement would include components of OCI. Under either method, entities must
display adjustments for items that are reclassified from OCI to net income in
both net income and OCI. The new reporting guidance does not change the items
that must be reported in OCI. This new reporting standard is effective for
interim and annual periods beginning after December 15, 2011, however, the FASB
recently decided to defer the effective date for the part of this new guidance
that would require adjustments of items out of accumulated other income to be
presented as components of both net income and other comprehensive income in
financial statements. Those changes would have been effective for annual and
interim periods beginning on or after December 15, 2011, but are now deferred
until FASB can adequately evaluate the costs and benefits of this presentation
requirement. After adoption, the guidance must be applied retrospectively for
all periods presented in the financial statements. The Company will adopt this
new guidance promptly when required, however we do not expect that it will have
a material impact on our financial position or operating results as the only
element of comprehensive income relevant to Ebix is in regards to cumulative
foreign currency translation adjustments.

In September 2011, the FASB issued new technical guidance regarding an entity's
evaluation of goodwill for possible impairment. Under this new guidance an
entity has the option to first assess qualitative factors to determine whether
the existence of events or circumstances leads to a determination that it is
more likely than not that the fair value of a reporting unit is less than its
carrying amount. If after assessing the totality of events or circumstances, an
entity determines that it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then performing the two-step
quantitative impairment test is unnecessary. This new technical guidance was
effective for fiscal years beginning after December 15, 2011. Early adoption was
permitted for annual and interim goodwill impairment evaluations performed as of
a date before September 2011, if an entity's financial statements for the most
recent annual or interim period have not yet been issued. The Company elected to
adopt early and accordingly applied this new guidance to its 2011 annual
impairment evaluation of goodwill.



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In December 2010, the Emerging Issues Task Force of the FASB reached consensus
regarding the disclosure of pro forma information for business combinations.
This new guidance addressed the diversity in practice concerning the
interpretation of the pro forma revenue and earnings disclosure requirements for
business combinations. The guidance specifies that if a public entity presents
comparative financial statements, the entity should disclose revenue and
earnings of the combined entity as though the business combination had occurred
as of the beginning of the comparable prior annual reporting period only. The
amendments also expand the supplemental pro forma disclosures to include a
description of the nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination included in the
reported pro forma revenue and earnings. The amendments affect any public entity
that enters into business combinations that are material on an individual or
aggregate basis. The new guidance was applicable to business combinations for
which the acquisition date is on or after the first annual reporting period
beginning on or after December 15, 2010. The Company adopted this new guidance
in 2011 and applied it to the disclosures regarding our recent acquisitions of
ADAM, completed in February 2011, and Health Connect, completed in November
2011.

In January 2010, the FASB issued new guidance regarding disclosures about fair
value measurements. The guidance requires additional disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in earlier related guidance. Specifically this new guidance requires a reporting
entity to disclose separately the amounts of significant transfers in and out of
Level 1 and Level 2 fair value measurements and describe the reasons for the
transfers; and for fair value measurements using significant unobservable
inputs, a reporting entity should present separately information about
purchases, sales, issuances, and settlements. Also a reporting entity should
provide disclosures about the valuation techniques and inputs used to measure
fair value for both recurring and nonrecurring fair value measurements. This new
guidance was effective for interim and annual reporting periods beginning after
December 15, 2009. The Company adopted and applied this technical guidance 2010.

In September 2009, FASB issued amended revenue recognition guidance related to
revenue arrangements with multiple deliverables. This new pronouncement:
(a) provides application guidance on whether multiple deliverables exist in an
arrangement with a customer, and if so, how the arrangement consideration should
be separated and allocated; (b) requires an entity to allocate revenue using
estimated selling prices of deliverables if vendor-specific objective evidence
("VSOE") or third party evidence ("TPE") of selling prices is not available;
and, (c) eliminates the use of the "residual method" to allocate revenue. This
guidance was to be applied on a prospective basis for revenue arrangements
entered into in fiscal years beginning on or after June 15, 2010, with earlier
application permitted. Alternatively, an entity can elect to adopt new guidance
on a retrospective basis. The Company adopted this new guidance in 2011 and its
adoption did not have a material impact on the Company's consolidated results of
operation.

Also in September 2009, the FASB issued new guidance related to certain revenue
arrangements that include software elements and provides guidance on determining
whether software deliverables in an arrangement that include tangible products
are within the scope of existing software revenue guidance. This guidance is to
be applied on a prospective basis for revenue arrangements entered into in
fiscal years beginning on or after June 15, 2010, with earlier application
permitted. Alternatively, an entity can elect to adopt new guidance on a
retrospective basis. The Company adopted this new guidance in 2011 and its
adoption did not have a material impact on the Company's consolidated results of
operation.

APPLICATION OF CRITICAL ACCOUNTING POLICIES


The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP"), as promulgated in the United States, requires
our management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, revenues and expenses and related disclosures
of contingent assets and liabilities in our Consolidated Financial Statements
and accompanying notes. We believe the most complex and sensitive judgments,
because of their significance to the Consolidated Financial Statements, result
primarily from the need to make estimates and assumptions about the effects of
matters that are inherently uncertain. The following accounting policies involve
the use of "critical accounting estimates" because they are particularly
dependent on estimates and assumptions made by management about matters that are
uncertain at the time the accounting estimates are made. In addition, while we
have used our best estimates based on facts and circumstances available to us at
the time, different estimates reasonably could have been used in the current
period, or changes in the accounting estimates that we used are reasonably
likely to occur from period to period which may have a material impact on our
financial condition and results of operations. For additional information about
these policies, see Note 1 of the Notes to the Consolidated Financial Statements
in this Form 10-K. Although we believe that our estimates, assumptions and
judgments are reasonable, they are limited based upon information presently
available. Actual results may differ significantly from these estimates under
different assumptions, judgments or conditions.

Revenue Recognition


The Company derives its revenues primarily from professional and support
services, which includes subscription and transaction fees pertaining to
services delivered over our exchanges or from our ASP platforms, revenue
generated from software development projects and associated fees for consulting,
implementation, training, and project management provided to customers with
installed systems, and business process outsourcing revenue. Sales and
value-added taxes are not included in revenues, but rather are recorded as a
liability until the taxes assessed are remitted to the respective taxing
authorities.



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In accordance with Financial Accounting Standard Board (FASB) and Securitiesand
Exchange Commission Staff Accounting (SEC) accounting guidance on revenue
recognition the Company considers revenue earned and realizable when:
(a) persuasive evidence of the sales arrangement exists, (b) the arrangement fee
is fixed or determinable, (c) service delivery or performance has occurred,
(d) customer acceptance has been received, if contractually required, and
(e) collectability of the arrangement fee is probable. The Company typically
uses signed contractual agreements as persuasive evidence of a sales
arrangement. We apply the provisions of the relevant FASB accounting
pronouncements when making estimates or assumptions related to transactions
involving the license of software where the software deliverables are considered
more than inconsequential to the other elements in the arrangement. For
contracts that contain multiple deliverables, we analyze the revenue
arrangements when making estimates or assumptions in accordance with the
appropriate authoritative guidance, which provides criteria governing how to
determine whether goods or services that are delivered separately in a bundled
sales arrangement should be considered as separate units of accounting for the
purpose of revenue recognition. Deliverables are accounted for separately if
they meet all of the following criteria: (a) the delivered item has value to the
customer on a stand-alone basis; (b) there is objective and reliable evidence of
the fair value of the undelivered items; and (c) if the arrangement includes a
general right of return relative to the delivered items, the delivery or
performance of the undelivered items is probable and substantially controlled by
the Company.

The Company begins to recognize revenue from license fees for its ASP products
upon delivery and the customer's acceptance of the software implementation and
customizations if necessary and applicable. Transaction services fee revenue for
this use of our exchanges or ASP platforms is recognized as the transactions
occur and are generally billed in arrears. Service fees for hosting arrangements
are recognized over the requisite service period. Revenue derived from the
licensing of third party software products in connection with sales of the
Company's software licenses and is recognized upon delivery together with the
Company's licensed software products. Training, data conversion, installation,
and consulting services fees are recognized as revenue when the services are
performed. Revenue for maintenance and support services is recognized ratably
over the term of the support agreement. Revenues derived from initial setup or
registration fees are recognized ratably over the term of the agreement in
accordance with FASB and SEC accounting guidance on revenue recognition.

Deferred revenue includes maintenance and support payments or billings that have
been received and recorded prior to performance and, in certain cases, cash
collections; initial setup or registration fees under hosting agreements;
software license fees received in advance of delivery, acceptance, and/or
completion of the earnings process; and amounts received under multi-element
arrangements in which objective evidence of the fair value for the undelivered
elements does not exist. In these instances revenue is recognized when the fair
value of the undelivered elements is determinable or when all contractual
elements have been completed and delivered.

Allowance for Doubtful Accounts Receivable


Management specifically analyzes accounts receivable and historical bad debts,
write-offs, customer concentrations, customer credit-worthiness, current
economic trends and changes in our customer payment terms when evaluating
uncertainties and estimate as to the collectability of outstanding accounts
receivable and the adequacy of the Company's recorded allowance for doubtful
accounts.

Valuation of Goodwill

Goodwill represents the cost in excess of the fair value of the identifiable net
assets of acquired businesses. The Company applies the provisions of the FASB's
accounting guidance on goodwill and other intangible assets which addresses how
goodwill and other acquired intangible assets should be accounted for in
financial statements. In this regard we test these intangible assets for
impairment annually or more frequently if indicators of potential impairment are
present. Such potential impairment indicators include a significant change in
the business climate, legal factors, operating performance indicators,
competition, and the sale or disposition of a significant portion of the
business. The testing involves comparing the reporting unit and intangible asset
carrying values to their respective fair values; we determine fair value by
applying the discounted cash flow method using the present value of future
estimated net cash flows. The cash flow projections are based on our views of
growth rates, anticipated future economic conditions and the appropriate
discount rates relative to risk and estimates of residual values. We believe
that our estimates are consistent with assumptions that marketplace participants
would use in their estimates of fair value. The use of different estimates or
assumptions for our projected discounted cash flows (e.g., growth rates, future
economic conditions, discount rates and estimates of terminal values) when
determining the fair value of our reporting units could result in different
values and may result in a goodwill impairment charge. During the twelve months
ended December 31, 2011, 2010, and 2009, we had no impairment of our reporting
unit goodwill balances. For additional information about goodwill, see Note 1 of
the Notes to Consolidated Financial Statements in this Form 10-K.



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Income Taxes


We account for income taxes in accordance with FASB accounting guidance on the
accounting and disclosure of income taxes, which involves estimating the
Company's current tax exposure together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included in our Consolidated Balance Sheets. We then assess the likelihood that
our net deferred tax assets will be recovered from future taxable income in the
years in which those temporary differences are expected to be recovered or
settled, and, to the extent we believe that recovery is not likely, we establish
a valuation allowance.

The Company has not recognized a deferred U.S. tax liability and associated
income tax expense for the undistributed earnings of its foreign subsidiaries
because the from these foreign subsidiaries will remain permanently reinvested
in those subsidiaries to fund ongoing operations and growth. The amount of such
unrecognized deferred tax liability as of December 31, 2011 would have been
approximately $51.4 million

The Company follows the provisions of FASB accounting guidance on accounting for
uncertain income tax positions. This guidance clarified the accounting for
uncertainty in income taxes by prescribing the minimum recognition threshold a
tax position is required to meet before being recognized in the financial
statements. The guidance utilizes a two-step approach for evaluating tax
positions. Recognition ("Step 1") occurs when an enterprise concludes that a tax
position, based solely on its technical merits is more likely than not to be
sustained upon examination. Measurement ("Step 2") is only addressed if Step 1
has been satisfied. Under Step 2, the tax benefit is measured at the largest
amount of benefit, determined on a cumulative probability basis that is more
likely than not to be realized upon final settlement.

Foreign Currency Translation


Our reporting currency is the U.S. dollar. The functional currency of the
Company's foreign subsidiaries is the local currency of the country in which the
subsidiary operates. The assets and liabilities of foreign subsidiaries are
translated into U.S. Dollars at the rates of exchange at the balance sheet
dates. Income and expense accounts are translated at the average exchange rates
in effect during the period. Gains and losses resulting from translation
adjustments are included as a component of other comprehensive income in the
accompanying consolidated financial statements. Foreign exchange transaction
gains and losses that are derived from transactions denominated in other than
the subsidiary's' functional currency is included in the determination of net
income.



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Quarterly Financial Information (unaudited):


The following is the unaudited quarterly financial information for 2011, 2010
and 2009:



                                       First          Second       Third        Fourth
                                      Quarter        Quarter      Quarter      Quarter
                                           (in thousands, except per share data)

Year Ended December 31, 2011

      Total revenues                 $   40,050      $ 42,267     $ 42,602     $ 44,050
      Gross Profit                       32,743        33,353       33,895       35,389
      Operating income                   15,634        18,605       17,954       16,556
      Net income                         15,164        22,348       16,536       17,330

Net income per common share:

      Basic                          $     0.40      $   0.57     $   0.44 

$ 0.48

      Diluted                        $     0.37      $   0.53     $   0.41 

$ 0.44

Year Ended December 31, 2010

      Total revenues                 $   31,603      $ 32,207     $ 33,281     $ 35,097
      Gross Profit                       24,540        24,780       25,863       27,406
      Operating income                   12,759        13,008       13,082       13,658
      Net income                         12,384        14,010       16,681       15,944

Net income per common share:

      Basic *                        $     0.36      $   0.40     $   0.48 

$ 0.45

      Diluted *                      $     0.32      $   0.36     $   0.43 

$ 0.42

Year Ended December 31, 2009

      Total revenues                 $   20,668      $ 22,421     $ 23,292     $ 31,304
      Gross Profit                       16,367        17,889       18,827       23,328
      Operating income                    8,357         9,260        9,783       11,856
      Net income                          8,335         8,956        9,434       12,097

Net income per common share:

      Basic *                        $     0.28      $   0.29     $   0.30     $   0.36
      Diluted *                      $     0.23      $   0.24     $   0.25     $   0.31



* Reflects the effect of the 3-for-1 stock split dated January 4, 2010




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