- Quarterly Report (10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

¨	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 001-33772

DELTEK, INC.

(Exact name of registrant as specified in its charter)


Delaware		54-1252625
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2291 Wood Oak Drive, Herndon, VA		20171
(Address of principal executive offices)		(Zip Code)

(703) 734-8606

(Registrant’s telephone number, including area code)

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 of 1934 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 such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required 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 such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of common stock, par value $0.001 per share, and Class A common stock, par value $0.001 per share, of the registrant outstanding as of July 31, 2012 was 68,464,867 and 100, respectively.

TABLE OF CONTENTS


			Page

PART I—FINANCIAL INFORMATION				3
	Item 1.	Financial Statements (unaudited)		3
	Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011 (unaudited)			3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)			4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)			5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited)			6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2012 and December 31, 2011 (unaudited)			8
	Notes to Condensed Consolidated Financial Statements (unaudited)			9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		36
	Item 4.	Controls and Procedures		37
PART II—OTHER INFORMATION				38
	Item 1.	Legal Proceedings		38
	Item 1A.	Risk Factors		38
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		51
	Item 3.	Defaults Upon Senior Securities		52
	Item 4.	Mine Safety Disclosures		52
	Item 5.	Other Information		52
	Item 6.	Exhibits		52
SIGNATURES				53
EXHIBIT INDEX				54

PART I

FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

DELTEK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	June 30, 2012			December 31, 2011
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	40,090		$	35,243
Accounts receivable, net of allowance of $1,644 and $1,714 at June 30, 2012 and December 31, 2011, respectively		58,280			58,899
Deferred income taxes		6,146			5,383
Prepaid expenses and other current assets		12,031			10,760

TOTAL CURRENT ASSETS		116,547			110,285

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $26,933 and $23,515 at June 30, 2012 and December 31, 2011, respectively		26,769			25,620
LONG-TERM DEFERRED INCOME TAXES		9,951			9,653
INTANGIBLE ASSETS, NET		46,556			54,994
GOODWILL		174,872			175,771
OTHER ASSETS		5,907			6,156

TOTAL ASSETS	$	380,602		$	382,479

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	464		$	528
Accounts payable and accrued expenses		41,194			45,420
Deferred revenues		120,183			104,835
Income taxes payable		2,409			465

TOTAL CURRENT LIABILITIES		164,250			151,248

LONG-TERM DEBT		152,155			166,894
OTHER TAX LIABILITIES		3,453			3,214
OTHER LONG-TERM LIABILITIES		16,202			18,180

TOTAL LIABILITIES		336,060			339,536
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value—authorized, 5,000,000 shares; none issued or outstanding at June 30, 2012 or December 31, 2011		—			—
Common stock, $0.001 par value—authorized, 200,000,000 shares; 71,321,475 issued and 68,356,977 outstanding at June 30, 2012 and 70,398,889 issued and 68,272,271 outstanding at December 31, 2011		71			70
Class A common stock, $0.001 par value—authorized, 100 shares; issued and outstanding, 100 shares at June 30, 2012 and December 31, 2011		—			—
Additional paid-in capital		281,538			273,496
Accumulated deficit		(212,872	)		(216,821	)
Accumulated other comprehensive income		401			2,188
Treasury Stock, at cost—2,964,498 and 2,126,618 shares at June 30, 2012 and December 31, 2011, respectively		(24,596	)		(15,990	)

TOTAL STOCKHOLDERS ’ EQUITY		44,542			42,943

TOTAL LIABILITIES AND STOCKHOLDERS ’ EQUITY	$	380,602		$	382,479

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(unaudited)						(unaudited)
REVENUES:
Product revenues	$	28,440		$	24,788		$	53,495		$	46,378
Maintenance and support services		41,533			39,387			82,760			77,560
Consulting services and other revenues		16,046			23,793			32,484			44,008

Total revenues		86,019			87,968			168,739			167,946

COST OF REVENUES:
Cost of product revenues		6,673			7,002			13,496			12,677
Cost of maintenance and support services		6,073			6,274			12,300			13,254
Cost of consulting services and other revenues		14,964			21,722			31,655			39,444

Total cost of revenues		27,710			34,998			57,451			65,375

GROSS PROFIT		58,309			52,970			111,288			102,571

OPERATING EXPENSES:
Research and development		15,495			15,725			31,285			33,286
Sales and marketing		22,300			22,593			43,526			44,835
General and administrative		11,186			12,898			23,193			26,557
Restructuring charge		528			3,617			2,053			6,822

Total operating expenses		49,509			54,833			100,057			111,500

INCOME (LOSS) FROM OPERATIONS		8,800			(1,863	)		11,231			(8,929	)
Interest income		45			34			70			67
Interest expense		(2,595	)		(2,894	)		(5,249	)		(5,879	)
Other income (expense), net		254			4			289			(261	)

INCOME (LOSS) BEFORE INCOME TAXES		6,504			(4,719	)		6,341			(15,002	)
Income tax expense (benefit)		2,264			(1,764	)		2,392			(5,496	)

NET INCOME (LOSS)	$	4,240		$	(2,955	)	$	3,949		$	(9,506	)

EARNINGS (LOSS) PER SHARE
Basic	$	0.07		$	(0.05	)	$	0.06		$	(0.15	)

Diluted	$	0.06		$	(0.05	)	$	0.06		$	(0.15	)

COMMON SHARES AND EQUIVALENTS OUTSTANDING
Basic weighted average shares		64,110			65,538			64,175			65,441

Diluted weighted average shares		66,575			65,538			66,576			65,441

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(unaudited)						(unaudited)
NET INCOME (LOSS)	$	4,240		$	(2,955	)	$	3,949		$	(9,506	)
Foreign currency translation adjustments, net of income tax benefit (expense) of $0 and $0, respectively		(3,734	)		1,517			(1,787	)		5,431

Other comprehensive (loss) income		(3,734	)		1,517			(1,787	)		5,431

COMPREHENSIVE INCOME (LOSS)	$	506		$	(1,438	)	$	2,162		$	(4,075	)

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended June 30,
	2012			2011
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income (loss)	$	3,949		$	(9,506	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Allowance for doubtful accounts		864			433
Depreciation and amortization		11,560			13,274
Amortization of debt issuance costs and original issue discount		544			508
Stock-based compensation expense		7,084			6,229
Employee stock purchase plan expense		181			115
Restructuring charge, net		486			3,340
(Gain) Loss on disposal of fixed assets		(4	)		11
Other noncash activity		(226	)		132
Deferred income taxes		(1,717	)		(6,530	)

Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable, net		(476	)		5,922
Prepaid expenses and other assets		(1,382	)		(1,678	)
Accounts payable and accrued expenses		(3,748	)		(1,811	)
Income taxes receivable/payable		2,432			765
Excess tax benefit from stock awards		(549	)		(246	)
Other tax liabilities		238			363
Other long-term liabilities		(383	)		2,256
Deferred revenues		15,489			15,817

Net Cash Provided by Operating Activities		34,342			29,394

CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisition of WMG, Inc., net of cash acquired		(729	)		(25,664	)
Acquisition of Maconomy A/S		—			(168	)
Acquisition of assets of S.I.R.A., Inc.		(1,304	)		(1,039	)
Purchase of property and equipment		(4,545	)		(6,477	)
Capitalized software development costs		(140	)		—

Net Cash Used in Investing Activities		(6,718	)		(33,348	)

CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from exercise of stock options		1,870			337
Excess tax benefit from stock awards		549			246
Proceeds from issuance of stock under employee stock purchase plan		474			358
Shares withheld for minimum tax withholding on vested restricted stock awards		(1,604	)		(1,182	)
Purchase of treasury stock		(8,606	)		—
Repayment of debt		(15,026	)		(25,524	)

Net Cash Used in Financing Activities		(22,343	)		(25,765	)

IMPACT OF FOREIGN EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS		(434	)		1,558


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		4,847			(28,161	)

CASH AND CASH EQUIVALENTS––Beginning of period		35,243			76,619


CASH AND CASH EQUIVALENTS––End of period	$	40,090		$	48,458

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(in thousands)


	Six Months Ended June 30,
	2012		2011
	(unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Noncash activity during the current period:
Accrued liability for purchases of property and equipment	$	—	$	206

Accrued liability for acquisition of businesses	$	—	$	791

Cash paid (received) during the period for:
Interest	$	4,724	$	5,345

Income taxes, net	$	1,320	$	(274	)

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	Preferred Stock				Common Stock					Class A Common Stock				Additional Paid-In Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income			Treasury Stock					Total Shareholders’ Equity
	Shares		Amount		Shares			Amount		Shares		Amount		Additional Paid-In Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income			Shares		Amount			Total Shareholders’ Equity
Balance at December 31, 2010		—	$	—		68,794,774		$	69		100	$	—	$	261,837		$	(213,431	)	$	2,911			—	$	—		$	51,386

Net loss		—		—		—			—		—		—		—			(3,390	)		—			—		—			(3,390	)
Other comprehensive income																					(723	)							(723	)
Issuance of common stock under the employee stock purchase plan		—		—		119,655			—		—		—		745			—			—			—		—			745
Stock options exercised		—		—		229,024			—		—		—		935			—			—			—		—			935
Issuance of restricted stock awards, net of forfeitures of 505,982		—		—		1,598,218			1		—		—		(1	)		—			—			—		—			—
Tax benefit from stock awards		—		—		—			—		—		—		164			—			—			—		—			164
Tax deficiency from other stock awards activity		—		—		—			—		—		—		(1,108	)		—			—			—		—			(1,108	)
Stock compensation		—		—		—			—		—		—		13,397			—			—			—		—			13,397
Exchange of liability for restricted stock		—		—		—			—		—		—		14			—			—			—		—			14
Reclassification adjustment		—		—		—			—		—		—		(99	)		—			—			—		—			(99	)
Purchase of treasury stock		—		—		—			—		—		—		—			—			—			2,126,618		(15,990	)		(15,990	)
Shares withheld for minimum tax withholding on vested restricted stock awards		—		—		(342,782	)		—		—		—		(2,388	)		—			—			—		—			(2,388	)

Balance at December 31, 2011		—	$	—		70,398,889		$	70		100	$	—	$	273,496		$	(216,821	)	$	2,188			2,126,618	$	(15,990	)	$	42,943

Net income		—		—		—			—		—		—		—			3,949			—			—		—			3,949
Other comprehensive loss		—		—		—			—		—		—		—			—			(1,787	)		—		—			(1,787	)
Issuance of common stock under the employee stock purchase plan		—		—		82,528			—		—		—		474			—			—			—		—			474
Stock options exercised		—		—		293,671			—		—		—		1,870			—			—			—		—			1,870
Issuance of restricted stock awards, net of forfeitures of 319,544		—		—		707,106			1		—		—		(1	)		—			—			—		—			—
Tax benefit from stock awards		—		—		—			—		—		—		549			—			—			—		—			549
Tax deficiency from other stock awards activity		—		—		—			—		—		—		(550	)		—			—			—		—			(550	)
Stock compensation		—		—		—			—		—		—		7,304			—			—			—		—			7,304
Purchase of treasury stock		—		—		—			—		—		—		—			—			—			837,880		(8,606	)		(8,606	)
Shares withheld for minimum tax withholding on vested restricted stock awards		—		—		(160,719	)		—		—		—		(1,604	)		—			—			—		—			(1,604	)

Balance at June 30, 2012		—	$	—		71,321,475		$	71		100	$	—	$	281,538		$	(212,872	)	$	401			2,964,498	$	(24,596	)	$	44,542

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2012

1. ORGANIZATION

Organization

Deltek, Inc. (“Deltek” or the “Company”) is a leading provider of enterprise software and information solutions for government contractors and professional services firms. Deltek’s solutions enable customers to research and identify business opportunities, win new business, optimize resources, streamline operations, and deliver more profitable projects for its customers. Deltek’s solutions provide its customers with actionable insight – providing enhanced visibility and control into business processes and operations and enabling them to succeed in delivering their projects and business goals. The Company is incorporated in Delaware and was founded in 1983.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The December 31, 2011 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes otherwise required by GAAP.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments necessary for the fair presentation of the Company’s statement of financial position, the Company’s results of operations, the Company’s statement of comprehensive income (loss) and its cash flows for the interim periods. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2012 or for any other periods.

Principles of Consolidation

The condensed consolidated financial statements are prepared in accordance with GAAP and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Areas of the financial statements where estimates may have the most significant effect include the allowance for doubtful accounts receivable and sales allowances, lives of tangible and intangible assets, impairment of long-lived and other assets, realization of deferred tax assets, accrued liabilities, stock-based compensation, revenue recognition, valuation of acquired deferred revenue, goodwill and intangible assets, and provisions for income taxes. Actual results could differ from those estimates.

Revenue Recognition

The Company’s revenues are generated primarily from four sources: licensing of software products, subscriptions (including access to our information solutions offerings), providing maintenance and support for those products, and providing consulting services related to those products. The Company recognizes revenue in accordance with ASC 985-605, Software-Revenue Recognition , and in accordance with the Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition . Where services are essential to the software functionality or the services carry a significant degree of risk or unique acceptance criteria, the Company recognizes the perpetual licenses, term licenses and services revenue together in accordance with ASC 605-35, Revenue Recognition-Construction-Type and Certain Production-Type Contracts (“ASC 605-35”).

Under its perpetual software license agreements, the Company recognizes revenue upon execution of a signed agreement and delivery of the software provided that the arrangement fees are fixed or determinable, collection of the resulting receivable is probable, and vendor-specific objective evidence (“VSOE”) of fair value exists to allow the allocation of a portion of the total fee to any undelivered elements of the arrangement. In the event that VSOE does not exist for any undelivered element, the entire arrangement fee is recognized over the longer of the services, subscription, or maintenance period.

If VSOE exists to allow the allocation of a portion of the total fee to undelivered elements of the arrangement, the residual amount in the arrangement allocated to perpetual licenses is recognized as revenue when all of the following are met:

•

Persuasive evidence of an arrangement exists . It is our practice to require a signed contract or an accepted purchase order for existing customers.

•

Delivery has occurred . We deliver software by secure electronic means or physical delivery. Both means of delivery transfer title and risk to the customer. Shipping terms are generally FOB shipping point.

•

The fees from software license sale is fixed or determinable . We recognize revenue for the perpetual license component of multiple element arrangements only when VSOE of fair value of any undelivered elements is known, any uncertainties surrounding customer acceptance are resolved and there are no refund, return, or cancellation rights associated with the delivered elements. Fees from perpetual license sales are generally considered fixed or determinable when payment terms are within the Company’s standard payment terms for given products.

•

Collectibility is probable . Amounts receivable must be collectible. For license arrangements that do not meet our collectibility standards, revenue is recognized as cash is received.

The Company’s software license agreements generally do not include customer acceptance provisions; if acceptance provisions are provided, delivery is deemed to occur upon acceptance.

Perpetual and term license revenues from resellers are recognized using a sell-through model whereby the Company recognizes revenue when evidence of a sales arrangement exists between reseller and end-user.

The Company’s standard payment terms for its perpetual license agreements are generally within 180 days. The Company considers the perpetual software license fee to be fixed or determinable unless the fee is subject to refund or adjustment, or is not payable within the Company’s standard payment terms. Perpetual license revenue from arrangements with payment terms extending beyond 180 days has generally been viewed as outside the Company’s standard payment terms and is recognized as payments become due and payable if the Company is unable to demonstrate a history of collecting under similar payment terms with similar arrangements.

The Company also sells its software products under term license agreements, including our software-as-a-service (“SaaS”) offerings. Term licenses offer the customer rights to software and related maintenance and support for a specific fixed period of time, usually between 12 and 36 months. In some cases, implementation services are also included in the initial period fee. Hosting services may also be included in the fee. Customers generally prepay for these term licenses, and these prepayments are recorded as deferred revenue and revenue is recognized over the contractual period of the term license.

Subscription revenues, including access to our information solutions offerings, generally provide customers with access to the Company’s Information Solutions products for a fixed period of time, usually one year. Customers generally prepay for these subscription offerings, and these prepayments are recorded as deferred revenue and revenue is recognized over the term of the subscription.

Sales taxes and other taxes collected from customers and remitted to governmental authorities are presented on a net basis and, as such, are excluded from revenues.

Maintenance and support services include unspecified periodic software upgrades or enhancements, bug fixes and phone support for perpetual software licenses. Initial annual maintenance and support are sold as a consistent percentage of the software price. Customers generally prepay for maintenance, and these prepayments are recorded as deferred revenue and revenue is recognized ratably over the term of the maintenance period.

The Company’s consulting services consist primarily of implementation services, training, and design services. Consulting services are also regularly sold separately from other elements, generally on a time-and-materials basis. Other revenues mainly include fees collected for the Company’s annual user conference.

Consulting services are generally not essential to the functionality of the Company’s software and are usually completed in three to six months, though larger implementations may take longer. The Company generally recognizes

revenues for these services as they are performed. In the case of software arrangements where services are essential to the software functionality or the services carry a significant degree of risk or unique acceptance criteria, the Company recognizes the perpetual license and services revenue together in accordance with ASC 605-35. Direct costs related to these arrangements are deferred and expensed as the related revenue is recognized.

Implementation, installation and other consulting services are generally billed based upon hourly rates, plus reimbursable out-of-pocket expenses and related administrative fees. Revenue on these arrangements is recognized based on hours actually incurred at the contract billing rates, plus out-of-pocket expenses. Implementation, installation and other consulting services revenue under fixed-fee arrangements is generally recognized as the services are performed if the Company has the ability to demonstrate it can reasonably estimate the percentage of completion.

The Company generally sells training services at a fixed rate for each specific training session at a per-attendee price, and revenue is recognized when the customer attends the training. The Company also sells training on a time-and-materials basis. In situations where customers pay for services in advance of the services being rendered, the related prepayment is recorded as deferred revenue and recognized as revenue when the services are performed.

For sales arrangements where perpetual software licenses are sold together with maintenance and support, consulting, training, or subscription offerings, the Company recognizes revenue using the residual method. The residual accounting method is used since VSOE has not been established for the perpetual license element as it is not typically sold on a standalone basis. Using this method, the Company first allocates revenue to the undelivered elements on the basis of VSOE. The difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue for the delivered elements, which is usually the perpetual software license component. The Company has established VSOE for standard offerings of maintenance and support and consulting services based on the price charged when these elements are sold on a standalone basis.

In cases where perpetual licenses and other elements are sold in combination with term licenses, all revenue is recognized ratably over the longest period of performance for the undelivered elements once the Company has commenced delivery of all elements. For income statement classification purposes, revenue is allocated based on VSOE for maintenance, training and consulting services. For term licenses, VSOE has not yet been established, and revenue is therefore allocated to the undelivered term license based on the contractually stated renewal rate. Under the residual method, any remaining arrangement fee is allocated to the perpetual software license.

For maintenance and support agreements, VSOE is based upon historical renewal rates.

For consulting services and training sold as part of a multiple element sales arrangement, VSOE is based upon the prices charged for those services when sold separately. For sales arrangements that require the Company to deliver future specified products or services for which VSOE of fair value is not available, the entire arrangement is deferred until VSOE is available or delivery has occurred. For income statement classification purposes revenue is allocated first to the undelivered element based on VSOE. Any remaining arrangement fee is then allocated to the software license.

Product revenues and Costs of product revenues in the condensed consolidated statements of operations are comprised of the following sources of revenues and their associated costs of revenues (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
PRODUCT REVENUES
Perpetual licenses	$	15,976	$	15,020	$	28,944	$	29,580
Subscriptions and term licenses		12,464		9,768		24,551		16,798

Total product revenues	$	28,440	$	24,788	$	53,495	$	46,378

COST OF PRODUCT REVENUES
Cost of perpetual licenses	$	1,701	$	1,862	$	3,033	$	3,563
Cost of subscriptions and term licenses		4,972		5,140		10,463		9,114

Total cost of product revenues	$	6,673	$	7,002	$	13,496	$	12,677

Fair Value Measurements

ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value and expands required disclosures about fair value measurements. As

of June 30, 2012 and December 31, 2011, the Company measured its money market funds at fair value based on quoted prices that are equivalent to par value (Level 1). The Company did not have any assets measured at fair value on a recurring basis using significant other observable inputs (Level 2) or significant unobservable inputs (Level 3). At June 30, 2012, the Company re-measured the fair value of the contingent consideration from an acquisition (See Note 3, Acquisitions ) resulting in a fair value adjustment of $0.3 million recorded as a reduction to the contingent consideration and a corresponding benefit in the Company’s condensed consolidated statement of operations. The fair value was determined using a valuation method that required a significant degree of management judgment to determine the key assumptions which include projected revenues and appropriate discount rates. As such, the Company classified the fair value adjustment as a Level 3 measurement within the fair value hierarchy.

The Company’s nonfinancial assets measured at fair value on a nonrecurring basis include goodwill, indefinite-lived intangible assets, and long-lived tangible assets including property and equipment (See Note 5, Goodwill and Other Intangible Assets ). The valuation methods used to determine fair value require a significant degree of management judgment to determine the key assumptions which include projected revenues, royalty rates and appropriate discount rates. As such, the Company classifies nonfinancial assets subjected to nonrecurring fair value adjustments as Level 3 measurements. At June 30, 2012, the Company did not have any adjustments to non-financial assets measured at fair value on a nonrecurring basis.

Financial instruments are defined as cash, evidence of an ownership interest in an entity or contracts that impose an obligation to deliver cash, or other financial instruments to a third party. Cash and cash equivalents, which are primarily cash and funds held in money market accounts on a short-term basis, are carried at fair market value. At June 30, 2012, the Company’s cash equivalents were invested in a money market fund that invests primarily in a portfolio of short-term U.S. Treasury securities.

The money market fund investments include repurchase agreements collateralized fully by U.S. Treasury securities. As a result, the risk of non-performance of the money market fund is very low. The investments have a net asset value equal to $1.00 with no withdrawal restrictions, and there are no investments in auction rate securities. In addition, the money market fund has not experienced a decline in value and its net asset value has historically not dropped below $1.00. The Company’s cash and cash equivalents at June 30, 2012 consisted of $6.4 million in money market investments and $33.7 million in cash. The Company’s cash and cash equivalents at December 31, 2011 consisted of $3.5 million in money market investments and $31.7 million in cash.

The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity term of these instruments. The carrying value of the Company’s debt is reported in the financial statements at cost. Although there is no active public market for the debt, the Company has determined that the carrying value of its debt, which includes an original issue discount, approximates fair value based on an analysis of interest rates in effect at the time of our 2011 amendment to the Credit Agreement (defined below), current market interest rates and limited private trading of the debt. In addition, the debt contains a variable interest rate component, although, based on prevailing market rates at June 30, 2012 and at the time of our 2011 amendment to the Credit Agreement, the interest rate was fixed due to the interest rate floor under the terms of the Company’s Credit Agreement. The estimated fair value of the Company’s debt at June 30, 2012 and December 31, 2011 was $152.6 million and $167.4 million, respectively. The estimated fair value has been determined based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements, and is classified as Level 2 within the fair value hierarchy.

As of June 30, 2012 and December 31, 2011, the Company had no derivative financial instruments. The Company’s policy with respect to derivative financial instruments is to record them at fair value with changes in value recognized in earnings during the period of change.

Recently Adopted Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The guidance clarifies how a principal market is determined, amends the application of the concepts of “highest and best use” and “valuation premise” to apply only to the fair value measurements of nonfinancial assets and extends the prohibition on blockage factors and control premiums to all three levels of the fair value hierarchy.

ASU 2011-04 also expands disclosure requirements particularly for Level 3 inputs and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed. For many of the requirements, the FASB does not intend for the amendments in this Update to result in a change in the application of the requirements in ASC 820-10. Certain amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. ASU 2011-04 is effective prospectively for interim and annual periods beginning after December 15, 2011. Although the adoption of ASU 2011-04 did not have a material impact, it did change the Company’s disclosures for fair value.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which changes the manner in which comprehensive income is presented in the financial statements. The guidance in ASU 2011-05 removes the current option to report other comprehensive income (“OCI”) and its components in the statement of changes in equity and requires entities to report this information in one of two options. The first option is to present this information in a single continuous statement of comprehensive income starting with the components of net income and total net income followed by the components of OCI, total OCI, and total comprehensive income.

The second option is to report two consecutive statements; the first statement would report the components of net income and total net income in a statement of income followed by a statement of OCI that includes the components of OCI, total OCI and total comprehensive income. The statement of OCI would begin with net income. ASU 2011-05 does not change what is required to be reported in other comprehensive income or impact the computation of earnings per share. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 with the application of ASU 2011-05 applied retrospectively for all periods presented in the financial statements. The Company adopted ASU 2011-05 on January 1, 2012 and elected to present OCI in two consecutive statements. See the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss).

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”), which allows, but does not require, an entity when performing its annual goodwill impairment test the option to first do an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of determining whether it is even necessary to perform the first step of the two-step goodwill impairment test. Accordingly, based on the option created in ASU 2011-08 the calculation of a reporting unit’s fair value is not required unless, as a result of the qualitative assessment, it is more likely than not that fair value of the reporting unit is less than its carrying amount. In this case, the quantitative impairment test is required.

ASU 2011-08 also provides for new qualitative indicators to replace those currently used. Prior to ASU 2011-08, entities were required to test goodwill for impairment on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount (Step 1). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test is performed to measure the amount of impairment loss, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company did not early adopt the provisions in ASU 2011-08 and will evaluate the standard when performing its future goodwill impairment tests, which are performed annually as of December 31 of each year.

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which defers indefinitely the guidance in ASU 2011-05 prescribing that reclassification adjustments from OCI to be measured and presented by income statement line item in net income and also in other comprehensive income. Companies will continue to comply with the existing requirements for presenting reclassification adjustments in either OCI or disclosing the reclassification adjustments in the footnotes to the financial statements.

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). The guidance allows companies to perform a “qualitative” assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test.

ASU 2012-02 allows companies the option to first assess qualitatively whether it is more likely than not that an indefinite-lived intangible asset is impaired, thus necessitating that it perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. Companies can choose to perform the qualitative assessment on none, some, or all of its indefinite-lived intangible assets or choose to only perform the quantitative impairment test for any indefinite-lived intangible in any period.

ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is in the process of evaluating the guidance and the impact it will have on its consolidated financial statements.

3. ACQUISITIONS

The Washington Management Group, Inc.

On March 31, 2011, the Company acquired 100% of the outstanding stock of The Washington Management Group, Inc., including its FedSources and FedSources Consulting businesses (collectively, “FedSources”). FedSources offers leading market intelligence and consulting services necessary to identify, qualify, and win government business, as well as comprehensive GSA schedule consulting. The results of FedSources have been included in the Company’s condensed consolidated financial statements since April 1, 2011 and were not material to the overall consolidated results of the Company.

The aggregate purchase price that the Company paid for FedSources is as follows (in thousands):


	Amounts
Cash paid	$	26,729
Contingent Consideration		600

		27,329
Less: Cash acquired		(336	)

Total purchase price	$	26,993

The contingent consideration of $0.6 million represents the fair value at the date of acquisition of the potential earn-out payment of $5.0 million based on an estimate of revenue realization at the end of a five-year period. At June 30, 2012 and December 31, 2011, the fair value of the contingent consideration was $0.3 million and $0.6 million, respectively. For the six months ended June 30, 2011, approximately $274,000 was incurred for acquisition-related costs and integration costs, respectively, which are included in “General and Administrative” expenses in the condensed consolidated statement of operations. There were no acquisition-related costs and integration costs incurred for the three and six months ended June 30, 2012.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition, including subsequent adjustments (in thousands):


Accounts receivable	$	1,286
Deferred tax asset		185
Prepaid expenses and other assets		85
Property and equipment		470
Intangible assets		5,880
Goodwill		23,246
Accounts payable and accrued expenses		(598	)
Deferred revenues		(3,015	)
Current income taxes payable		(238	)
Noncurrent deferred tax liability		(218	)
Other long-term liabilities		(90	)

Total purchase price	$	26,993

The components and the useful lives of the intangible assets listed in the above table as of the acquisition date, including subsequent adjustments, are as follows (in thousands):


	Amount		Life
Technology	$	690	1 year
Trade names		740	5, 10 years
Research database		1,400	5 years
Customer relationships		3,050	10 years

Total intangible assets	$	5,880

Technology was amortized using an accelerated amortization method over one year, and the related amortization expense in the Company’s condensed consolidated statement of operations was included in “Cost of Product Revenues”. The research database is being amortized using an accelerated amortization method over five years, and the related amortization expense is included in “Cost of Product Revenues”. The trade names and customer relationships are being amortized using an accelerated amortization method over five or 10 years, and the related amortization expense is included in “Sales and Marketing” expense. The weighted average useful life of the intangible assets is estimated at 7.3 years.

The goodwill associated with the transaction is primarily due to the benefits to the Company resulting from the combination with FedSources. The goodwill and identified intangibles recorded in this transaction are deductible for tax purposes.

4. EARNINGS (LOSS) PER SHARE

Net earnings (loss) per share is computed under the provisions of ASC 260, Earnings Per Share (“ASC 260”). Basic earnings (loss) per share is computed using net earnings (loss) and the weighted average number of common shares outstanding. Diluted earnings (loss) per share reflects the weighted average number of common shares outstanding plus any potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of shares issuable upon the exercise of stock options, unvested restricted stock and shares from the Employee Stock Purchase Plan (“ESPP”).

The following table sets forth the computation of basic and diluted net earnings (loss) per share (dollars in thousands, except share and per share data):


	Three Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012		2011
Basic earnings (loss) per share computation:
Net earnings (loss) (A)	$	4,240	$	(2,955	)	$	3,949	$	(9,506	)

Weighted average common shares–basic (B)		64,110,358		65,537,693			64,175,384		65,440,638

Basic net earnings (loss) per share (A/B)	$	0.07	$	(0.05	)	$	0.06	$	(0.15	)

Diluted earning (loss) per share computation:
Net earning (loss) (A)	$	4,240	$	(2,955	)	$	3,949	$	(9,506	)

Shares computation:
Weighted average common shares–basic		64,110,358		65,537,693			64,175,384		65,440,638
Effect of dilutive stock options, restricted stock, and ESPP		2,464,666		—			2,400,968		—

Weighted average common shares–diluted (C)		66,575,024		65,537,693			66,576,352		65,440,638

Diluted net earnings (loss) per share (A/C)	$	0.06	$	(0.05	)	$	0.06	$	(0.15	)

For the three and six months ended June 30, 2012, outstanding equity awards for common stock equivalents, or 1,945,921 and 2,050,921 of equity awards, respectively, were excluded in the computation of diluted earnings (loss) per share because their effect would have been anti-dilutive. For the three and six months ended June 30, 2011, all outstanding common stock equivalents, or 9,900,148 equity awards, were excluded in the computation of diluted earnings (loss) per share because their effect would have been anti-dilutive due to the net loss during the prior period. These excluded equity awards for common stock related to potentially dilutive securities associated primarily with stock options and restricted stock awards granted by the Company pursuant to its equity plans.

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table represents the balance and changes in goodwill for the six months ended June 30, 2012 (in thousands):


Balance as of January 1, 2012	$	175,771
Foreign currency translation adjustment		(899	)

Balance as of June 30, 2012	$	174,872

The Company performed an annual impairment test for goodwill as of December 31, 2011 and determined that there was no impairment of goodwill, as the Company’s fair value was assessed and it was determined the fair value exceeded the carrying value. There have been no events or changes in circumstances that have occurred during the six months ended June 30, 2012 that would indicate that there has been an impairment of goodwill.

Other Intangible Assets

The following tables set forth information for intangible assets subject to amortization and for intangible assets not subject to amortization (in thousands):


	As of June 30, 2012
	Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Amortized Intangible Assets
Customer relationships-maintenance and license	$	55,193		$	(31,493	)	$	23,700
Technology		23,530			(18,296	)		5,234
Trade names and non-compete		3,280			(1,397	)		1,883
Research database		13,340			(4,196	)		9,144
Foreign currency translation adjustments		(680	)		366			(314	)

Total amortized intangible assets	$	94,663		$	(55,016	)	$	39,647
Unamortized Intangible Assets
Trade names	$	6,964		$	—		$	6,964
In process research & development		105			—			105
Foreign currency translation adjustments		(160	)		—			(160	)


Total unamortized intangible assets	$	6,909			—			6,909

Total Intangible Assets	$	101,572		$	(55,016	)	$	46,556


	As of December 31, 2011
	Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Amortized Intangible Assets
Customer relationships-maintenance and license	$	55,476		$	(27,562	)	$	27,914
Technology		23,741			(16,458	)		7,283
Trade names and non-compete		3,280			(941	)		2,339
Research database		13,340			(3,009	)		10,331
Foreign currency translation adjustments		(494	)		552			58

Total amortized intangible assets	$	95,343		$	(47,418	)	$	47,925
Unamortized Intangible Assets
Trade names	$	7,053		$	—		$	7,053
In process research & development		107			—			107
Foreign currency translation adjustments		(91	)		—			(91	)

Total unamortized intangible assets	$	7,069		$	—			7,069

Total Intangible Assets	$	102,412		$	(47,418	)	$	54,994

Amortization expense related to intangible assets acquired in business combinations is allocated to cost of revenues or operating expenses on the statements of operations based on the revenue stream to which the asset contributes. The following table summarizes amortization expense for the three and six months ended June 30, 2012 and 2011 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Included in cost of revenues:
Cost of product revenues	$	1,512	$	2,141	$	3,276	$	4,013
Cost of consulting services and other revenues		—		19		19		39

Total included in cost of revenues		1,512		2,160		3,295		4,052
Included in operating expenses		2,307		2,737		4,669		5,223

Total	$	3,819	$	4,897	$	7,964	$	9,275

The following table summarizes the estimated future amortization expense for the remaining six months of 2012 and years thereafter (in thousands):


Years Ending December 31,
2012 (remaining)	$	6,614
2013		10,946
2014		7,878
2015		5,320
2016		3,541
2017		2,440
Thereafter		2,908

Total	$	39,647

In accordance with ASC 360, Property, Plant, and Equipment, the Company reviews its long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There were no impairment charges for the six months ended June 30, 2012 or 2011.

6. DEBT

The Company maintains a credit agreement with a syndicate of lenders led by Credit Suisse (the “Credit Agreement”).

In November 2010, the Company amended and extended the Credit Agreement, providing for $230.0 million in borrowings, consisting of $200.0 million in secured term loans maturing in November 2016 and a secured revolving credit facility of $30.0 million maturing in November 2015. The new revolving credit facility was undrawn at closing. All prior amounts outstanding, totaling $146.8 million, but excluding approximately $805,000 in letters of credit that remained outstanding after the 2010 amendment, were prepaid in full out of proceeds from the Credit Agreement. The remaining $48.1 million of proceeds from the 2010 amendment, less debt issuance costs of approximately $5.1 million, were used for general corporate purposes. The amendment resulted in an original issuance debt discount of 1.00%, or $2.0 million, which is being amortized over the term of the loan using the effective interest method and was included in the $5.1 million of debt issuance costs noted above.

Under the 2010 amendment to the Credit Agreement, for both the term loans and the revolving credit facility, the interest rate for amounts outstanding was equal to the British Banker’s Association Interest Settlement Rates for dollar deposits (the “LIBO rate”) plus 4.00% (the “Applicable Percentage”), with a LIBO rate floor of 1.50%. The Applicable Percentage was either 4.00% or 3.75% based on financial performance criteria set forth in the Credit Agreement. Depending on the type of borrowing, interest rates for the term loans prior to the 2010 amendment were either 2.25% or 4.25% above the LIBO rate and contained a LIBO rate floor of 2.00% and the rate for the revolving credit facility was 2.50% or 1.50%.

In November 2011, the Company further amended the Credit Agreement with respect to certain non-financial covenants. As a result of this amendment, the Applicable Percentage for both the term loans and the revolving credit facility was increased by 25 basis points to either 4.00% or 4.25%. The Company paid approximately $290,000 in fees in connection with this amendment of which approximately $240,000 is being amortized to interest expense over the remaining term of the modified Credit Agreement using the effective interest method, with the remaining costs expensed as incurred.

The Company pays an annual fee equal to 0.75% of the undrawn portion on the revolving credit facility that expires in November 2015. Prior to any prepayments made (see below), the Credit Agreement required the Company to make principal payments of $0.5 million per quarter through September 2016, with the remaining balance due in November 2016. In addition, the Credit Agreement continues to require mandatory prepayments of the term loans from annual excess cash flow, as defined in the Credit Agreement, and from the net proceeds of certain asset sales or equity issuances. In the first half of 2012, there were no mandatory principal prepayments required under the Credit Agreement.

For the six months ended June 30, 2012, the Company made voluntary prepayments of $15.0 million to reduce amounts outstanding under the Credit Agreement. The prepayments were applied first against the scheduled debt payments until March 2013, and second, ratably against the next scheduled debt payments in the amortization schedule.

As of June 30, 2012, the outstanding principal amount of the term loans was $154.0 million, with interest at 5.50%. As of December 31, 2011, the outstanding amount of the term loans was $169.0 million with interest at 5.50%. There were no borrowings under the revolving credit facility at June 30, 2012 and December 31, 2011.

The following table summarizes future principal payments on the Credit Agreement as of June 30, 2012 after the voluntary prepayments were made (in thousands):


	Principal Payment
2012 (remaining)	$	—
2013		1,575
2014		1,575
2015		1,576
2016		149,274

Total principal payments		154,000
Less: unamortized debt discount		(1,381	)

Net debt	$	152,619

All loans under the Credit Agreement are collateralized by substantially all of the Company’s assets (including the Company’s domestic subsidiaries’ assets).

The loans require compliance with certain financial covenants. There were no material modifications to the debt covenants under the Credit Agreement from the 2010 amendment, except that the fixed charge coverage ratio covenant was replaced by a maximum annual capital expenditures covenant under the Credit Agreement.

The Credit Agreement also requires the Company to comply with other covenants that restrict or limit certain corporate activities, including incurring additional indebtedness, guaranteeing obligations, creating liens on assets, entering into sale and leaseback transactions, engaging in certain mergers or consolidations, or paying any cash dividends.

The Company was in compliance with all covenants under the Credit Agreement as of June 30, 2012.

7. INCOME TAXES

In accordance with ASC 740, Income Taxes (“ASC 740”), the income tax provision for interim periods is based on the estimated annual effective tax rate for the full fiscal year. The estimated effective tax rate is subject to adjustment in subsequent quarterly periods as the estimates are refined. The Company’s effective tax rate for the six months ended June 30, 2012 and 2011 was 37.7% and 36.6%, respectively. The Company’s effective tax rate differs from the tax benefit computed at the U.S. federal statutory income tax rate primarily due to the disallowance of tax benefits associated with foreign loss companies.

The Company’s net deferred tax assets were $16.1 and $15.0 million as of June 30, 2012 and December 31, 2011, respectively. The Company believes it is more likely than not that the net deferred tax assets will be realized in the foreseeable future. Realization of the Company’s net deferred tax assets is dependent upon the Company generating sufficient taxable income in future years in appropriate tax jurisdictions in order to obtain tax benefits from the reversal of temporary differences, net operating loss carryforwards, and tax credit carryforwards. The amount of net deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to examination for the years before 2007. Currently, the Company is under audit in the Philippines for tax periods ending December 31, 2009 and 2008.

8. STOCK-BASED COMPENSATION

Stock Incentive Plans

The Company has historically granted equity awards to directors and employees under two separate equity plans.

The Company’s 2005 Stock Option Plan (the “2005 Plan”) authorized the Company to grant options to purchase up to 6,310,000 shares of common stock to directors and employees. Option grants under the 2005 Plan ceased upon the approval of the Company’s 2007 Stock Incentive and Award Plan (the “2007 Plan”).

In April 2007, the Company’s Board of Directors (the “Board”) and shareholders approved the 2007 Plan, which allowed the Company to grant up to 1,840,000 new stock incentive awards or options, including incentive and nonqualified stock options, stock appreciation rights, restricted stock, dividend equivalent rights, performance units, performance shares, performance-based restricted stock, share awards, phantom stock and cash incentive awards. The aggregate number of shares reserved and available for grant and issuance pursuant to the 2007 Plan increases automatically each January 1 in an amount equal to 3% of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding calendar year, unless otherwise reduced by the Board.

In addition, in August 2010, the Board and shareholders approved the amendment and restatement of the 2007 Plan to, among other things, increase the number of shares reserved and available for issuance under the 2007 Plan by 1,140,000 shares. Grants issued under the 2007 Plan may be from either authorized but unissued shares or issued shares from equity awards which have been forfeited or withheld by the Company upon vesting for payment of the employee’s tax withholding obligations and returned to the plan as shares available for future issuance.

The following table presents the stock-based compensation expense for stock options, restricted stock and ESPP shares (as described below) included in the related financial statement line items (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Included in cost of revenues:
Cost of consulting services and other revenues	$	364	$	242	$	723	$	681
Cost of maintenance and support services		360		259		691		531
Cost of product revenues		105		46		203		97

Total included in cost of revenues		829		547		1,617		1,309
Included in operating expenses:
Research and development		593		637		1,185		1,365
Sales and marketing		745		719		1,484		1,525
General and administrative		1,513		1,004		2,979		2,145
Restructuring charge		—		234		—		547

Total included in operating expenses		2,851		2,594		5,648		5,582

Total	$	3,680	$	3,141	$	7,265	$	6,891

Stock Options

During the six months ended June 30, 2012, options to purchase 125,000 shares of common stock were granted, with a weighted average grant date fair value of $6.12 as determined under the Black-Scholes-Merton valuation model. During the six months ended June 30, 2012, options were exercised at an aggregate intrinsic value of $1.2 million. The intrinsic value for stock options exercised is calculated as the difference between the market value on the date of exercise and the exercise price of the shares. The stock options exercised during the period were issued from previously authorized common stock.

The weighted average assumptions used in the Black-Scholes-Merton option-pricing model are as follows:


	Six Months Ended June 30,
	2012			2011
Dividend yield		0.0	%		0.0	%
Expected volatility		69.3	%		65.8	%
Risk-free interest rate		1.1	%		2.4	%
Expected life (in years)		6.1			6.1

Stock option compensation expense for the three months ended June 30, 2012 and 2011 was $0.7 million and $1.1 million, respectively. Stock option compensation expense for the six months ended June 30, 2012 and 2011 was $1.4 million and $2.5 million, respectively. As of June 30, 2012, compensation cost related to unvested stock options not yet recognized in the income statement was $1.7 million and is expected to be recognized over an average period of 2.3 years.

Restricted Stock

During the six months ended June 30, 2012, the Company issued 1,026,650 shares of restricted stock at a weighted average grant date fair value of $9.92. The grant date fair value is based on the closing price of the Company’s common stock on the date of grant.

Restricted stock awards are considered outstanding at the time of grant as the shares are issued and the stockholders are entitled to voting rights. Dividend payments are deferred until the requisite service period has lapsed; additionally, any deferred dividends will be forfeited if the award shares are forfeited by the grantee. Unvested restricted stock awards are not considered outstanding in the computation of basic earnings per share. The Company’s Credit Agreement and shareholder’s agreement with New Mountain Capital restrict the payment of dividends.

Restricted stock compensation expense for the three months ended June 30, 2012 and 2011 was $2.9 million and $2.0 million, respectively. Restricted stock compensation expense for the six months ended June 30, 2012 and 2011 was $5.7 million and $4.3 million, respectively. As of June 30, 2012, compensation cost related to unvested shares not yet recognized in the income statement was $21.7 million and is expected to be recognized over an average period of 2.7 years.

Upon each vesting of the restricted stock awards, employees are subject to minimum tax withholding obligations. The 2007 Plan allows the Company, at the employee’s election, to withhold a sufficient number of shares due to the employee to satisfy the employee’s minimum tax withholding obligations. During the six months ended June 30, 2012, the Company withheld 160,719 shares of common stock at a value of approximately $1.6 million. Pursuant to the terms of the 2007 Plan, the shares withheld were returned to the 2007 Plan reserve for future issuance and, accordingly, the Company’s issued and outstanding common stock and additional paid-in capital were reduced to reflect this adjustment.

Employee Stock Purchase Program

In April 2007, the Board established the ESPP to provide eligible employees an opportunity to purchase up to 750,000 shares of the Company’s common stock through accumulated payroll deductions. In February 2010, the number of shares that employees could purchase under the ESPP was increased to 1,500,000 in the aggregate. Employees may contribute to the plan during six-month offering periods that begin on March 1 and September 1 of each year. The per share price of common stock purchased pursuant to the ESPP is equal to 90% of the fair market value of a share of common stock on (i) the first day of an offering period, or (ii) the date of purchase ( i.e. the last day of the offering period), whichever is lower.

ESPP compensation expense for the three months ended June 30, 2012 and 2011 was $98,000 and $64,000, respectively. ESPP compensation expense for the six months ended June 30, 2012 and 2011 was $181,000 and $115,000, respectively. During the six months ended June 30, 2012, a total of 82,528 shares were issued under the ESPP and, as of June 30, 2012, there were 455,943 shares available under the ESPP.

9. RELATED-PARTY TRANSACTIONS

New Mountain Capital, L.L.C., our majority shareholder, is entitled to receive transaction fees equal to 2% of the transaction value of each significant transaction directly or indirectly involving the Company or any of its controlled affiliates, including, but not limited to, acquisitions, dispositions, mergers, or other similar transactions, debt, equity or other financing transactions, public or private offerings of the Company’s securities and joint ventures, partnerships and minority investments. Transaction fees are payable upon the consummation of a significant transaction. No fee is payable for a

transaction with a value of less than $25.0 million. There were no related party transactions during the six months ended June 30, 2012 or 2011. In connection with the Company’s acquisition of FedSources in March 2011, New Mountain Capital, L.L.C. agreed to waive any transaction fee payable for this transaction.

10. RESTRUCTURING CHARGES

The following table represents the restructuring liability balance at June 30, 2012 (in thousands):


	Six Months Ended June 30, 2012
	Beginning Balance		Charges and Adjustments to Charges			Cash Payments			Non-cash Reductions			Total Remaining Liability
2010 Plans
Severance and benefits	$	—	$	—		$	—		$	—		$	—
Facilities		195		—			(79	)		—			116

Total 2010 Plans	$	195	$	—		$	(79	)	$	—		$	116

2011 Plans
Q1 2011 Plan
Severance and benefits	$	387	$	2,030		$	(1,913	)	$	(27	)	$	477
Facilities		1,206		27			(529	)		—			704

Total Q1 2011 Plan	$	1,593	$	2,057		$	(2,442	)	$	(27	)	$	1,181

Q2 2011 Plan
Severance and benefits	$	171	$	(37	)	$	(127	)	$	—		$	7
Facilities		—		33			(33	)		—			—

Total Q2 2011 Plan	$	171	$	(4	)	$	(160	)	$	—		$	7

Total
Severance and benefits	$	558	$	1,993		$	(2,040	)	$	(27	)	$	484
Facilities		1,401		60			(641	)		—			820

	$	1,959	$	2,053		$	(2,681	)	$	(27	)	$	1,304

2012 and 2011 Restructuring Activity

During the first and second quarters of 2011, the Company initiated plans to restructure certain of its operations to realign its cost structure and resources and to take advantage of operational efficiencies following the completion of its acquisitions in 2011 and 2010. The total restructuring costs associated with the 2011 plans were estimated to range from $10 million to $11 million for the plan initiated in the first quarter of 2011 (“Q1 2011 Plan”), and from $3 million to $4 million for the plan initiated in the second quarter of 2011 (“Q2 2011 Plan”), consisting primarily of employee severance expenses and facilities obligations. The restructuring costs are being recorded in “Restructuring Charge” in the Company’s condensed consolidated statement of operations.

As a result of the Q1 2011 Plan, the Company recorded a restructuring charge in the first and second quarters of 2012 of $1.5 million and $528,000, respectively, for severance and benefits costs for the reduction in headcount of approximately 10 employees in each quarter. In the first and second quarters of 2011, the Company recorded a restructuring charge for the Q1 2011 Plan of $3.2 million and $2.3 million, respectively, for severance and benefits costs for the reduction in headcount of approximately 60 and 30 employees, respectively. As of June 30, 2012, the Company has a remaining severance and benefits liability of $477,000 with respect to this plan, which is reflected in “Accounts Payable and Accrued Expenses” in the condensed consolidated balance sheet.

As part of the Q1 2011 Plan, the Company incurred a restructuring charge of $27,000 in the first quarter of 2012 for costs related to office closures in 2011. In the second quarter of 2011, the Company incurred a restructuring charge of $507,000 with respect to this plan for the closure of one office location and the relinquishment of space at one office location. The remaining facility liability for this plan of $704,000 as of June 30, 2012 is reflected as “Accounts Payable and Accrued Expenses” in the condensed consolidated balance sheet.

As a result of the Q2 2011 Plan, the Company recorded a restructuring benefit in the first and second quarters of 2012 of $(8,000) and $(29,000), respectively, for severance and benefits costs resulting from a change in the estimate based on actual costs incurred. As part of the Q2 2011 Plan, the Company incurred a restructuring charge of $831,000 in the second

quarter of 2011 for severance and benefits costs for the reduction in headcount of approximately 45 employees. Additionally as part of the Q2 2011 Plan, the Company incurred a restructuring charge in the first quarter of 2012 of $33,000 for costs related to office closures in 2011. As of June 30, 2012, the Company has a remaining severance and benefits liability of $7,000 with respect to this plan, which is reflected in “Accounts Payable and Accrued Expenses” in the condensed consolidated balance sheet.

For the Q1 2011 Plan, liabilities at June 30, 2012 for severance and benefit costs are expected to be fully paid by the end of the third quarter of 2012 and facility costs are expected to be paid by the end of 2012. The Company expects to incur the remaining estimated expenses up to $300,000 for the Q1 2011 Plan by the end of 2012.

For the Q2 2011 Plan, liabilities at June 30, 2012 for severance and benefit costs are expected to be fully paid by the end of the third quarter of 2012. The Company expects to incur the remaining estimated expenses up to $500,000 for the Q2 2011 Plan by the end of 2012.

Any changes to the estimate of executing these restructuring plans will be reflected in the Company’s future results of operations.

2010 Restructuring Activities

Facilities

As a result of the fourth quarter plan (“Q4 2010 Plan”) in connection with the Company’s acquisition of Maconomy A/S in July 2010, the Company consolidated duplicate office facilities into one location. The Company ceased using the duplicate facility in October 2010. As a result of these actions, a restructuring charge was recorded for approximately $740,000 in the fourth quarter of 2010, which included an early lease termination charge and a provision to write down leasehold improvements and furniture and equipment.

As of June 30, 2012, the Company has a remaining facility liability for the Q4 2010 Plan of $116,000 relating to this office consolidation, which is expected to be fully paid by the end of the first quarter of 2013. This amount is reflected as “Accounts Payable and Accrued Expenses” in the Company’s condensed consolidated balance sheet.

11. COMMITMENTS AND CONTINGENCIES

The Company is involved from time to time in claims and legal proceedings incidental to the ordinary conduct of its business operations. With respect to pending legal proceedings, we are currently unable to estimate the reasonably possible loss, if any, or range of loss, if any. As any particular proceeding develops, we may be able to estimate a reasonably possible loss or range of loss for the matter. Our evaluation of our loss contingencies involves subjective assessments, assumptions and judgments, and actual losses incurred in future periods may differ significantly from our estimates (if any). Accordingly, although any estimate or any adverse resolution may occur and negatively affect our consolidated financial statements in the relevant fiscal period of resolution, based upon information currently available to the Company we are not currently involved in any legal proceeding in which the outcome is likely to have a material adverse effect on our business or financial position in our view. The results of any legal proceeding, however, cannot be predicted with certainty.

Guarantees

The Company provides limited indemnification to customers against intellectual property infringement claims made by third parties arising from the use of the Company’s software products. Estimated losses for such indemnifications are evaluated under ASC 450, Contingencies, as interpreted by ASC 460, Guarantees . The Company does not believe that it currently has any material financial exposure with respect to the indemnification provided to customers. However, due to the lack of indemnification claims from customers, the Company cannot estimate the fair value nor determine the total nominal amount of the indemnifications, if any.

The Company has secured copyright registrations for its own software products with the U.S. Patent and Trademark Office and with applicable European trademark offices. The Company is provided intellectual property infringement indemnification from its third-party partners whose technology may be embedded or otherwise bundled with the Company’s software products. Therefore, the Company considers the probability of an unfavorable outcome in an intellectual property infringement case relatively low. The Company has not encountered material costs as a result of such obligations and has not accrued any liabilities related to such indemnifications.

Product Warranties

The Company’s standard license agreements generally include a one-year warranty period for software products that are sold on a perpetual or term basis. The Company provides for the estimated cost of product warranties based on specific warranty claims, if (i) it is probable that a liability exists and (ii) amount can be reasonably estimated. To date, the Company has not had any material costs associated with these warranties.

12. SEGMENT INFORMATION

The Company operates as one reportable segment as the Company’s principal business activity relates to selling project-based software, information solutions and implementation and support services. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company as one unit based upon consolidated revenue and operating costs.

The Company’s products and services are sold in the United States, and are also sold through direct and indirect sales channels outside the United States.

For the three and six months ended June 30, 2012, approximately 17% and 17%, respectively, of the Company’s total revenues were generated from sales outside of the United States. For the three and six months ended June 30, 2011, approximately 18% and 20%, respectively, of the Company’s total revenues were generated from sales outside of the United States.

No country outside of the United States accounted for 10% or more of the Company’s revenue for the three and six months ended June 30, 2012 and 2011. No single customer accounted for 10% or more of the Company’s revenue for the three and six months ended June 30, 2012 and 2011.

As of June 30, 2012 and December 31, 2011, the Company had $57.5 million and $51.6 million, respectively, of long-lived assets held outside of the United States.

13. STOCKHOLDER’S EQUITY

Treasury Stock —In August 2011, the Board approved a stock repurchase program that is designed to comply with Rules 10b-18 and 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) under which the Company may repurchase up to $30.0 million of Deltek common stock. The Board authorization permits the Company to repurchase stock at times and prices considered appropriate by the Company depending upon share price, prevailing economic and market conditions and other corporate considerations. The stock repurchases may be made on the open market, in block trades or privately negotiated transactions, or otherwise. The repurchase program may be accelerated, suspended, delayed or discontinued at any time. During the six months ended June 30, 2012, shares of common stock repurchased in the open market under this program totaled 837,880 at a total cost of $8.6 million plus a nominal amount of commissions (weighted average price of $10.27 per share including commissions). There was $5.4 million remaining under the stock repurchase program available for future repurchases at June 30, 2012.

The shares of stock repurchased have been classified as treasury stock and accounted for using the cost method. The repurchased shares were excluded from the computation of earnings per share. The Company has not retired any shares held in treasury during the six months ended June 30, 2012.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with, and provides period to period comparisons based on, our interim condensed consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q. This MD&A should also be read in conjunction with (and as an update to) the more comprehensive Annual Report on Form 10-K for the year ended December 31, 2011. In addition, our actual results reported in this Quarterly Report on Form 10-Q may differ immaterially from our unaudited results which we may have publicly disclosed prior to this report.

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the federal securities laws, that involve substantial risks and uncertainties about our business and prospects. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “outlook,” “believes,” “plans,” “intends,” “expects,” “goals,” “potential,” “continues,” “may,” “seeks,” “approximately,” “predicts,” “estimates,” “anticipates” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations

concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. There will be events in the future, however, that we are not able to predict accurately or control.

Our future results may differ materially from our past results and from those projected in the forward-looking statements due to various uncertainties and risks, including those described in this Quarterly Report on Form 10-Q. The forward-looking statements speak only as of the date of this Quarterly Report and undue reliance should not be placed on these statements. We disclaim any obligation to update any forward-looking statements contained herein after the date of this Quarterly Report. The forward-looking statements do not include the potential impact of any mergers, acquisitions, divestitures, financings, securities offerings or business combinations that may be announced or closed after the date hereof. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (refer to Part II, Item 1A).

All dollar amounts expressed as numbers in tables (except per share amounts) in this MD&A are in millions.

Certain tables may not calculate due to rounding.

Company Overview

Deltek is a leading provider of enterprise software and information solutions designed and developed specifically for project-focused organizations in the professional services and government contracting markets. Our broad portfolio of software and information solutions are “purpose-built” for businesses that plan, forecast and otherwise manage their business processes based on projects. Our government contracting market consists of large, mid-sized and small government contractors, including aerospace and defense firms and information technology services providers. Our professional services market includes architecture and engineering (“A&E”) and construction firms, legal, accounting, marketing communications, consulting, research and other project-focused services firms. Approximately 15,000 organizations and 2 million users across more than 80 countries around the world utilize Deltek’s solutions to identify new opportunities, win new business, optimize resources, streamline operations, and deliver more profitable projects.

As a leading provider of enterprise software and information solutions, our revenues are principally derived from the sale of enterprise licenses and subscriptions sales for our software offerings and subscriptions for our information solutions. A significant component of our revenue in recent years has been maintenance and support revenue that is related to the products we license on a perpetual basis. We also derive revenue from consulting, training and professional services we provide to assist customers with the implementation and use of our software and solutions or to assist customers with market assessments relating to the sale of products and services to federal, state and local governments.

Since our founding, we have acquired companies and businesses to broaden and complement the products, services and solutions we offer, to expand our customer base and to expand into new geographies and markets. This has allowed us to provide our customers with additional functionality and value that complements the functionality of our legacy products. Our continued success depends on our ability to sell new and additional products and solutions within our existing installed base of customers, sell to new customers in the current markets we serve and sell to new customers in new geographies and markets.

Our total revenue for the three months ended June 30, 2012 was $86.0 million, as compared to $88.0 million for the three months ended June 30, 2011. Our revenue for the three months ended June 30, 2011 included $3.5 million related to our annual user conference, which will be held in the fourth quarter this year. Our total revenue for the three months ended June 30, 2012 otherwise reflected increases in product-related revenue and maintenance and support revenue as compared to the three months ended June 30, 2011.

Management Perspective

Our senior management’s approach to decision-making balances our need to achieve short-term financial and operational goals with the equally critical need to invest in our business for future growth. In our review of our financial condition and operating performance, we consider a variety of factors including, but not limited to, the following:

•

our expectations for the individual components of our revenues (product-related revenue, maintenance and support revenue, and consulting revenue);

•

our ability to successfully penetrate new horizontal and vertical markets and broaden our geographic reach;

•

the extent to which we can sell new products, services and solutions to existing customers and sell upgrades to applications from legacy products in our current portfolio;

•

effective management of expenses and cost containment initiatives;

•

our ability to expand our products, services and solutions and our geographic reach through strategic acquisitions;

•

our win rate against competitors;

•

our cash flow from operations; and

•

the long-term success of our development and partnering efforts.

Each of the factors may be evaluated individually or collectively by our senior management team in evaluating our performance as we balance our short-term quarterly objectives and our longer-term strategic goals and objectives.

For the three months ended June 30, 2012, we recorded net income of $4.2 million as compared to a net loss of $3.0 million for the three months ended June 30, 2011. We believe that our improved operating results are a continuing result of our concentrated effort to drive new revenue opportunities while at the same time managing operating expenses and aligning our resources to achieve the operational synergies we expected from our acquisitions in 2010 and 2011.

Our product revenues consist of revenues derived from the licensing of our software applications and subscriptions to our information solutions products. Product revenues increased 15% to $28.4 million for the three months ended June 30, 2012, compared to $24.8 million for the three months ended June 30, 2011. This reflects the successful strategic initiatives we have undertaken over the last two years, expanding into new markets, broadening our solutions portfolio and offering cloud-based solutions and subscription pricing models.

We license our software applications to customers on a perpetual, term or software-as-a-service (“SaaS”) basis. While we expect that our perpetual license revenues will continue to account for a significant amount of our product revenues, we have seen positive results from our efforts to increase our sale of software licenses on a term or SaaS basis to meet the varying needs of our broad customer base.

Subscription revenues from our information solutions offerings have continued to increase, as our combined information solutions offerings make us uniquely able to deliver solutions across the broad spectrum of government contracting requirements and all facets of these customers’ businesses. Our subscription and term licenses revenue was $12.5 million for the three months ended June 30, 2012, compared to $9.8 million for the three months ended June 30, 2011. For the three months ended June 30, 2012, 44% of our product revenues consisted of revenue associated with subscriptions and term licenses, as compared to 39% for the three months ended June 30, 2011.

Given the various ways in which we license our products to customers, the product revenues we recognize in any particular quarter may be less significant as an indicator of our overall success in the market, as there may be significant amounts of revenue that we are required to defer to future periods and recognize ratably over the period of performance. See Item 1 – Financial Statements (unaudited) – Notes to Condensed Consolidated Financial Statements (unaudited) – Note 2, Summary of Significant Accounting Policies.

Our maintenance and support services revenue increased 5.0% for the three months ended June 30, 2012 to $41.6 million as compared to $39.4 million for the three months ended June 30, 2011. We believe our strong maintenance and support services revenue reflects our continuing success in providing products and solutions that meet our customers’ current and future needs. We expect revenue from maintenance services to remain a significant source of our total revenue as a result of additional sales of software products and solutions in the future, high customer retention rates and the importance of our solutions to our customers’ operations. Growth in revenue from maintenance services may be impacted by our increased sales of our solutions offered on a SaaS or term basis, since the revenue for those sales includes associated maintenance services.

Our consulting services and other revenues for the three months ended June 30, 2012 was $16.0 million as compared to $23.8 million for the three months ended June 30, 2011. A significant portion of the decrease in revenue is the result of moving our annual user conference and associated revenue to the fourth quarter of 2012. Historically, that event took place in the second quarter. In addition, consulting services revenue decreased due to fewer customer implementations and an increase in sales of our solutions offered on a SaaS or term basis.

Our consulting services revenue may decline in future periods as we see a continued increase in sales of our term and SaaS offerings, where related services are recognized as subscription and term revenues and do not require the same level of consulting services as our perpetual license products. We have also been expanding our partnerships with systems integrators for certain large implementation opportunities, where the systems integrator typically performs the majority of the work related to the implementation of our products.

Critical Accounting Policies and Estimates

In presenting our financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Our future estimates may change if the underlying assumptions change. Actual results may differ significantly from these estimates.

For further information on our critical and other significant accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2011. We believe that the following critical accounting policies involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our condensed consolidated financial statements:

•

Revenue Recognition;

•

Stock-Based Compensation;

•

Income Taxes;

•

Allowances for Doubtful Accounts Receivable;

•

Valuation of Purchased Intangible Assets and Acquired Deferred Revenue; and

•

Impairment of Identifiable Intangible and Other Long-Lived Assets and Goodwill.

Results of Operations

The following table sets forth our statements of operations including dollar and percentage of change from the prior periods indicated:


	Three Months Ended June 30,												Six Months Ended June 30,
	2012			2011			Change			% Change			2012			2011			Change			% Change
	(dollars in millions)												(dollars in millions)
REVENUES :
Product revenues	$	28.4		$	24.8		$	3.6			15		$	53.5		$	46.4		$	7.1			15
Maintenance and support services		41.6			39.4			2.2			5			82.8			77.6			5.2			7
Consulting services and other revenues		16.0			23.8			(7.8	)		(33	)		32.4			44.0			(11.6	)		(26	)

Total revenues		86.0			88.0			(2.0	)		(2	)		168.7			168.0			0.7			0

COST OF REVENUES :
Cost of product revenues		6.7			7.0			(0.3	)		(5	)		13.5			12.7			0.8			6
Cost of maintenance and support services		6.1			6.3			(0.2	)		(3	)		12.3			13.3			(1.0	)		(7	)
Cost of consulting services and other revenues		14.9			21.7			(6.8	)		(31	)		31.6			39.4			(7.8	)		(20	)

Total cost of revenues		27.7			35.0			(7.3	)		(21	)		57.4			65.4			(8.0	)		(12	)

GROSS PROFIT		58.3			53.0			5.3			10			111.3			102.6			8.7			8

OPERATING EXPENSES :
Research and development		15.5			15.8			(0.3	)		(1	)		31.3			33.3			(2.0	)		(6	)
Sales and marketing		22.3			22.6			(0.3	)		(1	)		43.5			44.8			(1.3	)		(3	)
General and administrative		11.2			12.9			(1.7	)		(13	)		23.2			26.6			(3.4	)		(13	)
Restructuring charge		0.5			3.6			(3.1	)		(85	)		2.1			6.8			(4.7	)		(70	)

Total operating expenses		49.5			54.9			(5.4	)		(10	)		100.1			111.5			(11.4	)		(10	)

INCOME (LOSS) FROM OPERATIONS		8.8			(1.9	)		10.7			(573	)		11.2			(8.9	)		20.1			(226	)
Interest income		—			—			—			—			—			0.1			(0.1	)		(100	)
Interest expense		(2.6	)		(2.9	)		0.3			(10	)		(5.2	)		(5.9	)		0.7			(11	)
Other income (expense), net		0.3			—			0.3			100			0.3			(0.3	)		0.6			(210	)

LOSS BEFORE INCOME TAXES		6.5			(4.8	)		11.3			(238	)		6.3			(15.0	)		21.3			(142	)
Income tax expense (benefit)		2.3			(1.8	)		4.1			(228	)		2.4			(5.5	)		7.9			(144	)

NET LOSS	$	4.2		$	(3.0	)	$	7.2			(243	)	$	3.9		$	(9.5	)	$	13.4			(142	)

Revenues


	Three Months Ended June 30,										Six Months Ended June 30,
	2012		2011		Change			% Change			2012		2011		Change			% Change
	(dollars in millions)										(dollars in millions)
REVENUES :
Product revenues
Perpetual licenses	$	15.9	$	15.0	$	0.9			6		$	28.9	$	29.6	$	(0.7	)		(2	)
Subscriptions and term licenses		12.5		9.8		2.7			28			24.6		16.8		7.8			46

Total product revenues		28.4		24.8		3.6			15			53.5		46.4		7.1			15
Maintenance and support services		41.6		39.4		2.2			5			82.8		77.6		5.2			7
Consulting services and other revenues		16.0		23.8		(7.8	)		(33	)		32.4		44.0		(11.6	)		(26	)

Total revenues	$	86.0	$	88.0	$	(2.0	)		(2	)	$	168.7	$	168.0	$	0.7			0

Product Revenues

Our product revenues are derived from software applications and information solutions.

We sell our software applications to end-user customers mainly through our direct sales force, as well as indirectly through our network of alliance partners and resellers. The timing of the sales cycle for our products varies significantly in length based upon a variety of factors, including the size of the customer, the product being sold and whether the customer is a new or existing customer. While price is an important consideration, we primarily compete on product features, functionality and the needs of our customers within our served markets.

Our information solutions offerings are fee-based arrangements in which the customer subscribes to market intelligence analysis and business development services delivered through GovWin.com. Our services provide customers access to our information solutions products for a fixed period of time, usually one year, and customers generally prepay for these offerings. We sell our information solutions offerings primarily through our direct sales force. These offerings are sold on a standalone basis and in combination with software applications.

For the three months ended June 30, 2012, our product revenues increased by $3.6 million to $28.4 million, compared to $24.8 million for the three months ended June 30, 2011. For the six months ended June 30, 2012, our product revenues

increased by $7.1 million to $53.5 million, compared to $46.4 million for the six months ended June 30, 2011. Our product revenues during these periods reflect continued demand for our solutions offered on a perpetual basis as well as our success in offering our solutions on a SaaS or term basis.

Perpetual Licenses

Perpetual license revenues increased $0.9 million, or 6%, to $15.9 million for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The increase was primarily due to the increased sale of our government contracting software solutions.

Perpetual license revenues decreased $0.7 million, or 2%, to $28.9 million for the six months ended June 30, 2012, as compared to the six months ended June 30, 2011. The decrease was primarily a result of two large transactions with professional services customers in the first six months of 2011 that were not replicated in 2012.

As we experience strong overall demand for our government contracting and professional services solutions, the addition of other licensing vehicles to our product offerings may result in the deferral of perpetual license revenue to future periods.

Subscription and Term Licenses

Subscription and term license revenues increased $2.7 million, or 28%, to $12.5 million for the three months ended June 30, 2012, compared to $9.8 million for the three months ended June 30, 2011 and increased $7.8 million, or 46%, to $24.6 million for the six months ended June 30, 2012, compared to $16.8 million for the six months ended June 30, 2011. The revenue growth was primarily attributable to the growth in new sales and renewals of our GovWin IQ products, acquisition of The Washington Management Group, Inc., including its FedSources business (collectively, “FedSources”) that was acquired in March 2011, and the purchase accounting effects of the acquisitions we made in 2010 and 2011 impacting our 2011 results. In addition, term license revenue grew year-over-year as a result of our success in selling our software applications on a term or SaaS basis.

We expect the term and SaaS offerings to account for an increasing component of our total revenue in future quarters. Our term or SaaS basis revenue may include revenue associated with licensing, maintenance and consulting services related to those offerings.

Maintenance and Support Services

Our maintenance and support revenues are comprised of fees derived for product support, upgrades and other customer support. We receive fees from new maintenance contracts associated with new software license sales and annual renewals of existing maintenance contracts. These contracts offer our customers the ability to obtain online, telephone and web-based support, as well as unspecified periodic upgrades or enhancements and bug fixes for perpetual software licenses.

Maintenance and support revenues increased $2.2 million, or 5%, to $41.6 million for the three months ended June 30, 2012 as compared to 2011 and increased $5.2 million, or 7%, to $82.8 million for the six months ended June 30, 2012 as compared to 2011. The increase in both time periods was due to strong renewal rates and increased installed revenue base. We expect that maintenance and support revenues will continue to be a significant source of revenue throughout 2012, given our high maintenance and support retention rate, our stable base of customers and further sales of our solutions offered on a perpetual basis. At the same time, revenue from maintenance and support services may be impacted in future periods as we increase our sale of software solutions offered on a term or SaaS basis, as the associated maintenance and support for those services are included in the product-related revenue streams.

Consulting and Other Revenues

Our consulting services revenues are generated from software implementation and related project management, as well as training, education and other consulting services associated with our software applications and information solutions and have typically been provided on a time-and-materials basis. Our other revenues consist primarily of fees collected for our annual user conference.

Consulting services and other revenues decreased $7.8 million, or 33%, to $16.0 million for the three months ended June 30, 2012 as compared to 2011 and decreased $11.6 million, or 26%, to $32.4 million for the six months ended June 30, 2012 as compared to 2011. The decreases reflect our annual user conference taking place in the fourth quarter this year, as described above, and is also attributable to a decline in consulting services from fewer customer implementations provided to our customers on solutions offered on a perpetual basis and expanded partnerships with system integrators. We may continue to see a decline in our consulting services as we see an increase in our subscription-based revenues for some of our offerings reflecting consulting services provided to software applications licensed on a term or SaaS basis.

Cost of Revenues


	Three Months Ended June 30,										Six Months Ended June 30,
	2012		2011		Change			% Change			2012		2011		Change			% Change
	(dollars in millions)										(dollars in millions)
COST OF REVENUES :
Cost of product revenues
Cost of perpetual licenses	$	1.7	$	1.9	$	(0.2	)		(9	)	$	3.0	$	3.6	$	(0.6	)		(15	)
Cost of subscriptions and term licenses		5.0		5.1		(0.1	)		(3	)		10.5		9.1		1.4			15

Total cost of product revenues		6.7		7.0		(0.3	)		(5	)		13.5		12.7		0.8			6
Cost of maintenance and support services		6.1		6.3		(0.2	)		(3	)		12.3		13.3		(1.0	)		(7	)
Cost of consulting services and other revenues		14.9		21.7		(6.8	)		(31	)		31.6		39.4		(7.8	)		(20	)

Total cost of revenues	$	27.7	$	35.0	$	(7.3	)		(21	)	$	57.4	$	65.4	$	(8.0	)		(12	)

Cost of Perpetual Licenses

Our cost of perpetual licenses consists of third-party software royalties, costs of product fulfillment, amortization of acquired technology, and amortization of capitalized software.

Cost of perpetual licenses decreased by $0.2 million, or 9%, to $1.7 million for the three months ended June 30, 2012 as compared to 2011 and decreased by $0.6 million, or 15%, to $3.0 million for the six months ended June 30, 2012 as compared to 2011. The decreases were primarily attributable to amortization for purchased intangible assets.

Cost of Subscription and Term Licenses

Our cost of subscription and term licenses is comprised of compensation expenses, and facility and other expenses incurred in providing subscription services and term licenses, as well as the amortization of acquired intangible assets.

Cost of subscription and term licenses decreased by $0.1 million, or 3%, to $5.0 million for the three months ended June 30, 2012 as compared to $5.1 million for the three months ended June 30, 2011. The decrease was attributable to a decrease in labor and labor-related costs from synergies related to our subscription-based offerings offset by an increase in costs related to the expansion of our SaaS and term license offerings.

Cost of subscription and term licenses increased by $1.4 million, or 15%, to $10.5 million for the six months ended June 30, 2012 as compared to $9.1 million for the six months ended June 30, 2011. The increase was attributable to increased labor and labor-related costs from our information solutions business including additional head count costs associated with FedSources that was acquired in March 2011.

Cost of Maintenance and Support Services

Our cost of maintenance and support services is primarily comprised of compensation expenses and third-party contractor expenses, as well as facility and other expenses incurred in providing support to our customers.

Cost of maintenance services was $6.1 million for the three months ended June 30, 2012, a decrease of $0.2 million, or 3%, as compared to 2011. The reduction in costs was attributable to lower facility expenses from lower headcount year-over-year and an increase in our use of lower-cost resources in the Philippines.

Cost of maintenance services was $12.3 million for the six months ended June 30, 2012, a decrease of $1.0 million, or 7%, as compared to 2011. The reduction in costs was attributable to a decrease in labor and other employee-related costs from lower headcount year-over-year and an increase in our use of lower-cost resources in the Philippines.

Cost of Consulting Services and Other Revenues

Our cost of consulting services is comprised of the compensation expenses for services-related employees as well as third-party contractor expenses, travel and reimbursable expenses and classroom rentals. Cost of consulting services also includes an allocation of our facility and other costs incurred for providing implementation, training and other consulting services to our customers. Our cost of other revenues primarily includes costs associated with our annual user conference.

Cost of consulting services and other revenues was $14.9 million for the three months ended June 30, 2012, a decrease of $6.8 million, or 31%, as compared to 2011. Cost of consulting services and other revenues was $31.6 million for the six months ended June 30, 2012, a decrease of $7.8 million, or 20%, as compared to 2011. The decreases were partially due to $4.2 million of expenses that were reflected in our results for the three and six months ended June 30, 2011, but were not replicated in the three and six months ended June 30, 2012, because our annual user conference is being held in the fourth quarter this year. In addition, labor and related benefits declined from lower headcount driven by a decline in consulting services provided to customers.

Operating Expenses


	Three Months Ended June 30,										Six Months Ended June 30,
	2012		2011		Change			% Change			2012		2011		Change			% Change
	(dollars in millions)										(dollars in millions)
OPERATING EXPENSES:
Research and development	$	15.5	$	15.8	$	(0.3	)		(1	)	$	31.3	$	33.3	$	(2.0	)		(6	)
Sales and Marketing		22.3		22.6		(0.3	)		(1	)		43.5		44.8		(1.3	)		(3	)
General and administrative		11.2		12.9		(1.7	)		(13	)		23.2		26.6		(3.4	)		(13	)
Restructuring charge		0.5		3.6		(3.1	)		(85	)		2.1		6.8		(4.7	)		(70	)

Total operating expenses	$	49.5	$	54.9	$	(5.4	)		(10	)	$	100.1	$	111.5	$	(11.4	)		(10	)

Research and Development

Our product development expenses consist primarily of compensation expenses, third-party contractor expenses, and other expenses associated with the design, development and testing of our software applications and information solutions.

Research and development expenses decreased by $0.3 million, or 1%, to $15.5 million for the three months ended June 30, 2012 as compared to 2011. The decrease in research and development expenses was a result of lower facility and travel related expense, but was largely offset by an increase in labor and labor-related benefits and third party costs to support new product development.

Research and development expenses decreased by $2.0 million, or 6%, to $31.3 million for the six months ended June 30, 2012 as compared to 2011. The decrease was primarily due to capitalized software development costs and lower facility related expenses.

Sales and Marketing

Our sales and marketing expenses consist primarily of salaries and related costs, commissions paid to our sales team and the cost of marketing programs (including our demand generation efforts, advertising, events, marketing and corporate communications, field marketing and product marketing) and other expenses associated with our sales and marketing activities. Sales and marketing expenses also include amortization expense for acquired intangible assets associated with customer relationships.

Sales and marketing expenses decreased $0.3 million, or 1%, to $22.3 million for the three months ended June 30, 2012, as compared to 2011 and decreased by $1.3 million, or 3%, to $43.5 million for the six months ended June 30, 2012, as compared to 2011. The decrease resulted mainly from a decrease in labor and labor-related benefits and lower amortization of acquired intangible assets. The decline in costs offset by an increase in sales commissions resulting from sales growth relating primarily to our information solutions products and SaaS and term software application offerings.

General and Administrative

Our general and administrative expenses consist primarily of salaries and related costs for general corporate activities, including executive, finance, accounting, legal and human resources. General and administrative costs also include insurance premiums, third-party legal fees, other professional services fees, facility and other expenses associated with our administrative activities which include acquisition-related costs and New Mountain Capital advisory fees.

General and administrative expenses decreased by $1.7 million, or 13%, to $11.2 million for the three months ended June 30, 2012 as compared to 2011 and decreased by $3.4 million, or 13%, to $23.2 million for the six months ended June 30, 2012 as compared to 2011. The decreases resulted from a decline in labor and labor-related benefits and other employee-related costs from lower headcount and lower acquisition-related expenses and related fees.

Restructuring Charge

In 2011, we initiated two plans to restructure our operations in certain areas to realign the cost structure and resources and to take advantage of operational efficiencies following the 2010 and 2011 acquisitions. The total restructuring costs associated with each plan were estimated to range from $10 million to $11 million for the plan initiated in the first quarter of 2011 and $3 million to $4 million for the plan initiated in the second quarter of 2011, consisting primarily of employee severance expenses and facilities obligations.

As a result of this restructuring, we recorded a charge in the first six months of 2012 of $2.1 million for severance and benefits costs for the reduction in headcount of approximately 20 employees. For the six months ended June 30, 2011, we recorded a restructuring charge of $6.3 million for severance and benefits costs for the reduction in headcount of approximately 135 employees and $0.5 million for facility costs related to office closures. We expect to incur the remaining approximately $0.8 million of expenses pursuant to these restructuring plans through the remainder of 2012. Any changes to the estimate of executing this restructuring plan will be reflected in our future results of operations. See Item 1 – Financial Statements (unaudited) – Notes to Condensed Consolidated Financial Statements (unaudited) – Note 10, Restructuring Charges .

Interest Income

Interest income reflects interest earned on our invested cash balances. Interest income remained relatively flat during the three and six months ended June 30, 2012, when compared with the three and six months ended June 30, 2011.

Interest Expense


	Three Months Ended June 30,										Six Months Ended June 30,
	2012		2011		Change			% Change			2012		2011		Change			% Change
	(dollars in millions)										(dollars in millions)
Interest expense	$	2.6	$	2.9	$	(0.3	)		(10	)	$	5.2	$	5.9	$	(0.7	)		(11	)

Interest expense decreased $0.3 million to $2.6 million for the three months ended June 30, 2012 compared to the three months ended June 30, 2011. This was primarily attributed to a decrease in the average debt outstanding from approximately $184.7 million for the three months ended June 30, 2011 to $152.6 million for the three months ended June 30, 2012. The effective interest rate remained relatively flat at 6.8% and 6.3% for the three months ended June 30, 2012 and 2011, respectively.

Interest expense decreased $0.7 million to $5.2 million for the six months ended June 30, 2012 compared to the six months ended June 30, 2011. This was primarily attributed to a decrease in the average debt outstanding of approximately $160.0 million and $184.9 million for the six months ended June 30, 2012, as compared to the six months ended June 30, 2011. The effective interest rate remained relatively flat at 6.6% and 6.3% for the six months ended June 30, 2012 and 2011, respectively.

Income Taxes


	Three Months Ended June 30,										Six Months Ended June 30,
	2012		2011			Change		% Change			2012		2011			Change		% Change
	(dollars in millions)										(dollars in millions)
Income tax expense (benefit)	$	2.3	$	(1.8	)	$	4.1		(228	)	$	2.4	$	(5.5	)	$	7.9		(144	)

Income tax expense for the three months ended June 30, 2012 increased $4.1 million to a $2.3 million expense compared to $1.8 million benefit for the three months ended June 30, 2011. As a percentage of pre-tax income, income tax expense was 34.8% and 37.4% for the three months ended June 30, 2012 and 2011, respectively.

The effective tax rate for the three months ended June 30, 2012 is lower than the statutory federal rate of 35% primarily due to the recognition of a discrete income tax benefit from the release of $0.2 million of valuation allowances in the period.

Income tax expense for the six months ended June 30, 2012 increased $7.9 million to a $2.4 million expense compared to $5.5 million benefit for the six months ended June 30, 2011. As a percentage of pre-tax income, income tax expense was 37.7% and 36.6% for the six months ended June 30, 2012 and 2011, respectively. The income tax expense for 2012 is higher than the income tax expense for 2011 due primarily to the increase in pre-tax income for the period.

During the three months ended June 30, 2012, the Company established an additional liability of approximately $0.2 million associated with certain deductible expenses, tax credits and associated interest on prior period ASC 740-10 adjustments.

Credit Agreement

We have maintained a credit agreement with a syndicate of lenders led by Credit Suisse (the “Credit Agreement”) since 2005.

In November 2010, we amended and extended the Credit Agreement, providing for $230.0 million in aggregate borrowings, consisting of $200.0 million in secured term loans maturing in November 2016 and a $30.0 million secured revolving credit facility maturing in November 2015. The new revolving credit facility was undrawn at closing. All prior amounts outstanding (approximately $146.8 million) were prepaid in full out of proceeds from the new term loans. The remaining proceeds of $48.1 million, less debt issuance costs of approximately $5.1 million, were used for general corporate purposes. The amendment resulted in an original issuance debt discount of 1%, or $2.0 million, which, along with the deferred debt issuance costs, are being amortized over the term of the loan using the effective interest method. The original issue debt discount was included in the $5.1 million of debt issuance costs noted above.

After the 2010 amendment to the Credit Agreement, for both the term loans and the revolving credit facility, we paid an interest rate equal to the British Banker’s Association Interest Settlement Rates for dollar deposits (the “LIBO rate”) plus 4.00% (the “Applicable Percentage”), with a LIBO rate floor of 1.50%. The Applicable Percentage was either 4.00% or 3.75% based on financial performance criteria set forth in the Credit Agreement. Interest rates prior to the 2010 amendment were either 2.25% or 4.25% above the LIBO rate and contained a LIBO rate floor of 2.00% and the rate for the revolving credit facility was 2.50% or 1.50%, depending on the type of borrowing.

In November 2011, we further amended the Credit Agreement with respect to certain non-financial covenants. As a result of this amendment, the Applicable Percentage was increased by 25 basis points to either 4.00% or 4.25%. We paid approximately $290,000 in fees in connection with this amendment, of which approximately $240,000 are being amortized to interest expense over the remaining term of the Credit Agreement using the effective interest method, with the remaining costs expensed as incurred.

We pay a fee equal to 0.75% of the undrawn portion on the revolving credit facility that expires in November 2015. At the time of the 2010 amendment, the Credit Agreement required us to make principal payments of $0.5 million per quarter through September 2016, before any prepayments were made, with the remaining balance due in November 2016. For the six months ended June 30, 2012, we made voluntary prepayments of $15.0 million. The prepayments were applied first against the scheduled debt payments until March 2013, and second, ratably against the next scheduled debt payments in the amortization schedule.

As of June 30, 2012 and December 31, 2011, the outstanding principal amount of the term loans was $154.0 million and $169.0 million, respectively, excluding the reduction of the unamortized debt discount of $1.4 million at June 30, 2012. There were no borrowings outstanding under the revolving credit facility.

All loans under the Credit Agreement are collateralized by substantially all of our assets (including our domestic subsidiaries’ assets) and require us to comply with certain financial covenants. There were no material modifications to our debt covenants under the Credit Agreement from the 2010 amendment, except that the fixed charge coverage ratio covenant was replaced by a maximum annual capital expenditures covenant. Other covenants require us to maintain defined minimum levels of interest coverage and provide for a limitation on our leverage ratio.

The following table summarizes the significant financial covenants under the Credit Agreement (adjusted EBITDA below is based on the terms of the Credit Agreement):


		As of June 30, 2012		Most Restrictive Required Level
Covenant Requirement	Calculation	Required Level	Actual Level	Most Restrictive Required Level

Minimum Interest Coverage	Cumulative adjusted EBITDA for the prior four quarters/consolidated interest expense	Greater than 3.00 to 1.00	7.33	Greater than 3.00 to 1.00

Capital Expenditure	Fiscal year capital expenditure not to exceed required level	No more than $10.0 million	$4.7 million	$10.0 million in 2012

Leverage Coverage	Total debt/cumulative adjusted EBITDA for the prior four quarters	Less than 3.25 to 1.00	2.20	2.50 to 1.00 effective January 1, 2014

The Credit Agreement also requires us to comply with non-financial covenants that restrict or limit certain corporate activities by us and our subsidiaries, including our ability to incur additional indebtedness, guarantee obligations, or create liens on our assets, enter into sale and leaseback transactions, engage in mergers or consolidations, or pay any cash dividends.

Based on our current and expected performance, we believe we will continue to satisfy the financial covenants of the Credit Agreement for the foreseeable future.

As of June 30, 2012, we were in compliance with all covenants under the Credit Agreement.

The Credit Agreement requires mandatory prepayments of the term loans from our annual excess cash flow and from the net proceeds of certain asset sales or equity issuances. We did not make an annual excess cash flow payment in the first quarter of 2012 due to the voluntary prepayments made in 2011 and there were no other required mandatory prepayments during the first half of 2012. We did not make an annual excess cash flow payment in the first quarter of 2011 due to the permitted acquisitions that occurred during 2010 and there were no other required mandatory prepayments during the first half of 2011. The Credit Agreement also requires us to prepay a portion of the term loans from the net proceeds of certain equity issuances so that our leverage ratio (as defined in the Credit Agreement) is less than 3.00, on or before December 31, 2011, or 2.75, if anytime thereafter.

Liquidity and Capital Resources

Overview of Liquidity

Our primary operating cash requirements include the payment of salaries, incentive compensation and related benefits, and other headcount-related costs as well as the costs of office facilities and information technology systems. We fund these requirements through cash collections from our customers for the purchase of our software, subscriptions, consulting services and maintenance services. Amounts due from customers for software licenses, subscriptions and maintenance and support services are generally billed in advance of the contract period.

The cost of our acquisitions has been financed with available cash flow and, to a very limited extent, credit facility borrowings.

Historically, our cash flows have been subject to variability from year to year, primarily as a result of one-time or infrequent events. These events have included acquisitions and the repayment of indebtedness. We expect that our future growth will continue to require additional working capital. Although such future working capital requirements are difficult to forecast, based on our current estimates of revenues and expenses, we believe that anticipated cash flows from operations and available sources of funds (including $30.0 million of available borrowings under our revolving credit facility at June 30, 2012) will provide sufficient liquidity for us to fund our business and meet our obligations for the next twelve months.

For the six months ended June 30, 2012, we made voluntary prepayments of $15.0 million on the Credit Agreement. The prepayments were applied first against the scheduled debt payments until March 2013, and second, ratably against the next scheduled debt payments in the amortization schedule. We may continue to prepay debt in the future.

In August 2011, our Board approved a stock repurchase program under which we may repurchase up to $30.0 million of Deltek common stock. The Board authorization permits us to repurchase stock at times and prices considered appropriate by us depending upon share price, prevailing economic and market conditions and other corporate considerations. The stock repurchases may be made on the open market, in block trades or privately negotiated transactions, or otherwise. The repurchase program may be accelerated, suspended, delayed or discontinued at any time.

During the six months ended June 30, 2012, we repurchased 837,880 shares of Deltek common stock, for a total cost of $8.6 million, plus a nominal amount of commissions (weighted average price of $10.27 per share including commissions). The repurchases were funded by cash flows from operations. There was $5.4 million remaining under the stock repurchase program available for future repurchases as of June 30, 2012.

We also believe that our aggregate cash balance of $40.1 million as of June 30, 2012, coupled with anticipated cash flows from operations and available sources of funds (including available borrowings under our revolving credit facility), will be sufficient to cover the payments due over the near term under the Credit Agreement.

In the future, however, we may require additional liquidity to fund our operations, debt repayment obligations, strategic investments and acquisitions, and stock repurchases, which could entail raising additional funds or modifying the terms of our Credit Agreement.

Analysis of Cash Flows

As of June 30, 2012 and June 30, 2011, we had cash and cash equivalents totaling $40.1 million and $48.5 million, respectively.

Cash provided by operating activities was $34.3 million and $29.4 million, for the six months ended June 30, 2012 and 2011, respectively. Cash provided by operating activities is primarily derived from net income, as adjusted for non-cash items such as depreciation and amortization expense, stock-based compensation expense, and changes in operating assets and liabilities. The increase in cash provided by operating activities in 2012 resulted from an increase in net income of $13.5 million and an increase in deferred income taxes of $4.8 million. This increase was partially offset by a decrease in accounts receivable of $6.4 million due mainly to an increase in subscription and term revenue billings, other long-term liabilities of $2.6 million, and a decline in restructuring charges, net of $2.9 million.

Net cash used in investing activities was $6.7 million and $33.3 million for the six months ended June 30, 2012 and 2011, respectively. Investing activities include the acquisition of property and equipment, and net expenditures for business combinations and asset acquisitions. In 2011, we used funds of $26.9 million for business acquisitions, net of cash acquired primarily relating to the FedSources purchase as compared to $2.0 million in 2012. In addition, we used $4.5 million, or $1.9 million less, in 2012 than in 2011 to purchase property and equipment primarily relating to our new headquarter facilities.

Cash used in financing activities was $22.3 million and $25.8 million for the six months ended June 30, 2012 and 2011, respectively. We used $15.0 million in 2012 for debt repayment and $8.6 million for the purchases of common stock under our stock repurchase program.

Impact of Seasonality

Fluctuations in our quarterly revenues historically reflect, in part, seasonal fluctuations driven by our customers’ procurement cycles for our products. However, as a result of the current economic environment, changes in how we sell our offerings, and the new products that we offer, past seasonality may not be indicative of current or future seasonality.

Off-Balance Sheet Arrangements

As of June 30, 2012, we had no off-balance sheet arrangements.

Indemnification

We provide limited indemnification to our customers against intellectual property infringement claims made by third parties arising from the use of our software products. Due to the established nature of our primary software products and the lack of intellectual property infringement claims in the past, we cannot estimate the fair value nor determine the total nominal amount of the indemnification, if any. Estimated losses for such indemnification are evaluated under ASC 450, Contingencies, as interpreted by ASC 460, Guarantees . We have secured copyright and trademark registrations for our software products with the U.S. Patent and Trademark Office and with applicable European trademark offices. We also have intellectual property infringement indemnification from our third-party partners whose technology may be embedded or otherwise bundled with our software products. We generally consider the probability of an unfavorable outcome in an intellectual property infringement case to be relatively low. We have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such indemnifications.

Recently Adopted Accounting Pronouncements

equity and requires entities to report this information in one of two options. The first option is to present this information in a single continuous statement of comprehensive income starting with the components of net income and total net income followed by the components of OCI, total OCI, and total comprehensive income.

The second option is to report two consecutive statements; the first statement would report the components of net income and total net income in a statement of income followed by a statement of OCI that includes the components of OCI, total OCI and total comprehensive income. The statement of OCI would begin with net income. ASU 2011-05 does not change what is required to be reported in other comprehensive income or impact the computation of earnings per share. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 with the application of ASU 2011-05 applied retrospectively for all periods presented in the financial statements. We adopted ASU 2011-05 on January 1, 2012 and elected to present OCI in two consecutive statements. See the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss).

ASU 2011-08 also provides for new qualitative indicators to replace those currently used. Prior to ASU 2011-08, entities were required to test goodwill for impairment on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount (Step 1). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test is performed to measure the amount of impairment loss, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. We did not early adopt the provisions in ASU 2011-08 and will evaluate the standard when performing our future goodwill impairment tests, which are performed annually as of December 31 of each year.

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). The guidance allows companies to perform a "qualitative" assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test.

ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. We are in the process of evaluating the guidance and the impact it will have on our consolidated financial statements.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our outstanding debt and cash and cash equivalents consisting primarily of funds held in money market accounts on a short-term basis with no withdrawal restrictions. At June 30, 2012, we had $40.1 million in cash and cash equivalents. Our interest expense associated with our term loans and revolving credit facility can vary with market rates. As of June 30, 2012, we had approximately $154.0

million of principal amount in debt outstanding, which was effectively set at a fixed rate at June 30, 2012, due to the LIBO rate floor established of 1.50% in the Credit Agreement and the LIBO rate at June 30, 2012 being below the established floor. However, an increase in the LIBO rate above the 1.50% LIBO rate floor subsequent to June 30, 2012 could cause our fixed rate debt to become variable and our interest expense to vary.

We cannot predict market fluctuations in interest rates and their impact on our possible variable rate debt, or whether fixed-rate long-term debt will be available to us at favorable rates, if at all. Consequently, future results may differ materially from the discussion above.

Based on the investment interest rate and our cash and cash equivalents balance as of June 30, 2012, a hypothetical 1% increase or decrease in interest rates would have an insignificant impact on our earnings and cash flows on an annual basis. We do not currently use derivative financial instruments in our investment portfolio.

Foreign Currency Exchange Risk

The majority of our operations are transacted in U.S. Dollars. However, since a growing portion of our operations consists of activities outside of the United States, we have transactions in other currencies, primarily in the Danish krone, the British pound, the Philippine peso, the Australian dollar, the Swedish krona, the Norwegian kroner and the Euro. As our international operations continue to grow, we may choose to use foreign currency forward and option contracts to manage our exposure to foreign currency exchange fluctuations. Currently, we do not have any such contracts in place, nor did we have any such contracts during 2011. To date, the foreign currency exchange fluctuations have not had a significant impact on our operating results and cash flows given the scope of our international presence. A hypothetical 10% increase or decrease in foreign currency exchange rates from the rates used to translate our foreign operations financial statements would have impacted our net income by less than $0.7 million for the six months ended June 30, 2012. Our net assets at June 30, 2012 would have been impacted by less than $8.0 million from a hypothetical 10% increase or decrease in the foreign currency exchange rates used to translate our financial position at June 30, 2012.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Our management maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required financial disclosures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

We are involved in various legal proceedings from time to time that are incidental to the ordinary conduct of our business. Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.

Item 1A.

RISK FACTORS

Risks Related to Our Business

Our business is exposed to the risk that adverse U.S., European and global economic or financial conditions may reduce or defer the demand for project-based enterprise applications software and solutions.

The demand for project-based enterprise applications software and solutions historically has fluctuated based upon a variety of factors, including the business and financial condition of our customers and on economic and financial conditions that affect the key sectors in which our customers operate.

Economic downturns or unfavorable changes in the financial and credit markets in the United States, Europe and broader international markets, including economic recessions, could have an adverse effect on the operations, budgets and overall financial condition of our customers. For instance, the downgrade of the U.S. Government’s credit rating in August 2011 by Standard & Poor’s and any future downgrades of the U.S. Government’s credit rating, regardless of whether a default by the U.S. Government on its debt occurs, could create broader financial turmoil and uncertainty and affect the key sectors in which our customers operate. In addition, the downgrade in the credit ratings of European countries could create additional financial uncertainty and affect the sectors in which our customers or potential customers operate.

As a result, our customers may reduce their overall spending on information technology, purchase fewer of our products or solutions, lengthen sales cycles, or delay, defer or cancel purchases of our products or solutions. Furthermore, our customers may be less able to timely finance or pay for the products which they have purchased or could be forced into a bankruptcy or restructuring process, which could limit our ability to recover amounts owed to us. If any of our customers cease operations or file for bankruptcy protection, our ability to recover amounts owed to us may be severely impaired.

In addition, the financial and overall condition of third-party solutions’ providers and resellers of our products and solutions may be affected by adverse conditions in the economy and the financial and credit markets, which may adversely affect the sale of our products or solutions. For the six months ended June 30, 2012, resellers accounted for approximately 14% of our perpetual licenses revenue.

We cannot predict the impact, timing, strength or duration of any economic slowdown or subsequent economic recovery, or of any disruption in the financial and credit markets, whether as a result of uncertainty surrounding the U.S. Government or European debt or otherwise. If the challenges in the financial and credit markets or the downturn in the economy or the markets in which we operate persist or worsen from present levels, our business, financial condition, cash flow, and results of operations could be materially adversely affected.

Significant reductions in or changes to the Federal Government’s budget or its spending priorities from one period to another, including the potential impact of a sequestration, could adversely affect our customers’ and their demand for our products and services and could therefore materially adversely affect our revenue.

Because we derive a substantial portion of our revenue from customers who contract with the Federal Government, we believe that the success and development of our business will continue to be affected by our customers’ successful participation in Federal Government contract programs. The funding of U.S. Government programs is generally subject to congressional budget authorization and annual appropriation processes and may be increased or decreased, whether on an overall basis, through sequestration, or on a basis that could disproportionately impact our customers.

Changes in the size of the Federal Government’s budget or shifts in budgetary priorities from one fiscal year to another may impact our financial results. The impact, severity and duration of the current U.S. economic situation, the sweeping economic plans adopted by the Federal Government, and pressures on the overall size of the federal budget could adversely affect the total funding and/or funding for individual programs in which our customers participate. Federal Government spending may also be further limited by political and economic pressures related to the current size of the federal deficit and the overall size of the federal debt.

A significant decline in government expenditures, a shift of expenditures away from programs that our customers support or a change in Federal Government contracting policies could cause Federal Government agencies to reduce their purchases under contracts, exercise their right to terminate contracts at any time without penalty or not exercise options to renew contracts. Any such actions could affect our government contracting customers, which could cause our actual results to differ materially and adversely from those anticipated.

Among the factors that could seriously affect our Federal Government contracting customers are:

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changes in budgetary priorities could limit or delay Federal Government spending generally, or specific departments or agencies in particular, which may reduce demand for our software and information solutions and services from customers supporting those departments or agencies;

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the funding of some or all civilian agencies through continuing resolutions instead of budget appropriations could cause those agencies to modify their budgets or delay contract awards, which could cause our customers supporting those agencies to reduce or defer purchase of our software and information solutions and services;

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a reduction of the Federal Government’s use of information technology or professional services could impact our customers who provide information technology or professional services to the Federal Government; and

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the Federal Government’s decision to terminate a significant number of existing contracts, or to not renew expiring contracts, could reduce future demand for our software solutions and services from our customers whose contracts have been terminated or have not been renewed.

Any significant downsizing, consolidation or insolvency of our Federal Government contractor customers resulting from a government shutdown, budget reductions, loss of government contracts, delays in or uncertainties regarding the timing or amount of contract awards, changes in procurement policies or other similar procurement obstacles could materially adversely impact our customers’ demand for our products and services.

Our quarterly and annual operating results fluctuate, and as a result, we may fail to meet or exceed the expectations of securities analysts or our stockholders, and our stock price could decline.

Historically, our operating results have varied from quarter to quarter and from year to year. Consequently, we believe that investors should not view our historical revenue and other operating results as an indicator of our future performance. A number of factors contribute to the variability in our revenue and other operating results, including the following:

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global and domestic economic and financial conditions;

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the number and timing of major customer contract wins, which tend to be unpredictable and which may disproportionately impact our perpetual licenses revenue and operating results;

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the higher concentration of our software license sales in the last quarter of each fiscal year, resulting in diminished predictability of our annual results;

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the discretionary nature of our customers’ purchases, varying budget cycles and amounts available to fund purchases, resulting in varying demand for our products and services;

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delays or deferrals by customers in the implementation of our products;

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the level of product and price competition;

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the length of our sales cycles;

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the timing of recognition of deferred revenue;

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any significant change in the number of customers renewing or terminating maintenance, subscription or term license agreements with us; and

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our ability to deliver and market new software enhancements and products.

As a result of these and other factors, our operating results may fluctuate significantly from period to period and may not meet or exceed the expectations of securities analysts or investors. In that event, the price of our common stock could be adversely affected.

As we expand our product offerings and the licensing alternatives for our software solutions, our recognition of product revenues may be deferred to future periods.

As we continue to expand our product offerings to the market, including expanded use of subscription, term and SaaS offerings, we may be required to defer the recognition of revenue from one period to another. This could be the case if, for example:

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we sell a solution on a term or subscription basis;

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we sell perpetual licenses in conjunction with subscription offerings and may not be able to separate the recognition of the perpetual license revenue; or

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we sell perpetual licenses in conjunction with maintenance and other related services and are unable to separate the recognition of perpetual license revenue.

In addition, we may be required to defer the recognition of revenue from one period to another if, for example:

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the sale of our software solutions include both currently deliverable software products and software products that are under development or require other undeliverable elements;

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the sale of our software solutions requires services that include significant modifications, customizations or acceptance criteria that could delay product delivery or acceptance;

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there are identified product-related issues, such as known defects; or

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the sale of our software solutions involve non-standard payment terms, fixed-price deliverable elements or other contingencies.

Deferral of product revenues may result in timing differences between the completion of a sale and the actual recognition of the revenue related to that sale. In addition we generally recognize commission and other sales-related expenses associated with product revenues over the same period that the related revenue is recognized. As a result, the revenue we recognize in a particular period may not be reflective of our actual success in selling our products and solutions in the market.

Offering our products on a SaaS basis presents execution risks.

We offer a number of our products in a SaaS-based environment, and we expect to expand those offerings in the future. As more of our solutions are delivered as SaaS-based solutions, it is uncertain whether our strategies will generate the revenue required to be successful. Any significant costs we incur may reduce the operating margins we have previously achieved. Whether we are successful in this new business model depends on our execution in a number of areas, including ensuring that our SaaS-based offerings meet the performance, reliability and cost expectations of our customers and maintain the security of their data. If we are unable to execute on this strategy, our revenue or financial results may be materially adversely affected.

If we fail to price or market our products and services appropriately, our revenue and cash flow could be materially reduced.

We face significant competition across all of our product lines from a variety of sources, including larger multi-national software companies, smaller start-up organizations, point solution application providers, SaaS providers, specialized consulting organizations, systems integrators and internal information technology departments of existing or potential customers. Several competitors, such as Oracle and SAP, have significantly greater financial, technical and marketing resources than we have.

Some of our competitors have well-established relationships with our current and prospective customers and with major accounting and consulting firms that may prefer to recommend those competitors over us. Our competitors may also seek to influence some customers’ purchase decisions by offering more comprehensive horizontal product portfolios, superior global presence and more sophisticated multi-national product capabilities or better pricing terms.

If we do not successfully develop, price or market our products and solutions to fit multiple licensing models, our licenses revenue and cash flows could be adversely affected.

If we are unsuccessful in entering new market segments or further penetrating our existing market segments, our revenue or revenue growth could be materially adversely affected.

Our future results depend, in part, on our ability to successfully penetrate new markets, as well as to expand further into our existing markets. In order to grow our business, we may expand to other project-focused markets in which we may have less experience. Expanding into new markets requires both considerable investment and coordination of technical, support, sales, marketing and financial resources.

Our current or future products, solutions and services may not appeal to potential customers in new or existing markets. If we are unable to execute upon this element of our business strategy and expand into new markets or maintain and increase our market share in our existing markets, our revenue or revenue growth may be materially adversely affected.

While we continually add functionality to our existing products and solutions and add additional solutions through acquisitions to address the specific needs of both existing customers and new customers, we may be unsuccessful in developing appropriate or complete products, pursuing effective product development and marketing strategies, or integrating acquired products and solutions with our existing portfolio.

If we do not successfully address the potential risks associated with our current or future global operations, we could experience increased costs or our operating results could be materially adversely affected.

As of June 30, 2012, we had customers in more than 80 countries, and we have facilities or operations in Denmark, the Philippines, the United Kingdom, Sweden, Norway, the Netherlands, Belgium, Germany, Dubai, and Australia, in addition to our U.S. operations.

Doing business internationally may involve additional potential risks and challenges, including:

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managing international operations, including a global workforce, multiple languages for communication and diverse cultural conventions;

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conforming our products to local business practices or standards, including developing multi-lingual compatible software;

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developing brand awareness for our products;

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competing with local and international software vendors;

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disruptions in international communications resulting from damage to, or disruptions of, telecommunications links, gateways, cables or other systems;

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potentially unstable political and economic conditions in countries in which we do business or maintain development operations;

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potentially higher operating costs resulting from local laws, regulations and market conditions;

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foreign currency controls and fluctuations resulting from intercompany balances or arrangements associated with our international operations;

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compliance with frequently changing governmental laws and regulations;

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seasonality in business activity specific to various markets that is different than our recent historical experience;

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potentially longer sales and collections cycles in certain international markets;

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potential restrictions on repatriation of earnings, including changes in the tax treatment of our international operations; and

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potential restrictions on the export of technologies, such as data security and encryption.

These risks could increase our costs or adversely affect our operating results.

If we are not successful in expanding our international business, our revenue growth could be materially adversely affected.

Our ability to accelerate our international expansion will require us to deliver additional product functionality and foreign language translations that are responsive to the needs of the international customers that we target. If we are unable to expand our qualified direct sales force, identify additional strategic alliance partners or negotiate favorable alliance terms, our international growth may be hampered. Our ability to expand internationally also is dependent on our ability to raise brand recognition for our products and services in international markets and successfully integrate acquired businesses. If we are

unable to further our expansion into international markets, our revenue and profitability could be materially adversely affected. In addition, our planned international expansion will require significant attention from our management as well as additional management and other resources in these markets.

If our existing customers do not buy additional products or services from us, our revenue and revenue growth could be materially adversely affected.

Our continuing growth depends on the success of our efforts to maintain and increase sales to our existing customers. We have typically generated significant additional revenues from our installed customer base through the sale of additional new licenses or solutions, add-on applications, expansion of existing implementations and professional and maintenance services. We may be unsuccessful in maintaining or increasing sales to our existing customers for any number of reasons, including the failure of our customers to increase the size of their operations, our inability to deploy new applications and features for our existing products and solutions, and our inability to introduce new products, solutions and services that are responsive to the business needs of our customers. If we fail to generate additional business from our customers, our revenue and profitability could be materially adversely affected.

If we fail to forecast the timing of our revenues or expenses accurately, our operating results could be materially different than we forecast.

We evaluate various factors in our forecasting and planning processes, including historical trends, recent customer history, expectations of customer buying decisions, customer implementation schedules and plans, analyses by our sales and service teams, customer renewal rates, our assessment of economic and market conditions and many other factors. While these analyses may provide us with some guidance in business planning and expense management, these estimates are inherently imprecise and may not accurately predict the timing of our revenues or expenses. A variation in any or all of these factors, particularly in light of prevailing financial, economic and political conditions, could cause our results to be materially lower than forecasted.

If a significant number of our customers fail to renew or otherwise terminate their maintenance, subscription or term license agreements for our products or solutions, or if they are successful in renegotiating their agreements with us on terms that are unfavorable to us, our revenues and our operating results could be materially harmed.

Our customers contract with us for subscriptions and term licenses to use our products or solutions and for ongoing product maintenance and support services. Recurring revenues represent a significant portion of our total revenue.

Our maintenance, subscription and term licenses generally require customers to pay for services in advance. A customer may cancel its agreement prior to the beginning of the next scheduled period. At the end of a contract term, or at the time a customer has cancellation rights, a customer could seek a modification of its agreement terms, including modifications that could result in lower fees or our providing additional services without associated fee increases.

A customer may also elect to terminate its agreement and rely on its own or other third-party resources, or may replace our solutions with a competitor’s offerings. If a significant number of customers terminate or fail to renew their contracts with us, or if we are forced to offer pricing or other contract terms that are unfavorable to us, our revenues and operating results could be materially adversely affected.

If our investments in product development require greater resources than anticipated, our operating margins could be adversely affected.

We expect to continue to commit significant resources to maintain and improve our existing products, including acquired products, and to develop new products. For example, our product development expenses were approximately $31.3 million, or 19% of revenue for the six months ended June 30, 2012, and approximately $33.3 million, or 20% of revenue for the six months ended June 30, 2011. Our current and future product development efforts may require greater resources than we expect, or may not achieve the market acceptance that we expect and, as a result, we may not achieve margins that we anticipate. These risks are increased by the expansion of our licensing and delivery vehicles, including term and SaaS offerings through the “cloud”.

We may also be required to price our product enhancements, product features or new products at levels below those anticipated during the product development stage, which could result in lower revenues and margins for that product than we originally anticipated.

We also may experience unforeseen or unavoidable delays in delivering product enhancements, product features or new products due to factors within or outside of our control. We may encounter unforeseen or unavoidable defects or quality control issues when developing product enhancements, product features or new products, which may require additional

expenditures to resolve such issues and may affect the reputation our products have for quality and reliability. If we incur greater expenditures than we expect for our product development efforts, or if our products do not succeed, our revenues or margins could be materially adversely affected.

A breach in the security of our software could harm our reputation, result in a loss of current and potential customers, and subject us to material claims, which could materially harm our operating results and financial condition.

Fundamental to the use of enterprise application software, including our software, is the ability to securely process, collect, analyze, store and transmit information. As we begin to offer more services and solutions in a “cloud” environment, we will need to store and transmit more of our users’ and customers’ proprietary information.

Third parties may attempt to breach the security of our solutions, third party applications that our products interface with, as well as customer databases and actual data. In addition, security breaches may occur as a result of employee error, malfeasance or otherwise. Outside parties may also attempt to fraudulently induce employees, users or customers to disclose sensitive information in order to gain access to our data or our users’ or customers’ data.

If our security measures are breached, an unauthorized party may obtain access to our data or our users’ or customers’ data. In addition, cyber-attacks and similar acts could lead to interruptions and delays in customer processing or a loss or breach of a customer’s data. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of web-based products and services we offer, and operate in more countries.

Regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning data protection. In addition the interpretation and application of consumer and data protection laws in the United States, Europe and elsewhere are often uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices, which could have an adverse effect on our business and results of operations.

Any security breaches for which we are, or are perceived to be, responsible, in whole or in part, could subject us to legal claims or legal proceedings, including regulatory investigations, which could harm our reputation and result in significant litigation costs and damage awards or settlement amounts. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could materially harm our operating results and financial condition. Security breaches also could cause us to lose current and potential customers, which could have an adverse effect on our business. Moreover, we might be required to expend significant financial and other resources to protect further against security breaches or to rectify problems caused by any security breach.

If we fail to adapt to changing technological and market trends or changing customer requirements, our market share could decline and our sales and profitability could be materially adversely affected.

Historically, the business application software market has been characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and short product lifecycles. The development of new technologically advanced software products is a complex and uncertain process requiring high levels of innovation, as well as accurate anticipation of technological and market trends.

Our future success will largely depend upon our ability to develop and introduce timely new products and product features and delivery vehicles in order to maintain or enhance our competitive position. The introduction of enhanced or new products and delivery vehicles requires us to manage the transition from, or integration with, older products and delivery vehicles in order to minimize disruption in sales of existing products and to manage the overall process in a cost-effective manner.

If we do not successfully anticipate changing technological and market trends or changing customer requirements, and we fail to enhance or develop products or new delivery vehicles timely, effectively and in a cost-effective manner, our ability to retain or increase market share may be harmed, and our sales and profitability could be materially adversely affected.

Our software products are built upon and depend upon operating platforms and software developed and supplied by third parties. As a result, changes in the availability, features and price of, or support for, any of these third-party platforms or software, including as a result of the platforms or software being acquired by a competitor, could materially increase our costs, divert resources and materially adversely affect our competitive position and perpetual and term licenses revenue.

Our software products are built upon and depend upon operating platforms and software developed by third-party providers. We license from several software providers technologies that are incorporated into our products. Our software may also be integrated with third-party vendor products for the purpose of providing or enhancing necessary functionality.

If any of these operating platforms or software products ceases to be supported by its third-party provider, or if we lose any technology license for software that is incorporated into our products, including as a result of the platforms or software being acquired by a competitor, we may need to devote increased management and financial resources to migrate our software products to an alternative operating platform, identify and license equivalent technology or integrate our software products with an alternative third-party vendor product. In addition, if a provider enhances its product in a manner that prevents us from timely adapting our products to the enhancement, we may lose our competitive advantage, and our existing customers may migrate to a competitor’s product.

Third-party providers may also not remain in business, cooperate with us to support our software products or make their product available to us on commercially reasonable terms or provide an effective substitute product to us and our customers. Any of these adverse developments could materially increase our costs and materially adversely affect our competitive position and financial results.

If we lose access to, or fail to obtain, third-party software development tools on which our product development efforts depend, we may be unable to develop additional applications and functionality, and our ability to maintain our existing applications may be diminished, which may cause us to incur materially increased costs, reduced margins or lower revenue.

We license software development tools from third parties and use those tools in the development of our products. Consequently, we depend upon third parties’ abilities to deliver quality products, correct errors, support their current products, develop new and enhanced products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. If any of these third-party development tools become unavailable, if we are unable to maintain or renegotiate our licenses with third parties to use the required development tools, or if third-party developers fail to adequately support or enhance the tools, we may be forced to establish relationships with alternative third-party providers and to rewrite our products using different development tools.

We may be unable to obtain other development tools with comparable functionality from other third parties on reasonable terms or in a timely fashion. In addition, we may not be able to complete the development of our products using different development tools, or we may encounter substantial delays in doing so. If we do not adequately replace these software development tools in a timely manner, we may incur additional costs, which may materially reduce our margins or revenue.

If our products fail to perform properly due to undetected defects or similar problems, and if we fail to develop an enhancement to resolve any defect or other software problem, we could be subject to product liability, performance or warranty claims and incur material costs, which could damage our reputation, result in a potential loss of customer confidence and adversely impact our sales, revenue and operating results.

Our software applications are complex and, as a result, defects or other software problems may be found during development, product testing, implementation or deployment. In the past, we have encountered defects in our products as they are introduced or enhanced. If our software contains defects or other software problems:

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we may not be paid;

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a customer may bring a warranty claim against us;

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a customer may bring a claim for their losses caused by our product failure;

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we may face a delay or loss in the market acceptance of our products;

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we may incur unexpected expenses and diversion of resources to remedy the problem;

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our reputation and competitive position may be damaged; and

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significant customer relations problems may result.

Our customers use our software together with software and hardware applications and products from other companies. As a result, when problems occur, it may be difficult to determine the cause of the problem, and our software, even when not the ultimate cause of the problem, may be misidentified as the source of the problem. The existence of defects or other software problems, even when our software is not the source of the problem, might cause us to incur significant costs, divert the attention of our technical personnel from our product development efforts for a lengthy time period, require extensive consulting resources, harm our reputation and cause significant customer relations problems.

If our products fail to perform properly, we may face liability claims notwithstanding that our standard customer agreements contain limitations of liability provisions. A material claim or lawsuit against us could result in significant legal expense, harm our reputation, damage our customer relations, divert management’s attention from our business and expose us to the payment of material damages or settlement amounts. In addition, interruption in the functionality of our products or other defects could cause us to lose new sales and materially adversely affect our license and maintenance services revenues and our operating results.

If we are not able to protect our intellectual property and other proprietary rights, we may not be able to compete effectively, and our financial results could be materially adversely affected.

Our success and ability to compete is dependent to a significant degree on our intellectual property, particularly our proprietary software and solutions. We rely on a combination of copyrights, trademarks, patents, trade secrets, confidentiality procedures and contractual provisions to establish and protect our rights in our software and other intellectual property. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy, design around or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary.

Our competitors may independently develop software that is substantially equivalent or superior to our software. Furthermore, existing copyright law affords only limited protection for our software, and patent law protects only the unique features of our software. As a result, copyright and patent law may not fully protect such software in the event competitors independently develop products similar to ours.

We take significant measures to protect our intellectual property. Despite these measures, unauthorized disclosure of some or all of our intellectual property could occur. Such unauthorized disclosure could potentially cause our intellectual property to lose legal protection and make it easier for third parties to compete with our solutions by copying their functionality, structure or operation.

In addition, the laws of some countries may not protect our proprietary rights to the same extent as do the laws of the United States. Therefore, we may not be able to protect our proprietary software and solutions against unauthorized third-party copying or use, which could adversely affect our competitive position and our financial results. Any litigation to protect our proprietary rights could be time consuming and expensive to prosecute or resolve, result in substantial diversion of management attention and resources, and could be unsuccessful, which could result in the loss of material intellectual property and other proprietary rights.

Potential future claims that we infringe upon third parties’ intellectual property rights could be costly and time-consuming to defend or settle or could result in the loss of significant products, any of which could materially adversely impact our revenue and operating results.

Third parties could claim that we have infringed upon their intellectual property rights. Such claims, whether or not they have merit, could be time consuming to defend, result in costly litigation, divert our management’s attention and resources from day-to-day operations or cause significant delays in our delivery or implementation of our products.

We could also be required to cease to develop, use or market infringing or allegedly infringing products, to develop non-infringing products or to obtain licenses to use infringing or allegedly infringing technology. We may not be able to develop alternative software or to obtain such licenses or, if a license is obtainable, we cannot be certain that the terms of such license would be commercially acceptable.

If a claim of infringement were threatened or brought against us, and if we were unable to license the infringing or allegedly infringing product or develop or license substitute software, or were required to license such software at a high royalty, our revenue and operating results could be materially adversely affected.

In addition, we agree, from time to time, to indemnify our customers against certain claims that our software infringes upon the intellectual property rights of others. We could incur substantial costs in defending our customers against such claims.

If we are not able to retain existing employees or hire qualified new employees, our business could suffer, and we may not be able to execute our business strategy.

Our business strategy and future success depends, in part, upon our ability to attract, train and retain highly skilled managerial, professional service, sales, development, marketing, finance, accounting, administrative and infrastructure-related personnel. The market for these highly skilled employees is generally competitive in the geographies in which we operate.

Our business could be adversely affected if we are unable to retain qualified employees or recruit qualified personnel in a timely fashion, or if we are required to incur unexpected increases in compensation costs to retain key employees or meet our hiring goals. If we are not able to retain and attract the personnel we require, it could be more difficult for us to sell and develop our products and services and execute our business strategy, which could lead to a material shortfall in our anticipated results. Furthermore, if we fail to manage these costs effectively, our operating results could be materially adversely affected.

The loss of key members of our senior management team could disrupt our business.

We believe that our success depends on the continuing contributions of the members of our senior management team. We rely on our executive officers and other key managers for the successful performance of our business. Although we have employment arrangements with several members of our senior management team, none of these arrangements prevents any of our employees from leaving us. The loss of the services of one or more of our executive officers or key managers, or difficulties transitioning responsibilities following the departure of a key member of senior management, could have an adverse effect on our operating results and financial condition.

Our indebtedness or an inability to borrow additional amounts could adversely affect our results of operations and financial condition and prevent us from fulfilling our financial obligations and business objectives.

As of June 30, 2012, we had approximately $154.0 million of outstanding principal amount of the term loans under our existing credit facility at interest rates which are subject to market fluctuation. These term loans mature in November 2016. Our existing credit facility also provides for a $30.0 million revolving credit facility maturing in November 2015. Our indebtedness and related obligations could have important future consequences to us, such as:

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potentially limiting our ability to obtain additional financing or finance our existing debt to fund growth, working capital, capital expenditures or to meet existing debt service or other cash requirements;

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exposing us to the risk of increased interest costs if the underlying interest rates rise significantly or if credit markets are affected by unfavorable domestic or global economic conditions, such as uncertainty over federal spending and debt limits;

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potentially limiting our ability to invest operating cash flow in our business due to debt service requirements or other financial covenants; or

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increasing our vulnerability to economic downturns and changing market conditions.

Our ability to meet our existing debt service obligations will depend on many factors, including prevailing financial and economic conditions, our past performance and our financial and operational outlook. In addition, although we amended our credit facility and have voluntarily prepaid approximately $15.0 million in term loans under our credit facility during the six months ended June 30, 2012, our ability to borrow additional funds or refinance our existing debt if desired or deemed necessary in light of then-existing business conditions could also depend on such factors. If we do not have enough cash to satisfy our debt service obligations, we may be required to refinance all or part of our existing debt, modify our debt structure, sell assets or reduce our spending. At any given time, we may not be able to refinance our debt or sell assets on terms acceptable to us or at all. If we are unable to do so, our business could be materially adversely affected.

If we are unable to comply with the covenants or restrictions contained in our credit facility, our lenders could declare all amounts outstanding under the credit facility to be due and payable, which could materially adversely affect our financial condition.

Since 2005, we have maintained a credit facility with a syndicate of lenders led by Credit Suisse. The credit facility is subject to covenants that, among other things, restrict both our and our subsidiaries’ ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, paying any dividends, create liens on assets, enter into sale-leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by us and engage in certain transactions with affiliates.

Under our credit facility, we are also required to comply with certain financial covenants related to capital expenditures, interest coverage and leverage ratios. While we have historically complied with our financial covenants, we may not be able to comply with these financial covenants in the future, which could cause all amounts outstanding under the credit facility to be due and payable, and which could limit our ability to meet ongoing or future capital needs. Our ability to comply with the covenants and restrictions under our credit facility may be adversely affected by economic, financial, industry or other conditions, some of which may be beyond our control.

The potential breach of any of the covenants or restrictions under our credit facility, unless cured within the applicable grace period, could result in a default that would permit the lenders to declare all amounts outstanding to be due and payable, together with accrued and unpaid interest, and foreclose on the assets that serve as security for our loans under our credit facility. In such an event, we may not have sufficient assets to repay such indebtedness. As a result, any default could have serious consequences for our financial condition.

We may be subject to integration and other risks from acquisition activities, which could materially impair our ability to realize the anticipated benefits of any acquisitions.

As part of our business strategy, we have acquired, and intend to continue to acquire, complementary businesses, technologies, product lines or services organizations. In July 2010, we completed our acquisition of Maconomy A/S (“Maconomy”), an international provider of software solutions to professional services firms. In 2010 and 2011, we completed our acquisitions of INPUT, Inc. (“INPUT”) and FedSources which added industry-leading opportunity intelligence and business development capabilities to our comprehensive portfolio of government contracting solutions. These acquisitions added approximately 500 employees to our existing employee base and expanded our operations into five new countries—Denmark, Norway, Sweden, Belgium and the Netherlands. We may not realize the anticipated strategic or financial benefits of past or potential future acquisitions due to a variety of factors, including the following:

•

the potential difficulty in integrating acquired products and technology into our software applications, business strategy and operations;

•

the potential inability to achieve the desired revenue or cost synergies and benefits;

•

the potential difficulty in coordinating and integrating the sales, marketing, services, support and development activities of the acquired businesses, successfully cross selling products or services and managing the combined organizations;

•

the potential difficulty in retaining and motivating key employees of the acquired business, including as a result of cultural differences;

•

the potential difficulty and cost of establishing and integrating controls, procedures and policies;

•

the acquisition may result in unplanned disruptions to our ongoing business and may divert management from day-to-day operations due to a variety of factors, including integration issues;

•

the possibility that goodwill or other intangible assets may become impaired and will need to be written off in the future;

•

the possibility that purchase or other accounting rules will impact the timing or amount of recognized revenue, expenses or our balance sheet with respect to any acquired products or solutions;

•

the potential failure of the due diligence process to identify significant issues, including product quality, architecture and development issues or legal and financial contingencies (including ongoing maintenance or service contract concerns); and

•

the lack of legal protection for the intellectual property we acquire.

Catastrophic events may disrupt our business and could result in materially increased expenses, reduced revenues and profitability and impaired customer relationships.

We are a highly automated business and rely on our network infrastructure, enterprise applications and internal and external technology and infrastructure systems for our development, sales, marketing, support and operational activities. A disruption or failure of any or all of these systems could result from catastrophic events, whether climate related or otherwise, including major telecommunications failures, cyber-attacks, terrorist attacks, fires, earthquakes, storms or other severe weather conditions (especially with respect to our operations in Virginia and in the Philippines). A disruption or failure of any or all of these systems could cause system interruptions to our operations, including product development, sales-cycle or product implementation delays, as well as loss of data or other disruptions to our relationships with current or potential customers.

The disaster recovery plans and backup systems that we have in place may not be effective in addressing a catastrophic event that results in the destruction or disruption of any of our critical business or information technology and infrastructure systems. As a result of any of these events, we may not be able to conduct normal business operations and may be required to incur significant expenses in order to resume normal business operations. As a result, our revenues and profitability may be materially adversely affected.

Our revenues are partially dependent upon Federal Government contractors and their need for compliance with Federal Government contract accounting and reporting standards, as well as data privacy and security requirements. Our failure to anticipate or adapt timely to changes in those standards and requirements could cause us to lose government contractor customers and materially adversely affect our revenue generated from these customers.

We derive a significant portion of our revenues from Federal Government contractors. Our government contractor customers utilize our Costpoint, Deltek First Essentials, GCS Premier and our other enterprise project management applications to manage their contracts and projects with the Federal Government in a manner that accounts for expenditures in accordance with the Federal Government contracting accounting standards. These customers also have a requirement to maintain stringent data privacy and security safeguards.

As an example, a key function of our Costpoint application is to enable government contractors to enter, review and organize accounting data in a manner that is compliant with applicable laws and regulations and to clearly demonstrate compliance with those laws and regulations. If the Federal Government alters these compliance standards, or if there was any significant problem with the functionality of our software from a compliance or data security perspective, we may be required to modify or enhance our software products to satisfy any new or altered compliance standards. Our inability to effectively and efficiently modify our applications to resolve any compliance or data security issue could result in the loss of government contract customers and materially adversely impact our revenue from these customers.

Impairment of our goodwill or intangible assets may adversely impact our results of operations.

We have acquired several businesses which, in aggregate, have resulted in the recording of goodwill valued at approximately $174.9 million and other acquired intangible assets carried at approximately $46.6 million as of June 30, 2012. This represents a significant portion of the assets recorded on our balance sheet. Goodwill and indefinite-lived intangible assets are reviewed periodically for impairment. Other intangible assets that are deemed to have finite useful lives will continue to be amortized over their useful lives but are also reviewed for impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

In the past, we have recognized an impairment loss in connection with trade names acquired from prior acquisitions whose carrying amount exceeded its fair value. There can be no assurance that additional charges to operations will not occur in the event of a future impairment. In addition, the decrease in the price of our stock that has occurred from time to time and may occur in the future may also affect whether we experience an impairment in future periods. If an impairment is deemed to exist in the future, we would be required to write down the recorded value of the goodwill or intangible assets to their then current estimated fair values. If a writedown were to occur, it could materially adversely impact our results of operations and our stock price.

If we were to identify material weaknesses in our internal controls in the future, these material weaknesses may impede our ability to produce timely and accurate financial statements, result in inaccurate financial reporting or restatements of our financial statements, subject our stock to delisting and materially harm our business reputation and stock price.

As a public company, we are required to file annual and quarterly periodic reports containing our financial statements with the SEC within prescribed time periods. As part of The NASDAQ Global Select Market (“NASDAQ”) listing requirements, we are also required to provide our periodic reports, or make them available, to our stockholders within prescribed time periods.

If we were to identify material weaknesses in our internal control in the future, including with respect to internal controls relating to companies that we have acquired or may acquire in the future, the required audit or review of our financial statements by our independent registered public accounting firm may be delayed. In addition, we may not be able to produce reliable financial statements, file our financial statements as part of a periodic report in a timely manner with the SEC or comply with NASDAQ listing requirements. If we are required to restate our financial statements in the future, any specific adjustment may cause our operating results and financial condition, as restated, on an overall basis to be materially impacted.

If these events were to occur, our common stock listing on NASDAQ could be suspended or terminated and, absent a waiver, we also would be in default under our credit agreement and our lenders could accelerate any obligation we have to them. We, or members of our management, could also be subject to investigation and sanction by the SEC and other regulatory authorities and to stockholder lawsuits. In addition, our stock price could decline materially, we could face significant unanticipated costs, management’s attention could be diverted and our business reputation could be materially harmed.

Risks Related to Ownership of Our Common Stock

Our stock price has been volatile and could continue to remain volatile for a variety of reasons, resulting in a substantial loss on your investment.

The stock markets generally have experienced extreme and unpredictable volatility, often unrelated to the operating performance of the individual companies whose securities are traded publicly. Broad market fluctuations and general economic and financial conditions may materially adversely affect the trading price of our common stock.

Significant price fluctuations in our common stock also could result from a variety of other factors, including:

•

actual or anticipated fluctuations in our operating results or financial condition;

•

our competitors’ announcements of significant contracts, acquisitions or strategic investments;

•

changes in our growth rates or our competitors’ growth rates;

•

conditions of the project-focused software industry;

•

securities analysts’ commentary about us or our industry;

•

the limited trading volume of our common stock; and

•

any other factor described in this “Risk Factors” section of this Annual Report.

In addition, if the market value of our common stock falls below the book value of our assets, we could be forced to recognize an impairment of our goodwill or other assets. If this were to occur, our operating results would be adversely affected and the price of our common stock could be negatively impacted.

Future sales of our common stock by existing stockholders could cause our stock price to decline.

New Mountain Partners II, L.P., New Mountain Affiliated Investors II, L.P., and Allegheny New Mountain Partners, L.P. (collectively, the “New Mountain Funds”), our controlling stockholders, own approximately 60% of outstanding common stock. If the New Mountain Funds were to sell substantial amounts of our common stock in the public market or if the market perceives that our key stockholders may sell shares of our common stock, the market price of our common stock could decrease significantly.

The New Mountain Funds have the right, subject to certain conditions, to require us to register the sale of their shares under the federal securities laws. If this right is exercised, holders of other shares and, in certain circumstances, stock options may sell their shares alongside the New Mountain Funds, which could cause the market price of our common stock to decline. The majority of the shares of our common stock (and all shares of common stock underlying options outstanding under our 2005 Stock Option Plan and certain shares of common stock underlying options and restricted stock outstanding under our 2007 Plan) are, directly or indirectly, subject to registration rights.

We have also filed registration statements with the SEC covering shares subject to options and restricted stock outstanding under our 2005 Stock Option Plan and 2007 Plan and shares reserved for issuance under our 2007 Plan and our Employee Stock Purchase Plan.

A decline in the trading price of our common stock due to the occurrence of any future sales might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities and may cause stockholders to lose part or all of their investment in our shares of common stock.

Our largest stockholders and their affiliates have substantial control over us, and this could limit other stockholders’ ability to influence the outcome of key transactions, including any change of control.

Our largest stockholders, the New Mountain Funds, own approximately 60% of our outstanding common stock and 100% of our Class A common stock. As a result of their significant ownership percentage, and as long as they own a majority of the outstanding shares of our Class A common stock and at least one-third of the outstanding shares of our common stock based on the rights conferred by an investor rights agreement, the New Mountain Funds are able to control all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other significant corporate transactions.

The New Mountain Funds are also entitled to collect a transaction fee, unless waived by them, on a transaction by transaction basis, equal to 2% of the transaction value of each significant transaction exceeding $25.0 million in value directly or indirectly involving us or any of our controlled affiliates, including acquisitions, dispositions, mergers or other similar transactions, debt, equity or other financing transactions, public or private offerings of our securities and joint ventures, partnerships and minority investments.

In 2009, the New Mountain Funds waived their right to collect a transaction fee in connection with our stock rights offering and the amendment of our Credit Agreement. Their right to collect transaction fees otherwise remains in effect and continues until the New Mountain Funds cease to beneficially own at least 15% of our outstanding common stock or a change of control of the Company occurs.

The New Mountain Funds may have interests that differ from other stockholders’ interests, and they may vote in a way with which other stockholders disagree and that may be adverse to their interests. The concentration of ownership of our common stock may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and may adversely affect the market price of our common stock.

If we issue additional shares of our common stock, stockholders could experience dilution.

Our authorized capital stock consists of 200,000,000 shares of common stock, of which there were 68,464,867 shares outstanding as of July 31, 2012. The issuance of additional shares of our common stock or securities convertible into shares of our common stock could result in dilution of other stockholders’ ownership interest in us. In addition, if we issue additional shares of our common stock at a price that is less than the fair value of our common stock, other stockholders could, depending on their participation in that issuance, also experience immediate dilution of the value of their shares relative to what their value would have been had our common stock been issued at fair value. This dilution could be substantial.

Our stockholders do not have the same protections available to other stockholders of NASDAQ-listed companies because we are a “controlled company” within the meaning of the NASDAQ’s standards and, as a result, qualify for, and may rely on, exemptions from several corporate governance requirements.

The New Mountain Funds control a majority of our outstanding common stock and have the ability to elect a majority of our Board. As a result, we are a “controlled company” within the meaning of the rules governing companies with stock quoted on NASDAQ. Under these rules, a company as to which an individual, a group or another company holds more than 50% of the voting power is considered a “controlled company” and is exempt from several corporate governance requirements, including requirements that:

•

a majority of the Board consists of independent directors;

•

compensation of officers be determined or recommended to the Board by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors; and

•

director nominees be selected or recommended for election by a majority of the independent directors or by a nominating committee that is composed entirely of independent directors.

We have availed ourselves of these exemptions. Accordingly, our stockholders do not have the same protections afforded to stockholders of other companies that are subject to all of NASDAQ’s corporate governance requirements as long as the New Mountain Funds own a majority of our outstanding common stock.

Anti-takeover provisions in our charter documents, Delaware law and our shareholders’ agreement could discourage, delay or prevent a change in control of our company and may adversely affect the trading price of our common stock.

We are a Delaware corporation, and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us (as a public company with common stock listed on NASDAQ) from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our certificate of incorporation and bylaws:

•

authorize the issuance of “blank check” preferred stock that could be issued by our Board to thwart a takeover attempt;

•

provide the New Mountain Funds, through their stock ownership, with the ability to elect a majority of our directors if they beneficially own one-third or more of our common stock;

•

do not provide for cumulative voting;

•

provide that vacancies on the Board, including newly created directorships, may be filled only by a majority vote of directors then in office (subject to the rights of the Class A stockholders);

•

limit the calling of special meetings of stockholders;

•

permit stockholder action by written consent if the New Mountain Funds and its affiliates own one-third or more of our common stock;

•

require supermajority stockholder voting to effect certain amendments to our certificate of incorporation; and

•

require stockholders to provide advance notice of new business proposals and director nominations under specific procedures. In addition, certain provisions of our shareholders’ agreement require that certain covered persons (as defined in the shareholders’ agreement) vote their shares of our common stock in favor of certain transactions in which the New Mountain Funds propose to sell all or any portion of their shares of our common stock, or in which we propose to sell or otherwise transfer for value all or substantially all of the stock, assets or business of the Company.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

Not applicable.

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table presents information regarding purchases made by Deltek of its common stock:


Repurchase period	Total Number of Shares Purchased		Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Dollar Value of Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
4/1/12 - 4/30/12		129,918	$	10.33		129,918	$	8,077,364
5/1/12 - 5/31/12		171,700	$	10.21		171,700	$	6,324,126
6/1/12 - 6/30/12		88,807	$	10.36		88,807	$	5,404,396
7/1/12 - 7/31/12		—	$	—		—	$	5,404,396

Total		390,425	$	10.28		390,425

⁽¹⁾

On August 18, 2011, we announced that our Board had approved a stock repurchase program under which we may repurchase up to $30.0 million of Deltek common stock. The Board authorization permits us to repurchase stock at times and prices considered appropriate by us depending upon share price, prevailing economic and market conditions and other corporate considerations. The stock repurchases may be made on the open market, in block trades or privately negotiated transactions, or otherwise. The repurchase program may be accelerated, suspended, delayed or discontinued at any time. As of June 30, 2012, we had repurchased an aggregate of 2,964,498 shares of common stock under this program, which included 1,864,498 shares repurchased in the open market and 1,100,000 shares repurchased in a private transaction.

⁽²⁾	The average price paid per share includes a nominal amount paid for commissions.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.

MINE SAFETY DISCLOSURES

None.

Item 5.

OTHER INFORMATION

None.

Item 6.

EXHIBITS


3.1		Amended and Restated Certificate of Incorporation. (1)

3.2		Amended and Restated Bylaws of Deltek, Inc. (2)

4.1		Form of specimen common stock certificate. (1)

31.1*		Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**		The following financial statements from Deltek, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity and Other Comprehensive (Loss) Income, and (v) Notes to Condensed Consolidated Financial Statements.

*	Filed herewith.

**	XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

(1)	Incorporated by reference to exhibit of same number filed with the Registrant’s Registration Statement on Form S-1 (No. 333-142737) on May 8, 2007.

(2)	Incorporated by reference to exhibit of same number filed on March 12, 2010 with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	DELTEK, INC.

Dated: August 9, 2012	By:	/s/ KEVIN T. PARKER
		Kevin T. Parker
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

EXHIBIT INDEX



3.1		Amended and Restated Certificate of Incorporation. (1)

3.2		Amended and Restated Bylaws of Deltek, Inc. (2)

4.1		Form of specimen common stock certificate. (1)

31.1*		Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**		The following financial statements from Deltek, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 9, 2012, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity and Other Comprehensive (Loss) Income, and (v) Notes to Condensed Consolidated Financial Statements.

*	Filed herewith.

**	XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

(1)	Incorporated by reference to exhibit of same number filed with the Registrant’s Registration Statement on Form S-1 (No. 333-142737) on May 8, 2007.

(2)	Incorporated by reference to exhibit of same number filed on March 12, 2010 with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009.