DELTEK, INC - FORM 10-Q - November 6, 2009

Attached files

file	filename
EX-10.105 - EMPLOYMENT LETTER, DATED AUGUST 10, 2009 - DELTEK, INC	dex10105.htm
EX-10.106 - EMPLOYMENT LETTER, DATED SEPTEMBER 30, 2009 - DELTEK, INC	dex10106.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - DELTEK, INC	dex311.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - DELTEK, INC	dex321.htm

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 September 30, 2009

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

For 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)

13880 Dulles Corner Lane, 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 ¨ 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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨				Accelerated filer x

Non-accelerated filer ¨				Smaller reporting company ¨

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 November 4, 2009 was 65,958,231 and 100, respectively.

TABLE OF CONTENTS


		Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008 (unaudited)		1

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited)		2

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (unaudited)		3

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) at September 30, 2009 and December 31, 2008 (unaudited)		5

Notes to Condensed Consolidated Financial Statements (unaudited)		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3. Quantitative and Qualitative Disclosures About Market Risk		33

Item 4. Controls and Procedures		33

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		34

Item 1A. Risk Factors		34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46

Item 3. Defaults Upon Senior Securities		46

Item 4. Submission of Matters to a Vote of Security Holders		46

Item 5. Other Information		46

Item 6. Exhibits		47

SIGNATURES		48

EXHIBIT INDEX		50

PART I

FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

DELTEK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30, 2009			December 31, 2008
	*(unaudited)*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	130,388		$	35,788
Accounts receivable, net of allowance of $3,033 and $2,195 at September 30, 2009 and December 31, 2008, respectively		38,262			47,747
Deferred income taxes		4,253			4,635
Prepaid expenses and other current assets		6,338			6,874
Income taxes receivable		651			846

TOTAL CURRENT ASSETS		179,892			95,890
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $18,766 and $14,688 at September 30, 2009 and December 31, 2008, respectively		12,171			14,639
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET		826			1,438
LONG-TERM DEFERRED INCOME TAXES		6,860			4,125
INTANGIBLE ASSETS, NET		13,942			17,396
GOODWILL		57,829			57,654
OTHER ASSETS		3,218			2,130

TOTAL ASSETS	$	274,738		$	193,272

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt	$	13,952		$	10,154
Accounts payable and accrued expenses		25,362			28,734
Accrued liability for redemption of stock in recapitalization		317			317
Deferred revenues		35,667			21,296

TOTAL CURRENT LIABILITIES		75,298			60,501
LONG-TERM DEBT		165,329			182,661
OTHER TAX LIABILITIES		1,591			1,003
OTHER LONG-TERM LIABILITIES		3,088			2,917

TOTAL LIABILITIES		245,306			247,082
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred stock, $0.001 par value—authorized, 5,000,000 shares; none issued or outstanding at September 30, 2009 and December 31, 2008		—			—
Common stock, $0.001 par value—authorized, 200,000,000 shares; issued and outstanding, 65,944,975 and 43,474,220 shares at September 30, 2009 and December 31, 2008, respectively		66			43
Class A common stock, $0.001 par value—authorized, 100 shares; issued and outstanding, 100 shares at September 30, 2009 and December 31, 2008		—			—
Additional paid-in capital		245,773			177,249
Accumulated deficit		(215,743	)		(229,905	)
Accumulated other comprehensive deficit		(664	)		(1,197	)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		29,432			(53,810	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	274,738		$	193,272

See accompanying notes to condensed consolidated financial statements

DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	*(unaudited)*						*(unaudited)*
REVENUES:
Software license fees	$	12,711		$	18,508		$	39,695		$	57,647
Consulting services		19,737			23,060			59,019			69,650
Maintenance and support services		31,648			29,324			93,232			85,675
Other revenues		18			58			3,530			4,697

Total revenues		64,114			70,950			195,476			217,669


COST OF REVENUES:
Cost of software license fees		1,198			1,672			4,421			4,939
Cost of consulting services		16,716			18,277			50,173			57,632
Cost of maintenance and support services		5,493			5,438			16,762			15,864
Cost of other revenues		26			39			4,674			5,146

Total cost of revenues		23,433			25,426			76,030			83,581

GROSS PROFIT		40,681			45,524			119,446			134,088

OPERATING EXPENSES:
Research and development		10,854			11,761			32,498			34,710
Sales and marketing		10,396			13,637			32,568			39,353
General and administrative		8,712			8,753			26,029			24,693
Restructuring charge (benefit)		552			(61	)		3,100			991

Total operating expenses		30,514			34,090			94,195			99,747

INCOME FROM OPERATIONS		10,167			11,434			25,251			34,341
Interest income		13			168			35			618
Interest expense		(1,917	)		(2,454	)		(4,899	)		(8,408	)
Other expense, net		(29	)		(60	)		(8	)		(261	)

INCOME BEFORE INCOME TAXES		8,234			9,088			20,379			26,290
Income tax expense		1,627			1,063			6,217			8,821

NET INCOME	$	6,607		$	8,025		$	14,162		$	17,469

EARNINGS PER SHARE (a)
Basic	$	0.10		$	0.17		$	0.26		$	0.38

Diluted	$	0.10		$	0.17		$	0.26		$	0.37

COMMON SHARES AND EQUIVALENTS OUTSTANDING (a)
Basic weighted average shares		63,611			46,586			54,320			46,547

Diluted weighted average shares		64,808			47,605			54,967			47,795

(a)

In accordance with FASB Accounting Standards Codification (ASC) 260, Earnings Per Share, for the purpose of computing the basic and diluted number of shares, the number of weighted average common shares outstanding prior to June 1, 2009 was retroactively adjusted by a factor of 1.08 to reflect the impact of the bonus element associated with the common stock rights offering that we completed in June 2009. See Note 3, Earnings Per Share, for additional information.

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Nine Months Ended September 30,
	2009			2008
	*(unaudited)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,162		$	17,469
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts		2,274			1,000
Depreciation and amortization		8,045			7,143
Amortization of debt issuance costs		701			595
Write-down of acquired in process research and development		—			290
Stock-based compensation expense		6,319			5,925
Employee stock purchase plan expense		1,821			234
Restructuring charge, net		818			63
Loss on disposal of fixed assets		23			346
Deferred income taxes		(2,818	)		(2,455	)
Changes in assets and liabilities, net of effects from acquisition:
Accounts receivable, net		7,416			6,907
Prepaid expenses and other assets		935			1,555
Accounts payable and accrued expenses		(3,558	)		(2,638	)
Income taxes receivable		175			(3,092	)
Excess tax benefit from stock awards		(61	)		(71	)
Other tax liabilities		588			374
Other long-term liabilities		(631	)		(456	)
Deferred revenues		15,012			(166	)

Net Cash Provided by Operating Activities		51,221			33,023


CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired		—			(17,424	)
Purchase of property and equipment		(1,863	)		(5,000	)
Capitalized software development costs		(150	)		(261	)

Net Cash Used in Investing Activities		(2,013	)		(22,685	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock in connection with rights offering, net of issuance costs		58,228			–
Proceeds from exercise of stock options		759			230
Excess tax benefit from stock awards		61			71
Proceeds from issuance of stock under employee stock purchase plan		2,015			712
Offering costs paid for 2007 sale of common stock in initial public offering		—			(275	)
Payments for deferred financing costs		(2,336	)		—
Repayment of debt		(13,534	)		—

Net Cash Provided By Financing Activities		45,193			738


IMPACT OF FOREIGN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		199			(7	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		94,600			11,069

CASH AND CASH EQUIVALENTS—Beginning of period		35,788			17,091

CASH AND CASH EQUIVALENTS—End of period	$	130,388		$	28,160

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(in thousands)


	Nine Months Ended September 30,
	2009		2008
	*(unaudited)*
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Noncash activity:
Accrued liability for purchases of property and equipment	$	71	$	275

Cash paid during the period for:
Interest	$	4,197	$	9,078

Income taxes	$	8,553	$	13,886

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)


	Preferred Stock			Common Stock			Class A Common Stock			Paid-In			Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital			Deficit			Deficit			Equity (Deficit)
	*(unaudited)*
Balance at December 31, 2007	—	$	—	43,046,523	$	43	100	$	—	$	167,527		$	(253,424	)	$	(334	)	$	(86,188	)


Net income	—		—	—		—	—		—		—			23,519			—			23,519
Foreign currency translation adjustments	—		—	—		—	—		—		—			—			(863	)		(863	)

Comprehensive income																				22,656
Issuance of common stock under the employee stock purchase plan	—		—	82,736		—	—		—		712			—			—			712
Stock options exercised	—		—	59,311		—	—		—		277			—			—			277
Issuance of restricted stock awards, net	—		—	285,650		—	—		—		—			—			—			—
Tax benefit on stock options exercised	—		—	—		—	—		—		64			—			—			64
Tax deficiency from other stock option activity	—		—	—		—	—		—		(93	)		—			—			(93	)
Stock compensation	—		—	—		—	—		—		8,762			—			—			8,762

Balance at December 31, 2008	—	$	—	43,474,220	$	43	100			$	177,249		$	(229,905	)	$	(1,197	)	$	(53,810	)


Net income	—		—	—		—	—		—		—			14,162			—			14,162
Foreign currency translation adjustments	—		—	—		—	—		—		—			—			533			533

Comprehensive income																				14,695
Issuance of common stock in connection with rights offering, net of issuance costs	—		—	20,000,000		20	—		—		58,208			—			—			58,228
Issuance of common stock under the employee stock purchase plan	—		—	635,855		1	—		—		2,014			—			—			- 2,015
Stock options exercised	—		—	210,200		—	—		—		759			—			—			759
Issuance of restricted stock awards, net of forfeitures	—		—	1,624,700		2	—		—		(2	)		—			—			—
Tax benefit from stock awards	—		—	—		—	—		—		61			—			—			61
Tax deficiency on stock option exercises and other stock option activity	—		—	—		—	—		—		(560	)		—			—			(560	)
Stock compensation	—		—	—		—	—		—		8,051			—			—			8,051
Exchange of liability for restricted stock	—		—	—		—	—		—		10			—			—			10
Payment of income tax withheld on vested restricted stock awards	—		—	—		—	—		—		(17	)		—			—			- (17	)

Balance at September 30, 2009	—	$	—	65,944,975	$	66	100	$	—	$	245,773		$	(215,743	)	$	(664	)	$	29,432

See accompanying notes to condensed consolidated financial statements.

DELTEK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

September 30, 2009

1. ORGANIZATION

Organization

Deltek, Inc. (“Deltek” or the “Company”) is a leading provider of enterprise applications software and related services designed specifically for project-focused organizations. Project-focused organizations generate revenue from defined, discrete, customer-specific engagements or activities. Project-focused organizations typically require specialized software to help them automate their complex business processes around the engagement, execution and delivery of projects. Deltek’s software applications enable them to significantly enhance the visibility they have over all aspects of their operations by providing them increased control over their critical business processes, accurate project-specific financial information, and real-time performance measurements.

Rights Offering

In May 2009, the Company issued non-transferable subscription rights to the Company’s stockholders of record to subscribe for 20 million shares of the Company’s common stock on a pro rata basis at a subscription price of $3.00 per share. Stockholders received one right for each share of common stock owned on the record date, April 14, 2009. Based on the number of shares outstanding on the record date, the rights offering entitled each stockholder to purchase 0.4522 shares of common stock at the subscription price. On May 27, 2009, the subscription period expired and the rights offering was fully subscribed by participating stockholders of the Company, resulting in the issuance of 20 million shares of common stock on June 1, 2009. Net proceeds from the offering after deducting fees and offering expenses were $58.2 million. In accordance with the provisions of the credit agreement, the Company used $3.1 million to prepay indebtedness. See Note 6, Debt, for additional details regarding the mandatory prepayment and Note 3, Earnings Per Share, for additional details regarding the rights offering.

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, 2008. The December 31, 2008 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 required by GAAP.

The unaudited interim 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 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, 2009 or for any other periods.

Financial Accounting Standards Board Codification

In June 2009, the FASB issued the FASB Accounting Standards Codification^™ (the “Codification” or “ASC”), the authoritative guidance for GAAP. The Codification does not change how the Company accounts for its transactions or the nature of related disclosures made. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 1, 2009. In these financial statements, the references have been updated to reflect the new Codification references.

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 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 three sources: licensing of software products, providing maintenance and support for those products, and providing consulting services for those products. Deltek’s consulting services consist primarily of implementation services, training and assessment, and design services. A typical sales arrangement includes both software licenses and maintenance, and may also include consulting services. Consulting services are also regularly sold separately from other elements, generally on a time-and-materials basis. The Company recognizes revenue in accordance with ASC 985-605, Software-Revenue Recognition (“ASC 985-605”), and in accordance with the Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition.

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, the Company recognizes the software and services revenue together in accordance with ASC 605-35, Revenue Recognition-Construction-Type and Certain Production-Type Contracts (“ASC 605-35”).

For sales arrangements involving multiple elements, where software licenses are sold together with maintenance and support, consulting, training, or other services, the Company recognizes revenue using the residual method. Under the residual method, to determine the amount to allocate to and recognize revenue on delivered elements, normally the license element of the arrangement, the Company first allocates and defers revenue for any undelivered elements based upon objective evidence of fair value of those elements. The objective evidence of fair value used is required to be specific to the Company and commonly referred to as vendor-specific objective evidence, or “VSOE”. The Company recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue for the delivered elements.

For maintenance and support agreements, VSOE is based upon historical renewal rates and, in some cases, renewal rates stated in the Company’s agreements.

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 in which VSOE of fair value is not available, the entire arrangement is deferred.

Under its standard perpetual software license agreements, the Company recognizes revenue from the license of software upon execution of a signed agreement and delivery of the software provided that the software license fees are fixed and determinable, collection of the resulting receivable is probable, and VSOE exists to allow the allocation of a portion of the total fee to any undelivered elements of the arrangement. If a right of return exists, revenue is recognized upon the expiration of that right.

The Company’s standard software license agreement does not include customer acceptance provisions; if acceptance provisions are provided, delivery is deemed to occur upon acceptance.

Software license fee revenues from resellers are recognized using a sell-through model whereby the Company recognizes revenue when these channels complete the sale and the Company delivers the software products.

The Company’s standard payment terms for its software license agreements are generally within 180 days. The Company considers the software license fee to be fixed and determinable unless the fee is subject to refund or adjustment, or is not payable within 180 days. Revenue from arrangements with payment terms extending beyond 180 days is recognized as payments become due and payable.

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.

The Company generally sells training services at a fixed rate for each specific training session at a per-attendee price, and revenue is recognized upon the customer attending and completing 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.

Maintenance and support services include unspecified periodic software upgrades or enhancements, bug fixes and phone support. Annual maintenance and support initially represent between 15% and 25% of the related software license list price, depending upon the related product, and fees are generally payable quarterly. 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.

Other revenue mainly includes fees collected for the Company’s annual user conference, which is typically held in the second quarter. Other revenue also includes the resale and sublicensing of third-party hardware and software products in connection with the software license and installation of the Company’s products, and is generally recognized upon delivery.

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.

Cash and Cash Equivalents

The Company considers all liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash equivalents primarily include funds held in money market accounts on a short-term basis.

The Company’s investments (in thousands) are as follows:


	September 30, 2009		December 31, 2008

Cash	$	1,082	$	—
Money Market Fund Investments		129,306		35,788

Total Cash and Cash Equivalents	$	130,388	$	35,788

Concentrations of Credit Risk

Financial instruments that could subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At September 30, 2009, the Company’s cash equivalents were invested in a money market fund that invests exclusively in AAA-rated (i) bills, notes and bonds issued by the U.S. Treasury, (ii) U.S. Government guaranteed repurchase agreements fully collateralized by U.S. Treasury obligations, and (iii) U.S. Government guaranteed 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 with 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 credit risk with respect to accounts receivable is diversified due to the large number of entities comprising the Company’s customer base and credit losses have generally been within the Company’s estimates.

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 820-10 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value and expands required disclosure about fair value measurements. As of September 30, 2009, 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), or any liabilities measured at fair value as prescribed by ASC 820-10.

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. 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 market for the debt, the Company has determined that the carrying value of its debt approximates fair value as a result of the Company’s recent debt refinancing at current market rates (See Note 6, Debt) as well as the fact that the debt has a variable interest rate component. The estimated fair value of the Company’s debt at September 30, 2009 and December 31, 2008 was $179.3 million and $192.8 million, respectively. 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. As of September 30, 2009 and December 31, 2008, the Company had no derivative financial instruments.

Income Taxes

Income taxes are accounted for in accordance with ASC 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are computed based on the difference between the financial statement and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. In addition, in accordance with ASC 740, a valuation allowance is required to be recognized if it is believed “more likely than not” that a deferred tax asset will not be fully realized. ASC 740-10, Income Taxes-Overall (“ASC 740-10”) prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those positions to be recognized in the financial statements. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company continually reviews tax laws, regulations and related guidance in order to properly record any uncertain tax liabilities.

Stock-Based Compensation

On January 1, 2006, the Company adopted the provisions of ASC 718, Compensation-Stock Compensation (“ASC 718”), and began recognizing stock-based compensation expense in its statement of operations using the “modified prospective” transition method. ASC 718 requires that the cost of awards of equity instruments offered in exchange for employee services, including employee stock options, restricted stock awards, and employee stock purchases under the Company’s Employee Stock Purchase Plan (“ESPP”), are measured based on the fair value of the award on the measurement date of grant. The Company determines the fair value of options granted using the Black-Scholes-Merton option pricing model and recognizes the cost over the period during which an employee is required to provide service in exchange for the award, generally the vesting period. The fair value of restricted stock awards is based on the closing price of the Company’s common stock on the date of grant and is recognized as expense over the requisite service period of the awards.

Recently Adopted Accounting Pronouncements

In April 2009, the FASB issued ASC 825-10-65, Financial Instruments-Transition (“ASC 825-10-65”), effective for interim periods ending after June 15, 2009. ASC 825-10-65 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements to improve the transparency and quality of financial reporting. ASC 825-10-65 amends ASC 270, Interim Reporting, to require those disclosures in summarized financial information at interim reporting periods. See above, Fair Value of Financial Instruments, for the related disclosures. The Company’s adoption of ASC 825-10-65 in the second quarter of 2009 did not have a material impact on the Company’s results of operations, financial position, or cash flows.

In April 2009, the FASB issued ASC 820-10-35, Fair Value Measurements and Disclosures-Subsequent Measurement (“ASC 820-10-35”). ASC 820-10-35 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset or liability has significantly decreased. ASC 820-10-35 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, ASC 820-10-35 requires disclosure in interim and annual periods of the inputs and valuation methods used in determining fair value and a discussion of any changes in those valuation methods. ASC 820-10-35 is effective for annual and interim periods ending on or after June 15, 2009. During the second quarter of 2009, the Company adopted the provisions in ASC 820-10-35. The provisions adopted did not have an impact on the Company’s financial statements as the Company’s fair value measurements are Level 1 measurements in an active market with orderly transactions.

In May 2009, the FASB issued ASC 855, Subsequent Events (“ASC 855”), effective for interim and annual periods ending after June 15, 2009. ASC 855 establishes the accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. See Note 13, Subsequent Events, for the related disclosures. The Company’s adoption of ASC 855 in the second quarter of 2009 did not have a material impact on the Company’s results of operations, financial position, or cash flows.

Recent Accounting Pronouncements

In December 2007, the FASB issued ASC 805, Business Combinations (“ASC 805”), which replaces the former standard SFAS 141. ASC 805 requires assets and liabilities acquired in a business combination, contingent consideration, and certain acquired contingencies to be measured at their fair values as of the date of acquisition. ASC 805 also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. ASC 805 is effective for fiscal years beginning after December 15, 2008. For business combinations entered into after the effective date of ASC 805, prospective application of the new standard is applied. The guidance in SFAS 141 is applied to business combinations entered into before the effective date of ASC 805. During the first nine months of 2009, the Company did not enter into any business combinations.

In April 2008, the FASB issued ASC 350-30-55, Intangibles-Goodwill and Other-General Intangibles Other than Goodwill (“ASC 350-30-55”). ASC 350-30-55 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350, Intangibles-Goodwill and Other (“ASC 350”). The objective is to improve the consistency between the useful life of a recognized intangible asset under ASC 350 and the period of expected cash flows used to measure the fair value of the asset under ASC 805. ASC 350-30-55 is effective for fiscal years beginning after December 15, 2008. The guidance in ASC 350-30-55 for useful life estimates is applied prospectively to intangible assets acquired after December 31, 2008. During the first nine months of 2009, the Company did not acquire any intangible assets.

In November 2008, the FASB issued ASC 350-30-35, Intangibles-Goodwill and Other-General Intangibles Other than Goodwill (“ASC 350-30-35”), was issued. ASC 350-30-35 clarifies the accounting for acquired intangible assets in situations in which the acquirer does not intend to actively use the asset but intends to hold (lock up) the asset to prevent its competitors from obtaining access to the asset (a defensive intangible asset). Under ASC 350-30-35, defensive intangible assets will be treated as a separate asset recognized at fair value and assigned a useful life in accordance with ASC 350. ASC 350-30-35 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, or January 1, 2009 for Deltek. During the first nine months of 2009, the Company did not acquire any defensive intangible assets.

In April 2009, the FASB issued ASC 805-20, Business Combinations-Identifiable Assets and Liabilities, and Any Noncontrolling Interest (“ASC 805-20”). ASC 805-20 amends the guidance in ASC 805 regarding pre-acquisition contingencies. The guidance in ASC 805-20 requires the recognition at fair value of an asset or liability assumed in a business combination that arises from a contingency if the acquisition date fair value can be reasonably estimated during the measurement period. If the fair value cannot be reasonably estimated, the asset or liability would be recognized in accordance with ASC 450, Contingencies (“ASC 450”), if the criteria in ASC 450 were met at the acquisition date. Previously, ASC 805 required pre-acquisition contingencies to be measured at fair value at the date of acquisition. ASC 805-20 is effective for business combinations occurring after January 1, 2009. The Company will apply the guidance in ASC 805-20 prospectively to pre-acquisition contingencies in future acquisitions. During the first nine months of 2009, the Company did not enter into any business combinations.

In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05 (“ASU 2009-05”), Fair Value Measurement and Disclosure: Measuring Liabilities at Fair Value, which amends ASC 820-10-35. The guidance in ASU 2009-05 provides clarification on measuring liabilities at fair value when a quoted price in an active market is not available. The ASU specifies that a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance such as a present value technique or a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The guidance also states that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustments to other inputs relating to the existence of a restriction that prevents the transfer of the liability. ASU 2009-05 is effective for the first reporting period beginning after issuance, or October 1, 2009. The Company does not expect its adoption of ASU 2009-05 to have an impact on the Company’s financial statements as the Company currently does not have any liabilities measured at fair value.

3. EARNINGS PER SHARE

Net income per share is computed under the provisions of ASC 260, Earnings Per Share (“ASC 260”). Basic earnings per share is computed using net income and the weighted average number of common shares outstanding. Diluted earnings per share reflect 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, restricted stock and shares from the ESPP.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Basic earnings per share computation:
Net income (A)	$	6,607	$	8,025	$	14,162	$	17,469


Weighted average common shares–basic (B)		63,610,770		46,585,787		54,320,088		46,546,986


Basic net income per share (A/B)	$	0.10	$	0.17	$	0.26	$	0.38


Diluted earnings per share computation:

Net income (A)	$	6,607	$	8,025	$	14,162	$	17,469


Shares computation:
Weighted average common shares–basic		63,610,770		46,585,787		54,320,088		46,546,986
Effect of dilutive stock options, restricted stock, and ESPP		1,197,263		1,019,502		646,653		1,248,003

Weighted average common shares–diluted (C)		64,808,033		47,605,289		54,966,741		47,794,989


Diluted net income per share (A/C)	$	0.10	$	0.17	$	0.26	$	0.37

In June 2009, the Company completed its common stock rights offering, as a result of which the Company issued 20 million shares of the Company’s common stock at a subscription price of $3.00 per share. In accordance with ASC 260, a rights offering where the exercise price at issuance is less than the fair value of the stock is considered to include a bonus element, requiring an adjustment to the prior period number of shares outstanding used to compute basic and diluted earnings per share. In accordance with ASC 260, the weighted average common shares outstanding used in the computation of basic and diluted earnings per share was retroactively increased by an adjustment factor of 1.08 for all periods prior to the period in which the rights offering was completed.

For the three months ended September 30, 2009 and 2008, 5,205,771 and 4,169,782 shares, respectively, were outstanding but not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. For the nine months ended September 30, 2009 and 2008, 5,389,121 and 3,456,106 shares, respectively, were outstanding but not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. These excluded shares related to potentially dilutive securities primarily associated with stock options granted by the Company pursuant to its equity plans.

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consists of the following (in thousands):


	September 30, 2009		December 31, 2008
Prepaid software maintenance and royalties	$	2,658	$	3,071
Prepaid insurance		356		811
Debt issuance costs		1,044		788
Prepaid conferences and events		415		235
Prepaid rent		618		616
Other		1,247		1,353


Total	$	6,338	$	6,874

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table represents the balance and changes in goodwill for the nine months ended September 30, 2009 (in thousands):


Balance as of January 1, 2009	$	57,654

Foreign currency translation adjustments		175


Balance as of September 30, 2009	$	57,829

The Company performed an annual impairment test for goodwill as of December 31, 2008 and determined that there was no impairment of goodwill, as the Company assessed its fair value and determined the fair value exceeded the carrying value. There have been no events or changes in circumstances that have occurred during the nine months ended September 30, 2009 that indicate there is 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 September 30, 2009
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized Intangible Assets

Customer relationships	$	19,774	$	(11,028	)	$	8,746
Developed software		8,655		(7,959	)		696
Tradename and non-compete		322		(322	)		—

Total	$	28,751	$	(19,309	)	$	9,442

Unamortized Intangible Assets
Tradename	$	4,500	$	—		$	4,500

Total	$	33,251	$	(19,309	)	$	13,942


	As of December 31, 2008
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized Intangible Assets

Customer relationships	$	19,710	$	(8,380	)	$	11,330
Developed software		8,646		(7,121	)		1,525
Tradename and non-compete		322		(281	)		41

Total	$	28,678	$	(15,782	)	$	12,896

Unamortized Intangible Assets

Tradename	$	4,500	$	–		$	4,500

Total	$	33,178	$	(15,782	)	$	17,396

The net impact of foreign currency translation on the net carrying amount of the amortized intangible assets is approximately $37,000 and $(48,000) as of September 30, 2009 and December 31, 2008, respectively.

Amortization expense related to intangible assets acquired in business combinations is allocated to cost of revenue or operating expense 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 nine months ended September 30, 2009 and 2008 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Included in cost of revenue:
Cost of software license fees	$	155	$	307	$	773	$	992
Cost of consulting services		20		20		59		59

Total included in cost of revenue		175		327		832		1,051
Included in operating expenses:		879		1,000		2,659		2,111

Total	$	1,054	$	1,327	$	3,491	$	3,162

The following table summarizes the estimated future amortization expense for the remaining three months of 2009 and years thereafter (in thousands):


Years Ending December 31,
2009–remaining	$	982
2010		3,114
2011		2,340
2012		1,490
2013		845
Thereafter		671

Total	$	9,442

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 have been no impairment charges for the nine months ended September 30, 2009 or 2008.

6. DEBT

The Company has maintained a credit agreement with a syndicate of lenders led by Credit Suisse (the “Credit Agreement”) since 2005. In August 2009, the Company amended the Credit Agreement (the “Amended Credit Agreement”). At the time of the amendment, the Company had term loans of $179.6 million outstanding and a $30 million revolving credit facility on which there were no borrowings. The term loans and revolving credit facility were to expire on April 22, 2011 and April 22, 2010, respectively.

As a result of the amendment, the Company extended the maturity of $129.4 million of term loans to April 22, 2013. In addition, the expiration of $22.5 million of the revolving credit facility was extended to April 22, 2013. The remaining $50.2 million of term loans and $7.5 million of the revolving credit facility continue to expire on April 22, 2011 and April 22, 2010, respectively.

The non-extended portion of the term loans continues to accrue interest at a rate of 2.25% above the British Banker’s Association Interest Settlement Rates for dollar deposits (the “LIBO rate” or “LIBOR”). The non-extended portion of the revolving credit facility continues to accrue interest at a rate of 2.50% or 1.50%, depending on the type of borrowing. The spread above the LIBO rate decreases as the Company’s leverage ratio, as defined in the Amended Credit Agreement, decreases. The interest rate for the extended portion of both the term loans and the revolving credit facility is the LIBO rate plus 4.25% with a LIBOR floor of 2.00%. The financial ratio covenants in the Amended Credit Agreement remained unchanged.

In accordance with the guidance in ASC 470-50, Debt-modifications and Extinguishments, the amendment of the Credit Agreement is accounted for as a debt modification since the Amended Credit Agreement is not substantially different than the original agreement due to the present value of the change in cash flows being less than 10% and there is no change in the creditor. The Company paid $2.3 million of debt issuance costs, of which $2.1 million that was paid to Credit Suisse and the other lenders will be amortized to interest expense over the remaining term of the modified debt. Previously deferred debt issuance costs of $1.0 million as of August 24, 2009 will be amortized over the remaining term of the modified debt.

The Amended Credit Agreement requires scheduled quarterly principal payments, which commenced on September 30, 2009 with a payment of $323,000. In addition, the Amended Credit Agreement continues to require mandatory prepayments of the term loans from annual excess cash flow, as defined in the Amended Credit Agreement, and from the net proceeds of certain asset sales or equity issuances. Mandatory prepayments, such as those made from annual cash flow as well as voluntary prepayments, are applied pro rata against the outstanding balances of the non-extended and extended loans.

During the first quarter of 2009, the Company made a scheduled principal payment of $498,000 and a mandatory principal prepayment of $9.7 million from the Company’s annual excess cash flow. As a result of the rights offering completed in the second quarter of 2009, the Company made a mandatory principal prepayment of approximately $3.1 million from the net proceeds from the rights offering. The mandatory excess cash flow payment made in the first quarter of 2009 was applied first against the scheduled principal payments, under the original Credit Agreement, for a twelve month period with the excess applied ratably against the remaining debt payments in the amortization schedule under the original Credit Agreement. The prepayment from the Company’s rights offering was applied ratably against the remaining debt payments under the original Credit Agreement.

The following table summarizes future principal payments on the Amended Credit Agreement as of September 30, 2009 (in thousands):


	Principal Payment

2009-remaining	$	323
2010		26,480
2011		26,348
2012		1,294
2013		124,836

Total principal payments	$	179,281

The loans are collateralized by substantially all of the Company’s assets and require the maintenance of certain financial covenants. The Amended Credit Agreement also requires the Company to comply with non-financial covenants that restrict 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 cash dividends. The Company was in compliance with all covenants as of September 30, 2009.

As of September 30, 2009, the outstanding amount of the term loans was $179.3 million, with interest at 6.25% for the extended portion of the term loans and 2.5% for the non-extended portion of the term loans. As of December 31, 2008, the outstanding amount of the term loans was $192.8 million with interest at 2.5%. There were no borrowings under the revolving credit facility at September 30, 2009 and December 31, 2008. At September 30, 2009, the Company was contingently liable under open standby letters of credit and bank guarantees issued by the Company’s banks in favor of third parties primarily relating to real estate lease obligations. These instruments reduce the Company’s available borrowings under the revolving credit facility. The revolving credit facility was utilized to guarantee the letters of credit in an amount totaling $877,000. As a result, at September 30, 2009, the available borrowings on the revolving credit facility were $29.1 million.

At September 30, 2009 and December 31, 2008, the current portion of the unamortized debt issuance costs of $1.0 million and $788,000, respectively, is reflected as “Prepaid Expenses and Other Current Assets” in the condensed consolidated balance sheets. The noncurrent portion of the unamortized debt issuance costs for those same periods of $2.0 million and $846,000, respectively, is reflected as “Other Assets” in the condensed consolidated balance sheets. The debt issuance costs are being amortized and reflected in “Interest Expense” over the remaining term of the modified debt, including the previously deferred debt issuance costs that existed at the time of the Credit Agreement amendment. Prior to the amendment and extension of the Credit Agreement, these costs were being amortized over the original lives of the loans. The debt issuance costs are accelerated to the extent that any prepayment is made on the term loans.

Debt consists of the following (in thousands):


	September 30, 2009			December 31, 2008
Term loans	$	179,281		$	192,815

Less: Current portion of term loans		(13,952	)		(10,154	)


Long-term debt	$	165,329		$	182,661

7. INCOME TAXES

In accordance with 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 annual effective tax rate for the nine months ended September 30, 2009 and 2008 was 30.5% and 33.6%, respectively.

During the third quarter of 2009, the Company revised its estimate of its annual effective rate to reflect the impact of various newly implemented tax strategies approximating $2.0 million for increased credits for qualified research and development activities, the expected utilization of foreign tax credits not scheduled to expire for ten years, and the deductibility of certain expenses. Related to these reductions, the Company recorded a discrete tax benefit of $1.5 million. There were no discrete tax events during the first two quarters of 2009. As a result, income tax expense for the three months ended September 30, 2009 was 37.8% without discrete items and 19.8% including discrete items.

During the three months ended September 30, 2009, the Company established an additional liability under ASC 740-10 of $479,000, which included $435,000 to establish a reserve for the foreign tax credits, a $27,000 increase associated with certain research and development tax credits, and a $17,000 increase associated with certain meals and entertainment expenses. During the third quarter of 2009, the Company also released a liability of $3,000 and interest of $1,000 associated with certain meals and entertainment expenses that are effectively settled. Interest and penalties related to uncertain tax positions are recorded as part of the provision for income taxes. As of September 30, 2009, the Company has a liability under ASC 740-10 of $1.6 million, which includes accrued interest and potential penalties of $123,000 and $46,000, respectively. These liabilities for unrecognized tax benefits are included in “Other Tax Liabilities”.

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 2006. Currently, the Company is under audit in the Philippines and Virginia for the tax periods ending December 31, 2007 and 2006.

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 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 issued and outstanding on December 31 of the immediately preceding calendar year, unless otherwise reduced by the Board of Directors. Shares issued under the plan may be from either authorized but unissued shares or issued shares which have been reacquired by the Company and held as treasury shares. Options and awards issued under the 2007 Plan are not subject to the same stockholders’ agreement as the 2005 Plan which restricts how and when shares may be sold.

Upon adoption of ASC 718, the Company selected the Black-Scholes-Merton option-pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. The fair value of stock option awards is amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. The fair value of the Company stock on the date of grant was determined by the Company’s Board of Directors or, subsequent to December 2006, the Compensation Committee (or its authorized member(s)) prior to the Company’s stock becoming publicly traded in November 2007. Expected volatility was calculated as of each grant date based on reported data for a peer group of publicly traded companies for which historical information was available. The Company will continue to use peer group volatility information, until historical volatility of the Company is relevant, to measure expected volatility for future option grants. The average expected life was determined under the simplified calculation as provided by the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment, which is the mid-point between the vesting date and the end of the contractual term. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve rates with the remaining term equal to the expected life assumed at the date of grant. Forfeitures are estimated based on the Company’s historical analysis of employee attrition.

Stock options are granted at the discretion of the Board of Directors or the Compensation Committee (or its authorized member(s)) and expire 10 years from the date of the grant. Options generally vest over a four-year period based upon required service conditions. Certain options granted to the Board of Directors vest over one year. No options have vesting provisions tied to performance or market conditions. The Company calculates the pool of additional paid-in capital associated with excess tax benefits using the “simplified method”. At September 30, 2009, there were 646,664 options available for future grant under the 2007 Plan.

Under the provisions of the 2005 Plan, each option holder was required to execute a stockholders’ agreement prior to being deemed the holder of, or having rights with respect to, any shares of the Company’s common stock. Stockholders who were a party to the stockholders’ agreement are entitled to participate proportionately in an offering of common stock by New Mountain Funds. Stockholders could only sell in conjunction with an offering or sale by New Mountain Funds and not at any other time.

Under the provisions of the 2007 Plan, the Company’s Chief Executive Officer may only sell in conjunction with a sale of shares by New Mountain Funds (and up to the same proportion as New Mountain Funds) until New Mountain Funds owns less than 15% of the Company’s outstanding capital stock. This restriction was waived with respect to the February 2009 equity grant made to the Chief Executive Officer.

Under the provisions of the 2007 Plan, executives, senior vice presidents and holders of 100,000 or more shares of common stock or options were only permitted to sell shares of common stock in conjunction with a sale of shares by New Mountain Funds (and up to the same proportion as New Mountain Funds) until New Mountain Funds owns less than 15% of the Company’s outstanding capital stock. In addition, these individuals were required by New Mountain Funds to participate in such a sale and to vote in favor of such a transaction if stockholder approval is required.

As of October 30, 2009, New Mountain Funds and the Company have waived the remaining selling restrictions imposed by the stockholders’ agreements applicable to the 2005 Plan and 2007 Plan for all current and former employees of the Company other than the Company’s Chief Executive Officer. The restrictions also remain in place for members of the Board of Directors.

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


	Nine Months Ended September 30,
	2009		2008
Dividend yield	0.0	%	0.0	%
Expected volatility	69.5	%	54.0	%
Risk-free interest rate	2.3	%	3.1	%
Expected life (in years)	6.19		6.24

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Included in cost of revenue:
Cost of consulting services	$	1,020	$	387	$	1,810	$	1,068
Cost of maintenance and support services		309		59		495		(58	)

Total included in cost of revenue		1,329		446		2,305		1,010
Included in operating expenses:
Research and development		885		460		1,820		1,287
Sales and marketing		705		500		1,492		1,370
General and administrative		880		930		2,523		2,492

Total included in operating expenses		2,470		1,890		5,835		5,149

Total	$	3,799	$	2,336	$	8,140	$	6,159

Stock Options

The following table summarizes the activity of all the Company’s stock option plans from January 1, 2009 to September 30, 2009, as well as information regarding stock options exercisable and stock options vested and expected to vest at September 30, 2009:


	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Weighted average remaining contractual life (in years)
Options outstanding at January 1, 2009	6,737,859		$	9.21

Options granted	159,450			3.93
Options forfeited	(565,137	)		10.95
Options exercised	(210,200	)		3.61	$	240


Options outstanding at September 30, 2009	6,121,972		$	9.10


Stock options exercisable at September 30, 2009	3,867,640		$	7.81	$	7,944	6.6
Stock options vested and expected to vest at September 30, 2009	5,971,410		$	9.05	$	8,981	7.1

The weighted average grant date fair value of all options granted during the nine months ended September 30, 2009, as determined under the Black-Scholes-Merton valuation model was $2.51. During the nine months ended September 30, 2009, options to purchase 159,450 shares of common stock were granted, with a weighted average aggregate grant date fair market value of $400,000. Total cash received for options exercised during the nine months ended September 30, 2009 was approximately $759,000. The intrinsic value for stock options exercised in the above table 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.

Stock option compensation expense for the three months ended September 30, 2009 and 2008 was $1.6 million and $2.2 million, respectively. Stock option compensation expense for the nine months ended September 30, 2009 and 2008 was $5.2 million and $5.8 million, respectively. As of September 30, 2009, compensation cost related to nonvested stock options not yet recognized in the income statement was $9.5 million and is expected to be recognized over an average period of 1.85 years.

Restricted Stock

During the nine months ended September 30, 2009, the Company issued 1,677,500 shares of restricted stock. The weighted average aggregate grant date fair value was $10.2 million and is recognized as expense on a straight-line basis over the requisite service period of the awards. Restricted stock awards vest over either a two- or four-year vesting period. The Company’s restricted stock awards are accounted for as equity awards. 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 stockholders are entitled to voting rights and to receive any dividends declared. Unvested restricted stock awards are not considered outstanding in the computation of basic earnings per share.

Restricted stock activity for the nine months ended September 30, 2009 is as follows:


	Number of Shares		Weighted Average Grant-Date Fair value		Weighted Average Remaining Vesting Term (in years)

Nonvested shares as of January 1, 2009	285,650		$	6.93
Granted	1,677,500			6.11
Forfeited	(52,800	)		4.56
Vested	(19,250	)		12.98

Nonvested shares as of September 30, 2009	1,891,100		$	6.21	3.3

Restricted stock compensation expense for the three months ended September 30, 2009 and 2008 was $536,000 and $62,000, respectively. Restricted stock compensation expense for the nine months ended September 30, 2009 and 2008 was $1.1 million and $151,000, respectively. As of September 30, 2009, there was $8.7 million of unrecorded compensation cost for restricted stock not yet recognized in the income statement. The intrinsic value of the restricted stock awards outstanding at September 30, 2009 is $14.5 million calculated as the market value of the Company’s stock on September 30, 2009.

Employee Stock Purchase Program

In April 2007, the Company’s Board of Directors adopted 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. Employees contribute to the plan during six-month offering periods that begin on March 1^st and September 1^st of each year. The per share price of common stock purchased pursuant to the ESPP shall be 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, whichever is lower.

Compensation expense for the ESPP is recognized in accordance with ASC 718. For the nine months ended September 30, 2009 and 2008, the weighted average assumptions used in the Black-Scholes-Merton option-pricing model are as follows:


	Nine Months Ended September 30,
	2009			2008
Weighted average fair value	$	3.33		$	3.04
Dividend yield		0.0	%		0.0	%
Expected volatility		69.1	%		53.0	%
Risk-free interest rate		0.3	%		2.2	%
Expected life (in years)		0.2			0.4

ESPP compensation expense for the three months ended September 30, 2009 and 2008 was $1.7 million and $105,000, respectively. ESPP compensation expense for the nine months ended September 30, 2009 and 2008 was $1.8 million and $234,000, respectively. A total of 635,855 shares were issued under the plan during the nine months ended September 30, 2009. As of September 30, 2009, there were 31,409 shares available under the plan.

9. RELATED-PARTY TRANSACTIONS

Pursuant to the 2005 recapitalization agreement, New Mountain Capital, L.L.C. was entitled to receive $500,000 annually as an advisory fee for providing ongoing management, financial and investment banking services to the Company. New Mountain Capital, L.L.C. agreed to waive advisory fees for the third quarter of 2007 and for subsequent periods upon completion of the Company’s initial public offering. The Company therefore did not incur any advisory fees for the nine months ended September 30, 2009 and 2008. New Mountain Capital, L.L.C. is also 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. In connection with the amendment of the Company’s Credit Agreement, New Mountain Capital L.L.C. agreed to waive any transaction fee payable in connection with the amendment of the Credit Agreement. New Mountain Capital L.L.C. also waived any transaction fee payable in relation to the common stock rights offering in June 2009. The Company did not incur any transaction fees for the nine months ended September 30, 2009 or 2008.

10. RESTRUCTURING CHARGE

2009 Restructuring Activity

Restructuring activities for the nine months ended September 30, 2009 are as follows (in thousands):


	Severance & Benefits			Facilities			Total
Restructuring liability as of January 1, 2009	$	–		$	–		$	–
Restructuring charge
First quarter		1,413			–			1,413
Second quarter		1,056			79			1,135
Third quarter		53			573			626
Restructuring adjustment		(74	)		–			(74	)

Total restructuring charge		2,448			652			3,100
Cash payments		(2,196	)		(42	)		(2,238	)
Non-cash adjustments		(25	)		(19	)		(44	)

Restructuring liability as of September 30, 2009	$	227		$	591		$	818

Severance and Benefits

In 2009, management implemented a restructuring plan in each period to eliminate certain positions to realign the Company’s cost structure and to allow for increased investment in its key strategic areas. These plans included a reduction of headcount of approximately 80 employees in the first nine months of 2009. As a result of these plans, the Company recorded a restructuring charge of $2.4 million for severance and severance-related costs in its condensed consolidated statement of operations for the nine months ended September 30, 2009. As of September 30, 2009, the Company has a remaining severance and benefits liability of $227,000, which is expected to be paid primarily during the fourth quarter of 2009. This amount is reflected as “Accounts Payable and Accrued Expenses” in the condensed consolidated balance sheet.

Facilities

During the third quarter of 2009, the Company recorded an additional restructuring charge of $573,000 relating to the closure of two office locations as part of the Company’s continued effort to manage operating costs. The remaining amount of $531,000 as of September 30, 2009 is expected to be settled over the next 2 years. During the second quarter of 2009, the Company recorded restructuring charges totaling $79,000 relating to the consolidation of space at one office location. Of this amount, $19,000 was settled in the third quarter of 2009 and the remaining amount is expected to be settled over the next fourteen months.

2008 Restructuring Activity

During the second quarter of 2008, management implemented a restructuring plan to eliminate certain positions to realign the Company’s cost structure. As a result of this plan, the Company recorded $925,000 for severance and severance-related costs as a restructuring charge in its condensed consolidated statement of operations for the nine months ended September 30, 2008. Additionally during the second quarter of 2008, the Company recorded $66,000 as a restructuring charge in its condensed consolidated statement of operations relating to the closure of one office location and the reduction of space at a second office location.

11. COMMITMENTS AND CONTINGENCIES

The Company is involved in claims and legal proceedings arising from normal business operations. The Company does not expect these matters, individually or in the aggregate, to have a material impact on the Company’s financial condition, results of operations or cash flows.

At September 30, 2009, the Company was contingently liable under open standby letters of credit and bank guarantees issued under the Amended Credit Agreement (see Note 6) by the Company’s banks in favor of third parties. These letters of credit and bank guarantees primarily relate to real estate lease obligations and total $877,000. These instruments had not been drawn on by third parties at September 30, 2009 or December 31, 2008.

Guarantees

The Company provides indemnification to customers against intellectual property infringement claims made by third parties arising from the use of the Company’s software products. Due to the nature of the indemnifications provided, the Company cannot estimate the fair value nor determine the total nominal amount of the indemnifications, if any. Estimated losses for such

indemnifications are evaluated under ASC 450, as interpreted by ASC 460, Guarantees. The Company has secured copyright registrations for its own software products with the U.S. Patent and Trademark Office, and 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 Warranty

The Company’s standard software license agreement includes a warranty provision for software products. The Company generally warrants for a period of up to one year after delivery that the software shall operate substantially as stated in the then current documentation provided that the software is used in a supported computer system. The Company provides for the estimated cost of product warranties based on specific warranty claims, provided that it is probable that a liability exists and the 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 solutions and implementation services. The Company’s chief operating decision maker, the Chief Executive Officer, evaluates the performance of the Company as one consolidated unit.

The Company’s products and services have historically been sold primarily in the United States, but recently have also included sales through direct and indirect sales channels outside the United States, primarily in Canada, South Africa, Australia and United Kingdom. For the three and nine months ended September 30, 2009, approximately 6% and 5%, respectively, of the Company’s total revenues were generated from sales outside of the United States. Less than 5% of the Company’s total revenues were generated from sales outside of the United States for the three and nine months ended September 30, 2008. As of September 30, 2009 and December 31, 2008, the Company had $2.4 million and $1.5 million, respectively, of long-lived assets held outside of the United States.

No single customer accounted for 10% or more of the Company’s revenue for the three and nine months ended September 30, 2009 or 2008.

13. SUBSEQUENT EVENTS

The Company has evaluated events that have occurred subsequent to September 30, 2009 and up to the date of the filing of this Form 10-Q, the date on which the financial statements were issued, and concluded that there were no events or transactions that occurred through the date of issuance of the financial statements which would require recognition in the accompanying statement of financial condition, results of operations and cash flows as of September 30, 2009 or disclosure in this Form 10-Q.

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 consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q.

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, 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,” “will,” “should,” “seeks,” “approximately,” “predicts,” “estimates,” “anticipates” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. 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.

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

Certain tables may not add due to rounding.

Company Overview

Since our founding in 1983, we have established a leading position as a provider of enterprise applications software and related services designed and developed specifically for project-focused organizations. These organizations include architectural and engineering firms, government contractors, aerospace and defense contractors, information technology services firms, consulting companies, discrete project manufacturing companies, grant-based not-for-profit organizations and government agencies, among others.

These project-focused organizations generate revenue from defined, discrete, customer-specific engagements or activities. Project-focused organizations typically require specialized software to help them automate complex business processes around the engagement, execution and delivery of projects. Our software applications enable project-focused companies to significantly enhance the visibility they have over all aspects of their operations by providing them increased control over their critical business processes, accurate, project-specific financial information, and real-time performance measurements.

With our software applications, project-focused organizations can better measure business results, optimize performance, streamline operations and win new business. As of September 30, 2009, we had over 12,000 customers worldwide that spanned numerous project-focused industries and ranged in size from small organizations to large enterprises.

Our revenue is generated from sales of software licenses, related software maintenance and support agreements and professional services to assist customers with the implementation of our products, as well as education and training services. Our continued growth depends, in part, on our ability to generate license revenues from new customers and to continue to expand our presence by selling new products within our existing installed base of customers.

In our management decision making, we continuously balance our need to achieve short-term financial and operational goals with the equally critical need to continuously invest in our products and infrastructure to ensure our future success. In making decisions around investment levels in our various functional organizations, we consider many factors, including:

•

Our ability to expand our presence and penetration of existing markets;

•

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

•

Our success in maximizing our network of alliance partners;

•

Our ability to expand our presence in new markets and broaden our reach geographically; and

•

The pursuit and successful integration of acquired companies.

We have acquired companies to broaden our product offerings, expand our customer base and provide us with a future opportunity to migrate those added customers to newer applications we may develop. The products of the acquired companies provide our customers with core functionality that complements our own established products.

In evaluating our financial condition and operating performance, we consider a variety of factors including, but not limited to, the following:

•

The growth rates of the individual components of our revenues (licenses, services and support) relative to recent historical trends and the growth rate of the overall market as reported or predicted by industry analysts;

•

The gross margins of our business relative to recent historical trends;

•

Our operating expenses and income from operations;

•

Our adjusted EBITDA margin;

•

Our cash flow from operations;

•

The long-term success of our development efforts;

•

Our ability to successfully penetrate new markets;

•

Our ability to successfully integrate acquisitions and achieve anticipated synergies;

•

Our win rate against our competitors; and

•

Our long-term customer retention rates.

Each of these 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.

In light of the continuing economic challenges our customers are facing and the related impact on their purchasing decisions, we have proactively managed our business to control operating expenses and realign resources in a way that will allow us to maximize short-term opportunities while maintaining the flexibility needed to achieve longer-term strategic goals.

Our total revenue decreased for the three months ended September 30, 2009 as compared to the three months ended June 30, 2009. We believe the principal decrease in revenue from our government contracting customers was attributed to the current economic uncertainty as well as the potential deferral of purchasing decisions resulting from United States government procurement delays. Although near-term predictability for license fee revenue remains challenging across the software industry, we expect our Costpoint, GCS Premier and enterprise project management (“EPM”) products to continue to account for a significant percentage of our overall software license fee revenue. Going forward, we expect that increased government spending, increased regulation by government agencies and the economic stimulus package have the potential to benefit our government contracting customers. While we anticipate that these trends may impact demand for our consulting, maintenance and support services in the future, it is difficult to predict when and to what extent the potential benefits of the economic stimulus package will be experienced by government contracting and other customers.

Our Vision license revenue was relatively unchanged from the second to third quarter of 2009, as architecture and engineering customers continued to maintain more cautious investment policies during the challenging economic environment. However, we experienced a significant increase in new customer activity among our architecture and engineering and other professional services customers, as new international customers leveraged our Vision products to support their businesses. While the timing and extent of any economic recovery remains uncertain, we expect that these current economic trends may continue for the remainder of the year. In addition to the impact on our license revenue, we may not experience the same level of demand when compared to historical periods for consulting, maintenance and support services from our architecture and engineering and other professional services customers due to the impact of the recession.

History

We were founded to develop and sell accounting software solutions for firms that contract with the U.S. government. Since our founding, we have continued our focus on providing solutions to government contractors as well as to other project-focused organizations, and at the same time we have broadened our product offerings by developing new software products, selectively acquiring businesses with attractive project-focused applications and services and partnering with third parties.

In April 2005, 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”) purchased the majority ownership of our company from the founding deLaski stockholders through a recapitalization transaction. Subsequent to this transaction, we implemented a strategy to recruit additional management talent and significantly improve our competitive position and growth prospects through increased investments in product development, sales and marketing initiatives, complemented by strategic acquisitions aimed at broadening our customer base and our product offerings.

In October 2005, we acquired Wind2, an enterprise software provider serving project-focused architectural and engineering (“A/E”) and other professional services firms. The acquisition of Wind2 enabled us to expand our presence in the A/E market by adding small and medium-sized engineering firms to our existing customer base.

In March 2006, we acquired WST, Inc. (“Welcom”), a leading provider of project portfolio management solutions, focused on earned value management, planning and scheduling, portfolio analysis, risk management and project collaboration products. The acquisition of Welcom increased our presence among a number of multinational aerospace, defense and government clients, augmenting our existing installed base of customers. This acquisition complemented our core product offerings and created opportunities for additional sales to our existing customer base.

In July 2006, we acquired C/S Solutions, Inc. (“CSSI”), a leading provider of business intelligence tools for the earned value management marketplace. The acquisition of CSSI built upon our leadership position in the enterprise project management sector by incorporating collaborative earned value management analytics delivered by CSSI’s wInsight software with our own earned value management engine, Cobra, and Costpoint, our enterprise resource planning solution for mid- to large-sized government contractors.

In April 2007, we acquired the business assets of Applied Integration Management Corporation (“AIM”), a provider of project management consulting services. This acquisition supplemented our existing project portfolio management systems implementation expertise and capabilities and allowed us to provide additional project portfolio management consulting, training and implementation services.

In April 2007, we reincorporated in the State of Delaware as Deltek, Inc.

In May 2007, we completed the acquisition of WST Pacific Pty Ltd. (“WSTP”), a provider of earned value management (“EVM”) solutions based in Australia, and previously a development partner of Welcom. The acquisition complemented our existing EVM development, services and support resources.

In November 2007, we completed our initial public offering consisting of 9,000,000 shares of common stock for $18.00 per share.

In August 2008, we acquired from Planview, Inc. the MPM solution (“MPM”), an earned value management software application used by government contractors and agencies to meet complex compliance requirements for their programs issued by the U.S. Federal Government. MPM integrates with Deltek wInsight to create a complete earned value solution for government contractors and agencies.

In June 2009, we completed a $60 million common stock rights offering to our stockholders and issued 20 million shares of common stock at a price of $3.00 per share.

In August 2009, we amended our existing Credit Agreement. As a result, we extended the maturity of $129.4 million of our $179.6 million in outstanding term loans to April 2013. In addition, the expiration of $22.5 million of our $30 million revolving credit facility was extended to April 2013.

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, 2008. 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 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 September 30,											Nine Months Ended September 30,
	2009			2008			Change			% Change		2009			2008			Change			% Change
	*(dollars in millions)*											*(dollars in millions)*
REVENUES:
Software license fees	$	12.7		$	18.5		$	(5.8	)	(31	)	$	39.7		$	57.6		$	(18.0	)	(31	)
Consulting services		19.8			23.1			(3.3	)	(14	)		59.0			69.7			(10.6	)	(15	)
Maintenance and support services		31.6			29.3			2.3		8			93.2			85.7			7.6		9
Other revenues		–			0.1			(0.1	)	(100	)		3.5			4.7			(1.2	)	(26	)

Total revenues	$	64.1		$	71.0		$	(6.9	)	(10	)	$	195.4		$	217.7		$	(22.3	)	(10	)


COST OF REVENUES:
Cost of software license fees	$	1.2		$	1.7		$	(0.5	)	(28	)	$	4.4		$	4.9		$	(0.5	)	(10	)
Cost of consulting services		16.7			18.3			(1.6	)	(9	)		50.2			57.6			(7.4	)	(13	)
Cost of maintenance and support services		5.5			5.4			0.1		2			16.8			15.9			0.9		6
Cost of other revenues		–			–			–		–			4.6			5.1			(0.5	)	(10	)

Total cost of revenues	$	23.4		$	25.4		$	(2.0	)	(8	)	$	76.0		$	83.5		$	(7.5	)	(9	)


GROSS PROFIT	$	40.7		$	45.6		$	(4.9	)	(11	)	$	119.4		$	134.2		$	(14.8	)	(11	)

OPERATING EXPENSES:
Research and development	$	10.9		$	11.8		$	(0.9	)	(8	)	$	32.5		$	34.7		$	(2.2	)	(6	)
Sales and marketing		10.4			13.6			(3.2	)	(24	)		32.5			39.4			(6.9	)	(18	)
General and administrative		8.7			8.8			(0.1	)	(1	)		26.0			24.7			1.3		5
Restructuring charge		0.6			(0.1	)		0.7		(700	)		3.1			1.0			2.1		210

Total operating expenses	$	30.6		$	34.1		$	(3.5	)	(10	)	$	94.1		$	99.8		$	(5.7	)	(6	)


INCOME FROM OPERATIONS	$	10.1		$	11.5		$	(1.4	)	(12	)	$	25.3		$	34.4		$	(9.1	)	(26	)

Interest income		–			0.2			(0.2	)	(100	)		–			0.6			(0.6	)	(100	)
Interest expense		(1.9	)		(2.5	)		0.6		(24	)		(4.9	)		(8.4	)		3.5		(42	)
Other expense, net		–			(0.1	)		0.1		(100	)		–			(0.3	)		0.3		(100	)

INCOME BEFORE INCOME TAXES		8.2			9.1			(0.9	)	(10	)		20.4			26.3			(5.9	)	(22	)
Income tax expense		1.6			1.1			0.5		45			6.2			8.8			(2.6	)	(30	)


NET INCOME	$	6.6		$	8.0		$	(1.4	)	(18	)	$	14.2		$	17.5		$	(3.3	)	(19	)

Revenues


	Three Months Ended September 30,									Nine Months Ended September 30,
	2009		2008		Change			% Change		2009		2008		Change			% Change
	*(dollars in millions)*									*(dollars in millions)*
REVENUES:
Software license fees	$	12.7	$	18.5	$	(5.8	)	(31	)	$	39.7	$	57.6	$	(18.0	)	(31	)
Consulting services		19.8		23.1		(3.3	)	(14	)		59.0		69.7		(10.6	)	(15	)
Maintenance and support services		31.6		29.3		2.3		8			93.2		85.7		7.6		9
Other revenues		–		0.1		(0.1	)	(100	)		3.5		4.7		(1.2	)	(26	)

Total revenues	$	64.1	$	71.0	$	(6.9	)	(10	)	$	195.4	$	217.7	$	(22.3	)	(10	)

Software License Fees

Our software applications are generally licensed to end-user customers under perpetual license agreements. 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 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. We primarily compete on product features, functionality and the needs of our customers within our served markets, with price generally a lesser consideration. The pricing for our products has remained stable, requiring infrequent changes in our pricing strategies.

Software license fee revenues decreased $5.8 million, or 31%, to $12.7 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. Vision license revenues decreased $3.3 million and Costpoint, EPM, and GCS license revenues decreased $2.5 million. We believe the decrease in revenues from sales of our Vision products was primarily due to architecture and engineering customers continuing to postpone, defer or cancel purchasing decisions, lengthen sales cycles and adopt more cautious investment policies during the current economic downturn. In addition, we believe that the decrease in revenue from the sales to our government contracting customers was attributed to the current economic uncertainty and the potential deferral of purchasing decisions resulting from United States government procurement delays.

Software license fee revenues decreased $18 million, or 31%, to $39.7 million for the first nine months of 2009 compared to the first nine months of 2008. During the first nine months of 2009, license fee revenues from our Costpoint, GCS Premier and EPM products decreased $5.8 million compared with the first nine months of 2008, while license fee revenues from our Vision software license fees decreased by $12.2 million for the same period. The decrease in revenues from sales of our Costpoint, GCS Premier and EPM products to government contractor customers was attributed to the impact of two deals greater than $1 million in 2008 compared to one deal in 2009. In addition, there have been some deferrals of purchasing decisions from procurement delays. Overall, we believe the decrease in revenues from sales of our products, particularly our Vision products to architecture and engineering customers, was primarily due to customers deferring purchasing decisions, lengthening sales cycles and adopting more cautious investment policies during the current economic downturn.

As the timing and extent of any financial or economic turnaround remains uncertain, we expect continued uncertainty as to the timing and amount of sales of our products for the balance of 2009 as our customers continue to be impacted by the economic downturn.

Consulting Services

Our consulting services revenues are generated from software implementation and related project management and data conversion, as well as training, education and other consulting services associated with our software applications, and are typically provided on a time-and-materials basis.

Consulting services revenues decreased $3.3 million, or 14%, to $19.8 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. This is a result of declines of $2.1 million in software implementation consulting services attributed to decreased software license fees, $0.6 million in reimbursable revenues and $0.6 million in training and education related services.

Consulting services revenues decreased $10.6 million, or 15%, to $59.0 million for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This is a result of a $7.4 million decline in software implementation consulting services attributed to decreased software license fees, of which $0.7 million of consulting revenue was not recognized due to the BearingPoint, Inc. bankruptcy filing. Also contributing to the decrease was a decline of $1.6 million in reimbursable revenues and a decline of $1.6 million in training and education related services.

Although we expect continued demand in 2009 for consulting services from customers due to additional purchases of our applications and the expansion of their use of our existing software, we may not experience the same level of demand for consulting services from our government contracting and architecture and engineering customers as they defer purchases and lengthen sales cycles during the current economic downturn.

Maintenance and Support Services

Maintenance revenues increased $2.3 million, or 8%, to $31.6 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. Maintenance revenues from our Costpoint, GCS Premier, and EPM products collectively increased $2.1 million year over year, while Vision maintenance revenue remained flat. These increases were due to sales of new software licenses, renewals of maintenance agreements by our installed base of customers, the annual price escalations for our maintenance services and the MPM acquisition. In addition, the sales allowance decreased by $0.2 million.

Maintenance revenues increased $7.6 million, or 9%, to $93.2 million for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Maintenance revenues from our Costpoint, GCS Premier, and EPM products collectively increased $6.3 million year over year and maintenance revenues from our Vision products increased $0.9 million. In addition, the sales allowance decreased $0.4 million. These increases were due to sales of new software licenses, renewals of maintenance agreements by our installed base of customers, the annual price escalations for our maintenance services and the MPM acquisition.

During the remainder of 2009, we expect that the growth of our maintenance revenues will be moderated by the continuing economic downturn.

Other Revenues

Our other revenues consist primarily of fees collected for our annual user conference, which is typically held in the second quarter of the year, as well as sales of third-party hardware and software. For the three months ended September 30, 2009, other revenues remain relatively flat compared to the three months ended September 30, 2008. For the nine months ended September 30, 2009, other revenues decreased to $3.5 million from $4.7 million as a result of lower user conference revenues associated with lower conference attendance in the current year.

Cost of Revenues


	Three Months Ended September 30,									Nine Months Ended, September 30,
	2009		2008		Change			% Change		2009		2008		Change			% Change
	*(dollars in millions)*									*(dollars in millions)*
COST OF REVENUES:
Cost of software license fees	$	1.2	$	1.7	$	(0.5	)	(28	)	$	4.4	$	4.9	$	(0.5	)	(10	)
Cost of consulting services		16.7		18.3		(1.6	)	(9	)		50.2		57.6		(7.4	)	(13	)
Cost of maintenance and support services		5.5		5.4		0.1		2			16.8		15.9		0.9		6
Cost of other revenues		–		–		–		–			4.6		5.1		(0.5	)	(10	)

Total cost of revenues	$	23.4	$	25.4	$	(2.0	)	(8	)	$	76.0	$	83.5	$	(7.5	)	(9	)

Cost of Software License Fees

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

Cost of software license fees decreased by $0.5 million, or 28%, to $1.2 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. The decrease was the result of lower royalty expense for third party software of $0.2 million and lower amortization of capitalized software and purchased intangible assets of $0.3 million.

Cost of software license fees decreased by $0.5 million, or 10%, to $4.4 million for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 primarily due to lower amortization of capitalized software and purchased intangible assets.

Cost of Consulting Services

Our cost of consulting services is comprised of the salaries, benefits, incentive compensation and stock-based compensation expense of services-related employees as well as third-party contractor expenses, travel and reimbursable expenses and classroom rentals. Cost of services also includes an allocation of our facilities and other costs incurred for providing implementation, training and other consulting services to our customers.

Cost of consulting services decreased $1.6 million, or 9%, to $16.7 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. The key drivers were decreases in travel expenses of $0.7 million, decreases in labor and related benefits of $0.6 million resulting from a reduction in headcount and decreases in subcontractor expenses of $0.3 million.

For the nine months ended September 30, 2009, cost of consulting services was $50.2 million, a decrease of $7.4 million, or 13%, compared to the same period in the prior year. The key drivers were primarily decreases in labor and related benefits of $4.4 million resulting from a reduction in headcount, decreases in travel expenses of $2.7 million and decreases in subcontractor expenses of $0.5 million offset by increases in other expenses of $0.2 million.

Cost of Maintenance and Support Services

Our cost of maintenance and support services is primarily comprised of salaries, benefits, stock-based compensation, incentive compensation and third-party contractor expenses, as well as facilities and other expenses incurred in providing support to our customers.

Cost of maintenance services remained relatively unchanged at $5.5 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. For the nine months ended September 30, 2009, cost of maintenance services was $16.8 million, an increase of $0.9 million, or 6%, when compared to the same period in the prior year. The change is due to an increase in labor and related benefits of $0.8 million and an increase in royalties of $0.3 million for third party products, which are embedded or sold along with our products offerings. This is offset by decreases in travel and other expenses of $0.2 million.

Cost of Other Revenues

Our cost of other revenues includes the cost of third-party equipment and software purchased for customers as well as the cost associated with our annual user conference. For the nine months ended September 30, 2009, cost of other revenues decreased to $4.6 million from $5.1 million as a result of lower user conference costs associated with lower conference attendance in the current year.

Operating Expenses


	Three Months Ended September 30,										Nine Months Ended September 30,
	2009		2008			Change			% Change		2009		2008		Change			% Change
	*(dollars in millions)*										*(dollars in millions)*
OPERATING EXPENSES:
Research and development	$	10.9	$	11.8		$	(0.9	)	(8	)	$	32.5	$	34.7	$	(2.2	)	(6	)
Sales and marketing		10.4		13.6			(3.2	)	(24	)		32.5		39.4		(6.9	)	(18	)
General and administrative		8.7		8.8			(0.1	)	(1	)		26.0		24.7		1.3		5
Restructuring charge		0.6		(0.1	)		0.7		(700	)		3.1		1.0		2.1		210

Total operating expenses	$	30.6	$	34.1		$	(3.5	)	(10	)	$	94.1	$	99.8	$	(5.7	)	(6	)

Research and Development

Our product development expenses consist primarily of salaries, benefits, stock-based compensation and related expenses, including third-party contractor expenses, and other expenses associated with the design, development and testing of our software applications.

Research and development expenses decreased by $0.9 million, or 8%, to $10.9 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. The drivers of the decrease were lower labor and related benefits of $0.4 million, lower amortization of purchased intangibles of $0.3 million and lower other expenses of $0.2 million.

For the nine months ended September 30, 2009, research and development expenses decreased by $2.2 million, or 6%, to $32.5 million when compared to the same period in the prior year. The drivers of the year over year decrease were lower labor and related benefits of $1.7 million resulting from a reduction in headcount, lower travel expenses of $0.4 million and lower amortization of purchased intangibles of $0.3 million, partially offset by higher other expenses of $0.2 million.

Sales and Marketing

Our sales and marketing expenses consist primarily of salaries and related costs, plus 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 by $3.2 million, or 24%, to $10.4 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. The decrease was primarily due to decreased labor and related benefits of $1.5 million from a reduction in headcount, decrease in commissions and other sales rewards programs of $1.2 million resulting from lower license sales in the third quarter of 2009, a $0.4 million decrease in select marketing programs and reduced travel of $0.4 million, offset by a $0.2 million increase in the amortization of purchased intangibles and a $0.1 million increase in other expenses.

For the nine months ended September 30, 2009, sales and marketing expenses decreased by $6.9 million, or 18%, to $32.5 million when compared to the same period in the prior year. The decrease was due to decreased labor and related benefits of $3.7 million from a reduction in headcount, decreased commissions of $2.6 million resulting from lower license sales in 2009, a $0.9 million decrease in select marketing programs, and decreased travel and other expenses of $0.6 million, partially offset by a $0.9 million increase in the amortization of purchased intangibles.

General and Administrative

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

General and administrative expenses remained relatively flat at $8.7 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008.

For the nine months ended September 30, 2009, general and administrative expenses increased by $1.3 million, or 5%, to $26.0 million when compared to the same period in the prior year. The increase resulted from increases in legal fees of $1.1 million, bad debt expense of $0.8 million, and labor and related benefits of $0.8 million, partially offset by a reduction of $1.4 million for external audit and SOX fees.

Restructuring Charge

In both the first and second quarters of 2009, management implemented a restructuring plan in each period to eliminate certain positions to realign the Company’s cost structure and to allow for increased investment in its key strategic objectives. These plans included a reduction of headcount of approximately 50 and 30 employees in the first and second quarters of 2009, respectively. As a result of these plans, we recorded $1.4 million and $1.0 million in the first and second quarters of 2009, respectively, for severance and severance-related costs as a restructuring charge in our condensed consolidated statement of operations and $0.1 million in the second quarter of 2009 for the consolidation of one facility. Additionally, in the third quarter of 2009, we recorded $0.6 million primarily for the closure of two office locations.

During the nine months ended September 30, 2008, we recorded a $1.0 million restructuring charge in an effort to realign our cost structure and to account for the consolidation of excess office space. The charge included $0.9 million for severance and severance-related costs for approximately 50 employees and $0.1 million for facilities related expenses associated with the closure of one office location and a reduction in space at a second location, offset by a reduction in existing deferred rent liabilities.

Interest Income

Interest income in all periods reflects interest earned on our invested cash balances. Interest income decreased $0.2 million and $0.6 million during the three and nine months ended September 30, 2009, respectively, when compared with the comparable periods in 2008. The principal drivers of this decrease were the change in the company’s investment election for its funds from a traditional money market fund to a U.S. treasury securities money market fund as well as the overall decrease in interest rates paid on money market funds.

Interest Expense


	Three Months Ended September 30,									Nine Months Ended September 30,
	2009		2008		Change			% Change		2009		2008		Change			% Change
	*(dollars in millions)*									*(dollars in millions)*
Interest expense	$	1.9	$	2.5	$	(0.6	)	(24	)	$	4.9	$	8.4	$	(3.5	)	(42	)

Interest expense decreased by $0.6 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, and by $3.5 million for the nine months ended September 30, 2009 compared to the same period in the prior year. These decreases resulted from lower interest rates as well as from the prepayment of debt during the first half of 2009.

Income Taxes


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009		2008	Change		% Change	2009		2008		Change			% Change
	*(dollars in millions)*						*(dollars in millions)*
Income tax expense	$	1.6	1.1	$	0.5	45	$	6.2	$	8.8	$	(2.6	)	(30	)

Income tax expense increased to $1.6 million for the three months ended September 30, 2009 from $1.1 million for the three months ended September 30, 2008. As a percentage of pre-tax income, income tax expense was 19.8% and 11.7% for the three months ended September 30, 2009 and 2008, respectively. The increase in tax expense for the third quarter of 2009 compared to the third quarter of 2008 is primarily due to benefits recorded in the current quarter for increased credits for qualified research and development activities, the expected utilization of foreign tax credits not scheduled to expire for ten years, and the deductibility of certain expenses being less than the transfer pricing benefit recorded in the third quarter of 2008.

Income tax expense for the nine months ended September 30, 2009 decreased to $6.2 million compared to $8.8 million for the nine months ended September 30, 2008. As a percentage of pre-tax income, income tax expense was 30.5% and 33.6% for the nine months ended September 30, 2009 and 2008, respectively. The income tax expense for the first three quarters of 2009 is lower than the first three quarters of 2008 due primarily to the lower pre-tax income as well as various newly implemented tax strategies approximating $2.0 million for increased credits for qualified research and development activities, the expected utilization of foreign tax credits not scheduled to expire for ten years, and the deductibility of certain expenses.

Effective January 1, 2007, we adopted the provisions of ASC 740-10, Income Taxes-Overall. ASC 740-10 clarifies the criteria that an individual tax position must satisfy for that position to be recognized in the financial statements. This interpretation also provides guidance on accounting for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. During the nine months ended September 30, 2009, the Company established an additional liability of approximately $0.5 million associated with the establishment of a reserve for foreign tax credits as well as certain permanent adjustments and associated interest on prior period ASC 740-10 adjustments. For further information, see Note 7, Income Taxes, of our condensed consolidated financial statements contained elsewhere in this Quarterly Report.

Credit Agreement

As of September 30, 2009 and December 31, 2008, the outstanding amount of the term loans was $179.3 million and $192.8 million, respectively, and there were no borrowings outstanding under the revolving credit facility.

All the loans under the Amended Credit Agreement are collateralized by substantially all of our assets (including our subsidiaries’ assets) and require us to comply with financial covenants requiring us to maintain defined minimum levels of interest coverage and fixed charges coverage and providing for a limitation on our leverage ratio. The financial ratio covenants in the Amended Credit Agreement remained unchanged.

The following table summarizes the significant financial covenants under the Amended Credit Agreement (adjusted EBITDA below is as defined in the Amended Credit Agreement):


		As of September 30, 2009		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 2.75 to 1.00	9.63	Greater than 3.00 to 1.00 effective January 1, 2010

Minimum Fixed Charges Coverage	Cumulative adjusted EBITDA for the prior four quarters/(interest expense + principal payments + capital expenditures + capitalized software costs + cash tax payments)	Greater than 1.10	2.68	Greater than 1.10

Leverage Coverage	Total debt/cumulative adjusted EBITDA for the prior four quarters	Less than 3.25 to 1.00	2.84	Less than 3.25 to 1.00

The Amended 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 cash dividends.

As of September 30, 2009, we were in compliance with all covenants related to our Amended Credit Agreement. Based on our expectations of our future performance, we believe that we will continue to satisfy the financial covenants of our Amended Credit Agreement for the foreseeable future.

In connection with the Amended Credit Agreement, we incurred debt issuance costs of $2.3 million during the third quarter of 2009, of which $2.1 million will be amortized to interest expense over the remaining term of the modified debt. Previously deferred debt issuance costs that existed at the time of the credit agreement amendment will also be amortized over the remaining term of the modified debt. We incurred no debt issuance costs in 2008.

Prior to the amendment of the Credit Agreement, the debt issuance costs were amortized and reflected in interest expense over the original lives of the respective loans. At September 30, 2009, $1.0 million of unamortized debt issuance costs remained in “Prepaid Expenses and Other Current Assets” and $2.0 million was reflected in “Other Assets” on the consolidated balance sheet. During the three and nine months ended September 30, 2009, costs of $0.2 million and $0.7 million, respectively, were amortized and reflected in interest expense. During the three and nine months ended September 30, 2008, costs of $0.2 million and $0.6 million, respectively, were amortized and reflected in interest expense.

The Amended Credit Agreement requires mandatory prepayments of the term loans from our annual excess cash flow, as defined in the Amended Credit Agreement, and from the net proceeds of certain asset sales or equity issuances. During the first

quarter of 2009, we made a scheduled principal payment of $498,000 and a contractually required principal prepayment of $9.7 million from our annual excess cash flow. The Amended Credit Agreement also requires us to prepay a portion of the term loans from the net proceeds of certain equity issuances to certain investors so that our leverage ratio (as defined in the Credit Agreement) is less than 2.75. In connection with our common stock rights offering, we were required to make a mandatory principal prepayment of approximately $3.1 million from the net proceeds from the rights offering, as our leverage ratio was greater than 2.75 to 1 prior to the completion of the rights offering. The mandatory excess cash flow payment made in March 2009 was applied first against the scheduled principal payments under the original Credit Agreement for a twelve month period and, secondly, with the excess applied ratably against the remaining debt payments in the amortization schedule under the original credit agreement. The prepayment from our rights offering was applied ratably against the remaining debt payments under the original Credit Agreement.

The following table summarizes future principal payments on the Amended Credit Agreement as of September 30, 2009 (in thousands):


	Principal Payment

2009-remaining	$	323
2010		26,480
2011		26,348
2012		1,294
2013		124,836

Total principal payments	$	179,281

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, consulting services and maintenance services. Amounts due from customers for software license and maintenance services are generally billed in advance of the contract period.

The cost of our acquisitions has been financed with available cash flow and, to the extent necessary, short-term borrowings from our revolving credit facility. These borrowings were repaid in subsequent periods with available cash provided by operating activities as well as with proceeds from our initial public offering. We utilize our revolving credit facility for the additional purpose of providing the required guarantee related to certain letters of credit for our real estate leases. At September 30, 2009, the total amount of letters of credit guaranteed under the revolving credit facility totaled $0.9 million. As a result, available borrowings on the revolving credit facility at September 30, 2009 were $29.1 million.

Historically, our cash flows have been subject to variability from year-to-year, primarily as a result of one-time or infrequent events. 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 available borrowings under our revolving credit facility) will provide sufficient liquidity for us to fund our business and meet our obligations for the next twelve months. In addition, our Amended Credit Agreement provides for greater financial flexibility by extending our debt repayments over a longer term. We also believe that the aggregate cash balance of $130.4 million as of September 30, 2009 is sufficient to cover the payments due over the next eighteen months of $39.7 million on the Amended Credit Agreement.

In June 2009, we completed our common stock rights offering, which was fully subscribed by our stockholders, resulting in the issuance of 20 million shares of common stock. Net proceeds after deducting fees and offering expenses were approximately $58.2 million. We used approximately $3.1 million to prepay indebtedness under our Credit Agreement and intend to use the remaining net proceeds from the rights offering for additional working capital, strategic investments and acquisitions, reduction of indebtedness or general corporate purposes.

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

Analysis of Cash Flows

For the nine months ended September 30, 2009, we generated cash from operating activities of $51.2 million, compared to $33.0 million during the comparable period for 2008. The increase of $18.2 million was attributed to a decrease in cash payments of $5.3 million for taxes, $4.9 million in interest and $9.3 million in other operating activities partially offset by an increase in cash payments for restructuring charges of $1.3 million. The increase in deferred revenue of $15.2 million was primarily attributed to accelerating our maintenance billing process in the second quarter of 2009.

Net cash used in investing activities was $2.0 million for the nine months ended September 30, 2009, compared to $22.7 million used during the comparable period of 2008. Our use of cash in the first nine months of 2009 was for the purchase of property and equipment of $1.9 million and capitalized software development costs of $0.2 million. The use of cash in the comparable period in 2008 was primarily for the acquisition of MPM for $16.4 million, AIM contingent consideration of $1.0 million and $5.0 million to purchase property and equipment.

Net cash provided by financing activities was $45.2 million for the nine months ended September 30, 2009, compared to net cash provided by financing activities of $0.7 million during the comparable period of 2008. Cash provided by financing activities in the first nine months of 2009 was primarily related to proceeds received from our rights offering of $58.2 million, net of issuance costs, and proceeds from issuance of stock under the Company’s employee stock purchase plan as well as stock option exercises of $2.8 million. This was offset by $13.5 million in debt repayments. Debt repayments consisted of a scheduled cash repayment of $0.8 million and contractually required prepayments of $12.7 million. During the first nine months of 2008, the Company’s cash flows from financing activities primarily included proceeds from issuance of stock under the Company’s employee stock purchase plan and stock option exercises.

Impact of Seasonality

Fluctuations in our quarterly license fee revenues reflect, in part, seasonal fluctuations driven by our customers’ procurement cycles for enterprise software and other factors. However, the prevailing financial and economic conditions have further impacted the predictability or seasonality of our revenues. Consequently, past seasonality may not be indicative of current or future seasonality.

Our consulting services revenues are impacted by software license sales, the availability of our consulting resources to work on customer implementations, the adequacy of our contracting activity to maintain full utilization of our available resources, and prevailing economic and financial conditions. As a result, services revenues may also be subject to seasonal fluctuations.

Our maintenance revenues are generally not subject to significant seasonal fluctuations, although cash flow from maintenance fees is impacted by the timing of collections of annual maintenance renewals and the timing of our sales cycles.

Off-Balance Sheet Arrangements

As of September 30, 2009, 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 we have intellectual property infringement indemnification from our third-party partners whose technology may be embedded or otherwise bundled with our software products. Therefore, 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

In April 2009, the FASB issued ASC 825-10-65, Financial Instruments-Transition, effective for interim periods ending after June 15, 2009. ASC 825-10-65 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements to improve the transparency and quality of financial reporting. ASC 825-10-65 amends ASC 270, Interim Reporting, to require those disclosures in summarized financial information at interim reporting periods. See Part I, Item 1, Note 2, Fair Value of Financial Instruments, for the related disclosures. The Company’s adoption of ASC 825-10-65 in the second quarter of 2009 did not have a material impact on our results of operations, financial position, or cash flows.

In April 2009, the FASB issued ASC 820-10-35, Fair Value Measurements and Disclosures-Subsequent Measurement. ASC 820-10-35 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset or liability has significantly decreased. ASC 820-10-35 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, ASC 820-10-35 requires disclosure in interim and annual periods of the inputs and valuation methods used in determining fair value and a discussion of any changes in those valuation methods. ASC 820-10-35 is effective for annual and interim periods ending on or after June 15, 2009. During the second quarter of 2009, we adopted the provisions in ASC 820-10-35. The provisions adopted did not have an impact on our financial statements as our fair value measurements are Level 1 measurements in an active market with orderly transactions

In May 2009, the FASB issued ASC 855, Subsequent Events, effective for interim and annual periods ending after June 15, 2009. ASC 855 establishes the accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. See Part I, Item 1, Note 13, Subsequent Events, for the related disclosures. The Company’s adoption of ASC 855 in the second quarter of 2009 did not have a material impact on our results of operations, financial position, or cash flows.

Recent Accounting Pronouncements

In December 2007, the FASB issued ASC 805, Business Combinations, which replaces the former standard SFAS 141. ASC 805 requires assets and liabilities acquired in a business combination, contingent consideration, and certain acquired contingencies to be measured at their fair values as of the date of acquisition. ASC 805 also requires that acquisition-related costs and restructuring costs be recognized separately from the business combination. ASC 805 is effective for fiscal years beginning after December 15, 2008. For business combinations entered into after the effective date of ASC 805, prospective application of the new standard is applied. The guidance in SFAS 141 is applied to business combinations entered into before the effective date of ASC 805. During the first nine months of 2009, we did not enter into any business combinations.

In April 2008, the FASB issued ASC 350-30-55, Intangibles-Goodwill and Other-General Intangibles Other than Goodwill. ASC 350-30-55 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350, Intangibles-Goodwill and Other. The objective is to improve the consistency between the useful life of a recognized intangible asset under ASC 350 and the period of expected cash flows used to measure the fair value of the asset under ASC 805. ASC 350-30-55 is effective for fiscal years beginning after December 15, 2008. The guidance in ASC 350-30-55 for useful life estimates is applied prospectively to intangible assets acquired after December 31, 2008. During the first nine months of 2009, we did not acquire any intangible assets.

In November 2008, the FASB issued ASC 350-30-35, Intangibles-Goodwill and Other-General Intangibles Other than Goodwill, was issued. ASC 350-30-35 clarifies the accounting for acquired intangible assets in situations in which the acquirer does not intend to actively use the asset but intends to hold (lock up) the asset to prevent its competitors from obtaining access to the asset (a defensive intangible asset). Under ASC 350-30-35, defensive intangible assets will be treated as a separate asset recognized at fair value and assigned a useful life in accordance with ASC 350. ASC 350-30-35 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, or January 1, 2009 for Deltek. During the first nine months of 2009, we did not acquire any defensive intangible assets.

In April 2009, the FASB issued ASC 805-20, Business Combinations-Identifiable Assets and Liabilities, and Any Noncontrolling Interest. ASC 805-20 amends the guidance in ASC 805 regarding pre-acquisition contingencies. The guidance in ASC 805-20 requires the recognition at fair value of an asset or liability assumed in a business combination that arises from a contingency if the acquisition date fair value can be reasonably estimated during the measurement period. If the fair value cannot be reasonably estimated, the asset or liability would be recognized in accordance with ASC 450, Contingencies, if the criteria in ASC 450 were met at the acquisition date. Previously, ASC 805 required pre-acquisition contingencies to be measured at fair value at the date of acquisition. ASC 805-20 is effective for business combinations occurring after January 1, 2009. We will apply the guidance in ASC 805-20 prospectively to pre-acquisition contingencies in future acquisitions. During the first nine months of 2009, we did not enter into any business combinations.

In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05 (“ASU 2009-05”), Fair Value Measurement and Disclosure: Measuring Liabilities at Fair Value, which amends ASC 820-10-35. The guidance in ASU 2009-05 provides clarification on measuring liabilities at fair value when a quoted price in an active market is not available. The ASU specifies that a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance such as a present value technique or a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The guidance also states that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustments to other inputs relating to the existence of a restriction that prevents the transfer of the liability. ASU 2009-05 is effective for the first reporting period beginning after issuance, or October 1, 2009. We do not expect the adoption of ASU 2009-05 to have an impact on our financial statements as we currently do not have any liabilities measured at fair value.

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 September 30, 2009, we had $130.4 million in cash and cash equivalents. Our interest expense associated with the non-extended portion of our term loans and revolving credit facility will vary with market rates. As of September 30, 2009, we had approximately $179.3 million in debt outstanding, of which $129.1 million is set at a fixed rate, due to the LIBOR floor established in the Amended Credit Agreement, and the remaining $50.2 million is at a variable rate. Based upon the variable rate debt outstanding as of September 30, 2009, a hypothetical 1% increase in interest rates would increase interest expense by approximately $0.5 million on an annual basis, and likewise decrease our earnings and cash flows.

We cannot predict market fluctuations in interest rates and their impact on our 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 hypothetical 1% increase discussed above.

Based on the investment interest rate and our cash and cash equivalents balance as of September 30, 2009, a hypothetical 1% decrease in interest rates would decrease interest income by approximately $1.3 million on an annual basis, and likewise decrease our earnings and cash flows. We do not use derivative financial instruments in our investment portfolio.

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British pound, the Philippine peso and the Australian dollar. As our international operations continue to grow, we may choose to use foreign currency forward and option contracts to manage currency exposures. We do not currently have any such contracts in place, nor did we have any such contracts during the three and nine months ended September 30, 2009 or 2008. To date, exchange rate fluctuations have had an insignificant impact on our operating results and cash flows given the scope of our international presence.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Principal Financial Officer, and our Principal Accounting 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 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 Principal Financial Officer, and our Principal Accounting 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 Principal Financial Officer, and our Principal Accounting 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 September 30, 2009 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 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 will fluctuate based upon a variety of factors, including the business and financial condition of our customers and on economic and financial conditions, particularly as they affect the key sectors in which our customers operate. For the twelve months ended December 31, 2008 and for the nine months ended September 30, 2009, approximately 95% of our total revenue was derived from United States-based customers. Economic downturns or unfavorable changes in the financial and credit markets in the United States, including the current economic recession, could have an adverse effect on the operations, budgets and overall financial condition of our customers. 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 for software license fees, consulting and implementation services or software maintenance may be severely limited.

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 twelve months ended December 31, 2008 and the nine months ended September 30, 2009, resellers accounted for approximately 14% and 9%, respectively, of our software license fee revenue.

We cannot predict the impact, timing, strength or duration of any economic slowdown or subsequent economic recovery, generally or in any specific industry, or of any disruption in the financial and credit markets. 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.

Our quarterly and annual operating results fluctuate, and as a result, we may fail to meet or exceed the expectations of securities analysts or investors, 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 accurate indicators 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 software license fee revenue and operating results;

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the highest concentration of our software license sales is typically in the last month of each quarter resulting in diminished predictability of our quarterly 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 agreements with us;

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our ability to develop and market new software enhancements and products;

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announcements of technological innovations by us or our competitors;

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the relative mix of products and services we sell;

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developments with respect to our intellectual property rights or those of our competitors; and

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our ability to attract and retain qualified personnel.

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.

If we are unable to effectively respond to organizational challenges and expand our business, our revenues, profitability and business reputation could be materially adversely affected.

Between 2006 and 2008 our total revenue increased from $228.3 million to $289.4 million, or approximately 27%, and our software license fee revenue increased from $75.0 million to $77.4 million, or approximately 3%. For the nine months ended September 30, 2009 our total revenue was $195.4 million and our software license fee revenue was $39.7 million. Between 2006 and 2008, our total worldwide headcount has increased from approximately 1,040 employees at the end of 2006 to approximately 1,240 employees worldwide at December 31, 2008. At September 30, 2009, our total worldwide headcount was approximately 1,160 employees.

Past and future growth will continue to place significant demands on our management, financial and accounting systems, information technology systems and other components of our infrastructure. To meet our growth and related demands, we continue to invest in enhanced or new systems, including enhancements to our accounting, billing and information technology systems. We may also need to hire additional personnel, particularly in our sales, marketing, professional services, finance, administrative, legal and information technology groups.

If we do not correctly anticipate our organizational needs as we expand our business, if we fail to successfully implement our enhanced or new systems and other infrastructure improvements effectively and timely or if we encounter delays or unexpected costs in hiring, integrating, training and guiding our new employees, we may be unable to maintain or increase our revenues and profitability and our business reputation could be materially adversely affected.

If we develop 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 Securities and Exchange Commission within prescribed time periods. As part of The NASDAQ Global Select Market listing requirements, we are also required to provide our periodic reports, or make them available, to our stockholders within prescribed time periods. In our 2007 Annual Report on Form 10-K, we identified and reported a number of deficiencies which we believed to be material weaknesses due to inadequate internal controls, and which have been remediated as of December 31, 2008. If we develop material weaknesses in our internal control in the future, the required audit or review of our financial statements by our registered independent 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 Securities and Exchange Commission or comply with The NASDAQ Global Select Market 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 The NASDAQ Global Select Market could be suspended or terminated and, absent a waiver, we also would be in default under our Amended 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 Securities and Exchange Commission and other regulatory authorities and to stockholder lawsuits. In addition, our stock price could decline, we could face significant unanticipated costs, management’s attention could be diverted and our business reputation could be materially harmed.

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, financial, sales and marketing resources.

While we continually add functionality to our products to address the specific needs of both existing customers and new customers, we may be unsuccessful in developing appropriate or complete products, devoting sufficient resources or pursuing effective strategies for product development and marketing.

Our current or future products may not appeal to potential customers in new or existing markets. If we are unable to execute 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.

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

Our business model depends, in part, 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, add-on applications, and professional and maintenance services. We may be unsuccessful in maintaining or increasing sales to our existing customers for any number of reasons, including our inability to deploy new applications and features for our existing products or to introduce new products and services that are responsive to the business needs of our customers. If we fail to generate additional business from our customers, our revenue could grow at a slower rate or even decrease in material amounts.

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

We currently have customers in approximately 70 countries, including in the United Kingdom, Europe, the Middle East and the Asia-Pacific region, and we intend to expand our international markets. Currently, we have facilities in Canada, the Philippines, Australia and the United Kingdom.

Doing business internationally involves additional potential risks and challenges, including:

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our inexperience in international markets and managing international operations, including a global workforce;

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

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lack of brand awareness for our products;

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competition from 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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potential difficulties in collecting accounts receivable and longer collection periods;

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unstable political and economic conditions, including in those countries in which development operations occur;

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potentially higher operating costs due to local laws, regulations and market conditions;

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

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reduced protection for intellectual property rights in a number of countries where we may operate;

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compliance with multiple, potentially conflicting and 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 trends;

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potentially longer sales cycles;

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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.

While we currently have customers in approximately 70 countries, we generated less than 5% of our total software license fee revenue in 2008 and 2007 from international markets. For the nine months ended September 30, 2009, we generated approximately 7% of our total software license fee revenue from international markets. Our ability to expand internationally will require us to deliver product functionality and foreign language translations that are responsive to the needs of the international customers that we target. Additionally, we conduct our international business through our direct sales force and also through independent reseller partners. If we are unable to hire a qualified direct sales force, identify beneficial 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 in international markets. Our inability in the future to expand successfully in international markets could materially adversely affect our revenue growth. Our planned international expansion will require significant attention from our management as well as additional management and other resources in these markets.

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 may continue to acquire complementary businesses, technologies, product lines or services organizations. 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:

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

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

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the 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;

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the potential difficulty retaining the strategic alliance partners of the acquired businesses on terms that are acceptable to us;

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the potential difficulty retaining, integrating, training and motivating key employees of the acquired business;

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

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the potential difficulty in predicting and responding to issues related to product transition, including product development, distribution and customer support;

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the possibility that customers of the acquired business may not support any changes associated with our ownership of the acquired business and that as a result they may transition to products offered by our competitors, or may attempt to renegotiate contract terms or relationships, including maintenance agreements;

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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;

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

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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

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potential claims by third parties relating to intellectual property.

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 goodwill valued at approximately $57.8 million and other purchased intangible assets valued at approximately $13.9 million as of September 30, 2009. This represents a significant portion of the assets recorded on our balance sheet. Goodwill and indefinite lived intangible assets are reviewed for impairment at least annually or sooner under certain circumstances. Other intangible assets that are deemed to have finite useful lives will continue to be amortized over their useful lives but must be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Screening for and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating fundamentals, competition and general economic conditions, requires significant judgment by management.

We performed tests for impairment of goodwill and intangible assets and determined that there was no impairment as of December 31, 2008. In addition, there have been no events or changes in circumstances that have occurred during the nine months ended September 30, 2009 that indicate there is an impairment of goodwill or intangible assets. However, there can be no assurances that a charge to operations will not occur in the event of a future impairment. The decrease in the price of our stock that has occurred and may occur in the future increases the potential that such an impairment may occur in the future. If an impairment is deemed to exist in the future, we would be required to write down the recorded value of these intangible assets to their then current estimated fair values. If a write down were to occur, it could materially adversely impact our results of operations and our stock price.

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

Our customers contract with us for ongoing product maintenance and support services. Historically, maintenance services revenues have represented a significant portion of our total revenue. Revenues from maintenance services constituted approximately 40% and 37% of our total revenue in 2008 and 2007, respectively. For the nine months ended September 30, 2009, revenues from maintenance services constituted approximately 48% of our total revenue.

Our maintenance and support services are generally billed quarterly and are generally paid in advance. A customer may cancel its maintenance services agreement on 30 days’ notice prior to the beginning of the next scheduled period. At the end of a contract term, or at the time a customer has quarterly cancellation rights, a customer could seek a modification of its maintenance services agreement terms, including modifications that could result in lower maintenance fees or our providing additional services without associated fee increases.

A customer may also elect to terminate its maintenance services agreement and rely on its own in-house technical staff or other third party resources or may replace our software with a competitor’s product. If our maintenance services business declines due to a significant number of contract terminations, or if we are forced to offer pricing or other maintenance terms that are unfavorable to us, our maintenance services revenues and operating results could be materially adversely affected.

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

We use a variety of 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, maintenance renewal rates, our assessment of economic or 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 or economic conditions, could cause us to inaccurately forecast our revenues or expenses and could result in expenditures without corresponding revenue. As a result, our revenues and our operating results could be materially lower than anticipated.

To maintain our competitive position, we may be forced to reduce prices or limit price increases, which could result in materially reduced revenue, margins or net income.

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, specialized consulting organizations, systems integrators and internal information technology departments of existing or potential customers. Several competitors, such as Oracle, SAP AG and Microsoft, may have significantly greater financial, technical and marketing resources than we have.

Some of our competitors have refocused their marketing and sales efforts to the middle market in which we actively market our products. These competitors may implement increasingly aggressive marketing programs, product development plans and sales programs targeted toward our specific industry markets.

In addition, 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.

To maintain our competitive position, we may be forced to reduce prices or limit price increases which could materially reduce our revenue, margins or net income.

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

As of September 30, 2009, we had approximately $179.3 million of outstanding debt under our credit agreement and term loans at interest rates which are subject to market fluctuation. 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 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;

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

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increasing our vulnerability to economic downturns and changing market conditions.

Our ability to meet our existing debt service obligations, borrow additional funds or refinance our existing debt will depend on many factors, including prevailing financial or economic conditions, and our past performance and our financial and operational outlook. In August 2009, we amended our Credit Agreement, which resulted in the Company extending the maturity of $129.4 million of our term loans to April 22, 2013. In addition, the expiration of $22.5 million of our revolving credit facility was extended to April 22, 2013. The remaining $50.2 million of term loans continues to expire on April 22, 2011. The $7.5 million portion of the revolving credit facility that was not extended will expire on April 22, 2010. In September 2009, we made a principal payment of $0.3 million. We will make a principal payment of $0.3 million on December 31, 2009 and there are scheduled principal payments of $26.5 million in 2010, $26.4 million in 2011, $1.3 million in 2012 and $124.8 million in 2013, the final maturity date. 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, 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 comply with the covenants or restrictions contained in our credit agreement, our lenders could declare all amounts outstanding under the Amended Credit Agreement to be due and payable, which could materially adversely affect our financial condition.

Our Amended Credit Agreement governing our term loans and revolving credit facility contains covenants that, among other things, restrict our and our subsidiaries’ ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, pay dividends, create liens on assets, enter into sale and 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.

Our Amended Credit Agreement also requires us to comply with certain financial ratios related to fixed charge coverage, interest coverage and leverage ratios. While we have historically complied with our financial ratio covenants, we may not be able to comply with these financial covenants in the future, which could limit our ability to react to market conditions or meet ongoing capital needs. Our ability to comply with the covenants and restrictions contained in our Amended Credit Agreement 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 contained in our Amended Credit Agreement, unless cured within the applicable grace period, could result in a default under the Amended Credit Agreement that would permit the lenders to declare all amounts outstanding to be due and payable, together with accrued and unpaid interest. In such an event, we may not have sufficient assets to repay such indebtedness. As a result, any default could have serious consequences to our financial condition.

If we are required to defer recognition of software license fee revenue for a significant period of time after entering into a license agreement, our operating results could be materially adversely affected in any particular quarter.

We may be required to defer recognition of software license fee revenue from a license agreement with a customer if, for example:

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the software transactions include both currently deliverable software products and software products that are under development or require other undeliverable elements;

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a particular customer requires services that include significant modifications, customizations or complex interfaces that could delay product delivery or acceptance;

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the software transactions involve customer acceptance criteria;

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

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the software transactions involve payment terms that are longer than our standard payment terms or fees that depend upon future contingencies; or

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under the applicable accounting requirements, we are unable to separate recognition of software license fee revenue from maintenance or other services-related revenue, thereby requiring us to defer software license fee revenue recognition until the services are provided.

Deferral of software license fee revenue may result in significant timing differences between the completion of a sale and the actual recognition of the revenue related to that sale. However, we generally recognize commission and other sales-related expenses associated with sales at the time they are incurred. As a result, if we are required to defer a significant amount of revenue, our operating results in any quarter could be materially adversely affected.

If our existing and potential customers seek to acquire software on a subscription basis, and if to meet this customer preference, we need to offer our products on a subscription fee basis in the future, our software license fee revenue and cash flow could be materially reduced.

Our software license fee revenues are generally derived from the sale of perpetual licenses for software products. Each license fee generally is paid on a one-time basis either on a per-seat basis or as an enterprise license, and related revenue is generally recognized at the time the license is executed. Nearly all of our software license fee revenue for the nine months ended September 30, 2009, and for the years ended December 31, 2008 and 2007 was generated from the sale of perpetual licenses.

Under our business model, our software license fees are typically invoiced and recognized as revenue immediately upon delivery, even though the customer’s use of the software product occurs over time. If in the future our customers seek to acquire software on a subscription basis, we may need to offer our products on a subscription basis. We may not successfully price, market or otherwise execute a subscription-based model. If we operate our software business in whole or in part on a subscription fee basis, we could experience materially reduced software license fee revenues and cash flows associated with the transition to a subscription based licensing model.

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 and to develop new products. For example, our product development expenses were approximately $32.5 million, or 17% of revenue, for the nine months ended September 30, 2009, $45.8 million, or 16% of revenue, in 2008, and approximately $42.9 million, or 15% of revenue, in 2007. Our current and future product development efforts may require greater resources than we expect, or achieve the market acceptance that we expect and, as a result, we may not achieve margins we anticipate.

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.

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.

The business application software market is 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 in order to maintain or enhance our competitive position. The introduction of enhanced or new products requires us to manage the transition from, or integration with, older products 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 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.

If our existing or prospective customers prefer an application software architecture other than the standards-based technology and platforms upon which we build or support our products, or if we fail to develop our new product enhancements or products to be compatible with the application software architecture preferred by existing and prospective customers, we may not be able to compete effectively, and our software license fee revenue could be materially reduced.

Many of our customers operate their information technology infrastructure on standards-based application software platforms such as J2EE and .NET. A significant portion of our product development is devoted to enhancing our products that deploy these and other standards-based application software platforms.

If our products are not compatible with future technologies and platforms that achieve industry standard status, we will be required to spend material development resources to develop products or product enhancements that are deployable on these platforms. If we are unsuccessful in developing these products or product enhancements, we may lose existing customers or be unable to attract prospective customers.

In addition, our customers may choose competing products other than our offerings based upon their preference for new or different standards-based application software than the software or platforms on which our products operate or are supported. Any of these adverse developments could injure our competitive position and could cause our software license fee revenue to 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 software license fee 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 software license fee revenue.

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:

•

we may not be paid;

•

a customer may bring a warranty claim against us;

•

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

•

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

•

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

•

our reputation and competitive position may be damaged; and

•

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.

A breach in the security of our software could harm our reputation 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. Third parties may attempt to breach the security of our applications, third party applications upon which our products are based or those of our customers and their databases. In addition, computer viruses, physical or electronic break-ins and similar disruptions could lead to interruptions and delays in customer processing or a loss of a customer’s data.

We may be responsible, and liable, to our customers for certain breaches in the security of our software products. Any security breaches for which we are, or are perceived to be, responsible, in whole or in part, could subject us to claims, which could harm our reputation and result in significant costs. 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. Computer viruses, physical or electronic break-ins and similar disruptions could lead to interruptions and delays in customer processing or a loss of data. 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 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 retain and attract highly skilled managerial, professional service, sales, development, marketing, accounting, administrative and infrastructure-related personnel. The market for these highly skilled employees is 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 the management of our business and materially impair the success of our business.

We believe that our success depends on the continued 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. The loss of the services of one or more of our executive officers or key managers could have an adverse effect on our operating results and financial condition. 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 any member of our senior management team could materially impair our ability to perform successfully, including achieving satisfactory operating results and maintaining our growth.

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

Our success and ability to compete is dependent in significant degree on our intellectual property, particularly our proprietary software. We rely on a combination of copyrights, trademarks, 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, we have no patents, and existing copyright law affords only limited protection for our software and may not protect such software in the event competitors independently develop products similar to ours.

We take significant measures to protect the secrecy of our proprietary source code. Despite these measures, unauthorized disclosure of some of or all of our source code could occur. Such unauthorized disclosure could potentially cause our source code to lose intellectual property protection and make it easier for third parties to compete with our products 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 against unauthorized third party copying or use, which could adversely affect our competitive position and our software license fee revenue. 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 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.

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 and enterprise applications and internal technology systems for our development, marketing, operational, support and sales activities. A disruption or failure of any or all of these systems in the event of a major telecommunications failure, cyber-attack, terrorist attack, fire, earthquake, severe weather conditions or other catastrophic event could cause system interruptions, delays in our product development and loss of critical data, could prevent us from fulfilling our customer contracts, change customer purchasing intentions or expectations, create delays or postponements of scheduled implementations or other services engagements or otherwise disrupt 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 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. Our failure to anticipate or adapt timely to changes in those standards could cause us to lose our 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. For the nine months ended September 30, 2009, and for the years ended December 31, 2008 and 2007, over half of our software license fee revenue was generated from federal government contractor customers. Our government contractor customers utilize our Deltek Costpoint, Deltek GCS Premier or our enterprise project management applications to manage their contracts with the federal government in a manner that accounts for expenditures in accordance with the federal government contracting accounting standards.

For 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 easily demonstrate compliance with those laws and regulations. If the Federal Government alters these compliance standards, or if there were any significant problem with the functionality of our software from a compliance 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 issue could result in the loss of our government contract customers and materially adversely impact our revenue from these customers.

Significant reductions in the Federal Government’s budget or changes in the spending priorities for that budget could materially reduce government contractors’ demand for our products and services.

The Federal Government’s budget is subject to annual renewal and may be increased or decreased, whether on an overall basis or on a basis that could disproportionately injure our customers. Any significant downsizing, consolidation or insolvency of our Federal Government contractor customers resulting from changes in procurement policies, budget reductions, loss of government contracts, delays in contract awards or other similar procurement obstacles could materially adversely impact our customers’ demand for our software products and related services and maintenance.

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 increasing 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; and

•

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

In addition, if the market value of our common stock were to fall 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.

If securities analysts issue unfavorable commentary about us or our industry or downgrade our common stock, or if they do not publish research reports about our company and our industry in the future, the price of our common stock could decline or be volatile.

The trading market for our common stock will depend in part on the research and reports that securities analysts publish about our company and our industry. We do not control these analysts. One or more analysts could downgrade our stock or issue other negative commentary about our company or our industry. In addition, we may be unable or slow to attract or retain research coverage, and the analysts who publish information about our common stock have had relatively little recent experience with us, which could affect their ability to accurately forecast our results or make it more likely that we fail to meet their estimates. Alternatively, if one or more of these analysts cease coverage of our company, we could lose visibility in the market. Any one or more of these factors, several of which have occurred at one or more points in time since we became a public company, could cause the trading price for our stock to decline or be volatile.

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

We have 65,958,231 shares of common stock outstanding as of November 4, 2009. If 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”), members of our executive team and other employees who are party to a stockholders agreement that allows them to sell proportionately with our controlling stockholder, sell substantial amounts of our common stock in the public market or if the market perceives that stockholders may sell shares of 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 prevailing market price of our common stock to decline. The majority 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 Stock Award and Incentive Plan) are, directly or indirectly, subject to a registration rights agreement.

We have also filed one or more registration statements with the Securities and Exchange Commission covering shares subject to options and restricted stock outstanding under our 2005 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 you to lose part or all of your investment in our shares of common stock.

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

Our largest stockholders, the New Mountain Funds, own, in the aggregate, approximately 62% of our outstanding common stock and 100% of our Class A common stock. As a result, 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 will retain the right to elect a majority of our directors so long as they own our Class A common stock and at least one-third of our outstanding common stock.

In addition, the New Mountain Funds will have the benefit of the rights conferred by the investor rights agreement, and New Mountain Capital, L.L.C. will continue to have certain rights under their advisory agreement. These rights include the ability to elect a majority of the members of the board of directors and control all matters requiring stockholder approval, including any transaction subject to stockholder approval (such as a merger or a sale of substantially all of our assets), as long as they collectively 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.

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 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. Although the New Mountain Funds waived any right to collect a transaction fee in connection with our recently completed stock rights offering and the amendment of our Credit Agreement, the right to collect transaction fees otherwise continues until the New Mountain Funds cease to beneficially own at least 15% of our outstanding common stock or a change of control occurs.

The New Mountain Funds may have interests that differ from your interests, and they may vote in a way with which you disagree and that may be adverse to your 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, you could experience immediate and substantial dilution.

Our authorized capital stock consists of 200,000,000 shares of common stock, of which there were 65,958,231 shares outstanding as of November 4, 2009. The issuance of additional shares of our common stock or securities convertible into shares of our common stock could result in dilution of your 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, you could, depending on your participation in that issuance, also experience immediate dilution of the value of your shares relative to what your value would have been had our common stock been issued at fair value. This dilution could be substantial.

You 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 Global Select Market’s standards and, as a result, qualify for, and may rely on, exemptions from several corporate governance requirements.

Our controlling stockholders, the New Mountain Funds, control a majority of our outstanding common stock and have the ability to elect a majority of our board of directors. As a result, we are a “controlled company” within the meaning of the rules governing companies with stock quoted on The NASDAQ Global Select Market. 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 of directors consists of independent directors;

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compensation of officers be determined or recommended to the board of directors 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, you do not have the same protections afforded to stockholders of other companies that are subject to all of The NASDAQ Global Select Market 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 The NASDAQ Global Select Market) 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 of directors 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 of directors, 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

Not applicable.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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)

10.100		Amendment and Restatement Agreement, dated August 24, 2009, by and among Deltek, Inc., as borrower, the lender signatories thereto and Credit Suisse, as lender, lead arranger and administrative agent. (3)

10.101		Amended and Restated Credit Agreement, dated August 24, 2009, dated August 24, 2009, by and among Deltek, Inc., as borrower, the lender signatories thereto and Credit Suisse, as lender, lead arranger and administrative agent. (3)

10.102		Donald deLaski Waiver Letter Agreement, dated October 30, 2009, between Deltek, Inc. and New Mountain Capital. (4)

10.103		Executive Officer Waiver Letter Agreement, dated October 30, 2009, between Deltek, Inc. and New Mountain Capital. (4)

10.104		Former Employee and other Stockholder Waiver Letter Agreement, dated October 30, 2009, between Deltek, Inc. and New Mountain Capital. (4)

10.105		Employment letter, dated August 10, 2009, between Deltek, Inc. and James Dellamore.*

10.106		Employment letter, dated September 30, 2009, between Deltek, Inc. and Deborah Fitzgerald.*

31.1		Certification of Principal Executive Officer and 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.*

*	Filed herewith.

(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 13, 2009 with the Registrant’s Annual Report on Form 10-K for the Year Ended December 31, 2008.

(3)	Incorporated by reference to Exhibits 99.1 and 99.2 to the Registrant’s Current Report on Form 8-K filed on August 24, 2009.

(4)	Incorporated by reference to Exhibits 99.1, 99.2 and 99.3 to the Registrant’s Current Report on Form 8-K filed on October 30, 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: November 6, 2009	By:	/s/ KEVIN T. PARKER
		Kevin T. Parker
		Chairman, President and Chief Executive Officer

	DELTEK, INC.

Dated: November 6, 2009	By:	/s/ MICHAEL KRONE
		Michael Krone
		Senior Vice President and Corporate Controller
		(Principal Accounting 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)

10.100		Amendment and Restatement Agreement, dated August 24, 2009, by and among Deltek, Inc., as borrower, the lender signatories thereto and Credit Suisse, as lender, lead arranger and administrative agent. (3)

10.101		Amended and Restated Credit Agreement, dated August 24, 2009, dated August 24, 2009, by and among Deltek, Inc., as borrower, the lender signatories thereto and Credit Suisse, as lender, lead arranger and administrative agent. (3)

10.102		Donald deLaski Waiver Letter Agreement, dated October 30, 2009, between Deltek, Inc. and New Mountain Capital. (4)

10.103		Executive Officer Waiver Letter Agreement, dated October 30, 2009, between Deltek, Inc. and New Mountain Capital. (4)

10.104		Former Employee and other Stockholder Waiver Letter Agreement, dated October 30, 2009, between Deltek, Inc. and New Mountain Capital. (4)

10.105		Employment letter, dated August 10, 2009, between Deltek, Inc. and James Dellamore.*

10.106		Employment letter, dated September 30, 2009, between Deltek, Inc. and Deborah Fitzgerald.*

31.1		Certification of Principal Executive Officer and 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.*

*	Filed herewith.

(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 13, 2009 with the Registrant’s Annual Report on Form 10-K for the Year Ended December 31, 2008.

(3)	Incorporated by reference to Exhibits 99.1 and 99.2 to the Registrant’s Current Report on Form 8-K filed on August 24, 2009.

(4)	Incorporated by reference to Exhibits 99.1, 99.2 and 99.3 to the Registrant’s Current Report on Form 8-K filed on October 30, 2009.

DELTEK, INC - FORM 10-Q - November 6, 2009

Attached files

DELTEK, INC Reports