UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

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

Commission File Number 0-25346

 

ACI WORLDWIDE, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		47-0772104 (I.R.S. Employer Identification No.)
120 Broadway, Suite 3350 New York, New York 10271 (Address of principal executive offices, including zip code)		(646) 348-6700 (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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of the Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o

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

As of October 27, 2010, there were 33,202,786 shares of the registrant’s common stock outstanding.

 

 

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009			3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009			4
Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss) for the nine months ended September 30, 2010			5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			39
Item 4. Controls and Procedures			39
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			39
Item 1A. Risk Factors			40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 3. Defaults Upon Senior Securities			40
Item 5. Other Information			40
Item 6. Exhibits			41
Signature			42
Exhibit Index			43
Exhibit 31.01
Exhibit 31.02
Exhibit 32.01
Exhibit 32.02
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

ACI WORLDWIDE, INC. AND SUBSIDIARIES

		September 30,				December 31,
		2010				2009
ASSETS
Current assets
Cash and cash equivalents		$	143,902			$	125,917
Billed receivables, net of allowances of $2,892 and $2,732, respectively			71,325				98,915
Accrued receivables			9,163				9,468
Deferred income taxes, net			17,682				17,459
Recoverable income taxes			1,524				—
Prepaid expenses			12,580				12,079
Other current assets			12,332				10,224
Total current assets			268,508				274,062
Property and equipment, net			18,099				17,570
Software, net			26,462				30,037
Goodwill			204,615				204,850
Other intangible assets, net			22,130				26,906
Deferred income taxes, net			29,608				26,024
Other noncurrent assets			11,971				10,594
TOTAL ASSETS		$	581,393			$	590,043
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	7,364			$	17,591
Accrued employee compensation			26,236				24,492
Deferred revenue			131,501				106,349
Income taxes payable			604				10,681
Alliance agreement liability			4,243				10,507
Note payable under credit facility			75,000				—
Accrued and other current liabilities			26,058				25,780
Total current liabilities			271,006				195,400
Deferred revenue			35,725				31,533
Note payable under credit facility			—				75,000
Alliance agreement noncurrent liability			20,667				21,980
Other noncurrent liabilities			27,282				30,067
Total liabilities			354,680				353,980
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2010 and December 31, 2009			—				—
Common stock, $0.005 par value; 70,000,000 shares authorized; 40,821,516 shares issued at September 30, 2010 and December 31, 2009			204				204
Common stock warrants			24,003				24,003
Treasury stock, at cost, 7,614,545 and 6,784,932 shares outstanding at September 30, 2010 and December 31, 2009, respectively			(173,164	)			(158,652	)
Additional paid-in capital			311,274				307,279
Retained earnings			78,191				78,094
Accumulated other comprehensive loss			(13,795	)			(14,865	)
Total stockholders’ equity			226,713				236,063
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	581,393			$	590,043

The accompanying notes are an integral part of the condensed consolidated financial statements.

ACI WORLDWIDE, INC. AND SUBSIDIARIES

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Revenues:
Software license fees		$	37,804			$	40,396			$	98,520			$	97,649
Maintenance fees			32,480				33,314				100,109				95,168
Services			15,439				20,813				47,244				56,422
Software hosting fees			11,294				9,938				31,310				30,605
Total revenues			97,017				104,461				277,183				279,844
Expenses:
Cost of software license fees (1)			3,088				3,936				9,269				10,936
Cost of maintenance, services, and hosting fees (1)			28,956				27,959				86,151				83,136
Research and development			18,165				20,071				55,359				58,976
Selling and marketing			17,933				14,911				50,767				45,530
General and administrative			16,341				21,064				49,538				61,433
Depreciation and amortization			5,146				4,577				15,250				13,233
Total expenses			89,629				92,518				266,334				273,244
Operating income			7,388				11,943				10,849				6,600
Other income (expense):
Interest income			185				117				435				864
Interest expense			(418	)			(488	)			(1,482	)			(1,783	)
Other, net			(1,556	)			16				(3,452	)			(4,719	)
Total other income (expense)			(1,789	)			(355	)			(4,499	)			(5,638	)
Income before income taxes			5,599				11,588				6,350				962
Income tax expense			3,263				3,829				6,253				897
Net income		$	2,336			$	7,759			$	97			$	65
Income per share information
Weighted average shares outstanding
Basic			33,244				34,012				33,670				34,492
Diluted			33,480				34,170				33,907				34,675
Income per share
Basic		$	0.07			$	0.23			$	0.00			$	0.00
Diluted		$	0.07			$	0.23			$	0.00			$	0.00

The accompanying notes are an integral part of the condensed consolidated financial statements.

ACI WORLDWIDE, INC. AND SUBSIDIARIES

																						Accumulated
						Common								Additional								Other
		Common				Stock				Treasury				Paid-in				Retained				Comprehensive
		Stock				Warrants				Stock				Capital				Earnings				Income (Loss)				Total
Balance as of December 31, 2009		$	204			$	24,003			$	(158,652	)		$	307,279			$	78,094			$	(14,865	)		$	236,063
Comprehensive income information:
Net income			—				—				—				—				97				—				97
Other comprehensive income:
Foreign currency translation adjustments			—				—				—				—				—				1,070				1,070
Comprehensive income																											1,167
Repurchase of common stock			—				—				(18,624	)			—				—				—				(18,624	)
Issuance of common stock pursuant to Employee stock purchase plan			—				—				1,057				(360	)			—				—				697
Exercises of stock options			—				—				4,329				(1,821	)			—				—				2,508
Tax benefit of stock options exercised			—				—				—				(36	)			—				—				(36	)
Stock-based compensation			—				—				—				5,455				—				—				5,455
Forfeiture of non-vested RSAs			—				—				(1,141	)			1,141				—				—				—
Non-vested restricted share awards subject to redemption			—				—				384				(384	)			—				—				—
Repurchase of restricted stock for tax withholdings			—				—				(517	)			—				—				—				(517	)
Balance as of September 30, 2010		$	204			$	24,003			$	(173,164	)		$	311,274			$	78,191			$	(13,795	)		$	226,713

The accompanying notes are an integral part of the condensed consolidated financial statements.

ACI WORLDWIDE, INC. AND SUBSIDIARIES

		For the Nine Months Ended
		September 30,
		2010				2009
Cash flows from operating activities:
Net income		$	97			$	65
Adjustments to reconcile net income to net cash flows from operating activities
Depreciation			5,107				4,761
Amortization			14,671				12,716
Tax expense of intellectual property shift			1,650				1,650
Deferred income taxes			456				(12,894	)
Stock-based compensation expense			5,455				6,668
Tax benefit of stock options exercised			275				21
Other			458				651
Changes in operating assets and liabilities, net:
Billed and accrued receivables, net			22,779				4,380
Other current assets			(1,996	)			(1,678	)
Other noncurrent assets			(3,455	)			964
Accounts payable			(8,201	)			(1,911	)
Accrued employee compensation			1,534				3,374
Accrued liabilities			(5,389	)			(11,502	)
Current income taxes			(10,919	)			4,733
Deferred revenue			28,704				3,405
Other current and noncurrent liabilities			(2,093	)			(3,976	)
Net cash flows from operating activities			49,133				11,427
Cash flows from investing activities:
Purchases of property and equipment			(4,157	)			(2,246	)
Purchases of software and distribution rights			(6,375	)			(4,857	)
Alliance technical enablement expenditures			(4,423	)			(5,967	)
Proceeds from assets transferred under contractual obligations			—				1,050
Payments of earn-out obligations			—				(473	)
Net cash flows from investing activities			(14,955	)			(12,493	)
Cash flows from financing activities:
Proceeds from issuance of common stock			866				965
Proceeds from exercises of stock options			2,508				1,544
Excess tax benefit of stock options exercised			159				79
Purchases of common stock			(18,624	)			(15,000	)
Repurchase of restricted stock for tax withholdings			(517	)			(622	)
Payments on debt and capital leases			(1,306	)			(1,271	)
Distribution to noncontrolling interest			(1,232	)			—
Net cash flows from financing activities			(18,146	)			(14,305	)
Effect of exchange rate fluctuations on cash			1,953				5,391
Net increase (decrease) in cash and cash equivalents			17,985				(9,980	)
Cash and cash equivalents, beginning of period			125,917				112,966
Cash and cash equivalents, end of period		$	143,902			$	102,986
Supplemental cash flow information
Income taxes paid, net		$	20,886			$	10,497
Interest paid		$	1,238			$	2,576

The accompanying notes are an integral part of the condensed consolidated financial statements.

ACI WORLDWIDE, INC. AND SUBSIDIARIES

1. Condensed Consolidated Financial Statements

The unaudited condensed consolidated financial statements include the accounts of ACI Worldwide, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated. The condensed consolidated financial statements at September 30, 2010, and for the three and nine months ended September 30, 2010 and 2009, are unaudited and reflect all adjustments of a normal recurring nature, except as otherwise disclosed herein, which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the financial position and operating results for the interim periods. The condensed consolidated balance sheet as of December 31, 2009 is derived from the audited financial statements.

The condensed consolidated financial statements contained herein 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 fiscal year ended December 31, 2009, filed on February 26, 2010. Results for the three and nine months ended September 30, 2010, are not necessarily indicative of results that may be attained in the future.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Comprehensive Income

The Company’s comprehensive income for the three months ended September 30, 2010 and September 30, 2009 was $10.1 million and $9.0 million, respectively. The Company’s comprehensive income for the nine months ended September 30, 2010 and September 30, 2009 was $1.2 million and $8.3 million, respectively. The two components of comprehensive income are net income and foreign currency translation adjustments. The foreign currency translation adjustments for the three months ended September 30, 2010 and September 30, 2009 were $7.8 million and $1.2 million, respectively. The foreign currency translation adjustments for the nine months ended September 30, 2010 and September 30, 2009 were $1.1 million and $8.2 million, respectively. Accumulated other comprehensive loss included in the Company’s condensed consolidated balance sheet represents the accumulated foreign currency translation adjustment. Since the undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested, the components of accumulated other comprehensive loss have not been tax effected.

Note Payable Under Credit Facility

On September 29, 2006, the Company entered into a five year revolving credit facility with a syndicate of financial institutions, as lenders, providing for revolving loans and letters of credit in an aggregate principal amount not to exceed $150 million. The facility has a maturity date of September 29, 2011, at which time any principal amounts outstanding are due. Obligations under the facility are unsecured and uncollateralized, but are jointly and severally guaranteed by certain domestic subsidiaries of the Company. As of September 30, 2010, the revolving credit facility has been classified as current due to the maturity date being within 12 months.

Noncontrolling Interest

On September 21, 2010, the Company dissolved its partnership based in Madrid, Spain with Sistema 4B, S.A. (“Sistema”). As a result, the Company paid Sistema 1.0 million Euros (approximately $1.2 million) during the nine months ended September 30, 2010. Noncontrolling interest in this partnership of $1.4 million was included in other noncurrent liabilities as of December 31, 2009.

Recently Issued Accounting Standards

In September 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13 and ASU 2009-14, Revenue Recognition (Topic 605), Multiple Deliverable Revenue Arrangements, relating to revenue recognition for arrangements with multiple deliverables that do not fall under Accounting Standards Codification (“ASC”) 605-985. This guidance eliminates the requirement, for multiple element arrangements not subject to software accounting guidance, that all undelivered elements must have objective and reliable evidence of fair value before a company can recognize the portion of the overall arrangement fee that is attributable to items that already have been delivered. As a result, the new guidance may allow some companies to recognize revenue on transactions that involve multiple deliverables earlier than under current requirements. This guidance is effective for the Company on January 1, 2011. The Company is currently assessing the impact this guidance will have on its financial statements.

In April 2010, the FASB issued ASU 2010-17, Revenue Recognition-Milestone method (Topic 605), that designates the milestone method and acceptable attribution method for revenue recognition. This further clarifies the conditions in which a company can recognize revenue under this method. The Company is currently assessing the impact of this guidance on its financial statements.

Reclassification

During the nine months ended September 30, 2010, the Company refined the classification of its revenues in order to better conform to industry practice and to better reflect the results of the Company’s on-demand business. The Company’s presentation of revenues has been revised to separately disclose software hosting fees, which includes all revenues from hosting and on-demand arrangements. Previously, these revenues were primarily included in services revenue with a smaller portion included in maintenance fees and software license fees. As a result of this change in classification of revenues, the Company reclassified $0.3 million, $1.5 million and $8.1 million from software license fees, maintenance fees, and services, respectively, to software hosting fees in the accompanying condensed consolidated statement of operations for the three months ended September 30, 2009. The Company reclassified $1.3 million, $4.5 million and $24.8 million from software license fees, maintenance fees, and services, respectively, to software hosting fees in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2009.

These reclassifications have been made to prior periods to conform to the current period presentation. These reclassifications did not impact total revenues or net income for the prior period presented.

2. Revenue Recognition, Accrued Receivables and Deferred Revenue

Software License Fees. The Company recognizes software license fee revenue in accordance with ASC 605-985, Revenue Recognition: Software. For software license arrangements for which services rendered are not considered essential to the functionality of the software, the Company recognizes revenue upon delivery, provided (i) there is persuasive evidence of an arrangement, (ii) collection of the fee is considered probable and (iii) the fee is fixed or determinable. In most arrangements, vendor-specific objective evidence (“VSOE”) of fair value does not exist for the license element; therefore, the Company uses the residual method under ASC 605-985 to determine the amount of revenue to be allocated to the license element. Under ASC 605-985, the fair value of all undelivered elements, such as post contract customer support (maintenance or “PCS”) or other products or services, is deferred and subsequently recognized as the products are delivered or the services are performed, with the residual difference between the total arrangement fee and revenues allocated to undelivered elements being allocated to the delivered element.

When a software license arrangement includes services to provide significant modification or customization of software, those services are not separable from the software and are accounted for in accordance with ASC 605-35, Revenue Recognition: Long Term Construction Type Contracts generally referred to as contract accounting. Under contract accounting, the Company generally uses the percentage-of-completion method. Under the percentage-of-completion method, the Company records revenue for the software license fee and services over the development and implementation period, with the percentage of completion generally measured by the percentage of labor hours incurred to-date to estimated total labor hours for each contract. For those contracts subject to percentage-of-completion contract accounting, estimates of total revenue and profitability under the contract consider amounts due under extended payment terms. In certain cases, the Company provides its customers with extended payment terms whereby payment is deferred beyond when the services are rendered. In other projects, the Company provides its customer with extended payment terms that are refundable in the event certain milestones are not achieved or the project scope changes. The Company excludes revenues due on extended payment terms from its current percentage-of-completion computation until such time that collection of the fees becomes probable. In the event project profitability is assured and estimable within a range, percentage-of-completion revenue recognition is computed using the lowest level of profitability in the range. If the range of profitability is not estimable but some level of profit is assured, revenues are recognized to the extent direct and indirect costs are incurred until such time that project profitability can be estimated. In the event some level of profitability cannot be assured, completed-contract accounting is applied. If it is determined that a loss will result from the performance of a contract, the entire amount of the loss is recognized in the period in which it is determined that a loss will result.

For software license arrangements in which a significant portion of the fee is due more than 12 months after delivery or when payment terms are significantly beyond the Company’s standard business practice, the software license fee is deemed not to be fixed or determinable. For software license arrangements in which the fee is not considered fixed or determinable, the software license fee is recognized as revenue as payments become due and payable, provided all other conditions for revenue recognition have been met. For software license arrangements in which the Company has concluded that collection of the fees is not probable, revenue is recognized as cash is collected, provided all other conditions for revenue recognition have been met. In making the determination of collectability, the Company considers the creditworthiness of the customer, economic conditions in the customer’s industry and geographic location, and general economic conditions.

ASC 605-985 requires the seller of software that includes PCS to establish VSOE of fair value of the undelivered element of the contract in order to account separately for the PCS revenue. The Company establishes VSOE of the fair value of PCS by reference to stated renewals, expressed in dollar terms, or separate sales with consistent pricing of PCS expressed in percentage terms. In determining whether a stated renewal is not substantive, the Company considers factors such as whether the period of the initial PCS term is relatively long when compared to the term of the software license or whether the PCS renewal rate is significantly below the Company’s normal pricing practices. In determining whether PCS pricing is consistent, the Company considers the population of separate sales that are within a reasonably narrow range of the median within the identified market segment over the trailing 12 month period.

ASC 605-985 also requires the seller of software that includes services to establish VSOE of fair value of the undelivered element of the contract in order to account separately for the services revenue. The Company establishes VSOE of the fair value of services by reference to separate sales of comparable services with consistent pricing. In determining whether services pricing is consistent, the Company considers the population of separate sales that are within a reasonably narrow range of the median within the identified market segment over the trailing 12 month period.

For those software license arrangements that include customer-specific acceptance provisions, such provisions are generally presumed to be substantive and the Company does not recognize revenue until the earlier of the receipt of a written customer acceptance, objective demonstration that the delivered product meets the customer-specific acceptance criteria or the expiration of the acceptance period. The Company also defers the recognition of revenue on transactions involving less-established or newly released software products that do not have a history of successful implementation. The Company recognizes revenues on such arrangements upon the earlier of receipt of written acceptance or the first production use of the software by the customer. In the absence of customer-specific acceptance provisions, software license arrangements generally grant customers a right of refund or replacement only if the licensed software does not perform in accordance with its published specifications. If the Company’s product history supports an assessment by management that the likelihood of non-acceptance is remote, the Company recognizes revenue when all other criteria of revenue recognition are met.

For software license arrangements in which the Company acts as a sales agent for another company’s products, revenues are recorded on a net basis. These include arrangements in which the Company does not take title to the products, is not responsible for providing the product or service, earns a fixed commission, or assumes credit risk only to the extent of its commission. For software license arrangements in which the Company acts as a distributor of another company’s product, and in certain circumstances, modifies or enhances the product, revenues are recorded on a gross basis. These include arrangements in which the Company takes title to the products and is responsible for providing the product or service.

For software license arrangements in which the Company utilizes a third party distributor or sales agent, the Company recognizes revenue on a sell-in basis when business practices and operating history indicate that there is no risk of returns, rebates, or credits and there are no other risks related to the distributor or sales agents ability to honor payment or distribution commitments. For other arrangements in which any of the above factors indicate that there are risks of returns, rebates, or credits or any other risks related to the distributor or sales agents ability to honor payment or distribution commitments, the Company recognizes revenue on a sell-through basis.

For software license arrangements in which the Company permits the customer to receive unspecified future software products during the software license term, the Company recognizes revenue ratably over the license term, provided all other revenue recognition criteria have been met. For software license arrangements in which the Company grants the customer a right to exchange the original software product for specified future software products with more than minimal differences in features, functionality, and/or price, during the license term, revenue is recognized upon the earlier of delivery of the additional software products or at the time the exchange right lapses. For customers granted a right to exchange the original software product for specified future software products where the Company has determined price, feature, and functionality differences are minimal, the exchange right is accounted for as a like-kind exchange and revenue is recognized upon delivery of the currently licensed product. For software license arrangements in which the customer has the right to change or alternate its use of currently licensed products, revenue is recognized upon delivery of the first copy of all of the licensed products, provided all other revenue recognition criteria have been met. For software license arrangements in which the customer is charged variable software license fees based on usage of the product, the Company recognizes revenue as usage occurs over the term of the licenses, provided all other revenue recognition criteria have been met.

Certain of the Company’s software license arrangements include PCS terms that fail to achieve VSOE of fair value due to non-substantive renewal periods, or contain a range of possible non-substantive PCS renewal amounts. For these arrangements, VSOE of fair value of PCS does not exist and revenues for the software license, PCS and services, if applicable, are considered to be one accounting unit and are therefore recognized ratably over the longer of the contractual service term or PCS term once the delivery of both services has commenced. The Company typically classifies revenues associated with these arrangements in accordance with the contractually specified amounts, which approximate fair value assigned to the various elements, including software license fees, maintenance fees and services, if applicable.

This allocation methodology has been applied to the following amounts included in revenues in the condensed consolidated statements of operations from arrangements for which VSOE of fair value does not exist for each undelivered element (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Software license fees		$	14,553			$	3,328			$	26,335			$	10,425
Maintenance fees			2,349				1,230				5,507				3,957
Services			1,216				1,368				4,024				5,001
Total		$	18,118			$	5,926			$	35,866			$	19,383

Maintenance Fees. The Company typically enters into multi-year time-based software license arrangements that vary in length but are generally five years. These arrangements include an initial (bundled) PCS term of one year with subsequent renewals for additional years within the initial license period. For arrangements in which the Company looks to substantive renewal rates or separate sales with consistent pricing to evidence VSOE of fair value of PCS and in which the PCS renewal rate and term are substantive, VSOE of fair value of PCS is determined by reference to the stated renewal rate or by reference to the population of separate sales with consistent pricing. For these arrangements, PCS revenues are recognized ratably over the PCS term specified in the contract. In arrangements where VSOE of fair value of PCS cannot be determined (for example, a time-based software license with a duration of one year or less or when the range of possible PCS renewal amounts is not sufficiently narrow or is significantly below the Company’s normal pricing practices), the Company recognizes revenue for the entire arrangement ratably over the PCS term.

For those arrangements that meet the criteria to be accounted for under contract accounting, the Company determines whether VSOE of fair value exists for the PCS element. For those situations in which VSOE of fair value exists for the PCS element, PCS is accounted for separately and the balance of the arrangement is accounted for under ASC 605-985. For those arrangements in which VSOE of fair value does not exist for the PCS element all revenue is deferred until such time as the services are complete. Once services are complete, revenue is then recognized ratably over the remaining PCS period.

Services. The Company provides various professional services to customers, primarily project management, software implementation and software modification services. Revenues from arrangements to provide professional services are generally recognized as the related services are performed.

For those arrangements in which services revenue is deferred and the Company determines that the direct costs of services are recoverable, such costs are deferred and subsequently expensed in proportion to the related services revenue as it is recognized. For those arrangements that are accounted for under contract accounting, the Company accumulates and defers all direct and indirect costs allocable to the arrangement. For those arrangements that are not accounted for under contract accounting, the Company accumulates and defers all direct and incremental costs attributable to the arrangement.

Hosting. The Company’s hosting-related arrangements contain multiple products and services. As these arrangements generally do not contain a contractual right to take possession of the software at anytime during the hosting period without significant penalty, the Company applies the separation provisions of ASC 605-25, Revenue Recognition: Multiple Arrangements. The Company determines whether stand alone value exists for the delivered elements and whether reliable evidence of fair value exists for the undelivered elements of its hosting-related arrangements. For arrangements in which either of these criteria is not met, the elements do not qualify for treatment as separate units of accounting. These arrangements are considered to be one accounting unit and recognized under the proportional performance method, recognizing the slower of the proportional performance of all deliverables in the period.

Multiple Arrangements, The Company may execute more than one contract or agreement with a single customer. The separate contracts or agreements may be viewed as one multiple-element arrangement or separate agreements for revenue recognition purposes. The Company evaluates whether the agreements were negotiated as part of a single project, whether the products or services are interrelated or interdependent, whether fees in one arrangement are tied to performance in another arrangement, and whether elements in one arrangement are essential to the functionality in another arrangement in order to reach appropriate conclusions regarding whether such arrangements are related or separate. The conclusions reached can impact the timing of revenue recognition related to those arrangements.

Accrued Receivables. Accrued receivables represent amounts earned that are to be billed in the near future. Included in accrued receivables are services and software hosting revenues earned in the current period but billed in the following period as well as software license fee revenues that are determined to be fixed and determinable that are to be billed in future periods.

Deferred Revenue. Deferred revenue includes amounts currently due and payable from customers, and payments received from customers, for software licenses, maintenance and/or services in advance of recording the related revenue.

3. Stock-Based Compensation Plans

Employee Stock Purchase Plan

Under the Company’s 1999 Employee Stock Purchase Plan, as amended (the “ESPP”), a total of 1,500,000 shares of the Company’s common stock have been reserved for issuance to eligible employees. Participating employees are permitted to designate up to the lesser of $25,000 or 10% of their annual base compensation for the purchase of common stock under the ESPP. Purchases under the ESPP are made one calendar month after the end of each fiscal quarter. The price for shares of common stock purchased under the ESPP is 85% of the stock’s fair market value on the last business day of the three-month participation period. Shares issued under the ESPP during the nine months ended September 30, 2010 and 2009 totaled 45,642 and 59,298, respectively.

Stock-Based Payments Pursuant ASC 718

During the nine months ended September 30, 2010, pursuant to the Company’s 2005 Equity and Performance Incentive Plan, as amended (“2005 Incentive Plan”) the Company granted stock options.

A summary of stock options issued pursuant to the Company’s stock incentive plans is as follows:

										Weighted-
						Weighted-				Average				Aggregate
						Average				Remaining				Intrinsic Value of
		Number of				Exercise				Contractual				In-the-Money
		Shares				Price ($)				Term (Years)				Options ($)
Outstanding as of December 31, 2009			3,556,873			$	20.72
Granted			95,125				18.96
Exercised			(186,563	)			13.45
Forfeited			(106,625	)			18.11
Expired			(12,674	)			31.14
Outstanding as of September 30, 2010			3,346,136			$	21.12				5.46			$	12,147,363
Exercisable as of September 30, 2010			2,249,134			$	21.57				4.74			$	8,920,431

As of September 30, 2010, the Company expects that 94.0% of the options will vest over the vesting period.

The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2010 and 2009 was $9.39 and $8.55, respectively. The Company issued treasury shares for the exercise of stock options during the nine months ended September 30, 2010 and 2009. The total intrinsic value of stock options exercised during the nine months ended September 30, 2010 and 2009 was $1.2 million and $0.7 million, respectively.

There were no options granted during the three months ended September 30, 2010. The fair value of options granted during the nine months ended September 30, 2010 and 2009 and the three months ended September 30, 2009 was estimated on the date of grant using the Black-Scholes option-pricing model, a pricing model acceptable under ASC 718, Compensation-Stock Compensation, with the following weighted-average assumptions:

		Nine Months Ended				Three Months Ended				Nine Months Ended
		September 30, 2010				September 30, 2009				September 30, 2009
Expected life (years)			5.63				6.25				6.03
Interest rate			2.3	%			3.0	%			3.1	%
Volatility			51.7	%			55.1	%			54.4	%
Dividend yield			—				—				—

Expected volatilities are based on the Company’s historical common stock volatility derived from historical stock price data for historical periods commensurate with the options’ expected life. The expected life of options granted represents the period of time that options granted are expected to be outstanding. The Company used the simplified method for determining the expected life as permitted under ASC 718. The simplified method was used as the historical data did not provide a reasonable basis upon which to estimate the expected term. This is due to the extended period during which individuals were unable to exercise options while the Company was not current with its filings with the Securities and Exchange Commission (“SEC”). The risk-free interest rate is based on the implied yield currently available on United States Treasury zero coupon issues with a term equal to the expected term at the date of grant of the options. The expected dividend yield is zero as the Company has historically paid no dividends and does not anticipate dividends to be paid in the future.

Pursuant to the Company’s 2005 Incentive Plan, the Company has granted LTIP performance shares. These LTIP performance shares are earned, if at all, based upon the achievement, over a specified period that must not be less than one year and is typically a three-year period (the “Performance Period”), of performance goals related to (i) the compound annual growth over the Performance Period in the sales for the Company as determined by the Company (“sales growth”), and (ii) the cumulative operating income over the Performance Period as determined by the Company (“contribution margin”). In no event will any of the LTIP performance shares become earned if the Company’s sales growth or contribution margin is below a predetermined minimum threshold level at the conclusion of the Performance Period. Assuming achievement of the predetermined sales growth and contribution margin threshold levels, up to 200% of the LTIP Performance Shares may be earned upon achievement of performance goals equal to or exceeding the maximum target levels for the performance goals over the Performance Period. Management must evaluate, on a quarterly basis, the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment in order to determine the amount of compensation costs to record in the condensed consolidated financial statements. Through September 30, 2010, the Company has accrued compensation costs assuming an attainment level of 100%.

A summary of nonvested LTIP Performance shares outstanding as of September 30, 2010 and changes during the period are as follows:

		Number of				Weighted-
		Shares at				Average
		Expected				Grant Date
Nonvested LTIP Performance Shares		Attainment				Fair Value ($)
Nonvested as of December 31, 2009			216,150			$	16.52
Granted			12,120				20.76
Forfeited			(23,700	)			16.52
Nonvested as of September 30, 2010			204,570			$	16.77

Pursuant to the Company’s 2005 Incentive Plan, the Company has granted restricted share awards (“RSAs”). The awards granted during the nine months ended September 30, 2010 have a requisite service period of three years and vest in increments of 33% on the anniversary dates of the grants. The awards granted prior to December 31, 2009 have a requisite service period of four years and vest in increments of 25% on the anniversary dates of the grants. Under each arrangement, stock is issued without direct cost to the employee. The Company estimates the fair value of the RSAs based upon the market price of the Company’s stock at the date of grant. The RSA grants provide for the payment of dividends payable on the Company’s common stock, if any, to the participant during the requisite service period (vesting period) and the participant has voting rights for each share of common stock. The Company recognizes compensation expense for RSAs on a straight-line basis over the requisite service period.

A summary of nonvested RSAs as of September 30, 2010 and changes during the period are as follows:

		Number of
		Restricted				Weighted-Average Grant
Nonvested Restricted Share Awards		Share Awards				Date Fair Value ($)
Nonvested as of December 31, 2009			314,548			$	17.94
Granted			16,500				19.65
Vested			(89,764	)			17.89
Forfeited			(49,686	)			18.59
Nonvested as of September 30, 2010			191,598			$	17.95

During the nine months ended September 30, 2010, 89,764 of the RSAs vested. The Company withheld 28,632 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

As of September 30, 2010, there were unrecognized compensation costs of $4.7 million related to nonvested stock options, $2.6 million related to the nonvested RSAs and $2.4 million related to the LTIP performance shares, which the Company expects to recognize over weighted-average periods of 1.8 years, 2.0 years and 2.2 years, respectively.

The Company recorded stock-based compensation expenses in accordance with ASC 718 for the three months ended September 30, 2010 and 2009 related to stock options, LTIP Performance Shares, RSAs, and the ESPP of $1.9 million and $2.0 million, with corresponding tax benefits of $0.7 million and $0.8 million, respectively. The Company recorded stock-based compensation expenses in accordance with ASC 718 for the nine months ended September 30, 2010 and 2009 related to stock options, LTIP Performance Shares, RSAs, and the ESPP of $5.5 million and $6.7 million, with corresponding tax benefits of $2.0 million and $2.5 million, respectively. Tax benefits in excess of the option’s grant date fair value under ASC 718 are classified as financing cash flows. No stock-based compensation costs were capitalized during the nine months ended September 30, 2010 and 2009. Estimated forfeiture rates, stratified by employee classification, have been included as part of the Company’s calculations of compensation costs. The Company recognizes compensation costs for stock option awards, which vest with the passage of time with only service conditions on a straight-line basis over the requisite service period.

Cash received from option exercises for the nine months ended September 30, 2010 and 2009 was $2.5 million and $1.5 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $0.4 million and $0.2 million for the nine months ended September 30, 2010 and 2009, respectively.

4. Goodwill

Changes in the carrying amount of goodwill during the nine months ended September 30, 2010, consisting of foreign currency translation adjustments, were as follows (in thousands):

		Americas				EMEA				Asia/Pacific				Total
Gross Balance prior to December 31, 2009		$	187,241			$	46,846			$	18,195			$	252,282
Total impairment prior to December 31, 2009			(47,432	)			—				—				(47,432	)
Balance as of December 31, 2009			139,809				46,846				18,195				204,850
Foreign currency translation adjustments			52				(1,532	)			1,245				(235	)
Balance as of September 30, 2010		$	139,861			$	45,314			$	19,440			$	204,615

5. Software and Other Intangible Assets

At September 30, 2010, software net book value totaling $26.5 million, net of $45.8 million of accumulated amortization, includes software marketed for external sale of $14.4 million. The remaining software net book value of $12.1 million is comprised of various software that has been acquired or developed for internal use.

Quarterly amortization of software marketed for external sale is computed using the greater of the ratio of current revenues to total estimated revenues expected to be derived from the software or the straight-line method over an estimated useful life of three to six years. Software for resale amortization expense recorded in the three months ended September 30, 2010 and 2009 totaled $1.5 million and $1.4 million, respectively. Software for resale amortization expense recorded in the nine months ended September 30, 2010 and 2009 totaled $4.5 million and $4.2 million, respectively. These software amortization expense amounts are reflected in cost of software license fees in the condensed consolidated statements of operations. Amortization of software for internal use of $1.8 million and $1.5 million for the three months ended September 30, 2010 and 2009, respectively, is included in depreciation and amortization in the condensed consolidated statements of operations. Amortization of software for internal use of $5.4 million and $3.9 million for the nine months ended September 30, 2010 and 2009, respectively, is included in depreciation and amortization in the condensed consolidated statements of operations.

The carrying amount and accumulated amortization of the Company’s other intangible assets that were subject to amortization at each balance sheet date are as follows (in thousands):

		September 30, 2010												December 31, 2009
		Gross												Gross
		Carrying				Accumulated								Carrying				Accumulated
		Amount				Amortization				Net Balance				Amount				Amortization				Net Balance
Customer relationships		$	36,534			$	(17,846	)		$	18,688			$	41,636			$	(19,727	)		$	21,909
Purchased contracts			10,791				(8,059	)			2,732				11,179				(7,030	)			4,149
Trademarks and tradenames			1,083				(398	)			685				2,526				(1,711	)			815
Covenant not to compete			83				(58	)			25				74				(41	)			33
		$	48,491			$	(26,361	)		$	22,130			$	55,415			$	(28,509	)		$	26,906

Other intangible assets amortization expense recorded in the three months ended September 30, 2010 and 2009 totaled $1.6 million and $1.5 million, respectively. Other intangible assets amortization expense recorded in the nine months ended September 30, 2010 and 2009 totaled $4.7 million and $4.5 million, respectively.

Based on capitalized software and other intangible assets at September 30, 2010, estimated amortization expense for future fiscal years is as follows (in thousands):

						Other
						Intangible
		Software				Assets
Fiscal Year Ending December 31,		Amortization				Amortization
Remainder of 2010		$	3,378			$	1,585
2011			11,315				5,987
2012			8,051				4,914
2013			2,786				4,663
2014			932				2,874
Thereafter			—				2,107
Total		$	26,462			$	22,130

6. Derivative Instruments and Hedging Activities

The Company maintains an interest-rate risk-management strategy that uses derivative instruments to mitigate the risk of variability in future cash flows (and related interest expense) associated with currently outstanding and forecasted floating rate bank borrowings due to changes in the benchmark interest rate (“LIBOR”).

As of September 30, 2010, the Company had $75 million of outstanding variable-rate borrowings under a 5-year $150 million revolving facility that matures on September 29, 2011. The variable-rate benchmark was 1-month LIBOR. The Company had two interest-rate swaps to convert its existing and forecasted variable-rate borrowing needs to fixed rates that expired on October 4, 2010.

During the nine months ended September 30, 2009, the Company elected 1-month LIBOR as the variable-rate benchmark for its revolving facility. The Company also amended its interest rate swap on the $75 million notional amount from 3-month LIBOR to 1-month LIBOR. This basis swap did not impact the maturity date of or the accounting for the interest rate swap.

Although the Company believes that these interest rate swaps mitigated the risk of variability in future cash flows associated with existing and forecasted variable rate borrowings during the term of the swaps, neither swap qualified for hedge accounting. Accordingly, the loss resulting from the change in fair value of the interest rate swaps for the three months ended September 30, 2010 and 2009 of less than $0.1 million and $0.7 million, respectively, is reflected as expense in other, net in the accompanying condensed consolidated statements of operations. The loss resulting from the change in fair value of the interest rate swaps for the nine months ended September 30, 2010 and 2009 of $0.2 million and $1.4 million, respectively, is reflected as expense in other, net in the accompanying condensed consolidated statements of operations.

Changes in the fair value of the interest rate swaps were as follows (in thousands):

		Asset
		(Liability)
Beginning fair value as of December 31, 2009		$	(5,271	)
Net settlement payments			4,600
Loss recognized in earnings			(153	)
Ending fair value as of September 30, 2010		$	(824	)

As of September 30, 2010, the $0.8 million fair value liability is recorded in other current liabilities in the accompanying condensed consolidated balance sheet.

Net settlements are measured monthly and paid monthly under the $75 million notional amount interest rate swap and paid quarterly under the $50 million notional amount interest rate swap. The net settlements are recorded in other, net in the accompanying condensed consolidated statements of operations. The swap agreements expired on October 4, 2010 and the entire $0.8 million fair value was paid by the Company subsequent to September 30, 2010.

7. Fair Value of Financial and Non-financial Instruments

Effective January 1, 2008, the Company adopted the provisions of ASC 820, Fair Value Measurements and Disclosures, for financial assets and financial liabilities. Effective January 1, 2009, the Company adopted the provisions of ASC 820 for non-financial assets and non-financial liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

•

Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 Inputs — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

•

Level 3 Inputs — Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Derivatives. Derivatives are reported at fair value utilizing Level 2 Inputs. The Company utilizes valuation models prepared by a third-party with observable market data inputs to estimate fair value of its interest rate swaps. The valuation technique is an income approach and the key input used is the LIBOR swap rate, which is observable at commonly quoted intervals for the full term of the swap.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2010 and December 31, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands):

		Fair Value Measurements at Reporting Date Using
		Quoted Prices
		in Active				Significant
		Markets for				Other				Significant
		Identical				Observable				Unobservable
		Assets				Inputs				Inputs
Description		(Level 1)				(Level 2)				(Level 3)
Derivative liabilities		$	—			$	5,271			$	—
Total liabilities as of December 31, 2009		$	—			$	5,271			$	—
Derivative liabilities		$	—			$	824			$	—
Total liabilities as of September 30, 2010		$	—			$	824			$	—

Certain non-financial assets and non-financial liabilities measured at fair value on a recurring basis include reporting units measured at fair value in the first step of a goodwill impairment test. Certain non-financial assets measured at fair value on a non-recurring basis include non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, as well as intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.

The Company pays interest quarterly on its revolving credit facility based upon the LIBOR rate plus a margin ranging from 0.625% to 1.375%, the margin being dependent upon the Company’s total leverage ratio at the end of the quarter. As of September 30, 2010, the fair value of the Company’s revolving credit facility approximates its carrying value.

8. Corporate Restructuring and Other Reorganization Charges

Changes in the liability for corporate restructuring charges during the nine months ended September 30, 2010 were as follows (in thousands):

		Termination Benefits
Balance as of December 31, 2009		$	312
Amounts paid during the period			(312	)
Balance as of September 30, 2010		$	—

As of December 31, 2009, the liabilities were classified as short-term liabilities in accrued employee compensation in the accompanying condensed consolidated balance sheets. This balance was paid during the nine months ended September 30, 2010.

9. Common Stock, Treasury Stock and Earnings (Loss) Per Share

The Company’s board of directors has approved a stock repurchase program authorizing the Company, from time to time as market and business conditions warrant, to acquire up to $210 million of its common stock. Under the program to date, the Company has purchased approximately 8,082,180 shares for approximately $187.1 million. During the nine months ended September 30, 2010, the Company purchased 1.0 million shares of common stock under this repurchase plan for approximately $18.6 million. The maximum remaining dollar value of shares authorized for purchase under the stock repurchase program was approximately $22.9 million as of September 30, 2010.

Earnings (loss) per share is computed in accordance with ASC 260, Earnings per Share. Basic earnings (loss) per share is computed on the basis of weighted average outstanding common shares. Diluted earnings (loss) per share is computed on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options and other outstanding dilutive securities.

The following table reconciles the average share amounts used to compute both basic and diluted loss per share (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Weighted average share outstanding:
Basic weighted average shares outstanding			33,244				34,012				33,670				34,492
Add: Dilutive effect of stock options, restricted stock awards and other dilutive securities			236				158				237				183
Diluted weighted average shares outstanding			33,480				34,170				33,907				34,675

For the three and nine months ended September 30, 2010 and 2009, 5.5 million and 6.1 million, respectively, options to purchase shares, restricted share awards, common stock warrants and contingently issuable shares were excluded from the diluted earnings per share computation as their effect would be anti-dilutive.

10. Other Income (Expense), net

Other, net is comprised of the following items (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Foreign currency transaction gain (losses)		$	(1,456	)		$	1,055			$	(3,078	)		$	(4,032	)
Loss on interest rate swap			(16	)			(653	)			(153	)			(1,420	)
Gain on transfer of assets under contractual obligations			—				—				—				1,049
Other			(84	)			(386	)			(221	)			(316	)
Total		$	(1,556	)		$	16			$	(3,452	)		$	(4,719	)

11. Segment Information

The Company’s chief operating decision maker, together with other senior management personnel, currently focus their review of consolidated financial information and the allocation of resources based on reporting of operating results, including revenues and operating income, for the geographic regions of the Americas, Europe/Middle East/Africa (“EMEA”) and Asia/Pacific. The Company’s products are sold and supported through distribution networks covering these three geographic regions, with each distribution network having its own sales force. The Company supplements its distribution networks with independent reseller and/or distributor arrangements. As such, the Company has concluded that its three geographic regions are its operating segments.

The Company’s chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and operating income (loss) by geographical region.

The Company allocated segment support expenses such as global product delivery, business operations and management based upon percentage of revenue per segment. Corporate costs are allocated as a percentage of the headcount by segment. The following is selected segment financial data for the periods indicated (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Revenues:
Americas		$	49,950			$	58,730			$	146,451			$	154,892
EMEA			35,067				35,159				97,446				93,881
Asia/Pacific			12,000				10,572				33,286				31,071
		$	97,017			$	104,461			$	277,183			$	279,844
Operating income (loss):
Americas		$	7,594			$	12,225			$	17,482			$	19,846
EMEA			3,928				2,277				4,145				(6,063	)
Asia/Pacific			(4,134	)			(2,559	)			(10,778	)			(7,183	)
		$	7,388			$	11,943			$	10,849			$	6,600

		September 30,				December 31,
		2010				2009
Total assets:
Americas — United States		$	326,015			$	345,304
Americas — Other			23,044				15,718
EMEA			178,227				187,356
Asia/Pacific			54,107				41,665
		$	581,393			$	590,043

No single customer accounted for more than 10% of the Company’s consolidated revenues during the three and nine months ended September 30, 2010 and 2009. Aggregate revenues attributable to customers in the United Kingdom accounted for 10.8% of the Company’s consolidated revenues during the three months ended September 30, 2010. No country outside the United States accounted for more than 10% of the Company’s consolidated revenues during the three and nine months ended September 30, 2010 and 2009.

12. Income Taxes

The effective tax rate for the three months ended September 30, 2010 and 2009 was 58.3% and 33.0%, respectively. The effective tax rate for the nine months ended September 30, 2010 and 2009 was 98.5% and 93.2%, respectively. The effective tax rate for the three months ended September 30, 2009 was positively impacted by tax rate differentials in various countries in which the Company operates. The effective tax rate for the nine months ended September 30, 2009 was positively impacted by a release of an unrecognized tax benefit of $1.6 million. The effective tax rate in all four periods is negatively impacted by the Company’s inability to recognize income tax benefits during the period on losses sustained in certain tax jurisdictions where the future utilization of the losses are uncertain, and by the recognition of tax expense associated with the transfer of certain intellectual property rights from U.S. to non-U.S. entities.

The amount of unrecognized tax benefits for uncertain tax positions was $11.2 million as of September 30, 2010 and $10.9 million as of December 31, 2009, excluding related liabilities for interest and penalties of $2.2 million as of September 30, 2010 and $2.0 million as of December 31, 2009.

The Company believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease within the next 12 months by approximately $6.5 million, due to the settlement of various audits and the expiration of statutes of limitation.

13. Commitments and Contingencies

Legal Proceedings

From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. The Company is not currently a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, the Company believes would be likely to have a material adverse effect on the Company’s financial condition or results of operations.

14. International Business Machines Corporation Alliance

During the three months ended September 30, 2010 and 2009, the Company incurred $2.2 million and $3.7 million of costs, respectively, related to fulfillment of the technical enablement milestones under the International Business Machines Corporation (“IBM”) Master Alliance Agreement, as amended (the “Alliance”). During the nine months ended September 30, 2010 and 2009, the Company incurred $7.6 million and $9.4 million of costs, respectively, related to fulfillment of the technical enablement milestones. The reimbursement of these costs was recorded as a reduction of the Alliance agreement liability and a reduction in capitalizable costs under ASC 985-20, Software — Cost of Software to be Sold, Leased, or Marketed, in the accompanying condensed consolidated balance sheets and a reduction of operating expenses in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2010 and 2009. As of September 30, 2010 and December 31, 2009, $20.7 million was refundable subject to achievement of future milestones.

Changes in the Alliance agreement liability were as follows (in thousands):

		Alliance
		Agreement
		Liability
Balance as of December 31, 2009		$	32,487
Costs related to fulfillment of technical enablement milestones			(7,577	)
Balance as of September 30, 2010		$	24,910

Of the $24.9 million Alliance agreement liability, $4.2 million is current and $20.7 million is non-current in the accompanying condensed consolidated balance sheet as of September 30, 2010.

Of the $32.5 million Alliance agreement liability, $10.5 million is current and $22.0 million is non-current in the accompanying condensed consolidated balance sheet as of December 31, 2009.

15. Assets of Businesses Transferred Under Contractual Arrangements

On September 29, 2006, the Company entered into an agreement whereby certain assets and liabilities related to the Company’s Messaging Direct business and WorkPoint product line were legally conveyed to an unrelated party for a total selling price of $3.0 million to be paid in annual installments through 2010. The note receivable was not recorded due to uncertainty of collection. During the nine months ended September 30, 2009, the Company sold its right to further payments on the note receivable to a third-party for $1.0 million, which was recorded as a pretax gain.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. Generally, forward-looking statements do not relate strictly to historical or current facts and may include words or phrases such as “believes,” “will,” “expects,” “anticipates,” “intends,” and words and phrases of similar impact. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.

Forward-looking statements in this report include, but are not limited to, statements regarding future operations, business strategy, business environment and key trends, as well as statements related to expected financial and other benefits from our organizational restructuring activities. Many of these factors will be important in determining our actual future results. Any or all of the forward-looking statements in this report may turn out to be incorrect. They may be based on inaccurate assumptions or may not account for known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from those expressed or implied in any forward-looking statements, and our business, financial condition and results of operations could be materially and adversely affected. In addition, we disclaim any obligation to update any forward-looking statements after the date of this report, except as required by law.

All of the foregoing forward-looking statements are expressly qualified by the risk factors discussed in our filings with the Securities and Exchange Commission. Such factors include, but are not limited to, risks related to the global financial crisis, restrictions and other financial covenants in our credit facility, volatility and disruption of the capital and credit markets, our restructuring efforts, the restatement of our financial statements, consolidation in the financial services industry, changes in the financial services industry, the accuracy of backlog estimates, the cyclical nature of our revenue and earnings, exposure to unknown tax liabilities, volatility in our stock price, risks from operating internationally, including fluctuations in currency exchange rates, increased competition, our offshore software development activities, the performance of our strategic product, BASE24-eps, the maturity of certain products, our strategy to migrate customers to our next generation products, ratable or deferred recognition of certain revenue associated with customer migrations and the maturity of certain of our products, demand for our products, failure to obtain renewals of customer contracts or to obtain such renewals on favorable terms, delay or cancellation of customer projects or inaccurate project completion estimates, business interruptions or failure of our information technology and communication systems, our alliance with International Business Machines Corporation (“IBM”), our outsourcing agreement with IBM, the complexity of our products and services and the risk that they may contain hidden defects or be subjected to security breaches or viruses, compliance of our products with applicable governmental regulations and industry standards, our compliance with privacy regulations, the protection of our intellectual property in intellectual property litigation, future acquisitions and investments and litigation. The cautionary statements in this report expressly qualify all of our forward-looking statements.

The following discussion should be read together with our financial statements and related notes contained in this report and with the financial statements and related notes and Management’s Discussion & Analysis in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed February 26, 2010. Results for the three and nine months ended September 30, 2010, are not necessarily indicative of results that may be attained in the future.

Overview

We develop, market, install and support a broad line of software products and services primarily focused on facilitating electronic payments. In addition to our own products, we distribute, or act as a sales agent for, software developed by third parties. Our products are sold and supported through distribution networks covering three geographic regions — the Americas, Europe/Middle East/Africa (“EMEA”) and Asia/Pacific. Each distribution network has its own sales force and supplements its sales force with independent reseller and/or distributor networks. Our products and services are used principally by financial institutions, retailers and electronic payment processors, both in domestic and international markets. Accordingly, our business and operating results are influenced by trends such as information technology spending levels, the growth rate of the electronic payments industry, mandated regulatory changes, and changes in the number and type of customers in the financial services industry. Our products have historically been marketed under the ACI Worldwide brand. In September 2010, we launched a new ACI Payment Systems brand for our products to reflect our focus on the broader payments industry and to emphasize our position as a trusted provider in the payments market.

We derive a majority of our revenues from non-domestic operations and believe our greatest opportunities for growth exist largely in international markets. Refining our global infrastructure is a critical component of driving our growth. We have launched a globalization strategy which includes elements intended to streamline our supply chain and provide low-cost centers of expertise to support a growing international customer base. In fiscal 2006, we established a new subsidiary in Ireland to serve as the focal point for certain international product development and commercialization efforts. This subsidiary oversees remote software development operations in Romania and elsewhere and manages certain of our intellectual property rights. During 2010 and 2009, we have continued our efforts to try and take a direct selling and support strategy in certain countries where historically we have used third-party distributors to represent our products in an effort to develop closer relationships with our customers and develop a stronger overall position in those countries.

In September 2009, we announced the ACI Agile Payments Solution strategy, the vision for our payments products. The vision recognizes the long term direction to migrate payments processing from the current discrete structures to a common service-based delivery mechanism. While we are evolving our service offerings into ACI Agile Payments Solution reference architecture, financial organizations can benefit from the enterprise capabilities of our existing product suite and start moving towards an agile payments environment.

In March 2008, we announced to customers the timelines for maturing many of our retail payment engines products. These products were developed or acquired by ACI over several years and include BASE24, TRANS24-eft, ON/2, OpeN/2 and ASx. Our strategy is to help customers migrate to our next-generation BASE24-eps solution as we discontinue standard support for previous products. This will allow customers to take advantage of our newest technology and allow us to more efficiently focus our research and development investment. Towards the end of 2008, we also announced to customers the timelines for maturing many of our back office service products. Some of these back office services are now provided by ACI Issuer and ACI Acquirer, two products which were obtained through the Euronet Essentis Limited acquisition, as well as the ANDiS product accessed through our distribution agreement with Bell Identification B.V.

As a result of the announced timelines for maturing certain of our retail payment engines products, we may experience a temporary decline in generally accepted accounting principles (“GAAP”) revenue recognition. As customers elect to renew, extend the term of, or add capacity or functionality to certain of our maturing retail payment engines products, we expect a higher proportion of any up-front payments to be recognized ratably over time rather than as a lump sum. As a result, we expect a temporary decline in our initial license fee (“ILF”) revenue and a corresponding increase in our monthly license fee (“MLF”) revenue during this period. We also expect a corresponding increase to current deferred revenue.

Additionally, as customers undertake migration projects to our next-generation BASE24-eps solution, we would expect a higher proportion of our revenue to be deferred pending completion of the migration project. Depending on specific circumstances, revenues subject to deferral may include license, capacity, maintenance, and services fees. For those revenues subject to deferral, we would expect a corresponding increase to deferred revenue.

Key trends that currently impact our strategies and operations include:

•

Global Financial Markets Uncertainty. The continuing uncertainty in the global financial markets has negatively impacted general business conditions. It is possible that a weakening economy could adversely affect our customers, their purchasing plans, or even their solvency, but we cannot predict whether or to what extent this will occur. We have diversified counterparties and customers, but we continue to monitor our counterparty and customer risks closely. While the effects of the economic conditions in the future are not predictable, we believe our global presence, the breadth and diversity of our service offerings and our enhanced expense management capabilities position us well in a slower economic climate. Market analysts, such as Boston Consulting Group, indicate that banks now recognize the importance of payments to their business, so providing services for that aspect of the business is of less risk than for other aspects of their business.

•

Availability of Credit. There have been significant disruptions in the capital and credit markets during the past two years and many lenders and financial institutions have reduced or ceased to provide funding to borrowers. The availability of credit, confidence in the entire financial sector, and volatility in financial markets have been adversely affected. These disruptions are likely to have some impact on all institutions in the U.S. banking and financial industries, including our lenders and the lenders of our customers. While the Federal Reserve Bank and other Central Banks have provided liquidity into the banking system there is still uncertainty over the strength of short-term borrowing markets and other capital markets. Reduced liquidity in the markets could increase financing costs or reduce the availability of funds to finance our existing operations as well as those of our customers. We are not currently dependent upon short-term funding, and the limited availability of credit in the market has not affected our revolving credit facility or our liquidity or materially impacted our funding costs.

•

Increasing electronic payment transaction volumes. Electronic payment volumes continue to increase around the world, taking market share from traditional cash and check transactions. A Boston Consulting Group 2009 report predicts that payments globally will grow at 8% per annum between 2008 and 2016, with varying growth rates based on the type of payment and part of the world. We leverage the growth in transaction volumes through the licensing of new systems to customers whose older systems cannot handle increased volume and through the licensing of capacity upgrades to existing customers.

•

Increasing competition. The electronic payments market is highly competitive and subject to rapid change. Our competition comes from in-house information technology departments, third-party electronic payment processors and third-party software companies located both within and outside of the United States. Many of these companies are significantly larger than us and have significantly greater financial, technical and marketing resources. As electronic payment transaction volumes increase, third-party processors tend to provide competition to our solutions, particularly among customers that do not seek to differentiate their electronic payment offerings. As consolidation in the financial services industry continues, we anticipate that competition for those customers will intensify.

•

Adoption of open systems technology. In an effort to leverage lower-cost computing technologies and current technology staffing and resources, many financial institutions, retailers and electronic payment processors are seeking to transition their systems from proprietary technologies to open technologies. Our continued investment in open systems technologies is, in part, designed to address this demand.

•

Electronic payments fraud and compliance. As electronic payment transaction volumes increase, criminal elements continue to find ways to commit a growing volume of fraudulent transactions using a wide range of techniques. Financial institutions, retailers and electronic payment processors continue to seek ways to leverage new technologies to identify and prevent fraudulent transactions. Due to concerns with international terrorism and money laundering, financial institutions in particular are being faced with increasing scrutiny and regulatory pressures. We continue to see opportunity to offer our fraud detection solutions to help customers manage the growing levels of electronic payment fraud and compliance activity.

•

Adoption of smartcard technology. In many markets, card issuers are being required to issue new cards with embedded chip technology. Chip-based cards are more secure, harder to copy and offer the opportunity for multiple functions on one card (e.g. debit, credit, electronic purse, identification, health records, etc.). The EMV standard for issuing and processing debit and credit card transactions has emerged as the global standard, with many regions throughout the world working on EMV rollouts. The primary benefit of EMV deployment is a reduction in electronic payment fraud, with the additional benefit that the core infrastructure necessary for multi-function chip cards is being put in place (e.g., chip card readers in ATM’s and POS devices) allowing the deployment of other technologies like contactless. We are working with many customers around the world to facilitate EMV deployments, leveraging several of our solutions.

•

Single Euro Payments Area (“SEPA”). The SEPA, primarily focused on the European Economic Community and the United Kingdom, is designed to facilitate lower costs for cross-border payments and reduce timeframes for settling electronic payment transactions. Our retail and wholesale banking solutions facilitate key functions that help financial institutions address these mandated regulations.

•

Financial institution consolidation. Consolidation continues on a national and international basis, as financial institutions seek to add market share and increase overall efficiency. Such consolidations have increased, and may continue to increase, in their number, size and market impact as a result of the global economic crisis and the financial crisis affecting the banking and financial industries. There are several potential negative effects of increased consolidation activity. Continuing consolidation of financial institutions may result in a smaller number of existing and potential customers for our products and services. Consolidation of two of our customers could result in reduced revenues if the combined entity were to negotiate greater volume discounts or discontinue use of certain of our products. Additionally, if a non-customer and a customer combine and the combined entity in turn decides to forego future use of our products, our revenue would decline. Conversely, we could benefit from the combination of a non-customer and a customer when the combined entity continues use of our products and, as a larger combined entity, increases its demand for our products and services. We tend to focus on larger financial institutions as customers, often resulting in our solutions being the solutions that survive in the consolidated entity.

•

Electronic payments convergence. As electronic payment volumes grow and pressures to lower overall cost per transaction increase, financial institutions are seeking methods to consolidate their payment processing across the enterprise. We believe that the strategy of using service-oriented-architectures to allow for re-use of common electronic payment functions such as authentication, authorization, routing and settlement will become more common. Using these techniques, financial institutions will be able to reduce costs, increase overall service levels, enable one-to-one marketing in multiple bank channels, leverage volumes for improved pricing and liquidity, and manage enterprise risk. Our product development strategy is, in part, focused on this trend, by creating integrated payment functions that can be re-used by multiple bank channels, across both the consumer and wholesale bank. While this trend presents an opportunity for us, it may also expand the competition from third-party electronic payment technology and service providers specializing in other forms of electronic payments. Many of these providers are larger than us and have significantly greater financial, technical and marketing resources.

The banking, financial services and payments industries have come under increased scrutiny from federal, state and foreign lawmakers and regulators in response to the crises in the financial markets and the global recession. In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law July 21, 2010, represents a comprehensive overhaul of the U.S. financial services industry and requires the implementation of many new regulations that will have a direct impact on our customers and potential. These regulatory changes may create both opportunities and challenges for us. The application of the new regulations on our customers could create an opportunity for us to market our product capabilities and the flexibility of our solutions to assist our customers in addressing these regulations. At the same time, these regulatory changes may have an adverse impact on our operations and our financial results as we adjust our activities in light of increased compliance costs and customer requirements. It is currently too difficult to predict the actual extent to which the Dodd-Frank Act or the resulting regulations will impact our business and the businesses of our current and potential customers.

Several other factors related to our business may have a significant impact on our operating results from year to year. For example, the accounting rules governing the timing of revenue recognition in the software industry are complex and it can be difficult to estimate when we will recognize revenue generated by a given transaction. Factors such as maturity of the software product licensed, payment terms, creditworthiness of the customer, and timing of delivery or acceptance of our products often cause revenue related to sales generated in one period to be deferred and recognized in later periods. For arrangements in which services revenue is deferred, related direct and incremental costs may also be deferred. Additionally, while the majority of our contracts are denominated in the United States dollar, a substantial portion of our sales are made, and some of our expenses are incurred, in the local currency of countries other than the United States. Fluctuations in currency exchange rates in a given period may result in the recognition of gains or losses for that period. We had two interest rate swaps with a commercial bank whereby we pay a fixed rate of 5.375% and 4.90% and receive a floating rate indexed to the 3-month LIBOR from the counterparty on a notional amount of $75 million and forecasted borrowings of $50 million, respectively. Both of these swaps expired on October 4, 2010.

During the nine months ended September 30, 2009, we elected 1-month LIBOR as the variable-rate benchmark for our revolving facility and changed the interest rate to 5.195%. We also amended our interest rate swap on the $75 million notional amount from 3-month LIBOR to 1-month LIBOR. This basis swap did not impact the maturity date of or the accounting for the interest rate swap. Fluctuations in interest rates in a given period may result in the recognition of gains or losses for that period.

We continue to seek ways to grow through both organic sources and acquisitions. We continually look for potential acquisitions designed to improve our solutions’ breadth or provide access to new markets. As part of our strategy, we seek acquisition candidates that are strategic, capable of being integrated into our operating environment, and financially accretive to our financial performance.

Backlog

Included in backlog estimates are all software license fees, maintenance fees and services specified in executed contracts, as well as revenues from assumed contract renewals to the extent that we believe recognition of the related revenue will occur within the corresponding backlog period. We have historically included assumed renewals in backlog estimates based upon automatic renewal provisions in the executed contract and our historic experience with customer renewal rates.

Our 60-month backlog estimate represents expected revenues from existing customers using the following key assumptions:

•

Maintenance fees are assumed to exist for the duration of the license term for those contracts in which the committed maintenance term is less than the committed license term.

•

License and facilities management arrangements are assumed to renew at the end of their committed term at a rate consistent with our historical experiences.

•

Non-recurring license arrangements are assumed to renew as recurring revenue streams.

•

Foreign currency exchange rates are assumed to remain constant over the 60-month backlog period for those contracts stated in currencies other than the U.S. dollar.

•

Our pricing policies and practices are assumed to remain constant over the 60-month backlog period.

In computing our 60-month backlog estimate, the following items are specifically not taken into account:

•

Anticipated increases in transaction volumes in customer systems.

•

Optional annual uplifts or inflationary increases in recurring fees.

•

Services engagements, other than facilities management, are not assumed to renew over the 60-month backlog period.

•

The potential impact of merger activity within our markets and/or customers is not reflected in the computation of our 60-month backlog estimate.

The following table sets forth our 60-month backlog estimate, by geographic region, as of September 30, 2010, June 30, 2010, March 31, 2010, and December 31, 2009 (in millions). Dollar amounts reflect foreign currency exchange rates as of each period end.

		September 30,				June 30,				March 31,				December 31,
		2010				2010				2010				2009
Americas		$	893			$	864			$	851			$	850
EMEA			525				475				480				510
Asia/Pacific			179				176				176				157
Total		$	1,597			$	1,515			$	1,507			$	1,517

Included in our 60-month backlog estimates are amounts expected to be recognized during the initial license term of customer contracts (“Committed Backlog”) and amounts expected to be recognized from assumed renewals of existing customer contracts (“Renewal Backlog”). Amounts expected to be recognized from assumed contract renewals are based on our historical renewal experience. The Committed Backlog and Renewal Backlog estimates as of September 30, 2010 are $831 million and $766 million, respectively.

We also estimate 12-month backlog, segregated between monthly recurring and non-recurring revenues, using a methodology consistent with the 60-month backlog estimate. Monthly recurring revenues include all monthly license fees, maintenance fees and processing services fees. Non-recurring revenues include other software license fees and services. Amounts included in our 12-month backlog estimate assume renewal of one-time license fees on a monthly fee basis if such renewal is expected to occur in the next 12 months. The following table sets forth our 12-month backlog estimate, by geographic region, as of September 30, 2010, June 30, 2010, March 31, 2010 and December 31, 2009 (in millions). Dollar amounts reflect foreign currency exchange rates as of each period end.

		September 30, 2010												June 30, 2010
		Monthly				Non-								Monthly				Non-
		Recurring				Recurring				Total				Recurring				Recurring				Total
Americas		$	167			$	46			$	213			$	163			$	45			$	208
EMEA			108				38				146				88				35				123
Asia/Pacific			32				6				38				33				10				43
Total		$	307			$	90			$	397			$	284			$	90			$	374

		March 31, 2010												December 31, 2009
		Monthly				Non-								Monthly				Non-
		Recurring				Recurring				Total				Recurring				Recurring				Total
Americas		$	151			$	43			$	194			$	149			$	40			$	189
EMEA			84				38				122				89				37				126
Asia/Pacific			32				11				43				29				11				40
Total		$	267			$	92			$	359			$	267			$	88			$	355

Estimates of future financial results are inherently unreliable. Our backlog estimates require substantial judgment and are based on a number of assumptions as described above. These assumptions may turn out to be inaccurate or wrong, including for reasons outside of management’s control. For example, our customers may attempt to renegotiate or terminate their contracts for a number of reasons, including mergers, changes in their financial condition, or general changes in economic conditions in the customer’s industry or geographic location, or we may experience delays in the development or delivery of products or services specified in customer contracts which may cause the actual renewal rates and amounts to differ from historical experiences. Changes in foreign currency exchange rates may also impact the amount of revenue actually recognized in future periods. Accordingly, there can be no assurance that amounts included in backlog estimates will actually generate the specified revenues or that the actual revenues will be generated within the corresponding 12-month or 60-month period. Additionally, because backlog estimates are operating metrics, the estimates are not subject to the same level of internal review or controls as a GAAP financial measure.

RESULTS OF OPERATIONS

Reclassifications

During the nine months ended September 30, 2010, we refined the classification of our revenues in order to better conform to industry practice and to better reflect the results of our on-demand business. Our presentation of revenues has been revised to separately disclose software hosting fees, which includes all revenues from hosting and on-demand arrangements. Previously, these revenues were primarily included in services revenue with a smaller portion included in maintenance fees and software license fees. As a result of this change in classification of revenues, we reclassified $0.3 million, $1.5 million and $8.1 million from software license fees, maintenance fees, and services, respectively, to software hosting fees in the accompanying condensed consolidated statement of operations for the three months ended September 30, 2009. We reclassified $1.3 million, $4.5 million and $24.8 million from software license fees, maintenance fees, and services, respectively, to software hosting fees in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2009.

These reclassifications have been made to prior periods to conform to the current period presentation. These reclassifications did not impact total revenues or net income for the prior period presented.

The following table presents the condensed consolidated statements of operations as well as the percentage relationship to total revenues of items included in our condensed consolidated statements of operations (amounts in thousands):

		Three Months Ended September 30,																Nine Months Ended September 30,
		2010								2009								2010								2009
						% of								% of								% of								% of
						Total								Total								Total								Total
		Amount				Revenue				Amount				Revenue				Amount				Revenue				Amount				Revenue
Revenues:
Initial license fees (ILFs)		$	8,638				8.9	%		$	21,188				20.3	%		$	29,494				10.6	%		$	44,299				15.8	%
Monthly license fees (MLFs)			29,166				30.1	%			19,208				18.4	%			69,026				24.9	%			53,350				19.1	%
Software license fees			37,804				39.0	%			40,396				38.7	%			98,520				35.5	%			97,649				34.9	%
Maintenance fees			32,480				33.5	%			33,314				31.9	%			100,109				36.1	%			95,168				34.0	%
Services			15,439				15.9	%			20,813				19.9	%			47,244				17.0	%			56,422				20.2	%
Software hosting fees			11,294				11.6	%			9,938				9.5	%			31,310				11.3	%			30,605				10.9	%
Total revenues			97,017				100.0	%			104,461				100.0	%			277,183				100.0	%			279,844				100.0	%
Expenses:
Cost of software licenses fees			3,088				3.2	%			3,936				3.8	%			9,269				3.3	%			10,936				3.9	%
Cost of maintenance, services, and hosting fees			28,956				29.8	%			27,959				26.8	%			86,151				31.1	%			83,136				29.7	%
Research and development			18,165				18.7	%			20,071				19.2	%			55,359				20.0	%			58,976				21.1	%
Selling and marketing			17,933				18.5	%			14,911				14.3	%			50,767				18.3	%			45,530				16.3	%
General and administrative			16,341				16.8	%			21,064				20.2	%			49,538				17.9	%			61,433				22.0	%
Depreciation and amortization			5,146				5.3	%			4,577				4.4	%			15,250				5.5	%			13,233				4.7	%
Total expenses			89,629				92.4	%			92,518				88.6	%			266,334				96.1	%			273,244				97.6	%
Operating income			7,388				7.6	%			11,943				11.4	%			10,849				3.9	%			6,600				2.4	%
Other income (expense):
Interest income			185				0.2	%			117				0.1	%			435				0.2	%			864				0.3	%
Interest expense			(418	)			-0.4	%			(488	)			-0.5	%			(1,482	)			-0.5	%			(1,783	)			-0.6	%
Other, net			(1,556	)			-1.6	%			16				0.0	%			(3,452	)			-1.2	%			(4,719	)			-1.7	%
Total other income (expense)			(1,789	)			-1.8	%			(355	)			-0.3	%			(4,499	)			-1.6	%			(5,638	)			-2.0	%
Income before income taxes			5,599				5.8	%			11,588				11.1	%			6,350				2.3	%			962				0.3	%
Income tax expense			3,263				3.4	%			3,829				3.7	%			6,253				2.3	%			897				0.3	%
Net income		$	2,336				2.4	%		$	7,759				7.4	%		$	97				0.0	%		$	65				0.0	%