Unresolved staff comments
Properties Legal proceedings Mine safety disclosures Market for registration's common equity, related stockholder matters and issuer purchases of equity securities Fiscal year ended December 31, 2011 First quarter Second quarter Third quarter Fourth quarter Fiscal year ended December 31, 2010 First quarter Second quarter Third quarter Fourth quarter Blackbaud, Inc. NASDAQ Composite NASDAQ Computer & Data Processing Approximate (in thousands) Beginning balance, October 1, 2011 October 1, 2011 through October 31, 2011 November 1, 2011 through November 30, 2011 December 1, 2011 through December 31, 2011 Total December 31, 2012. All of these shares were common stock withheld by us to satisfy tax obligations of employees due upon vesting of restricted stock. Our credit facility limits the amount of dividends we are permitted to pay; Our Board of Directors could decide to reduce dividends or not to pay dividends at all, at any time and for any reason; The amount of dividends distributed is subject to state law restrictions; and We might not have enough cash to pay dividends due to changes to our operating earnings, working capital requirements and anticipated cash needs. borrowings to fund dividends, we would have less cash available for future dividends and other purposes, which could negatively impact our stock price, financial condition, results of operations and ability to maintain or expand our business. Selected financial data Consolidated statements of operations data: Revenue License fees Subscriptions Services Maintenance Other revenue Total revenue Cost of revenue Cost of license fees Cost of subscriptions(1) Cost of services(1) Cost of maintenance(1) Cost of other revenue Total cost of revenue Gross profit Operating expenses Sales and marketing(1) Research and development(1) General and administrative(1) Impairment of cost method investment Amortization Total operating expenses Income from operations Interest income Interest expense Other income (expense), net Income before provision for income taxes Income tax provision Net income Earnings per share Basic Diluted Common shares and equivalents outstanding Basic weighted average shares Diluted weighted average shares Dividends per share Summary of stock-based compensation: Cost of subscriptions Cost of services Cost of maintenance Total included in cost of revenue Sales and marketing Research and development General and administrative Total included in operating expenses Total stock-based compensation Consolidated balance sheet data Cash and cash equivalents Deferred tax asset, including current portion Working (deficit) capital Total assets Deferred revenue Total liabilities Common stock Additional paid-in capital Total stockholders’ equity Management’s discussion and analysis of financial condition and results of operations Except as required by law, we do not intend, and undertake no obligation to revise or update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. 2012 with cash and cash equivalents totaling $13.5 million and $215.5 million in outstanding borrowings on our credit facility. During Revenue License fees Subscriptions Services Maintenance Other revenue Total revenue Cost of revenue Cost of license fees Cost of subscriptions Cost of services Cost of maintenance Cost of other revenue Total cost of revenue Gross profit Operating expenses Sales and marketing Research and development General and administrative Impairment of cost method investment Amortization Total operating expenses Income from operations Interest income Interest expense Other income, net Income before provision for income taxes Income tax provision Net income (continued) NOZA, Inc. – October 1, 2010; Public Interest Data, LLC, or PIDI – February 1, 2011; Everyday Hero Pty. Ltd., or EDH – October 6, 2011 The table below compares revenue from our License fees Subscriptions Services Maintenance Other Total revenue increases in contracts with existing customers during 2012 when compared to operations (continued) License fees revenue Cost of license fees License fees gross profit License fees gross margin have third party software royalty costs associated with them. Additionally, the increase in revenue from Blackbaud CRM arrangements contributed to the increase in license fees gross margin during Subscriptions revenue Cost of subscriptions Subscriptions gross profit Subscriptions gross margin transaction fees associated with the use of our products to fundraise online. subscription-based offerings. There will continue to be a dilutive impact on our profitability as we shift from a license-based model with upfront revenue recognition to a subscription-based model, which recognizes revenue ratably over the agreement term. Services revenue Cost of services Services gross profit Services gross margin 2012 and 2011 is $9.8 million and $0.1 million of revenue attributable to acquired companies, respectively. Excluding the revenue from acquired companies, the increase in services revenue of $1.1 million, or 1%, is principally due to an increase in education services revenue of $1.4 million, partially offset by a decrease in analytic services revenue of $0.6 million. The rates we charge for our education service offerings have remained relatively constant year over year and, as such, the increase in revenue is the result of a change in volume. The increase in revenue from education services is the result of higher demand for subscription-based training. Consulting services revenue remained relatively unchanged in 2012 compared to 2011 primarily due to a greater portion of our service engagements being with larger enterprise customers as our mid-market moves to subscription-based offerings. These larger enterprise engagements can experience volatility in utilization due to the complex nature of these engagements. Maintenance revenue Cost of maintenance Maintenance gross profit Maintenance gross margin continued growth in our customer support function commensurate with maintenance revenue growth. Additionally, we Other revenue Cost of other revenue Other gross profit Other gross margin Sales and marketing expense % of revenue Research and development expense % of revenue General and administrative expense % of revenue GAAP income from operations Non-GAAP adjustments: Add: Stock-based compensation expense Add: Amortization of intangibles from business combinations Add: Acquisition-related expenses Add: Impairment of cost method investment Less: Gain on sale of assets Total Non-GAAP adjustments Non-GAAP income from operations Non-GAAP operating margin License fees Subscriptions Services Maintenance Other Total revenue License fees revenue Cost of license fees License fees gross profit License fees gross margin Subscriptions revenue Cost of subscriptions Subscriptions gross profit Subscriptions gross margin Services revenue Cost of services Services gross profit Services gross margin Maintenance revenue Cost of maintenance Maintenance gross profit Maintenance gross margin Other revenue Cost of other revenue Other gross profit Other gross margin Sales and marketing expense % of revenue Research and development expense % of revenue General and administrative expense % of revenue (continued) GAAP income from operations Non-GAAP adjustments: Add: Kintera deferred revenue writedown Add: Stock-based compensation expense Add: Amortization of intangibles from business combinations Add: Acquisition-related expenses Total Non-GAAP adjustments Non-GAAP income from operations Non-GAAP operating margin Effective tax rate Balance at beginning of year Increases from prior period positions Increases from current period positions Lapse of statute of limitations Balance at end of year those jurisdictions. 2012. Additionally, we repaid At $68.7 million decreased by $16.8 million during 2012. Throughout both in 2012. Operating leases improvements. •Persuasive evidence of an arrangement exists; •The product or services has been delivered; when these criteria have been met can require significant judgment and estimates. We deem acceptance of an agreement to be evidence of an arrangement. Delivery for our products occurs when the product is shipped or transmitted, and title and risk of loss have transferred to the customers. Our typical Revenue is recognized net of sales returns and allowances. operations (continued) In arrangements where we provide customers the right to updates to the lists during the contract period, revenue is recognized ratably over the contract period. We recognize revenue from maintenance services ratably over the contract term, operations (continued) We Quantitative and qualitative disclosures about market risk Financial statements and supplementary data Changes in and disagreements with accountants on accounting and financial disclosure Controls and procedures Other information Directors, executive officers and corporate governance Executive compensation Security ownership of certain beneficial owners and management and related stockholder matters Certain relationships, related transactions and director independence Principal accountant fees and services 19, 2013 Exhibits and financial statement schedules Blackbaud, Inc. 27, 2013 (in thousands, except share amounts) December 31, 2011 December 31, 2010 Assets Current assets: Cash and cash equivalents Donor restricted cash Accounts receivable, net of allowance of $3,913 and $2,687 at December 31, 2011 and 2010, respectively Prepaid expenses and other current assets Deferred tax asset, current portion Total current assets Property and equipment, net Deferred tax asset Goodwill Intangible assets, net Other assets Total assets Liabilities and stockholders’ equity Current liabilities: Trade accounts payable Accrued expenses and other current liabilities Donations payable Deferred revenue Total current liabilities Deferred revenue, noncurrent Other noncurrent liabilities Total liabilities Commitments and contingencies (see Note 10) Stockholders’ equity: Preferred stock; 20,000,000 shares authorized, none outstanding Common stock, $0.001 par value; 180,000,000 shares authorized, 53,959,532 and 53,316,280 shares issued at December 31, 2011 and 2010, respectively Additional paid-in capital Treasury stock, at cost; 9,019,824 and 8,842,882 shares at December 31, 2011 and 2010, respectively Accumulated other comprehensive loss Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity Revenue License fees Subscriptions Services Maintenance Other revenue Total revenue Cost of revenue Cost of license fees Cost of subscriptions Cost of services Cost of maintenance Cost of other revenue Total cost of revenue Gross profit Operating expenses Sales and marketing Research and development General and administrative Impairment of cost method investment Amortization Total operating expenses Income from operations Interest income Interest expense Other income (expense), net Income before provision for income taxes Income tax provision Net income Earnings per share Basic Diluted Common shares and equivalents outstanding Basic weighted average shares Diluted weighted average shares Dividends per share comprehensive income Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Provision for doubtful accounts and sales returns Stock-based compensation expense Excess tax benefits from stock-based compensation Deferred taxes Impairment of cost method investment Gain on sale of assets Other non-cash adjustments Changes in assets and liabilities, net of acquisition of businesses: Accounts receivable Prepaid expenses and other assets Trade accounts payable Accrued expenses and other liabilities Donor restricted cash Donations payable Deferred revenue Net cash provided by operating activities Cash flows from investing activities Purchase of property and equipment Purchase of net assets of acquired companies, net of cash acquired Purchase of investment Capitalized software development costs Purchase of intangible assets Proceeds from sale of assets Net cash used in investing activities Cash flows from financing activities Dividend payments to stockholders Proceeds from exercise of stock options Excess tax benefits from stock-based compensation Purchase of treasury stock Proceeds from issuance of debt Payments on debt Payments on deferred financing costs Payments on capital lease obligations Net cash used in financing activities Effect of exchange rate on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental disclosure of cash flow information Cash paid during the year for: Interest Taxes, net of refunds Purchase of equipment included in accounts payable Balance at December 31, 2008 Net income Payment of dividends Issuance of common stock Exercise of stock options and stock appreciation rights Surrender of 182,875 shares upon restricted stock vesting and exercise of stock appreciation rights Tax impact of exercise of equity based compensation Stock-based compensation Restricted stock grants Restricted stock cancellations Translation adjustment Comprehensive income Balance at December 31, 2009 Net income Payment of dividends Purchase of 1,007,082 treasury shares under stock repurchase program Exercise of stock options and stock appreciation rights Surrender of 158,459 shares upon restricted stock vesting and exercise of stock appreciation rights Tax impact of exercise of equity based compensation Stock-based compensation Restricted stock grants Restricted stock cancellations Translation adjustment Comprehensive income Balance at December 31, 2010 Net income Payment of dividends Exercise of stock options, stock appreciation rights and restricted stock units Surrender of 176,942 shares upon restricted stock vesting and exercise of stock appreciation rights Tax impact of exercise of equity based compensation Stock-based compensation Restricted stock grants Restricted stock cancellations Translation adjustment Comprehensive income Balance at December 31, 2011 Accounts receivable, net of allowance Prepaid expenses and other current assets Total current assets Deferred tax asset Other assets Total assets Trade accounts payable Deferred revenue Total current liabilities Total liabilities Accumulated other comprehensive loss Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity Revenue License fees Subscriptions Services Maintenance Other revenue Total revenue Cost of revenue Cost of license fees Cost of subscriptions Cost of services Cost of maintenance Total cost of revenue Gross profit Operating expenses Sales and marketing Research and development General and administrative Total operating expenses Income from operations Income before provision for income taxes Income tax provision Net income Earnings per share Basic Diluted Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Stock-based compensation expense Excess tax benefits from stock-based compensation Deferred taxes Changes in assets and liabilities, net of acquisition of businesses: Accounts receivable Prepaid expenses and other assets Trade accounts payable Accrued expenses and other current liabilities Deferred revenue Net cash provided by operating activities Capitalized software development costs Net cash used in investing activities Excess tax benefits from stock-based compensation Net cash used in financing activities Use of estimates •Persuasive evidence of an arrangement exists; •The product or service has been delivered; •The fee is fixed or determinable; and •Collection of the resulting receivable is probable. Revenue is recognized net of sales returns and allowances. balance sheets at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized currently in earnings. If the derivative is designated as a cash flow hedge, the effective portions of the changes in fair value of the derivative are recorded in other comprehensive income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. Ineffective portions of the changes in the fair value of cash flow hedges are recognized currently in earnings. Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by 2010. Customer relationships Marketing assets Acquired software Non-compete agreements Database $0.2 million and $1.8 million was recorded in income from operations for the years ended December 31, 2012 and 2011, respectively. The 2012. statements (continued) identification and measurement of uncertain tax positions. subscriptions. based on several factors including historical experience, known credits yet to be issued, the aging of customer accounts and the nature of service level commitments. Provisions for sales returns and credits are charged against the related revenue items. Years ended December 31, (in thousands) 2011 2010 2009 Years ended December 31, (in thousands) 2011 2010 2009 Years ended December 31, (in thousands) 2011 2010 2009 statements (continued) Numerator: Net income Denominator: Weighted average common shares Add effect of dilutive securities: Employee stock-based compensation Weighted average common shares assuming dilution Earnings per share: Basic Diluted Shares excluded from calculations of diluted EPS 2011-05, $335.7 million. Convio was a leading provider of on-demand constituent engagement solutions that enabled nonprofit organizations to more effectively raise funds, advocate for change and cultivate relationships. The statements (continued) Cash and cash equivalents Accounts receivable Other assets, current and noncurrent Property and equipment Intangibles Goodwill Trade accounts payable Accrued expenses and other liabilities Deferred tax liabilities, current and noncurrent The estimated fair value of accounts receivable acquired approximates the contractual Weighted (in years) Customer relationships Marketing assets Acquired software Non-compete agreements future. During the year ended December 31, During the year ended December 31, Property and equipment as of December 31, Estimated (years) Equipment Computer hardware Computer software Construction in progress Furniture and fixtures Leasehold improvements Total property and equipment Less: accumulated depreciation Property and equipment, net of depreciation Balance at December 31, 2010 Additions related to business combinations Disposition related to sale of assets Effect of foreign currency translation Balance at December 31, 2011 Finite-lived gross carrying amount Customer relationships Marketing assets Acquired software Non-compete agreements Database Total finite-lived gross carrying amount Accumulated amortization Customer relationships Marketing assets Acquired software Non-compete agreements Database Total accumulated amortization Indefinite-lived gross carrying amount Marketing assets Total intangible assets, net Included in cost of revenue: Cost of license fees Cost of subscriptions Cost of services Cost of maintenance Cost of other revenue Total included in cost of revenue Included in operating expenses Total Amortization (in thousands) 2012 2013 2014 2015 2016 Total Prepaid expenses and other current assets consisted of the following as of Deferred sales commissions Prepaid software maintenance and royalties Deferred professional service costs Taxes, prepaid and receivable Other Total prepaid expenses and other current assets Accrued expenses and other current liabilities consisted of the following as of Accrued bonuses Accrued commissions and salaries Taxes payable Customer credit balances Accrued accounting and legal fees Accrued royalties Accrued health care costs Other Total accrued expenses and other current liabilities Deferred revenue consisted of the following as of December 31, Maintenance Subscriptions Services License fees and other Total deferred revenue Less: Long-term portion of deferred revenue Current portion of deferred revenue As a material domestic subsidiary, Convio guarantees amounts outstanding under the credit facility and pledges certain stock of its subsidiaries. debt. As LIBOR rates are observable at commonly quoted intervals, it is classified within Level 2 of the fair value hierarchy. The Years ending December 31, (in thousands) 2012 2013 2014 2015 2016 Thereafter Total minimum lease payments under these arrangements is approximately Current taxes: U.S. Federal U.S. State and local International Total current taxes Deferred taxes: U.S. Federal U.S. State and local International Total deferred taxes Total income tax provision U.S. International Income before provision for income taxes Federal statutory rate Effect of: State income taxes, net of federal benefit Change in state income tax rate applied to deferred tax asset Disqualifying dispositions of incentive stock options Non-deductible compensation expense State credits, net of federal benefit Change in valuation reserve Federal credits generated Other Income tax provision effective rate Deferred tax assets relating to: State and foreign tax credits Federal and state net operating loss carryforwards Allowance for doubtful accounts Deferred revenue Intangible assets Effect of expensing nonqualified stock options and restricted stock Other Total deferred tax assets Deferred tax liabilities relating to: Intangible assets Fixed assets Other Total deferred tax liabilities Valuation allowance Net deferred tax asset 2012. Balance at year Years ended December 31, 2011 2010 2009 statements (continued) Balance at beginning of year Increases from prior period positions Decreases in prior year position Increases from current period positions Lapse of statute of limitations Balance at end of year be remitted. available under Stock options Restricted stock awards Performance-based restricted stock unit awards Stock appreciation rights Included in cost of revenue: Cost of subscriptions Cost of services Cost of maintenance Total included in cost of revenue Included in operating expenses: Sales and marketing Research and development General and administrative Total included in operating expenses Total 2001 Stock Option Plan 2004 Stock Plan Kintera 2000 Plan Kintera 2003 Plan Total Weighted (in years) Aggregate (in thousands) Outstanding at January 1, 2011 Exercised Expired Outstanding, vested and exercisable at December 31, 2011 follows: Unvested at January 1, 2011 Granted Vested Forfeited Unvested at December 31, 2011 Unvested at January 1, 2011 Granted Forfeited Vested Unvested at December 31, 2011 As of December 31, The weighted average grant date fair value of restricted stock units granted for the years ended December 31, 2011 and 2010 was $26.68 and $22.79, respectively. Aggregate (in thousands) Outstanding at January 1, 2011 Granted Exercised Forfeited Outstanding at December 31, 2011 Unvested and expected to vest at December 31, 2011 Vested and exercisable at December 31, 2011 Volatility Dividend yield Risk-free interest rate Expected SAR life in years qualified employees’ contributions up to As of The ECBU is focused on marketing, sales, delivery and support to large and/or strategic, The GMBU is focused on marketing, sales, delivery and support to all emerging and mid-sized prospects and customers in North The IBU is focused on marketing, sales, delivery and support to all prospects and customers outside of North Target Analytics is primarily focused on marketing, sales and delivery of analytics services to all prospects and customers in North America. Revenue by segment: ECBU GMBU IBU Target Analytics Other(1) Total revenue Segment operating income(2): ECBU GMBU IBU Target Analytics Other(1) Less: Corporate unallocated costs(3) Stock-based compensation costs Amortization expense Interest expense (income), net Other (income) expense, net Income before provision for income taxes Revenue from external customers: 2011 2010 2009 Property and equipment: December 31, 2011 December 31, 2010 statements (continued) As reported (1) As reported (1) Total revenue Gross profit Income from operations Income before provision for income taxes Net income Earnings per share Basic Diluted As reported (1) Adjustment As revised Total revenue Gross profit Income from operations Income before provision for income taxes Net income Earnings per share Basic Diluted As reported (1) Adjustment As revised As reported (1) Adjustment As revised Total revenue Gross profit Income from operations Income before provision for income taxes Net income Earnings per share Basic Diluted As previously reported (1) Adjustment As revised As previously reported (1) Adjustment Total revenue Gross profit Income from operations Income before provision for income taxes Net income Earnings per share Basic Diluted category and total assets by segment.PROPERTIESLEGAL PROCEEDINGSaffecteffect on us.MINE SAFETY DISCLOSURESMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES High Low $ 27.24 $ 24.87 30.00 25.62 28.86 22.27 30.15 21.02 $ 26.33 $ 21.17 26.87 21.39 24.61 20.82 28.31 23.81 High Low Fiscal year ended December 31, 2012 First quarter $ 34.00 $ 22.63 Second quarter $ 33.93 $ 24.02 Third quarter $ 28.34 $ 22.98 Fourth quarter $ 24.88 $ 20.99 Fiscal year ended December 31, 2011 First quarter $ 27.44 $ 24.42 Second quarter $ 30.39 $ 24.91 Third quarter $ 29.10 $ 21.84 Fourth quarter $ 30.36 $ 20.81 10, 2012,12, 2013, there were 200179 stockholders of record and approximately 15,000 beneficial owners of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, this number is not representative of the total number of stockholders represented by these stockholders of record. On February 10, 2012,12, 2013, the closing price of our common stock was $31.69.$25.48.2011.2012. The graph assumes that the value of the investment in our common stock and each index was $100 at December 31, 2006,2007, and that all dividends are reinvested.
12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 100.00 109.35 53.78 96.60 107.91 117.59 100.00 110.38 65.58 95.27 112.22 110.58 100.00 120.57 69.03 109.41 121.30 118.07 
12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 Blackbaud, Inc. $ 100.00 $ 49.18 $ 88.34 $ 98.68 $ 107.54 $ 90.30 NASDAQ Composite $ 100.00 $ 59.03 $ 82.25 $ 97.32 $ 98.63 $ 110.78 NASDAQ Computer & Data Processing $ 100.00 $ 57.50 $ 90.39 $ 98.29 $ 95.15 $ 106.83 Period Total
number of
shares
purchased (1) Average
price paid
per share Total number
of shares
purchased as
part of publicly
announced
plans or
programs
dollar value of
shares that may
yet be purchased
under the plan
or programs $ 50,000 1,870 $ 28.65 — $ 50,000 140,958 $ 28.93 — $ 50,000 4,308 $ 29.98 — $ 50,000 147,136 $ 28.95 — $ 50,000 (1)During the period of October 1, 2011 through December 31, 2011, there were no shares repurchased. The shares in the table represent shares withheld by us to satisfy the tax obligations of employees due upon vesting of restricted stock and exercise of stock appreciation rights during the period.Period Beginning balance, October 1, 2012 — $ 50,000 October 1, 2012 through October 31, 2012 401 $ 23.95 — $ 50,000 November 1, 2012 through November 30, 2012 119,692 $ 22.11 — $ 50,000 December 1, 2012 through December 31, 2012 168 $ 22.83 — $ 50,000 Total 120,261 $ 22.11 — $ 50,000 and $0.44 per share in 20112012 and 2010, respectively,2011, resulting in an aggregate dividend payment to stockholders of $21.4$21.7 million and $19.5$21.4 million in 20112012 and 2010,2011, respectively. In February 2012,2013, our Board of Directors approved an annual dividend rate of $0.48 per share for 2012.2013. We declared a first quarter dividend of $0.12$0.12 per share payable on March 15, 2012,2013, to stockholders of record on March 5, 2012,February 28, 2013, and currently intend to pay quarterly dividends at an annual rate of $0.48$0.48 per share of common stock for each of the remaining fiscal quarters in 2012.2013. Dividends at this rate would total approximately $21.1$22.1 million in the aggregate on the common stock in 20122013 (assuming 44.046.0 million shares of common stock are outstanding, net of treasury stock).20122013 at an annual rate of $0.48$0.48 per share is approximately $21.1$22.1 million (assuming 44.046.0 million shares of common stock are outstanding, net of treasury stock).offor our stock, from time to time on the open market or in privately negotiated transactions depending upon market conditions and other factors, all in accordance with the requirements of applicable law. Any open market purchases under the repurchase program will be made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934 and all other applicable securities regulations. We might not purchase any additional shares of common stock and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, to cancel the stock repurchase program.2012,2013, including dividends and purchases under our stock repurchase program. See “Management’s discussion and analysis of financial conditions and results of operations — Liquidity and capital resources” in this report.2012,2013, and we cannot assure our stockholders that during or following such periods that we will pay dividends at the estimated levels, or at all. We are not required to pay dividends and our Board of Directors may modify or revoke our dividend policy at any time. Dividend payments are within the absolute discretion of our Board of Directors and will be dependent upon many factors and future developments that could differ materially from our current expectations. Indeed, over time our capital and other cash needs, including unexpected cash needs, will invariably change and remain subject to uncertainties, which could impact the level of any dividends we pay in the future.2011,2012, we had $52.5$13.5 million in cash and cash equivalents. In addition, we anticipate that we will have sufficient earnings in 20122013 to pay dividends at the level described above. Although we believe we will have sufficient surplus and earnings to pay dividends at the anticipated levels for 2012,2013, our Board of Directors will seek periodically to assure itself of this sufficiency before actually declaring any dividends.onin February 9, 2012. The amended credit facility restricts our ability to declare and pay dividends on our common stock. In order to pay any cash dividends and/or repurchase shares of stock: (1) no default or event of default shall have occurred and be continuing under the credit facility, and (2) we must be in compliance with a leverage ratio set forth in the credit agreement.SELECTED CONSOLIDATED FINANCIAL DATA consolidated financial data set forth below should be read in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and the related notes included elsewhere in this report.The selected consolidated financial data below has been revised to reflect the corrections of immaterial errors in previously reported financial results. See Note 1 of the consolidated financial statements included in this annual report for a detailed discussion. The net income impact of the revisions was a decrease in net income of $0.6 million, $0.9 million, $1.5 million and $2.2 million for the year ended December 31, 2010, 2009, 2007 and 2006, respectively, and an increase in net income of $0.9 million for the year ended December 31, 2008. 2010 and 2009,2010, has been derived from the audited annual financial statements, including the consolidated balance sheets at December 31, 20112012 and 2010,2011, and the related consolidated statements of operations,comprehensive income, cash flows and stockholders’ equity and comprehensive income for the three years ended December 31, 2012, 2011 2010 and 20092010 and notes thereto appearing elsewhere herein. The following data, insofar as it relates to each of the years ended December 31, 20082009 and 2007,2008, and the consolidated balance sheet as of December 31, 2010, 2009 2008 and 20072008 are derived from financial statements not included in this report. Years ended December 31, (in thousands, except per share data) 2011 2010 2009 2008 2007 $ 19,475 $ 23,719 $ 25,656 $ 35,484 $ 37,569 103,544 83,912 73,194 49,773 25,389 108,781 87,663 87,239 101,015 89,944 130,604 124,559 116,413 107,308 94,602 8,464 6,712 6,968 8,730 8,102 370,868 326,565 309,470 302,310 255,606 3,345 3,003 3,697 3,388 2,919 42,536 31,155 28,158 20,564 10,306 79,086 66,755 61,585 63,810 54,798 25,178 24,123 21,594 20,175 17,119 7,049 7,103 6,098 8,368 7,274 157,194 132,139 121,132 116,305 92,416 213,674 194,426 188,338 186,005 163,190 75,361 69,469 63,495 65,573 56,761 47,672 45,499 45,520 38,497 28,378 36,933 32,636 33,383 33,904 26,144 1,800 — — — — 980 798 768 713 491 162,746 148,402 143,166 138,687 111,774 50,928 46,024 45,172 47,318 51,416 183 84 637 526 813 (200 ) (74 ) (962 ) (1,526 ) (1,164 ) 346 (98 ) 220 (194 ) (503 ) 51,257 45,936 45,067 46,124 50,562 18,037 16,749 17,547 17,185 20,389 $ 33,220 $ 29,187 $ 27,520 $ 28,939 $ 30,173 $ 0.76 $ 0.68 $ 0.64 $ 0.67 $ 0.69 $ 0.75 $ 0.67 $ 0.63 $ 0.66 $ 0.68 43,523 43,145 42,771 42,959 43,619 44,149 43,876 43,600 43,959 44,595 $ 0.48 $ 0.44 $ 0.40 $ 0.40 $ 0.34 $ 571 $ 392 $ 387 $ 283 $ 274 1,966 1,742 1,433 1,442 627 741 814 750 534 234 3,278 2,948 2,570 2,259 1,135 1,325 1,366 1,605 1,607 831 3,039 2,844 2,944 2,396 1,219 7,242 5,901 5,291 5,700 3,749 11,606 10,111 9,840 9,703 5,799 $ 14,884 $ 13,059 $ 12,410 $ 11,962 $ 6,934 Year ended December 31, (in thousands, except per share data) 2012 2011 2010 2009 2008 Consolidated statements of comprehensive income data: Revenue License fees $ 20,551 $ 19,475 $ 23,719 $ 25,656 $ 35,484 Subscriptions 162,102 103,544 83,912 73,194 49,773 Services 119,626 108,781 87,663 87,239 101,015 Maintenance 136,101 130,604 124,559 116,413 107,308 Other revenue 9,039 8,464 6,712 6,968 8,730 Total revenue 447,419 370,868 326,565 309,470 302,310 Cost of revenue Cost of license fees 2,993 3,345 3,003 3,697 3,388 Cost of subscriptions(1) 68,773 42,536 31,155 28,158 20,564 Cost of services(1) 97,208 79,086 66,755 61,585 63,810 Cost of maintenance(1) 26,001 25,178 24,123 21,594 20,175 Cost of other revenue 7,485 7,049 7,103 6,098 8,368 Total cost of revenue 202,460 157,194 132,139 121,132 116,305 Gross profit 244,959 213,674 194,426 188,338 186,005 Operating expenses Sales and marketing(1) 95,218 75,361 69,469 63,495 65,573 Research and development(1) 64,692 47,672 45,499 45,520 38,497 General and administrative(1) 63,308 36,933 32,636 33,383 33,904 Impairment of cost method investment 200 1,800 — — — Amortization 2,106 980 798 768 713 Total operating expenses 225,524 162,746 148,402 143,166 138,687 Income from operations 19,435 50,928 46,024 45,172 47,318 Interest income 146 183 84 637 526 Interest expense (5,864 ) (200 ) (74 ) (962 ) (1,526 ) Other income (expense), net (392 ) 346 (98 ) 220 (194 ) Income before provision for income taxes 13,325 51,257 45,936 45,067 46,124 Income tax provision 6,742 18,037 16,749 17,547 17,185 Net income $ 6,583 $ 33,220 $ 29,187 $ 27,520 $ 28,939 Earnings per share Basic $ 0.15 $ 0.76 $ 0.68 $ 0.64 $ 0.67 Diluted $ 0.15 $ 0.75 $ 0.67 $ 0.63 $ 0.66 Common shares and equivalents outstanding Basic weighted average shares 44,146 43,523 43,145 42,771 42,959 Diluted weighted average shares 44,692 44,149 43,876 43,600 43,959 Dividends per share $ 0.48 $ 0.48 $ 0.44 $ 0.40 $ 0.40 Summary of stock-based compensation: Cost of subscriptions $ 860 $ 571 $ 392 $ 387 $ 283 Cost of services 2,786 1,966 1,742 1,433 1,442 Cost of maintenance 538 741 814 750 534 Total included in cost of revenue 4,184 3,278 2,948 2,570 2,259 Sales and marketing 2,527 1,325 1,366 1,605 1,607 Research and development 3,556 3,039 2,844 2,944 2,396 General and administrative 8,973 7,242 5,901 5,291 5,700 Total included in operating expenses 15,056 11,606 10,111 9,840 9,703 Total stock-based compensation $ 19,240 $ 14,884 $ 13,059 $ 12,410 $ 11,962 (1) Includes stock-based compensation as set forth in tabular summary of stock-based compensation for all periods presented. December 31, (in thousands) 2011 2010 2009 2008 2007 $ 52,520 $ 28,004 $ 22,769 $ 16,361 $ 14,775 30,927 47,478 59,284 70,100 52,174 (52,093 ) (57,056 ) (74,458 ) (113,464 ) (49,113 ) 392,590 323,806 299,927 311,087 235,210 163,437 150,661 137,950 122,023 97,506 252,588 207,337 189,634 225,354 125,887 54 53 52 51 50 175,401 158,372 134,643 116,688 105,579 $ 140,002 $ 116,469 $ 110,293 $ 85,733 $ 109,323 December 31, (in thousands) 2012 2011 2010 2009 2008 Consolidated balance sheet data Cash and cash equivalents $ 13,491 $ 52,520 $ 28,004 $ 22,769 $ 16,361 Deferred tax asset, including current portion 15,799 30,927 47,478 59,284 70,100 Working (deficit) capital (97,947 ) (52,093 ) (57,056 ) (74,458 ) (113,464 ) Total assets 705,747 392,590 323,806 299,927 311,087 Deferred revenue, including current portion 185,018 163,437 150,661 137,950 122,023 Total long-term liabilities 246,368 12,547 9,319 7,891 7,999 Common stock 55 54 53 52 51 Additional paid-in capital 203,638 175,401 158,372 134,643 116,688 Total stockholders’ equity $ 147,684 $ 140,002 $ 116,469 $ 110,293 $ 85,733 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS21E27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934.1934, as amended. These forward-looking statements reflect our current view with respect to future events and financial performance and are subject to risks and uncertainties, including those set forth under “Item 1A.1.A. Risk factors”, under “Cautionary statement” included in this “Management’s discussion and analysis of financial condition and results of operations”Factors” and elsewhere in this report, that could cause actual results to differ materially from historical or anticipated results.organizations, and provideorganizations. Our products and services that enable nonprofit organizations to increase donations, reduce fundraising costs, improve communications with constituents, manage their finances and optimize internal operations. At the endAs of 2011,December 31, 2012, we had approximately 26,000more than 27,000 active customers distributed across multiple verticals within the nonprofit market including education, foundations, health and human services, religion, arts and cultural, public and societal benefits, environment and animal welfare andas well as international foreign affairs.20112012 increased 14%21% compared to 2010.2011. When removing the impact of foreign currency translation,revenue from acquired companies, revenue increased 13% when comparing 2011 to 2010.by 6% during 2012. This increase was principally the result of continued growth in our services and subscriptions revenue. The increase in services revenue was primarily as a result of an increase in demand for our consulting servicessubscription-based offerings as our business shifts towards hosted solutions as well as an increase in transaction fees associated with our Blackbaud CRM offering. Additionally, our recurringpayment processing services. Maintenance revenue which is comprised of subscription offerings and maintenance and represented 63% of our 2011 revenue on a combined basis,also contributed to the growthincrease in revenue. The growth in subscriptions revenue is principally attributable to increased demand for our hosting services, online fundraising and data management offerings and the shift in our business towards hosted solutions. The growth in maintenance revenue is principally driven byfrom maintaining high renewal rates, new maintenance contracts associated with new license arrangements and existing client increases. Revenuecore perpetual license offerings decreasedacquisition of Convio related to transaction costs, integration and restructuring costs, amortization of acquired intangibles from business combinations and stock-based compensation expense; (ii) a $4.3 million increase in 2011 when comparedcosts related to 2010strategic investments we have made in our business optimization efforts and the re-engineering of our accounting processes; and (iii) an increase of $8.3 million in hosting costs due to incremental investments to improve our hosting services and additional hosting capacity required as a result of the continuing decreasesgrowth in sales ofdemand for our perpetual license offeringshosted applications and other online services. Also contributing to the mid-market customer base, which is principally the result of customers opting to purchase our solutions under alternative packaging with more flexible subscription-based pricing. We believe this trend will continue, and may accelerate, in the future.Income from operations for 2011 increased by 11%, or $4.9 million, compared to 2010. The increasedecrease in income from operations is primarily attributablewas our continued shift from a license-based model with upfront revenue recognition to a subscription-based model, which recognizes revenue ratably over the agreement term. These decreases were partially offset by an increase in services and subscriptions gross profit which is driven by the continued strong retention ratemargin from our payment processing operations.operations—(Continued)operations (continued)2011,2012, we experienced overallused $20.8 million of cash on hand and net borrowings of $259.6 million towards acquiring Convio. Additionally, we generated $68.7 million in cash flow from operations, paid $21.7 million in dividends and used $20.6 million to purchase computer equipment and software.and have begun to see increases in charitable giving levels.primarily driven by the growing demand for our subscription-based offerings. However, we continue to believe the pace and impact of economic recovery on the nonprofit market remains uncertain. Additionally, we continue to experience a greater level of caution by our existing and prospective customers in their expenditure decisions. We expect that our operating environment will continue to be challenging in 2012 as existing and prospective customers remain cautious in their expenditure decisions.the near term. Notwithstanding these conditions, we remain focusedplan to further increase our focus on execution ofsubscription-based offerings as we execute on our key growth initiatives and strengtheningstrengthen our leadership position, while achieving our targeted level of profitability. In the near term, we expect there will continue to be a dilutive impact on our profitability as we shift from a license-based model with upfront revenue recognition to a subscription-based model, which recognizes revenue ratably over the agreement term.back officeback-office processes, and the infrastructure that supports our subscription-based offerings and certain product development initiatives to achieve optimal scalability of our operations as we execute on our key growth initiatives.Recent developmentsConvio acquisitionOn January 16, 2012, we entered into an Agreement and Planoperations—(Continued)Consolidated statements of operations percent of revenue Years ended December 31, 2011 2010 2009 5.3 % 7.3 % 8.3 % 27.9 25.7 23.7 29.3 26.8 28.2 35.2 38.1 37.6 2.3 2.1 2.2 100.0 % 100.0 % 100.0 % 0.9 0.9 1.2 11.5 9.5 9.1 21.3 20.4 19.9 6.8 7.4 7.0 1.9 2.2 2.0 42.4 40.5 39.2 57.6 59.5 60.8 20.3 21.3 20.5 12.9 14.0 14.7 10.0 10.0 10.8 0.5 — — 0.2 0.2 0.2 43.9 45.5 46.2 13.6 14.0 14.6 1.0 — 0.2 (0.1 ) — (0.3 ) 0.1 — 0.1 13.8 14.1 14.6 4.8 5.1 5.7 9.0 % 8.9 % 8.9 % Blackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)the fourth quarter of 2012, 2011 we revised previously issued financial statements to correct errors identified principally related to revenue recognition, accounting for income taxes and the capitalization of software development costs. None of the revisions were considered material to the periods impacted, as disclosed in Note 1 of the consolidated financial statements included in this annual report. All amounts in Item 7 of this filing are provided as revised.During 2011, and 2009,, we acquired companies that provided us with strategic opportunities to expand our share of the nonprofit market through the integration of complimentarycomplementary products and services to serve the changing needs of our customers. FollowingThe following are the companies we acquired and their respective acquisition date:RLC Customer Centric Technology B.V. – April 29, 2009;Target America, Inc. – May 12, 2010; and2011.Thethe acquired companies are included in our consolidated results of operations from the date of their respective acquisition, as noted above, which impacts the comparability of our results of operations when comparing 20112012 to 20102011 and 20102011 to 2009.2010. We have noted in the discussion below, to the extent meaningful, the impact on the comparability of our consolidated results of operations due to the inclusion of the acquired companies for only a partial year in the year of acquisition.20112012 and 2010Revenuestatementconsolidated statements of operationscomprehensive income for the years ended December 31, 20112012 and 2010. Years ended December 31, (in millions) 2011 2010 Change % Change $ 19.5 $ 23.7 $ (4.2 ) (18 )% 103.5 83.9 19.6 23 % 108.8 87.7 21.1 24 % 130.6 124.6 6.0 5 % 8.5 6.7 1.8 27 % $ 370.9 $ 326.6 $ 44.3 14 % Total2011. Year ended December 31, (in millions) 2012 2011 Change % Change License fees $ 20.6 $ 19.5 $ 1.1 6 % Subscriptions 162.1 103.5 58.6 57 % Services 119.6 108.8 10.8 10 % Maintenance 136.1 130.6 5.5 4 % Other 9.0 8.5 0.5 6 % Total revenue $ 447.4 $ 370.9 $ 76.5 21 % $44.3by $21.9 million, or 14%,6% in 2011 compared to 2010.2012. This increase in revenue iswas primarily attributable to growth in our subscriptions and services revenue. The increase in subscriptions revenue is primarily attributable toas a result of both an increase in demand for an our hosted offerings, hosting services, online fundraising and data management offerings. Thisofferings as well as an increase has beenin transaction fees associated with our payment processing services. The increase in demand for our subscription offerings was primarily driven by the ongoing evolution of our product offerings from a license-based to subscription-based business model. ServicesAlthough we continue to experience a shift in our emerging (first-time users) and mid-sized customers’ buying preference away from perpetual licenses towards hosted solutions, license revenue growth is primarily dueincreased in 2012 when compared to 2011 as a result of an increase in demand for consulting services associated withsales of our Blackbaud CRM offering to large and/or strategic customers. The increase in maintenance revenue is attributable to maintaining high renewal rates, new maintenance contracts associated with new license agreements and online fundraising offerings.operations—(Continued)The increase in maintenance revenue is attributable to new maintenance contracts associated with new license agreements sold over the last twelve months and increases in contracts with existing customers. These increases are offset by a decrease in license fees which is principally attributable to a smaller contribution in 2011 from Blackbaud CRM perpetual license arrangements with upfront revenue recognition than in 2010. Additionally, we continue to experience a shift in our customers’ buying preference away from perpetual licenses towards hosted solutions. Years ended December 31, (in millions) 2011 2010 Change % Change $ 19.5 $ 23.7 $ (4.2 ) (18 )% 3.3 3.0 0.3 10 % $ 16.2 $ 20.7 $ (4.5 ) (22 )% 83 % 87 % Revenue Year ended December 31, (in millions) 2012 2011 Change % Change License fees revenue $ 20.6 $ 19.5 $ 1.1 6 % Cost of license fees 3.0 3.3 (0.3 ) (9 )% License fees gross profit $ 17.6 $ 16.2 $ 1.4 9 % License fees gross margin 85 % 83 % is derived from the sale of our software products, under a perpetual license agreement. We are increasingly experiencing a shift in our customers’emerging and mid-sized customers' buying preference away from solutions offered under perpetual license arrangements towards subscription-based hosted applications. In addition, weapplications, while our large and/or strategic customers continue to experience longerbe an area of growth, particularly as it relates to our Blackbaud CRM offering. Our larger perpetual license transactions have long sales cycle times, delayscycles, and postponements of purchasing decisions and overall caution exercised by existing and prospective customers as atheir timing can result of continued challenges posed by the weak economic environment. During 2011, revenuein significant period-to-period variations. Revenue from license fees increased in 2012 primarily due to existing customers decreased by $0.9 million and sales to new customers decreased by $3.3 million. The decrease in license fees is largely the resulta greater contribution of a smaller contribution in 2011revenue from larger Blackbaud CRM sales with upfront revenue recognitionarrangements when compared to 2010 due to credits provided to certain Blackbaud CRM early adopters.2011.increasedecrease in cost of license fees in 20112012 when compared to 20102011 is principally attributable to ana decrease in third-party software royalties. Third-party software royalties associated with our license-based products have decreased as the demand for our perpetual license arrangements has decreased and subscription-based offerings has increased. in reseller commissions. A greater portion of our software license sales in 2011 were completed through our reseller channels when compared to 2010.The decrease in license fees gross margin in 2011 compared to 2010during an increase in the salefewer sales of products that are sold through our reseller channels. Years ended December 31, (in millions) 2011 2010 Change % Change $ 103.5 $ 83.9 $ 19.6 23 % 42.5 31.2 11.3 36 % $ 61.0 $ 52.7 $ 8.3 16 % 59 % 63 % Year ended December 31, (in millions) 2012 2011 Change % Change Subscriptions revenue $ 162.1 $ 103.5 $ 58.6 57 % Cost of subscriptions 68.8 42.5 26.3 62 % Subscriptions gross profit $ 93.3 $ 61.0 $ 32.3 53 % Subscriptions gross margin 58 % 59 % andas well as variableBlackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued) Revenue from acquired companies contributed $6.2 million to the growth in subscriptions revenue during 2011. The remaining increase in subscriptions revenue during 2011 is principally attributable to the increase in demand for online fundraising offerings, data management offerings and hosting services. Additionally, revenue from our hosting services continues to increase as the demand for these services continues to grow from both our existing and new perpetual license customers. We continue to experience growth in our hosted applications business and are increasingly experiencing a shift in our emerging and mid-sized customers’ buying preference away from perpetual licenses towards subscription based-offerings.an allocation ofallocated depreciation, facilities and IT support costs, amortization of intangibles from2011 when compared to 20102012 is principally attributable to an increaseincreases in headcount.hosting costs, human resource costs and amortization of intangibles from business combinations. is due to both the inclusion of acquired companies and additional resources needed to support the growth in demand for our subscription-based offerings. Human resource costs increased $6.9 million as a result of an increase in headcount, of which $3.6 million relates to our acquisition of PIDI in February 2011. Hosting costs also increased by $2.8 million due to the increase in required hosting capacity as a result of the increase in demand for hosting and other online services.The decrease in subscriptions gross margin 2011 compared to 2010 is due to an increase in the investments we are making in the infrastructure to support the growth in our subscription offerings. Years ended December 31, (in millions) 2011 2010 Change % Change $ 108.8 $ 87.7 $ 21.1 24 % 79.1 66.8 12.3 18 % $ 29.7 $ 20.9 $ 8.8 42 % 27 % 24 % Services Year ended December 31, (in millions) 2012 2011 Change % Change Services revenue $ 119.6 $ 108.8 $ 10.8 10 % Cost of services 97.2 79.1 18.1 23 % Services gross profit $ 22.4 $ 29.7 $ (7.3 ) (25 )% Services gross margin 19 % 27 % consists offrom consulting, installation, implementation, education and analytic services. Consulting, installation and implementation services involve converting data from a customer’s existing system, assistance in file set up and system configuration, and/or process re-engineering. Education services involve customer training activities. Analytic services are comprised of donor prospect research, selling lists of potential donors, benchmarking studies and data modeling services. These services involve the assessment of current and prospective donor information of the customer and are performed using our proprietary analytical tools. The end product enables organizations to more effectively target their fundraising activities. We recognize services revenue attributable to consulting services for implementation of our hosted applications and subscription offerings ratably over the period the customer benefits from those services. We also recognize the direct and incremental costs associated with consulting services revenue ratably over the same period. However, we continue to expense indirect costs in the period the implementation services are provided. Year ended December 31, (in millions) 2012 2011 Change % Change Maintenance revenue $ 136.1 $ 130.6 $ 5.5 4 % Cost of maintenance 26.0 25.2 0.8 3 % Maintenance gross profit $ 110.1 $ 105.4 $ 4.7 4 % Maintenance gross margin 81 % 81 % Year ended December 31, (in millions) 2012 2011 Change % Change Other revenue $ 9.0 $ 8.5 $ 0.5 6 % Cost of other revenue 7.5 7.0 0.5 7 % Other gross profit $ 1.5 $ 1.5 $ — — % Other gross margin 17 % 18 % Year ended December 31, (in millions) 2012 2011 Change % Change Sales and marketing expense $ 95.2 $ 75.4 $ 19.8 26 % % of revenue 21 % 20 % Year ended December 31, (in millions) 2012 2011 Change % Change Research and development expense $ 64.7 $ 47.7 $ 17.0 36 % % of revenue 14 % 13 % Year ended December 31, (in millions) 2012 2011 Change % Change General and administrative expense $ 63.3 $ 36.9 $ 26.4 72 % % of revenue 14 % 10 % Year ended December 31, (in millions) 2012 2011 Change % Change GAAP income from operations $ 19.4 $ 50.9 $ (31.5 ) (62 )% Non-GAAP adjustments: Add: Convio deferred revenue writedown 5.6 — 5.6 100 % Add: Stock-based compensation expense 19.2 14.9 4.3 29 % Add: Amortization of intangibles from business combinations 17.4 7.6 9.8 129 % Add: Acquisition-related expenses 6.4 1.8 4.6 256 % Add: Acquisition integration and restructuring costs 6.9 — 6.9 100 % Add: Write-off of prepaid proprietary software licenses 0.4 — 0.4 100 % Add: Impairment of cost method investment 0.2 1.8 (1.6 ) (89 )% Less: Gain on sale of assets — (0.5 ) 0.5 (100 )% Total Non-GAAP adjustments 56.1 25.6 30.5 119 % Non-GAAP income from operations $ 75.5 $ 76.5 $ (1.0 ) (1 )% Non-GAAP operating margin 17 % 21 % Year ended December 31, (in millions) 2011 2010 Change % Change License fees $ 19.5 $ 23.7 $ (4.2 ) (18 )% Subscriptions 103.5 83.9 19.6 23 % Services 108.8 87.7 21.1 24 % Maintenance 130.6 124.6 6.0 5 % Other 8.5 6.7 1.8 27 % Total revenue $ 370.9 $ 326.6 $ 44.3 14 % Year ended December 31, (in millions) 2011 2010 Change % Change License fees revenue $ 19.5 $ 23.7 $ (4.2 ) (18 )% Cost of license fees 3.3 3.0 0.3 10 % License fees gross profit $ 16.2 $ 20.7 $ (4.5 ) (22 )% License fees gross margin 83 % 87 % Year ended December 31, (in millions) 2011 2010 Change % Change Subscriptions revenue $ 103.5 $ 83.9 $ 19.6 23 % Cost of subscriptions 42.5 31.2 11.3 36 % Subscriptions gross profit $ 61.0 $ 52.7 $ 8.3 16 % Subscriptions gross margin 59 % 63 % Year ended December 31, (in millions) 2011 2010 Change % Change Services revenue $ 108.8 $ 87.7 $ 21.1 24 % Cost of services 79.1 66.8 12.3 18 % Services gross profit $ 29.7 $ 20.9 $ 8.8 42 % Services gross margin 27 % 24 % iswas principally attributable to an increase in consulting services revenue of $14.4 million, analytic services of $3.8 million and education services of $2.9 million. Revenue from acquired companies represented $0.8 million of consulting services and $1.9 million of analytic services revenue growth during 2011 compared to 2010. The increase in consulting services revenueBlackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)is was primarily due to an increase in the demand for consulting, installation and implementation services associated with our Blackbaud CRM offering and our internet based fundraising offerings. This increase in consulting services revenue resulting from an increase in volume was partially offset by an increase in our investment, in the form of non-billable implementation hours, in early adopters of our Blackbaud CRM offering and a reduction in the rates we chargecharged as a result of a higher level of discounts on the consulting services provided during 2011 compared to 2010. The rates we chargecharged for our education and analytic service offerings have remained relatively constant year over year and, as such, the change in revenue iswas principally the result of an increase in the volume of services provided.iswas principally comprised of human resource costs, stock-based compensation expense, third-party contractor expenses, classroom rentals, other costs incurred in providing consulting, installation and implementation services and customer training, data expense incurred to perform analytic services, an allocation of depreciation, facilities and IT support costs and amortization of intangibles from business combinations.iswas primarily attributable to an increase in human resource costs and third-party contractor costs. The increase in human resource costs and third-party contractor costs iswas principally attributable to the need for additional resource capacity to meet the increasing consulting services demands of our customers and the additional headcount from acquired companies. Years ended December 31, (in millions) 2011 2010 Change % Change $ 130.6 $ 124.6 $ 6.0 5 % 25.2 24.1 1.1 5 % $ 105.4 $ 100.5 $ 4.9 5 % 81 % 81 % Year ended December 31, (in millions) 2011 2010 Change % Change Maintenance revenue $ 130.6 $ 124.6 $ 6.0 5 % Cost of maintenance 25.2 24.1 1.1 5 % Maintenance gross profit $ 105.4 $ 100.5 $ 4.9 5 % Maintenance gross margin 81 % 81 % isfor 2011 and 2010 was comprised of annual fees derived from maintenance contracts associated with new software licenses and annual renewals of existing maintenance contracts. These contracts provide customers with updates, enhancements and upgrades to our software products and online, telephone and email support. During 2011, the increase in maintenance revenue iswas principally comprised of $11.3 million of maintenance from new customers associated with new license agreements and increases in contracts with existing customers and $3.8 million from maintenance contract inflationary rate adjustments, offset by $9.1 million from maintenance contracts that were not renewed.isfor 2011 and 2010 was primarily comprised of human resource costs, stock-based compensation expense, third-party contractor expenses, third-party royalty costs, an allocation of depreciation, facilities and IT support costs, amortization of intangibles from business combinations and other costs incurred in providing support and services to our customers. The increase in cost of maintenance in 2011 when compared to 2010 iswas principally attributable to an increase in human resource costs of $1.5 million partially offset by a $0.2 million decrease in third-party royalty costs and $0.2 million decrease in amortization of intangibles from business combinations. Human resource costs increased due to salary merit increases and an increase in headcount associated with theBlackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)continuecontinued to experience a shift to higher skilled support resources that carry a higher cost to meet the needs of our enterprise customers. Years ended December 31, (in millions) 2011 2010 Change % Change $ 8.5 $ 6.7 $ 1.8 27 % 7.0 7.1 (0.1 ) (1 )% $ 1.5 $ (0.4 ) $ 1.9 (475 )% 18 % (6 )% Year ended December 31, (in millions) 2011 2010 Change % Change Other revenue $ 8.5 $ 6.7 $ 1.8 27 % Cost of other revenue 7.0 7.1 (0.1 ) (1 )% Other gross profit $ 1.5 $ (0.4 ) $ 1.9 (475 )% Other gross margin 18 % (6 )% includesfor 2011 and 2010 included the sale of business forms that are used in conjunction with our software products, reimbursement of travel-related expenses, primarily incurred during the performance of services at customer locations, fees from user conferences and third-party software referral fees. Other revenue increased in 2011 when compared to 2010 primarily due to an increase in revenue from third-party software referral fees and in reimbursement of travel-related expenses associated with the growth in services revenue.includesfor 2011 and 2010 included human resource costs, costs of business forms, costs of user conferences, reimbursable expenses relating to the performance of services at customer locations, an allocation of depreciation, facilities and IT support costs and amortization of intangibles from business combinations. In total, cost of other revenue in 2011 when compared to 2010 decreased by $0.1 million due to a reduction in user conference expenses offset by an increase in reimbursable expenses. Years ended December 31, (in millions) 2011 2010 Change % Change $ 75.4 $ 69.5 $ 5.9 8 % 20 % 21 % Year ended December 31, (in millions) 2011 2010 Change % Change Sales and marketing expense $ 75.4 $ 69.5 $ 5.9 8 % % of revenue 20 % 21 % includesfor 2011 and 2010 included salaries and related human resource costs, stock-based compensation expense, travel-related expenses, sales commissions, advertising and marketing materials, public relations and an allocation of depreciation, facilities and IT support costs. During 2011, sales and marketing expense increased by $5.9 million when compared to 2010 primarily due to an increase of $3.6 million in human resource costs and $2.0 million in commission expense. The increase in human resource costs iswas a result of additional headcount to support the increase in selling and marketing efforts of our growing operations. The increase in commission expense iswas principally attributable to an increase in commissionable revenue in 2011. Additionally, marketing programs increased by $0.3 million relating to the launch of our new corporate branding and an increase in marketing costs associated with our new packaged offerings.Blackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)standardizestandardized and simplifysimplified our packaged offerings. Years ended December 31, (in millions) 2011 2010 Change % Change $ 47.7 $ 45.5 $ 2.2 5 % 13 % 14 % Year ended December 31, (in millions) 2011 2010 Change % Change Research and development expense $ 47.7 $ 45.5 $ 2.2 5 % % of revenue 13 % 14 % includesfor 2011 and 2010 included human resource costs, stock-based compensation expense, third-party contractor expenses, software development tools and other expenses related to developing new products, upgrading and enhancing existing products, and an allocation of depreciation, facilities and IT support costs. During 2011, human resource and third-party costs increased by $3.0 million partially offset by an increase in the amount of software development costs that were capitalized of $0.8 million. Human resource and third-party contractor costs have increased as we continuecontinued to invest in our product development efforts. The increase in amount of costs that are capitalized iswas primarily due to development efforts with our events management solution. Years ended December 31, (in millions) 2011 2010 Change % Change $ 36.9 $ 32.6 $ 4.3 13 % 10 % 10 % Year ended December 31, (in millions) 2011 2010 Change % Change General and administrative expense $ 36.9 $ 32.6 $ 4.3 13 % % of revenue 10 % 10 % consistsfor 2011 and 2010 consisted primarily of human resource costs for general corporate functions, including senior management, finance, accounting, legal, human resources, corporate development, stock-based compensation expense, third-party professional fees, insurance, an allocation of depreciation, facilities and IT support costs, acquisition related expense and other administrative expenses. During 2011, general and administrative expense increased primarily due to $1.3 million and $1.1 million increases in stock-based compensation expense and human resource costs, respectively, a $0.8 million increase in acquisition-related expenses, $0.5 million in third-party professional consulting fees and $0.3 million in recruiting costs associated with hiring key executives in 2011. Acquisition-related costs related primarily to the acquisition of PIDI, EDH and the pending acquisition of Convio. Stock-based compensation increased due to a change in the type of equity awards granted to certain executives to be performance-based, for which expense is recognized on an accelerated basis.Non-GAAP income from operationsThe operating results analyzed below are presented on a non-GAAP basis in that the results exclude the impactoperations—(Continued)method investment and gain on sale of assets. We believe that the exclusion of these costs allows us and investors to better understand our operating expenses and cash needs, particularily when evaluating current performance against prior periods. Years ended December 31, (in millions) 2011 2010 Change % Change $ 50.9 $ 46.0 $ 4.9 11 % 14.9 13.1 1.8 14 % 7.6 7.1 0.5 7 % 1.8 1.0 0.8 80 % 1.8 — 1.8 0 % (0.5 ) — (0.5 ) 0 % 25.6 21.2 4.4 21 % $ 76.5 $ 67.2 $ 9.3 14 % 21 % 21 % The increase in non-GAAP income from operations is consistent with the overall increase in revenue of 14% and is principally attributable to the growth in gross profit in our subscriptions and services operations as discussed above, partially offset by investments, in the form of non-billable implementation hours, we made during 2011 in early adopters of our Blackbaud CRM offering.Comparison of the years ended December 31, 2010 and 2009RevenueThe table below compares revenue from our statement of operations for the years ended December 31, 2010 and 2009. Years ended December 31, (in millions) 2010 2009 Change % Change $ 23.7 $ 25.7 $ (2.0 ) (8 )% 83.9 73.2 10.7 15 % 87.7 87.2 0.5 1 % 124.6 116.4 8.2 7 % 6.7 7.0 (0.3 ) (4 )% $ 326.6 $ 309.5 $ 17.1 6 % The total revenue increased $17.1 million, or 6% in 2010 compared to 2009. The increase in revenue is primarily attributable to growth in our subscriptions and maintenance revenue. The increase in subscriptions revenue is primarily attributable to an increase in demand for our hosted offerings, hosting services, online fundraising and data management offerings. This increase has been driven, in part, by the ongoing evolution of our product offerings from a license-based to subscription-based business model. The increase in maintenance revenue is attributable to new maintenance contracts associated with new license agreements sold over the last twelve months and increases in contracts with existing customers. These increases are offset by a decrease in license fees which is principally attributable to a smaller contribution in 2010 from Blackbaud CRM perpetual license arrangements with upfront revenue recognition. Additionally, we continue to experience a shift in our customers’ buying preference away from perpetual licenses towards hosted solutions.Blackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)Operating resultsLicense fees Years ended December 31, (in millions) 2010 2009 Change % Change $ 23.7 $ 25.7 $ (2.0 ) (8 )% 3.0 3.7 (0.7 ) (19 )% $ 20.7 $ 22.0 $ (1.3 ) (6 )% 87 % 86 % During 2010, revenue from license fees to existing customers increased $0.8 million and sales to new customers decreased by $2.8 million. The decrease in license fees is largely the result of a smaller contribution in 2010 from Blackbaud CRM sales with upfront revenue recognition when compared with 2009 and the continued shift in our customers’ buying preference away from solutions offered under perpetual license arrangements towards subscription-based hosted applications.The decrease in cost of license fees in 2010 compared to 2009 is primarily attributable to lower third-party software royalty costs, which is directly the result of the reduction in sales of perpetual licenses in 2010 when compared with 2009.The increase in license fee gross margin in 2010 compared to 2009 is the result of a change in the mix of products sold. During 2010, we sold fewer products with associated third-party software royalty costs.Subscriptions Years ended December 31, (in millions) 2010 2009 Change % Change $ 83.9 $ 73.2 $ 10.7 15 % 31.2 28.2 3.0 11 % $ 52.7 $ 45.0 $ 7.7 17 % 63 % 61 % The increase in subscriptions revenue during 2010 is principally attributable to the increase in demand for online fundraising offerings, data management offerings and hosting services. We continue to experience growth in our hosted applications business and are increasingly experiencing a shift in our customers’ buying preference away from perpetual licenses towards subscription based-offerings. Additionally, revenue from our hosting services continues to increase as demand for these services continues to grow from both our existing and new perpetual license customers.The increase in cost of subscriptions in 2010 when compared to 2009 is principally due to an increase in human resource costs of $2.1 million as a result of an increase in headcount. Data expense and hosting costs also increased resulting from an increase in the demand for hosting and other online services.The subscriptions gross margin increased during 2010 due to the increase in demand of our subscription-based offerings and our ability to support the growth in demand without increasing costs.Blackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)Services Years ended December 31, (in millions) 2010 2009 Change % Change $ 87.7 $ 87.2 $ 0.5 1 % 66.8 61.6 5.2 8 % $ 20.9 $ 25.6 $ (4.7 ) (18 )% 24 % 29 % The increase in services revenue during 2010 when compared to 2009 is principally attributable to an increase in consulting services revenue of $2.1 million and analytic services of $0.4 million, partially offset by a decrease in education services revenue of $2.0 million. The increase in consulting services revenue is largely due to an increase in the demand for consulting services associated with our Blackbaud CRM offering and our internet- based fundraising offerings. The increase in consulting services revenue resulting from an increase in volume was partially offset by an increase in our investment, in the form of non-billable implementation hours, in early adopters of our Blackbaud CRM offering and a reduction in the rates we charge as a result of a higher level of discounts on the consulting services provided during 2010 compared to 2009. The rates we charge for our education and analytic service offerings have remained relatively constant year over year and, as such, the change in revenue is principally the result of a change in the volume of services provided.The increase in cost of services in 2010 is primarily attributable to an increase in human resource costs of $3.8 million, third-party contractor costs of $1.8 million and stock-based compensation expense of $0.3 million, partially offset by a decrease in training-related costs and data expense of $0.8 million. The increase in costs is principally attributable to the need for additional resource capacity to meet the increasing consulting services demands of our customers.The services gross margin decreased in 2010 compared to 2009 primarily as a result of investments made in the form of non-billable implementation hours for the benefit of early adopters of our Blackbaud CRM offering and additional headcount to meet the increasing consulting services demands of our customers.Maintenance Years ended December 31, (in millions) 2010 2009 Change % Change $ 124.6 $ 116.4 $ 8.2 7 % 24.1 21.6 2.5 12 % $ 100.5 $ 94.8 $ 5.7 6 % 81 % 81 % During 2010, the increase in maintenance revenue is principally comprised of $8.9 million of maintenance from new customers associated with new license agreements and increases in contracts with existing customers and $3.3 million from maintenance contract inflationary rate adjustments, offset by $4.1 million from maintenance contracts that were not renewed.The increase in cost of maintenance in 2010 when compared to 2009 is principally attributable to an increase in human resource costs of $1.4 million and third-party royalty costs of $1.2 million. Human resource costs increased due to salary merit increases and an increase in headcount associated with the continued growth in ourBlackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)customer support function commensurate with maintenance revenue growth. The increase in third-party royalty costs is attributable to increases in maintenance contracts with new and existing customers for software products which include third-party software arrangements.Other revenue Years ended December 31, (in millions) 2010 2009 Change % Change $ 6.7 $ 7.0 $ (0.3 ) (4 )% 7.1 6.1 1.0 16 % $ (0.4 ) $ 0.9 $ (1.3 ) (144 )% (6 )% 13 % The decrease in other revenue in 2010 when compared to 2009 is principally due to a decrease in reimbursable travel revenue related to providing services at customer locations.The increase in the cost of other revenue in 2010 when compared to 2009 is principally attributable to an increase in the cost of our principal user conference resulting from a shift in venue that would allow us to host more customers and prospects.Other gross margin decreased in 2010 when compared to 2009. While we had fewer user conferences in 2010 as compared to 2009, we made greater investments in the 2010 user conferences when compared to 2009, which is driving the decrease in other gross margin.Operating expensesSales and marketing Years ended December 31, (in millions) 2010 2009 Change % Change $ 69.5 $ 63.5 $ 6.0 9 % 21 % 21 % During 2010, sales and marketing expense increased when compared to 2009 primarily due to an increase of $2.8 million in commission expense. The increase in commission expense is principally attributable to higher commission rates due to under-achievement of plans in 2009, and an increase in commissionable revenue in 2010. Additionally, human resource costs increased by $1.4 million as a result of additional headcount and salary merit increases. The remaining increase is primarily due to an increase of $1.9 million in travel and other marketing expenses as a result of increased investment in selling and marketing programs to support both our new and newly packaged offerings.Research and development Years ended December 31, (in millions) 2010 2009 Change % Change $ 45.5 $ 45.5 $ — 0 % 14 % 15 % Blackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)During 2010, human resource and third party costs increased by $0.9 million, all of which was offset by an increase in costs allocated to cost of services commensurate with the development efforts supporting product customizations under revenue generating arrangements. Human resource and third-party contractor costs have increased as we continue to invest in our product development efforts.The decrease in research and development expense as a percentage of revenue during 2010 compared to the same period in 2009 is principally attributable to an increase in costs allocated to cost of services commensurate with the development efforts supporting product customizations under revenue generating arrangements.General and administrative Years ended December 31, (in millions) 2010 2009 Change % Change $ 32.6 $ 33.4 $ (0.8 ) (2 )% 10 % 11 % During 2010, the decrease in general and administrative expense and general and administrative expense as a percentage of revenue was principally due to a decrease in human resource costs of $1.8 million and bad debt expense of $0.3 million partially offset by $1.0 million in acquisition expenses relating to NOZA. The decrease in human resource costs is primarily due to a decrease in headcount resulting from consolidation and centralization efforts in the second half of 2009 and first quarter of 2010 of our accounting function from acquisitions in prior years. Years ended December 31, (in millions) 2010 2009 Change % Change $ 46.0 $ 45.2 $ 0.8 2 % — 3.4 (3.4 ) (100 )% 13.1 12.4 0.7 6 % 7.1 7.2 (0.1 ) (1 )% 1.0 — 1.0 0 % 21.2 23.0 (1.8 ) (8 )% $ 67.2 $ 68.2 $ (1.0 ) (1 )% 21 % 22 % Year ended December 31, (in millions) 2011 2010 Change % Change GAAP income from operations $ 50.9 $ 46.0 $ 4.9 11 % Non-GAAP adjustments: Add: Stock-based compensation expense 14.9 13.1 1.8 14 % Add: Amortization of intangibles from business combinations 7.6 7.1 0.5 7 % Add: Acquisition-related expenses 1.8 1.0 0.8 80 % Add: Impairment of cost method investment 1.8 — 1.8 100 % Less: Gain on sale of assets (0.5 ) — (0.5 ) 100 % Total Non-GAAP adjustments 25.6 21.2 4.4 21 % Non-GAAP income from operations $ 76.5 $ 67.2 $ 9.3 14 % Non-GAAP operating margin 21 % 21 % decreaseincrease in non-GAAP income from operations was consistent with the overall increase in revenue of 14% and operating margin iswas principally attributable to the growth in gross profit in our subscriptions and services operations as discussed above, partially offset by investments, in the form of non-billable implementation hours, we made during 20102011 in early adopters of our Blackbaud CRM offering, partially offset byoffering.decreaseborrowings we incurred to fund our acquisition of Convio in general and administrative expenses resulting from consolidation and centralization efforts of our accounting function.Blackbaud, Inc.May 2012.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)Following 2011 2010 2009 35.2 % 36.5 % 38.9 % 2012 2011 2010 Effective tax rate 50.6 % 35.2 % 36.5 % allowance.allowances. In 2011, we reversed $1.0 million of valuation allowance for certain state net operating loss carryforwards in connection with the completion of certain state tax planning strategies. The effective tax rate in 2010 decreased when compared to 2009 because we received a greater amount of federal and state tax credits in 2010.The following table reconciles the amountsbenefits for the years ended December 31: (in millions) 2011 2010 2009 $ 1.4 $ 1.2 $ 0.3 0.1 0.1 0.4 0.3 0.3 0.5 — (0.2 ) — $ 1.8 $ 1.4 $ 1.2 The amount of unrecognized tax benefits that, if recognized, would favorably affect our effective tax rate was $1.8 million at December 31, 2011. The total amount of accrued interest and penalties includedreturns in the consolidated balance sheetU.S. for federal and various state jurisdictions as of December 31, 2011well as in foreign jurisdictions including Canada, United Kingdom, Australia and 2010 was $0.2 million and $0.1 million, respectively. The total amount of interest and penalties included in the consolidated statement of operations for 2011 and 2010 was $0.1 million and $0.2 million, respectively, of an increase inNetherlands. We are generally subject to U.S. federal income tax expenseexamination for calendar tax years ending 2009 through 2011 as well as state and a decrease inforeign income tax expenseexaminations for 2010. The total amountvarious years depending on statute of interest and penalties included in the consolidated statementlimitations of operations for 2009 was immaterial. to state nexus issues for which it is reasonably possible that the total amount of unrecognized tax benefits may decrease within the next twelve months. The possible decrease could result from the finalization of state income tax reviews and the expiration of statutes of limitations. The reasonably possible decrease is not materialapproximates $0.9 million at December 31, 2011.We file income tax returns in the U.S. for federal and various state jurisdictions as well as in foreign jurisdictions including Canada, United Kingdom, Australia and Netherlands. We are generally subject to U.S. federal income tax examination for calendar tax years ending 2008 through 2010 as well as state and foreign income tax examinations for various years depending on statute of limitations of those jurisdictions.2011,2012, cash and cash equivalents totaled $52.5$13.5 million, compared to $28.0$52.5 million at December 31, 2010. The $24.52011. During 2012, we generated $68.7 million increase in of cash flow from operations and borrowed $315.0 million under our credit facility. We used our cash flow from operations, borrowings under the credit facility and cash equivalents during 2011 is principallyon hand to fund the resultBlackbaud, Inc.Item 7. Management’s discussion and analysis$280.4 million acquisition of financial condition and results of operations—(Continued)of generating $85.5 million of cash from operations, of which we used $23.4 million to acquire companies, $21.4 million toConvio, pay dividends of $18.2purchase $20.6 million to purchase of computer software and equipment.has historically beenis our operating cash flow, which depends on continued customer renewal of our maintenance, support and subscription agreements and market acceptance of our products and services. Based on current estimates of revenue and expenses, we believe that the currently available cashsources of funds and anticipated cash flows from operations will be adequate for at least the next twelve12 months to finance our operations, fund anticipated capital expenditures, meet our debt obligations and pay dividends. Dividend payments are not guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to declare or pay further dividends. Our stockdividends and/or repurchase program authorizes us to purchase up to $50.0 million of our outstanding shares of common Stock. Repurchases of common stock are not guaranteed and can be limited at the discretion of our Board of Directors.At December 31, 2011, we had no outstanding borrowings under our former credit facility and were in compliance with the covenants thereunder. stock.drewhave drawn on our credit facility from time to time to help us meet short-term financial needs, such as business acquisitions and purchasepurchases of common stock under our repurchase program. In February 2012, we amended and restated our credit facility to increase the available borrowing capacity to $325.0 million. The amended credit facility matures in February 2017. We expect to incur a substantial amount of debt in connection with the proposed acquisition of Convio. We believe our amended credit facility provideswill provide us liquidity to acquire Convio, and also with sufficient flexibility to meet our other anticipatedfuture financial needs.2011,2012, we had $215.5 million of outstanding borrowings under our credit facility. Our average daily borrowings were $244.9 million during the period we had debt outstanding during 2012.Financial Covenant Requirement Ratio as of December 31, 2012 Leverage Ratio < 3.00 to 1.00 2.31 to 1.00 Interest Coverage Ratio > 3.50 to 1.00 16.61 to 1.00 Maximum Capital Expenditures $40.0 million for the fiscal year ended December 31, 2012 $22.6 million equivalentequivalents balance includes $11.3approximately $4.7 million of cash that was held by operations outside of the U.S. IfWhile these funds aremay not be needed to fund our U.S. operations for our operations inat least the U.S.,next 12 months, if we need these funds, we would be required to accrue and pay U.S. taxes to repatriate thesethe funds. Our current plans anticipate repatriating undistributed earnings in Canada. We currently do not demonstrateanticipate a need to repatriate them to fund our other cash held outside the U.S. operations.years,2012 and 2011, our cash flows from operations were derived principally from: (i) our earnings from on-going operations prior to non-cash expenses such as depreciation, amortization and stock-based compensation and adjustments to our provision for salescomprisedcomposed of changes in accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses accruedand other liabilities and deferred revenue. Cash flow provided byfrom operations that was associated with working capital increased $15.6decreased $8.9 million in 20112012 when compared to 2010. The2011. This net increase is principally due to:An increase in cash flow from accounts receivable of $4.1 million, primarily due to an improvement in our collection of accounts receivable as a result of an increase in the use of auto-pay programs by our customers; andA year-over-year increase in cash flow of $14.1 million due to fluctuations in the timing of cash paid for income taxes; partially offset byA decrease in cash flow of $2.6 million primarily due to the timing of payments of prepaid costs.The provision for doubtful accounts and sales returns increased $2.9 million during 2011 when compared to 2010. The increase is principally due to an increase in credits related to consulting services associated with early adoptersthe amount of Blackbaud CRMcash paid for income taxes, fluctuations in the timing of vendor payments, partially offset by a decrease in the amount of deferred commissions and other customer credits provided in the ordinary course of business that have increased commensurate with our growth in sales.Blackbaud, Inc.deferred costs.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)20112012 for investing activities was $41.7$302.5 million compared to $18.4$41.7 million in 2010. This2011. The increase is due to the purchaseacquisition of PIDI and EDH.Convio in May 2012. Additionally, we increased the amount spent on softwarecomputer equipment and computer equipmentsoftware associated with the infrastructure that supports our subscription-based offerings from $10.8$18.2 million in 20102011 to $18.2$20.6 million in 2011.2011, cash used for financing activities was principally attributable to $21.42012, we received proceeds from borrowings of $315.0 million of dividend payments to stockholders. We did not have any borrowings or repayments under our former credit facility to fund the acquisition of Convio and we did not repurchase any treasury shares duringmade debt repayments of $99.5 million. We paid dividends of $21.7 million which was relatively consistent with the amount paid in 2011. During 2010, cash used for financing activities was principally attributable to $22.6 million of treasury share repurchases and $19.5 million of dividend payments to stockholders.2011,2012, we had future minimum lease commitments of $63.9 million as follows: Payments due by period (in millions) Total Less than 1
year 1-2 years 3-5 years More than
5 years $ 63.9 $ 7.2 $ 6.1 $ 15.5 $ 35.1 Payments due by period (in millions) Total Less than 1 year 1-2 years 3-5 years More than 5 years Operating leases $ 83.8 $ 10.3 $ 17.9 $ 14.7 $ 40.9 237.2 16.0 39.4 181.8 — Total $ 321.0 $ 26.3 $ 57.3 $ 196.5 $ 40.9 (1) Included in the table above is $21.7 million of interest. The actual interest expense recognized in our consolidated statements of comprehensive income will depend on the amount of debt, the length of time the debt is outstanding and the interest rate, which could be different from our assumptions used in the above table. that expire in 2014incentive payments and reimbursement of leasehold improvements totaling $3.8 million. As of December 31, 2011, we had accrued $1.6 million of federal taxes, $0.2 million of state taxes and $0.1 million of interest and penalties related to uncertain tax positions taken in current and prior years. Please refer to Note 11 in our notes to the consolidated financial statements for further information. We are unable to determine the period in which these liabilities will be settled, and accordingly, we have not included these amounts in the table above. annual purchase commitments under these arrangements at December 31, 2011, are2012, were approximately $8.1$4.5 million through 2013, which is not included in the table above.2015. We incurred expense under these arrangements of $6.8$1.3 million $4.1, $3.2 million and $2.5$1.7 million for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively.2012,2013, our Board of Directors approved our annual dividend rate of $0.48$0.48 per share for 2012 and declared a first quarter dividend of $0.12 per share payable on March 15, 2012, to stockholders of record on March 5, 2012.2013. Dividends at the annual rate would aggregate to $21.1$22.1 million assuming 44.046.0 million shares of common stock are outstanding, net of treasury stock.outstanding. Our ability to continue to declare and pay dividends mayquarterly this year and beyond might be restricted by, among other things, the terms of our credit facility, general economic conditions and our ability to generate adequate operating cash flow.Blackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)2011,2012 was derived from operations outside the United States. We do not have significant operations in countries in which the economy is considered to be highly inflationary. Our consolidated financial statements are denominated in U.S. dollars and, accordingly, changes in the exchange ratesrate between foreign currencies and the U.S. dollar will affect the translation of our subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial results. The accumulated currency translation adjustment, recorded within other comprehensive loss as a separate component of stockholders’ equity, was a loss of $1.2 million and $1.1 million at December 31, 2012and $0.8 million at December 31, 2011 and 2010,, respectively.entitiesentity are almost always denominated in U.S. dollars, contracts entered into by our Canadian subsidiary are generally denominated in Canadian dollars, and contracts entered into by our U.K., Australian and the Netherlands subsidiaries are generally denominated in pounds sterling, Australian dollars and Euros, respectively. Historically, as the U.S. dollar weakened, foreign currency translation resulted in an increase in our revenues and expenses denominated in non-U.S. currencies. WeDuring 2012, foreign translation resulted in a decrease in our revenues and expenses denominated in non-U.S. currencies. Though we do not believe our exposure to currency exchange rates has had a material impact on our consolidated results of operations or financial position, and therefore we do not hedge any foreign currency risk; however, we intend to continue to monitor our foreign currency exchange ratesuch exposure and take action as appropriate.revenue and expenses and related disclosuresdisclosure of contingent assets and liabilities.liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets and goodwill, stock-based compensation, the provision for income taxes, capitalization of software development costs, our allowance for sales returns and doubtful accounts, valuation of long-liveddeferred sales commissions, accounting for business combinations and intangible assets and goodwill, stock-based compensation and provision for income taxes, valuation of deferred tax assets and liabilities andloss contingencies.(1) selling perpetual licenses of our software products; (2)(i) charging for the use of our software products in a hosted environment; (3)(ii) selling perpetual licenses of our software products; (iii) providing professional services including implementation, training, consulting, analytic, hosting and other services; and (4)(iv) providing software maintenance and support services.License fees from the sale of perpetual software license rights when all of the following conditions are met:operations—(Continued)operations (continued)The fee is fixed or determinable;Collection of the resulting receivable is probable.license agreement doesagreements do not include customer acceptance provisions; however, if acceptance provisions are provided, delivery is deemed to occur upon acceptance. We consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our standard payment terms. Payment terms greater than delivered components, normally the license componenteach of the arrangement,elements in these arrangements using the residual value method under which we first allocate revenue to the undelivered elements, typically the non-software license components, based on objective evidence of the fair value of the undeliveredvarious elements. We determine the fair value of the various elements which is specific to us.using different methods. Fair value for maintenance services associated with software licenses is based upon renewal rates stated in the agreements with customers, which vary according to the level of support service provided under the maintenance program. Fair value of professional services and other products and services is based on sales of these products and services to other customers when sold on a stand-alone basis. Any remaining revenue is allocated to the delivered elements which is normally the software license in the arrangement.on a percent-complete basis.SubscriptionsWe provide hosting services to customers who have purchased perpetual rights to certainusing the percentage-of-completion method.operations—(Continued)method in accordance with the selling price hierarchy, which includes: (i) vendor specific objective evidence (VSOE) if available; (ii) third party evidence (TPE) if VSOE is not available; and (iii) best estimate of selling price if neither VSOE nor TPE is available. In general, we use VSOE to allocate the selling price to subscription and service deliverables.Revenue from transaction processing fees is recognized when received. Credit card fees directly associated with processing donations for customers are included in subscriptions revenue, net of related transaction costs. is recognized only upon the customer attending and completing training. Additionally, we sell fixed-rate programs, which permit customers to attend unlimited training over a specified contract period, typically one year, subject to certain restrictions, and revenue is recognized ratably over this contract period.Maintenancewhich is typically one year. Maintenance contracts are at rates that vary according to the level of the maintenance program and are generally renewable annually. Maintenance contracts also include the right to unspecified product upgrades on an if-and-when available basis. Certain support services are sold in prepaid units of time and recognized as revenue upon their usage.the our customers are billed or pay for the above described services in advance of delivery, we record such amounts in deferred revenue.Sales returns and allowance for doubtful accountsWe provide customers a 30-day right of return and under certain circumstances we provide service related credits to our customers. We maintain a reserve for returns and credits which is estimated based on several factors including historical experience, known credits yet to be issued and the nature of service level commitments. A considerable amount of judgment is required in assessing these factors. Provisions for sales returns are charged against the related revenue items.We maintain an allowance for doubtful accounts at an amount we estimate to be sufficient to provide adequate protection against losses resulting from extending credit to our customers. In judging the adequacy of the allowance for doubtful accounts, we consider multiple factors including historical bad debt experience, the general economic environment, the need for specific customer reserves and the aging of our receivables. A considerable amount of judgment is required in assessing these factors and if any receivables were to deteriorate, an additional provision for doubtful accounts could be required. Any necessary provision is reflected in general and administrative expense.Blackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)1516 to our consolidated financial statements), and Blackbaud Payment Processing Services. We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Significant judgment is required in the assessment of qualitative factors. To the extent the qualitative factors indicate that the fair value is more likely than not less than the carrying amount, we then compare the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, impairment is indicated. If an impairment is indicated, the impairment is measured as the excess of the recorded goodwill over its fair value, which could materially adversely impact our consolidated financial position and results of operations. Significant judgment is required in the assessment of qualitative factors.20112012 annual impairment test of our goodwill indicated there was no impairment.is recognizedrecognize it as expense over the requisite service period, which is the vesting period. We determine the fair value of the stock options and stock appreciation rights and certain performance-based restricted stock units using a Black-Scholes option pricing models,model, which requires us to use significant judgment to make estimates regarding the life of the award, volatility of our stock price, the risk-free interest rate and the dividend yield of our stock over the life of the award. We determine the fair value of awards that contain market conditions using a Monte Carlo simulation model. Changes to these estimates would result in different fair values of awards.forfeitureestimated and actual forfeitures.actual forfeitures.Blackbaud, Inc.Item 7. Management’s discussion and analysis of financial condition and results of operations—(Continued)Provisionjudgments in accounting for income tax and valuationtaxes. The calculation of deferred tax assetsWe account for income taxes using the asset and liability approach to recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or income tax returns. Using the enacted tax rates in effect for the year in which we expect the differences to reverse, we determine deferred tax assets and liabilities based on the differences between the financial reporting and the tax basis of an asset or liability. We record a valuation allowance when it is more likely than not that the deferred tax asset will not be realized.Significant judgment is required in determining income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in a net deferred tax asset or liability that is included in our consolidated balance sheets. The final outcome of these matters for tax reporting purposes might be different than that which is reflected in our historical income tax provisions, benefits and accruals. Any difference could have a material effect on our income tax provision requires estimates due to transactions, credits and net income incalculations where the period in which such aultimate tax determination is made.Prior to October 13, 1999, we were organizeduncertain. Uncertainties arise as an S corporation under the Internal Revenue Code and, therefore, were not subject to federal income taxes. In addition, we were not subject to income tax in manya consequence of the states in which we operated as a resultactual source of our S corporation status. We historically made distributions to our stockholders to covertaxable income between domestic and foreign locations, the stockholders’ anticipatedoutcome of tax liability. In connection with our 1999 recapitalization, we converted our U.S. taxable status from an S corporation to a C corporation. Accordingly, since October 14, 1999 we have been subject to federalaudits and state income taxes. Upon the conversion and in connection with the recapitalization, we recorded a one-time benefitultimate utilization of $107.0 million to establish a deferred tax asset.We assess the likelihood that our deferred tax assets will be recovered from future taxable income.credits. To the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance, we include an expense within the income tax provision in the consolidated statement of operations. Our valuation allowance of $10.1 million at December 31, 2011 is primarily associated with deferred tax assets for certain state income tax credits, net operating loss carryforwards and capital loss carryforwards that we have determined are not more-likely-than-not to be realized. The ability to utilize our net deferred tax asset is dependent on our ability to generate future taxable income. Based on current estimates of revenue and expenses, we expect future taxable income will be sufficient to realize the remaining deferred tax assets. Even if actual results are significantly below our current estimates, the recovery still remains likely and, except for the state tax credits and net operating loss carryforwards discussed above, no valuation allowance would be necessary.Significant judgment is required in determining the provision for income taxes. To the extent that final results differ from estimated amounts that were initially recorded, such differences will impact the income tax provision in the period in which suchthe determination is made and could have an impact on the deferred tax asset. Our deferredmade.are recorded at an amount based upon a U.S. federal incomewhich arise from differences in the timing of recognition of revenue and expense for tax rate of 35.0% and appropriate statutory rates of various foreign, state and local jurisdictions in which we operate. If our tax rates change, we will adjustfinancial statement purposes. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of a recorded valuation allowance significant judgment is required. We consider all positive and negative evidence and a variety of factors including the scheduled reversal of deferred tax liabilities, historical and projected future taxable income, and prudent and feasible tax planning strategies. If we determine there is less than a 50% likelihood that we will be able to use a deferred tax asset in the future in excess of its net carrying value, then an amount reflecting thoseadjustment to the deferred tax asset valuation allowance is made to reduce income tax rates. If such change is determined to be appropriate, it will affect the provision forexpense, thereby increasing net income taxes duringin the period that thesuch determination iswas made. the tax impact from an uncertain tax position onlypositions. To recognize such positions we must first determine if it is more-likely-than-notmore likely than not that the tax position will be sustained on examination by taxing authorities, based onaudit. We must then measure the technical merits of the position. Such tax impact recognized in the consolidated financial statements from such a position is measured based onbenefit as the largest benefitamount that has a greateris more than 50% likelihoodlikely of being realized upon ultimate resolution.settlement. Significant judgment is required in the identification and measurement of uncertain tax positions.operations—(Continued)2011, we adopted Accounting Standards Update (ASU) 2009-13, which amends the existing criteria for separating consideration in multiple-deliverable arrangements. Arrangements that include perpetual software licenses are excluded from the scope of this ASU. ASU 2009-13 establishes a hierarchy for determining the selling price of a deliverable and requires the use of best estimate of the selling price when VSOE or TPE of the selling price cannot be determined. As a result of the requirement to use the best estimate of the selling price when VSOE or TPE of the selling price cannot be determined, the residual method will no longer be permitted. ASU 2009-13 is applicable prospectively for revenue arrangements entered into or materially modified after the adoption date. The adoption of ASU 2009-13 did not have a material impact on our consolidated financial statements.Effective December 31, 2011,2012, we adopted ASU 2011-08,2011-05, simplifies how entities test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The adoption of ASU 2011-08 did not have a material impact on our consolidated financial statements.Recently issued accounting pronouncementsIn June 2011, the FASB issued ASU 2011-05, which (1)(i) eliminates the option to present components of other comprehensive income, or OCI, as part of the statement of changes in stockholders’ equity (2)and (ii) requires the presentation of each component of net income and each component of OCI either in a single continuous statement or in two separate but consecutive statements and (3) also requires presentation of reclassification adjustments on the face of the financial statements. We are required to adopt ASU 2011-05 on January 1, 2012. We do not believe theThe adoption of ASU 2011-05 willdid not have a material effectimpact on our consolidated financial statements.Cautionary statementoperatehave presented each component of net income and OCI in a highly competitive environment that involves a numbersingle continuous statement.operations—(Continued)operations (continued)actual results. ASU 2011-04 provides common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS) and improves the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. ASU 2011-04 is effective for entities prospectively for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on our consolidated financial statements.differ materially from our expectations expressedprovide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the report include: risks related to the proposed Convio acquisition; general economic risk; uncertainty regarding increased business and renewals from existing customers; continued success in sales growth; lengthy sales and implementation cycles, particularly in larger organizations; risk associated with successful implementationnotes, significant amounts reclassified out of multiple integrated software products; technological changes that make our products and services less competitive; the ability to attract and retain key personnel; risks related to our dividend policy and stock repurchase program, including potential limitations on our ability to grow and the possibility that we might discontinue payment of dividends; risks relating to increased borrowing and restrictions imposedaccumulated other comprehensive income by the credit facility; managementrespective line items of integrationnet income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. We do not anticipate any material impact from the adoption of recently acquired companiesASU 2013-02.risks associated with acquisitions; risks associated with managementthan goodwill. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, provided that the entity has not yet issued its financial statements. We do not anticipate any material impact from the adoption of growth; and the other risk factors set forth from time to time in our SEC filings.ASU 2012-02.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKshort-term investments and the lack of material debt, we have concluded at December 31, 2011, that we did not face no material market risk exposure. Therefore, no quantitative tabular disclosures are required.exposure as of December 31, 2012. For a discussion of our exposure to foreign currency exchange rate fluctuations, see the “Foreign currency exchange rates” section of Management’s"Management’s discussion and analysis of financial condition and results of operationsoperations" in this report.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATACHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURECONTROLS AND PROCEDURES and 15d-15(e)) are designed only to provide reasonable assurance that they will meet their objectives. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant to Exchange Act Rule 13a-15.13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to provide the reasonable assurance discussed above.internal control over financial reporting.Management’s report on internal control over financial reportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011, based on the framework inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2011.The effectiveness of our internal control over financial reporting as of December 31, 2011, has been audited by our independent registered public accounting firm, as stated in their attestation report, which is included herein.OTHER INFORMATIONDIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE20122013 Annual Meeting of Stockholders expected to be held on June 20, 2012,19, 2013, except for the identification of executive officers of the Registrant which is set forth in Part I of this report.EXECUTIVE COMPENSATION20122013 Annual Meeting of Stockholders expected to be held on June 20, 2012.19, 2013.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS20122013 Annual Meeting of Stockholders expected to be held on June 20, 2012.19, 2013.CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE20122013 Annual Meeting of Stockholders expected to be held on June 20, 2012.19, 2013.PRINCIPAL ACCOUNTANT FEES AND SERVICES20122013 Annual Meeting of Stockholders expected to be held on June 20, 2012.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Page No. Page F-2 F-3 F-4 F-5 F-6 Filed In Exhibit Number Description of Document Registrant’s
Form Dated Exhibit
Number Filed
Herewith 2.1 Agreement and Plan of Merger and Reincorporation dated April 6, 2004 S-1/A 04/06/04 2.1 2.2 Stock Purchase Agreement dated January 16, 2007 by and among Target Software, Inc., Target Analysis Group, Inc., all of the stockholders of Target Software, Inc. and Target Analysis Group, Inc., Charles Longfield, as stockholder representative, and Blackbaud, Inc. 8-K 01/18/07 2.2 2.3 Agreement and Plan of Merger dated as of May 29, 2008 by and among Blackbaud, Inc., Eucalyptus Acquisition Corporation and Kintera, Inc. 8-K 05/30/08 2.3 2.4 Share Purchase Agreement dated as of April 29, 2009 between RLC Group B.V., as the Seller, and Blackbaud, Inc., as the Purchaser 10-Q 08/07/09 10.42 * 2.5 Stock Purchase Agreement dated as of February 1, 2011 by and among Public Interest Data, Inc., all for the stockholders of Public Interest Data, Inc., Stephen W. Zautke, as stockholder representative and Blackbaud, Inc. 10-Q 05/10/11 2.3 * 2.6 Agreement and Plan of Merger dated as of January 16, 2012 by and among Blackbaud, Inc., Caribou Acquisition Corporation and Convio, Inc. 8-K 01/17/12 2.4 2.7 Stock Purchase Agreement dated as of October 6, 2011 by and among Everyday Hero Pty. Ltd., all of the stockholders of Everyday Hero Pty. Ltd., Nathan Betteridge as stockholder representative and Blackbaud Pacific Pty. Ltd. 10-K 02/29/12 2.7 X 3.4 Amended and Restated Certificate of Incorporation of Blackbaud, Inc. DEF 14A 04/30/09 Filed In Exhibit Number Description of Document Registrant’s
Form Dated Exhibit
Number Filed
Herewith 3.5 Amended and Restated Bylaws of Blackbaud, Inc. 8-K 03/22/11 3.4 10.5 Trademark License and Promotional Agreement dated as of October 13, 1999 between Blackbaud, Inc. and Charleston Battery, Inc. S-1 02/20/04 10.5 10.6 Blackbaud, Inc. 1999 Stock Option Plan, as amended S-1/A 04/06/04 10.6 10.8 Blackbaud, Inc. 2001 Stock Option Plan, as amended S-1/A 04/06/04 10.8 10.20 Blackbaud, Inc. 2004 Stock Plan, as amended, together with Form of Notice of Stock Option Grant and Stock Option Agreement 8-K 06/20/06 10.20 10.26 Form of Notice of Restricted Stock Grant and Restricted Stock Agreement under the Blackbaud, Inc. 2004 Stock Plan 10-K 02/28/07 10.26 10.27 Form of Notice of Stock Appreciation Rights Grant and Stock Appreciation Rights Agreement under the Blackbaud, Inc. 2004 Stock Plan 10-K 02/28/07 10.27 10.33 Blackbaud, Inc. 2008 Equity Incentive Plan DEF 14A 04/29/08 10.34 Form of Notice of Grant and Stock Option Agreement under Blackbaud, Inc. 2008 Equity Incentive Plan S-8 08/04/08 10.34 10.35 Form of Notice of Grant and Restricted Stock Agreement under Blackbaud, Inc. 2008 Equity Incentive Plan S-8 08/04/08 10.35 10.36 Form of Notice of Grant and Stock Appreciation Rights Agreement under Blackbaud, Inc. 2008 Equity Incentive Plan S-8 08/04/08 10.36 10.37 ** Kintera, Inc. 2000 Stock Option Plan, as amended, and form of Stock Option Agreement thereunder 10-K/A 03/26/08 10.2 10.38 ** Kintera, Inc. Amended and Restated 2003 Equity Incentive Plan, as amended, and form of Stock Option Agreement thereunder 10-K/A 03/26/08 10.3 10.39 Form of Retention Agreement 10-Q 11/10/08 10.37 10.40 Triple Net Lease Agreement dated as of October 1, 2008 between Blackbaud, Inc. and Duck Pond Creek-SPE, LLC 8-K 12/11/08 10.37 10.41 Blackbaud, Inc. 2009 Equity Compensation Plan for Employees from Acquired Companies S-8 07/02/09 10.41 10.43 Amended and Restated Employment and Noncompetition Agreement dated January 28, 2010 between Blackbaud, Inc. and Marc Chardon 8-K 02/01/10 10.43 10.44 Credit Agreement dated as of June 17, 2011 by and among Blackbaud, Inc., as Borrower, the lenders referred to therein, and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, with Wells Fargo Securities, LLC, J.P. Morgan Securities LLC, and SunTrust Robinson Humphrey, Inc. as Joint Lead Arrangers and Joint Book Managers 8-K 06/23/11 10.44 Filed In Exhibit Number Description of Document Registrant’s
Form Dated Exhibit
Number Filed
Herewith 10.45 Guaranty Agreement dated as of June 17, 2011, by certain subsidiaries of Blackbaud, Inc., as Guarantors, in favor of Wells Fargo Bank, National Association, as Administrative Agent 8-K 06/23/11 10.45 10.46 Pledge Agreement dated as of June 17, 2011 by Blackbaud, Inc. and certain subsidiaries of Blackbaud, Inc. in favor of Wells Fargo Bank, National Association, as Administrative Agent for the ratable benefit of itself and the lenders referred to therein 8-K 06/23/11 10.46 10.47 Employment Agreement dated November 7, 2008 between Blackbaud, Inc. and Tim Williams 10-Q 11/08/11 10.47 10.48 Employment Agreement dated November 7, 2008 between Blackbaud, Inc. and Louis Attanasi 10-Q 11/08/11 10.48 10.49 Employment Agreement dated November 7, 2008 between Blackbaud, Inc. and Charlie Cumbaa 10-Q 11/08/11 10.49 10.50 Employment Agreement dated June 25, 2008 between Blackbaud, Inc. and Kevin Mooney 10-Q 11/08/11 10.50 10.51 Amendment No. 1 to the Amended and Restated Employment and Noncompetition Agreement dated December 13, 2011 between Blackbaud, Inc. and Marc Chardon 8-K 12/16/11 10.51 10.52 Form of Tender and Support Agreement by and among Blackbaud, Inc. and certain stockholders of Convio, Inc. 8-K 01/17/12 10.52 10.53 Amended and Restated Credit Agreement dated as of February 9, 2012 by and among Blackbaud, Inc., as Borrower, the lenders referred to therein, JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and an Issuing Lender, SunTrust Bank, as Syndication Agent, and Bank of America, N.A. and Regions Bank, as Co-Documentation Agents, with J.P. Morgan Securities LLC and SunTrust Robinson Humphrey, Inc., as Joint Lead Arrangers and Joint Bookrunners 8-K 02/15/12 10.53 10.54 Amended and Restated Pledge Agreement dated as of February 9, 2012 by Blackbaud, Inc. in favor of JPMorgan Chase Bank, N.A., as Administrative Agent for the ratable benefit of itself and the lenders referred to therein 8-K 02/15/12 10.54 10.55 Employment Agreement dated November 14, 2011 between Blackbaud, Inc. and Anthony W. Boor 10-K 02/29/12 10.55 X 10.56 Services Agreement dated November 11, 2011 between Blackbaud, Inc. and Timothy V. Williams 10-K 02/29/12 10.56 X 10.57 Employment Agreement dated November 16, 2010 between Blackbaud, Inc. and Jana B. Eggers 10-K 02/29/12 10.57 X 21.1 Subsidiaries of Blackbaud, Inc X 23.1 Consent of Independent Registered Public Accounting Firm X Filed In Exhibit Number Description of Document Dated 2.1 Agreement and Plan of Merger and Reincorporation dated April 6, 2004 S-1/A 4/6/2004 2.1 2.2 Stock Purchase Agreement dated January 16, 2007 by and among Target Software, Inc., Target Analysis Group, Inc., all of the stockholders of Target Software, Inc. and Target Analysis Group, Inc., Charles Longfield, as stockholder representative, and Blackbaud, Inc. 8-K 1/18/2007 2.2 2.3 Agreement and Plan of Merger dated as of May 29, 2008 by and among Blackbaud, Inc., Eucalyptus Acquisition Corporation and Kintera, Inc. 8-K 5/30/2008 2.3 2.4 Share Purchase Agreement dated as of April 29, 2009 between RLC Group B.V., as the Seller, and Blackbaud, Inc., as the Purchaser 10-Q 8/7/2009 10.42 2.5 * Stock Purchase Agreement dated as of February 1, 2011 by and among Public Interest Data, Inc., all for the stockholders of Public Interest Data, Inc., Stephen W. Zautke, as stockholder representative and Blackbaud, Inc. 10-Q 5/10/2011 2.3 2.6 Agreement and Plan of Merger dated as of January 16, 2012 by and among Blackbaud, Inc., Caribou Acquisition Corporation and Convio, Inc. 8-K 1/17/2012 2.4 2.7 Stock Purchase Agreement dated as of October 6, 2011 by and among Everyday Hero Pty. Ltd., all of the stockholders of Everyday Hero Pty. Ltd., Nathan Betteridge as stockholder representative and Blackbaud Pacific Pty. Ltd. 10-K 2/29/2012 2.7 3.4 Amended and Restated Certificate of Incorporation of Blackbaud, Inc. DEF 14A 4/30/2009 3.5 Amended and Restated Bylaws of Blackbaud, Inc. 8-K 3/22/2011 3.4 Filed In Exhibit Number Description of Document Dated 10.5 Trademark License and Promotional Agreement dated as of October 13, 1999 between Blackbaud, Inc. and Charleston Battery, Inc. S-1 2/20/2004 10.5 10.6 Blackbaud, Inc. 1999 Stock Option Plan, as amended S-1/A 4/6/2004 10.6 10.8 Blackbaud, Inc. 2001 Stock Option Plan, as amended S-1/A 4/6/2004 10.8 10.20 Blackbaud, Inc. 2004 Stock Plan, as amended, together with Form of Notice of Stock Option Grant and Stock Option Agreement 8-K 6/20/2006 10.20 10.26 Form of Notice of Restricted Stock Grant and Restricted Stock Agreement under the Blackbaud, Inc. 2004 Stock Plan 10-K 2/28/2007 10.26 10.27 Form of Notice of Stock Appreciation Rights Grant and Stock Appreciation Rights Agreement under the Blackbaud, Inc. 2004 Stock Plan 10-K 2/28/2007 10.27 10.33 Blackbaud, Inc. 2008 Equity Incentive Plan DEF 14A 4/29/2008 10.34 Form of Notice of Grant and Stock Option Agreement under Blackbaud, Inc. 2008 Equity Incentive Plan S-8 8/4/2008 10.34 10.35 Form of Notice of Grant and Restricted Stock Agreement under Blackbaud, Inc. 2008 Equity Incentive Plan S-8 8/4/2008 10.35 10.36 Form of Notice of Grant and Stock Appreciation Rights Agreement under Blackbaud, Inc. 2008 Equity Incentive Plan S-8 8/4/2008 10.36 10.37 ** Kintera, Inc. 2000 Stock Option Plan, as amended, and form of Stock Option Agreement thereunder 10-K/A 3/26/2008 10.2 10.38 ** Kintera, Inc. Amended and Restated 2003 Equity Incentive Plan, as amended, and form of Stock Option Agreement thereunder 10-K/A 3/26/2008 10.3 10.39 Form of Retention Agreement 10-Q 11/10/2008 10.37 10.40 Triple Net Lease Agreement dated as of October 1, 2008 between Blackbaud, Inc. and Duck Pond Creek-SPE, LLC 8-K 12/11/2008 10.37 10.41 Blackbaud, Inc. 2009 Equity Compensation Plan for Employees from Acquired Companies S-8 7/2/2009 10.41 10.43 Amended and Restated Employment and Noncompetition Agreement dated January 28, 2010 between Blackbaud, Inc. and Marc Chardon 8-K 2/1/2010 10.43 10.44 Credit Agreement dated as of June 17, 2011 by and among Blackbaud, Inc., as Borrower, the lenders referred to therein, and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, with Wells Fargo Securities, LLC, J.P. Morgan Securities LLC, and SunTrust Robinson Humphrey, Inc. as Joint Lead Arrangers and Joint Book Managers 8-K 6/23/2011 10.44 10.45 Guaranty Agreement dated as of June 17, 2011, by certain subsidiaries of Blackbaud, Inc., as Guarantors, in favor of Wells Fargo Bank, National Association, as Administrative Agent 8-K 6/23/2011 10.45 Filed In Exhibit Number Description of Document Dated �� 10.46 Pledge Agreement dated as of June 17, 2011 by Blackbaud, Inc. and certain subsidiaries of Blackbaud, Inc. in favor of Wells Fargo Bank, National Association, as Administrative Agent for the ratable benefit of itself and the lenders referred to therein 8-K 6/23/2011 10.46 10.47 Employment Agreement dated November 7, 2008 between Blackbaud, Inc. and Tim Williams 10-Q 11/8/2011 10.47 10.48 Employment Agreement dated November 7, 2008 between Blackbaud, Inc. and Louis Attanasi 10-Q 11/8/2011 10.48 10.49 Employment Agreement dated November 7, 2008 between Blackbaud, Inc. and Charlie Cumbaa 10-Q 11/8/2011 10.49 10.50 Employment Agreement dated June 25, 2008 between Blackbaud, Inc. and Kevin Mooney 10-Q 11/8/2011 10.50 10.51 Amendment No. 1 to the Amended and Restated Employment and Noncompetition Agreement dated December 13, 2011 between Blackbaud, Inc. and Marc Chardon 8-K 12/16/2011 10.51 10.52 Form of Tender and Support Agreement by and among Blackbaud, Inc. and certain stockholders of Convio, Inc. 8-K 1/17/2012 10.52 10.53 Amended and Restated Credit Agreement dated as of February 9, 2012 by and among Blackbaud, Inc., as Borrower, the lenders referred to therein, JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and an Issuing Lender, SunTrust Bank, as Syndication Agent, and Bank of America, N.A. and Regions Bank, as Co-Documentation Agents, with J.P. Morgan Securities LLC and SunTrust Robinson Humphrey, Inc., as Joint Lead Arrangers and Joint Bookrunners 8-K 2/15/2012 10.53 10.54 Amended and Restated Pledge Agreement dated as of February 9, 2012 by Blackbaud, Inc. in favor of JPMorgan Chase Bank, N.A., as Administrative Agent for the ratable benefit of itself and the lenders referred to therein 8-K 2/15/2012 10.54 10.55 Employment Agreement dated November 14, 2011 between Blackbaud, Inc. and Anthony W. Boor 10-K 2/29/2012 10.55 10.56 Services Agreement dated November 11, 2011 between Blackbaud, Inc. and Timothy V. Williams 10-K 2/29/2012 10.56 10.57 Employment Agreement dated November 16, 2010 between Blackbaud, Inc. and Jana B. Eggers 10-K 2/29/2012 10.57 10.58 8-K 5/7/2012 10.58 10.59 *** S-1/A 3/19/2010 10.1 10.60 *** 8-K 2/28/2011 10.1 10.61 *** Convio, Inc. Form of Restricted Stock Unit Notice (Double Trigger) and Agreement 8-K 2/28/2011 10.2 10.62 *** Convio, Inc. 1999 Stock Option/Stock Issuance Plan, as amended, and forms of stock option agreements S-1 1/22/2010 10.2 Filed In Exhibit Number Description of Document Dated 10.63 Blackbaud, Inc. 2008 Equity Incentive Plan, as amended 8-K 6/26/2012 10.59 10.64 Amendment to the Blackbaud, Inc. 2008 Equity Incentive Plan 8-K 6/26/2012 10.60 10.65 10-K 2/26/2013 10.65 X 21.1 Subsidiaries of Blackbaud, Inc X 23.1 Consent of Independent Registered Public Accounting Firm X 31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 32.1 Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 32.2 Certification by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 101.INS **** XBRL Instance Document X 101.SCH **** XBRL Taxonomy Extension Schema Document X 101.CAL **** XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF **** XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB **** XBRL Taxonomy Extension Label Linkbase Document X 101.PRE **** XBRL Taxonomy Extension Presentation Linkbase Document X Filed InExhibit NumberDescription of DocumentRegistrant’sFormDatedExhibitNumberFiledHerewith31.1Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002X31.2Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002X32.1Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X32.2Certification by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X101.INS*** XBRL Instance Document.X101.SCH*** XBRL Taxonomy Extension Schema Document.X101.CAL*** XBRL Taxonomy Extension Calculation Linkbase Document.X101.DEF*** XBRL Taxonomy Extension Definition Linkbase Document.X101.LAB*** XBRL Taxonomy Extension Label Linkbase Document.X101.PRE*** XBRL Taxonomy Extension Presentation Linkbase Document.X* The registrant has receivedapplied for an extension of the confidential treatment it was previously granted with respect to portions of this exhibit. Those portions have been omitted from the exhibit and filed separately with the U.S. Securities and Exchange Commission.** The Kintera, Inc. 2000 Stock Option Plan, as amended, and form of Stock Option Agreement thereunder (“Kintera 2000 Plan Documents”) and the Kintera, Inc. Amended and Restated 2003 Equity Incentive Plan, as amended, and form of Stock Option Agreement thereunder (“Kintera 2003 Plan Documents”) were filed by Kintera in its Form 10-K/A on March 26, 2008 as Exhibits 10.2 and 10.3, respectively. We assumed the Kintera 2000 Plan Documents and Kintera 2003 Plan Documents when we acquired Kintera in July 2008. We filed the Kintera 2000 Plan Documents and Kintera 2003 Plan Documents by incorporation by reference as exhibits 10.37 and 10.38, respectively, in our Form S-8 on August 4, 2008. *** The Convio, Inc. 2009 Amended and Restated Stock Incentive Plan, as amended, and forms of stock option agreements thereunder (“Convio 2009 Original Plan Documents”) and the Convio, Inc. 1999 Stock Option/Stock Issuance Plan, as amended, and forms of stock option agreements thereunder (“Convio 1999 Plan Documents”) were filed by Convio in its Forms S-1/A and S-1, filed March 19, 2010 and January 22, 2010 as exhibits 10.1 and 10.2, respectively. The Convio, Inc. Form of Nonstatutory Stock Option Notice (Double Trigger) and Convio, Inc. Form of Restricted Stock Unit Notice (Double Trigger) and Agreement were filed by Convio in its Form 8-K on February 28, 2011 as exhibits 10.1 and 10.2 (together with the Convio 2009 Original Plan Documents, the “Convio 2009 Plan Documents”). We assumed the Convio 2009 Plan Documents and Convio 1999 Plan Documents when we acquired Convio in May 2012. We filed the Convio 2009 Plan Documents and Convio 1999 Plan Documents by incorporation by reference as exhibits 10.59, 10.60, 10.61 and 10.62 in our Form S-8 on May 7, 2012. **** Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability of that Section, and shall not be part of any registration statement or other document filed under the Securities Act of the Exchange Act, except as shall be expressly set forth by specific reference in such filing. BLACKBAUD, INCSigned: February 29, 2012 /S/ MARC E. CHARDON Signed: February 27, 2013 President and Chief Executive Officer /S/ MARC E. CHARDON Marc E. Chardon President, Chief Executive Officer and Director (Principal Executive Officer) Date: February 29, 201227, 2013/S/ ANTHONY W. BOOR Anthony W. Boor Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: February 29, 201227, 2013/S/ ANDREW M. LEITCH Andrew M. Leitch Chairman of the Board Date: February 29, 201227, 2013/S/ TIMOTHY CHOU Timothy Chou Director Date: February 29, 201227, 2013/S/ GEORGE H. ELLIS George H. Ellis Director Date: February 29, 201227, 2013/S/ DAVID G. GOLDEN David G. Golden Director Date: February 29, 201227, 2013/S/ JOHN P. MCCONNELL John P. McConnell Director Date: February 29, 201227, 2013/S/ CAROLYN MILES Carolyn Miles Director Date: February 29, 201227, 2013/S/ SARAH E. NASH Sarah E. Nash Director Date: February 29, 2012 Page No. F-2 F-3 F-4 F-5 F-6 operations,comprehensive income, of cash flows and of stockholders’stockholders' equity and comprehensive income present fairly, in all material respects, the financial position of Blackbaud, Inc. and its subsidiaries at December 31, 20112012 and 2010,2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20112012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,2012, based on criteria established inInternal Control—Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’sCompany's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’sManagement's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.Raleigh,29, 2012 $ 52,520 $ 28,004 40,205 16,359 62,656 59,296 31,016 32,139 1,551 5,164 187,948 140,962 34,397 22,963 29,376 42,314 90,122 76,247 44,660 38,515 6,087 2,805 $ 392,590 $ 323,806 $ 13,464 $ 9,620 32,707 28,278 40,205 16,359 153,665 143,761 240,041 198,018 9,772 6,900 2,775 2,419 252,588 207,337 — — 54 53 175,401 158,372 (166,226 ) (161,186 ) (1,148 ) (812 ) 131,921 120,042 140,002 116,469 $ 392,590 $ 323,806 (in thousands, except share amounts) December 31, 2012 December 31, 2011 Assets Current assets: Cash and cash equivalents $ 13,491 $ 52,520 Donor restricted cash 68,177 40,205 Accounts receivable, net of allowance of $8,546 and $3,913 at December 31, 2012 and 2011, respectively 75,692 62,656 Prepaid expenses and other current assets 40,589 31,016 Deferred tax asset, current portion 15,799 1,551 Total current assets 213,748 187,948 Property and equipment, net 49,063 34,397 Deferred tax asset — 29,376 Goodwill 265,055 90,122 Intangible assets, net 168,037 44,660 Other assets 9,844 6,087 Total assets $ 705,747 $ 392,590 Liabilities and stockholders’ equity Current liabilities: Trade accounts payable $ 13,623 $ 13,464 Accrued expenses and other current liabilities 45,996 32,707 Donations payable 68,177 40,205 Debt, current portion 10,000 — Deferred revenue, current portion 173,899 153,665 Total current liabilities 311,695 240,041 Debt, net of current portion 205,500 — Deferred tax liability 24,468 — Deferred revenue, net of current portion 11,119 9,772 Other liabilities 5,281 2,775 Total liabilities 558,063 252,588 Commitments and contingencies (see Note 11) Stockholders’ equity: Preferred stock; 20,000,000 shares authorized, none outstanding — — Common stock, $0.001 par value; 180,000,000 shares authorized, 54,859,604 and 53,959,532 shares issued at December 31, 2012 and 2011, respectively 55 54 Additional paid-in capital 203,638 175,401 Treasury stock, at cost; 9,209,371 and 9,019,824 shares at December 31, 2012 and 2011, respectively (170,898 ) (166,226 ) Accumulated other comprehensive loss (1,973 ) (1,148 ) Retained earnings 116,862 131,921 Total stockholders’ equity 147,684 140,002 Total liabilities and stockholders’ equity $ 705,747 $ 392,590 operations Years ended December 31, (in thousands, except share and per share amounts) 2011 2010 2009 $ 19,475 $ 23,719 $ 25,656 103,544 83,912 73,194 108,781 87,663 87,239 130,604 124,559 116,413 8,464 6,712 6,968 370,868 326,565 309,470 3,345 3,003 3,697 42,536 31,155 28,158 79,086 66,755 61,585 25,178 24,123 21,594 7,049 7,103 6,098 157,194 132,139 121,132 213,674 194,426 188,338 75,361 69,469 63,495 47,672 45,499 45,520 36,933 32,636 33,383 1,800 — — 980 798 768 162,746 148,402 143,166 50,928 46,024 45,172 183 84 637 (200 ) (74 ) (962 ) 346 (98 ) 220 51,257 45,936 45,067 18,037 16,749 17,547 $ 33,220 $ 29,187 $ 27,520 $ 0.76 $ 0.68 $ 0.64 $ 0.75 $ 0.67 $ 0.63 43,522,563 43,145,189 42,771,173 44,149,054 43,876,155 43,600,048 $ 0.48 $ 0.44 $ 0.40 (in thousands, except share and per share amounts) Year ended December 31, 2012 2011 2010 Revenue License fees $ 20,551 $ 19,475 $ 23,719 Subscriptions 162,102 103,544 83,912 Services 119,626 108,781 87,663 Maintenance 136,101 130,604 124,559 Other revenue 9,039 8,464 6,712 Total revenue 447,419 370,868 326,565 Cost of revenue Cost of license fees 2,993 3,345 3,003 Cost of subscriptions 68,773 42,536 31,155 Cost of services 97,208 79,086 66,755 Cost of maintenance 26,001 25,178 24,123 Cost of other revenue 7,485 7,049 7,103 Total cost of revenue 202,460 157,194 132,139 Gross profit 244,959 213,674 194,426 Operating expenses Sales and marketing 95,218 75,361 69,469 Research and development 64,692 47,672 45,499 General and administrative 63,308 36,933 32,636 Impairment of cost method investment 200 1,800 — Amortization 2,106 980 798 Total operating expenses 225,524 162,746 148,402 Income from operations 19,435 50,928 46,024 Interest income 146 183 84 Interest expense (5,864 ) (200 ) (74 ) Other income (expense), net (392 ) 346 (98 ) Income before provision for income taxes 13,325 51,257 45,936 Income tax provision 6,742 18,037 16,749 Net income $ 6,583 $ 33,220 $ 29,187 Earnings per share Basic $ 0.15 $ 0.76 $ 0.68 Diluted $ 0.15 $ 0.75 $ 0.67 Common shares and equivalents outstanding Basic weighted average shares 44,145,535 43,522,563 43,145,189 Diluted weighted average shares 44,691,845 44,149,054 43,876,155 Dividends per share $ 0.48 $ 0.48 $ 0.44 Other comprehensive loss Foreign currency translation adjustment (34 ) (336 ) (506 ) Unrealized loss on derivative instruments, net of tax (791 ) — — Total other comprehensive loss (825 ) (336 ) (506 ) Comprehensive income $ 5,758 $ 32,884 $ 28,681 Years ended December 31, (in thousands) 2011 2010 2009 $ 33,220 $ 29,187 $ 27,520 16,995 16,189 15,624 5,646 2,773 3,458 14,884 13,059 12,410 (932 ) (2,665 ) (2,356 ) 13,533 11,313 12,464 1,800 — — (549 ) — — (878 ) (22 ) 116 (8,692 ) (12,778 ) 1,531 (2,915 ) (10,109 ) 3,054 1,714 228 (368 ) (1,056 ) (4,248 ) 221 (22,862 ) (3,446 ) (511 ) 22,862 3,446 511 12,757 13,121 13,213 85,527 56,048 86,887 (18,215 ) (10,760 ) (5,534 ) (23,385 ) (5,334 ) (2,258 ) — (2,000 ) — (1,012 ) (175 ) (41 ) — (130 ) — 874 — — (41,738 ) (18,399 ) (7,833 ) (21,429 ) (19,490 ) (17,673 )�� 2,041 8,065 2,509 932 2,665 2,356 — (22,613 ) — — 4,000 — — (5,175 ) (60,049 ) (767 ) — — (40 ) (164 ) (384 ) (19,263 ) (32,712 ) (73,241 ) (10 ) 298 595 24,516 5,235 6,408 28,004 22,769 16,361 $ 52,520 $ 28,004 $ 22,769 $ 2 $ 87 $ 615 $ (4,601 ) $ 9,527 $ (2,584 ) $ 4,760 $ 2,630 $ 3,699 Year ended December 31, (in thousands) 2012 2011 2010 Cash flows from operating activities Net income $ 6,583 $ 33,220 $ 29,187 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,879 16,995 16,189 Provision for doubtful accounts and sales returns 9,591 5,646 2,773 Stock-based compensation expense 19,240 14,884 13,059 Excess tax benefits from stock-based compensation (81 ) (932 ) (2,665 ) Deferred taxes 7,585 13,533 11,313 Impairment of cost method investment 200 1,800 — Gain on sale of assets — (549 ) — Other non-cash adjustments 747 (878 ) (22 ) Changes in operating assets and liabilities, net of acquisition of businesses: Accounts receivable (9,397 ) (8,692 ) (12,778 ) Prepaid expenses and other assets (8,817 ) (2,915 ) (10,109 ) Trade accounts payable (1,363 ) 1,714 228 Accrued expenses and other liabilities (388 ) (1,056 ) (4,248 ) Donor restricted cash (27,990 ) (22,862 ) (3,446 ) Donations payable 27,990 22,862 3,446 Deferred revenue 12,912 12,757 13,121 Net cash provided by operating activities 68,691 85,527 56,048 Cash flows from investing activities Purchase of property and equipment (20,557 ) (18,215 ) (10,760 ) Purchase of net assets of acquired companies, net of cash acquired (280,687 ) (23,385 ) (5,334 ) Purchase of investment — — (2,000 ) Capitalized software development costs (1,245 ) (1,012 ) (175 ) Purchase of intangible assets — — (130 ) Proceeds from sale of assets — 874 — Net cash used in investing activities (302,489 ) (41,738 ) (18,399 ) Cash flows from financing activities Proceeds from issuance of debt 315,000 — 4,000 Payments on debt (99,500 ) — (5,175 ) Payments of deferred financing costs (2,440 ) (767 ) — Proceeds from exercise of stock options 3,146 2,041 8,065 Excess tax benefits from stock-based compensation 81 932 2,665 Purchase of treasury stock — — (22,613 ) Dividend payments to stockholders (21,731 ) (21,429 ) (19,490 ) Payments on capital lease obligations — (40 ) (164 ) Net cash provided by (used in) financing activities 194,556 (19,263 ) (32,712 ) Effect of exchange rate on cash and cash equivalents 213 (10 ) 298 Net increase (decrease) in cash and cash equivalents (39,029 ) 24,516 5,235 Cash and cash equivalents, beginning of year 52,520 28,004 22,769 Cash and cash equivalents, end of year $ 13,491 $ 52,520 $ 28,004 Supplemental disclosure of cash flow information Cash paid during the year for: Interest $ (5,098 ) $ 2 $ 87 Taxes, net of refunds $ (3,456 ) $ (4,601 ) $ 9,527 Purchase of equipment included in accounts payable $ 4,641 $ 4,760 $ 2,630 stockholders’stockholders' equity and comprehensive income Comprehensive
income Common stock Additional
paid-in
capital Treasury
stock Accumulated
other
comprehensive
income (loss) Retained
earnings Total
stockholders’
equity (in thousands, except share amounts) Shares Amount 51,269,081 $ 51 $ 116,688 $ (130,594 ) $ (818 ) $ 100,406 $ 85,733 $ 27,520 — — — — — 27,520 27,520 — — — — — — (17,673 ) (17,673 ) — 55,661 1,215 1,215 — 451,580 1 2,509 — — — 2,510 — — — — (3,788 ) — — (3,788 ) — — — 2,241 — — — 2,241 — — — 11,541 — — 33 11,574 — 492,964 — 449 — — — 449 — (54,680 ) — — — — — — 512 — — — — 512 — 512 $ 28,032 52,214,606 $ 52 $ 134,643 $ (134,382 ) $ (306 ) $ 110,286 $ 110,293 $ 29,187 — — — — — 29,187 29,187 — — — — — — (19,490 ) (19,490 ) — — — — (22,613 ) — — (22,613 ) — 729,295 1 8,064 — — — 8,065 — — — — (4,191 ) — — (4,191 ) — — — 2,665 — — — 2,665 — — — 13,000 — — 59 13,059 — 460,659 — — — — — — — (88,280 ) — — — — — (506 ) — — — — (506 ) — (506 ) $ 28,681 53,316,280 $ 53 $ 158,372 $ (161,186 ) $ (812 ) $ 120,042 $ 116,469 $ 33,220 — — — — — 33,220 33,220 — — — — — — (21,429 ) (21,429 ) — 262,428 1 2,040 — — — 2,041 — — — — (5,040 ) — — (5,040 ) — — — 193 — — — 193 — — — 14,796 — — 88 14,884 — 502,426 — — — — — — — (121,602 ) — — — — — — (336 ) — — — — (336 ) — (336 ) $ 32,884 53,959,532 $ 54 $ 175,401 $ (166,226 ) $ (1,148 ) $ 131,921 $ 140,002 (in thousands, except share amounts) Common stock Total stockholders' equity Shares Amount Balance at December 31, 2009 52,214,606 $ 52 $ 134,643 $ (134,382 ) $ (306 ) $ 110,286 $ 110,293 Net income — — — — — 29,187 29,187 Payment of dividends — — — — — (19,490 ) (19,490 ) Purchase of 1,007,082 treasury shares under stock repurchase program — — — (22,613 ) — — (22,613 ) Exercise of stock options and stock appreciation rights 729,295 1 8,064 — — — 8,065 Surrender of 158,459 shares upon restricted stock vesting and exercise of stock appreciation rights — — — (4,191 ) — — (4,191 ) Tax impact of exercise of equity-based compensation — — 2,665 — — — 2,665 Stock-based compensation — — 13,000 — — 59 13,059 Restricted stock grants 460,659 — — — — — — Restricted stock cancellations (88,280 ) — — — — — Comprehensive income — — — — (506 ) — (506 ) Balance at December 31, 2010 53,316,280 $ 53 $ 158,372 $ (161,186 ) $ (812 ) $ 120,042 $ 116,469 Net income — — — — — 33,220 33,220 Payment of dividends — — — — — (21,429 ) (21,429 ) Exercise of stock options, stock appreciation rights and restricted stock units 262,428 1 2,040 — — — 2,041 Surrender of 176,942 shares upon restricted stock vesting and exercise of stock appreciation rights — — — (5,040 ) — — (5,040 ) Tax impact of exercise of equity-based compensation — — 193 — — — 193 Stock-based compensation — — 14,796 — — 88 14,884 Restricted stock grants 502,426 — — — — — — Restricted stock cancellations (121,602 ) — — — — — — Other comprehensive loss — — — — (336 ) — (336 ) Balance at December 31, 2011 53,959,532 $ 54 $ 175,401 $ (166,226 ) $ (1,148 ) $ 131,921 $ 140,002 Net income — — — — — 6,583 6,583 Payment of dividends — — — — — (21,731 ) (21,731 ) Exercise of stock options, stock appreciation rights and restricted stock units 355,180 — 3,146 — — — 3,146 Surrender of 189,547 shares upon restricted stock vesting and exercise of stock appreciation rights — — — (4,672 ) — — (4,672 ) Tax impact of exercise of equity-based compensation — — 81 — — — 81 Stock-based compensation — — 19,151 — — 89 19,240 Equity-based awards assumed in business combination — — 5,859 — — . 5,859 Restricted stock grants 687,652 1 — — — — 1 Restricted stock cancellations (142,760 ) — — — — — — Other comprehensive loss — — — — (825 ) — (825 ) Balance at December 31, 2012 54,859,604 $ 55 $ 203,638 $ (170,898 ) $ (1,973 ) $ 116,862 $ 147,684 1.Organization and basis of presentationBlackbaud, Inc. (the Company) providesorganizations, and providesorganizations. Our products and services that enable nonprofit organizations to increase donations, reduce fundraising costs, improve communications with constituents, manage their finances and optimize internal operations. As of December 31, 2011, the Company2012, we had approximately 26,000more than 27,000 active customers distributed across multiple verticals within the nonprofit market including education, foundations, health and human services, religion, arts and cultural, public and societal benefits, environment and animal welfare andas well as international foreign affairs.CompanyBlackbaud, Inc. and its wholly ownedwholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.Revision of prior period financial statementsDuring the three months ended December 31, 2011, the Company identified prior period errors related principally to revenue recognition, accounting for income taxes and the capitalization of software development costs. These errors impacted reporting periods beginning in the year ended December 31, 2006 and subsequent periods through September 30, 2011. Following is a description of the errors identified:•Revenue recognition and related costs – The errors resulted from incorrect processing of deferred revenue transactions and incorrect application of the Company’s revenue recognition policy to certain subscription, consulting and analytic service arrangements. These errors resulted in a cumulative overstatement of revenue and related costs.Income taxes – These errors resulted from improperly recording an income tax benefit for compensation that was limited under Internal Revenue Code Section 162(m), resulting in a cumulative understatement of income tax expense.Software development costs – The Company determined that certain software development costs had been improperly expensed and should have been capitalized in prior periods. This error resulted in a cumulative overstatement of research and development expense.In evaluating whether the Company’s previously issued consolidated financial statements were materially misstated, the Company considered the guidance in Accounting Standard Codification (ASC) Topic 250,Accounting Changes and Error Corrections, ASC Topic 250-10-S99-1,Assessing Materiality, and ASC Topic 250-10-S99-2,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. The Company concluded these errors were not material individually or in the aggregate to any of the prior reporting periods, and therefore, amendments of previously filed reports were not required. However, the cumulative error would be material in the year ended December 31, 2011, if the entire correction was recorded in the fourth quarter of 2011, and would have impacted comparisons to prior periods. As such, the revisions for these corrections to the applicable prior periods are reflected in the financial information herein and will be reflected in future filings containing such financial information. In addition to recording these correcting adjustments, the Company recorded other adjustments to prior period amounts to correct otherBlackbaud, Inc.Notes to consolidated financial statements—(Continued)immaterial out-of-period adjustments, including those that had been previously disclosed. The consolidated statement of stockholders equity was revised to reflect the cumulative effect of these adjustments resulting in a decrease to additional paid-in capital of $0.2 million, an increase to accumulated other comprehensive income of $0.1 million and a decrease to retained earnings of $4.7 million as of December 31, 2008.The prior period financial statements included in this filing have been revised to reflect the corrections of these errors, the effects of which have been provided in summarized format below.Revised consolidated balance sheet amounts As of December 31, 2010 (in millions) As previously
reported Adjustment As
revised $ 59.8 $ (0.5 ) $ 59.3 33.8 (1.7 ) 32.1 143.1 (2.1 ) 141.0 44.6 (2.3 ) 42.3 2.6 0.2 2.8 328.1 (4.3 ) 323.8 9.9 (0.3 ) 9.6 141.1 2.7 143.8 195.7 2.3 198.0 205.0 2.3 207.3 (0.5 ) (0.3 ) (0.8 ) 126.3 (6.3 ) 120.0 123.1 (6.6 ) 116.5 328.1 (4.3 ) 323.8 Blackbaud, Inc.Notes to consolidated financial statements—(Continued)Revised consolidated statements of operations amounts Year ended December 31, 2010 Year ended December 31, 2009 (in millions, except per share amounts) As previously
reported Adjustment As
revised As previously
reported Adjustment As
revised $ 23.7 $ — $ 23.7 $ 25.4 $ 0.3 $ 25.7 82.5 1.4 83.9 72.9 0.3 73.2 89.6 (1.9 ) 87.7 87.8 (0.6 ) 87.2 124.6 — 124.6 116.5 (0.1 ) 116.4 6.7 — 6.7 6.7 0.3 7.0 327.1 (0.5 ) 326.6 309.3 0.2 309.5 2.9 0.1 3.0 3.6 0.1 3.7 31.1 0.1 31.2 28.2 — 28.2 66.6 0.2 66.8 61.7 (0.1 ) 61.6 24.1 — 24.1 21.4 0.2 21.6 131.8 0.4 132.2 120.9 0.2 121.1 195.3 (0.9 ) 194.4 188.4 — 188.4 70.2 (0.7 ) 69.5 62.8 0.7 63.5 45.5 — 45.5 45.7 (0.2 ) 45.5 32.5 0.1 32.6 33.4 — 33.4 149.0 (0.6 ) 148.4 142.6 0.6 143.2 46.3 (0.3 ) 46.0 45.8 (0.6 ) 45.2 46.2 (0.3 ) 45.9 45.7 (0.6 ) 45.1 16.4 0.3 16.7 17.2 0.4 17.6 29.8 (0.6 ) 29.2 28.5 (1.0 ) 27.5 $ 0.69 $ (0.01 ) $ 0.68 $ 0.67 $ (0.03 ) $ 0.64 $ 0.68 $ (0.01 ) $ 0.67 $ 0.65 $ (0.02 ) $ 0.63 Blackbaud, Inc.Notes to consolidated financial statements—(Continued)Revised consolidated statements of cash flow amounts Year ended December 31, 2010 Year ended December 31, 2009 (in millions) As previously
reported Adjustment As revised As previously
reported Adjustment As revised $ 29.8 $ (0.6 ) $ 29.2 $ 28.5 $ (1.0 ) $ 27.5 16.1 0.1 16.2 15.5 0.1 15.6 13.1 — 13.1 12.3 0.1 12.4 (2.6 ) (0.1 ) (2.7 ) (2.4 ) — (2.4 ) 11.2 0.1 11.3 12.4 0.1 12.5 (13.1 ) 0.3 (12.8 ) 1.4 0.1 1.5 (9.6 ) (0.5 ) (10.1 ) 2.1 1.0 3.1 0.2 — 0.2 (0.3 ) (0.1 ) (0.4 ) (4.8 ) 0.6 (4.2 ) 0.6 (0.4 ) 0.2 12.9 0.2 13.1 13.2 — 13.2 55.9 0.1 56.0 86.8 0.1 86.9 — (0.2 ) (0.2 ) — — — (18.2 ) (0.2 ) (18.4 ) (7.8 ) — (7.8 ) 2.6 0.1 2.7 2.4 — 2.4 (32.7 ) — (32.7 ) (73.2 ) — (73.2 ) 2.Significant accounting policiestaxes and valuation required on deferred tax assets.taxes. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could materially differ from these estimates.Blackbaud, Inc.Notes to consolidated financial statements—(Continued)The Company’s(1) selling perpetual licenses of its software products; (2)(i) charging for the use of itsour software products in a hosted environment; (3)(ii) selling perpetual licenses of our software products; (iii) providing professional services including implementation, training, consulting, analytic, hosting and other services; and (4)(iv) providing software maintenance and support services.License feesThe Company recognizesThe Company deemsThe Company’sOur typical license agreement doesagreements do not include customer acceptance provisions; however, if acceptance provisions are provided, delivery is deemed to occur upon acceptance. The Company considersWe consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within the Company’sour standard payment terms. Payment terms greater than 90 days are considered to be beyond the Company’sour customary payment terms. Collection is deemed probable if the Company expectswe expect that the customer will be able to pay amounts under the arrangement as they become due. If the Company determineswe determine that collection is not probable, it deferswe defer revenue recognition until collection.Company sellsarrangement consideration is allocated to the separate units of accounting based on relative selling price method in accordance with the selling price hierarchy, which includes: (i) vendor specific objective evidence (VSOE) if available; (ii) third-party evidence (TPE) if VSOE is not available; and (iii) best estimate of selling price if neither VSOE nor TPE is available. In general, we use VSOE to allocate the selling price to subscription and service deliverables.The Company allocatesWe allocate revenue to delivered components, normally the license componenteach of the arrangement,elements in these arrangements using the residual value method under which we first allocate revenue to the undelivered elements, typically the non-software license components, based on objective evidence of the fair value of the undeliveredvarious elements. We determine the fair value of the various elements which is specific to the Company.using different methods. Fair value for maintenance services associated with software licenses is based upon renewal rates stated in the agreements with customers, which vary according to the level of support service provided under the maintenance program. Fair value of professional services and other products and services is based on sales of these products and services to other customers when sold on a stand-alone basis. Any remaining revenue is allocated to the delivered elements which is normally the software license in the arrangement.the Company recognizeswe recognize revenue for both the software license and the services on a percent-complete basis.SubscriptionsThe Company provides hosting services to customers who have purchased perpetual rights to certain of its software products (hosting services). Revenue from hosting services, as well as data enrichment services, data management services and online training programs is recognized ratably overusing the service period of the contract, whichpercentage-of-completion method.ranges from one to three years, upon deployment and use of the service. Any related set-up fees are recognized ratably over the estimated period that the customer benefits from the related fees.Blackbaud, Inc.Notes to consolidated financial statements—(Continued)The Company makes certain of its software products available for use in hosted application arrangements without licensing perpetual rights to the software (hosted applications). Revenue from hosted applications is recognized over the subscription service period, which generally ranges from one to three years, upon deployment and use of the hosted application. Any related upfront activation, set-up or implementation fees are recognized ratably over the estimated period that the customer benefits from the related fees. Direct and incremental costs relating to activation, set-up and implementation for hosted applications are capitalized until the hosted application is deployed and in use, and then expensed over the estimated period that the customer benefits from the related fees.For arrangements that have multiple elements and do not include software licenses, the Company allocates arrangement consideration at the inception of the arrangement to those elements that qualify as separate units of accounting. The arrangement consideration is allocated to the separate units of accounting based on relative selling price method in accordance with the selling price hierarchy, which includes: (i) vendor specific objective evidence (VSOE) if available; (ii) third party evidence (TPE) if VSOE is not available; and (iii) best estimate of selling price if neither VSOE nor TPE is available. In general, the Company uses VSOE to allocate the selling price to subscription and service deliverables.Revenue from transaction processing fees is recognized when received. Credit card fees directly associated with processing donations for customers are included in subscriptions revenue, net of related transaction costs.ServicesThe Company generally billsbill consulting, installation and implementation services based on hourly rates plus reimbursable travel-related expenses. Revenue is recognized for these services over the period the services are performed.The Company recognizesThe Company sells In arrangements where we provide customers the right to updates to the lists during the contract period, revenue is recognized ratably over the contract period. is recognized only upon the customer attending and completing training. Additionally, the Company sellswe sell fixed-rate programs, which permit customers to attend unlimited training over a specified contract period, typically one year, subject to certain restrictions, and revenue is recognized ratably over this contract period.MaintenanceThe Company recognizesWe recognize revenue from maintenance services ratably over the contract term, which is typically one year. Maintenance contracts are at rates that vary according to the level of the maintenance program and are generally renewable annually. Maintenance contracts also include the right to unspecified product upgrades on an if-and-when available basis. Certain support services are sold in prepaid units of time and recognized as revenue upon their usage.the Company’sour customers are billed or pay for the above described services in advance of delivery, the Company recordswe record such amounts in deferred revenue.Blackbaud, Inc.Notesfinancial statements—(Continued)The Company expensesincludesinclude them in cost of other revenue. The reimbursement of these costs by the Company’sour customers is included in other revenue.The Company presentsexcludesexclude them from revenues.The Company expensesincludesinclude them in cost of other revenue. The reimbursement of these costs by the Company’sour customers is included in other revenue.The Company considersthe Companyus and payable to itsour customers, net of the associated transaction fees earned. Monies associated with donations payable are segregated in a separate bank account and used exclusively for the payment of donations payable. This usage restriction is either legally or internally imposed and reflects the Company’sour intention with regard to such deposits.the Companyus to concentrations of credit risk consist of cash and cash equivalents, donor restricted cash and accounts receivable. The Company’sOur cash and cash equivalents and donor restricted cash are placed with high credit-quality financial institutions. The Company’sOur accounts receivable are derived from sales to its customers who primarily operate in the nonprofit sector. With respect to accounts receivable, the Company performswe perform ongoing evaluations of itsour customers and maintainsmaintain an allowance for doubtful accounts based on historical experience and the Company’sour expectations of future losses. As of and for the years ended December 31, 2012, 2011 2010 and 2009,2010, there were no significant concentrations with respect to the Company’sour consolidated revenues or accounts receivable.The Company recordsdepreciatesdepreciate them over their estimated useful lives using the straight-line method. Property and equipment subject to capital leases are depreciated over the lesser of the term of the lease or the estimated useful life of the asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Repair and maintenance costs are expensed as incurred.The CompanyWe transferred these assets to the applicable property category on the date they are placed in service. There was no capitalized interest applicable to construction-in-progress for the years ended December 31, 20112012 and 2010.Blackbaud, Inc.2011Notes to consolidated financial statements—(Continued).The Company capitalizes certain costs related to the development or purchase of software for use in the Company’s internal operations. Any amounts capitalized are included in computer software costs and amortized over the expected useful life. Costs incurred for upgrades and enhancements, which will not result in additional functionality, are expensed as incurred.Goodwillthe Companyus in a business combination. Goodwill is allocated to reporting units and tested annually for impairment. The Company’sOur reporting units are itsour four reportable segments and itsour payment processing operations. The CompanyWe will also test goodwill for impairment between annual impairment tests if indicators of potential impairment exist. The CompanyWe first assessesassess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. To the extent the qualitative factors indicate that there is more than 50% likelihood that the fair value is more likely than not less than the carrying amount, the Company compareswe compare the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, impairment is indicated. The 20112012 annual impairment test indicated the estimated fair value of the reporting units significantly exceeded the carrying value. There was no impairment of goodwill during 2012, 2011 2010 or 2009.The Company amortizes Basis of amortization Straight-line and accelerated (1) 4-15 Straight-line 1-8 2-8 and technology Straight-line 1-10 2-10 Straight-line 1-5 2-5 Straight-line 8 (1) Certain of the customer relationships are amortized on an accelerated basis. The Company evaluatesWe evaluate the potential for impairment of finite and indefinite-lived intangible assets periodically and takestake into account events or circumstances that indicate revised estimates of useful lives or that the carrying amount may not be recoverable. If the carrying amount is no longer recoverable based upon the undiscounted cash flows of the asset, the amount of impairment is the difference between the carrying amount and the fair value of the asset. Substantially all of the Company’sour intangible assets were acquired in business combinations. There was no impairment of intangible assets during 2012, 2011 2010 or 2009.2010.the Company doeswe do not have the ability to exercise significant influence or have control over the investee. The Company recordsWe record these investments at cost and periodically teststest them for other-than-temporary impairment. During the yearyears ended December 31, 2012 and 2011 the Company, we determined that itsour cost method investment had other-than-temporary impairment based on the projected liquidity of the investment. The impairment of $1.8 million was recorded in income from operations. The CompanyWe used the income approach to determine the fair value of the investment in determining the impairment.Blackbaud, Inc.Notes to consolidated financial statements—(Continued)Fair value An impairment loss of financial instrumentsfair valueaggregate carrying amount of a financial instrument is the amountour cost method investment at which the instrument could be exchanged between willing parties other than in a forced sale or liquidation. The financial instruments of the Company consist primarily of cash and cash equivalents, accounts receivable and accounts payableDecember 31, 2011 was $0.2 million. There were no remaining cost method investments at December 31, 2011 and 2010. The Company believes that the carrying amounts of these financial instruments approximate their fair values at December 31, 2011 and 2010, due to the immediate or short-term maturity of these financial instruments.the Company’sboth our revolving credit facility in June 2011.2011 and our amended and restated credit facility in February 2012. These costs are amortized as interest expense using the effective interest method. The deferred financing fees are being amortized over the term of the credit facility.Prior to October 13, 1999, the Company was organized as an S corporation under the Internal Revenue Codetherefore, was not subject to federal income taxes. The Company historically made distributions to its stockholders to cover the stockholders’ anticipated tax liability. In connection with its 1999 recapitalization, the Company converted its U.S. taxable status from an S corporation to a C corporation and, accordingly, since October 14, 1999, has been subject to federal and state income taxes. Upon this conversion and as a result of the recapitalization, the Company recorded a one-time benefit of $107.0 million to establish a deferred tax asset. This amount was recorded as a direct increase to equityjudgments in the statements of stockholders’ equity. The Company has not recorded a valuation allowance against this deferred tax asset as of December 31, 2011 or 2010, as the Company believes it is more-likely-than-not that it will be able to utilize this benefit, which is dependent upon the Company’s ability to generate future taxable income. The amount of deferred tax asset related to this matter at December 31, 2011, was $20.9 million.The Company recognizes tax benefits arising from uncertain tax positions only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Penalties and interest accrued related to unrecognized tax benefits are recognized in the provision for income taxes.Significant judgment is required in determining the provisionaccounting for income taxes. The Company records itscalculation of income tax provision atrequires estimates due to transactions, credits and calculations where the anticipatedultimate tax rates based on estimatesdetermination is uncertain. Uncertainties arise as a consequence of annual pretax income.the actual source of taxable income between domestic and foreign locations, the outcome of tax audits and the ultimate utilization of tax credits. To the extent that the finalactual results differ from these estimated amounts that were initially recorded, such differences will impact the income tax provision in the period in which suchthe determination is made and could have an impact on the deferred tax asset. The Company’s deferredmade.arewhich arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of a recorded at an amount based uponvaluation allowance significant judgment is required. We consider all positive and negative evidence and a U.S. federalvariety of factors including the scheduled reversal of deferred tax liabilities, historical and projected future taxable income, and prudent and feasible tax rateplanning strategies. If we determine therestatements—(Continued)Company operates. If the Company’s tax rates change,future in excess of its net carrying value, then an adjustment to the deferred tax assets and liabilities will be adjusted to an amount reflecting those income tax rates. If such change is determined to be appropriate, it will affect the provision for income taxes during the period that the determination is made.The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income. To the extent recovery is not likely, aasset valuation allowance is established. To the extent a valuation allowance is established, the Company includes an expense within themade to reduce income tax provision. The Company’s valuation allowance of $10.1 million at December 31, 2011, was primarily associated with deferred tax assets for certain stateexpense, thereby increasing net income tax credits, net operating loss carryforwards and capital loss carryforwards that it has determined are not more-likely-than-not to be realized. The Company will continue to evaluate the realizability of the remaining deferred tax assets, and any further adjustment to the valuation allowance will be made in the period the Company determinessuch determination was made.more-likely-than-notmore likely than not that anythe position will be sustained on audit. We must then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Significant judgment is required in the remaining amounts will not be utilized.date.date in other expense, net. For the year ended December 31, 2012, we recorded net foreign currency loss of $0.4 million. For the years ended December 31, 2011 2010 and 2009, the Company2010, we recorded net foreign currency gain of $0.3$0.3 million $0.1 and $0.1 million and $0.2 million, respectively, and these amounts are included in other expense, net., respectively.begins upon the establishment ofinclude direct labor costs and fringe benefit costs attributed to programmers, software engineers and quality control teams working on products after they reach technological feasibility subjectbut before they are generally available to net realizable value considerations.customers for sale. Capitalized software development costs are reported attypically amortized over the lowerestimated product life of unamortized costgenerally three years, on a straight-line basis.estimated net realizable value. Atchanges in circumstances occur that could impact the recoverability of these assets. There were no impairments during the years ended December 31, 2012, 2011 or 2010. At December 31, 2012and 2010,2011, software development costs, net of accumulated amortization, were $1.1$2.0 million and $0.2$1.1 million, respectively, and are included in other assets on the consolidated balance sheet. Capitalized software development costs are amortized over the estimated product life (typically three years) on a straight line-basis. Amortization expense related to software development costs of approximately $0.1was $0.4 million was recorded in each of, $0.1 million, $0.1 million for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively, and wasis included in both cost of license fees in the consolidated statementand cost of operations. The Company analyzes the net realizable value of capitalized software development costs on an annual basis and has determined there is no indication of impairment.The Company provides30-day30-day right of return and under certain circumstances providesprovide service related credits to itsour customers. The Company maintainsWe maintain a reserve for returns and credits which is estimatedBlackbaud, Inc.Notes to consolidated financial statements—(Continued)the Company recordswe record an allowance for doubtful accounts that reflects estimates of probable credit losses. This assessment is based on several factors including aging of customer accounts, known customer specific risks, historical experience andthe Company’sour allowance for doubtful accounts. Balance at
beginning of
year Provision/
adjustment Write-off Balance at
end of
year $ 424 $ 27 $ (190 ) $ 261 760 (227 ) (109 ) 424 1,013 (47 ) (206 ) 760 Write-off 2012 $ 261 $ 976 $ (421 ) $ 816 2011 424 27 (190 ) 261 2010 760 (227 ) (109 ) 424 the Company’sour allowance for sales returns. Balance at
beginning of
year Provision/
adjustment Write-off Balance at
end of
year $ 2,263 $ 5,619 $ (4,230 ) $ 3,652 2,799 3,000 (3,536 ) 2,263 1,764 3,505 (2,470 ) 2,799 Write-off 2012 $ 3,652 $ 8,914 $ (4,836 ) $ 7,730 2011 2,263 5,619 (4,230 ) 3,652 2010 2,799 3,000 (3,536 ) 2,263 The Company paysthe Company’sour deferred sales commission costs included in prepaid expenses and other current assets. Balance at
beginning of
year Additions Expense Balance at
end of
year $ 11,548 $ 18,415 $ (13,511 ) $ 16,452 5,108 12,985 (6,545 ) 11,548 2,879 6,994 (4,765 ) 5,108 Additions Expense 2012 $ 16,452 $ 19,693 $ (18,003 ) $ 18,142 2011 11,548 18,415 (13,511 ) 16,452 2010 5,108 12,985 (6,545 ) 11,548 The Company expenses$1.1$1.2 million for the year ended December 31, 2012, and $1.1 million for both the years ended December 31, 2011 2010 and 2009.2010.statements—(Continued)The Company reviews 2010 or 2009.2010.The Company computes Years ended December 31, (in thousands, except share and per share amounts) 2011 2010 2009 $ 33,220 $ 29,187 $ 27,520 43,522,563 43,145,189 42,771,173 626,491 730,966 828,875 44,149,054 43,876,155 43,600,048 $ 0.76 $ 0.68 $ 0.64 $ 0.75 $ 0.67 $ 0.63 Year ended December 31, (in thousands, except share and per share amounts) 2012 2011 2010 Numerator: Net income $ 6,583 $ 33,220 $ 29,187 Denominator: Weighted average common shares 44,145,535 43,522,563 43,145,189 Add effect of dilutive securities: Employee stock-based compensation 546,310 626,491 730,966 Weighted average common shares assuming dilution 44,691,845 44,149,054 43,876,155 Earnings per share: Basic $ 0.15 $ 0.76 $ 0.68 Diluted $ 0.15 $ 0.75 $ 0.67 Years ended December 31, 2011 2010 2009 422,418 221,742 488,282 Year ended December 31, 2012 2011 2010 Shares excluded from calculations of diluted EPS 434,050 422,418 221,742 2011, the Company adopted Accounting Standards Update (ASU) 2009-13, which amends the existing criteria for separating consideration in multiple-deliverable arrangements. Arrangements that include perpetual software licenses are excluded from the scope of this ASU. ASU 2009-13 establishes a hierarchy for determining the selling price of a deliverable and requires the use of best estimate of the selling price when VSOE or TPE of the selling price cannot be determined. As a result of the requirement to use the best estimate of the selling price when VSOE or TPE of the selling price cannot be determined, the residual method is no longerBlackbaud, Inc.Notes to consolidated financial statements—(Continued)permitted. ASU 2009-13 is applicable prospectively for revenue arrangements entered into or materially modified after the adoption date. The adoption of ASU 2009-13 did not have a material impact on the Company’s consolidated financial statements.Effective December 31, 2011, the Company2012, we adopted ASU 2011-08, which simplifies how entities test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The adoption of ASU 2011-08 did not have a material impact on the Company’s consolidated financial statements.Recently issued accounting pronouncementsIn June 2011, the FASB issued ASU 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which (1)(i) eliminates the option to present components of other comprehensive income, or OCI, as part of the statement of changes in stockholders’ equity (2)and (ii) requires the presentation of each component of net income and each component of OCI either in a single continuous statement or in two separate but consecutive statements. The adoption of ASU 2011-05 did not have a material impact on our consolidated financial statements. We have presented each component of net income and OCI in a single continuous statement.(3) alsoIFRS. ASU 2011-04 is effective for entities prospectively for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on our consolidated financial statements.presentationan entity to provide information about the amounts reclassified out of reclassification adjustmentsaccumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the financial statements. The Companystatement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to adoptcross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2011-052013-02 is effective prospectively for reporting periods beginning after December 15, 2012. We do not anticipate any material impact from the adoption of ASU 2013-02.January 1,general intangibles other than goodwill. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company doespermitted, provided that the entity has not believeyet issued its financial statements. We do not anticipate any material impact from the adoption of ASU 2011-05 will have2012-02.material effect on its consolidated financial statements.total of 3.Business combinationsCompany completedacquisition of Convio expands our subscription and online offerings and accelerates our evolution to a subscription-based revenue model. As a result of the business acquisitions described below during the year ended December 31, 2011.acquisition, Convio has become a wholly-owned subsidiary of ours. The results of operations for each of themConvio are included in theour consolidated financial statements of the Company from the date of acquisition. The fair values assigned toSince the identifiable intangible assets acquired were based on estimates and assumptions determined by management.Everyday HeroOn October 6, 2011, the Company acquired alldate of the outstanding capital stock of Everyday Hero Pty. Ltd. (EDH), a privately-owned company based in Brisbane, Australia, for $7.6 million in cash. The acquisition of EDH provided the Company additional capabilities in the area of online event fundraising software solutions for nonprofit organizations including donation processing. During 2011,through December 31, 2012, total revenue from EDHConvio was $50.7 million. Because we have integrated a substantial amount of the Convio operations, included init is impracticable to determine the Company’s resultsoperating costs attributable solely to the acquired business. During the year ended December 31, 2012, we incurred $6.4 million of operations was $0.8 million and costacquisition-related costs associated with the acquisition of revenue was $0.3 million. Acquisition-related costs of $0.2 million,Convio, which primarily consisted of legal and financial advisory services, were expensed as incurredrecorded in general and administrative expenses during the year ended December 31, 2011.The Company allocated the fair value of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. The Company recorded the excess of consideration over the aggregate fair values as goodwill. Using information available at the timeexpense.closed,of Convio through cash on hand and borrowings of $312.0 million under our amended credit facility. In connection with closing the Company allocated $0.5 millionConvio acquisition, we designated Convio as a material domestic subsidiary under our credit facility. As a material domestic subsidiary, Convio guarantees amounts outstanding under the credit facility and pledges certain stock of the consideration to net tangible assets and $6.2 millionits subsidiaries.statements—(Continued)Pro forma results of operations for EDH have not been presented because the results of EDH are not material to the Company’s consolidated financial results.Public Interest DataOn February 1, 2011, the Company acquired all of the outstanding stock of Public Interest Data, LLC (PIDI), a privately held limited liability company based in Virginia, for $16.6 million in cash. The acquisition of PIDI provided the Company additional capabilities in the area of donor acquisition list analytics and should enhance the Company’s database management services offerings. The additional capabilities include the established process for delivering list analytic and data management services as well as the associated experienced workforce and technology. During the year ended December 31, 2011, total revenue from PIDI of $7.5 million and cost of revenue of $4.8 million was included in the Company’s results of operations. Acquisition-related costs of $1.0 million, which primarily consisted of legal and financial advisory services, were expensed as incurred in general and administrative expense during the year ended December 31, 2011.In addition to the consideration paid at closing, the Company might be required to pay up to a maximum of $2.5 million in additional cash consideration if PIDI meets revenue targets over the two years subsequent to the acquisition. A liability of $1.4 million was initially recognized for the estimated contingent consideration that will be paid based on a probability-weighted discounted cash flow valuation technique. During the year ended December 31, 2011, the Company recognized $0.8 million of income, as a result of the change in the estimated fair value of the contingent consideration liability. This amount was recorded as a reduction of general and administrative expense.(in thousands) $ 91 686 291 459 7,390 13,060 (478 ) (1,814 ) (3,099 ) $ 16,586 (in thousands) Net working capital, excluding deferred revenue $ 54,912 Property and equipment 6,591 Other long term assets 75 Deferred revenue (7,917 ) Deferred tax liability (31,648 ) Intangible assets and liabilities 139,650 Goodwill 174,011 $ 335,674 Blackbaud, Inc.Notes to consolidated financial statements—(Continued)value.value of $12.8 million. The goodwill recognized is attributable primarily to the assembled workforce of PIDIConvio and the opportunities for expected synergies. None of the goodwill arising in the acquisition is deductible for income tax purposes. GoodwillThe estimated amount of $12.3 million and $0.8 million wasgoodwill assigned to the Target AnalyticsEnterprise Customer Business Unit, or ECBU, and ECBUthe General Markets Business Unit, or GMBU, reporting segments was $125.3 million, and $48.7 million, respectively.finite-livedidentifiable intangible assets: Intangible
assets acquired
(in thousands)
average
amortization
period $ 5,150 15 140 2 1,550 8 550 4 $ 7,390 Intangible assets acquired Weighted average amortization period (in thousands) (in years) Customer relationships $ 53,000 15 Marketing assets 7,800 7 Acquired technology 69,000 8 In-process research and development 9,100 7 Non-compete agreements 1,440 2 Unfavorable leasehold interests (690 ) 7 $ 139,650 which included both thecost approach, relief of royalty rate method and multi-period excess earnings methods. Customer relationships are amortized on an accelerated basis. Marketing assets, acquired softwaretechnology and non-compete agreements are amortized on a straight-line basis.Pro In-process research and development was placed into service subsequent to the time of acquisition and is amortized on a straight-line basis since the time of being placed into service over a weighted average amortization period of PIDIanticipated synergies resulting from the acquisition and should not be relied upon as being indicative of the historical results that would have not been presented becauseattained had the transaction been consummated as of January 1, 2011, or of the results of PIDI are not material tothat may occur in the Company’s consolidated financial results. Year ended December 31, (in thousands, except per share amounts) 2012 2011 Revenue $ 476,887 $ 451,221 Net income (loss) $ 116 $ 27,697 Basic earnings (loss) per share $ — $ 0.64 Diluted earnings (loss) per share $ — $ 0.63 2010 Acquisitions2010, the Company2011, we acquired two entities for total consideration of $5.3$24.2 million, all of which was paid in cash. The results of operations of acquired entities have been included in theour consolidated financial statements of the Company from the date of acquisition. Pro forma results of operations have not been presented because the effects of these business combinations, individually and in the aggregate, were not material to theour consolidated results of operations of the Company. The Companyoperations. We recorded the purchase price allocation based on the estimated fair value of the assets acquired and liabilities assumed. None of the goodwill arising from the acquisitions completed in 20102011 is deductible for income tax purposes.2009 Acquisitions2009, the Company2010, we acquired one entitytwo entities for total consideration of $2.4$5.3 million, all of which was paid in cash. The results of operations of acquired entities have been included in theour consolidated financial statements of the Company from the date of acquisition. Pro forma results of operations have not been presented because the effects of these business combinations, individually and in the aggregate, were not material to theour consolidated results of operations of the Company. The Companyoperations. We recorded the purchase price allocation based on the estimated fair value of the assets acquired and liabilities assumed. None of the goodwill arising from the acquisitions completed in 20092010 is deductible for income tax purposes.Blackbaud, Inc.Notes to consolidated financial statements—(Continued)4.Property and equipment20112012 and 20102011 consisted of the following:
useful life December 31, (in thousands) 2011 2010 3 - 5 $ 2,809 $ 3,660 3 - 5 39,665 30,616 3 - 5 9,660 10,982 — 3,836 1,332 5 - 7 5,028 4,961 term of lease 3,394 2,923 64,392 54,474 (29,995 ) (31,511 ) $ 34,397 $ 22,963 December 31, (in thousands) 2012 2011 Equipment 3 - 5 $ 2,430 $ 2,809 Computer hardware 3 - 5 56,969 39,665 Computer software 3 - 5 17,540 9,660 Construction in progress — 1,854 3,836 Furniture and fixtures 5 - 7 5,486 5,028 Leasehold improvements term of lease 5,104 3,394 Total property and equipment 89,383 64,392 Less: accumulated depreciation (40,320 ) (29,995 ) Property and equipment, net of depreciation $ 49,063 $ 34,397 $9.4$14.5 million $9.1, $9.4 million and $8.4$9.1 million for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively.20112012 and 20102011 was not material.Goodwill and other intangible assetsAs discussed in Note 15, the Company’s reportable segments changed during the year ended December 31, 2011. Goodwill has been reallocated among the new reportable segments as of December 31, 2010. and other intangible assets2011,2012, consisted of the following:(in thousands) ECBU Target
Analytics GMBU IBU Other Total $ 22,233 $ 20,919 $ 26,472 $ 4,514 $ 2,109 $ 76,247 802 12,258 — 863 — 13,923 (12 ) — (35 ) (14 ) (13 ) (74 ) — — — 26 — 26 $ 23,023 $ 33,177 $ 26,437 $ 5,389 $ 2,096 $ 90,122 The Company has(in thousands) ECBU GMBU IBU Target Analytics Other Total Balance at December 31, 2011 $ 23,023 $ 26,437 $ 5,389 $ 33,177 $ 2,096 $ 90,122 Additions related to business combinations 125,299 48,712 — — — 174,011 Additions related to prior year business combinations — — 793 — — 793 Effect of foreign currency translation — — 129 — — 129 Balance at December 31, 2012 $ 148,322 $ 75,149 $ 6,311 $ 33,177 $ 2,096 $ 265,055 20112012 and 2010.2011. Additions to goodwill during the year ended December 31, 2011,2012, related primarily to the acquisitions as described in Note 3 of these consolidated financial statements.Blackbaud, Inc.Notes The remaining additions were the result of an adjustment to consolidated financial statements—(Continued)the allocation of the purchase price for one the entities we acquired during the year ended December 31, 2011.The Company has20112012 and 2010. December 31, (in thousands) 2011 2010 $ 48,725 $ 41,441 2,502 2,365 16,087 12,406 2,539 2,268 4,275 4,275 74,128 62,755 (18,891 ) (14,741 ) (1,627 ) (1,202 ) (6,171 ) (4,935 ) (1,856 ) (1,633 ) (2,263 ) (1,729 ) (30,808 ) (24,240 ) 1,340 — $ 44,660 $ 38,515 December 31, (in thousands) 2012 2011 Finite-lived gross carrying amount Customer relationships $ 101,878 $ 48,725 Marketing assets 10,296 2,502 Acquired software and technology 94,378 16,087 Non-compete agreements 3,979 2,539 Database 4,275 4,275 Total finite-lived gross carrying amount 214,806 74,128 Accumulated amortization Customer relationships (24,994 ) (18,891 ) Marketing assets (2,852 ) (1,627 ) Acquired software and technology (14,787 ) (6,171 ) Non-compete agreements (2,727 ) (1,856 ) Database (2,798 ) (2,263 ) Total accumulated amortization (48,158 ) (30,808 ) Indefinite-lived gross carrying amount Marketing assets 1,389 1,340 Total intangible assets, net $ 168,037 $ 44,660 20112012 are related to the acquisitions described in Note 3 of these consolidated financial statements.operationscomprehensive income based on the revenue stream to which the asset contributes.contributes and the nature of the intangible asset. The following table summarizes amortization expense for the years ended December 31, 2012, 2011 2010 and 2009. Years ended December 31, (in thousands) 2011 2010 2009 $ 635 $ 588 $ 476 3,341 3,058 3,239 1,572 1,390 1,344 975 1,223 1,302 75 75 75 6,598 6,334 6,436 980 798 768 $ 7,578 $ 7,132 $ 7,204 Blackbaud, Inc.2010Notes to consolidated financial statements—(Continued). Year ended December 31, (in thousands) 2012 2011 2010 Included in cost of revenue: Cost of license fees $ 485 $ 635 $ 588 Cost of subscriptions 11,969 3,341 3,058 Cost of services 1,992 1,572 1,390 Cost of maintenance 722 975 1,223 Cost of other revenue 75 75 75 Total included in cost of revenue 15,243 6,598 6,334 Included in operating expenses 2,106 980 798 Total $ 17,349 $ 7,578 $ 7,132 2011:Years ended December 31,
expense $ 7,359 6,947 6,397 5,496 4,910 $ 31,109 20112012 and 2010: December 31, (in thousands) 2011 2010 $ 16,452 $ 11,548 7,007 4,352 3,098 3,447 343 9,253 4,116 3,539 $ 31,016 $ 32,139 2011: (in thousands) December 31, 2012 December 31, 2011 Deferred sales commissions $ 18,142 $ 16,452 Prepaid software maintenance 5,530 4,676 Taxes, prepaid and receivable 7,398 343 Deferred professional services costs 3,233 3,098 Prepaid royalties 2,813 2,331 Other 3,473 4,116 Total prepaid expenses and other current assets $ 40,589 $ 31,016 7.Accrued expenses and other current liabilities20112012 and 2010: December 31, (in thousands) 2011 2010 $ 9,832 $ 8,952 6,475 5,922 4,384 3,683 3,762 3,335 1,490 1,083 1,418 1,273 996 862 4,350 3,168 $ 32,707 $ 28,278 Blackbaud, Inc.2011Notes to consolidated financial statements—(Continued):(in thousands) December 31, 2012 December 31, 2011 Taxes payable $ 7,607 $ 3,355 Accrued commissions and salaries 5,905 6,475 Accrued bonuses 11,966 9,832 Customer credit balances 4,577 3,762 Accrued software and maintenance 3,831 174 Accrued royalties 1,750 1,418 Other 10,360 7,691 Total accrued expenses and other current liabilities $ 45,996 $ 32,707 8.Deferred revenue20112012 and 2010: December 31, (in thousands) 2011 2010 $ 81,913 $ 78,382 50,849 39,532 29,675 32,379 1,000 368 163,437 150,661 (9,772 ) (6,900 ) $ 153,665 $ 143,761 9.DebtRevolving2011:(in thousands) December 31, 2012 December 31, 2011 Maintenance $ 81,741 $ 81,913 Subscriptions 65,850 50,849 Services 36,904 29,675 License fees and other 523 1,000 Total deferred revenue 185,018 163,437 Less: Deferred revenue, net of current portion (11,119 ) (9,772 ) Deferred revenue, current portion $ 173,899 $ 153,665 In June 2011, the Company entered into to a $325.0 millionfive-year $125.0 million revolving credit facility. The credit facility includes the following facilities: (i) a dollar and a designated currency revolving credit facility with sublimits for letters of credit and swingline loans, and (ii) a delayed draw term loan. The credit facility is secured by the stock and limited liability company interests of certain subsidiaries that were pledged as part of the closing. Amounts outstanding under the credit facility will be guaranteed by our material domestic subsidiaries, if any. In connection with closing the Company’sConvio acquisition, we designated Convio as a material subsidiaries, as defined, and is collateralized with the stock of all of the Company’s subsidiaries, as defined. At December 31, 2011 and 2010, there were no outstanding borrowingsdomestic subsidiary under the credit facility.the Company’sa rate per annum equal to, at our option, at(a) a variablebase rate based on (a)equal to the highest of (i) the prime rate, (ii) federal funds rate plus 0.5% or0.50% and (iii) one month LIBOR plus 1% (Base Rate), in addition to a margin of 0.375%0.25% to 1.0%1.25% (Base Rate Loans), or (b) the LIBOR rate plus a margin of 1.375%1.25% to 2.0%2.25% (LIBOR Loans). Swingline loans bear interest at a rate per annum equal to the Base Rate plus a margin of 0.25% to 1.25% or such other rate agreed to between the Swingline lender and us. Designated currency tranche revolving credit loans bear interest at a rate per annum equal to the LIBOR rate plus a margin of 1.25% to 2.25%. The exact amount of any margin depends on the nature of the loan and the Company’sour leverage ratio at the time of the borrowing. The Companyratio.payspay a quarterly commitment fee on the unused portion of the revolving credit facility equalfrom 0.20% to 0.25%, 0.275%, 0.3% or 0.35% per annum, depending on the Company’sour leverage ratio. At December 31, 2011,2012, the commitment fee was 0.25%0.35%.the Company haswe have the ability to choose either Base Rate Loans or LIBOR Loans. Base rateRate borrowings mature in June 2016.February 2017. LIBOR Loans can be one, two, three or six month maturities (or, if agreed to by allthe applicable lenders, nine or twelve months), and the Company has the ability to extend the maturity of these loans by rolling them at their maturityrollover automatically, if we take no other action, into new loans with the same or longer maturities. The Company evaluatesBase Rate Loans. We evaluate the classification of itsour debt based on the maturityrequired annual maturities of individual borrowings and any roll-over of borrowings subsequentour credit facility.balance sheet date, but priorconsolidated leverage ratio and consolidated interest coverage ratio, as well as restrictions on the maximum amount of annual capital expenditures, our ability to issuancedeclare and pay dividends and our ability to repurchase shares of our common stock. At December 31, 2012, we were in compliance with all debt covenants under the credit facility. Debt balance at Effective interest rate at (in thousands, except percentages) December 31, 2012 December 31, 2012 Credit facility: Revolving credit loans $ 123,000 2.68 % Term loans 92,500 3.14 % Total debt 215,500 2.88 % Less: Debt, current portion 10,000 3.14 % Debt, net of current portion $ 205,500 2.86 % consolidated financial statements.Annual maturities 2013 $ 10,000 2014 13,750 2015 15,000 2016 15,000 2017 161,750 Thereafter — Total required maturities $ 215,500 the Company’sour credit facility entered into in June 2011, the CompanyFebruary 2012, we paid $0.8$2.4 million of financing costs, which is being amortized over the term of the new facility. As of December 31, 2012 and December 31, 2011 and 2010,, deferred financing costs totaling $0.8$2.5 million and $0.1$0.8 million, respectively, are included in other assets on the consolidated balance sheet.statements—(Continued)statements (continued) 10.Commitments and contingenciesLeasesCompany leases itsfair values of our derivative instruments as of December 31, 2012, were as follows: December 31, 2012 Liabilities (in thousands) Balance Sheet Location Fair Value Derivative instruments designated as hedging instruments: Interest rate swaps Other liabilities $ 1,296 Total derivative instruments designated as hedging instruments $ 1,296 Loss recognized in accumulated other comprehensive loss Location of loss reclassified from accumulated other comprehensive loss into income Loss reclassified from accumulated other comprehensive loss into income December 31, Year ended December 31, (in thousands) 2012 2012 Interest rate swaps $ (1,296 ) Interest expense $ (466 ) year-year lease agreement which was entered into in October 2008, and has two five-year renewal options. The current annual base rent of the lease is $3.6$3.9 million payable in equal monthly installments. The base rent escalates annually at a rate equal to the change in the consumer price index, as defined in the agreement, but not to exceed 5.5% in any year. In addition, under the terms of the lease, the lessor will reimburse the Companyus an aggregate amount of $4.0$4.0 million for leasehold improvements, which will be recorded as a reduction to rent expense ratably over the term of the lease. During each of the years ended December 31, 2012, 2011 2010, and 2009,2010, rent expense was reduced by $0.3$0.3 million related to this lease provision. The $4.0$4.0 million leasehold improvement allowance has been included in the table of operating lease commitments below as a reduction in the Company’sour lease commitments ratably over the then remaining life of the lease from October 2008. The timing of the reimbursements for the actual leasehold improvements may vary from the amount reflected in the table below.the Company haswe have subleased a portion of itsour facilities under various agreements extending through 2014. Under these agreements, rent expense was reduced by $0.4$0.3 million in the year ended December 31, 2012 and by $0.4 million in each of the years ended December 31, 2011 2010 and 2009,2010, respectively. The operating lease commitments in the table belowWe have been reduced by minimum aggregate sublease commitments of $0.3 million during 2012 and 2013; the amount in 2014 is immaterial. No minimum aggregate sublease commitments exist after 2014. The Company has also received, and expectsexpect to receive through 2016,2023, quarterly South Carolina state incentive payments as a result of locating itsour headquarters facility in Berkeley County, South Carolina. These amounts are recorded as a reduction of rent expense and were $2.3$2.2 million $2.0, $2.3 million and $1.7$2.0 million for the years 2010 and 2009,2010, respectively. Total rent expense was $4.7$7.6 million $5.4, $4.7 million and $5.3$5.4 million for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively.the Company leaseswe lease various office space and equipment under operating leases. The CompanyWe also hashave various non-cancelable capital leases for computer equipment and furniture that are not significant.2011,2012, the future minimum lease commitments related to lease agreements, net of related sublease commitments and lease incentives, were as follows: Operating
leases $ 6,658 5,491 5,452 5,015 4,236 33,277 $ 60,129 Year ended December 31, Operating (in thousands) leases 2013 $ 10,278 2014 9,518 2015 8,339 2016 7,322 2017 7,336 Thereafter 40,925 Total minimum lease payments $ 83,718 The Company utilizesitsour products and services, with contractual arrangements varying in length from one to three years. In certain cases, these arrangements require a minimum annual purchase commitment. As of December 31, 2011,2012, the remaining aggregate minimum purchase commitmentBlackbaud, Inc.Notes to consolidated financial statements—(Continued)$8.12013. The Company2015. We incurred expense under these arrangements of $6.8$1.3 million $4.1, $3.2 million and $2.5$1.7 million for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively.The Company ishave arisenarise in the ordinary course of business. The Company recordsWe record an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company doesWe do not believe the amount of potential liability with respect to legal proceedings and/or claims in the ordinary course of businessthese actions will have a material adverse effect upon the Company’sour consolidated financial position, results of operations or cash flows.The Company entersthe Company haswe have agreed to indemnify the other party for certain matters, such as property damage, personal injury, acts or omissions of the Company,ours, or itsour employees, agents or representatives, or third-party claims alleging that the activities of its contractual partner pursuant to the contract infringe a patent, trademark or copyright of such third party.The Company assessesitsour liability on the above indemnities to be immaterial based on historical experience and information known at December 31, 2011.11.Income taxesThe Company files2012The Company isWe are generally subject to U.S. federal income tax examination for calendar tax years 20082009 through 20102011 as well as state and foreign income tax examinations for various years depending on statutes of limitations of those jurisdictions. Years ended December 31, (in thousands) 2011 2010 2009 $ 3,434 $ 4,130 $ 3,394 1,030 1,228 1,391 40 78 298 4,504 5,436 5,083 11,943 10,077 11,268 1,536 1,262 1,196 54 (26 ) — 13,533 11,313 12,464 $ 18,037 $ 16,749 $ 17,547 Blackbaud, Inc.Notes to consolidated financial statements—(Continued) Year ended December 31, (in thousands) 2012 2011 2010 Current taxes: U.S. Federal $ (1,764 ) $ 3,434 $ 4,130 U.S. State and local 410 1,030 1,228 International 511 40 78 Total current taxes (843 ) 4,504 5,436 Deferred taxes: U.S. Federal 8,943 11,943 10,077 U.S. State and local (796 ) 1,536 1,262 International (562 ) 54 (26 ) Total deferred taxes 7,585 13,533 11,313 Total income tax provision $ 6,742 $ 18,037 $ 16,749 Years ended December 31, (in thousands) 2011 2010 2009 $ 50,946 $ 45,700 $ 43,755 311 236 1,312 $ 51,257 $ 45,936 $ 45,067 Year ended December 31, (in thousands) 2012 2011 2010 U.S. $ 16,793 $ 50,946 $ 45,700 International (3,468 ) 311 236 Income before provision for income taxes $ 13,325 $ 51,257 $ 45,936 the Company’sour income tax provision is as follows: Years ended December 31, 2011 2010 2009 35.0 % 35.0 % 35.0 % 4.2 4.3 4.2 0.6 — — (0.2 ) (0.3 ) (0.2 ) (0.4 ) 1.0 1.2 (2.2 ) (2.4 ) (2.1 ) 0.7 2.4 3.4 (2.7 ) (3.2 ) (3.0 ) 0.2 (0.3 ) 0.4 35.2 % 36.5 % 38.9 % The Company Year ended December 31, 2012 2011 2010 Federal statutory rate 35.0 % 35.0 % 35.0 % Effect of: State income taxes, net of federal benefit 8.3 4.2 4.3 Change in state income tax rate applied to deferred tax asset (2.2 ) 0.6 — Fixed assets (7.6 ) — — Unrecognized tax benefit 2.9 (0.3 ) 0.4 State credits, net of federal benefit (1.7 ) (2.2 ) (2.4 ) Change in valuation reserve 4.1 0.7 2.4 Federal credits generated — (2.7 ) (3.2 ) Foreign tax rate 2.3 — — Acquisition costs 10.8 0.6 1.0 Foreign tax credits (3.0 ) — — Other 1.7 (0.7 ) (1.0 ) Income tax provision effective rate 50.6 % 35.2 % 36.5 % $0.2$0.1 million $2.7, $0.2 million and $2.2$2.7 million in stockholders’ equity during the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively.Blackbaud, Inc.Notes We were unable to consolidatedrecognize additional excess tax benefits of stock-based compensation deductions generated during 2012 because the deductions did not reduce income tax payable after considering our net operating loss carryforwards. Although not recognized for financial statements—(Continued)reporting purposes, this unrecognized tax benefit is available to reduce future taxable income.the Company’sour deferred tax assetassets and liabilities were as follows: December 31, (in thousands) 2011 2010 $ 11,148 $ 11,236 16,842 18,894 1,456 1,014 3,343 6,146 20,969 28,466 8,142 5,929 5,595 3,687 67,495 75,372 (8,407 ) (8,995 ) (9,132 ) (4,994 ) (8,950 ) (4,291 ) (26,489 ) (18,280 ) (10,079 ) (9,614 ) $ 30,927 $ 47,478 December 31, (in thousands) 2012 2011 Deferred tax assets relating to: Federal and state net operating loss carryforwards $ 30,839 $ 16,842 State and foreign tax credits 15,438 11,148 Intangible assets 13,706 20,969 Effect of expensing nonqualified stock options and restricted stock 7,634 8,142 Accrued bonuses 4,361 3,084 Deferred revenue 4,342 3,343 Allowance for doubtful accounts 3,161 1,456 Other 8,321 2,511 Total deferred tax assets 87,802 67,495 Deferred tax liabilities relating to: Intangible assets (65,882 ) (8,407 ) Fixed assets (12,643 ) (9,132 ) Other (7,318 ) (8,950 ) Total deferred tax liabilities (85,843 ) (26,489 ) Valuation allowance (10,651 ) (10,079 ) Net deferred tax asset (liabilities) $ (8,692 ) $ 30,927 2011,2012, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $77.3 million, $3.6 million and $57.1 million, respectively. The federal and state net operating loss carryforwards are subject to various Internal Revenue Code limitations and applicable state tax laws. If not utilized, the Company hadfederal net operating loss carryforwards will begin to expire in 2033 and the state net operating loss carryforwards will expire over various periods beginning in 2017. A portion of the foreign and state net operating loss carryforwards have a valuation reserve due to management's uncertainty regarding the future ability to use such carryforwards. Our federal and state tax credit carryovers ofcarryforwards for income tax purposes were approximately $11.1$3.6 million and $11.6 million, net of federal tax, whichrespectively. If not utilized, the federal tax credit carryforwards will begin to expire between 2012in 2033 and 2026, if unused. Thesethe state tax credit carryforwards will begin to expire in 2013. The state tax credits had a valuation reserve of approximately $8.9$8.5 million, net of federal tax, as of December 31, 2011.The Company acquired all of its federal and state net operating loss carryforwards in business acquisitions. At December 31, 2011, the Company had deferred tax assets of $14.4 million for federal net operating loss carryforwards and $2.4 million for state net operating loss carryforwards. These deferred assets pertain to net operating loss carryforwards of approximately $41.2 million and $50.4 million for federal and state purposes, respectively, at December 31, 2011. These net operating loss carryforwards expire during various tax years through 2030. As a result of the Kintera acquisition, Kintera underwent a change in ownership under Section 382 of the Internal Revenue Code (IRC Sec. 382) on July 8, 2008, the date of the Company’s acquisition. In general, IRC Sec. 382 places annual limitations on the use of certain tax attributes such as net operating losses and tax credit carryovers in existence at the ownership change date. These limitations restrict the amount of the aforementioned net operating loss carryforwards that are available to offset taxable income each year. A portion of the state net operating loss carryforward has a valuation reserve due to management’s uncertainty regarding the future ability to use such carryforwards.the Company’sour deferred tax asset valuation allowance:(in thousands) Balance
at beginning
of year Acquisition
related
change Charges to
expense
end of $ 9,614 $ — $ 465 $ 10,079 7,994 75 1,545 9,614 7,865 (1,378 ) 1,507 7,994 (in thousands) Years ended December 31, 2012 $ 10,079 $ 286 $ 286 $ 10,651 2011 9,614 — 465 10,079 2010 7,994 75 1,545 9,614 statements—(Continued)the Company’sour unrecognized tax benefit for the year ended December 31, 2012, 2011 2010 and 2009: December 31, (in thousands) 2011 2010 2009 $ 1,414 $ 1,231 $ 346 87 126 427 (9 ) — — 285 297 485 — (240 ) (27 ) $ 1,777 $ 1,414 $ 1,231 December 31, (in thousands) 2012 2011 2010 Balance at beginning of year $ 1,777 $ 1,414 $ 1,231 Increases from prior period positions 2,766 87 126 Decreases in prior year position (93 ) (9 ) — Increases from current period positions — 285 297 Lapse of statute of limitations (604 ) — (240 ) Balance at end of year $ 3,846 $ 1,777 $ 1,414 $1.8$3.8 million at December 31, 2011. The Company recognizes2012. We recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The total amount of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2012 and 2011 was $0.7 millionand 2010 was $0.2$0.2 million and $0.1 million,, respectively. The total amount of interest and penalties included in the consolidated statementstatements of operationscomprehensive income as an increasea decrease in income tax expense for 20112012 and 2010 was $0.1 million.$0.3 million and $0.2 million, respectively. The total amount of interest and penalties included in the consolidated statementstatements of operations for 2010 was $0.2 million of a decreasecomprehensive income as an increase in income tax expense; interest and penalties were immaterial in 2009.The Company hasexpense for 2011 was in certain taxing jurisdictions related to state nexus issues for which it is reasonably possible that the total amounts of unrecognized tax benefits might decrease within the next twelve months. This possible decrease could result from the finalization of state income tax reviews and the expiration of statutes of limitations. The reasonably possible decrease is not materialapproximates $1.0 million at December 31, 2011.It continues2012.beCanada, are not permanently reinvested and as a result we recorded a tax liability and applicable foreign tax credits for the Company’s intention to indefinitely reinvest undistributedeffect of repatriating those foreign earnings. For the remaining undistributed earnings, we concluded that these earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States. Accordingly, no deferred tax liability has been recorded in connection with thewe have not provided for U.S. federal and foreign withholding taxes on those undistributed foreign earnings of approximately $1.4 million.our foreign subsidiaries. It is not practicable for the Company to determineestimate the amount that might be payable if some or all of the unrecognized deferred tax liability for temporary differences relatedsuch earnings were to investments in foreign subsidiaries.12.Stock-based compensationthe Companywe may grant incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other stock awards to eligible employees, directors and consultants. The Company maintainsWe maintain other stock based compensation plans including the 2004 Stock Plan and the 2001 Stock Option Plan, under which no additional grants may be made, and the 2009 Equity Compensation Plan for Employees from Acquired Companies, under which the Companywe may grant shares of its common stock to employees pursuant to employment contracts or other arrangements entered into in connection with past and future acquisitions.onin July 8, 2008, the Company also maintainswe maintain the Kintera, Inc. 2000 Stock Option Plan, as amended (Kintera 2000 Plan) and Kintera, Inc. Amended and Restated 2003 Equity Incentive Plan, as amended (Kintera 2003 Plan), that itwhich we assumed upon the acquisition of Kintera. The Company’sIn connection with the acquisition of Convio in May 2012, we maintain the Convio, Inc. 1999 Stock Option/Stock Issuance Plan, as amended (Convio 1999 Plan) and Convio, Inc. 2009 Stock Incentive Plan, as amended (Convio 2009 Plan), which we assumed upon the acquisition of Convio. Our Compensation Committee of the Board of Directors administers theall of these plans and the stock-based awards are granted under terms determined by them.Blackbaud, Inc.Notes to consolidated financial statements—(Continued)the Company’sour plans was 1,105,9802011. The Company issues2012. We issue common stock from itsour pool of authorized stock upon exercise of stock options, settlement of stock appreciation rights and performance-based restricted stock units or upon granting of restricted stock.The Company hasunit awardsunits and stock appreciation rights. The following table sets forth the number of awards outstanding for each award type as of December 31, 20112012 and 2010. Outstanding at
December 31, Award type 2011 2010 216,848 406,425 1,079,930 1,151,775 147,912 61,891 2,305,049 2,417,658 Outstanding at December 31, Award type 2012 2011 Stock options 60,775 216,848 Restricted stock awards 1,203,186 1,079,930 Restricted stock units 389,913 159,462 Stock appreciation rights 2,786,828 2,305,049 7-year7-year contractual term. Additionally, stock appreciation rights (SARs) have contractual lives of 5 or 7 years.The Company recognizes Awards granted to our executive officers and certain members of management are subject to accelerated vesting upon a change in control as defined in the employees’ retention agreement. restricted stock unit awards with performance or market based vesting conditions on an accelerated basis over the requisite service period of the individual grantees, which generally equals the vesting period. The Company recognizesWe recognize compensation expense associated with restricted stock awards and SARs on a straight-line basis over the requisite service period of the individual grantees, which generally equals the vesting period.operationscomprehensive income based on where the employees’ departmental cost center.associated employee’s compensation is recorded. The following table summarizes stock-based compensation expense for the yearyears ended December 31, 2012, 2011 2010 and 2009. Years ended December 31, (in thousands) 2011 2010 2009 $ 571 $ 392 $ 387 1,966 1,742 1,433 741 814 750 3,278 2,948 2,570 1,325 1,366 1,605 3,039 2,844 2,944 7,242 5,901 5,291 11,606 10,111 9,840 $ 14,884 $ 13,059 $ 12,410 Blackbaud, Inc.2010Notes to consolidated financial statements—(Continued). Year ended December 31, (in thousands) 2012 2011 2010 Included in cost of revenue: Cost of subscriptions $ 860 $ 571 $ 392 Cost of services 2,786 1,966 1,742 Cost of maintenance 538 741 814 Total included in cost of revenue 4,184 3,278 2,948 Included in operating expenses: Sales and marketing 2,527 1,325 1,366 Research and development 3,556 3,039 2,844 General and administrative 8,973 7,242 5,901 Total included in operating expenses 15,056 11,606 10,111 Total $ 19,240 $ 14,884 $ 13,059 $37.1$43.0 million at December 31, 2011.2012. This amount will be recognized over a weighted average period of 2.0 years.1.9 years .the Company’sour stock-based compensation plans as of December 31, 2011. All options are fully vested at December 31, 2011.Plan Date of adoption Options
outstanding Range of
exercise prices July 1, 2001 1,875 $ 4.80 March 23, 2004 207,244 $ 8.60-$16.10 July 8, 2008 (1) 395 $ 19.26 July 8, 2008 (1) 7,334 $ 10.59-$19.26 216,848 Plan Date of adoption 2004 Stock Plan March 23, 2004 21,383 $8.60-$13.05 Kintera 2003 Plan July 8, 2008 (1) 6,086 $10.59-$19.26 Convio 1999 Plan May 5, 2012 (1) 28,977 $9.10-$15.54 Convio 2009 Plan May 5, 2012 (1) 4,329 $15.62-$18.20 Total 60,775 (1) In connection with the acquisitionacquisitions of Kintera the Companyand Convio, we assumed certain stock options issued and outstanding at the date of acquisition.2011,2012, and changes during the year then ended, is as follows:Options Share
options Weighted
average
exercise
price
average
remaining
contractual
term
intrinsic value 406,425 $ 13.22 (180,816 ) 11.29 (8,761 ) 5.01 216,848 $ 15.16 1.3 $ 2,720 Options Outstanding at January 1, 2012 216,848 $ 15.16 63,439 13.24 Exercised (200,082 ) 15.73 Forfeited (19,205 ) 15.79 Expired (225 ) 10.92 Outstanding at December 31, 2012 60,775 $ 11.09 4.7 $ 713 Unvested and expected to vest at December 31, 2012 9,996 $ 12.54 6.6 $ 103 Vested and exercisable at December 31, 2012 49,986 $ 10.78 4.3 $ 602 (1) Stock options assumed in connection with the acquisition of Convio. 2010 and 20092010 was $3.1$3.2 million $9.1, $3.1 million and $5.9and $9.1 million, respectively. The total fair value of options that vested during the years ended December 31, 2011 and 2010 was not material. The total fair value of options that vested during the year ended December 31, 2009,2012, was $2.3 million.$0.6 million. The total fair value of options that vested during 2011 and 2010 was not material. All outstanding options granted by the Company had a fair market value assigned at the grant date based on the use of the Black-Scholes option pricing model. TheSignificant assumptions used in the valuation ofBlack-Scholes option pricing model for options are the sameassumed from Convio in May 2012 were as described in the stock appreciation rights section below.There have been no new stock option awards granted since 2005.May 2012 Volatility 32% to 39% Dividend yield 1.8% Risk-free interest rate 0.0% to 0.4% Expected option life in years 0.04 to 3.26 The Company hasRestricted stock awards granted to the Company’s executive officers and certain membersThe fairstatements—(Continued)control of the Company as defined in the employees’ retention agreement. The fair statements (continued) Income tax benefits resulting from the vesting of restricted stock awards are recognized in the period the restrictions lapse to the extent expense has been recognized. Tax benefits associated with stock-based compensation in excess of the related book expense recorded are credited to additional paid-in capital within stockholders’ equity.2011,2012, and changes during the year then ended, is as follows:Unvested restricted stock awards Restricted
stock awards Weighted
average
grant-date
fair value 1,151,775 $ 22.45 502,426 27.98 (453,734 ) 21.89 (120,537 ) 22.73 1,079,930 $ 25.22 Unvested restricted stock awards Unvested at January 1, 2012 1,079,930 $ 25.22 Granted 687,652 22.77 Vested (421,636 ) 22.82 Forfeited (142,760 ) 26.00 Unvested at December 31, 2012 1,203,186 $ 24.58 2011,2012, the number and intrinsic value of restricted stock awards expected to vest was 1,025,8421,144,693 and $28.4$26.1 million, respectively. The total fair value of restricted stock awards that vested during the years ended December 31, 2012, 2011 2010 and 20092010 was $9.9$9.6 million $9.0, $9.9 million and $9.3$9.0 million, respectively. The weighted average grant-date fair value of restricted stock awards granted during the years ended December 31, 2011 2010 and 20092010 was $27.98, $26.61$27.98 and $21.36,$26.61, respectively.Performance-based restrictedunit awardsThe Company hasunitsPlan.Plan and assumed restricted stock units in connection with the Convio acquisition. Restricted stock units granted to employees vest in equal annual installments generally over three years from the grant datedate. We have also granted restricted stock units for which vesting is subject to meeting certain performance conditions that are based on company and/or market conditions. Restricted stock units granted to the Company’s executive officers and certain members of management are subject to accelerated vesting upon a change in control of the Company as defined in the employees’ retention agreement. The fair market value of the stock at the time of the grant is amortized to expense on a straight-line basis over the period of vesting except for awards with market or performance conditions which are amortized on an accelerated basis to expense over the period of vesting. Income tax benefits resulting from the vesting of restricted stock units are recognized in the period the unit is exercised to the extent expense has been recognized. Tax benefits associated with stock-based compensation in excess of the related book expense recorded are credited to additional paid-in capital within stockholders’ equity.unit awardsunits as of December 31, 20112012 is as follows:Unvested restricted stock unit awards Restricted
stock unit
awards Weighted
average
grant-date
fair value 61,891 $ 22.79 101,025 26.68 (10,193 ) 22.79 (4,811 ) 22.79 147,912 $ 25.44 Unvested restricted stock units Unvested at January 1, 2012 159,462 $ 25.60 Granted 30,738 21.41 331,196 28.84 Forfeited (53,976 ) 27.84 Vested (77,507 ) 27.59 Unvested at December 31, 2012 389,913 $ 27.55 (1) Restricted stock units assumed in connection with the acquisition of Convio. Blackbaud, Inc.Notes to consolidated financial statements—(Continued)2011,2012, the number and intrinsic value of restricted stock units expected to vest was 145,797376,306 and $4.0$8.6 million, respectively.The Company hasthree and four years from the date of grant subject to the recipient’s continued employment with the Company. SARs granted to the Company’s executive officers and certain members of management are subject to accelerated vesting upon a change in control of the Company as defined in the employees’ retention agreement.us. The number of shares issued upon the exercise of the SARs is calculated as the difference between thethe Company’sour stock on the date of exercise and the date of grant multiplied by the number of SARs divided by the share price on the exercise date.2011,2012, and changes during the year then ended, is as follows:Stock appreciation rights Stock
appreciation
rights Weighted
average
exercise
price Weighted
average
remaining
contractual
term
(in years)
intrinsic value 2,417,658 $ 23.53 559,549 28.10 (482,366 ) 24.37 (189,792 ) 23.39 2,305,049 $ 24.47 5.25 $ 7,678 1,324,707 $ 25.67 5.91 $ 3,028 933,927 $ 22.72 4.27 $ 4,650 Stock appreciation rights Outstanding at January 1, 2012 2,305,049 $ 24.47 Granted 990,007 22.66 Exercised (246,383 ) 21.42 Forfeited (213,100 ) 26.91 Expired (48,745 ) $ 27.00 Outstanding at December 31, 2012 2,786,828 $ 23.87 5.2 $ 2,160 Unvested and expected to vest at December 31, 2012 1,545,181 $ 24.21 6.2 $ 565 Vested and exercisable at December 31, 2012 1,194,294 $ 23.39 3.8 $ 1,581 $2.2$2.4 million, $2.2 million and $1.4$1.4 million, respectively. There were no SARs exercises prior to 2009. The total fair value of SARs that vested during the year ended December 31, 2012, 2011 2010 and 20092010 was $3.6$3.9 million $3.6, $3.6 million and $3.1$3.6 million, respectively. The weighted average grant date fair value of SARs granted for the years ended December 31, 2012, 2011 2010 and 20092010 was $8.10, $7.17$6.36, $8.10 and $7.38,$7.17, respectively. All outstanding SARs granted by the Company had a fair market value assigned at the grant date based on the use of the Black-Scholes option pricing model. All SARs granted with a market condition had a fair market value assigned at the grant date based on the use of a Monte Carlo simulation model. Significant assumptions used in the Black-Scholes option pricing model for SARs granted in 2012, 2011 2010 and 2009 are2010 were as follows: Years ended December 31, 2011 2010 2009 41% to 42% 40% to 42% 45% 1.7% to 1.8% 1.6% to 1.8% 1.7% 0.6% to 1.9% 0.9% to 1.9% 1.8% 4 4 4 Blackbaud, Inc.Notes to consolidated financial statements—(Continued)Years ended December 31, 2012 2011 2010 Volatility 35% to 41% 41% to 42% 40% to 42% Dividend yield 1.7% 1.7% to 1.8% 1.6% to 1.8% Risk-free interest rate 0.5% to 0.6% 0.6% to 1.9% 0.9% to 1.9% Expected SAR life in years 4 4 4 the Company’sour stock and the average expected volatility over the expected life of the SAR. The dividend yield is based on the adopted dividend policy in effect at the time of grant and the expectation of future dividends. The risk-free interest rate is based on United States Treasury rate for a term consistent with the expected life of the SAR at the time of grant. The expected life of the SAR represents the length of time from grant until the SAR is exercised based on experience.13.Stockholders’ equityThe Company’sThe Company’sthe Companyus that is in excess of operational needs and capital expenditures. The Company’sOur credit facility limits the amount of dividends payable and certain state laws restrict the amount of dividends distributed.2011:2012. Declaration Date Dividend per Share Record Date Payable Date February 2012 $ 0.12 March 5 March 15 May 2012 $ 0.12 May 25 June 15 August 2012 $ 0.12 August 28 September 14 October 2012 $ 0.12 November 28 December 14 Declaration DateDividendperShareRecord DatePayable DateFebruary 2011$0.12February 28March 15May 2011$0.12May 27June 15August 2011$0.12August 26September 15November 2011$0.12November 28December 15On February 22, 2012, the Company’s2013$0.12$0.12 per share payable on March 15, 20122013 to stockholders of record on March 5, 2012.February 28, 2013.The Company hasthe Companyus to purchase up to $50.0$50.0 million of itsour outstanding shares of common stock. The program does not have an expiration date. The shares can be purchased from time to time on the open market or in privately negotiated transactions depending upon market conditions and other factors.The Company accounts$50.0$50.0 million as of December 31, 2011.14.Employee profit-sharing planThe Company has2012 2010 and 2009,2010, and the Company matches we match 50% ofBlackbaud, Inc.Notes to consolidated financial statements—(Continued)the Company’sour discretion. Total matching contributions to the 401K Plan for the years ended December 31, 2012, 2011 2010 and 20092010 were $4.0$4.6 million $3.5, $4.0 million and $3.4$3.5 million, respectively. There was no discretionary contribution by the Companyus to the 401K Plan in 2012, 2011 2010 and 2009.2010. 15.Segment information2011, the Company’s2012, our reportable segments were as follows: the ECBU, the GMBU, the International Business Unit, or IBU, and Target Analytics. Following is a description of each reportable segment:customers, namedspecifically identified prospects and customers in North America.America.America.The Company’sitsour chief executive officer, or CEO. The CEO reviews financial information presented on an operating segment basis for the purposes of making certain operating decisions and assessing financial performance. The CEO uses internal financial reports that provide segment revenues and operating income, excluding stock-based compensation expense, amortization expense, depreciation expense, research and development expense and certain corporate sales, marketing, general and administrative expenses. TheCurrently, the CEO believes that the exclusion of these costs allows for a better understanding of the operating performance of the operating units and management of other operating expenses and cash needs. The CEO does not review any segment balance sheet information.statements—(Continued)The Company hasstatements (continued)itsour segment disclosures for 20102011 and 20092010 to present the reportable segments on a consistent basis with the current year. Summarized reportable segment financial results for the yearyears ended December 31, 2012, 2011 2010 and 20092010 were as follows: Years ended December 31, (in thousands) 2011 2010 2009 $ 119,025 $ 98,800 $ 89,180 171,965 159,839 155,412 33,298 27,147 27,014 37,262 33,306 31,542 9,318 7,473 6,322 $ 370,868 $ 326,565 $ 309,470 45,786 43,267 38,706 102,239 93,177 93,264 5,956 6,039 7,242 18,375 16,465 15,146 6,642 4,002 3,263 178,998 162,950 157,621 105,608 96,735 92,835 14,884 13,059 12,410 7,578 7,132 7,204 17 (10 ) 325 (346 ) 98 (220 ) $ 51,257 $ 45,936 $ 45,067 Year ended December 31, (in thousands) 2012 2011 2010 Revenue by segment: ECBU $ 165,161 $ 127,945 $ 104,764 GMBU 203,177 171,999 159,336 IBU 40,068 33,841 27,322 Target Analytics 37,453 35,769 33,313 1,560 1,314 1,830 Total revenue $ 447,419 $ 370,868 $ 326,565 ECBU $ 74,134 $ 53,141 $ 48,825 GMBU 121,120 101,572 91,827 IBU 5,755 6,922 7,883 Target Analytics 17,451 16,882 16,472 600 1,203 794 219,060 179,720 165,801 Less: 163,036 106,330 99,586 Stock-based compensation costs 19,240 14,884 13,059 Amortization expense 17,349 7,578 7,132 Interest expense (income), net 5,718 17 (10 ) Other expense (income), net 392 (346 ) 98 Income before provision for income taxes $ 13,325 $ 51,257 $ 45,936 (1) Other includes revenue and the related costs from the sale of products and services not directly attributable to an operating segment. (2) Segment operating income includes direct, controllable costs related to the sale of products and services by the reportable segment, except for IBU, which includes operating costs from our foreign locations such as sales, marketing, general, administrative, depreciation facilities and IT supportfacilities costs.(3) Corporate unallocated costs include research and development, data center operating costs, depreciation expense, and certain corporate sales, marketing, general and administrative expenses.The Companyderivesderive a portion of itsour revenue from itsour foreign operations. The following table presents revenue by geographic region based on country of invoice origin and identifiable, long-lived assets by geographic region based on the location of the assets.(in thousands) United States Canada Europe Pacific Total $ 317,305 $ 21,725 $ 21,162 $ 10,676 $ 370,868 282,450 17,862 19,251 7,002 326,565 269,720 13,793 20,506 5,451 309,470 $ 33,255 $ 106 $ 772 $ 264 $ 34,397 22,138 49 581 195 22,963 (in thousands) United States Canada Europe Pacific Total Foreign Total Revenue from external customers: 2012 $ 386,376 $ 22,770 $ 23,022 $ 15,251 $ 61,043 $ 447,419 2011 317,305 21,725 21,162 10,676 53,563 370,868 2010 282,450 17,862 19,251 7,002 44,115 326,565 Property and equipment: December 31, 2012 $ 47,826 $ 188 $ 810 $ 239 $ 1,237 $ 49,063 December 31, 2011 33,255 106 772 264 1,142 34,397 statements—(Continued)the Companyus to identify itsour revenues by product category.16.Quarterly results (unaudited) March 31, 2011 June 30, 2011 (in thousands, except per share data)
previously Adjustment As revised
previously Adjustment As revised $ 87,274 $ (646 ) $ 86,628 $ 93,402 $ 380 $ 93,782 51,034 (547 ) 50,487 54,276 218 54,494 10,288 (480 ) 9,808 13,774 713 14,487 10,366 (480 ) 9,886 13,975 713 14,688 7,584 (291 ) 7,293 8,928 434 9,362 $ 0.17 $ 0.00 $ 0.17 $ 0.21 $ 0.01 $ 0.22 $ 0.17 $ 0.00 $ 0.17 $ 0.20 $ 0.01 $ 0.21 September 30, 2011 December 31, 2011 (in thousands, except per share data)
previously As reported $ 95,531 $ (118 ) $ 95,413 $ 95,045 55,862 (140 ) 55,722 52,971 15,683 351 16,034 10,599 15,572 351 15,923 10,760 9,761 453 10,214 6,351 $ 0.22 $ 0.01 $ 0.23 $ 0.15 $ 0.22 $ 0.01 $ 0.23 $ 0.14 March 31, 2010 June 30, 2010 (in thousands, except per share data)
previously
previously $ 76,239 $ 298 $ 76,537 $ 80,671 $ 139 $ 80,810 45,593 111 45,704 48,985 135 49,120 9,668 (124 ) 9,544 11,155 983 12,138 9,645 (124 ) 9,521 10,914 983 11,897 5,952 (67 ) 5,885 6,790 587 7,377 $ 0.14 $ 0.00 $ 0.14 $ 0.16 $ 0.01 $ 0.17 $ 0.13 $ 0.00 $ 0.13 $ 0.15 $ 0.02 $ 0.17 Blackbaud, Inc.Notes to consolidated financial statements—(Continued) September 30, 2010 December 31, 2010 (in thousands, except per share data) As revised $ 83,226 $ 224 $ 83,450 $ 86,958 $ (1,190 ) $ 85,768 49,951 281 50,232 50,750 (1,380 ) 49,370 13,126 294 13,420 12,348 (1,426 ) 10,922 13,155 294 13,449 12,466 (1,397 ) 11,069 8,519 165 8,684 8,544 (1,303 ) 7,241 $ 0.20 $ 0.00 $ 0.20 $ 0.20 ($ 0.03 ) $ 0.17 $ 0.20 $ 0.00 $ 0.20 $ 0.20 ($ 0.03 ) $ 0.17 (1)SeeRevision of prior period financial statements discussed in Note 1.(in thousands, except per share data) December 31, 2012 September 30, 2012 June 30, 2012 March 31, 2012 Total revenue $ 120,051 $ 122,472 $ 110,190 $ 94,706 Gross profit 64,299 67,344 59,685 53,631 Income from operations 9,875 6,185 (1,877 ) 5,252 Income before provision for income taxes 7,342 4,629 (3,446 ) 4,800 Net income 3,270 2,825 (2,271 ) 2,759 Earnings per share Basic $ 0.07 $ 0.06 $ (0.05 ) $ 0.06 Diluted $ 0.07 $ 0.06 $ (0.05 ) $ 0.06 (in thousands, except per share data) December 31, 2011 September 30, 2011 June 30, 2011 March 31, 2011 Total revenue $ 95,045 $ 95,413 $ 93,782 $ 86,628 Gross profit 52,971 55,722 54,494 50,487 Income from operations 10,599 16,034 14,487 9,808 Income before provision for income taxes 10,760 15,923 14,688 9,886 Net income 6,351 10,214 9,362 7,293 Earnings per share Basic $ 0.15 $ 0.23 $ 0.22 $ 0.17 Diluted $ 0.14 $ 0.23 $ 0.21 $ 0.17 17.Subsequent eventsProposed Convio acquisitionDuring 2012, in an effort to consolidate our operating locations we decided not to renew our current lease for office space in San Diego, CA, which matures on June 30, 2013. As a result, we initiated a plan to transition most of our operations based in San Diego, CA to our Austin, TX location. We expect to incur a total of On$1.3 million in before-tax restructuring costs through June 2013. Restructuring costs incurred consist primarily of costs to separate and relocate employees. For the year ended December 31, 2012, we incurred restructuring costs of $0.2 million, which were recorded in general and administrative expense. Total amount expected to be incurred Included in accrued expenses and other current liabilities at (in thousands) December 31, 2012 Employee severance costs $ 546 $ 137 Employee relocation costs 589 — Employee retention costs 152 38 $ 1,287 $ 175 16, 2012,2013, we implemented a realignment of our workforce in response to changes in the Company entered into an Agreementnonprofit industry and Plan of Merger with Convio, Inc. (Convio),global economy. The realignment included a leading provider of on-demand constituent engagement solutions that enable nonprofit organizations to more effectively raise funds, advocate for change and cultivate relationships. Under the terms of the agreement, the Company will acquire all of the outstanding shares of common stock of Convio for $16.00 per share, representing a premium of 49% compared to Convio’s closing price prior to the announcement of the proposed acquisition and an enterprise valuereduction in workforce of approximately $275.0130 positions. We expect to record a charge of approximately $2.5 million (based on dilutive shares). The Company will finance the deal through a combination in 2013 relating to this reduction in workforce, consisting primarily of cashone-time severance and debt.termination benefits.Amended and restated credit facilityThe Company amended and restated its credit facility to a $325.0 million five-year credit facility on February 9, 2012. The credit facility includes the following facilities: a dollar and a designated currency revolving credit facility with sublimits for letters of credit and swingline loans, and a delayed draw term loan. The credit facility is secured by the stock and limited liability company interests of certain subsidiaries that were pledged as part of the closing. Amounts outstanding under the credit facility will be guaranteed by material domestic subsidiaries of the Company, if any. In connection with the amended credit facility, the Company incurred $2.4 million of financing costs.F-39