Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the three months ended April 3, 2010


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

Commission File Number 333-145355

VANGENT, INC.


Delaware (State or other jurisdiction of incorporation or organization)		20-1961427 (IRS Employer Identification No.)

4250 North Fairfax Drive
Suite 1200
Arlington, Virginia 22203

(703) 284-5600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


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

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

There were 100 shares of common stock of Vangent, Inc. issued and outstanding at April 3, 2010.

VANGENT, INC.
Table of Contents


	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of April 3, 2010 and December 31, 2009 (Unaudited)		3

Condensed Consolidated Statements of Operations for the three months ended April 3, 2010 and March 28, 2009 (Unaudited)		4

Condensed Consolidated Statements of Stockholder’s Equity and Comprehensive Income (Loss) for the three months ended April 3, 2010 and March 28, 2009 (unaudited)		5

Condensed Consolidated Statements of Cash Flows for the three months ended April 3, 2010 and March 28, 2009 (Unaudited)		6

Notes to Condensed Consolidated Financial Statements (Unaudited)		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 3. Quantitative and Qualitative Disclosures about Market Risk		32

Item 4T. Controls and Procedures		32

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		33

Item 1A. Risk Factors		33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		33

Item 3. Defaults Upon Senior Securities		33

Item 5. Other Information		33

Item 6. Exhibits		33

Signature		34

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Forward-Looking Statements

This quarterly report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as expectation or belief concerning future events. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “projects,” “likely,” “will,” “would,” “could” and similar expressions or phrases identify forward-looking statements. All forward-looking statements involve risks and uncertainties. The Company cautions that these statements are further qualified by important economic, competitive, governmental and technological factors that could cause our business, strategy or actual results of operations or events to differ materially from those in the forward-looking statements, including, without limitation, changes in the demand for services that the Company provides; our ability to generate new business in the United States and abroad; activities of competitors; bid protests; changes in costs or operating expenses; our substantial debt; changes in the availability of and cost of capital; general economic and business conditions and the other factors set forth under Risk Factors in our annual report on Form 10-K for the year ended December 31, 2009. Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances, and there can be no assurance that any forward-looking statement contained herein will prove to be accurate. The Company undertakes no obligation, and specifically declines any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I. FINANCIAL INFORMATION


ITEM 1.		FINANCIAL STATEMENTS

Vangent, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per-share amounts)


	April 3,			December 31,
	2010			2009
Assets
Current assets:
Cash and cash equivalents	$	10,718		$	44,638
Trade receivables, net		141,867			109,846
Prepaid expenses and other assets		9,089			7,424
Deferred contract costs		2,607			2,929
Assets of discontinued operations		17,229			15,036

Total current assets		181,510			179,873

Property and equipment, net		24,210			25,124
Intangible assets, net		146,328			151,860
Goodwill		267,983			268,212
Deferred debt financing costs and other		7,943			8,433
Assets of discontinued operations		4,513			6,727

Total assets	$	632,487		$	640,229


Liabilities and Stockholder’s Equity
Current liabilities:
Current portion of long-term debt	$	—		$	13,534
Accounts payable and accrued liabilities		68,107			64,849
Accrued interest payable		3,363			8,186
Deferred tax liability		4,948			5,628
Deferred revenue		5,328			3,976
Liabilities of discontinued operations		7,455			7,521

Total current liabilities		89,201			103,694

Long-term debt, net of current portion		406,754			406,832
Other long-term liabilities		4,925			7,194
Deferred tax liability		14,046			12,144
Liabilities of discontinued operations		565			502

Total liabilities		515,491			530,366


Commitments and contingencies (Note 10)

Stockholder’s equity:
Common stock, $0.01 par value, 1,000 shares authorized, and 100 shares issued and outstanding		—			—
Additional paid-in capital		207,638			207,376
Accumulated other comprehensive loss		(13,677	)		(14,949	)
Accumulated deficit		(76,965	)		(82,564	)

Total stockholder’s equity		116,996			109,863

Total liabilities and stockholder’s equity	$	632,487		$	640,229

See notes to condensed consolidated financial statements.

Vangent, Inc.

Condensed Consolidated Statements of Stockholder’s Equity and Comprehensive Income (Loss) (Unaudited)

(in thousands, except share amounts)


							Accumulated
					Additional		Other						Total
	Common Stock				Paid-in		Comprehensive			Accumulated			Stockholder’s
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity

Balance, December 31, 2008		100	$	—	$	206,328	$	(13,135	)	$	(48,556	)	$	144,637
Effect of hedging activities, net of tax		—		—		—		552			—			552
Foreign currency translation adjustment		—		—		—		(339	)		—			(339	)
Net income		—		—		—		—			964			964

Total comprehensive income														1,177
Equity-based compensation		—		—		253		—			—			253

Balance, March 28, 2009		100	$	—	$	206,581	$	(12,922	)	$	(47,592	)	$	146,067


Balance, December 31, 2009		100	$	—	$	207,376	$	(14,949	)	$	(82,564	)	$	109,863
Effect of hedging activities, net of tax		—		—		—		1,331			—			1,331
Foreign currency translation adjustment		—		—		—		(59	)		—			(59	)
Net income		—		—		—		—			5,599			5,599

Total comprehensive income														6,871
Equity-based compensation		—		—		262		—			—			262

Balance, April 3, 2010		100	$	—	$	207,638	$	(13,677	)	$	(76,965	)	$	116,996

See notes to condensed consolidated financial statements.

Vangent, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Three Months Ended
	April 3,			March 28,
	2010			2009
Cash flows from operating activities
Net income	$	5,599		$	964
Less: Loss from discontinued operations (net of tax)		(2,437	)		(615	)

Income from continuing operations		8,036			1,579
Adjustments to reconcile net income from continuing operations net cash used in operating activities:
Amortization of intangible assets		5,272			5,294
Depreciation and amortization		3,085			2,819
Amortization of deferred debt financing costs		563			563
Equity-based compensation expense		262			253
Deferred income taxes		1,656			1,541
Changes in operating assets and liabilities:
Trade receivables		(32,066	)		(4,094	)
Prepaid expenses and other assets		(3,538	)		364
Accounts payable and other liabilities		4,540			(13,249	)
Accrued interest payable		(4,823	)		(4,957	)

Continuing operations, net		(17,013	)		(9,887	)
Discontinued operations, net		(1,994	)		61

Net cash used in operating activities		(19,007	)		(9,826	)


Cash flows from investing activities
Capital expenditures, continuing operations		(1,304	)		(1,195	)
Discontinued operations, net		(123	)		(1,114	)

Net cash used in investing activities		(1,427	)		(2,309	)


Cash flows from financing activities
Repayment of senior secured term loan		(13,612	)		—
Other		(29	)		(82	)

Net cash used in financing activities, continuing operations		(13,641	)		(82	)


Effect of exchange rate changes on cash and cash equivalents		(146	)		(109	)


Net decrease in cash and cash equivalents		(34,221	)		(12,326	)
Total cash and cash equivalents, beginning of period		45,584			21,134


Total cash and cash equivalents, end of period	$	11,363		$	8,808
Less: Cash and cash equivalents, discontinued operations	$	645		$	2,239

Cash and cash equivalents, continuing operations	$	10,718		$	6,569


Supplemental cash flow information
Interest paid, continuing operations	$	12,709		$	12,891
Income taxes paid (refund):
Continuing operations		(14	)		367
Discontinued operations		68			89

See notes to condensed consolidated financial statements.

Vangent, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollars in thousands)

1. Organization and Basis of Presentation

Basis of Presentation

Vangent, Inc. (“Vangent” or “Company”) is a 100%-owned subsidiary of Vangent Holding Corp. Vangent Holding LLC is the majority shareholder of Vangent Holding Corp. Vangent Holding LLC is 90% owned by The Veritas Capital Fund III, L.P. and 10% owned by Pearson plc (“Pearson”).

The unaudited condensed consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries and have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and note disclosures normally included in complete financial statements have been condensed or omitted pursuant to the applicable rules and regulations. The Company believes that all disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes thereto included in our annual report on Form 10-K for the year ended December 31, 2009.

In the opinion of management, all normal and recurring adjustments necessary to fairly present the financial position and results of operations as of and for the periods presented have been included. The results of operations presented are not necessarily indicative of the results to be expected for the full fiscal year or for any future periods. The Company uses estimates and assumptions in the preparation of its financial statements. The estimates are primarily based on historical experience and business knowledge and are revised as circumstances change. Actual results could differ materially from those estimates.

Nature of Operations

Vangent serves customers in the U.S. government, international governments, higher education, and the private sector. The Company’s primary customer focus is U.S. and international governmental agencies which utilize third-party providers to design, build and operate technologically advanced systems. The Department of Health and Human Services represented 34%, the Department of Commerce represented 26%, and the Department of Education represented 15% of total revenue for the three months ended April 3, 2010.

Variable Interest Entities

The Company has interests in foreign joint ventures that provide government contract services in the United Kingdom and in the United Arab Emirates. In the United Kingdom arrangement, the Company has guaranteed joint venture performance under a fixed-priced subcontract and has committed to fund working capital requirements. Under the joint venture agreements the Company holds less than a majority ownership interest in the joint ventures, is entitled to a majority of the income and losses of the joint ventures, and has determined that it is the primary beneficiary of each of the joint ventures. The joint ventures are fully consolidated in the Company’s consolidated financial statements. Total assets of $1,051 and total liabilities of $728 of the joint ventures are included in the consolidated financial statements at April 3, 2010.

Fiscal Year and Quarterly Periods

2. Discontinued Operations

In the fourth quarter of 2009, Vangent completed an evaluation of its international business and committed to a plan to sell its business operations in Latin America. The condensed consolidated financial statements have been revised for all periods presented to report Latin America as discontinued operations. The discontinued operations include: Vangent Mexico, S.A. de C.V.; Vangent Servicios de Mexico, S.A. de C.V.; Vangent Argentina, S.A.; Vangent Venezuela, C.A.; Vangent Puerto Rico, Inc.; and Proyectos Prohumane México, S. A. de C. V.

A summary of assets and liabilities, revenue, and cost and expenses of the discontinued operations that are segregated and reported separately in the consolidated financial statements follows:


	April 3,		December 31,
	2010		2009

Balance Sheet Data
Cash	$	645	$	946
Trade receivables		10,992		9,323
Other assets		5,592		4,767

Total current assets		17,229		15,036
Property and equipment, net		4,407		4,744
Deferred income taxes and other		106		1,983

Total assets		21,742		21,763
Current liabilities		7,455		7,521
Long-term liabilities		565		502

Net assets of discontinued operations	$	13,722	$	13,740


	Three Months Ended
	April 3,			March 28,
	2010			2009
Statements of Operations Data
Revenue	$	7,135		$	4,599
Costs and expenses		7,500			5,313
Expected loss on disposal		2,618			—
Other (income) expense, net		(753	)		20

Loss from discontinued operations before income taxes		(2,230	)		(734	)
Provision (benefit) for income taxes		207			(119	)

Loss from discontinued operations (net of tax)	$	(2,437	)	$	(615	)

Based on estimates of fair value of the discontinued operations, a charge for expected loss on disposal of $4,965 was recorded for the year ended December 31, 2009. The charge was calculated based on estimates of fair value, less cost to sell, compared with net assets of discontinued operations plus an adjustment to reflect the cumulative translation adjustment loss recorded as part of other comprehensive loss for discontinued operations. As a result of revisions to fair value estimates, which related primarily to an increase in the weighted average cost of capital, changes in estimates of long-term operating margins, and changes in net assets of discontinued operations, an additional charge of $2,618 for expected loss on disposal was recorded for the three months ended April 3, 2010. The final adjustment to expected loss on disposal will be recorded based on the terms of and completion of a disposal transaction.

No corporate interest expense was allocated to the discontinued operations since there was no corporate debt specifically attributable to the operations. The senior secured credit facility provides that under certain circumstances a mandatory debt payment is required for 100% of the proceeds of qualifying asset dispositions. The terms of the ultimate disposition of the discontinued operations and other conditions will determine whether or not a mandatory debt payment will result.

Discontinued Operations in Venezuela — Designation of Venezuelan Economy as Highly Inflationary

Revenue from Vangent Venezuela, C.A. was $390 for the three months ended April 3, 2010. Venezuela has experienced significant inflation in the last several years, and effective January 2010 the economy has been determined to be highly inflationary under U. S. generally accepted accounting principles. An economy is considered highly inflationary when cumulative three-year inflation exceeds 100%. Two different inflation indices exist for determining highly inflationary status in Venezuela: the Consumer Price Index (“CPI”) and the National Consumer Price Index (“NCPI”). Vangent relies on the blended CPI/NCPI index to determine highly inflationary status. The blended CPI/NCPI reached cumulative three-year inflation in excess of 100% in the fourth quarter of 2009.

The designation of highly inflationary under U.S. generally accepted accounting principles means that Vangent Venezuela uses the U.S. dollar as the functional currency effective January 2010. Under the highly inflationary basis of accounting, net monetary assets held in bolivar fuertes are translated into U.S. dollars at each balance sheet date with remeasurement adjustments and any foreign currency transaction gains or losses recognized in income or expense. A foreign currency loss of $110 from Vangent Venezuela is included as a reduction to other income, net, of discontinued operations for the three months ended April 3, 2010.

Discontinued Operations in Argentina — Variable Interest Entity

Vangent Argentina, S.A. has an interest in a joint venture in Argentina that began providing government services in the second quarter of 2009. Vangent Argentina and the joint-venture partner have each guaranteed joint venture performance under a fixed-priced subcontract. Vangent Argentina holds less than a majority ownership interest in the joint venture and is entitled to 50% of the income and losses of the joint venture. Vangent Argentina has determined that it does not have the power to direct matters that most significantly impact the activities of the joint venture and that it is not the primary beneficiary of the joint venture. The joint venture is accounted for under the equity method of accounting as part of discontinued operations, as follows: equity in net income of $392 included in loss from discontinued operations for the three months ended April 3, 2010, and investment in joint venture of $990 included in assets of discontinued operations at April 3, 2010.

3. Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”), Multiple-Deliverable Revenue Arrangements, to (i) provide guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated; (ii) require an entity to allocate revenue using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of the selling price; and (iii) eliminate the use of the residual method. The update becomes effective on a prospective basis in fiscal years beginning on or after June 15, 2010, with earlier application permitted. The Company does not expect that adoption will have a material effect on its results of operations or financial position.

In October 2009, the FASB issued an ASU, Certain Revenue Arrangements that Include Software Elements, that amends existing requirements to exclude from its scope tangible products that contain both software and non-software components that function together to deliver a product’s essential functionality. The update becomes effective on a prospective basis in fiscal years beginning on or after June 15, 2010, with earlier application permitted. The Company does not expect that adoption will have a material effect on its results of operations or financial position.

In January 2010, the FASB issued an ASU, Improving Disclosures about Fair Value Measurements, that sets forth additional disclosure requirements for fair value measurements. Disclosure requirements for the transfers in and out of levels 1 and 2 of the inputs hierarchy for fair value measurements, which became effective January 1, 2010, did not have a material effect on the Company’s results of operations or financial position. The disclosures about purchases, sales, issuance, and settlements in a roll forward of activity for level 3 fair value measurements is deferred until fiscal years beginning after December 15, 2010. The Company does not expect that adoption will have a material effect on its results of operations or financial position.

In June 2009, the FASB issued new requirements that are now part of the ASC topic on Consolidations, dealing with the consolidation of variable interest entities. The new requirements change how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated and requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. The new requirements became effective on January 1, 2010. Adoption did not have a material effect on the Company’s results of operations or financial position.

4. Trade Receivables

A summary of trade receivables and customers that represented 10% or more of trade receivables follows:


	April 3,			December 31,
	2010			2009
Billed trade receivables	$	104,957		$	74,929
Billable trade receivables		30,317			26,798
Unbilled trade receivables pending completion of milestones, contract authorizations, or retainage		6,018			7,432
Other		739			840

		142,031			109,999
Allowance for doubtful accounts		(164	)		(153	)

Trade receivables, net	$	141,867		$	109,846


Trade accounts receivable from major customers
Department of Health and Human Services		28	%		34	%
Department of Commerce		26	%		*	%
Department of Education		19	%		16	%


*		Less than 10%.

5. Intangible Assets

A summary of intangible assets follows:


	Weighted
	Average Life	April 3,			December 31,
	(in years)	2010			2009
Indefinite-life intangible assets
Intellectual property	Indefinite	$	10,328		$	10,328

Definite-life intangible assets
Customer relationships	10.7		201,101			201,101
Other	4		658			658

			201,759			201,759
Accumulated amortization			(65,759	)		(60,227	)

Definite-life intangible assets, net			136,000			141,532

Intangible assets, net		$	146,328		$	151,860

Amortization of the unamortized balance of definite-life intangible assets for each of the next five years and thereafter is scheduled as follows:


Years Ending December 31
2010 (remaining nine months)	$	15,769
2011		20,710
2012		20,547
2013		20,547
2014		11,905
Thereafter		46,522

	$	136,000

6. Long-Term Debt

A summary of long-term debt follows:


	April 3,		December 31,
	2010		2009

Term loan, due February 14, 2013, with interest at variable rates (2.51% at April 3, 2010)	$	216,754	$	230,366
9 5/8% Senior subordinated fixed rate notes, due February 15, 2015		190,000		190,000

		406,754		420,366
Less: current portion of term loan		—		(13,534	)

Long-term debt, net of current portion	$	406,754	$	406,832


Scheduled maturities of long-term debt follow:

2011			$	—
2012				1,711
2013				215,043
2014				—
2015				190,000

			$	406,754

Senior Secured Credit Facility

At April 3, 2010, the senior secured credit facility consisted of a term loan of $216,754 due February 14, 2013, and, subject to certain limitations, an available revolving credit facility of up to $49,800 that expires February 14, 2012. There were no borrowings outstanding under the revolving credit facility at April 3, 2010, or December 31, 2009. A commitment fee of 0.5% per year is paid on the available unused portion of the revolving credit facility.

Borrowings under the senior secured credit facility bear interest at a rate equal to, at the Company’s option, either: (i) the base rate, as defined, plus an applicable margin of 1.00-1.50%, or (ii) the adjusted LIBOR, as defined, plus an applicable margin of 2.00-2.50%. Borrowings are subject to mandatory prepayment with (i) 100% of the net cash proceeds of certain asset sales; (ii) 50% of the net cash proceeds of equity offerings or capital contributions subject to certain exceptions; (iii) 100% of the net cash proceeds of additional debt; and (iv) a percentage of annual excess cash flow, as defined. Payments resulting from the annual excess cash flow requirement are due 90 days following the year end. Based on the excess cash flow calculation for the year ended December 31, 2009, a mandatory payment of $13,612 was paid March 31, 2010. Since the excess cash flow requirement is based on annual cash flow, it is not possible to estimate the amount, if any, that would become payable in March 2011 or March 2012.

Borrowings are secured by accounts receivable, cash, intellectual property and other assets and are guaranteed jointly and severally, by all existing and future domestic subsidiaries. Foreign subsidiaries do not guarantee the borrowings. The senior secured credit facility contains various customary affirmative and negative covenants and events of default, including, but not limited to, restrictions on the disposal of assets, incurring additional indebtedness or guaranteeing obligations, paying dividends, creating liens on assets, making investments, loans or advances, and compliance with a maximum consolidated leverage ratio. As of April 3, 2010, the Company was in compliance with all of the affirmative and negative covenants.

At April 3, 2010, the more restrictive covenants related to (i) compliance with a maximum allowable consolidated leverage ratio and (ii) loans and advances by Vangent, Inc. to non-guarantor subsidiaries. The consolidated leverage ratio, as defined in the senior secured credit facility, is based on consolidated indebtedness, as defined, reduced by unrestricted cash and cash equivalents in excess of $5,000, divided by adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, adjusted for unusual and non-recurring items) for a twelve-month period. At April 3, 2010, the consolidated leverage ratio was 5.25 to 1, compared with the maximum allowable ratio of 6.00 to 1 applicable to the period. The maximum allowable consolidated leverage ratio steps down to 5.50 to 1 at December 31, 2010.

At April 3, 2010, the cumulative amount of net loans to and investments in Vangent Mexico, S.A. de C.V., a non-guarantor subsidiary, by Vangent, Inc. amounted to $8,880 compared with the maximum allowable amount of $10,000 for loans to or investments in non-guarantor subsidiaries under the senior secured credit facility.

9 5/8% Senior Subordinated Notes

In February 2007, the Company completed an offering of $190,000 principal amount of 9 5/8% senior subordinated notes due February 15, 2015. Interest accrues at the fixed rate of 9 5/8% and is paid semi-annually. The notes are general unsecured obligations of the Company and are subordinated to all existing and future senior loans including borrowings under the senior secured credit facility. The notes are guaranteed, jointly and severally, by all existing and future domestic subsidiaries. Foreign subsidiaries do not guarantee the notes.

The Company may redeem all or part of the notes at any time prior to February 15, 2011, at a redemption price of 100% of the principal amount plus an applicable premium, as defined and additional interest, as defined. The notes are redeemable at the option of the Company at the redemption price of 104.8125% of the principal amount on or after February 15, 2011, 102.4063% on or after February 15, 2012, and 100% on or after February 15, 2013.

7. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss and a summary of changes in accumulated other comprehensive loss for hedging activities follows:


	April 3,			December 31,
	2010			2009
Accumulated other comprehensive loss
Effect of hedging activities, net of tax:
Continuing operations — Interest rate swap agreements	$	(3,599	)	$	(4,634	)
Discontinued operations — Foreign currency forward contracts		(96	)		(392	)

		(3,695	)		(5,026	)

Foreign currency cumulative translation adjustments:
Continuing operations		(5,605	)		(5,287	)
Discontinued operations		(4,377	)		(4,636	)

		(9,982	)		(9,923	)

Total accumulated other comprehensive loss	$	(13,677	)	$	(14,949	)


	Hedging Activities
	Continuing			Discontinued
	Operations			Operations
				Foreign
	Interest			Currency
Summary of changes in accumulated other	Rate			Forward
comprehensive loss for hedging activities	Swaps			Contracts			Total
Balance, December 31, 2009	$	(4,634	)	$	(392	)	$	(5,026	)
Change in fair value		(631	)		(8	)		(639	)
Reclassification of loss to interest expense		1,666			—			1,666
Reclassification of loss to discontinued operations — cost of revenue		—			304			304

Balance, April 3, 2010	$	(3,599	)	$	(96	)	$	(3,695	)

8. Derivative Instruments, Hedging Activities and Financial Instruments

Vangent, Inc. uses derivative financial instruments to manage interest rate risk and Vangent Mexico, S.A. de C.V., a 100%-owned subsidiary included as part of discontinued operations, has used derivative instruments to manage certain foreign currency exchange rate risks. Interest rate swap agreements are used as cash-flow hedges of interest rate risk associated with variable-rate borrowings under the senior secured credit facility. Foreign currency contracts have been used to hedge exchange rate risks associated with purchase commitments and obligations in currencies other than the Mexican peso. Derivatives can involve credit risk from the possible non-performance by the parties. At April 3, 2010, the fair values of the derivative contracts resulted in derivative liabilities, and the fair value liabilities reflect the Company’s credit adjusted discount rate. The Company does not enter into derivative transactions for trading or speculative purposes.

For derivative financial instruments that qualify as a cash-flow hedge, the effective portion of the gain/loss is reported as a component of other comprehensive income/loss (“OCI”) and is subsequently reclassified to the statements of operations in the period or periods in which the hedged transaction affects the statement of operations.

Interest Rate Swap Agreements on Variable-Rate Term Loan

The Company has entered into interest rate swap agreements with Wachovia Bank, N.A., as counterparty, to hedge fluctuations in LIBOR interest rates on a portion of the term loan borrowing under the senior secured credit facility. The Company exchanged its variable LIBOR interest rate for a fixed interest rate. At April 3, 2010, an interest rate swap agreement at the notional amount of $150,000 to pay fixed interest at the rate of 3.28% and to receive variable interest based on three-month LIBOR was outstanding and scheduled to mature in February 2011.

The Company documented its risk management objective and nature of the risks being hedged and designated the interest rate swaps as cash flow hedges at inception of the agreements. The Company performs a quarterly analysis of the effectiveness of the hedge transactions and has concluded that the hedging relationship is highly effective due to the consistency of critical terms of the interest rate swap agreements and related term loan under the senior secured credit facility. The fair value of the interest rate swap liability was $3,599 at April 3, 2010, all of which represents an unrealized loss that is reported in accumulated OCI in the consolidated statement of stockholder’s equity and is expected to be reclassified to interest expense over the next twelve months.

Discontinued Operations — Foreign Currency Contracts

In 2009, Vangent Mexico entered into foreign currency forward exchange contracts with Wachovia Bank, N.A., as counterparty, to hedge fluctuations in the Mexican peso exchange rates. At April 3, 2010, there were no foreign currency forward exchange contracts outstanding.

Vangent Mexico documented its risk management objective and nature of the risks being hedged for foreign currency contracts that qualify as cash flow hedges at inception of the agreements. Some of the foreign currency hedge contracts no longer qualify as cash flow hedges since it is probable that a forecasted transaction will not occur, and cost of revenue for discontinued operations for the three months ended April 3, 2010, includes a loss of $176 reclassified from OCI for contracts that no longer qualify. For hedge contracts that do qualify as cash flow hedges, an unrealized loss of $96 is included in accumulated OCI in the consolidated statement of stockholder’s equity and is expected to be reclassified to cost of revenue over the next twelve months.

Derivative Instruments and Hedging Activities

A tabular disclosure of the fair values of derivative instruments reported in the balance sheet and the effect of derivative instruments on the statements of operations follows:


Balance Sheet Data
		Fair Value of
		Liability Derivatives
		April 3,		December 31,
Derivative Contracts	Balance Sheet Location	2010		2009
Derivatives that qualify as cash flow hedges
Interest rate swap agreements	Accrued liabilities	$	3,599	$	4,657
Foreign currency forward contracts	Discontinued operations — Accrued liabilities		—		251

Derivatives that do not qualify as cash flow hedges
Foreign currency forward contracts	Discontinued operations — Accrued liabilities		—		88

Statements of Operations Data

Location of

Amount of

Location of
Gain (Loss)
Recognized in

Amount of
Gain (Loss)
Recognized in

Gain (Loss)

Income on

Amount of

Reclassified

Derivative

Gain (Loss)

from

(Ineffective

Recognized in

Accumulated

Portion and

OCI on

OCI into

Amount

Derivative

Income

Excluded from

(Effective

Effectiveness

Derivative Contracts

Portion)

Testing)

Three Months Ended April 3, 2010

Derivatives that qualify as cash flow hedges

Interest rate swap agreements

(631

)

Interest expense

(1,666

)

Interest expense

Foreign currency forward contracts

)

Discontinued operations — Cost of revenue

(304

)

Discontinued operations — Cost of revenue

—

Derivatives that do not qualify as cash flow hedges

Foreign currency forward contracts

—

Discontinued operations — Cost of revenue

(89

)

Three Months Ended March 28, 2009

Derivatives that qualify as cash flow hedges

Interest rate swap agreements

(374

)

Interest expense

(1,209

)

Interest expense

Foreign currency forward contracts

(283

)

Cost of revenue

—

Cost of revenue

—

Fair Value Measurements

A summary of the bases used to measure financial assets and financial liabilities reported at fair value on a recurring basis in the consolidated balance sheets follows:


	April 3,		December 31,
	2010		2009
Liabilities
Level 1 — Quoted prices in active markets for identical items	$	—	$	—
Level 2 — Significant other observable inputs:
Interest rate swap agreements		3,599		4,657
Foreign currency forward contracts		—		339
Level 3 — Significant unobservable inputs		—		—

Financial Instruments

The fair values of financial instruments at April 3, 2010, follow:


	Carrying
	Amount		Fair Value
Long-term debt
Variable-rate term loan under the senior secured credit facility	$	216,754	$	216,754
9 5/8% senior subordinated notes, due February 15, 2015		190,000		178,838

	$	406,754	$	395,592

Interest rate swap agreements to pay fixed and receive variable
Accrued liabilities	$	3,599	$	3,599

The carrying amount of the variable-rate term loan under the senior secured credit facility approximates fair value. The fair value of the 9 5/8% senior subordinated notes is based on quoted market prices. At April 3, 2010, the quoted market price was $94.125 per $100 reflecting a yield of 11.4%. The fair value of interest rate swap agreements and foreign currency forward contracts is based on quoted prices for similar assets or liabilities in active markets adjusted for non-performance risk. The carrying amounts of other financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate fair value due to their short term nature.

9. Income Taxes

The provision for income taxes amounted to $1,834 for the three months ended April 3, 2010, and is composed of U.S. federal, state and local, and foreign income taxes and has been reduced by $1,070 for a change in the tax valuation allowance for deferred tax assets. The tax valuation allowance results primarily from the effect on the U.S. net operating losses from the tax amortization of goodwill. Goodwill is an indefinite lived asset that is amortized for tax purposes, but is not amortized for financial accounting and reporting purposes.

A valuation allowance is recorded against deferred tax assets when it is more likely than not that a tax benefit will not be realized. The assessment for a valuation allowance requires judgment on the part of management with respect to the benefits that may be realized. The Company has concluded, based upon all available evidence, it is more likely than not that the U.S. federal, state, and local deferred tax assets at April 3, 2010, will not be realizable. A full valuation allowance has been provided against U.S. deferred tax assets. The valuation allowance will be reversed at such time that realization is believed to be more likely than not, and any such reversal would be reflected as a reduction to the provision for income taxes.

Deferred tax liabilities aggregated $18,994 at April 3, 2010, and were primarily related to an indefinite lived asset (goodwill) that is amortized for tax purposes, but is not amortized for financial accounting and reporting purposes. Goodwill is subject to impairment under U.S. generally accepted accounting principles.

The ASC topic on Income Taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken, or expected to be taken, in a tax return. Vangent is indemnified and is not liable for any income taxes that relate to the pre-acquisition periods prior to February 15, 2007. There was no liability for unrecognized tax benefits at April 3, 2010. Vangent does not expect changes in unrecognized tax benefits, if any, within the next twelve months to have a material impact on the provision for income taxes or the effective tax rate.

Vangent and its subsidiaries conduct business and are subject to income taxes in the United States and certain foreign countries. Vangent’s income tax returns for 2009, 2008, and 2007 are subject to examination by federal, state, local, or foreign tax authorities. Interest and penalties, if any, relating to income taxes are charged to the provision for income taxes.

10. Commitments and Contingencies

The Company is subject to legal proceedings, investigations and claims arising out of the ordinary course of business and accrues a liability if an unfavorable outcome is probable. In the opinion of management, resolution of such matters is not expected to have a material effect on the Company’s results of operations or financial position.

11. Equity-Based Compensation

No stock options are authorized and no stock options have been granted by Vangent.

Certain members of management of Vangent and outside directors of Vangent Holding Corp. have been granted Class B membership interests in Vangent Holding LLC, the majority shareholder of Vangent Holding Corp. which in turn owns all of Vangent’s common stock. At April 3, 2010, the outstanding balance of grants of Class B membership interests represented 5.6% of the profit interests in Vangent Holding LLC. Pursuant to the terms of the operating agreement governing Vangent Holding LLC, the Class B membership interests are subject to a five-year vesting schedule, except in the event of a change of control. The unvested portion of Class B membership interests resulting from forfeitures reverts to the holders of Class A membership interests in Vangent Holding LLC. Class B membership interests are granted with no exercise price or expiration date. Holders of Class B membership interests are entitled to receive their respective proportional interest of all distributions made by Vangent Holding LLC provided the holders of the Class A membership interests have received an 8% per annum internal rate of return on their invested capital. Grants of Class B membership interests are limited to 7.5% of the profits interest in Vangent Holding LLC in the aggregate.

A summary of activity for grants and the outstanding balance of Class B membership interests in Vangent Holding LLC follows:


	Class B						Fair Value of
	Membership						Class B
	Interests			Class B			Membership
	Available for			Interests			Interests at
	Grant			Outstanding			Date of Grant

Balance, December 31, 2009		2.0	%		5.6	%		$5,602
Granted		—			—			—
Forfeited		—			—			—

Balance, April 3, 2010		2.0	%		5.6	%	$	5,602


At April 3, 2010:
Vested					2.6	%
Not yet vested					3.0

					5.6	%

Vangent charges equity-based compensation expense for awards of Class B membership interests in Vangent Holding LLC granted to its employees and independent directors. Equity-based compensation expense is amortized on a straight-line basis over the total requisite service period for the award. The unamortized amount of equity-based compensation expense was $2,298 at April 3, 2010, and amortization is scheduled as follows:


Years Ending December 31
2010 (remaining nine months)	$	786
2011		1,048
2012		329
2013		121
2014		14

	$	2,298

12. Related Party Transactions

Vangent is a 100%-owned subsidiary of Vangent Holding Corp. Vangent Holding LLC is the majority shareholder in Vangent Holding Corp. and is 90% owned by The Veritas Capital Fund III, L.P.

Robert B. McKeon is the sole member of the board of directors of Vangent, is chairman of the board of Vangent Holding Corp., and is the president of Veritas Capital Partners III, LLC. Mr. Ramzi Musallam is a director of Vangent Holding Corp. and is a partner at Veritas Capital.

Certain members of management of Vangent and certain outside directors of Vangent Holding Corp. have been granted Class B membership interests in Vangent Holding LLC, the majority shareholder in Vangent Holding Corp.

Vangent pays an annual management fee of $1,000 to Veritas Capital, of which $250 was paid for the three months ended April 3, 2010, along with fees of $15 for advisory services and expenses.

Vangent Argentina, a foreign subsidiary of Vangent, Inc., has an interest in an unconsolidated joint venture in Argentina. Vangent Argentina and the joint-venture partner have each guaranteed joint venture performance under a fixed-priced subcontract. Vangent Argentina provided contract services of $109 to the joint venture for the three months ended April 3, 2010.

13. Business Segments and Major Customers

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Vangent reports operating results and financial data for three business segments: the Government Group; the International Group; and the Human Capital Group. Government Group customers are primarily U.S. federal agencies. The Government Group assists civilian, defense and intelligence agencies as well as government related entities with the design and execution of information and technology strategy, helps develop and maintain their complex, mission critical systems and delivers a wide range of business process outsourcing solutions. The International Group provides consulting, systems integration and business process outsourcing solutions to both commercial and foreign local and central government customers. The Human Capital Group primarily serves the private sector and designs, builds, and operates workforce solutions that automate and improve the recruitment, assessment, selection and development of a customer’s workforce.


	Three Months Ended
	April 3,			March 28,
	2010			2009
Revenue by business segment
Government Group	$	177,237		$	117,766
International Group		11,825			9,719
Human Capital Group		6,135			6,493
Elimination		(1,000	)		(1,105	)

Total revenue	$	194,197		$	132,873


Operating income (loss) by business segment
Government Group	$	18,869		$	12,294
International Group		62			1
Human Capital Group		(820	)		(616	)
Corporate		(5	)		(5	)

Total operating income	$	18,106		$	11,674


Depreciation and amortization
Government Group	$	7,305		$	7,014
International Group		727			727
Human Capital Group		325			372

Total depreciation and amortization	$	8,357		$	8,113


Revenue from major customers as a percent of total revenue
Department of Health and Human Services		34	%		46	%
Department of Commerce		26	%		*
Department of Education		15	%		19	%


*		Less than 10%.

14. Condensed Issuer and Non-Guarantor Financial Information

In connection with the acquisition by Veritas Capital and the related financing, Vangent, Inc. (“Issuer”) issued $190,000 of 9 5/8% senior subordinated notes due 2015. The notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to non-U.S. persons pursuant to Regulation S under the Securities Act. The assets and liabilities of the guarantors have been transferred to Vangent, Inc., and, accordingly, their financial statements are not presented separately. The following subsidiaries of the Issuer do not guarantee the notes (“Non-Guarantors”) and are reported as part of continuing operations: Vangent Canada Limited and Vangent, Ltd. In addition, the following subsidiaries of the Issuer do not guarantee the notes (“Non-Guarantors”) and are reported as part of discontinued operations: Vangent Mexico, S.A. de C.V.; Vangent Servicios de Mexico, S.A. de C.V.; Vangent Argentina, S.A.; Vangent Venezuela, C.A.; Vangent Puerto Rico, Inc.; and Proyectos Prohumane México, S. A. de C. V. Condensed combining balance sheets, statements of operations, and statements of cash flows for the Issuer and for the Non-Guarantors follow:

Issuer and Non-Guarantor Financial Information
Condensed Combining Balance Sheets (Unaudited)


	April 3, 2010									December 31, 2009
			Non-									Non-
			Guar-		Elimin-							Guar-		Elimin-
	Issuer		antors		ations			Total		Issuer		antors		ations			Total
Assets
Current assets:
Cash and cash equivalents	$	7,580	$	3,138	$	—		$	10,718	$	41,098	$	3,540	$	—		$	44,638
Trade receivables, net		133,472		8,395		—			141,867		101,410		8,436		—			109,846
Prepaid expenses and other		9,223		2,473		—			11,696		8,594		1,759		—			10,353
Assets of discontinued operations		—		17,229		—			17,229		—		15,036		—			15,036

Total current assets		150,275		31,235		—			181,510		151,102		28,771		—			179,873
Property and equipment, net		22,136		2,074		—			24,210		22,499		2,625		—			25,124
Intangible assets, net		139,607		6,721		—			146,328		144,764		7,096		—			151,860
Goodwill		258,905		9,078		—			267,983		258,905		9,307		—			268,212
Deferred debt financing costs and other		7,886		57		—			7,943		8,379		54		—			8,433
Investment in and advances to Non-Guarantor subsidiaries		36,530		—		(36,530	)		—		37,299		—		(37,299	)		—
Discontinued operations		—		4,513		—			4,513		—		6,727		—			6,727

Total assets	$	615,339	$	53,678	$	(36,530	)	$	632,487	$	622,948	$	54,580	$	(37,299	)	$	640,229


Liabilities and Stockholder’s Equity
Current liabilities:
Current portion of long-term debt	$	—	$	—	$	—		$	—	$	13,534	$	—	$	—		$	13,534
Accounts payable and other liabilities		73,390		8,559		(203	)		81,746		74,655		8,154		(170	)		82,639
Liabilities of discontinued operations		1,230		10,324		(4,099	)		7,455		1,230		9,564		(3,273	)		7,521

Total current liabilities		74,620		18,883		(4,302	)		89,201		89,419		17,718		(3,443	)		103,694
Long-term debt, net of current portion		406,754		—		—			406,754		406,832		—		—			406,832
Other long-term liabilities		4,871		54		—			4,925		7,132		62		—			7,194
Deferred tax liability		12,098		1,948		—			14,046		9,702		2,442		—			12,144
Liabilities of discontinued operations		—		565		—			565		—		502		—			502

Total liabilities		498,343		21,450		(4,302	)		515,491		513,085		20,724		(3,443	)		530,366
Total stockholder’s equity		116,996		32,228		(32,228	)		116,996		109,863		33,856		(33,856	)		109,863

Total liabilities and stockholder’s equity	$	615,339	$	53,678	$	(36,530	)	$	632,487	$	622,948	$	54,580	$	(37,299	)	$	640,229

Issuer and Non-Guarantor Financial Information
Condensed Combining Statements of Operations (Unaudited)


	Three Months Ended April 3, 2010											Three Months Ended March 28, 2009
				Non											Non
				Guar-			Elimin-								Guar-			Elimin-
	Issuer			antors			ations		Total			Issuer			antors			ations		Total
Revenue	$	182,423		$	11,774		$	—	$	194,197		$	123,237		$	9,636		$	—	$	132,873
Cost of revenue		148,150			10,076			—		158,226			98,909			8,456			—		107,365

Gross profit		34,273			1,698			—		35,971			24,328			1,180			—		25,508
General and administrative expenses		11,588			602			—		12,190			9,332			359			—		9,691
Selling and marketing expenses		5,131			544			—		5,675			3,652			491			—		4,143

Operating income		17,554			552			—		18,106			11,344			330			—		11,674
Interest expense, net		8,285			(49	)		—		8,236			8,353			(2	)		—		8,351
Equity in net income (loss) of Non-Guarantor subsidiaries		(1,676	)		—			1,676		—			(129	)		—			129		—

Income from continuing operations before income taxes		7,593			601			1,676		9,870			2,862			332			129		3,323
Provision for income taxes		1,715			119			—		1,834			1,637			107			—		1,744

Income from continuing operations		5,878			482			1,676		8,036			1,225			225			129		1,579
Loss from discontinued operations (net of tax)		(279	)		(2,158	)		—		(2,437	)		(261	)		(354	)		—		(615	)

Net income (loss)	$	5,599		$	(1,676	)	$	1,676	$	5,599		$	964		$	(129	)	$	129	$	964

Issuer and Non-Guarantor Financial Information
Condensed Combining Statements of Cash Flows (Unaudited)


	Three Months Ended April 3, 2010												Three Months Ended March 28, 2009
				Non												Non
				Guar-			Elimin-									Guar-			Elimin-
	Issuer			antors			ations			Total			Issuer			antors			ations		Total
Cash flows from operating activities
Continuing operations, net	$	(18,109	)	$	1,096		$	—			(17,013	)	$	(10,608	)	$	721		$	—	$	(9,887	)
Discontinued operations, net		—			(1,994	)		—			(1,994	)		—			61			—		61

Net cash provided by (used) in operating activities		(18,109	)		(898	)		—			(19,007	)		(10,608	)		782			—		(9,826	)


Cash flows from investing activities
Loans from Vangent, Inc. to Vangent Mexico, net		(605	)		—			605			—			—			—			—		—
Capital expenditures		(1,163	)		(141	)		—			(1,304	)		(1,091	)		(104	)		—		(1,195	)

Continuing operations, net		(1,768	)		(141	)		605			(1,304	)		(1,091	)		(104	)		—		(1,195	)
Discontinued operations, net		—			(123	)		—			(123	)		—			(1,114	)		—		(1,114	)

Net cash used in investing activities		(1,768	)		(264	)		605			(1,427	)		(1,091	)		(1,218	)		—		(2,309	)


Cash flows from financing activities
Repayment of senior secured loan		(13,612	)		—			—			(13,612	)		—			—			—		—
Other		(29	)		—			—			(29	)		(70	)		(12	)		—		(82	)

Continuing operations, net		(13,641	)		—			—			(13,641	)		(70	)		(12	)		—		(82	)
Discontinued operations — Loans from Vangent Inc. to Vangent Mexico		—			605			(605	)		—			—			—			—		—

Net cash provided by (used in) financing activities		(13,641	)		605			(605	)		(13,641	)		(70	)		(12	)		—		(82	)


Effect of exchange rate changes on cash and cash equivalents		—			(146	)		—			(146	)		—			(109	)		—		(109	)


Net decrease in cash and cash equivalents		(33,518	)		(703	)		—			(34,221	)		(11,769	)		(557	)		—		(12,326	)
Total cash and cash equivalents, beginning of period		41,099			4,485			—			45,584			15,519			5,615			—		21,134

Total cash and cash equivalents, end of period		7,581			3,782			—			11,363			3,750			5,058			—		8,808
Less: Cash and cash equivalents, discontinued operations		—			645			—			645			—			2,239			—		2,239

Cash and cash equivalents, continuing operations	$	7,581		$	3,137			—		$	10,718		$	$3,750		$	2,819			—	$	6,569


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

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained elsewhere in this quarterly report on Form 10-Q and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes thereto, included in our annual report on Form 10-K for the year ended December 31, 2009.

Overview

We are a leading provider of information management and business process outsourcing services to several U.S. public health care and other civilian government agencies, as well as selected U.S. defense and intelligence agencies, foreign government organizations and private sector entities. We design, build and operate mission-critical systems and processes to seamlessly deliver vital information, services and programs to our customers and their constituents. Most of our revenue is generated from long-term contracts that typically have duration of approximately five years, including option years. As of April 3, 2010, our total contract backlog was $1.9 billion, compared with $2.1 billion at December 31, 2009.

The Department of Health and Human Services (“HHS”) represented 34%, the Department of Commerce (“DoC”) represented 26%, and the Department of Education (“DoED”) represented 15% of total revenue for the three months ended April 3, 2010. We manage our business through three segments: the Government Group; the International Group; and the Human Capital Group.

The Government Group is our largest segment and has many years of experience in providing information management and business process outsourcing to several civilian and defense agencies of the federal government, including a 29-year history with the Department of Education, over 10 years with the Defense Information Systems Agency and eight years with the Centers for Medicare and Medicaid Services (“CMS”). The Government Group is also responsible for the development, management, analysis and dissemination of healthcare information to the public sector and is one of the largest non-government providers of health information in the United States. The fourth quarter of the calendar year typically represents the highest revenue quarter as a result of the fourth-quarter open enrollment period under the CMS contract and student financial aid activity under the DoED contract. The Government Group represented 91% of total revenue for the three months ended April 3, 2010.

The International Group serves government and commercial customers, primarily in the United Kingdom and Canada, and provides consulting, systems integration, business process outsourcing, and the management of data, identity, revenue and human capital. As of April 3, 2010, the Company’s business operations in Latin America were held for sale and are classified as discontinued operations in the condensed consolidated financial statements. These operations were formerly part of the International Group. The International Group represented 6% of total revenue for the three months ended April 3, 2010.

The Human Capital Group primarily serves the private sector and designs, builds, and operates workforce solutions that automate and improve the recruitment, assessment, selection, training and development of a customer’s workforce. We provide solutions that automate pre-employment screening which improves the quality and retention of new employees and reduces the cost and time associated with workforce planning and hiring. The Human Capital Group represented 3% of total revenue for the three months ended April 3, 2010.

Discontinued Operations

In the fourth quarter of 2009, Vangent completed an evaluation of its international business and made the determination to sell its business operations in Latin America. The condensed consolidated financial statements have been revised for all periods presented to report Latin America as discontinued operations. The discontinued operations include: Vangent Mexico, S.A. de C.V.; Vangent Servicios de Mexico, S.A. de C.V.; Vangent Argentina, S.A.; Vangent Venezuela, C.A.; Vangent Puerto Rico, Inc.; and Proyectos Prohumane México, S. A. de C. V.

Nature of Our Contracts

Contracts funded by U.S. government agencies represented 88% of total revenue for the three months ended April 3, 2010, compared with 82% for the corresponding period in 2009. The continuation and renewal of our existing government contracts and new government contracts are, among other things, contingent upon the availability of adequate funding for the various federal government agencies with which we do business. Refer to our annual report on Form 10-K for the year ended December 31, 2009, for additional information concerning our business and the factors that could impact federal government spending and our federal government contracting business.

We have cost-plus, fixed-price and time and materials contracts. Fixed-priced contracts generally offer a higher profit margin opportunity but involve higher risks associated with potential cost overruns. Revenue from each type of contract as a percent of total revenue follows:


	Three Months Ended
	April 3,			March 28,
	2010			2009

Cost-plus		65	%		52	%
Fixed-price		30	%		43	%
Time and materials		5	%		5	%

		100	%		100	%

The increase in cost-plus contracts is due to work performed in the 2010 U.S. Census contract.

Contract Backlog

Total contract backlog is the amount of revenue we expect to realize over the remaining term of our contracts. We include in backlog task orders awarded, but not contract ceiling values, under government-wide acquisition contracts or indefinite delivery, indefinite quantity contracts. Funded backlog is the portion for which funding has been authorized. Most of our federal government contracts allow the customer the option of extending the period of performance for a period of one or more years. A summary of contract backlog by business segment follows (in millions):


	April 3, 2010				December 31, 2009
	Total		Funded		Total		Funded
Government Group	$	1,591.4	$	203.5	$	1,782.6	$	313.4
International Group		271.6		184.4		291.2		196.8
Human Capital Group		8.7		8.7		7.1		7.1
Discontinued operations		60.5		60.5		44.9		44.9

	$	1,932.2	$	457.1	$	2,125.8	$	562.2

Critical Accounting Policies

The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions to determine certain of the assets, liabilities, revenue and expenses. These estimates and assumptions are based upon what we believe is the best information available at the time of the estimates or assumptions. The estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from those estimates.

The critical accounting estimates and judgments used in the preparation of the condensed consolidated financial statements are described in our annual report on Form 10-K for the year ended December 31, 2009. Except for a charge of $2.6 million for an additional expected loss on disposal of discontinued operations, there have been no significant changes in critical accounting estimates and judgments: revenue recognition and cost estimation on long-term contracts; definite-life intangible assets; goodwill and an indefinite-life intangible asset; equity-based compensation; and income taxes.

Recent Accounting Pronouncements

Reference is made to the notes to the condensed consolidated financial statements for information on recent accounting pronouncements.

Results of Operations

Statements of operations data follow (dollars in thousands):


	Three Months Ended
	April 3,			March 28,			Increase
	2010			2009			(Decrease)
Statements of Operations Data
Revenue	$	194,197		$	132,873		$	61,324
Cost of revenue		158,226			107,365			50,861

Gross profit		35,971			25,508			10,463
General and administrative expenses		12,190			9,691			2,499
Selling and marketing expenses		5,675			4,143			1,532

Operating income		18,106			11,674			6,432
Interest expense, net		8,236			8,351			(115	)

Income from continuing operations before income taxes		9,870			3,323			6,547
Provision for income taxes		1,834			1,744			90

Income from continuing operations		8,036			1,579			6,457
Loss from discontinued operations (net of tax)		(2,437	)		(615	)		(1,822	)

Net income	$	5,599		$	964		$	4,635


Statements of Operations Data as a Percent of Revenue
Revenue		100.0	%		100.0	%
Cost of revenue		81.5			80.8

Gross profit margin		18.5			19.2
General and administrative expenses		6.3			7.3
Selling and marketing expenses		2.9			3.1

Operating income margin		9.3			8.8
Interest expense, net		4.2			6.3

Income from continuing operations before income taxes		5.1			2.5
Provision for income taxes		0.9			1.3

Income from continuing operations		4.2			1.2
Loss from discontinued operations (net of tax)		(1.3	)		(0.5	)

Net income		2.9	%		0.7	%

Three Months Ended April 3, 2010 and March 28, 2009

Overview

The Company’s fiscal year begins on January 1 and ends on December 31. Quarterly periods are based on a four-week, four-week, five-week methodology ending on the Saturday nearest to the end of the quarter to align with the Company’s domestic business processes. Foreign subsidiaries are consolidated based on the calendar quarter. There are 93 days in the three-month period ended April 3, 2010, compared with 87 days in the three-month period ended March 28, 2009. As a result revenue, costs and expenses, interest expense, income taxes, and cash flows for continuing operations cover a period that is 6 days, or 7%, longer than the corresponding period in 2009.

Revenue

A summary of revenue by segment follows (dollars in thousands):


	Three Months Ended
	April 3,			March 28,			Increase (Decrease)
	2010			2009			Amount			Percent
Revenue by business segment
Government Group	$	177,237		$	117,766		$	59,471			50	%
International Group		11,825			9,719			2,106			22	%
Human Capital Group		6,135			6,493			(358	)		(6	)%
Elimination		(1,000	)		(1,105	)		105			(10	)%

	$	194,197		$	132,873		$	61,324			46	%


Business segment revenue as a percent of total revenue
Government Group		91.3	%		88.6	%
International Group		6.1			7.3
Human Capital Group		3.2			4.9
Elimination		(0.6	)		(0.8	)

		100.0	%		100.0	%

The increase in Government Group revenue reflects the following:

•

Revenue from DoC contracts increased $48.8 million from the ramp up of processing of census forms and data capture under the 2010 U.S. Census contract that is expected to be substantially completed by the fourth quarter of 2010.

•

Revenue from HHS contracts increased $5.6 million from higher volumes and contract work for the Centers for Medicare and Medicaid Services (“CMS”) contract and the Center for Disease Control (“CDC”) contract.

•

Revenue from Department of Defense (“DoD”) contracts increased $3.4 million principally from a new contract with the Military Health System.

•

Revenue from DoED increased $3.1 million related to an increase in revenues earned on Vangent’s contract with the Office of Federal Student Aid.

•

Revenue from a contract with the Department of State (“DoS”) for the National Passport Information Center increased $1.0 million.

The increases in Government Group revenue were partially offset by a reduction of $1.6 million from the Employee Retirement Income Security Act (“ERISA”) contracts with the Department of Labor (“DoL”).

The increase in International Group revenue reflects increases from contracts in the United Kingdom and the impact of changes in foreign currency exchange rates that increased revenue by $1.2 million, compared with the average exchange rates prevailing during the corresponding period in 2009.

The reduction in Human Capital Group revenue reflects the substantial completion of a foreign military contract with the U.S. Air Force to modernize the Royal Saudi Air Force learning infrastructure, partly offset by an increase in training and call center services for various commercial customers.

Cost of Revenue

The increase in cost of revenue reflects costs of $42.5 million incurred for contract work performed under U.S. 2010 Census contract with DoC, and the period is 7% longer than the corresponding period in 2009. The average number of employees increased 40% primarily from increased temporary staffing in connection with the Census contract. The effect of changes in foreign exchange rates increased costs of the International Group by $1.0 million.

The gross profit margin, or the ratio of gross profit to revenue, was 18.5% for the three months ended April 3, 2010, compared with 19.2% for the corresponding period in 2009. The reduction reflects a higher proportion of revenue from cost-plus contracts, including the 2010 U.S. Census contract, vs. fixed-price contracts.

General and Administrative Expenses

The increase in general and administrative expenses reflects higher accrued expenses for annual incentive compensation awards, an increase in consulting fees, and a period that is 7% longer than the corresponding period in 2009. Incentive compensation expense is accrued based upon the level of operating results compared to established targets; there were no incentive compensation expense accrued for the corresponding period in 2009. Although general and administrative expenses increased, they represented 6.3% of revenue, a reduction from 7.3% for the corresponding period in 2009. The reduction reflects the increase in revenue.

Selling and Marketing Expenses

The increase in selling and marketing expenses reflects an increase of 38% in the number of new business development employees in the Government Group.

Operating Income

A summary of operating income by segment follows (dollars in thousands):


	Three Months Ended
	April 3,			March 28,			Increase (Decrease)
	2010			2009			Amount			Percent
Operating income (loss) by business segment
Government Group	$	18,869		$	12,294		$	6,575			53	%
International Group		62			1			61			—	%
Human Capital Group		(820	)		(616	)		(204	)		33	%
Corporate		(5	)		(5	)		—			—	%

	$	18,106		$	11,674		$	6,432			55	%


Operating margin by business segment
Government Group		10.7	%		10.4	%
International Group		0.5	%		—	%
Human Capital Group		(13.4)	%		(9.5)	%

The increase in Government Group operating income primarily reflects work on the 2010 U.S. Census contract with DoC that is expected to be substantially completed by the fourth quarter of 2010, and the period is 7% longer than the corresponding period in 2009. Award fees earned under cost-plus contracts, including the 2010 U.S. Census contract, increased $6.0 million compared with the corresponding period in 2009. The increases in operating income were partly offset by a reduction in income of $1.6 million resulting from upfront development costs on fixed-price ERISA contracts with DoL and higher accrued expenses of $1.5 million for incentive compensation compared with the corresponding period in 2009 where no incentive compensation was earned or accrued.

International Group operating results continue to reflect breakeven operating margins and have been reduced by charges from corporate and divisional overhead allocations of $0.5 million for the three months ended April 3, 2010, and $0.4 million for the corresponding period in 2009.

The increase in the operating loss for the Human Capital Group reflects the adverse impact of lower revenue under the Royal Saudi Air Force contract. The operating losses for both periods reflect reductions in training needs and customer hiring patterns from continued high unemployment levels.

Interest Expense, Net

Interest expense, net, was $8.2 million for the three months ended April 3, 2010, a reduction of $0.1 million from the corresponding period in 2009. Interest expense was reduced by $0.4 million as a result of reductions in the notional amount and average interest rate on the hedged portion of the term loan in February 2010. The reduction was offset by the period that is 7% longer than the corresponding period in 2009 resulting in $0.6 million of additional interest expense.

Provision for Income Taxes

A summary of the provision for income taxes follows (in thousands):


	Three Months Ended
	April 3,			March 28,		Increase
	2010			2009		(Decrease)
Provision (benefit) for income taxes excluding tax valuation allowance	$	2,904		$	1,016	$	1,888
Tax valuation allowance		(1,070	)		728		(1,798	)

Total provision for income taxes	$	1,834		$	1,744	$	90

The provision for income taxes is composed of U.S. federal, state and local and foreign income taxes. The provision for income taxes for the three months ended April 3, 2010 was reduced by $1.1 million for a change in the tax valuation allowance for deferred tax assets. The Company has concluded, based upon available evidence, that it is more likely than not that the U.S. deferred tax assets will not be realizable. Therefore, a valuation allowance amounting to $39.3 million had been established as of December 31, 2009. The valuation allowance results primarily from the effect on U.S. net operating losses from the tax amortization of goodwill. Goodwill is an indefinite life asset that is amortized for tax purposes, but is not amortized for financial accounting and reporting purposes. Goodwill is subject to impairment under U.S. generally accepted accounting principles.

Discontinued Operations

A summary of revenue, cost and expenses for discontinued operations that are segregated and reported separately in the condensed consolidated financial statements follows (in thousands):


	Three Months Ended
	April 3,			March 28,			Increase
	2010			2009			(Decrease)

Revenue	$	7,135		$	4,599		$	2,536
Costs and expenses		7,500			5,313			2,187
Expected loss on disposal		2,618			—			2,618
Other (income) expense, net		(753	)		20			(773	)

Loss from discontinued operations before income taxes		(2,230	)		(734	)		(1,496	)
Provision (benefit) for income taxes		207			(119	)		326

Loss from discontinued operations (net of tax)	$	(2,437	)	$	(615	)	$	(1,822	)

Revenue and costs and expenses for discontinued operations are denominated in multiple foreign currencies, primarily the Mexican Peso, and are significantly affected by foreign currency exchange rate changes.

The increase in revenue from discontinued operations reflects an increase of $2.9 million in revenue from Mexico from a contract with Mexico’s social security agency that was in the start up phase in the corresponding period in 2009. Although revenue on the contract with Mexico’s social security agency increased compared with the corresponding period in 2009, revenue continues to be adversely affected by continuing low member enrollments. Changes in foreign currency exchange rates increased revenue by $0.3 million, or 1%, compared with the average exchange rates prevailing during the corresponding period in 2009.

The increase in costs and expenses from discontinued operations resulted from the contract with Mexico’s social security agency that was in the start up phase in the corresponding period in 2009.

Based on estimates of fair value of the discontinued operations, a charge for expected loss on disposal of $5.0 million was recorded for the year ended December 31, 2009. The charge was calculated based on estimates of fair value, less cost to sell, compared with net assets of discontinued operations plus an adjustment to reflect the cumulative translation adjustment loss recorded as part of other comprehensive loss for discontinued operations. As a result of revisions to fair value estimates, which related primarily to an increase in the weighted average cost of capital and changes in estimated long-term operating margins, an additional charge of $2.6 million for expected loss on disposal was recorded for the three months ended April 3, 2010. The final adjustment to expected loss on disposal will be recorded based on the terms of and completion of a disposal transaction.

Other income from discontinued operations for the three months ended April 3, 2010, includes equity in net income of $0.4 million from a joint venture in Argentina that began operating in the second quarter of 2009. Other income also includes a foreign currency gain of $0.4 million resulting from the strengthening of the Mexican peso.

Liquidity and Capital Resources

Our primary sources of liquidity are available cash and cash equivalents, a line of credit under the revolving credit facility, and cash flows from operating activities. Cash and cash equivalents amounted to $10.7 million at April 3, 2010. Subject to certain limitations, including compliance with the maximum allowable limits under the leverage ratio covenant under the senior secured credit facility, the available line of credit under the revolving credit facility was $49.8 million at April 3, 2010. Based on our current planned level of operations, we believe our cash and cash equivalents, cash flow from operations, and available line of credit will be adequate to meet our liquidity needs for at least the next twelve months, including scheduled interest payments, scheduled lease payments and noncancelable purchase commitments, and planned capital expenditures.

Cash and cash equivalents are composed of cash in banks and highly liquid instruments with original maturities of 90 days or less. Cash equivalents or marketable securities are comprised of repurchase agreements and money market securities with major commercial banks under which cash is primarily invested in U.S. Treasury and U.S. government agency securities. The Company does not invest in high yield or high risk securities. Cash in bank accounts at times may exceed federally insured limits.

Long-Term Debt

Refer to the notes to the condensed consolidated financial statements for information on long-term debt, revolving credit facility, scheduled maturities of long-term debt, affirmative and negative covenants including the maximum allowable consolidated leverage ratio, interest rate swap agreements on variable-rate term loan, and the fair value of the interest rate swap liability.

Long-term debt of $406.8 million at April 3, 2010, is scheduled to mature as follows: (i) the term loan of $216.8 million under the senior secured credit facility is scheduled to mature in February 2013, and (ii) senior subordinated fixed rate notes of $190.0 million are scheduled to mature in February 2015. Our ability to generate sufficient cash flow from operations to repay long-term debt when it matures, or to refinance our debt when it matures, depends on numerous factors beyond our control, including those discussed under Risk Factors reported in our annual report on Form 10-K for the year ended December 31, 2009. In view of current credit market conditions and the credit ratings assigned to our outstanding debt and corporate credit by credit rating agencies, as further discussed under the caption Credit Ratings, in the event we were to refinance the senior secured credit facility or the senior subordinated notes, we would likely encounter higher interest rates and limited availability of debt financing capacity.

Debt Covenants

The more restrictive debt covenants relate to (i) loans and advances to non-guarantor subsidiaries, and (ii) compliance with a maximum allowable consolidated leverage ratio. At April 3, 2010, the cumulative amount of net loans to and investments in Vangent Mexico, S.A. de C.V., a non-guarantor subsidiary, by Vangent, Inc. amounted to $8.9 million, compared with the maximum allowable amount of $10.0 million for loans to or investments in non-guarantor subsidiaries under the senior secured credit facility.

The consolidated leverage ratio, as defined in the senior secured credit facility, is based on consolidated indebtedness, as defined, reduced by unrestricted cash and cash equivalents in excess of $5.0 million, divided by adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, and adjusted for unusual and non-recurring items) as defined in the debt agreement for a twelve-month period. At April 3, 2010, the consolidated leverage ratio was 5.25 to 1, compared with the maximum allowable ratio of 6.00 to 1 applicable to the period. The maximum allowable consolidated leverage ratio steps down to 5.50 to 1 at December 31, 2010.

Interest Rate Swaps on Variable-Rate Term Loan under Senior Secured Credit Facility

The Company has entered into interest rate swap agreements to hedge fluctuations in LIBOR interest rates on a portion of the term loan borrowing under the senior secured credit facility. The Company exchanged its variable LIBOR interest rate for a fixed interest rate. At April 3, 2010, the total notional amount of the pay-fixed/receive-variable interest rate swap agreements was $150.0 million scheduled to mature in February 2011.

The fair value of the net interest rate swap liability was $3.6 million at April 3, 2010, all of which represents an unrealized loss that is reported in accumulated other comprehensive loss in the consolidated statement of stockholder’s equity. The fair value is based on quoted prices for swaps in active markets adjusted for non-performance risks. The Company does not hold or issue derivative financial instruments for speculative purposes.

Working Capital

A summary of working capital follows (in thousands):


	April 3,			December 31,			Effect on
	2010			2009			Working Capital
Cash and cash equivalents	$	10,718		$	44,638		$	(33,920	)
Trade receivables, net		141,867			109,846			32,021
Prepaid expenses and other		11,696			10,353			1,343
Current portion of long-term debt		—			(13,534	)		13,534
Accounts payable and accrued liabilities		(68,107	)		(64,849	)		(3,258	)
Accrued interest payable		(3,363	)		(8,186	)		4,823
Other liabilities		(10,276	)		(9,604	)		(672	)
Discontinued operations, net		9,774			7,515			2,259

Net working capital	$	92,309		$	76,179		$	16,130

Cash Flows

A summary of net cash flows follows (in thousands):


	Three Months Ended
	April 3,			March 28,			Increase
	2010			2009			(Decrease)
Net cash provided by (used in)
Operating activities:
Continuing operations	$	(17,013	)	$	(9,887	)	$	(7,126	)
Discontinued operations		(1,994	)		61			(2,055	)
Investing activities:
Continuing operations		(1,304	)		(1,195	)		(109	)
Discontinued operations		(123	)		(1,114	)		991
Financing activities:
Continuing operations		(13,641	)		(82	)		(13,559	)

Net Cash Used in Operating Activities

In assessing cash flows from operating activities for continuing operations, we consider several principal factors: (i) income or loss from continuing operations adjusted for non-cash charges, primarily amortization of intangible assets, depreciation and amortization of property and equipment, and deferred income taxes, and (ii) the extent to which receivables, payables, or other working capital components increase or decrease.

Cash flow used in operating activities was $17.0 million for the three months ended April 3, 2010, compared with $9.9 million for the corresponding period in 2009. Income from continuing operations after adjusting for non-cash charges was $18.8 million for the three months ended April 3, 2010, compared with $12.1 million for the corresponding period in 2009. However, this was offset entirely by an increase in trade receivables.

Trade receivables increased $32.1 million, or 29%, compared with December 31, 2009, primarily due to higher revenue for the three months ended April 3, 2010, and the timing of collections from customers. Trade receivables at April 3, 2010, reflect DSO (days sales outstanding) of 65 days, compared with 57 days at December 31, 2009. Cash flows from operating activities for the corresponding period in 2009 was affected by an increase in trade receivables of $4.1 million due to delays in collections from two customers.

An increase in accounts payable and other liabilities of $4.5 million partially offset the negative cash flow impact from the increase in trade receivables for the three months ended April 3, 2010. A reduction of $13.2 million in accounts payable and other liabilities was the primary use of cash from operating activities for the corresponding period in 2009 primarily as a result of payments of $6.3 million for incentive compensation that had been earned and accrued in 2008. There were no payments for incentive compensation in the three months ended April 3, 2010, as there were no liabilities for incentive compensation earned or accrued for 2009. The timing of payments to vendors affects the level of accounts payable and the effect on operating cash flow, including the level of activities with small-business vendors and sub-contractors that require more frequent cash payments.

Discontinued operations generated negative cash flow from operating activities of $2.0 million for the three months ended April 3, 2010. An increase of $2.5 million in trade and other receivables, principally delays in collections from the contract with the social security agency in Mexico, was the primary cause of the negative cash flow from operating activities. The loss from discontinued operations of $2.4 million was offset by a non-cash charge of $2.6 million representing an additional charge for expected loss on disposal. Cash flow for the corresponding period in 2009 was breakeven.

Net Cash Used in Investing Activities

Net cash used in investing activities reflects capital expenditures of $1.3 million for continuing operations for the three months ended April 3, 2010 and $1.2 million for the corresponding period in 2009 for contractual and general infrastructure requirements. Capital expenditures for discontinued operations were $0.1 million for the three months ended April 3, 2010, and $1.1 million for the corresponding period in 2009 primarily for a contract in Mexico. Total capital expenditures of $15.0 million are expected for 2010.

Net Cash Used in Financing Activities

Net cash used in financing activities of $13.6 million for continuing operations for the three months ended April 3, 2010, reflects a mandatory term loan payment under the senior secured credit facility resulting from excess cash flow for 2009. Based on the excess cash flow for 2008, there was excess cash flow payment required in 2009.

Credit Ratings

The debt-to-equity ratio was 3.5 at April 3, 2010, compared with 3.8 at December 31, 2009. The reduction resulted from a debt payment of $13.6 million that reduced debt and net income that increased stockholder’s equity. The most recent ratings were assigned by Standard and Poor’s in November 2009 and by Moody’s Investor Services in December 2009, as follows:


	Standard
	& Poor’s	Moody’s
Senior secured credit facility	BB-	B1
Senior subordinated notes due 2015	CCC+	Caa2
Corporate credit	B	B3
Outlook	Negative	Negative

Contractual Obligations

Contractual commitments to make future cash payments under long-term debt agreements, contracts, and contingent commitments at April 3, 2010, follow (in millions):


			Payments Due by Year
			2010
			(remaining nine		2011 and		2013 and
	Total		months)		2012		2014		2015		Thereafter
Long-term debt:
Term loan under senior secured credit facility due February 2013 (1)		216.8		—	$	1.7	$	215.1	$	—	$	—
Senior subordinated notes due 2015		190.0		—		—		—		190.0		—
Interest relating to long-term debt (2)		112.4		16.7		48.7		37.8		9.2		—
Operating leases		73.4		15.1		27.5		13.7		3.4		13.7
Purchase and other contractual commitments (3)		20.2		20.2		—		—		—		—

	$	612.8	$	52.0	$	77.9	$	266.6	$	202.6	$	13.7


(1)		Scheduled payments for the term loan under the senior secured credit facility do not give effect to possible future mandatory prepayments in March 2011 or March 2012 that could result from excess cash flow from the prior calendar year.

(2)		Future interest payments consist of interest on the variable-rate term loan under the senior secured credit facility based on the prevailing rate of 2.51% at April 3, 2010, the estimated future payments based on fair value of the related interest rate swaps, and interest based on the fixed rate of 9 5/8% for the senior subordinated notes.

(3)		Purchase and other contractual commitments represent the minimum noncancelable obligations under service and other agreements, primarily information technology and telecommunications services.

Variable Interest Entities

The Company has interests in foreign joint ventures that provide government contract services in foreign countries. In certain arrangements, the Company and the joint-venture partner have each guaranteed joint venture performance under fixed-priced subcontracts and each has committed to fund its contractual share of joint venture working capital requirements. Over the next twelve months, the Company does not expect any material adverse impact to its consolidated financial condition or results of operations from its performance guaranty under the fixed-priced contracts or its working capital commitments.

Off-Balance Sheet Arrangements

As of April 3, 2010, there were no off-balance sheet arrangements other than operating leases for office facilities and equipment for which future minimum lease payments aggregated $73.4 million.


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information provided under Quantitative and Qualitative Disclosures about Market Risk in our annual report on Form 10-K for the year ended December 31, 2009.


ITEM 4T.		CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act are: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three months ended April 3, 2010, there have been no changes in the internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.		LEGAL PROCEEDINGS


ITEM 1A.		RISK FACTORS

There have been no material changes in risk factors from the information provided under Risk Factors in our annual report on Form 10-K for the year ended December 31, 2009.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None


ITEM 3.		DEFAULTS UPON SENIOR SECURITIES

None


ITEM 5.		OTHER INFORMATION

None


ITEM 6.		EXHIBITS


Exhibit
Number		Description
31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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


*		Filed herewith.


	Vangent, Inc.
May 10, 2010	/s/ James C. Reagan
	James C. Reagan
	Senior Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer)