UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

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

For the transition period from to

Commission File Number 000-22081

EPIQ SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Missouri		48-1056429
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

501 Kansas Avenue, Kansas City, Kansas		66105-1300
(Address of principal executive offices)		(Zip Code)

913-621-9500

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No 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.

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at July 13, 2012
Common Stock, $0.01 par value per share		35,926,877 shares

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

EPIQ SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
REVENUE:
Case management services	$	66,057		$	58,320		$	139,778		$	100,203
Case management bundled products and services	2,885			4,444			6,148			8,859
Document management services	20,895			5,927			26,738			13,842
Operating revenue before reimbursed direct costs	89,837			68,691			172,664			122,904
Operating revenue from reimbursed direct costs	8,058			5,263			13,703			10,672
Total Revenue	97,895			73,954			186,367			133,576

OPERATING EXPENSE:
Direct cost of services (exclusive of depreciation and amortization shown separately below)	40,254			22,072			71,575			40,638
Direct cost of bundled products and services (exclusive of depreciation and amortization shown separately below)	749			782			1,504			1,613
Reimbursed direct costs	7,720			5,152			13,288			10,489
General and administrative expense	28,232			27,078			60,264			46,368
Depreciation and software and leasehold amortization	6,523			5,806			13,251			11,013
Amortization of identifiable intangible assets	6,752			6,195			13,521			9,961
Fair value adjustment to contingent consideration	(5,471		)	(2,775		)	(5,471		)	(2,775		)
Intangible asset impairment expense	1,777			—			1,777			—
Other operating (income) expense	(54		)	3,427			(225		)	3,910
Total Operating Expense	86,482			67,737			169,484			121,217

INCOME FROM OPERATIONS	11,413			6,217			16,883			12,359

INTEREST EXPENSE (INCOME):
Interest expense	2,713			1,757			5,439			2,567
Interest income	(1		)	(11		)	(7		)	(16		)
Net Interest Expense	2,712			1,746			5,432			2,551

INCOME BEFORE INCOME TAXES	8,701			4,471			11,451			9,808

PROVISION FOR INCOME TAXES	3,544			1,698			4,255			3,953

NET INCOME	$	5,157		$	2,773		$	7,196		$	5,855

NET INCOME PER SHARE INFORMATION:
Basic	$	0.14		$	0.08		$	0.20		$	0.17
Diluted	$	0.14		$	0.08		$	0.20		$	0.16
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	35,599			35,069			35,539			35,081
Diluted	36,488			36,510			36,468			36,507

Cash dividends declared per common share	$	0.065		$	0.035		$	0.115		$	0.105

See accompanying Notes to Condensed Consolidated Financial Statements.

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EPIQ SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

	June 30, 2012			December 31, 2011

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,898		$	2,838
Trade accounts receivable, less allowance for doubtful accounts of $4,300 and $4,514, respectively	98,541			89,619
Prepaid expenses	8,026			7,768
Other current assets	6,032			9,999
Total Current Assets	119,497			110,224

LONG-TERM ASSETS:
Property and equipment, net	45,332			46,773
Internally developed software costs, net	20,457			21,195
Goodwill	404,057			402,736
Other intangibles, net of accumulated amortization of $77,031 and $63,511, respectively	73,019			88,087
Other	7,595			9,649
Total Long-term Assets, net	550,460			568,440
Total Assets	$	669,957		$	678,664

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations	$	17,343		$	15,484
Accounts payable	21,696			12,048
Accrued compensation	4,238			10,293
Deposits	4,433			1,972
Deferred revenue	4,921			3,214
Other accrued liabilities	8,519			6,979
Total Current Liabilities	61,150			49,990

LONG-TERM LIABILITIES:
Deferred income taxes	40,741			42,557
Other long-term liabilities	7,475			5,204
Long-term obligations (excluding current maturities)	224,756			247,994
Total Long-term Liabilities	272,972			295,755

COMMITMENTS AND CONTINGENCIES
EQUITY:
Preferred stock - $1 par value; 2,000,000 shares authorized; none issued and outstanding	—			—
Common stock - $0.01 par value; 100,000,000 shares authorized; Issued and outstanding 2012 — 39,923,852 and 35,944,127 shares Issued and outstanding 2011 — 39,493,852 and 35,754,074 shares	399			395
Additional paid-in capital	289,508			286,869
Accumulated other comprehensive loss	(1,900		)	(1,987		)
Retained earnings	98,900			95,849
Treasury stock, at cost — 3,979,725 and 3,739,778 shares	(51,072		)	(48,207		)
Total Equity	335,835			332,919
Total Liabilities and Equity	$	669,957		$	678,664

See accompanying Notes to Condensed Consolidated Financial Statements.

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EPIQ SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(in thousands)

	Common Stock	Treasury Stock		Common Stock		Additional Paid-In Capital			AOCI (1)			Retained Earnings			Treasury Stock			Total
Balance at January 1, 2012	39,494	(3,740	)	$	395	$	286,869		$	(1,987	)	$	95,849		$	(48,207	)	$	332,919
Net income	—	—		—		—			—			7,196			—			7,196
Foreign currency translation adjustment	—	—		—		—			87			—			—			87
Tax benefit from share-based compensation	—	—		—		(266		)	—			—			—			(266		)
Common stock issued under share-based compensation plans	430	49		4		(498		)	—			—			624			130
Common stock repurchased under share-based compensation plans	—	(169	)	—		—			—			—			(2,045		)	(2,045		)
Share repurchases (Note 9)	—	(120	)												(1,444		)	(1,444		)
Dividends declared ($0.115 per share) (Note 9)	—	—		—		—			—			(4,145		)	—			(4,145		)
Share-based compensation	—	—		—		3,403			—						—			3,403
Balance at June 30, 2012	39,924	(3,980	)	$	399	$	289,508		$	(1,900	)	$	98,900		$	(51,072	)	$	335,835

(1) AOCI — Accumulated Other Comprehensive Income (Loss)

	Common Stock	Treasury Stock		Common Stock		Additional Paid-In Capital			AOCI (1)			Retained Earnings			Treasury Stock			Total
Balance at January 1, 2011	39,063	(3,295	)	$	391	$	281,119		$	(1,971	)	$	91,069		$	(42,085	)	$	328,523
Net income	—	—		—		—			—			5,855			—			5,855
Foreign currency translation adjustment	—	—		—		—			437			—			—			437
Tax benefit from share-based compensation	—	—		—		320			—			—			—			320
Common stock issued under share-based compensation plans	431	299		4		(1,590		)	—			—			3,865			2,279
Common stock repurchased under share-based compensation plans	—	(66	)	—		—			—			—			(900		)	(900		)
Share repurchases (Note 9)	—	(745	)	—		—			—						(9,958		)	(9,958		)
Dividends declared ($0.105 per share) (Note 9)	—	—		—		—			—			(3,718		)	—			(3,718		)
Share-based compensation	—	—		—		3,517			—						—			3,517
Balance at June 30, 2011	39,494	(3,807	)	$	395	$	283,366		$	(1,534	)	$	93,206		$	(49,078	)	$	326,355

(1) AOCI — Accumulated Other Comprehensive Income (Loss)

See accompanying Notes to Condensed Consolidated Financial Statements.

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EPIQ SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Six months ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,196		$	5,855
Adjustments to reconcile net income to net cash provided by operating activities:
Expense for deferred income taxes	1,097			2,366
Depreciation and software and leasehold amortization	13,251			11,013
Amortization of identifiable intangible assets	13,521			9,961
Fair value adjustment to contingent consideration	(5,471		)	(2,775		)
Intangible asset impairment expense	1,777			—
Share-based compensation expense	3,403			3,517
Provision for bad debts	1,033			1,042
Accretion of discount	1,318			54
Other, net	273			813
Changes in operating assets and liabilities:
Trade accounts receivable	(10,214		)	(12,840		)
Prepaid expenses and other assets	3,901			(1,226		)
Accounts payable and other liabilities	6,088			(9,954		)
Excess tax benefit related to share-based compensation	—			(99		)
Other	1,400			1,692
Net cash provided by operating activities	38,573			9,419

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(8,344		)	(7,381		)
Internally developed software costs	(3,276		)	(3,201		)
Payment of deferred acquisition consideration	(8,400		)	—
Cash paid for business acquisition, net of cash acquired	—			(99,232		)
Proceeds from sale of assets	488
Other investing activities, net	75			52
Net cash used in investing activities	(19,457		)	(109,762		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolver	37,000			139,000
Payments on revolver	(42,000		)	(26,000		)
Payments under long-term obligations	(3,012		)	(1,130		)
Excess tax benefit related to share-based compensation	—			99
Common stock repurchases (Note 9)	(3,489		)	(10,858		)
Cash dividends paid (Note 9)	(3,590		)	(2,479		)
Debt issuance costs	—			(1,789		)
Issuance of common stock under share-based compensation plans	130			2,279
Net cash (used in) provided by financing activities	(14,961		)	99,122

Effect of exchange rate changes on cash	(95		)	584

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	4,060			(637		)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	2,838			5,439
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	6,898		$	4,802

See accompanying Notes to Condensed Consolidated Financial Statements.

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EPIQ SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, and with the rules and regulations for reporting on Form 10-Q for interim financial statements. Accordingly, the financial statements do not include certain disclosures required for comprehensive annual financial statements.

The unaudited financial information reflects all adjustments, which are, in the opinion of management, necessary to present fairly our results of operations, financial position, and cash flows for the periods presented. The adjustments consist primarily of normal recurring adjustments. Certain prior year amounts have been reclassified to conform with the current year presentation. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Epiq Systems, Inc. (“Epiq,” “we,” “us,” or “our”) Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2012.

In preparing these financial statements, we have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

The results of operations for any quarter or a partial fiscal year period are not necessarily indicative of the results to be expected for other periods or the entire year.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of Epiq and our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Nature of Operations

We are a leading global provider of technology-enabled solutions for electronic discovery, bankruptcy and class action administration. We offer full-service capabilities, which include eDiscovery for litigation, investigations, financial transactions, regulatory, compliance and other legal matters. Our innovative technology and services, combined with deep subject-matter expertise, provide reliable solutions for the professionals we serve.

Revenue Recognition

We have agreements with clients pursuant to which we deliver various services each month.

Following is a description of significant sources of revenue:

· Fees contingent upon the month-to-month delivery of case management services defined by client contracts, such as project management, collections and forensic services, document review services, conversion of data into an organized, searchable electronic database, claims processing, claims reconciliation, professional services, call center support, and disbursement services,. The amount we earn varies based primarily on the size and complexity of the engagement, the number of hours services are provided and the number of documents or amount of data reviewed.

· Hosting fees based on the amount of data stored.

· Deposit-based fees, earned primarily based on a percentage of Chapter 7 total liquidated assets placed on deposit with a designated financial institution by our trustee clients, to whom we provide, at no charge, software licenses, limited hardware and hardware maintenance, and postcontract customer support services. The fees we earn are based on assets placed on deposit by our trustee clients and may vary based on fluctuations in short-term interest rates.

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· Legal noticing services to parties of interest in bankruptcy and class action matters, including direct notification, media campaign, and advertising management in which we coordinate notification through various media outlets, such as print, radio and television, to potential parties of interest for a particular client engagement.

· Reimbursement for costs incurred, primarily related to postage on mailing services.

· Monitoring and noticing fees earned based on monthly or on-demand requests for information provided through our AACER® (Automated Access to Court Electronic Records) (“AACER®”) software product.

Non-Software Arrangements

Services related to eDiscovery and settlement administration are billed based on volume. For these contractual arrangements, we have identified each deliverable service element. Based on our evaluation of each element, we have determined that each element delivered has standalone value to our customers because we or other vendors sell such services separately from any other services/deliverables. We have also obtained objective and reliable evidence of the fair value of each element based either on the price we charge when we sell an element on a standalone basis or on third-party evidence of fair value of such similar services. For elements where evidence cannot be established we have used the best estimate of sales price. Lastly, our arrangements do not include general rights of return. Accordingly, each of the service elements in our multiple element case and document management arrangements qualifies as a separate unit of accounting. We allocate revenue to the various units of accounting in our arrangements based on the fair value or best estimated selling price of each unit of accounting, which is generally consistent with the stated prices in our arrangements. In instances when revenue has been required to be deferred, we utilize the relative selling price method to calculate the revenue recognized. As we have evidence of an arrangement, revenue for each separate unit of accounting is recognized each period. Revenue is recognized as the services are rendered, our fee becomes fixed and determinable, and collectability is reasonably assured. Payments received in advance of satisfaction of the related revenue recognition criteria are recognized as a customer deposit until all revenue recognition criteria have been satisfied.

Software Arrangements

For our Chapter 7 bankruptcy trustee arrangements, we provide our trustee clients with a software license, hardware lease, hardware maintenance, and postcontract customer support services, all at no charge to the trustee. The trustees place their liquidated estate deposits with a financial institution with which we have an arrangement. We earn contingent monthly fees from the financial institutions based on the dollar level of average monthly deposits held by the trustees with that financial institution related to the software license, hardware lease, hardware maintenance, and postcontract customer support services. Since we have not established vendor specific objective evidence of the fair value of the software license, we do not recognize any revenue on delivery of the software. The software element is deferred and included with the remaining undelivered elements, which are postcontract customer support services. This revenue, when recognized, is included as a component of “Case management services” revenue in the Condensed Consolidated Statements of Income. Revenue related to postcontract customer support is entirely contingent on the placement of liquidated estate deposits by the trustee with the financial institution. Accordingly, we recognize this contingent usage based revenue as the fee becomes fixed or determinable at the time actual usage occurs and collectability is probable. This occurs monthly as a result of the computation, billing and collection of monthly deposit fees contractually agreed to. At that time, we have also satisfied the other applicable revenue recognition criteria since we have persuasive evidence that an arrangement exists, services have been rendered, the price is fixed and determinable, and collectability is reasonably assured.

We also provide our trustee clients with certain hardware, such as desktop computers, monitors, and printers as well as hardware maintenance. We retain ownership of all hardware provided and we account for this hardware as a lease. As the hardware maintenance arrangement is an executory contract similar to an operating lease, we use guidance related to contingent rentals in operating lease arrangements for hardware maintenance as well as for the hardware lease. Since the payments under all of our arrangements are contingent upon the level of trustee deposits and the delivery of upgrades and other services, and there remain important uncertainties regarding the amount of unreimbursable costs yet to be incurred by us, we account for the hardware lease as an operating lease. Therefore, all lease payments, based on the estimated fair value of hardware provided, were accounted for as contingent rentals; which requires that we recognize rental income when the changes in the factor on which the contingent lease payment is based actually occur. This occurs at the end of each period as

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we achieve our target when deposits are held at the financial institution as, at that time, evidence of an arrangement exists, delivery has occurred, the amount has become fixed and determinable, and collection is reasonably assured.

This revenue, which was less than ten percent of our total revenue for the three and six months ended June 30, 2012 and 2011, is included in the Condensed Consolidated Statements of Income as a component of “Case management services” revenue.

Reimbursements

We have revenue related to the reimbursement of certain costs, primarily postage. Reimbursed postage and other reimbursable direct costs are recorded gross in the Condensed Consolidated Statements of Income as “Operating revenue from reimbursed direct costs” and as “Reimbursed direct costs”, respectively.

Goodwill

Goodwill consists of the excess of cost of acquired enterprises over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. We assess goodwill for impairment on an annual basis at a reporting unit level. A reporting unit is a component of a segment that constitutes a business, for which discrete financial information is available, and for which the operating results are regularly reviewed by management. We have identified our operating segments (eDiscovery, bankruptcy and settlement administration) as our reporting units for purposes of testing for goodwill impairment. Goodwill is assessed between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit, or future economic factors such as unfavorable changes in our stock price and market capitalization or unfavorable changes in the estimated future discounted cash flows of our reporting units. Our annual test is performed as of July 31 each year, and there have been no events since our last annual test to indicate that it is more likely than not that the recorded goodwill balance had become impaired. Our consolidated goodwill totaled $404.1 million as of June 30, 2012.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We considered both a market approach and an income approach in order to develop an estimate of the fair value of each reporting unit for purposes of our annual impairment test. When available, and as appropriate, we use market multiples derived from a set of competitors or companies with comparable market characteristics to establish fair values for a particular reporting unit (market approach). We also estimate fair value using discounted projected cash flow analysis (income approach). Potential impairment is indicated when the carrying value of a reporting unit, including goodwill, exceeds its estimated fair value. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. In addition, financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital, which is used to determine our discount rate, and through our stock price, which is used to determine our market capitalization. We may be required to recognize impairment of goodwill based on future economic factors such as unfavorable changes in our stock price and market capitalization or unfavorable changes in the estimated future discounted cash flows of our reporting units.

If we determine that the estimated fair value of any reporting unit is less than the reporting unit’s carrying value, then we proceed to the second step of the goodwill impairment analysis to measure the potential impairment charge. An impairment loss is recognized for any excess of the carrying value of the reporting unit’s goodwill over the implied fair value. If goodwill on our Condensed Consolidated Balance Sheet or Consolidated Balance Sheet becomes impaired during a future period, the resulting impairment charge could have a material impact on our results of operations and financial condition.

Due to the current economic environment and the uncertainties regarding the impact that future economic impacts will have on our reporting units, there can be no assurances that our estimates and assumptions regarding the duration of the economic recession, or the period or strength of recovery, made for purposes of our annual goodwill impairment test, will prove to be accurate predictions of the future. If our assumptions regarding forecasted revenues or margins of certain of our reporting units are not achieved, we may be required to record goodwill impairment losses in future periods. It is not possible at this

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time to determine if any such future impairment loss would occur, and if it does occur, whether such charge would be material.

Recently Adopted Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (the “FASB”) issued a new standard related to comprehensive income. This new standard requires companies to present comprehensive income in a single statement below net income or in a separate statement of comprehensive income immediately following the income statement. In both options, companies must present the components of net income, total net income, the components of other comprehensive income, total other comprehensive income and total comprehensive income. This new standard does not change which items are reported in other comprehensive income or the requirement to report reclassifications of items from other comprehensive income to net income. The new standard eliminates the option to present comprehensive income on the statement of changes in shareholders’ equity. This requirement was effective for us beginning with our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and required retrospective application for all periods presented. The adoption of this guidance did not have a material effect on our consolidated financial position, results of operations or cash flows.

In May 2011, the FASB issued new standards to provide guidance about fair value measurement and disclosure requirements. These standards do not extend the use of fair value but rather provide guidance about how fair value should be determined where it is already required or permitted under generally accepted accounting principles. A majority of the changes include clarifications of existing guidance and new disclosure requirements related to changes in valuation technique and related inputs that result from applying the standard. We adopted this guidance and applied the new standard prospectively for interim and annual periods beginning January 1, 2012. The adoption of this guidance did not have a material effect on our consolidated financial position, results of operations or cash flows.

In September 2011, the FASB issued guidance which amends the existing standards related to annual and interim goodwill impairment tests. Current guidance requires companies to test goodwill for impairment, at least annually, using a two-step process. The updated guidance provides companies with the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this option, companies are no longer required to calculate the fair value of a reporting unit unless they determine, based on that qualitative assessment, that it is more likely than not that the reporting unit’s fair value is less than its carrying amount. The new guidance includes examples of the types of events and circumstances to consider in conducting the qualitative assessment. The amendments were effective for us for annual and interim goodwill tests performed on or after January 1, 2012. We do not expect this new guidance to have a material effect on our consolidated financial position, results of operations or cash flows.

NOTE 2: GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill for the first six months of 2012 was as follows:

	eDiscovery		Bankruptcy		Settlement Administration		Total
	(in thousands)
Balance as of December 31, 2011	$	187,773	$	182,116	$	32,847	$	402,736
Purchase price adjustments	1,276		—		—		1,276
Foreign currency translation	45		—		—		45
Balance as of June 30, 2012	$	189,094	$	182,116	$	32,847	$	404,057

During the first quarter of 2012, we increased goodwill recorded in connection with our acquisition of De Novo Legal LLC (“De Novo”) by $1.3 million. This adjustment is based on new information obtained since December 31, 2011, related to the results of an independent valuation of the fair value of De Novo’s property, plant and equipment. See Note 11 of our Notes to Condensed Consolidated Financial Statements for further detail.

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Identifiable intangible assets as of June 30, 2012 and December 31, 2011 consisted of the following:

	June 30, 2012				December 31, 2011
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(in thousands)
Amortizing intangible assets:
Customer relationships	$	124,512	$	62,580	$	124,283	$	50,813
Trade names	6,591		1,233		3,212		987
Non-compete agreements	18,947		13,218		18,947		11,711
Non-amortizing intangible assets:
Trade names	—		—		5,156		—
Total	$	150,050	$	77,031	$	151,598	$	63,511

During the first quarter of 2012, we increased our customer relationships intangible asset recorded in connection with our acquisition of De Novo by $0.2 million. This adjustment was based on new information obtained since December 31, 2011, related to the results of an independent valuation of the fair value of De Novo’s property, plant and equipment which also impacted the valuation model used for customer relationships. See Note 11 of our Notes to Condensed Consolidated Financial Statements for further detail. Customer relationships, non-compete agreements and trade names carry a weighted average life of seven years, five years and eight years, respectively. The AACER® trade name acquired in 2010 was originally determined to have an indefinite life and was therefore not amortized from its October 2010 acquisition date through June 30, 2012.

During the second quarter of 2012, the remaining useful life of the AACER® trade name was evaluated to determine whether events and circumstances continue to support an indefinite useful life and it was determined that an indefinite life is no longer supportable. This conclusion is based on plans to market current and potential future products or services under the Epiq trade name and we expect the useful life of the AACER® trade name to be ten years. Accordingly, we will begin amortizing this trade name effective July 1, 2012.

Due to the change from an indefinite life to a ten-year useful life, we tested the AACER® trade name for impairment as of June 30, 2012, based on current financial forecasts and the expected useful life of ten years. Per the results of this valuation analysis, the carrying value of the trade name exceeded its fair value by $1.8 million and accordingly we have recorded this amount as intangible asset impairment expense in the accompanying Condensed Consolidated Statements of Income.

Amortization expense related to identifiable intangible assets was $6.8 million and $6.2 million for the three months ended June 30, 2012 and 2011, respectively, and $13.5 million and $10.0 million for the six months ended June 30, 2012 and 2011, respectively. The following table outlines the estimated future amortization expense related to intangible assets at June 30, 2012:

(in thousands)
Year Ending December 31,
2012 (from July 1, 2012 to December 31, 2012)	$	13,166
2013	18,988
2014	12,492
2015	9,835
2016	6,968
2017 and thereafter	11,570
Total	$	73,019

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NOTE 3: LONG-TERM OBLIGATIONS

The following is a summary of long-term obligations outstanding (in thousands):

	Final Maturity Date	Weighted- Average Interest Rate		June 30, 2012			December 31, 2011
				(in thousands)
Senior revolving loan	December 2015	3.1	%	$	212,000		$	217,000
Capital leases	April 2017	7.0	%	5,017			6,025
Notes payable	September 2014	2.2	%	9,053			11,004
Acquisition-related liabilities	December 2013	8.1	%	16,029			29,449
Total long-term obligations, including current portion				242,099			263,478
Current maturities of long-term obligations
Capital leases				(2,992		)	(3,213		)
Notes payable				(3,969		)	(3,924		)
Acquisition-related liabilities				(10,382		)	(8,347		)
Total current maturities of long-term obligations				(17,343		)	(15,484		)
Total Long-term obligations				$	224,756		$	247,994

Credit Facilities

We have a senior credit facility that provides for a senior revolving loan with an aggregate amount of funds available of $325.0 million with a maturity date of December 2015. We have the right, subject to compliance with the covenants as set forth in the credit facility agreement, to increase the borrowings to a maximum of $375.0 million. The credit facility is secured by liens on our land and buildings and substantially all of our personal property.

Borrowings under the senior revolving loan bear interest at various rates based on our leverage ratio with two rate options at the discretion of management as follows: (1) for base rate advances, borrowings bear interest at prime rate plus 75 to 175 basis points; and (2) for LIBOR rate advances, borrowings bear interest at LIBOR rate plus 175 to 275 basis points. At June 30, 2012, borrowings of $212.0 million under this facility had a weighted average interest rate of 3.1%. The average amount of borrowings under this facility during the second quarter of 2012 was $219.3 million, at a weighted average interest rate of 3.0%. The maximum month-end amount outstanding during the second quarter of 2012 was $227.0 million. At June 30, 2012, the amount available for borrowings under the credit facility under the most restrictive debt covenant was approximately $36.0 million.

The financial covenants contained in the credit facility include a total debt leverage ratio and a fixed charge coverage ratio (all as defined in our credit facility agreement). The leverage ratio is not permitted to exceed 3.00 to 1.00 and the fixed charge coverage ratio is not permitted to be less than 1.25 to 1.00. As of June 30, 2012, we were in compliance with all financial covenants.

Other restrictive covenants contained in our credit facility include limitations on incurring additional indebtedness and completing acquisitions. We generally cannot incur indebtedness outside the credit facility, with the exception of capital leases, up to $15.0 million, and subordinated debt, up to $100 million. In addition, for acquisitions we must be able to demonstrate that, on a pro forma basis, we would be in compliance with our covenants during the four quarters prior to the acquisition, and bank permission must be obtained for acquisitions in which cash consideration exceeds $125.0 million or total consideration exceeds $175.0 million. The total consideration for all acquisitions consummated during the term of our credit facility may not exceed $300.0 million in the aggregate without lender permission.

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Capital Leases

We lease certain equipment under capital leases that generally require monthly payments with final maturity dates during various years through 2017. As of June 30, 2012, our capital leases had a weighted-average interest rate of approximately 7.0%.

Notes Payable

During the fourth quarter of 2011 we entered into a note payable related to a software license agreement that bears interest of approximately 2.2% and is payable quarterly through September 2014.

Acquisition-related Liabilities

In connection with the acquisitions of Jupiter eSources LLC (“Jupiter eSources”) on October 1, 2010, and De Novo on December 28, 2011, we incurred liabilities related to contingent consideration for earn-out opportunities based on future revenue growth. We estimated the fair value of the contingent consideration using probability assessments of projected revenue over the earn-out period, and applied an appropriate discount rate based upon the weighted average cost of capital. This fair value is based on significant level 3 inputs that are not observable in the market.

Amounts recorded in connection with acquisition-related liabilities as of June 30, 2012 and December 31, 2012 are as follows:

	June 30, 2012		December 31, 2011
	(in thousands)
De Novo contingent consideration:
Current portion	$	5,875	$	—
Long-term portion	5,647		16,226
Total De Novo contingent consideration	11,522		16,226
De Novo deferred acquisition price
Current portion	4,507		—
Long-term portion	—		4,870
Total De Novo deferred acquisition price	4,507		4,870
Jupiter eSources deferred acquisition price
Current portion	—		8,353
Total acquisition-related liabilities	$	16,029	$	29,449

Jupiter eSources

The undiscounted amount of all potential future payments that we could be required to make under the Jupiter eSources earn-out was between $0 and $20 million over a four-year measurement period following the October 1, 2010 date of acquisition. During the second quarter of 2011 a $2.8 million reduction in the fair value of the Jupiter eSources potential contingent consideration was recorded. During the fourth quarter of 2011, based on our probability assessments over the remainder of the earn-out period, we determined that it is not likely that any earn-out for Jupiter eSources will be achieved and based on this continued assessment, there is no liability recorded related to this earn-out as of June 30, 2012 and December 31, 2011.

In connection with the acquisition of Jupiter eSources, we withheld a portion of the purchase price for potential claims for indemnification and purchase price adjustments in the amount of $8.4 million that was paid in May 2012.

De Novo

The undiscounted amount of all potential future payments that we could be required to make under the De Novo earn-out opportunity is between $0 and $29.1 million over a two-year measurement period following December 28, 2011, the date of acquisition. A portion of the De Novo earn-out is contingent upon certain of the sellers remaining employees of Epiq. If those sellers do not remain employees of Epiq, the portion of the earn-out to which they were entitled is forfeited and will not be allocated to the remaining sellers. The portion of the contingent consideration that is not tied to employment was considered to be part of the total consideration paid for net assets in connection with the purchase of De Novo and has been measured and recognized at fair value.

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The computation of basic and diluted net income per share for the three and six months ended June 30, 2012 is as follows:

	Three months ended June 30, 2012						Six months ended June 30, 2012
	Net Income (Numerator)			Weighted Average Common Shares Outstanding (Denominator)	Per Share Amount		Net Income (Numerator)			Weighted Average Common Shares Outstanding (Denominator)	Per Share Amount
	(in thousands, except per share data)

Net income	$	5,157					$	7,196
Less: amounts allocated to nonvested shares	(62		)				(76		)

Basic net income available to common stockholders	5,095			35,599	$	0.14	7,120			35,539	$	0.20

Effect of dilutive securities:
Stock options	—			889			—			929
Add back: amounts allocated to nonvested shares	62			—			76			—
Less: amounts re-allocated to nonvested shares	(62		)	—			(76		)	—
Diluted net income available to common stockholders	$	5,095		36,488	$	0.14	$	7,120		36,468	$	0.20

The computation of basic and diluted net income per share for the three and six months ended June 30, 2011 is as follows:

	Three months ended June 30, 2011					Six months ended June 30, 2011
	Net Income (Numerator)		Weighted Average Common Shares Outstanding (Denominator)	Per Share Amount		Net Income (Numerator)			Weighted Average Common Shares Outstanding (Denominator)	Per Share Amount
	(in thousands, except per share data)

Net income	$	2,773				$	5,855
Less: amounts allocated to nonvested shares	—					(4		)

Basic net income available to common stockholders	2,773		35,069	$	0.08	5,851			35,081	$	0.17

Effect of dilutive securities:
Stock options	—		1,441			—			1,364
Nonvested shares	—		—			4			62
Diluted net income available to common stockholders	$	2,773	36,510	$	0.08	$	5,855		36,507	$	0.16

For the three months ended June 30, 2012 and 2011, weighted-average outstanding stock options totaling approximately 3.2 million and 1.8 million, respectively, were anti-dilutive and for the six months ended June 30, 2012 and 2011, weighted-average outstanding stock options totaling approximately 3.2 million and 2.2 million, respectively, were antidilutive, and therefore not included in the computation of diluted net income per share.

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NOTE 5: SHARE-BASED COMPENSATION

The fair value of the share-based awards is measured at grant date and the resulting compensation expense is recognized on a straight-line basis over the requisite service period. The following table presents share-based compensation expense, which is a non-cash charge, included in the below noted captions within the Condensed Consolidated Statements of Income:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011

Direct cost of services	$	33		$	29		$	121		$	126
General and administrative	1,516			1,651			3,282			3,391
Share-based compensation expense	1,549			1,680			3,403			$	3,517
Income tax benefit	(679		)	(727		)	(1,487		)	(1,523		)
Total share-based compensation expense, net of tax	$	870		$	953		$	1,916		$	1,994

The 2004 Equity Incentive Plan, as amended (the “2004 Plan”), limits the grant of options to acquire shares of common stock, stock appreciation rights, and restricted stock awards under the 2004 Plan to an aggregate of 7,500,000 shares. Any grant under the 2004 Plan that expires or terminates unexercised, becomes unexercisable, or is forfeited will be available for future grants. At June 30, 2012, there were approximately 348,000 shares of common stock available for future equity-related grants under the 2004 Plan.

During the six months ended June 30, 2012, we granted 430,000 nonvested share awards at a weighted-average grant date price of $11.85 per share. These awards vest 12 months after the date of grant upon achievement of a performance condition for the calendar year ending December 31, 2012. As of June 30, 2012 we have assessed the likelihood that the performance condition will be met and have recorded the related expense based on the estimated outcome. We also granted 110,000 stock options during the six months ended June 30, 2012, with a weighted-average exercise price of $11.55 per share, all of which vest 20% per year over five years.

We settle stock option exercises and nonvested share awards with newly issued common shares or treasury stock.

The fair value of each stock option grant was estimated at the date of grant using a Black-Scholes option pricing model. The following table presents the weighted-average assumptions used and the weighted-average fair value per option granted.

	Six months ended June 30,
	2012			2011
Expected life of stock option (years)	6.6			6.6
Expected volatility	37		%	30		%
Risk-free interest rate	1.3		%	2.5		%
Dividend yield	1.5		%	1.1		%
Weighted average grant-date fair value	$	3.73		$	4.49

As of June 30, 2012 there was $6.8 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested share-based awards, which will be recognized over a weighted-average period of 2.2 years.

NOTE 6: SEGMENT REPORTING

We have three reporting segments: eDiscovery, bankruptcy, and settlement administration. Our eDiscovery business provides collections and forensics, processing, search and review, and document review and staffing services to companies and the litigation departments of law firms. Produced documents are made available primarily through a hosted environment, and our DocuMatrix™ software allows for efficient attorney review and data requests. Our bankruptcy business provides solutions that address the needs of trustees to administer bankruptcy proceedings and of debtor corporations that file a plan of reorganization and provides software to monitor bankruptcy cases for creditors. Our settlement administration business provides managed services including legal notification, claims administration, project administration and controlled disbursement.

The segment performance measure is based on earnings before interest, taxes, depreciation and amortization, other operating expense, and share-based compensation expense. In management’s evaluation of performance, certain costs, such as

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compensation for administrative staff and executive management, are not allocated by segment and, accordingly, the following reporting segment results do not include such unallocated costs.

Assets reported within a segment are those assets that can be identified to a segment and primarily consist of trade receivables, property, equipment and leasehold improvements, software, identifiable intangible assets and goodwill. Cash, tax-related assets, and certain prepaid assets and other assets are not allocated to our segments. Although we can and do identify long-lived assets such as property, equipment and leasehold improvements, software, and identifiable intangible assets to reporting segments, we do not allocate the related depreciation and amortization to the segment as management evaluates segment performance exclusive of these non-cash charges.

Following is a summary of segment information for the three months ended June 30, 2012. The intersegment revenues in the three months ended June 30, 2012 related primarily to call center and legal notification services performed by the settlement administration segment for the bankruptcy segment.

	Three Months Ended June 30, 2012
	eDiscovery		Bankruptcy		Settlement Administration		Eliminations			Total
	(in thousands)
Revenue:
Operating revenue before reimbursed direct costs	$	42,711	$	21,466	$	25,660	$	—		$	89,837
Intersegment revenue	104		—		662		(766		)	—

Operating revenue before reimbursed direct costs	42,815		21,466		26,322		(766		)	89,837
Operating revenue from reimbursed direct costs	266		1,674		6,118		—			8,058
Total revenue	43,081		23,140		32,440		(766		)	97,895

Direct costs, general and administrative costs	27,059		12,696		27,407		(766		)	66,396
Segment performance measure	$	16,022	$	10,444	$	5,033	$	—		$	31,499

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Following is a summary of segment information for the three months ended June 30, 2011. The intersegment revenues in the three months ended June 30, 2011 related primarily to call center services performed by the settlement administration segment for the bankruptcy segment.

	Three Months Ended June 30, 2011
	eDiscovery		Bankruptcy		Settlement Administration		Eliminations			Total
	(in thousands)
Revenue:
Operating revenue before reimbursed direct costs	$	38,717	$	21,532	$	8,442	$	—		$	68,691
Intersegment revenue	3		—		370		(373		)	—

Operating revenue before reimbursed direct costs	38,720		21,532		8,812		(373		)	68,691
Operating revenue from reimbursed direct costs	131		1,167		3,965		—			5,263
Total revenue	38,851		22,699		12,777		(373		)	73,954

Direct costs, general and administrative costs	22,555		11,273		11,877		(373		)	45,332
Segment performance measure	$	16,296	$	11,426	$	900	$	—		$	28,622

Following is a reconciliation of our segment performance measure to income before income taxes.

	Three Months Ended June 30,
	2012			2011
	(in thousands)
Segment performance measure	$	31,499		$	28,622
Corporate and unallocated expenses	(9,010		)	(8,072		)
Share-based compensation expense	(1,549		)	(1,680		)
Depreciation and software and leasehold amortization	(6,523		)	(5,806		)
Amortization of intangible assets	(6,752		)	(6,195		)
Fair value adjustment to contingent consideration	5,471			2,775
Intangible asset impairment expense	(1,777		)	—
Other operating expense	54			(3,427		)
Interest expense, net	(2,712		)	(1,746		)
Income before income taxes	$	8,701		$	4,471

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Following is a summary of segment information for the six months ended June 30, 2012. The intersegment revenues in the six months ended June 30, 2012, related primarily to call center and legal notification services performed by the settlement administration segment for the bankruptcy segment.

	Six Months Ended June 30, 2012
	eDiscovery		Bankruptcy		Settlement Administration		Eliminations			Total
	(in thousands)
Revenue:
Operating revenue before reimbursed direct costs	$	91,559	$	45,695	$	35,410	$	—		$	172,664
Intersegment revenue	152		—		2,159		(2,311		)	—

Operating revenue before reimbursed direct costs	91,711		45,695		37,569		(2,311		)	172,664
Operating revenue from reimbursed direct costs	722		3,151		9,830		—			13,703
Total revenue	92,433		48,846		47,399		(2,311		)	186,367

Direct costs, general and administrative costs	58,818		26,677		39,872		(2,311		)	123,056
Segment performance measure	$	33,615	$	22,169	$	7,527	$	—		$	63,311

Following is a summary of segment information for the six months ended June 30, 2011. The intersegment revenues in the six months ended June 30, 2011, related primarily to call center and legal notification services performed by the settlement administration segment for the bankruptcy segment.

	Six Months Ended June 30, 2011
	eDiscovery		Bankruptcy		Settlement Administration		Eliminations			Total
	(in thousands)
Revenue:
Operating revenue before reimbursed direct costs	$	59,688	$	44,306	$	18,910	$	—		$	122,904
Intersegment revenue	8		—		906		(914		)	—

Operating revenue before reimbursed direct costs	59,696		44,306		19,816		(914		)	122,904
Operating revenue from reimbursed direct costs	211		2,154		8,307		—			10,672
Total revenue	59,907		46,460		28,123		(914		)	133,576

Direct costs, general and administrative costs	33,780		22,535		25,915		(914		)	81,316
Segment performance measure	$	26,127	$	23,925	$	2,208	$	—		$	52,260

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Following is a reconciliation of our segment performance measure to income before income taxes.

	Six Months Ended June 30,
	2012			2011
	(in thousands)
Segment performance measure	$	63,311		$	52,260
Corporate and unallocated expenses	(20,172		)	(14,275		)
Share-based compensation expense	(3,403		)	(3,517		)
Depreciation and software and leasehold amortization	(13,251		)	(11,013		)
Amortization of intangible assets	(13,521		)	(9,961		)
Fair value adjustment to contingent consideration	5,471			2,775
Intangible asset impairment expense	(1,777		)	—
Other operating expense	225			(3,910		)
Interest expense, net	(5,432		)	(2,551		)
Income before income taxes	$	11,451		$	9,808

Following are total assets by segment.

	June 30, 2012		December 31, 2011
	(in thousands)
Assets
eDiscovery	$	346,306	$	343,868
Bankruptcy	243,862		246,203
Settlement Administration	52,804		52,911
Corporate and unallocated	26,985		35,682
Total consolidated assets	$	669,957	$	678,664

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As of June 30, 2012 and December 31, 2011, our assets and liabilities that are measured and recorded at fair value on a recurring basis were as follows:

			Estimated Fair Value Measurements
Items Measured at Fair Value on a	Carrying		Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable Inputs
Recurring Basis	Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2012:
Assets:
Money market funds	$	34	$	34	$	—	$	—
Liabilities:
Contingent consideration (1)	$	11,522	$	—	$	—	$	11,522

December 31, 2011:
Assets:
Money market funds	$	34	$	34	$	—	$	—
Liabilities:
Contingent consideration (1)	$	16,226	$	—	$	—	$	16,226

(1) The contingent consideration represents the estimated fair value of the additional potential earn-out opportunity payable in connection with our acquisition of De Novo that is contingent upon future operating revenue growth. We estimated the fair value using management’s estimate of projected revenue over the earn-out period as well as the probability of earn-out achievement and applied a discount rate to the projected earn-out payments that approximated the weighted average cost of capital.

A hypothetical 1% decrease in the discount rate used in calculating the fair value of the De Novo contingent consideration would have resulted in approximately a $0.2 million increase in the fair value of the contingent consideration and a hypothetical 1% increase related to our revenue assumptions as they relate to the De Novo contingent consideration would have resulted in approximately a $0.2 million increase in the fair value of the contingent consideration.

As of June 30, 2012 and December 31, 2011, the carrying value of our trade accounts receivable, accounts payable, certain other liabilities, deferred acquisition price payments and capital leases approximated fair value. The amount outstanding under our credit facility at June 30, 2012 and December 31, 2011 was $212.0 million and $217.0 million, respectively, which approximated fair value due to the borrowing rates currently available to us for debt with similar terms and is classified as Level 2.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (in thousands)
	Contingent Consideration

Beginning balance December 31, 2011	$	16,226
Increase in fair value related to accretion	767
Decrease in fair value of contingent consideration obligation	(5,471		)
Ending balance June 30, 2012	$	11,522

The decrease in fair value of $5.5 million during the six months ended June 30, 2012, is attributable to the change in fair value of the contingent consideration for the De Novo acquisition which is reflected in “Fair value adjustment to contingent consideration” on the Condensed Consolidated Statements of Income. See Note 11 of our Notes to Condensed Consolidated Financial Statements for further detail related to the De Novo contingent consideration amounts.

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NOTE 8: SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows (in thousands):

	Six months ended June 30,
	2012		2011

Cash paid for:
Interest	$	3,243	$	1,293
Income taxes paid, net	3,709		2,675
Non-cash investing and financing transactions:
Property, equipment, and leasehold improvements accrued in accounts payable and other long-term liabilities	1,960		925
Capitalized lease obligations incurred	—		196
Dividends declared but not yet paid	2,342		1,239
Obligations incurred in acquisition	—		942

NOTE 9: EQUITY

Share Repurchase

On June 1, 2012, our board of directors (the “Board”) authorized the repurchase, on or prior to December 31, 2013, of up to an aggregate of $35.0 million of our outstanding shares of common stock (the “2012 Share Repurchase Program”). Repurchases may be made pursuant to the 2012 Share Repurchase Program from time to time at prevailing market prices in the open market, in block trades or in privately negotiated purchases, or any combination thereof. Epiq may utilize one or more plans with its brokers or banks for pre-authorized purchases within defined limits pursuant to applicable laws to effect all or a portion of the repurchases. The timing, manner, price and amount of any share repurchases under the 2012 Share Repurchase Program will be determined by the Company in its discretion and will be subject to market and economic conditions, prevailing stock prices, loan covenants, leverage objectives, applicable legal and regulatory requirements, and other factors. On June 1, 2012, the Board also approved the termination of our previous share repurchase program authorized by the Board in October 2010 (the “2010 Share Repurchase Program”). There were no share repurchases under the 2010 Share Repurchase Program during the second quarters of 2012 or 2011.

As of June 30, 2012, we had purchased 120,000 shares of common stock under the 2012 Share Repurchase Program for approximately $1.4 million, at an average cost of $12.04 per share. During the six months ended June 30, 2011, we purchased 745,414 shares of common stock under the 2010 Share Repurchase Program for approximately $10.0 million, at an average cost of $13.37 per share.

We also have a policy that requires shares to be repurchased by us to satisfy employee tax withholding obligations upon the vesting of restricted stock awards. During the three months ended June 30, 2012, we repurchased 14,325 shares for approximately $0.2 million from an employee which satisfied the employee’s tax withholding obligation. During the six months ended June 30, 2012, we repurchased 169,093 shares for approximately $2.0 million and during the six months ended June 30, 2011, we repurchased 66,290 shares for approximately $0.9 million to satisfy employee tax withholding obligations upon the vesting of restricted stock awards.

Dividend

On March 1, 2012, the Board declared a cash dividend of $0.05 per outstanding share of common stock, which was paid on May 18, 2012 to shareholders of record as of the close of business on April 16, 2012. On May 29, 2012, the Board declared a cash dividend of $0.065 per share of outstanding common stock, payable on August 17, 2012 to shareholders of record as of the close of business on July 16, 2012. Dividends payable of approximately $2.3 million is included as a component of “Other accrued liabilities” in the Condensed Consolidated Balance Sheets at June 30, 2012.

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NOTE 10: LEGAL PROCEEDINGS

Employee Arbitration

On January 18, 2012, hearings concluded in a consolidated arbitration proceeding commenced in 2009 before the American Arbitration Association in New York, New York, which was filed by four former employees of Epiq and its indirect, wholly owned subsidiary, Epiq eDiscovery Solutions, Inc. (“EDS”) alleging claims of wrongful employment termination. In April 2012, the parties completed post-trial briefing to the arbitration panel. In May 2012, the matter concluded and approximately $0.1 million was paid by the Company in June 2012 and is included in “Other operating (income) expense” on the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2012.

Purported Software License Complaint

On or about June 24, 2011, EDS filed a lawsuit against Sybase, Inc. (“Sybase”) and Does 1 to 50, et al. in the Superior Court of the State of California, Alameda County (the “Superior Court”), alleging breach of contract and requesting a declaratory judgment against Sybase. EDS’s complaint against Sybase relates to a dispute that has arisen under a software license agreement between EDS and Sybase (the “Agreement”) and encompasses a request by EDS for the Superior Court to issue an order: (a) declaring that EDS currently owes Sybase nothing under the Agreement, and (b) requiring Sybase to provide EDS with certain license keys to software licenses that EDS purchased from Sybase under the Agreement. On or about July 29, 2011, Sybase filed an answer to the complaint and a cross-complaint, which Sybase subsequently amended, against EDS and Does 51-60 relating to that same dispute and Agreement, alleging that, among other things, EDS owes Sybase additional amounts under the Agreement totaling at least $7.0 million, plus interest and costs of the lawsuit.

In June 2012, EDS and Sybase reached an agreement related to this matter pursuant to which the lawsuit will be dismissed with prejudice. EDS acquired certain perpetual software licenses valued at $2.6 million which will be paid in two installments. The first installment of $1.5 million was paid in June 2012 and the remainder will be paid in September 2012. EDS has capitalized the cost of the software licenses and is currently using the licensed software in its operations and plans to continue doing so for the foreseeable future. The cost of the licenses is recorded in the accompanying Condensed Consolidated Balance Sheets included in Property, Plant & Equipment and will be amortized over their remaining useful lives of three years.

NOTE 11: ACQUISITIONS

Encore Discovery Solutions

On April 4, 2011, we completed the acquisition of Encore Discovery Solutions (“Encore”) for approximately $104.3 million, $10.0 million of which was placed in escrow as security for potential indemnification claims. Encore provides products and services for electronic evidence processing, document review platforms, and professional services for project management, data collection and forensic consulting. With this transaction, we further strengthen our worldwide eDiscovery franchise providing corporate legal departments and law firms with a broad range of capabilities to manage electronic information for discovery, investigations, compliance and related legal matters. The transaction was funded from our credit facility.

The total purchase price transferred to effect the acquisition was as follows (in thousands):

	(in thousands)
Cash paid at closing	$	103,385
Other consideration	844
Working capital adjustment	98
Total purchase price	$	104,327

Transaction related costs, which were expensed during the period in which they were incurred, are reflected in “Other operating expense” in the Condensed Consolidated Statements of Income, and totaled $0.5 million and $3.7 million for the three and six months ended June 30, 2011, for this acquisition.

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Total purchase consideration has been allocated to the tangible and identifiable intangible assets and to liabilities assumed based on their respective fair values on the acquisition date. The purchase price allocations are summarized in the following table:

	(in thousands)
Tangible assets and liabilities
Current assets, including cash acquired	$	20,044
Non-current assets	2,669
Current liabilities	(6,646		)
Non-current liabilities	(15,115		)
Intangible assets	32,578
Software	2,498
Goodwill	68,299
Net assets acquired	$	104,327

Included in the total liabilities assumed is a net deferred tax liability balance of $16.0 million, primarily comprised of the difference between the assigned values of the intangible assets acquired and the tax basis of those assets.

Based on the results of an independent valuation, we allocated approximately $32.6 million of the purchase price to acquired intangible assets, and $2.5 million of the purchase price to software. The following table summarizes the major classes of acquired intangible assets and software, as well as the respective weighted-average amortization periods:

	Amount (in thousands)		Weighted Average Amortization Period (Years)
Identifiable Intangible Assets
Trade name	$	1,617	5.0
Non-compete agreement	1,362		2.0
Customer relationships	29,599		7.0
Total identifiable intangible assets	$	32,578

Software internally developed	$	2,498	5.0

The Encore transaction was structured as a stock purchase and therefore, the goodwill and acquired intangible assets are not amortizable for tax purposes.

The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value assigned to Encore, including the expected benefits from the synergies resulting from the transaction, as well as the knowledge and experience of the workforce in place.

De Novo Legal LLC

On December 28, 2011, we completed the acquisition of De Novo for approximately $86.6 million and $5.0 million is being held by us as security for potential indemnification claims. De Novo has document review centers in key strategic locations in the United States and is among the largest providers of managed review and staffing services and also offers clients eDiscovery processing and hosted review. This transaction augments our capacity for eDiscovery and document review services and broadens our eDiscovery customer base. The transaction was funded from our credit facility.

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The total purchase price transferred to effect the acquisition was as follows (in thousands):

	(in thousands)
Cash paid at closing	$	67,866
Fair value of deferred cash consideration at closing	4,417
Fair value of contingent consideration at closing	16,226
Working capital adjustment	(1,861		)
Total purchase price	$	86,648

In connection with this acquisition $5.0 million of the purchase price is being held by us and deferred for 18 months following the closing date of the acquisition as security for potential claims for indemnification. During the first quarter 2012, we adjusted the purchase price to reflect a reduction to this deferred cash consideration related to an uncollected account receivable indemnified by the sellers. This holdback has been discounted using a discount rate of 11%. At June 30, 2012, $4.5 million was recorded in “Current maturities of long-term obligations” and at December 31, 2011 $4.9 million was recorded in “Long-term obligations” on the Condensed Consolidated Balance Sheets related to this holdback. Also during the first quarter of 2012, we finalized the calculation of the working capital adjustment to the purchase price as reflected in the table above.

In connection with an earn-out related to substantial future revenue growth, we have recorded a liability related to potential contingent consideration. The undiscounted amount of all potential future payments under the earn-out opportunity is between $0 and $29.1 million over a two-year measurement period following the acquisition date. Approximately one-quarter of the De Novo earn-out opportunity is also contingent upon certain of the sellers remaining employees of Epiq. If those sellers do not remain employees of Epiq, the portion of the earn-out to which they were entitled is forfeited by them and will not be allocated to the remaining sellers. During the second quarter of 2012, the employment of a De Novo employee entitled to a portion of the earn-out ended. According to the purchase agreement with De Novo, a portion of the earn-out subject to continued employment for this employee was forfeited in its entirety.

The portion of the contingent consideration that is not tied to employment was considered to be part of the total consideration transferred for the purchase of De Novo and has been measured and recognized at fair value. As of June 30, 2012, $5.9 million is included in “Current maturities of long-term obligations “and $5.6 million is included in “Long-term Obligations” on the Condensed Consolidated Balance Sheet. As of December 31, 2011, $ 16.2 million was included in “Long-term Obligations” on the Condensed Consolidated Balance Sheet.

The portion of the contingent consideration that is tied to employment is being accounted for as compensation expense when incurred. As of June 30, 2012, $1.3 million of the estimate of future potential payouts has been accrued of which $0.9 million is included in “Other accrued liabilities” and $0.4 million is included in “Other long-term liabilities” on the Condensed Consolidated Balance Sheet. As of December 31, 2011, no amounts related to the acquisition-related compensation had been accrued for the period December 28, 2011 through December 31, 2011 as they were immaterial. Compensation expense related to this portion of the estimate of the earn-out is reflected in “General and administrative expense” on the Condensed Consolidated Statements of Income and included a credit of $0.4 million and expense of $1.3 million for the three and six months ended June 30, 2012, respectively.

The fair value of potential contingent consideration was determined using a present value calculation of the potential payouts based on projected revenue. Subsequent fair value changes, measured quarterly, up to the end of the final measurement period will be recognized in earnings. Based on the analysis performed as of June 30, 2012, determined through an analysis of the current projected revenue measure related to this potential contingent consideration, and including the impact of the forfeiture discussed above, a decrease in fair value of $5.5 million was recorded related to the acquisition-related obligation for the earn-out and this adjustment is included in “Fair value adjustment to contingent consideration” in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2012. Also, in conjunction with the quarterly fair value assessment of the compensation-related contingent consideration, approximately $1.7 million of previously accrued compensation expense was reversed during the quarter ended June 30, 2012 which is included in “General and administrative” expense on the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2012, respectively.

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The change in fair value of the De Novo earn-out also includes $0.4 million and $0.8 million of change in fair value accretion expense, which is included in “Interest expense” in the Condensed Consolidated Statement of Income for the three and six months ended June 30, 2012, respectively.

	(in thousands)
Tangible assets and liabilities
Current assets, including cash acquired	$	11,214
Non-current assets	2,738
Current liabilities	(2,361		)
Non-current liabilities	(500		)
Intangible assets	34,629
Goodwill	40,928
Net assets acquired	$	86,648

Based on the results of an independent valuation, we initially allocated approximately $34.4 million of the purchase price to acquired intangible assets. During the first quarter of 2012, based on new information obtained since December 31, 2011, related to the results of an independent valuation of the fair value of property, plant and equipment acquired in connection with the De Novo acquisition, we adjusted the preliminary purchase price allocation to reflect a $1.5 million reduction in property, plant and equipment along with a corresponding increase of $1.3 million to goodwill and a $0.2 million increase to the customer relationship intangible asset.

The following table summarizes the major classes of acquired intangible assets, as well as the respective weighted-average amortization periods:

	Amount (in thousands)		Weighted Average Amortization Period (Years)
Identifiable Intangible Assets
Trade name	$	850	5.0
Non-compete agreement	2,900		5.0
Customer relationships	30,879		8.0
Total identifiable intangible assets	$	34,629

The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value assigned to De Novo, including the expected benefits from the synergies resulting from the transaction, as well as the knowledge and experience of the workforce in place. The goodwill and intangible assets related to this acquisition are deductible for tax purposes.

The Condensed Consolidated Financial Statements include the operating results of De Novo from the date of acquisition.

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

Forward-Looking Statements

In this report, in other filings with the SEC and in press releases and other public statements by our officers throughout the year, Epiq Systems, Inc. makes or will make statements that plan for or anticipate the future. These forward-looking statements include , but are not limited to any projection or expectation of earnings, revenue or other financial items; the plans, strategies and objectives of management for future operations; factors that may affect our operating results; new products or services; the demand for our products and services; our ability to consummate acquisitions and successfully integrate them into our operations; future capital expenditures; effects of current or future economic conditions or performance; industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These forward-looking statements are based on our current expectations. In this Quarterly Report on Form 10-Q, we make statements that plan for or anticipate the future. Many of these statements are found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this report.

Forward-looking statements may be identified by words or phrases such as “believe,” “expect,” “anticipate,” “should,” “planned,” “may,” “estimated,” “goal,” “objective” “seeks,” and “potential” and variations of these words and similar expressions or negatives of these words. Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a “safe harbor” for forward-looking statements. Because forward-looking statements involve future risks and uncertainties, listed below are a variety of factors that could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. These factors include (1) any material changes in our total number of client engagements and the volume associated with each engagement, (2) any material changes in our clients’ deposit portfolio or the services required or selected by our clients in engagements, (3) material changes in the number of bankruptcy filings, class action filings or mass tort actions each year, or changes in government legislation or court rules affecting these filings, (4) overall strength and stability of general economic conditions, both in the United States and in the global markets, (5) significant changes in the competitive environment, (6) risks associated with handling of confidential data and compliance with information privacy laws, (7) changes in or the effects of pricing structures and arrangements, (8) risks associated with the integration of acquisitions into our existing business operations, (9) risks associated with indebtedness, (10) risks associated with foreign currency fluctuations, (11) risks associated with developing and providing software and internet-based technology solutions to our clients, (12) risks associated with interruptions or delays in services at data centers, (13) risks of errors or failures of software or services, (14) risks associated with our international operations, (15) risks of litigation against us, and (16) other risks detailed from time to time in our SEC filings, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. In addition, there may be other factors not included in our SEC filings that may cause actual results to differ materially from any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements contained herein to reflect future events or developments, except as required by law.

This discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and the accompanying Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Overview

We have three reporting segments: eDiscovery, bankruptcy, and settlement administration.

eDiscovery

Our eDiscovery segment provides collections and forensics, processing, search and review, and document review and staffing services to companies and the litigation departments of law firms. We process data which analyzes, filters, deduplicates and produces documents for review. Produced documents are made available primarily through a hosted environment, our proprietary software, DocuMatrix™, and third-party software which allows for efficient attorney review and data requests.

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Our customers are typically large corporations that use our products and services cooperatively with their legal counsel to manage the eDiscovery process for litigation, financial transactions, investigations and regulatory matters.

The substantial number of electronic documents and amount of other electronic data has changed the dynamics of how attorneys support discovery in complex matters. Due to the complexity of cases, the volume of data that are maintained electronically, and the volume of documents that are produced in all types of discovery matters, law firms have become increasingly reliant on electronic evidence management systems to organize and manage the discovery process.

Following is a description of the significant sources of revenue in our eDiscovery business.

· Consulting, forensics and collection service fees based on the number of hours during which services are provided.

· Fees related to the conversion of data into an organized, searchable electronic database. The amount earned varies primarily on the number of documents.

· Hosting fees based on the amount of data stored.

· Document review fees based on the number of hours spent reviewing documents, the number of pages reviewed, or the amount of data reviewed.

Our primary offices are in New York, Phoenix, London and Hong Kong and we operate data centers in the United States, Europe and Asia. IQ Review™ is our combination of intelligent technology and expert services which incorporates new prioritization technology into DocuMatrix™, our flagship document management platform. Epiq Portal™ is a web-based platform that provides clients real-time visibility into discovery projects with connectors to both our proprietary products and to third party tools. Key benefits include cost-based reporting and budgeting tools, activity tracking, trend analysis and a project management console.

On December 28, 2011, we acquired De Novo Legal LLC (“De Novo”) for approximately $86.6 million and $5.0 million is being held by us and deferred for eighteen months following the closing as security for potential indemnification claims. In addition to the net closing consideration, there is contingent consideration consisting of an earn-out based on future operating revenue growth. The potential undiscounted amount of all future payments that we could be required to make under the earn-out opportunity is between $0 and $29.1 million over a two-year period. The transaction was funded from our credit facility. See Note 11 of our Notes to Condensed Consolidated Financial Statements for further detail.

On April 4, 2011, we completed the acquisition of Encore Discovery Solutions (“Encore”) for $104.3 million cash, $10.0 million of which was placed in escrow as security for potential indemnification claims. Encore provides market-proven products and services for electronic evidence processing, document review platforms, and professional services for project management, data collection and forensic consulting. With this transaction, we further strengthened our worldwide e-discovery franchise providing corporate legal departments and law firms with a broad range of capabilities to manage electronic information for discovery, investigations, compliance and related legal matters.

Both the De Novo and the Encore acquisitions further augment and accelerate growth opportunities for our global eDiscovery business. Each of these companies has strong customer bases that expand our market share. By continuing the availability of both businesses’ products, services and technologies, we will continue to offer an industry leading combination of resources, experience and subject matter expertise.

Bankruptcy

Bankruptcy is an integral part of the United States’ economy. As of the most recently reported data by the Administrative Office of the U.S. Courts for the twelve-month period ended March 31, 2012 and 2011, there were approximately 1.37 million and 1.57 million new bankruptcy filings, respectively. Bankruptcy filings for the twelve-month period ended March 31, 2012 decreased 13% versus the twelve-month period ended March 31, 2011. During this period, Chapter 7 filings decreased 14%, Chapter 11 filings fell 13%, and Chapter 13 filings decreased 10%.

Our bankruptcy business provides solutions that address the needs of Chapter 7, Chapter 11, and Chapter 13 bankruptcy trustees to administer bankruptcy proceedings and of debtor corporations that file a plan of reorganization.

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· Chapter 7 is a liquidation bankruptcy for individuals or businesses that, as measured by the number of new cases filed in the twelve-month period ended March 31, 2012, accounted for approximately 70% of all bankruptcy filings. In a Chapter 7 case, the debtor’s assets are liquidated and the resulting cash proceeds are used by the Chapter 7 bankruptcy trustee to pay creditors. Chapter 7 cases typically last several years.

· Chapter 11 is a reorganization model of bankruptcy for corporations that, as measured by the number of new cases filed in the twelve-month period ended March 31, 2012, accounted for approximately 1% of all bankruptcy filings. Chapter 11 generally allows a company, often referred to as the debtor-in-possession, to continue operating under a plan of reorganization to restructure its business and to modify payment terms of both secured and unsecured obligations. Chapter 11 cases generally last several years.

· Chapter 13 is a reorganization model of bankruptcy for individuals that, as measured by the number of new cases filed in the twelve-month period ended March 31, 2012, accounted for approximately 29% of all bankruptcy filings. In a Chapter 13 case, debtors make periodic cash payments into a reorganization plan and a Chapter 13 bankruptcy trustee uses these cash payments to make monthly distributions to creditors. Chapter 13 cases typically last between three and five years.

Chapter 11 bankruptcy engagements are generally long-term, multi-year assignments that provide revenue visibility into future periods. Our trustee services deposit portfolio averaged approximately $2.0 billion during the six months ended June 30, 2012, while pricing continued at floor pricing levels under our agreements due to the low short-term interest rate environment.

The application of Chapter 7 bankruptcy regulations has the practical effect of discouraging trustee customers from incurring direct administrative costs for computer system expenses. As a result, we provide our Chapter 7 products and services to our trustee customers at no direct charge, and they maintain deposit accounts for bankruptcy cases under their administration at a designated banking institution. We have arrangements with various banks under which we provide the bankruptcy trustee case management software and related services, and the bank provides the bankruptcy trustee with deposit-related banking services.

The key participants in a bankruptcy proceeding include the debtor-in-possession, the debtor’s legal counsel, the creditors, the creditors’ legal counsel, and the bankruptcy judge. Chapter 7 and Chapter 13 cases also include a professional bankruptcy trustee, who is responsible for administering the bankruptcy case. The end-user customers of our Chapter 7, Chapter 11, and Chapter 13 bankruptcy businesses are debtor corporations that file a plan of reorganization and professional bankruptcy trustees. The Executive Office for United States Trustees, a division of the United States Department of Justice, appoints all bankruptcy trustees. A United States Trustee is appointed in most federal court districts and generally has responsibility for overseeing the integrity of the bankruptcy system. The bankruptcy trustee’s primary responsibilities include liquidating the debtor’s assets or collecting funds from the debtor, distributing the collected funds to creditors pursuant to the orders of the bankruptcy court and preparing regular status reports for the Executive Office for United States Trustees and for the bankruptcy court. Trustees manage an entire caseload of bankruptcy cases simultaneously.

Our proprietary software product, AACER® (Automated Access to Court Electronic Records) (“AACER®”), assists creditors including banks, mortgage processors, and their administrative services professionals to streamline processing of their portfolios of loans in bankruptcy cases. AACER® electronically monitors developments in all United States bankruptcy courts and applies sophisticated algorithms to classify docket filings automatically in each case to facilitate the management of large bankruptcy claims operations. By implementing AACER®, clients achieve greater accuracy in faster timeframes, with a significant cost savings compared to manual attorney review of each case in the portfolio. Banking PortalTM, a centralized hub for processing online banking transactions across Epiq’s family of Chapter 7 products, facilitates the rapid on boarding of new banks and provides ebanking capabilities.

Following is a description of the significant sources of revenue in our bankruptcy business.

· Data hosting fees and volume-based fees.

· Case management professional service fees and other support service fees related to the administration of cases, including data conversion, claims processing, claims reconciliation, professional services, and disbursement services.

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Results of Operations for the Three Months Ended June 30, 2012 Compared with the Three Months Ended June 30, 2011

The discussion that follows provides information which we believe is relevant to an understanding of our consolidated results of operations. Also see discussion of segment results in Results of Operations by Segment section below.

Consolidated Results

	Three Months Ended June 30,						$ Change Increase /
Amounts in thousands	2012			2011			(Decrease)			% Change
Operating revenue before reimbursed direct costs	$	89,837		$	68,691		$	21,146		31	%
Operating revenue from reimbursed direct costs	8,058			5,263			2,795			53	%
Total Revenue	97,895			73,954			23,941			32	%

Direct cost of services (exclusive of depreciation and amortization shown separately below)	40,254			22,072			18,182			82	%
Direct cost of bundled products and services (exclusive of depreciation and amortization shown separately below)	749			782			(33		)	-4	%
Reimbursed direct costs	7,720			5,152			2,568			50	%
General and administrative	28,232			27,078			1,154			4	%
Depreciation and software and leasehold amortization	6,523			5,806			717			12	%
Amortization of identifiable intangible assets	6,752			6,195			557			9	%
Fair value adjustment to contingent consideration	(5,471		)	(2,775		)	(2,696		)	N/M
Intangible asset impairment expense	1,777			—			1,777			N/M
Other operating (income) expense	(54		)	3,427			(3,481		)	-102	%
Total Operating Expense	86,482			67,737			18,745			28	%

Income From Operations	11,413			6,217			5,196			84	%

Interest Expense (Income)
Interest expense	2,713			1,757			956			54	%
Interest income	(1		)	(11		)	10			N/M
Net Interest Expense	2,712			1,746			966			55	%

Income Before Income Taxes	8,701			4,471			4,230			95	%

Provision for Income Taxes	3,544			1,698			1,846			N/M

Net Income	$	5,157		$	2,773		$	2,384		86	%

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Revenue

The increase in operating revenue exclusive of revenue originating from reimbursed direct costs was driven by a $4.0 million increase in the eDiscovery segment and a $17.2 million increase in the settlement administration segment from a large active engagement which was principally completed in the second quarter of 2012.

A portion of our total revenue consists of reimbursement for direct costs we incur, such as postage related to document management services. We reflect the operating revenue from these reimbursed direct costs as a separate line item on our accompanying Condensed Consolidated Statements of Income. Although operating revenue from reimbursed direct costs may fluctuate significantly from quarter to quarter, these fluctuations have a minimal effect on our income from operations as we realize little or no margin from this revenue.

Operating Expense

The increase in direct cost of services, exclusive of depreciation and amortization, was primarily the result of a $4.4 million increase in compensation related expense, primarily related to the De Novo acquisition, an $11.5 million increase related primarily to costs for legal notification and advertising services related to a large active engagement in the second quarter of 2012, a $0.9 million increase in software maintenance costs, and a $1.5 million increase related to outside services, offset by a $0.3 million decrease in general office expense and a $0.5 million decrease in third party material costs.

The decrease in direct cost of bundled products and services, exclusive of depreciation and amortization, was primarily related to a decrease in compensation expense.

The increase in reimbursed direct costs for the three months ended June 30, 2012 as compared to 2011 corresponds to the increase in operating revenue from reimbursed direct costs.

This increase in general and administrative costs was primarily due to an increase of $0.7 million in compensation and related expense which is primarily related to the De Novo acquisition, a $0.5 million increase in travel and related expense, a $0.7 million increase in legal expense during the three months ended June 30, 2012, and a $0.3 million increase in lease expense primarily related to the De Novo acquisition, offset by a $0.6 million decrease in maintenance service contracts and a $0.6 million decrease in professional services expense.

Depreciation and software and leasehold amortization costs increased primarily as a result of increased depreciation on equipment and software related to investments in our business segments and depreciation on the equipment acquired from the De Novo acquisition.

Amortization of identifiable intangible assets increased due the acquisition of intangible assets associated with the acquisition of De Novo in the fourth quarter of 2011.

The fair value adjustment to contingent consideration of $5.5 million of income during the three months ended June 30, 2012 resulted from a fair value adjustment to the contingent consideration related to the De Novo acquisition. The fair value adjustment to contingent consideration of $2.8 million of income during the three months ended June 30, 2011 resulted from a fair value adjustment to the contingent consideration related to the Jupiter eSources acquisition. See Notes 7 and 11 of our Notes to Condensed Consolidated Financial Statements for further detail.

Intangible asset impairment expense was $1.8 million for the three months ended June 30, 2012 related to an impairment of the AACER® trade name acquired as part of the Jupiter eSources acquisition in 2010. See Note 2 of our Notes to Condensed Consolidated Financial Statements for further detail.

Interest Expense, Net

The increase in net interest expense was primarily due to interest expense resulting from increased borrowings on our senior revolving loan to fund the Encore and De Novo acquisitions in April 2011 and December 2011, respectively, in addition to $0.6 million of accretion expense related to acquisition related obligations in connection with the De Novo acquisition.

Income Taxes

Our effective tax rate for the three months ended June 30, 2012 was 40.7% compared to 38.0% in the prior year. The year-over-year increased tax rate is primarily due to the change in expected mix of taxable income by jurisdictions.

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Results of Operations by Segment

The following segment discussion is presented on a basis consistent with our segment disclosure contained in Note 6 of our Notes to Condensed Consolidated Financial Statements. The table below presents operating revenue, direct and administrative costs (including reimbursed costs) and segment performance measure for each of our reportable segments and a reconciliation of the segment performance measure to consolidated income before income taxes.

	Three Months Ended June 30,						$ Change Increase /
Amounts in thousands	2012			2011			(Decrease)			% Change
Operating revenue before reimbursed direct costs
eDiscovery	$	42,711		$	38,717		$	3,994		10	%
Bankruptcy	21,466			21,532			(66		)
Settlement Administration	25,660			8,442			17,218			204	%
Total operating revenue before reimbursed direct costs	$	89,837		$	68,691		$	21,146		31	%

Operating revenue from reimbursed direct costs
eDiscovery	$	266		$	131		$	135		103	%
Bankruptcy	1,674			1,167			507			43	%
Settlement Administration	6,118			3,965			2,153			54	%
Total operating revenue before reimbursed direct costs	$	8,058		$	5,263		$	2,795		53	%

Direct costs, general and administrative costs
eDiscovery	$	27,059		$	22,555		$	4,504		20	%
Bankruptcy	12,696			11,273			1,423			13	%
Settlement Administration	27,407			11,877			15,530			N/M
Intercompany eliminations	(766		)	(373		)	(393		)	105	%
Total direct costs, general and administrative costs	$	66,396		$	45,332		$	21,064		46	%

Segment performance measure
eDiscovery	$	16,022		$	16,296		$	(274	)	-2	%
Bankruptcy	10,444			11,426			(982		)	-9	%
Settlement Administration	5,033			900			4,133			459	%
Total segment performance measure	$	31,499		$	28,622		$	2,877		10	%

Segment performance measure	$	31,499		$	28,622		$	2,877		10	%
Corporate and unallocated expenses	(9,010		)	(8,072		)	(938		)	12	%
Share-based compensation expense	(1,549		)	(1,680		)	131			-8	%
Depreciation and software and leasehold amortization	(6,523		)	(5,806		)	(717		)	12	%
Amortization of intangible assets	(6,752		)	(6,195		)	(557		)	9	%
Fair value adjustment to contingent consideration	5,471			2,775			2,696			N/M
Intangible asset impairment expense	(1,777		)	—			(1,777		)	N/M
Other operating expense	54			(3,427		)	3,481			N/M
Interest expense, net	(2,712		)	(1,746		)	(966		)	55	%
Income before income taxes	$	8,701		$	4,471		$	4,230		95	%

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Results of Operations for the Six Months Ended June 30, 2012 Compared with the Six Months Ended June 30, 2011

Consolidated Results

	Six Months Ended June 30,						$ Change Increase /
Amounts in thousands	2012			2011			(Decrease)			% Change
Operating revenue before reimbursed direct costs	$	172,664		$	122,904		$	49,760		40	%
Operating revenue from reimbursed direct costs	13,703			10,672			3,031			28	%
Total Revenue	186,367			133,576			52,791			40	%

Direct cost of services (exclusive of depreciation and amortization shown separately below)	71,575			40,638			30,937			76	%
Direct cost of bundled products and services (exclusive of depreciation and amortization shown separately below)	1,504			1,613			(109		)	-7	%
Reimbursed direct costs	13,288			10,489			2,799			27	%
General and administrative	60,264			46,368			13,896			30	%
Depreciation and software and leasehold amortization	13,251			11,013			2,238			20	%
Amortization of identifiable intangible assets	13,521			9,961			3,560			36	%
Fair value adjustment to contingent consideration	(5,471		)	(2,775		)	(2,696		)	N/M
Intangible asset impairment expense	1,777			—			1,777			N/M
Other operating (income) expense	(225		)	3,910			(4,135		)	N/M
Total Operating Expense	169,484			121,217			48,267			40	%

Income From Operations	16,883			12,359			4,524			37	%

Interest Expense (Income)
Interest expense	5,439			2,567			2,872			112	%
Interest income	(7		)	(16		)	9			N/M
Net Interest Expense	5,432			2,551			2,881			113	%

Income Before Income Taxes	11,451			9,808			1,643			17	%

Provision for Income Taxes	4,255			3,953			302			8	%

Net Income	$	7,196		$	5,855		$	1,341		23	%

Revenue

The increase in operating revenue exclusive of revenue originating from reimbursed direct was driven by a $31.9 million increase in the eDiscovery segment, a $1.4 million increase in the bankruptcy segment and a $16.5 million increase in the settlement administration segment related to a large active engagement which was principally completed in the second quarter of 2012.

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fluctuate significantly from quarter to quarter, these fluctuations have a minimal effect on our income from operations as we realize little or no margin from this revenue.

Operating Expense

The increase in direct cost of services, exclusive of depreciation and amortization, was primarily the result of an $16.5 million increase in compensation related expense primarily related to the Encore and De Novo acquisitions, an $11.0 million increase in costs related primarily to a large active engagement which increased legal notification and advertising services, a $1.2 million increase in outside services, a $0.7 million increase in third-party material costs, a $0.6 million increase in software maintenance costs and a $0.9 million increase in expense related to claims management under a services agreement, offset by a $0.8 million decrease in general office expense.

The increase in direct cost of bundled products and services, exclusive of depreciation and amortization, was primarily related to compensation expense primarily related to the Encore and De Novo acquisitions.

The increase in reimbursed direct costs for the three months ended June 30, 2012 as compared to 2011 corresponds to the increase in operating revenue from reimbursed direct costs.

This increase in general and administrative costs was primarily due to an increase of $9.4 million in compensation related expense which is primarily related to the Encore and De Novo acquisitions. In addition to the increase in compensation expense, a $1.4 million increase in travel and related expense, a $0.8 million increase in office and equipment lease expense , a $1.0 million increase in legal settlement expense, a $0.6 million increase in telephone and utilities expense and a $0.5 million increase in general office expense, substantially all of which are related to the Encore and De Novo acquisitions, also contributed to the increase in general and administrative costs in 2012.

Amortization of identifiable intangible assets increased due the acquisition of intangible assets associated with the acquisitions of Encore and De Novo in the second and fourth quarters of 2011, respectively.

The fair value adjustment to contingent consideration of income of $5.5 million during the six months ended June 30, 2012 resulted from a fair value adjustment to the contingent consideration related to the De Novo acquisition. The fair value adjustment to contingent consideration of income of $2.8 million during the six months ended June 30, 2011 resulted from a fair value adjustment to the contingent consideration related to the Jupiter eSources acquisition. See Notes 7 and 11 of our Notes to Condensed Consolidated Financial Statements for further detail.

Intangible asset impairment expense was $1.8 million for the six months ended June 30, 2012 related to an impairment of the AACER® trade name acquired as part of the Jupiter eSources acquisition in 2010. See Note 2 of our Notes to Condensed Consolidated Financial Statements for further detail.

Interest Expense, Net

The increase in net interest expense was primarily due to interest expense resulting from increased borrowings on our senior revolving loan to fund the Encore and De Novo acquisitions in April 2011 and December 2011, respectively, in addition to $1.3 million of accretion expense related primarily to acquisition related obligations in connection with the De Novo acquisition.

Income Taxes

Our effective tax rate for the six months ended June 30, 2012 was 37.2% compared to 40.3% in the prior year. The reduced tax rate is primarily due to agreements regarding our investment and employee incentive credit claims with New York State. In late January 2012, proceeds were received and as a result we recognized $0.5 million of unrecognized tax benefits, of which $0.3 million affected our effective tax rate as well as $0.1 million of interest income which also affected our tax rate. The proceeds reduced our year to date 2012 effective tax rate by approximately 3%.

In January 2012, we were notified that our 2009 United States federal income tax return will be examined by the Internal Revenue Service. At this time we have no reason to believe that an assessment, if any, will be material. On December 31, 2011, the federal research credit expired. Although extending the credit beyond 2011 has been introduced into legislation, it

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has not been passed by Congress or signed into law. If the credit is extended, this would decrease our effective tax rate in future tax periods.

Results of Operations by Segment

	Six Months Ended June 30,						$ Change Increase /
Amounts in thousands	2012			2011			(Decrease)			% Change
Operating revenue before reimbursed direct costs
eDiscovery	$	91,559		$	59,688		$	31,871		53	%
Bankruptcy	45,695			44,306			1,389			3	%
Settlement Administration	35,410			18,910			16,500			87	%
Total operating revenue before reimbursed direct costs	$	172,664		$	122,904		$	49,760		40	%

Operating revenue from reimbursed direct costs
eDiscovery	$	722		$	211		$	511		242	%
Bankruptcy	3,151			2,154			997			46	%
Settlement Administration	9,830			8,307			1,523			18	%
Total operating revenue before reimbursed direct costs	$	13,703		$	10,672		$	3,031		28	%

Direct costs, general and administrative costs
eDiscovery	$	58,818		$	33,780		$	25,038		74	%
Bankruptcy	26,677			22,535			4,142			18	%
Settlement Administration	39,872			25,915			13,957			54	%
Intercompany eliminations	(2,311		)	(914		)	(1,397		)	N/M
Total direct costs, general and administrative costs	$	123,056		$	81,316		$	41,740		51	%

Segment performance measure
eDiscovery	$	33,615		$	26,127		$	7,488		29	%
Bankruptcy	22,169			23,925			(1,756		)	-7	%
Settlement Administration	7,527			2,208			5,319			241	%
Total segment performance measure	$	63,311		$	52,260		$	11,051		21	%

Segment performance measure	$	63,311		$	52,260		$	11,051		21	%
Corporate and unallocated expenses	(20,172		)	(14,275		)	(5,897		)	41	%
Share-based compensation expense	(3,403		)	(3,517		)	114			-3	%
Depreciation and software and leasehold amortization	(13,251		)	(11,013		)	(2,238		)	20	%
Amortization of intangible assets	(13,521		)	(9,961		)	(3,560		)	36	%
Fair value adjustment to contingent consideration	5,471			2,775			2,696			N/M
Intangible asset impairment expense	(1,777		)	—			(1,777		)	N/M
Other operating expense	225			(3,910		)	4,135			N/M
Interest expense, net	(5,432		)	(2,551		)	(2,881		)	113	%
Income before income taxes	$	11,451		$	9,808		$	1,643		17	%

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eDiscovery Segment

eDiscovery segment operating revenue increased $31.9 million compared to the prior year period primarily from the impact of the Encore and De Novo acquisitions, as well as from organic growth.

eDiscovery direct and administrative costs, including reimbursed direct costs, increased primarily as a result of the Encore and De Novo acquisitions and the increase was driven by a $22.3 million increase in compensation and related expenses, a $1.0 million increase in maintenance service contracts, a $0.7 million increase in third-party material costs, and a $0.9 million increase in lease expense.

Bankruptcy Segment

The $1.4 million increase in Bankruptcy segment operating revenue before reimbursed direct costs for the six months ended June 30, 2012 was primarily attributable to a higher level of activity from existing corporate restructuring matters.

Bankruptcy direct and administrative costs, including reimbursed direct costs, increased primarily as a result of a $0.9 million increase in compensation related expenses, a $0.7 million increase in expenses related to claims management under a services agreement, a $0.7 million increase in outside services, a $0.9 million increase in reimbursed direct costs, and a $0.4 million increase in legal notification costs associated with the higher level of corporate restructuring activity related to Chapter 11 legal notification revenues.

Settlement Administration Segment

Settlement administration operating revenue before reimbursed direct costs increased $16.5 million compared to the prior year, primarily due to a large active engagement which was principally completed in the second quarter of 2012 that increased legal notification and advertising services as compared to the prior year.

Settlement administration direct and administrative costs increased primarily related to an increase in legal advertising costs of $10.5 million related primarily to a large active engagement which increased legal notification and advertising services, an increase of $1.3 million in reimbursed direct costs, a $0.7 million increase in compensation expense, and an increase of $1.5 million in outside services.

Liquidity and Capital Resources

Cash flows from operating activities

During the six months ended June 30, 2012, our operating activities provided net cash of $38.6million. Contributing to net cash provided by operating activities was net income of $7.2 million including $28.9 million of all non-cash expenses, other than the accretion of discount. Also contributing to cash provided by operating activities was a $1.2 million net source of cash resulting from changes in operating assets and liabilities, resulting primarily from a $6.1 million increase in accounts payable and other liabilities, a $3.9 million decrease in prepaid expenses and other assets offset by a $10.2 million increase in accounts receivable, primarily due to revenue growth. Trade accounts receivable will fluctuate from period to period depending on the timing of sales and collections. Accounts payable will fluctuate from period to period depending on timing of purchases and payments.

During the six months ended June 30, 2011, our operating activities provided net cash of $9.4 million. Contributing to net cash provided by operating activities for the six months ended June 30, 2011, were net income of $5.9 million including non-cash expenses, such as depreciation and amortization and share-based compensation expense, of $25.9 million. These items were partially offset by a $22.4 million net use of cash resulting from changes in operating assets and liabilities. The most significant changes in operating assets and liabilities were a $10.0 million decrease in accounts payable, and a $12.8 million decrease in trade accounts receivable.

Cash flows from investing activities

During the six months ended June 30, 2012 and 2011, we used cash of $8.3 million and $7.4 million, respectively, for the purchase of property and equipment, including computer hardware and purchased software licenses primarily for our eDiscovery business and purchased computer hardware primarily for our corporate network infrastructure. Enhancements to

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our existing software and the development of new software is essential to our continued growth, and, during the six months ended June 30, 2012 and 2011, we used cash of $3.3 million and $3.2 million, respectively, to fund internal costs related to the development of software. We also paid $8.4 million during the six months ended June 30, 2012 related to deferred acquisition consideration related to the Jupiter eSources acquisition on October 1, 2010. We believe that cash generated from operations will be adequate to fund our anticipated property, equipment, and software spending over the next year. During the six months ended June 30, 2011, we completed the acquisition of Encore with a cash purchase price of $99.2 million funded from our senior revolving loan.

Cash flows from financing activities

During the six months ended June 30, 2012, we borrowed $37.0 million and repaid $42.0 million under our senior revolving loan for a net reduction of outstanding borrowings of $5.0 million along with $3.0 million of principal payments related to other debt. In addition, we paid $3.6 million in dividends and used $3.5 million to repurchase shares under our share repurchase program in addition to shares required to satisfy employee tax withholding obligations upon the vesting of restricted stock awards. See Notes 3 and 9 to our Condensed Consolidated Financial Statements for further detail.

During the six months ended June 30, 2011, we borrowed $139.0 million under our senior revolving loan primarily to fund the acquisition of Encore in April 2011, and had net proceeds from stock issued in connection with the exercise of employee stock options of $2.3 million. This cash provided by financing activities was offset by the use of cash of $26.0 million for payments on our senior revolving loan, $10.9 million for common stock repurchases under our Share Repurchase Program (see Note 9 to Condensed Consolidated Financial Statements for further detail). We also used cash of $1.1 million for the payment of long-term obligations, including capital lease payments, $1.9 million for debt issuance costs, and $2.5 million for dividends paid on our common shares.

Financing activities

Revolving Credit Agreement: We have a senior credit facility which provides for a senior revolving loan with an aggregate amount of funds available of $325.0 million with a maturity date of December 2015. We have the right, subject to compliance with the covenants as set forth in the credit facility agreement, to increase the borrowings to a maximum of $375.0 million. The credit facility is secured by liens on our land and buildings and substantially all of our personal property.

Borrowings under the senior revolving loan bear interest at various rates based on our leverage ratio with two rate options at the discretion of management as follows: (1) for base rate advances, borrowings bear interest at prime rate plus 75 to 175 basis points; and (2) for LIBOR rate advances, borrowings bear interest at LIBOR rate plus 175 to 275 basis points. At June 30, 2012, borrowings of $212.0 million under this facility had a weighted average interest rate of 3.1%. The average amount of borrowings under this facility in the second quarter of 2012 was $219.3 million, at a weighted average interest rate of 3.0%. The maximum month-end amount outstanding during the second quarter of 2012 was $227.0 million. At June 30, 2012, the amount available for borrowings under the credit facility under the most restrictive debt covenant was $36.0 million.

The financial covenants contained in the credit facility include a total debt leverage ratio and a fixed charge coverage ratio (all as defined in our credit facility agreement). The leverage ratio is not permitted to exceed 3.00 to 1.00 and the fixed charge coverage ratio is not permitted to be less than 1.25 to 1.00. As of June 30, 2012 we were in compliance with all financial covenants.

Other restrictive covenants contained in our credit facility include limitations on incurring additional indebtedness and completing acquisitions. We generally cannot incur indebtedness outside of the credit facility, with the exception of capital leases, up to $15.0 million, and subordinated debt, up to $100 million. In addition, for acquisitions we must be able to demonstrate that, on a pro forma basis, we would be in compliance with our covenants during the four quarters prior to the acquisition, and bank permission must be obtained for acquisitions in which cash consideration exceeds $125.0 million or total consideration exceeds $175.0 million. The total consideration for all acquisitions consummated during the term of our credit facility may not exceed $300.0 million in the aggregate without lender permission.

On April 4, 2011, we completed the acquisition of Encore for $99.2 million cash, which was funded from our credit facility. On December 28, 2011, we completed the acquisition of De Novo for $67.9 million cash, which was also funded from our credit facility. See Note 11 of our Notes to Condensed Consolidated Financial Statements for further detail.

Share Repurchase Program: See Note 9 of our Notes to Condensed Consolidated Financial Statements for detail.

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Dividend: See Note 9 of our Notes to Condensed Consolidated Financial Statements for detail.

We believe that funds generated from operations, plus our existing cash resources and amounts available under our credit facility, will be sufficient to meet our currently anticipated working capital requirements, internal software development expenditures, property, equipment and third party software expenditures, deferred acquisition price agreements, capital leases, interest payments due on our outstanding borrowings, and other contractual obligations.

In addition, we believe we could fund any future acquisitions, dividend payments, or common stock repurchases with our internally available cash, cash generated from operations, our existing available debt capacity, or from the issuance of additional securities.

Foreign Cash

As of June 30, 2012 and December 31, 2011, our foreign subsidiaries had $4.0 million and $2.4 million, respectively, in cash located in financial institutions located outside of the United States. All of this cash represents undistributed earnings of our foreign subsidiaries which are indefinitely reinvested. In the event of a distribution to the United States, those earnings could be subject to United States federal and state income taxes, net of foreign tax credits.

Off-balance Sheet Arrangements

We generally do not utilize off-balance sheet arrangements in our operations; however, we enter into operating leases in the normal course of business. Our operating lease obligations are disclosed below under “Contractual Obligations”.

Contractual Obligations

There have been no significant developments with respect to our contractual obligations since December 31, 2011.

Critical Accounting Policies

In our Annual Report on Form 10-K for the year ended December 31, 2011 that was filed with the SEC on March 1, 2012, we disclose accounting policies, referred to as critical accounting policies, that require management to use significant judgment or that require significant estimates. Management regularly reviews the selection and application of our critical accounting policies. There have been no updates to the critical accounting policies contained in our Annual Report on Form 10-K for the year ended December 31, 2011.

Recently Adopted Accounting Pronouncements

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interim and annual periods beginning January 1, 2012. The adoption of this guidance did not have a material effect on our consolidated financial position, results of operations or cash flows.

In September 2011, the FASB issued guidance which amends the existing standards related to annual and interim goodwill impairment tests. Current guidance requires companies to test goodwill for impairment, at least annually, using a two-step process. The updated guidance provides companies with the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this option, companies are no longer required to calculate the fair value of a reporting unit unless they determine, based on that qualitative assessment, that it is more likely than not that the reporting unit’s fair value is less than its carrying amount. The new guidance includes examples of the types of events and circumstances to consider in conducting the qualitative assessment. The amendments will be effective for us beginning with our annual goodwill impairment test in 2012. We do not expect this new guidance to have a material effect on our consolidated financial position, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The principal market risks to which we are exposed include interest rates under our senior revolving credit facility, foreign exchange rates giving rise to translation, and fluctuations in short-term interest rates on a portion of our bankruptcy trustee revenue.

Interest Rate Risk

Interest on our senior revolving credit facility is generally based on a spread, not to exceed 275 basis points over the LIBOR rate. As of June 30, 2012, we had borrowed $212.0 million under the senior revolving loan.

We performed a sensitivity analysis assuming a hypothetical 100 basis point movement in interest rates applied to the average daily borrowings of the senior revolving loan. As of June 30, 2012, the analysis indicated that such a movement would have increased our interest expense by approximately $1.0 million for the six months ended June 30, 2012.

In our Chapter 7 bankruptcy business we earn deposit-based fees. These fees are earned primarily on a percentage of Chapter 7 total liquidated assets placed on deposit with a designated financial institution by our trustee clients. The fees we earn based on total liquidated assets placed on deposit by our trustee clients may vary based on fluctuations in short-term interest rates. Based on sensitivity analysis we performed for the six months ended June 30, 2012, a hypothetical 1% movement in interest rates would not have had a material effect on our consolidated financial position, results from operations or cash flows.

We currently do not hold any interest rate floor options or other derivatives.

Foreign Currency Risk

We have operations outside of the United States, therefore, a portion of our revenues and expenses are incurred in a currency other than United States Dollars. We do not utilize hedge instruments to manage the exposures associated with fluctuating currency exchange rates. Our operating results are exposed to changes in exchange rates between the United States Dollar and the functional currency of the countries where we have operations. When the United States Dollar weakens against foreign currencies, the United States Dollar value of revenues and expenses denominated in foreign currencies increases. When the United States Dollar strengthens, the opposite situation occurs.

We performed a sensitivity analysis assuming a hypothetical 1% increase in foreign exchange rates applied to our historical first six months of 2012 results of operations. For the six months ended June 30, 2012, the analysis indicated that such a movement would not have had a material effect on our total revenues, operating income or net income.

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Item 4. Controls and Procedures

An evaluation was carried out by Epiq Systems, Inc.’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operations of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on this evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

During the second quarter of 2011 we initiated a company-wide implementation of SAP, which provides certain enhancements, efficiencies, and increased security features to the financial reporting process and surrounding internal controls. As of the end of the second quarter of 2012, the majority of our business units were using the new system, with remaining business units planned to move to SAP during the remainder of 2012. We reviewed affected internal controls as part of this implementation, and made changes where appropriate. There have been no other changes in our internal control over financial reporting during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION.

Item 1. Legal Proceedings

Employee Arbitration

Purported Software License Complaint

Item 1A. Risk Factors

There have been no material changes in our Risk Factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011 that was filed with the SEC on March 1, 2012.

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

The following table presents the total number of shares purchased during the quarter ended June 30, 2012, the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase program, and the maximum number (or approximate dollar value) of shares that may yet be purchased under a share repurchase program.

We have a share repurchase program that authorizes us to purchase shares of common stock in order to increase shareholder value. We also have a policy that requires shares to be repurchased by us to satisfy employee tax withholding obligations upon the vesting of restricted stock awards. During the three months ended June 30, 2012, we repurchased 14,325 shares for approximately $0.2 million from an employee upon a stock option exercise which satisfied the employee’s tax withholding obligation. During the six months ended June 30, 2012, we repurchased 169,093 shares for approximately $2.0 million to satisfy employee tax withholding obligations upon the vesting of restricted stock awards.

Period	Total Number of Shares Purchased	Average Price Paid per Share(2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(1)(2)

April 1 — April 30	—	—		—	$	12,137,000
May 1 — May 31				—	$	12,137,000
June 1 — June 30	120,000	$	12.04	120,000	$	33,555,000

Total Activity for the Quarter Ended June 30, 2012	120,000	$	12.04	120,000	$	33,555,000

(1) On October 26, 2010, we announced that our board of directors authorized $35.0 million for share repurchases (the “2010 Share Repurchase Program”). the 2010 program had no stated expiration date. We did not repurchase any shares under this program during the six months ended June 30, 2012. On June 1, 2012 we announced that our board of directors terminated the 2010 Share Repurchase Program and authorized the repurchase, on or prior to December 31, 2013, of our outstanding shares of common stock up to an aggregate of $35.0 million (the “2012 Share Repurchase Program”). During the six months ended June 30, 2012 we repurchased 120,000 shares for $1.4 million.

(2) Includes brokerage commissions paid by the company.

	Three Months Ended June 30, 2011		Six Months Ended June 30, 2011
Total revenue	$	88,352	$	173,189
Operating revenue	83,089		162,517
Net income	7,050		15,103

		Epiq Systems, Inc.

Date:	July 31, 2012	/s/ Tom W. Olofson
		Tom W. Olofson
		Chairman of the Board
		Chief Executive Officer
		Director
		(Principal Executive Officer)


Date:	July 31, 2012	/s/ Elizabeth M. Braham
		Elizabeth M. Braham
		Executive Vice President Operations, Chief Financial Officer
		(Principal Financial & Accounting Officer)

			Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income —
	Three and Six months ended June 30, 2012 and 2011 (Unaudited)		2

	Condensed Consolidated Statements of Comprehensive Income —
	Three and Six months ended June 30, 2012 and 2011 (Unaudited)		3

	Condensed Consolidated Balance Sheets —
	June 30, 2012 and December 31, 2011 (Unaudited)		4

	Condensed Consolidated Statements of Changes in Equity—
	Six months ended June 30, 2012 and 2011 (Unaudited)		5

	Condensed Consolidated Statements of Cash Flows —
	Six months ended June 30, 2012 and 2011 (Unaudited)		6

	Notes to Condensed Consolidated Financial Statements (Unaudited)		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		43

Item 4.	Controls and Procedures		44

PART II - OTHER INFORMATION

Item 1.		Legal Proceedings	44

Item 1A.		Risk Factors	44

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 6.		Exhibits	46

Signatures			47