**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC  20549**

**FORM 10-K**

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

**for the fiscal year endedJune 30, 2007**

**OR**

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

**for the transition period from                        to                     .**

**COMMISSION FILE NUMBER:  001-33461**

**Solera Holdings, Inc.**

(Exact name of registrantas specified in its charter)

| **DELAWARE**                                                                |       | **20-4552341**                                                   |
|-----------------------------------------------------------------------------|------------|------------------------------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)            |       | (I.R.S. Employer  Identification No.)                            |
| **6111 Bollinger Canyon Road, Suite 200  San Ramon, California 94583** | ** ** | **(925) 866-1100**                                               |
| (Address of  Principal Executive Offices,   including Zip Code)             |       | (Registrant’s  Telephone Number,  Including Area Code) |

 

Securitiesregistered pursuant to Section 12(b) of the Act:

| **Title of each class**                  |   | **Name of  exchange on which registered** |
|------------------------------------------|--------|-------------------------------------------|
| Common Stock, par  value $0.01 per share |   | The New York Stock  Exchange              |

 

Securities registered pursuant toSection 12(g) of the Act: None.

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o  No x

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 orSection 15(d) of the Act. Yes o  No x

Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that it 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 if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of the Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. x

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

| Large accelerated filer o | Accelerated filer o | Non-accelerated  filer x |
|--------------------------------|--------------------------|-------------------------------|

 

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

The registrant consummated its initial public offeringon May 16, 2007. Accordingly, as of December 31, 2006, the last dayof the registrant’s most recently completed second fiscal quarter, theregistrant’s common stock was not publicly traded. As of September 14,2007, the aggregate market value of the registrant’s common stock, par value$0.01 per share, held by non-affiliates of the registrant was approximately $535.2 million (based upon theclosing sale price of the common stock on that date on The New York StockExchange). For this purpose, all shares held by directors, executive officersand stockholders beneficially owning five percent or more of the registrant’scommon stock have been treated as held by affiliates.

The number of shares of theregistrant’s common stock outstanding as of as of September 14, 2007 was 64,793,563.

 

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**TABLEOF CONTENTS**

| PART I   |   | 1                                                                                                         |                      |
|---------------|--------|-----------------------------------------------------------------------------------------------------------|---------------------------|
| Item 1.  |   | Business                                                                                                  |                      | 1 |   |
|          |   | Item 1A.                                                                                             | Risk  Factors             |   | 12 |   |
|          |   | Item 1B.                                                                                             | Unresolved Staff Comments |   | 23 |   |
| Item 2.  |   | Properties                                                                                                |                      | 23 |   |
| Item 3.  |   | Legal  Proceedings                                                                                        |                      | 24 |   |
| Item 4.  |   | Submission of Matters to a Vote of Security Holders                                                       |                      | 24 |   |
| PART II  |   | 25                                                                                                        |                      |
| Item 5.  |   | Market for Common Stock, Related Stockholder Matters  and Issuer Purchases of Equity Securities           |                      | 25 |   |
| Item 6.  |   | Selected Financial Data                                                                                   |                      | 27 |   |
| Item 7.  |   | Management’s Discussion & Analysis of  Financial Condition & Results of Operations |                      | 29 |   |
| Item 7A. |   | Quantitative and Qualitative Disclosures about Market  Risk                                               |                      | 47 |   |
| Item 8.  |   | Consolidated Financial Statements and Supplementary  Data                                                 |                      | 48 |   |
| Item 9.  |   | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                     |                      | 48 |   |
|          |   | Item 9A.                                                                                             | Controls and Procedures   |   | 48 |   |
|          |   | Item 9B.                                                                                             | Other  Information        |   | 48 |   |
| PART III |   | 49                                                                                                        |                      |
| Item 10. |   | Directors, Executive Officers and Corporate Governance                                                    |                      | 49 |   |
| Item 11. |   | Executive Compensation                                                                                    |                      | 52 |   |
| Item 12. |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters           |                      | 67 |   |
| Item 13. |   | Certain Relationships and Related Transactions, and  Director Independence                                |                      | 70 |   |
| Item 14. |   | Principal Accounting Fees and Services                                                                    |                      | 76 |   |
| PART IV  |   | 77                                                                                                        |                      |
| Item 15. |   | Exhibits and Financial Statement Schedules                                                                |                      | 77 |   |
| EXHIBIT INDEX |   | 135                                                                                                       |                      |

 

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**PART I**

**ITEM 1.**                BUSINESS

**General**

Our operations began in 1966, when Swiss ReCorporation founded our predecessor. Solera Holdings, LLC was founded in March 2005by Tony Aquila, our Chief Executive Officer, and affiliates of GTCR GolderRauner II, L.L.C., or GTCR, a private equity firm. On April 13, 2006,subsidiaries of Solera Holdings, LLC acquired our predecessor, the ClaimsServices Group, from Automatic Data Processing, Inc., or ADP, forapproximately $1.0 billion. We refer to this acquisition in this AnnualReport on Form 10-K as the Acquisition. In connection with ourinitial public offering in May 2007, we converted from Solera Holdings,LLC, a Delaware limited liability company, into Solera Holdings, Inc., aDelaware corporation.

Theterms “we,” “us,” “our,” “our company” and “our business” collectively referto: (1) the combined operations of the Claims Services Group for periodsprior to the Acquisition, (2) the consolidated operations of SoleraHoldings, LLC for the periods following the Acquisition and prior to thecompletion of its corporate reorganization in May 2007 and (3) theconsolidated operations of Solera Holdings, Inc. as of and following thecorporate reorganization in May 2007. Our fiscal year ends on June 30of each year. Fiscal years are identified in this Annual Report on Form 10-Kaccording to the calendar year in which they end. For example, the fiscal yearended June 30, 2007 is referred to as “fiscal 2007.” Our financialinformation disclosed in this Annual Report on Form 10-K under Item1 (Business) and Item 7 (Management’s Discussion and Analysis of FinancialCondition and Results of Operations) is based on the following:

| Period                                                                                                      | ** ** | ** **                                                                                                                                                                                                                                                                                | ** ** | **Accounting Basis** | ** ** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------|
| Fiscal year ended  June 30, 2007, or fiscal 2007                                                       |       | Audited historical  consolidated financial statements of Solera Holdings, Inc.                                                                                                                                                                                                       |
| Fiscal year ended  June 30, 2006 (Acquisition pro forma), or fiscal 2006 (Acquisition  pro forma) |       | Unaudited pro  forma statement of operations prepared on the basis of the requirements set  forth in Article 11 of Regulation S-X promulgated under the  Securities Act of 1933, as amended, giving effect to the Acquisition as if it  had been completed on July 1, 2005 |
| Fiscal year ended  June 30, 2005 (Predecessor), or fiscal 2005 (Predecessor)                           |       | Audited historical  combined financial statements of the Claims Services Group                                                                                                                                                                                                            |

 

**Our Company**

We are the leadingglobal provider of software and services to the automobile insurance claimsprocessing industry. Our customers include insurance companies, collisionrepair facilities, independent assessors and automotive recyclers. We help ourcustomers:

·       estimatethe costs to repair damaged vehicles;

·       determinepre-collision fair market values for vehicles damaged beyond repair;

·       automatesteps of the claims process;

**·****     **outsourcesteps of the claims process that insurance companies have historicallyperformed internally; and

·       improvetheir ability to monitor and manage their businesses through data reporting andanalysis.

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As of June 30, 2007,we served more than 55,000 customers and had operations in 49 countries with over 2,000 full-time employees. Ourcustomers include more than 900 automobile insurance companies, 33,000collision repair facilities, 7,000 independent assessors and 3,000 automotiverecyclers. We derive revenues from many of the world’s largest automobileinsurance companies, including each of the ten largest automobile insurancecompanies in Europe and each of the ten largest automobile insurance companiesin North America.

**The AutomobileInsurance Claims Process**

Anoverview of the automobile insurance claims process and its complexitiesprovides a framework for understanding how our customers can derive value fromour software and services. The automobile insurance claims process generallybegins following an automobile collision and consists of the following steps:

| **First Notice of  Loss** |                                                                                                                                                                       | ·  The policyholder initiates the claim process  with the insurance company.                                                 |
|---------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|
|                      | ·  The insurance company assigns the claim to  an assessor and/or a collision repair facility.                                                                   |
| **Investigation**         |                                                                                                                                                                       | ·  The assessor conducts interviews, examines  photos and reviews police reports.                                            |
|                      | ·  The insurance company, assessor or collision  repair facility estimates the cost to repair the vehicle.                                                       |
|                      | ·  In the case of a heavily damaged vehicle,  the assessor or collision repair facility may request a pre-accident  vehicle valuation.                           |
| **Evaluation**            |                                                                                                                                                                       | ·  The insurance company reviews the estimate  and/or pre-accident valuation and confirms the results of the  investigation. |
|                      | ·  The insurance company may request additional  information and/or require follow-up investigation.                                                             |
| **Decision**              |                                                                                                                                                                       | ·  The insurance company determines whether the  vehicle should be repaired or declared a total loss.                        |
|                      | ·  Based on its evaluation, the insurance  company determines who is liable for the claim and the repair or total loss  amount it intends to pay.                |
| **Settlement**            |                                                                                                                                                                       | ·  The insurance company notifies the  policyholder or the collision repair facility of the amount it intends to  pay.       |
|                      | ·  The policyholder or collision repair  facility may negotiate the final payment amount with the insurance company.                                             |
| **Vehicle Repair**        |                                                                                                                                                                       | ·  The collision repair facility repairs the  vehicle if it is not a total loss.                                             |
|                      | ·  The collision repair facility purchases  replacement parts from original equipment manufacturers, or OEMs, aftermarket  parts makers or automotive recyclers. |
|                      | ·  Further revisions to the claim payment  amount may occur if additional damage or cost savings are identified.                                                 |
| **Payment**               |                                                                                                                                                                       | ·  The insurance company pays the policyholder  or the collision repair facility.                                            |

 

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Each of these stepsconsists of multiple actions requiring significant and complex interactionamong several parties. For example, the investigation step generally involvesinsurance companies, assessors, collision repair facilities and automotiverecyclers and includes conducting interviews, taking and examining photographs,obtaining and reviewing police reports and estimating repair costs. Whenperformed manually, many of these tasks, such as the mailing of vehiclephotographs or the estimating of vehicle repair costs, can be time-consuming.In addition, without an efficient means of communication that facilitates real-timeaccess to data, claim-related negotiations can result in substantialdelays and unnecessary costs.

**The AutomobileInsurance Claims Processing Industry**

The primary participantsin the automobile insurance claims processing industry are automobile insurancecompanies, collision repair facilities, independent assessors and automotiverecyclers. We believe that our business is affected by trends associated witheach of the following:

***Automobile Insurance Industry***

We estimate that the global automobile insuranceindustry processes more than 100 million claims each year, representingover $150 billion in repair costs. We believe the industry is relativelyconcentrated with a number of large automobile insurance companies accountingfor the majority of global automobile insurance premiums. In the U.S., of theapproximately 470 companies offering automobile insurance, the twenty largestproviders accounted for over 70% of all automobile insurance premiums in 2006,2005, and in 2004, the top 15 European non-life insurance companies accountedfor 84% of total non-life insurance premiums.

We believe that this industry is growing due to anincreasing number of vehicles on the road and an increasing percentage ofvehicles that have insurance. According to industry sources, from 2003 to 2006,the worldwide number of personal and commercial vehicles grew an average of3.5% per year, to an estimated 928 million vehicles in 2006. From 2006 to2016, the number of worldwide personal and commercial vehicles is estimated togrow 2% to 3% per year, with forecasted annual growth of 8% in Asia-Pacificcountries.

In some insurance markets, such as North America andWestern Europe, automobile insurance is generally government-mandated andautomated claims processing is widespread. Automobile insurance companiesachieve growth in these highly competitive markets by gaining additional marketshare, and generally compete on price and quality of policyholder service. Toremain competitive, insurance companies increasingly seek additional automatedclaims processing products and services to minimize costs and improvepolicyholder service.

In other markets, such as Eastern Europe, LatinAmerica, China and India, automobile insurance companies are growing dueprimarily to an increase in the number of vehicles and emerging governmentregulations that require vehicles to be insured. Many automobile insurancecompanies in these markets process claims manually, presenting significant opportunitiesfor them to increase their operational efficiencies.

The cost of automatedclaims processing software and services generally represents a relatively smallportion of automobile insurance companies’ claims costs. We believe automobileinsurance companies will increase their spending on automated claims processingsoftware and services because incremental investments can result in significantcost reductions.

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***Collision Repair Industry***

The collision repairindustry is highly fragmented. We estimate there are approximately 100,000collision repair facilities in our markets. The operating costs of thesefacilities have increased substantially over the past decade due to continuedincreases in vehicle diagnostic and repair technologies and changes in environmentalregulations. In addition, collision repair facilities have increasinglyestablished preferred relationships with insurance companies. Thesearrangements, known in the U.S. as direct repair programs, allow collisionrepair facilities to generate increased repair volumes through insurancecompany referrals. Insurance companies benefit by establishing a trustednetwork of collision repair facilities across which they can implement standardprocedures and best practices. Insurance companies often require collisionrepair facilities to use specified automated claims processing software andrelated services to participate in their programs. We believe the combinationof these factors will increase demand for our software and services that helpcollision repair facilities manage their workflow and increase theirefficiency.

***Independent Assessors***

Independent assessors are often used to estimatevehicle repair costs, particularly where automobile insurance companies havechosen not to employ their own assessors or do not have a sufficient number ofemployee assessors and where governments mandate the use of independentassessors.

In some markets, webelieve changing government regulations and improved claims technology willresult in a decrease in the number of independent assessors. However, in othermarkets, insurance companies are reducing their employee assessor staff tocontain costs, which we believe will lead to a growth in the number ofindependent assessors. We believe the combination of these offsetting factorswill result in a modest overall increase in the number of independent assessorsand, therefore, the demand for automobile insurance claims processing softwareand services.

***Automotive Recycling Industry***

The automotive recyclingindustry is highly fragmented with over $25 billion in estimated worldwideannual sales by over 15,000 independent salvage and recycling facilities.Participants in the automotive recycling industry are a valuable source ofeconomical and often hard-to-find used vehicle replacement parts. In addition,this industry has become more sophisticated and technology-driven inorder to keep pace with innovations in vehicle technology. Additionally,insurance companies are increasingly mandating the use of aftermarket and recycledparts to lower the costs to repair damaged vehicles. We believe these factorswill result in increased demand for automobile insurance claims processingsoftware and services, as automotive recyclers seek to manage their workflows,maximize the value of their inventories and increase efficiency.

**Key Drivers ofAutomobile Insurance Claims Processing Demand**

We believe that theprincipal drivers of demand for our software and services are:

***Inefficiencies in the Automobile Insurance ClaimsProcess***

*ClaimsProcess Fragmentation.**  *Theautomobile insurance claims process involves many parties and consists of manysteps, which are often managed through paper, fax and other labor intensiveprocesses. In a June 2004 poll conducted by a leading provider ofstatistical claims data to the property and casualty insurance industry,approximately 75% of U.S. insurance companies identified improving claims-handlingprocesses as their most important goal. Key areas for improvement identified bythe survey included lowering operating costs, reducing fraud and improvingclaims-handling efficiency. By simplifying and streamlining the claimsprocess, insurance companies can process claims faster and reduce costs.

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*UnequalAccess to Information.**  *Collisionrepair facilities typically have more information about vehicles in their shopsthan do insurance companies who often must make their damage estimates remotelyor with limited information. Through access to detailed information aboutvehicle damage and replacement costs, insurance companies can more accuratelyestimate fair settlement values and reduce overpayment on claims.

*DisparateClaims Data.**  *Claims-relateddata generated by automobile insurance companies often is not stored, sharedwith other parties or captured in a format that is easily transferable to otherapplications. This, combined with the inability to transfer and manipulate dataeasily across multiple applications, hinders comparisons of repairs and claims.Increased access to data from industry participants generates more accuraterepair estimates and allows automobile insurance companies to identifytop-performing collision repair facilities.

*ConflictingInterests of Industry Participants.**  *Collision repair facilities benefitfrom high repair costs, which increase their revenues. Conversely, insurancecompanies benefit from low repair costs, which reduce their expenses. Thisconflict can result in high settlement costs and delays. Repair cost estimatesthat rely on common data sources can reduce these costs and delays.

*Inefficient CollisionRepair Facility Workflow.**  *Many collision repair facilities manage their complexworkflows manually or without specialized software. Manual workflow managementleads to increased processing time, higher costs and more errors, problems thatgenerally intensify as a facility grows. With claims processing software andservices, collision repair facilities can more effectively manage theirworkflows and obtain detailed part availability and pricing information.

***Growth in the Automobile Insurance Claims Industry***

*Growthin the Number of Worldwide Vehicles.**  *According to industry sources, from2003 to 2006, the number of personal and commercial vehicles in use hasincreased an average of 3.5% per year, driven primarily by a 4% per yearincrease in sales of new vehicles. Additional growth of 2% to 3% per year isexpected through 2016. As the number of vehicles on the road continues toexpand, we believe the need for automobile insurance claims processing productsand services will continue to grow to handle increased claims activity.

*Adoption of AutomatedClaims Processing Software and Services.**  *Many markets have only recentlybegun to adopt automated claims processing software and services to reduceinefficiencies. We anticipate that increased adoption of automated claimsprocessing software and services in these markets will be a key driver of ourgrowth.

**Our Software andServices**

Our software and servicescan be organized into five general categories: estimating and workflowsoftware, salvage and recycling software, business intelligence and consultingservices, shared services and other.

***Estimating and Workflow Software***

Our core offeringis our estimating and workflow software. Our estimating and workflow softwarehelps our customers manage the overall claims process, estimate the cost torepair a damaged vehicle, and calculate the pre-collision fair marketvalue of a vehicle. Key functions of our estimating and workflow softwareinclude:

·       capturingfirst notice of loss information;

·       assigning,managing and monitoring claims and claim-related events;

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·       accessingand exchanging claims-related information;

·       calculating,submitting, tracking and storing repair and total loss estimates;

·       reviewing,assessing and reporting estimate variations based upon pre-set rules;

**·****     **routingshop estimates for manual review; and

·       scheduling repairs.

***Salvage and Recycling Software***

Our salvage andrecycling software helps automotive recyclers manage their inventories in orderto facilitate the location, sale and exchange of vehicle parts for use in therepair of a damaged vehicle. Key functions of our salvage and recyclingsoftware include:

·       managinginventory;

·       connectingto collision repair facilities to facilitate the use of recycled parts in therepair of a damaged vehicle;

·       locatingvehicle parts by price, year, model and/or geographic area;

·       determiningthe interchangeability of automobile parts across vehicle models;

·       exchangingvehicle parts with other recyclers;

**·****     **preparinginvoices and managing accounts receivable; and

·       generating managementreports.

***Business Intelligence and Consulting Services***

Our businessintelligence and consulting services help our insurance company customersmonitor and assess their performance through customized data, reports andanalyses. Key elements of our business intelligence and consulting servicesinclude:

·       analyzingclaims amounts and payments;

·       creatingcustomized statistical reports on claims data and activity;

**·****     **measuringour customers’ performance against industry standards; and

·       monitoring key performanceindicators.

***Shared Services***

We have developedour shared services to help our insurance company customers outsource claims-relatedtasks. The key components of our shared services include:

·       reviewingrepair estimates prepared by collision repair facilities;

·       reviewingdecisions to repair or replace damaged parts;

·       auditingand facilitating settlement of repair prices with collision repair facilities;

**·****     **reviewingmedical and workers’ compensation bills; and

·       communicating withpolicyholders.

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***Other***

We provide additionalservices and products to our customers, which include selling hardware for usewith our software, training, and call center technical support services. Wealso offer services that allow our customers to access operational and technicalsupport in times of high demand following natural disasters and software thathelps detect fraudulent activity. We also provide software and services thatare not directly related to the automobile insurance claims process.

**Our Databases**

At the core of our software and services are ourproprietary databases. Each of our databases has been adapted for use in ourlocal markets. We have invested over $200 million in the last ten years tomaintain and expand our proprietary databases. Our primary databases includeour repair estimating database, our total loss database, our claims databaseand our parts salvage databases.

*Repair EstimatingDatabase.**  *Wehave created our repair estimating database over 35 years through thedevelopment, collection, organization and management of automobile-relatedinformation. The data in this database enables our customers to estimate thecost to repair a damaged vehicle. This database:

·       containsdetailed cost data for each part and the required labor operations needed tocomplete repairs on over 3,100 vehicle types;

·       coversover 95% of the vehicle models in our core markets;

·       includesvehicles data dating back to 1970;

·       includesover 3.3 million parts for vehicles with multiple model years, editions,option packages and country-specific variations; and

·       includesover one million aftermarket parts.

We update this database with data provided to us bythird parties, including OEMs and aftermarket part suppliers, along withdata we develop through our proprietary analyses of local labor repair timesand damage repair techniques. The quality and accuracy of the database, whichare very important to each of our customers, are continuously monitored andmaintained using rigorous quality control processes, which include validatingup to 20 million data points every month.

*TotalLoss Database.**  *Ourtotal loss database helps our customers determine the pre-collision fair marketvalues of vehicles that have been damaged beyond the point where repair iseconomically feasible, as well as the amounts they pay policyholders for totallosses. Additionally, our employees use this database to provide total lossestimating service to our customers. This database has been designed toaccurately reflect the local fair market value of a vehicle rather than simplydelivering a market value based on national or regional averages. Each year, wecollect more than 20 million vehicle purchase and sale records from over11,000 automobile dealerships, which we have combined with local marketpurchase and sale data collected from over 3,500 different sources, includingwebsites, local newspapers, magazines and private listings. We update thisdatabase by incorporating nearly two million data points per week which includethe latest vehicle purchase and sale information including specific models,option packages, vehicle condition and mileage.

*ClaimsDatabase.**  *Ourclaims database enables our customers to evaluate their internal claims processperformance, as well as measure the performance of their business partners. Ouremployees also use this database to provide consulting services to ourcustomers and develop new software and services. Customers use this database tobenchmark their performance against their local peer group through detailedanalyses of comprehensive industry data. Compiled over the past 15 years,this database contains approximately two billion data points representing over100 million automobile repair claims and over 

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190 billion in claimspayments. We update this database by incorporating approximately 150,000additional repair estimates every week.

*Parts Salvage Databases.**  *Our parts salvage databases containdata on approximately 130 million automobile parts through a network ofapproximately 3,000 automotive recyclers. These databases are used by ourcustomers to quickly find locally available automobile parts and identifyinterchangeable parts across different vehicles.

**Our GlobalOperations**

We have operations in 49countries on five continents. We have organized our operations into tworegional operating segments, EMEA and Americas.

***EMEA***

Our EMEA operating segmentaccounted for 59.3% of ourrevenues during fiscal 2007. EMEA comprises our operations in 34 countries inEurope, the Middle East, Africa and Asia. Our EMEA segment comprises ouroperations and licensed independent providers in Austria, Belarus, Belgium, Bosnia,Bulgaria, China, Croatia, the Czech Republic, Denmark, Estonia, France,Germany, Greece, Hungary, India, Israel, Japan, Latvia, Lebanon, Lithuania, theNetherlands, Poland, Portugal, Romania, Russia, Serbia-Montenegro,Slovakia, Slovenia, South Africa, Spain, Switzerland, Turkey, Ukraine and theUnited Kingdom.

***Americas***

Our Americas operatingsegment accounted for 40.7% ofour revenues during fiscal 2007. Americas comprises our operations in 15countries in North and South America: Brazil, Canada, Chile, Colombia, CostaRica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras,Mexico, Nicaragua, Panama, the U.S. and Venezuela.

***Geographic Financial Information***

Thetable below sets forth the revenues we derived from the following geographicareas during each of the previous three fiscal years.

| ** **      | ** ** | **Fiscal Year Ended June 30,** | ** ** |
|-----------------|------------|----------------------------------------------------|------------|
| ** **      | ** ** | **2007**                                           | ** ** | **2006  (Acquisition  pro forma)** | ** ** | **2005  (Predecessor)** | ** ** |
| ** **      | ** ** | **(in thousands)**                            | ** ** |
| United States   |       | $                                                  | 146,392    |   |   | $ | 146,373 |   |   |   | $ | 152,391 |   |   |
| The Netherlands |       | 56,898                                             |       |   | 52,206 |   |   |   | 49,956 |   |   |
| United Kingdom  |       | 50,814                                             |       |   | 40,371 |   |   |   | 34,716 |   |   |
| Germany         |       | 46,220                                             |       |   | 43,985 |   |   |   | 45,986 |   |   |
| Other           |       | 171,636                                            |       |   | 147,295 |   |   |   | 129,306 |   |   |
|                 |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |  |

 

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Thetable below sets forth the long-lived assets we held in the followinggeographic areas during each of the previous three fiscal years.

| ** **      | ** ** | **Fiscal Year Ended June 30,** | ** ** |
|-----------------|------------|----------------------------------------------------|------------|
| ** **      | ** ** | **2007**                                           | ** ** | **2006** | ** ** | **2005  (Predecessor)** | ** ** |
| ** **      | ** ** | **(in thousands)**                            | ** ** |
| United States   |       | $                                                  | 26,214     |   |   | $ | 12,901 |   |   |   | $ | 13,173 |   |   |
| The Netherlands |       | 311                                                |       |   | 487 |   |   |   | 940 |   |   |
| United Kingdom  |       | 8,149                                              |       |   | 3,949 |   |   |   | 1,746 |   |   |
| Germany         |       | 8,269                                              |       |   | 8,088 |   |   |   | 7,906 |   |   |
| Other           |       | 8,542                                              |       |   | 12,860 |   |   |   | 9,691 |   |   |
|                 |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |  |

 

**Key CompetitiveStrengths**

***Leading Global Provider***

We are the leading globalprovider of software and services to the automobile insurance claims processingindustry. We have operations in 49 countries across five continents. In each ofour markets, we believe we are either the largest or second-largestprovider of automobile insurance claims processing software and services basedon total revenues except for four countries that we have recently entered. Thelarge number of geographic regions in which we operate provides us with astrategic advantage when expanding into new markets by enabling us to utilizeour database and vehicle coverage already present in adjacent or nearbymarkets. As insurance companies continue to expand their businesses globally,our international leadership position should further position us as a singleprovider of automobile insurance claims processing software and services to ourcustomers on a global basis.

***Significant Barriers to Entry***

We believe that ourproprietary databases pose barriers to entry due to the significant capitalinvestment and time that would be required to develop a similar set ofintegrated databases and customize them for use in local markets. Ourproprietary databases have been built through 35 years of developing,collecting, organizing and managing automobile-related information anddata. We have invested over $200 million in the last ten years indeveloping and maintaining our proprietary databases, and customizing them foruse in local markets.

***Long-Standing Relationships with Customers***

We have long-standingrelationships with many of the world’s largest automobile insurance companies.For example, our relationships with our ten largest customers in Europe andNorth America date back, on average, 16 and 17 years, respectively. Oursoftware and services are typically integrated into our customers’ systems,operations and processes, often making it costly and time-consuming forour customers to switch to another provider. These long-standing relationshipshave also allowed us to better understand our customers’ needs and furtherexpand these relationships over time, both with additional software and byincreasing our customer support and training services. Additionally, several ofour customers own minority interests in five of our local operatingsubsidiaries. We have found these partnerships to be effective when enteringnew markets as they have allowed us to collaborate more closely with ourinsurance company customers and rely on their local expertise to introduce,customize and market our software and services quickly and efficiently.

***History of Developing New Software and Services***

Since our inception, wehave consistently developed and marketed new software and services in order tomeet the needs of our customers. We work closely with our customers in order todetermine the features 

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andfunctions that they may require in the future. We have developed and introducednew software and services to the market through both internal development as wellas through the acquisition and licensing of products and technology owned bythird parties. For example, we recently introduced an auditing tool that allowsinsurance companies to identify repair estimates that should be furtherreviewed. We believe our focus on software development and customizationcreates incremental revenue opportunities as we expand the number andsophistication of the software and services that we offer.

***Attractive Operating Model***

We believe we have an attractive operating model dueto the recurring nature of our revenues, the scalability of our databases andsoftware and the significant operating cash flow we generate.

*Contract-BasedRevenues.**  *Asubstantial portion of our revenues is derived from customers who have beenunder contract with us for several years. For fiscal 2007, we generated over****95% of our revenues from subscription-basedcontracts (where we charge a monthly fee), transaction-based contracts(where we charge a fee per transaction), and subscription-based contractswith additional transaction-based fees (where we charge both a monthlyfee and a fee per transaction), all of which generate recurring revenues fromour customers.

*ScalableDatabases and Software.**  *Our databases and software have been designed toaccommodate significant additional transaction- and subscription-basedvolumes with limited incremental costs. The ability to generate additionalrevenues from increased subscription and transaction volumes without incurringsubstantial incremental costs provides us with opportunities to improve ouroperating margins.

*Significant Operating CashFlow Generation.**  *Webelieve we are able to generate significant operating cash flows due to ouroperating margins and the relatively moderate working capital required to growour business. The operating cash flow we generate may be used to repay debt,finance acquisitions, expand geographically or further invest in database andsoftware innovation.

**Business Strategy**

***Broaden the Scope of our Software and Services***

We intend to furtherbroaden the capabilities, features and functionality of our claims processingsoftware, as well as the breadth of our service offerings. We believe thatexpanding the breadth of our offerings will allow us to retain and strengthenour relationships with our existing customers by helping them improve theefficiency of their claims process. We also intend to develop new software andservices for our insurance company customers that can help them process claimsin areas other than automobile insurance.

***Expand Customer Base in Existing Markets***

We seek to expand ourcustomer base in existing markets by competing on the quality of our softwareand services, our industry expertise, and our strong industry relationships. Insome markets, such as North America and Western Europe, we intend to seek newcustomers by competing favorably on both price and service, as well as byproviding a complete suite of claims processing software and services that optimizeeach step of the claims process. In other markets, such as Eastern Europe,Latin America, China and India, we intend to use the combination of our localexpertise with our global presence and comprehensive databases to serve newautomobile insurance companies and other customers who can use our software andservices to reduce claims-related costs and increase their operationalefficiencies.

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***Expand into New Markets***

As a result of recentgrowth in vehicle usage, regulatory and market developments, increasingpenetration of automobile insurance, and rising adoption of automated claimsprocessing by insurance companies, we believe that new markets representsignificant opportunities for future growth. We have a history of successfullyentering markets that previously had not used automated claims processingsoftware and services. We intend to use this expertise to further expand inmarkets where we have recently established operations, such as China and India,and enter markets where we currently have no operations.

***Improve Operational Efficiencies***

We seek to operate moreefficiently, reduce costs and improve our operating margins. We intend to pursuesubstantial operating margin improvements over the next two years. Majorelements of this plan include productivity and technological enhancements andreduction of overhead. We have identified and targeted several operationalinitiatives that we plan to implement over the next year, including theelimination of database and infrastructure redundancies productivity andtechnology enhancements and reduction of overhead. If implemented, we expectthat these initiatives will improve our operating margins.

***Pursue Strategic Acquisitions***

We plan to supplement ourorganic growth by acquiring businesses or technologies that allow us to expandour range of services, increase our customer base and enter new markets. Whenevaluating these opportunities, we will consider characteristics such asrecurring revenues, strong operating and financial performance, enhancedproducts and services, long-standing customer relationships and strongmanagement personnel.

**Sales and Marketing**

As of June 30, 2007,our sales and marketing staff included 222 full-time professionals. Our salesand marketing personnel identify and target specific sales opportunities andmanage customer relationships. They also design and plan launch strategies fornew software and services, and plan and facilitate customer conferences andtradeshows. Our country managers are also involved in the sales and marketingprocess, though they are not counted as full-time sales professionals.

**Customer Supportand Training**

We believe that providinghigh quality customer support and training services is critical to our success.As of June 30, 2007, we had 395****full-time customer support andtraining personnel, who provide telephone support, as well as on- andoff-site implementation and training. Our customer support and training staffgenerally consists of individuals with expertise in both our software andservices and in the automobile insurance and collision repair industries.

**Software andDatabase Development**

We devote significant resources to the continueddevelopment of our software and databases. We have created sophisticatedprocesses and tools to achieve high-quality software development and dataaccuracy. Our ability to maintain and grow our leading position in theautomobile insurance claims processing industry is dependent upon our abilityto enhance and broaden the scope of our software and services, as well ascontinuing to expand and improve our repair estimating, total loss, claims andparts salvage databases. We often collaborate with our customers in thedevelopment process to focus on addressing their specific needs. We thenincorporate what we have learned from our customers’ workflow experiences andneeds to deliver quality, workflow-oriented software and services to themarketplace 

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quickly. We believe theseefforts provide a significant competitive advantage in the development of newsoftware and services.

As of June 30, 2007,our software development staff consisted of 402 full-time professionals acrosssix international software development centers. As of the same date, ourdatabase staff consisted of 379 full-time professionals across fiveinternational database development centers.

**Competition**

We compete primarily onthe functionality of our software, the integrity and breadth of our data,customer service and price. The competitive dynamics of the global automobileinsurance claims processing industry vary by region, and many of ourcompetitors are present in only a limited number of markets in which weoperate. In Europe, our largest competitors include DAT, GmbH andEurotaxGlass’s Group, with whom we compete in multiple countries. In NorthAmerica, our largest competitors include CCC Information Services Group Inc. inthe U.S. and Mitchell International Inc. in the U.S. and Canada.

**Intellectual Propertyand Licenses**

We enter into license agreements with our customers,granting each customer a license to use our software and services whileensuring the protection of our ownership and the confidentiality of theembedded information and technology contained in our software. As a generalpractice, employees, contractors and other parties with access to ourconfidential information sign agreements that prohibit the unauthorized use ordisclosure of our proprietary rights, information and technology.

We own registered trademarks and service marks that weuse in connection with our software and services, including their advertisingand marketing. For example, our trademark Audatex is registered in over50 countries. In the U.S. and Canada, we market our collision damageestimating and total loss valuation software under the registered trademarksPenpro, Shoplink and Autosource.

We license much of thedata used in our software and services through short-term contracts withthird parties, including OEMs, aftermarket parts suppliers, data aggregators,automobile dealerships and vehicle repair facilities, to whom we pay royalties.

**Employees**

As of June 30, 2007,we had 2,067 full-time employees, 1,033 of whom were based in our EMEAoperating segment and 1,034 of whom were based in our Americas operatingsegment. None of our employees is subject to a collective bargaining agreement.We consider our relationships with our employees to be good.

**ITEM 1A.**        RISKFACTORS

*Investing in our common stock involves a high degreeof risk. You should carefully consider the following risk factors and all otherinformation contained in this Annual Report on Form 10-K beforemaking a decision to invest in our common stock. If any of the following risksoccur, our business, results of operations and financial condition may bematerially and adversely affected. In that event, the trading price of ourcommon stock could decline, and you could lose all or part of your investment.*

**We depend on a limited number of customers for asubstantial portion of our revenues, and the loss of, or a significantreduction in volume from, any of these customers would harm our financialresults.**

We derive a substantialportion of our revenues from sales to large insurance companies. In fiscal2007, we derived 16.2% of ourrevenues from our ten largest insurance company customers. The largest three ofthese customers accounted for 3.6%,3.0% and 1.8%, respectively, of our revenues during this 

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period.A loss of one or more of these customers would result in a significant decreasein our revenues, including the business generated by collision repairfacilities associated with those customers. We lost a customer contract in April 2006during its renewal phase that accounted for revenues in fiscal 2006 of approximately$4.3 million and earlier this year lost our principal shared servicescontract, which accounted for approximately $5.8 million of revenue in fiscal 2007. Furthermore, many ofour arrangements with European customers are terminable by them on short noticeor at any time. In addition, disputes with customers may lead to delays inpayments to us, terminations of agreements or litigation. Additionalterminations or non-renewals of customer contracts or reductions in businessfrom our large customers would harm our business, financial condition andresults of operations.

**Competitivepressures may require us to significantly lower our prices.**

Pricing pressureshave required us to significantly lower prices for some of our software andservices in several of our markets. We may be required to implement furtherprice reductions in response to the following:

·       pricereductions by competitors;

·       theconsolidation of property and casualty insurance companies;

·       theintroduction of competing software or services; and

·       adecrease in the frequency of accidents.

If we are required toaccept lower prices for our software and services, it would result in decreasedrevenues and harm our business, financial condition and results of operations.

**Changes in or violations by us or our customers of,applicable government regulations could reduce demand for or limit our abilityto provide our software and services in those jurisdictions.**

Our insurance company customers are subject toextensive government regulations, mainly at the state level in the U.S. and atthe country level in our non-U.S. markets. Some of these regulations relatedirectly to our software and services, including regulations governing the useof total loss and estimating software. If our insurance company customers failto comply with new or existing insurance regulations, including thoseapplicable to our software and services, they could lose their certificationsto provide insurance and/or reduce their usage of our software and services,either of which would reduce our revenues. Also, we are subject to directregulation in some markets, and our failure to comply with these regulationscould significantly reduce our revenues or subject us to government sanctions.In addition, future regulations could force us to implement costly changes toour software and/or databases or have the effect of prohibiting or renderingless valuable one or more of our offerings. Moreover, some states in the U.S.have changed their regulations to permit insurance companies to use bookvaluations for total loss calculations, making our total loss software potentiallyless valuable to insurance companies in those states. Some states have adopted totalloss regulations, that, among other things, require that insurers use amethodology deemed acceptable to the respective government agency. We submitour methodology to such agencies, and if they do not approve our methodology,we will not be able to perform total loss valuations in their respective states.In addition, some states are considering legislation that would requireinsurers to use estimates from two independent services to provide total losscalculations for a damaged vehicle and would provide authority to the stateinsurance commissioner to determine which services qualify as independent. Ifpassed, this legislation may prohibit us from or limit our ability to provideour products and services in those states and/or may have the effect of makingour products and services less desirable to our customers. Other states areconsidering legislation that would limit the data that our software can provideto our insurance company customers. In the event that demand for or our abilityto provide our software 

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and services decreases inparticular jurisdictions due to regulatory changes, our revenues and marginsmay decrease.

In addition, the BelgianCompetition Department recently notified us that it has chosen to continue toinvestigate a complaint originally brought by a trade association representingcollision repair facilities that was withdrawn by the trade association in2005, relating to estimates generated by our software of the costs to repairdamaged vehicles. Pursuant to the European Union competition laws, the BelgianCompetition Department is asserting its authority to conduct this investigationas it relates to the Western European region.

**Our industry is highly competitive, and our failure tocompete effectively could result in a loss of customers and market share, whichcould harm our revenues and operating results.**

The markets for our automobile insurance claimsprocessing software and services are highly competitive. In the U.S., ourprincipal competitors are CCC Information Services Group Inc. and MitchellInternational Inc. In Europe, our principal competitors are EurotaxGlass’sGroup and DAT, GmbH. If one or more of our competitors develop software orservices that are superior to ours or are more effective in marketing itssoftware or services, our market share could decrease, reducing our revenues.In addition, if one or more of our competitors retain existing or attract newcustomers for which we have developed new software or services, we may notrealize expected revenues from these new offerings, reducing our profitability.

Some of our current or future competitors may have ordevelop closer customer relationships, develop stronger brands, have greateraccess to capital, lower cost structures and/or more attractive system designand operational capabilities than we have. In addition, consolidation withinour industry could result in the formation of competitors with substantiallygreater financial, management or marketing resources than we have and suchcompetitors could utilize their substantially greater resources and economiesof scale to develop and market competing products, divert sales away from us byoffering their products at lower prices, or hire away our key employees byoffering more lucrative compensation packages. Moreover, many insurancecompanies have historically entered into agreements with automobile insuranceclaims processing service providers like us and our competitors whereby theinsurance company agrees to use that provider on an exclusive or preferredbasis for particular products and services and agrees to require collisionrepair facilities, independent assessors and other vendors to use thatprovider. If our competitors are more successful than we are at negotiatingthese exclusive or preferential arrangements, we may lose market share even inmarkets where we retain other competitive advantages.

In addition, our insurancecompany customers have varying degrees of in-house development capabilities,and one or more of them have expanded and may seek to further expand theircapabilities in the areas in which we operate. Many of our customers are largerand have greater financial and other resources than we do and could commitsignificant resources to product development. Our software and services havebeen, and may in the future be, replicated by our insurance company customersin-house, which could result in our loss of those customers and theirassociated repair facilities, independent assessors and other vendors,resulting in decreased revenues and net income.

**The time and expense associated with switching fromour competitors’ software and services to ours may limit our growth.**

The costs for an insurancecompany to switch providers of claims processing software and services can besignificant and the process can sometimes take 12-18 months to complete.As a result, potential customers may decide that it is not worth the time andexpense to begin using our software and services, even if we offer competitiveand economic advantages. If we are unable to convince these customers to 

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switchto our software and services, our ability to increase market share will belimited, which could harm our revenues and operating results.

**Our industry is subject to rapid technologicalchanges, and if we fail to keep pace with these changes, our market share andrevenues will decline.**

Our industry ischaracterized by rapidly changing technology, evolving industry standards andfrequent introductions of, and enhancements to, existing software and services,all with an underlying pressure to reduce cost. Industry changes could renderour offerings less attractive or obsolete, and we may be unable to make thenecessary adjustments to our offerings at a competitive cost, or at all. Wealso incur substantial expenses in researching, developing, designing andmarketing new software and services. The development or adaptation of these newtechnologies may result in unanticipated expenditures and capital costs thatwould not be recovered in the event that our new software or services areunsuccessful. The research, development, production and marketing of newsoftware and services are also subject to changing market requirements, as wellas the satisfaction of applicable regulatory requirements and customers’approval procedures and other factors, each of which could prevent us fromsuccessfully marketing any new software and services or responding to competingtechnologies. The success of new software in our industry also often depends onthe ability to be first to market, and our failure to be first to market withany particular software project could limit our ability to recover thedevelopment expenses associated with that project. If we cannot develop newtechnologies, software and services or any of our existing software or servicesare rendered obsolete, our revenues and income could decline and we may losemarket share to our competitors, which would impact our future operations andfinancial results.

**We have a very limited operating history as astand-alone company, which may make it difficult to compare our currentoperating results to prior periods.**

Prior to the Acquisition, our predecessor operated asa business unit of ADP. Our predecessor relied on ADP during this period formany of its internal functions, including accounting, tax, payroll, technologyand administrative and operational support. In connection with the Acquisition,ADP agreed to continue providing us with systems, network, programming andoperational support and other administrative services for periods ranging fromthree to six months following the date of the Acquisition. Although we havereplaced these services either through third-party contracts or internalsources, we may not be able to perform any or all of these services in acost-effective manner. If we are unable to maintain substitute arrangements onterms that are favorable to us or effectively perform these servicesinternally, our business, financial condition and results of operations wouldbe adversely affected.

In addition, thehistorical financial information of our predecessor included in this AnnualReport on Form 10-K may not reflect what our results of operations,financial position and cash flows would have been had we operated as a separatestand-alone company without the shared resources of ADP for the periodspresented and are not necessarily indicative of our future results ofoperations, financial position and cash flows. For example, ADP allocatedexpenses and other centralized operating costs to our predecessor for periodsprior to the Acquisition, and the allocated costs included in our predecessor’shistorical financial statements could differ from amounts that we would haveincurred if we had operated on a stand-alone basis.

**We have a large amount of goodwill and otherintangible assets as a result of the Aacquisition. Our earnings will be harmedif we suffer an impairment of our goodwill or other intangible assets.**

We have a large amount ofgoodwill and other intangible assets and are required to perform an annualassessment for possible impairment for accounting purposes. At June 30,2007, we had goodwill and other intangible assets of $932.2 million. If wedo not achieve our planned operating results or other 

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factorsimpair these assets, we may be required to incur a non-cash impairment charge.Any impairment charges in the future will adversely affect our results ofoperations.

**We have experienced net losses since the Acquisition,and future net losses may cause our stock price to decline.**

We had a net loss of $80.9 millionfor fiscal 2007. We expect to continue to incur net losses in the future, dueprimarily to amortization of the remaining $363.0 million of intangibleassets that we had as of June 30, 2007 and interest expense associatedwith our indebtedness. We cannot assure you that we will become or remainprofitable, and future net losses may reduce our stock price.

**We may incur significant restructuring and severancecharges over the next 12 months, which would harm our operating results andcash position or increase debt.**

We incurred restructuringcharges (benefits) of $5.5 million in fiscal 2005 (Predecessor), $(0.5) millionduring the period from July 1, 2005 through April 13, 2006, $2.9 millionin fiscal 2006 and $6.0 million in fiscal 2007. These charges consistedprimarily of termination benefits paid or to be paid to employees. As of June 30,2007, we had remaining liabilities associated with these restructuring chargesof $5.6 million. We continue to evaluate our existing operations andcapacity, and expect to incur additional restructuring charges as a result offuture personnel reductions, related restructuring and productivity andtechnology enhancements, which may exceed the levels of our historical charges.We are currently evaluating several plans that, if all implemented, wouldresult in restructuring and severance charges of approximately $3.0 millionto $4.0 million over the next twelve months. These potential charges,consisting primarily of termination benefits, would significantly reduce ourcash position or increase debt.

**Our software and services rely on informationgenerated by third parties and any interruption of our access to suchinformation could materially harm our operating results.**

We believe that oursuccess depends significantly on our ability to provide our customers access todata from many different sources. For example, a substantial portion of thedata used in our repair estimating software is derived from parts and repairdata provided by, among others, original equipment manufacturers, or OEMs,aftermarket parts suppliers, data aggregators, automobile dealerships andvehicle repair facilities. We obtain much of our data about vehicle parts andcomponents and collision repair labor and costs through license agreements withOEMs, automobile dealers, and other providers. EurotaxGlass’s Group, one of ourprimary competitors in Europe, provides us with valuation and paint data foruse in our European markets pursuant to a similar arrangement. Many of thelicense agreements through which we obtain data are for terms of one yearand/or may be terminated without cost to the provider on short notice. If oneor more of our licenses are terminated or if we are unable to renew one or moreof these licenses on favorable terms or at all, we may be unable to accessalternative data sources that would provide comparable information withoutincurring substantial additional costs. Recently, some OEM sources haveindicated to us that they intend to materially increase the licensing costs fortheir data. While we do not believe that our access to any individual source ofdata is material to our operations, prolonged industry-wide price increases orreductions in data availability could make receiving certain data moredifficult and could result in significant cost increases, which wouldmaterially harm our operating results.

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**System failures, delays and other problems could harmour reputation and business, cause us to lose customers and expose us tocustomer liability.**

Our success dependson our ability to provide accurate, consistent and reliable services andinformation to our customers on a timely basis. Our operations could beinterrupted by any damage to or failure of:

·       ourcomputer software or hardware or our customers’ or third-party serviceproviders’ computer software or hardware;

**·****     **ournetworks, our customers’ networks or our third-party service providers’networks; and

·       ourconnections to and outsourced service arrangements with third parties, such asAcxiom, which hosts data and applications for us and our customers.

Our systems andoperations are also vulnerable to damage or interruption from:

·       powerloss or other telecommunications failures;

·       earthquakes,fires, floods, hurricanes and other natural disasters;

·       computerviruses or software defects;

**·****     **physicalor electronic break-ins, sabotage, intentional acts of vandalism and similarevents; and

·       errorsby our employees or third-party service providers.

These risks will beexacerbated by our planned migration of our systems and operations to a morecentralized platform. Because many of our services play a mission-critical rolefor our customers, any damage to or failure of the infrastructure we rely on,including those of our customers and vendors, could disrupt our ability todeliver information to and provide services for our customers in a timelymanner, which could result in the loss of current and/or potential customers.In addition, we generally indemnify our customers to a limited extent for damagesthey sustain related to the unavailability of, or errors in, the software andservices we provide; therefore, a significant interruption of, or errors in,our software and services could expose us to significant customer liability.

**Security breachescould result in lost revenues, litigation claims and/or harm to our reputation.**

Our databases containconfidential data relating to our customers, policyholders and other industryparticipants. Security breaches, particularly those involving connectivity tothe Internet, and the trend toward broad consumer and general publicnotification of such incidents, could significantly harm our business,financial condition or results of operations. Our databases could be vulnerableto physical system or network break-ins or other inappropriate access, whichcould result in claims against us and/or harm our reputation. In addition,potential competitors may obtain our data illegally and use it to provideservices that are competitive to ours.

**We operate in 49 countries, where we are subject tocountry-specific risks that could adversely impact our business and results ofoperations.**

We generated approximately69.0% of our revenues during fiscal 2007 outside the U.S., and we expect salesfrom non-U.S. markets to continue to represent a majority of our total sales.Sales and operations in individual countries are subject to changes in localgovernment regulations and policies, including those related to tariffs andtrade barriers, investments, taxation, currency exchange controls andrepatriation of earnings. Our results are also subject to the difficulties ofcoordinating our operations across 49 different countries. Furthermore, ourbusiness strategy includes expansion of our operations into new and developingmarkets, which will require even greater international coordination, expose usto additional 

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localgovernment regulations and involve markets in which we do not have experienceor established operations. In addition, our operations in each country arevulnerable to changes in socio-economic conditions and monetary and fiscalpolicies, intellectual property protection disputes, the settlement of legaldisputes through foreign legal systems, the collection of receivables throughforeign legal systems, exposure to possible expropriation or other governmentalactions, unsettled political conditions and possible terrorist attacks. Theseand other factors may harm our operations in those countries and therefore ourbusiness and results of operations.

**Our operatingresults may vary widely from period to period, which may cause our stock priceto decline.**

Our contracts withinsurance companies generally require time-consuming authorization proceduresby the customer, which can result in additional delays between when we incur developmentcosts and when we begin generating revenues from those software or servicesofferings. Our quarterly and annual revenues and operating results mayfluctuate significantly in the future. In addition, we incur significantoperating expenses while we are researching and designing new software andrelated services, and we typically do not receive corresponding payments inthose same periods. As a result, the number of new software and servicesofferings that we are able to implement, successfully or otherwise, can causesignificant variations in our cash flow from operations, and we may experiencea decrease in our net income as we incur the expenses necessary to develop anddesign new software and services. We also may experience variations in our earningsdue to other factors beyond our control, such as the introduction of newsoftware or services by our competitors, customer acceptance of new software orservices, the volume of usage of our offerings by existing customers andcompetitive conditions in our industry generally. We may also incur significantor unanticipated expenses when contracts expire, are terminated or are notrenewed. Any of these events could harm our financial condition and results ofoperations and cause our stock price to decline.

**Our future operating results may be subject tovolatility as a result of exposure to foreign currency exchange risks.**

We derive most of ourrevenues, and incur most of our costs, in currencies other than the U.S.dollar, principally the Euro. We currently do not hedge our exposure to foreigncurrency risks. In our historical financial statements, we re-measure our localcurrency financial results into U.S. dollars based on average exchange ratesprevailing during a reporting period or the exchange rate at the end of thatperiod. These re-measurements resulted in foreign currency translationadjustments of $10.9 million in fiscal 2005 (Predecessor), $3.8 millionin fiscal 2006 and****$4.8 million in fiscal 2007.Further fluctuations in exchange rates against the U.S. dollar could decreaseour revenues, increase our costs and expenses and therefore harm our futureoperating results.

**Future acquisitions and joint ventures or dispositionsmay require significant resources and/or result in significant unanticipatedlosses, costs or liabilities.**

We have grown inpart, and in the future may continue to grow, by making acquisitions orentering into joint ventures or similar arrangements. Acquisitions and jointventures require significant investment and managerial attention, which may bediverted from our other operations, and could entail a number of additionalrisks, including:

·       problemswith effective integration of operations and/or management;

·       lossof key customers, suppliers or employees;

**·****     **increasedoperating costs; and

·       exposureto unanticipated liabilities.

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Furthermore, we participate in joint ventures in somecountries. Our partners in these ventures may have interests and goals that areinconsistent with or different from ours, which could result in the jointventure taking actions that negatively impact our growth in the local marketand consequently harm our business or financial condition. If we are unable tofind suitable partners or if suitable partners are unwilling to enter intojoint ventures with us, our growth into new geographic markets may slow, whichwould harm our results of operations.

Additionally, we mayfinance future acquisitions and/or joint ventures with cash from operations,additional indebtedness and/or the issuance of additional securities, any ofwhich may impair the operation of our business or present additional risks,such as reduced liquidity or increased interest expense. We may seek also torestructure our business in the future by disposing of certain of our assets,which may harm our future operating results, divert significant managerialattention from our operations and/or require us to accept non-cashconsideration, the market value of which may fluctuate.

**We may requireadditional capital in the future, which may not be available on favorableterms, or at all.**

Our future capitalrequirements depend on many factors, including our ability to develop andmarket new software and services and to generate revenues at levels sufficientto cover ongoing expenses. If we need to raise additional capital, equity ordebt financing may not be available at all or may be available only on termsthat are not favorable to us. In the case of equity financings, dilution to ourstockholders could result, and in any case such securities may have rights,preferences and privileges that are senior to those of the shares offeredhereby. If we cannot obtain adequate capital on favorable terms or at all, wemay be unable to support future growth or operating requirements and,accordingly, our business, financial condition and results of operations couldbe harmed.

**Privacy concerns could require us to exclude data fromour software and services, which may reduce the value of our offerings to ourcustomers, damage our reputation and deter current and potential users fromusing our software and services.**

In the European Union andother jurisdictions, there are significant restrictions on the use of personaldata. Violations of these laws would harm our business. In addition, concernsabout our collection, use or sharing of automobile insurance claims informationor other privacy-related matters, even if unfounded, could damage ourreputation and operating results.

**Our business depends on our brands, and if we are notable to maintain and enhance our brands, our business and operating resultscould be harmed.**

We believe that the brandidentity that we have developed has significantly contributed to the success ofour business. We also believe that maintaining and enhancing our brands, suchas Audatex, ABZ, Hollander, Informex, Sidexa and IMS, are critical to theexpansion of our software and services to new customers in both existing andnew markets. Maintaining and enhancing our brands may require us to makesubstantial investments and these investments may not be successful. If we failto promote and maintain our brands or if we incur excessive expenses in thiseffort, our business, operating results and financial condition will be harmed.We anticipate that, as our markets become increasingly competitive, maintainingand enhancing our brands may become increasingly difficult and expensive.Maintaining and enhancing our brands will depend largely on our ability to be atechnology innovator and to continue to provide high quality software andservices, which we may not do successfully. To date, we have engaged inrelatively little direct brand promotion activities, and we may notsuccessfully implement brand enhancement efforts in the future.

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**Third parties may claim that we are infringing upontheir intellectual property rights, and we could be prevented from selling oursoftware or suffer significant litigation expense even if these claims have nomerit.**

Our competitive positionis driven in part by our intellectual property and other proprietary rights.Third parties, however, may claim that we, our software or operations or anyproducts or technology, including claims data or other data, we obtain fromother parties are infringing upon the intellectual property rights of others, andwe may be unaware of intellectual property rights of others that may cover someof our assets, technology, software and services. Any litigation initiatedagainst us regarding patents, trademarks, copyrights or other intellectualproperty rights, even litigation relating to claims without merit, could becostly and time-consuming and could divert our management and key personnelfrom operating our business. In addition, if any third party has a meritoriousor successful claim that we are infringing upon its intellectual propertyrights, we may be forced to change our software or enter into licensingarrangement with third parties, which may be costly or impractical. Theseclaims may also require us to stop selling our software and/or services ascurrently designed, which could harm our competitive position. We also may besubject to significant damages or injunctions that prevent the furtherdevelopment and sale of certain of our software or services and may result in amaterial loss in revenue.

**We may be unable toprotect our intellectual property and property rights, either without incurringsignificant costs or at all, which would harm our business.**

We rely on a combination of patents, copyrights,know-how, trademarks, license agreements and contractual provisions, as well asinternal procedures, to establish and protect our intellectual property rights.The steps we have taken and will take to protect our intellectual propertyrights may not deter infringement, duplication, misappropriation or violation ofour intellectual property by third parties. In addition, any of theintellectual property we own or license from third parties may be challenged,invalidated, circumvented or rendered unenforceable. Furthermore, the laws ofsome of the countries in which products similar to ours may be developed maynot protect our software and intellectual property to the same extent as U.S.laws or at all. We may be unable to protect our rights in trade secrets andunpatented proprietary technology in these countries. We may also be unable toprevent the unauthorized disclosure or use of our technical knowledge or tradesecrets by consultants, vendors, former employees and current employees,despite the existence of nondisclosure and confidentiality agreements and othercontractual restrictions. If our trade secrets become known, we may lose ourcompetitive advantages. If we fail to protect our intellectual property, we maynot receive any return on the resources expended to create the intellectualproperty or generate any competitive advantage based on it.

Pursuing infringers of our intellectual property couldresult in significant litigation costs and diversion of management resources,and any failure to pursue or successfully litigate claims against infringerscould result in competitors using our technology and offering similar productsand services, potentially resulting in loss of competitive advantage anddecreased revenues.

Currently, we believe thatone or more of our customers in our EMEA segment may be infringing ourintellectual property by making and distributing unauthorized copies of oursoftware. Enforcement of these intellectual property rights may be difficultand may require considerable resources.

**We depend on a limited number of key personnel whowould be difficult to replace. If we lose the services of these individuals, orare unable to attract new talent, our business will be adversely affected.**

We depend upon the abilityand experience of our key personnel, who have substantial experience with ouroperations, the rapidly changing automobile insurance claims processingindustry and the markets in which we offer our software and services. The lossof the services of one or more of our senior executives or key employees, suchas our Chief Executive Officer, Tony Aquila, could harm our business and 

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operations.Our success also depends on our ability to continue to attract, manage andretain other qualified management, sales and technical personnel as we grow. Wemay not be able to continue to attract or retain such personnel in the future.

**We require a significant amount of cash to service ourindebtedness, which reduces the cash available to finance our organic growth,make strategic acquisitions and enter into alliances and joint ventures.**

We have a significant amount of indebtedness. As of June 30,2007, our indebtedness, including current maturities, was $613.3 million,and we would have been able to borrow an additional $41.9 million underour amended and restated senior credit facility. During fiscal 2007, ouraggregate interest expense was $69.7 million, and the cash paid forinterest was $66.8 million.

Our indebtednesscould:

·       makeus more vulnerable to unfavorable economic conditions and a reduction in ourrevenues;

·       makeit more difficult to obtain additional financing in the future for workingcapital, capital expenditures or other general corporate purposes;

·       requireus to dedicate or reserve a large portion of our cash flow from operations formaking payments on our indebtedness, which would prevent us from using it forother purposes, including software development;

·       makeus susceptible to fluctuations in market interest rates that affect the cost ofour borrowings to the extent that our variable rate debt is not covered byinterest rate derivative agreements; and

·       makeit more difficult to pursue strategic acquisitions, joint ventures, alliancesand collaborations.

Our ability to service ourindebtedness will depend on our future performance, which will be affected byprevailing economic conditions and financial, business, regulatory and otherfactors. Some of these factors are beyond our control. If we cannot generatesufficient cash flow from operations to service our indebtedness and to meetour other obligations and commitments, we may be required to refinance our debtor to dispose of assets to obtain funds for such purpose. We cannot assure youthat debt refinancings or asset dispositions could be completed on a timelybasis or on satisfactory terms, if at all, or would be permitted by the termsof our debt instruments.

**Our amended and restated senior credit facility limitsour ability to pay dividends, incur additional debt, make acquisitions and makeother investments.**

Our amended and restated senior credit facilitycontains covenants that restrict our and our subsidiaries’ ability to makecertain distributions with respect to our capital stock, prepay other debt,encumber our assets, incur additional indebtedness, make capital expendituresabove specified levels, engage in business combinations or undertake variousother corporate activities. These covenants may require us also to maintaincertain specified financial ratios, including those relating to total leverageand interest coverage.

Our failure to comply withany of these covenants could result in the acceleration of our outstandingindebtedness. If acceleration occurs, we would not be able to repay our debtand it is unlikely that we would be able to borrow sufficient additional fundsto refinance our debt. Even if new financing is made available to us, it maynot be available on acceptable or reasonable terms. An acceleration of ourindebtedness would impair our ability to operate as a going concern.

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**Current or futurelitigation could have a material adverse impact on us.**

We have been and continueto be involved in legal proceedings, claims and other litigation that arise inthe ordinary course of business. For example, we have been and are currentlyinvolved in disputes with collision repair facilities, acting individually andas a group in some situations that claim that we have colluded with ourinsurance company customers to depress the repair time estimates generated byour repair estimating software. In addition, we are currently one of thedefendants in a putative class action lawsuit alleging that we have colludedwith our insurance company customers to cause the estimates of vehicle fairmarket value generated by our total loss estimation software to be unfairlylow. Furthermore, we are also subject to assertions by our customers that wehave not complied with the terms of our agreements with them, which could inthe future lead to arbitration or litigation. While we do not expect theoutcome of any such pending or threatened litigation to have a material adverseeffect on our financial position, litigation is unpredictable and excessiveverdicts, both in the form of monetary damages and injunction, could occur. Inthe future, we could incur judgments or enter into settlements of claims thatcould harm our financial position and results of operations.

**If we are not able to implement the requirements of Section 404of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, wemay be subject to sanctions by regulatory authorities.**

Section 404 of theSarbanes-Oxley Act requires that we evaluate and determine the effectiveness ofour internal control over financial reporting for our annual report for fiscal2008. If we have a material weakness in our internal control over financialreporting, we may not detect errors on a timely basis and our financialstatements may be materially misstated. We will continue to evaluate ourinternal controls systems to allow management to report on, and our independentauditors to attest to, our internal controls. We will continue to perform thesystem and process evaluation and testing (and any necessary remediation)required to comply with the management certification and auditor attestationrequirements of Section 404 of the Sarbanes-Oxley Act. While we anticipatebeing able to fully implement the requirements relating to internal controlsand all other aspects of Section 404 by the above deadline, we cannot becertain as to the timing of completion of our evaluation, testing andremediation actions or the impact of the same on our operations. If we are notable to implement the requirements of Section 404 in a timely manner orwith adequate compliance, we may be subject to sanctions or investigation byregulatory authorities, such as the Securities and Exchange Commission, or SEC,or the New York Stock Exchange, or NYSE. Any such action could adversely affectour financial results or investors’ confidence in us and could cause our stockprice to fall. In addition, the controls and procedures that we will implementmay not comply with all of the relevant rules and regulations of the SECand NYSE. If we fail to develop and maintain effective controls and procedures,we may be unable to provide financial information in a timely and reliablemanner, subjecting us to sanctions and harm to our reputation.

**Requirements associated with being a public companyincrease our costs significantly, as well as divert significant companyresources and management attention.**

Prior to our initial public offering, we were notsubject to the reporting requirements of the Securities Exchange Act of 1934,as amended, or the Exchange Act, or the other rules and regulations of theSEC or any securities exchange relating to public companies. We are workingwith our legal, independent accounting and financial advisors to identify thoseareas in which changes should be made to our financial and management controlsystems to manage our growth and our obligations as a public company. Theseareas include corporate governance, corporate control, internal audit,disclosure controls and procedures and financial reporting and accountingsystems. We have made, and will continue to make, changes in these and otherareas. However, the expenses that are required as a result of being a publiccompany could be material. Compliance with the various reporting and otherrequirements applicable to public companies also require considerable time andattention of management. We cannot predict or estimate the amount of 

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the additional costs wemay incur, the timing of such costs or the degree of impact that our management’sattention to these matters will have on our business. In addition, the changeswe make may not be sufficient to allow us to satisfy our obligations as apublic company on a timely basis.

In addition, being apublic company could make it more difficult or more costly for us to obtaincertain types of insurance, including directors’ and officers’ liabilityinsurance, and we may be forced to accept reduced policy limits and coverage orincur substantially higher costs to obtain the same or similar coverage. Theimpact of these events could also make it more difficult for us to attract andretain qualified persons to serve on our board of directors, our boardcommittees or as executive officers.

**Our certificate of incorporation and by-laws containprovisions that could discourage another company from acquiring us and mayprevent attempts by our stockholders to replace or remove our currentmanagement.**

Some provisions ofour certificate of incorporation and by-laws may have the effect of delaying,discouraging or preventing a merger or acquisition that our stockholders mayconsider favorable, including transactions in which stockholders may receive apremium for their shares. In addition, these provisions may frustrate orprevent any attempts by our stockholders to replace or remove our currentmanagement by making it more difficult for stockholders to replace or removeour board of directors. These provisions include:

·       authorizationof the issuance of “blank check” preferred stock without the need for action bystockholders;

·       theremoval of directors only by the affirmative vote of the holders of two-thirdsof the shares of our capital stock entitled to vote;

·       anyvacancy on the board of directors, however occurring, including a vacancyresulting from an enlargement of the board, may only be filled by vote of thedirectors then in office;

·       inabilityof stockholders to call special meetings of stockholders and limited ability ofstockholders to take action by written consent; and

·       advance notice requirementsfor board nominations and proposing matters to be acted on by stockholders atstockholder meetings.

**We currently do not intend to pay dividends on ourcommon stock, and as a result, your only opportunity to achieve a return on yourinvestment is if the price of our common stock appreciates.**

We currently do not expectto declare or pay dividends on our common stock in the foreseeable future. Inaddition, our amended and restated senior credit facility limits our ability todeclare and pay cash dividends on our common stock. As a result, your onlyopportunity to achieve a return on your investment in us will be if the marketprice of our common stock appreciates and you sell your shares at a profit. Wecannot assure you that the market price for our common stock will ever exceedthe price that you pay.

**ITEM 1B.**       UNRESOLVEDSTAFF COMMENTS

None.

**ITEM 2.**                PROPERTIES

Our corporate headquarters are located in San Ramon,California, where we lease approximately 107,000 square feet of space and havesubleased approximately 54,000 square feet of this space.

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Our principal leased EMEA facilities include Zurich,Switzerland and Zeist, the Netherlands. Our principal leased Americasfacilities include San Diego, California, Ann Arbor, Michigan, Plymouth,Minnesota and Milwaukie, Oregon. We also lease a number of other facilitiesacross the regions where we operate. We own real estate in Minden, Germany,Brussels, Belgium and Reading, United Kingdom.

We believe that ourexisting space is adequate for our current operations. We believe that suitablereplacement and additional space will be available in the future oncommercially reasonable terms

**ITEM 3.**                LEGALPROCEEDINGS

As a normal incident ofthe business in which we are engaged, various claims, charges and litigationare asserted or commenced against us. We believe that final judgments, if any,which may be rendered against us in current litigation, are adequately reservedfor, covered by insurance or would not have a material adverse effect on our financialposition. We have from time to time been the subject of allegations that ourrepair estimating and total loss software and services produced results thatfavored our insurance company customers. In addition, we are currently one ofthe defendants in a putative class action lawsuit alleging that we havecolluded with our insurance company customers to cause the estimates of vehiclefair market value generated by our total loss estimation products to beunfairly low.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

Prior to the completion of our initial public offeringon May 16, 2007, we had 45,523,175 shares of common stockoutstanding, 91.2% of which was owned by entities affiliated with GTCR, and therest of which was owned by our directors, executive officers and certain otheremployees.

On May 10, 2007, holders of 44,426,880 shares of our common stock, or 97.6%of our then-outstanding common stock, executed a written consent in accordancewith our then-existing certificate of incorporation in order to approve ouramended and restated certificate of incorporation, our amended and restatedby-laws, the Solera Holdings, Inc. 2007 Employee Stock Purchase Plan, theSolera Holdings, Inc. 2007 Long Term Equity Incentive Plan, indemnificationagreements with our directors, the election of Jerrell Shelton and Stuart J.Yarbrough as directors and the selection of Deloitte & Touche LLP asindependent public accountants.

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**PART II**

**ITEM 5.**                MARKETFOR COMMON STOCK,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

**Market Information**

Our common stock has beenlisted on The New York Stock Exchange under the symbol “SLH” since May 11,2007. Prior to that time, there was no public market for our common stock. Theinitial public offering price of our common stock was $16.00 per share, and theinitial public offering closed on May 16, 2007. The closing sale price ofour common stock on The New York Stock Exchange was $17.28****per share on September 14, 2007. From May 11, 2007through June 30, 2007, the range of the high and low sale prices of ourcommon stock was $15.41 to $19.69****pershare. As of September 14,2007, there were approximately 42****holders of record of our commonstock. The transfer agent and registrar for our common stock is ComputershareTrust Company N.A.

**Unregistered Salesof Equity Securities**

In January 2007, we soldan aggregate of 690,081 Class A Common Units to 22 of our employees at $0.30per unit for aggregate proceeds of $207,027. In February 2007, we sold anaggregate of 50,000 Class A Common Units to two of our employees at $0.30per unit for aggregate proceeds of $15,000. These issuances were made withoutregistration in reliance upon Rule 701 of the Securities Act and did notinvolve any underwriters, underwriting discounts or commissions or any publicoffering. The persons and entities who received such securities representedthat they acquired these securities for investment only and not with a view forsale or in connection with any distribution thereof, and appropriate legendswere affixed to any share certificates issued. All recipients had adequateaccess through their relationship with us to information about us.

**Dividends**

None.

**Securities Authorized for Issuance under EquityCompensation Plans**

See Item 12. “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters” for information regarding securities authorized for issuance under ourequity compensation plans.

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**Performance Graph**

***The following graph compares our cumulative totalstockholder return since the date our common stock began trading on The NewYork Stock Exchange, May 11, 2007, with the Russell 2000 Index and anaggregate of peer issuers in the information services industry. The peer issuersused for this graph are The Thomson Corporation, Equifax Inc., The Dun& Bradstreet Corporation, ChoicePoint Inc., FactSet ResearchSystems Inc., Fair Isaac Corporation, DealerTrack Holdings, Inc. andCoStar Group, Inc. Each peer issuer was weighted according to its respectivecapitalization on May 11, 2007.***

***The graph assumes that the value of the investment in ourcommon stock and each index was $100 on May 11, 2007.***

| ** **         | ** ** | **Cumulative Total Return** | ** ** |
|--------------------|------------|---------------------------------------|------------|
| ** **         | ** ** | **Solera  Holdings, Inc.**       | ** ** | **Russell 2000  Index** | ** ** | **Information Service  Peers** | ** ** |
| May 11, 2007  |       |                                  | $          | 100.00 |   |   |   | $ | 100.00 |   |   |   | $ | 100.00 |   |   |
| June 29, 2007 |       |                                  | 105.33     |   |   |   | 100.68 |   |   |   | 103.89 |   |   |

 

***The information in the graph and tableabove is not “soliciting material,’’ is not deemed “filed” with the Securitiesand Exchange Commission and is not to be incorporated by reference in any ofour filings under the Securities Act of 1933, as amended, or the SecuritiesExchange Act of 1934, as amended, whether made before or after the date of thisannual report, except to the extent that we specifically incorporate suchinformation by reference.***

**Issuer Purchases of EquitySecurities**

We did not repurchase anyof our common stock during the fourth quarter of the fiscal year ended June 30,2007.

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**ITEM 6.**                SELECTEDFINANCIAL DATA

The following table sets forth selected historicalfinancial information regarding our business and should be read in conjunctionwith Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and our consolidated financial statements and therelated notes included elsewhere in this Annual Report on Form 10-K.

The selected historicalconsolidated financial data as of and for the fiscal years ended June 30,2007 and 2006 are derived from the audited consolidated financial statements ofSolera Holdings, Inc. that are included elsewhere in this Annual Report onForm 10-K. The historical combined balance sheet data as of June 30,2003, 2004 and 2005 and the combined statements of operations and cash flowsdata for fiscal 2003, 2004 and 2005 and the period from July 1, 2005through April 13, 2006 are derived from the audited combined financialstatements of the Claims Services Group, which are not included in this AnnualReport on Form 10-K.

| ** **                                                                                                     | ** ** | **Solera Holdings, Inc.**                                | ** ** | ** **  | ** ** | **Claims Services Group(1)** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------|------------|----------------------------------------|------------|
| ** **                                                                                                     | ** ** | ** **                                                         | ** ** | ** **  | ** ** | ** **                             | ** ** | **July 1, 2005** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                     | ** ** | **Fiscal Year Ended June 30,**                 | ** ** | ** **  | ** ** | **to April 13,**             | ** ** | **Fiscal Year Ended June 30,** | ** ** |
| ** **                                                                                                     | ** ** | **2007**                                                           | ** ** | **2006(2)** | ** ** | ** **                             | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                     | ** ** | **(in thousands, except per share data)** | ** ** |
| **Statement of Operations Data:**                                                                              | ** ** | ** **                                                         | ** ** | ** **  | ** ** |                                   |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                                                                       |       | $                                                                  | 471,960    |        | $          | 95,084                                 |       |   |   |   | $ | 335,146 |   |   | $ | 412,355 |   | $ | 361,179 |   | $ | 311,334 |   |
| Cost of revenues:                                                                                              |       |                                                               |       |        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                                                             |       | 138,345                                                            |       | 29,013      |       |                                   |       |   | 101,995 |   |   | 117,361 |   | 107,590 |   | 88,708 |   |
| Systems development and  programming costs                                                                     |       | 65,041                                                             |       | 15,080      |       |                                   |       |   | 52,306 |   |   | 62,690 |   | 57,465 |   | 42,517 |   |
| Total cost of revenues  (excluding depreciation and amortization)                                         |       | 203,386                                                            |       | 44,093      |       |                                   |       |   | 154,301 |   |   | 180,051 |   | 165,055 |   | 131,225 |   |
| Selling, general and  administrative expenses                                                                  |       | 134,545                                                            |       | 27,105      |       |                                   |       |   | 87,033 |   |   | 112,480 |   | 94,757 |   | 80,105 |   |
| Depreciation and  amortization                                                                                 |       | 104,419                                                            |       | 23,571      |       |                                   |       |   | 28,894 |   |   | 34,335 |   | 28,754 |   | 23,834 |   |
| Restructuring charges  (benefit)                                                                               |       | 6,049                                                              |       | 2,871       |       |                                   |       |   | (468 | ) |   | 5,512 |   | 1,740 |   | 1,067 |   |
| Impairment charges                                                                                             |       | —                                                             |       | —      |       |                                   |       |   | — |   |   | — |   | 4,214 |   | — |   |
| Interest expense                                                                                               |       | 69,681                                                             |       | 14,842      |       |                                   |       |   | 318 |   |   | 334 |   | 271 |   | 284 |   |
| Other (income) expense,  net                                                                                   |       | 31,509                                                             |       | 1,836       |       |                                   |       |   | (3,069 | ) |   | (4,065 | ) | (1,323 | ) | (2,271 | ) |
| Earnings (loss) from  continuing operations before income tax provision (benefit) and minority  interests |       | $                                                                  | (77,629    | )           | (19,234    | )                                      |       |   |   | 68,137 |   |   | 83,708 |   | 67,711 |   | 77,090 |   |
| Income tax provision  (benefit)                                                                                |       | (773                                                               | )          | (1,268      | )          |                                   |       |   | 23,688 |   |   | 24,030 |   | 22,124 |   | 25,700 |   |
| Minority interests in net  income of consolidated subsidiaries                                                 |       | 4,050                                                              |       | 921         |       |                                   |       |   | 3,468 |   |   | 1,909 |   | 1,229 |   | 626 |   |
| Earnings (loss) from  continuing operations                                                                    |       | $                                                                  | (80,906    | )           | (18,887    | )                                      |       |   |   | 40,981 |   |   | 57,769 |   | 44,358 |   | 50,764 |   |
| Loss (income) from  discontinued operations                                                                    |       | —                                                             |       | —      |       |                                   |       |   | — |   |   | 128 |   | (3,816 | ) | 6,438 |   |
| Net income (loss)                                                                                              |       | $                                                                  | (80,906    | )           | (18,887    | )                                      |       |   |   | 40,981 |   |   | 57,641 |   | 48,174 |   | 44,326 |   |
| Less: Dividends and  redeemable preferred unit accretion                                                       |       | 14,614                                                             |       | 88,789      |       |                                   |       |   | — |   |   | — |   | — |   | — |   |
| Net income (loss)  allocable to common stockholders/unitholders                                                |       | $                                                                  | (95,520    | )           | $          | (107,676                               | )          |   |   |   | $ | 40,981 |   |   | $ | 57,641 |   | $ | 48,174 |   | $ | 44,326 |   |
| Basic net income (loss)  per common share/unit                                                                 |       | $                                                                  | (2.82      | )           | $          | (6.34                                  | )          |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted net income (loss)  per common share/unit(3)                                                            |       | $                                                                  | (2.82      | )           | $          | (6.34                                  | )          |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average common shares/units outstanding(3):                                                           |       |                                                               |       |        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                          |       | 33,865                                                             |       | 16,978      |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                                                        |       | 33,865                                                             |       | 16,978      |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| **Other Financial Data:**                                                                                      | ** ** | ** **                                                         | ** ** | ** **  | ** ** |                                   |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital expenditures                                                                                           |       | $                                                                  | 27,230     |        | $          | 4,112                                  |       |   |   |   | $ | 9,671 |   |   | $ | 7,659 |   | $ | 15,980 |   | $ | 14,940 |   |
| Cash flows provided by  (used in):                                                                             |       |                                                               |       |        |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Operating activities                                                                                           |       | 46,078                                                             |       | 45,356      |       |                                   |       |   | 51,325 |   |   | 106,840 |   | 74,017 |   | 113,000 |   |
| Investing activities                                                                                           |       | (41,507                                                            | )          | (936,471    | )          |                                   |       |   | (18,464 | ) |   | (62,975 | ) | (141,228 | ) | (28,598 | ) |
| Financing activities                                                                                           |       | (6,356                                                             | )          | 977,954     |       |                                   |       |   | (82,787 | ) |   | (33,369 | ) | 96,199 |   | (69,922 | ) |
| **Balance Sheet Data (as of end of period):**                                                                  | ** ** | ** **                                                         | ** ** | ** **  | ** ** |                                   |       |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash equivalents                                                                                      |       | $                                                                  | 89,868     |        | $          | 88,826                                 |       |   |   |   |   |   |   | $ | 121,313 |   | $ | 107,824 |   | $ | 76,886 |   |
| Total assets                                                                                                   |       | 1,223,953                                                          |       | 1,253,005   |       |                                   |       |   |   |   |   | 608,065 |   | 556,769 |   | 341,889 |   |
| Long-term debt, net  of current portion                                                                        |       | 599,128                                                            |       | 831,628     |       |                                   |       |   |   |   |   | — |   | — |   | — |   |
| Total group/unitholders’/stockholders’ equity (deficit)                                              |       | 401,274                                                            |       | (12,403     | )          |                                   |       |   |   |   |   | 399,282 |   | 376,386 |   | 213,061 |   |

 

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(1)             The Claims Services Group was owned by ADP untilsubsidiaries of Solera Holdings, LLC acquired it on April 13, 2006.

(2)             The statement of operations data for fiscal 2006include the results of operations for our predecessor from April 14, 2006and the results of operations for Solera Holdings, LLC for all of fiscal2006. Financial information presented reflects adjustment of assets andliabilities to then fair value at the date of the Acquisition, which is used asthe basis for amounts included in our results of operations from April 14,2006 until June 30, 2006. Prior to the Acquisition, Solera Holdings, LLC’soperations consisted primarily of developing our business plan, recruitingpersonnel, providing consulting services, raising capital and identifying andevaluating operating assets for acquisition.

(3)             All unit and per unit amounts give effect to aone-for-three reverse split of our common units, which was completed on April 30,2007.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OFOPERATIONS

You should read thefollowing discussion and analysis of our financial condition and results ofoperations in conjunction with the information set forth under Item 6. “SelectedFinancial Data” and our consolidated financial statements and the notes tothose statements included elsewhere in this Annual Report on Form 10-K.The statements in this discussion regarding industry outlook, our expectationsregarding our future performance, liquidity and capital resources and othernon-historical statements in this discussion are forward-looking statements. Theseforward-looking statements are subject to numerous risks and uncertainties,including, but not limited to, those described under Item 1A. “Risk Factors,”and elsewhere in this Annual Report on Form 10-K. Our actual resultscould differ materially from the results described in or implied by theforward-looking statements contained in the following discussion and analysis.

**Overview of theBusiness**

We are the leading globalprovider of software and services to the automobile insurance claims processingindustry. Our customers include more than 900 automobile insurance companies,including each of the ten largest automobile insurance companies in Europe andeach of the ten largest automobile insurance companies in North America. Wealso provide our software and services to over 33,000 collision repairfacilities, 7,000 independent assessors and 3,000 automotive recyclers. Oursoftware and services help our customers: estimate the costs to repair damagedvehicles; determine pre-collision fair market values for vehicles damagedbeyond repair; automate steps of the claims process; outsource steps of theclaims process that insurance companies have historically performed internally;and improve their ability to monitor and manage their businesses through datareporting and analysis. We have operations in 49 countries and derive most ofour revenues from our estimating and workflow software.

**Company History**

Solera Holdings, LLC was initially formed in March 2005.On April 13, 2006, subsidiaries of Solera Holdings, LLC acquired theClaims Services Group, or CSG, a business unit of ADP, for approximately $1.0billion. Prior to the Acquisition, Solera Holdings, LLC’s operations consistedprimarily of developing our business plan, recruiting personnel, providingconsulting services, raising capital and identifying and evaluating operatingassets for acquisition. For a discussion of the accounting basis for ourfinancial disclosures, see “Item 1—Business—General.”

We accounted for the Acquisition using the purchasemethod of accounting. As a result, the Acquisition has and will continue toaffect our results of operations significantly. We allocated the aggregateacquisition consideration to the tangible and intangible assets acquired andliabilities assumed based on their respective fair values as of the date of theAcquisition, which resulted in an increase in the accounting bases of some ofour assets. This has resulted in a significant increase in our annualdepreciation and amortization expenses. In addition, due to the effects of theincreased borrowings to finance the Acquisition, our interest expense hasincreased significantly in the periods following the acquisition. As a result,the financial information for periods beginning on or after July 1, 2006is not comparable to the information prior to this date.

Prior to the Acquisition, our business was operated asCSG, a business unit of ADP. As a result, the combined financial information ofCSG is presented on a carve-out basis and reflects the assets, liabilities,revenues and expenses that were attributed or allocated to it as a businessunit of ADP. The historical financial results in the combined financialstatements may not be indicative of the results that would have been achievedhad we operated as a stand-alone entity. These combined financial statementsinclude costs for facilities, functions and services used by CSG at ADP sitesthat it shared with other ADP business units 

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and costs for certainfunctions and services performed by centralized ADP organizations and directlycharged to CSG based on usage. The combined statements of earnings for CSGinclude allocations of certain expenses of ADP, including general corporateoverhead, insurance, stock compensation and pension plans, royalty fees,facilities and other expenses. These allocations were based on a variety offactors.

On May 10, 2007, inconnection with our initial public offering, we converted from a limitedliability company into a Delaware corporation, and all of our Class ACommon Units and Class B Preferred Units were converted into shares of ourcommon stock.

**Segments**

We operate our business using two reportable segments:EMEA and Americas. Our EMEA segment consists of our operations in Europe, theMiddle East, Africa and Asia. Our Americas segment consists of our operationsin North, Central and South America. Prior to December 1, 2006, weorganized our business using three reportable segments: EMEA, Americas and theNetherlands. Since that date, we have reorganized our operations into tworegional operating segments (EMEA and Americas) by incorporating our Netherlandsoperations into our EMEA segment. In addition, for periods prior to theAcquisition, we included our Latin American operations in our EMEA segment. Wehave recast the financial information in this Annual Report on Form 10-K,other than the information relating to our predecessor, to conform to ourcurrent segments.

Thetable below sets forth our revenues by regional operating segment and as apercentage of our total revenues for the periods indicated. 

| ** ** | ** ** | **Fiscal Year Ended June 30,** | ** ** |
|------------|------------|----------------------------------------------------|------------|
| ** ** | ** ** | **2007**                                           | ** ** | **2006  (Acquisition pro forma)** | ** ** | **2005  (Predecessor)** | ** ** |
| EMEA       |       | $                                                  | 280.1      |   | 59.3 | % | $ | 243.3 |   | 56.6 | % | $ | 227.0 |   | 55.0 | % |
| Americas   |       | 191.9                                              |       | 40.7 | % | 186.9 |   | 43.4 | % | 185.4 |   | 45.0 | % |
| Total      |       | $                                                  | 472.0      |   | 100 | % | $ | 430.2 |   | 100 | % | $ | 412.4 |   | 100 | % |

 

Setforth below is our percentage of revenues for the periods presented from eachof our principal customer categories:

| ** **                        | ** ** | **Fiscal Year Ended June 30** | ** ** |
|-----------------------------------|------------|---------------------------------------------------|------------|
| ** **                        | ** ** | **2007**                                          | ** ** | **2006  (Acquisition pro forma)** | ** ** | **2005  (Predecessor)** | ** ** |
| Insurance  companies              |       | $                                                 | 207.6      |   | 44.0 | % | $ | 192.7 |   | 44.8 | % | $ | 184.9 |   | 44.8 | % |
| Collision repair facilities       |       | 162.2                                             |       | 34.4 |   | 142.6 |   | 33.1 |   | 130.6 |   | 31.7 |   |
| Independent  assessors            |       | 44.9                                              |       | 9.5 |   | 40.3 |   | 9.4 |   | 36.4 |   | 8.8 |   |
| Automotive  recyclers and  others |       | 57.3                                              |       | 12.1 |   | 54.6 |   | 12.7 |   | 60.5 |   | 14.7 |   |
| Total                             |       | $                                                 | 472.0      |   | 100 | % | $ | 430.2 |   | 100 | % | $ | 412.4 |   | 100 | % |

 

For fiscal 2007, the United States, the Netherlandsand the United Kingdom were the only countries that individually representedmore than 10% of total revenues.

The accounting policiesfor each of our segments are the same. We evaluate the operating performance ofour segments based primarily upon their respective revenues and EBITDA. For themost part, we do not evaluate our costs and expenses on a per segment basis.

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**Components ofRevenues and Expenses**

***Revenues***

We generaterevenues from the sale of software and services to our customers pursuant tonegotiated contracts or pricing agreements. Pricing for our software andservices is set forth in these agreements and negotiated with each customer. Wegenerally bill our customers monthly under one or more of the following bases:

·       priceper transaction;

·       fixedmonthly amount for a prescribed number of transactions;

·       fixedmonthly subscription rate;

·       priceper set of services rendered; or

·       priceper system delivered.

Our software and services are often sold as packages,without individual pricing for each component. Our revenues are reflected netof customer sales allowances, which we estimate based on both our examinationof a subset of customer accounts and historical experience.

Elsewhere in this AnnualReport on Form 10-K, solely for ease of understanding, we havegrouped our software and services into five general categories: estimating andworkflow software, salvage and recycling software, business intelligence andconsulting services, shared services and other. See “Business—Our Software andServices.”  Our core offering is ourestimating and workflow software, which is used by our insurance company,collision repair facility and independent assessor customers and which webelieve represents the majority of our revenues. We believe that our salvageand recycling software, business intelligence and consulting services, sharedservices and other offerings represent in the aggregate a smaller portion of ourrevenues. We currently derive an insubstantial portion of our revenues from ourshared services offerings. We believe that our estimating and workflow softwarewill continue to represent a majority of our revenue for the foreseeablefuture.

***Cost of Revenues (excluding depreciation andamortization)***

Our costs and expensesapplicable to revenues represent the total of operating expenses and systemsdevelopment and programming costs, which are discussed below.

***Operating Expenses***

Our operating expensesinclude compensation and benefit costs for our operations, database developmentand customer service personnel; other costs related to operations, databasedevelopment and customer support functions; third-party data and royalty costs;and costs related to computer software and hardware used in the delivery of oursoftware and services.

***Systems Development and Programming Costs***

Systems development andprogramming costs include compensation and benefit costs for our productdevelopment and product management personnel, other costs related to ourproduct development and product management functions and costs related toexternal software consultants involved in systems development and programmingactivities.

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***Selling, General and Administrative Expenses***

Our selling, general andadministrative expenses include compensation and benefit costs for our sales,marketing, administration and corporate personnel; other costs related to oursales, marketing, administrative and corporate functions; costs related to ourfacilities; and professional and legal fees.

***Depreciation and Amortization***

Depreciation includesdepreciation attributable to buildings, leasehold improvements, data processingand computer equipment, furniture and fixtures. Amortization includesamortization attributable to software purchases and software developed orobtained for internal use and our intangible assets, the majority of which wereacquired in the Acquisition.

***Interest Expense***

Interest expense consistsprimarily of payments of interest on our credit facilities and amortization ofrelated debt issuance costs.

***Other (Income) Expense-Net***

Other (income) expense-netconsists of foreign exchange gains and losses on notes receivable and notespayable to affiliates as well as other miscellaneous income and expense.

***Minority Interests in Net Income of ConsolidatedSubsidiaries***

Several of our customersown minority interests in our local operating subsidiaries. Minority interestsin net income of consolidated subsidiaries reflect such customers’proportionate interest in the earnings of such operating subsidiaries. In April 2004,we increased our ownership interest in a Spanish entity from 25% to 75%, whichresulted in such entity being consolidated with our results of operations.

***Income Tax Provision (Benefit)***

Prior to our corporate reorganization on May 10,2007, we were a limited liability company and, therefore, we were not subjectto entity-level federal income taxation. However, even as a limited liabilitycompany, we incurred income taxes on our operations as they were held bytaxable entities in the U.S. and in foreign jurisdictions. Historical financialstatements for our predecessor, which was a C corporation for federal incometax purposes, are based on corporate tax rates for the periods presented. Priorto our corporate reorganization, our income taxes were payable by our equityholders at rates applicable to them. Following our conversion to a Ccorporation, transactions recorded by us are subject to federal income taxationfor which we do not expect a significant impact to our overall income taxliability. Income taxes have been provided for all items included in thestatements of income (loss) included herein, regardless of when such items werereported for tax purposes or when the taxes were actually paid or refunded.

As part of theAcquisition, a portion of the purchase price was allocated to intangible assetsand goodwill. For most jurisdictions in which we operate, the amortizationcharges and impairment charges will not be deductible for income tax purposes.The net deferred tax liability as shown on our balance sheet is primarily theresult of the difference between book and tax basis of the acquired intangibleassets.

**Factors AffectingOur Operating Results**

***Overview.******  ***The automobileinsurance claims processing industry is influenced by growth and trends in theautomobile insurance industry. Demand for our software and services isgenerally related to automobile usage and the penetration of automobileinsurance in our markets. A large portion of our 

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operating costs are fixedand we generate a large percentage of our revenues from periodic-andtransaction-based fees related to software and ongoing claims processingservices.

Our operatingresults are and will be influenced by a variety of factors, including:

·       gainand loss of customers;

·       pricingpressures;

·       expansionsinto new markets, which requires us to incur costs prior to generatingrevenues;

·       expensesto develop new software or services;

·       restructuringcharges related to efficiency initiatives;

·       the Acquisition in April 2006, including the debtwe incurred; and

·       ourcorporate reorganization and the refinancing transactions.

***Foreign currency.******  ***During thefiscal year ended June 30, 2007, we generated approximately 69% of ourrevenues, and incurred a majority of our costs, in currencies other than theU.S. dollar, primarily the Euro. We currently do not hedge our exposure toforeign currency risks. In our historical financial statements, we re-measureour local currency financial results in U.S. dollars based on average exchangerates prevailing during a reporting period or the exchange rate at the end ofthat period. These re-measurements resulted in foreign currency translationadjustments of $3.8 million in fiscal 2006 and $4.8 million in fiscal2007 in our consolidated financial statements.

In February 2006, we entered into a foreignexchange option that gave us the right to call $200.0 million in U.S.dollars at a strike price of €1.1646 per U.S. dollar atany time up to February 8, 2011. We paid approximately $7.9 millionfor this option. The fair value of this option was approximately$4.0 million as of June 30, 2006 and $1.0 million as of June 30,2007, and was recorded in other assets in our consolidated balance sheet.Decreases in fair value of approximately $3.9 million, and $3.0 millionwere recognized in other expense in the statement of operations during fiscal2006 and 2007, respectively.

***Non-cash charges.******  ***On July 25,2006, November 8, 2006 and January 26, 2007, we granted the right topurchase Class A common units to certain employees. Under these and otherarrangements, we issued an aggregate of 625,429 Class A common units to 20of our employees for $0.2 million in January 2007 and an aggregate of50,000 Class A common units to two of our employees for $15,000 in February 2007.In May 2007, we issued restricted stock units covering an aggregate of304,730 shares to certain of our employees. We expect to incur a pre-tax,non-cash charge of approximately $7.6 million in connection with theseissuances, expensed ratably over vesting periods of up to 60 months. Duringfiscal 2007, we have recognized approximately $2.3 million as compensationexpense. In the fourth quarter of fiscal 2007, we incurred an additional pre-tax,non-cash charge of approximately $35.7 million on the early extinguishmentof debt associated with the completion of our initial public offering and therefinancing of debt. This relates primarily to the write-off of unamortizeddebt issuance costs and a prepayment premium on our second lien credit facilityand our subordinated unsecured credit facility.

***Restructuringcharges*.*  ***We have incurred restructuring charges (orreversal) in each period presented and also expect to incur additionalrestructuring charges, primarily relating to severance costs, over the nextseveral quarters as we work to improve efficiencies in our business. We arecurrently evaluating several plans that would eliminate redundant personnel ineach of our segments, as well as reduce our need for certain facilities. If allof these plans were to be executed upon, we would expect to incur restructuringcharges of approximately $3.0 million to $4.0 million over the nexttwelve months. These potential charges, consisting primarily of terminationbenefits, will significantly reduce our cash balances. The resulting benefit ofthese restructuring plans, if implemented, would reduce our cost of revenuesand our selling, general and administrative expenses by approximately$2.5 million to $4.0 million on an annual 

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basis.We do not expect reduced revenues or an increase in other expenses as a resultof any of these restructuring plans.

**Results ofOperations**

Thetable below sets forth our results of operations data expressed as a percentageof revenues for the periods indicated:

| ** **                                                         | ** ** | **Fiscal Year Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                         | ** ** | **2007**                                           | ** ** | **2006  (Acquisition  pro forma)** | ** ** | **2005  (Predecessor)** | ** ** |
| Revenues                                                           |       | 100                                                | %          |   | 100 | % |   |   | 100 | % |   |
| Cost of revenues:                                                  |       |                                               |       |   |   |   |   |   |   |   |   |
| Operating expenses                                                 |       | 29.3                                               |       |   | 30.2 |   |   |   | 28.5 |   |   |
| Systems development and programming costs                          |       | 13.8                                               |       |   | 15.0 |   |   |   | 15.2 |   |   |
| Total cost of  revenues (excluding depreciation and amortization)  |       | 43.1                                               |       |   | 45.2 |   |   |   | 43.7 |   |   |
| Selling,  general & administrative expenses               |       | 28.5                                               |       |   | 25.8 |   |   |   | 27.3 |   |   |
| Depreciation and  amortization                                     |       | 22.1                                               |       |   | 28.4 |   |   |   | 8.3 |   |   |
| Restructuring  charges                                             |       | 1.3                                                |       |   | 0.6 |   |   |   | 1.3 |   |   |
| Interest expense                                                   |       | 14.8                                               |       |   | 16.6 |   |   |   | 0.1 |   |   |
| Other (income)  expense—net                                   |       | 6.7                                                |       |   | (0.3 | ) |   |   | (1.0 | ) |   |
| Earnings before  provision for income taxes and minority interests |       | (16.5                                              | )          |   | (16.3 | ) |   |   | 20.3 |   |   |
| Income tax  provision (benefit)                                    |       | (0.2                                               | )          |   | 0.2 |   |   |   | 5.8 |   |   |
| Minority interest  in net income of consolidated subsidiaries      |       | 0.9                                                |       |   | 1.0 |   |   |   | 0.5 |   |   |
| Net earnings (loss) from  continuing operations                    |       | (17.2                                              | )          |   | (17.5 | ) |   |   | 14.0 |   |   |

 

Thetable below sets forth statement of operations data, including the amount andpercentage changes for the periods indicated:

| ** **                                                              | ** ** | **Fiscal Year Ended June 30,** | ** ** | **2007 to 2006  Change**      | ** ** | **2006 to 2005  Change** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------|------------|-----------------------------------------|------------|------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                           | ** ** | **2006  (Acquisition  pro forma)** | ** ** | **2005  (Predecessor)**            | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                                              | ** ** | **(dollars in thousands)**               | ** ** |
| Revenues                                                                |       | $                                                  | 471,960    |                                    |       | $                                  | 430,230    |   |   |   | $ | 412,355 |   |   | $ | 41,730 |   | 9.7 | % | $ | 17,875 |   | 4.3 | % |
| Cost of revenues:                                                       |       |                                               |       |                                    |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                      |       | 138,345                                            |       |                                    | 129,834    |                               |       |   | 117,361 |   |   | 8,511 |   | 6.6 |   | 12,473 |   | 10.6 |   |
| Systems development and programming costs                               |       | 65,041                                             |       |                                    | 64,357     |                               |       |   | 62,690 |   |   | 684 |   | 1.1 |   | 1,667 |   | 2.7 |   |
| Total cost of revenues (excluding depreciation  and  amortization) |       | 203,386                                            |       |                                    | 194,191    |                               |       |   | 180,051 |   |   | 9,195 |   | 4.7 |   | 14,140 |   | 7.9 |   |
| Selling, general and administrative expenses                            |       | 134,545                                            |       |                                    | 110,950    |                               |       |   | 112,480 |   |   | 23,595 |   | 21.3 |   | (1,530 | ) | (1.4 | ) |
| Depreciation and amortization                                           |       | 104,419                                            |       |                                    | 122,560    |                               |       |   | 34,335 |   |   | (18,141 | ) | (14.8 | ) | 88,225 |   | 257.0 |   |
| Restructuring charges                                                   |       | 6,049                                              |       |                                    | 2,403      |                               |       |   | 5,512 |   |   | 3,646 |   | 151.7 |   | (3,109 | ) | (56.4 | ) |
| Interest expense                                                        |       | 69,681                                             |       |                                    | 71,388     |                               |       |   | 334 |   |   | (1,707 | ) | (2.4 | ) | 71,054 |   | 21,273.7 |   |
| Other (income) expense—net                                         |       | 31,509                                             |       |                                    | (1,233     | )                                  |       |   | (4,065 | ) |   | 32,742 |   | (2,655.5 | ) | 2,832 |   | (69.7 | ) |
| Earnings before provision for income taxes and  minority interest       |       | (77,629                                            | )          |                                    | (70,029    | )                                  |       |   | 83,708 |   |   | (7,600 | ) | (10.9 | ) | (153,737 | ) | (183.7 | ) |
| Income tax provision (benefit)                                          |       | (773                                               | )          |                                    | 957        |                               |       |   | 24,030 |   |   | (1,730 | ) | (180.8 | ) | (23,073 | ) | (96.0 | ) |
| Minority interest in net income of consolidated  subsidiaries      |       | 4,050                                              |       |                                    | 4,389      |                               |       |   | 1,909 |   |   | (339 | ) | (7.7 | ) | 2,480 |   | 129.9 |   |
| Net earnings  (loss) from continuing operations                         |       | $                                                  | (80,906    | )                                       |       | $                                  | (75,375    | ) |   |   | $ | 57,769 |   |   | $ | (5,531 | ) | (7.3 | ) | $ | (133,144 | ) | (230.5 | )% |

 

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**Fiscal Year Ended June 30,2007 Compared to Fiscal Year Ended June 30, 2006 (Acquisition Pro Forma)**

*Revenues.**  *Revenues increased $41.7 milliondue to higher revenues in both our EMEA and Americas segments. Our EMEArevenues increased $36.8 million, or 15.1%, to $280.1 million due togrowth in transaction and subscription revenues in several countries from bothexisting as well as several new customers, and a $3.5 million increaseresulting from the completion of a small acquisition in the Netherlands. Our Americasrevenues increased $4.9 million, or 2.6%, to $191.8 million due togrowth in transaction and subscription revenues in the U.S., Canada, Brazil andMexico, partially offset by the loss of several significant U.S. insurancecustomer contracts, and a reduction in contract pricing terms given to a largeU.S. insurance customer. Revenue growth for each of our customer categories wasas follows:

| ** **                      | ** ** | **Fiscal Year Ended  June 30, 2007** | ** ** |
|---------------------------------|------------|----------------------------------------------------------|------------|
| **Customer category**      | ** ** | ** **                                               | ** ** | **Revenue  Growth** | ** ** | **Percentage  Change** | ** ** |
| Insurance  companies            |       |                                                     | $          | 14.9 |   |   |   | 7.7 | % |   |
| Collision repair  facilities    |       |                                                     | 19.6       |   |   |   | 13.7 |   |   |
| Independent  assessors          |       |                                                     | 4.6        |   |   |   | 11.4 |   |   |
| Automotive  recyclers and other |       |                                                     | 2.6        |   |   |   | 4.8 |   |   |
| Total                           |       |                                                     | $          | 41.7 |   |   |   | 9.7 | % |   |
|                                 |            |                                                          |            |  |  |  |  |  |  |  |  |  |

 

*Operatingexpenses.**  *Operatingexpenses increased $8.5 million, or 6.6%, due to higher operating expensesin both our EMEA and Americas segments. Operating expenses increased $0.9 millionin our Americas segment due to a $0.7 million increase in third partylicense and royalty fees and a $0.4 million increase in personnel costs,offset by a $0.2 million decrease in other operating expenses. Operatingexpenses increased $7.6 million in our EMEA segment due to a$10.8 million increase in data center and external support and maintenancecosts and a $2.0 million increase in third party license and royaltycosts, offset by a $4.0 million decrease in personnel costs and a $1.2 milliondecrease in other operating expenses. We continually evaluate our operatingcosts in order to identify inefficiencies and eliminate unnecessary costs. Weanticipate that, although our operating expenses will continue to increase,they will decline as a percentage of revenues over the next several years.

*Systemsdevelopment and programming costs.**  *Systems development and programmingcosts increased $0.7 million, or 1.1%, due to a $3.6 million increasein costs in our EMEA segment, offset by a $2.9 reduction in costs in ourAmericas segment The increased costs in our EMEA segment were related to additionalexpenses associated with the development of software updates and new softwarereleases. The lower costs in our Americas segment were due to reductions in thenumber of full-time systems development and programming personnel and lowerexternal software consultant costs. Our systems development and programmingcosts fluctuate based upon the levels and timing of product releases. We expectour systems development and programming costs to remain relatively stable overthe next several quarters.

*Selling,general and administrative expenses.**  *Selling, general and administrativeexpenses increased $23.6 million, or 21.3%, due to increased costs of $13.4 millionin our EMEA segment and increased costs of $10.2 million in our Americassegment. The increased costs in our Americas segment were the result of anincrease in professional and legal fees, facilities costs, and severance andacquisition transition costs. The increased costs in our EMEA segment were theresult of an increase in personnel costs, facilities costs, advertising costs andseverance and acquisition transition costs. A portion of these costs increasesin our EMEA segment were the result of our expansion efforts into new markets,such as Eastern Europe, India and China. We expect these expenses to continueto increase as we incur additional costs associated with being a public companyand as we continue to expand our business into new markets.

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*Depreciationand amortization.**  *Depreciationand amortization decreased by $18.1 million primarily due to lowerintangibles amortization expense resulting from the Acquisition. We amortizethese intangible assets on an accelerated basis to reflect the pattern in whicheconomic benefits of the intangible assets are consumed. Although we expect toexperience significant depreciation and amortization in the future as weamortize intangible assets purchased in the Acquisition, we anticipate that theamount of total depreciation and amortization expense will continue to declineover the next several years.

*Restructuringcharges.**  *Restructuringcharges of $6.0 million were incurred during fiscal 2007 as a result ofoperational reviews conducted after the Acquisition and relate almost entirelyto one-time termination benefits. We expect to incur additional restructuringcharges, relating primarily to severance costs, over the next several quartersas we work to improve efficiencies in our business.

*Interestexpense.**  *Interestexpense decreased $1.7 million due to lower borrowings under our creditfacilities, which were in part due to the refinancing transactions completed onMay 16, 2007 in conjunction with our initial public offering. We expectthat our annual interest expense will continue to decrease as we repayoutstanding indebtedness.

*Other(income) expense, net.**  *Totalother (income) expense, net increased $32.7 million due to a $35.7 millionwrite-off of deferred financing fees associated with our prior creditfacilities that were amended and restated on May 16, 2007 in conjunctionwith our initial public offering, offset by lower net realized and unrealizedlosses on our derivative instruments and other (income) and expenses.

*Income tax provision.**  *We recorded an income tax benefitof $0.8 million for fiscal 2007. Factors that impact our income taxprovision include (but are not limited to) the mix of jurisdictional earnings,establishment of valuation allowances in certain jurisdictions, and varyingjurisdictional income tax rates that are applied.

**Fiscal Year Ended June 30,2006 (Acquisition Pro Forma) Compared to Fiscal Year Ended June 30, 2005 (Predecessor)**

*Revenues.**  *Revenue growth in fiscal 2006(Acquisition pro forma) was due to a significant increase in revenues in ourEMEA segment and a small increase in revenues in our Americas segment. Our EMEArevenues grew $16.3 million, or 7.2%, to $243.3 million due to a$16.3 million increase in revenues resulting from the inclusion of a fulltwelve months of operations of our Spanish subsidiary, which we beganconsolidating in May 2005, and a $1.8 million increase due to theacquisition of two German entities in fiscal 2006. These increases werepartially offset by reduced sales in several of our European countriesresulting from prior price reductions offered to several customers. OurAmericas revenues increased $1.6 million, or 0.8%, to $186.9 milliondue to growth in Canada, Brazil and Mexico, partially offset by the loss ofseveral significant U.S. insurance company customer contracts and a reductionin contract pricing terms given to a large U.S. insurance customer.

*Operatingexpenses.**  *The$12.5 million increase in operating expenses was due to an increase ofapproximately $7.5 million in costs of customer support, operations, anddatabase development personnel and approximately $5.0 million as a resultof the inclusion of a full twelve months of operations of our Spanishsubsidiary, which we began consolidating in May 2005.

*Systemsdevelopment and programming costs.**  *Systems development and programmingcosts increased $1.7 million due to increases of $0.6 million insystems development and programming personnel and external software consultantcosts related to the development of software version updates and new productreleases in certain of our markets and approximately $1.1 million relatedto inclusion of a full twelve months of operations of our Spanish subsidiary.

*Selling,general and administrative expenses.**  *Selling, general and administrativeexpenses decreased due to reduced costs of executive, administrative and salespersonnel, which resulted from a workforce 

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reduction, partiallyoffset by an increase of approximately $2.4 million due to the inclusionof a full twelve months of operations of our Spanish subsidiary.

*Depreciationand amortization.**  *Depreciationand amortization increased significantly due to the amortization of intangiblesassociated with the Acquisition. The depreciation and amortization correspondedto the value allocated to our assets as a result of the Acquisition.

*Restructuringcharges.**  *Werecorded restructuring charges, which consisted primarily of one-timetermination benefits, of approximately $2.4 million during fiscal 2006 (Acquisitionpro forma) as a result of restructuring initiatives related to operationalreviews conducted after the Acquisition. These restructuring initiatives weredesigned to achieve efficiencies and reduce costs in response to changes inprojected demand for certain of our services and include one-time terminationbenefits related to the termination of approximately 45 employees. We recordedrestructuring charges, which primarily consisted of one-time terminationbenefits, of approximately $5.5 million during fiscal 2005 (Predecessor)as a result of similar restructuring initiatives. These one-time terminationbenefits related to the termination of approximately 125 employees.

*Interestexpense.**  *Interestexpense increased significantly as a result of borrowings under our creditfacilities in connection with the Acquisition.

*Other(income) expense, net.**  *Otherexpense in fiscal 2006 (Acquisition pro forma) included a $3.9 millionwrite-down in the fair value of our foreign currency exchange option offset by a$1.1 million unrealized gain related to two interest rate swaps.

*Income tax provision.**  *Income taxes were a provision of$1.0 million in fiscal 2006 (Acquisition pro forma) compared to $24.0 millionin fiscal 2005 (Predecessor) as a result of amortization expense and interestexpense associated with the Acquisition. Pro forma fiscal 2006 reflects a proforma tax rate of 1.3% and fiscal 2005 (Predecessor) reflects an actual taxrate of 28.7%. The fiscal 2006 (Acquisition pro forma) tax expense is primarilydue to losses of $51.4 million resulting from interest charges related toAcquisition indebtedness occurring in jurisdictions for which we have notrecorded a tax benefit due to uncertainty regarding the realizability of suchlosses.

**Liquidity andCapital Resources**

Prior to the Acquisition, our predecessor’s principalsources of liquidity were capital contributions from ADP and cash generatedfrom operations. Since the Acquisition, our principal sources of cash haveincluded cash generated from operations and bank borrowings. Our principal usesof cash have included debt service, capital expenditures and working capital.We expect that these will remain our principal uses of cash in the future;however, we may use additional cash to pursue additional acquisitions. Weexpect our cash needs to service debt will decrease in future periods as aresult of the application of proceeds from the refinancing transactionscompleted in conjunction with our initial public offering which were used torepay debt.

We believe that cash flowfrom operating activities and borrowings under our amended and restated seniorcredit facility will be sufficient to fund currently anticipated workingcapital, planned capital spending and debt service requirements for theforeseeable future, including at least the next twelve months. We regularlyreview acquisition and other strategic opportunities, which may requireadditional debt or equity financing. We currently do not have any pendingagreements or understandings with respect to any acquisition or other strategicopportunity.

***Cash and Cash Equivalents***

As of June 30, 2007,we had cash and cash equivalents of $89.9 million. We fund our operations,working capital and capital expenditures with our cash on hand and short-termborrowings under our 

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creditfacility. Our cash on hand and short-term borrowings vary significantly basedon our cash flows as set forth below.

***Cash Flows***

Thefollowing summarizes our primary sources and uses of cash in the periodspresented:

| ** **            | ** ** | **Fiscal Year Ended June 30,** | ** ** |
|-----------------------|------------|----------------------------------------------------|------------|
| ** **            | ** ** | **2007**                                           | ** ** | **2006** | ** ** | **2005  (Predecessor)** | ** ** |
| ** **            | ** ** | **(in thousands)**                            | ** ** |
| Operating  activities |       | $                                                  | 46,078     |   | $ | 45,356 |   |   | $ | 106,840 |   |   |
| Investing  activities |       | $                                                  | (41,507    | ) | $ | (936,471 | ) |   | $ | (62,975 | ) |   |
| Financing activities  |       | $                                                  | (6,356     | ) | $ | 977,954 |   |   | $ | (33,369 | ) |   |

 

*Operatingactivities.**  *Cashprovided by operating activities was $46.1 million and $45.4 millionduring fiscal 2007 and 2006, respectively. The increase in cash provided byoperating activities during fiscal 2007 was primarily the result of an increasein the non-cash adjustments, such as depreciation and amortization and loss ondebt extinguishment, to reconcile net loss to cash, partially offset by thechanges in operating assets and liabilities. Cash provided by operationsdecreased in fiscal 2006 due primarily to the fact that our figure for fiscal2006 incorporates the results of our predecessor only for the period from April 14,2006 through June 30, 2006 and our figure for fiscal 2005 represents afull twelve months of our predecessor’s operations.

*Investing activities.**  *Cash used in investing activitiesin fiscal 2005 included acquisition of 50% interest in an affiliate in Spainfor approximately $31.5 million. Cash used in investing activities infiscal 2006 included $924.4 million net cash amount used to complete the Acquisitionon April 13, 2006. In fiscal 2007, we acquired a small operating entity inthe Netherlands for approximately $1.0 million. We also paid approximately$13.2 million to ADP as final working capital payment for the Acquisition.

For fiscal 2007, capital expenditures were $27.2 million,consisting of computers, computer software, leasehold improvements andfurniture and fixtures. Capital expenditures were $7.7 million and $4.1 millionin fiscal 2005 and 2006, respectively, and were for the purchase of computers,computer software, leasehold improvements and furniture and fixtures. Ourpredecessor’s capital expenditures were $9.7 million during the periodfrom July 1, 2005 through the date of the Acquisition.

*Financingactivities.**  *Cashused in financing activities was $6.4 million during fiscal 2007 and cashprovided by financing activities was $978.0 millionduring fiscal 2006. Cash used during fiscal 2007 was the net result of ourinitial public offering and debt refinancing proceeds offset by payments on theoriginal debt incurred for the Acquisition. Cash provided by financingactivities during fiscal 2006 consisted primarily of issuances of debt, offsetby the payment of principal on our long-term borrowings.

Financingactivities in fiscal 2005 included amounts received from ADP, the parent of ourpredecessor. Financing activities in fiscal 2006 included proceeds raised by usto finance the Acquisition on April 13, 2006. The aggregate purchase pricefor the Acquisition was approximately $1.0 billion, including costsattributable to the Acquisition. The Acquisition was financed through:

·       borrowings under our seniorsecured credit facility of approximately $714.6 million;

**·****     **borrowingsunder our subordinated unsecured credit facility of approximately $95.2 million;and

·       the sale of equitysecurities to investment funds managed by GTCR and other related investors andcertain members of our senior management for approximately $207.8 million.

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We received $281.8 millionin net proceeds from our initial public offering, which we completed on May 16,2007, after deducting underwriting discounts, commissions and expenses ofapproximately $25.4 million, and $610.7 million in net proceeds underour amended and restated credit facility, after debt issuance costs of approximately$4.4 million. $889.2 million of the $892.5 million of combinednet proceeds were used to repay (1) $538.6 million under our thenexisting first lien credit facility, (2) $226.2 million under ourthen existing second lien credit facility, and (3) $124.4 millionunder our then existing subordinated unsecured credit (mezzanine) facility.

***Amended and Restated Senior Credit Facility***

In connection with our initial public offering, weentered into an amended and restated senior credit facility. Our amended andrestated senior credit facility consists of a $50.0 million revolvingcredit facility, a $230.0 million domestic term loan and a €280.0 millionEuropean term loan. As of June 30, 2007, we had $8.1 million, $229.4 millionand $375.8 million (€279.3 million) in outstanding loansunder the revolving credit facility, domestic term loan and European term loan,respectively, with interest rates of 6.375%, 7.360% and 6.164%, respectively.The amended and restated senior credit facility contains a leverage ratio,which is applicable only to the revolving loans and applies only if at least$10.0 million of revolving loans, net of outstanding letters of credit,are outstanding for at least 10 days during the prior fiscal quarter.

In addition, the amendedand restated senior credit facility contains covenants restricting us fromundertaking specified corporate actions, including asset dispositions,acquisitions, payment of dividends and other specified payments, changes ofcontrol, incurrence of indebtedness, creation of liens, making loans andinvestments and transactions with affiliates.

**ContractualObligations and Commercial Commitments**

Thefollowing table reflects our contractual obligations as of June 30, 2007:

| ** **                              | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------------------|------------|-------------------------------------------|------------|
| ** **                              | ** ** | **Total**                                 | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
| ** **                              | ** ** | **(in thousands)**                   | ** ** |
| Long-term  debt obligations(1)          |       | $                                         | 875,857    |   |   | $ | 51,899 |   |   | $ | 89,687 |   | $ | 85,014 |   | $ | 649,257 |   |
| Software license  and other obligations |       | 16,161                                    |       |   | 10,688 |   |   | 5,394 |   | 79 |   | — |   |
| Operating lease  obligations            |       | 58,463                                    |       |   | 12,757 |   |   | 21,700 |   | 15,202 |   | 8,804 |   |
| Total                                   |       | $                                         | 950,481    |   |   | $ | 75,344 |   |   | $ | 116,781 |   | $ | 100,295 |   | $ | 658,061 |   |

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(1)          Representsprincipal maturities and includes the effects of interest and interest rateswaps.

**Off-Balance SheetArrangements**

Our off-balance sheetarrangements comprise our operating leases. As of June 30, 2007, we had no****outstanding letters of credit.

**Inflation andSeasonality**

We believe inflation hasnot had a material effect on our financial condition or results of operationsin recent years. Our business does not experience any material level ofseasonality.

**Critical AccountingPolicies and Estimates**

The accompanying consolidated financial statements ofSolera Holdings, Inc., have been prepared in accordance with generallyaccepted accounting principles. The preparation of these financial statementsrequires us to make estimates and judgments that affect the amounts reported inthose financial 

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statements. On an ongoingbasis, we evaluate estimates. We base our estimates on historical experiencesand assumptions which we believe to be reasonable under the circumstances.Those estimates form the basis for our judgments that affect the amountsreported in the financial statements. Actual results could differ from ourestimates under different assumptions or conditions. Our significant accountingpolicies, which may be affected by our estimates and assumptions, are morefully described in Note 2 to the consolidated financial statements of SoleraHoldings, Inc. and the accompanying consolidated financial statements.

*Goodwilland other intangible assets.**  *We account for goodwill and other intangible assetsin accordance with Statement of Financial Accounting Standards, or SFAS, No. 142,*Goodwill and Other Intangible Assets*,which states that goodwill and intangible assets with indefinite useful livesshould not be amortized, but instead be tested for impairment at least annuallyat the reporting unit level. If an impairment exists, a write-down to fairvalue (normally measured by discounting estimated future cash flows) isrecorded. Intangible assets with finite lives are amortized over theirestimated useful lives based on expected revenues to be generated from the useof such assets and are reviewed for impairment in accordance with SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*. As of June 30, 2007, we had goodwill of$569.2 million and intangible assets of $363.0 million.

*Revenuerecognition.**  *Weconsider the guidance in Staff Accounting Bulletin Topic 13, *Revenue Recognition*, or SAB 104,American Institute of Certified Public Accountants, or AICPA, Statement ofPosition 97-2, *Software RevenueRecognition*, as amended, or SOP 97-2, SFAS No. 13, *Accounting for Leases*, Emerging IssuesTask Force, or EITF, Issue No. 00-03, *Application of AICPA Statement of Position 97-2 toArrangements That Include the Right to Use Software Stored on Another Entity’sHardware*, and Emerging Issues Task Force Issue No. 00-21,*Revenue Arrangements with MultipleDeliverables,* or EITF 00-21, in accounting for ourrevenue arrangements. Revenues are recognized only after services are provided,when persuasive evidence of an arrangement exists, the fee is fixed anddeterminable, and when collectibility is reasonably assured. Our multiple elementarrangements primarily include a combination of software licenses, hosteddatabase and other services, installation and set-up services, hardware,maintenance services and transaction-based deliverables.

We generate a significant majority of our revenue fromsubscription-based contracts (where a monthly fee is charged),transaction-based contracts (where a fee per transaction is charged) andsubscription-based contracts with additional transaction-based fees (where amonthly fee and a fee per transaction are charged).

Subscription-based and transaction-based contractsgenerally include the delivery of software, access to software through a hostedservice, or hosted database, upfront fees for the implementation and set-upactivities necessary for the client to use/access the software, orimplementation services, and maintenance. Under a subscription arrangement,delivery of software, access to the hosted database and maintenance areconsidered a single element or a combined unit of accounting, and related revenuesare recognized at the end of each month upon the completion of the monthlyservice. Revenues under transaction-based contracts are recognized based on theguidance in AICPA Technical Practice Aid 5100.76, *Fair value in multiple-element arrangements that include contingentusage based fees and software revenue recognition,* orTPA 5100.76. The transaction-based fee represents payment for the right touse the software, access to the hosted database and maintenance. The fee isconsidered fixed and determinable only at the time actual usage occurs. Revenueis recognized-based on actual usage. Implementation services are considered aseparate element or unit of accounting and the related revenue recognition isdescribed below.

Subscription-based contracts with additional fees forcertain types of transactions generally include all deliverables discussed inthe above paragraph and also include an additional element, which is the optionto access specialized queries on the hosted database. Revenue under subscription-basedcontracts with additional fees for certain types of transactions is accountedfor based on the guidance in TPA 5100.76. 

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Under these arrangements,the delivery of software, access to software through the hosted database, andmaintenance are considered a combined unit of accounting and the related fee isrecognized at the end of each month upon the completion of the monthly service.The transaction-based fee is recognized at the time of actual usage.Implementation services are considered a separate element or unit of accountingand the related revenue recognition is described below.

When we are required to perform setup andimplementation activities necessary for the client to receive services and/orsoftware, up-front fees billed during the setup/implementation phase aredeferred and amortized on a straight-line basis over the estimated customerlife. The upfront fees represent fair value of the implementation servicesbased on vendor specific objective evidence. The amortization of this deferredrevenue will commence upon the start of the monthly service. Setup costs thatare direct and incremental to the contract are capitalized and amortized on astraight-line basis over the estimated customer life.

In a limited number of revenue arrangements describedabove, we also provide generic computer equipment as part of the salesarrangement. Based on guidance in EITF Issue No. 03-5, *Applicability of AICPA Statement of Position 97-2,“Software Revenue Recognition”, to Non-Software Deliverables in an ArrangementContaining More-than-Incidental Software*, the generic computerequipment is considered a non-software deliverable since our software is notessential to the functionality of the generic computer equipment. Based onguidance in EITF No. 01-8, *DeterminingWhether an Arrangement Contains a Lease*, EITF 00-21, *Revenue Arrangements with Multiple Deliverables*,and SFAS 13, *Accounting for Leases*,or SFAS 13, we account for the sale of generic equipment as a directfinance lease. The related revenue is recognized over the term of the contractusing the effective interest rate method. We allocate revenue to SFAS 13elements (equipment leases) and the non-SFAS 13 elements of its arrangements ona relative fair value basis using our best estimate of the fair value of theelements. Revenue from leased computer equipment represents approximately 1% ofour consolidated revenue.

Revenues are reflected net of customer salesallowances, which are based on both specific identification of certain accountsand a predetermined percentage of revenue based on historical experience.

*Stock-BasedCompensation.**  *EffectiveJuly 1, 2006, we adopted SFAS No. 123 (revised 2004), Share-BasedPayment, or SFAS 123(R), which requires the measurement and recognition ofcompensation expense for all stock-based payment awards made to employees anddirectors, including employee stock options and share awards, based onestimated fair values recognized over the requisite service period. Prior toadoption of SFAS 123(R), pursuant to SFAS No. 123 *Accounting for Stock-Based Compensation*,we accounted for employee share awards under Accounting Principles Board, orAPB, No. 25, *Accounting for StockIssued to Employees*, or APB Opinion No. 25, and followed the *Disclosure—Only Provisions* of SFASNo. 123.

Wemade the following grants of, or granted the following rights to purchase, commonunits/shares or restricted common units/shares from January 1, 2006 toJune 30, 2007:

| **Grant Date**    | ** ** | ** ** | ** ** | **Number of  restricted  common  shares/units** | ** ** | **Purchase  price per  common  share/unit** | ** ** | **Fair value  per common  share/unit** | ** ** | **Was fair value  determined in a  contemporaneous  valuation** | ** ** | **Intrinsic  value per unit  (based on  fair value and  purchase price)** | ** ** | **Intrinsic  value per unit  (based on the  initial public  offering  price)** | ** ** |
|------------------------|------------|------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|
| April 13,  2006   |       |       | 1,230,942  |                                                 |       |                                             | $          | 0.30                                             |       |                                                                                |       | $                                                                                                       | 2.94       |                                                                                               |       |   | Yes |   |   |   | $ | 2.64 |   |   |   | $ | 15.70 |   |   |
| July 25,  2006    |       |       | 1,097,846  |                                                 |       |                                             | $          | 0.30                                             |       |                                                                                |       | $                                                                                                       | 2.94       |                                                                                               |       |   | No |   |   |   | $ | 2.64 |   |   |   | $15.70 |   |   |
| November 8,  2006 |       |       | 34,165     |                                                 |       |                                             | $          | 0.30                                             |       |                                                                                |       | $                                                                                                       | 12.36      |                                                                                               |       |   | Yes |   |   |   | $ | 12.06 |   |   |   | $ | 15.70 |   |   |
| January 26,  2007 |       |       | 50,000     |                                                 |       |                                             | $          | 0.30                                             |       |                                                                                |       | $                                                                                                       | 15.30      |                                                                                               |       |   | Yes |   |   |   | $ | 15.00 |   |   |   | $ | 15.70 |   |   |
| May 11, 2007      |       |       | 304,730    |                                                 |       |                                             | $          | 0.01                                             |       |                                                                                |       | $                                                                                                       | 16.00      |                                                                                               |       |   | Yes |   |   |   | $ | 15.99 |   |   |   | $ | 15.99 |   |   |

 

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As of June 30, 2007, we had 1,996,760 sharesoutstanding from the grants made on April 13, July 25, November 8,2006, January 26, 2007, and May 11, 2007. Based on the initial publicoffering price of $16.00 per share, the aggregate intrinsic value of theseoutstanding shares as of June 30, 2007, was $31.4 million, of which $11.7 millionrelated to 743,388 vested shares and $19.7 million related to 1,253,372unvested shares. At the Acquisition date, and at each subsequent date that wegranted equity awards to our employees, we were required to determine the fairvalue of our aggregate equity, as well as the individual fair value of each ofour preferred and common units. The terms of the preferred units provided thatsuch units could be redeemed by us at any time at their redemption value, whichwas equal to the unreturned capital contributions made in respect of suchpreferred units, plus accrued and unpaid yield of 8% per annum. As a result, asignificant portion of any subsequent increase in our aggregate equity value,as determined at each subsequent measurement date, was attributed to the commonunits as opposed to the preferred units. The fixed-return nature of thepreferred units was demonstrated by the formula we used to convert ourpreferred units into shares of common stock in our corporate reorganization:the liquidation value of the preferred units plus accrued and unpaid yielddivided by the initial public offering price.

We acquired the Claims Services Group from ADP on April 13,2006 based on a competitive auction process. We therefore believe that theenterprise value and aggregate equity value derived from this transaction wererepresentative of their respective fair values. The enterprise fair value wasvalidated by using market multiple and discounted cash flow methods. We used aninternal rate of return, or IRR, method to allocate our aggregate equity valuebetween our preferred and common units. The IRR method is similar to theProbability Weighted Expected Return Method described in the *AICPA Audit and Accounting Practice Aid for Valuationof Privately-Held Company Equity Securities Issued as Compensation.*Wedetermined that the IRR method was the most appropriate method to use becauseit enabled us to directly determine the value of our preferred units based uponan expected return method using market rates, and thus to allocate anyremaining aggregate equity value to our common units. The IRR method is basedupon the value we assign to various future outcomes or exit events. The perunit values are based on the probability weighted present value of expectedfuture returns, considering each of the possible future outcomes available tous, as well as the rights of each class of our equity securities. On April 13,2006, using the IRR method described above, we determined that the value ofeach preferred unit was equal to $600.40 per unit and that the value of eachcommon unit was equal to $2.94 per unit. We assumed a 5.2 year holdingperiod based upon a hypothetical exit event in June 2011, which weconsidered reasonable at the time based on typical targeted holding periods forprivate equity funds. Because we had just acquired the Claims Services Group andassembled a new management team, we considered an exit event that is typicalfor private equity funds as the most appropriate outcome for us. We assigned a100% probability to this expected outcome. A 19.0% IRR was targeted for thepreferred units based on the median IRR of various preferred spread studies wedetermined to be relevant. Based on the targeted return for the preferredunits, we derived an implied return on our common equity of 36.0%. Theaggregate equity return was derived based on EBITDA exit multiples of 8.0x.These exit multiples were deemed appropriate based on comparable companymultiples and our financial projections at the time. We determined that theaggregate equity return of approximately 27.2% was consistent with expectedreturns of financial sponsors in similar situations.

On July 25, 2006, we determined that there was nochange in the fair value of the common units from April 13, 2006, andtherefore used a value of $2.94 per common unit to determine the compensationexpense for the rights to purchase common units we granted on that date. Webelieved that there was no change in fair value between April 13, 2006 andJuly 25, 2006 due to the following factors: (1) the relativevaluation metrics of the selected comparable publicly traded companiesincreased as much as 2.8% and decreased by as much as 26.8%, with an averagedecrease of 12.2% during this period; and we searched for and were unable tofind any acquisitions of comparable businesses during the period from April 13,2006 to July 25, 2006, causing us to determine that there was no change inthe acquisition multiples of comparable businesses contained in the April 13,2006 report; (2) our financial projections, growth and cash flow 

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forecasts on July 25,2006 had not changed significantly from those used in the April 13, 2006discounted cash flows method of valuation due to the limited passage of time; (3) weexperienced no significant developments between April 13, 2006 and July 25,2006, such as significant contract wins that would have impacted relativevaluations; and (4) we had no discussions with external parties, includinginvestment banks, regarding our prospects during this period.

On November 8, 2006, we determined that ouraggregate equity value had increased by approximately $360 million as a resultof an increase in our enterprise value of approximately $310 million and areduction in our net debt of approximately $50 million since the priormeasurement date of July 25, 2006. We used the IRR method described aboveto allocate this increase to our preferred and common units. We used a holdingperiod of approximately 4.6 years, as we still considered an exit event in June 2011to be a reasonable assumption. This assumption was unchanged from the April 13,2006 assumption, except for the passage of time. As a result, we assigned a100% probability to this expected outcome. We used a targeted 11.8% IRR for thepreferred units based on the median of various preferred spread studies wedetermined to be relevant. Based on the targeted return for the preferredunits, we derived an implied return on our common equity of 21.6%. Theaggregate equity return was derived based on EBITDA exit multiples of 10.0x.These exit multiples were deemed appropriate based on comparable company multiplesand our financial projections at that time. We determined that an aggregateequity return of approximately 18.8% was consistent with expected returns offinancial sponsors in similar situations. Due to the redemption price of ourpreferred units being fixed, approximately $300 million of the $360 millionincrease was ascribed to common units and approximately $60 million wasascribed to preferred units. The approximately $300 million increasein the value of our common units consisted of approximately $214 millionattributed to the use of a comparable public company EBITDA multiple that was24.4% higher than the implied purchase price multiple paid in the Acquisitionfor valuation purposes; approximately $44 million attributed to an increase inour adjusted EBITDA for the last twelve months of approximately $5.0 million;and approximately $42 million attributed to a reduction in our net debt. As aresult, the approximately 30% increase in our enterprise value resulted in amore than 300% increase in the value of our common equity. On November 8,2006, using the IRR method described above, we determined that the value ofeach preferred unit was equal to $902.37 per unit and the value of each commonunit was equal to $12.36 per unit.

On February 5, 2007, we determined that ouraggregate equity value had increased by approximately $110 million as aresult of an increase in our enterprise value of approximately $135 million,offset by an increase in our net debt of approximately $25 million sincethe prior measurement date of November 8, 2006. To derive the aggregateequity value, we used the IRR method with two holding period scenarios: (1) ascenario involving an initial public offering, or IPO, within three months, and(2) a 4.4 year holding period resulting in an exit event in June 2011similar to our assumptions of April 13, 2006 and November 8, 2006. Weapplied a 70% probability to the IPO scenario and a 30% probability to the 4.4 yearholding period scenario. We considered the three-month scenario to bereasonable given our progress towards making a filing with the SEC regarding aninitial public offering. We applied a greater probability to the three-monthholding period approach as the probability of a filing for an IPO was estimatedto be high. For both exit scenarios, an IPO and a sale, an 11.8% IRR wastargeted for the preferred units based on the median of various preferredspread studies we determined to be relevant. Based on the targeted return forthe preferred units, we derived implied returns on the common equity of 21.3%using a 4.4 year holding period and 52.5% using three-month period. Theaggregate equity returns were derived based on EBITDA exit multiples of 10.0x(4.4 year holding period) and 11x (three-month holding period). These exitmultiples were deemed appropriate based on comparable company multiples and ourfinancial projections at that time. The aggregate equity returns ofapproximately 19% (4.4 year holding period) and 39% (three-month holdingperiod) are consistent with expected returns of financial sponsors in similarsituations. Due to the redemption price of our preferred units being fixed,approximately $90 million of the $110 million increase was ascribedto common units and approximately $20 million was ascribed to preferredunits. On 

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February 5, 2007,using the IRR method described above, we determined that the value of eachpreferred unit was equal to $997.36 per unit and the value of each common unitwas equal to $15.30 per unit.

*Foreigncurrency translation.**  *Theassets and liabilities of our foreign subsidiaries are translated into U.S.dollars based on exchange rates in effect at the end of each period, andrevenues and expenses are translated at average exchange rates during theperiods. Functional currencies of significant foreign subsidiaries includeEuros, British pounds, Swiss francs, and Canadian dollars. Currency transactiongains or losses, which are included in the results of operations, totaled$3.8 million and $4.8 million in fiscal 2006 and 2007, respectively.Gains or losses from balance sheet translation are included in stockholders’equity within accumulated other comprehensive income on the consolidatedbalance sheets.

*Internaluse software.**  *Expendituresfor software purchases and software developed or obtained for internal use arecapitalized and amortized over a three- to five-year period on a straight-linebasis. For software developed or obtained for internal use, we capitalize costsin accordance with the provisions of Statement of Position No. 98-1,*Accounting for the Costs of ComputerSoftware Developed or Obtained for Internal Use*. Our policy providesfor the capitalization of external direct costs of materials and servicesassociated with developing or obtaining internal use computer software. Inaddition, we also capitalize certain payroll and payroll-related costs foremployees who are directly associated with internal use computer softwareprojects. The amount of capitalizable payroll costs with respect to theseemployees is limited to the time directly spent on such projects. Costsassociated with preliminary project stage activities, training, maintenance,and all other post-implementation stage activities are expensed as incurred. Wealso expense internal costs related to minor upgrades and enhancements as it isimpractical to separate these costs from normal maintenance activities.

*Incometaxes.**  *Weuse the asset and liability method of accounting for income taxes in accordancewith SFAS No. 109, *Accounting forIncome Taxes.*Under this method, income tax expenses or benefits arerecognized for the amount of taxes payable or refundable for the current yearand for deferred tax liabilities and assets for the future tax consequences ofevents that have been recognized in our consolidated financial statements ortax returns. We also account for any income tax contingencies in accordancewith SFAS No. 5, *Accounting forContingencies*. The measurement of current and deferred tax assetsand liabilities are based on provisions of currently enacted tax laws. Theeffects of future changes in tax laws or rates are not contemplated.

In addition, the calculation of our tax liabilitiesinvolves dealing with uncertainties in the application of complex taxregulations. We recognize liabilities for anticipated tax audit issues in theUnited States and other tax jurisdictions based on our estimate of whether, andthe extent to which, additional tax payments are probable. If we ultimatelydetermine that payment of these amounts is unnecessary, we reverse theliability and recognize a tax benefit during the period in which we determinethat the liability is no longer necessary. This may occur for a variety ofreasons, such as the expiration of the statute of limitations with respect to aparticular tax return or the signing of a final settlement agreement with therespective tax authority. We record an additional charge in our provision fortaxes in the period in which we determine that the recorded tax liability isless than we expect the ultimate assessment to be.

As part of the process of preparing consolidatedfinancial statements, we are required to estimate our income taxes and taxcontingencies in each of the jurisdictions in which we operate prior to thecompletion and filing for tax returns for such periods. This process involvesestimating actual current tax expense together with assessing temporarydifferences, or reversing book-tax differences, resulting from differingtreatment of items, such as deferred revenue, for tax and accounting purposes. Thesedifferences result in net deferred tax assets and liabilities. We must thenassess the likelihood that the deferred tax assets will be realizable and tothe extent we believe that realizability is not likely, we must establish avaluation allowance. To the extent we establish a valuation allowance in aperiod, we must include a tax expense or benefit within the tax provision inthe statement of operations. In the event that actual results differ from 

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these estimates or weadjust these estimates in future periods, we may need to adjust our valuationallowances, which could impact our results of operations in the quarter inwhich such determination is made.

At June 30, 2007, our deferred tax assets ofapproximately $45 million are comprised of $29 million of net operatinglosses and the remainder pertaining to temporary differences. Approximately $12 millionand $16 million of our net operating losses are generated in the UnitedStates and the Netherlands, respectively, and are attributed primarily tointerest expense under our debt arrangements. We have established a fullvaluation allowance against our net operating losses in the Netherlands as wedo not believe it is more likely than not that we will generate sufficientincome after interest expenses to realize the benefits of the Netherlands netoperating losses within the nine-year carryforward period under Netherlandslaw. While we are continuing to generate net operating losses in the US, webelieve it is more likely than not that we will generate sufficient incomeafter interest expense in the US to realize the benefits of these losses withinthe 20-year carryforward period under US tax law. We considered thefollowing factors in not establishing a valuation allowance against netoperating losses generated in the United States:

·       a solid history of operatingprofits and no expiration of unused tax attributes for the U.S. group;

·       a future taxable incomebased on adjusted EBITDA using management’s forecast; and

·       potential tax planning strategy to increase U.S. taxableincome.

**Recent AccountingPronouncements**

On December 16, 2004, the Financial AccountingStandards Board, or the FASB, issued SFAS 123(R), which eliminates thealternative of applying the intrinsic value measurement provisions of AccountingPrinciples Board, or APB, No. 25, *Accountingfor Stock Issued to Employees,*or**APB Opinion No. 25,to stock-based compensation awards issued to employees. Rather, SFAS 123(R)requires enterprises to measure the cost of employee services received inexchange for an award of equity instruments generally based on the grant-datefair value of the award. That cost will be recognized over the period duringwhich an employee is required to provide services in exchange for the award,known as the requisite service period (usually the vesting period). EffectiveJuly 1, 2006, we adopted SFAS 123(R), which requires the measurementand recognition of compensation expense for all share-based payment awards madeto employees and directors, including employee stock options and share awards,based on estimated fair values recognized over the requisite service period.Prior to adoption of SFAS 123(R), pursuant to SFAS No. 123 *Accounting for Stock-Based Compensation*, orSFAS 123, we accounted for employee unit awards under APB Opinion No. 25and followed the disclosure-only provisions of SFAS No. 123.

We adopted SFAS 123(R) using the prospectivetransition method. Under this method, SFAS 123(R) is applied to new awardsand to awards modified, repurchased or cancelled after the adoption date ofJuly 1, 2006. Compensation cost that was previously recorded under APBOpinion No. 25 for awards outstanding at the adoption date, such asunvested options, will continue to be recognized as the options vest.Accordingly, for the year ended June 30, 2007, we recorded $2.3 millionin stock/unit-based compensation expense which includes compensation costrelated to estimated fair values of awards granted after the date of adoptionof SFAS 123(R) and compensation costs related to unvested awards at thedate of adoption based on the intrinsic values as previously recorded under APBOpinion No. 25.

In June 2006,the FASB issued Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes*, an interpretation of FAS 109, *Accounting for Income Taxes,* or FIN 48,to create a single model to address accounting for uncertainty in taxpositions. FIN 48 clarifies the accounting for income taxes by prescribinga minimum recognition threshold a tax position is required to meet before beingrecognized in the 

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financialstatements. FIN 48 also provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure, and transition. FIN 48 is effective for fiscal years beginningafter December 15, 2006. We will adopt FIN 48 as of July 1,2007, as required. The cumulative effect of adopting FIN 48 will berecorded in retained earnings and other accounts as applicable. We have notdetermined the effect, if any, that the adoption of FIN 48 will have onour financial position and results of operations. As a result of FIN 48, wecould have greater volatility in our effective tax rate in the future.

In September 2006, the FASB issued SFAS No. 158, *Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans*—an amendment of FASB Statements No. 87,88, 106 and 132(R), or SFAS No. 158. This statement requires a company to(a) recognize in its statement of financial position an asset for a plan’soverfunded status or a liability for a plan’s underfunded status, (b) measurea plan’s assets and its obligations that determine its funded status as of theend of the employer’s fiscal year, and (c) recognize changes in the fundedstatus of a defined benefit plan in the year in which the changes occur(reported in comprehensive income). The requirement to recognize the fundedstatus of a benefit plan and the related disclosure requirements were effectivefor us as of the end of fiscal 2007 and we adopted the statement at that time.The adoption of SFAS No. 158 resulted in a $0.5 million reduction instockholders’ equity, net of income taxes. The measurement date for all plansis June 30, 2007, and as such no additional impact is expected.

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements,* orSFAS 157. This statement clarifies the definition of fair value,establishes a framework for measuring fair value, and expands the disclosureson fair value measurements. SFAS 157 is effective for fiscal yearsbeginning after November 15, 2007. We are currently evaluating the effectthat the adoption of SFAS 157 will have, if any, on its consolidatedresults of operations and financial condition.

In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin No. 108, or SAB 108. SAB 108considers the effects of prior year misstatements when quantifyingmisstatements in current year financial statements. It is effective for fiscalyears ending after November 15, 2006. We applied the guidance inSAB 108 as of July 1, 2006. The application of SAB 108 did nothave a significant effect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assetsand Financial Liabilities*, or SFAS 159, which permits companiesto choose to measure certain financial instruments and certain other items atfair value. The standard requires that unrealized gains and losses on items forwhich the fair value option has been elected be reported in earnings. SFAS No. 159is effective for us beginning in the first quarter of fiscal year 2009 althoughearlier adoption is permitted. We are currently evaluating the impact thatSFAS 159 will have on our consolidated financial statements.

In March 2007, the FASBratified EITF Issue No. 06-11, *Accounting for Income TaxBenefits of dividends on Share-Based Payment Awards*, or EITF 06-11.EITF 06 11 requires companies to recognize the income tax benefit realizedfrom dividends or dividend equivalents that are charged to retained earningsand paid to employees for non-vested equity-classified employee share-basedpayment awards as an increase to additional paid-in capital. EITF 06-11is effective for fiscal years beginning after September 15, 2007. We donot expect that EITF 06-11 will have a material impact on ourresults of operations or cash flows.

**Forward-LookingStatements**

This section and otherparts of this Annual Report on Form 10-K contain forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, or the Securities Act, and Section 21E of the ExchangeAct. In some cases, forward-looking statements can be identified by words suchas “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similarterms. Such forward-looking statements are based on current expectations,estimates and projections about our industry, management’s 

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beliefsand assumptions made by management. Forward-looking statements are notguarantees of future performance and our actual results may differsignificantly from the results discussed in the forward-looking statements.Factors that might cause such differences include, but are not limited to thosediscussed in Part I, Item 1A, “Risk Factors.” Unless otherwise required bylaw, we expressly disclaim any obligation to update publicly anyforward-looking statements, whether as result of new information, future eventsor otherwise.

**AvailableInformation**

Our internet websiteaddress is www.solerainc.com. Our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-Kand amendments to those reports filed or furnished pursuant to Section 13or 15(d) of the Exchange Act will be available free of charge through ourwebsite as soon as reasonably practicable after they are electronically filedwith, or furnished to, the Securities and Exchange Commission. Our website andthe information contained or incorporated therein are not intended to be incorporatedinto this report.

**Company Overview**

**ITEM 7A.**            QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

**Foreign CurrencyRisk**

We conduct operations inmany countries around the world. Our results of operations are subject to bothcurrency transaction risk and currency translation risk. We incur currencytransaction risk when we enter into either a purchase or sale transaction usinga currency other than our functional currency. With respect to currencytranslation risk, our financial condition and results of operations aremeasured and recorded in the relevant domestic currency and then translatedinto U.S. dollars for inclusion in our consolidated financial statements.Exchange rates between these currencies and U.S. dollars have fluctuatedsignificantly over the last few years and may continue to do so in the future.A substantial portion of our revenues and costs are denominated in oreffectively indexed to U.S. dollars, but the majority of our revenues and costsare denominated in Euros, British pounds, Swiss francs, Canadian dollars andother currencies. Historically, we have not undertaken hedging strategies tominimize the effect of currency fluctuations on our results of operations andfinancial condition; however, we may decide this is necessary in the future.

**Interest Rate Risk**

We are exposed to interest rate risks primarilythrough borrowings under our revolving loan arrangement and term loans.Interest on these borrowings is based upon variable interest rates. Ourweighted-average borrowings outstanding under the revolving loan arrangementand term loans during fiscal 2007 was $822 million and the weighted-averageinterest rate in effect at June 30, 2007 was 6.614%. We terminated theinterest rate collar related to our old senior credit agreement on December 18,2006. Based on the foregoing, a hypothetical 1% increase or decrease ininterest rates would have resulted in a $8.2 million change to our interestexpense in fiscal 2007.

During the fourth quarter of fiscal 2006, we enteredinto two interest rate swaps with maturities on July 13, 2011. One swap hada notional amount of $195.0 million and required us to pay a fixed rate of5.35%. The other swap had a notional amount of €368.4million and required us to pay, on a quarterly basis, a fixed rate of 3.72%.These swaps had an estimated fair value of $1.1 million as of June 30,2006, and we recognized an increase in fair value of $1.1 million duringfiscal 2006. During fiscal 2007, we recognized net gains of $6.7 millionin other (income) related to these swaps, which were terminated on June 25,2007 for a total cash settlement of $7.7 million.

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Effective on June 29,2007, we entered into three USD-based interest rate swaps with notional amountsof $50.0 million, $81.0 million and $75.0 million withmaturities on June 30, 2011 which require us to pay fixed rates of 5.445%,5.418% and 5.445%, respectively. We also entered into three Euro-based interestrate swaps with notional amounts of €69.8 million, €50.0 million,and €60.0 millionwith maturities on June 30, 2011 which require us to pay fixed rates of 4.603%,4.679%, and 4.685%, respectively. These interest rate swaps are designated anddocumented at the inception of the hedge as cash flow hedges and are evaluatedfor effectiveness quarterly. The effective portion of the gain or loss on thesehedges is reported as a component of accumulated other comprehensive income/(loss)in stockholders’ equity and reclassified into earnings when the hedgedtransaction affects earnings. The ineffective portion on these cash flow hedgesis recognized as other (income)/expense. The estimated fair value of $0.8 millionon USD-based swaps, net of tax, and €0.4 million ($0.6 million)on Euro-based swaps was recorded in other liabilities in the consolidatedbalance sheet as of June 30, 2007. The change of $1.1 million in the fairvalue of swaps reflects the effective portion of loss on these hedges and isreported as a component of accumulated other comprehensive loss instockholders’ equity.

**ITEM 8.**                CONSOLIDATEDFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financialstatements, together with the related notes and the report of independentregistered public accounting firm, are set forth on the pages indicated inItem 15 in this Annual Report on Form 10-K.

**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes inor disagreements with accountants on accounting and financial disclosure.

**ITEM 9A.**        CONTROLSAND PROCEDURES

**We** maintaindisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in its reports pursuant to the Exchange Act, isrecorded, processed, summarized and reported within the time periods specifiedRule 13a-15 under the Exchange Act, and that such information isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure. Management is responsible for establishing andmaintaining adequate internal control over financial reporting.

As required by Rule 13a-15(b) under theExchange Act, we carried out an evaluation, under the supervision and with theparticipation of our management, including the Chief Executive Officer and theChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures. Based on the foregoing, our ChiefExecutive Officer and Chief Financial Officer determined that disclosurecontrols and procedures were effective at a reasonable assurance level as ofthe end of the period covered by this report.

There has been no change in internal controls overfinancial reporting during the most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, internal controls overfinancial reporting.

**This**annual report does notinclude a report of management’s assessment regarding internal control overfinancial reporting or an attestation report of our registered publicaccounting firm due to a transition period established by rules of the SEC fornewly public companies.

**ITEM 9B.**           OTHERINFORMATION

None.

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**PART III**

**ITEM 10.**         DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Setforth below are the name, age, position and a description of the businessexperience of each of our executive officers and directors.

| **Name**            | ** ** | ** ** | ** ** | **Age**                                           | ** ** | **Position** |
|---------------------|------------|------------|------------|---------------------------------------------------|------------|--------------|
| Tony Aquila         |       | 42         |       | President, Chief  Executive Officer and Director  |
| Jack Pearlstein     |       | 43         |       | Chief Financial Officer,  Secretary and Treasurer |
| John Schwinn        |       | 47         |       | Senior Vice President                             |
| Michael D. Conway   |       | 39         |       | Vice President                                    |
| Philip A. Canfield  |       | 39         |       | Director                                          |
| Craig A. Bondy      |       | 34         |       | Director                                          |
| Garen Staglin       |       | 62         |       | Director                                          |
| Roxani Gillespie    |       | 66         |       | Director                                          |
| Stuart J. Yarbrough |       | 56         |       | Director                                          |
| Jerrell W. Shelton  |       | 62         |       | Director                                          |

 

*Tony Aquila*has served as our President and Chief Executive Officer since our formation inApril 2005, as a member of our board of managers between April 2005 and May 2007and as a member of our board of directors since the completion of our corporatereorganization on May 10, 2007. From September 2001 until December 2004,Mr. Aquila held various positions, including President and Chief OperatingOfficer, at Mitchell International Inc., a provider of software and services tothe automobile insurance, collision repair, medical claim and glass replacementindustries. Mr. Aquila joined Mitchell when it acquired Ensera, Inc.,an automotive claims workflow and software processing company Mr. Aquilafounded in 1999. Prior to Ensera, Mr. Aquila was the Chief ExecutiveOfficer and founder of MaxMeyer America, Inc., an importer and distributorof European automotive refinishing products formed in partnership with MaxMeyer-DucoS.p.A.

*Jack Pearlstein*has served as our Chief Financial Officer since April 2006. From September 2001to November 2004, Mr. Pearlstein served as the Chief FinancialOfficer, Treasurer and Secretary of DigitalNet Holdings, Inc., a leadingprovider of network, security, information and application services to U.S.defense and intelligence agencies. From September 2000 until July 2001,Mr. Pearlstein served as Chief Financial Officer of Commerce One, Inc.’sGlobal Services division, which he joined in September 2000 when CommerceOne, Inc. acquired AppNet, Inc., a leading provider of Internet-and electronic commerce-based professional services and solutions. Mr. Pearlsteinalso serves as a director of Syniverse Technologies, Inc., a NYSE-listedenabler of wireless voice and data communications for telecommunicationscompanies, which is controlled by GTCR. Mr. Pearlstein has a B.S. inAccounting from New York University and an M.B.A. in Finance from GeorgeWashington University.

*John Schwinn*has served as our Senior Vice President since April 2005 and leads theconsulting and business analytics services groups. From September 2001until December 2004, Mr. Schwinn served as Vice President of CorporateDevelopment of Mitchell International Inc., which he joined in September 2001when Mitchell International Inc. acquired Ensera, Inc., an automotiveclaims workflow and software processing company. From September 2000 untilSeptember 2001, Mr. Schwinn was Ensera’s Chief Operating Officer andfrom January 1994 until September 2000, Mr. Schwinn was VicePresident of Business Development for ADP’s Claims Services Group. Mr. Schwinnhas a B.S. in Economics from the Wharton School at the University of Pennsylvania,an M.S. in Economics from the London School of Economics and an M.B.A. fromHarvard Business School.

*Michael D. Conway*hasserved as our Vice President since April 2005. From September 2000 toDecember 2004, Mr. Conway held various positions at MitchellInternational Inc., including Senior 

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Director of SalesOperations and Senior Director of Business Development. From 1998 to 2000, Mr. Conwayheld various positions with OnHealth Network Company, a publicly-tradedInternet health company, including Chief Financial Officer, Vice President ofFinance, Controller and Secretary. Mr. Conway has a B.A. in Economics andAccounting from Claremont McKenna College and an M.B.A. from Claremont GraduateSchool’s Peter Drucker School of Management.

*Philip A. Canfield*has been a member of our board of directors since the completion of ourcorporate reorganization on May 10, 2007 and served as a member of ourboard of managers between April 2005 and May 2007. Mr. Canfieldhas been a principal at GTCR Golder Rauner, L.L.C. since 1997. Mr. Canfieldhas a B.S. in Finance from the Honors Business Program at the University ofTexas at Austin and an M.B.A. from the University of Chicago. Mr. Canfieldalso serves as a board member of several private GTCR portfolio companies.

*Craig A. Bondy*has been a member of our board of directors since the completion of ourcorporate reorganization on May 10, 2007 and served as a member of ourboard of managers between April 2005 and May 2007. He is a principalof GTCR, which he joined in July 2000. He previously worked in theinvestment banking department of Credit Suisse First Boston. Mr. Bondy hasa B.B.A. in Finance from the Honors Business Program at the University of Texasat Austin and an M.B.A. from the Stanford Graduate School of Business. Mr. Bondyserves on the board of directors of VeriFone Holdings, Inc. and severalprivate GTCR portfolio companies.

*Garen Staglin*has been a member of our board of directors since the completion of ourcorporate reorganization on May 10, 2007 and served as a member of ourboard of managers between April 2005 and May 2007. From 2001 to 2004,Mr. Staglin served as the President and Chief Executive Officer of eONEGlobal LP, an emerging payments company. From 1993 to 1999, Mr. Staglinserved as Chairman and Chief Executive Officer of Safelite Glass Corporation, amanufacturer of replacement autoglass and related insurance services. Mr. Staglinalso serves as a director of Global Document Solutions, Inc., a digitalprinting, imaging and customer relationship management outsourcing company,ExlService Holdings, Inc., a provider of offshore business processoutsourcing solutions, and Bottomline Technologies, Inc., a leadingprovider of collaborative payment and invoice automation solutions. Mr. Staglinhas a B.S. in engineering from UCLA and an M.B.A. from the Stanford GraduateSchool of Business.

*Roxani Gillespie*has been a member of our board of directors since the completion of ourcorporate reorganization on May 10, 2007 and served as a member of our boardof managers between April 2005 and May 2007. Ms. Gillespie is apartner in the law firm of Barger & Wolen LLP, where she has workedsince 1997. From 1986 to 1991, Ms. Gillespie served as the Commissioner ofInsurance for the State of California. Ms. Gillespie also serves on theboard of directors of 21st Century Insurance Group.

*Stuart J. Yarbrough*has been a member of our board of directors since the completion of our initialpublic offering on May 16, 2007. Mr. Yarbrough is the chief executiveofficer of 3Point Capital Partners, LLC, a private equity firm focusing on thebuilding products sector, where he has worked since February 2007. From1994 through February 2007, Mr. Yarbrough was a principal atCrossHill Financial Group Inc., a company he co-founded, whichprovides debt financing to growth companies. Mr. Yarbrough has a B.A. inmanagement sciences from Duke University.

*Jerrell W. Shelton*has been a member of our board of directors since the completion of our initialpublic offering on May 16, 2007. Mr. Shelton is an advisor to MedleyCapital LLC, a private investment management firm. From June 2004 to May 2006,Mr. Shelton served as the chairman and chief executive officer of Wellness, Inc.,a company that designs, manufacturers and installs healthcare equipment forhospitals and other clinical customers. From November 2000 to June 2004,Mr. Shelton served as a visiting executive, and then advisory director,for the Research Division of IBM Corporation, a provider of, among otherthings, business and information technology consulting and implementationservices. Mr. Shelton has 

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a B.S. in businessadministration from the University of Tennessee and an M.B.A. from HarvardUniversity.

**Board Composition**

Our certificate ofincorporation provides that our board of directors shall consist of such numberof directors as determined from time to time by resolution adopted by amajority of the total number of directors then in office. Our board ofdirectors consists of seven members, three of whom, Ms. Gillespie and Messrs. Sheltonand Yarbrough, qualify as “independent” according to the rules andregulations of the SEC and NYSE. Any additional directorships resulting from anincrease in the number of directors may only be filled by the directors then inoffice. The term of office for each director will be until his or her successoris elected and qualified or until his or her earlier death, resignation orremoval. Stockholders will elect directors each year at our annual meeting.

**Board Committees**

The composition, dutiesand responsibilities of our audit committee, compensation committee andnominating and corporate governance committee are set forth below. Committeemembers hold office for a term of one year. In the future, our board mayestablish other committees, as it deems appropriate, to assist with itsresponsibilities.

*Audit Committee.**  *The audit committee is responsiblefor (1) selecting the independent auditors, (2) approving the overallscope of the audit, (3) assisting the board in monitoring the integrity ofour financial statements, the independent auditors’ qualifications andindependence, the performance of the independent auditors and our internalaudit function and our compliance with legal and regulatory requirements, (4) annuallyreviewing an independent auditors’ report describing the auditing firms’internal quality-control procedures and any material issues raised by themost recent internal quality-control review, or peer review, of theauditing firm, (5) discussing the annual audited financial and quarterlystatements with management and the independent auditor, (6) discussingearnings press releases, as well as financial information and earnings guidanceprovided to analysts and rating agencies from time to time, (7) discussingpolicies with respect to risk assessment and risk management, (8) meetingseparately, periodically, with management, internal auditors and the independentauditor, (9) reviewing with the independent auditor any audit problems ordifficulties and management’s response, (10) setting clear hiring policiesfor employees or former employees of the independent auditors,(11) handling such other matters that are specifically delegated to theaudit committee by the board of directors from time to time and(12) reporting regularly to the full board of directors.

Our audit committeeconsists of Ms. Gillespie and Messrs. Shelton and Yarbrough. Ourboard of directors has determined that Ms. Gillespie and Messrs. Sheltonand Yarbrough are independent directors according to the rules andregulations of the SEC and the NYSE and that Mr. Yarbrough qualifies as an“audit committee financial expert” as such term is defined in Item 407(d) ofRegulation S-K.

*Compensation Committee.**  *The compensation committee isresponsible for (1) reviewing key employee compensation policies, plansand programs, (2) reviewing and approving the compensation of ourexecutive officers, (3) reviewing and approving employment contracts andother similar arrangements between us and our executive officers, (4) reviewingand consulting with our Chief Executive Officer on the selection of officersand evaluation of executive performance and other related matters, (5) administrationof stock plans and other incentive compensation plans and (6) such othermatters that are specifically delegated to the compensation committee by theboard of directors from time to time. Our compensation committee consists of Ms. Gillespieand Messrs. Shelton and Bondy. Our board of directors has determined that Mr. Bondyis not an independent director according to the rules and regulations ofthe SEC and the NYSE.

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*Nominating and CorporateGovernance Committee.**  *Ournominating and corporate governance committee’s purpose is to assist our boardby identifying individuals qualified to become members of our board ofdirectors consistent with criteria set by our board and to develop ourcorporate governance principles. This committee’s responsibilities include: (1) evaluatingthe composition, size and governance of our board of directors and itscommittees and making recommendations regarding future planning and theappointment of directors to our committees, (2) establishing a policy forconsidering stockholder nominees for election to our board of directors, (3) evaluatingand recommending candidates for election to our board of directors, (4) overseeingthe performance and self-evaluation process of our board of directors anddeveloping continuing education programs for our directors, (5) reviewingour corporate governance principles and providing recommendations to the boardregarding possible changes and (6) reviewing and monitoring compliancewith our code of ethics and our insider trading policy. Our nominating andcorporate governance committee consists of Ms. Gillespie and Messrs. Canfieldand Shelton. Our board of directors has determined that Mr. Canfield isnot an independent director according to the rules and regulations of theSEC and the NYSE.

**Compensation Committee Interlocks and InsiderParticipation**

No member of ourcompensation committee is an officer or employee of us, and no member has beenan officer or employee of us at any prior time. There are no interlockingrelationship between any of our executive officers and compensation committee,on the one hand, and the executive officers and compensation committee of anyother companies, on the other hand.

**Code of Ethics**

Our code of ethics appliesto our principal executive, financial and accounting officers and all personsperforming similar functions and is available on our internet website at *www.solerainc.com*. The code of ethics contains generalguidelines for conducting the business of our company consistent with thehighest standards of business ethics, and is intended to qualify as a “code ofethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of2002 and Item 406 of Regulation S-K. We intend to discloseamendments to, or waivers from, provisions of our code of ethics that apply toour principal executive, financial and accounting officers by posting suchinformation on our website.

**ITEM 11.**         EXECUTIVECOMPENSATION

**CompensationDiscussion and Analysis**

This CompensationDiscussion and Analysis focuses on the compensation arrangements we havewith our “named executive officers” as required under the rules of theSEC. The SEC rules require disclosure for the Chief Executive Officer andChief Financial Officer regardless of compensation level, and the three mosthighly compensated executive officers other than the Chief Executive Officerand Chief Financial Officer. During fiscal 2007, we had four executiveofficers, including our Chief Executive Officer and Chief Financial Officer.All of these executive officers, including the Chief Executive Officer and ChiefFinancial Officer, are sometimes referred to herein as the “named executiveofficers” or the “executive officers.”

**Role of the Compensation Committee**

In May 2007, ourboard of directors established a compensation committee consisting of Mr. Bondy,an employee of affiliates of GTCR, and Ms. Gillespie. Mr. Shelton wasappointed to the compensation committee following the completion of our initialpublic offering. The compensation committee is responsible for (1) reviewing key employee compensationpolicies, plans and programs, (2) reviewing and approving the compensationof our executive officers, (3) reviewing and approving employmentcontracts and other similar arrangements between us and our executive officers,(4) reviewing and consulting with our Chief Executive Officer on theselection of officers and evaluation of executive performance and other 

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related matters, (5) administration of stock plansand other incentive compensation plans and (6) such other matters that arespecifically delegated to the compensation committee by the board of directorsfrom time to time. In light of our recent initial public offering, thecompensation committee expects to undertake a substantial review of ourexisting compensation programs, objectives and philosophy and determine whethersuch programs, objectives, and philosophy are appropriate for our company as apublic company.

Prior to our conversioninto a corporation and initial public offering in May 2007, we existed asa limited liability company. In November 2006, the board of managersestablished a compensation committee consisting of Mr. Bondy and Ms. Gillespie.Prior to November 2006, compensation matters were handled by our entireboard of managers. In general, the compensation of our named executive officersfor fiscal 2006 and 2007 was established in agreements we entered into with themin connection with our formation in April 2005 and the Acquisition in 2006.Such agreements were determined by negotiations between our named executive officersand GTCR, our private equity sponsor and, until our initial public offering,our majority equity holder. Thus, much of our compensation policies andpractices for fiscal 2006 and 2007 were determined by GTCR, as the majorityequity holder, based on its past practice and experience with other of itsportfolio companies, and negotiated with our executive officers. Going forward,executive compensation matters will be evaluated, determined and handled by ourcompensation committee.

The compensation committeeis responsible for designing and evaluating our compensation plans fordirectors and executive officers, including the Chief Executive Officer, makingrecommendations to the board of directors and management regarding those plans,awarding incentive compensation to executive officers and administering othercompensation programs as authorized by the board of directors. The compensationcommittee is also tasked with producing the annual report on executive officercompensation for inclusion in our annual report or proxy materials inaccordance with applicable SEC rules. The compensation committee solelydetermines the salary and overall compensation of our Chief Executive Officer.When establishing the compensation of the other named executive officers, thecompensation committee takes into consideration the recommendations of theChief Executive Officer.

Consistent with ourperformance-based compensation philosophy, the compensation committee reviewsand approves our compensation programs to effectively balance executiveofficers’ salaries with incentive compensation that is performance-based aswell as to reward annual performance while maintaining a focus on longer-termobjectives. We believe that it serves the needs of our stockholders and keyexecutives to provide incentives commensurate with individual managementresponsibilities and past and future contributions to corporate objectives. Themix of compensation elements varies based on an executive officer’s positionand responsibilities.

To maximize stockholdervalue, we believe that it is necessary to deliver consistent, long-term salesand earnings growth. Accordingly, the compensation committee reviews not onlythe individual compensation elements, but the mix of individual compensationelements that make up the aggregate compensation and attempts to structure thetotal compensation package between short-term and long-term compensation, andcurrently paid cash and equity compensation, each in a way that meets theobjectives set forth above.

The compensation committeehas the authority to retain the services of outside advisors, experts andcompensation and benefits consultants to assist in the evaluation of thecompensation of the Chief Executive Officer, the other executive officers, theboard of directors and our compensation framework generally. Neither we nor ourcompensation committee benchmarked our executive compensation nor engagedoutside consultants in fiscal 2007 to review our executive or directorcompensation policies and procedures or to advise us on compensation matters.

To continue to establishcompetitive levels of compensation, and an appropriate balance of base salary,performance-based compensation and equity compensation, the compensationcommittee intends 

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toretain the services of an independent, third party consultant during fiscal2008 to benchmark and assess its compensation framework. The financialobjectives of its compensation framework will be the budget approved by ourboard of directors for fiscal 2008.

**Objectives of OurCompensation Programs**

The key objectives of our executive compensationprograms are (1) to attract, motivate, reward and retain the best possibleexecutive officers with the skills necessary to successfully manage and grow ourbusiness, (2) to achieve accountability for performance by linking annualcash incentive compensation to the achievement of measurable performanceobjectives and (3) to align the interests of the executive officers andour stockholders through incentive and long-term compensation programs.For our named executive officers, our annual and long-term incentives aredesigned to support these objectives by providing a significant financialcorrelation between our financial results and total compensation.

The compensation committeewill determine annually whether the compensation programs have met theobjectives outlined above by assessing (1) the retention level or level ofattrition among performing key executive officers year-over-yearand (2) the relationship between our financial performance year over yearand increases or decreases in executive compensation.

**What OurCompensation Programs are Designed to Reward**

A significant portion ofthe compensation paid to executive officers is designed to reward them based onour financial performance and growth, and increased stockholder value, asreflected in increases in our equity value. As discussed elsewhere in “ExecutiveCompensation—Compensation Discussion and Analysis,” the compensation policiesapplicable to our named executive officers are reflective of our Company’s pay-for-performancephilosophy, whereby a significant portion of compensation is contingent uponachievement of measurable operating and financial targets and enhanced equityvalue, as opposed to current cash compensation and perquisites not directlylinked to objective financial performance. This compensation mix is consistentwith our performance-based philosophy that the role of executive officersis to enhance stockholder value over the long term and allows management toparticipate in the upside rewards of our positive objective-driven performance.

**Elements ofCompensation**

The elements of ourcompensation program are:

·       Basesalary;

·       Annualcash incentives;

·       Long-termincentives;

·       Equityownership;

·       Post-terminationbenefits, including severance and retirement benefits; and

·       Certainadditional executive benefits and perquisites.

Each element of compensation was evaluated in terms ofits contribution to each executive’s overall total compensation package for theyear, and whether the total compensation was appropriate.

These components,individually and in the aggregate, are designed to accomplish one or more ofthe compensation objectives described above. For this reason, no single elementdominates the compensation package of a named executive officer. Amounts ofbase salary and annual bonuses for fiscal 2007 were fixed by employmentagreements entered into with each of the named executive officers in connectionwith the Acquisition, although these amounts were increased in certain casespursuant to action by our board of 

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directorsin response to our financial and operating performance. For periods followingfiscal 2007, these amounts will be established pursuant to the procedures setforth below, based on amounts paid to executives from comparable companies (whichcompanies our compensation committee has not yet determined) and based upon ourfinancial performance.

***Base Salary***

We provide a base salaryto our executive officers to compensate them for their full-time servicesduring the year. Base salary is established based on our expectations of therespective executive officer’s contributions to substantially contributing to thegrowth in the value of our company. Therefore, the compensation committeeconsiders the experience, skills, knowledge, past performance andresponsibilities required of the executive officers in their roles. Whenestablishing the base salaries of the executive officers for the fiscal yearended June 30, 2007, a number of factors were considered, including theyears of service of the individual, individual’s duties and responsibilities,the ability to replace the individual, the base salary at the individual’sprior employment, market data on similar positions with competitive companiesas information becomes available to us informally through recruitment/searchconsultants in connection with our recent hiring efforts, and through ourdirectors’ experience with other affiliated portfolio companies. We seek tomaintain base salaries that are competitive with the marketplace, to allow usto attract and retain executive talent.

On April 13,2006, we entered into an amended and restated senior management agreement witheach of our named executive officers, other than Mr. Pearlstein, with whomwe entered into an employment agreement. The base salaries for the fiscal yearsended June 30, 2006 and 2007 are set forth below.

| ** **             | ** ** | **Base Salary  Fiscal Year Ended June 30,** | ** ** |
|------------------------|------------|----------------------------------------------------------------------|------------|
| **Name**               | ** ** | ** **                                                           | ** ** | **2006** | ** ** | **2007** | ** ** |
| Tony Aquila            |       | $                                                                    | 303,650    |   | $ | 475,000 |   |
| Jack Pearlstein (1)    |       | 53,077                                                               |       | 300,000 |   |
| John Schwinn           |       | 150,493                                                              |       | 200,000 |   |
| Michael D. Conway |       | 154,705                                                              |       | 200,000 |   |
|                        |            |                                                                      |            |  |  |  |  |  |  |

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(1)          Mr. Pearlsteinjoined us in April 2006 and prior to that received $87,910 from us forconsulting services provided in connection with the Acquisition.

***Annual CashIncentives***

*Incentive Payments basedon Pre-Set Performance Objectives.**  *Each of our named executiveofficers may receive an annual bonus, based upon the satisfaction of certainfinancial performance criteria determined by our board, up to the followingpercentage of base salary: Mr. Aquila, 75% for the first six months offiscal 2007, during which his salary was $225,000, based on an annual basesalary of $450,000, plus 100% for the remainder of fiscal 2007, during whichhis salary was $250,000, based on an annual base salary of $500,000 (for fiscal2008, Mr. Aquila’s percentage remains at 100% of his base salary); Mr. Pearlstein,75%; Mr. Schwinn, 40%; and Mr. Conway, 35%. These amounts wereestablished in agreements negotiated between our executives and GTCR inconnection with our formation and the Acquisition. Mr. Aquila’s bonuspercentage was adjusted in connection with an amendment to his seniormanagement agreement negotiated between him and the board of directors inJanuary 2007, at which time the board considered our performance since theAcquisition. The relevant financial criteria established by our board ofdirectors consisted of revenue and Adjusted EBITDA, as compared to budgetedamounts and bonus amounts are established by the board based on an overallqualitative assessment of our performance compared to such budgeted amounts.Due to, in the view of the board of directors, our performance in fiscal 2007exceeding such criteria, the board of directors awarded our executive officersbonuses in excess of such target amounts. The target amounts and the amountsactually paid are indicated in compensation tables following this CompensationDiscuss and Analysis.

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*Discretionary IncentiveBonus Awards.**  *Noneof our executive officers to date has received discretionary bonuses other thanannual bonuses, although the compensation committee may elect to award suchbonuses in the future.

***Long-Term Incentives***

All of our executiveofficers have equity incentives in the form of equity investments that theymade at our formation in 2005, in connection with the Acquisition in 2006 orboth. Certain of our executive officers have also received long-termequity incentive compensation in the form of restricted stock units, and all ofour executive officers are eligible to receive future grants under our 2007Long-Term Equity Incentive Plan. In general, our equity incentive structure isintended to accomplish the following main objectives:

·       encouragethe judgment, initiative and efforts of employees toward our continuingsuccess;

·       increaseequity ownership levels of key employees;

·       assistus in attracting, retaining and motivating key employees;

·       rewardparticipants for demonstrated leadership and performance in relation to thecreation of stockholder value; and

·       ensurecompetitive levels of compensation in line with chosen peer groups; and balanceand align the interests of participants and stockholders.

Equity awards that may begranted under our equity incentive plan and equity that the executivespurchased vest over a period of time to encourage retention of our executiveofficers and focus their efforts on the creation of long-term stockholdervalue and corporate objectives. We believe our ability to grant equity-basedawards also serves to attract new executive talent, if necessary.

***2007 Long-term Equity Incentive Plan***

*General.**  *In connection with the initialpublic offering, we established a stock-based compensation plan throughthe adoption of the 2007 Long-Term Equity Incentive Plan, which becameeffective immediately prior to the completion of the initial public offering.

*Administration.*   Theequity incentive plan is administered by the compensation committee. Our boardmay, however, at any time resolve to administer the equity incentive plan.Subject to the specific provisions of the equity incentive plan, thecompensation committee is authorized to select persons to participate in theequity incentive plan, determine the form and substance of grants made underthe equity incentive plan to each participant and otherwise make alldeterminations for the administration of the equity incentive plan.

*Participation.*   Directors(including non-employee directors), officers (including non-employeeofficers) and employees of, and other individuals performing services for, orto whom an offer of employment has been extended by, us or our subsidiaries areeligible to participate in the equity incentive plan.

*Typesof Awards.*   The equity incentive plan providesfor the issuance of stock options, restricted stock, deferred stock, dividendequivalents, other stock-based awards and performance awards. Performanceawards may be based on the achievement of certain business or personal criteriaor goals, as determined by the compensation committee.

*AvailableShares.*   An aggregate of 4,300,000 shares of ourcommon stock was initially reserved for issuance under the equity incentive plan,subject to certain adjustments reflecting changes in our capitalization. If anygrant under the equity incentive plan expires or terminates unexercised,becomes unexercisable or is forfeited as to any shares or is tendered orwithheld as to any shares in payment of the 

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exercise price of thegrant or the taxes payable with respect to the exercise, then such unpurchased,forfeited, tendered or withheld shares will thereafter be available for furthergrants under the equity incentive plan.

*OptionGrants.*   Options granted under the equityincentive plan may be either incentive stock options within the meaning ofSection 422 of the Internal Revenue Code, or the Code, or non-qualifiedstock options, as the compensation committee may determine. The exercise priceper share for each option will be established by the compensation committee,except that the exercise price may not be less than 100% of the fair marketvalue of a share of common stock as of the date of grant of the option. In thecase of the grant of any incentive stock option to an employee who, at the timeof the grant, owns more than 10% of the total combined voting power of all ofour classes of stock then outstanding, the exercise price may not be less than110% of the fair market value of a share of common stock as of the date ofgrant of the option. The fair market value of a share of common stock on agiven date is determined by the closing price of our stock on the NYSE (orother exchange if our common stock is no longer traded on the NYSE) as of suchdate (or, if such date is not a trading date, the immediately preceding tradingday). In connection with the initial public offering, we granted 428,400 optionsto our employees. None of the options were granted to the named executiveofficers.

*Termsof Options.*   The term during which each optionmay be exercised will be determined by the compensation committee, but ifrequired by the Code and except as otherwise provided in the equity incentiveplan, no option will be exercisable in whole or in part more than ten yearsfrom the date it is granted, and no incentive stock option granted to anemployee who at the time of the grant owns more than 10% of the total combinedvoting power of all of our classes of stock will be exercisable more than fiveyears from the date it is granted. All rights to purchase shares pursuant to anoption will, unless sooner terminated, expire at the date designated by thecompensation committee. The compensation committee will determine the date onwhich each option will become exercisable and may provide that an option willbecome exercisable in installments. The shares constituting each installmentmay be purchased in whole or in part at any time after such installment becomesexercisable, subject to such minimum exercise requirements as may be designatedby the compensation committee. Prior to the exercise of an option and deliveryof the shares represented thereby, the optionee will have no rights as astockholder, including any dividend or voting rights, with respect to anyshares covered by such outstanding option. If required by the Code, theaggregate fair market value, determined as of the grant date, of shares forwhich an incentive stock option is exercisable for the first time during anycalendar year under all of our equity incentive plans may not exceed $100,000.

*Terminationof Options.*   Unless otherwise determined by thecompensation committee, and subject to certain exemptions and conditions, if aparticipant ceases to be a director, officer or employee of, or to otherwiseperform services for, us for any reason other than death, disability,retirement or termination for cause, all of the participant’s options that wereexercisable on the date of such cessation will remain exercisable for, and willotherwise terminate at the end of, a period of 30 days after the date ofsuch cessation. In the case of death or disability, all of the participant’soptions that were exercisable on the date of such death or disability willremain so for a period of 180 days from the date of such death ordisability. In the case of retirement, all of the participant’s options thatwere exercisable on the date of retirement will remain exercisable for, andshall otherwise terminate at the end of, a period of 90 days after thedate of retirement. In the case of a termination for cause, or if a participantdoes not become a director, officer or employee of, or does not beginperforming other services for, us for any reason, all of the participant’soptions will expire and be forfeited immediately upon such cessation or non-commencement,whether or not then exercisable.

*RestrictedStock and Deferred Shares.*   Restricted stock is agrant of shares of our common stock that may not be sold or disposed of, andthat may be forfeited in the event of certain terminations of employment, priorto the end of a restricted period set by the compensation committee. Aparticipant 

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granted restricted stockgenerally has all of the rights of a stockholder, unless the compensationcommittee determines otherwise. An award of deferred shares confers upon aparticipant the right to receive shares of our common stock at the end of adeferral period set by the compensation committee, subject to possibleforfeiture of the award in the event of certain terminations of employmentprior to the end of the deferral period. Prior to settlement, an award ofdeferred shares carries no voting or dividend rights or other rights associatedwith share ownership, although dividend equivalents may be granted inconnection with restricted stock or deferred shares. In connection with ourinitial public offering, we granted 304,730 restricted stock units to two of ourdirectors and certain of our employees. Of the 304,730 restricted stock units,200,864 were granted to the named executive officers (150,648 and 50,216restricted stock units were granted to Messrs. Aquila and Pearlstein,respectively), and 13,333 were granted to each of Messrs. Shelton and Yarbrough.

*DividendEquivalents.*   Dividend equivalents confer theright to receive, currently or on a deferred basis, cash, shares of our commonstock, other awards or other property equal in value to dividends paid on aspecific number of shares of our common stock. Dividend equivalents may begranted alone or in connection with another award and may be paid currently oron a deferred basis. If deferred, dividend equivalents may be deemed to havebeen reinvested in additional shares of our common stock.

The compensation committee is authorized to grantother awards that are denominated or payable in, valued by reference to orotherwise based on or related to shares of our common stock, under the equityincentive plan. These awards may include convertible or exchangeable debtsecurities, other rights convertible or exchangeable into shares of commonstock, purchase rights for shares of common stock, awards with value andpayment contingent upon our performance as a company or any other factorsdesignated by the compensation committee. The compensation committee willdetermine the terms and conditions of these awards.

*PerformanceAwards.*   The compensation committee may subject aparticipant’s right to exercise or receive a grant or settlement of an awardand the timing of the grant or settlement, to performance conditions specifiedby the compensation committee. Performance awards may be granted under theequity incentive plan in a manner that results in their qualifying asperformance-based compensation exempt from the limitation on taxdeductibility under Section 162(m) of the Code for compensation inexcess of $1.0 million paid to our Chief Executive Officer and our four highestcompensated officers. The compensation committee will determine performanceaward terms, including the required levels of performance with respect toparticular business criteria, the corresponding amounts payable uponachievement of those levels of performance, termination and forfeitureprovisions and the form of settlement. In granting performance awards, thecompensation committee may establish unfunded award “pools,” the amounts ofwhich will be based upon the achievement of a performance goal or goals basedon one or more business criteria. Business criteria may include, for example,total stockholder return, net income, pretax earnings, various measures of cashflow, earnings per share or return on investment.

*Amendmentof Outstanding Awards and Amendment/Termination of Plan.**  *Our board of directors or thecompensation committee generally has the power and authority to amend orterminate the equity incentive plan at any time without approval from ourstockholders. The compensation committee generally has the authority to amendthe terms of any outstanding award under the plan, including, withoutlimitation, the ability to reduce the exercise price of any options or toaccelerate the dates on which they become exercisable or vest, at any timewithout approval from our stockholders. No amendment will become effectivewithout the prior approval of our stockholders if stockholder approval would berequired by applicable law or regulations, including if required for continuedcompliance with the performance-based compensation exception of Section 162(m) ofthe Code, under provisions of Section 422 of the Code or by any listingrequirement of the principal stock exchange on which our common stock is thenlisted. Unless previously terminated by our board of directors or thecompensation committee, the equity incentive plan will terminate on the tenthanniversary of its adoption. No 

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termination of the equityincentive plan will materially and adversely affect any of the rights orobligations of any person, without his or her written consent, under any grantof options or other incentives theretofore granted under the long-term equityincentive plan.

The compensation committee has not yet made itsdetermination as to its future expectations with respect to types and amountsfuture grants under the long-term equity incentive plan to executive officers. Theequity grants to Messrs. Aquila and Pearlstein made in connection with thecompletion of our initial public offering were made in part to reward theseexecutives for the successful completion of the offering, partially insatisfaction, with respect to Mr. Aquila’s grants, of an obligation under Mr. Aquila’semployment agreement and also to provide further incentives with respect to thelong-term performance of our company and the retention of Messrs. Aquila and Pearlstein**.**

The restricted stock unitsgranted to Messrs. Aquila and Pearlstein in connection with our initialpublic offering in May 2007 are subject to vesting. 40% vested immediatelyupon grant, and an additional 5% vest each fiscal quarter. The stock optionsgranted to employees in connection with our initial public offering have anexercise price equal to the initial public offering price. The stock optionsand restricted stock units granted to employees in connection with the initialpublic offering will vest 25% at the end of fiscal 2008 and then 6.25% at theend of each fiscal quarter thereafter. Future grants of stock options,restricted stock units and other securities will be at the discretion of thecompensation committee.

***Equity Ownership***

*Senior Management and Securities Purchase Agreements*

In connection with our formation in April 2005, Messrs. Aquila,Schwinn and Conway entered into senior management agreements, pursuant to whichthey acquired equity interests in our company. These equity interests consistedof preferred interests that accrued a yield and common interests that couldparticipate in increases in the equity value of our company. Additionally, someof the common interests were immediately vested and others were subject tovesting over a five-year period. In connection with the Acquisition in April 2006,Mr. Pearlstein entered into a securities purchase agreement, pursuant to whichhe purchased preferred and common interests, some of which were subject tovesting. Messrs. Aquila, Schwinn and Conway agreed to amend and restatetheir senior management agreements, both to purchase additional equity inconnection with the Acquisition and to alter the relative amounts of intereststhat were vested and subject to vesting. We expect to enter into a second amendedand restated senior management agreement with each of Messrs. Aquila,Schwinn and Conway and an amended and restated securities purchase agreementwith Mr. Pearlstein, among other things, to reflect our common unit splitin April 2007, our conversion into a corporation, the conversion of ourequity units into shares of our common stock and the completion of our initialpublic offering. The amount of each executive’s investment and the relativeamounts of interests subject to vesting were negotiated with GTCR, the privateequity sponsor of our formation and the Acquisition, in accordance with whatGTCR believed to be the appropriate level of equity and long-term incentivesfor its investment in our company and the Acquisition.

The terms of the seniormanagement agreements of Messrs. Conway and Schwinn provide that in connectionwith a public offering of shares held by GTCR, each will be entitled to sell anumber of shares based on the proportion of GTCR’s shares sold in the offeringand limited by the number of such executive’s shares that have vested. Theterms of Mr. Aquila’s senior management agreement and Mr. Pearlstein’s securitiespurchase agreement provide that in connection with a public offering of sharesheld by GTCR, each will be entitled to sell a number of shares based on theproportion of GTCR’s shares sold in the offering, and if the number of vestedshares held by such executive is less than he is entitled to sell, the vestingof additional shares will be accelerated.

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*2007 Employee Stock Purchase Plan*

In connection with ourinitial public offering, we adopted the 2007 Employee Stock Purchase Plan. Thepurpose of the plan is to provide an incentive for our employees (and employeesof our subsidiaries designated by our board of directors) to purchase ourcommon stock and acquire an equity interest in us. The compensation committeeadministers the plan, under which we have reserved for issuance1,500,000 shares of our common stock. We have not issued any shares ofcommon stock in connection with this plan.

*2006 Securities Purchase Plan*

In November 2006, ourboard of managers adopted the 2006 Securities Purchase Plan. In January andFebruary, pursuant to securities purchase agreements, 24 employees purchasedcommon equity interests in our company that were converted into approximately740,000 shares of our common stock. Pursuant to such agreements, the shares ofstock held by these employees remains subject to vesting over a five-yearperiod, and unvested shares remain, under certain circumstances, subject torepurchase by us or, to the extent we do not repurchase, by GTCR. No additionalequity will be issued under this plan.

***Post-Termination Benefits***

***We provide post-termination benefits to our executiveofficers in the form of severance payments, a 401(k) plan and change of controlarrangements. We agreed to provide severance benefits to our executive officersto afford them financial protection in the event of a termination withoutcause, or in the case of Messrs. Aquila and Pearlstein, a resignation forgood reason. We offer a 401(k) plan with matching contributions to our executiveofficers because we feel it is an important retirement benefit to offer to allof our plan participants. GTCR included change of control payments in theexecutive officers’ senior management and securities purchase agreements toreward them in the event that GTCR decided to and was able to sell our company(of which GTCR originally owned substantially all of the equity) and to retainthe executive officers during a period in which GTCR or we contemplated,negotiated and was in the process of consummating a change of control of our company.The details of these post-termination benefits are described below.***

*Severance Payments*

The severance benefits foreach executive officers are set forth in an amended and restated senior managementagreement, in the case of each of Messrs. Aquila, Schwinn and Conway, andan employment agreement, in the case of Mr. Pearlstein. If employment ofany named executive officer is terminated by us without “cause” (as that termis defined in the applicable agreement) or is terminated by the executive for “goodreason” (as that term is defined in the applicable agreement) during theemployment term, then such officer will be entitled to continue to receive hisbase salary, a pro-rated portion of his bonus for the prior fiscal year, in thecase of Messrs. Aquila and Pearlstein, and employee benefits, in eachcase, for the following severance period after the date of such termination: Messrs. Aquilaand Pearlstein, eighteen months, subject to an extension of either six ortwelve months by us; Mr. Schwinn, six months; and Mr. Conway, fivemonths. These severance arrangements were negotiated between GTCR and theexecutive officers in connection with our formation and the Acquisition. Thesenior management agreements and Mr. Pearlstein’s employment agreementcontain provisions requiring the executive to protect the confidentiality ofour proprietary and confidential information. Each named executive officer hasagreed not to solicit any of our employees or persons with whom we have certainbusiness relationships for the duration of his respective severance period or,if no severance period is applicable, twenty-four months following histermination.

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*Retirement Benefits*

*401(k) Plan.*   Wesponsor a tax-qualified employee savings and retirement plan, or 401(k) plan,that covers most employees who satisfy certain eligibility requirementsrelating to minimum age and length of service. Under the 401(k) plan, eligibleemployees may elect to contribute a minimum of 1% of their annual compensation,up to a maximum amount equal to approximately 35% of compensation. The 401(k) planmakes an annual matching contribution of 58% of the first 6% of theparticipants’ contribution. Messrs. Aquila and Schwinn have elected toparticipate in this plan but did not receive any payments in fiscal 2007.

*Change of ControlAgreements.*

The amended and restated seniormanagement agreements, in the case of Messrs. Aquila, Schwinn and Conway,and the securities purchase agreement, in the case of Mr. Pearlstein,provide that any unvested shares held by the respective executive officer willimmediately vest upon the consummation of a sale of our company. Once vested,shares held by the executive officer are no longer subject to repurchase underhis respective agreement. Unvested shares are subject to repurchase by us or,if we decline to purchase all of the unvested shares, GTCR in the event of atermination of the executive officer’s employment for any reason at a price of$0.30 per share. A sale of the company is defined in the agreements as atransaction or transactions pursuant to which a person or entity or group ofrelated persons or entities acquire(s) (1) stock of our company possessingthe voting power to elect a majority of our board of directors or (2) allor substantially all of our assets. The amounts of vested and unvested equityinterests and the terms for vesting, repurchase and change of control weredetermined between GTCR and our executive officers at the time of the equityinvestments made in connection with our formation and the Acquisition.

***Executive Benefits and Perquisites***

We do not provide materialperquisites that are not, in the compensation committee’s view, integrally anddirectly related to the executive’s duties. Nor do we otherwise maintainretirement, pension or deferred compensation programs for executives other thanparticipation in our 401(k) plan as described above. Members of seniormanagement participate in our other broad-based benefit programs available toour salaried employees including health, dental and life insurance programs. Wehave also a short-term disability policy for our executives. Except asotherwise discussed herein, other welfare and employee-benefit programs aregenerally the same for all eligible employees, including our executiveofficers, with some variation as required by local laws with respect toemployees of our subsidiaries.

**Accounting and TaxConsiderations**

In determining which elements of compensation are tobe paid, and how they are weighted, we also take into account whether a particularform of compensation will be deductible under Section 162(m) of theInternal Revenue Code, as amended, or the Code. Section 162(m) generallylimits the deductibility of compensation paid to our named executive officersto $1 million during any fiscal year unless such compensation is “performance-based”under Section 162(m). However, under a Section 162(m) transition rule forcompensation plans of corporations which are privately held and which becomepublicly held in an initial public offering, compensation paid under a planthat existed prior to the initial public offering will not be subject to Section 162(m) untilthe earlier of (1) a material modification of the plan; (2) theissuance of all employer stock and other compensation that has been allocatedunder the plan; or (3) the first meeting of stockholders at whichdirectors are to be elected that occurs after the close of the third calendaryear following the year of the initial public offering, or the Transition Date.After the Transition Date, rights or awards granted under the plan, other thanoptions and stock appreciation rights, will not qualify as “performance-basedcompensation” for purposes of Section 162(m) unless such rights or awards 

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are granted or vest uponpre-established objective performance goals, the material terms of which aredisclosed to and approved by our stockholders.

Our compensation program is intended to maximize thedeductibility of the compensation paid to our named executive officers to theextent that we determine it is in our best interests. Consequently, we may relyon the exemption from Section 162(m) afforded to us by the transition ruledescribed above for compensation paid pursuant to our pre-existing plans. Inaddition, our 2007 Long-Term Equity Incentive Plan has been designed to permitour compensation committee to grant stock options and other awards which willqualify as “qualified performance-based compensation” under Section 162(m).

Many other Codeprovisions, SEC regulations and accounting rules affect the delivery ofexecutive compensation and are generally taken into consideration as programsare developed. Our goal is to create and maintain plans that are efficient,effective and in full compliance with these requirements.

**Compensation Tables**

We are generally requiredto provide information regarding the compensation earned during our mostrecently completed fiscal year by our principal executive officer, principalfinancial officer and our three other most highly compensated executives. Inaddition, we are required to provide information regarding the compensationearned during the most recently completed fiscal year for any persons who servedus in the capacity of principal executive officer or principal financialofficer at any point during the fiscal year. As a result, the following tablesinclude our current chief executive officer and chief financial officer, aswell as our three other most highly compensated executive officers for the lastfiscal year. As discussed above in the “Compensation Discussion and Analysis”section, we refer to these individuals as our named executive officers.

**REPORT ON EXECUTIVECOMPENSATION**

**CompensationCommittee Report**

The compensation committee has reviewed and discussedthe Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with management and, based on such review and discussions,the compensation committee has recommended to the board of directors that theCompensation Discussion and Analysis be included in this Annual Report on Form 10-K.

The Compensation Committee:

**Jerrell W. Shelton**

**Roxani Gillespie**

**Craig Bondy**

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**SummaryCompensation Table**

Thefollowing table shows the compensation earned by our named executive officersduring the fiscal year ended June 30, 2007. The compensation consists ofsalary, cash bonus and, in some cases, equity awards.

| **Name and Principal Position**                     | ** ** | **Fiscal  Year  ended  June 30,** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Stock  Awards(1)** | ** ** | **Option  Awards(1)** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** ** | **Change  in Pension  Value and  Nonqualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation(2)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------|------------|------------|------------|-----------|------------|----------------------|------------|-----------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------|------------|
| Tony Aquila,  Chief Executive Officer and President                |       |                                   | 2007       |       |       | $         | 475,000    |                 |       | $                     | —     |                                              |       | $                                                                                           | 1,083,988  |                                |       | $         | —     |   |   |   | $ | 430,475 |   |   |   | — |   |   |   | $ | 12,209 | (2) |   | $ | 2,001,672 |   |
| Jack Pearlstein,  Chief Financial Officer, Treasurer and Secretary |       |                                   | 2007       |       |       | 300,000   |       |                 | —     |                  |       | 361,329                                           |       |                                                                                        | —     |                                |       |      | 231,300    |   |   |   | — |   |   |   | $ | 10,756 | (3) |   | $ | 903,385 |   |
| John Schwinn,  Senior Vice President                               |       |                                   | 2007       |       |       | 200,000   |       |                 | —     |                  |       | —                                            |       |                                                                                        | —     |                                |       |      | 82,240     |   |   |   | — |   |   |   | $ | 4,120 | (4) |   | $ | 286,360 |   |
| Michael D. Conway  Vice President                             |       |                                   | 2007       |       |       | 200,000   |       |                 | —     |                  |       | —                                            |       |                                                                                        | —     |                                |       |      | 71,960     |   |   |   | — |   |   |   | $ | 15,194 | (5) |   | $ | 287,154 |   |
|                                                                    |            |                                        |            |            |            |           |            |                      |            |                       |            |                                                   |            |                                                                                             |            |                                     |            |           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             Represents the dollar amount recognized for financialstatement reporting purposes with respect to the year ended June 30, 2007in accordance with SFAS 123(R) calculated without regard to vesting orforfeiture conditions. For information regarding assumptions made in connectionwith this valuation, please see Note 11 to the consolidated annual financialstatements below.

(2)             Consists of $8,835 in medical, dental and visioninsurance premiums, $1,062 in life insurance premiums and $2,312 in short-termand long-term disability premiums paid by us.

(3)             Consists of $8,732 in medical, dental andvision insurance premiums, $637 in life insurance premiums and $1,387 in short-termand long-term disability premiums paid by us.

(4)             Consists of $2,676 in medical, dental andvision insurance premiums, $455 in life insurance premiums and $989 in short-termand long-term disability premiums paid by us.

(5)             Consists of $13,797 in medical, dental andvision insurance premiums, $440 in life insurance premiums and $957 in short-termand long-term disability premiums paid by us.

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**Grants of Plan-BasedAwards**

Duringthe fiscal year ended June 30, 2007, we granted restricted stock units tocertain of our named executive officers and each of our named executiveofficers participated in our annual cash bonus plan. The following tableprovides information on each of these awards on a grant-by-grantbasis. In each case, the grant date of the award is the same as the approvaldate.

|                        | ** ** | ** **           | ** ** | **Estimated Possible Payouts  Under Non-Equity Incentive Plan** | ** ** | **Estimated Possible Payouts  Under Equity Incentive Plan Awards** | ** ** | **All Other  Stock  Awards:  Number  of Shares  of Stock** | ** ** | **All Other  Option  Awards:  Number  of Securities  Underlying** | ** ** | **Exercise  or Base Price  of Option** | ** ** | **Grant  Date  Fair  Value  of Stock  and  Option** | ** ** |
|------------------------|------------|----------------------|------------|------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|----------------------------------------------------------|------------|
| **Name**               | ** ** | ** **           | ** ** | **Grant Date**                                                                      | ** ** | **Threshold  ($)**                                                                               | ** ** | **Target  ($)(3)**                                                        | ** ** | **Maximum  ($)**                                                            | ** ** | **Threshold  (#)**                                    | ** ** | **Target  (#)**                                          | ** ** | **Maximum  (#)** | ** ** | **or Units  (#)** | ** ** | **Options  (#)** | ** ** | **Awards  ($/Sh)** | ** ** | **Awards  ($)(6)** | ** ** |
| Tony Aquila            |       | May 11, 2007    | (1)        |                                                                                     |       |                                                                                             |       |                                                                      |       |                                                                        |       |                                                  |       |                                                     |       |   |   | 150,648 | (4) |   |   |   |   |   |   |   |   |   |   |   |   |   | n/a | (5) |   | 1,083,988 |   |
|                        |       | April 13, 2006  | (2)        |                                                                                     | —     |                                                                                             |       | 418,750                                                                   |       |                                                                        | —     |                                                  |       |                                                     | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Jack Pearlstein        |       | May 11, 2007    | (1)        |                                                                                     |       |                                                                                             |       |                                                                      |       |                                                                        |       |                                                  |       |                                                     |       |   |   | 50,216 | (4) |   |   |   |   |   |   |   |   |   |   |   |   |   | n/a | (5) |   | 361,329 |   |
|                   |       | April 13, 2006  | (2)        |                                                                                     | —     |                                                                                             |       | 225,000                                                                   |       |                                                                        | —     |                                                  |       |                                                     | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| John Schwinn           |       | April 13,  2006 | (2)        |                                                                                     | —     |                                                                                             |       | 80,000                                                                    |       |                                                                        | —     |                                                  |       |                                                     | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Michael D. Conway |       | April 13,  2006 | (2)        |                                                                                     | —     |                                                                                             |       | 70,000                                                                    |       |                                                                        | —     |                                                  |       |                                                     | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
|                        |            |                      |            |                                                                                          |            |                                                                                                  |            |                                                                           |            |                                                                             |            |                                                       |            |                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)                Grants made in connection with ourinitial public offering under our 2007 Long-Term Equity Incentive Plan. Thematerial terms of the plan are described in “Compensation Discussion andAnalysis—Elements of Compensation—Long-Term Incentives—2007 Long-Term EquityIncentive Plan” above.

(2)                Represents date that our named executive officersentered into the agreement that set forth their maximum cash bonuses for fiscal2007.

(3)                Represents estimated potential payouts of non-equityincentive plan awards for fiscal 2007. Actual amounts paid to the namedexecutive officers are disclosed in the Summary Compensation Table above underthe heading “Non-Equity Incentive Plan Compensation.” The material terms of theplan are described in “Compensation Discussion and Analysis—Elements ofCompensation—Annual Cash Incentives” above.

(4)                The restricted stock units are subject to vesting with40% vesting immediately upon grant and the remainder vesting 5% at the end ofeach fiscal quarter. Upon vesting of each vested restricted stock unit, theindividual is entitled to receive one share of common stock for each vestedrestricted stock unit and must pay the par value of each share of common stockreceived within ten days of receipt.

(5)                Restricted stock units automatically entitle holder toreceive a share of common stock upon vesting. No exercise or payment ofexercise price is required.

(6)                Represents the full grant date fair valueof each individual equity award (on a grant-by-grant basis) as computed underSFAS 123(R) calculated without regard to vesting or forfeiture conditions.For information regarding assumptions made in connection with this valuation,please see Note  11 to the consolidated annual financial statements below.

**Outstanding EquityAwards at Fiscal Year-End**

Thetable below sets forth certain information regarding the outstanding equityawards held by our named executive officers as of the close of the fiscal yearended June 30, 2007.

| ** **             | ** ** | **Restricted Stock Unit Awards** | ** ** |
|------------------------|------------|-------------------------------------------------|------------|
| **Name**               | ** ** | ** **                                      | ** ** | **Number of Restricted  Stock Units  That Have Not Vested(1)** | ** ** | **Market Value  of Restricted Stock Units  That Have Not Vested(2)** | ** ** |
| Tony Aquila            |       |                                            | 82,857     |   |   |   | $ | 1,605,768 |   |   |
| Jack Pearlstein        |       |                                            | 27,619     |   |   |   | $ | 535,256 |   |   |
| John Schwinn           |       |                                            | —     |   |   |   | — |   |   |
| Michael D. Conway |       |                                            | —     |   |   |   | — |   |   |
|                        |            |                                                 |            |  |  |  |  |  |  |  |  |  |

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(1)          Approximately 7,533, inthe case of Mr. Aquila, and 2,511, in the case of Mr. Pearlstein ofthe restricted stock units that have not vested vest at the end of each fiscalquarter.

(2)          Basedon the closing price of our common stock on the New York Stock Exchange at theclose of the last business day of fiscal 2007.

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**Restricted StockUnits Vested**

Thetable below sets forth the number of restricted stock units held by our namedexecutive officers that vested during the fiscal year ended June 30, 2007.None of our named executive officers was granted or exercised any options topurchase common units or shares of common stock during fiscal 2007. Uponvesting of the restricted stock unit, the executive officer is entitled toreceive one share of common stock for each vested restricted stock unit andmust pay the par value of each share of common stock received within ten daysof receipt.

| ** **             | ** ** | **Restricted Stock Unit Awards** | ** ** |
|------------------------|------------|-------------------------------------------------|------------|
| **Name**               | ** ** | ** **                                      | ** ** | **Number of Restricted  Stock Units  That Have Vested** | ** ** | **Market Value  Realized on Vesting(1)** | ** ** |
| Tony Aquila            |       |                                            | 67,791     |   |   |   | $ | 1,110,114 |   |   |
| Jack Pearlstein        |       |                                            | 22,597     |   |   |   | $ | 370,020 |   |   |
| John Schwinn           |       |                                            | —     |   |   |   | — |   |   |
| Michael D. Conway |       |                                            | —     |   |   |   | — |   |   |
|                        |            |                                                 |            |  |  |  |  |  |  |  |  |  |

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(1)          Indetermining the market value of restricted Stock units that vested immediatelyupon grant, on May 11, the initial public offering price of $16.00 wasused. In determining the market value of the restricted stock units that vestedon June 30, 2007, the price of our common stock on the New York StockExchange as of the close of the last business day of the fiscal year was used.

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**Potential Paymentsupon Termination or Change in Control**

The following tablesets forth for each executive officer the benefits that would arise uponcertain terminations of employment or a change in control under the terms ofthe amended and restated senior management agreements, in the case of Messrs. Aquila,Schwinn and Conway, and the employment agreement and securities purchase agreement,in the case of Mr. Pearlstein. The table assumes that the termination orchange in control occurred on June 30, 2007.

| **Name**               | ** ** | ** **                                                                                                            | ** ** | **Benefit** | ** ** | **Before  Change  in Control—  Termination  without Cause  or for  Good Reason** | ** ** | **After  Change  in Control—  Termination  without Cause  or for  Good Reason(5)** | ** ** | **Voluntary  Termination** | ** ** | **Death  or Disability** | ** ** | **Change  in Control** | ** ** |
|------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|-----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| Tony Aquila            |       | Unvested common shares  subject to accelerated vesting  under the amended and restated senior management agreement(1) |       |        | $          | 216,023                                                                                                   |       |                                                                                                        |       | $                          | 13,955,054 |                          |       |                        | None       |   |   |   | None |   |   | $ | 13,955,054 |   |
|                        |       | Severance payment                                                                                                     |       |        | $     | 1,072,856                                                                                                 | (2)        |                                                                                                        |       | $                          | 1,072,856  |                          |       |                        | None       |   |   |   | None |   |   | None |   |
| Jack Pearlstein        |       | Unvested common shares  subject to accelerated vesting  under the securities purchase agreement(1)                    |       |        | $          | 129,614                                                                                                   |       |                                                                                                        |       | $                          | 8,373,032  |                          |       |                        | None       |   |   |   | None |   |   | $ | 8,373,032 |   |
|                   |       | Severance payment                                                                                                     |       |        | $          | 623,475                                                                                                   | (2)        |                                                                                                        |       | $                          | 623,475    |                          |       |                        | None       |   |   |   | None |   |   | None |   |
| John Schwinn           |       | Unvested common shares  subject to accelerated vesting  under the amended and restated senior management agreement(1) |       |        | $          | 29,336                                                                                                    |       |                                                                                                        |       | $                          | 1,895,131  |                          |       |                        | None       |   |   |   | None |   |   | $ | 1,895,131 |   |
|                        |       | Severance payment                                                                                                     |       |        | $     | 100,000                                                                                                   | (3)        |                                                                                                        |       | $                          | 100,000    |                          |       |                        | None       |   |   |   | None |   |   | None |   |
| Michael D. Conway |       | Unvested common shares  subject to accelerated vesting  under the amended and restated senior management agreement(1) |       |        | $          | 20,269                                                                                                    |       |                                                                                                        |       | $                          | 1,309,352  |                          |       |                        | None       |   |   |   | None |   |   | $ | 1,309,352 |   |
|                   |       | Severance payment                                                                                                     |       |        | $     | 84,000                                                                                                    | (4)        |                                                                                                        |       | $                          | 82,000     |                          |       |                        | None       |   |   |   | None |   |   | None |   |

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(1)             Upon a change in control, the unvestedshares held by the individual immediately vest. Prior to a change in control,upon a termination of the individual’s employment for any reason, we mayrepurchase the unvested shares from the individual for $0.30 per share. Thus,the value of the unvested shares upon a termination prior to a change incontrol is equal to the number of unvested shares multiplied by $0.30. Upon achange in control, the shares immediately vest and are no longer subject torepurchase. Thus, the value of the shares upon a change in control, whether theindividual is terminated or not, is the number of such shares multiplied by theprice of our common stock reported on the New York Stock Exchange as of theclose of the last business day of fiscal 2007. The only condition to accelerated vesting upon a change in control isthat the executive officer be continuously employed up to and at the time ofthe change in control. A change in control is a sale of the company,which is defined in the respective agreement as a transaction or transactionspursuant to which a person or entity or group of related persons or entitiesacquire(s) stock of the our company possessing the voting power to elect amajority of our board of directors or all or substantially all of our assets.

(2)             If Mr. Aquila or Mr. Pearlsteinterminates his employment for good reason or is terminated by us without cause,then he will receive an amount equal to 150% of his base salary plus 75% of thebonus paid in respect of the prior fiscal year, regardless of whether there hasbeen a change in control. This amount will be paid in equal installments on ourregular salary payment dates for 18 months following termination. We have theoption to extend this severance period from 18 to 24 or 30 months, during whichextension we would continue to pay Mr. Aquila’s or Mr. Pearlstein’s,as the case may be, severance benefits at the same rate. The length of hisnon-solicit restriction would be extended by the same period. Additionally, Mr. Aquilaand Mr. Pearlstein would continue to participate in employee benefitprograms for senior executive employees other than bonus and incentivecompensation plans. Severance payments are unaffected and not triggered by achange in control.

(3)             If Mr. Schwinn terminates hisemployment for good reason or is terminated by us without cause, then he willreceive an amount equal to 50% of his base salary, regardless of whether therehas been a change in control. This amount will be paid in equal installments onour regular salary payment dates for six months following termination.Additionally, Mr. Schwinn would continue to participate in employeebenefit programs for senior executive employees other than bonus and incentivecompensation plans. Severance payments are unaffected and not triggered by achange in control.

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(4)             If Mr. Conway terminates hisemployment for good reason or is terminated by us without cause, then he willreceive an amount equal to 42% of his base salary, regardless of whether therehas been a change in control. This amount will be paid in equal installments onour regular salary payment dates for five months following termination.Additionally, Mr. Conway would continue to participate in employee benefitprograms for senior executive employees other than bonus and incentivecompensation plans. Severance payments are unaffected and not triggered by achange in control.

(5)             Cause is generally defined as (A) thecommission of a felony or a crime involving moral turpitude or any other act oromission involving dishonesty or fraud with respect to our company or any ofour subsidiaries or any of our or our subsidiaries’ customers or suppliers, (B) substantialand repeated failure to perform duties, (C) gross negligence or willfulmisconduct with respect to our company or any of our subsidiaries, (D) conducttending to bring our company or any of our subsidiaries into substantial publicdisgrace or disrepute, and (E) any breach of the confidentiality ornon-solicitation provisions of his respective agreement. Good reason isgenerally defined as (X) a reduction in base salary, (Y) a materialdiminution in titles or duties, or (Z) a change in the location of ourcompany’s principal office by more than 25 miles.

**Compensation ofDirectors**

Ournon-employee and non-GTCR directors receive an annual fee of $40,000 andadditional fees as follows for committee membership and chairpersonship: auditcommittee: member, $7,500 and chair, $15,000; compensation committee andnominating and corporate governance committee: member, $5,000 and chair,$10,000. In addition, in connection with our initial public offering, Messrs. Sheltonand Yarbrough each received grants of 13,333 restricted stock units under our2007 Long-Term Equity Incentive Plan. The restricted stock units are subject tovesting, with 25% vesting on June 30, 2008 and the remainder vesting 6.25%at the end of each fiscal quarter thereafter. The following table summarizesthe compensation of our directors in fiscal 2007.

| **Name**                  | ** ** | ** ** | ** ** | **Fees Earned  or Paid  in Cash  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Plan  Compensation  ($)** | ** ** | **Change  in Pension Value  and Nonqualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|---------------------------|------------|------------|------------|-------------------------------------------------------|------------|------------------------|------------|-------------------------|------------|-----------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| Jerrell W.  Shelton  |       |       | $          | 8,056                                                 |       |                   | $5,922     | (1)                     |       | $                                       | —     |                                                                                            |       |                                  | $          | —         |       |   |   | $ | — |   |   |   | $ | — |   |   | $ | 13,978 |   |
| Stuart J.  Yarbrough |       |       | 7,706      |                                                  |       | $5,922                 | (1)        |                    | —     |                                    |       |                                                                                            | —     |                                  |       |           | —     |   |   |   | — |   |   | 13,628 |   |
| Roxanni Gillespie         |       |       | 8,056      |                                                  |       | —                 |       |                    | —     |                                    |       |                                                                                            | —     |                                  |       |           | —     |   |   |   | 80,001 | (2) |   | 88,057 |   |
| Garen Staglin             |       |       | 6,305      |                                                  |       | —                 |       |                    | —     |                                    |       |                                                                                            | —     |                                  |       |           | —     |   |   |   | — |   |   | 6,305 |   |
| Philip A.  Canfield       |       |       | —     |                                                  |       | —                 |       |                    | —     |                                    |       |                                                                                            | —     |                                  |       |           | —     |   |   |   | — |   |   | — |   |
| Craig Bondy               |       |       | —     |                                                  |       | —                 |       |                    | —     |                                    |       |                                                                                            | —     |                                  |       |           | —     |   |   |   | — |   |   | — |   |
|                           |            |            |            |                                                       |            |                        |            |                         |            |                                         |            |                                                                                                 |            |                                       |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Representsthe dollar amount recognized for financial statement purposes of the grant onMay 11, 2007 of 13,333 restricted stock units. The grant date fair value ofsuch award, as computed under SFAS 123(R) without regard to vesting orforfeiture conditions, was $15.99 per share, or $213,195. For informationregarding assumptions made in connection with this valuation, please see Note11 to the consolidated annual financial statements below. As of June 30,2007, each of Messrs. Shelton and Yarbrough holds 13,333 restricted stock unitsoutstanding.

(2)          Ms.Gillespie provided legal and recruiting consulting services for our EMEAoperations.

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

Unlessotherwise noted, the following table sets forth, as of June 30, 2007, thebeneficial ownership of our common stock by:

·       eachperson that is a beneficial owner of 5% of more of our outstanding shares ofcommon stock;

·       eachof our named executive officers;

·       eachof our directors; and

·       allof the executive officers and directors as a group.

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Beneficialownership is determined under SEC rules and generally includes voting orinvestment power over securities. Except as disclosed in the footnotes to thistable and subject to applicable community property laws, we believe that eachstockholder identified in the table possesses sole voting and investment powerover all shares of common stock shown as beneficially owned by the stockholder.Percentage of beneficial ownership is based on 64,803,563 shares of commonstock outstanding as of August 31, 2007. Unless otherwise indicated in thefootnotes below, the address for each beneficial owner is c/o Solera Holdings, Inc.,6111 Bollinger Canyon Road, Suite 200, San Ramon, California 94583.

| ** **                                                          | ** ** | **Shares  Beneficially Owned** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------|------------|
| **Name**                                                            | ** ** | ** **                          | ** ** | **Number** | ** ** | **Percent** | ** ** |
| **Stockholders owning 5% or more:**                                 |       |                                |       |   |   |   |   |
| GTCR Funds(1)                                                       |       | 30,721,106                          |       |   | 47.5 | % |   |
| **Directors  and Executive Officers:**                              |       |                                |       |   |   |   |   |
| Tony Aquila(2)                                                      |       | 1,620,809                           |       |   | 2.4 | % |   |
| Jack Pearlstein(3)                                                  |       | 996,483                             |       |   | 1.5 | % |   |
| John Schwinn                                                        |       | 206,704                             |       |   | * |   |   |
| Michael D. Conway                                              |       | 154,172                             |       |   | * |   |   |
| Philip A. Canfield(1)                                          |       | 30,721,106                          |       |   | 47.5 | % |   |
| Craig A. Bondy(1)                                              |       | 30,721,106                          |       |   | 47.5 | % |   |
| Garen Staglin(4)                                                    |       | 83,286                              |       |   | * |   |   |
| Roxani Gillespie                                                    |       | 48,684                              |       |   | * |   |   |
| Stuart J. Yarbrough                                            |       | —                              |       |   | — |   |   |
| Jerrell W. Shelton                                             |       | —                              |       |   | — |   |   |
| All directors and  executive officers as a group (ten persons) |       | 33,680,812                          |       |   | 52.0 | % |   |
|                                                                     |            |                                     |            |  |  |  |  |  |  |

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*                    Less than 1%

(1)          Beneficial ownershipinformation prior to the offering includes 26,016,477 shares of commonstock held by GTCR Fund VIII, L.P., 4,565,770 shares of common stockheld by GTCR Fund VIII/B, L.P. and 138,859 shares of common stockheld by GTCR Co-Invest II, L.P. We refer to GTCR Fund VIII, L.P., GTCR Fund VIII/B,L.P. and GTCR Co-Invest II, L.P., collectively, as the GTCR Funds. Theshares beneficially owned directly by each of GTCR Fund VIII, L.P. andGTCR Fund VIII/B, L.P. are beneficially owned indirectly by GTCR PartnersVIII, L.P., the general partner of each; and by GTCR Golder Rauner II, L.L.C.,its general partner. The shares beneficially owned directly by GTCR Co-InvestII, L.P. are beneficially owned indirectly by GTCR Golder Rauner II, L.L.C.,its general partner. GTCR Golder Rauner II, L.L.C., through a six-personmembers committee (consisting of Mr. Canfield, David A. Donnini, Edgar D.Jannotta, Jr., Joseph P. Nolan, Bruce V. Rauner and Collin E. Roche), hasvoting and dispositive authority over the shares held by GTCR Fund VIII,L.P., GTCR Fund VIII/B, L.P. and GTCR Co-Invest II, L.P., andtherefore beneficially owns such shares. Decisions of the members committeewith respect to the voting and disposition of the shares are made by a vote ofa majority of its members and, as a result, no single member of the memberscommittee has voting or dispositive authority over the shares. Each of Messrs. Canfieldand Bondy are members of our board of directors and, along with Messrs. Donnini,Jannotta, Nolan, Rauner, Roche, Vincent J. Hemmer, David S. Katz andConstantine S. Mihas, are principals of GTCR Golder Rauner II, L.L.C., and eachof them disclaims beneficial ownership of the shares held by the GTCR Funds,except to the extent of his proportionate pecuniary interest in such shares.The address of each of GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P.,GTCR Co-Invest II, L.P. and Messrs. Canfield and Bondy is c/o GTCR GolderRauner II, L.L.C., 6100 Sears Tower, Chicago, Illinois 60606.

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(2)          Includes 50,000 sharesof common stock held by each of Anthony Aquila 2007 Annuity Trust dated May 10,2007 and Shelly Renee Aquila 2007 Annuity Trust dated May 10, 2007. Suchshares and those held directly by Mr. Aquila are subject to transferrestrictions and certain of the shares held directly by Mr. Aquila aresubject to repurchase rights under an amended and restated senior managementagreement among us, the two trusts noted above and Mr. Aquila. Mr. Aquilais the trustee of Anthony Aquila 2007 Annuity Trust dated May 10, 2007.Shelly Renee Aquila is the trustee of Shelly Renee Aquila 2007 Annuity Trustdated May 10, 2007 and is the spouse of Mr. Aquila. Mr. Aquiladoes not exercise any voting or investment control over the shares of commonstock held by Shelly Renee Aquila 2007 Annuity Trust dated May 10, 2007.Includes 7,533 restricted stock units held by Mr. Aquila that will vest within60 days and will entitle Mr. Aquila to receive 7,533 shares of commonstock.

(3)          Includes 66,666 sharesof common stock held by each of Ian Z. Pearlstein 2001 Trust and Ivanna V.Pearlstein 2001 Trust. The beneficiaries of Ian Z. Pearlstein 2001 Trustand Ivanna V. Pearlstein 2001 Trust are Ian Z. Pearlstein and Ivanna V.Pearlstein, respectively, who are minor children of Mr. Pearlstein. Mr. Pearlsteindoes not exercise any voting or investment control over the shares of commonstock held by Ian Z. Pearlstein 2001 Trust or Ivanna V. Pearlstein2001 Trust. Such shares and the shares held directly by Mr. Pearlstein aresubject to transfer restrictions and certain of the shares held directly by Mr. Pearlsteinare subject to repurchase rights under a securities purchase agreement amongus, the two trusts noted above and Mr. Pearlstein. Includes 2,511restricted stock units held by Mr. Pearlstein that will vest within 60days and will entitle Mr. Pearlstein to receive 2,511 shares of commonstock.

(4)          Includes4,708 shares of common stock held by each of The Brandon K. StaglinIrrevocable Trust and The Shannon K. Staglin Irrevocable Trust. Suchshares and those held directly by Mr. Staglin are subject to transferrestrictions and certain of the shares held directly by Mr. Staglin aresubject to repurchase rights under an amended and restated purchase agreementamong us, the two trusts noted above and Mr. Staglin. The beneficiariesand trustees of The Brandon K. Staglin Irrevocable Trust and The Shannon K.Staglin Irrevocable Trust are Brandon K. Staglin and Shannon K. Staglin,children of Mr. Staglin. Mr. Staglin does not exercise any voting orinvestment control over the shares of common stock held by The Brandon K.Staglin Irrevocable Trust or The Shannon K. Staglin Irrevocable Trust.

**Equity CompensationPlan Information**

Thefollowing table sets forth certain information for each our equity compensationplans. For a description of each plan, see “Executive Compensation—Long-Term Incentives.”

| ** **                                                   | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average exercise  price of outstanding  options, warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Equity compensation plans approved by  stockholders:**     | ** ** |                                                                                                                                                 | ** ** | ** **                                                                                                      |       |                                                                                                                                        | ** ** | ** ** |   |   | ** ** | ** ** |   |
| 2007 Long-Term Equity Incentive Plan                         |       |                                                                                                                                                 | 728,330    | ** **                                                                                                      |       |                                                                                                                                        | $          | 9.31 | ** ** |   |   | 3,571,670 | ** ** |   |
| Employee Stock Purchase Plan                                 |       |                                                                                                                                                 | —     | ** **                                                                                                      |       |                                                                                                                                        | —     | ** ** |   |   | 1,500,000 | ** ** |   |
| **Equity compensation plans not approved by  stockholders:** | ** ** |                                                                                                                                                 | ** ** | ** **                                                                                                      |       |                                                                                                                                        | ** ** | ** ** |   |   | ** ** | ** ** |   |
| None                                                         | ** ** |                                                                                                                                                 | ** ** | ** **                                                                                                      |       |                                                                                                                                        | ** ** | ** ** |   |   | ** ** | ** ** |   |
|                                                              |            |                                                                                                                                                      |            |                                                                                                                 |            |                                                                                                                                             |            |  |  |  |  |  |  |  |

 

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**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

**Related PartyTransactions Policy and Procedure**

Our legal andfinance departments are primarily responsible for developing and implementingprocesses and controls to obtain information from our directors, executiveofficers and significant stockholders regarding related party transactions andthen determining, based on the facts and circumstances, whether we or arelated-party has a direct or indirect material interest in our transactions.We formed our audit committee on May 10, 2007, which is now responsiblefor the review, approval or ratification of “related-person transactions”between us or our subsidiaries and related persons. “Related person” refers toa person or entity that is, or at any point since the beginning of the lastfiscal year was, a director, officer, nominee for director, or 5% stockholderof us, or the immediate family members of such a person or entity. Our auditcommittee does not have a written policy regarding the approval of relatedparty transactions but will apply its review procedures to potentialrelated-person transactions as a part of its standard operating procedures. Inthe course of its review and approval or ratification of a related-party transaction,the audit committee will consider:

·       thenature of the related party’s interest in the transaction;

·       thematerial terms of the transaction, including, the amount involved and type oftransaction;

·       theimportance of the transaction to the related party and to us;

·       whetherthe transaction would impair the judgment of a director or executive officer toact in our best interest and the best interest of our stockholders; and

·       anyother matters the audit committee deems appropriate.

Any member of the audit committee who is a relatedperson with respect to a transaction under review may not participate in thedeliberations or vote on the approval or ratification of the transaction.However, such a director may be counted in determining the presence of a quorumat a meeting of the audit committee at which the transaction is considered.

Since July 1, 2005,we have not been a party to, and we have no plans to be a party to, anytransaction or series of similar transactions in which the amount involved exceededor will exceed $120,000 and in which any current director, executive officer,holder of more than 5% of our capital stock, or any member of the immediatefamily of any of the foregoing, had or will have a direct or indirect materialinterest, other than in connection with the transactions described below. Allof the transactions described below were entered into prior to the formation ofour audit committee, and were reviewed by our board of directors, whichprimarily considered the interests of our stockholders and practices with otherprivate equity sponsor-owned companies in considering whether transactions werefair.

**Indemnification andEmployment Agreements**

As permitted by theDelaware General Corporation Law, our certificate of incorporation includesprovisions that authorize and require us to indemnify our officers anddirectors to the full extent permitted under Delaware law, subject to limitedexceptions. We have also entered into employment agreements with our executiveofficers. See “Executive Compensation—Compensation Discussion and Analysis—Elementsof Compensation.”

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**Our April 2005Formation and Funding**

Wesold the following securities to our directors, named executive officers andprincipal securityholders in connection with our formation and initial funding.Class A Common Units were sold at $0.30 per unit, and Class BPreferred Units were sold at $1,000 per unit.

| ** **                                         | ** ** | **Class A  Common Units** | ** ** | **Class B  Preferred Units** | ** ** | **Aggregate  Purchase Price** | ** ** |
|----------------------------------------------------|------------|-------------------------------------|------------|----------------------------------------|------------|------------------------------------|------------|
| GTCR Fund VIII,  L.P.                              |       |                                | 11,291,466 |                                   |       |                               | 846.860    |   |   |   | $ | 4,234,300 |   |   |
| GTCR Fund VIII/B,  L.P.                            |       |                                | 1,981,600  |                                   |       |                               | 148.620    |   |   |   | 743,100 |   |   |
| GTCR Co-Invest  II, L.P.                           |       |                                | 60,266     |                                   |       |                               | 4.520      |   |   |   | 22,600 |   |   |
| Total—principal securityholders               |       |                                | 13,333,332 |                                   |       |                               | 1,000.000  |   |   |   | $ | 5,000,000 |   |   |
| Tony Aquila                                        |       |                                | 1,346,673  |                                   |       |                               | 16.625     |   |   |   | $ | 420,627 |   |   |
| John Schwinn                                       |       |                                | 266,512    |                                   |       |                               | 1.771      |   |   |   | 81,725 |   |   |
| Michael D. Conway                                  |       |                                | 188,785    |                                   |       |                               | 2.014      |   |   |   | 58,650 |   |   |
| Garen Staglin                                      |       |                                | 72,196     |                                   |       |                               | 2.379      |   |   |   | 24,037 |   |   |
| Roxani Gillespie                                   |       |                                | 40,482     |                                   |       |                               | —     |   |   |   | 12,145 |   |   |
| Total—directors  and named executive officers |       |                                | 1,914,648  |                                   |       |                               | 22.789     |   |   |   | $ | 597,184 |   |   |

 

The units sold to ourdirectors and named executive officers were issued pursuant to seniormanagement agreements or securities purchase agreements, which are described ingreater detail below under the caption “—Agreements Related to our 2005Formation and Funding and the Acquisition—Senior Management Agreements andSecurities Purchase Agreements.”

**The Acquisition**

On April 13, 2006, certain of our indirect,wholly-owned subsidiaries acquired the Claims Services Group of ADP asfollows: (1) Audatex North America, Inc. acquired all of theoutstanding common stock of ADP Claims Services Group, Inc., itssubsidiaries and ADP Integrated Medical Solutions, Inc. from ADP, (2) AudatexNorth America, Inc. acquired all of the outstanding common stock of ADPHollander, Inc. from ADP Atlantic Inc., (3) Business Services GroupHoldings B.V. acquired all of the outstanding capital shares ofADP Business Services Group B.V. from ADP Nederland B.V., (4) AudatexHoldings IV B.V. acquired all of the outstanding capital shares of AudatexHolding GmbH from ADP Nederland B.V., (5) Audatex Holdings IVB.V. acquired all of the outstanding capital shares of ADP Network ServicesNetherlands B.V. from ADP Nederland B.V. and ADPInternational B.V., (6) Audatex Canada, ULC acquired the assetsrelated primarily to our business owned by ADP Canada Co. and (7) AudatexSolutions Private Limited acquired the assets related primarily to our businessowned by ADP Private Limited. The Acquisition was financed through (1) borrowingsof $809.7 million, secured by assets of the businesses we acquired,including a $16.6 million revolving loan and $501.7 million and$291.4 million term loans, and (2) proceeds of $4.6 million fromthe issuance of Class A Common Units and $203.2 million from theissuance of Class B Preferred Units.

Inconnection with the Acquisition, we sold securities to our directors, namedexecutive officers and principal securityholders in order to finance a part ofthe Acquisition. We also repurchased Class A Common Units from certain ofour named executive officers in order to adjust the relative amounts of Class ACommon Units and Class B Preferred units held by our securityholders, aswell as to adjust the relative amounts of units held by our named executive officersthat were vested and subject to future vesting. All Class A Common Unitssold or purchased by us were sold or purchased at $0.30 per unit, and all Class BPreferred Units were sold by us at $1,000 per unit. We did not purchase any Class BPreferred Units from any investors. The following table sets forth the Class BPreferred Units sold to and the Class A Common Units either sold to orrepurchased from, as applicable, each investor in connection with theAcquisition. The aggregate purchase price set forth below for each investorrepresents the net purchase 

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price paid by the investor, which is equal to thepurchase price of Class B Preferred Units purchased, plus the purchaseprice of Class A Common Units purchased, if any, or minus the purchaseprice paid by us for Class A Common Units we repurchased from theinvestor, if any.

| ** **                                         | ** ** | **Class A  Common  Units Sold  (Repurchased)** | ** ** | **Class B  Preferred Units** | ** ** | **Aggregate  Purchase Price** | ** **  |
|----------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------|------------|------------------------------------|-------------|
| GTCR Fund VIII,  L.P.                              |       |                                                     | 12,307,698 |                                   |       |                               | 169,067.130 |   |   | $ | 172,759,440 |   |
| GTCR Fund VIII/B,  L.P.                            |       |                                                     | 2,159,944  |                                   |       |                               | 29,670.497  |   |   | 30,318,480 |   |
| GTCR Co-Invest  II, L.P.                           |       |                                                     | 65,690     |                                   |       |                               | 902.373     |   |   | 922,080 |   |
| Total—principal securityholders               |       |                                                     | 14,533,332 |                                   |       |                               | 199,640.000 |   |   | $ | 204,000,000 |   |
| Tony Aquila                                        |       |                                                     | 176,850    |                                   |       |                               | 1,526.318   |   |   | $ | 1,579,373 |   |
| Jack Pearlstein                                    |       |                                                     | 954,114    |                                   |       |                               | 1,213.766   |   |   | 1,500,000 |   |
| John Schwinn                                       |       |                                                     | (62,494    | )                                      |       |                               | 187.023     |   |   | 168,275 |   |
| Michael D. Conway                                  |       |                                                     | (37,525    | )                                      |       |                               | 202.608     |   |   | 191,350 |   |
| Garen Staglin                                      |       |                                                     | 7,874      |                                   |       |                               | 223.600     |   |   | 225,963 |   |
| Roxani Gillespie                                   |       |                                                     | 8,202      |                                   |       |                               | —      |   |   | 2,461 |   |
| Total—directors  and named executive officers |       |                                                     | 1,047,021  |                                   |       |                               | 3,353.315   |   |   | $ | 3,667,422 |   |

 

The units sold to and/orpurchased from our directors and named executive officers were issued and/orrepurchased pursuant to amended and restated senior management agreements, asecurities purchase agreement or amended and restated securities purchaseagreements, which are described in greater detail below under the caption “—AgreementsRelated to our 2005 Formation and Funding and the Acquisition—Senior ManagementAgreements and Securities Purchase Agreements.”

**Agreements Relatedto Our 2005 Formation and Funding and the Acquisition**

***Purchase Agreement.******  ***As describedabove, we issued Class A Common Units and Class B Preferred Units toaffiliates of GTCR in our April 2005 formation and funding pursuant to apurchase agreement and issued Class A Common Units and Class BPreferred Units to affiliates of GTCR in connection with the Acquisitionpursuant to an amended and restated purchase agreement. In connection with ourinitial public offering, affiliates of GTCR and we agreed to amend and restatethe amended and restated unit purchase agreement. The second amended andrestated purchase agreement imposes continuing requirements on us in favor ofthe affiliates of GTCR who held shares of our common stock following thecompletion of our initial public offering, so long as they continue to hold acertain percentage of the numbers of shares of our common stock that they heldfollowing the completion of our initial public offering. So long as affiliatesof GTCR continue to hold such shares, we will be required to obtain theirconsent prior to (1) issuing or granting any stock-basedcompensation to certain members of our management team, (2) increasing thenumber of members on each of our compensation committee and our nominating andcorporate governance committee and (3) increasing the number of sharesavailable for issuance under our equity plans. So long as they continue to holdthe requisite amount of shares noted above, the affiliates of GTCR will also beentitled to designate one member of each of our compensation committee and ournominating and corporate governance committee.

***Senior Management Agreements and Securities PurchaseAgreements.******  ***In connection with our April 2005formation and funding, we entered into senior management agreements with eachof Messrs. Aquila, Schwinn and Conway and securities purchase agreementswith Mr. Staglin and Ms. Gillespie, pursuant to which theseindividuals purchased Class A Common Units and Class B PreferredUnits. In connection with the Acquisition, we entered into amended and restatedsenior management agreements with each of Messrs. Aquila, Schwinn andConway and, in the case of Mr. Pearlstein, an employment agreement, whichset forth the terms of employment for each of our named executive officersfollowing the Acquisition, as 

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described ingreater detail under the caption “Management—Employment Agreements.” Each ofour named executive officers also purchased Class A Common Units and Class BPreferred Units pursuant to these agreements, or, in the case of Mr. Pearlstein,a securities purchase agreement, and the agreements set forth certain terms andrestrictions on all units held by these executives. In connection with theAcquisition, we also entered into amended and restated securities purchaseagreements with Mr. Staglin and Ms. Gillespie pursuant to which thesedirectors purchased Class A Common and Class B Preferred Units, andthese agreements set forth certain terms and restrictions on all units held bythese managers.

We expect to enter intosecond amended and restated senior management agreements with each of Messrs. Aquila,Schwinn and Conway; an amended and restated securities purchase agreement with Mr. Pearlstein;and second amended and restated securities purchase agreements with Ms. Gillespieand Mr. Staglin. We expect to enter into these agreements primarily toreflect: the reverse split of our common units, our conversion into acorporation, the conversion of all of our outstanding equity units into sharesof our common stock and the completion of our initial public offering. 

The following sets forththe terms of the existing agreements with respect to the shares of common stockheld by our named executive officers and certain of our directors resultingfrom the conversion of equity units purchased in connection with our formationand funding and the Acquisition.

Of theshares of common stock acquired by our named executive officers and/ordirectors pursuant to the agreements described above, the table below sets forthe number of shares held by each individual that are subject to vesting.

| **Executive Officer or Director** | ** ** | ** ** | ** ** | **Shares of Common Stock  Subject to Vesting** | ** ** |
|--------------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------|------------|
| Tony Aquila                                      |       |       | 1,309,226  |                                                                    |       |
| Jack Pearlstein                                  |       |       | 785,535    |                                                                    |       |
| John Schwinn                                     |       |       | 177,796    |                                                                    |       |
| Michael D. Conway                                |       |       | 122,840    |                                                                    |       |
| Garen Staglin                                    |       |       | 48,684     |                                                                    |       |
| Roxani Gillespie                                 |       |       | 48,684     |                                                                    |       |

 

Of theshares subject to vesting, 20% vested in April 2006 and the remainder vest5% at the end of each fiscal quarter ending after April 2006, so long as,in the case of an executive officer, he remains employed by us or one of oursubsidiaries or, in the case of a director, he or she remains manager ordirector of us or one of our subsidiaries. If the employment of any executiveofficer or the service of any manager/director is terminated, any unvestedshares will be subject to repurchase by us, or by affiliates of GTCR to theextent that we do not exercise our repurchase right, for a repurchase priceequal to the lesser of the original purchase price, $0.30 per share, and thefair market of the shares as of the date of termination.

Theamended and restated senior management agreements, Mr. Pearlstein’ssecurities purchase agreement and the amended and restated securities purchaseagreements prohibit the transfer of units, other than:

·       tous or affiliates of GTCR pursuant to the repurchase right described above;

·       tofamily members, pursuant to laws of inheritance or to a guardian, in each caseso long as the transferee agrees to be bound by the transfer restrictions; or

·       pursuantto a sale of us, in connection with participation rights in sales by affiliatesof GTCR or certain public sales executed by specified affiliates of GTCR.

The transfer restrictions survive with respect to eachshare of our common stock until the earliest of:

·       thedate on which such share is transferred in a public sale permitted by theagreement; and

·       theconsummation of a sale of the business.

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***Securityholders Agreement.******  ***In connectionwith the Acquisition, we entered into a securityholders agreement withaffiliates of GTCR and certain of our named executive officers. Subject tospecified conditions, the agreement requires the securityholders who areparties to it to consent to any sale of us to a non-affiliate of GTCR if thesale is approved by the holders of a majority of the units subject to theagreement. This provision generally applies to any set of transactions thatresults in the acquisition, by a person or group of related persons, ofsubstantially all of our assets or of an amount of our units with sufficientvoting power to elect a majority of our managers. However, a public offering ofour units (or the equity units of our successor) or a sale to GTCR affiliatesis not subject to this provision. This agreement was terminated in connectionwith our initial public offering.

***Professional Services Agreement.******  ***In connectionwith our April 2005 initial formation and funding, we entered into aprofessional services agreement with GTCR, pursuant to which we engaged GTCR asa financial and management consultant. Under this agreement, GTCR agreed toconsult with our board of managers and management regarding corporate strategy,budgeting of future corporate investments, acquisition and divestiturestrategies and debt and equity financings. We agreed to pay GTCR an annualmanagement fee of $250,000 and to reimburse GTCR for fees and expenses incurredby GTCR or its personnel in connection with the performance of theirobligations under this agreement. We agreed also to pay GTCR a placement feeequal to 1% of the gross amount of any debt or equity financing of us or any ofour subsidiaries and to indemnify GTCR and its personnel against losses arisingfrom their performance under the agreement (except due to gross negligence orwillful misconduct). During fiscal 2005 and fiscal 2006, we paid fees to GTCRunder this agreement of approximately $0.5 million and $11.0 million,respectively. During fiscal 2007, we paid GTCR approximately $208,000 inmanagement fees. This agreement was terminated in connection with our initialpublic offering.

***Advisory Services Agreement***

We entered into a letteragreement in February 2006 with Garen Staglin, one of our directors,pursuant to which Mr. Staglin received an advisory and success fee of$3.8 million upon the closing of the Acquisition.

***Consulting Agreement***

We entered into aconsulting agreement in September 2006 with Roxani Gillespie, one of ourdirectors, pursuant to which Ms. Gillespie was employed to resolve certainemployee relations issues for us in the Netherlands. Ms. Gillespie waspaid a fee of $26,000 per month for a three-month period under the termsof this agreement.

***Registration Rights Agreement***

We entered into a registration rights agreementpursuant to which we have agreed to register for sale under the Securities Actshares of our common stock in the circumstances described below. All personswho purchased our units in connection with our formation and funding or theAcquisition are parties to the registration rights agreement. This agreementprovides some holders of our common stock with the right to require us toregister common stock owned by them and other stockholders who are parties tothe agreement and provides stockholders who are parties to the agreement withthe right to include common stock owned by them in a registration statementunder most other circumstances. The following describes such rights and circumstances.

*DemandRights.**  *Theholders of a majority of the shares of our common stock issued with respect tounits purchased by affiliates of GTCR in connection with the Acquisition or our2005 formation and funding have the right to require us to register theirshares.

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We call the right to require us to register shares ademand right and the resulting registration a demand registration. Stockholderswith demand rights may make an unlimited number of such demands forregistration on Form S-1 or, if available to us, on Form S-3.Holders of piggyback rights, described below, may include shares they own in ademand registration.

*Piggyback Rights.**  *A larger group of stockholders canrequest to participate in, or “piggyback” on, registrations of any of oursecurities for sale by us or by a third party. We call this right a piggybackright and the resulting registration a piggyback registration. The piggybackright applies to the following shares:

·       theshares described above that have demand rights;

·       sharesof our common stock held by specified executive officers, as well as any otherexecutive officer who, with the consent of an affiliate of GTCR, becomes aparty to the registration rights agreement. As of June 30, 2007, all ofour named executive officers, Ms. Gillespie and Mr. Staglin wereparties to the registration rights agreement; and

·       sharesof our common stock held by any other person to whom we issue equity securitiesand whom we permit, with the consent of an affiliate of GTCR, to become a partyto the registration rights agreement.

The piggyback rightapplies to any registration other than:

·       ourinitial public offering;

**·****     **ademand registration; or

·       aregistration on Form S-4 or S-8.

*Conditionsand Limitations; Expenses.**  *The registration rights outlined above are subject toconditions and limitations, including the right of the underwriters to limitthe number of shares to be included in a registration and our right to delay orwithdraw a registration statement under specified circumstances.

We are not required to make a demand registration on Form S-1within 90 days of either a prior demand registration on Form S-1or a prior piggyback registration, unless those stockholders with piggybackrights were unable to register all the shares they wished to in the priorpiggyback registration. In addition, holders of securities with registrationrights may not make any public sale of our equity securities (including salesunder Rule 144) during a period that begins seven days before theeffectiveness of a registration statement and that ends, in the case of ourinitial public offering, 180 days after the initial public offering and,in any other underwritten offering in which registration rights are exercised,180 days after effectiveness. In either case, the managing underwritersfor the relevant offering may agree to shorten this period.

The underwriters in any demand registration will beselected by the holders of a majority of the shares with demand rights that areincluded in the registration, and the underwriters in any piggybackregistration that is underwritten will be selected by the holders of a majorityof the shares that are included in the piggyback registration.

Other than underwritingdiscounts and commissions and brokers’ commissions, we will pay allregistration expenses in connection with a registration, as well as reasonable(or otherwise limited) fees for legal counsel to the stockholders withregistration rights.

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**ITEM 14.**         PRINCIPALACCOUNTING FEES AND SERVICES

**Accounting Fees**

Thefollowing table shows the fees paid or accrued for the audit and other servicesprovided by Deloitte & Touche LLP, or Deloitte, for fiscal 2007 and2006.

| ** **     | ** ** | **Fiscal Years Ended June 30,** | ** ** |
|----------------|------------|-----------------------------------------------------|------------|
| ** **     | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| Audit fees (1) |       | $                                                   | 7,170,000  |   | $ | 622,000 |   |
| Tax fees (2)   |       | 879,000                                             |       | 27,000 |   |
| Total          |       | $                                                   | 8,049,000  |   | $ | 649,000 |   |

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(1)          This category includesthe audit of our annual financial statements, review of financial statementsincluded in our Form 10-Q quarterly reports, services performed in connectionwith our initial public offering and services that are normally provided by theindependent registered public accounting firm in connection with statutory andregulatory filings including consents and advice on accounting matters thatarose during, or as a result of, the audit or the review of interim financialstatements. This category also includes statutory audits required by non-U.S.jurisdictions, and the preparation of an annual “management letter” on internalcontrol matters.

(2)          Theseare fees for professional services performed by Deloitte with respect to taxcompliance and tax planning and advice. Tax compliance includes preparation oforiginal and amended tax returns, refund claims, tax payment planning and taxaudit assistance.

**Pre-Approval ofAudit and Non-Audit Services**

All audit and non-audit services provided by Deloitteto us must be pre-approved by the audit committee. The audit committee utilizesthe following procedures in pre-approving all audit and non-audit servicesprovided by Deloitte. At or before the first meeting of the audit committeeeach year, the audit committee is presented with a detailed listing of theindividual audit and non-audit services and fees (separately describingaudit-related services, tax services and other services) expected to beprovided by Deloitte during the year. During the first quarter of each year,the audit committee is presented with an updated listing of approved serviceshighlighting any new audit and non-audit services to be provided by Deloitte.The audit committee reviews these listings and approves the services outlinedtherein if such services are acceptable to the audit committee. To ensureprompt handling of unexpected matters, the audit committee delegates to thechairman of the audit committee the authority to amend or modify the list ofaudit and non-audit services and fees; provided, however, that such additionalor amended services may not affect Deloitte’s independence under applicable SECrules. The chairman reports any such action taken to the audit committee at thesubsequent audit committee meeting.

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**PART IV**

**ITEM 15.**         EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

(a)(1)     Financial Statements.

|                                                                                                                                                                                               | ** ** | **Page** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| **Solera  Holdings, Inc.—Consolidated Financial Statements**                                                                                                                             |       |     |       |   |   |
| Report of Independent Registered Public Accounting  Firm                                                                                                                                      |       |     | 78         |   |   |
| Consolidated  Balance Sheets as of fiscal years ended June 30, 2007 and 2006                                                                                                             |       |     | 79         |   |   |
| Consolidated  Statements of Operations for the fiscal years ended June 30, 2007 and  2006 and the period from March 24, 2005 to June 30, 2005                                  |       |     | 80         |   |   |
| Consolidated Statements of Stockholders’/Unitholders’  Equity for the fiscal years ended June 30, 2005 and 2006 and the period  from March 24, 2005 to June 30, 2005 |       |     | 81         |   |   |
| Consolidated Statements of Cash Flows for the fiscal  years ended June 30, 2007 and 2006 and the period from March 24,  2005 to June 30, 2005                                  |       |     | 82         |   |   |
| Notes to Consolidated Financial Statements                                                                                                                                                    |       |     | 83         |   |   |
| **Combined Financial Statements of Claims Services  Group**                                                                                                                                   |       |     |       |   |   |
| Independent Auditors’ Report                                                                                                                                                             |       |     | 108        |   |   |
| Combined  Balance Sheets as of June 30, 2004 and 2005                                                                                                                                         |       |     | 109        |   |   |
| Statements of Combined Earnings for the years ended  June 30, 2004 and 2005, and for the period from July 1, 2005 through  April 13, 2006                                                |       |     | 110        |   |   |
| Statements of Combined Group Equity for the years  ended June 30, 2004 and 2005, and for the period from July 1, 2005 through  April 13, 2006                                                 |       |     | 111        |   |   |
| Statements of Combined Cash Flows for the years ended  June 30, 2004 and 2005, and for the period from July 1, 2005 through  April 13, 2006                                              |       |     | 112        |   |   |
| Notes to Combined Financial Statements                                                                                                                                                        |       |     | 113        |   |   |

 

(a)(2)     FinancialStatement Schedules.   All schedules have been omitted because they are notrequired or applicable or the information is included in the consolidatedfinancial statements or notes thereto.

(a)(3)     Exhibits.   Thelist of exhibits in the Exhibit Index to this Annual Report on Form 10-Kis incorporated herein by reference.

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**To theBoard of Directors and Stockholders ofSolera Holdings, Inc.**

We have audited the accompanying consolidated balancesheets of Solera Holdings, Inc. and subsidiaries (the “Company”) as of June 30,2007 and 2006, and the related consolidated statements of operations,stockholders’/unitholders’ equity (deficit) and accumulated other comprehensiveincome (loss), and cash flows for the fiscal years ended June 30, 2007 and2006 and for the period from March 24, 2005 (inception) through June 30,2005. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal controls over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statementspresent fairly, in all material respects, the financial position of the Companyas of June 30, 2007 and 2006, and the results of its operations and its cashflows for the fiscal years ended June 30, 2007 and 2006 and for the periodfrom March 24, 2005 (inception) through June 30, 2005, in conformitywith accounting principles generally accepted in the United States of America.

As discussed in Note 11 tothe consolidated financial statements, on June 30, 2007, the Company changedits method of accounting for defined benefit pension and other postretirementplans upon the adoption of Financial Accounting Standards Board (“FASB”)Statement No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans—an amendment of FASBStatements No. 87, 88, 106 and 132(R)*. In addition, as discussed inNote 11 to the consolidated financial statements, the Company adopted FASBStatement No. 123(R), *Share-Based Payment*,effective July 1, 2006.

/s/ Deloitte & Touche LLPSan Jose, CaliforniaSeptember 14, 2007

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**SOLERA HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSAS OF JUNE 30, 2007 AND JUNE 30, 2006(In thousands, except share/unit amounts)**

| ** **                                                                                                                                                                                       | ** ** | **June 30,  2007** | ** ** | **June 30,  2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| **ASSETS**                                                                                                                                                                                       | ** ** | ** **              | ** ** | ** **              | ** ** |
| CURRENT ASSETS:                                                                                                                                                                                  |       |                    |       |                    |       |
| Cash and cash  equivalents                                                                                                                                                                       |       | $                       | 89,868     |                    | $          | 88,826 |   |
| Accounts receivable—net                                                                                                                                                                     |       | 85,543                  |       | 58,475                  |       |
| Other receivable                                                                                                                                                                                 |       | 9,297                   |       | 21,759                  |       |
| Other current assets                                                                                                                                                                             |       | 16,901                  |       | 14,153                  |       |
| Deferred income tax  assets                                                                                                                                                                      |       | 3,248                   |       | 4,675                   |       |
| Total current assets                                                                                                                                                                             |       | 204,857                 |       | 187,888                 |       |
| PROPERTY AND  EQUIPMENT—Net                                                                                                                                                                 |       | 51,485                  |       | 38,285                  |       |
| OTHER ASSETS                                                                                                                                                                                     |       | 11,625                  |       | 37,512                  |       |
| LONG TERM DEFERRED  INCOME TAX ASSETS                                                                                                                                                            |       | 23,835                  |       | 6,605                   |       |
| GOODWILL                                                                                                                                                                                         |       | 569,165                 |       | 541,421                 |       |
| INTANGIBLE ASSETS—Net                                                                                                                                                                       |       | 362,986                 |       | 441,294                 |       |
| TOTAL                                                                                                                                                                                            |       | $                       | 1,223,953  |                    | $          | 1,253,005 |   |
| **LIABILITIES AND STOCKHOLDERS’/UNITHOLDERS’ EQUITY  (DEFICIT)**                                                                                                                       | ** ** | ** **              | ** ** | ** **              | ** ** |
| CURRENT LIABILITIES:                                                                                                                                                                             |       |                    |       |                    |       |
| Accounts payable                                                                                                                                                                                 |       | $                       | 25,571     |                    | $          | 14,043 |   |
| Accrued expenses and  other current liabilities                                                                                                                                                  |       | 89,240                  |       | 107,479                 |       |
| Income taxes payable                                                                                                                                                                             |       | 13,995                  |       | 23,901                  |       |
| Deferred income tax  liabilities                                                                                                                                                                 |       | 1,076                   |       | 3,525                   |       |
| Current portion of  long-term debt                                                                                                                                                               |       | 14,140                  |       | 16,211                  |       |
| Total current  liabilities                                                                                                                                                                       |       | 144,022                 |       | 165,159                 |       |
| LONG-TERM DEBT                                                                                                                                                                                   |       | 599,128                 |       | 831,628                 |       |
| OTHER LIABILITIES                                                                                                                                                                                |       | 25,378                  |       | 117                     |       |
| LONG-TERM DEFERRED  INCOME TAX LIABILITIES                                                                                                                                                       |       | 42,922                  |       | 51,264                  |       |
| Total liabilities                                                                                                                                                                                |       | 811,450                 |       | 1,048,168               |       |
| COMMITMENTS AND  CONTINGENCIES (Note 14)                                                                                                                                                    |       |                    |       |                    |       |
| CLASS B REDEEMABLE  PREFERRED UNITS—Unlimited units authorized; no units and 204,239 units  issued and outstanding as of June 30, 2007 and June 30, 2006,  respectively |       | —                  |       | 207,865                 |       |
| MINORITY INTERESTS IN CONSOLIDATED  SUBSIDIARIES                                                                                                                                                 |       | 11,229                  |       | 9,375                   |       |
| STOCKHOLDERS’/UNITHOLDERS’ EQUITY (DEFICIT):                                                                                                                                           |       |                    |       |                    |       |
| Class A Common  Units: unlimited units authorized; 31,046,962 issued and outstanding as of  June 30, 2006                                                                              |       | —                  |       | 4,907                   |       |
| Common Shares, $0.01 par  value : 150,000,000 shares authorized; 64,813,563 issued and outstanding as  of June 30, 2007                                                                     |       | 505,939                 |       | —                  |       |
| Deferred unit based  compensation                                                                                                                                                                |       | —                  |       | (1,446                  | )          |
| Accumulated deficit                                                                                                                                                                              |       | (111,687                | )          | (19,627                 | )          |
| Accumulated other  comprehensive income                                                                                                                                                          |       | 7,022                   |       | 3,763                   |       |
| Total  stockholders’/unitholders’ equity (deficit)                                                                                                                                     |       | 401,274                 |       | (12,403                 | )          |
| TOTAL                                                                                                                                                                                            |       | $                       | 1,223,953  |                    | $          | 1,253,005 |   |

 

See notes to consolidated financial statements.

79

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**SOLERAHOLDINGS, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE FISCAL YEARSENDED JUNE 30, 2007 and 2006 AND FORTHE PERIOD FROM MARCH 24, 2005 (INCEPTION) THROUGH JUNE 30, 2005**

**(In thousands,except per share and per unit amounts)**

| ** **                                                                                                                                      | ** ** | ** **                  | ** ** | ** **                    | ** ** | **Period from**         | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                      | ** ** | ** **                  | ** ** | ** **                    | ** ** | **March 24, 2005** | ** ** |
| ** **                                                                                                                                      | ** ** | ** **                  | ** ** | ** **                    | ** ** | **(Inception)**              | ** ** |
| ** **                                                                                                                                      | ** ** | **Fiscal Year Ended**       | ** ** | **Through**                   | ** ** |
| ** **                                                                                                                                      | ** ** | **June 30, 2007** | ** ** | **June 30, 2006**   | ** ** | **June 30, 2005**  | ** ** |
| Revenues                                                                                                                                        |       |                        | $          | 471,960                       |       |                         |       | $ | 95,084 |   |   |   | $ | 155 |   |   |
| Cost of revenues:                                                                                                                               |       |                        |       |                          |       |                         |       |   |   |   |   |   |   |
| Operating expenses                                                                                                                              |       |                        | 138,345    |                          |       |                         | 29,013     |   |   |   | 228 |   |   |
| Systems development and  programming costs                                                                                                      |       |                        | 65,041     |                          |       |                         | 15,080     |   |   |   | — |   |   |
| Total cost of revenues  (excluding depreciation and amortization)                                                                               |       |                        | 203,386    |                          |       |                         | 44,093     |   |   |   | 228 |   |   |
| Selling, general and  administrative expenses                                                                                                   |       |                        | 134,545    |                          |       |                         | 27,105     |   |   |   | 673 |   |   |
| Depreciation and  amortization                                                                                                                  |       |                        | 104,419    |                          |       |                         | 23,571     |   |   |   | 16 |   |   |
| Restructuring charges                                                                                                                           |       |                        | 6,049      |                          |       |                         | 2,871      |   |   |   | — |   |   |
| Interest expense                                                                                                                                |       |                        | 69,681     |                          |       |                         | 14,842     |   |   |   | — |   |   |
| Other (income)  expense—net                                                                                                                |       |                        | 31,509     |                          |       |                         | 1,836      |   |   |   | (22 | ) |   |
|                                                                                                                                            |       |                        | 549,589    |                          |       |                         | 114,318    |   |   |   | 895 |   |   |
| Loss before income tax  benefit and minority  interests                                                                                         |       |                        | (77,629    | )                             |       |                         | (19,234    | ) |   |   | (740 | ) |   |
| Income tax benefit                                                                                                                              |       |                        | (773       | )                             |       |                         | (1,268     | ) |   |   | — |   |   |
| Minority interest in net  income of consolidated subsidiaries                                                                                   |       |                        | 4,050      |                          |       |                         | 921        |   |   |   | — |   |   |
| Net loss                                                                                                                                        |       |                        | (80,906    | )                             |       |                         | (18,887    | ) |   |   | (740 | ) |   |
| Dividends and redeemable  preferred unit accretion                                                                                              |       |                        | 14,614     |                          |       |                         | 88,789     |   |   |   | 93 |   |   |
| Net loss allocable to  common stockholders/unitholders                                                                                          |       |                        | $          | (95,520                       | )          |                         |       | $ | (107,676 | ) |   |   | $ | (833 | ) |   |
| Net loss allocable to  common stockholders/unitholders per share/unit:                                                                          |       |                        |       |                          |       |                         |       |   |   |   |   |   |   |
| Basic and diluted                                                                                                                               |       |                        | $          | (2.82                         | )          |                         |       | $ | (6.34 | ) |   |   | $ | (0.07 | ) |   |
| Weighted average  shares/units used in the calculation of net loss per share/unit allocable to  common stockholders/unitholders:                |       |                        |       |                          |       |                         |       |   |   |   |   |   |   |
| Basic and diluted                                                                                                                               |       |                        | 33,865     |                          |       |                         | 16,978     |   |   |   | 12,685 |   |   |
| Pro forma net loss data  (unaudited)—Note 1                                                                                                |       |                        |       |                          |       |                         |       |   |   |   |   |   |   |
| Net loss allocable to  common stockholders/unitholders as reported                                                                              |       |                        | $          | (95,520                       | )          |                         |       | $ | (107,676 | ) |   |   |   |   |   |
| Pro forma adjustment for  income tax benefit                                                                                                    |       |                        | (956       | )                             |       |                         | (1,561     | ) |   |   |   |   |   |
| Pro forma net loss  allocable to common stockholders/unitholders                                                                                |       |                        | $          | (94,564                       | )          |                         |       | $ | (106,115 | ) |   |   |   |   |   |
| Pro forma basic and  diluted net loss allocable to common stockholders/unitholders per common  share/unit                                       |       |                        | $          |     (2.79 | )     |               |       | $ | (6.25 | ) |      |   |   |   |   |
| Weighted average shares/units used in pro forma  basic and diluted net loss allocable to common stockholders/unitholders per  common share/unit |       |                        | 33,865     |                          |       |                         | 16,978     |   |   |   |   |   |   |
|                                                                                                                                                 |            |                             |            |                               |            |                              |            |  |  |  |  |  |  |  |  |  |  |

 

See notes to consolidated financial statements.

80

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**SOLERA HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’/UNITHOLDERS’ EQUITY (DEFICIT) AND**

**ACCUMULATEDOTHER COMPREHENSIVE INCOME (LOSS)**

**FOR THE FISCAL YEARS ENDEDJUNE 30, 2007 and 2006 AND FOR THE PERIOD FROM**

**MARCH 24,2005 (INCEPTION) THROUGH JUNE 30, 2005**

**(In thousands,except share/unit amounts)**

| ** **                                                                               | ** ** | **Common Shares** | ** ** | **Class A  Common Units** | ** ** | **Deferred** | ** ** | **Accumuated  Other  Compreensive** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------------------------|------------|--------------|------------|-------------------------------------|------------|-----------------|------------|------------|------------|
| ** **                                                                               | ** ** | **Shares**             | ** ** | **Amount**                          | ** ** | **Units**    | ** ** | **Amount**                          | ** ** | **Compesation** | ** ** | **Income** | ** ** | **Deficit** | ** ** | **Total** | ** ** |
| BALANCE—March 24,  2005 (Inception)                                            |       | —                 |       | $                                   | —     |         | —     |                                | $          | —          |       |       | $          | — |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | — |   |
| Issuance of  Class A Common Units, net of issuance costs of $332                    |       | —                 |       | —                              |       | 15,595,456   |       | 4,347                               |       |            | —     |       |       |   | — |   |   |   | — |   |   | 4,347 |   |
| Dividend                                                                                 |       | —                 |       | —                              |       | —       |       | (20                                 | )          |            | —     |       |       |   | — |   |   |   | — |   |   | (20 | ) |
| Accretion of  redeemable preferred units                                                 |       | —                 |       | —                              |       | —       |       | (73                                 | )          |            | —     |       |       |   | — |   |   |   | — |   |   | (73 | ) |
| Net loss and  comprehensive net loss                                                     |       | —                 |       | —                              |       | —       |       | —                              |       |            | —     |       |       |   | — |   |   |   | (740 | ) |   | (740 | ) |
| BALANCE—June 30,  2005                                                         |       | —                 |       | —                              |       | 15,595,456   |       | 4,254                               |       |            | —     |       |       |   | — |   |   |   | (740 | ) |   | 3,514 |   |
| Issuance of  Class A Common Units, net of issuance costs of $930                    |       | —                 |       | —                              |       | 15,451,506   |       | 89,442                              |       |            | —     |       |       |   | — |   |   |   | — |   |   | 89,442 |   |
| Deferred unit-based  compensation                                                        |       | —                 |       | —                              |       | —       |       | —                              |       |            | (1,807     | )          |       |   | — |   |   |   | — |   |   | (1,807 | ) |
| Amortization of  deferred unit-based compensation                                        |       | —                 |       | —                              |       | —       |       | —                              |       |            | 361        |       |       |   | — |   |   |   | — |   |   | 361 |   |
| Dividend                                                                                 |       | —                 |       | —                              |       | —       |       | (3,605                              | )          |            | —     |       |       |   | — |   |   |   | — |   |   | (3,605 | ) |
| Accretion of  redeemable preferred units                                                 |       | —                 |       | —                              |       | —       |       | (85,184                             | )          |            | —     |       |       |   | — |   |   |   | — |   |   | (85,184 | ) |
| Components of  comprehensive loss:                                                       |       |                   |       |                                |       |         |       |                                |       |            |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                 |       | —                 |       | —                              |       | —       |       | —                              |       |            | —     |       |       |   | — |   |   |   | (18,887 | ) |   | (18,887 | ) |
| Foreign currency  translation adjustments                                                |       | —                 |       | —                              |       | —       |       | —                              |       |            | —     |       |       |   | 3,763 |   |   |   | — |   |   | 3,763 |   |
| Total  comprehensive loss                                                                |       | —                 |       | —                              |       | —       |       | —                              |       |            | —     |       |       |   | — |   |   |   | — |   |   | (15,124 | ) |
| BALANCE—June 30,  2006                                                         |       | —                 |       | —                              |       | 31,046,962   |       | 4,907                               |       |            | (1,446     | )          |       |   | 3,763 |   |   |   | (19,627 | ) |   | (12,403 | ) |
| Cumulative effect  of adopting SFAS 123(R)                                          |       | —                 |       | —                              |       | —       |       | (1,446                              | )          |            | 1,446      |       |       |   | — |   |   |   | — |   |   | — |   |
| Adjustment to  adopt SFAS 158, net of tax                                                |       |                   |       |                                |       |         |       |                                |       |            |       |       |       |   | (492 | ) |   |   |   |   |   | (492 | ) |
| Unit-based  compensation                                                                 |       | —                 |       | —                              |       | —       |       | 673                                 |       |            | —     |       |       |   | — |   |   |   | — |   |   | 673 |   |
| Stock-based  compensation                                                                |       |                   |       | 1,669                               |       |         |       |                                |       |            | —     |       |       |   | — |   |   |   | — |   |   | 1,669 |   |
| Dividend                                                                                 |       | —                 |       | —                              |       | —       |       | (4,071                              | )          |            | —     |       |       |   | — |   |   |   | (10,543 | ) |   | (14,614 | ) |
| Issuance of  Class A Common Units                                                   |       | —                 |       | —                              |       | 675,435      |       | 203                                 |       |            | —     |       |       |   | — |   |   |   | — |   |   | 203 |   |
| Repurchase and  retirement of LLC units                                                  |       | —                 |       | —                              |       | (89,194      | )          | (266                                | )          |            | —     |       |       |   | — |   |   |   | (611 | ) |   | (877 | ) |
| Conversion of Class A  Common Units into Common Shares                              |       | 31,633,203             |       | —                              |       | (31,633,203  | )          | —                              |       |            | —     |       |       |   | — |   |   |   | — |   |   | — |   |
| Conversion of  Class B Redeemable Preferred Units into Common  Shares               |       | 13,889,971             |       | 222,479                             |       | —       |       | —                              |       |            | —     |       |       |   | — |   |   |   | — |   |   | 222,479 |   |
| Issuance of Common  Stock from initial public offering, net of issuance costs of $25,410 |       | 19,200,000             |       | 281,790                             |       | —       |       | —                              |       |            | —     |       |       |   | — |   |   |   | — |   |   | 281,790 |   |
| Issuance of Common  Stock (May 11 grants)                                           |       | 90,389                 |       | 1                                   |       | —       |       | —                              |       |            | —     |       |       |   | — |   |   |   | — |   |   | 1 |   |
| Components of  comprehensive loss:                                                       |       |                   |       |                                |       |         |       |                                |       |            |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                 |       | —                 |       | —                              |       | —       |       | —                              |       |            | —     |       |       |   | — |   |   |   | (80,906 | ) |   | (80,906 | ) |
| Foreign currency  translation adjustments                                                |       | —                 |       | —                              |       | —       |       | —                              |       |            | —     |       |       |   | 4,816 |   |   |   | — |   |   | 4,816 |   |
| Unrealized net  loss on derivative instruments, net of tax                               |       |                   |       |                                |       |         |       |                                |       |            | —     |       |       |   | (1,065 | ) |   |   |   |   |   | (1,065 | ) |
| Total  comprehensive loss                                                                |       | —                 |       |                                |       |         |       | —                              |       |            | —     |       |       |   | — |   |   |   | — |   |   | (77,155 | ) |
| BALANCE—June 30,  2007                                                         |       | 64,813,563             |       | $                                   | 505,939    |         | —     |                                | $          | —          |       |       | $          | — |   |   |   | $ | 7,022 |   |   |   | $ | (111,687 | ) |   | $ | 401,274 |   |

 

See notes to consolidated financial statements.

81

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**SOLERA HOLDINGS, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE FISCAL YEARS ENDEDJUNE 30, 2007 and 2006 AND FOR THE PERIOD FROM**

**MARCH 24,2005 (INCEPTION) THROUGH JUNE 30, 2005**

**(In thousands)**

| ** **                                                                                        | ** ** | **Year Ended**         | ** ** | **Period from  March 24, 2005  (Inception)  Through** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                                                        | ** ** | **June 30, 2007** | ** ** | **June 30, 2006**                                          | ** ** | **June 30, 2005** | ** ** |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                                            |       |                        |       |                                                                 |       |   |   |   |   |   |   |   |   |
| Net loss                                                                                          |       |                        | $          | (80,906                                                              | )          |   |   | $ | (18,887 | ) |   |   | $ | (740 | ) |   |
| Adjustments  to reconcile net loss to net cash provided by (used in) operating activities:        |       |                        |       |                                                                 |       |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                                     |       |                        | 104,419    |                                                                 |       |   | 23,571 |   |   |   | 16 |   |   |
| Minority interests in net income of consolidated  subsidiaries                                    |       |                        | 4,050      |                                                                 |       |   | 921 |   |   |   | — |   |   |
| Provision for doubtful accounts                                                                   |       |                        | (193       | )                                                                    |       |   | 69 |   |   |   | — |   |   |
| Stock/unit-based compensation                                                                     |       |                        | 2,343      |                                                                 |       |   | 361 |   |   |   | — |   |   |
| Deferred income taxes                                                                             |       |                        | (21,844    | )                                                                    |       |   | (5,847 | ) |   |   | — |   |   |
| Change in fair value of financial instrument                                                      |       |                        | (1,544     | )                                                                    |       |   | 2,850 |   |   |   | — |   |   |
| Accrued interest on mezzanine loan                                                                |       |                        | —     |                                                                 |       |   | 2,639 |   |   |   | — |   |   |
| Loss on debt extinguishment                                                                       |       |                        | 28,691     |                                                                 |       |   | — |   |   |   | — |   |   |
| Other                                                                                             |       |                        | 558        |                                                                 |       |   | 368 |   |   |   | — |   |   |
| Changes  in operating assets and liabilities—net of effects from acquisition of  businesses: |       |                        |       |                                                                 |       |   |   |   |   |   |   |   |   |
| (Increase) decrease in accounts receivable                                                        |       |                        | (18,962    | )                                                                    |       |   | 3,540 |   |   |   | (112 | ) |   |
| (Increase) decrease in other assets                                                               |       |                        | 8,343      |                                                                 |       |   | (8,044 | ) |   |   | (124 | ) |   |
| Increase in accounts payable                                                                      |       |                        | 10,695     |                                                                 |       |   | 3,487 |   |   |   | 36 |   |   |
| Increase in accrued expenses and other liabilities                                                |       |                        | 20,324     |                                                                 |       |   | 28,922 |   |   |   | 270 |   |   |
| Increase (decrease) in accrued interest                                                           |       |                        | (9,896     | )                                                                    |       |   | 11,406 |   |   |   | — |   |   |
| Net cash provided by (used in) operating activities                                               |       |                        | 46,078     |                                                                 |       |   | 45,356 |   |   |   | (654 | ) |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                            |       |                        |       |                                                                 |       |   |   |   |   |   |   |   |   |
| Capital expenditures                                                                              |       |                        | (27,230    | )                                                                    |       |   | (4,112 | ) |   |   | (412 | ) |   |
| Final working capital payment adjustment for acquisition  of business                             |       |                        | (13,167    | )                                                                    |       |   | — |   |   |   | — |   |   |
| Purchase of foreign currency exchange option                                                      |       |                        | —     |                                                                 |       |   | (7,912 | ) |   |   | — |   |   |
| Acquisitions of business—net of cash acquired                                                |       |                        | (1,110     | )                                                                    |       |   | (924,447 | ) |   |   | — |   |   |
| Net cash used in investing activities                                                             |       |                        | (41,507    | )                                                                    |       |   | (936,471 | ) |   |   | (412 | ) |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                            |       |                        |       |                                                                 |       |   |   |   |   |   |   |   |   |
| Proceeds from issuance of debt                                                                    |       |                        | 610,688    |                                                                 |       |   | 821,017 |   |   |   | — |   |   |
| Debt issuance costs                                                                               |       |                        | (4,393     | )                                                                    |       |   | (31,782 | ) |   |   | — |   |   |
| Principal payments on financial asset acquisitions                                                |       |                        | (3,740     | )                                                                    |       |   | — |   |   |   |   |   |   |
| Borrowings from revolving credit facility                                                         |       |                        | 12,814     |                                                                 |       |   | — |   |   |   | — |   |   |
| Repayments under revolving credit facility                                                        |       |                        | (16,000    | )                                                                    |       |   | (16,946 | ) |   |   | — |   |   |
| Repayments of long-term debt                                                                      |       |                        | (887,607   | )                                                                    |       |   | — |   |   |   | — |   |   |
| Premium on prepayment of long term debt                                                           |       |                        | (6,975     | )                                                                    |       |   | — |   |   |   | — |   |   |
| Proceeds from termination of interest rate swaps                                                  |       |                        | 7,741      |                                                                 |       |   | — |   |   |   | — |   |   |
| Proceeds from sale of Class A common units—net  of offering costs                       |       |                        | 203        |                                                                 |       |   | 87,635 |   |   |   | 4,347 |   |   |
| Proceeds from sale of Class B redeemable  preferred units—net of offering costs         |       |                        | —     |                                                                 |       |   | 118,030 |   |   |   | 951 |   |   |
| Repurchase of Class A common and Class B  redeemable preferred units                    |       |                        | (877       | )                                                                    |       |   | — |   |   |   | — |   |   |
| Proceeds from sale of Common shares, net of offering  costs                                       |       |                        | 281,790    |                                                                 |       |   | — |   |   |   | — |   |   |
| Net cash provided by (used in) financing activities                                               |       |                        | (6,356     | )                                                                    |       |   | 977,954 |   |   |   | 5,298 |   |   |
| EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON  CASH AND CASH EQUIVALENTS               |       |                        | 2,827      |                                                                 |       |   | (2,245 | ) |   |   | — |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                           |       |                        | 1,042      |                                                                 |       |   | 84,594 |   |   |   | 4,232 |   |   |
| CASH AND CASH EQUIVALENTS—Beginning of period                                                |       |                        | 88,826     |                                                                 |       |   | 4,232 |   |   |   | — |   |   |
| CASH AND CASH EQUIVALENTS—End of period                                                      |       |                        | $          | 89,868                                                               |       |   |   | $ | 88,826 |   |   |   | $ | 4,232 |   |   |
| SUPPLEMENTAL CASH  FLOW INFORMATION                                                               |       |                        |       |                                                                 |       |   |   |   |   |   |   |   |   |
| —Dividends and redeemable preferred share accretion                                          |       |                        | $          | 14,614                                                               |       |   |   | $ | 88,789 |   |   |   | $ | 93 |   |   |
| —Cash paid for interest                                                                      |       |                        | $          | 66,806                                                               |       |   |   | $ | — |   |   |   | $ | — |   |   |
| SUPPLEMENTAL  DISCLOSURE OF NON-CASH INVESTING AND FINANCE ACTIVITIES:                            |       |                        |       |                                                                 |       |   |   |   |   |   |   |   |   |
| —Capital assets financed                                                                     |       |                        | $          | 9,618                                                                |       |   |   | 34 |   |   |   | — |   |   |
| —Conversion of  Class B redeemable preferred units into common shares                        |       |                        | $          | 222,479                                                              |       |   |   | — |   |   |   | — |   |   |

 

See notes to consolidated financial statements.

82

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**SOLERA HOLDINGS,INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share/unit and share/unit amounts)**

**1.**                 ORGANIZATIONAND BASIS OF PRESENTATION

***Description of Business***   SoleraHoldings, Inc. and subsidiaries (the “Company” or “Solera”) is a leadingglobal provider of software and services to the automobile insurance claimsprocessing industry. Its software and services help its customers: estimate thecosts to repair damaged vehicles; determine pre-collision fair market valuesfor vehicles damaged beyond repair; automate steps of the claims process;outsource steps of the claims process that insurance companies havehistorically performed internally; and monitor and manage their businessesthrough data reporting and analysis. The Company has operations in 49countries and derives most of its revenues from its estimating and workflowsoftware.

Solera was formed in March 2005. On April 13,2006, Solera acquired the Claims Services Group (“CSG”), a business unit ofAutomatic Data Processing, Inc. (“ADP”), for approximately $1.0 billion.Prior to the acquisition of CSG, Solera’s operations consisted primarily ofdeveloping its business plan, recruiting personnel, providing consultingservices, raising capital and identifying and evaluating operating assets foracquisition. The statement of operations for fiscal 2006 includes Solera’sresults of operations for the entire year and the results of operations for CSGfrom April 14, 2006.

Solera accounted for the acquisition of CSG using thepurchase method of accounting. As a result, the acquisition of CSG has and willcontinue to affect the results of operations significantly. The Companyallocated the aggregate acquisition consideration to the tangible andintangible assets acquired and liabilities assumed based on their respectivefair values as of the date of the acquisition. This has resulted in asignificant increase in its annual depreciation and amortization expense. Inaddition, due to the effects of the increased borrowings to finance the CSGacquisition, its interest expense has increased significantly in the periodsfollowing the acquisition. As a result, the financial information for periodsbeginning on or after July 1, 2006 is not comparable to the informationprior to this date.

On May 16, 2007, the Company completed an initialpublic offering of shares of the Company’s common stock. In the initial publicoffering, the Company sold 19,200,000 shares of common stock, and theselling stockholders sold 10,987,500 shares of common stock, which include3,937,500 shares of common stock sold by the selling stockholders pursuantto the underwriters’ over-allotment option. In connection with the initialpublic offering, the Company amended its corporate status and converted from aDelaware limited liability company into a Delaware corporation with 150,000,000authorized shares of common stock, par value $0.01, and 15,000,000 authorizedshare of preferred stock, par value $0.01. Upon the effectiveness of theconversion, all of the Company’s outstanding preferred and common units wereautomatically converted into shares of common stock based on their relativerights as set forth in the Company’s limited liability company agreement. As aresult, 31,633,211 common units were converted into 31,633,211 shares of commonstock, and 204,016.1 preferred units were converted into 13,889,974 sharesof common stock.

***Unaudited Pro FormaInformation***   The unaudited pro forma net lossdata present the pro forma effects of applying a provision for income taxes tohistorical net income. Such provision reflects the income taxes that would havebeen applicable had the Company been taxed as a C corporation for the fiscal yearsended June 30, 2007 and 2006.

Pro forma net income (loss) per share/unit is based onthe weighted average common shares/units outstanding. Pro forma net income(loss) per share/unit is computed as if the conversion into a Delawarecorporation described above occurred on July 1, 2005.

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***Principles ofConsolidation and Basis of Presentation******  ***The accompanying consolidatedfinancial statements have been prepared in accordance with United States (“U.S.”)generally accepted accounting principles and applicable regulations of theSecurities and Exchange Commission. The Company’s operating results for thetwelve months ended June 30, 2007 are not necessarily indicative of theresults that may be expected for future quarters and the fiscal year ending June 30,2008.

The consolidated financial statements include theaccounts of the Company and its subsidiaries. All significant intercompanyaccounts and transactions have been eliminated in consolidation.

On April 30, 2007,the Company’s Board of Managers approved a one-for-three reverse unit split.Immediately after giving effect to the split, the Company had approximately31,046,962 common units outstanding (with fractional units to be paid tounitholders in cash). The split did not change the number of authorized commonunits or modify any voting rights or other terms of the common units. All unitand per unit information in the accompanying consolidated financial statementshave been retroactively restated to reflect the split.

**2.**                 SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

***Cash and CashEquivalents***   The Company considers all highlyliquid investments with original maturities of 90 days or less at the timeof purchase to be cash equivalents.

***Property and Equipment***   Propertyand equipment is stated at cost and depreciated over the estimated useful livesof the assets using the straight-line method. The estimated useful lives ofassets are as follows:

| Buildings                  |   | 20 to 40 years                                   |
|----------------------------|--------|-----------------------------------------------------------------|
| Building improvements      |   | 5 to 15 years                                    |
| Leasehold improvements     |   | Lesser of 10 years or useful life |
| Data processing  equipment |   | 3 years                                                    |
| Furniture and fixtures     |   | 4 to 7 years                                     |
| Machinery and equipment    |   | 3 to 6 years                                     |
| Software licenses          |   | 3 years                                                    |

 

***Goodwill and OtherIntangible Assets***   The Company accounts forgoodwill and other intangible assets in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 142, *Goodwilland Other Intangible Assets*, which states that goodwill andintangible assets with indefinite useful lives should not be amortized, butinstead tested for impairment at least annually at the reporting unit level. Intangibleassets with finite lives are amortized over their estimated useful lives on anaccelerated basis to reflect the pattern in which the economic benefits of theintangible assets are consumed. If an impairment exists, a write-down to fairvalue (normally measured by discounting estimated future cash flows) isrecorded.  All other intangible assetsare reviewed for impairment in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets* (“SFAS No. 144”).

***Impairment ofLong-Lived Assets***   In accordance with SFAS No. 144,long-lived assets are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by a comparisonof the carrying amount of an asset to estimated undiscounted future cash flowsexpected to be generated by the asset. If the carrying amount of an assetexceeds its estimated future cash flows, an impairment charge is recognized forthe amount by which the carrying amount of the asset exceeds the fair value ofthe asset.

***Classification ofEquity Securities***   The Company has adoptedthe guidance of Emerging Issues Task Force Topic (“EITF”) D-98, *Classification and Measurement of RedeemableSecurities*, in the measurement and classification of its equitysecurities.

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***Use of Estimates***   Thepreparation of financial statements and related disclosures in conformity withaccounting principles generally accepted in the United States of Americarequires management to make judgments, assumptions and estimates that affectthe amounts reported in the Company’s consolidated financial statements andaccompanying notes. The Company bases its estimates and judgments on historicalexperience and on various other assumptions that it believes are reasonableunder the circumstances. However, future events are subject to change and estimatesand judgments routinely require adjustment. The amounts of assets andliabilities reported in the Company’s balance sheets and the amounts ofrevenues and expenses reported for each of its fiscal periods are affected byestimates and assumptions which are used for, but not limited to, theaccounting for sales allowances, allowance for doubtful accounts, fair value ofderivatives, goodwill and intangible asset impairments, amortization ofintangibles, restructurings, liabilities under defined benefit plans, stock-basedcompensation and income taxes. Actual results could differ from theseestimates.

***Revenue Recognition***   TheCompany considers the guidance in Staff Accounting Bulletin Topic 13, *Revenue Recognition* (“SAB 104”),AICPA Statement of Position 97-2, *SoftwareRevenue Recognition*, as amended (“SOP 97-2”), SFAS No. 13,*Accounting for Leases,* andEmerging Issues Task Force Issue No. 00-03, *Application of AICPA Statement of Position 97-2to Arrangements That Include the Right to Use Software Stored on Another Entity’sHardware*, and Emerging Issues Task Force Issue No. 00-21,*Revenue Arrangements with MultipleDeliverables* (“EITF 00-21”), in accounting for itsrevenue arrangements. Revenues are recognized only after services are provided,when persuasive evidence of an arrangement exists, the fee is fixed anddeterminable, and when collectibility is reasonably assured. The Company’smultiple element arrangements primarily include a combination of softwarelicenses, hosted database and other services, installation and set-up services,hardware, maintenance services and transaction-based deliverables.

The Company generates a significant majority of itsrevenue from subscription-based contracts (where a monthly fee ischarged), transaction-based contracts (where a fee per transaction ischarged) and subscription-based contracts with additional transaction-basedfees (where a monthly fee and a fee per transaction are charged).

Subscription-based and transaction-basedcontracts generally include the delivery of software, access to softwarethrough a hosted service (“Hosted Database”), upfront fees for theimplementation and set-up activities necessary for the client touse/access the software (“Implementation Services”) and maintenance. Under asubscription arrangement, delivery of software, access to the Hosted Databaseand maintenance are considered a single element or a combined unit ofaccounting and related revenues are recognized at the end of each month uponthe completion of the monthly service. Revenues under transaction-basedcontracts are recognized based on the guidance in AICPA Technical Practice Aid 5100.76,*Fair value in multiple-elementarrangements that include contingent usage based fees and software revenuerecognition.* The transaction-based fee represents payment forthe right to use the software, access to the Hosted Database and maintenance.The fee is considered fixed and determinable only at the time actual usageoccurs. Revenue is recognized based on actual usage. Implementation Servicesare considered a separate element or unit of accounting and the related revenuerecognition is described below.

Subscription-based contracts with additionalfees for certain types of transactions generally include all deliverablesdiscussed in the above paragraph and also include an additional element, whichis the option to access specialized queries on the Hosted Database. Revenueunder subscription-based contracts with additional fees for certain typesof transactions is accounted for based on the guidance in AICPA TechnicalPractice Aid 5100.76, *Fair value inmultiple-element arrangements that include contingent usage based feesand software revenue recognition*. Under these arrangements, thedelivery of software, access to software through the Hosted Database andmaintenance are considered a combined unit of accounting, and the related feeis recognized at the end of each month upon the completion of the monthlyservice. The transaction-based fee is recognized at the time of actualusage. Implementation Services are 

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considered a separateelement or unit of accounting and the related revenue recognition is describedbelow.

When the Company is required to perform setup andimplementation activities necessary for the client to receiveservices/software, up-front fees billed during the setup/implementation phaseare deferred and amortized on a straight-line basis over the estimated customerlife. The upfront fees represent fair value of the implementation services basedon vendor specific objective evidence. The amortization of this deferredrevenue will commence upon the start of the monthly service. Setup costs thatare direct and incremental to the contract are capitalized and amortized on astraight-line basis over the estimated customer life.

In a limited number of revenue arrangements describedabove, the Company also provides generic computer equipment as part of thesales arrangement. Based on guidance in EITF Issue No. 03-5, *Applicability of AICPA Statement of Position 97-2,“Software Revenue Recognition”, to Non-Software Deliverables in anArrangement Containing More-than-Incidental Software*,the generic computer equipment is considered a non-software deliverablesince the Company’s software is not essential to the functionality of thegeneric computer equipment. Based on guidance in EITF No. 01-8, *Determining Whether an Arrangement Contains a Lease*,EITF 00-21, *Revenue Arrangementswith Multiple Deliverables*, and SFAS 13, *Accounting for Leases* (“SFAS 13”),the Company accounts for the sale of generic equipment as a direct financelease. The related revenue is recognized over the term of the contract usingthe effective interest rate method. The Company allocates revenue to SFAS 13elements (equipment leases) and the non-SFAS 13 elements of itsarrangements on a relative fair value basis using the Company’s best estimateof the fair value of the elements. Revenue from leased computer equipmentrepresents approximately 1% of the Company’s consolidated revenue.

Revenues are reflected net of customer salesallowances, which are based on both specific identification of certain accountsand a predetermined percentage of revenue based on historical experience.

***Cost of revenues(excluding depreciation and amortization)******—The*********Company’s costs and expensesapplicable to revenues (“cost of revenues excluding depreciation andamortization”) represent the total of operating expenses and systemsdevelopment and programming costs as presented on the consolidated statement ofoperations. Operating expenses include the compensation and benefits costs foroperations, database development and customer service personnel, other costsrelated to operations, database development and customer support functions, aswell as third-party data and royalty costs, and the cost of computersoftware and hardware used directly in the delivery of the Company’s productsand services. Systems development and programming costs include compensationand benefit costs for the Company’s product development and product managementpersonnel, other costs related to its product development and productmanagement functions and costs related to external software consultantsinvolved in systems development and programming activities.

***SoftwareDevelopment Costs******—Costs***forthe development of new software products and substantial enhancements toexisting software products are expensed as incurred until technologicalfeasibility has been established, at which time any additional costs would becapitalized in accordance with SFAS No. 86, *Computer Software To Be Sold, Leased or OtherwiseMarketed*. The costs to develop such software have not beencapitalized, as the Company believes its current software development processis essentially completed concurrent with the establishment of technologicalfeasibility.

***Foreign CurrencyTranslation******—The***netassets of the Company’s foreign subsidiaries are translated into U.S. dollarsbased on foreign currency exchange rates in effect at the end of each period,and revenues and expenses are translated at average exchange rates during theperiods. Functional currencies of significant foreign subsidiaries includeEuros, British pounds, Swiss francs, and Canadian dollars. Foreign currencytransaction gains or losses, which are included in the results of operations,totaled a loss of $65 for the 

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fiscal year ended June 30,2007, a gain of $609 for the fiscal year ended June 30, 2006, and $0 forthe  period from March 24, 2005(inception) to June 30, 2005. Gains or losses from balance sheettranslation are included in stockholders’/unitholders’ equity withinaccumulated other comprehensive income on the consolidated balance sheets.

***Internal UseSoftware******—Expenditures***forsoftware purchases and software developed or obtained for internal use arecapitalized and amortized over a three- to five-year period on astraight-line basis. For software developed or obtained for internal use, theCompany capitalizes costs in accordance with the provisions of Statement ofPosition No. 98-1, *Accounting forthe Costs of Computer Software Developed or Obtained for Internal Use*.The Company’s policy provides for the capitalization of external direct costsof materials and services associated with developing or obtaining internal usecomputer software. In addition, the Company also capitalizes certain payrolland payroll-related costs for employees who are directly associated withinternal use computer software projects. The amount of capitalizable payrollcosts with respect to these employees is limited to the time directly spent onsuch projects. Costs associated with preliminary project stage activities,training, maintenance and all other post-implementation stage activities areexpensed as incurred. The Company also expenses internal costs related to minorupgrades and enhancements, as it is impractical to separate these costs fromnormal maintenance activities.

***Income Taxes******—The***provisionsfor income taxes, income taxes payable and deferred income taxes are determinedusing the liability method. Deferred tax assets and liabilities are determinedbased on differences between the financial reporting and tax basis of assetsand liabilities and are measured by applying enacted tax rates and laws totaxable years in which such differences are expected to reverse. A valuationallowance is provided when the Company determines that it is more likely thannot that a portion of the deferred tax asset balance will not be realized.

***Fair Value ofFinancial Instruments******—Derivative***financialinstruments are used principally in the management of foreign currency andinterest rate exposures and are recorded on the consolidated balance sheets atfair value. If the derivative is designated as a fair value hedge, the changesin the fair value of the derivative and of the hedged item attributable to thehedged risk are recognized as a charge or credit to earnings. If the derivativeis designated as a cash flow hedge, the effective portions of the changes inthe fair value of the derivative are initially recorded in accumulated othercomprehensive income/loss and are subsequently reclassified into earnings whenthe hedged transactions occur and affect earnings. Ineffective portions ofchanges in the fair value of cash flow hedges are recognized as a charge orcredit to earnings. Derivative instruments not designated as hedges aremarked-to-market at the end of each accounting period with the results includedin the consolidated statements of operations.

***Advertising******—Advertising***costs are expensed when incurred and are included in selling, general andadministrative expenses. Total advertising costs for the Company were $4,775,$1,573, and $6 for the fiscal years ended June 30, 2007 and June 30,2006 and period from March 24, 2005 through June 30, 2005,respectively.

***Share-/Unit-BasedCompensation******—Effective*** July 1,2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”)which requires the measurement and recognition of compensation expense for all stock-basedpayment awards made to employees and directors, including employee stockoptions and share awards, based on estimated fair values recognized over therequisite service period. Prior to adoption of SFAS 123(R), pursuant to SFAS No. 123*Accounting for Stock-Based Compensation*,the Company accounted for employee unit awards under Accounting PrinciplesBoard (“APB”) No. 25, *Accounting forStock Issued to Employees*(“APB Opinion No. 25”) and followedthe Disclosure—Only Provisions of SFAS No. 123. See Note 11.

***Certain Risks andConcentrations******—The*** Companyoffers a broad range of services to a diverse group of customers throughoutNorth, Central and South America, Europe, the Middle East, Africa and Asia. TheCompany performs periodic credit evaluations of each customer and monitorstheir financial condition and 

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developing business news.Revenues for the period from March 24, 2005 (inception) through June 30,2005 were not material. The Company did not have any customers with sales whichexceeded 10% of total revenues for the fiscal years ended June 30, 2007 orJune 30 2006.

***ComprehensiveIncome (Loss)******—The*** Companyaccounts for comprehensive income (loss) under the provisions of SFAS No. 130,*Reporting Comprehensive Income (Loss)*,which establishes standards for reporting and displaying comprehensive income(loss) and its components in the financial statements. Comprehensive income(loss) as defined includes all changes in equity during a period from nonownersources. For the fiscal years ended June 30, 2007 and June 30, 2006,comprehensive income (loss) consists of net loss, and foreign currency translation adjustments. In addition,during the fiscal year ended June 30, 2007, an unrealized loss on derivativeinstruments related to the effective portion of cash flow hedges was added as anew component of comprehensive income (loss) and is presented inthe consolidated statement of stockholders’/unitholders’ equity (deficit) andaccumulated other comprehensive income. For the period ended June 30,2005, there was no difference between the Company’s net loss and comprehensiveloss.

***Recent AccountingPronouncements******—In*** June 2006,the FASB issued FASB Interpretation No 48, *Accountingfor Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109*(“FIN 48”). FIN 48 defines a criterion that an individual tax position mustmeet for any part of the benefit of that position to be recognized in anenterprise’s financial statements. FIN 48 also provides guidance onmeasurement, derecognition, classification, interest and penalties, accountingin interim periods, disclosure, and transition. FIN 48 is effective for theCompany’s fiscal year beginning on July 1, 2007. The Company is currentlyevaluating the impact of FIN 48 on the Company’s financial statements.

In September 2006, FASB issued SFAS No. 158,*Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans—an Amendment of FASB Statements No. 87, 88,106 and 132(R) *(“SFAS No. 158”). This statement requires acompany to (a) recognize in its statement of financial position an assetfor a plan’s overfunded status or a liability for a plan’s underfunded status, (b) measurea plan’s assets and its obligations that determine its funded status as of theend of the employer’s fiscal year, and (c) recognize changes in the fundedstatus of a defined postretirement plan in the year in which the changes occur(reported in comprehensive income). The requirement to recognize the fundedstatus of a benefit plan and the disclosure requirements were effective for theCompany as of the end of fiscal 2007, and the Company adopted the statement asof June 30, 2007 (see Note 11).

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements* (“SFAS No. 157”).This statement clarifies the definition of fair value, establishes a frameworkfor measuring fair value, and expands the disclosures on fair valuemeasurements. SFAS No. 157 is effective for fiscal years beginning after November 15,2007. The Company is currently evaluating the effect that the adoption of SFAS No. 157will have, if any, on its consolidated results of operations and financialcondition.

In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108considers the effects of prior year misstatements when quantifyingmisstatements in current year financial statements. It is effective for fiscalyears ending after November 15, 2006. The Company applied the guidance inSAB 108 as of July 1, 2006. The application of SAB 108 did nothave a significant effect on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assetsand Financial Liabilities* (SFAS No. 159). SFAS No. 159permits companies to choose to measure certain financial instruments andcertain other items at fair value. The standard requires that unrealized gainsand losses on items for which the fair value option has been elected bereported in earnings. SFAS No. 159 is effective for the Company beginningin the first quarter of fiscal year 2009, although earlier adoption ispermitted. The Company is currently evaluating the impact that SFAS No. 159will have on its consolidated financial statements.

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In March 2007, the FASB ratified EITF Issue No. 06-11,“Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.”  EITF 06-11 requires companies to recognizethe income tax benefit realized from dividends or dividend equivalents that arecharged to retained earnings and paid to employees for non-vestedequity-classified employee stock-based payment awards as an increase toadditional paid-in capital. EITF 06-11 is effective for fiscal yearsbeginning after September 15, 2007. The Company does not expect that EITF 06-11will have a material impact on its results of operations or cash flows.

***Net Income (Loss)Per Common Share—******The*** Companycalculates net loss per common share in accordance with SFAS No. 128, *Earnings Per Share* (“SFAS No. 128”).Under SFAS No. 128, basic net loss per common share is calculated bydividing net loss by the weighted-average number of common sharesoutstanding during the reporting period excluding shares/units subject torepurchase.

Reconciliationof shares used in this calculation of basic net loss per share/unit is asfollows (in thousands):

| ** **                                                  | ** ** | **Fiscal Year  Ended  June 30, 2007** | ** ** | **Fiscal Year  Ended  June 30, 2006** | ** ** | **Period from  March 24, 2005  (inception)  through  June 30, 2005** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
| Weighted average  number of common shares/units             |       |                                                 | 36,041     |                                                 |       |                                                                                          | 18,897     |   |   |   | 14,481 |   |   |
| Weighted average  common shares/units subject to repurchase |       |                                                 | (2,176     | )                                                    |       |                                                                                          | (1,919     | ) |   |   | (1,796 | ) |   |
| Shares used to calculate  basic net loss per share          |       |                                                 | 33,865     |                                                 |       |                                                                                          | 16,978     |   |   |   | 12,685 |   |   |

 

For the fiscal years ended June 30, 2007, 2006and 2005, outstanding redeemable preferred units of 0, 204,239 and 1,025,respectively, and nonvested restricted common shares/units of 2,331,988 and nonvestedcommon units of 2,010,293 and 1,934,653, respectively, have been excluded fromthe calculation as they are antidilutive due to the Company’s net loss.

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**3.**                 OTHER(INCOME) EXPENSE—NET

Other(income) expense—net consists of the following:

| ** **                                                                     | ** ** | **Fiscal Year  Ended  June 30, 2007** | ** ** | **Fiscal Year  Ended  June 30, 2006** | ** ** | **Period from  March 24, 2005  (Inception)  Through  June 30, 2005** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
| Interest income                                                                |       |                                                 | (2,633     | )                                                    |       |                                                                                          | $          | (405 | ) |   |   | $ | (22 | ) |   |
| Net realized and  unrealized (gains) and losses on derivative instruments |       |                                                 | (1,589     | )                                                    |       |                                                                                          | 2,850      |   |   |   | — |   |   |
| Foreign exchange  (gain) loss                                                  |       |                                                 | 65         |                                                 |       |                                                                                          | (609       | ) |   |   | — |   |   |
| Loss on Debt  Extinguishment (Note 10)                                         |       |                                                 | 35,666     |                                                 |       |                                                                                          | —     |   |   |   | — |   |   |
| Other (income)  expense—net                                               |       |                                                 | 31,509     |                                                 |       |                                                                                          | $          | 1,836 |   |   |   | $ | (22 | ) |   |

 

**4.**                 ACQUISITIONOF CLAIMS SERVICES GROUP OF ADP

On April 13, 2006, the Company acquired theClaims Services Group from ADP for approximately $1.0 billion. TheAcquisition consisted of an asset purchase with respect to certain assetscontrolled by ADP, primarily in North America, and a purchase of a controllinginterest in the outstanding shares of entities controlled by ADP, primarily inEurope. With respect to Sidexa S.A. (France), Informex S.A. (Belgium), AudatexEspana S.A. (Spain), Audatex Datos Espana S.A. (Spain), Audatex Portugal S.A.(Portugal) and Audatex Mexico S. De R.L. de C.V. (Mexico), the Company is thecontrolling stockholder, with ownership of 75%, 98%, 75%, 88%, 51%, and 51% ofthe outstanding shares, respectively. Claims Services Group’s results ofoperations have been included in the accompanying consolidated statements ofoperations from the date of the Acquisition.

Theaggregate consideration was determined as:

| Cash paid to ADP             |   | $      | 988,321   |   |
|------------------------------|--------|--------|-----------|--------|
| Transaction costs  and other |   | 14,254 |      |
|                         |   | $      | 1,002,575 |   |

 

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TheAcquisition was accounted for as a purchase pursuant to SFAS No. 141, *Business Combinations*. Under purchaseaccounting, the total purchase price was allocated to the Claims Services Group’snet tangible and identifiable intangible assets based on their estimated fairvalues as of April 13, 2006, as set forth below. The excess of thepurchase price over the net tangible and identifiable intangible assets wasrecorded as goodwill. The fair value of the identifiable intangible assetspertaining to customer relationships, software and database technology andtrademarks was established based on a discounted cash flow approach. Thepurchase consideration has been allocated as follows:

| Cash                                            |   | $       | 78,128    |   |
|-------------------------------------------------|--------|---------|-----------|--------|
| Accounts  receivable                            |   | 62,010  |      |
| Other assets                                    |   | 54,800  |      |
| Property and  equipment                         |   | 38,094  |      |
| Intangible assets:                              |   |    |      |
| Software and database technology                |   | 239,200 |      |
| Customer relationships                          |   | 173,900 |      |
| Trademarks                                      |   | 13,500  |      |
| Accounts payable  and other accrued liabilities |   | (97,972 | )         |
| Tax-related  liabilities                        |   | (66,880 | )         |
| Minority share of  net assets                   |   | (8,064  | )         |
| Goodwill                                        |   | 515,859 |      |
| Total                                           |   | $       | 1,002,575 |   |

In certain tax jurisdictions the Acquisition wasstructured as an asset purchase and the resulting goodwill of approximately$96,034 attributable to these jurisdictions is deductible for income taxpurposes.

Theunaudited pro forma information presented below reflects the combined resultsof the Company and the Claims Services Group as if the Acquisition and therelated financing transactions had occurred at the beginning of each periodpresented. These results are not necessarily indicative of future operatingresults nor of those that would have occurred had the Acquisition beenconsummated on those dates:

| ** **                                                                                                     | ** ** | **Year Ended  June 30, 2006** | ** ** | **Period From  March 24, 2005  Through  June 30, 2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| Pro forma:                                                                                                     |       |                                         |       |                                                                             |       |   |   |   |   |
| Revenues                                                                                                       |       |                                         | $          | 430,230                                                                          |       |   |   | $ | 103,035 |   |   |
| Net loss allocable to common unit holders                                                                      |       |                                         | (92,120    | )                                                                                |       |   | (33,111 | ) |   |
| Net loss  allocable to common unit holders per unit:                                                           |       |                                         |       |                                                                             |       |   |   |   |   |
| Basic and diluted                                                                                              |       |                                         | (3.21      | )                                                                                |       |   | (1.21 | ) |   |
| Weighted average units  used in the calculation of net loss per common unit allocable to common unit  holders: |       |                                         | 28,668     |                                                                             |       |   | 27,403 |   |   |
|                                                                                                                |            |                                              |            |                                                                                  |            |  |  |  |  |  |  |

 

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**5.**                 RESTRUCTURINGCHARGES

TheCompany has recorded restructuring charges, which primarily consist of one-timetermination benefits, of $6,049, $2,871 and $0 for the fiscal years ended June 30,2007 and 2006 and the period from March 24, 2005 (inception) through June 30,2005, respectively. The 2007 restructuring initiatives were designed to achieveefficiencies and reduce costs in response to changes in projected demand forcertain services. One-time termination benefits relate to the termination ofapproximately 125 employees during the fiscal year ended June 30, 2007.The restructuring reserves for an additional 156 employees are included inaccrued expenses and other current liabilities in the  consolidated balance sheets. The followingtable summarizes the charges for restructuring and related activities,including payments made and the ending reserve balances by business segment:

| ** **                       | ** ** | **Restructuring Plan  from acquisition  of CSG** | ** **         | **FY07  Restructuring Plan** | ** ** | **Total** | ** ** |
|----------------------------------|------------|-----------------------------------------------------------------|--------------------|-----------------------------------|------------|-----------|------------|
| ** **                       | ** ** | **EMEA**                                                        | ** **         | **Americas**                      | ** ** | **EMEA**  | ** ** | **Americas** | ** ** | **EMEA** | ** ** | **Americas** | ** ** | **Total** | ** ** |
| Balance—June 30,  2005 |       | $                                                               | —   |                              |       | $         | —     |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |
| Additions/adjustments            |       | 1,817                                                           |               |                              | 1,849      |      |       | — |   |   | — |   |   | 1,817 |   |   | 1,849 |   |   | 3,666 |   |
| Payments                         |       | (164                                                            | )                  |                              | (241       | )         |       | — |   |   | — |   |   | (164 | ) |   | (241 | ) |   | (405 | ) |
| Balance—June 30,  2006 |       | 1,653                                                           |               |                              | 1,608      |      |       | — |   |   | — |   |   | 1,653 |   |   | 1,608 |   |   | 3,261 |   |
| Additions/adjustments            |       | (258                                                            | )                  |                              | 783        |      |       | 4,104 |   |   | 1,456 |   |   | 3,846 |   |   | 2,239 |   |   | 6,085 |   |
| Payments                         |       | (1,389                                                          | )                  |                              | (2,211     | )         |       | — |   |   | (147 | ) |   | (1,389 | ) |   | (2,358 | ) |   | (3,747 | ) |
| Balance—June 30,  2007 |       | $                                                               | 6                  |                              |       | $         | 180        |   |   | $ | 4,104 |   |   | $ | 1,309 |   |   | $ | 4,110 |   |   | $ | 1,489 |   |   | $ | 5,599 |   |

 

The EMEA business segmentencompasses the Company’s operations in Europe, the Middle East, Africa and Asia.The Americas business unit encompasses the Company’s operations in NorthAmerica, and Central and South America.

**6.**                 RECEIVABLES

Accounts receivable are netof an allowance for doubtful accounts of $724, $1,665, and $0 at June 30,2007,  2006, and  2005, respectively. There were no customerswith accounts receivable representing 10% or more of consolidated accountsreceivable at June 30, 2007 or June 30, 2006. For the fiscal yearsended June 30, 2007 and 2006 and the period from March 24, 2005through June 30, 2005 the Company’s accounts receivable write-offs againstthe allowance for doubtful accounts were $1,615, $352, and $0, respectively.Accounts receivable recoveries (collections of previous write-offs) for thesame above periods were $779, $184, and $0, respectively.

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**7.**                 PROPERTYAND EQUIPMENT—NET

Propertyand equipment at cost and accumulated depreciation at June 30, 2007 and2006 are as follows:

| ** **                       | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
|----------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Property and  equipment:         |       |                        |       |                        |       |   |   |   |   |
| Land and buildings               |       |                        | $          | 12,722                      |       |   |   | $ | 12,844 |   |   |
| Machinery and equipment          |       |                        | 4,467      |                        |       |   | 2,013 |   |   |
| Furniture and fixtures           |       |                        | 4,873      |                        |       |   | 3,403 |   |   |
| Data processing equipment        |       |                        | 21,336     |                        |       |   | 13,037 |   |   |
| Leasehold  improvements          |       |                        | 13,365     |                        |       |   | 5,360 |   |   |
| Software licenses                |       |                        | 11,473     |                        |       |   | 2,935 |   |   |
| Capital leases                   |       |                        | 1,388      |                        |       |   | 34 |   |   |
| Property and  equipment at cost  |       |                        | 69,624     |                        |       |   | 39,626 |   |   |
| Less accumulated  depreciation   |       |                        | (18,139    | )                           |       |   | (1,341 | ) |   |
| Property and  equipment—net |       |                        | $          | 51,485                      |       |   |   | $ | 38,285 |   |   |

 

**8.**                 GOODWILLAND INTANGIBLE ASSETS—NET

Changesin goodwill during the year ended June 30, 2007 included the effects ofthe finalization of the purchase price allocation related to the acquisition ofthe Claims Services Group of ADP, as well as cumulative translation adjustments.Changes in goodwill for the years ended June 30, 2006 and June 30,2007 by business segment are as follows:

| ** **                         | ** ** | **EMEA** | ** ** | **Americas** | ** ** | **Total** | ** ** |
|------------------------------------|------------|----------|------------|--------------|------------|-----------|------------|
| Balance—June 30,  2005   |       | $        | —     |         | $          | —    |       | $ | — |   |
| Additions from Acquisition         |       | 434,702  |       | 84,958       |       | 519,660   |       |
| Cumulative translation adjustments |       | 21,448   |       | 313          |       | 21,761    |       |
| Balance—June 30, 2006    |       | $        | 456,150    |         | $          | 85,271    |       | $ | 541,421 |   |
| Adjustments                        |       | (9,274   | )          | 5,473        |       | (3,801    | )          |
| Cumulative translation adjustments |       | 31,479   |       | 66           |       | 31,545    |       |
| Balance—June 30,  2007   |       | $        | 478,355    |         | $          | 90,810    |       | $ | 569,165 |   |

 

Componentsof intangible assets, excluding goodwill, as of June 30, 2007 and 2006,are as follows:

| ** **                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Intangibles  (excluding goodwill): |       |     |       |     |       |
| Internally developed software      |       | $        | 22,151     |     | $          | 18,024 |   |
| Customer relationships             |       | 185,946  |       | 179,138  |       |
| Trademarks                         |       | 14,369   |       | 14,396   |       |
| Software and database technology   |       | 249,347  |       | 250,299  |       |
|                               |       | 471,813  |       | 461,857  |       |
| Less accumulated  amortization     |       | (108,827 | )          | (20,563  | )          |
| Intangible assets—net         |       | $        | 362,986    |     | $          | 441,294 |   |

 

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Intangible assets (except goodwill) have finite livesand, as such, are subject to amortization. The weighted average remaininguseful life of the intangible assets is 12.20 years (2.9 years for internallydeveloped software, 19 years for customer relationships, 3 years for trademarksand 8 years for software and database). Internally developed software isamortized on a straight-line basis. Other intangible assets are amortizedon an accelerated basis to reflect the pattern in which economic benefits ofthe intangible assets are consumed. Amortization of intangibles totaled$87,313, $20,563 and $0 for the fiscal years ended June 30, 2007 and 2006,and for the period from March 24, 2005 through June 30, 2005,respectively. Estimated amortization expense of the Company’s existingintangible assets for the next five fiscal years ending June 30 are asfollows:

| 2008       |   | $       | 74,827  |   |
|------------|--------|---------|---------|--------|
| 2009       |   | 61,217  |    |
| 2010       |   | 50,659  |    |
| 2011       |   | 38,940  |    |
| 2012       |   | 30,684  |    |
| Thereafter |   | 106,659 |    |
| Total      |   | $       | 362,986 |   |

 

The above useful livesrepresent the Company’s best estimates. However, actual lives may differ fromthese estimates. In addition, the expected future amortization may vary basedon fluctuations in foreign currency exchange rates.

**9.**                 FINANCIALINSTRUMENTS AND DERIVATIVES

***FinancialInstruments******—At*** June 30,2007 and 2006, the carrying amounts of cash equivalents, receivables, accountspayable, and other liabilities approximated their fair values because of theshort-term maturities of these financial instruments. The carrying amounts oflong-term debt at June 30, 2007 and 2006, approximated fair value based onprevailing interest rates.

***Derivatives******—In***thenormal course of business, the Company is exposed to interest rate changes andforeign currency fluctuations. The Company strives to limit these risks throughthe use of derivatives such as interest rate swaps and foreign exchangeoptions. Derivatives are not used for speculative purposes.

In February 2006, the Company entered into aforeign currency exchange option (the “FX Option”) that gives the Company theoption to call USD $200,000 at a strike price of 1.1646 EUR/USD at any time upto February 8, 2011. This FX Option is not designated as a hedginginstrument. In February 2006, the Company paid approximately $7,912 forthe FX Option. As of June 30, 2007 and June 30, 2006, the fair valueof the FX Option approximated $970 and $3,980, respectively, and was recordedin other assets in the consolidated balance sheets. The decrease in fair valueof approximately $3,010 and $3,932 was recognized in other (income) expense inthe consolidated statement of operations, during the fiscal years ended June 30,2007 and 2006, respectively.

Effective April 27, 2006, the Company enteredinto two interest rate swaps with maturities on July 13, 2011. These swapswere not designated as hedging instruments. One swap has a notional amount of$195,000 and requires the Company to pay a fixed rate of 5.35%. The secondinterest rate swap has a notional amount of €368,421and requires the Company to pay, on a quarterly basis, a fixed rate of 3.72%.The estimated fair value of $1,082 on these interest rate swaps was recorded inother assets in the consolidated balance sheets. The increase in fair value of$1,082 during the fiscal year ended June 30, 2006 was recognized as otherincome in the consolidated statement of operations. During the fiscal yearended June 30, 2007, the Company recognized an increase in fair value of$6,659 in other income related to these swaps, which were terminated on June 25,2007 for a total cash settlement of $7,741.

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Effective on June 29, 2007, the Company enteredinto three USD-based interest rate swaps with notional amounts of $50,000,$80,965 and $75,000 with maturities on June 30, 2011 which require the Companyto pay fixed rates of 5.445%, 5.418% and 5.445%, respectively  The Company also entered into threeEuro-based interest rate swaps with notional amounts of € 69,821,€ 50,000,and € 60,000with maturities on June 30, 2011 which require the Company to pay fixedrates of 4.603%, 4.679%, and 4.685%, respectively. These interest rate swapsare designated and documented at the inception of the hedge as cash flow hedgesand are evaluated for effectiveness quarterly. The effective portion of thegain or loss on these hedges is reported as a component of accumulated othercomprehensive income/(loss) in stockholders’ equity and reclassified intoearnings when the hedged transaction affects earnings. The ineffective portionon these cash flow hedges is recognized as other (income)/expense. Theestimated fair value of $795 on USD-based swaps and €414 ($553) on Euro-basedswaps was recorded in other liabilities in the consolidated balance sheet as ofJune 30, 2007. The change of $1,065 in the fair value of swaps, net of tax,reflects the effective portion of loss on these hedges and is reported as acomponent of accumulated other comprehensive loss in stockholders’ equity.

The estimated fair valuesof the Company’s derivatives were determined based on quoted market prices andmay not be representative of actual values that could have been realized orthat will be realized in the future.

**10.**          LONG-TERMDEBT

Long-termdebt at June 30, 2007 and 2006 consists of the following:

| ** **                                                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Senior secured  credit facilities:                                                 |       |     |       |     |       |
| First lien credit facility:                                                        |       |     |       |     |       |
| Domestic revolver loan, due April 2012                                        |       | $        | —     |     | $          | 11,000 |   |
| Domestic term loan, due April 2013                                            |       | —   |       | 240,000  |       |
| European term loan, due April 2013                                            |       | —   |       | 281,127  |       |
| Amended and  restated first lien credit facility:                                  |       |     |       |     |       |
| Domestic term loan, due May 2014                                              |       | 229,425  |       |     |       |
| European term loan, due May 2014                                              |       | 375,770  |       |     |       |
| European revolver loan, due April 2012                                        |       | 8,073    |       | —   |       |
| Second lien  credit facility—European term loan, due October 2013        |       | —   |       | 210,845  |       |
| Subordinated  Unsecured Credit Facility—Mezzanine loan, due October 2014 |       | —   |       | 104,867  |       |
| Total                                                                              |       | 613,268  |       | 847,839  |       |
| Less current  portion                                                              |       | 14,140   |       | 16,211   |       |
| Long-term portion                                                                  |       | $        | 599,128    |     | $          | 831,628 |   |

 

***Senior SecuredCredit Facilities***   In April 2006, theCompany entered into a senior secured credit arrangement (the “Senior SecuredCredit Facilities”) under a First and Second Lien Credit and Guaranty Agreement(the “First and Second Lien Credit Facility”) with a syndicate of commerciallenders. The First Lien Credit Facility includes a revolving commitment (the “RevolverCredit Facility”) which permits U.S. Dollar or Euro-based borrowings andissuances of letters of credit of up to $50,000 in the aggregate; a domesticterm loan commitment (the “Domestic Term Loan”) of $240,000; and a Europeanterm loan commitment (the “European Term Loan”) of €220,000. The Second LienCredit Facility includes a European term loan commitment (the “European SecondTerm Loan”) of €165,000.

On May 16, 2007, in connection with its initialpublic offering, the Company repaid a portion of the balances outstanding underits April 2006 First Lien facilities and all balances outstanding underits Second Lien facilities including a prepayment premium totaling $4,483.

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The Company also entered into an Amended and RestatedSenior Credit Facility Agreement with a syndicate of commercial lendersconsisting of a $50,000 Revolving Credit Facility, a $230,000 Domestic TermLoan and a € 280,000 EuropeanTerm Loan.  As of June 30, 2007, theCompany had $8,073, $229,425 and $375,770 (€ 279,300) inoutstanding loans under the Revolver Credit Facility, Domestic Term Loan andEuropean Term Loan, respectively, with interest rates of  6.375%, 7.360% and 6.164%, respectively.Borrowings under the Amended and Restated Senior Secured Credit Facility bearinterest, to be reset at the Company’s option, at a rate determined by the solelead arranger of the syndicate of commercial lenders equal to (1) theoffer rate on dollars based on the British Bankers’ Association Settlement Ratefor deposits or (2) the offer rate on the Euro from the Banking Federationof the European Union, or (3) in the event such rates are not available,then the offered quotation rate to first class banks in the London inter-bankmarket or European inter-bank market by Citibank USA Inc. for deposits,respectively, in each case, plus an applicable margin that varies based uponthe Company’s consolidated leverage ratio, as defined in the agreement.Beginning on June 30, 2007, consecutive quarterly principal payments of$575 and €700are required for the Domestic Term Loan and European Term Loan, respectively,under the Amended and Restated First Lien Credit Facility with the remainingbalance due in May 2014. The Amended and Restated Senior Secured CreditFacility allows for voluntary prepayments under specified conditions andrequires mandatory prepayments and commitment reductions upon the occurrence ofcertain events, including among others, sale of assets, receipt of insurance orcondemnation proceeds, excess cash flow, and issuances of debt and equitysecurities.

The obligations under the Amended and Restated SeniorSecured Credit Facility are secured by substantially all of the assets of theCompany. The Amended and Restated Senior Secured Credit Facility containscertain covenants including, among others, requirements related to financialreporting, maintenance of operations, compliance with applicable laws andregulations, maintenance of interest rate protection and compliance withspecified financial covenants, as well as restrictions related to liens,investments, additional indebtedness, dispositions of assets or subsidiaryinterests, dividends, distributions, issuances of equity securities,transactions with affiliates, capital expenditures, and certain other changesin the business. Financial covenants include the requirement to maintain aminimum interest coverage ratio and limit maximum total leverage, seniorleverage ratios, and levels of capital expenditures.

***SubordinatedUnsecured Credit Facility***   InApril 2006, the Company entered into a subordinated unsecured creditguaranty agreement (the “Subordinated Unsecured Credit Agreement”) with asyndicate of commercial lenders. The Subordinated Unsecured Credit Agreementconsists of a European term loan (the “European Mezzanine Loan”) of €80,000.

Borrowings under the Subordinated Unsecured CreditAgreement bear interest, to be reset at the Company’s option, at a ratedetermined by the sole lead arranger of the syndicate of commercial lendersequal to (1) the offer rate on dollars based on the British BankersAssociation Settlement Rate for deposits or (2) the offer rate on the Eurofrom the Banking Federation of the European Union, or (3) in the eventsuch offer rates are not available, then the offered quotation rate to firstclass banks in the London inter-bank market or European inter-bank market byCitibank USA Inc. for deposits in each case, plus an applicable margin of 9%,which shall be capitalized, compounded, and added to the unpaid principalamount of the European Mezzanine Loan on the last day of each interest periodon no less than a quarterly basis.

The Subordinated Unsecured Credit Agreement allows forvoluntary prepayments under specified conditions and requires mandatoryrepayments upon the sale of assets or receipt of insurance or condemnationproceeds. This agreement also contains certain covenants including, amongothers, requirements related to financial reporting, maintenance of operations,compliance with applicable laws and regulations and compliance with specifiedfinancial covenants, as well as restrictions related to liens, investments,additional indebtedness, dispositions of assets or subsidiary interests,dividends, distributions, issuances of equity securities, transactions withaffiliates, capital expenditures, and certain other changes in 

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the business. Financialcovenants include the requirement to maintain a minimum interest coverage ratioand limit maximum total leverage, senior leverage ratios, and levels of capitalexpenditures. On May 16, 2007, balances outstanding under the SubordinatedUnsecured Credit Agreements of $124,396 were paid off together with aprepayment premium of $2,486.

With the repayment of the long term debt balancesunder the First Lien and Second Lien Credit Facility as well as the SubordinatedUnsecured Credit Agreement, the Company recognized a loss on extinguishment ofdebt consisting of $28,691 of remaining deferred financing costs associatedwith these facilities, along with the prepayment premium of $6,975, in otherincome and expenses in the consolidated statement of operations. In addition,in connection with the Amended and Restated Senior Credit Facility, the Companyincurred approximately $4,393 in financing costs, which were deferred andincluded as part of other assets in the consolidated balance sheet and are amortized on a straight line methodas interest expense over the term of the debt. Amortization of deferred loancosts under the April 2006 facilities and under the new May 2007facilities for the fiscal year ended June 30, 2007 was approximately$3,895 and $80, respectively.

***Future Minimum Principal Payments******  ***Future minimum principalpayments as of June 30, 2007 are as follows:

| ** ** | ** ** | **2007** | ** ** |
|------------|------------|----------|------------|
| 2008       |       | $        | 14,140     |   |
| 2009       |       | 6,067    |       |
| 2010       |       | 6,067    |       |
| 2011       |       | 6,067    |       |
| 2012       |       | 6,067    |       |
| Thereafter |       | 574,860  |       |
| Total      |       | $        | 613,268    |   |

 

**11.**          EMPLOYEEBENEFIT PLANS

***Stock-BasedCompensation******—Effective*** July 1,2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”)which requires the measurement and recognition of compensation expense for allstock-based payment awards made to employees and directors, including employeestock options and share awards, based on estimated fair values recognized overthe requisite service period.

The Company adopted SFAS 123(R) using theprospective transition method. Under this method, SFAS 123(R) is appliedto new awards and to awards modified, repurchased or cancelled after theadoption date of July 1, 2006. Compensation cost that was previouslyrecorded under APB Opinion No. 25 for awards outstanding at the adoptiondate, such as unvested options, will continue to be recognized as the optionsvest. Accordingly, for the year ended June 30, 2007, stock/unit-basedcompensation expense includes compensation cost related to estimated fairvalues of awards granted after the date of adoption of SFAS 123(R) andcompensation costs related to unvested awards at the date of adoption based onthe intrinsic values as previously recorded under APB Opinion No. 25.

The fair value of stockand options awards granted after July 1, 2006 is estimated on the grantdate using the Black-Scholes option valuation model. This valuation model forstock-based compensation expense requires the Company to make assumptions andjudgments about the variables used in the calculation including the expectedterm (weighted average period of time that the shares and options granted areexpected to be outstanding), the volatility of the Company’s common shares, anassumed risk free interest rate and the estimated forfeitures of unvested shareawards. No compensation cost is recorded for awards that do not vest. Forawards granted after July 1, 2006, and valued in accordance with 

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SFAS123(R), the Company used the straight-line method for expense attribution.Since the Company’s common shares have not been actively traded in the past,the Company uses the simplified calculation of expected life described in theSecurities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB107”) and volatility is based on an average of the historical volatilities ofthe common stock of several entities with characteristics similar to those ofthe Company. The risk-free rate is based on the U.S. Treasury yield curve ineffect at the time of grant for periods corresponding with the expected life ofthe option. SFAS 123(R) requires the Company to estimate forfeitures atthe time of grant and revise those estimates in subsequent periods if actualforfeitures differ form those estimates. The Company used historical employeetermination rates to estimate pre-vesting option forfeitures.

**Summary of Plans**

*2007 Long-termEquity Incentive Plan*

The equity incentive planprovides for the issuance of stock options, restricted stock, deferred stock,dividend equivalents, other stock-based awards and performance awards.Performance awards may be based on the achievement of certain business orpersonal criteria or goals, as determined by the compensation committee. Anaggregate of 4,300,000 shares of the Company’s common stock was initiallyreserved for issuance under the equity incentive plan, subject to certainadjustments reflecting changes in the Company’s capitalization. If any grantunder the equity incentive plan expires or terminates unexercised, becomesunexercisable or is forfeited as to any shares or is tendered or withheld as toany shares in payment of the exercise price of the grant or the taxes payablewith respect to the exercise, then such unpurchased, forfeited, tendered orwithheld shares will thereafter be available for further grants under theequity incentive plan.

*2007 Employee StockPurchase Plan*

In connection with theCompany’s initial public offering, the Company adopted the 2007 Employee StockPurchase Plan. The purpose of the plan is to provide an incentive for employees(and employees of subsidiaries designated by the board of directors) topurchase common stock and acquire an equity interest in the Company. Thecompensation committee administers the plan, under which the Company hasreserved for issuance 1,500,000 shares of common stock. The Company hasnot issued any shares of common stock in connection with this plan.

*2006 SecuritiesPurchase Plan*

In November 2006, the board of managers adoptedthe 2006 Securities Purchase Plan. In January and February, pursuant to securitiespurchase agreements, 24 employees purchased common equity interests in theCompany that were converted into approximately 740,000 shares of common stock. Pursuantto such agreements, the shares of stock held by these employees remains subjectto vesting over a five-year period, and unvested shares remain, under certaincircumstances, subject to repurchase by the Company or, to the extent theCompany does not repurchase, by affiliates of GTCR Golder Rauner II, L.L.C.(“GTCR”), a private equity investor in the Company. No additional equity willbe issued under this plan.

***Restricted Stock******—The*** Companyhas a restricted stock program under which shares of common stock have beenissued to certain employees. These shares are restricted as to transfer and incertain circumstances must be returned to the Company at the original purchaseprice. The Company records stock compensation expense relating to the issuanceof restricted stock over the period in which the transfer restrictions exist,which is up to five years from the date of grant. The value of the Company’srestricted stock, based on market prices, is recognized as compensation expenseover the restriction period on a straight-line basis.

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During the year ended June 30, 2006, the Companygranted fully vested and nonvested restricted common units to certain employeesand directors and recorded $1,807 in deferred unit-based compensation andrelated amortization expense of $285 related to the fully vested units and $76related to the unvested units. The stock-based compensation expense related torestricted stock/units included in the net loss was $1,893 and $361 for yearsending June 30, 2007 and 2006, respectively.

For the twelve months ended June 30,2007, the Company granted the right to purchase restricted common stock/unitsas follows.

| ** **                        | ** ** | **Number of  restricted  common   stock / units** | ** ** | **Purchase price  per common  stock / unit** | ** ** | **Fair value  per common   stock / unit** | ** ** | **Total  compensation  expense to be  recognized  over vesting  period** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| Granted on July 25,  2006    |       |                                                                  | 1,097,846  |                                                             |       |                                                               | $          | 0.30                                                                                    |       |   |   | $ | 2.94 |   |   |   | $ | 2,898 |   |   |
| Granted on  November 8, 2006 |       |                                                                  | 34,165     |                                                             |       |                                                               | $          | 0.30                                                                                    |       |   |   | $ | 12.36 |   |   |   | $ | 412 |   |   |
| Granted on  January 26, 2007 |       |                                                                  | 50,000     |                                                             |       |                                                               | $          | 0.30                                                                                    |       |   |   | $ | 15.30 |   |   |   | $ | 750 |   |   |
| Granted on  May 11, 2007     |       |                                                                  | 304,730    |                                                             |       |                                                               | $          | 0.01                                                                                    |       |   |   | $ | 16.00 |   |   |   | $ | 4,873 |   |   |
| Cancellations                     |       |                                                                  | (506,582   | )                                                                |       |                                                               | $          | 0.30                                                                                    |       |   |   | $ | 2.99 |   |   |   | $ | (1,361 | ) |   |
|                              |       |                                                                  | 980,159    |                                                             |       |                                                               |       |                                                                                    |       |   |   |   |   |   | $ | 7,572 |   |   |

 

The fair value of these rights to purchase restrictedcommon stock/units will be recognized as an expense ratably over vesting periodsof up to 60 months. Due to the significant difference between the purchaseprice and fair value per common share/unit, the fair value of the right topurchase these restricted shares/units and intrinsic value of the restricted shares/unitswere equal. During the twelve months ended June 30, 2007, the Companyrecorded $1,893 as an expense related to these rights, with an estimated taxbenefit of $687. The remaining portion of the expense is expected to berecognized over the weighted average vesting period of 4.5 years.

***Stock Options—***Stockoptions are granted to employees at exercise prices equal to the fair marketvalue of the Company’s common stock on the dates of grant. Stock options are issuedunder a graded vesting schedule, generally, vest ratably over four years andhave a term of 10 years. Compensation expense for stock options is recognizedover the requisite service period for each separately vesting portion of thestock option award.

On May 11, 2007, the Company granted 428,400options to its employees to purchase common stock at a $16.00 grant price pershare and a fair value of $6.63 per share. As of June 30, 2007, 4,800 ofthese options were canceled and none were vested. The aggregate fair value ofstock options outstanding at June 30, 2007 was $2,808. The stock-basedcompensation expense related to stock options included in the net loss was $68for fiscal 2007, and the estimated total remaining compensation of $2,375, netof forfeitures, is expected to be recognized over the remaining vesting periodof 4 years.

Summarizedinformation about stock options outstanding at June 30, 2007 is asfollows:

| ** **              | ** ** | **Outstanding**                 | ** ** | **Exercisable**                          | ** ** |
|-------------------------|------------|---------------------------------|------------|------------------------------------------|------------|
| **Exercise Price** | ** ** | **Number of Options** | ** ** | **Remaining Life  (in years)** | ** ** | **Weighted  Average Price  (in dollars)** | ** ** | **Number of  Options** | ** ** | **Weighted  Average Price  (in dollars)** | ** ** |
| $16.00                  |       |                            | 423,600    |                                     |       |   | 9.9 |   |   |   | $ | 16.00 |   |   |   | 0 |   |   |   | $ | 16.00 |   |   |
|                         |            |                                 |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The fair value for stock-based awards was estimated atthe date of grant with the following assumptions: a risk-free interest rate of4.5%; a dividend yield 0.0%; a weighted average volatility factor of 32.8%; aweighted average expected life of 6.1 years; and an exercise price of $16.00per share.

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***Pension Plans******  ***The Company’sforeign subsidiaries sponsor various defined benefit plans and individualdefined benefit arrangements covering certain eligible employees. The benefitsunder these pension plans are based on years of service and compensationlevels. Funding is limited to statutory requirements. In September 2006,the FASB issued SFAS No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans—an amendment of FASB Statements No. 87,88, 106 and 132(R)” (“SFAS No. 158”). This statement requires a company to(a) recognize in its statement of financial position an asset for a plan’soverfunded status or a liability for a plan’s underfunded status, (b) measurea plan’s assets and its obligations that determine its funded status as of theend of the employer’s fiscal year, and (c) recognize changes in the fundedstatus of a defined benefit plan in the year in which the changes occur(reported in comprehensive income). The requirement to recognize the fundedstatus of a benefit plan and the related disclosure requirements were effectivefor the Company as of the end of fiscal 2007 and the Company adopted thestatement at that time. The adoption of SFAS No. 158 resulted in a $492reduction in stockholders’ equity, net of income taxes. The measurement datefor all plans is June 30, 2007, and as such no additional impact isexpected.

Thechange in benefit obligations and plan assets as well as the funded status ofthe Company’s foreign pension plans for the fiscal year ended June 30,2007 were as follows:

| ** **                                                                       | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Change in plan assets:                                                           |       |                        |       |                        |       |   |   |   |   |
| Fair value of plan assets—beginning of year                                 |       |                        | $          | 27,700                      |       |   |   | $ | — |   |   |
| Net transfer, including effect of business  combination                          |       |                        | 22,300     |                        |       |   | 25,800 |   |   |
| Actual return on plan assets                                                     |       |                        | 1,300      |                        |       |   | 200 |   |   |
| Employer contributions                                                           |       |                        | 4,100      |                        |       |   | 400 |   |   |
| Participant contributions                                                        |       |                        | 900        |                        |       |   | — |   |   |
| Benefits and expenses paid                                                       |       |                        | (4,700     | )                           |       |   | (100 | ) |   |
| Foreign currency exchange rate changes                                           |       |                        | 1,400      |                        |       |   | 1,400 |   |   |
| Fair value of  plan assets—end of year                                      |       |                        | 53,000     |                        |       |   | $ | 27,700 |   |   |
| Change in benefit  obligation:                                                   |       |                        |       |                        |       |   |   |   |   |
| Benefit obligation—beginning of year                                        |       |                        | $          | 32,800                      |       |   |   | $ | — |   |   |
| Net transfer, including effect of business  combination                          |       |                        | 26,300     |                        |       |   | 31,400 |   |   |
| Service cost                                                                     |       |                        | 3,400      |                        |       |   | 200 |   |   |
| Interest cost                                                                    |       |                        | 2,700      |                        |       |   | 400 |   |   |
| Participant contributions                                                        |       |                        | 900        |                        |       |   | — |   |   |
| Actuarial (gain) loss                                                            |       |                        | 300        |                        |       |   | (800 | ) |   |
| Benefits and expenses paid                                                       |       |                        | (4,700     | )                           |       |   | (100 | ) |   |
| Foreign currency exchange rate changes                                           |       |                        | 1,600      |                        |       |   | 1,700 |   |   |
| Projected benefit  obligation—end of year                                   |       |                        | $          | 63,300                      |       |   |   | $ | 32,800 |   |   |
| Funded  status—plan assets less benefit obligation                          |       |                        | $          | (10,300                     | )          |   |   | $ | (5,100 | ) |   |
| Unrecognized net  actuarial (gain) loss due to experience different than assumed |       |                        | —     |                        |       |   | (700 | ) |   |
| Accrued pension  liability                                                       |       |                        | $          | (10,300                     | )          |   |   | $ | (5,800 | ) |   |

 

Net transfers of plan assets and benefit obligationsare the result of the Company’s acquisition of CSG on April 13, 2006.During the fiscal year ended June 30, 2007, retirement plans that were includedin the Company’s purchase of CSG, and were previously accounted for as definedcontribution plans, were determined to be defined benefit plans under SFAS 87.During the fiscal year ended June 30, 2007, the funded status of these acquiredplans was recorded as an adjustment to the purchase price allocation.

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The impact of the adoptionof SFAS No. 158, comprising actuarial gains and losses, resulted in a reductionto stockholders’ equity of $492 and consists of an increase (decrease) to thefollowing accounts in the consolidated balance sheet:

| Other liabilities  (non-current)           |   | 559 |   |
|--------------------------------------------|--------|-----|--------|
| Long term  deferred income tax liabilities |   | (67 | )      |
| Impact to stockholders’ equity        |   | $   | (492   | ) |
|                                            |        |     |        |  |

 

After the adoption of SFAS No. 158, all net accruedpension liabilities are recognized in the balance sheet as of June 30, 2007 in otherliabilities (long-term).

The accumulated benefit obligation for all definedbenefit pension plans was $56,300 and $29,800 at June 30, 2007 and 2006,respectively.

The projected benefit obligation, accumulated benefitobligation and fair value of plan assets for the Company’s pension plans withaccumulated benefit obligations in excess of plan assets were $63,300, $56,300and $53,000, respectively, as of June 30, 2007.

Thecomponents of net pension expense were as follows:

| ** **                                           | ** ** | **Fiscal Year   Ended  June 30, 2007** | ** ** | **Fiscal Year  Ended  June 30, 2006** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| Service  cost—benefits earned during the period |       |                                                       | $          | 3,400                                                |       |   |   | $ | 200 |   |   |
| Interest cost on  projected benefits                 |       |                                                       | 2,700      |                                                 |       |   | 400 |   |   |
| Expected return  on plan assets                      |       |                                                       | (2,400     | )                                                    |       |   | (300 | ) |   |
|                                                 |       |                                                       | $          | 3,700                                                |       |   |   | $ | 300 |   |   |

 

Generalassumptions used to determine the actuarial present value of benefitobligations for the fiscal year ended June 30, 2007 and 2006 were:

| ** **                       | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
|----------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Discount rate                    |       |                        | 4.21       | %                           |       |   | 4.75 | % |   |
| Increase in compensation  levels |       |                        | 1.89       |                        |       |   | 1.95 |   |   |

 

Generalassumptions used to determine the net pension expense for the fiscal yearsended June 30, 2007 and 2006 were:

| ** **                                   | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Discount rate                                |       |                        | 4.09       | %                           |       |   | 4.60 | % |   |
| Expected long-term  rate of return on assets |       |                        | 4.24       |                        |       |   | 4.60 |   |   |
| Increase in compensation  levels             |       |                        | 1.99       |                        |       |   | 1.95 |   |   |

 

The discount rate is based upon published rates forhigh-quality fixed-income investments that produce cash flows thatapproximate the timing and amount of expected future benefit payments.

The weighted-average long-term expected rate ofreturn on assets assumption is 4.24%. This percentage has been determined basedon historical and expected future rates of return on plan assets consideringthe target asset mix and the long-term investment strategy.

***Plan Assets******  ***The planassets of the pension plans are the liability of insurance companies andbenefit payments are fully insured. The insurance companies invest the planassets in accordance with the terms of the insurance companies’ guidelines andthe Company has no control over the investment decisions made 

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by the insurancecompanies. The insurance companies invest virtually the entire pension planportfolio in fixed income securities.

***Contributions******  ***Thecontribution for the year ended June 30, 2007 was $4,100. The minimumrequired contribution and expected contribution to the Company’s pension plansare $3,800 for the year ending June 30, 2008.

***Estimated FutureBenefit Payments******  ***The benefits expected to be paidfor fiscal 2008 and the fiscal years ending June 30, 2009 through June 30,2012, are $3,400, $1,000, $2,800, $1,300 and $1,400, respectively. Theaggregate benefits expected to be paid in the five years ending June 30from 2013 to 2017 are $11,400. The expected benefits to be paid are based onthe same assumptions used to measure the Company’s pension plans’ benefitobligation at June 30, 2007, and include estimated future employeeservice.

***Retirement andSavings Plan******  ***The Company has defined contributionplans that cover most of its domestic employees. This 401(k) plan providescompany matching under various formulas. The costs for the domestic associatesplans for  the fiscal years ended June 30,2007 and 2006, and the period from March 24, 2005 (inception) through June 30,2005 were $1,096, $300, and $0, respectively.

The Company’s foreignsubsidiaries have defined contribution plans that cover certain internationalemployees. These retirement savings-type plans provide company matching undervarious formulas. The Company’s match amounted to approximately $3,000, $700,and $0 for the fiscal years ended June 30, 2007 and 2006 and the periodfrom March 24, 2005 (inception) through June 30, 2005, respectively.

**12.**          RELATED-PARTYTRANSACTIONS

In connection with the Unit Purchase Agreement betweenthe Company and GTCR, the Company entered into a professional servicesagreement (the “Professional Services Agreement”) with GTCR as of April 1,2005. This agreement provides for GTCR to provide certain professional servicesin exchange for annual management fees of $250 commencing when Solera, Inc.has consolidated EBITDA of at least $3,000. Pursuant to the ProfessionalServices Agreement, the Company incurred management fees of approximately $208and $53 for the fiscal years ended June 30, 2007 and June 30, 2006,respectively, and none for the period from March 24, 2005 (inception) to June 30,2005. The Professional Services Agreement also provides for GTCR to receive aplacement fee of one percent of the gross amount financed pursuant to certainissuances of equity and debt. The Company incurred placement fees of $405 forthe period from March 24, 2005 (inception) through June 30, 2005.This amount has been recorded as an equity issuance cost. In connection withthe raising of equity and debt financing, the Company incurred placement feesduring the fiscal year ended June 30, 2006 of $10,900, of which $2,180 wasrecorded as an equity issuance cost and $8,720 was included in debt issuancecosts.

Certain minority stockholders of the Company’sinternational subsidiaries are also commercial purchasers and users of theCompany’s software and services. Revenue transactions with all of theindividual minority stockholders in the aggregate represent less than 5% of theCompany’s consolidated revenue.

In February 2006, theCompany entered into an advisory services and success agreement (the “AdvisoryServices Agreement”) with a member of its board of managers. Pursuant to thisagreement, in exchange for advisory services rendered, the Company agreed topay the board member, upon consummation of the Acquisition, the lesser of$4,500 or a specified dollar formula calculated as a percentage of theAcquisition purchase price. Based on the final purchase price of approximately$1.0 billion, the Company paid the board member approximately $3,800 forservices rendered in conjunction with the Acquisition during the fiscal yearended June 30, 2006. This amount is recorded as a cost of the Acquisition.

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**13.**          INCOMETAXES

Thecomponents of loss before income taxes attributable to domestic and foreignoperations are as follows:

| ** **                                       | ** ** | **Fiscal Year Ended  June 30, 2007** | ** ** | **Fiscal Year Ended  June 30, 2006** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| Loss before income taxes  and minority interest: |       |                                                     |       |                                                     |       |   |   |   |   |
| Domestic                                         |       |                                                     | $          | (48,759                                                  | )          |   |   | $ | (16,418 | ) |   |
| Foreign                                          |       |                                                     | (28,870    | )                                                        |       |   | (2,816 | ) |   |
|                                             |       |                                                     | $          | (77,629                                                  | )          |   |   | $ | (19,234 | ) |   |

 

Thefederal, state and foreign tax provision/(benefit) for the fiscal years ended June 30,2007 and 2006 are summarized as follows:

| ** **               | ** ** | **Fiscal Year Ended  June 30, 2007** | ** ** | **Fiscal Year Ended  June 30, 2006** | ** ** |
|--------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| Current:                 |       |                                                     |       |                                                     |       |   |   |   |   |
| Federal                  |       |                                                     | $          | (464                                                     | )          |   |   | $ | — |   |   |
| Foreign                  |       |                                                     | 21,907     |                                                     |       |   | 4,573 |   |   |
| State                    |       |                                                     | (372       | )                                                        |       |   | 6 |   |   |
| Total current            |       |                                                     | 21,071     |                                                     |       |   | 4,579 |   |   |
| Deferred:                |       |                                                     |       |                                                     |       |   |   |   |   |
| Federal                  |       |                                                     | (13,417    | )                                                        |       |   | (4,057 | ) |   |
| Foreign                  |       |                                                     | (8,295     | )                                                        |       |   | (965 | ) |   |
| State                    |       |                                                     | (132       | )                                                        |       |   | (825 | ) |   |
| Total deferred           |       |                                                     | (21,844    | )                                                        |       |   | (5,847 | ) |   |
| Total income tax benefit |       |                                                     | $          | (773                                                     | )          |   |   | $ | (1,268 | ) |   |

 

Areconciliation between the Company’s effective tax rate on income fromoperations and the U.S. federal statutory rate is as follows:

| ** **                                                                 | ** ** | **Fiscal Year ended  June 30, 2007** | ** ** | **Fiscal Year Ended  June 30, 2006** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **Amount**                                               | ** ** | **Percent**                                              | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Income tax  benefit at U.S. statutory rate                                 |       | $                                                        | (27,170    | )                                                        |       | (35.0 | )% |   | $ | (6,732 | ) |   | (35.0 | )% |   |
| (Increase) decrease in  benefit from:                                      |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| State taxes—net  of federal tax benefit                               |       | (373                                                     | )          |                                                     | (0.5       | ) |   | (533 | ) |   | (2.8 | )% |   |
| Foreign rate  lower than U.S. federal statutory rate                       |       | 1,257                                                    |       |                                                     | 1.6        | % |   | 1,301 |   |   | 6.8 | % |   |
| Impact on  deferred taxes due to reduction in foreign income tax rate |       | (2,743                                                   | )          |                                                     | (3.5       | )% |   | 62 |   |   | 0.3 | % |   |
| Change in  valuation allowance                                             |       | 18,486                                                   |       |                                                     | 23.8       | % |   | 3,069 |   |   | 16.0 | % |   |
| LLC income not  subject to entity level income tax                         |       | 922                                                      |       |                                                     | 1.2        | % |   | 1,395 |   |   | 7.3 | % |   |
| Non-deductible  interest                                                   |       | 5,728                                                    |       |                                                     | 7.4        | % |   | — |   |   | — |   |   |
| Withholding taxes                                                          |       | 1,864                                                    |       |                                                     | 2.4        | % |   | — |   |   | — |   |   |
| Other                                                                      |       | 1,256                                                    |       |                                                     | 1.6        | % |   | 170 |   |   | 0.8 | % |   |
| Total                                                                      |       | $                                                        | (773       | )                                                        |       | (1.0 | )% |   | $ | (1,268 | ) |   | (6.6 | )% |   |

 

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Thesignificant components of deferred income tax assets and liabilities and theirbalance sheet classifications as of June 30, 2006 and 2007 are as follows:

| ** **                                 | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Deferred tax assets:                       |       |                        |       |                        |       |   |   |   |   |
| Accrued expenses  not currently deductible |       |                        | $          | 3,234                       |       |   |   | $ | 7,118 |   |   |
| Depreciation and  amortization             |       |                        | 2,377      |                        |       |   | 1,147 |   |   |
| Net operating  losses                      |       |                        | 28,966     |                        |       |   | 6,169 |   |   |
| Intangibles                                |       |                        | 6,170      |                        |       |   | — |   |   |
| Other                                      |       |                        | 4,567      |                        |       |   | 1,563 |   |   |
|                                       |       |                        | 45,314     |                        |       |   | 15,997 |   |   |
| Less valuation  allowances                 |       |                        | (18,231    | )                           |       |   | (4,717 | ) |   |
| Deferred tax assets—net               |       |                        | 27,083     |                        |       |   | 11,280 |   |   |
| Deferred tax  liabilities:                 |       |                        |       |                        |       |   |   |   |   |
| Amortization                               |       |                        | 1,885      |                        |       |   | 811 |   |   |
| Intangibles                                |       |                        | 40,202     |                        |       |   | 52,534 |   |   |
| Other                                      |       |                        | 1,911      |                        |       |   | 1,444 |   |   |
| Deferred tax liabilities                   |       |                        | 43,998     |                        |       |   | 54,789 |   |   |
| Net deferred tax  liabilities              |       |                        | $          | (16,915                     | )          |   |   | $ | (43,509 | ) |   |

 

The Company has net operating loss carry-forwards ofapproximately $100,667 at June 30, 2007. The net operating losscarry-forwards will expire at various times beginning in 2010, if not utilized,and of which, $604 has an indefinite utilization period.

Utilization of the Company’s net operating loss may besubject to substantial annual limitation due to the ownership changelimitations provided by the Internal Revenue Code and similar state provisions.Such an annual limitation could result in the expiration of the net operatingloss carry-forwards before utilization.

The Company has recorded valuation allowances fordeferred tax assets attributed to net operating loss carryforwards of $4,717,and $18,231 at June 30, 2006 and 2007, respectively. Approximately $1,082of the valuation allowance pertains to net operating losses of certain ClaimsServices Group entities generated prior to the Acquisition and as such, will becredited to goodwill when realized.

Income tax payments were approximately $2,035 and $22,464for the fiscal years ended June 30, 2006 and 2007, respectively, forpayments made directly by the Company.

The undistributed earnings of the Company’s foreignsubsidiaries as of June 30, 2007 are considered to be indefinitelyreinvested and, accordingly, no U.S. income taxes have been providedthereon. Upon distribution of those earnings in the form of dividends orotherwise, the Company would be subject to both U.S. income taxes (subjectto an adjustment for foreign tax credits) and withholding taxes payable tovarious foreign countries.

The Company expects to beperiodically examined by the Internal Revenue Service (the “IRS”) and examinedby tax authorities in countries in which it conducts business, as well asstates in which it has significant business operations. The tax years underexamination will vary by jurisdiction. The Company regularly considers thelikelihood of assessments in each of the jurisdictions resulting fromexaminations. The Company has established tax reserves which it believes areadequate in relation to the potential assessments. Once established, reservesare adjusted when there is more information available, when an event occursnecessitating a change to the reserves or the statute of limitations for therelevant taxing authority to examine the tax position has expired. Theresolution of tax matters should not have a material 

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effecton the consolidated financial condition of the Company, the Company’sconsolidated statements of operations for a particular future period or on theCompany’s effective tax rate.

**14.**          CONTRACTUALCOMMITMENTS, CONTINGENCIES, AND OFF-BALANCE-SHEET ARRANGEMENTS

TheCompany has obligations under various facilities and equipment leases andsoftware license agreements. Total expense under these agreements wasapproximately $17,031, $2,664 and $28 for the fiscal years ended June 30,2007 and 2006 and the period from March 24, 2005 (inception) through June 30,2005, respectively, with minimum commitments at June 30, 2007, as follows:

| 2008       |   | $      | 23,445 |   |
|------------|--------|--------|--------|--------|
| 2009       |   | 15,787 |   |
| 2010       |   | 11,307 |   |
| 2011       |   | 8,854  |   |
| 2012       |   | 6,427  |   |
| Thereafter |   | 8,804  |   |
| Total      |   | $      | 74,624 |   |

 

In addition to fixed rentals, certain leases requirepayment of maintenance and real estate taxes and contain escalation provisionsbased on future adjustments in price indices.

In Ellis and Weaver v. Allstate Insurance Company, et.al., a putative class action, the plaintiff alleged that the Company’s medicalbill review product and its total loss valuation product generate biasedresults in favor of the Company’s insurance customers. The portion of thecomplaint relating to medical bill review was settled in 2004 with no monetaryconsideration being exchanged, but the claim relating to the Company’s totalloss valuation product remains outstanding. Although the Company is unable tomake an estimate of the range of loss which might be possible from thisproceeding, the Company nevertheless believes that any ultimate liabilityarising out of this proceeding will not have a material adverse effect on itsconsolidated financial statements. The Company is subject to other variousclaims and litigation in the normal course of business. The Company does notbelieve that the resolution of these matters will have a material impact on theconsolidated financial statements.

In the normal course ofbusiness, the Company enters into contracts in which it makes representationsand warranties that guarantee the performance of the Company’s products andservices. Losses related to such guarantees are not significant.

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**15.**          SEGMENTAND GEOGRAPHIC INFORMATION

TheCompany manages its business operations through two strategic business units.Based upon the information reported to the chief operating decision maker, who is theChief Executive Officer, the Company has the following reportable segments:EMEA and Americas. The EMEA business unit encompasses the Company’s operationsin Europe, the Middle East, Africa and Asia. The Americas business unitencompasses the Company’s operations in North America, and Central and SouthAmerica. Prior to December 1, 2006, the Company was organized into threereportable segments: EMEA, Americas and Netherlands. In connection with theinitial filing of the Company’s consolidated financial statements as part of aRegistration Statement on Form S-1, the Company has presented thedisclosures as required by SFAS No. 131, *Disclosuresabout Segments of an Enterprise and Related Information*, for allperiods presented to conform to the segment structure in place beginning as of December 1,2006. The Company does not allocate certain costs to its reportable segments.These costs are managed at the corporate level and include costs related tofinancing activities of the Company. The Company evaluates the performance ofits reportable segments based on operating results before income taxes:

| ** **                                                                  | ** ** | **EMEA**   | ** ** | **Americas** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|--------------|------------|---------------|------------|------------|------------|
| **Period From March 24, 2005  (Inception) Through June 30, 2005** | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues                                                                    |       | $          | —     |         | $          | 155           |       | $          | —     |   | $ | 155 |   |
| Loss before income taxes  and minority interest                             |       | —     |       | (740         | )          | —        |       | (740       | )          |
| Assets                                                                      |       | —     |       | 4,865        |       | —        |       | 4,865      |       |
| Capital expenditures                                                        |       | —     |       | 412          |       | —        |       | 412        |       |
| Depreciation and  amortization                                              |       | —     |       | 16           |       | —        |       | 16         |       |
| Interest expense                                                            |       | —     |       | —       |       | —        |       | —     |       |
| Other (income) expense—net                                             |       | —     |       | 22           |       | —        |       | 22         |       |
| **Fiscal Year Ended June 30,  2006**                                   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues                                                                    |       | 54,933     |       | 40,151       |       | —        |       | 95,084     |       |
| Earnings (loss) before  income taxes and minority interest                  |       | 6,171      |       | (4,067       | )          | (21,338       | )          | (19,234    | )          |
| Assets                                                                      |       | 893,334    |       | 315,340      |       | 44,331        |       | 1,253,005  |       |
| Capital expenditures                                                        |       | 1,830      |       | 2,282        |       | —        |       | 4,112      |       |
| Depreciation and  amortization                                              |       | 13,202     |       | 10,369       |       | —        |       | 23,571     |       |
| Interest expense                                                            |       | 1          |       | 9            |       | 14,832        |       | 14,842     |       |
| Other (income) expense—net                                             |       | (485       | )          | (182         | )          | 2,503         |       | 1,836      |       |
| **Fiscal Year Ended June 30,  2007**                                   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues                                                                    |       | 280,112    |       | 191,848      |       | —        |       | 471,960    |       |
| Earnings (loss) before  income taxes and minority interest                  |       | 39,270     |       | 499          |       | (117,398      | )          | (77,629    | )          |
| Assets                                                                      |       | 883,911    |       | 327,865      |       | 12,177        |       | 1,223,953  |       |
| Capital expenditures                                                        |       | 7,220      |       | 20,010       |       | —        |       | 27,230     |       |
| Depreciation and  amortization                                              |       | 58,606     |       | 45,813       |       | —        |       | 104,419    |       |
| Interest expense                                                            |       | 47         |       | 218          |       | 69,416        |       | 69,681     |       |
| Other (income) expense—net                                             |       | (3,568     | )          | (306         | )          | 35,383        |       | 31,509     |       |
|                                                                             |            |            |            |              |            |               |            |            |            |  |  |  |  |

 

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TheCompany conducts its sales, marketing and customer service activitiesthroughout the world. Geographic revenue information is based on the location of the customer. Nosingle country outside the United States, the Netherlands, the United Kingdomand Germany accounted for 10% or more of total external revenue or oflong-lived assets.

| ** **                                | ** ** | **Europe*** | ** ** | **United  States** | ** ** | **The  Netherlands** | ** ** | **United  Kingdom** | ** ** | **Germany** | ** ** | **All  Other** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|-------------|------------|--------------------|------------|----------------------|------------|---------------------|------------|-------------|------------|----------------|------------|-----------|------------|
| **Period Ended June 30, 2005**       | ** ** | ** **  | ** ** | ** **         | ** ** | ** **           | ** ** | ** **          | ** ** |        | ** ** | ** **     |       |      | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Revenues                                  |       | $           | —     |               | $          | 155                  |       |                | $          | —      |       |           |       | $         | —     | ** ** |   |   | $ | — | ** ** |   | $ | — |   | $ | 155 |   |
| Property and equipment—net           |       | —      |       | 397                |       |                 | —     |                |       |        | —     | ** **     |       |      | —     | ** ** |   | — |   | 397 |   |
| **Fiscal  Year Ended June 30, 2006** | ** ** | ** **  | ** ** | ** **         | ** ** | ** **           | ** ** | ** **          | ** ** |        | ** ** | ** **     |       |      | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Revenues                                  |       | $           | 23,924     |               | $          | 31,018               |       |                | $          | 11,301      |       |           |       | $         | 8,760      | ** ** |   |   | $ | 9,438 | ** ** |   | $ | 10,643 |   | $ | 95,084 |   |
| Property and equipment—net           |       | 10,754      |       | 12,901             |       |                 | 487        |                |       |        | 3,949      | ** **     |       |      | 8,088      | ** ** |   | 2,106 |   | 38,285 |   |
| **Fiscal  Year Ended June 30, 2007** | ** ** | ** **  | ** ** | ** **         | ** ** | ** **           | ** ** | ** **          | ** ** |        | ** ** | ** **     |       |      | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Revenues                                  |       | $           | 118,955    |               | $          | 146,392              |       |                | $          | 56,898      |       |           |       | $         | 50,814     | ** ** |   |   | $ | 46,220 | ** ** |   | $ | 52,681 |   | $ | 471,960 |   |
| Property and  equipment—net          |       | 6,003       |       | 26,214             |       |                 | 311        |                |       |        | 8,149      | ** **     |       |      | 8,269      | ** ** |   | 2,539 |   | 51,485 |   |

 

*                     Excludes the Netherlands, the UnitedKingdom and Germany.

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**16.****          QUARTERLYFINANCIAL RESULTS (UNAUDITED)**

Summarizedquarterly results of the Company’s continuing operations for the two fiscalyears ended June 30, 2007 and 2006 are as follows:

| **Year Ended June 30, 2007**                            | ** ** | ** ** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| Revenues                                                                    |       | $          | 111,482    |               | $          | 116,237             |       | $                  | 121,701    |                | $          | 122,540 |   |
| Allocated cost of revenues                                                  |       | 70,199     |       | 72,059             |       | 72,832              |       | 74,472             |       |
| Gross profit                                                                |       | 41,283     |       | 44,178             |       | 48,869              |       | 48,068             |       |
| Net loss                                                                    |       | (17,890    | )          | (11,978            | )          | (9,751              | )          | (41,287            | )          |
| Dividends and  redeemable preferred unit accretion                          |       | 4,191      |       | 4,276              |       | 4,267               |       | 1,880              |       |
| Net loss  allocable to common stockholders/unitholders                      |       | $          | (22,081    | )                  | $          | (16,254             | )          | $                  | (14,018    | )                   | $          | (43,167 | ) |
| Net loss  allocable to common stockholders/unitholders per share/unit: |       |       |       |               |       |                |       |               |       |
| Basic and Diluted                                                           |       | $          | (0.76      | )                  | $          | (0.56               | )          | $                  | (0.48      | )                   | $          | (0.90 | ) |

 

| **Year Ended June 30, 2006**                            | ** ** | ** ** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| Revenues                                                                    |       | $          | 288        |               | $          | 346                 |       | $                  | 343        |                | $          | 94,107 |   |
| Allocated cost of revenues                                                  |       | 550        |       | 449                |       | 495                 |       | 63,021             |       |
| Gross profit/(loss)                                                         |       | (262       | )          | (103               | )          | (152                | )          | 31,086             |       |
| Net loss                                                                    |       | (721       | )          | (799               | )          | (824                | )          | (16,543            | )          |
| Dividends and  redeemable preferred unit accretion                          |       | 21         |       | 21                 |       | 21                  |       | 88,725             |       |
| Net loss  allocable to common stockholders/unitholders                      |       | $          | (742       | )                  | $          | (820                | )          | $                  | (846       | )                   | $          | (105,268 | ) |
| Net loss  allocable to common stockholders/unitholders per share/unit: |       |       |       |               |       |                |       |               |       |
| Basic and Diluted                                                           |       | $          | (0.05      | )                  | $          | (0.06               | )          | $                  | (0.06      | )                   | $          | (3.90 | ) |

 

108

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**INDEPENDENTAUDITORS’ REPORT**

To the Board of Managers ofSolera Holdings, LLCSan Ramon, California

We have audited the accompanying combined balancesheets of Claims Services Group (entities commonly controlled by Automatic DataProcessing, Inc.) (the “Company”) as of June 30, 2004 and 2005, andthe related combined statements of earnings, group equity, and cash flows forthe years ended June 30, 2004 and 2005 and for the period fromJuly 1, 2005 through April 13, 2006. These financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditingstandards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, suchcombined financial statements present fairly, in all material respects, thefinancial position of the Claims Services Group as of June 30, 2004 and2005, and the results of its operations and its cash flows for the years endedJune 30, 2004 and 2005 and for the period from July 1, 2005 throughApril 13, 2006, in conformity with accounting principles generallyaccepted in the United States of America.

/s/ DELOITTE &TOUCHE LLPSan Jose, CaliforniaFebruary 12, 2007

109

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**CLAIMS SERVICES GROUPCOMBINED BALANCE SHEETSAS OF JUNE 30, 2004 AND 2005(In thousands)**

| ** **                                       | ** ** | **2004** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| **ASSETS**                                       |       |     |       |     |       |
| CURRENT ASSETS:                                  |       |     |       |     |       |
| Cash and cash equivalents                        |       | $        | 107,824    |     | $          | 121,313 |   |
| Cash in escrow                                   |       | 6,056    |       | 1,853    |       |
| Accounts receivable—net                     |       | 58,511   |       | 69,114   |       |
| Other current assets                             |       | 12,424   |       | 12,229   |       |
| Deferred income taxes                            |       | 8,126    |       | 7,738    |       |
| Notes receivable from affiliated parties         |       | —   |       | 2,825    |       |
| Assets of discontinued operations                |       | 2,848    |       | 199      |       |
| Total current assets                             |       | 195,789  |       | 215,271  |       |
| PROPERTY AND  EQUIPMENT—Net                 |       | 37,641   |       | 33,456   |       |
| OTHER ASSETS                                     |       | 1,836    |       | 352      |       |
| NOTES RECEIVABLE  FROM AFFILIATED PARTIES        |       | 2,875    |       | 14,166   |       |
| DEFERRED INCOME  TAXES                           |       | 547      |       | 561      |       |
| GOODWILL                                         |       | 149,152  |       | 156,009  |       |
| INTANGIBLE  ASSETS—Net                      |       | 168,929  |       | 188,250  |       |
| TOTAL                                            |       | $        | 556,769    |     | $          | 608,065 |   |
| **LIABILITIES AND GROUP EQUITY**                 |       |     |       |     |       |
| CURRENT LIABILITIES:                             |       |     |       |     |       |
| Accounts payable                                 |       | $        | 15,877     |     | $          | 23,513 |   |
| Accrued expenses and other current liabilities   |       | 78,966   |       | 83,861   |       |
| Income taxes payable                             |       | 13,504   |       | 21,736   |       |
| Deferred income taxes                            |       | 4,438    |       | 3,935    |       |
| Notes payable to affiliated parties              |       | 799      |       | 14,080   |       |
| Liabilities of discontinued operations           |       | 4,841    |       | 195      |       |
| Total current liabilities                        |       | 118,425  |       | 147,320  |       |
| OTHER LIABILITIES                                |       | 1,556    |       | 1,590    |       |
| DEFERRED INCOME  TAXES                           |       | 50,621   |       | 47,138   |       |
| DEFERRED REVENUES                                |       | 1,220    |       | 2,839    |       |
| NOTES PAYABLE TO  AFFILIATED PARTIES             |       | 4,285    |       | 3,231    |       |
| Total liabilities                                |       | 176,107  |       | 202,118  |       |
| MINORITY  INTERESTS IN CONSOLIDATED SUBSIDIARIES |       | 4,276    |       | 6,665    |       |
| GROUP EQUITY                                     |       | 376,386  |       | 399,282  |       |
| TOTAL                                            |       | $        | 556,769    |     | $          | 608,065 |   |

 

 

See notes to combined financial statements.

110

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**CLAIMS SERVICES GROUPSTATEMENTS OF COMBINED EARNINGSYEARS ENDED JUNE 30, 2004 AND 2005 ANDPERIOD FROM JULY 1, 2005 THROUGH APRIL 13, 2006(In thousands)**

| ** **                                                                                                                                                                     | ** ** | **Years Ended June 30** | ** ** | **Period from  July 1, 2005  through ** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                                                                     | ** ** | **2004**                               | ** ** | **2005**                                                    | ** ** | **April 13, 2006** | ** ** |
| Revenues                                                                                                                                                                       |       | $                                      | 361,179    |                                                        | $          | 412,355 |   |   | $ | 335,146 |   |   |
| Operating  expenses                                                                                                                                                            |       | 107,590                                |       | 117,361                                                     |       |   | 101,995 |   |   |
| Selling, general  and administrative expenses                                                                                                                                  |       | 94,757                                 |       | 112,480                                                     |       |   | 87,033 |   |   |
| Systems  development and programming costs                                                                                                                                     |       | 57,465                                 |       | 62,690                                                      |       |   | 52,306 |   |   |
| Depreciation and  amortization                                                                                                                                                 |       | 28,754                                 |       | 34,335                                                      |       |   | 28,894 |   |   |
| Restructuring  charges (benefit)                                                                                                                                               |       | 1,740                                  |       | 5,512                                                       |       |   | (468 | ) |   |
| Impairment  charges                                                                                                                                                            |       | 4,214                                  |       | —                                                      |       |   | — |   |   |
| Interest expense                                                                                                                                                               |       | 271                                    |       | 334                                                         |       |   | 318 |   |   |
| Other (income)  expense—net                                                                                                                                               |       | (1,323                                 | )          | (4,065                                                      | )          |   | (3,069 | ) |   |
| Total operating  expenses                                                                                                                                                      |       | 293,468                                |       | 328,647                                                     |       |   | 267,009 |   |   |
| Earnings from  continuing operations before provision for income taxes, minority interests,  and loss (income) from discontinued operations, net of benefit from income  taxes |       | 67,711                                 |       | 83,708                                                      |       |   | 68,137 |   |   |
| Provision for  income taxes                                                                                                                                                    |       | 22,124                                 |       | 24,030                                                      |       |   | 23,688 |   |   |
| Minority  interests in net income of combined subsidiaries                                                                                                                     |       | 1,229                                  |       | 1,909                                                       |       |   | 3,468 |   |   |
| Earnings from  continuing operations before loss (income) from discontinued operations, net  of benefit from income taxes                                                      |       | 44,358                                 |       | 57,769                                                      |       |   | 40,981 |   |   |
| Loss (income)  from discontinued operations, net of benefit from income taxes of $4,828 and  $82 for the years ended June 30, 2004 and 2005, respectively                 |       | (3,816                                 | )          | 128                                                         |       |   | — |   |   |
| Net earnings                                                                                                                                                                   |       | $                                      | 48,174     |                                                        | $          | 57,641 |   |   | $ | 40,981 |   |   |

 

 

See notes to combined financial statements

111

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**CLAIMS SERVICES GROUPSTATEMENTS OF COMBINED GROUP EQUITYYEARS ENDED JUNE 30, 2004 AND 2005 ANDPERIOD FROM JULY 1, 2005 THROUGH APRIL 13, 2006(In thousands)**

| ** **                                                | ** ** | **Group  Equity** | ** ** | **Comprehensive  Income** | ** ** |
|-----------------------------------------------------------|------------|-------------------|------------|---------------------------|------------|
| BALANCE—July 1,  2003                           |       | $                 | 228,307    |                      |       | $ | — |   |   |
| Net earnings                                              |       | 48,174            |       |                      | 48,174     |   |   |
| Foreign currency translation adjustments                  |       | 2,059             |       |                      | 2,059      |   |   |
| Minimum pension liability adjustment, net of tax of  $(6) |       | 14                |       |                      | 14         |   |   |
| Comprehensive income                                      |       |              |       |                      | $          | 50,247 |   |   |
| Dividends paid                                            |       | (26,277           | )          |                      |       |   |   |
| Advances from Parent and affiliates                       |       | 124,109           |       |                      |       |   |   |
| BALANCE—June 30,  2004                          |       | 376,386           |       |                      |       |   |   |
| Net earnings                                              |       | 57,641            |       |                      | $          | 57,641 |   |   |
| Foreign currency translation adjustments                  |       | 10,853            |       |                      | 10,853     |   |   |
| Minimum pension liability adjustment, net of tax of  $357 |       | (591              | )          |                      | (591       | ) |   |
| Comprehensive income                                      |       |              |       |                      | $          | 67,903 |   |   |
| Dividends paid                                            |       | (21,276           | )          |                      |       |   |   |
| Returns to Parent and affiliates                          |       | (23,731           | )          |                      |       |   |   |
| BALANCE—June 30,  2005                          |       | 399,282           |       |                      |       |   |   |
| Net earnings                                              |       | 40,981            |       |                      | $          | 40,981 |   |   |
| Foreign currency translation adjustments                  |       | (997              | )          |                      | (997       | ) |   |
| Comprehensive income                                      |       |              |       |                      | $          | 39,984 |   |   |
| Dividends paid                                            |       | (91,043           | )          |                      |       |   |   |
| Returns to Parent and affiliates                          |       | 15,741            |       |                      |       |   |   |
| BALANCE—April 13,  2006                         |       | $                 | 363,964    |                      |       |   |   |   |

 

 

See notes to combined financial statements.

112

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**CLAIMS SERVICES GROUPSTATEMENTS OF COMBINED CASH FLOWS**

**YEARSENDED JUNE 30, 2004 AND 2005 AND**

**PERIODFROM JULY 1, 2005 THROUGH APRIL 13, 2006**

**(In thousands)**

| ** **                                                                                                      | ** ** | **Years Ended June 30** | ** ** | **Period from  July 1, 2005  through** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **2004**                               | ** ** | **2005**                                              | ** ** | **April 13, 2006** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                           |       |                                   |       |                                                  |       |   |   |   |   |
| Net earnings                                                                                                    |       | $                                      | 48,174     |                                                  | $          | 57,641 |   |   | $ | 40,981 |   |   |
| Adjustments to reconcile  net earnings to net cash flows provided by operating activities:                      |       |                                   |       |                                                  |       |   |   |   |   |
| Loss from  discontinued operations, net of tax                                                                  |       | 3,845                                  |       | 128                                                   |       |   | — |   |   |
| Gain on disposal  of discontinued operations, net of tax                                                        |       | (7,661                                 | )          | —                                                |       |   | — |   |   |
| Depreciation and  amortization                                                                                  |       | 28,754                                 |       | 34,335                                                |       |   | 28,894 |   |   |
| Deferred income  taxes                                                                                          |       | (2,114                                 | )          | (5,989                                                | )          |   | (1,629 | ) |   |
| Restricted stock  compensation expense                                                                          |       | 268                                    |       | 476                                                   |       |   | 7,443 |   |   |
| Minority interests  in net income of consolidated subsidiaries                                                  |       | 1,229                                  |       | 1,909                                                 |       |   | 3,468 |   |   |
| Provision for  doubtful accounts                                                                                |       | 644                                    |       | 1,313                                                 |       |   | 981 |   |   |
| Impairment of  intangible assets                                                                                |       | 4,214                                  |       | —                                                |       |   | — |   |   |
| Other                                                                                                           |       | 164                                    |       | 778                                                   |       |   | 130 |   |   |
| Net change in  assets and liabilities of discontinued operations                                                |       | (1,620                                 | )          | (1,997                                                | )          |   | — |   |   |
| Changes in operating  assets and liabilities, net of effects from acquisitions and divestitures of  businesses: |       |                                   |       |                                                  |       |   |   |   |   |
| Receivables                                                                                                     |       | (4,890                                 | )          | (4,957                                                | )          |   | (5,157 | ) |   |
| Other assets                                                                                                    |       | (2,064                                 | )          | 540                                                   |       |   | (1,250 | ) |   |
| Accounts payable                                                                                                |       | (2,731                                 | )          | 7,335                                                 |       |   | (12,811 | ) |   |
| Accrued expenses  and other liabilities                                                                         |       | 5,634                                  |       | 9,682                                                 |       |   | (4,047 | ) |   |
| Income taxes  payable                                                                                           |       | 2,171                                  |       | 5,646                                                 |       |   | (5,680 | ) |   |
| Net cash flows  provided by operating activities                                                                |       | 74,017                                 |       | 106,840                                               |       |   | 51,325 |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                           |       |                                   |       |                                                  |       |   |   |   |   |
| Capital  expenditures                                                                                           |       | (15,980                                | )          | (7,659                                                | )          |   | (9,671 | ) |   |
| Additions to  intangibles                                                                                       |       | (10,306                                | )          | (9,451                                                | )          |   | (6,922 | ) |   |
| Acquisitions of  businesses, net of cash acquired                                                               |       | (116,788                               | )          | (36,456                                               | )          |   | (3,403 | ) |   |
| Cash paid from  (deposited in) escrow account for acquisitions of businesses                                    |       | (6,056                                 | )          | 4,203                                                 |       |   | 1,853 |   |   |
| Proceeds from the  sale of businesses                                                                           |       | 5,369                                  |       | —                                                |       |   | — |   |   |
| Disbursements for  notes receivable from affiliated parties                                                     |       | (917                                   | )          | (14,345                                               | )          |   | (17,311 | ) |   |
| Proceeds from  notes receivable from affiliated parties                                                         |       | 2,994                                  |       | 229                                                   |       |   | 16,991 |   |   |
| Other                                                                                                           |       | 456                                    |       | 504                                                   |       |   | — |   |   |
| Net cash flows  used in investing activities                                                                    |       | (141,228                               | )          | (62,975                                               | )          |   | (18,464 | ) |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                           |       |                                   |       |                                                  |       |   |   |   |   |
| Additions to notes  payable to affiliated parties                                                               |       | 899                                    |       | 14,686                                                |       |   | — |   |   |
| Payments on notes  payable to affiliated parties                                                                |       | (29                                    | )          | (2,459                                                | )          |   | — |   |   |
| Net (returns)  advances of investments to Parent and affiliates                                                 |       | 121,606                                |       | (24,320                                               | )          |   | 8,256 |   |   |
| Cash dividends  paid to Parent and affiliates                                                                   |       | (26,277                                | )          | (21,276                                               | )          |   | (91,043 | ) |   |
| Net cash flows  (used in) provided by financing activities                                                      |       | 96,199                                 |       | (33,369                                               | )          |   | (82,787 | ) |   |
| EFFECT OF EXCHANGE  RATE CHANGES ON CASH AND CASH EQUIVALENTS                                                   |       | 1,950                                  |       | 2,993                                                 |       |   | 6,741 |   |   |
| NET CHANGE IN CASH  AND CASH EQUIVALENTS                                                                        |       | 30,938                                 |       | 13,489                                                |       |   | (43,185 | ) |   |
| CASH AND CASH  EQUIVALENTS—Beginning of period                                                             |       | 76,886                                 |       | 107,824                                               |       |   | 121,313 |   |   |
| CASH AND CASH  EQUIVALENTS—End of period                                                                   |       | $                                      | 107,824    |                                                  | $          | 121,313 |   |   | $ | 78,128 |   |   |
| SUPPLEMENTAL DISCLOSURE  OF CASH FLOW INFORMATION:                                                              |       |                                   |       |                                                  |       |   |   |   |   |
| Cash payments made  for interest                                                                                |       | $                                      | 745        |                                                  | $          | 862 |   |   | $ | — |   |   |
| Cash payments made  for income taxes                                                                            |       | $                                      | 11,651     |                                                  | $          | 13,329 |   |   | $ | 13,940 |   |   |

 

 

See notes to combined financial statements.

113

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**CLAIMS SERVICESGROUP NOTES TO COMBINED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2004 AND 2005 AND**

**PERIODFROM JULY 1, 2005 THROUGH APRIL 13, 2006**

**(In thousands,except per share and share amounts)**

**1.**   ORGANIZATIONAND BASIS OF PRESENTATION

***Description of Business***—TheClaims Services Group (the “Company”) of Automatic Data Processing, Inc.(“ADP” or the “Parent”) provides software and services to the automobileinsurance claims processing industry. The Company classifies its operationsinto the following reportable segments: Automotive Claims Services, Audatex,ADP Business Services, and Other. Automotive Claims Services provides insuranceclaims management and collision repair management in North America. Audatexprovides insurance claims management and collision repair management in Europe,South America, South Africa and Asia. ADP Business Services provides servicesthat help the financial industry and related businesses to streamlineend-to-end processes used in property claims, risk management and distributionin the Netherlands.

***Basis of Preparation***—Thecombined financial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America. These financialstatements present the combined financial position and results of operations ofthe Company, which are under common control and common management. Thehistorical financial results in the combined financial statements presented maynot be indicative of the results that would have been achieved had the Companyoperated as a separate, stand-alone entity. The combined financial statementsinclude all adjustments necessary for a fair presentation of the business andall intercompany balances and transactions of the Company have been eliminated.

Theaccompanying combined financial statements include the accounts of the Company,which include the following entities owned directly or indirectly, by theCompany: 

| **Entity**                                           | ** ** | ** ** | ** ** | **Ownership** | ** ** | **Location**   | ** ** |
|------------------------------------------------------|------------|------------|------------|---------------|------------|----------------|------------|
| ADP Claims Solutions  Group, Inc.               |       |       | 100        | %             |       | United States  |       |
| Collision Repair  Business Management LLP            |       |       | 100        | %             |       | United States  |       |
| ADP Hollander Inc.                                   |       |       | 100        | %             |       | United States  |       |
| Integrated Medical  Solutions, Inc.             |       |       | 100        | %             |       | United States  |       |
| Sidexa S.A. (France)                                 |       |       | 75         | %             |       | France         |       |
| Audatex Developpement  France SAS                    |       |       | 100        | %             |       | France         |       |
| Audatex Holding GmbH  (Swiss)                        |       |       | 100        | %             |       | Switzerland    |       |
| Audatex Osterreich GmbH  (Austria)                   |       |       | 100        | %             |       | Austria        |       |
| Informex S.A. (Belgium)                              |       |       | 98         | %             |       | Belgium        |       |
| Audatex Brasil Servicos  Ltda.                       |       |       | 100        | %             |       | Brazil         |       |
| Audatex Ceska Republica a.s. (fka Mobil Data a.s.)   |       |       | 100        | %             |       | Czech Republic |       |
| Audatex Deutschland  Datenverarbeitungs GmbH         |       |       | 100        | %             |       | Germany        |       |
| Audatex Daten  Internationale Datenentwicklungs GmbH |       |       | 100        | %             |       | Germany        |       |
| Audatex (UK) Limited                                 |       |       | 100        | %             |       | United Kingdom |       |
| Audatex Magyarorszag  Kft. (Hungary)                 |       |       | 100        | %             |       | Hungary        |       |
| Audatex Espana S.A.                                  |       |       | 75         | %             |       | Spain          |       |
| Audatex Datos Espana S.A.                            |       |       | 88         | %             |       | Spain          |       |
| Audatex Polska Sp. Zoo.                              |       |       | 100        | %             |       | Poland         |       |

114

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| Audatex Portugal S.A.                         |   |   | 51  | % |   | Portugal     |   |
|-----------------------------------------------|--------|--------|-----|---|--------|--------------|--------|
| Audatex S.A. (Pty) Ltd.                       |   |   | 100 | % |   | South Africa |   |
| Audatex Systems GmbH  (Swiss)                 |   |   | 100 | % |   | Switzerland  |   |
| Audatex GmbH (Swiss)                          |   |   | 100 | % |   | Switzerland  |   |
| Audatex Schweiz GmbH                          |   |   | 100 | % |   | Switzerland  |   |
| ADP Network Services  Netherlands BV          |   |   | 100 | % |   | Netherlands  |   |
| OOO Audatex (Russia)                          |   |   | 100 | % |   | Russia       |   |
| Audatex Mexico S. De  R.L. de C.V.            |   |   | 51  | % |   | Mexico       |   |
| Audatex Slovakia s.r.o.                       |   |   | 100 | % |   | Slovakia     |   |
| Audatex Ukraine LLC                           |   |   | 100 | % |   | Ukraine      |   |
| ADP Business Services  Group BV (Netherlands) |   |   | 100 | % |   | Netherlands  |   |
| ADP Business Services  Nerland BV             |   |   | 100 | % |   | Netherlands  |   |
| ABZ BV                                        |   |   | 100 | % |   | Netherlands  |   |
| ADP Business Services  International BV (D)   |   |   | 100 | % |   | Netherlands  |   |
| EBZ BV                                        |   |   | 100 | % |   | Netherlands  |   |
| ADP Claims Services (BV)                      |   |   | 100 | % |   | Netherlands  |   |
| Audatex Italia s.r.l.                         |   |   | 100 | % |   | Italy        |   |
| ArgeMu GmBH                                   |   |   | 100 | % |   | Germany      |   |
| Audatex Services SRL  (Romania)               |   |   | 100 | % |   | Romania      |   |

 

Inaddition to the above entities, the accompanying historical financialstatements include the assets, liabilities and operations of a Canadianinsurance claims management and collision repair management business, which arepart of the Company.

Theaccompanying historical financial statements are presented on a carve-out basisand reflect the assets, liabilities, revenues and expenses that were directlyattributable to the Company as it was operated within ADP. Each of the abovesubsidiaries or divisions maintains a separate general ledger and all businessactivities relate to the Company.

Thegroup equity balances on the combined balance sheets are comprised of theretained earnings of the Company, foreign currency translation adjustments,dividends paid, and advances from (returns to) Parent and affiliates. Theadvances from (returns to) Parent and affiliates consist of the receivables andpayables for transactions with ADP and its affiliates as well as transactionsthat are settled by the Parent on behalf of the Company. The receivables andpayables within group equity on the combined balance sheets include, but arenot limited to, transactions relating to insurance programs, domestic severanceliability, services received from affiliated companies, services provided toaffiliated companies and income taxes.

Thecombined financial statements include costs for facilities, functions andservices used by the Company at shared ADP sites and costs for certainfunctions and services performed by centralized ADP organizations and directlycharged to the Claims Services Business based on usage. The Company’s combinedfinancial statements include the following transactions with ADP or itsaffiliates:

***Corporate Overhead Expenses***—The Company’sstatements of combined earnings include an allocation of certain generalcorporate expenses of ADP, which were in support of the Claims Services Group,including departmental costs for information technologies, travel, treasury,tax, internal audit, risk management, real estate, benefits and other corporateand infrastructure costs. The Company was allocated $1,571, $1,551, and $750 ofthese overhead costs related to ADP’s shared functions for the years endedJune 30, 2004 and 2005 and for the period from July 1, 2005 through April 13,2006, respectively, which are primarily reported in selling, general andadministrative expenses. These allocations were based on a variety of factors.The cost for information technology support is allocated based on the usage ofthe information technology systems by the Company in relation to ADP’s totalusage. The allocation of the travel department costs is based on the estimatedpercentage of travel directly related to the Company. 

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The allocation of the treasury department costs is acombination of an estimated percentage of support staff time and bank servicecharges that are directly related to the Company’s activities. The allocationof the internal audit department costs is based on the internal audit hoursincurred for the Company in relation to ADP’s total internal audit hours. Theallocation of the risk management department costs is based on the estimatedpercentage of insurance coverage for the Claims Services Group in relation toADP’s total insurance coverage. The allocation of the real estate departmentcosts is based on the number of leased facilities for the Company managed bythe corporate real estate department in relation to ADP’s total leasedfacilities. All other allocations are based on an estimated percentage ofsupport staff time related to the Company in comparison to ADP as a whole.

***Insurance Allocation***—ADP retains much of thefinancial risk for insuring property, workers’ compensation, automobileliability, commercial general liability insurance and employee group health claims.The Company is charged with the insurance premiums and other related programcosts, as well as the estimated amount of losses to be incurred in therespective policy period. Liabilities related to these insurance plans have notbeen allocated to the Company and therefore are included in group equity on thecombined balance sheets. The Company was allocated $4,393, $4,369 and $6,276 ofthese insurance costs the years ended June 30, 2004 and 2005 and for theperiod from July 1, 2005 through April 13, 2006, respectively. Theportion of the allocated costs that are reported as operating expenses are$1,455, $1,653 and $2,421 for the years ended June 30, 2004 and 2005 andfor the period from July 1, 2005 through April 13, 2006, respectively.The portion of allocated costs that are reported as selling, general andadministrative expenses are $1,914, $1,663 and $2,333 for years endedJune 30, 2004 and 2005 and for the period from July 1, 2005 throughApril 13, 2006, respectively. The portion of allocated costs that arereported as systems and programming expenses are $532, $1,053 and $1,522 forthe years ended June 30, 2004 and 2005, and for the period fromJuly 1, 2005 through April 13, 2006, respectively. For the year endedJune 30, 2004, $492 of allocated costs are reported within the loss(income) from discontinued operations. Property, workers’ compensation,automobile liability and commercial general liability insurance costallocations include insurance program costs and retained losses. Employee grouphealth costs have been allocated to the Company based on the number ofCompany’s employees participating in the plans in relation to the total numberof ADP employees participating in these plans.

***Stock Compensation and Pension Plans***—Certainemployees of the Company are eligible to participate in certain ADP stockcompensation plans. In addition, certain employees of the Company are coveredby ADP’s defined benefit and defined contribution plans (Note 12).

***Royalty Fees***—The statements of combined earningsinclude trademark royalty fees charged by ADP to the Company based on revenuesfor licensing fees associated with the use of the ADP trademark. The Companywas charged $752, $811 and $587 for the years ended June 30, 2004 and 2005and for the period from July 1, 2005 through April 13, 2006,respectively, for such trademark royalty fees. The portion of the allocatedcosts that are reported as operating expenses are $737, $811 and $587 for theyears ended June 30, 2004 and 2005 and for the period from July 1, 2005through April 13, 2006, respectively. The portion of allocated costs thatare reported within the loss (income) from discontinued operations is $15 forthe year ended June 30, 2004.

***Facilities***—The Company conducts its business incertain facilities that are being leased from various affiliated companies. TheCompany is charged rent based on the square footage being leased from theaffiliated companies. Rental expense of facilities leased from affiliatedcompanies were $1,347, $1,367 and $1,036 for the years ended June 30, 2004and 2005 and for the period from July 1, 2005 through April 13, 2006,respectively, and are included within selling, general and administrativeexpenses. In addition, certain affiliates of ADP utilize certain leased spaceat Company’s facilities. The Company charges rent to ADP based on the squarefootage being leased by the affiliated companies. Rental income from the spaceleased by ADP’s affiliates was $0, $77 and $61 for the years endedJune 30, 2004 and 2005 and for the period from 

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July 1, 2005 through April 13, 2006,respectively, which are included in and reduce selling, general andadministrative expenses.

***Services Received from Affiliated Companies***—TheCompany conducts business with various affiliated companies that are under thecontrol of ADP. Services purchased from affiliated companies primarily consistof services for the printing and distribution of manuals and compact discs toprovide to the Company’s customers for the use of products, services for thecollection and remittance of cash for certain of the Company’s productofferings and a fee per transaction charge for the access to certain cardealership information. Services from affiliated companies were $2,756, $2,810and $1,566 for the years ended June 30, 2004 and 2005 and for the periodfrom July 1, 2005 through April 13, 2006, respectively, and areincluded within operating expenses. The Company purchases services fromaffiliated companies at rates consistent with pricing to third parties.

***Services Provided to Affiliated Companies***—TheCompany has allocated expenses to ADP affiliates for certain generalbookkeeping services provided by the Company for an ADP affiliated entity. TheCompany allocated $26, $27 and $20 of these overhead costs to ADP for the yearsended June 30, 2004 and 2005 and for the period from July 1, 2005through April 13, 2006, respectively. All of these allocated costs reduceselling, general and administrative expenses.

***Notes Receivable from Affiliated Parties and Notes Payable toAffiliated Parties***—The amounts recorded in the combinedfinancial statements as notes receivable from affiliated parties and notespayable to affiliated parties represent amounts that are receivable from orpayable to affiliated parties under contractual arrangements. Interest incomeand interest expense on these transactions with affiliated companies aredisclosed in Note 11.

***Other Services***—The Company receives otherservices from ADP and its affiliates, including payroll processing services andthe use of information technology software for recruiting employees. TheCompany is primarily charged at a fixed rate per employee per month for suchpayroll processing services and based on usage for the information technologysoftware. Net expense incurred for such services was $437, $654 and $495 forthe years ended June 30, 2004 and 2005 and for the period fromJuly 1, 2005 through April 13, 2006, respectively, and is included inthe statements of combined earnings primarily as selling, general andadministrative expenses.

**2.**   SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

***Cash and Cash Equivalents***—The Company’s cash andcash equivalents are primarily comprised of cash in its international bankaccounts. The Company’s domestic operations participate in ADP’s centralizedcash management program, where all cash in domestic bank accounts are swept toADP on a daily basis. All highly liquid debt instruments with originalmaturities of ninety days or less at the time of purchase are considered cashequivalents.

***Property and Equipment***—Property and equipment isstated at cost and depreciated over the estimated useful lives of the assetsusing the straight-line method. The estimated useful lives of assets are asfollows: 

| Buildings                  |   | 20 to 40 years                     |   |
|----------------------------|--------|------------------------------------|--------|
| Building  improvements     |   | 5 to 15 years                      |   |
| Leasehold  improvements    |   | Lesser of 10 years or  useful life |   |
| Data processing  equipment |   | 3 years                            |   |
| Furniture and  fixtures    |   | 4 to 7 years                       |   |
| Machinery and equipment    |   | 3 to 6 years                       |   |

 

***Goodwill and Other Intangible Assets***—The Companyaccounts for goodwill and other intangible assets in accordance with Statementof Financial Accounting Standards (“SFAS”) No. 142, *Goodwill and Other Intangible Assets*,which states that goodwill and intangible assets with indefinite useful livesshould not be amortized, but instead tested for impairment at least annually atthe reporting unit level. If an impairment 

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exists, a write-down to fair value (normally measuredby discounting estimated future cash flows) is recorded. Intangible assets withfinite lives are amortized primarily on a straight-line basis over theirestimated useful lives and are reviewed for impairment in accordance with SFASNo. 144, *Accounting for the Impairmentor Disposal of Long-Lived Assets* (“SFAS No. 144”).

***Impairment of Long-Lived Assets***—In accordancewith SFAS No. 144, long-lived assets are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be held and used ismeasured by a comparison of the carrying amount of an asset to estimatedundiscounted future cash flows expected to be generated by the asset. If thecarrying amount of an asset exceeds its estimated future cash flows, animpairment charge is recognized for the amount by which the carrying amount ofthe asset exceeds the fair value of the asset.

***Use of Estimates***—The preparation of financialstatements and related disclosures in conformity with accounting principlesgenerally accepted in the United States of America requires management to makejudgments, assumptions and estimates that affect the amounts reported in theCompany’s combined financial statements and accompanying notes. The Companybases its estimates and judgments on historical experience and on various otherassumptions that it believes are reasonable under the circumstances. However,future events are subject to change and estimates and judgments routinelyrequire adjustment. The amounts of assets and liabilities reported in theCompany’s balance sheets and the amounts of revenues and expenses reported foreach of its fiscal periods are affected by estimates and assumptions which areused for, but not limited to, the accounting for sales allowances, allowancefor doubtful accounts, fair value of derivatives, goodwill and intangible assetimpairments, amortization of intangibles, restructurings, liabilities underdefined benefit plans, stock based compensation and income taxes. Actualresults could differ from these estimates.

***Revenue Recognition***—A majority of the Company’srevenues are attributable to fees for providing services. The Company’scustomers are billed on a per-transaction basis and/or on a monthlysubscription basis. Revenues are recognized only after services are provided,when persuasive evidence of an arrangement exists, the fee is fixed anddeterminable, and when collectibility is reasonably assured.

Certainof the Company’s services are sold through a single contract with multipleelements, including database services, hardware, and maintenance. The Companyaccounts for revenue with multiple elements in accordance with Emerging IssuesTask Force Issue No. 00-21, *RevenueArrangements with Multiple Elements* (“EITF 00-21”). EITF 00-21provides guidance on (a) how arrangement consideration should be measured,(b) whether the arrangement should be divided into separate units ofaccounting, and (c) how the arrangement consideration should be allocatedamong separate units of accounting.

Certainof the Company’s services may require the Company to perform setup and implementationactivities necessary for the client to receive the Company’s services under theservice contract. Up-front fees billed during the setup phase are deferred andamortized on a straight-line basis over the estimated customer life. Setupcosts that are direct and incremental to the contract are capitalized andamortized on a straight-line basis over the estimated life of the customerrelationship.

Revenuesare reflected net of customer sales allowances, which are based on bothspecific identification of certain accounts and a predetermined percentage ofrevenue based on historical experience.

***Foreign Currency Translation***—The assets, revenuesand expenses of the Company’s foreign subsidiaries are translated into U.S.dollars at average exchange rates during the periods. Functional currencies ofsignificant foreign subsidiaries include: Euros, British pounds, Swiss francsand Canadian dollars. Currency transaction gains (losses), which are includedin the results of operations, totaled ($363), $872 and $383 for the years endedJune 30, 2004 and 2005 and for the period from July 1, 2005 throughApril 13, 2006, respectively. Gains or losses from balance sheettranslation are included in group equity within other comprehensive income onthe combined balance sheets.

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***Internal Use Software***—Expendituresfor software purchases and software developed or obtained for internal use arecapitalized and amortized over a three- to five-year period on a straight-linebasis. For software developed or obtained for internal use, the Companycapitalizes costs in accordance with the provisions of Statement of PositionNo. 98-1, *Accounting for theCosts of Computer Software Developed or Obtained for Internal Use*.The Company’s policy provides for the capitalization of external direct costsof materials and services associated with developing or obtaining internal usecomputer software. In addition, the Company also capitalizes certain payrolland payroll-related costs for employees who are directly associated withinternal use computer software projects. The amount of capitalizable payrollcosts with respect to these employees is limited to the time directly spent onsuch projects. Costs associated with preliminary project stage activities,training, maintenance and all other post-implementation stage activities areexpensed as incurred. The Company also expenses internal costs related to minorupgrades and enhancements, as it is impractical to separate these costs fromnormal maintenance activities.

***Income Taxes***—TheCompany’s operations are included in separate income tax returns filed with theappropriate taxing jurisdictions, except for U.S. federal and certain state andforeign jurisdictions in which the Company’s operations are included in theincome tax returns of the Parent or an affiliate.

The provision for income taxes on earnings fromcontinuing operations is computed as if the Company filed on a consolidatedstand-alone or separate tax return basis, as applicable. The provision forincome taxes on earnings from continuing operations does not reflect theCompany’s inclusion in the tax returns of the Parent or an affiliate. Certainincome taxes of the Company are paid by the Parent or an affiliate on behalf ofthe Company. The payment of income taxes by the Parent or affiliate on behalfof the Company is recorded within group equity on the combined balance sheets.

Deferred income taxes and related tax expense havebeen recorded by applying the asset and liability approach to the Company as ifit was a separate taxpayer. Deferred tax liabilities and assets are recognizedfor the expected future tax consequences of events that have been reflected inthe combined financial statements. Deferred tax liabilities and assets aredetermined based on the differences between the book values and the tax basesof the particular assets and liabilities, using enacted tax rates and laws ineffect for the years in which the differences are expected to reverse. Avaluation allowance is provided when the Company determines that it is morelikely than not that a portion of the deferred tax asset balance will not berealized.

***Fair Value Accounting for StockPlans***—As an operating unit of ADP, certain employees ofthe Company (a) have been granted stock options to purchase common sharesin ADP’s stock option program, (b) have been granted restricted stockunder which shares of common stock have been sold to the employees for nominalconsideration, and (c) participate in ADP’s stock purchase plan underwhich employees have the ability to purchase shares of common stock at 85% ofthe lower of market value as of the date of purchase or as of the end of thestock purchase plan period.

As discussed in Note 12, ADP adopted SFASNo. 123(R), *Share-Based Payment*(“SFAS No. 123(R)”), effective July 1, 2005, using the modifiedprospective method. Accordingly, prior-period amounts have not been restated.The adoption of this standard requires the measurement of stock-basedcompensation expense based on the fair value of the award on the date of grant.Prior to July 1, 2005, ADP followed Accounting Principles Board OpinionNo. 25, *Accounting for Stock Issued toEmployees* (“APB No. 25”), and related interpretations. UnderAPB No. 25, no stock-based compensation expense was recognized related tothe Company’s stock option program and employee stock purchase plan, as alloptions granted under the stock option program had an exercise price equal tothe market value of the underlying common stock on the date of grant and, withrespect to the employee stock purchase plan, the discount did not exceed 15%.

***Fair Value of FinancialInstruments***—The Company’s financial instruments,including cash equivalents, accounts receivable, short-term notes receivablefrom affiliated parties, accounts payable and short-term 

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notes payable toaffiliated parties are carried at cost, which approximates their fair value,due to the short-term maturities of these financial instruments. The Company’slong-term notes payable to affiliated parties approximate fair value as thenotes payable contain provisions that allow the Company to repay the loan atany time without penalty. The fair value of long-term notes receivable fromaffiliates is estimated by using a discount rate that approximates the currentrate for comparable notes.

***Certain Risks and Concentrations***—TheCompany offers a broad range of services to a diverse group of customersthroughout North America, Central and South America, Europe, the Middle East,South Africa and Asia. To reduce the credit risk, the Company performs periodiccredit evaluations of each customer and monitors their financial condition anddeveloping business news. The Company had no customers with sales exceeding 10%of total sales for the years ended June 30, 2004 and 2005 and for theperiod from July 1, 2005 to April 13, 2006.

**3.   OTHER (INCOME)EXPENSE—NET**

InterestIncome and other—net consists of the following: 

| ** **                                                                                  | ** ** | **Years Ended  June 30 ** | ** ** | **Period From  July 1, 2005  through** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2004 **                           | ** ** | **2005 **                                        | ** ** | **April 13, 2006 ** | ** ** |
| Interest income                                                                             |       |                                     | $          | (1,601                                                | )          |   | $ | (2,589 | ) |   | $ | (1,668 | ) |   |
| Interest income  on notes receivable from affiliated parties                                |       |                                     | (133       | )                                                     |       | (348 | ) |   | (998 | ) |   |
| Foreign exchange  (gain) loss on notes receivable and notes payable from affiliated parties |       |                                     | 363        |                                                  |       | (872 | ) |   | (383 | ) |   |
| Other                                                                                       |       |                                     | 48         |                                                  |       | (256 | ) |   | (20 | ) |   |
| Other (income)  expense—net                                                            |       |                                     | $          | (1,323                                                | )          |   | $ | (4,065 | ) |   | $ | (3,069 | ) |   |

 

**4.   PURCHASE OF THECOMPANY BY SOLERA, INC.**

On April 13, 2006,Solera, Inc., a subsidiary of Solera Holdings, LLC completed its purchaseof the Company from ADP for approximately $1.0 billion, includingtransaction costs.

**5.   ACQUISITIONS**

Assets acquired and liabilities assumed in businesscombinations were recorded on the Company’s combined balance sheets as of therespective acquisition dates based upon their estimated fair values at suchdates. The results of operations of businesses acquired by the Company havebeen included in the Company’s statements of combined earnings since theirrespective dates of acquisition. The excess of the purchase price over theestimated fair values of the underlying assets acquired and liabilities assumedwas allocated to goodwill.

The Company acquired two businesses in the period fromJuly 1, 2005 to April 13, 2006 for approximately $3,403, net of cashacquired. These acquisitions resulted in approximately $4,095 of goodwill.Intangible assets acquired, which totaled approximately $632, consist ofcustomer contracts and lists that are being amortized over a weighted averagelife of 10 years. In addition, during the period from July 1, 2005 toApril 13, 2006, the Company did not make any contingent payments relatingto previously consummated acquisitions. Such acquisitions for the period fromJuly 1, 2005 to April 13, 2006 were not material to the Company’soperations, financial position or cash flows.

The Company acquired one business in the year endedJune 30, 2005 for approximately $31,486, net of cash acquired. Thisacquisition resulted in approximately $19,127 of goodwill. Intangible assetsacquired, 

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which totaledapproximately $6,942, consist of customer contracts and lists that are beingamortized over a weighted average life of 10 years. In addition, duringthe year ended June 30, 2005, the Company made $4,970 of contingentpayments relating to previously consummated acquisitions. As of June 30,2005, the Company had contingent consideration remaining for all transactions ofapproximately $2,239, which is payable over the next year, subject to theacquired entity’s achievement of specified revenue, earnings and/or developmenttargets. The acquisition discussed above for the year ended June 30, 2005was not material to the Company’s operations, financial position or cash flows.

In January 2004, the Company acquired ABZ GroupB.V. (“ABZ”) for approximately $115,765, net of cash acquired. ABZ providesservices that help the financial industry and related businesses to streamlineend-to-end processes used in property claims, risk management and distribution.The Company formed the ADP Business Services segment to report the results ofthe acquired business. This acquisition resulted in approximately $82,447 ofgoodwill. Intangible assets acquired, which totaled approximately $59,340,consist primarily of software and customer contracts and lists that are beingamortized over a weighted average life of 11 years. In connection with theacquisition of ABZ, the Company deposited cash in an escrow account forcontingent payments relating to the acquisition, which has been utilized tosettle the final purchase consideration in succeeding periods. The balance ofthe escrow account is $6,056 and $1,853 at June 30, 2004 and 2005, respectively,and is included in cash in escrow on the combined balance sheets.

In addition to theacquisition of ABZ in the year ended June 30, 2004, the Company made$1,023 of contingent payments relating to previously consummated acquisitions.

**6.   RESTRUCTURING CHARGES**

TheCompany recorded restructuring charges of $1,740, $5,512 for the years endedJune 30, 2004 and 2005, respectively, and a release of restructuringaccruals of $(468) during the period from July 1, 2005 throughApril 13, 2006, which primarily consist of one-time termination benefits.These restructuring initiatives were designed to achieve efficiencies andreduce costs in response to changes in demand projections for certain services.One-time termination benefits relate to the termination of approximately 26,125 and 18 employees for the years ended June 30, 2004 and 2005 and forthe period from July 1, 2005 to April 13, 2006, respectively. Therestructuring reserves are included in accrued expenses and other currentliabilities on the combined balance sheets. The following table summarizes thecharges for restructuring and related activity at June 30, 2004 and 2005,including payments made and the ending reserve balances: 

| ** **                  | ** ** | **Balance  at July 1  2003** | ** ** | **Additions** | ** ** | **Payments** | ** ** | **Balance  at June 30  2004** | ** ** | **Additions** | ** ** | **Payments** | ** ** | **Balance  at June 30  2005** | ** ** |
|-----------------------------|------------|----------------------------------------|------------|---------------|------------|--------------|------------|-----------------------------------------|------------|---------------|------------|--------------|------------|-----------------------------------------|------------|
| Automotive Claims  Services |       |                                   | $          | 281           |       |         |       | $                                       | —     |          |       |         | $          | (214                                    | )          |   |   | $ | 67 |   |   |   | $ | 2,768 |   |   |   | $ | (352 | ) |   |   | $ | 2,483 |   |   |
| Audatex                     |       |                                   | 1,109      |          |       |         | 1,740      |                                    |       |          | (2,040     | )            |       |                                    | 809        |   |   |   | 1,814 |   |   |   | (1,145 | ) |   |   | 1,478 |   |   |
| ADP Business  Services      |       |                                   | —     |          |       |         | —     |                                    |       |          | —     |         |       |                                    | —     |   |   |   | 930 |   |   |   | — |   |   |   | 930 |   |   |
| Total                       |       |                                   | $          | 1,390         |       |         |       | $                                       | 1,740      |          |       |         | $          | (2,254                                  | )          |   |   | $ | 876 |   |   |   | $ | 5,512 |   |   |   | $ | (1,497 | ) |   |   | $ | 4,891 |   |   |

 

For the period fromJuly 1, 2005 to April 13, 2006, payments of $4,096 were made forrestructuring charges.

**7.   DISCONTINUEDOPERATIONS**

In January 2004, the Company sold a portion ofthe assets of its Medical Claims business for $5,369 in cash. In addition, theCompany decided to shut down the remaining operations of the business ratherthan continue to pursue the sale of the remaining assets. In connection withthe decision to shut down the remaining operations of its Medical Claimsbusiness, the Company recorded restructuring charges of 

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$3,517 during the yearended June 30, 2004. These restructuring charges primarily consisted ofseverance of $903, involving 259 employees, asset impairments of $2,144 andother exit costs of $470 necessary to exit certain contracts. The reserve forthe restructuring charges associated with the discontinued operations isincluded in liabilities of discontinued operations on the combined balancesheets. During the year ended June 30, 2004, the Company reported incomefrom discontinued operations of $3,816, including a $4,828 benefit from incometaxes, in the statements of combined earnings. The income from discontinuedoperations included a gain on sale of certain assets of the Medical Claimsbusiness of $7,661, net of a $2,280 benefit from income taxes, as well asoperating losses, including restructuring charges, of the discontinued business.The benefit from income taxes includes a benefit of $4,426 that resulted fromthe disposition of stock with a tax basis in excess of the book basis in assetssold. During the year ended June 30, 2004, there were no significantinvesting or financing cash flow activities of the discontinued operations.

During the year ended June 30, 2005, the Companyrecorded additional charges of $210 primarily relating to additional costsassociated with certain contracts which were terminated in the year ended June 30,2004. During the period from July 1, 2005 to April 13, 2006, theCompany did not record any additional charges for discontinued operations.

Operatingresults of the discontinued operations of the Medical Claims business were asfollows: 

| ** **                                                                                                                       | ** ** | **Years Ended June 30** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2004**                               | ** ** | **2005** | ** ** |
| Revenues                                                                                                                         |       |                                   | $          | 17,968 |   |   |   | $ | — |   |   |
| Loss before  benefit from income taxes                                                                                           |       |                                   | 6,393      |   |   |   | 210 |   |   |
| Benefit from  income taxes                                                                                                       |       |                                   | (2,548     | ) |   |   | (82 | ) |   |
| Net loss from  operations of discontinued Medical Claims business                                                                |       |                                   | 3,845      |   |   |   | 128 |   |   |
| Gain on disposal  of Medical Claims business, net of provision for income taxes of $2,280 for  the year ended June 30, 2004 |       |                                   | (7,661     | ) |   |   | — |   |   |
| Net loss (income) from  discontinued operations                                                                                  |       |                                   | $          | (3,816 | ) |   |   | $ | 128 |   |   |

 

The following are themajor classes of assets and liabilities related to the discontinued operationsas of June 30, 2004 and 2005: 

| ** **                   | ** ** | **2004** | ** ** | **2005** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|
| Current assets:              |       |     |       |     |       |
| Accounts receivable—net |       | $        | 1,951      |     | $          | — |   |
| Deferred tax assets          |       | 897      |       | 199      |       |
| Total current  assets        |       | $        | 2,848      |     | $          | 199 |   |
| Current  liabilities:        |       |     |       |     |       |
| Accounts payable             |       | $        | 808        |     | $          | — |   |
| Accrued expenses             |       | 4,033    |       | 195      |       |
| Total current  liabilities   |       | $        | 4,841      |     | $          | 195 |   |

 

**8.   RECEIVABLES**

Accounts receivable is netof an allowance for doubtful accounts of $3,824 and $1,489 at June 30,2004 and 2005, respectively. The Company did not have any significantconcentration of credit risk associated with its customers.

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**9.   PROPERTY ANDEQUIPMENT—NET**

Propertyand equipment at cost and accumulated depreciation at June 30, 2004 and2005 are as follows:

| ** **                       | ** ** | **2004** | ** ** | **2005** | ** ** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|------------|
| Property and equipment:          |       |     |       |     |       |       |
| Land and buildings               |       | $        | 19,174     |     | $          | 19,601     |   |   |
| Machinery and equipment          |       | 6,824    |       | 7,193    |       |       |
| Furniture and fixtures           |       | 10,316   |       | 10,998   |       |       |
| Data processing equipment        |       | 57,946   |       | 44,854   |       |       |
| Leasehold improvements           |       | 11,117   |       | 11,043   |       |       |
| Property and  equipment at cost  |       | 105,377  |       | 93,689   |       |       |
| Less accumulated  depreciation   |       | (67,736  | )          | (60,233  | )          |       |
| Property and  equipment—net |       | $        | 37,641     |     | $          | 33,456     |   |   |

 

**10.   GOODWILLAND INTANGIBLE ASSETS—NET**

Changesin goodwill for the years ended June 30, 2004 and 2005 are as follows: 

| ** **                                        | ** ** | **Automotive  Claims  Services** | ** ** | **ADP  Business  Services** | ** ** | **Audatex** | ** ** | **Total** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|-------------|------------|-----------|------------|
| BALANCE—July 1,  2003                   |       |                             | $          | 2,303                       |       |        | $          | —    |       | $ | 53,828 |   | $ | 56,131 |   |
| Additions                                         |       |                             | —     |                        |       | 93,551      |       | —    |       | 93,551 |   |
| Adjustments to previously recorded purchase price |       |                             | —     |                        |       | —      |       | 1,167     |       | 1,167 |   |
| Cumulative translation adjustments                |       |                             | —     |                        |       | (2,851      | )          | 1,154     |       | (1,697 | ) |
| BALANCE—June 30,  2004                  |       |                             | 2,303      |                        |       | 90,700      |       | 56,149    |       | 149,152 |   |
| Additions                                         |       |                             | —     |                        |       | —      |       | 19,127    |       | 19,127 |   |
| Adjustments to previously recorded purchase price |       |                             | —     |                        |       | (11,104     | )          | (3,271    | )          | (14,375 | ) |
| Cumulative translation adjustments                |       |                             | —     |                        |       | 2,714       |       | (609      | )          | 2,105 |   |
| BALANCE—June 30,  2005                  |       |                             | $          | 2,303                       |       |        | $          | 82,310    |       | $ | 71,396 |   | $ | 156,009 |   |

 

Componentsof intangible assets are as follows: 

| ** **                     | ** ** | **2004** | ** ** | **2005** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Intangibles:                   |       |     |       |     |       |
| Software and software licenses |       | $        | 82,077     |     | $          | 96,168 |   |
| Customer contracts and lists   |       | 135,567  |       | 161,102  |       |
| Trademarks                     |       | 14,204   |       | 16,520   |       |
|                           |       | 231,848  |       | 273,790  |       |
| Less accumulated  amortization |       | (62,919  | )          | (85,540  | )          |
| Intangible assets—net     |       | $        | 168,929    |     | $          | 188,250 |   |

 

During the year endedJune 30, 2004, the Company decided to discontinue the use of softwarewhich was previously purchased as it was determined that the intended use ofthe software would no longer be feasible. This change required an impairmentanalysis to be performed in accordance with SFAS No. 144. Since theCompany decided to dispose the software, it was determined that there was nofuture cash flows expected to be generated by the software. As a result, thecarrying value of the intangible asset was 

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reducedto zero. The Automotive Claims Services segment recorded a pre-tax charge of$4,214, within impairment charges on the statements of combined earnings,during the year ended June 30, 2004.

All of the intangibleassets (except goodwill) have finite lives and, as such, are subject toamortization on a straight-line basis. The weighted average remaining usefullife of the intangible assets is 7 years (3 years for software andsoftware licenses, 9 years for customer contracts and lists and8 years for trademarks). Amortization of intangibles totaled $16,589,$21,840 and $19,266 for the years ended June 30, 2004 and 2005 and for theperiod from July 1, 2005 to April 13, 2006, respectively. Estimatedfuture amortization expense is not presented, as the Company was acquired onApril 13, 2006 (see Note 4).

**11.**   NOTESRECEIVABLE FROM AFFILIATED PARTIES AND NOTES PAYABLE TO AFFILIATED PARTIES.

Notesreceivable from affiliated parties and notes payable to affiliated parties arecomprised of the following: 

| ** **                                                    | ** ** | **Interest** | ** ** | **Date of** | ** ** | **June 30,** | ** ** |
|---------------------------------------------------------------|------------|--------------|------------|------------------|------------|-------------------|------------|
| **Type of Issue**                                   | ** ** | ** **   | ** ** | **Rate**         | ** ** | **Maturity**      | ** ** | **2004** | ** ** | **2005** | ** ** |
| Short-term notes  receivable denominated in foreign currency: |       |         |       |             |       |              |       |   |   |   |   |
| Note receivable from affiliate                                |       |         | 3.25       |             |       | 5/21/06           |       | $ | — |   | $ | 2,825 |   |
| Long-term notes  receivable denominated in foreign currency:  |       |         |       |             |       |              |       |   |   |   |   |
| Note receivable from affiliate                                |       |         | 3.00       |             |       | 10/14/06          |       | $ | — |   | $ | 12,662 |   |
| Note receivable from affiliate                                |       |         | 6.00       |             |       | 6/14/07           |       | — |   | 1,504 |   |
| Note receivable from affiliate                                |       |         | 3.25       |             |       | 5/21/06           |       | 2,875 |   | — |   |
| Total long-term  notes receivable from affiliated parties     |       |         |       |             |       |              |       | $ | 2,875 |   | $ | 14,166 |   |
| Short-term notes  payable denominated in foreign currency:    |       |         |       |             |       |              |       |   |   |   |   |
| Note payable to affiliate                                     |       |         | 4.00       |             |       | 10/10/05          |       | $ | — |   | $ | 3,252 |   |
| Note payable to affiliate                                     |       |         | 12.00      |             |       | 12/31/05          |       | — |   | 1,582 |   |
| Note payable to affiliate                                     |       |         | 2.35       |             |       | 4/6/06            |       | — |   | 8,410 |   |
| Note payable to affiliate                                     |       |         | 2.25       |             |       | 3/11/06           |       | 799 |   | 836 |   |
| Total short-term  notes payable to affiliated parties         |       |         |       |             |       |              |       | $ | 799 |   | $ | 14,080 |   |
| Long-term notes  payable denominated in foreign currency:     |       |         |       |             |       |              |       |   |   |   |   |
| Note payable to affiliate                                     |       |         | 4.00       |             |       | 10/10/05          |       | $ | 3,179 |   | $ | — |   |
| Note payable to affiliate                                     |       |         | 12.00      |             |       | 12/31/05          |       | 1,106 |   | — |   |
| Note payable to affiliate                                     |       |         | 1.00       |             |       | 4/26/07           |       | — |   | 3,231 |   |
| Total long-term notes  payable to affiliated parties          |       |         |       |             |       |              |       | $ | 4,285 |   | $ | 3,231 |   |
|                                                               |            |              |            |                  |            |                   |            |  |  |  |  |  |  |  |  |

 

For the period from July 1, 2005 toApril 13, 2006, there was one additional note receivable from affiliate of$1,548. All notes receivable and payable to/from affiliated parties were paidor otherwise settled in conjunction with the acquisition of the Company as ofApril 13, 2006.

Interest income on notes receivable from affiliatedparties was $133, $348 and $998 for the years ended June 30, 2004 and 2005and for the period from July 1, 2005 through April 13, 2006, respectively,and is included in other (income) expense—net.

Interest expense on notespayable to affiliated parties was $252, $334 and $301 for the years endedJune 30, 2004 and 2005 and for the period from July 1, 2005 throughApril 13, 2006, respectively, and is included in other (income) expense—net.

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**12.   EMPLOYEE BENEFITPLANS**

*StockPlans—**As* discussed in Note 2,effective July 1, 2005, the Company adopted SFASNo. 123(R) utilizing the modified prospective method. Accordingly,prior period amounts have not been restated. SFAS No. 123(R) requiresthe measurement of stock-based compensation expense based on the fair value ofthe award on the date of grant. Under the modified prospective method, theprovisions of SFAS No. 123(R) apply to all awards granted or modifiedafter the date of adoption. In addition, the unrecognized expense of awards notyet vested at the date of adoption, determined under the original provisions ofSFAS No. 123, *Accounting forStock-Based Compensation* (“SFAS No. 123”), will be recognizedin net earnings in the periods after the date of adoption. Stock-basedcompensation primarily consists of the following:

*StockOptions—**As*an operating unit of ADP,certain employees of the Company are eligible to participate in the ADP stockoption plans, which provide for the issuance, to eligible employees, ofincentive and non-qualified stock options, which may expire as much as10 years from the date of grant, at exercise prices not less than the fairmarket value on the date of grant. Stock options generally vest over five yearsand have a term of 10 years. Compensation expense for stock options isrecognized over the requisite service period for each separately vestingportion of the stock option award. Upon the sale of the Company, options grantedprior to January 1, 2006 were accelerated, fully vesting on April 13,2006. The Company recorded approximately $1,637 as stock based compensation forthe incremental fair value resulting from the modification of these options.Options granted during or after January 1, 2006 were cancelled atApril 13, 2006 upon sale of the Company.

*EmployeeStock Purchase Plan (“ESPP”)—**As* an operating unitof ADP, certain employees of the Company participate in ADP’s ESPP. Prior toNovember 2005, ADP offered an employee stock purchase plan that allowedeligible employees to purchase shares of common stock at 85% of the lower ofmarket value as of the date of purchase or as of the end of the stock purchaseplan. In November 2005, ADP revised the employee stock purchase plan,effective as of on January 1, 2006, whereby eligible employees canpurchase shares of common stock at 85% of the market value at the date thepurchase price for the offering is determined. Compensation expense for theemployee stock purchase plan is recognized over the vesting period of24 months on a straight-line basis. The sale of the Company onApril 13, 2006 ceased the ESPP for the Company’s employees.

*RestrictedStock—**ADP* has a restricted stock programunder which shares of common stock have been sold at par value to certain keyemployees. These shares are restricted as to transfer and in certaincircumstances must be resold to ADP at the original purchase price. The Companyrecords stock compensation expense relating to the issuance of restricted stockover the period during which the transfer restrictions exist, which is up tofive years from the date of grant. The value of ADP’s restricted stock, basedon market prices, is recognized as compensation expense over the restrictionperiod on a straight-line basis. Upon the sale of Company on April 13,2006, the vesting for all restricted stock previously unvested was accelerated,fully vesting on April 13, 2006.

The Company utilizestreasury stock to satisfy stock option exercises, issuances under its employeestock purchase plan and restricted stock awards. Stock-based compensationexpense was recognized in earnings from continuing operations as follows: 

| ** **                                    | ** ** | **Fiscal Year** | ** ** | **July 1, 2005-** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|-----------------------------|------------|
| ** **                                    | ** ** | **2004**             | ** ** | **2005**                    | ** ** | **April 13, 2006** | ** ** |
| Operating  expenses                           |       | $                    | —     |                        | $          | — |   |   | $ | 1,111 |   |   |
| Selling, general  and administrative expenses |       | 268                  |       | 476                         |       |   | 3,264 |   |   |
| Systems  development and programming costs    |       |                 |       |                        |       |   | 3,068 |   |   |
| Total stock-based  compensation expense       |       | $                    | 268        |                        | $          | 476 |   |   | $ | 7,443 |   |   |

 

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The total stock-based compensation expense included inearnings from continuing operations before income taxes includes expensesrelated to restricted stock awards of $268, $476, and $396 within selling,general and administrative expenses for the fiscal years ended June 30,2004 and 2005 and for the period from July 1, 2005 through April 13,2006, respectively.

Asummary of changes in the stock option plans for the fiscal years endedJune 30, 2004 and 2005 and for the period from July 1, 2005 throughApril 13, 2006, is as follows: 

| ** **                                  | ** ** | **Number of Options  (in thousands)** | ** ** | **Weighted-Average  Exercise Price** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                  | ** ** | ** **                                           | ** ** | ** **                                | ** ** | **July 1, 2005-** | ** ** | ** ** | ** ** | ** ** | ** ** | **July 1, 2005-** | ** ** |
| ** **                                  | ** ** | **2004**                                             | ** ** | **2005**                                  | ** ** | **April 13, 2006** | ** ** | **2004** | ** ** | **2005** | ** ** | **April 13, 2006** | ** ** |
| Options  outstanding—beginning of year |       | 2,642                                                |       | 3,028                                     |       |   | 2,913 |   |   |   | $ | 43 |   |   |   | $ | 43 |   |   |   | $ | 43 |   |   |
| Options granted                             |       | 972                                                  |       | 469                                       |       |   | 488 |   |   |   | 41 |   |   |   | 43 |   |   |   | 44 |   |   |
| Options exercised                           |       | (183                                                 | )          | (169                                      | )          |   | (237 | ) |   |   | 32 |   |   |   | 32 |   |   |   | 37 |   |   |
| Options canceled                            |       | (403                                                 | )          | (415                                      | )          |   | (422 | ) |   |   | 46 |   |   |   | 45 |   |   |   | 42 |   |   |
| Options outstanding—end  of period     |       | 3,028                                                |       | 2,913                                     |       |   | 2,742 |   |   |   | $ | 43 |   |   |   | $ | 43 |   |   |   | $ | 44 |   |   |

 

Options outstanding as of April 13, 2006 expiredin 60 days thereafter. Options not exercised within the 60 days werecanceled.

During the period from July 1, 2005 throughApril 13, 2006, the Company issued 163,000 shares in connection with theemployee stock purchase plan. The Company issued 7,000 shares of restrictedstock during the period from July 1, 2005 through April 13, 2006.

The following tableillustrates the effect on net earnings from continuing operations if theCompany had applied the fair value recognition provisions of SFAS No. 123to stock-based employee compensation for periods prior to adoption of SFASNo. 123(R). 

| ** **                                                                                                                                       | ** ** | **Years Ended June 30** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                                       | ** ** | **2004**                               | ** ** | **2005** | ** ** |
| Net earnings, as  reported                                                                                                                       |       | $                                      | 48,174     |   | $ | 57,641 |   |
| Add stock-based  employee compensation expense included in reported net earnings, net of  related tax effects                                    |       | 163                                    |       | 289 |   |
| Deduct total  stock-based employee compensation expense determined using the fair  value-based method for all awards, net of related tax effects |       | (6,428                                 | )          | (6,849 | ) |
| Pro forma net earnings                                                                                                                           |       | $                                      | 41,909     |   | $ | 51,081 |   |

 

The fair value of each stock option issued prior toJanuary 1, 2005 was estimated on the date of grant using a Black-Scholesoption-pricing model. For stock options issued on or after January 1,2005, the fair value of each stock option was estimated on the date of grantusing a binomial option-pricing model. The binomial option-pricing modelconsiders a range of assumptions related to volatility, dividend yield,risk-free interest rate and employee exercise behavior. Expected volatilitiesutilized in the binomial option-pricing model are based on a combination ofimplied market volatilities, historical volatility of the Company’s stock priceand other factors. Similarly, the dividend yield is based on historicalexperience and expected future changes. The risk-free rate is derived from theU.S. Treasury yield curve in effect at the time of grant. The binomialoption-pricing model also incorporates exercise and forfeiture assumptionsbased on an analysis of historical data. The expected life of the stock optiongrants is derived from the output of the binomial option-pricing model andrepresents the period of time that options granted are expected to beoutstanding.

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Thefair value for these instruments was estimated at the date of grant with thefollowing assumptions: 

| ** **                    | ** ** | **Years Ended June 30** | ** ** | **Period from  July 1, 2005  through** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                    | ** ** | **2004**                               | ** ** | **2005**                                              | ** ** | **April 13, 2006** | ** ** |
| Risk-free  interest rate      |       | 3.9-4.5                                | %          | 2.1-4.2                                               | %          |   | 4.0-4.6 | % |   |
| Dividend yield                |       | 1.0-1.1                                | %          | 1.2-1.4                                               | %          |   | 1.4-1.7 | % |   |
| Volatility factor             |       | 29.0-29.3                              | %          | 26.2-29.2                                             | %          |   | 17.1-24.7 | % |   |
| Expected life (in  years):    |       |                                   |       |                                                  |       |   |   |   |   |
| Stock options                 |       | 6.5                                    |       | 5.5-6.5                                               |       |   | 5.5-6.5 |   |   |
| Stock purchase plans          |       | 2.0                                    |       | 2.0                                                   |       |   | 2.0 |   |   |
| Weighted average  fair value: |       |                                   |       |                                                  |       |   |   |   |   |
| Stock options                 |       | $                                      | 13.96      |                                                  | $          | 11.38 |   |   | $ | 10.89 |   |   |
| Stock purchase  plans         |       | 11.95                                  |       | 12.66                                                 |       |   | 9.76 |   |   |
|                               |            |                                        |            |                                                       |            |  |  |  |  |  |  |  |

 

Upon the modification of options at the sale of theClaims Services Group at April 13, 2006, the incremental fair value of themodification was determined by comparing the fair value of the 1,136 unvestedoptions immediately before and after the modification. The fair valueimmediately before the modification was $0 since the options would have beenforfeited without the acceleration. The fair value of the options immediatelyafter the modification was based on: a risk-free interest rate of 4.67%, adividend yield of 1.41%, a volatility factor of 17.69% and an expected life of60 days, resulting in a weighted average fair value of options outstandingof $3.55. The net incremental fair value of the modification was $1,637.

***Pension Plans******—Certain***employeesof the Company are covered by ADP’s domestic defined benefit plans. Inaddition, certain employees of the Company are part of ADP’s SupplementalOfficer Retirement Plan (“SORP”). The SORP is a defined benefit plan pursuantto which ADP will pay supplemental pension benefits to certain key officersupon retirement based upon the officers’ years of service and compensation.Liabilities and assets related to these plans have not been allocated to theCompany and are therefore included in group equity on the combined balancesheets. Domestic pension expense allocated to the Company for the years endedJune 30, 2004 and 2005 and for the period from July 1, 2005 throughApril 13, 2006 was $190, $390 and $500, respectively. SORP expense allocatedto the Company for the years ended June 30, 2004 and 2005 and for theperiod from July 1, 2005 through April 13, 2006 was $42, $43 and $35,respectively. Upon the sale of the Company on April 13, 2006, allliabilities for the domestic defined benefit plan and SORP were retained byADP.

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The Company’s foreignsubsidiaries sponsor various defined benefit plans and individual definedbenefit arrangements covering certain eligible employees. All of the definedbenefit plans and arrangements are closed to new members. The benefits underthese pension plans are based on years of service and compensation levels.Funding is limited to statutory requirements. The Company uses a June 30measurement date for its foreign pension plans. The change in benefitobligations and plan assets as well as the funded status of the Company’sforeign pension plans were as follows for the years ended June 30, 2004and 2005: 

| ** **                                                                | ** ** | **2004** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Change in plan  assets:                                                   |       |     |       |     |       |
| Fair value of plan assets at beginning of year                            |       | $        | 19,200     |     | $          | 24,200 |   |
| Acquisitions                                                              |       | 1,100    |       | —   |       |
| Actual return on plan assets                                              |       | 1,400    |       | 200      |       |
| Employer contributions                                                    |       | 1,800    |       | 1,800    |       |
| Benefits paid                                                             |       | (400     | )          | (400     | )          |
| Foreign currency exchange rate changes                                    |       | 1,100    |       | —   |       |
| Fair value of  plan assets at end of year                                 |       | $        | 24,200     |     | $          | 25,800 |   |
| Change in benefit  obligation:                                            |       |     |       |     |       |
| Benefit obligation at beginning of year                                   |       | $        | 24,100     |     | $          | 28,700 |   |
| Acquisitions                                                              |       | 1,300    |       | —   |       |
| Service cost                                                              |       | 1,000    |       | 1,200    |       |
| Interest cost                                                             |       | 1,300    |       | 1,400    |       |
| Actuarial losses                                                          |       | —   |       | 1,800    |       |
| Benefits paid                                                             |       | (400     | )          | (400     | )          |
| Foreign currency exchange rate changes                                    |       | 1,400    |       | 100      |       |
| Projected benefit  obligation at end of year                              |       | $        | 28,700     |     | $          | 32,800 |   |
| Funded  status—plan assets less benefit obligation                   |       | $        | (4,500     | )        | $          | (7,000 | ) |
| Unrecognized net  actuarial loss due to different experience than assumed |       | 1,300    |       | 4,100    |       |
| Accrued pension  liability                                                |       | $        | (3,200     | )        | $          | (2,900 | ) |

 

In conjunction with the sale of the Company effectiveApril 13, 2006 (the “Acquisition”), the Company transferred allliabilities and related assets associated with one foreign defined benefit planto ADP, and two other foreign defined benefit pension plans were converted todefined contribution plans prior to the Acquisition date. The liabilities andrelated assets for the remaining three foreign defined pension plans wereincluded in the Acquisition and were assumed by the purchaser.

The accumulated benefit obligation for all definedbenefit pension plans was $26,300 and $29,900 at June 30, 2004 and 2005,respectively.

The projected benefit obligation, accumulated benefitobligation and fair value of plan assets for the Company’s pension plans withaccumulated benefit obligations in excess of plan assets were $27,300, $25,100and $22,800, respectively, as of June 30, 2004, and $30,700, $28,200 and$23,900, respectively, as of June 30, 2005.

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Thecomponents of net pension expense were as follows: 

| ** **                                           | ** ** | **Years Ended June 30,** | ** ** | **Period From  July 1, 2005  through** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                           | ** ** | **2004**                                | ** ** | **2005**                                              | ** ** | **April 13, 2006** | ** ** |
| Service  cost—benefits earned during the period |       | $                                       | 1,000      |                                                  | $          | 1,200 |   |   | $ | 1,200 |   |   |
| Interest cost on  projected benefits                 |       | 1,300                                   |       | 1,400                                                 |       |   | 1,300 |   |   |
| Expected return  on plan assets                      |       | (1,000                                  | )          | (1,200                                                | )          |   | (800 | ) |   |
|                                                 |       | $                                       | 1,300      |                                                  | $          | 1,400 |   |   | $ | 1,700 |   |   |

 

Assumptionsused to determine the actuarial present value of benefit obligations generallywere: 

| ** **                       | ** ** | **2004** | ** ** | **2005** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Discount rate                    |       | 5.06     | %          | 4.46     | %          |
| Increase in compensation  levels |       | 2.54     |       | 2.13     |       |

 

Assumptionsused to determine the net pension expense generally were: 

| ** **                                   | ** ** | **Years Ended June 30** | ** ** | **Period From  July 1, 2005  through** | ** ** |
|----------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                   | ** ** | **2004**                               | ** ** | **2005**                                              | ** ** | **April 13, 2006** | ** ** |
| Discount rate                                |       | 5.04                                   | %          | 5.06                                                  | %          |   | 4.36 | % |   |
| Expected  long-term rate of return on assets |       | 4.65                                   | %          | 4.66                                                  | %          |   | 4.44 | % |   |
| Increase in compensation  levels             |       | 2.53                                   | %          | 2.54                                                  | %          |   | 2.12 | % |   |

 

The discount rate is based upon published rates forhigh-quality fixed-income investments that produce cash flows that approximatethe timing and amount of expected future benefit payments.

The weighted average long-term expected rate of returnon assets assumption is 4.44%. This percentage has been determined based onhistorical and expected future rates of return on plan assets considering thetarget asset mix and the long-term investment strategy.

***Plan Assets******—The*** planassets of the pension plans are the liability of insurance companies andbenefit payments are fully insured. The insurance companies invest the planassets in accordance with the terms of the insurance companies’ guidelines andthe Company has no control over the investment decisions made by the insurancecompanies. The insurance companies invest virtually the entire pension planportfolio in fixed income securities.

***Contributions******—The*** minimumrequired and the expected contributions to the Company’s pension plans for theperiod from April 14, 2006 to June 30, 2006 and for the year endingJune 30, 2007 were $400 and $1,700, respectively.

***Estimated FutureBenefit Payments******—The*** benefitsexpected to be paid in each fiscal year for the period from April 14, 2006to June 30, 2006 and the 5 years ending thereafter are $0, $183,$223, $389, $2,282 and $458, respectively. The aggregate benefits expected tobe paid in the five years ending June 30 from 2011 to 2015 are $4,406. Theexpected benefits to be paid are based on the same assumptions used to measurethe Company’s pension plans’ benefit obligation and include estimated futureemployee service.

***Retirement andSavings Plan******—ADP*** hasdefined contribution plans that cover most of its domestic employees. This401(k) plan provides company matching under various formulas. Theallocated costs to the Company for the domestic associates plans for the yearsended June 30, 2004 and 2005 and for the period from July 1, 2005through April 13, 2006, were $904, $1,183 and $1,098, respectively.

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The Company’s foreignsubsidiaries have defined contribution plans that cover certain internationalemployees. These retirement savings-type plans provide company matching undervarious formulas. The Company’s match amounted to approximately $3,164, $4,373and $3,977 for the years ended June 30, 2004 and 2005 and for the periodfrom July 1, 2005 through April 13, 2006, respectively.

**13.   INCOME TAXES**

The Company’s operations are included in separateincome tax returns filed with the appropriate taxing jurisdictions, except forU.S. federal and certain state and foreign jurisdictions in which the Company’soperations are included in the income tax returns of the Parent or anaffiliate.

The provision for income taxes on earnings fromcontinuing operations is computed as if the Company filed on a consolidatedstand-alone or separate tax return basis, as applicable. The provision forincome taxes on earnings from continuing operations does not reflect theCompany’s inclusion in the tax returns of the Parent or an affiliate. Certainincome taxes of the Company are paid by the Parent or an affiliate on behalf ofthe Company. The payment of income taxes by the Parent or affiliate on behalfof the Company is recorded within group equity on the Combined Balance Sheets.

The provision for income taxes on loss (income) fromdiscontinued operations includes an income tax benefit from a loss on the saleof a discontinued operation in 2004 that was utilized by the Parent. The incometax benefit was recorded within group equity on the Combined Balance Sheets.

Earnings from continuingoperations before income taxes and minority interests in net income of combinedsubsidiaries shown below are based on the geographic location to which suchearnings are attributable: 

| ** **                     | ** ** | **Years Ended June 30** | ** ** | **Period From  July 1, 2005  through** | ** ** |
|--------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                     | ** ** | **2004**                               | ** ** | **2005**                                              | ** ** | **April 13, 2006** | ** ** |
| Earnings before  income taxes: |       |                                   |       |                                                  |       |   |   |   |   |
| United States                  |       | $                                      | 20,592     |                                                  | $          | 17,044 |   |   | $ | 15,403 |   |   |
| Foreign                        |       | 47,119                                 |       | 66,664                                                |       |   | 52,734 |   |   |
|                           |       | $                                      | 67,711     |                                                  | $          | 83,708 |   |   | $ | 68,137 |   |   |

 

Theprovision for income taxes on earnings from continuing operations consists ofthe following components: 

| ** **      | ** ** | **Years Ended June 30** | ** ** | **Period From  July 1, 2005  through** | ** ** |
|-----------------|------------|----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **      | ** ** | **2004**                               | ** ** | **2005**                                              | ** ** | **April 13, 2006** | ** ** |
| Current:        |       |                                   |       |                                                  |       |   |   |   |   |
| Federal         |       | $                                      | 6,207      |                                                  | $          | 6,568 |   |   | $ | 6,418 |   |   |
| Foreign         |       | 16,809                                 |       | 22,166                                                |       |   | 18,188 |   |   |
| State           |       | 1,222                                  |       | 1,285                                                 |       |   | 711 |   |   |
| Total current   |       | 24,238                                 |       | 30,019                                                |       |   | 25,317 |   |   |
| Deferred:       |       |                                   |       |                                                  |       |   |   |   |   |
| Federal         |       | 667                                    |       | (857                                                  | )          |   | (535 | ) |   |
| Foreign         |       | (2,912                                 | )          | (4,965                                                | )          |   | (1,087 | ) |   |
| State           |       | 131                                    |       | (167                                                  | )          |   | (7 | ) |   |
| Total deferred  |       | (2,114                                 | )          | (5,989                                                | )          |   | (1,629 | ) |   |
| Total provision |       | $                                      | 22,124     |                                                  | $          | 24,030 |   |   | $ | 23,688 |   |   |

 

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A reconciliation betweenthe Company’s effective tax rate on earnings from continuing operations and theU.S. federal statutory rate is as follows: 

| ** **                                                            | ** ** | **Years Ended June 30** | ** ** | **Period From  July 1, 2005  through** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------|------------|------------|------------|
| ** **                                                            | ** ** | **2004**                               | ** ** | **%**                                                 | ** ** | **2005**   | ** ** | **%** | ** ** | **April 13, 2006** | ** ** | **%** | ** ** |
| Provision for  taxes at U.S. statutory rate                           |       | $                                      | 23,269     |                                                  | 35.0       |       | $          | 28,630 |   | 35.0 |   |   | $ | 23,848 |   |   | 35.0 |   |
| Increase (decrease) in  provision from:                               |       |                                   |       |                                                  |       |       |       |   |   |   |   |   |   |   |   |
| State taxes, net of federal tax benefit                               |       | 880                                    |       | 1.3                                                   |       | 727        |       | 0.9 |   |   | 458 |   |   | 0.7 |   |
| Foreign rate lower than U.S. federal statutory rate                   |       | (2,164                                 | )          | (3.2                                                  | )          | (3,956     | )          | (4.9 | ) |   | (2,824 | ) |   | (4.1 | ) |
| Change in valuation allowance                                         |       |                                   |       |                                                  |       |       |       |   |   |   | 309 |   |   | 0.5 |   |
| Impact on deferred taxes due to reduction in foreign  income tax rate |       |                                   |       |                                                  |       | (1,509     | )          | (1.8 | ) |   | (202 | ) |   | (0.3 | ) |
| Other                                                                 |       | 139                                    |       | 0.2                                                   |       | 138        |       | 0.2 |   |   | 2,099 |   |   | 3.1 |   |
|                                                                  |       | $                                      | 22,124     |                                                  | 33.3       |       | $          | 24,030 |   | 29.4 |   |   | $ | 23,688 |   |   | 34.9 |   |

 

Thesignificant components of deferred income tax assets and liabilities and theirbalance sheet classifications are as follows: 

| ** **                                | ** ** | **June 30,** | ** ** | ** ** | ** ** |
|-------------------------------------------|------------|-------------------|------------|------------|------------|
| ** **                                | ** ** | **2004**          | ** ** | **2005**   | ** ** | **April 13, 2006** | ** ** |
| Deferred tax  assets:                     |       |              |       |       |       |   |   |   |   |
| Accrued expenses not currently deductible |       | $                 | 7,198      |       | $          | 7,646 |   |   | $ | 11,169 |   |   |
| Depreciation and amortization             |       | 961               |       | 716        |       |   | 1,259 |   |   |
| Net operating losses                      |       | 1,699             |       | 1,862      |       |   | 1,292 |   |   |
| Other                                     |       | 1,303             |       | 842        |       |   | 86 |   |   |
|                                      |       | 11,161            |       | 11,066     |       |   | 13,806 |   |   |
| Less valuation allowances                 |       | (1,152            | )          | (1,613     | )          |   | (1,692 | ) |   |
| Deferred tax assets—net              |       | $                 | 10,009     |       | $          | 9,453 |   |   | $ | 12,114 |   |   |
| Deferred tax liabilities:                 |       |              |       |       |       |   |   |   |   |
| Amortization                              |       | $                 | 45,227     |       | $          | 41,900 |   |   | $ | 262 |   |   |
| Capitalized Software                      |       | 6,356             |       | 5,954      |       |   | 4,307 |   |   |
| Statutory versus GAAP deductions          |       | 3,895             |       | 2,809      |       |   |   |   |   |
| Other                                     |       | 917               |       | 1,564      |       |   | 605 |   |   |
| Deferred tax liabilities                  |       | 56,395            |       | 52,227     |       |   | 5,174 |   |   |
| Net deferred tax assets  (liabilities)    |       | $                 | (46,386    | )          | $          | (42,774 | ) |   | $ | 6,940 |   |   |

 

Income taxes have not been provided on undistributedearnings of foreign subsidiaries as the Company considers such earnings to bepermanently reinvested as of June 30, 2004 and 2005.

The Company has estimated foreign net operating losscarry forwards of approximately $4,225 at April 13, 2006, of which $131expires in 2011, $843 expires in 2014 and $3,251 has an indefinite utilizationperiod.

The Company has recorded valuation allowances of$1,152, $1,613 and $1,692 at June 30, 2004 and June 30, 2005 andApril 13, 2006, respectively, because the Company does not believe that itis more likely than not that it will be able to utilize these carryforwards tooffset future taxable earnings.

Income tax payments were approximately $11,651,$13,329 and $13,940 for the years ended June 30, 2004 and 2005 and for theperiod from July 1, 2005 through April 13, 2006, respectively, forpayments 

131

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made directly by the Company.The income tax payments exclude payments made by the Parent or an affiliate onbehalf of the Company as these amounts are recorded within group equity on theCombined Balance Sheets. For the years ended June 30, 2004 and 2005, andthe period from July 1, 2005 through April 13, 2006, income taxpayments that were paid on behalf of the Company by the Parent or an affiliatewere $8,484, $9,385 and $7,129 respectively, and are included within groupequity on the Combined Balance Sheets.

The Company utilized losses of an affiliate in grouprelief in lieu of cash payments for income taxes in the amounts of $1,374, $526and $1,008 for the years ended June 30, 2004 and 2005, and for the periodfrom July 1, 2005 through April 13, 2006, respectively. The utilizationof such losses is included within group equity on the Combined Balance Sheets.

The Company is routinely examined by the InternalRevenue Service (the “IRS”) in conjunction with the IRS audit of the Parent andexamined by tax authorities in countries in which it conducts business, as wellas states in which it has significant business operations. The tax years underexamination vary by jurisdiction. The Company is included as part of the IRSexamination for the year ended June 30, 1998 through the year endedJune 30, 2002 which is expected to be substantially completed in thecurrent fiscal year. The Company regularly considers the likelihood ofassessments in each of the jurisdictions resulting from examinations. TheCompany has established tax reserves which it believes are adequate in relationto the potential assessments. Once established, reserves are adjusted whenthere is more information available, when an event occurs necessitating achange to the reserves or the statute of limitations for the relevant taxingauthority to examine the tax position has expired. The resolution of taxmatters should not have a material effect on the combined financial conditionof the Company, the Company’s Statements of Combined Earnings for a particularfuture period or on the Company’s effective tax rate.

In the year endedJune 30, 2005, the Company reversed a tax contingency of $4,460 due to theexpiration of the statute of limitations regarding a pre-acquisition contingenttax liability that was recorded in purchase accounting at the time of theacquisition of the subsidiary to which the contingency related. The reversalresulted in a reduction of goodwill recorded in purchase accounting.

**14.**   CONTRACTUALCOMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

TheCompany has obligations under various facilities and equipment leases andsoftware license agreements. Total costs under these agreements wereapproximately $10,320, $16,475 and $9,225 for the years ended June 30,2004 and 2005 and for the period from July 1, 2005 through April 13,2006, respectively, with minimum commitments at April 13, 2006 as follows:

| Period from  April 14, 2006 through June 30, 2006 |   | $      | 2,450  |   |
|-------------------------------------------------------------|--------|--------|--------|--------|
| Year ended  June 30, 2007                              |   | 17,497 |   |
| Year ended  June 30, 2008                              |   | 10,664 |   |
| Year ended June 30,  2009                              |   | 7,834  |   |
| Year ended  June 30, 2010                              |   | 4,619  |   |
| Thereafter                                                  |   | 8,757  |   |
|                                                        |   | $      | 51,821 |   |

 

In addition to fixed rentals, certain leases requirepayment of maintenance and real estate taxes and contain escalation provisionsbased on future adjustments in price indices.

The Company is subject to various claims andlitigation in the normal course of business. The Company does not believe thatthe resolution of these matters will have a material impact on the combinedfinancial statements.

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In the normal course ofbusiness, the Company enters into contracts in which it makes representationsand warranties that guarantee the performance of the Company’s products andservices. Losses related to such guarantees are insignificant.

**15.**   ACCUMULATEDOTHER COMPREHENSIVE INCOME

Comprehensiveincome is a measure of income that includes both net earnings and othercomprehensive income. Other comprehensive income results from items deferredwithin group equity on the combined balance sheets. Other comprehensive income(loss) was $2,073, $10,262 and $(997) for the years ended June 30,2004 and 2005 and for the period from July 1, 2005 through April 13,2006, respectively. The accumulated balances for each component of othercomprehensive income are as follows: 

| ** **                                        | ** ** | **Years Ended June 30** | ** ** | **Period From  July 1, 2005  through** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                        | ** ** | **2004**                               | ** ** | **2005**                                              | ** ** | **April 13, 2006** | ** ** |
| Currency  translation adjustments                 |       | $                                      | 20,688     |                                                  | $          | 31,541 |   |   | $ | 30,544 |   |   |
| Minimum pension  liability adjustment, net of tax |       | (156                                   | )          | (747                                                  | )          |   | — |   |   |
| Accumulated other comprehensive  income           |       | $                                      | 20,532     |                                                  | $          | 30,794 |   |   | $ | 30,544 |   |   |

 

**16.   SEGMENT ANDGEOGRAPHIC INFORMATION**

TheCompany manages its business operations through strategic business units andprovides technology-based outsourcing solutions to the property and casualtyinsurance, auto collision repair and auto recycling industries. Based upon theinformation reported to the chief operating decision maker, the Company has thefollowing reportable segments: Automotive Claims Services, Audatex, ADPBusiness Services, and Other. The Company evaluates the performance of itsreportable segments based on operating results before income taxes. 

| ** **                                                   | ** ** | **Automotive   Claims   Services** | ** ** | **ADP   Business   Services** | ** ** | **Audatex** | ** ** | **Other** | ** ** | **Discontinued   Operations** | ** ** | **Reconciling   Item   Corporate   Expenses** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------|------------|-------------------------------|------------|-------------|------------|-----------|------------|-------------------------------|------------|-----------------------------------------------|------------|-----------|------------|
| Year  ended June 30, 2004                               |       |                               |       |                          |       |        |       |      |       |                          |       |                                          |       |      |       |   |   |   |   |   |   |   |   |
| Revenues                                                     |       |                               | $          | 176,615                       |       |        |       | $         | 23,393     |                          |       | $                                             | 159,068    |      | $          | 2,103 |   |   | $ | — |   |   |   | $ | — |   |   | $ | 361,179 |   |
| Earnings before  income taxes                                |       |                               | 30,203     |                          |       |        | 4,549      |      |       | 38,590                        |       | 611                                           |       |      | —     |   |   |   | (7,471 | ) |   | 66,482 |   |
| Assets                                                       |       |                               | 67,417     |                          |       |        | 171,442    |      |       | 314,508                       |       | 554                                           |       |      | 2,848      |   |   |   | — |   |   | 556,769 |   |
| Capital  expenditures                                        |       |                               | 11,022     |                          |       |        | 128        |      |       | 4,736                         |       | 94                                            |       |      | —     |   |   |   | 15,980 |   |   |   |   |
| Depreciation and  amortization                               |       |                               | 13,642     |                          |       |        | 3,871      |      |       | 11,241                        |       | —                                        |       |      | —     |   |   |   | — |   |   | 28,754 |   |
| Interest income                                              |       |                               | —     |                          |       |        | —     |      |       | (1,601                        | )          | —                                        |       |      | —     |   |   |   | — |   |   | (1,601 | ) |
| Interest income on  notes receivable from affiliated parties |       |                               | (133       | )                             |       |        | (133       | )         |       |                          |       |                                          |       |      |       |   |   |   |   |   |   |   |   |
| Interest expense                                             |       |                               | —     |                          |       |        | —     |      |       | 19                            |       | —                                        |       |      | —     |   |   |   | — |   |   | 19 |   |
| Interest expense  on notes payable to affiliated parties     |       |                               | —     |                          |       |        | —     |      |       | 252                           |       | —                                        |       |      | —     |   |   |   | — |   |   | 252 |   |
| Year ended June 30,  2005                               |       |                               |       |                          |       |        |       |      |       |                          |       |                                          |       |      |       |   |   |   |   |   |   |   |   |
| Revenues                                                     |       |                               | $          | 174,096                       |       |        |       | $         | 49,956     |                          |       | $                                             | 186,196    |      | $          | 2,107 |   |   | $ | — |   |   |   | $ | — |   |   | $ | 412,355 |   |
| Earnings before  income taxes                                |       |                               | 32,036     |                          |       |        | 7,605      |      |       | 53,637                        |       | 471                                           |       |      | —     |   |   |   | (11,950 | ) |   | 81,799 |   |
| Assets                                                       |       |                               | 59,855     |                          |       |        | 181,339    |      |       | 366,267                       |       | 405                                           |       |      | 199        |   |   |   | — |   |   | 608,065 |   |
| Capital  expenditures                                        |       |                               | 2,982      |                          |       |        | —     |      |       | 4,642                         |       | 35                                            |       |      | —     |   |   |   | — |   |   | 7,659 |   |
| Depreciation and  amortization                               |       |                               | 15,319     |                          |       |        | 6,403      |      |       | 12,608                        |       | 5                                             |       |      | —     |   |   |   | — |   |   | 34,335 |   |
| Interest income                                              |       |                               | (3         | )                             |       |        | (99        | )         |       | (2,487                        | )          | —                                        |       |      | —     |   |   |   | — |   |   | (2,589 | ) |
| Interest income on  notes receivable from affiliated parties |       |                               | —     |                          |       |        | (248       | )         |       | (100                          | )          | —                                        |       |      | —     |   |   |   | — |   |   | (348 | ) |
| Interest expense                                             |       |                               | —     |                          |       |        | —     |      |       | —                        |       | —                                        |       |      | —     |   |   |   | — |   |   |   |   |
| Interest expense  on notes payable to affiliated parties     |       |                               | —     |                          |       |        | —     |      |       | 334                           |       | —                                        |       |      | —     |   |   |   | — |   |   | 334 |   |

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| Period from July 1,  2005 through April 13, 2006   |   |   |    |    |   |   |    |   |   |    |   |   |    |   |   |   |   |   |    |   |   |    |   |
|--------------------------------------------------------------|--------|--------|---------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|
| Revenues                                                     |   |   | $       | 133,998 |   |   |    | $      | 38,692 |    |   | $      | 160,823 |   | $      | 1,633  |   |   | $       | — |   |    |   | $ | — |   |   | $ | 335,146 |   |
| Earnings before  income taxes                                |   |   | (44,925 | )       |   |   | 2,507   |   |   | 117,459 |   | 358    |    |   | — |   |   |   | (10,730 | )      |   | 64,669  |   |
| Assets                                                       |   |   | 74,045  |    |   |   | 126,898 |   |   | 179,731 |   | 334    |    |   | — |   |   |   | —  |   |   | 381,008 |   |
| Capital  expenditures                                        |   |   | 3,848   |    |   |   | 60      |   |   | 5,763   |   | — |    |   | — |   |   |   | —  |   |   | 9,671   |   |
| Depreciation and  amortization                               |   |   | 11,451  |    |   |   | 5,066   |   |   | 12,377  |   | — |    |   | — |   |   |   | —  |   |   | 28,894  |   |
| Interest income                                              |   |   | 4       |    |   |   | 35      |   |   | 1,629   |   | — |    |   | — |   |   |   | —  |   |   | 1,668   |   |
| Interest income on  notes receivable from affiliated parties |   |   | —  |    |   |   | 228     |   |   | 770     |   | — |    |   | — |   |   |   | —  |   |   | 998     |   |
| Interest expense                                             |   |   | —  |    |   |   | —  |   |   | 17      |   | — |    |   | — |   |   |   | —  |   |   | 17      |   |
| Interest expense  on notes payable to affiliated parties     |   |   | —  |    |   |   | —  |   |   | 301     |   | — |    |   | — |   |   |   | —  |   |   | 301     |   |
|                                                              |        |        |         |         |        |        |         |        |        |         |        |        |         |        |        |        |        |        |         |        |        |         |        |  |  |  |  |  |  |  |

 

Revenues and long-livedtangible assets by geographic area are as follows: 

| ** **                                                  | ** ** | **United  States** | ** ** | **Europe** | ** ** | **Canada** | ** ** | **Other** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------|------------|--------------------|------------|------------|------------|------------|------------|-----------|------------|-----------|------------|
| Year ended  June 30, 2004:                             |       |               |       |       |       |       |       |      |       |      |       |
| Revenues                                                    |       | $                  | 157,685    |       | $          | 174,315    |       | $         | 21,033     |      | $          | 8,146 |   | $ | 361,179 |   |
| Property, plant, and equipment—net                     |       | 17,740             |       | 18,962     |       | 70         |       | 869       |       | 37,641    |       |
| Year ended  June 30, 2005:                             |       |               |       |       |       |       |       |      |       |      |       |
| Revenues                                                    |       | $                  | 152,391    |       | $          | 221,791    |       | $         | 23,812     |      | $          | 14,361 |   | $ | 412,355 |   |
| Property, plant, and equipment—net                     |       | 13,173             |       | 19,204     |       | 140        |       | 938       |       | 33,455    |       |
| Period from  July 1, 2005 through April 13, 2006: |       |               |       |       |       |       |       |      |       |      |       |
| Revenues                                                    |       | $                  | 115,355    |       | $          | 183,229    |       | $         | 20,275     |      | $          | 16,287 |   | $ | 335,146 |   |
| Property, plant,  and equipment—net                    |       | 12,038             |       | 19,291     |       | 81         |       | 1,780     |       | 33,190    |       |

 

**17.   SUBSEQUENTEVENTS**

In 1999 the European Court ruled that a German taxrule regarding the tax treatment of certain royalty fees paid to foreignentities was incompatible with European law. It was unclear whether the EuropeanCourt ruling applied to non-EU and Double Tax Treaty (DTT) countries. As aresult, the German law remained in effect, but German tax authorities suspendedtax assessments on trade taxes where the licensor/lessor was resident in anon-EU DTT country, reserving the right to assess the tax at a later date. Inresponse, the Company’s German subsidiaries began accruing a trade taxliability on royalties to non-EU DTT countries according to the German law. Asof April 13, 2006, a $6.7 million tax liability was recorded in theCompany’s financial statements. In November 2006 the Company was notifiedthat the German tax authorities issued a clarifying ordinance, stating that inthe case of lessors/licensors resident in EU or DTT countries the taxassessment would be permanently ceased. Based upon this decision, during thequarter ended December 31, 2006 Solera Holdings, LLC plans to reverse theentire $6.7 million accrual as a reduction to goodwill attributed to thepurchase of the Claims Services Group.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized on September 14,2007.
|        | SOLERA HOLDINGS, INC. |
|--------|-----------------------|
|   | /s/ Tony Aquila       |
|   | By:                   | Tony Aquila |
|   | Its:                  | Chief Executive Officer |

 

Accordingto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons on behalf of the registrant and in thecapacities indicated below on September 14, 2007.
|                              | **Signatures** | ** **                                        | ** ** | **Capacity** | ** ** | ** ** | ** ** |
|------------------------------|----------------|---------------------------------------------------|------------|--------------|------------|------------|------------|
| /s/ Tony Aquila              |           | President,  Chief Executive Officer and Director  |       |
| Tony  Aquila                 |           | (principal  executive officer)                    |       |
| /s/ Jack Pearlstein          |           | Chief  Financial Officer, Treasurer and Secretary |       |
| Jack  Pearlstein             |           | (principal  financial and accounting officer)     |       |
| /s/ Philip A. Canfield  |           |                                              |       |
| Philip A.  Canfield     |           | Director                                          |       |
| /s/ Craig A. Bondy      |           |                                              |       |
| Craig A.  Bondy         |           | Director                                          |       |
| /s/ Garen Staglin            |           |                                              |       |
| Garen  Staglin               |           | Director                                          |       |
| /s/ Roxani Gillespie         |           |                                              |       |
| Roxani  Gillespie            |           | Director                                          |       |
| /s/ Stuart J. Yarbrough |           |                                              |       |
| Stuart J.  Yarbrough    |           | Director                                          |       |
| /s/ Jerrell Shelton          |           |                                              |       |
| Jerrell Shelton              |           | Director                                          |       |

 

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**EXHIBIT INDEX**

| Exhibit  Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                    | ** ** |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 3.1             | *          | Amended and Restated  Certificate of Incorporation of the Registrant (as filed as Exhibit 3.1  to Solera Holdings, Inc.’s Form S-1/A filed with the SEC on  May 9, 2007)                                                                                                                                                                                                  |       |
| 3.2             | *          | By-laws of the  Registrant (filed as Exhibit 3.2 to Solera Holdings, Inc.’s  Form S-1/A filed with the SEC on May 9, 2007)                                                                                                                                                                                                                                                |       |
| 4.1             | *          | Specimen Common Stock  Certificate (filed as Exhibit 4.1 to Solera Holdings, Inc.’s  Form S-1/A filed with the SEC on May 9, 2007)                                                                                                                                                                                                                                        |       |
| 4.2             | *          | Registration Rights  Agreement, dated as of April 1, 2005, by and among Solera  Holdings, LLC, GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest  II, L.P. and each of the other Stockholders party thereto (filed as  Exhibit 4.2 to Solera Holdings, Inc.’s Form S-1 filed  with the SEC on February 12, 2007)                                     |       |
| 10.1            | *          | Transaction Agreement,  dated as of February 8, 2006, by and among Solera, Inc., Automatic  Data Processing, Inc., ADP Atlantic Inc., ADP Nederland B.V., ADP  International B.V., ADP Canada Co. and ADP Private Limited (filed as  Exhibit 10.1 to Solera Holdings, Inc.’s Form S-1 filed  with the SEC on February 12, 2007)                            |       |
| 10.2            | *          | Amendment No. 1 to  Transaction Agreement, dated as of March 28, 2006, by and among  Solera, Inc., Automatic Data Processing, Inc., ADP Atlantic Inc.,  ADP Nederland B.V., ADP International B.V., ADP Canada Co. and ADP  Private Limited (filed as Exhibit 10.2 to Solera Holdings, Inc.’s  Form S-1 filed with the SEC on February 12, 2007) |       |
| 10.3            | *          | Amendment No. 2 to  Transaction Agreement, dated as of April 13, 2006, by and among  Solera, Inc., Automatic Data Processing, Inc., ADP Atlantic Inc.,  ADP Nederland B.V., ADP International B.V., ADP Canada Co. and ADP Private  Limited (filed as Exhibit 10.3 to Solera Holdings, Inc.’s  Form S-1 filed with the SEC on February 12, 2007)      |       |
| 10.4            | *          | Professional Services  Agreement, dated as of April 1, 2005, by and among Solera Holding Corp.  and GTCR Golder Rauner, L.L.C. (filed as Exhibit 10.4 to Solera  Holdings, Inc.’s Form S-1 filed with the SEC on February 12,  2007)                                                                                                                                 |       |
| 10.5            | *#         | Solera  Holdings, Inc. 2007 Long-Term Equity Incentive Plan (filed as  Exhibit 10.5 to Solera Holdings, Inc.’s Form S-1/A filed  with the SEC on May 9, 2007)                                                                                                                                                                                                        |       |
| 10.6            | *#         | Form of Option  Agreement issued under 2007 Long-Term Equity Incentive Plan (filed as  Exhibit 10.6 to Solera Holdings, Inc.’s Form S-1/A filed  with the SEC on April 30, 2007)                                                                                                                                                                                     |       |
| 10.7            | *#         | Solera Holdings, LLC  2006 Employee Securities Purchase Plan (filed as Exhibit 10.7 to Solera  Holdings, Inc.’s Form S-1 filed with the SEC on  February 12, 2007)                                                                                                                                                                                                        |       |
| 10.8            | *#         | Solera  Holdings, Inc. 2007 Employee Stock Purchase Plan (filed as  Exhibit 10.8 to Solera Holdings, Inc.’s Form S-1/A filed  with the SEC on May 9, 2007)                                                                                                                                                                                                           |       |
| 10.9            | *#         | Form of  Indemnification Agreement (filed as Exhibit 10.9 to Solera  Holdings, Inc.’s Form S-1/A filed with the SEC on May 9,  2007)                                                                                                                                                                                                                                 |       |
| 10.10           | *          | Unit Purchase Agreement,  dated as of April 1, 2005, by and among Solera Holdings, LLC, GTCR  Fund VIII, L.P., GTCR Fund VIII/B, L.P. and GTCR Co-Invest II, L.P.  (filed as Exhibit 10.10 to Solera Holdings, Inc.’s Form S-1  filed with the SEC on February 12, 2007)                                                                                        |       |
| 10.11           | *          | Amended and Restated  Unit Purchase Agreement, dated as of April 13, 2006, by and among Solera  Holdings, LLC, GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., and GTCR  Co-Invest II, L.P. (filed as Exhibit 10.11 to Solera  Holdings, Inc.’s Form S-1 filed with the SEC on  February 12, 2007)                                                                     |       |
| 10.12           | *#         | Amended and Restated  Senior Management Agreement, dated as of April 13, 2006, by and among  Solera Holdings, LLC, Solera, Inc. and Tony Aquila (filed as  Exhibit 10.12 to Solera Holdings, Inc.’s Form S-1 filed  with the SEC on February 12, 2007)                                                                                                          |       |
| 10.13           | *#         | Employment Agreement  dated as of April 13, 2006, by and among Solera, Inc., Solera  Holdings, LLC and Jack Pearlstein (filed as Exhibit 10.13 to Solera  Holdings, Inc.’s Form S-1 filed with the SEC on  February 12, 2007)                                                                                                                                   |       |

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| 10.14 | *#     | Securities Purchase  Agreement, dated as of April 13, 2006, by and between Solera Holdings,  LLC and Jack Pearlstein (filed as Exhibit 10.14 to Solera Holdings, Inc.’s  Form S-1 filed with the SEC on February 12, 2007)                                                                                                                                                                                                                                                                              |   |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10.15 | *#     | Amended and Restated  Senior Management Agreement, dated as of April 13, 2006, by and among  Solera Holdings, LLC, Solera, Inc. and John Schwinn (filed as  Exhibit 10.15 to Solera Holdings, Inc.’s Form S-1 filed  with the SEC on February 12, 2007)                                                                                                                                                                                                                                            |   |
| 10.16 | *#     | Amended and Restated  Senior Management Agreement, dated as of April 13, 2006, by and among  Solera Holdings, LLC, Solera, Inc. and Michael Conway (filed as  Exhibit 10.16 to Solera Holdings, Inc.’s Form S-1 filed  with the SEC on February 12, 2007)                                                                                                                                                                                                                                          |   |
| 10.17 | *#     | Amended and Restated  Securities Purchase Agreement, dated as of April 13, 2006, by and  between Solera Holdings, LLC and Garen Staglin (filed as Exhibit 10.17  to Solera Holdings, Inc.’s Form S-1 filed with the SEC on  February 12, 2007)                                                                                                                                                                                                                                                          |   |
| 10.18 | *#     | Amended and Restated  Securities Purchase Agreement, dated as of April 13, 2006, by and  between Solera Holdings, LLC and Roxani Gillespie (filed as  Exhibit 10.18 to Solera Holdings, Inc.’s Form S-1 filed  with the SEC on February 12, 2007)                                                                                                                                                                                                                                                       |   |
| 10.19 | *#     | Letter Agreement, dated  as of February 8, 2006, by and between Solera, Inc. and Garen  Staglin (filed as Exhibit 10.19 to Solera Holdings, Inc.’s  Form S-1 filed with the SEC on February 12, 2007)                                                                                                                                                                                                                                                                                              |   |
| 10.20 | *#     | Consulting Agreement,  dated as of September 1, 2006, by and between Solera, Inc. and  Roxani Gillespie (filed as Exhibit 10.20 to Solera Holdings, Inc.’s  Form S-1 filed with the SEC on February 12, 2007)                                                                                                                                                                                                                                                                                      |   |
| 10.21 | *      | Form of Second  Amended and Restated Securities Purchase Agreement by and among the  Registrant, GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P. and GTCR Co-Invest  II, L.P. (filed as Exhibit 10.21 to Solera Holdings, Inc.’s  Form S-1/A filed with the SEC on May 9, 2007)                                                                                                                                                                                                                            |   |
| 10.22 |   | First Amended and  Restated First Lien Credit and Guaranty Agreement, dated as of May 16,  2007, among Audatex North America, Inc., Solera Nederland Holding B.V.,  Audatex Holdings IV B.V., Audatex Holdings, LLC, the other Guarantors party  thereto, Goldman Sachs Credit Partners L.P., Citigroup Global  Markets, Inc., Citicorp USA, Inc. and the other Lenders party  thereto (filed as Exhibit 10.1 to Solera Holdings, Inc.’s  Form 10-Q filed with the SEC on June 25, 2007) |   |
| 21.1  |   | List of subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 23.1  |   | Consent of Deloitte & Touche LLP,  independent registered public accounting firm                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
| 23.2  |   | Consent of Deloitte & Touche LLP,  independent auditors                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
| 31.1  |   | Certification by Tony Aquila, Chief Executive  Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 31.2  |   | Certification of Jack Pearlstein, Chief Financial  Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 32.1  |   | Certification Pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                   |   |

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*              Incorporatedby reference.

#             Managementcontract or compensatory plan or arrangement.

137

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