**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

**FORM10-Q**

**(Mark One)**

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

**For the quarterly period endedMarch 31, 2007**

**OR**

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

**For thetransition period from                           to                           **

**CommissionFile Number 001-33461**

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**SoleraHoldings, Inc.**

(Exact Name of Registrant asSpecified in Its Charter)

| **Delaware**                                                                       |   | **20-4552341**                                             |
|------------------------------------------------------------------------------------|--------|------------------------------------------------------------|
| (State or other  jurisdiction of                                                   |   | (I.R.S. Employer                                           |
| incorporation or  organization)                                                    |   | 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) |
|                                                                               |   |                                                       |
|                                                                               |
| Former name,  former address and former fiscal year, if changed since last report. |

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bysection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes  o  No  x

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act (Check one). 

| Large Accelerated Filer |   | Accelerated Filer |   | Non-Accelerated Filer |
|-------------------------|--------|-------------------|--------|-----------------------|
| o                       |   | o                 |   | x                     |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o  No  x

The number of shares outstanding of theissuer’s common stock, as of June 25, 2007, was 64,733,175.

 

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**TABLE OFCONTENTS**
| **PART I**       |         |                                                                                                                                                                   |
|------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **       |         |                                                                                                                                                                   |
|             | Item 1. | Financial  Statements                                                                                                                                                  |
|             |         |                                                                                                                                                                   |
|             |         | Condensed  Consolidated Balance Sheets as of March 31, 2007 (Unaudited) and June 30,  2006                                                                             |
|             |         |                                                                                                                                                                   |
|             |         | Condensed  Consolidated Statements of Operations (Unaudited) for the three months ended  March 31, 2007 and 2006 and for the nine months ended March 31, 2007 and 2006 |
|             |         |                                                                                                                                                                   |
|             |         | Condensed  Consolidated Statements of Cash Flows (Unaudited) for the nine months ended  March 31, 2007 and March 31, 2006                          |
|             |         |                                                                                                                                                                   |
|             |         | Notes to  Condensed Consolidated Financial Statements (Unaudited) March 31, 2007                                                                                       |
|             | Item 2. | Management’s  Discussion and Analysis of Financial Conditions and Results of Operations                                                                           |
|             | Item 3. | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                            |
|             | Item 4. | Controls and  Procedures                                                                                                                                               |
|             |         |                                                                                                                                                                   |
| **PART II** |         |                                                                                                                                                                   |
| ** **       |         |                                                                                                                                                                   |
|             | Item 1.      | Legal Proceedings                                                                                                                                                      |
|             | Item 1A      | Risk Factors                                                                                                                                                           |
|             | Item 2.      | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                           |
|             | Item 6. | Exhibits                                                                                                                                                               |

 

**CAUTIONARYSTATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995**

This report containsforward-looking statements within the meaning of the federal securities laws.These statements relate to analyses and other information that are based onforecasts of future results and estimates of amounts not yet determinable.These statements also relate to our future prospects, developments and businessstrategies.

These forward lookingstatements are identified by the use of terms and phrases such as “anticipate”,“believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”,and similar terms and phrases, including references to assumptions. However,these words are not the exclusive means of identifying such statements. Actualresults could differ materially from those projected, implied or anticipated bythe Company’s forward-looking statements. Some of the factors that could causeactual results to differ include: our dependence on a limited number ofcustomers for a substantial portion of our revenues; continued pricingpressure; implementation of or changes in laws or regulations; the effects ofcompetition in our industry; our ability to increase market share, successfullyintroduce new software and services and expand our operations to new geographiclocations; our ability to anticipate changes in technology and regulatorystandards and to successfully develop and introduce new and enhanced softwareon a timely basis; our limited operating history as a stand-alonecompany; potential impairment of our significant amount of goodwill andintangible assets; our access to information generated by third parties; systemfailures or other operational events that impact our ability to deliversoftware and services in a timely manner; our ability to safeguard our data;risks associated with our extensive global operations; the impact of or ourability to enter into future acquisitions, joint ventures or divestitures;future availability of additional capital; the unpredictability of intellectualproperty protection and maintenance; any future changes in management or lossof key personnel; the degree to which we are leveraged and the terms of ourdebt service obligations; the outcome of legal proceedings, and risksassociated with establishing and maintaining internal control over financialreporting in compliance with Section 404.

For a discussion of theseand other risks and uncertainties that could cause actual results to differfrom those contained in forward-looking statements, see “Item 1A RiskFactors”.

All forward-lookingstatements are qualified in their entirety by this cautionary statement, andthe Company undertakes no obligation to revise or update this Quarterly Reporton Form 10-Q to reflect events or circumstances after the date hereof.

2

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**PART I—FINANCIAL INFORMATION**

**Item 1.** **FinancialStatements.**

**SOLERA HOLDINGS, INC AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**AS OF MARCH 31, 2007 AND JUNE 30, 2006**

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

**(Unaudited)**
| ** **                                                                                                                                                                    | ** ** | **March 31** | ** ** | **June 30** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **2007**          | ** ** | **2006**         | ** ** |
| **ASSETS**                                                                                                                                                                    | ** ** | ** **        | ** ** | ** **       | ** ** |
|                                                                                                                                                                          |       |              |       |             |       |
| CURRENT ASSETS:                                                                                                                                                               |       |              |       |             |       |
| Cash and cash  equivalents                                                                                                                                                    |       | $                 | 97,393     |             | $          | 88,826 |   |
| Accounts  receivable — net                                                                                                                                               |       | 84,581            |       | 58,475           |       |
| Other current  assets                                                                                                                                                         |       | 38,652            |       | 35,912           |       |
| Deferred income  tax assets                                                                                                                                                   |       | 6,347             |       | 4,675            |       |
|                                                                                                                                                                          |       |              |       |             |       |
| Total current  assets                                                                                                                                                         |       | 226,973           |       | 187,888          |       |
|                                                                                                                                                                          |       |              |       |             |       |
| PROPERTY AND EQUIPMENT  — Net                                                                                                                                            |       | 50,935            |       | 38,285           |       |
|                                                                                                                                                                          |       |              |       |             |       |
| OTHER ASSETS                                                                                                                                                                  |       | 39,273            |       | 37,512           |       |
|                                                                                                                                                                          |       |              |       |             |       |
| LONG TERM DEFERRED  INCOME TAX ASSETS                                                                                                                                         |       | 6,669             |       | 6,605            |       |
|                                                                                                                                                                          |       |              |       |             |       |
| GOODWILL                                                                                                                                                                      |       | 556,733           |       | 541,421          |       |
|                                                                                                                                                                          |       |              |       |             |       |
| INTANGIBLE ASSETS — Net                                                                                                                                                  |       | 381,028           |       | 441,294          |       |
|                                                                                                                                                                          |       |              |       |             |       |
| TOTAL                                                                                                                                                                         |       | $                 | 1,261,611  |             | $          | 1,253,005 |   |
|                                                                                                                                                                          |       |              |       |             |       |
| **LIABILITIES AND UNITHOLDERS’  EQUITY (DEFICIT)**                                                                                                                       | ** ** | ** **        | ** ** | ** **       | ** ** |
| ** **                                                                                                                                                                    | ** ** | ** **        | ** ** | ** **       | ** ** |
| CURRENT LIABILITIES:                                                                                                                                                          |       |              |       |             |       |
| Accounts payable                                                                                                                                                              |       | $                 | 31,261     |             | $          | 14,043 |   |
| Accrued expenses  and other current liabilities                                                                                                                               |       | 108,000           |       | 107,479          |       |
| Income taxes  payable                                                                                                                                                         |       | 10,248            |       | 23,901           |       |
| Deferred income  tax liabilities                                                                                                                                              |       | 1,011             |       | 3,525            |       |
| Current portion  of long-term debt                                                                                                                                            |       | 23,189            |       | 16,211           |       |
|                                                                                                                                                                          |       |              |       |             |       |
| Total current  liabilities                                                                                                                                                    |       | 173,709           |       | 165,159          |       |
|                                                                                                                                                                          |       |              |       |             |       |
| LONG-TERM DEBT                                                                                                                                                                |       | 855,759           |       | 831,628          |       |
|                                                                                                                                                                          |       |              |       |             |       |
| OTHER LIABILITIES                                                                                                                                                             |       | 14,077            |       | 117              |       |
|                                                                                                                                                                          |       |              |       |             |       |
| LONG-TERM DEFERRED  INCOME TAX LIABILITIES                                                                                                                                    |       | 49,240            |       | 51,264           |       |
|                                                                                                                                                                          |       |              |       |             |       |
| Total  liabilities                                                                                                                                                            |       | 1,092,785         |       | 1,048,168        |       |
|                                                                                                                                                                          |       |              |       |             |       |
| CLASS B REDEEMABLE  PREFERRED UNITS — Unlimited units authorized; 204,239 and 204,239 units  issued and outstanding as of March 31, 2007 and June 30, 2006, respectively |       | 220,599           |       | 207,865          |       |
|                                                                                                                                                                          |       |              |       |             |       |
| MINORITY INTERESTS IN  CONSOLIDATED SUBSIDIARIES                                                                                                                              |       | 9,854             |       | 9,375            |       |
|                                                                                                                                                                          |       |              |       |             |       |
| UNITHOLDERS’ EQUITY  (DEFICIT):                                                                                                                                          |       |              |       |             |       |
| Common Units:  150,000,000 units authorized; 31,722,404 and 31,046,962 issued and outstanding  as of March 31, 2007 and June 30, 2006, respectively                           |       | —            |       | 4,907            |       |
| Deferred unit  based compensation                                                                                                                                             |       | —            |       | (1,446           | )          |
| Accumulated  deficit                                                                                                                                                          |       | (67,765           | )          | (19,627          | )          |
| Accumulated  other comprehensive income                                                                                                                                       |       | 6,138             |       | 3,763            |       |
|                                                                                                                                                                          |       |              |       |             |       |
| Total  unitholders’ equity (deficit)                                                                                                                                     |       | (61,627           | )          | (12,403          | )          |
|                                                                                                                                                                          |       |              |       |             |       |
| TOTAL                                                                                                                                                                         |       | $                 | 1,261,611  |             | $          | 1,253,005 |   |

 

Seenotes to condensed consolidated financial statements.

3

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**SOLERA HOLDINGS, INC AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THEQUARTER AND NINE MONTHS ENDED MARCH 31, 2007 AND 2006**

**(Inthousands, except per unit amounts)**

**(Unaudited)**
| ** **                                                                                            | ** ** | **Quarter Ended  March 31** | ** ** | **Nine Months Ended  March 31** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **2007**                              | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Revenues                                                                                              |       | $                                     | 121,701    |                                           | $          | 343 |   | $ | 349,420 |   | $ | 976 |   |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Cost of revenues :                                                                                    |       |                                  |       |                                           |       |   |   |   |   |
| Operating  expenses                                                                                   |       | 35,313                                |       | 495                                            |       | 102,847 |   | 1,493 |   |
| Systems  development and programming costs                                                            |       | 16,059                                |       | —                                         |       | 47,993 |   | — |   |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Total cost of revenues  (excluding depreciation and amortization)                                     |       | 51,372                                |       | 495                                            |       | 150,840 |   | 1,493 |   |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Selling, general  and administrative expenses                                                         |       | 31,739                                |       | 652                                            |       | 95,605 |   | 1,787 |   |
| Depreciation and  amortization                                                                        |       | 26,164                                |       | 44                                             |       | 77,219 |   | 123 |   |
| Restructuring  charges                                                                                |       | 932                                   |       | —                                         |       | 1,806 |   | — |   |
| Interest expense                                                                                      |       | 18,875                                |       | 1                                              |       | 55,291 |   | 3 |   |
| Other (income)  expense — net                                                                    |       | (291                                  | )          | (26                                            | )          | 1,972 |   | (88 | ) |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
|                                                                                                  |       | 77,419                                |       | 671                                            |       | 231,893 |   | 1,825 |   |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Loss before provision  for income taxes and minority interests                                        |       | (7,090                                | )          | (823                                           | )          | (33,313 | ) | (2,342 | ) |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Income tax provision                                                                                  |       | 1,327                                 |       | 1                                              |       | 3,444 |   | 1 |   |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Minority interest in  net income of consolidated subsidiaries                                         |       | 1,334                                 |       | —                                         |       | 2,861 |   | — |   |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Net loss                                                                                              |       | (9,751                                | )          | (824                                           | )          | (39,618 | ) | (2,343 | ) |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Dividends and  redeemable preferred unit accretion                                                    |       | 4,267                                 |       | 21                                             |       | 12,735 |   | 64 |   |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Net loss allocable to common  unitholders                                                             |       | $                                     | (14,018    | )                                              | $          | (845 | ) | $ | (52,353 | ) | $ | (2,407 | ) |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Net loss allocable to  common unitholders per unit:                                                   |       |                                  |       |                                           |       |   |   |   |   |
| Basic and  diluted                                                                                    |       | $                                     | (0.48      | )                                              | $          | (0.06 | ) | $ | (1.79 | ) | $ | (0.18 | ) |
|                                                                                                  |       |                                  |       |                                           |       |   |   |   |   |
| Weighted average units  used in the calculation of net loss per unit allocable to common unitholders: |       |                                  |       |                                           |       |   |   |   |   |
| Basic and diluted                                                                                     |       | 29,306                                |       | 13,660                                         |       | 29,171 |   | 13,660 |   |

 

Seenotes to condensed consolidated financial statements.

4

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**SOLERA HOLDINGS, INC AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE NINE MONTHS ENDED MARCH 31, 2007 AND 2006**

**(In thousands)**

**(Unaudited)**
| ** **                                                                                          | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                          | ** ** | **March 31**               | ** ** |
| ** **                                                                                          | ** ** | **2007**                        | ** ** | **2006** | ** ** |
|                                                                                                |       |                            |       |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                              |       |                            |       |   |   |
| Net loss                                                                                            |       | $                               | (39,618    | ) | $ | (2,343 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities:          |       |                            |       |   |   |
| Depreciation and  amortization                                                                      |       | 77,219                          |       | 123 |   |
| Minority  interests in net income of consolidated subsidiaries                                      |       | 2,861                           |       | — |   |
| Provision for  doubtful accounts                                                                    |       | 646                             |       | 5 |   |
| Amortization of  deferred unit based compensation                                                   |       | 552                             |       | — |   |
| Deferred income  taxes                                                                              |       | (6,761                          | )          | — |   |
| Change in fair  value of financial instrument                                                       |       | 3,454                           |       | — |   |
| Accrued interest  on mezzanine loan                                                                 |       | 10,246                          |       | — |   |
| Other                                                                                               |       | 608                             |       | — |   |
| Changes in  operating assets and liabilities — net of effects from acquisition of  businesses: |       |                            |       |   |   |
| (Increase) decrease  in accounts receivable                                                         |       | (20,676                         | )          | (192 | ) |
| Increase in  other assets                                                                           |       | (5,805                          | )          | (414 | ) |
| Increase in  accounts payable                                                                       |       | 16,049                          |       | 51 |   |
| Increase in  accrued expenses and other liabilities                                                 |       | 1,001                           |       | 857 |   |
| Increase in  accrued interest                                                                       |       | 1,540                           |       | — |   |
|                                                                                                |       |                            |       |   |   |
| Net cash  provided by (used in) operating activities                                                |       | 41,316                          |       | (1,913 | ) |
|                                                                                                |       |                            |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                              |       |                            |       |   |   |
| Capital  expenditures                                                                               |       | (23,412                         | )          | (197 | ) |
| Final working  capital payment adjustment for acquisition of business                               |       | (13,167                         | )          | — |   |
| Acquisitions of  business — net of cash acquired                                               |       | (1,110                          | )          | — |   |
|                                                                                                |       |                            |       |   |   |
| Net cash used in  investing activities                                                              |       | (37,689                         | )          | (197 | ) |
|                                                                                                |       |                            |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                              |       |                            |       |   |   |
| Proceeds from  issuance of debt                                                                     |       | 12,726                          |       | — |   |
| Repayments under  revolving credit facility                                                         |       | (6,000                          | )          | — |   |
| Repayments of  long-term debt                                                                       |       | (3,948                          | )          | — |   |
| Proceeds from  sale of Class A common units — net of offering costs                            |       | 203                             |       | — |   |
|                                                                                                |       |                            |       |   |   |
| Net cash  provided by financing activities                                                          |       | 2,981                           |       | — |   |
|                                                                                                |       |                            |       |   |   |
| EFFECT OF FOREIGN  CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                      |       | 1,959                           |       | — |   |
|                                                                                                |       |                            |       |   |   |
| NET CHANGE IN CASH AND  CASH EQUIVALENTS                                                            |       | 8,567                           |       | (2,110 | ) |
|                                                                                                |       |                            |       |   |   |
| CASH AND CASH  EQUIVALENTS — Beginning of period                                               |       | 88,826                          |       | 4,232 |   |
|                                                                                                |       |                            |       |   |   |
| CASH AND CASH  EQUIVALENTS — End of period                                                     |       | $                               | 97,393     |   | $ | 2,122 |   |
|                                                                                                |       |                            |       |   |   |
| SUPPLEMENTAL  DISCLOSURES                                                                           |       |                            |       |   |   |
| — Dividends and  redeemable preferred unit accretion                                           |       | $                               | 12,735     |   | $ | 64 |   |
| — Cash paid for  interest                                                                      |       | $                               | 41,996     |   | $ | — |   |

 

See notes to condensedconsolidated financial statements.

5

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**SOLERAHOLDINGS, INC AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(In thousands, exceptper unit and unit amounts)**

**(Unaudited)**

**1.       BUSINESS**

Solera Holdings, Inc. and subsidiaries (the “Company” or “Solera”) is aleading global provider of software and services to the automobile insuranceclaims processing industry. Its customers include more than 900 automobileinsurance companies, including each of the ten largest automobile insurancecompanies in Europe and each of the ten largest automobile insurance companiesin North America. The Company also provides software and services to over33,000 collision repair facilities, 7,000 independent assessors and 3,000automotive recyclers. Its software and services help its customers: estimatethe costs to repair damaged vehicles; determine pre-collision fair marketvalues for vehicles damaged beyond repair; automate steps of the claimsprocess; outsource steps of the claims process that insurance companies havehistorically performed internally; and improve their ability to monitor andmanage their businesses through data reporting and analysis. The Companyhas operations in 45 countries and derives most of its revenues from its estimatingand workflow software.

Solera was initially formed in March 2005. On April13, 2006, Solera acquired the Claims Services Group (“CSG”), a business unit ofAutomatic Data Processing, Inc. (“ADP”), for approximately $1.0 billion. Priorto 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, which resulted in an increase inthe accounting bases of some of our assets. This has resulted in a significantincrease in its annual depreciation and amortization expense. In addition, dueto the effects of the increased borrowings to finance the CSG acquisition, itsinterest expense has increased significantly in the periods following theacquisition. As a result, the financial information for periods beginning on orafter July 1, 2006 are not comparable to the information prior to this date.

In May 2007, the Company completed its initial publicoffering and converted to a Delaware corporation (see Note 11).

**2.       SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

***Unit-BasedCompensation***—Effective July 1, 2006, the Company adoptedSFAS No. 123 (revised 2004), Share-BasedPayment (“SFAS 123(R)”) which requires the measurement and recognitionof compensation expense for all share-based payment awards made to employeesand directors, including employee stock options and unit 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*, the Companyaccounted for employee unit awards under Accounting Principles Board (“APB”)No. 25, *Accounting for Stock Issued toEmployees*(“APB Opinion No. 25”) and followed the Disclosure—OnlyProvisions of SFAS No. 123.

The Company adopted SFAS 123(R) using the prospectivetransition method. Under this method, SFAS 123(R) is applied to new awards andto awards modified, repurchased or cancelled after the adoption date of July 1,2006. Compensation cost that was previously recorded under APB Opinion No. 25for awards outstanding at the adoption date, such as unvested options, willcontinue to be recognized as the options vest. Accordingly, for the nine monthsended March 31, 2007, unit-based compensation expense includes compensationcost related to estimated fair values of awards granted after the date ofadoption of SFAS 123(R) and compensation costs related to unvested awards atthe date of adoption based on the intrinsic values as previously recorded underAPB Opinion No. 25.

The fair value of unit options awards granted afterJuly 1, 2006 is estimated on the grant date using the Black-Scholes optionvaluation model. This valuation model for unit compensation expense requiresthe Company to make assumptions and judgments about the variables used in thecalculation including the expected term (weighted average period of time thatthe options granted are expected to be outstanding), the volatility of theCompany’s common units, an assumed risk free interest rate and the estimatedforfeitures of unvested unit awards. No compensation cost is recorded forawards that do not vest. For awards granted after July 1, 2006, and valued inaccordance with SFAS 123(R), the Company used the straight-line method forexpense attribution. Since the Company’s common units have not been activelytraded in the past, the Company uses the simplified calculation of expectedlife described in the Securities and Exchange Commission Staff AccountingBulletin No. 107 (“SAB 107”) and volatility is based on an average of thehistorical volatilities of the common stock of several entities withcharacteristics similar to those of the Company. The risk-free rate is based onthe U.S. Treasury yield curve in effect at the time of grant for periodscorresponding with the expected life of the option.

6

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During the ninemonths ended March 31, 2007, the Company granted the right to purchaserestricted common units as follows:

|                              | ** ** | **Number of  restricted  common units** | ** ** | **Purchase  price per  common unit** | ** ** | **Fair value  per  common 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 |   |
| Cancellations                |       | (462,717                                          | )          | $                                              | 0.30       |                                       | $          | 2.94                                                                                    |       | $ | (1,222 | ) |
|                         |       | 719,294                                           |       |                                           |       |                                       |       | $                                                                                       | 2,838      |   |

 

**3.       BASISOF PRESENTATION**

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with United States (“U.S.”)generally accepted accounting principles for interim financial information andapplicable regulations of the U.S. Securities and Exchange Commission. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States have been condensed or omitted pursuant to such rules andregulations. In the opinion of management, all adjustments (consisting only ofnormal recurring adjustments) considered necessary for a fair presentation offinancial position and results of operations have been included. The Company’s operatingresults for the three and nine months ended March 31, 2007 are not necessarilyindicative of the results that may be expected for future quarters and thefiscal year ending June 30, 2007. The accompanying unaudited condensedconsolidated financial statements should be read in conjunction with the auditedconsolidated financial statements for the year ended June 30, 2006, which areincluded in the Registration statement on Form S-1/A and the Company’s finalinitial public offering (the “IPO”) prospectus filed with the SEC on May 14,2007 (File No. 333-140626) along with the risk factors contained herein andtherein.

The preparation of the accompanying unauditedcondensed consolidated financial statements requires the use of estimates thataffect the reported amounts of assets, liabilities, revenues, expenses andcontingencies. Estimates are updated on an ongoing basis and are evaluatedbased on historical experience and current circumstances. Changes in facts andcircumstances in the future may give rise to changes in these estimates whichmay cause actual results to differ from current estimates.

The condensed consolidated financial statementsinclude the accounts of the Company and its subsidiaries. All significantintercompany accounts and transactions have been eliminated in consolidation.

On April 30, 2007, the Company’s Board of Managersapproved a one-for-three reverse unit split. Immediately after giving effect tothe split, the Company had approximately 31,046,962 common units outstanding(with fractional units to be paid to unitholders in cash). The split did notchange the number of authorized common units or modify any voting rights orother terms of the common units. All unit and per unit information in theaccompanying consolidated financial statements have been retroactively restatedto reflect the split.

**4.       NETINCOME (LOSS) PER COMMON UNIT**

The Company calculates net loss per common unit inaccordance with SFAS No. 128, *Earnings Per Share*(“SFAS No. 128”). Under SFAS No. 128, basic net loss per common unit iscalculated by dividing net loss by the weighted-average number of commonunits outstanding during the reporting period excluding units subject torepurchase.

7

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Reconciliation of units used in this calculation ofbasic net loss per unit for the quarter and nine months ended March 31, 2007and 2006, is as follows:

|                                                      | ** ** | **Quarter Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | **2007**               | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                 |       |                   |       |                            |       |   |   |   |   |
| Weighted average number  of common units             |       | 31,410                 |       | 15,595                          |       | 31,239 |   | 15,595 |   |
| Weighted average common  units subject to repurchase |       | (2,104                 | )          | (1,935                          | )          | (2,068 | ) | (1,935 | ) |
| Units used to calculate  basic net loss per unit     |       | 29,306                 |       | 13,660                          |       | 29,171 |   | 13,660 |   |

 

For the nine months ended March 31, 2007 and 2006,outstanding redeemable preferred units of 204,239 and 1,025, respectively, andnonvested carried common units of 2,283,673 and 1,934,656, respectively, havebeen excluded, as they are antidilutive due to the Company’s net loss. For thethree months ended March 31, 2007 and 2006, 204,239 and 1,025 redeemablepreferred units, respectively, and 2,283,673 and 1,934,656 nonvested carriedcommon units, respectively, have been excluded, as they are antidilutive to theCompany’s net loss.

**5.       RESTRUCTURINGCHARGES**

The Company has recorded restructuring charges, whichprimarily consist of one-time termination benefits, of $932 and $1,806 duringthe three and nine months ended March 31, 2007, respectively. The Company didnot incur any restructuring charges during the nine months ended March 31,2006. The 2007 restructuring initiatives were designed to achieve efficienciesand reduce costs in response to changes in projected demand for certainservices. One-time termination benefits relate to the termination ofapproximately 91employees during the nine months ended March 31, 2007. Therestructuring reserves are included in Accrued expenses and other currentliabilities in the condensed consolidated balance sheets. The following tablesummarizes the charges for restructuring and related activities, includingpayments made and the ending reserve balances by business segment:

|                                | ** ** | **EMEA** | ** ** | **Americas** | ** ** | **Total** | ** ** |
|--------------------------------|------------|----------|------------|--------------|------------|-----------|------------|
|                           |       |     |       |         |       |      |       |
| Balance — June 30, 2006   |       | $        | 1,653      |         | $          | 1,608     |       | $ | 3,261 |   |
| Adjustments/additions          |       | 131      |       | 1,820        |       | 1,951     |       |
| Payments                       |       | (1,347   | )          | (2,076       | )          | (3,423    | )          |
|                           |       |     |       |         |       |      |       |
| Balance — March 31,  2007 |       | $        | 437        |         | $          | 1,352     |       | $ | 1,789 |   |

 

The EMEA business segment encompasses the Company’soperations in Europe, the Middle East, Africa, and Asia. The Americas businessunit encompasses the Company’s operations in North America, and Central andSouth America.

**6.       GOODWILLAND INTANGIBLE ASSETS — NET**

Changes in goodwill during the nine month period endedMarch 31, 2007, by business segment are as follows:

|                                     | ** ** | **EMEA** | ** ** | **Americas** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|----------|------------|--------------|------------|-----------|------------|
|                                |       |     |       |         |       |      |       |
| Balance — June 30, 2006        |       | $        | 456,150    |         | $          | 85,271    |       | $ | 541,421 |   |
| Adjustments                         |       | (8,831   | )          | 5,735        |       | (3,096    | )          |
| Cumulative  translation adjustments |       | 18,741   |       | (333         | )          | 18,408    |       |
|                                |       |     |       |         |       |      |       |
| Balance — March 31,  2007      |       | $        | 466,060    |         | $          | 90,673    |       | $ | 556,733 |   |

 

Components of intangibleassets, excluding goodwill, as of March 31, 2007 and June 30, 2006, are asfollows:

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|                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
|                               |       |     |       |     |       |
| Intangibles (excluding  goodwill): |       |     |       |     |       |
| Internally  developed software     |       | $        | 21,046     |     | $          | 18,024 |   |
| Customer  relationships            |       | 182,511  |       | 179,138  |       |
| Trademarks                         |       | 14,331   |       | 14,396   |       |
| Software and  database technology  |       | 249,123  |       | 250,299  |       |
|                               |       |     |       |     |       |
|                               |       | 467,011  |       | 461,857  |       |
|                               |       |     |       |     |       |
| Less accumulated  amortization     |       | (85,983  | )          | (20,563  | )          |
|                               |       |     |       |     |       |
| Intangible assets — net       |       | $        | 381,028    |     | $          | 441,294 |   |

 

Intangible assets (exceptgoodwill) have finite lives and, as such, are subject to amortization. Theweighted average remaining useful life of the intangible assets is 12.35 years(3 years for internally developed software, 19.25 years for customerrelationships, 3.25 years for trademarks and 8.25 years for software anddatabase). Internally developed software is amortized on a straight-linebasis. Other intangible assets are amortized on an accelerated basis to reflectthe pattern in which economic benefits of the intangible assets are consumed.Amortization of intangibles totaled $24,932 and $65,012 for the three and ninemonths ended March 31, 2007, respectively. Through the nine months ended March31, 2006, there was no amortization expense related to intangible assets.Estimated amortization expense of the Company’s existing intangible assets forthe next five years ended June 30 are as follows:

| 2007 (remaining 3 months) |   | $       | 23,519  |   |
|---------------------------|--------|---------|---------|--------|
| 2008                      |   | 70,634  |    |
| 2009                      |   | 57,458  |    |
| 2010                      |   | 47,386  |    |
| 2011                      |   | 36,468  |    |
| Thereafter                |   | 145,563 |    |
|                      |   |    |    |
| Total                     |   | $       | 381,028 |   |

 

The above useful lives represent the Company’s bestestimates. However, actual lives may differ from these estimates. In addition, theexpected future amortization may vary based on fluctuations in foreign currencyexchange rates.

**7.       FINANCIALINSTRUMENTS AND DERIVATIVES**

***Financial Instruments*** — At March 31, 2007 and June 30, 2006,the carrying amounts of cash equivalents, receivables, accounts payable, andother liabilities approximated their fair values because of the short-termmaturities of these financial instruments. The carrying amounts of long-termdebt at March 31, 2007 and June 30, 2006, approximated fair value based onprevailing interest rates.

***Derivatives*** — In the normal course of business, theCompany is exposed to interest rate changes and foreign currency fluctuations.The Company strives to limit these risks through the use of derivatives such asinterest rate swaps and foreign exchange options. Derivatives are not used forspeculative purposes. However, the Company’s derivative instruments are notdesignated as hedging instruments.

Effective April 27, 2006, the Company entered into twointerest rate swaps with maturities on July 13, 2011. One swap has a notionalamount of $195,000 and requires the Company to pay a fixed rate of 5.35%. Thesecond interest rate swap has a notional amount of €368,421 and requires theCompany to pay, on a quarterly basis, a fixed rate of 3.72%. The estimated fairmarket value of the interest rate swaps was $2,258 and $1,082 as of March 31,2007 and June 30, 2006, respectively. The fair value of the interest rate swapswas recorded in Other assets and Accrued expenses and other current liabilitiesas of March 31, 2007 and June 30, 2006, in the condensed consolidated balancesheets. The realized and unrealized gains and losses related to these interestrate swaps are recorded in Other (income) expense — net, in the condensedconsolidated statements of operations. During the nine months ended March 31,2007, the Company recognized a loss on its interest rate swaps of $882, whichcomprised of the increase in fair market value of $1,176 and realized losses of$2,058.

In February 2006, the Company entered into a foreigncurrency exchange option (the “FX Option”) that gives the Company the option tocall USD $200,000 at a strike price of 1.1646 EUR/USD at any time up toFebruary 8, 2011. In February 2006, the Company paid approximately $7,912 forthe FX Option. As of March 31, 2007 and June 30, 2006,

9

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the fair value of the FX Option approximated $1,367and $3,980, respectively, and was recorded in other assets in the condensedconsolidated and consolidated balance sheets, respectively. The decrease infair value of approximately $2,613 and $3,932 was recognized in Other (income)expense in the condensed consolidated and consolidated statement of operations,respectively, during the nine months ended March 31, 2007 and the year endedJune 30, 2006.

The estimated fair values of the Company’s derivativeswere determined based on quoted market prices and may not be representative ofactual values that could have been realized or that will be realized in thefuture.

**8.       LONG-TERMDEBT**

Long-term debt at March 31, 2007 and June 30, 2006,consists of the following:

|                                                                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                            |       |     |       |     |       |
| Senior secured credit  facilities:                                              |       |     |       |     |       |
| First lien  credit facility:                                                    |       |     |       |     |       |
| Domestic  revolver loan, due April 2012                                         |       | $        | 10,000     |     | $          | 11,000 |   |
| European  revolver loan, due April 2012                                         |       | 7,895    |       | —   |       |
| Domestic term  loan, due April 2013                                             |       | 238,200  |       | 240,000  |       |
| European term  loan, due April 2013                                             |       | 287,300  |       | 281,127  |       |
| Second lien  credit facility — European term loan, due October 2013        |       | 217,104  |       | 210,845  |       |
| Subordinated  Unsecured Credit Facility — Mezzanine loan, due October 2014 |       | 118,449  |       | 104,867  |       |
|                                                                            |       |     |       |     |       |
| Total                                                                           |       | 878,948  |       | 847,839  |       |
|                                                                            |       |     |       |     |       |
| Less current portion                                                            |       | 23,189   |       | 16,211   |       |
|                                                                            |       |     |       |     |       |
| Long-term portion                                                               |       | $        | 855,759    |     | $          | 831,628 |   |

 

***Senior Secured Credit Facilities*** — In April 2006, the Company enteredinto a senior secured credit arrangement (the “Senior Secured Credit Facilities”)under a First and Second Lien Credit and Guaranty Agreement (the “First andSecond Lien Credit Facility”) with a syndicate of commercial lenders. The FirstLien Credit Facility includes a revolving commitment (the “Revolver CreditFacility”) 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. As of March 31,2007, the Company had $10,000, $7,895, $238,200 and $287,300 (€ 218,350) inoutstanding loans under the Revolver Credit Facility, Domestic Term Loan andEuropean Term Loan, respectively, with interest rates of 7.61%, 6.00%, 7.61%and 6.00%, respectively.

The Second Lien Credit Facility includes a Europeanterm loan commitment (the “European Second Term Loan”) of €165,000. As of March31, 2007, the Company had $217,104 (€165,000) in outstanding loans under theEuropean Second Term Loan.

Borrowings under the Senior Secured Credit Facilitiesbear interest, to be reset at the Company’s option, at a rate determined by thesole lead arranger of the syndicate of commercial lenders equal to (i) theoffer rate on dollars based on the British Bankers’ Association Settlement Ratefor deposits or (ii) the offer rate on the Euro from the Banking Federation ofthe European Union, or (iii) in the event such rates are not available, thenthe offered quotation rate to first class banks in the London inter-bank marketor European inter-bank market by Citibank USA Inc. for deposits, respectively,in each case, plus an applicable margin that varies based upon the Company’sconsolidated leverage ratio, as defined in the agreement. Beginning onSeptember 30, 2006, consecutive quarterly principal payments of $600 and €550are required for the Domestic Term Loan and European Term Loan, respectively,under the First Lien Credit Facility with the remaining balance due in April 2013.The Senior Secured Credit Facility allows for voluntary prepayments underspecified conditions and requires mandatory prepayments and commitmentreductions upon the occurrence of certain events, including among others, saleof assets, receipt of insurance or condemnation proceeds, excess cash flow, andissuances of debt and equity securities.

The obligations under the Senior Secured CreditFacility are secured by substantially all of the assets of the Company. TheSenior Secured Credit Facility contains certain covenants including, amongothers, requirements related to financial reporting, maintenance of operations,compliance with applicable laws and regulations, maintenance of

10

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interest rate protection 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 the business.Financial covenants include the requirement to maintain a minimum interestcoverage ratio and limit maximum total leverage, senior leverage ratios, and levelsof capital expenditures.

***Subordinated Unsecured CreditFacility*** — InApril 2006, the Company entered into a subordinated unsecured credit guarantyagreement (the “Subordinated Unsecured Credit Agreement”) with a syndicate ofcommercial lenders. The Subordinated Unsecured Credit Agreement consists of aEuropean term loan (the “European Mezzanine Loan”) of €80,000. As of March 31,2007, the Company had an outstanding European Mezzanine Loan balance of$118,449 (€90,021), including accumulated interest of $13,187, at an interestrate of 12.73% with a maturity date in October 2014.

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 (i) the offer rate on dollars based on the British Bankers AssociationSettlement Rate for deposits or (ii) the offer rate on the Euro from theBanking Federation of the European Union, or (iii) in the event such offerrates are not available, then the offered quotation rate to first class banksin the London inter-bank market or European inter-bank market by Citibank USA Inc.for deposits in each case, plus an applicable margin of 9%, which shall becapitalized, compounded, and added to the unpaid principal amount of theEuropean Mezzanine Loan on the last day of each interest period on no less thana 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 the business.Financial covenants include the requirement to maintain a minimum interestcoverage ratio and limit maximum total leverage, senior leverage ratios, andlevels of capital expenditures.

In connection with the Senior Secured CreditFacilities and the Subordinated Unsecured Credit Facility Agreements theCompany incurred approximately $32,000 in financing costs, which were deferredand included as part of other assets in the condensed consolidated balancesheet and are amortized on the effective interest method as interest expenseover the term of the debt. Amortization of deferred loan costs for the quarterand nine months ended March 31, 2007 included in interest expense wasapproximately $1,120 and $3,324, respectively.

***Future Minimum Principal Payments***— Futureminimum principal payments as of March 31, 2007 are as follows:

|                            | ** ** | **2007** | ** ** |
|----------------------------|------------|----------|------------|
|                       |       |     |       |
| 2007 (remaining 3  months) |       | $        | 19,218     |   |
| 2008                       |       | 5,294    |       |
| 2009                       |       | 5,294    |       |
| 2010                       |       | 5,294    |       |
| 2011                       |       | 5,294    |       |
| Thereafter                 |       | 838,554  |       |
|                       |       |     |       |
| Total                      |       | $        | 878,948    |   |

 

**9.       EMPLOYEEBENEFIT PLANS**

Pension Plans — The Company’s foreign subsidiaries sponsor variousdefined benefit plans and individual defined benefit arrangements coveringcertain eligible employees. All of the defined benefit plans and arrangementsare closed to new members. The benefits under these pension plans are based onyears of service and compensation levels. Funding is limited to statutory requirements.The Company uses a June 30 measurement date for its foreign pension plans. TheCompany had no international defined benefit plans prior to the acquisition ofCSG.

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The components of net pension expense were as follows:

|                                                        | ** ** | **Quarter Ended**       | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                             | ** ** | **March 31, 2007** | ** ** | **March 31, 2007**    | ** ** |
|                                                   |       |                         |       |                            |       |
| Service cost — benefits  earned during the period |       | $                            | 300        |                            | $          | 900 |   |
| Interest cost on  projected benefits                   |       | 400                          |       | 1,200                           |       |
| Expected return on plan  assets                        |       | (300                         | )          | (1,000                          | )          |
|                                                   |       | $                            | 400        |                            | $          | 1,100 |   |

 

**10.     SEGMENT AND GEOGRAPHIC INFORMATION**

The Company manages its business operations throughtwo strategic business units. Based upon the information reportedto the chief operating decision maker, who is the Chief Executive Officer, theCompany has the following reportable segments: EMEA and Americas. The EMEAbusiness unit encompasses the Company’s operations in Europe, the Middle East,Africa and Asia. The Americas business unit encompasses the Company’soperations in North America, and Central and South America. For the comparativethree and nine month periods ended March 31, 2006, the Company only consistedof the Americas segment, therefore, only applicable periods are presentedbelow. The Company evaluates the performance of its reportable segments basedon operating results before income taxes:

|                                                            | ** ** | **EMEA**   | ** ** | **Americas** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------|------------|------------|------------|--------------|------------|---------------|------------|------------|------------|
| **Quarter Ended March 31, 2007**                           | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues                                                   |       | $          | 72,342     |         | $          | 49,359        |       | $          | —     |   | $ | 121,701 |   |
| Earnings (loss) before  income taxes and minority interest |       | 15,415     |       | 242          |       | (22,747       | )          | (7,090     | )          |
| Assets                                                     |       | 897,546    |       | 319,383      |       | 44,682        |       | 1,261,611  |       |
| Capital expenditures                                       |       | 1,636      |       | 6,293        |       | —        |       | 7,929      |       |
| Depreciation and  amortization                             |       | 14,491     |       | 11,673       |       | —        |       | 26,164     |       |
| Interest expense                                           |       | 5          |       | 105          |       | 18,765        |       | 18,875     |       |
| Other (income) expense  — net                         |       | (520       | )          | 175          |       | 54            |       | (291       | )          |
|                                                       |       |       |       |         |       |          |       |       |       |
| **Nine Months Ended March 31,  2007**                      | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues                                                   |       | $          | 206,320    |         | $          | 143,100       |       | $          | —     |   | $ | 349,420 |   |
| Earnings (loss) before  income taxes and minority interest |       | 34,215     |       | 2,239        |       | (69,767       | )          | (33,313    | )          |
| Assets                                                     |       | 897,546    |       | 319,383      |       | 44,682        |       | 1,261,611  |       |
| Capital expenditures                                       |       | 5,220      |       | 18,192       |       | —        |       | 23,412     |       |
| Depreciation and  amortization                             |       | 43,256     |       | 33,963       |       | —        |       | 77,219     |       |
| Interest expense                                           |       | 13         |       | 194          |       | 55,084        |       | 55,291     |       |
| Other (income) expense  — net                         |       | (2,091     | )          | (85          | )          | 4,148         |       | 1,972      |       |

 

The Company conducts its sales, marketing and customerservice activities throughout the world. Geographic revenue informationis based on the location of the customer. No single country outside the UnitedStates, the Netherlands and the United Kingdom accounted for 10% or more oftotal external revenue or of long-lived assets.

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|                                       | ** ** | **United States** | ** ** | **The  Netherlands** | ** ** | **United  Kingdom** | ** ** | **All Other** | ** ** | **Total**  | ** ** |
|---------------------------------------|------------|------------------------|------------|----------------------|------------|---------------------|------------|--------------------|------------|------------|------------|
| **Quarter Ended March 31, 2007**      | ** ** | ** **             | ** ** | ** **           | ** ** | ** **          | ** ** | ** **         | ** ** | ** ** | ** ** |
| Revenues                              |       | $                      | 38,036     |                 | $          | 13,944              |       | $                  | 13,850     |       | $          | 55,871 |   | $ | 121,701 |   |
| Property and equipment  - net         |       | 27,246                 |       | 347                  |       | 3,322               |       | $                  | 20,020     |       | 50,935     |   |
|                                  |       |                   |       |                 |       |                |       |               |       |       |       |
| **Nine Months Ended March 31,  2007** | ** ** | ** **             | ** ** | ** **           | ** ** | ** **          | ** ** | ** **         | ** ** | ** ** | ** ** |
| Revenues                              |       | $                      | 109,853    |                 | $          | 41,954              |       | $                  | 37,389     |       | $          | 160,224 |   | $ | 349,420 |   |
| Property and equipment  - net         |       | 27,246                 |       | 347                  |       | 3,322               |       | $                  | 20,020     |       | 50,935     |   |

 

**11.     SUBSEQUENT EVENTS**

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 the sellingstockholders sold 10,987,500 shares of common stock, which included 3,937,500shares of common stock sold by the selling stock-holders pursuant to theunderwriters’ over-allotment option. In connection with the public offering,the Company amended its corporate status and converted from a Delaware limitedliability company into a Delaware corporation with 150,000,000 authorizedshares of common stock, par value $0.01 and 15,000,000 authorized shares ofpreferred stock, par value $0.01. Upon the effectiveness of the conversion, allof the Company’s outstanding preferred and common units were automaticallyconverted into shares of common stock based on their relative rights as setforth in the Company’s limited liability company agreement. Specifically, eachoutstanding common unit was converted into a number of shares of common stock basedon their relative rights as set forth in the Company’s limited liabilitycompany agreement. As a result, 31,633,211 common units were converted into31,633,211 shares of common stock and 204,016.1 preferred units were convertedinto 13,889,974 shares of common stock.

In connection withthe initial public offering, the Company engaged in refinancing transactionsand entered into an amended and restated senior credit facility. On May 16,2007, Audatex North America, Inc. (the “U.S. Borrower”) and Solera NederlandHolding B.V. and Audatex Holdings IV B.V. (each a “European Borrower”, andtogether the “European Borrowers”) entered into an amended and restated seniorcredit facility with Goldman Sachs Credit Partners L.P., as lead arranger,syndication agent, joint bookrunner, administrative agent and collateral agent,and a syndicate of banks, financial institutions and other institutionallenders. Borrowings under the amended and restated senior credit facilityconsisted of (i) a revolving credit facility that permits U.S. dollar orEuro-denominated borrowings of up to $50,000 in revolving credit loans andletters of credit; (ii) a U.S. dollar-denominated term loan in an aggregateamount of $230,000; and (iii) a Euro-denominated term loan in an aggregateamount of €280,000 (or $380,700). Euro-denominated borrowings were made by theEuropean Borrowers. Dollar denominated borrowings were made by the U.S.Borrowers. The full amount of the term loans are currently outstanding andborrowings under the revolving loan remained unchanged from those balancesexisting at March 31, 2007. The term loans will mature in May 2014 and therevolving loan will mature in May 2013. The amended and restated senior creditfacility requires that the term loans be prepaid with the net proceeds fromcertain events, including specified asset and equity sales, insurance proceeds,incurrence if indebtedness and excess cash flow.

The Company received approximately $283,000 in netproceeds from the initial public offering, after deducting underwritingdiscounts, commissions and expenses of approximately $24,200, and $607,600 innet proceeds under the amended and restated senior credit facility, after debtissuance costs of approximately $3,800. $889,200 of the $890,600 of combinednet proceeds were used to repay (i) $538,600 under the first lien creditfacility for all outstanding term loans and accrued interest thereon, (ii)$226,200 under the second lien credit facility for all borrowings and accruedinterest thereon, and a related prepayment premium of $4,500, and (iii)$124,400 under the subordinated unsecured credit (mezzanine) facility for allborrowings and accrued interest thereon, and a related prepayment premium of$2,500. The Company estimates that the total expenses of the offering wereapproximately $8,000, of which $3,000 was paid prior to the closing date of theoffering. 

In connection with the repayment of the aboveborrowings, the Company expects to incur a pre-tax, non-cash charge ofapproximately $35,700 on the early extinguishment of debt, which includesprepayment premiums of $7,000. The Company expects to recognize this loss onextinguishment of debt in the fourth quarter of its fiscal year ending June 30,2007.

Borrowings made bythe U.S. Borrower are unconditionally guaranteed by each of its existing andsubsequently acquired or organized majority-owned domestic subsidiaries and allof the obligations of the European Borrowers are unconditionally guaranteed byeach of its existing and subsequently acquired or organized majority-ownedsubsidiaries. Borrowings of the U.S. borrower are secured by substantially allthe assets of the U.S. Borrower and each U.S. subsidiary guarantor. Borrowingsof the European Borrowers are secured by substantially all the assets of theEuropean Borrowers and each European subsidiary guarantor. Amounts outstandingunder the term loan facilities will amortize in an aggregate principal amountequal to 1% per annum commencing on June 30, 2007, with the balance payableupon maturity. U.S. amounts outstanding under the term loan facility bearinterest at LIBOR or a

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base rate, asdefined in the credit agreement (at the Company’s option), plus 2.0%. Borrowingsunder the revolving credit facility that are denominated in U.S. dollars willbear interest at LIBOR or a base rate plus 2.0% or 1.75%, depending on theCompany’s leverage ratio. Borrowings denominated in Euros will bear interest atEUROBOR or a base rate plus 2.0% or 1.75%, depending on the Company’s leverageratio. The amended and restated senior credit facility contains customaryaffirmative covenants including, without limitation, delivery of notices ofcertain collateral matters, default, litigation, ERISA events and materialadverse change; hedging arrangements satisfactory to the administrative agent;further assurances; and inspection of books and properties.

The amended andrestated senior credit facility contains customary negative covenants,including, without limitation, limitations on dividends on, and redemptions andrepurchases of, equity interests and other restricted payments; limitations onmergers, acquisitions and asset sales; limitations on liens and leasebacktransactions; limitations on indebtedness; and limitations on loans andinvestments.

In connection with the initial public offering, theCompany adopted the 2007 Long Term Equity Incentive Plan. The equity incentiveplan will be administered by the compensation committee of the Company’s boardof directors. Subject to the specific provisions of the equity incentive plan,the compensation committee is authorized to select persons to participate inthe equity incentive plan, determine the form and substance of grants madeunder the equity incentive plan to each participant and otherwise make alldeterminations for the administration of the equity incentive plan. Individualseligible to participate in the equity incentive plan include directors(including non-employee directors), officers (including non-employee officers)and employees of, and other individuals performing services for the Company. Theequity incentive plan provides for the issuance of stock options, restrictedstock, deferred stock, dividend equivalents, other stock based awards andperformance awards. Performance awards may be based on the achievement ofcertain business or personal criteria or goals, as determined by thecompensation committee. An aggregate of 4,300,000 shares of the Company’scommon stock are reserved for issuance under the equity incentive plan, subjectto certain adjustments reflecting changes in the Company’s capitalization. Ifany grant 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 exercise price of the grant or thetaxes payable with respect to the exercise, then such unpurchased, forfeited,tendered or withheld shares will thereafter be available for further grantsunder the equity incentive plan.

In connection with the initial public offering, theCompany established an Employee Stock Purchase Plan (the “ESPP Plan”) providingfor the issuance of up to 1,500,000 shares of the Company’s common stock. Eachemployee who is expected, on a regularly-scheduled basis, to work more than 20hours per week for more than five months per calendar year automatically willbe enrolled in the plan. Newly hired employees who meet the above criteria willbe eligible once they have completed three months of service. Each participantwill be granted an option to purchase shares of the Company’s common stock atthe beginning of each six-month “offering period” under the plan, on each “exercisedate,” during the offering period. Exercise dates generally will occur on eachJune 30 and December 31. Participants will purchase the shares of the Company’scommon stock through after-tax payroll deductions, generally not to exceed 5%of the participant’s total base salary. No participant may purchase more than$25 of common stock in any one calendar year. The purchase price for each sharewill generally be 95% of the fair market value of a share on the first day ofthe offering period or the fair market value on the exercise date. If aparticipant’s employment with us or one of our designated subsidiariesterminates, any outstanding option of that participant also will terminate.

**Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations.**

**General**

This discussion should be read in conjunction withthe Notes to Condensed Consolidated Financial Statements included herein andthe Notes to Consolidated Financial Statements and Management’s Discussion andAnalysis of Financial Condition and Results of Operations included in ourProspectus dated May 10, 2007 and filed pursuant to Rule 424(b)(1) under theSecurities Act with the Securities and Exchange Commission on May 14, 2007.

**Overview of the Business**

We are a leading global provider ofsoftware and services to the automobile insurance claims processing industry.Our customers include more than 900 automobile insurance companies, includingeach of the ten largest automobile insurance companies in Europe and each ofthe ten largest automobile insurance companies in North America. We alsoprovide our software and services to over 33,000 collision repair facilities,7,000 independent assessors and 3,000 automotive recyclers. Our software andservices help our customers: estimate the costs to repair damaged vehicles;determine pre-collision fair

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market values for vehicles damaged beyondrepair; automate steps of the claims process; outsource steps of the claimsprocess that insurance companies have historically performed internally; andimprove their ability to monitor and manage their businesses through datareporting and analysis. We have operations in 45 countries and derivemost of our revenues from our estimating and workflow software.

**Segments**

We operate our business using tworeportable segments: EMEA and Americas. Our EMEA segment consists of ouroperations in Europe, the Middle East, Africa and Asia. Our Americas segmentconsists of our operations in North, Central and South America.

The table below sets forth our revenues byregional operating segment and as a percentage of our total revenues for theperiods indicated.
| ** ** | ** ** | **Three Months Ended March 31,** | ** ** |
|------------|------------|------------------------------------------------------|------------|
| ** ** | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| EMEA       |       | $                                                    | 72.3       |   | 59.4 | % | $ | 62.4 |   | 56.8 | % |
| Americas   |       | 49.4                                                 |       | 40.6 | % | 47.5 |   | 43.2 | % |
| Total      |       | $                                                    | 121.7      |   | 100.0 | % | $ | 109.9 |   | 100.0 | % |

 
| ** ** | ** ** | **Nine Months Ended March 31,** | ** ** |
|------------|------------|-----------------------------------------------------|------------|
| ** ** | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| EMEA       |       | $                                                   | 206.3      |   | 59.1 | % | $ | 180.0 |   | 56.2 | % |
| Americas   |       | 143.1                                               |       | 40.9 | % | 140.0 |   | 43.8 | % |
| Total      |       | $                                                   | 349.4      |   | 100.0 | % | $ | 320.0 |   | 100.0 | % |

 

Set forth below isour percentage of revenues for the periods presented from each of our principalcustomer categories:
|                                 | ** ** | **Nine Months Ended March 31,** | ** ** |
|---------------------------------|------------|-----------------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| Insurance companies             |       | $                                                   | 156.5      |   | 44.8 | % | $ | 143.0 |   | 44.7 | % |
| Collision repair  facilities    |       | 118.8                                               |       | 34.0 | % | 105.9 |   | 33.1 | % |
| Independent assessors           |       | 32.8                                                |       | 9.4 | % | 29.9 |   | 9.4 | % |
| Automotive recyclers  and other |       | 41.3                                                |       | 11.8 | % | 41.2 |   | 12.8 | % |
| Total                           |       | $                                                   | 349.4      |   | 100.0 | % | $ | 320.0 |   | 100.0 | % |

 

For the nine months ended March 31, 2007,the United States, the Netherlands and the United Kingdom were the onlycountries that individually represented more than 10% of total revenues.

The accounting policies for each of oursegments are the same. We evaluate the operating performance of our segmentsbased primarily upon their respective revenues and EBITDA. For the most part,we do not evaluate our costs and expenses on a per segment basis.

**Company History**

Solera was initially formed in March 2005.On April 13, 2006, Solera acquired the Claims Services Group (“CSG”), abusiness unit of Automatic Data Processing, Inc. (“ADP”), for approximately$1.0 billion. Prior to the acquisition of CSG, Solera’s operations consistedprimarily of developing our business plan, recruiting personnel, providingconsulting services, raising capital and identifying and evaluating operatingassets for acquisition. Our statement of operations for fiscal 2006 includesSolera’s results of operations for the entire year and the results ofoperations for CSG from April 14, 2006.

We accounted for the acquisition of CSGusing the purchase method of accounting. As a result, the acquisition of CSGhas and will continue to affect our results of operations significantly. Weallocated the aggregate acquisition consideration to the tangible andintangible assets acquired and liabilities assumed based on their respectivefair values as of

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the date of the acquisition, whichresulted in an increase in the accounting bases of some of our assets. This hasresulted in a significant increase in our annual depreciation and amortizationexpenses. In addition, due to the effects of the increased borrowings tofinance the CSG acquisition, our interest expense has increased significantlyin the periods following the acquisition. As a result, the financialinformation for periods beginning on or after July 1, 2006 are not comparableto the information prior to this date.

Prior to the acquisition, our business wasoperated as the Claims Services Group, a business unit of ADP. As a result, thecombined financial information of the CSG is presented on a carve-out basis andreflects the assets, liabilities, revenues and expenses that were attributed orallocated to it as a business unit of ADP. The historical financial results inthe combined financial statements may not be indicative of the results thatwould have been achieved had the Company operated as a stand-alone entity.These combined financial statements include costs for facilities, functions andservices used by the CSG at ADP sites that it shared with other ADP businessunits and costs for certain functions and services performed by centralized ADPorganizations and directly charged to the CSG based on usage. The combinedstatements of earnings for the CSG include allocations of certain expenses ofADP, including general corporate overhead, insurance, stock compensation andpension plans, royalty fees, facilities and other expenses. These allocationswere based on a variety of factors.

We recommend thatthese unaudited condensed consolidated financial statements be read inconjunction with the Company’s final initial public offering prospectus filedwith the SEC on May 14, 2007 (File No. 333-140626), which includes consolidatedfinancial statements and the notes thereto for the six months ended December 31,2006 and for the year ended June 30, 2006.

**Components of Revenuesand Expenses**

***Revenues***

We generate revenues from the sale ofsoftware and services to our customers pursuant to negotiated contracts orpricing agreements. Pricing for our software and services is set forth in theseagreements and negotiated with each customer. We generally bill our customersmonthly under one or more of the following bases:

·    price per transaction;

·    fixed monthly amount for a prescribed numberof transactions;

·    fixed monthly subscription rate;

·    price per set of services rendered; or

·    price per system delivered.

Our software and services are often soldas packages, without individual pricing for each component. Our revenues arereflected net of customer sales allowances, which we estimate based on both ourexamination of a subset of customer accounts and historical experience.

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. 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 ofour revenues. We currently derive an insubstantial portion of our revenues fromour shared services offerings. We believe that our estimating and workflowsoftware will continue to represent a majority of our revenue for theforeseeable future.

***Cost of Revenues (excluding depreciationand amortization)***

Our costs and expenses applicable torevenues represent the total of operating expenses and systems development andprogramming costs, which are discussed below.

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***Operating Expenses***

Our operating expenses includecompensation and benefit costs for our operations, database development andcustomer 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 ProgrammingCosts***

Systems development and programming costsinclude compensation and benefit costs for our product development and productmanagement personnel, other costs related to our product development andproduct management functions and costs related to external software consultantsinvolved in systems development and programming activities.

***Selling, General and AdministrativeExpenses***

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

***Depreciation and Amortization***

Depreciation includes depreciationattributable to buildings, leasehold improvements, data processing and computerequipment, furniture and fixtures. Amortization includes amortizationattributable to software purchases and software developed or obtained forinternal use and our intangible assets, the majority of which were acquired inthe acquisition.

***Interest Expense***

Interest expense consists primarily ofpayments of interest on our credit facilities and amortization of related debtissuance costs.

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

Other (income) expense-net consists offoreign exchange gains and losses on notes receivable and notes payable toaffiliates as well as other miscellaneous income and expense.

***Minority Interests in Net Income ofConsolidated Subsidiaries***

Several of our customers own minorityinterests in our local operating subsidiaries. Minority interests in net incomeof consolidated subsidiaries reflect such customers’ proportionate interest inthe earnings of such operating subsidiaries. In April 2004, we increased ourownership interest in a Spanish entity from 25% to 75%, which resulted in suchentity being consolidated with our results of operations.

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

Prior to the completion of our publicoffering on May 16, 2007, we were a limited liability company and, therefore,we were not subject to entity-level federal income taxation. However, even as alimited liability company, we incurred income taxes on our operations as theywere held by taxable entities in the U.S. and in foreign jurisdictions. Priorto the completion of our initial public offering, our income taxes with respectto the limited liability company were payable by our equity holders at ratesapplicable to them. Following our conversion to a C corporation in connectionwith the public offering, transactions recorded by us are subject to federalincome taxation for which we do not expect a significant impact to our overallincome tax liability.

As part of theacquisition of CSG, a portion of the purchase price has been allocated tointangible assets and goodwill. For most jurisdictions in which we operate, theamortization charges and impairment charges will not be deductible for incometax purposes. The net deferred tax liability as shown on our balance sheet isprimarily the result of the difference between book and tax basis of theacquired intangible assets.

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**FactorsAffecting Our Operating Results**

***        Overview.***    The automobile insuranceclaims processing industry is influenced by growth and trends in the automobileinsurance industry. Demand for our software and services is generally relatedto automobile usage and the penetration of automobile insurance in our markets.A large portion of our operating costs are fixed and we generate a largepercentage of our revenues from periodic-and transaction-based fees related tosoftware and ongoing claims processing services. 

        Ouroperating results are and will be influenced by a variety of factors,including: 

·  gain and loss of customers; 

·  pricing pressures; 

·  expansions into new markets, which requires usto incur costs prior to generating revenues; 

·  expenses to develop new software or services; 

·  restructuring charges related to efficiencyinitiatives;

·  the acquisition of CSG in April 2006,including the debt we incurred; and 

·  our corporate reorganization and therefinancing transactions. 

***        Foreigncurrency.***    Duringthe nine months ended March 31, 2007, we generated approximately 68.6% 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 $2.4 million in thenine months ended March 31, 2007 in our condensed consolidated financialstatements. 

        InFebruary 2006, we entered into a foreign exchange option for the benefitof existing shareholders. This option gives us the right to call$200.0 million in U.S. dollars at a strike price of €1.1646 per U.S.dollar at any time up to February 8, 2011. We paid approximately$7.9 million for this option. The fair value of this option wasapproximately $4.0 million as of June 30, 2006 and $1.4 millionas of March 31, 2007, and was recorded in other assets in our consolidated andcondensed consolidated balance sheets, respectively. Decreases in fair value ofapproximately $3.9 million, and $2.6 million were recognized in otherexpense in the statement of operations during fiscal 2006 and the nine monthsended March 31, 2007, respectively.  

***        Non-cash andrestructuring charges.***    OnJuly 25, 2006 and on November 8, 2006, we granted the right to purchaseCommon shares to certain employees. Under these and other arrangements, we issuedan aggregate of 625,429 Common shares to 20 of our employees for$0.2 million in January 2007 and an aggregate of 50,000 Common sharesto two of our employees for $15,000 in February 2007.  We expect to incur a pre-tax, non-cash chargeof approximately $2.8 million in connection with these issuances, over thevesting period of approximately five years. During the nine months ended March31, 2007, we have recognized approximately $0.6 million as compensationexpense. In the fourth quarter of fiscal 2007, we expect to incur an additionalpre-tax, non-cash charge of approximately $35.7 million on the earlyextinguishment of debt associated with the completion of the Company’s initialpublic offering and the refinancing of debt. This relates primarily to the write-off of unamortized debt issuancecosts and a prepayment premium on our second lien credit facility and oursubordinated unsecured credit facility. We have incurred restructuring charges(or reversal) 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. 

        Weare currently evaluating several plans that would eliminate redundant personnelin each of our segments, as well as reduce our need for certain facilities. Ifall of these plans were to be executed upon, we would expect to incurrestructuring charges of approximately $10.0 million to $12.0 millionover the next twelve months. These potential charges, consisting primarily oftermination benefits, will significantly reduce our cash balances. Theresulting benefit of these restructuring plans, if implemented, would reduceour cost of revenues and our selling, general and administrative expenses byapproximately $5.0 million to $6.0 million on an annual basis. We donot expect reduced revenues or an increase in other expenses as a result of anyof these restructuring plans. 

**Resultsof Operations**

                The table below sets forth ourresults of operations data expressed as a percentage of revenues for theperiods indicated:

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| ** **                                                         | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                         | ** ** | **2007**                                             | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Revenues                                                           |       | 100.0                                                | %          | 100.0                                               | %          | 100.0 | % | 100.0 | % |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Cost of revenues:                                                  |       |                                                 |       |                                                |       |   |   |   |   |
| Operating expenses                                                 |       | 29.0                                                 | %          | 33.9                                                | %          | 29.4 | % | 31.1 | % |
| Systems development and  programming costs                         |       | 13.2                                                 | %          | 15.1                                                | %          | 13.7 | % | 15.3 | % |
| Total cost of revenues (excluding depreciation and  amortization)  |       | 42.2                                                 | %          | 49.0                                                | %          | 43.2 | % | 46.5 | % |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Selling, general & administrative expenses                     |       | 26.1                                                 | %          | 23.0                                                | %          | 27.4 | % | 24.1 | % |
| Depreciation and amortization                                      |       | 21.5                                                 | %          | 9.0                                                 | %          | 22.1 | % | 8.6 | % |
| Restructuring charges                                              |       | 0.8                                                  | %          | (0.2                                                | )%         | 0.5 | % | (0.1 | )% |
| Interest expense                                                   |       | 15.5                                                 | %          | 0.0                                                 | %          | 15.8 | % | 0.0 | % |
| Other (income) expense—net                                    |       | (0.2                                                 | )%         | 0.4                                                 | %          | 0.6 | % | (0.9 | )% |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Earnings before provision for income taxes and  minority interests |       | (5.8                                                 | )%         | 18.8                                                | %          | (9.5) | % | 21.9 | % |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Income tax provision (benefit)                                     |       | 1.1                                                  | %          | 13.7                                                | %          | 1.0 | % | 10.0 | % |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Minority interest in net income of consolidated subsidiaries       |       | 1.1                                                  | %          | 1.0                                                 | %          | 0.8 | % | 0.9 | % |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Net earnings  (loss) from continuing operations                    |       | (8.0                                                 | )%         | 4.1                                                 | %          | (11.3 | )% | 10.9 | % |

 

**NineMonths Ended March 31, 2007 Compared to Predecessor Nine Months Ended March 31,2006**

The tablebelow sets forth statement of operations data, including the amount andpercentage changes for the periods indicated:
|                                                                   | ** ** | **Nine Months Ended March 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                        | ** ** | **2007**                                            | ** ** | **2006**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|                                                              |       |                                                |       |       |       |              |       |   |   |
| Revenues                                                          |       | $                                                   | 349.4      |       | $          | 320.0             |       | $ | 29.4 |   | 9.2 | % |
|                                                              |       |                                                |       |       |       |              |       |   |   |
| Cost of  revenues:                                                |       |                                                |       |       |       |              |       |   |   |
| Operating expenses                                                |       | 102.8                                               |       | 99.6       |       | 3.2               |       | 3.2 | % |
| Systems development and programming costs                         |       | 48.0                                                |       | 49.1       |       | (1.1              | )          | (2.2 | )% |
| Total cost of  revenues (excluding depreciation and amortization) |       | 150.8                                               |       | 148.7      |       | 2.1               |       | 1.4 | % |
|                                                              |       |                                                |       |       |       |              |       |   |   |
| Selling, general  & administrative expenses                   |       | 95.6                                                |       | 77.1       |       | 18.5              |       | 24.1 | % |
| Depreciation and  amortization                                    |       | 77.2                                                |       | 27.5       |       | 49.7              |       | 181.1 | % |
| Restructuring  charges                                            |       | 1.8                                                 |       | (0.5       | )          | 2.3               |       | 485.7 | % |
| Interest expense                                                  |       | 55.3                                                |       | 0.0        |       | 55.3              |       | — |   |
| Other (income)  expense - net                                     |       | 2.0                                                 |       | (2.8       | )          | 4.8               |       | 175.1 | % |
|                                                              |       |                                                |       |       |       |              |       |   |   |
| Earnings before  provision for income taxes and minority interest |       | (33.3                                               | )          | 70.0       |       | (103.3            | )          | (147.6 | )% |
|                                                              |       |                                                |       |       |       |              |       |   |   |
| Income tax  provision (benefit)                                   |       | 3.4                                                 |       | 32.1       |       | (28.7             | )          | (89.3 | )% |
|                                                              |       |                                                |       |       |       |              |       |   |   |
| Minority  interest in net income of consolidated subsidiaries     |       | 2.9                                                 |       | 2.9        |       | —            |       | — |   |
|                                                              |       |                                                |       |       |       |              |       |   |   |
| Net earnings (loss)  from continuing operations                   |       | $                                                   | (39.6      | )          | $          | 35.0              |       | $ | (74.6 | ) | (213.3 | )% |

 

*                Revenues.*    Revenues increased $29.4million due to higher revenues in both our EMEA and Americas segments. Our EMEArevenues increased $26.3 million, or 14.6%, to $206.3 million due togrowth in transaction and subscription revenues in several countries from bothexisting as well as several new customers, and a $2.5 million increaseresulting from the completion of a small acquisition in the Netherlands. OurAmericas revenues increased $3.1 million, or 2.2%, to $143.1 milliondue to growth in transaction and subscription revenues in the US, Canada,Brazil and Mexico, partially offset by the loss of several significant U.S.insurance customer contracts, and a reduction in contract pricing terms givento a large U.S. insurance customer. Revenue growth for each of our customer categories was as follows:
| ** **                      | ** ** | **Nine Months Ended March 31, 2007** | ** ** |
|---------------------------------|------------|---------------------------------------------------------------|------------|
| **Customer category**      | ** ** | **Revenue   Growth**                                     | ** ** | **Percentage   Change** | ** ** |
| Insurance  companies            |       | $                                                             | 13.5       |   | 9.4 | % |
| Collision repair  facilities    |       | 12.8                                                          |       | 12.1 | % |
| Independent  assessors          |       | 3.0                                                           |       | 9.9 | % |
| Automotive  recyclers and other |       | 0.1                                                           |       | 0.3 | % |
| Total                           |       | $                                                             | 29.4       |   | 9.2 | % |

 

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*      Operatingexpenses.*    Operating expensesincreased $3.2 million, or 3.2%, due to higher operating expenses in ourAmericas segment, offset by slightly lower operating costs in our EMEAsegment.  Operating expenses increased$3.4 million in our Americas segment due to a $0.8 million increase inthird party license and royalty fees, a $0.8 million increase in personnel andtemporary outside professional and consulting services related to a largeimplementation and roll-out for a large insurance customer, a $0.7 millionincrease in professional and legal fees, and a $1.1 million increase in otheroperating expenses. Operating expenses decreased $0.2 million in our EMEAsegment due to a $3.2 million decrease in personnel costs, offset by a$3.0 million increase in other operating expenses. We continually evaluate ouroperating costs in order to identify inefficiencies and eliminate unnecessarycosts. We anticipate that, although our operating expenses will continue toincrease, they will decline as a percentage of revenues over the next severalyears. 

*        Systemsdevelopment and programming costs.*    Systemsdevelopment and programming costs decreased $1.1 million, or 2.2%, due toa $4.1 million reduction in costs in our Americas segment, offset by a $3.0million increase in expenses in our EMEA segment.  The lower costs in our Americas segment wasdue to reductions in the number of full-time systems development andprogramming personnel and lower external software consultant costs.  The increased costs in our EMEA segment wererelated to additional expenses associated with the development of softwareupdates and new software releases. 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 administrative expenses increased $18.5 million, or 24.1%, due toincreased costs of $10.4 million in our Americas segment and increased costs of$8.1 million in our EMEA segment.   Theincreased costs in our Americas segment were the result of an increase inexecutive and administrative personnel costs, an increase in professional andlegal fees, and an increase in marketing, facilities, severance and acquisitiontransition costs.  Selling, general andadministrative costs also increased in our EMEA segment as a result of ourexpansion efforts into new markets, such as Eastern Europe, India and China aswell as severance and acquisition transition costs. We expect these expenses tocontinue to increase as we incur additional costs associated with being apublic company and as we continue to expand our business into new markets. 

*        Depreciationand amortization.*    Depreciationand amortization increased $49.7 million due to the significant intangiblesamortization expense resulting from the acquisition, partially offset by aslight decrease in depreciation expense due to the timing of asset purchasesand the capitalization of expenses associated with the development of ourinternal use software. We expect to experience significant depreciation andamortization in the future as we amortize intangible assets purchased in theacquisition.

*        Restructuringcharges.*    Restructuringcharges for the nine months ended March 31, 2007 were incurred as a result ofoperational reviews conducted after the acquisition of CSG and relate almostentirely to one-time termination benefits. The prior period included a reversalof charges incurred in preceding periods as a result of actual restructuringcosts incurred being lower than anticipated. We expect to incur additionalrestructuring charges, relating primarily to severance costs, over the nextseveral quarters as we work to improve efficiencies in our business. 

*        Interestexpense.*    Interest expenseincreased $55.3 million due to borrowings in connection with theacquisition of CSG. We expect that our annual interest expense will decrease asa result of the refinancing transactions completed in conjunction with our initialpublic offering on May 16, 2007.

*        Other(income) expense—net.*    Totalother (income) expense, net increased $4.8 million.  $3.4 million of this increase was due tonet realized and unrealized losses on our derivative instruments, and $1.4million of which was due to a reduction in foreign exchange gains on notespayable to affiliated parties. 

*        Incometax provision.*    We recorded an income tax provision of$1.3 million and $3.4 million for the three and nine months ended March 31,2007, respectively.  Factors that impactour income tax provision include (but not limited to) the mix of jurisdictionalearnings, establishment of valuation allowances in certain jurisdictions, andvarying jurisdictional income tax rates that are applied.

*        *Prior tothe acquisition by Solera on April 13, 2006, CSG recorded an income taxprovision of $15.0 million and $32.1 million for the three and nine monthsended March 31, 2006, respectively.  Thechange in the income tax provision from 2006 to 2007 is primarily attributableto amortization expense and interest expense associated with the acquisition ofCSG.

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**Liquidityand Capital Resources**

        Sincethe acquisition of CSG, our principal sources of cash have included cashgenerated from operations and bank borrowings. Our principal uses of cash haveincluded debt service, capital expenditures and working capital. We expect thatthese will remain our principal uses of cash in the future; however, we may useadditional cash to pursue additional acquisitions. We expect our cash needs toservice debt will decrease in future periods as a result of the application ofproceeds from the refinancing transactions completed in conjunction with our initialpublic offering which were used to repay debt. 

        Webelieve that cash flow from operating activities and borrowings under ouramended and restated senior credit facility will be sufficient to fundcurrently anticipated working capital, planned capital spending and debtservice requirements for the foreseeable future, including at least the nexttwelve months. We regularly review acquisition and other strategicopportunities, which may require additional debt or equity financing. Wecurrently do not have any pending agreements or understandings with respect toany acquisition or other strategic opportunity.

***Cash and CashEquivalents***

As of March31, 2007, we had cash and cash equivalents of $97.4 million. We fund ouroperations, working capital and capital expenditures with our cash on hand andshort-term borrowings under our credit facility. Our cash on hand andshort-term borrowings vary significantly based on our cash flows as set forthbelow. 

***Cash Flows***

Thefollowing summarizes our primary sources and uses of cash in the periodspresented:
| ** **              | ** ** | **Nine Months Ended March 31,** | ** ** |
|-------------------------|------------|-----------------------------------------------------|------------|
| **(in thousands)** | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
|                    | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Operating  activities   |       | $                                                   | 41,316     |   | $ | 51,084 |   |
| Investing  activities   |       | $                                                   | (37,689    | ) | $ | (15,680 | ) |
| Financing activities    |       | $                                                   | 2,981      |   | $ | (32,827 | ) |

 

*                Operating activities.*    Cash provided by operatingactivities was $41.3 million and $51.1 million during the nine monthsended March 31, 2007 and March 31, 2006 respectively.  The decrease in cash provided by operatingactivities during the nine months ended March 31, 2007 was primarily the resultof an increase in the Company’s net loss, partially offset by an increase inthe change in operating assets and liabilities.

*                Investing activities.*    Cash used in investingactivities was $37.7 million and $15.7 million during the nine monthsended March 31, 2007 and March 31, 2006 respectively.  The increase in cash used by investingactivities during the nine months ended March 31, 2007 was primarily the resultof a $13.2 million final working capital payment to ADP for the purchase ofCSG, and an increase in capital equipment purchases. Additionally, in the firstquarter of fiscal 2007, we acquired a small operating entity in the Netherlandsfor approximately $1.0 million, net of cash acquired. 

*                Financing activities.*    Cashprovided by financing activities was $3.0 million and $32.9 million cashused by financing activities during the nine months ended March 31, 2007 andMarch 31, 2006 respectively.  Financingactivities in the nine months ended March 31, 2006 included net amounts returnedto ADP, the parent of our predecessor. Cash provided by financing activities during the nine months ended March31, 2007, consisted primarily of issuances of debt, offset by the payment ofprincipal on our long-term borrowings. Other principal financing activities inthe final quarter of fiscal 2007 will include the refinancing transactions. 

                On May 16, 2007, we completed an initial publicoffering of shares of the Company's common stock.  In the initial public offering, the Companysold 19,200,000 shares of common stock and the selling stockholders sold10,987,500 shares of common stock, which included 3,937,500 shares of commonstock sold by the selling stock-holders pursuant to the underwriters'over-allotment option.  In connectionwith the public offering, the Company amended its corporate status and  

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converted from an LLC toa Delaware corporation with 150,000,000 authorized shares of common stock, parvalue $0.01 and 15,000,000 authorized shares of preferred stock, par value$0.01.  

                TheCompany received approximately $283.0 million in net proceeds from the initialpublic offering, after deducting underwriting discounts, commissions andexpenses of approximately $24.2 million, and $607.6 million in net proceedsunder the amended and restated credit facility, after debt issuance costs ofapproximately $3.8 million. $889.2 million of the $890.6 million of combinednet proceeds were used to repay (i) $538.6 million under the first lien creditfacility for all outstanding term loans and accrued interest thereon, (ii)$226.2 million under the second lien credit facility for all borrowings andaccrued interest thereon, and a related prepayment premium of $4.5 million, and(iii) $124.4 million under the subordinated unsecured credit (mezzanine)facility for all borrowings and accrued interest thereon, and a relatedprepayment premium of $2.5 million. The Company estimates that the totalexpenses of the offering were approximately $8.0 million, of which $3.0 millionwas paid prior to the closing date of the offering.

**Off-BalanceSheet Arrangements**

                Our off-balance sheetarrangements comprise our operating leases. As of March 31, 2007, we had nooutstanding letters of credit. 

**Inflationand Seasonality**

                We believe inflation has not hada material effect on our financial condition or results of operations in recentyears. Our business does not experience any material level of seasonality. 

**CriticalAccounting Policies and Estimates**

                Theaccompanying condensed consolidated financial statements of Solera Holdings,Inc., have been prepared in accordance with accounting principles generallyaccepted in the United States for interim financial information.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements. In the opinion of management, alladjustments (including normal recurring accruals) considered necessary for afair presentation have been included. Operating results for the nine monthsended March 31, 2007 are not necessarily indicative of the results thatmay be expected for the year ended June 30, 2007.

*                Goodwill and other intangibleassets.*    We account forgoodwill and other intangible assets in accordance with 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 share 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 SFASNo. 144. As of March 31, 2007, we had goodwill of $556.7 million andintangible assets of $381.0 million. 

*                Revenue recognition.*    We consider the guidance inStaff Accounting Bulletin Topic 13, *RevenueRecognition*, or SAB 104, AICPA Statement of Position 97-2,*Software Revenue Recognition*, asamended, or SOP 97-2, SFAS No. 13, *Accountingfor Leases*, Emerging 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 AnotherEntity's Hardware*, and Emerging Issues Task Force IssueNo. 00-21, *Revenue Arrangements withMultiple Deliverables,* 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 multipleelement arrangements primarily include a combination of software licenses,hosted database and other services, installation and set-up services, hardware,maintenance services and transaction-based deliverables. 

                We generate a significant majorityof our revenue from subscription-based contracts (where a monthly fee ischarged), transaction-based contracts (where a fee per transaction is charged)and subscription-based contracts with additional transaction-based fees (wherea monthly fee and a fee per transaction are charged). 

                Subscription-based andtransaction-based contracts generally include the delivery of software, accessto software through a hosted service, or hosted database, upfront fees for theimplementation and set-up activities necessary for the client to use/access thesoftware, or implementation services, and maintenance. Under a subscriptionarrangement, delivery 

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of software,access to the hosted database and maintenance are considered a single elementor a combined share of accounting, and related revenues are recognized at theend of each month upon the completion of the monthly service. Revenues undertransaction-based contracts are recognized based on the guidance in AICPATechnical Practice Aid 5100.76, *Fair valuein multiple-element arrangements that include contingent usage based fees andsoftware revenue recognition,* or TPA 5100.76. Thetransaction-based fee represents payment for the right to use the software,access to the hosted database and maintenance. The fee is considered fixed anddeterminable only at the time actual usage occurs. Revenue is recognized-basedon actual usage. Implementation Services are considered a separate element orshare of accounting and the related revenue recognition is described below. 

                Subscription-based contractswith additional fees for certain types of transactions generally include alldeliverables discussed in the above paragraph and also include an additionalelement, which is the option to access specialized queries on the hosted database.Revenue under subscription-based contracts with additional fees for certaintypes of transactions is accounted for based on the guidance inTPA 5100.76. Under these arrangements, the delivery of software, access tosoftware through the hosted database, and maintenance are considered a combinedshare of accounting and the related fee is recognized at the end of each monthupon the completion of the monthly service. The transaction-based fee isrecognized at the time of actual usage. Implementation services are considereda separate element or share of accounting and the related revenue recognitionis described below. 

                When we are required to performsetup and implementation activities necessary for the client to receiveservices and/or software, up-front fees billed during the setup/implementationphase are deferred and amortized on a straight-line basis over the estimatedcustomer life. 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 revenuearrangements described above, we also provide generic computer equipment aspart of the sales arrangement. Based on guidance in EITF Issue No. 03-5, *Applicability of AICPA Statement of Position 97-2, “SoftwareRevenue Recognition”, to Non-Software Deliverables in an Arrangement ContainingMore-than-Incidental Software*, the generic computer equipment isconsidered a non-software deliverable since our software is not essential tothe functionality of the generic computer equipment. Based on guidance in EITFNo. 01-8, *Determining Whether an ArrangementContains a Lease*, EITF 00-21, *RevenueArrangements with Multiple Deliverables*, and SFAS 13, *Accounting for Leases*, or SFAS 13, weaccount for the sale of generic equipment as a direct finance lease. Therelated revenue is recognized over the term of the contract using the effectiveinterest rate method. We allocate revenue to SFAS 13 elements (equipmentleases) and the non-SFAS 13 elements of its arrangements on a relative fair valuebasis using our best estimate of the fair value of the elements. Revenue fromleased computer equipment represents approximately 1% of our consolidatedrevenue. 

                Revenues are reflected net ofcustomer sales allowances, which are based on both specific identification ofcertain accounts and a predetermined percentage of revenue based on historicalexperience. 

                *Share-Based Compensation.*    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*,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.

*                Foreign currency translation.*    The assets and liabilities ofour foreign subsidiaries are translated into U.S. dollars based on exchangerates in effect at the end of each period, and revenues and expenses aretranslated at average exchange rates during the periods. Functional currenciesof significant foreign subsidiaries include Euros, British pounds, Swissfrancs, and Canadian dollars. Currency transaction gains or losses, which areincluded in the results of operations, totaled $3.8 million in fiscal2006. Gains or losses from balance sheet translation are included inshareholders' equity within accumulated other comprehensive income on theconsolidated balance sheets. 

*                Internal use software.*    Expenditures for softwarepurchases and software developed or obtained for internal use are capitalizedand amortized over a three- to five-year period on a straight-line basis. Forsoftware developed or obtained for internal use, we capitalize costs inaccordance with the provisions of Statement of Position No. 98-1, *Accounting for the*

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*Costsof Computer Software Developed or Obtained for Internal Use*. Our policy provides for the capitalization ofexternal direct costs of materials and services associated with developing orobtaining internal use computer software. In addition, we also capitalizecertain payroll and payroll-related costs for employees who are directlyassociated with internal use computer software projects. The amount ofcapitalizable payroll costs with respect to these employees is limited to thetime directly spent on such projects. Costs associated with preliminary projectstage activities, training, maintenance, and all other post-implementationstage activities are expensed as incurred. We also expense internal costsrelated to minor upgrades and enhancements as it is impractical to separatethese costs from normal maintenance activities. 

*                Income taxes.*    We use the asset and liability method ofaccounting for income taxes in accordance with SFAS No. 109, *Accounting for Income Taxes. *Underthis method, income tax expenses or benefits are recognized for the amount oftaxes payable or refundable for the current year and for deferred taxliabilities and assets for the future tax consequences of events that have beenrecognized in our consolidated financial statements or tax returns.  We also account for any income taxcontingencies in accordance with SFAS No. 5, *Accountingfor Contingencies*.  Themeasurement of current and deferred tax assets and liabilities are based onprovisions of currently enacted tax laws. The effects of future changes in tax laws or rates are not contemplated.

                Aspart of the process of preparing consolidated financial statements, we arerequired to estimate our income taxes and tax contingencies in each of thejurisdictions in which we operate prior to the completion and filing for taxreturns for such periods.  This processinvolves estimating actual current tax expense together with assessingtemporary differences resulting from differing treatment of items, such asdeferred revenue, for tax and accounting purposes.  These differences result in net deferred taxassets 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 weestablish a valuation allowance in a period, we must include a tax expense orbenefit within the tax provision in the Statement of Operations.  In the event that actual results differ fromthese estimates or we adjust these estimates in future periods, we may need toadjust our valuation allowances, which could impact our results of operationsin the quarter in which such determination is made.

**Forward-LookingStatements**

                Thissection and other parts of this Quarterly Report on Form 10-Q containforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,as amended. In some cases, forward-looking statements can be identified bywords such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” andsimilar terms. Such forward-looking statements are based on currentexpectations, estimates and projections about our industry, management’sbeliefs and 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 II, 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**

                Ourinternet website address is www.solerainc.com. Our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments tothose reports filed or furnished pursuant to Section 13 or 15(d) of theExchange Act will be available free of charge through our website as soon asreasonably practicable after they are electronically filed with, or furnishedto, the Securities and Exchange Commission. Our website and the informationcontained or incorporated therein are not intended to be incorporated into thisreport.

**Item3.****           Quantitativeand Qualitative Disclosures About Market Risk.**

**InterestRate Risk**

                We are exposed to market riskfrom fluctuations in interest rates. We manage our interest rate risk bybalancing the amount of our fixed rate and variable rate debt and through theuse of interest rate swaps. The objective of the swaps is to more effectivelybalance our borrowing costs and interest rate risk. For fixed rate debt,interest rate changes affect the fair 

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market value ofsuch debt but do not impact earnings or cash flows. For variable rate debt,interest rate changes generally do not affect the fair market value of suchdebt, but do impact future earnings and cash flows, assuming other factors areheld constant. At March 31, 2007, we had approximately $878.9 million ofvariable rate debt. Holding other variables constant (such as foreign exchangerates and debt levels), a one percentage point change in interest rates wouldbe expected to have an impact on pre-tax earnings and cash flows for the nextyear of approximately $8.8 million, before giving effect to the interestrate swap agreements described below. After giving effect to the offering and theapplication of the net proceeds therefrom, we would have had $607.6 millionof variable rate debt at March 31, 2007, and, holding other variables constant,a one percentage point change in interest rates would have been expected tohave an impact on pre-tax earnings and cash flows for the next year ofapproximately $6.1 million, before giving effect to the interest rate swapagreements described below. The interest rate swap agreements described belowreduce our exposure to interest rate risk associated with our variable ratedebt for the periods in which the swap agreements are in effect. 

                Effective April 27, 2006,we entered into two interest rate swaps, both with maturities on July 13,2011. The first has a notional amount of $195.0 million and requires us topay, on a quarterly basis, a fixed rate of 5.35%. The second interest rate swaphas a notional amount of €368.4 million ($486.5 million, as ofFebruary 28, 2007) and requires us to pay, on a quarterly basis, a fixedrate of 3.72%. At March 31, 2007, the estimated fair market value of theinterest rate swaps was $2.3 million and is recorded in other assets inthe condensed consolidated balance sheet. We expect to terminate these interestrate swaps in our fourth fiscal quarter and plan to enter into new interestrate swaps, with respect to at least 50% of the borrowings outstanding underthe term loans, as is required under the terms of our amended and restatedcredit facility.  

**ForeignCurrency Risk**

                Weconduct operations in many countries around the world. Our results ofoperations are subject to both currency transaction risk and currencytranslation risk. We incur currency transaction risk when we enter into eithera purchase or sale transaction using a currency other than our functionalcurrency. With respect to currency translation risk, our financial conditionand results of operations are measured and recorded in the relevant domesticcurrency and then translated into U.S. dollars for inclusion in our condensedconsolidated financial statements. Exchange rates between these currencies andU.S. dollars have fluctuated significantly over the last few years and maycontinue to do so in the future. A substantial portion of our revenues andcosts are denominated in or effectively indexed to U.S. dollars, but themajority of our revenues and costs are denominated in Euros, British pounds,Swiss francs, Canadian dollars and other currencies. Historically, we have notundertaken hedging strategies to minimize the effect of currency fluctuationson our results of operations and financial condition; however, we may decidethis is necessary in the future. 

**Item 4. Controls and Procedures.**

**Evaluation of Disclosure Controls**

#####                 We are in the process of developing disclosurecontrols and procedures that will be designed to ensure that informationrequired to be disclosed in our reports under the Securities Exchange Act of1934, as amended (the “Exchange Act”), are recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms, andthat such information is accumulated and communicated to management, includingour Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), asappropriate, to allow timely decisions regarding required disclosure. 

#####                 As of March 31, 2007, we were not yet a publiccompany and therefore we did not perform an evaluation under the supervisionand with the participation of our management, including the CEO and CFO, of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rule 13a-15(e) under the Exchange Act) as ofMarch 31, 2007, in the preparation of this report. Accordingly, ourmanagement, including our CEO and CFO, cannot conclude that our disclosurecontrols and procedures are effective as of March 31, 2007. 

There has been no change ininternal controls over financial reporting during the most recent fiscalquarter that has materially affected, or is reasonably likely to materiallyaffect, internal controls over financial reporting.

**PARTII—OTHER INFORMATION**

**Item 1.  LegalProceedings.**

Weare currently a party to various claims and legal actions that arise in theordinary course of business. We believe such claims and legal actions,individually and in the aggregate, will not have a material adverse effect onour business, financial condition or results of operations. As ofMarch 31, 2007, we have considered all of the claims and disputes of whichwe are aware and accrued amounts in our analysis of doubtful accounts, allowancesfor credit memos or probable loss 

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accruals.

**Item 1A. Risk Factors.**

Ourbusiness, financial condition, operating results and cash flows can be impactedby a number of factors, any one of which could cause our actual results to varymaterially from recent results or from our anticipated future results. If anyof the following risks actually materializes, then our business, financialcondition and results of operations would suffer. In addition, there may berisks of which we are currently unaware or that we currently regard asimmaterial based on the information available to us that later prove to be material.These risks may adversely affect our business, financial condition andoperating results

**Wedepend on a limited number of customers for a substantial portion of ourrevenues, and the loss of, or a significant reduction in volume from, any ofthese customers would harm our financial results.**

    We derive a substantial portion of ourrevenues from sales to large insurance companies. In the nine months endingMarch 31, 2007, we derived 17.9% of our revenues from our ten largest insurancecompany customers. The largest three of these customers accounted for 3.7%, 3.2%and 1.9%, respectively, of our  revenuesduring this period. A loss of one or more of these customers would result in asignificant decrease in our revenues, including the business generated bycollision repair facilities associated with those customers. We lost a customercontract in April 2006 during its renewal phase that accounted for  revenues in fiscal 2006 of approximately $4.3million and recently lost our principal shared services contract, whichaccounted for approximately $5.2 million of revenue for the nine months endedMarch 31, 2007. Furthermore, many of our arrangements with European customersare terminable by them on short notice or at any time. In addition, disputes withcustomers may lead to delays in payments to us, terminations of agreements orlitigation. Additional terminations or non-renewals of customer contracts orreductions in business from our large customers would harm our business,financial condition and results of operations.

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

    Pricing pressures have required us tosignificantly lower prices for some of our software and services in several ofour markets. We may be required to implement further price reductions inresponse to the following:

·                                            price reductions by competitors;

·                                            the consolidation of property and casualty insurance companies;

·                                            the introductionof competing software or services; and

·                                            a decrease in thefrequency of accidents.

Ifwe are required to accept lower prices for our software and services, it wouldresult in decreased revenues and harm our business, financial condition andresults of operations.

**Changesin or violations by us or our customers of, applicable government regulationscould reduce demand for or limit our ability to provide our software andservices in those jurisdictions.**

    Our insurance company customers are subjectto extensive government regulations, mainly at the state level in the U.S. andat the 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 lessvaluable to insurance companies. New Jersey is considering legislation that,among other things, would require us to include additional data in the outputof our estimating software and the circumstances in which our insurance companycustomers can utilize our software to calculate the cost to repair a damagedvehicle. In addition, some states are considering legislation that wouldrequire insurers to use 

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estimatesfrom two independent services to provide total loss calculations for a damagedvehicle and would provide authority to the state insurance commissioner todetermine which services qualify as independent. If passed, this legislationmay prohibit us from or limit our ability to provide our products and servicesin those states and/or may have the effect of making our products and servicesless desirable to our customers. Other states are considering legislation thatwould limit the data that our software can provide to our insurance companycustomers. In the event that demand for or our ability to provide our softwareand services decreases in particular jurisdictions due to regulatory changes,our revenues and margins may decrease.

    In addition, the Belgian CompetitionDepartment recently notified us that it has chosen to continue to investigate acomplaint originally brought by a trade association representing collisionrepair facilities that was withdrawn by the trade association in 2005, relatingto estimates generated by our software of the costs to repair damaged vehicles.Pursuant to the European Union competition laws, the Belgian CompetitionDepartment is asserting its authority to conduct this investigation as itrelates to the Western European region.

**Ourindustry is highly competitive, and our failure to compete effectively couldresult in a loss of customers and market share, which could harm our revenuesand operating results.**

    The markets for our automobile insuranceclaims processing software and services are highly competitive. In the U.S.,our principal 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 competitorsmay have or develop closer customer relationships, develop stronger brands,have greater access to capital, lower cost structures and/or more attractivesystem design and operational capabilities than we have. In addition,consolidation within our industry could result in the formation of competitorswith substantially greater financial, management or marketing resources than wehave and such competitors could utilize their substantially greater resourcesand economies of scale to develop and market competing products, divert salesaway from us by offering their products at lower prices, or hire away our keyemployees by offering more lucrative compensation packages. Moreover, manyinsurance companies have historically entered into agreements with automobileinsurance claims processing service providers like us and our competitorswhereby the insurance company agrees to use that provider on an exclusive orpreferred basis for particular products and services and agrees to requirecollision repair facilities, independent assessors and other vendors to usethat provider. 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 insurance company customershave varying degrees of in-house development capabilities, and one or more ofthem have expanded and may seek to further expand their capabilities in theareas in which we operate. Many of our customers are larger and have greaterfinancial and other resources than we do and could commit significant resourcesto product development. Our software and services have been, and may in thefuture be, replicated by our insurance company customers in-house, which couldresult in our loss of those customers and their associated repair facilities,independent assessors and other vendors, resulting in decreased revenues andnet income.

**Thetime and expense associated with switching from our competitors' software andservices to ours may limit our growth.**

    The costs for an insurance company to switchproviders of claims processing software and services can be significant and theprocess can sometimes take 12-18 months to complete. As a result, potentialcustomers may decide that it is not worth the time and expense to begin usingour software and services, even if we offer competitive and economicadvantages. If we are unable to convince these customers to switch to oursoftware and services, our ability to increase market share will be limited,which could harm our revenues and operating results.

**Ourindustry is subject to rapid technological changes, and if we fail to keep pacewith these changes, our market share and revenues will decline.**

    Our industry is characterized by rapidlychanging technology, evolving industry standards and frequent introductions of,and enhancements to existing, software and services, all with an underlyingpressure to reduce cost. Industry changes could render our offerings lessattractive or obsolete, and we may be unable to make the necessary adjustmentsto our offerings at a competitive cost, or at all. We also incur substantialexpenses in researching, developing, designing and 

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marketingnew 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 havea very limited operating history as a stand-alone company, which may make itdifficult to compare our current operating results to prior periods.**

    Prior to the acquisition, our predecessoroperated as a business unit of ADP. Our predecessor relied on ADP during thisperiod for many of its internal functions, including accounting, tax, payroll,technology and administrative and operational support. In connection with theacquisition, ADP agreed to continue providing us with systems, network,programming and operational support and other administrative services forperiods ranging from three to six months following the date of the acquisition.Although we have replaced these services either through third-partycontracts or internal sources, we may not be able to perform any or all of theseservices in a cost-effective manner. If we are unable to maintain substitutearrangements on terms that are favorable to us or effectively perform theseservices internally, our business, financial condition and results ofoperations would be adversely affected.

    In addition, the historical financialinformation of our predecessor included in this quarterly report and our prospectus,filed with the SEC on May 14, 2007 (File No. 333-140626), may not reflectwhat our results of operations, financial position and cash flows would havebeen had we operated as a separate stand-alone company without the sharedresources of ADP for the periods presented and are not necessarily indicativeof our future results of operations, financial position and cash flows. Forexample, ADP allocated expenses and other centralized operating costs to ourpredecessor for periods prior to the acquisition, and the allocated costsincluded in our predecessor's historical financial statements could differ fromamounts that we would have incurred if we had operated on a stand-alonebasis.

**We havea large amount of goodwill and other intangible assets as a result of theacquisition. Our earnings will be harmed if we suffer an impairment of ourgoodwill or other intangible assets.**

    We have a large amount of goodwill and otherintangible assets and are required to perform an annual assessment for possibleimpairment for accounting purposes. At March 31, 2007, we had goodwill andother intangible assets of $937.8 million. If we do not achieve our plannedoperating results or other factors impair these assets, we may be required toincur a non-cash impairment charge. Any impairment charges in the future willadversely affect our results of operations.

**We haveexperienced net losses since the acquisition, and future net losses may causeour stock price to decline.**

    We had a net loss of $39.6 million for thenine months ended March 31, 2007. We expect to continue to incur net losses inthe future, due primarily to amortization of the $381.0 million of intangibleassets that we had as of March 31, 2007 and interest expense associated withour indebtedness. We cannot assure you that we will become or remainprofitable, and future net losses may reduce our stock price.

**We mayincur significant restructuring charges over the next 12 months, which wouldharm our operating results and cash position or increase debt.**

    We incurred restructuring charges (benefits)of $1.7 million in fiscal 2004, $5.5 million in fiscal 2005, $(0.5) millionduring the period from July 1, 2005 through April 13, 2006 in the combinedfinancial statements of the Claims Services Group and we incurred restructuringcharges of $2.9 million during the fiscal year ended June 30, 2006 and $1.8million for the nine months ended March 31, 2007 in our condensed consolidatedfinancial statements. These charges consisted primarily of terminationbenefits. As of March 31, 2007, we had remaining liabilities associated withthese restructuring charges of $1.8 million. We continue to evaluate ourexisting operations and capacity, and expect to incur additional restructuringcharges as a result of future personnel reductions, related restructuring andproductivity and technology enhancements, which may exceed the levels of ourhistorical charges. We are currently evaluating several plans that, if allimplemented, would result in restructuring charges of approximately $10.0million to $12.0 million over the next twelve months. These potential charges,consisting primarily of termination benefits, would significantly reduce ourcash position or increase debt.

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**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 our success dependssignificantly on our ability to provide our customers access to data from manydifferent sources. For example, a substantial portion of the data used in ourrepair estimating software is derived from parts and repair data provided by,among others, original equipment manufacturers, or OEMs, aftermarket partssuppliers, data aggregators, automobile dealerships and vehicle repairfacilities. We obtain much of our data about vehicle parts and components andcollision repair labor and costs through license agreements with OEMs,automobile dealers, and other providers. EurotaxGlass’s, one of our primarycompetitors in Europe, provides us with valuation and paint data for use in ourEuropean markets pursuant to a similar arrangement. Many of the licenseagreements through which we obtain data are for terms of one year and/or may beterminated without cost to the provider on short notice. If one or more of ourlicenses are terminated or if we are unable to renew one or more of theselicenses on favorable terms or at all, we may be unable to access alternative datasources that would provide comparable information without incurring substantialadditional costs. Recently, some OEM sources have indicated to us that theyintend to materially increase the licensing costs for their data. While we donot believe that our access to any individual source of data is material to ouroperations, prolonged industry-wide price increases or reductions in dataavailability could make receiving certain data more difficult and could resultin significant cost increases, which would materially harm our operatingresults.

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

Our success depends on our ability toprovide accurate, consistent and reliable services and information to our customerson a timely basis. Our operations could be interrupted by any damage to orfailure of:

·      our computer software or hardware or ourcustomers’ or third-party service providers’ computer software or hardware;

·                 our networks, our customers’ networks or our third-party serviceproviders’ networks; and

·                 our connections to and outsourced service arrangements with thirdparties, such as Acxiom, which hosts data and applications for us and ourcustomers.

Our systems and operations are alsovulnerable to damage or interruption from:

·                 power loss or other telecommunications failures;

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

·                 computer viruses or software defects;

·                 physical or electronic break-ins, sabotage, intentional acts of vandalismand similar events; and

·                 errors by our employees or third-party service providers.

These risks will be exacerbated by ourplanned migration of our systems and operations to a more centralized platform.Because many of our services play a mission-critical role for ourcustomers, any damage to or failure of the infrastructure we rely on, includingthose of our customers and vendors, could disrupt our ability to deliverinformation to and provide services for our customers in a timely manner, whichcould result in the loss of current and/or potential customers. In addition, wegenerally indemnify our customers to a limited extent for damages they sustainrelated to the unavailability of, or errors in, the software and services weprovide; therefore, a significant interruption of, or errors in, our softwareand services could expose us to significant customer liability.

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

Our databases contain confidential datarelating to our customers, policyholders and other industry participants.Security breaches, particularly those involving connectivity to the Internet,and the trend toward broad consumer and general public notification of suchincidents, could significantly harm our business, financial condition orresults of operations. Our databases could be vulnerable to physical system ornetwork break-ins or other inappropriate access, which could result in 

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claims against us and/or harm ourreputation. In addition, potential competitors may obtain our data illegallyand use it to provide services that are competitive to ours.

**We operate in 45 countries, where we are subjectto country-specific risks that could adversely impact our business andresults of operations.**

We generated approximately 68.6% of our revenuesduring the nine months ended March 31, 2007 outside the U.S., and we expectsales from 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 45 different countries. Furthermore, ourbusiness strategy includes expansion of our operations into new and developingmarkets, which will require even greater international coordination, expose usto additional local government regulations and involve markets in which we donot have experience or established operations. In addition, our operations ineach country are vulnerable to changes in socio-economic conditions andmonetary and fiscal policies, intellectual property protection disputes, thesettlement of legal disputes through foreign legal systems, the collection ofreceivables through foreign legal systems, exposure to possible expropriationor other governmental actions, unsettled political conditions and possibleterrorist attacks. These and other factors may harm our operations in thosecountries and therefore our business and results of operations.

**Our operating results may vary widely from periodto period, which may cause our stock price to decline.**

Our contracts with insurance companiesgenerally require time-consuming authorization procedures by the customer,which can result in additional delays between when we incur development costsand 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 ourearnings due to other factors beyond our control, such as the introduction ofnew software or services by our competitors, customer acceptance of newsoftware or services, the volume of usage of our offerings by existingcustomers and competitive conditions in our industry generally. We may alsoincur significant or unanticipated expenses when contracts expire, areterminated or are not renewed. Any of these events could harm our financialcondition and results of operations 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 our revenues, andincur most of our costs, in currencies other than the U.S. dollar, principallythe Euro. We currently do not hedge our exposure to foreign currency risks. Inour historical financial statements, we re-measure our local currency financialresults into U.S. dollars based on average exchange rates prevailing during areporting period or the exchange rate at the end of that period. These re-measurementsresulted in foreign currency translation adjustments of $10.9 million in fiscal2005 in the combined financial statements of the Claims Services Group and $3.8million in fiscal 2006 and $2.4 million for the nine months ended March 31,2007 in our condensed consolidated financial statements. Further fluctuationsin exchange rates against the U.S. dollar could decrease our revenues, increaseour costs and expenses and therefore harm our future operating results.

**Future acquisitions and joint ventures ordispositions may require significant resources and/or result in significantunanticipated losses, costs or liabilities.**

We have grown in part, and in the futuremay continue to grow, by making acquisitions or entering into joint ventures orsimilar arrangements. Acquisitions and joint ventures require significantinvestment and managerial attention, which may be diverted from our otheroperations, and could entail a number of additional risks, including:

·                 problems with effective integration of operations and/or management;

·                 loss of key customers, suppliers or employees;

·                 increased operating costs; and

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·                 exposure to unanticipated liabilities.

Furthermore, we participate in jointventures in some countries. Our partners in these ventures may have interestsand goals that are inconsistent with or different from ours, which could resultin the joint venture taking actions that negatively impact our growth in thelocal market and consequently harm our business or financial condition. If weare unable to find suitable partners or if suitable partners are unwilling toenter into joint ventures with us, our growth into new geographic markets mayslow, which would harm our results of operations.

Additionally, we may finance futureacquisitions and/or joint ventures with cash from operations, additionalindebtedness and/or the issuance of additional securities, any of which mayimpair the operation of our business or present additional risks, such asreduced 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 require additional capital in the future,which may not be available on favorable terms, or at all.**

Our future capital requirements dependon many factors, including our ability to develop and market new software andservices and to generate revenues at levels sufficient to cover ongoingexpenses. If we need to raise additional capital, equity or debt financing maynot be available at all or may be available only on terms that are notfavorable to us. In the case of equity financings, dilution to our stockholderscould result, and in any case such securities may have rights, preferences andprivileges that are senior to those of the shares offered hereby. If we cannotobtain adequate capital on favorable terms or at all, we may be unable tosupport future growth or operating requirements and, accordingly, our business,financial condition and results of operations could be harmed.

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

In the European Union and otherjurisdictions, there are significant restrictions on the use of personal data.Violations of these laws would harm our business. In addition, concerns aboutour collection, use or sharing of automobile insurance claims information orother privacy-related matters, even if unfounded, could damage ourreputation and operating results.

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

We believe that the brand identity thatwe have developed has significantly contributed to the success of our business.We also believe that maintaining and enhancing our brands, such as Audatex,ABZ, Hollander, Informex, Sidexa and IMS, are critical to the expansion of oursoftware and services to new customers in both existing and new markets.Maintaining and enhancing our brands may require us to make substantialinvestments and these investments may not be successful. If we fail to promoteand maintain our brands or if we incur excessive expenses in this effort, ourbusiness, operating results and financial condition will be harmed. Weanticipate 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.

**Third parties may claim that we are infringingupon their intellectual property rights, and we could be prevented from sellingour software or suffer significant litigation expense even if these claims haveno merit.**

Our competitive position is driven inpart by our intellectual property and other proprietary rights. Third parties,however, may claim that we, our software or operations or any products ortechnology, including claims data or other data, we obtain from other partiesare infringing upon the intellectual property rights of others, and we may beunaware of intellectual property rights of others that may cover some of ourassets, technology, software and services. Any litigation initiated against usregarding patents, trademarks, copyrights or other intellectual propertyrights, even litigation relating to claims without merit, could be costly andtime-consuming and could divert our management and key personnel fromoperating our business. In addition, if any third party has a meritorious orsuccessful claim that we are infringing upon its intellectual property rights,we may be forced to change our software or enter into licensing arrangementwith third parties, which may be costly or impractical. These claims may also requireus to stop selling our software and/or services as currently 

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designed, which could harm ourcompetitive position. We also may be subject to significant damages orinjunctions that prevent the further development and sale of certain of oursoftware or services and may result in a material loss in revenue.

**We may be unable to protect our intellectualproperty and property rights, either without incurring significant costs or atall, 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 violationof our 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. In addition, 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 intellectualproperty could result in significant litigation costs and diversion ofmanagement resources, and any failure to pursue or successfully litigate claimsagainst infringers could result in competitors using our technology andoffering similar products and services, potentially resulting in loss ofcompetitive advantage and decreased revenues.

**We depend on a limited number of key personnelwho would be difficult to replace. If we lose the services of theseindividuals, or are unable to attract new talent, our business will beadversely affected.**

We depend upon the ability andexperience 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 andoperations. Our success also depends on our ability to continue to attract,manage and retain other qualified management, sales and technical personnel aswe grow. We may not be able to continue to attract or retain such personnel inthe future.

**We require a significant amount of cash toservice our indebtedness, which reduces the cash available to finance ourorganic growth, make strategic acquisitions and enter into alliances and jointventures.**

We have a significant amount ofindebtedness. As of March 31, 2007, our indebtedness, including currentmaturities, was $878.9 million, and we would have been able to borrow anadditional $33.0 million under our amended and restated senior creditfacility.  During the nine months endedMarch 31, 2007 our aggregate interest expense was $55.3 million, and the cashpaid for interest was $42.0 million.  After giving effect to the initial public offering andthe application of the net proceeds therefrom, we would have had approximately$607.6 million of total debt at March 31, 2007.

Our indebtedness could:

·                 make us more vulnerable to unfavorable economicconditions and a reduction in our revenues;

·                 make it more difficult to obtain additional financing in the future forworking capital, capital expenditures or other general corporate purposes;

·                 require us to dedicate or reserve a large portion of our cash flow fromoperations for making payments on our indebtedness, which would prevent us fromusing it for other purposes, including software development;

·                 make us susceptible to fluctuations in market interest rates that affectthe cost of our borrowings to the extent that our variable rate debt is notcovered by interest rate derivative agreements; and

·                 make it more difficult to pursue strategic acquisitions, joint ventures,alliances and collaborations.

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Our ability to service our indebtednesswill depend on our future performance, which will be affected by prevailingeconomic conditions and financial, business, regulatory and other factors. Someof these factors are beyond our control. If we cannot generate sufficient cashflow from operations to service our indebtedness and to meet our otherobligations and commitments, we may be required to refinance our debt or todispose of assets to obtain funds for such purpose. We cannot assure you thatdebt refinancings or asset dispositions could be completed on a timely basis oron satisfactory terms, if at all, or would be permitted by the terms of ourdebt instruments.

**Our amended and restated credit facility maylimit our ability to pay dividends, incur additional debt, make acquisitionsand make other investments.**

Our amended and restated credit facilitycontains covenants that may 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 with any of thesecovenants could result in the acceleration of our outstanding indebtedness. Ifacceleration occurs, we would not be able to repay our debt and it is unlikelythat we would be able to borrow sufficient additional funds to refinance ourdebt. Even if new financing is made available to us, it may not be available onacceptable or reasonable terms. An acceleration of our indebtedness wouldimpair our ability to operate as a going concern.

**We expect to incur a significant non-cash chargein connection with our expected use of the net proceeds from  our initial public offering.**

We intend to use all of our net proceedsfrom the offering to repay a portion of the outstanding indebtedness under ourexisting credit facilities. In connection with the repayment of these amounts,we expect to incur a pre-tax, non-cash charge of approximately $35.7 million onthe early extinguishment of debt, including prepayment premiums of $7.0million. This charge will have an adverse impact on our financial condition andoperating results for the fourth quarter of our fiscal year ending June 30,2007.

**Current or future litigation could have amaterial adverse impact on us.**

We have been and continue to be involvedin legal proceedings, claims and other litigation that arise in the ordinarycourse of business. For example, we have been and are currently involved indisputes with collision repair facilities, acting individually and as a groupin some situations that claim that we have colluded with our insurance companycustomers to depress the repair time estimates generated by our repairestimating software. In addition, we are currently one of the defendants in aputative class action lawsuit alleging that we have colluded with our insurancecompany customers to cause the estimates of vehicle fair market value generatedby our total loss estimation software to be unfairly low. Furthermore, we arealso subject to assertions by our customers that we have not complied with theterms of our agreements with them, which could in the future lead toarbitration or litigation. While we do not expect the outcome of any suchpending or threatened litigation to have a material adverse effect on ourfinancial position, litigation is unpredictable and excessive verdicts, both inthe form of monetary damages and injunction, could occur. In the future, wecould incur judgments or enter into settlements of claims that could harm ourfinancial position and results of operations.

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

Section 404 of the Sarbanes-Oxley Act requiresthat we evaluate and determine the effectiveness of our internal control overfinancial reporting for our annual report for fiscal 2008. If we have amaterial weakness in our internal control over financial reporting, we may notdetect errors on a timely basis and our financial statements may be materiallymisstated. We will be evaluating our internal controls systems to allowmanagement to report on, and our independent auditors to attest to, ourinternal controls. We will be performing the system and process evaluation andtesting (and any necessary remediation) required to comply with the managementcertification and auditor attestation requirements of Section 404 of theSarbanes-Oxley Act. While we anticipate being able to fully implement therequirements relating to internal controls and all other aspects ofSection 404 by the above deadline, we cannot be certain as to the timingof completion of our evaluation, testing and remediation actions or the impactof the same on our operations. If we are not able to implement the requirementsof Section 404 in a timely manner or with adequate compliance, we may be subjectto sanctions or investigation by regulatory authorities, such as the SEC orNYSE. Any such action could adversely affect our financial results or investors’confidence in us and could cause our stock price to fall. In addition, thecontrols and procedures that we will implement may not comply with all of therelevant 

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rules and regulations of the SEC and NYSE. If we fail to develop andmaintain effective controls and procedures, we may be unable to providefinancial information in a timely and reliable manner, subjecting us tosanctions and harm to our reputation.

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

Prior to our initial public offering, we were not subjectto the reporting requirements of the Securities Exchange Act of 1934, asamended, or the Exchange Act, or the other rules and regulations of the SEC orany securities exchange relating to public companies. We are working with ourlegal, independent accounting and financial advisors to identify those areas inwhich changes should be made to our financial and management control systems tomanage our growth and our obligations as a public company. These areas includecorporate governance, corporate control, internal audit, disclosure controlsand procedures and financial reporting and accounting systems. We have made,and will continue to make, changes in these and other areas. However, theexpenses that will be required in order to adequately prepare for being apublic company could be material. Compliance with the various reporting andother requirements applicable to public companies will also requireconsiderable time and attention of management. We cannot predict or estimatethe amount of the additional costs we may incur, the timing of such costs orthe degree of impact that our management’s attention to these matters will haveon our business. In addition, the changes we make may not be sufficient toallow us to satisfy our obligations as a public company on a timely basis.

In addition, being a public company could make it moredifficult or more costly for us to obtain certain types of insurance, includingdirectors’ and officers’ liability insurance, and we may be forced to acceptreduced policy limits and coverage or incur substantially higher costs toobtain the same or similar coverage. The impact of these events could also makeit more difficult for us to attract and retain qualified persons to serve onour board of directors, our board committees 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 current management.**

Some provisions of ourcertificate 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

·      advancenotice requirements for board nominations and proposing matters to be acted onby stockholders at stockholder meetings.

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

We currently do not expect to declare or pay dividends onour common stock in the foreseeable future. In addition, we expect that ouramended and restated senior credit facility will limit our ability to declareand pay cash dividends on our common stock. As a result, your only opportunityto achieve a return on your investment in us will be if the market price of ourcommon stock appreciates and you sell your shares at a profit. We cannot assureyou that the market price for our common stock will ever exceed the price thatyou pay.

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**Item 2. UnregisteredSales of Equity Securities and Use of Proceeds.**

**Change in Securities****.**

On July 25, 2006and on November 8, 2006, we granted the right to purchase common stock tocertain employees. Under these arrangements, we issued an aggregate of 625,429shares of common stock to our employees in January 2007.  On January 26, 2007, we granted the right topurchase an additional 50,000 shares of common stock to two of our employeesand these shares were purchased in February 2007.  On May 11, 2007, we issued options topurchase 428,400 shares of common stock and granted rights to purchase 304,731shares of common stock to certain of our employees. The weighted averageexercise price of these May 11, 2007 options is $16.00. All of these stockoptions were granted under our Amended and Restated 2007 LTIP Stock IncentivePlan. The issuance of these options was exempt from registration pursuant to Section 4(2)and Rule 701 of the Securities Act.

**Use of Proceeds from****Registered Securities.**

On May 16, 2007,we completed an initial public offering of shares of our common stock. The SEC declared the Registration Statement for the initial public offering(File No. 333-140626) effective on May 10, 2007, and we filed a RegistrationStatement pursuant to Rule 462(b) (File No. 333-142832) on May 10, 2007 toregister additional shares of common stock in the offering.  Pursuant tothese Registration Statements, the Company registered the sale of a total of30,187,500 shares of common stock, of which the Company sold 19,200,000 sharesand the selling stockholders sold 10,987500 shares.  The 10,987,500 sharesof common stock sold by the selling stockholders includes 3,937,500 shares soldpursuant to the underwriters’ over-allotment option.  At a public offeringprice of $16.00 per share, the aggregate price of the shares of common stocksold by the Company was $307,200,000 and the aggregate price of the shares of commonstock sold by the selling stockholders was $175,800,000.  We did notreceive any proceeds from the sale of common stock by the sellingstockholders. The managing underwriters for the offering were Goldman,Sachs & Co. and J.P. Morgan Securities Inc.

The Company receivedapproximately $283.0 million in net proceeds from the initial public offering,after deducting underwriting discounts, commissions and expenses ofapproximately $24.2 million, and $607.6 million in net proceeds under theamended and restated credit facility, after debt issuance costs ofapproximately $3.8 million. $889.2 million of the $890.6 million of combinednet proceeds were used to repay (i) $538.6 million under the first lien creditfacility for all outstanding term loans and accrued interest thereon, (ii)$226.2 million under the second lien credit facility for all borrowings andaccrued interest thereon, and a related prepayment premium of $4.5 million, and(iii) $124.4 million under the subordinated unsecured credit (mezzanine)facility for all borrowings and accrued interest thereon, and a relatedprepayment premium of $2.5 million. The Company estimates that the totalexpenses of the offering were approximately $8.0 million, of which $3.0 millionwas paid prior to the closing date of the offering. 

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**Item 6. Exhibits.**
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                            |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |       | 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, Certain Subsidiaries of Audatex  Holdings, LLC, Various Lenders, Goldman Sachs Credit Partners L.P., Citigroup  Global Markets, Inc. and Citicorp USA, Inc. |
| 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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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|            | SOLERA HOLDINGS, INC.                                |
|------------|------------------------------------------------------|
|       |                                                 |   |
|       |   /s/ Tony  Aquila                         |   |
| ** ** | **Tony Aquila**                                      | ** ** |
| ** ** | **Chief  Executive Officer and President**           | ** ** |
| ** ** | **(Principal Executive Officer)**                    | ** ** |
| ** ** | ** **                                           | ** ** |
| ** ** | ** **                                           | ** ** |
| ** ** |   /s/  Jack Pearlstein                     | ** ** |
| ** ** | **Jack  Pearlstein**                                 | ** ** |
| ** ** | **Chief Financial Officer, Secretary and Treasurer** |
| ** ** | **(Principal  Financial and Accounting Officer)**    | ** ** |
| ** ** | ** **                                           | ** ** |
|            |                                                      |  |  |

 

June 25, 2007.

37

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