**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 
| **(Mark One)**                                                                                                                                                                                          |                                                                                                    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|--------|
| ** **                                                                                                                                                                                              |                                                                                                    |   |
| **x**                                                                                                                                                                                                   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                              | ** **                                                                                              |   |
| **For the quarterly period ended March 31,  2008**                                                                                                                                                 |
| ** **                                                                                                                                                                                              |
| **OR**                                                                                                                                                                                                  |
| ** **                                                                                                                                                                                              |                                                                                                    |   |
| **o**                                                                                                                                                                                                   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                              | ** **                                                                                              |   |
| **For the transition period  from                           to** |
|                                                                                                                                                                                                         |                                                                                                         |        |  |

 

**Commission File Number 001-33461**

 

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** **

**Solera Holdings, Inc.**

(Exact Name of Registrant as Specified in ItsCharter)

 
| **Delaware**                                                  | ** ** | **26-1103816**                                             |
|---------------------------------------------------------------|------------|------------------------------------------------------------|
| (State or other  jurisdiction of                              |       | (I.R.S. Employer                                           |
| incorporation or  organization)                               |       | Identification  No.)                                       |
|                                                          |       |                                                       |
| **15030  Avenue of Science**                                  | ** ** | ** **                                                 |
| **San  Diego, California 92128**                              | ** ** | **(858)  724-1600**                                        |
| (Address of  Principal Executive Offices, including Zip Code) |       | (Registrant’s  Telephone Number, Including Area Code) |

 

**6111Bollinger Canyon Road, Suite 200**

**SanRamon, CA 94583**

**(925)866-1100**

Former name, formeraddress and former fiscal year, if changed since last report.

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.

Yes  x  No  o

 

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

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

Yes  o  No  x

 

Thenumber of shares outstanding of the issuer’s common stock, as of May 13, 2008,was 64,816,018.

 

 

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**TABLE OFCONTENTS**

 
| ** **       | ** **   | ** **                                                                                                                               | **Page(s)** |
|------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------|-------------|
| **PART I**  |         |                                                                                                                                     |        |
|             |         |                                                                                                                                     |        |
|             | Item 1. | Financial Statements (Unaudited)                                                                                                         | 3 to 16     |
|             |         |                                                                                                                                     |        |
|             |         | Condensed  Consolidated Balance Sheets as of March 31, 2008 and June 30, 2007                                                  | 3           |
|             |         |                                                                                                                                     |        |
|             |         | Condensed  Consolidated Statements of Operations for the three months and nine months  ended March 31, 2008 and March 31, 2007 | 4           |
|             |         |                                                                                                                                     |        |
|             |         | Condensed  Consolidated Statements of Cash Flows for the nine months ended  March 31, 2008 and March 31, 2007                  | 5           |
|             |         |                                                                                                                                     |        |
|             |         | Notes to  Condensed Consolidated Financial Statements                                                                                    | 6           |
|             |         |                                                                                                                                     |        |
|             | Item 2. | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                              | 17 to 26    |
|             | Item 3. | Quantitative and Qualitative Disclosures  About Market Risk                                                                              | 27          |
|             | Item 4. | Controls and Procedures                                                                                                                  | 27          |
|             |         |                                                                                                                                     |        |
| **PART II** | ** **   | ** **                                                                                                                               | ** **  |
|             |         |                                                                                                                                     |        |
|             | Item 1.      | Legal Proceedings                                                                                                                        | 28          |
|             | Item 1A      | Risk Factors                                                                                                                             | 28 to 38    |
|             | Item 2.      | Unregistered Sales of Equity Securities and  Use of Proceeds                                                                             | 39          |
|             | Item 3.      | Defaults Upon Senior Securities                                                                                                          | 39          |
|             | Item 4.      | Submission of Matters to a Vote of Security  Holders                                                                                     | 39          |
|             | Item 5.      | Other Information                                                                                                                        | 39          |
|             | Item 6. | Exhibits                                                                                                                                 | 39          |

 

2

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**PART I—FINANCIALINFORMATION**

 

**Item 1.  FinancialStatements.**

 

**SOLERA HOLDINGS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**AS OF MARCH 31, 2008 AND JUNE 30, 2007**

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

**(Unaudited)**

 
| ** **                                                                                                                                                                                      | ** ** | **March 31,** | ** **      | **June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|-----------------|-------------------|------------|
| ** **                                                                                                                                                                                      | ** ** | **2008**           | ** **      | **2007**          | ** ** |
| **ASSETS**                                                                                                                                                                                      | ** ** | ** **         | ** **      | ** **        | ** ** |
|                                                                                                                                                                                            |       |               |            |              |       |
| CURRENT ASSETS:                                                                                                                                                                                 |       |               |            |              |       |
| Cash and cash equivalents                                                                                                                                                                       |       | $                  | 139,142         |              | $          | 89,868 |   |
| Accounts receivable — net                                                                                                                                                                  |       | 91,671             |            | 85,543            |       |
| Other receivables                                                                                                                                                                               |       | 11,733             |            | 9,297             |       |
| Other current assets                                                                                                                                                                            |       | 18,326             |            | 16,901            |       |
| Deferred income tax assets                                                                                                                                                                      |       | 4,734              |            | 3,248             |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| Total current assets                                                                                                                                                                            |       | 265,606            |            | 204,857           |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| PROPERTY AND EQUIPMENT — Net                                                                                                                                                               |       | 51,040             |            | 51,485            |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| OTHER ASSETS                                                                                                                                                                                    |       | 17,909             |            | 11,625            |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| LONG TERM DEFERRED INCOME TAX ASSETS                                                                                                                                                            |       | 23,604             |            | 23,835            |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| GOODWILL                                                                                                                                                                                        |       | 643,951            |            | 569,165           |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| INTANGIBLE ASSETS — Net                                                                                                                                                                    |       | 353,021            |            | 362,986           |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| TOTAL                                                                                                                                                                                           |       | $                  |  1,355,131 |              | $          | 1,223,953 |   |
|                                                                                                                                                                                            |       |               |            |              |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                  | ** ** | ** **         | ** **      | ** **        | ** ** |
| ** **                                                                                                                                                                                      | ** ** | ** **         | ** **      | ** **        | ** ** |
| CURRENT LIABILITIES:                                                                                                                                                                            |       |               |            |              |       |
| Accounts payable                                                                                                                                                                                |       | $                  |  28,990    |              | $          | 25,571 |   |
| Accrued expenses and other current liabilities                                                                                                                                                  |       | 91,375             |            | 89,240            |       |
| Income taxes payable                                                                                                                                                                            |       | 8,242              |            | 13,995            |       |
| Deferred income tax liabilities                                                                                                                                                                 |       | 1,502              |            | 1,076             |       |
| Current portion of long-term debt                                                                                                                                                               |       | 6,721              |            | 14,140            |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| Total current liabilities                                                                                                                                                                       |       | 136,830            |            | 144,022           |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| LONG-TERM DEBT                                                                                                                                                                                  |       | 640,795            |            | 599,128           |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| OTHER LIABILITIES                                                                                                                                                                               |       | 47,982             |            | 25,378            |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| LONG-TERM DEFERRED INCOME TAX LIABILITIES                                                                                                                                                       |       | 43,564             |            | 42,922            |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| Total liabilities                                                                                                                                                                               |       | 869,171            |            | 811,450           |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES                                                                                                                                                 |       | 13,430             |            | 11,229            |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                                      |       |               |            |              |       |
| Common shares, $0.01 par value: 150,000,000 shares  authorized; 64,805,976 and 64,813,563 issued and outstanding as of March 31,  2008 and June 30, 2007, respectively |       | 509,484            |            | 505,939           |       |
| Accumulated deficit                                                                                                                                                                             |       | (88,584            | )          | (111,687          | )          |
| Accumulated other comprehensive income                                                                                                                                                          |       | 51,630             |            | 7,022             |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| Total stockholders’ equity                                                                                                                                                                 |       | 472,530            |            | 401,274           |       |
|                                                                                                                                                                                            |       |               |            |              |       |
| TOTAL                                                                                                                                                                                           |       | $                  |  1,355,131 |              | $          | 1,223,953 |   |

 

Seenotes to condensed consolidated financial statements.

 

3

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**SOLERA HOLDINGS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31,2008 AND 2007**

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

**(Unaudited)**

 
| ** **                                                                                                                                | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                | ** ** | **2008**                                         | ** ** | **2007**                                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues                                                                                                                                  |       | $                                                | 138,049    |                                            | $          | 121,701 |   | $ | 394,320 |   | $ | 349,420 |   |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Cost of revenues:                                                                                                                         |       |                                             |       |                                            |       |   |   |   |   |
| Operating expenses                                                                                                                        |       | 32,803                                           |       | 35,313                                          |       | 98,130 |   | 102,847 |   |
| Systems development and programming costs                                                                                                 |       | 16,389                                           |       | 16,059                                          |       | 48,939 |   | 47,993 |   |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Total cost of revenues (excluding depreciation and  amortization)                                                                         |       | 49,192                                           |       | 51,372                                          |       | 147,069 |   | 150,840 |   |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Selling, general and administrative expenses                                                                                              |       | 40,889                                           |       | 31,739                                          |       | 111,956 |   | 95,605 |   |
| Depreciation and amortization                                                                                                             |       | 24,034                                           |       | 26,164                                          |       | 69,887 |   | 77,219 |   |
| Restructuring charges                                                                                                                     |       | 1,171                                            |       | 932                                             |       | 2,837 |   | 1,806 |   |
| Interest expense                                                                                                                          |       | 11,406                                           |       | 18,875                                          |       | 34,288 |   | 55,291 |   |
| Other (income) expense — net                                                                                                         |       | (563                                             | )          | (291                                            | )          | (6,328 | ) | 1,972 |   |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
|                                                                                                                                      |       | 76,937                                           |       | 77,419                                          |       | 212,640 |   | 231,893 |   |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Income (loss) before provision for income taxes  and minority interests                                                                   |       | 11,920                                           |       | (7,090                                          | )          | 34,611 |   | (33,313 | ) |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Income tax provision                                                                                                                      |       | 2,699                                            |       | 1,327                                           |       | 7,641 |   | 3,444 |   |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Minority interest in net income of consolidated  subsidiaries                                                                             |       | 1,913                                            |       | 1,334                                           |       | 4,799 |   | 2,861 |   |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Net income (loss)                                                                                                                         |       | 7,308                                            |       | (9,751                                          | )          | 22,171 |   | (39,618 | ) |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Dividends and redeemable preferred unit accretion                                                                                         |       | —                                           |       | 4,267                                           |       | — |   | 12,735 |   |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Net income (loss) allocable to common  stockholders/unitholders                                                                           |       | $                                                | 7,308      |                                            | $          | (14,018 | ) | $ | 22,171 |   | $ | (52,353 | ) |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Net income (loss) allocable to common  stockholders/unitholders per share/unit:                                                           |       |                                             |       |                                            |       |   |   |   |   |
| Basic                                                                                                                                     |       | $                                                | 0.11       |                                            | $          | (0.48 | ) | $ | 0.35 |   | $ | (1.79 | ) |
| Diluted                                                                                                                                   |       | $                                                | 0.11       |                                            | $          | (0.48 | ) | $ | 0.34 |   | $ | (1.79 | ) |
|                                                                                                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Weighted-average shares/units used in the  calculation of net income (loss) per share/unit allocable to common  stockholders/unitholders: |       |                                             |       |                                            |       |   |   |   |   |
| Basic                                                                                                                                     |       | 63,732                                           |       | 29,306                                          |       | 63,339 |   | 29,171 |   |
| Diluted                                                                                                                                   |       | 64,689                                           |       | 29,306                                          |       | 64,539 |   | 29,171 |   |

 

Seenotes to condensed consolidated financial statements.

 

4

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**SOLERA HOLDINGS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                         | ** ** | **Nine  Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **2008**                                              | ** ** | **2007** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                              |       |                                                  |       |   |   |
| Net income (loss)                                                                                  |       | $                                                     | 22,171     |   | $ | (39,618 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities:          |       |                                                  |       |   |   |
| Depreciation and amortization                                                                      |       | 69,887                                                |       | 77,219 |   |
| Minority interests in net income of consolidated  subsidiaries                                     |       | 4,799                                                 |       | 2,861 |   |
| Provision for doubtful accounts                                                                    |       | 752                                                   |       | 646 |   |
| Stock/unit-based compensation                                                                      |       | 3,373                                                 |       | 552 |   |
| Deferred income taxes                                                                              |       | (6,393                                                | )          | (6,761 | ) |
| Change in fair value of financial instrument                                                       |       | (729                                                  | )          | 3,454 |   |
| Other                                                                                              |       | 656                                                   |       | 608 |   |
| Changes in operating assets and liabilities — net  of effects from acquisition of businesses: |       |                                                  |       |   |   |
| (Increase) decrease in accounts receivable                                                         |       | 2,092                                                 |       | (20,676 | ) |
| (Increase) in other assets                                                                         |       | (4,927                                                | )          | (5,805 | ) |
| Increase in accounts payable                                                                       |       | 395                                                   |       | 16,049 |   |
| Increase (decrease) in accrued expenses and other  liabilities                                     |       | (11,267                                               | )          | 1,001 |   |
| Increase (decrease) in accrued interest                                                            |       | (116                                                  | )          | 11,786 |   |
| Net cash provided by operating activities                                                          |       | 80,693                                                |       | 41,316 |   |
|                                                                                               |       |                                                  |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                              |       |                                                  |       |   |   |
| Capital expenditures                                                                               |       | (13,906                                               | )          | (23,412 | ) |
| Final working capital payment adjustment related  to acquisition of CSG                            |       | —                                                |       | (13,167 | ) |
| Acquisitions of business — net of cash acquired                                               |       | —                                                |       | (1,110 | ) |
| Investment in joint venture                                                                        |       | (314                                                  | )          | — |   |
| Net cash used in investing activities                                                              |       | (14,220                                               | )          | (37,689 | ) |
|                                                                                               |       |                                                  |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                              |       |                                                  |       |   |   |
| Repayments of long-term debt                                                                       |       | (21,943                                               | )          | (3,948 | ) |
| Proceeds from issuance of debt                                                                     |       | —                                                |       | 12,726 |   |
| Repayments under revolving credit facility                                                         |       | (8,548                                                | )          | (6,000 | ) |
| Principal payment on financed asset acquisition                                                    |       | (3,646                                                | )          | — |   |
| Proceeds from sale of Class A common  units — net of offering costs                      |       | —                                                |       | 203 |   |
| Repurchase of common shares                                                                        |       | (112                                                  | )          | — |   |
| Net cash (used) provided in financing activities                                                   |       | (34,249                                               | )          | 2,981 |   |
|                                                                                               |       |                                                  |       |   |   |
| EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES  ON CASH AND CASH EQUIVALENTS                     |       | 17,050                                                |       | 1,959 |   |
|                                                                                               |       |                                                  |       |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                            |       | 49,274                                                |       | 8,567 |   |
|                                                                                               |       |                                                  |       |   |   |
| CASH AND CASH EQUIVALENTS — Beginning of period                                               |       | 89,868                                                |       | 88,826 |   |
|                                                                                               |       |                                                  |       |   |   |
| CASH AND CASH EQUIVALENTS — End of period                                                     |       | $                                                     | 139,142    |   | $ | 97,393 |   |
|                                                                                               |       |                                                  |       |   |   |
| SUPPLEMENTAL CASH FOW INFORMATION                                                                  |       |                                                  |       |   |   |
| — Dividends and redeemable preferred unit accretion                                           |       | $                                                     | —     |   | $ | 12,735 |   |
| — Cash paid for interest                                                                      |       | $                                                     | 33,725     |   | $ | 41,996 |   |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND  FINANCING ACTIVITIES:                           |       |                                                  |       |   |   |
| — Capital assets financed                                                                     |       | $                                                     | 3,739      |   | $ | 6,929 |   |

 

Seenotes to condensed consolidated financial statements.

 

5

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**SOLERAHOLDINGS, INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Inthousands, except per share/unit and share/unit amounts)**

**(Unaudited)**

 

**1.       ORGANIZATION AND BASIS OFPRESENTATION**

** **

***Description of Business***   Solera Holdings, Inc. andsubsidiaries (the “Company” or “Solera”) is an integrated group of leading automotive claims solutions companiesproviding software and services to the automobile insurance claims processingindustry. Its software andservices help its customers: estimate the costs to repair damaged vehicles;determine pre-collision fair market values for vehicles damaged beyond repair;automate steps of the claims process; outsource steps of the claims processthat insurance companies have historically performed internally; and monitorand manage their businesses through data reporting and analysis. The Company isactive in over 50 countries and derives most of its revenues from itsestimating and workflow software.

 

Solera was formed in March 2005. On April 13,2006, Solera acquired the Claims Services Group (“CSG”), a business unit ofAutomatic Data Processing, Inc. (“ADP”), for approximately$1.0 billion. Prior to the acquisition of CSG, Solera’s operationsconsisted primarily of developing its business plan, recruiting personnel,providing consulting services, raising capital and identifying and evaluatingoperating assets for acquisition.

 

Solera accounted for the acquisition of CSG usingthe purchase method of accounting. The Company allocated the aggregate acquisitionconsideration to the tangible and intangible assets acquired and liabilitiesassumed based on their respective fair values as of the date of theacquisition.

 

On May 16, 2007, the Company completed aninitial public offering of shares of the Company’s common stock. In the initialpublic offering, the Company sold 19,200,000 shares of common stock andthe selling stockholders sold 10,987,500 shares of common stock. Inconnection with the initial public offering, the Company amended its corporatestatus and converted from a Delaware limited liability company into a Delawarecorporation with 150,000,000 authorized shares of common stock, par value$0.01, and 15,000,000 authorized shares of preferred stock, par value $0.01.Upon the effectiveness of the conversion, all of the Company’s outstandingpreferred and common units were automatically converted into shares of commonstock based on their relative rights as set forth in the Company’s limitedliability company agreement. As a result, 31,633,211 common units wereconverted into 31,633,211 shares of common stock, and 204,016 preferredunits were converted into 13,889,974 shares of common stock.

 

***Principles ofConsolidation and Basis of Presentation  *** The accompanying unaudited condensedconsolidated financial statements have been prepared in accordance with UnitedStates (“U.S.”) generally accepted accounting principles and applicableregulations of the Securities and Exchange Commission (“SEC”) and should beread in conjunction with the Company’s audited Consolidated FinancialStatements for the fiscal year ended June 30, 2007, included in its AnnualReport on Form 10-K filed with the SEC on September 17, 2007. TheCompany’s operating results for the three months ended March 31, 2008 arenot necessarily indicative of the results that may be expected for any futureperiods.

 

Thepreparation of the accompanying unaudited condensed consolidated financialstatements requires the use of estimates that affect the reported amounts ofassets, liabilities, revenues, expenses and contingencies. Estimates areupdated on an ongoing basis and are evaluated based on historical experienceand current circumstances. Changes in facts and circumstances in the future maygive rise to changes in these estimates which may cause actual results todiffer from current estimates.

 

The unaudited condensed consolidated financialstatements include the accounts of the Company and its subsidiaries. Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.  The numbers in thefinancials are presented “in thousands” except for per share data.

 

6

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**2.       SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

** **

Solera’ssignificant accounting policies were described in Note 2 to the Company’saudited Consolidated Financial Statements for the fiscal year ended June 30,2007, included in the Company’s Annual Report on Form 10-K.  As of May 12, 2008 these accountingpolicies have not significantly changed.

 

***Recent Accounting Pronouncements—***In June 2006, theFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes, anInterpretation of FASB Statement No. 109* (“FIN 48”). FIN 48clarifies the accounting for income taxes by prescribing a minimum recognitionthreshold a tax position is required to meet before being recognized in thefinancial statements and also provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition. Effective the first quarter of fiscal year 2008, theCompany adopted FIN 48 which required a $1,027 cumulative credit adjustment todecrease accumulated deficit.

 

In September 2006, the FASB issued Statement ofFinancial Accounting Standards (“SFAS”) No. 157,*Fair Value Measurements* (“SFAS No. 157”). Thisstatement clarifies the definition of fair value, establishes a framework formeasuring fair value and expands the disclosures on fair value measurements.SFAS No. 157 is effective for the Company beginning in the first quarterof fiscal year 2009. The Company is currently evaluating the effect that theadoption of SFAS No. 157 will have, if any, on its consolidated results ofoperations and financial condition.

 

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

 

In March 2007, the FASB ratified EmergingIssues Task Force (“EITF”) Issue No. 06-11, *Accountingfor Income Tax Benefits of Dividends on Share-Based Payment Awards*(“EITF No. 06-11”). EITF No. 06-11 requires companies to recognize the income tax benefitrealized from dividends or dividend equivalents that are charged to retainedearnings and paid to employees for non-vested equity-classified employeestock-based payment awards as an increase to additional paid-in capital.EITF No. 06-11 is effective for the Company beginning in the firstquarter of fiscal year 2009. The Company does not expect that EITF No. 06-11will have a material impact on its results of operations or cash flows.

 

InJune 2007, the FASB ratified EITF Issue No. 07-3, *Accounting for Nonrefundable Advance Payments forGoods or Services Received for Use in Future Research and DevelopmentActivities*(“EITF No. 07-3”). EITF No. 07-3 requires thatnonrefundable advance payments for goods or services that will be used orrendered for future research and development activities be deferred andcapitalized and recognized as an expense as the goods are delivered or the relatedservices are performed. EITF No. 07-3 is effective, on a prospectivebasis, for the Company beginning in the first quarter of fiscal year 2009. TheCompany is currently evaluating the effect that the adoption of EITF No. 07-3will have on its consolidated results of operations and financial condition.

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in ConsolidatedFinancial Statements, an amendment of ARB 51* (“SFAS No. 160”), which changes the accounting andreporting for minority interests. Minority interests will be recharacterized asnoncontrolling interests and will be reported as a component of equity separatefrom the parent’s equity, and purchases or sales of equity interests that donot result in a change in control will be accounted for as equity transactions.In addition, net income attributable to the noncontrolling interest will beincluded in consolidated net income on the face of the income statement and,upon a loss of control, the interest sold, as well as any interest retained,will be recorded at fair value with any gain or loss recognized in earnings.SFAS No. 160 is effective for the Company beginning in the first quarterof fiscal year 2010 and will apply prospectively, except for the presentationand disclosure requirements, which will apply retrospectively. The Company iscurrently assessing the potential impact that adoption of SFAS No. 160will have on its consolidated financial statements.

 

7

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In December 2007, the FASB issued SFAS No. 141(revised 2007), *Business Combinations*(“SFASNo. 141(R)”). SFAS No. 141(R) expands the definition of abusiness combination and requires the fair value of the purchase price of anacquisition, including the issuance of equity securities, to be determined onthe acquisition date. SFAS No. 141(R) also requires that all assets,liabilities, contingent considerations, and contingencies of an acquiredbusiness be recorded at fair value at the acquisition date. In addition, SFAS No. 141(R) requiresthat acquisition costs generally be expensed as incurred, restructuring costsgenerally be expensed in periods subsequent to the acquisition date, andchanges in accounting for deferred tax asset valuation allowances and acquiredincome tax uncertainties after the measurement period impact income taxexpense. SFAS No. 141 (R) is effective for the Company beginning inthe first quarter of fiscal year 2010 with early adoption prohibited. TheCompany is currently evaluating the effect that the implementation of SFAS No. 141(R) willhave on its consolidated financial statements on future acquisitions.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments and Hedging Activities, anamendment of FASB Statement No. 133* (“SFAS 161”). Thisstatement is intended to improve transparency in financial reporting byrequiring enhanced disclosures of an entity’s derivative instruments andhedging activities and their effects on the entity’s financial position,financial performance, and cash flows. SFAS 161 applies to all derivativeinstruments within the scope of SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities*(“SFAS 133”), as well as relatedhedged items, bifurcated derivatives, and nonderivative instruments that aredesignated and qualify as hedging instruments. Entities with instrumentssubject to SFAS 161 must provide more robust qualitative disclosures andexpanded quantitative disclosures. SFAS 161 is effective prospectively forfinancial statements issued for fiscal years and interim periods beginning withthe Company’s fiscal year 2010, with early application permitted. TheCompany is currently evaluating the disclosure implications of this statement.

 

**3.       NETINCOME (LOSS) PER COMMON SHARE**

** **

The Company calculates net income (loss) per commonshare/unit in accordance with SFAS No. 128, *Earnings Per Share* (“SFAS No. 128”). Under SFAS No. 128,basic net income (loss) per common share/unit is calculated by dividing netincome (loss) by the weighted-average number of common shares/units outstandingduring the reporting period excluding shares/units subject to repurchase.

 

Reconciliation of shares/units used in thiscalculation table of basic and diluted net income (loss) per share/unit for thethree and nine months ended March 31, 2008 and 2007, is as follows (inthousands except for per share/unit data):

 
| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2008**                                         | ** ** | **2007**                                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income (loss) allocable to common  stockholders/unitholders                                          |       | $                                                | 7,308      |                                            | $          | (14,018 | ) | $ | 22,171 |   | $ | (52,353 | ) |
| Weighted-average number of common shares/units                                                           |       | 64,884                                           |       | 31,047                                          |       | 64,837 |   | 31,047 |   |
| Weighted-average common shares/units subject to  repurchase                                              |       | (1,152                                           | )     | (1,741                                          | )          | (1,498 | ) | (1,876 | ) |
| Weighted-average number of common shares/units  used to compute basic net income (loss) per share/unit   |       | 63,732                                           |       | 29,306                                          |       | 63,339 |   | 29,171 |   |
| Effect of dilutive common stock equivalents:                                                             |       |                                             |       |                                            |       |   |   |   |   |
| Stock options to purchase common stock                                                                   |       | 32                                               |       | —                                          |       | 5 |   | — |   |
| Restricted common stock awards                                                                           |       | 925                                              |       | —                                          |       | 1,195 |   | — |   |
| Weighted-average number of common shares/units  used to compute diluted net income (loss) per share/unit |       | 64,689                                           |       | 29,306                                          |       | 64,539 |   | 29,171 |   |
|                                                                                                     |       |                                             |       |                                            |       |   |   |   |   |
| Basic net income (loss) per share/unit                                                                   |       | $                                                | 0.11       |                                            | $          | (0.48 | ) | $ | 0.35 |   | $ | (1.79 | ) |
| Diluted net income (loss) per share/unit                                                                 |       | $                                                | 0.11       |                                            | $          | (0.48 | ) | $ | 0.34 |   | $ | (1.79 | ) |

 

For the three and nine months ended March 31,2008 potential common stock equivalents of 28,140 and 45,538, respectively, arenot included in the diluted net income per share calculation above, becausetheir effect was antidilutive for the period. For the three and nine monthsended March 31, 2007, outstanding redeemable preferred units of 204,239and nonvested carried common units of 2,283,673 have been excluded, as they areantidilutive due to the Company’s net loss for the period.

 

8

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**4.       RESTRUCTURINGCHARGES**

** **

The Solera restructuring initiatives were designed toachieve efficiencies and reduce costs as part of the Company’s continualefforts to eliminate waste and improve operational efficiencies. Therestructuring reserves are included in Accrued expenses and other currentliabilities and Other liabilities in the condensed consolidated balance sheets.

 

The Company recorded restructuring charges of $1,171and $2,837 during the three and nine months ended March 31, 2008,respectively.  For the three and ninemonths ended March 31, 2007, there were charges of $932 and $1,806 fortermination benefits, respectively. For the three months ended March 31,2008, these charges consisted primarily of one-time termination benefits. Forthe nine months ended March 31, 2008, these charges consisted of one-timetermination benefits of $1,769 and net facilities consolidation charges of$1,068. The restructuring balance at March 31, 2008 also included $528 incumulative translation adjustments, and a net one-time adjustment of $2,522,consisting of a non-cash write-off of lease-related assets and liabilities andfurniture as a result of facilities consolidation efforts.

 

During the three months ended March 31, 2008, theCompany concluded its employee termination activity under the *Americas 2007* plan, which had commenced in February 2007and was designed to create appropriate resource levels and efficiencies forvarious functional groups across the Americas locations. One-time terminationbenefits for this plan relate to the termination of approximately 112employees.  The above mentionedfacilities consolidation charges relate entirely to the *Americas 2007*plan. All that remains under this plan is amortization of lease relatedliabilities over the remaining term of the lease and several months ofseverance payments.

 

In February 2008 the Company initiated a newplan, *Americas 2008*, which will focus on creatinga more efficient and flexible employee work force across the Americas over thenext four quarters. One-time termination benefits for this plan relate to thetermination of approximately 50 employees during the three months ended March 31,2008.

 

The following table summarizes the charges forrestructuring and related activities, including payments made and the endingreserve balances by business segment:

 
| ** **                       | ** ** | **Restructuring plan  from acquisition of CSG** | ** ** | **Solera  Restructuring plans** | ** ** | **Total** | ** ** |
|----------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------|------------|-----------|------------|
| ** **                       | ** ** | **EMEA**                                                            | ** ** | **Americas**                         | ** ** | **EMEA**  | ** ** | **Americas 07** | ** ** | **Americas 08** | ** ** | **EMEA** | ** ** | **Americas** | ** ** | **Total** | ** ** |
| Balance—June 30, 2007  |       | $                                                                   | 6          |                                 | $          | 180       |       | $ | 4,104 |   | $ |  1,309 |   | $ | — |   | $ | 4,110 |   | $ | 1,489 |   | $ | 5,599 |   |
| Additions/adjustments            |       | 1                                                                   |       | (36                                  | )     | 593       |       | 4,406 |   | 923 |   | 594 |   | 5,293 |   | 5,887 |   |
| Payments/amortization            |       | —                                                              |       | (9                                   | )          | (2,885    | )          | (2,846 | ) | — |   | (2,885 | ) | (2,855 | ) | (5,740 | ) |
| Balance—March 31, 2008 |       | $                                                                   | 7          |                                 | $          | 135       |       | $ | 1,812 |   | $ | 2,869 |   | $ | 923 |   | $ | 1,819 |   | $ | 3,927 |   | $ | 5,746 |   |

 

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.

 

**5.       GOODWILLAND INTANGIBLE ASSETS — NET**

** **

Changes in goodwill by business segment during the nine month periodended March 31, 2008 are as follows:

 
| ** **                         | ** ** | **EMEA** | ** ** | **Americas** | ** ** | **Total** | ** ** |
|------------------------------------|------------|----------|------------|--------------|------------|-----------|------------|
| Balance—June 30, 2007    |       | $        | 478,355    |         | $          | 90,810    |       | $ | 569,165 |   |
| Adjustments                        |       | 78       |       | —       |       | 78        |       |
| Cumulative translation adjustments |       | 74,384   |       | 324          |       | 74,708    |       |
| Balance—March 31, 2008   |       | $        | 552,817    |         | $          | 91,134    |       | $ | 643,951 |   |

 

Components of intangible assets, excludinggoodwill, as of March 31, 2008 and June 30, 2007 are as follows:

 
| ** **                        | ** ** | **March 31,** | ** ** | **June 30,** | ** ** |
|-----------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                        | ** ** | **2008**           | ** ** | **2007**          | ** ** |
| Intangibles (excluding goodwill): |       |               |       |              |       |
| Internally developed software     |       | $                  | 27,300     |              | $          | 22,151 |   |
| Customer relationships            |       | 202,133            |       | 185,946           |       |
| Trademarks                        |       | 17,631             |       | 14,369            |       |
| Software and database technology  |       | 289,787            |       | 249,347           |       |
|                              |       | 536,851            |       | 471,813           |       |
| Less accumulated amortization     |       | (183,830           | )          | (108,827          | )          |
| Intangible assets — net      |       | $                  | 353,021    |              | $          | 362,986 |   |

 

9

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Intangible assets (excluding goodwill) have finite lives and, as such,are subject to amortization. The weighted average remaining useful life of theintangible assets is 11.3 years (2.3 years for internally developed software,18.2 years for customer relationships, 2.2 years for trademarks and 7.2 yearsfor software and database). Internally developed software is amortized on astraight-line basis. Other intangible assets are amortized on an acceleratedbasis to reflect the pattern in which economic benefits of the intangibleassets are consumed. Amortization of intangibles totaled $19,809 and $57,165for the three and nine months ended March 31, 2008, respectively, and$24,932 and $65,012 for the three and nine months ended March 31, 2007,respectively. Estimated amortization expense of the Company’s existingintangible assets for the next five fiscal years ended June 30 are asfollows:

 
| 2008 (remaining 3 months) |   | $       | 21,540  |   |
|---------------------------|--------|---------|---------|--------|
| 2009                      |   | 70,815  |    |
| 2010                      |   | 59,216  |    |
| 2011                      |   | 46,624  |    |
| 2012                      |   | 34,790  |    |
| Thereafter                |   | 120,036 |    |
|                      |   |    |    |
| Total                     |   | $       | 353,021 |   |

 

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

 

**6.       FINANCIALINSTRUMENTS AND DERIVATIVES**

** **

***Financial Instruments*** — At March 31, 2008 and June 30,2007, the carrying amounts of cash equivalents, receivables, accounts payableand other liabilities approximated their fair values because of the short-termmaturities of these financial instruments. The carrying amounts of long-termdebt at March 31, 2008 and June 30, 2007 approximated fair valuebased on prevailing 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.

 

In February 2006, the Company entered into aforeign currency exchange option (the “FX Option”) that gives the Company theoption to call USD $200,000 at a strike price of 1.1646 EUR/USD at any time upto February 8, 2011. This FX Option is not designated as a hedginginstrument. In February 2006, the Company paid approximately $7,912 forthe FX Option. As of March 31, 2008 and June 30, 2007, the fair valueof the FX Option approximated $1,699 and $970, respectively, and was recordedin Other assets in the condensed consolidated balance sheets. The increase infair value of approximately $729, due to increased volatility in spot rates andchanges in interest rates, was recognized in Other (income) expense in thecondensed consolidated statement of operations, during the nine months ended March 31,2008.

 

In June 2007, the Company entered into threeUSD-based interest rate swaps with notional amounts of $50,000, $80,965 and$75,000, all with maturities on June 30, 2011, which require the Companyto pay fixed rates of 5.445%, 5.418% and 5.445%, respectively, and also enteredinto three Euro-based interest rate swaps with notional amounts of € 69,821,€ 50,000 and € 60,000, all with maturities on June 30, 2011,which require the Company to pay fixed rates of 4.603%, 4.679% and 4.685%,respectively. These interest rate swaps are designated and documented at theirinception as cash flow hedges and are evaluated for effectiveness quarterly.The effective portion of the gain or loss on these hedges is reported as acomponent of Accumulated other comprehensive income (loss) in stockholders’equity and reclassified into earnings when the hedged transaction affectsearnings. The ineffective portion on these cash flow hedges is recognized ininterest expense. The estimated fair values of $15,647 on USD-based swaps and €2,296($3,626) on Euro-based swaps was recorded in Other liabilities in theconsolidated balance sheet as of March 31, 2008. The current year-to-datechange in the fair value of these swaps of $17,925 reflects the effectiveportion of loss on these hedges and is reported as a component of Accumulatedother comprehensive income in stockholders’ equity.

 

The estimated fair values of the Company’sderivatives were determined based on quoted market prices and may not berepresentative of actual values that could have been realized or that will berealized in the future.

 

10

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**7.**                      LONG-TERM DEBT

** **

Long-term debtconsists of the following:

 
| ** **                                       | ** ** | **March 31,** | ** ** | **June 30,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                       | ** ** | **2008**           | ** ** | **2007**          | ** ** |
| Amended and restated first lien credit facility: |       |               |       |              |       |
| European revolver loan, due April 2012           |       | $                  | —     |              | $          | 8,073 |   |
| Domestic term loan, due May 2014                 |       | 219,248            |       | 229,425           |       |
| European term loan, due May 2014                 |       | 428,268            |       | 375,770           |       |
| Total                                            |       | 647,516            |       | 613,268           |       |
| Less current portion                             |       | 6,721              |       | 14,140            |       |
| Long-term portion                                |       | $                  | 640,795    |              | $          | 599,128 |   |

 

***Senior Secured Credit Facilities*** — On May 16, 2007, in conjunction with theclosing of its initial public offering, the Company entered into an Amended andRestated Senior Credit Facility Agreement with a syndicate of commerciallenders, consisting of a $50,000 Revolving Credit Facility, a $230,000 DomesticTerm Loan and a € 280,000 European Term Loan.  As of March 31, 2008,the Company had $0, $219,248 and $428,268 (€ 271,227) in outstanding loansunder the Revolving Credit Facility, the Domestic Term Loan and the EuropeanTerm Loan, respectively, with interest rates of 7.75%, 4.875% and 6.625%,respectively. Borrowings under the Amended and Restated Senior Credit Facilitybear 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 (1) theoffer rate on dollars based on the British Bankers’ Association Settlement Ratefor deposits or (2) the offer rate on the Euro from the Banking Federationof the European Union, or (3) in the event such rates are not available,then the offered quotation rate to first class banks in the London inter-bankmarket or European inter-bank market by Citibank USA Inc. for deposits,respectively, in each case, plus an applicable margin that varies based uponthe Company’s consolidated leverage ratio, as defined in the agreement.Beginning on June 30, 2007, consecutive quarterly minimum principalpayments of $575 and €700 are required for the Domestic Term Loan and EuropeanTerm Loan, respectively, under the Amended and Restated Senior Credit Facilitywith the remaining balance due in May 2014. Future quarterly minimumprincipal payments will be reduced each time a voluntary prepayment occurs. TheAmended and Restated Senior Secured Credit Facility allows for voluntaryprepayments under specified conditions and requires mandatory prepayments andcommitment reductions upon the occurrence of certain events, including amongothers, sale of assets, receipt of insurance or condemnation proceeds, excesscash flow and issuances of debt and equity securities.

 

Duringthe three months ended March 31, 2008, the Company made a voluntary principalprepayment of €4,500 on the European Term Loan. For the quarter ending March31, 2008, the quarterly minimum European Term Loan principal payments decreasedfrom €693 to €680 as a result of the voluntary principal prepayment.  The quarterly minimum Domestic Term Loan principalpayments remained at $551. The increase in the European term loan balance isdue entirely to foreign currency fluctuations. For the nine months ended March31, 2008 the cumulative principal payments on the European Term Loan and DomesticTerm Loan were $11,766 (€8,073) and $10,177, respectively.

 

Theobligations under the Amended and Restated Senior Credit Facility are securedby substantially all of the assets of the Company. The Amended and RestatedSenior Credit Facility contains certain covenants including, among others,requirements related to financial reporting, maintenance of operations,compliance with applicable laws and regulations, maintenance of interest rateprotection and compliance with specified financial covenants, as well asrestrictions related to liens, investments, additional indebtedness,dispositions of assets or subsidiary interests, dividends, distributions,issuances of equity securities, transactions with affiliates, capitalexpenditures and certain other changes in the business. The Amended andRestated Senior Credit Facility contains a leverage ratio, which is applicableonly to the revolving loans and applies only if at least $10,000 of revolvingloans, including outstanding letters of credit, are outstanding for at least 10days during the prior fiscal quarter.

 

***Future Minimum Principal Payments***— Futureminimum principal payments for the next five fiscal years ended June 30 are asfollows:

 
| 2008 (remaining 3 months) |   | $       | 1,624   |   |
|---------------------------|--------|---------|---------|--------|
| 2009                      |   | 6,497   |    |
| 2010                      |   | 6,497   |    |
| 2011                      |   | 6,497   |    |
| 2012                      |   | 6,497   |    |
| Thereafter                |   | 619,904 |    |
|                      |   |    |    |
| Total                     |   | $       | 647,516 |   |

 

11

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**8.**                      EMPLOYEE BENEFITPLANS

 

***Stock-Based Compensation—***Effective July 1,2006, the Company adopted SFAS No. 123 (revised 2004), *Share-Based Payment* (“SFAS 123(R)”) which requires themeasurement and recognition of compensation expense for all stock-based paymentawards made to employees and directors, including employee stock options andshare awards, based on estimated fair values recognized over the requisiteservice period.

 

TheCompany adopted SFAS 123(R) using the prospective transition method. Underthis method, SFAS 123(R) is applied to new awards and to awards modified,repurchased or cancelled after the adoption date of July 1, 2006.Compensation cost that was previously recorded under Accounting PrinciplesBoard (“APB”) Opinion No. 25 for awards outstanding at the adoption date,such as unvested options, will continue to be recognized as the options vest.Accordingly, for the three months ended March 31, 2008, stock-basedcompensation expense includes compensation cost related to estimated fairvalues of awards granted after the date of adoption of SFAS 123(R) andcompensation costs related to unvested awards at the date of adoption based onthe intrinsic values as previously recorded under APB Opinion No. 25.

 

Thefair value of stock and options awards granted after July 1, 2006 isestimated on the grant date using the Black-Scholes option valuation model.This valuation model for stock-based compensation expense requires the Companyto make assumptions and judgments about the variables used in the calculationincluding the expected term (weighted average period of time that the sharesand options granted are expected to be outstanding), the volatility of theCompany’s common shares, an assumed risk free interest rate and the estimatedforfeitures of unvested share awards. No compensation cost is recorded forawards that do not vest. For awards granted after July 1, 2006 and valuedin accordance with SFAS 123(R), the Company used the straight-line method forexpense attribution. Expected volatilities utilized in the model are based on acombination of implied market volatilities, historical volatility of theCompany’s stock price and other factors. The risk-free rate is derived from theU.S. Treasury yield curve in effect at the time of grant.

 

Stock-based compensationexpense of $1,732 and $3,373 was recognized in net income for the three and ninemonths ended March 31, 2008, respectively. For the three and nine months ended March31, 2007, the Company recognized stock-based compensation of $208 and $552,respectively.

 

As of March 31, 2008, thetotal remaining unrecognized compensation cost related to non-vested stockoptions and restricted stock awards amounted to $9,572, which will be amortizedover a weighted average period of 3.3 years.

 

Thefair value for stock-based awards was estimated at the date of grant with thefollowing assumptions: a risk-free interest rate of 4.5%; a dividend yield of0.0%; a weighted average volatility factor of 32.8%; a weighted averageexpected life of 6.1 years; and an exercise price, determined on the date ofeach grant, ranging from $16.00 to $24.83 per share for the May 2007 throughMarch 2008 grants, respectively.

 

***Restricted Stock—***The Company has a restricted stock programunder which shares of common stock have been issued to certain key employees.These shares are restricted as to transfer and in certain circumstances must bereturned to the Company at the original purchase price. The Company recordsstock compensation expense relating to the issuance of restricted stock overthe period during which the transfer restrictions exist, which may be up tofive years from the date of grant. The value of the Company’s restricted stock,based on market prices, is recognized as compensation expense over therestriction period in accordance to their vesting terms.

 

Forthe three and nine months ended March 31, 2008, the Company granted the rightto purchase 81,281 and 120,581 restricted common stock/units, respectively. Summarizedinformation about restricted common stock is as follows:

 
| ** **                    | ** ** | **Number of  restricted  common  stock / units** | ** ** | **Purchase price  per common  stock / unit** | ** ** | **Fair value  per common  stock / unit** | ** ** | **Total  compensation  expense to be  recognized  over vesting  period** | ** ** |
|-------------------------------|------------|-----------------------------------------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| Outstanding at June 30, 2007  |       | 980,167                                                         |       |                                                             |       |                                                         |       | $                                                                                       | 7,572      |   |
| Granted                       |       | 120,581                                                         |       | $                                                                | 0.01       |                                                         | $          | 23.64                                                                                   |       | $ | 2,850 |   |
| Cancellations                 |       | (87,083                                                         | )          | $                                                                | 0.27       |                                                         | $          | 7.72                                                                                    |       | $ | (672 | ) |
| Outstanding at March 31, 2008 |       | 1,013,665                                                       |       |                                                             |       |                                                         |       | $                                                                                       | 9,750      |   |

 

12

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During the three and ninemonths ended March 31, 2008, the Company recorded $1,481 and $2,831,respectively, as an expense related to these rights. The remaining portion ofthe expense of $6,083 is expected to be recognized over the weighted averagevesting period of 3.1 years.

 

***Stock Options*****—**Stock options are granted to employees atexercise prices equal to the fair market value of the Company’s common stock onthe date of grant. Stock options are issued pursuant to a vesting schedule,generally vest ratably over four years and have a term of 10 years.Compensation expense for stock options is recognized over the requisite serviceperiod for each separately vesting portion of the stock option award. Theaggregate fair value of total stock options outstanding at March 31, 2008 was $4,660.

 

Duringthe quarter ended March 31, 2008, the Company granted 119,200 options to itsemployees to purchase common stock at a grant price, determined on eachrespective grant date, ranging from $23.37 to $24.14 per share and having fairvalues ranging form $9.65 to $9.93 per share. Summarized information aboutstock options outstanding at March 31, 2008 is as follows:

 
| ** **                    | ** ** | **Number of Options** | ** ** | **Weighted   Average Price** | ** ** | **Weighted   Average  Remaining   Contractual   Term   (years)** | ** ** | **Weighted   Average  Fair   Value** | ** ** |
|-------------------------------|------------|-----------------------|------------|------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------|------------|
| Outstanding at June 30, 2007  |       | 423,600               |       | $                            | 16.00      |                                                             | 9.9        |                                 | $          | 2,808 |   |
| Granted                       |       | 247,400               |       | $                            | 22.74      |                                                             | 9.7        |                                 | 2,324      |   |
| Exercised                     |       | —                |       | —                       |       | —                                                           |       | —                               |       |
| Forfeited                     |       | (67,000               | )          | $                            | 17.00      |                                                             | 9.2        |                                 | (472       | ) |
| Outstanding at March 31, 2008 |       | 604,000               |       | $                            | 18.65      |                                                             | 9.3        |                                 | $          | 4,660 |   |

 

Thestock-based compensation expense related to stock options included in netincome was $251 and $542 for the three and nine months ended March 31, 2008,respectively. The estimated total remaining compensation of $3,489, includingestimated forfeitures, is expected to be recognized over the remaining vestingperiod of 3.5 years.

 

***Employee Stock PurchasePlan*****—**The Company offers an Employee Stock Purchase Plan (“the ESPP”) that allows eligible employees to purchaseshares of common stock at a price equal to 95% of the lower of the fair marketvalue of the common stock at the beginning of the offering period and the endof the offering period. Compensation expense for the employee stock purchaseplan is recognized on a straight-line basis over the offering period. Eachoffering period has a six-month term, which runs either from January 1 to June30 or from July 1 to December 31. For the three months ended March 31, 2008 theCompany recorded compensation expense of $59. During the quarter ended March31, 2008 the Company issued5,861 shares under the ESPP, representing approximately $106 in employeecontributions accumulated from the prior quarter, which were used to purchaseshares in January 2008.

 

***Pension Plans  *** The Company’s foreign subsidiaries sponsorvarious defined benefit plans and individual defined benefit arrangementscovering certain eligible employees. The benefits under these pension plans arebased on years of service and compensation levels. Funding is limited tostatutory requirements. The measurement date for all defined benefit plans wasJune 30, 2007.

 

The components of net pension expense were as follows:

 
| ** **                                            | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                            | ** ** | **2008**                                   | ** ** | **2007**                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service cost — benefits earned during the period |       | $                                          | 876        |                                      | $          | 300 |   | $ | 2,470 |   | $ | 900 |   |
| Interest cost on projected benefits                   |       | 875                                        |       | 400                                       |       | 2,453 |   | 1,200 |   |
| Expected return on plan assets                        |       | (799                                       | )          | (300                                      | )          | (2,240 | ) | (1,000 | ) |
|                                                  |       | $                                          | 952        |                                      | $          | 400 |   | $ | 2,683 |   | $ | 1,100 |   |

 

13

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**9.**                      PROVISION FOR INCOMETAXES

** **

The Company recorded anincome tax provision of $2,699 and $7,641 for the three and nine months ended March31, 2008, respectively, and $1,327 and $3,444 for the three and nine monthsended March 31, 2007, respectively.  Theexpected tax provision derived from applying the federal statutory rate to theCompany’s income before income taxes for nine months ended March 31, 2008, differedfrom the Company's recorded income tax provision primarily due to lower foreignincome tax rates reducing the effective tax rate, offset by certain withholdingtax liabilities and valuation allowances on certain subsidiary losses that donot meet the more-likely-than not standard of realizability of those deferredtax assets. The Company’s tax provision for the remainder of fiscal year 2008continues to heavily depend on the jurisdictional mix of pretax earnings, ouractual and forecasted profitability, establishment of valuation allowances incertain jurisdictions and varying jurisdictional income tax rates that areapplied to related earnings.

 

FIN 48 contains a two-stepapproach to recognizing and measuring uncertain tax positions accounted for inaccordance with SFAS No. 109, “*Accounting for IncomeTaxes*.” The first step is to evaluate the tax position forrecognition by determining if the weight of available evidence indicates thatit is more likely than not that the position will be sustained on audit,including resolution of related appeals or litigation processes, if any. Thesecond step is to measure the tax benefit as the largest amount that is morethan 50% likely of being realized upon ultimate settlement. The Companyrecorded a $1,027 cumulative credit adjustment to decrease accumulated deficitas a result of the adoption as of July 1, 2007.

 

As of the Company’s FIN 48adoption date of July 1, 2007, the Company had gross unrecognized tax benefitsof $8,387. The total amount of tax benefits, if recognized, that would affectthe effective tax rate upon subsequent realization as a result of valuationallowance, application of local tax laws and purchase price accounting is$234.  The Company’s continuing practiceis to recognize interest and penalties related to income tax matters as acomponent of income tax expense. As of the date of adoption, the Company hadaccrued $30 for interest and penalties related to uncertain tax positions and unrecognizedtax benefits.

 

According to the acquisitionagreement dated February 8, 2006 between ADP and Solera, ADP has indemnifiedall tax liabilities related to the pre-acquisition period (i.e. prior to April13, 2006) attributable to the acquired “Claims Services Group.”  The Company is liable for any tax assessmentsfor the post-acquisition periods for its U.S. and foreign jurisdictions.  The Company does not anticipate that theamount of existing unrecognized tax benefits will significantly increase ordecrease within the next 12 months.

 

**10.**               COMPREHENSIVE INCOME(LOSS)

** **

The components ofcomprehensive income for the three and nine months ended March 31, 2008 and 2007are as follows:

 
| ** **                                           | ** ** | **Three Months Ended March 31,** | ** **   | **Nine Months Ended March 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|--------------|-------------------------------------------|------------|
| ** **                                           | ** ** | **2008**                                   | ** **   | **2007**                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income (loss)                                    |       | $                                          |  7,308  |                                      | $          | (9,751 | ) | $ | 22,171 |   | $ | (39,618 | ) |
| Other Comprehensive income (loss):                   |       |                                       |         |                                      |       |   |   |   |   |
| Foreign currency translation adjustments             |       | 30,231                                     |         | 540                                       |       | 62,533 |   | 2,375 |   |
| Unrealized net gain (loss) on derivative instruments |       | (8,289                                     | )            | —                                    |       | (17,925 | ) | — |   |
|                                                 |       |                                       |         |                                      |       |   |   |   |   |
| Comprehensive income (loss)                          |       | $                                          |  29,250 |                                      | $          | (9,211 | ) | $ | 66,779 |   | $ | (37,243 | ) |

 

Subsequent to issuance ofthe Company’s condensed consolidated financial statements included in itsreports on Form 10-Q for the quarters ended September 30, 2007 andDecember 31, 2007, the Company determined that dividends and preferredunit accretion were incorrectly included in the determination of comprehensiveloss for the three months ended September 30, 2006, and for the three andsix months ended December 31, 2006. The following tables set forth the Company’s comprehensive income (loss)for the three months ended September 30, 2007 and 2006 and for the threeand six months ended December 31, 2007 and 2006, along with a summary ofthe corrections for the above-mentioned errors in the periods endedSeptember 30, 2006, and December 31, 2006.

 
| ** **                                     | ** ** | **Three  months ended September 30** | ** ** | ** **                    | ** ** | ** **          | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------|------------|---------------------|------------|------------|------------|
| ** **                                     | ** ** | **2007**                                  | ** ** | **2006**                      | ** ** | **2006**            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | ** **                                | ** ** | **(As  previously Reported)** | ** ** | **(As  corrected)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                              |       | $                                         | 3,854      |                          | $          | (22,081             | )          | $          | (17,890    | ) |   |   |   |   |   |   |
| Other comprehensive income (loss):             |       |                                      |       |                          |       |                |       |       |       |   |   |   |   |
| Foreign currency  translation adjustments      |       | 23,917                                    |       | (417                          | )          | (417                | )          |       |       |   |   |   |   |
| Unrealized net  loss on derivative instruments |       | (5,439                                    | )          | —                        |       | —              |       |       |       |   |   |   |   |
| Comprehensive income (loss)                    |       | $                                         | 22,332     |                          | $          | (22,498             | )          | $          | (18,307    | ) |   |   |   |   |   |   |

 
| ** **                                     | ** ** | **Three  Months Ended December 31** | ** ** | **Six  Months Ended December 31** | ** ** |
|------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------|------------|
| ** **                                     | ** ** | **2007**                                 | ** ** | **2006**                               | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2006** | ** ** |
| ** **                                     | ** ** | ** **                               | ** ** | **(As  previously Reported)**          | ** ** | **(As  corrected)** | ** ** | ** ** | ** ** | **(As  previously Reported)** | ** ** | **(As  corrected)** | ** ** |
| Net income (loss)                              |       | $                                        | 11,009     |                                   | $          | (16,253 | ) | $ | (11,977 | ) | $ | 14,863 |   | $ | (38,334 | ) | $ | (29,867 | ) |
| Other comprehensive income (loss):             |       |                                     |       |                                   |       |   |   |   |   |   |   |   |   |
| Foreign currency  translation adjustments      |       | 8,386                                    |       | 2,252                                  |       | 2,252 |   | 32,302 |   | 1,835 |   | 1,835 |   |
| Unrealized net  loss on derivative instruments |       | (4,197                                   | )          | —                                 |       | — |   | (9,637 | ) | — |   | — |   |
| Comprehensive income (loss)                    |       | $                                        | 15,198     |                                   | $          | (14,001 | ) | $ | (9,725 | ) | $ | 37,528 |   | $ | (36,499 | ) | $ | (28,032 | ) |

 

14

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**11.**               SEGMENT ANDGEOGRAPHIC INFORMATION

** **

TheCompany manages its business operations through two strategic business units.Based upon the information reported to the chief operating decision maker, whois the Chief Executive Officer, the Company has two reportable segments: EMEAand Americas. The EMEA business unit encompasses the Company’s operations inEurope, the Middle East, Africa and Asia. The Americas business unitencompasses the Company’s operations in North America and Central and SouthAmerica. The Company does not allocate certain costs to its reportablesegments. These costs are managed at the corporate level and include costs relatedto financing activities of the Company. The Company evaluates the performanceof its reportable segments based on operating results before income taxes:

 
| ** **                                              | ** ** | **EMEA**  | ** **   | **Americas** | ** ** | **Corporate** | ** ** | **Total** | ** **   |
|---------------------------------------------------------|------------|-----------|--------------|--------------|------------|---------------|------------|-----------|--------------|
| **Three Months Ended March 31, 2007**                   |       |      |         |         |       |          |       |      |         |
| Revenues                                                |       | $         |  72,342 |         | $          | 49,359        |       | $         |  — |   | $ |  121,701 |   |
| Income (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      | )            |
|                                                    |       |      |         |         |       |          |       |      |         |
| **Three Months Ended March 31, 2008**                   |       |      |         |         |       |          |       |      |         |
| Revenues                                                |       | $         |  85,969 |         | $          |  52,080  |       | $         |  — |   | $ |  138,049 |   |
| Income (loss) before income taxes and minority interest |       | 26,828    |         | 8,316        |       | (23,224       | )          | 11,920    |         |
| Assets                                                  |       | 1,027,887 |         | 307,191      |       | 20,053        |       | 1,355,131 |         |
| Capital expenditures                                    |       | 2,405     |         | 1,744        |       | —        |       | 4,149     |         |
| Depreciation and amortization                           |       | 14,637    |         | 9,397        |       | —        |       | 24,034    |         |
| Interest expense                                        |       | 14        |         | 79           |       | 11,313        |       | 11,406    |         |
| Other (income) expense — net                       |       | (1,979    | )            | 231          |       | 1,185         |       | (563      | )            |

 
| ** **                                              | ** ** | **EMEA**  | ** ** | **Americas** | ** ** | **Corporate** | ** ** | **Total** | ** **   |
|---------------------------------------------------------|------------|-----------|------------|--------------|------------|---------------|------------|-----------|--------------|
| **Nine Months Ended March 31, 2007**                    |       |      |       |         |       |          |       |      |         |
| Revenues                                                |       | $         | 206,320    |         | $          |  143,100 |       | $         |  — |   | $ | 349,420 |   |
| Income (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     |         |
|                                                    |       |      |       |         |       |          |       |      |         |
| **Nine Months Ended March 31, 2008**                    |       |      |       |         |       |          |       |      |         |
| Revenues                                                |       | $         | 241,300    |         | $          | 153,020       |       | $         |  — |   | $ | 394,320 |   |
| Income (loss) before income taxes and minority interest |       | 71,018    |       | 21,451       |       | (57,858       | )          | 34,611    |         |
| Assets                                                  |       | 1,027,887 |       | 307,191      |       | 20,053        |       | 1,355,131 |         |
| Capital expenditures                                    |       | 6,164     |       | 7,742        |       | —        |       | 13,906    |         |
| Depreciation and amortization                           |       | 41,747    |       | 28,140       |       | —        |       | 69,887    |         |
| Interest expense                                        |       | 42        |       | 235          |       | 34,011        |       | 34,288    |         |
| Other (income) expense — net                       |       | (5,032    | )          | (974         | )          | (322          | )     | (6,328    | )            |

 

15

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The Company conducts itssales, marketing and customer service activities throughout the world.Geographic revenue information is based on the location of the customer. Nosingle country other than the United States, the Netherlands, the UnitedKingdom and Germany accounted for 10% or more of total external revenue or oflong-lived assets.

 
| ** **                            | ** ** | **Europe *** | ** ** | **United   States** | ** ** | **The  Netherlands** | ** ** | **United  Kingdom** | ** ** | **Germany** | ** ** | **All   Other** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|--------------|------------|--------------------------|------------|----------------------|------------|---------------------|------------|-------------|------------|----------------------|------------|-----------|------------|
| **Three Months Ended March 31, 2007** |       |         |       |                     |       |                 |       |                |       |        |       |                 |       |      |       |
| Revenues                              |       | $            | 28,512     |                     | $          | 38,036               |       | $                   | 13,944     |        | $          | 13,850               |       | $         | 11,704     |   | $ | 15,655 |   | $ | 121,701 |   |
| Property and equipment — net     |       | 3,556        |       | 27,246                   |       | 347                  |       | 6,792               |       | 8,053       |       | 4,941                |       | 50,935    |       |
|                                  |       |         |       |                     |       |                 |       |                |       |        |       |                 |       |      |       |
| **Three Months Ended March 31, 2008** |       |         |       |                     |       |                 |       |                |       |        |       |                 |       |      |       |
| Revenues                              |       | $            | 36,689     |                     | $          | 37,504               |       | $                   | 16,187     |        | $          | 15,132               |       | $         | 12,884     |   | $ | 19,653 |   | $ | 138,049 |   |
| Property and equipment — net     |       | 4,326        |       | 23,538                   |       | 346                  |       | 9,245               |       | 9,145       |       | 4,440                | ** ** | 51,040    | ** ** |

 
| ** **                           | ** ** | **Europe *** | ** ** | **United   States** | ** ** | **The  Netherlands** | ** ** | **United  Kingdom** | ** ** | **Germany** | ** ** | **All   Other** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|--------------|------------|--------------------------|------------|----------------------|------------|---------------------|------------|-------------|------------|----------------------|------------|-----------|------------|
| **Nine Months Ended March 31, 2007** |       |         |       |                     |       |                 |       |                |       |        |       |                 |       |      |       |
| Revenues                             |       | $            | 80,303     |                     | $          | 109,853              |       | $                   | 41,954     |        | $          | 37,389               |       | $         | 34,326     |   | $ | 45,595 |   | $ | 349,420 |   |
| Property and equipment — net    |       | 3,556        |       | 27,246                   |       | 347                  |       | 6,792               |       | 8,053       |       | 4,941                |       | 50,935    |       |
|                                 |       |         |       |                     |       |                 |       |                |       |        |       |                 |       |      |       |
| **Nine Months Ended March 31, 2008** |       |         |       |                     |       |                 |       |                |       |        |       |                 |       |      |       |
| Revenues                             |       | $            | 101,044    |                     | $          | 110,874              |       | $                   | 45,440     |        | $          | 42,410               |       | $         | 37,679     |   | $ | 56,873 |   | $ | 394,320 |   |
| Property and equipment — net    |       | 4,326        |       | 23,538                   |       | 346                  |       | 9,245               |       | 9,145       |       | 4,440                | ** ** | 51,040    | ** ** |

 

----

*        Excludes the Netherlands, the UnitedKingdom and Germany.

 

16

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**CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBORPROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995**

** **

This report containsforward-looking statements within the meaning of the federal securities laws.These forward-looking statements are identified by the use of terms and phrasessuch as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend” “may”,“plan”, “predict”, “project” and similar terms and phrases, includingreferences to assumptions. However, these words are not the exclusive means ofidentifying such statements.  Thesestatements relate to analyses and other information that are based on forecastsof future results and estimates of amounts not yet determinable. Thesestatements also relate to our future prospects, developments and businessstrategies and include, but are not limited to, statements about: changes inthe amount of our existing unrecongnized tax benefits; our revenue mix; ourincome taxes; restructuring plans and potential restructuring charges and theirimpact on our revenues; our operating expense growth and operating expenses asa percentage of our revenues; stability of our development and programmingcosts; growth of our selling, general and administrative expenses; decrease oftotal depreciation and amortization expense; decrease in interest expense and possible impact of futureforeign currency fluctuatons; our use of cash and liquidity position goingforward; and cash needs to service our debt.

 

Actualresults could differ materially from those projected, implied or anticipated byour forward-looking statements. Some of the factors that could cause actualresults to differ include: our reliance on a limited number of customers for asubstantial portion of our revenues; effects of competition on our software andservice pricing and our business; unpredictability and volatility of ouroperating results, which includes the volatility associated with foreigncurrency exchange risks; our ability to increase market share, successfullyintroduce new software and services and expand our operations to new geographiclocations; time and expenses associated with customers switching fromcompetitive software and services to our software and services; rapidtechnology changes in our industry; effects of changes in or violations by usor our customers of government regulations; costs and possible future losses orimpairments relating to our 2006 acquisition of the Claims Services Group fromAutomatic Data Processing, Inc.; use of cash to service our debt; country-specificrisks associated with operating in multiple countries; and other factors thatare described from time to time in our periodic filings with the Securities andExchange Commission (“SEC”), including those set forth in this filing in PartII, Item 1A – “Risk Factors”.

 

All forward-lookingstatements are qualified in their entirety by this cautionary statement, and weundertake no obligation to revise or update this Quarterly Report on Form 10-Qto reflect events or circumstances after the date hereof.

 

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

** **

Thefollowing discussion of our financial condition and results of operationsshould be read in conjunction with the 2007 Consolidated Financial Statementsand accompanying notes included in our Annual Report on Form 10-K filed withthe SEC on September 17, 2007. * *You should read the followingdiscussion and analysis of our financial condition and results of operations inconjunction with our condensed consolidated financial statements and the notesto those statements included elsewhere in this Quarterly Report onForm 10-Q.

 

All percentage amounts and ratios werecalculated using the underlying data in thousands. Operating results for thethree and nine month periods ended March 31, 2008 are not necessarilyindicative of the results that may be expected for any future period.

 

17

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**Overview of the Business**

 

Weare an integrated group of leading automotive claims solutions companiesproviding software and services to the automobile insurance claims processingindustry. Our customersinclude more than 900 automobile insurance companies, including each of the tenlargest automobile insurance companies in Europe and at least nine of the ten largestautomobile insurance companies in North America. We also provide our softwareand services to over 33,000 collision repair facilities, 7,000 independentassessors and 3,000 automotive recyclers. Our software and services help ourcustomers: estimate the costs to repair damaged vehicles; determinepre-collision fair market values for vehicles damaged beyond repair; automatesteps of the claims process; outsource steps of the claims process thatinsurance companies have historically performed internally; and improve theirability to monitor and manage their businesses through data reporting andanalysis. We are active in over fifty countries and derive most of our revenuesfrom our estimating and workflow software.

 

**Company History**

 

SoleraHoldings, LLC was formed in March 2005. On April 13, 2006,subsidiaries of Solera Holdings, LLC acquired the Claims Services Group(“CSG”), a business unit of Automatic Data Processing (“ADP”), forapproximately $1.0 billion (the “Acquisition”). Prior to the Acquisition,Solera Holdings, LLC’s operations consisted primarily of developing ourbusiness plan, recruiting personnel, providing consulting services, raisingcapital and identifying and evaluating operating assets for acquisition.

 

Weaccounted for the Acquisition using the purchase method of accounting. Weallocated 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.

 

Priorto the Acquisition, our business was operated as CSG, a business unit of ADP.As a result, the combined financial information of CSG, which is included  in our 2007 Annual Report on Form 10-K, ispresented on a carve-out basis and reflects the assets, liabilities, revenuesand expenses that were attributed or allocated to it as a business unit of ADP.The historical financial results in the combined financial statements may notbe indicative of the results that would have been achieved had we operated as astand-alone entity. These combined financial statements include costs forfacilities, functions and services used by CSG at ADP sites that it shared withother ADP business units and costs for certain functions and services performedby centralized ADP organizations and directly charged to CSG based on usage.The combined statements of earnings for CSG include allocations of certainexpenses of ADP, including general corporate overhead, insurance, stockcompensation and pension plans, royalty fees, facilities and other expenses.These allocations were based on a variety of factors.

 

OnMay 10, 2007, in connection with our initial public offering, we convertedfrom a limited liability company into a Delaware corporation, and all of theClass A Common Units and Class B Preferred Units of Solera Holdings,LLC were converted into shares of our common stock.

 

**Segments**

 

Weoperate our business using two reportable segments: EMEA and Americas. Our EMEAsegment consists of our operations in Europe, the Middle East, Africa and Asia.Our Americas segment consists of our operations in North, Central and SouthAmerica. We do not allocate certain costs to reportable segments. These costsare managed at the corporate level and include costs related to financingactivities of the Company.

 

The table belowsets forth our revenues by regional operating segment and as a percentage ofour total revenues for the periods indicated.

 
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **($’s in millions)** | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| EMEA                                 |       | $                                                    | 85.9       |                                                | 62.3       | % | $ | 72.3 |   | 59.4 | % | $ | 241.3 |   | 61.2 | % | $ | 206.3 |   | 59.1 | % |
| Americas                             |       | 52.1                                                 |       | 37.7                                                |       | 49.4 |   | 40.6 |   | 153.0 |   | 38.8 |   | 143.1 |   | 40.9 |   |
| Total                                |       | $                                                    | 138.0      |                                                | 100.0      | % | $ | 121.7 |   | 100.0 | % | $ | 394.3 |   | 100.0 | % | $ | 349.4 |   | 100.0 | % |

 

18

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Set forth below isour percentage of revenues for the periods presented from each of our principalcustomer categories:

 
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------|------------|
| **($’s in millions)** | ** ** | **2008**                                        | ** ** | **2007**                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
| Insurance companies                  |       | $                                               | 56.2       |                                      | 40.7       | % | $ | 51.1 |   | 42.0 | % | $ | 160.3 |   | 40.7 | % | $ | 143.8 |   | 41.1 | % |
| Collision repair facilities          |       | 52.6                                            |       | 38.2                                      |       | 45.1 |   | 37.0 |   | 149.4 |   | 37.9 |   | 128.5 |   | 36.8 |   |
| Independent assessors                |       | 14.4                                            |       | 10.4                                      |       | 12.0 |   | 9.9 |   | 41.5 |   | 10.5 |   | 35.8 |   | 10.3 |   |
| Automotive recyclers and other       |       | 14.8                                            |       | 10.7                                      |       | 13.5 |   | 11.1 |   | 43.1 |   | 10.9 |   | 41.3 |   | 11.8 |   |
| Total                                |       | $                                               | 138.0      |                                      | 100.0      | % | $ | 121.7 |   | 100.0 | % | $ | 394.3 |   | 100.0 | % | $ | 349.4 |   | 100.0 | % |

 

For the three and ninemonths ended March 31, 2008, the United States, the Netherlands and the UnitedKingdom were the only countries that individually represented more than 10% oftotal revenues.

 

The accountingpolicies for each of our segments are the same. We evaluate the operatingperformance of our segments based primarily upon their respective revenues andEBITDA. For the most part, we do not evaluate our costs and expenses on a persegment basis.

 

**Components of Revenues and Expenses**

** **

***Revenues***

 

Wegenerate revenues from the sale of software and services to our customerspursuant to negotiated contracts or pricing agreements. Pricing for oursoftware and services is set forth in these agreements and negotiated with eachcustomer. We generally bill our customers monthly under one or more of thefollowing bases:

 

·  price per transaction;

 

·  fixed monthly amount for a prescribed number of transactions;

 

·  fixed monthly subscription rate;

 

·  price per set of services rendered; or

 

·  price per system delivered.

 

Oursoftware and services are often sold as packages, without individual pricingfor each component. Our revenues are reflected net of customer salesallowances, which we estimate based on both our examination of a subset ofcustomer accounts and historical experience.

 

Ourcore offering is our estimating and workflow software, which is used by ourinsurance company, collision repair facility and independent assessor customersand which represents the majority of our revenues. Our salvage and recyclingsoftware, business intelligence and consulting services, shared services andother offerings represent in the aggregate a smaller portion of our revenues. Webelieve that our estimating and workflow software will continue to represent amajority of our revenue for the foreseeable future.

 

***Cost of Revenues (excludingdepreciation and amortization)***

 

Ourcosts and expenses applicable to revenues represent the total of operatingexpenses and systems development and programming costs, which are discussedbelow.

 

19

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***Operating Expenses***

 

Ouroperating expenses include: compensation and benefit costs for our operations,database development and customer service personnel; other costs related tooperations, database development and customer support functions; third-partydata and royalty costs; and costs related to computer software and hardwareused in the delivery of our software and services.

 

***Systems Development and ProgrammingCosts***

 

Systemsdevelopment and programming costs include: compensation and benefit costs forour product development and product management personnel; other costs relatedto our product development and product management functions; and costs relatedto external software consultants involved in systems development andprogramming activities.

 

***Selling, General and AdministrativeExpenses***

 

Ourselling, general and administrative expenses include compensation and benefitcosts for our sales, marketing, administration and corporate personnel; othercosts related to our sales, marketing, administrative and corporate functions;costs related to our facilities; and professional and legal fees.

 

***Depreciation and Amortization***

 

Depreciationincludes depreciation attributable to buildings, leasehold improvements, dataprocessing and computer equipment, furniture and fixtures. Amortizationincludes amortization attributable to software purchases and software developedor obtained for internal use and our intangible assets, the majority of which wereacquired in the Acquisition.

 

***Interest Expense***

 

Interestexpense consists primarily of payments of interest on our credit facilities andamortization of related debt issuance costs.

 

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

 

Other(income) expense-net consists of foreign exchange gains and losses on notesreceivable and notes payable to affiliates as well as other miscellaneousincome and expense.

 

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

 

Severalof our customers own minority interests in certain of our local operatingsubsidiaries. Minority interests in net income of consolidated subsidiariesreflect such customers’ proportionate interest in the earnings of suchoperating subsidiaries.

 

***Income Tax Provision***

 

Priorto our corporate reorganization on May 10, 2007, we were a limitedliability company and, therefore, we were not subject to entity-level federalincome taxation. However, even as a limited liability company, we incurredincome taxes on our operations as they were held by taxable entities in theU.S. and in foreign jurisdictions. Prior to our corporate reorganization, ourincome taxes were payable by our equity holders at rates applicable to them.Following our conversion to a Subchapter C corporation, transactions recordedby us are subject to federal income taxation for which we do not expect asignificant impact to our overall income tax liability. Income taxes have beenprovided for all items included in the consolidated statements of operationsincluded herein, regardless of when such items were reported for tax purposesor when the taxes were actually paid or refunded.

 

Aspart of the Acquisition, a portion of the purchase price was 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.

 

The expected tax provisionderived from applying the federal statutory rate to our income before incometaxes for nine months ended March 31, 2008, differed from our recorded incometax provision primarily due to lower foreign income tax rates reducing theeffective tax rate, offset by certain withholding tax liabilities and valuationallowances on certain subsidiary losses which do not meet the more-likely-thannot standard of realizability of those deferred tax assets. Our tax provisionfor the remainder of fiscal year 2008 continues to heavily depend on thejurisdictional mix of pretax earnings, our actual and forecasted profitability,establishment of valuation allowances in certain jurisdictions, and varyingjurisdictional income tax rates that are applied to related earnings.

 

20

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** **

**Factors Affecting Our Operating Results**

 

***Overview.  ***The automobile insurance claims processingindustry is influenced by growth and trends in the automobile insuranceindustry. Demand for our software and services is generally related toautomobile usage and the penetration of automobile insurance in our markets. Alarge 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 require us to incur costs prior togenerating revenues;

 

·  expenses to develop new software or services;

 

·  restructuring charges related to efficiency initiatives;

 

·   theAcquisition in April 2006, including the debt we incurred;

 

·   ourcorporate reorganization and the refinancing transactions; and

 

·  fluctuations in foreign currency exchange rates.

 

***Foreign currency.  ***During the three months ended March 31, 2008,we generated approximately 72% of our revenues and incurred a majority of ourcosts in currencies other than the U.S. dollar, primarily the Euro. Wecurrently do not hedge our exposure to foreign currency risks except for theforeign exchange option noted below. In our historical financial statements, were-measure our local currency financial results in U.S. dollars based onaverage exchange rates prevailing during a reporting period or the exchangerate at the end of that period. These re-measurements resulted in foreigncurrency translation adjustments of $30.2 million and $62.5 million for thethree and nine months ended March 31, 2008 recorded as a component ofAccumulated other comprehensive income in Stockholders’ equity.  Foreign currency (losses) gains flowingthrough our consolidated statement of operations for the three and nine monthsended March 31, 2008 were ($0.2) million and $2.8 million, respectively.

 

InFebruary 2006, we entered into a foreign exchange option that gave us theright to call $200.0 million in U.S. dollars at a strike price of €1.1646per 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 $1.7 million as of March 31, 2008 and $1.0 million asof June 30, 2007 and was recorded in Other assets in our condensedconsolidated balance sheet. (Decreases) increases in fair value ofapproximately ($0.2) million and $0.7 million, due to increased volatilityin spot rates and changes in interest rates, were recognized in other income inthe statement of operations during the three and nine months ended March 31, 2008,respectively.

 

***Non-cash charges.  ***On July 25, 2006, November 8, 2006and January 26, 2007, we granted the right to purchase Class A commonunits of Solera Holdings, LLC to certain employees. Under these and otherarrangements, we issued an aggregate of 625,429 Class A common units to 20of our employees for $0.2 million in January 2007 and an aggregate of50,000 Class A common units to two of our employees for $15,000 inFebruary 2007. In May 2007, we issued restricted stock units coveringan aggregate of 304,730 shares and 428,400 stock options to certain of ouremployees. We expect to incur a pre-tax, non-cash charge of approximately $10.6 millionin connection with these issuances, expensed ratably over vesting periods of upto 60 months. During the three months ended March 31, 2008 we issued restrictedstock units covering an aggregate of 81,281 shares and 119,200 stock options tocertain of our employees, including 12,081 restricted stock units granted toour board of directors. During the nine months ended March 31, 2008, we issuedrestricted stock units covering an aggregate of 120,581 shares and 247,400stock options to certain of our employees. We expect to incur a pre-tax, non-cashcharge of approximately $4.7 million in connection with these issuances expensedratably over vesting periods of up to 48 months. During the three and ninemonths ended March 31, 2008, we recognized approximately $1.7 million and $3.4million, respectively, as stock-based compensation expense.

 

***Restructuring charges*****.*  ***Wehave incurred restructuring charges in each period presented and also expect toincur additional restructuring charges, primarily relating to severance costs,over the next several quarters as we work to improve efficiencies in ourbusiness. We are currently evaluating several plans that would eliminateredundant personnel in each of our segments, as well as reduce our need forcertain facilities. If all of these plans were to be executed upon, we wouldexpect to incur restructuring charges over the next twelve months. Thesepotential charges, consisting primarily of termination benefits, will reduceour cash balances. We do not expect reduced revenues or an increase in otherexpenses as a result of any of these restructuring plans.

 

21

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** **

**Results of Operations**

** **

The table below sets forth statement of operationsdata expressed as a percentage of revenues for the periods indicated:

 
| ** **                                                              | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                              | ** ** | **2008**                                   | ** ** | **2007**                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues                                                                |       | 100.0                                      | %          | 100.0                                     | %          | 100.0 | % | 100.0 | % |
|                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| Cost of revenues:                                                       |       |                                       |       |                                      |       |   |   |   |   |
| Operating expenses                                                      |       | 23.7                                       |       | 29.0                                      |       | 24.9 |   | 29.4 |   |
| Systems development and programming costs                               |       | 11.9                                       |       | 13.2                                      |       | 12.4 |   | 13.7 |   |
| Total cost of revenues (excluding depreciation and amortization)        |       | 35.6                                       |       | 42.2                                      |       | 37.3 |   | 43.1 |   |
|                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| Selling, general & administrative expenses                          |       | 29.6                                       |       | 26.1                                      |       | 28.4 |   | 27.4 |   |
| Depreciation and amortization                                           |       | 17.4                                       |       | 21.5                                      |       | 17.7 |   | 22.1 |   |
| Restructuring charges                                                   |       | 0.8                                        |       | 0.8                                       |       | 0.7 |   | 0.5 |   |
| Interest expense                                                        |       | 8.3                                        |       | 15.5                                      |       | 8.7 |   | 15.8 |   |
| Other (income) expense - net                                            |       | (0.4                                       | )          | (0.3                                      | )          | (1.6 | ) | 0.6 |   |
|                                                                    |       | 55.7                                       |       | 63.6                                      |       | 53.9 |   | 66.4 |   |
|                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| Income (loss) before provision for income taxes and  minority interests |       | 8.7                                        |       | (5.8                                      | )          | 8.8 |   | (9.5 | ) |
|                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| Income tax provision                                                    |       | 2.0                                        |       | 1.1                                       |       | 2.0 |   | 1.0 |   |
|                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| Minority interest in net income of consolidated subsidiaries            |       | 1.4                                        |       | 1.1                                       |       | 1.2 |   | 0.8 |   |
|                                                                    |       |                                       |       |                                      |       |   |   |   |   |
| Net income (loss)                                                       |       | 5.3                                        | %          | (8.0                                      | )%         | 5.6 | % | (11.3 | )% |

 

The table belowsets forth statement of operations data, including the amount and percentagechanges for the periods indicated:

 

 
| ** **                                                                 | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| **($’s in millions)**                                                 | ** ** | **2008**                                   | ** ** | **2007**                                  | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| ** **                                                                 | ** ** | ** **                                 | ** ** | ** **                                | ** ** | **$** | ** ** | **%** | ** ** | ** ** | ** ** | ** ** | ** ** | **$** | ** ** | **%** | ** ** |
| Revenues                                                                   |       | $                                          | 138.0      |                                      | $          | 121.7 |   | $ | 16.3 |   | 13.4 | % | $ | 394.3 |   | $ | 349.4 |   | $ | 44.9 |   | 12.8 | % |
|                                                                       |       |                                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues:                                                          |       |                                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                                         |       | 32.8                                       |       | 35.3                                      |       | (2.5 | ) | (7.1 | )% | 98.1 |   | 102.8 |   | (4.7 | ) | (4.6 | )% |
| Systems development and programming costs                                  |       | 16.4                                       |       | 16.1                                      |       | 0.3 |   | 2.1 | % | 49.0 |   | 48.0 |   | 1.0 |   | 2.0 | % |
| Total cost of revenues (excluding depreciation and amortization)           |       | 49.2                                       |       | 51.4                                      |       | (2.2 | ) | (4.2 | )% | 147.1 |   | 150.8 |   | (3.7 | ) | (2.5 | )% |
|                                                                       |       |                                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general & administrative expenses                             |       | 40.9                                       |       | 31.7                                      |       | 9.2 |   | 28.8 | % | 111.9 |   | 95.6 |   | 16.3 |   | 17.1 | % |
| Depreciation and amortization                                              |       | 24.0                                       |       | 26.2                                      |       | (2.2 | ) | (8.1 | )% | 69.9 |   | 77.2 |   | (7.3 | ) | (9.5 | )% |
| Restructuring charges                                                      |       | 1.2                                        |       | 0.9                                       |       | 0.3 |   | 25.7 | % | 2.8 |   | 1.8 |   | 1.0 |   | 57.1 | % |
| Interest expense                                                           |       | 11.4                                       |       | 18.9                                      |       | (7.5 | ) | (39.6 | )% | 34.3 |   | 55.3 |   | (21.0 | ) | (38.0 | )% |
| Other (income) expense - net                                               |       | (0.6                                       | )          | (0.3                                      | )     | (0.3 | ) | 93.4 | % | (6.3 | ) | 2.0 |   | (8.3 | ) | (420.9 | )% |
|                                                                       |       | 76.9                                       |       | 77.4                                      |       | (0.5 | ) | (0.6 | )% | 212.6 |   | 231.9 |   | (19.3 | ) | (8.3 | )% |
|                                                                       |       |                                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) before provision for income taxes and minority  interest |       | 11.9                                       |       | (7.1                                      | )          | 19.0 |   | 268.1 | % | 34.6 |   | (33.3 | ) | 67.9 |   | 203.9 | % |
|                                                                       |       |                                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax provision                                                       |       | 2.7                                        |       | 1.3                                       |       | 1.4 |   | 103.4 | % | 7.6 |   | 3.4 |   | 4.2 |   | 121.9 | % |
|                                                                       |       |                                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority interest in net income of consolidated subsidiaries               |       | 1.9                                        |       | 1.4                                       |       | 0.5 |   | 43.5 | % | 4.8 |   | 2.9 |   | 1.9 |   | 67.7 | % |
|                                                                       |       |                                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                          |       | $                                          | 7.3        |                                      | $          | (9.8 | ) | $ | 17.1 |   | 174.9 | % | $ | 22.2 |   | $ | (39.6 | ) | $ | 61.8 |   | 156.0 | % |

 

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*** ***

***Revenues***

 

Revenues increased $16.3 million and $44.9 million for thethree and nine months ended March 31, 2008, respectively, compared to the threeand nine months ended March 31, 2007, due to higher revenues in both our EMEAand Americas segments. The EMEA revenues for the three months ended March, 31,2008 increased $13.6 million, or 18.8%, to $85.9 million due to an increase in the value of the Euroand several other European currencies versus the U.S. dollar and growth intransaction and subscription revenues in several countries from both existingand new customers. EMEA revenues for the nine months endedMarch 31, 2008 increased $35.0 million, or 17.0%, to $241.3 million for thesame reasons noted above. The Americas revenues for the three months endedMarch, 31, 2008 increased $2.7 million, or 5.5%, to $52.1 million dueto growth in transaction and subscription revenues in the U.S., Canada, Braziland Mexico, partially offset by the prior year’s loss of several significantU.S. insurance customer contracts. The Americas revenues for the nine months ended March31, 2008 increased $9.9 million, or 6.9%, to $153.0 million for the samereasons noted above. TheAmericas revenues for the three and nine months ended March, 31, 2007 included$2.2 million and $5.4 million of revenues, respectively, from a shared servicescontract that terminated in April 2007. Revenuegrowth for each of our customer categories was as follows:

 
| ** **                     | ** ** | **Three Months Ended March 31, 2008** | ** ** | **Nine Months Ended March 31, 2008** | ** ** |
|--------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **($’s in millions)**     | ** ** | **Revenue  Growth**                                  | ** ** | **Percentage  Change**                              | ** ** | **Revenue  Growth** | ** ** | **Percentage  Change** | ** ** |
| Insurance companies            |       | $                                                    | 5.1        |                                                | 10.0       | % |   | $ | 16.5 |   | 11.5 | % |
| Collision repair facilities    |       | 7.5                                                  |       | 16.6                                                | %          |   | 20.9 |   | 16.3 | % |
| Independent assessors          |       | 2.4                                                  |       | 19.7                                                | %          |   | 5.7 |   | 15.9 | % |
| Automotive recyclers and other |       | 1.3                                                  |       | 10.1                                                | %          |   | 1.8 |   | 4.3 | % |
| Total                          |       | $                                                    |  16.3 |                                                | 13.4       | % |   | $ | 44.9 |   | 12.8 | % |

 

***Operating Expenses***

*** ***

* *For the three months ended March 31, 2008, compared to the same prioryear period, operating expenses decreased $2.5 million, or 7.1%, due to a$2.9 million reduction in operating expenses in our Americas segment offset bya $0.4 million increase in our EMEA segment. The lower Americas costs were dueto decreases in personnel costs, third party fulfillment expenses, third partylicensing fees and equipment expenses. The EMEA increase was due primarily to licensing fees and personnelcosts partially offset by lower equipment expenses.

 

Forthe nine months ended March 31, 2008, compared to the same prior year period, operatingexpenses decreased $4.7 million, or 4.6%, due to a $5.0 million reductionin operating expenses in our Americas segment offset by a $0.3 million increasein our EMEA segment. The lower Americas costs were due to decreases inpersonnel costs, third party licensing fees and third party fulfillmentexpenses.  The EMEA increase wasprimarily due to increases in personnel costs.

 

Wecontinually evaluate our operating costs in order to identify inefficienciesand eliminate unnecessary costs. We anticipate that, although our operatingexpenses may increase, they will decline as a percentage of revenues over thenext several quarters.

 

***Systems Development and Programming Costs***

*** ***

 For the three months ended March 31, 2008, comparedto the same prior year period, systems development and programming costsincreased $0.3 million, or 2.1 %, due to a $0.8 million increase in ourEMEA segment offset by a $0.5 million decrease in costs in our Americassegment. The EMEA increase was due primarily to personnel costs and consultingexpenses. The decreased costs in our Americas segment were due to a decrease inpersonnel costs partially offset by an increase in consulting fees.

 

Forthe nine months ended March 31, 2008, compared to the same prior year period,systems development and programming costs increased $1.0 million, or 2.0%, due to a $0.6 million increase in costs in our Americas segment and $0.4million increase in our EMEA segment. The increased costs in our Americassegment were due to an increase in consulting fees of $0.5 million and a netincrease in personnel costs due primarily to a reduction in the amount ofinternal use software development costs we capitalized.  For the nine months ended March 31, 2008, theAmericas capitalized $0.7 million less for the development of internal usesoftware compared to the same nine month period in 2007. The increased costs inour EMEA segment were due to an increase in consulting expenses, partiallyoffset by lower personnel costs, and an increase in the amount of internal usesoftware development costs we capitalized.

 

Oursystems development and programming costs fluctuate throughout the year basedupon the levels and timing of product releases. We expect our systemsdevelopment and programming costs to remain relatively stable over the nextseveral quarters.

 

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

*** ***

* * For the three months ended March 31, 2008, compared to the same prioryear period, selling, general and administrative expenses increased $9.2 million,or 28.8%, due to an increase in costs of $7.0 million in our Corporate segment,an increase of $2.3 million in our EMEA segment and a decrease in costs of $0.1 millionin our Americas segment. The increased expenses in our Corporate segment weredue to a $2.4 million increase in consulting fees for our first yearSarbanes-Oxley efforts, a $1.5 million increase in stock-based compensationexpense, an increase in personnel costs, including travel and recruiting feesof $1.3 million, an increase of $1.4 million in professional fees, includingtax services, and an increase of $0.4 million in other administrative andinsurance expenses.  The increased costsin our EMEA segment were due to a $1.9 million increase in personnel costs aswell as increases in facilities expenses and advertising. The decreased costsin our Americas segment were due to decreases in facilities, marketing andadministrative expenses, offset by an increase in personal costs.

 

Forthe nine months ended March 31, 2008, compared to the same prior year period,selling, general and administrative expenses increased $16.3 million, or 17.1%,due to an increase in costs of $12.6 million in our Corporate segment, anincrease of $2.2 million in our EMEA segment and an increase of $1.5 million inour Americas segment. The increase in expenses in our Corporate segment weredue to a $4.1 million increase in consulting fees for our first yearSarbanes-Oxley efforts, a $2.8 million increase in stock-based compensationexpense, a $3.3 million increase in personnel costs, including travel and recruitingfees, a $1.5 million increase in professional fees, including tax services, anda $0.9 million increase in other administrative expenses, including corporateinsurance. The increased costs in our Americas segment were due primarily to anincrease in personnel costs.

 

Weexpect these expenses to continue to increase as we incur additional costsassociated with being a public company and as we continue to expand ourbusiness into new markets.

 

***Depreciation and Amortization***

*** ***

Depreciationand amortization decreased by $2.2 million and $7.3 million for the threeand nine months ended March 31, 2008, respectively, compared to the same prioryear periods due primarily to lower intangibles amortization expense resultingfrom the Acquisition. We amortize these intangible assets on an acceleratedbasis to reflect the pattern in which economic benefits of the intangibleassets are consumed. Although we expect to experience significant depreciationand amortization in the future as we amortize intangible assets purchased inthe Acquisition, we anticipate that the amount of total depreciation andamortization expense will continue to decline over the next several years.

 

***Restructuring Charge*****s**

** **

 Restructuring charges of $1.2 million and $2.8million for the three and nine months ended March 31, 2008, respectively,  were incurred as a result of operationalreviews conducted after the Acquisition and relate almost entirely to one-timetermination benefits and facilities consolidation costs. During thequarter the Company began a new plan, *Americas 2008*,which will focus on creating a more efficient and flexible employee work forceacross the Americas segment. Weexpect to incur additional restructuring charges, relating primarily toseverance costs, over the next several quarters as we work to improveefficiencies in our business.

 

***InterestExpense***

*** ***

*  * Interest expense decreased $7.5 million and $21.0 million for thethree and nine month periods ended March 31, 2008, respectively, compared tothe same prior year periods due to lower borrowings under our creditfacilities, which were in part due to the refinancing transactions completed onMay 16, 2007 in conjunction with our initial public offering. We expectthat our annual interest expense will continue to decrease as we repayoutstanding indebtedness. The decrease in interest expense may be partiallyoffset by future foreign currency fluctuations.

 

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

*** ***

* * Other (income) increased $0.3 million to ($0.6) million from ($0.3)million for the three months ended March 31, 2008 compared to the same periodlast year. This increase was due to foreign currency gains. For the nine monthsended March 31, 2008 compared to the same period last year, Other (income) expenseincreased $8.3 million to ($6.3) from $2.0 million due to foreign currencygains of $2.8 million, an increase in net realized and unrealized gains on ourderivative instruments and increased interest income.

 

24

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***Income Tax Provision***

*** ***

Werecorded an income tax provision of $2.7 million and $1.3 million for thethree months ended March 31, 2008 and 2007, respectively.  For the nine month ended March 31, 2008 and 2007,we recorded an income tax provision of $7.6 million and $3.4 million,respectively. Factors that impact our income tax provision include (but are notlimited to) the mix of jurisdictional earnings, establishment of valuationallowances in certain jurisdictions and varying jurisdictional income tax ratesthat are applied to related earnings.

 

**Liquidity and Capital Resources**

** **

Priorto the Acquisition, our predecessor’s principal sources of liquidity werecapital contributions from ADP and cash generated from operations. Since theAcquisition, our principal sources of cash have included cash generated fromoperations and bank borrowings. Our principal uses of cash have included debtservice, capital expenditures and working capital. We expect that these willremain our principal uses of cash; however, in the future they may includeacquisitions.

 

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 significant pending agreements with respect to anyacquisition or other strategic opportunity.

 

***Cash and Cash Equivalents***

 

Asof March 31, 2008, we had cash and cash equivalents of $139.1 million. Wefund our operations, working capital and capital expenditures with our cash onhand and short-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***

*** ***

The followingsummarizes our primary sources and uses of cash in the periods presented:

 
| ** **                      | ** ** | **Nine Months Ended March 31,** | ** ** |
|---------------------------------|------------|------------------------------------------------|------------|
| **($’s in millions)** | ** ** | **2008**                                       | ** ** | **2007** | ** ** |
| Operating activities            |       | $                                              | 80.7       |   | $ | 41.3 |   |
| Investing activities            |       | $                                              | (14.2      | ) | $ | (37.7 | ) |
| Financing activities            |       | $                                              | (34.2      | ) | $ | 3.0 |   |

 

*Operating activities.  * Cash provided by operating activities was $80.7 millionand $41.3 million during the nine months ended March 31, 2008 and 2007,respectively. The increase in cash provided by operating activities for the ninemonths ended March 31, 2008 was primarily the result of a $61.8 millionincrease in net income compared with the nine months ended March 31, 2007,offset by reductions in operating assets and liabilities. For the nine monthsended March 31, 2008, the non-cash adjustments included reductions indepreciation and amortization and changes in the fair value of a financialinstrument. The change in operating assets and liabilities was a net reductionof $16.2 million from the nine months ended March 31, 2007 due primarily toreductions in accrued expenses, accounts payable and accounts receivable.

 

*Investing activities*.  Cash used in investing activities for the nine months ended March 31, 2008 and 2007were $14.2 million and $37.7 million, respectively.  Capital expenditures, consisting ofcomputers, computer software, leasehold improvements and furniture andfixtures, were $13.9 million and $23.4 million for the nine months ended March31, 2008 and 2007, respectively. During the nine months ended March 31, 2007,we made a final working capital payment of $13.2 million as part of theAcquisition.

 

*Financing activities.  * Cash (used in) provided by financingactivities for the nine months ended March 31, 2008 and 2007 was ($34.2) millionand $3.0 million, respectively.  For the ninemonths ended March 31, 2008, we paid $21.9 million and $8.5 million,respectively, on our long-term debt and revolving credit facility. During thethree months ended March 31, 2008, the long-term debt payments includedvoluntary principal payments of €4.5 million on the European Term Loan.

 

25

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*** ***

***Amended and Restated Senior CreditFacility***

 

Inconnection with our initial public offering, we entered into an amended andrestated senior credit facility. Our amended and restated senior credit facilityconsists of a $50.0 million revolving credit facility, a$230.0 million domestic term loan and a €280.0 million European termloan. As of March 31, 2008, we had $0.0 million, $219.2 million and$428.3 million (€271.2 million) in outstanding loans under the revolvingcredit facility, domestic term loan and European term loan, respectively, withinterest rates of 7.75%, 4.875% and 6.625%, respectively. The amended and restatedsenior credit facility contains a leverage ratio, which is applicable to onlythe revolving loans and applies only if at least $10.0 million ofrevolving loans, including outstanding letters of credit, are outstanding forat least 10 days during the prior fiscal quarter.

 

Inaddition, the amended and restated senior credit facility contains covenantsrestricting us from undertaking specified corporate actions, including assetdispositions, acquisitions, payment of dividends and other specified payments,changes of control, incurrence of indebtedness, creation of liens, making loansand investments and transactions with affiliates.

 

**Off-BalanceSheet Arrangements**

** **

Ouroff-balance sheet arrangements consist of our operating leases.

 

**Inflation and Seasonality**

 

Webelieve inflation has not had a material effect on our financial condition orresults of operations in recent years. Our business does not experience anymaterial level of seasonality.

 

**Critical Accounting Policies and Estimates**

 

Theaccompanying condensed consolidated financial statements of SoleraHoldings, Inc. have been prepared in accordance with generally acceptedaccounting principles. The preparation of these financial statements requiresus to make estimates and judgments that affect the amounts reported in thosefinancial statements. On an ongoing basis, we evaluate estimates. We base ourestimates on historical experiences and assumptions which we believe to bereasonable under the circumstances. Those estimates form the basis for ourjudgments that affect the amounts reported in the financial statements. Actualresults could differ from our estimates under different assumptions orconditions. Our significant accounting policies, which may be affected by ourestimates and assumptions, are more fully described in Note 2 to our auditedConsolidated Financial Statements for the fiscal year ended June 30, 2007 andour critical accounting policies are more fully described in Part II, Item 7“Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” each of which were included in our Annual Report on Form 10-Kfiled with the SEC on September 17, 2007. As of May 13, 2008, there have notbeen any significant changes in our critical accounting policies and estimates.

 

**Recent Accounting Pronouncements**

** **

Recentaccounting pronouncements are detailed in Note 2 to our condensed consolidatedfinancial statements of this Quarterly Report on Form 10-Q.

 

**Available Information**

 

Ourinternet website address is www.solerainc.com. Our annual reports onForm 10-K, quarterly reports on Form 10-Q, current reports onForm 8-K and amendments to those reports filed or furnished pursuant toSection 13 or 15(d) of the Exchange Act will be available free ofcharge through our website as soon as reasonably practicable after they areelectronically filed with, or furnished to, the SEC. Our website and theinformation contained or incorporated therein are not intended to beincorporated into this report.

 

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**Item 3.****          ****Quantitative and QualitativeDisclosures About Market Risk.**

** **

**Foreign Currency 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 ourconsolidated 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. A hypothetical 1% increase or decrease in eachof our foreign currencies versus the U.S. dollar would have resulted in a $0.9million change to our revenue for the three month period ended March 31, 2008and a $3.8 million change to revenue on an annualized basis.

 

**Interest Rate Risk**

 

Weare exposed to interest rate risks primarily through borrowings under ourrevolving loan arrangement and term loans. Interest on these borrowings isbased upon variable interest rates. Our weighted-average borrowings outstandingunder the revolving loan arrangement and term loans during the three monthsended March 31, 2008 was $639.4 million, and the weighted-average interest ratein effect at March 31, 2008 was 6.7%. Based on the foregoing, a hypothetical 1%increase or decrease in interest rates would have resulted in a $1.6 millionchange to our interest expense for the three month period ended March 31, 2008and a $6.0 million change to our interest expense on an annualized basis.

 

InJune 2007, we entered into three USD-based interest rate swaps with notionalamounts of $50.0 million, $81.0 million and $75.0 million, eachwith maturities on June 30, 2011, which require us to pay fixed rates of5.445%, 5.418% and 5.445%, respectively, and also entered into three Euro-basedinterest rate swaps with notional amounts of €69.8 million,€50.0 million, and €60.0 million, each with maturities on June 30,2011, which require us to pay fixed rates of 4.603%, 4.679%, and 4.685%,respectively. These interest rate swaps are designated and documented at theirinception as cash flow hedges and are evaluated for effectiveness quarterly.The effective portion of the gain or loss on these hedges is reported as acomponent of Accumulated other comprehensive income/(loss) in stockholders’equity and reclassified into earnings when the hedged transaction affectsearnings. The ineffective portion on these cash flow hedges is recognized ininterest expense. The estimated fair value of $15.6 million on U.S.dollar-based swaps and €2.3 million ($3.6 million) on Euro-based swaps wasrecorded in Other liabilities in the consolidated balance sheet as of March 31,2008. The change of $17.9 million in the fair value of swaps, net of tax,reflects the effective portion of loss on these hedges and is reported as acomponent of Accumulated other comprehensive income in stockholders’ equity.

 

**Item 4.  Controls and Procedures.**

** **

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in reports pursuant to the SecuritiesExchange Act of 1934, as amended, or the Exchange Act, is recorded, processed,summarized and reported within the time periods specified underRule 13a-15 of the Exchange Act and that such information is accumulatedand communicated to our management, including our Chief Executive Officer andChief Financial Officer, as appropriate, to allow timely decisions regardingrequired disclosure. Management is responsible for establishing and maintainingadequate internal control over financial reporting.

 

Asrequired by Rule 13a-15(b) under the Exchange Act, we carried out anevaluation, under the supervision and with the participation of our management,including the Chief Executive Officer and the Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures. Based on the foregoing, our Chief Executive Officer and ChiefFinancial Officer determined that disclosure controls and procedures wereeffective at a reasonable assurance level as of the end of the period coveredby this Quarterly Report on Form 10-Q.

 

Therehas been no change in internal controls over financial reporting during themost recent fiscal quarter that has materially affected, or is reasonably likelyto materially affect, internal controls over financial reporting.

 

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**PART II—OTHER INFORMATION**

** **

**Item 1.  Legal Proceedings.**

** **

Asa normal incident of the business in which we are engaged, various claims, chargesand litigation are asserted or commenced against us. We believe that finaljudgments, if any, which may be rendered against us in current litigation, areadequately reserved for, covered by insurance or would not have a materialadverse effect on our financial position. We have from time to time been thesubject of allegations that our repair estimating and total loss software andservices produced results that favored our insurance company customers. Inaddition, we are currently one of the defendants in a putative class actionlawsuit alleging that we have colluded with our insurance company customers tocause the estimates of vehicle fair market value generated by our total lossestimation products to be unfairly low. We have been named as a thirdparty defendant in a lawsuit by a major insurance company against a PreferredProvider Organization (“PPO”), which was a former customer of our predecessor’smedical claims software products. The PPO has claimed that our predecessor’sfailure to properly update its database led or may have led to errors thatcaused the insurance company to discount their charges, resulting in numerousclaims against the insurance company. We have answered the third partycomplaint denying all of the third party plaintiff’s allegations. We intend tovigorously defend ourselves against the third party plaintiff’s claims andbelieve this third party complaint is without merit.

 

**Item 1A. Risk Factors.**

** **

Inaddition to the cautionary statement regarding forward-looking statements includedabove in this Quarterly Report, we also provide the following cautionarydiscussion of risks and uncertainties relevant to our business. These risks anduncertainties, as well as other factors that we may not be aware of, couldcause our actual results to differ materially from expected and historicalresults and could cause assumptions that underlie our business plans,expections and statements in this Quarterly Report to be inaccurate.

** **

**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 our revenues from sales tolarge insurance companies. In fiscal 2007, we derived 16.2% of our revenuesfrom our ten largest insurance company customers. The largest three of thesecustomers accounted for 3.6%, 3.0% and 1.8%, respectively, of our revenuesduring this period. During the nine months ended March 31, 2008, we derived 14.7%of our revenues from our ten largest insurance company customers. The largestthree of these customers accounted for 3.1%, 2.5% and 1.6%, respectively, ofour revenues during this period. A loss of one or more of these customers wouldresult in a significant decrease in our revenues, including the businessgenerated by collision repair facilities associated with those customers. Infiscal 2007, we lost our principal shared services contract, which accountedfor approximately 1.2% of revenue in fiscal 2007. During the quarter endedMarch 31, 2008, we were notified by a U.S. insurance company customer that itwill not renew its contract with us, and we expect this customer to transitionto another provider in fiscal year 2009. This contract accounted for approximately 1.7% and 1.5% of revenue infiscal 2007 and the nine months ended March 31, 2008, respectively.  Furthermore, many of our arrangements withEuropean customers are terminable by them on short notice or at any time. Inaddition, disputes with customers may lead to delays in payments to us,terminations of agreements or litigation. Additional terminations ornon-renewals of customer contracts or reductions in business from our largecustomers would harm our business, financial condition and results ofoperations.

 

**Competitive pressuresmay require us to significantly lower our prices.**

 

Pricing pressures have required us to significantly lower pricesfor some of our software and services in several of our markets. We may berequired to implement further price reductions in response to the following:

 

·      price reductions by competitors;

 

·      the consolidation of property and casualty insurance companies;

 

·      the introduction of competing software or services; and

 

·      a decrease in the frequency of accidents.

 

InApril 2008, CCC Information Services Group Inc. and Mitchell InternationalInc., our principal competitors in the U.S., announced they have signed anagreement to combine their companies.  Iftheir merger is consummated, the combined company will have a significantmarket share in the U.S. market for automobile insurance claims processingsoftware and services, which may enable it to implement further pricereductions.

 

If we are required to accept lower prices for our software andservices, it would result in decreased revenues and harm our business,financial condition and results of operations.

 

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**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 insurance claims processingsoftware and services are highly competitive. In the U.S., our principalcompetitors are CCC Information Services Group Inc. and Mitchell InternationalInc. In Europe, our principal competitors are EurotaxGlass’s Group and DAT,GmbH. If one or more of our competitors develop software or services that aresuperior to ours or are more effective in marketing its software or services,our market share could decrease, reducing our revenues. In addition, if one ormore of our competitors retain existing or attract new customers for which wehave developed new software or services, we may not realize expected revenuesfrom these new offerings, reducing our profitability.

 

Some of our current or future competitors may have or developcloser customer relationships, develop stronger brands, have greater access tocapital, lower cost structures and/or more attractive system design andoperational capabilities than we have. Consolidation within our industry couldresult in the formation of competitors with substantially greater financial,management or marketing resources than we have, and such competitors couldutilize their substantially greater resources and economies of scale in amanner that affects our ability to compete in the relevant market or markets.  For example, CCC Information Services and MitchellInternational Inc. recently announced that they have signed an agreement tocombine their companies.  If their mergeris consummated, the combined company will have a significant market share inthe U.S. market.  As a result ofconsolidation, our competitors may be able to adapt more quickly to newtechnologies and customer needs, devote greater resources to promoting orselling their products and services, initiate and withstand substantial pricecompetition, hire away our keyemployees, change or limit access to key information and systems,take advantage of acquisition or other strategic opportunities more readily anddevelop and expand their product and service offerings more quickly than wecan. In addition, our competitors may form strategic or exclusive relationshipswith each other and with other companies in attempts to compete moresuccessfully against us. These relationships may increase our competitors’ability, relative to ours, to address customer needs with their software andservice offerings, which may enable them to rapidly increase their marketshare.

 

Moreover, many insurance companies have historically entered intoagreements with automobile insurance claims processing service providers likeus and our competitors whereby the insurance company agrees to use thatprovider on an exclusive or preferred basis for particular products and servicesand agrees to require collision repair facilities, independent assessors andother vendors to use that provider. If our competitors are more successful thanwe are at negotiating these exclusive or preferential arrangements, we may losemarket share even in markets where we retain other competitive advantages.

 

In addition, our insurance company customers have varying degreesof in-house development capabilities, and one or more of them have expanded andmay seek to further expand their capabilities in the areas in which we operate.Many of our customers are larger and have greater financial and other resourcesthan we do and could commit significant resources to product development. Oursoftware and services have been, and may in the future be, replicated by ourinsurance company customers in-house, which could result in our loss of thosecustomers and their associated repair facilities, independent assessors andother vendors, resulting in decreased revenues and net 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 switch providers of claimsprocessing software and services can be significant and the process cansometimes take 12-18 months to complete. As a result, potential customers maydecide that it is not worth the time and expense to begin using our softwareand services, even if we offer competitive and economic advantages. If we areunable to convince these customers to switch to our software and services, ourability to increase market share will be limited, which could harm our revenuesand operating results.

 

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**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 rapidly changing technology,evolving industry standards and frequent introductions of, and enhancements to,existing software and services, all with an underlying pressure to reduce cost.Industry changes could render our offerings less attractive or obsolete, and wemay be unable to make the necessary adjustments to our offerings at acompetitive cost, or at all. We also incur substantial expenses in researching,developing, designing and marketing new software and services. The developmentor adaptation of these new technologies may result in unanticipatedexpenditures and capital costs that would not be recovered in the event thatour new software or services are unsuccessful. The research, development,production and marketing of new software and services are also subject tochanging market requirements, as well as the satisfaction of applicableregulatory requirements and customers’ approval procedures and other factors,each of which could prevent us from successfully marketing any new software andservices or responding to competing technologies. The success of new softwarein our industry also often depends on the ability to be first to market, andour failure to be first to market with any particular software project couldlimit our ability to recover the development expenses associated with thatproject. If we cannot develop new technologies, software and services or any ofour existing software or services are rendered obsolete, our revenues andincome could decline and we may lose market share to our competitors, whichwould impact our future operations and financial results.

 

**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 subject to extensivegovernment regulations, mainly at the state level in the U.S. and at thecountry 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 to oursoftware and/or databases or have the effect of prohibiting or rendering lessvaluable one or more of our offerings. Moreover, some states in the U.S. havechanged their regulations to permit insurance companies to use book valuationsfor total loss calculations, making our total loss software potentially lessvaluable to insurance companies in those states. Some states have adopted totalloss regulations, that, among other things, require that insurers use amethodology deemed acceptable to the respective government agency. We submitour methodology to such agencies, and if they do not approve our methodology,we will not be able to perform total loss valuations in their respectivestates. In addition, some states have considered legislation that would requireinsurers to use estimates from two independent services to provide total losscalculations for a damaged vehicle and would provide authority to the stateinsurance commissioner to determine which services qualify as independent. Ifpassed, this legislation may prohibit us from or limit our ability to provideour products and services in those states and/or may have the effect of makingour products and services less desirable to our customers. Other states areconsidering legislation that would limit the data that our software can provideto our insurance company customers. In the event that demand for or our abilityto provide our softwareand services decreases in particularjurisdictions due to regulatory changes, our revenues and margins may decrease.

 

In addition, the Belgian Competition Department notified us thatit has chosen to continue to investigate a complaint relating to estimatesgenerated by our software of the costs to repair damaged vehicles originallybrought by a trade association representing collision repair facilities thatwas withdrawn by the trade association in 2005. Pursuant to European Unioncompetition laws, the Belgian Competition Department has asserted its authorityto conduct this investigation as it relates to the Western European region. The South African Competition Commission isinvestigating a complaint brought by a trade association representing collisionrepair facilities against the South African Insurance Association, as well asmotor vehicle insurers and assessors, relating to estimates generated by our software of the costs torepair damaged vehicles.

 

**Ourfuture operating results may be subject to volatility as a result of exposureto foreign currency exchange risks.**

** **

We derive most of our revenues, and incur most of our costs,including a portion of our debt service costs, in currencies other than theU.S. dollar, principally the Euro. We currently do not hedge our exposure toforeign currency risks. In our historical financial statements, we re-measureour local currency financial results into U.S. dollars based on averageexchange rates prevailing during a reporting period or the exchange rate at theend of that period. These re-measurements resulted in foreign currencytranslation adjustments of $4.8 million in fiscal 2007 and $62.5 millionin the nine months ended March 31, 2008. Further fluctuations in exchange ratesagainst the U.S. dollar could decrease our revenues, increase our costs andexpenses and therefore harm our future operating results.

 

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** **

**Wehave a 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 other intangible assets andare required to perform an annual assessment for possible impairment foraccounting purposes. At June 30, 2007 and March 31, 2008, we had goodwilland other intangible assets of $932.2 million and $997.0 million, respectively. If we do not achieve our plannedoperating results or otherfactors impair these assets, we maybe required to incur a non-cash impairment charge. Any impairment charges inthe future will adversely affect our results of operations.

 

**Wemay incur significant restructuring and severance charges in future periods,which would harm our operating results and cash position or increase debt.**

** **

We incurredrestructuring charges of $2.9 million in fiscal 2006 (which includescharges incurred by our predecessor), $6.0 million in fiscal 2007 and $2.8million through the nine months ended March 31, 2008. These charges consistprimarily of termination benefits paid or to be paid to employees. As of March31, 2008, we had remaining liabilities associated with these restructuringcharges of $5.7 million. We regularly evaluate ourexisting operations and capacity, and we expect to incur additionalrestructuring charges as a result of future personnel reductions, relatedrestructuring and productivity and technology enhancements, which may exceedthe levels of our historical charges. We are currently evaluating several plansthat, if all implemented, would result in restructuring charges ofapproximately $7.5 million over the next 12 – 18 months. These potentialcharges would harm our operating results and significantly reduce our cashposition or increase debt.

 

**Wehave a history of net losses and may not maintain profitability in the future.**

** **

For fiscal year 2007, we had a net loss of$80.9 million.  As of March 31, 2008, we had an accumulateddeficit of approximately $88.6 million. The quarters ended September 30, 2007,December 31, 2007 and March 31, 2008 were our first profitable quarters since the Acquisition.We will need to maintainor increase revenues and maintain or reduce expenses, which include the amortization of the remaining$353.0 million of intangible assets that we had as of March 31, 2008 andinterest expense associated with our indebtedness, to sustain ourprofitability each quarter.  We cannot assure you that we will remainprofitable.  Future decreases inquarterly profitability could reduce our stock price, and future net losseswould reduce our stock price.

 

**Wehave a very limited operating history as a stand-alone company, which may makeit difficult to compare our current operating results to prior periods.**

** **

Prior to the Acquisition, our predecessor operated as a businessunit of ADP. Our predecessor relied on ADP during this period for many of itsinternal functions, including accounting, tax, payroll, technology andadministrative and operational support. We now perform these functions andservices with internal resources or through third-party service providers.  If we are unable to effectively perform theseservices internally or maintain substitute arrangements on terms that arefavorable to us, our business, financial condition and results of operationswould be adversely affected.

 

In addition, the historical financial information of ourpredecessor included in this Quarterly Report on Form 10-Q 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-alone basis.

 

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**Werequire a significant amount of cash to service our indebtedness, which reducesthe cash available to finance our organic growth, make strategic acquisitionsand enter into alliances and joint ventures.**

** **

We have a significant amount of indebtedness. As of March 31,2008, our indebtedness, including current maturities, was $647.5 million,and we would have been able to borrow an additional $50.0 million underour amended and restated senior credit facility. During fiscal 2007 and thenine months ended March 31, 2008, our aggregate interest expense was $69.7 millionand $34.3 million, respectively, and the cash paid for interest was$66.8 million and $33.7 million, respectively.

 

Our indebtedness could:

 
| · | make us more  vulnerable to unfavorable economic conditions and a reduction in our  revenues;                                                                                                                           |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                    |
| · | make it more  difficult to obtain additional financing in the future for working capital,  capital expenditures or other general corporate purposes;                                                                    |
|   |                                                                                                                                                                                                                    |
| · | require us to  dedicate or reserve a large portion of our cash flow from operations for  making payments on our indebtedness, which would prevent us from using it for  other purposes, including software development; |
|   |                                                                                                                                                                                                                    |
| · | make us  susceptible to fluctuations in market interest rates that affect the cost of  our borrowings to the extent that our variable rate debt is not covered by  interest rate derivative agreements; and             |
|   |                                                                                                                                                                                                                    |
| · | make it more  difficult to pursue strategic acquisitions, joint ventures, alliances and  collaborations.                                                                                                                |

 

Our ability to service our indebtedness will depend on our futureperformance, which will be affected by prevailing economic conditions andfinancial, business, regulatory and other factors. Some of these factors arebeyond our control. If we cannot generate sufficient cash flow from operationsto service our indebtedness and to meet our other obligations and commitments,we may be required to refinance our debt or to dispose of assets to obtainfunds for such purpose. We cannot assure you that debt refinancings or assetdispositions could be completed on a timely basis or on satisfactory terms, ifat all, or would be permitted by the terms of our debt instruments.

 

**Oursoftware and services rely on information generated by third parties and anyinterruption of our access to such information could materially harm ouroperating results.**

** **

We believe that our success depends significantly on our abilityto provide our customers access to data from many different sources. Forexample, a substantial portion of the data used in our repair estimatingsoftware is derived from parts and repair data provided by, among others,original equipment manufacturers, or OEMs, aftermarket parts suppliers, dataaggregators, automobile dealerships and vehicle repair facilities. We obtainmuch of our data about vehicle parts and components and collision repair laborand costs through license agreements with OEMs, automobile dealers, and otherproviders. EurotaxGlass’s Group, one of our primary competitors in Europe,provides us with valuation and paint data for use in our European marketspursuant to a similar arrangement, and Mitchell International, one of our primary competitors in the U.S., provides uswith vehicle glass data for use in our U.S. markets pursuant to a similararrangement. Many of the license agreements through which we obtain data arefor terms of one year and/or may be terminated without cost to the provider onshort notice. If one or more of our licenses are terminated or if we are unableto renew one or more of these licenses on favorable terms or at all, we may beunable to access alternative data sources that would provide comparableinformation without incurring substantial additional costs. Recently, some OEMsources have indicated to us that they intend to materially increase thelicensing costs for their data. While we do not believe that our access to mostindividual sources of data is material to our operations, prolongedindustry-wide price increases or reductions in data availability could makereceiving certain data more difficult and could result in significant costincreases, which would materially harm our operating results.

 

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**Systemfailures, delays and other problems could harm our reputation and business,cause us to lose customers and expose us to customer liability.**

 

Our success depends on our ability to provide accurate, consistentand reliable services and information to our customers on a timely basis. Ouroperations could be interrupted by any damage to or failure of:

 
| ·                                                                          | our computer  software or hardware or our customers’ or third-party service providers’  computer software or hardware;                         |
|---------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                            |                                                                                                                                                     |
| ·                                                                          | our networks,  our customers’ networks or our third-party service providers’ networks; and                                                     |
|                                                                            |                                                                                                                                                     |
| ·                                                                          | our  connections to and outsourced service arrangements with third parties, such  as Acxiom, which hosts data and applications for us and our customers. |
|                                                                            |                                                                                                                                                     |
| Our systems  and operations are also vulnerable 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 vandalism and similar  events; and                                                      |
|                                                                            |                                                                                                                                                     |
| ·                                                                          | errors by our  employees or third-party service providers.                                                                                               |

 

As part of our ongoing process improvements efforts, we have andwill continue to migrate product and system platforms to next generationplatforms, and the risks noted above will be exacerbated by our migrationefforts.  Because many of our servicesplay a mission-critical role for our customers, any damage to or failure of theinfrastructure we rely on, including those of our customers and vendors, coulddisrupt our ability to deliver information to and provide services for ourcustomers in a timely manner, which could result in the loss of current and/orpotential customers. In addition, we generally indemnify our customers to alimited extent for damages they sustain related to the unavailability of, orerrors in, the software and services we provide; therefore, a significantinterruption of, or errors in, our software and services could expose us tosignificant customer liability.

 

**Securitybreaches could result in lost revenues, litigation claims and/or harm to ourreputation.**

** **

Our databases contain confidential data relating to our customers,policyholders and other industry participants. Security breaches, particularlythose involving connectivity to the Internet, and the trend toward broadconsumer and general public notification of such incidents, could significantlyharm our business, financial condition or results of operations. Our databasescould be vulnerable to physical system or network break-ins or otherinappropriate access, which could result in 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.

 

**Weare active in over 50 countries, where we are subject to country-specific risksthat could adversely impact our business and results of operations.**

** **

In fiscal 2007 and the nine months ended March 31, 2008, wegenerated approximately 69.0% and 72.0% of our revenues outside the U.S.,respectively, and we expect revenues from non-U.S. markets to continue torepresent a majority of our total revenues. Business and operations inindividual countries are subject to changes in local government regulations andpolicies, including those related to tariffs and trade barriers, investments,taxation, currency exchange controls and repatriation of earnings. Our resultsare also subject to the difficulties of coordinating our activities across morethan 50 different countries. Furthermore, our business strategy includesexpansion of our operations into new and developing markets, which will requireeven greater international coordination, expose us to additionallocalgovernment regulations and involve markets in which we do not have experienceor established operations. In addition, our operations in each country arevulnerable to changes in socio-economic conditions and monetary and fiscalpolicies, intellectual property protection disputes, the settlement of legaldisputes through foreign legal systems, the collection of receivables throughforeign legal systems, exposure to possible expropriation or other governmentalactions, unsettled political conditions and possible terrorist attacks. Theseand other factors may harm our operations in those countries and therefore ourbusiness and results of operations.

 

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**Ouroperating results may vary widely from period to period, which may cause ourstock price to decline.**

** **

Our contracts with insurance companies generally requiretime-consuming authorization procedures by the customer, which can result inadditional delays between when we incur development costs and when we begingenerating revenues from those software or services offerings. Our quarterlyand annual revenues and operating results may fluctuate significantly in thefuture. In addition, we incur significant operating expenses while we areresearching and designing new software and related services, and we typicallydo not receive corresponding payments in those same periods. As a result, thenumber of new software and services offerings that we are able to implement,successfully or otherwise, can cause significant variations in our cash flowfrom operations, and we may experience a decrease in our net income as we incurthe expenses necessary to develop and design new software and services. We alsomay experience variations in our earnings due to other factors beyond ourcontrol, such as the introduction of new software or services by ourcompetitors, customer acceptance of new software or services, the volume ofusage of our offerings by existing customers and competitive conditions, orchanges in competitive conditions, in our industry generally. We may also incursignificant or unanticipated expenses when contracts expire, are terminated orare not renewed. Any of these events could harm our financial condition andresults of operations and cause our stock price to decline.

 

**Futureacquisitions and joint ventures or dispositions may require significantresources and/or result in significant unanticipated losses, costs orliabilities.**

** **

We have grown in part, and in the future may continue to grow, bymaking acquisitions or entering into joint ventures or similar arrangements.Acquisitions and joint ventures require significant investment and managerialattention, which may be diverted from our other operations, and could entail anumber of additional risks, including:

 

·              problems witheffective integration of operations and/or management;

 

·              loss of keycustomers, suppliers or employees;

 

·**             **increased operating costs; and

 

·              exposure tounanticipated liabilities.

 

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

 

Additionally, we may finance future acquisitions and/or jointventures with cash from operations, additional indebtedness and/or the issuanceof additional securities, any of which may impair the operation of our businessor present additional risks, such as reduced liquidity or increased interestexpense. We may seek also to restructure our business in the future bydisposing of certain of our assets, which may harm our future operatingresults, divert significant managerial attention from our operations and/orrequire us to accept non-cash consideration, the market value of which mayfluctuate.

 

**Wemay require additional capital in the future, which may not be available onfavorable terms, or at all.**

** **

Our future capital requirements depend on many factors, includingour ability to develop and market new software and services and to generaterevenues at levels sufficient to cover ongoing expenses. If we need to raiseadditional capital, equity or debt financing may not be available at all or maybe available only on terms that are not favorable to us. In the case of equityfinancings, dilution to our stockholders could result, and in any case suchsecurities may have rights, preferences and privileges that are senior to ouroutstanding common stock. In the case of debt financings, we may have to grantadditional security interests in our assets to lenders and agree to restrictivebusiness and operating covenants. If we cannot obtain adequate capital onfavorable terms or at all, we may be unable to support future growth oroperating requirements and, accordingly, our business, financial condition andresults of operations could be harmed.

 

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**Privacyconcerns could require us to exclude data from our software and services, whichmay reduce the value of our offerings to our customers, damage our reputationand deter current and potential users from using our software and services.**

** **

In the European Union and other jurisdictions, there aresignificant restrictions on the use of personal data. Violations of these lawswould harm our business. In addition, concerns about our collection, use orsharing of automobile insurance claims information or other privacy-relatedmatters, even if unfounded, could damage our reputation and operating results.

 

**Ourbusiness depends on our brands, and if we are not able to maintain and enhanceour brands, our business and operating results could be harmed.**

** **

We believe that the brand identity that we have developed hassignificantly contributed to the success of our business. We also believe thatmaintaining and enhancing our brands, such as Audatex, ABZ, Hollander,Informex, Sidexa and IMS, are critical to the expansion of our software andservices to new customers in both existing and new markets. Maintaining andenhancing our brands may require us to make substantial investments and theseinvestments may not be successful. If we fail to promote and maintain ourbrands or if we incur excessive expenses in this effort, our business,operating results and financial condition will be harmed. We anticipate that,as our markets become increasingly competitive, maintaining and enhancing ourbrands may become increasingly difficult and expensive. Maintaining andenhancing our brands will depend largely on our ability to be a technologyinnovator and to continue to provide high quality software and services, whichwe may not do successfully. To date, we have not engaged in extensive directbrand promotion activities, and we may not successfully implement brandenhancement efforts in the future.

 

**Thirdparties may claim that we are infringing upon their intellectual propertyrights, and we could be prevented from selling our software or suffersignificant litigation expense even if these claims have no merit.**

 

Our competitive position is driven in part by our intellectualproperty and other proprietary rights. Third parties, however, may claim thatwe, our software or operations or any products or technology, including claimsdata or other data, we obtain from other parties are infringing upon theintellectual property rights of others, and we may be unaware of intellectualproperty rights of others that may cover some of our assets, technology,software or services. Any litigation initiated against us regarding patents,trademarks, copyrights or other intellectual property rights, even litigationrelating to claims without merit, could be costly and time-consuming and coulddivert our management and key personnel from operating our business. Inaddition, if any third party has a meritorious or successful claim that we areinfringing upon its intellectual property rights, we may be forced to changeour software or enter into licensing arrangement with third parties, which maybe costly or impractical. These claims may also require us to stop selling oursoftware and/or services as currently 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 our softwareor services and may result in a material loss in revenue.

 

**Wemay be unable to protect our intellectual property and property rights, eitherwithout incurring significant costs or at all, which would harm our business.**

** **

We rely on a combination of patents, copyrights, know-how,trademarks, license agreements and contractual provisions, as well as internalprocedures, to establish and protect our intellectual property rights. Thesteps we have taken and will take to protect our intellectual property rightsmay not deter infringement, duplication, misappropriation or violation of ourintellectual property by third parties. In addition, any of the intellectualproperty we own or license from third parties may be challenged, invalidated,circumvented or rendered unenforceable. Furthermore, the laws of some of thecountries in which products similar to ours may be developed may not protectour software and intellectual property to the same extent as U.S. laws or atall. We may be unable to protect our rights in trade secrets and unpatentedproprietary technology in these countries. We may also be unable to prevent theunauthorized disclosure or use of our technical knowledge or trade secrets byconsultants, vendors, former employees or current employees, despite theexistence of nondisclosure and confidentiality agreements and other contractualrestrictions. If our trade secrets become known, we may lose our competitiveadvantages. If we fail to protect our intellectual property, we may not receiveany return on the resources expended to create the intellectual property orgenerate any competitive advantage based on it.

 

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Pursuing infringers of our intellectual property could result insignificant litigation costs and diversion of management resources, and anyfailure to pursue or successfully litigate claims against infringers couldresult in competitors using our technology and offering similar products andservices, potentially resulting in loss of competitive advantage and decreasedrevenues.  We are currently engaged inlitigation in Canada against an alleged infringer of certain of our copyrights.

 

Currently, we believe that one or more of our customers in ourEMEA segment may be infringing our intellectual property by making anddistributing unauthorized copies of our software. Enforcement of theseintellectual property rights may be difficult and may require considerableresources.

 

**Wedepend on a limited number of key personnel who would be difficult to replace.If we lose the services of these individuals, or are unable to attract newtalent, our business will be adversely affected.**

** **

We depend uponthe ability and experience of our key personnel, who have substantialexperience with our operations, the rapidly changing automobile insuranceclaims processing industry and the markets in which we offer our software andservices. The loss of the services of one or more of our senior executives orkey employees, such as our Chief Executive Officer, Tony Aquila, could harm ourbusiness andoperations. Our success also depends onour ability to continue to attract, manage and retain other qualifiedmanagement, sales and technical personnel as we grow. We may not be able tocontinue to attract or retain such personnel in the future.

 

**Ouramended and restated senior credit facility limits our ability to paydividends, incur additional debt, make acquisitions and make other investments.**

** **

Our amended and restated senior credit facility contains covenantsthat restrict our and our subsidiaries’ ability to make certain distributionswith respect to our capital stock, prepay other debt, encumber our assets,incur additional indebtedness, make capital expenditures above specifiedlevels, engage in business combinations or undertake various other corporateactivities. These covenants may require us also to maintain certain specifiedfinancial ratios, including those relating to total leverage and interestcoverage.

 

Our failure to comply with any of these covenants could result inthe acceleration of our outstanding indebtedness. If acceleration occurs, wewould not be able to repay our debt and it is unlikely that we would be able toborrow sufficient additional funds to refinance our debt. Even if new financingis made available to us, it may not be available on acceptable or reasonableterms. An acceleration of our indebtedness would impair our ability to operateas a going concern.

 

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

** **

We have been and continue to be involved in legal proceedings,claims and other litigation that arise in the ordinary course of business. Forexample, we have been involved in disputes with collision repair facilities,acting individually and as a group in some situations that claim that we havecolluded with our insurance company customers to depress the repair timeestimates generated by our repair estimating software. In addition, we arecurrently one of the defendants in a putative class action lawsuit allegingthat we have colluded with our insurance company customers to cause theestimates of vehicle fair market value generated by our total loss estimationsoftware to be unfairly low. Furthermore, we are also subject to assertions byour customers and strategic partners that we have not complied with the termsof our agreements with them, some of which are the subject of pendinglitigation and any of which could in the future lead to arbitration orlitigation. While we do not expect the outcome of any such pending or threatenedlitigation to have a material adverse effect on our financial position,litigation is unpredictable and excessive verdicts, both in the form ofmonetary damages and injunction, could occur. In the future, we could incurjudgments or enter into settlements of claims that could harm our financialposition and results of operations.

 

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**Ifwe are not able to implement the requirements of Section 404 of theSarbanes-Oxley Act in a timely manner or with adequate compliance, we may besubject to sanctions by regulatory authorities.**

** **

Section 404 of the Sarbanes-Oxley Act requires that weevaluate and determine the effectiveness of our internal control over financialreporting for our annual report for fiscal 2008. If we have a material weaknessin our internal control over financial reporting, we may not detect errors on atimely basis and our financial statements may be materially misstated. We willcontinue to evaluate our internal controls systems to allow management toreport on, and our independent auditors to attest to, our internal controls. Wewill continue to perform the system and process evaluation and testing (and anynecessary remediation) required to comply with the management certification andauditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.While we anticipate being able to fully implement the requirements relating tointernal controls and all other aspects of Section 404 by the abovedeadline, we cannot be certain as to the timing of completion of ourevaluation, testing and remediation actions or the impact of the same on ouroperations. If we are not able to implement the requirements ofSection 404 in a timely manner or with adequate compliance, we may be subjectto sanctions or investigation by regulatory authorities, such as the Securitiesand Exchange Commission, or SEC, or the New York Stock Exchange, or NYSE. Anysuch 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 rules and regulations of the SEC and NYSE. If we fail to developand maintain 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.

 

**Requirementsassociated with being a public company increase our costs significantly, aswell as divert significant company resources and management attention.**

** **

Prior to ourinitial public offering in May 2007, we were not subject to the reportingrequirements of the Securities Exchange Act of 1934, as amended, or theExchange Act, or the other rules and regulations of the SEC or anysecurities exchange relating to public companies. We continue to work 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 are required as a result of being a public company are and willlikely continue to be material. Compliance with the various reporting and otherrequirements applicable to public companies also require considerable time andattention of management. Until we have more experience operating as a publiccompany, we may have difficulty predicting or estimating the amount of theadditional costs we may incur, the timing of such costs or the degree of impactthat our management’s attention to these matters will have on our business. Inaddition, the changes we make may not be sufficient to allow us to satisfy ourobligations as a public company on a timely basis.

 

In addition, being a public company could make it more difficultor 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.

 

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** **

**Ourcertificate of incorporation and by-laws contain provisions that coulddiscourage another company from acquiring us and may prevent attempts by ourstockholders to replace or remove our current management.**

** **

Some provisions of our certificate of incorporation and by-lawsmay have the effect of delaying, discouraging or preventing a merger oracquisition that our stockholders may consider favorable, includingtransactions in which stockholders may receive a premium for their shares. Inaddition, these provisions may frustrate or prevent any attempts by ourstockholders to replace or remove our current management by making it moredifficult for stockholders to replace or remove our board of directors. Theseprovisions include:

 
| · | authorization  of the issuance of “blank check” preferred stock without the need for action  by stockholders;                                                                  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                     |
| · | the removal of  directors only by the affirmative vote of the holders of two-thirds of the  shares of our capital stock entitled to vote;                                                |
|   |                                                                                                                                                                                     |
| · | any vacancy on  the board of directors, however occurring, including a vacancy resulting from  an enlargement of the board, may only be filled by vote of the directors then  in office; |
|   |                                                                                                                                                                                     |
| · | inability of  stockholders to call special meetings of stockholders and limited ability of  stockholders to take action by written consent; and                                          |
|   |                                                                                                                                                                                     |
| · | advance notice  requirements for board nominations and proposing matters to be acted on by  stockholders at stockholder meetings.                                                        |

 

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

** **

We currently do not expect to declare or pay dividends on ourcommon stock in the foreseeable future. In addition, our amended and restatedsenior credit facility limits our ability to declare and pay cash dividends onour common stock. As a result, your only opportunity to achieve a return onyour investment in us will be if the market price of our common stockappreciates and you sell your shares at a profit. We cannot assure you that themarket price for our common stock will ever exceed the price that you pay.

 

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

** **

Not applicable.

 

**Item 3.  Defaults Upon Senior Securities.**

** **

                None.

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders.**

** **

                None.

 

**Item 5.  Other Information.**

** **

                None.

 

**Item 6. Exhibits.**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                       |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                  |
| 10.1                 |       | Second Amended and Restated  Securities Purchase Agreement, dated as of January 28, 2008, by and between  Solera Holdings, Inc. and Roxani Gillespie. |
| 31.1                 |       | Certification by Tony  Aquila, Chief Executive Officer.                                                                                               |
| 31.2                 |       | Certification by 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**

** **

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly 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)**     |

 

May 13, 2008

 

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