**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM10-Q**
| **(Mark  One)**                                                                                                                                                                                         |                                                                                          |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|--------|
| ** **                                                                                                                                                                                              |                                                                                          |   |
| **x**                                                                                                                                                                                                   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                              | ** **                                                                                    |   |
| **For the quarterly period ended September 30,  2007**                                                                                                                                                  |
| ** **                                                                                                                                                                                              |
| **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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**SoleraHoldings, Inc.**

(Exact Name of Registrant asSpecified in Its Charter)

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

 

Former name, former address and former fiscal year, ifchanged since last report.

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bysection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for the past90 days.

Yes  x  No  o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer.  See 

definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act (Checkone). 

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

 

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

Yes  o  No  x

The number of sharesoutstanding of the issuer’s common stock, as of November 14, 2007, was64,754,813.

 

 

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

 

 

2

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

This report contains forward-looking statements withinthe meaning of the federal securities laws. These statements relate to analysesand other information that are based on forecasts of future results andestimates of amounts not yet determinable. These statements also relate to ourfuture prospects, developments and business strategies.

These forward looking statements are identified by theuse of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”,“intend”, “may”, “plan”, “predict”, “project” and similar terms and phrases,including references to assumptions. However, these words are not the exclusivemeans of identifying such statements. Actual results could differ materiallyfrom those projected, implied or anticipated by the Company’s forward-lookingstatements. Some of the factors that could cause actual results to differinclude: our dependence on a limited number of customers for a substantialportion of our revenues; continued pricing pressure; implementation of orchanges in laws or regulations; the effects of competition in our industry; ourability to increase market share, successfully introduce new software andservices and expand our operations to new geographic locations; our ability toanticipate changes in technology and regulatory standards and to successfullydevelop and introduce new and enhanced software on a timely basis; our limitedoperating history as a stand-alone company; potential impairment of oursignificant amount of goodwill and intangible assets; our access to informationgenerated by third parties; system failures or other operational events thatimpact our ability to deliver software and services in a timely manner; ourability to safeguard our data; risks associated with our extensive globaloperations; the impact of or our ability to enter into future acquisitions,joint ventures or divestitures; future availability of additional capital; theunpredictability of intellectual property protection and maintenance; anyfuture changes in management or loss of key personnel; the degree to which weare leveraged and the terms of our debt service obligations; the outcome oflegal proceedings; and risks associated with establishing and maintaininginternal control over financial reporting in compliance with Section 404.

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

 

3

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**PARTI—FINANCIAL INFORMATION**

**Item 1.  FinancialStatements.**

**SOLERA HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**AS OF SEPTEMBER 30, 2007 AND JUNE 30, 2007**

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

**(Unaudited)**

** **
| ** **                                                                                                                                                                  | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                  | ** ** | **2007**          | ** ** | **2007**          | ** ** |
| **ASSETS**                                                                                                                                                                  | ** ** | ** **        | ** ** | ** **        | ** ** |
|                                                                                                                                                                        |       |              |       |              |       |
| CURRENT ASSETS:                                                                                                                                                             |       |              |       |              |       |
| Cash and cash  equivalents                                                                                                                                                  |       | $                 | 107,124    |              | $          | 89,868 |   |
| Accounts  receivable — net                                                                                                                                             |       | 86,562            |       | 85,543            |       |
| Other receivables                                                                                                                                                           |       | 9,834             |       | 9,297             |       |
| Other current  assets                                                                                                                                                       |       | 18,503            |       | 16,901            |       |
| Deferred income  tax assets                                                                                                                                                 |       | 3,077             |       | 3,248             |       |
|                                                                                                                                                                        |       |              |       |              |       |
| Total current  assets                                                                                                                                                       |       | 225,100           |       | 204,857           |       |
|                                                                                                                                                                        |       |              |       |              |       |
| PROPERTY AND  EQUIPMENT — Net                                                                                                                                          |       | 52,121            |       | 51,485            |       |
|                                                                                                                                                                        |       |              |       |              |       |
| OTHER ASSETS                                                                                                                                                                |       | 14,453            |       | 11,625            |       |
|                                                                                                                                                                        |       |              |       |              |       |
| LONG TERM  DEFERRED INCOME TAX ASSETS                                                                                                                                       |       | 24,190            |       | 23,835            |       |
|                                                                                                                                                                        |       |              |       |              |       |
| GOODWILL                                                                                                                                                                    |       | 599,231           |       | 569,165           |       |
|                                                                                                                                                                        |       |              |       |              |       |
| INTANGIBLE  ASSETS — Net                                                                                                                                               |       | 359,467           |       | 362,986           |       |
|                                                                                                                                                                        |       |              |       |              |       |
| TOTAL                                                                                                                                                                       |       | $                 | 1,274,562  |              | $          | 1,223,953 |   |
|                                                                                                                                                                        |       |              |       |              |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                              | ** ** | ** **        | ** ** | ** **        | ** ** |
| ** **                                                                                                                                                                  | ** ** | ** **        | ** ** | ** **        | ** ** |
| CURRENT  LIABILITIES:                                                                                                                                                       |       |              |       |              |       |
| Accounts payable                                                                                                                                                            |       | $                 | 26,540     |              | $          | 25,571 |   |
| Accrued expenses  and other current liabilities                                                                                                                             |       | 90,933            |       | 89,240            |       |
| Income taxes  payable                                                                                                                                                       |       | 16,399            |       | 13,995            |       |
| Deferred income  tax liabilities                                                                                                                                            |       | 419               |       | 1,076             |       |
| Current portion  of long-term debt                                                                                                                                          |       | 7,723             |       | 14,140            |       |
|                                                                                                                                                                        |       |              |       |              |       |
| Total current  liabilities                                                                                                                                                  |       | 142,014           |       | 144,022           |       |
|                                                                                                                                                                        |       |              |       |              |       |
| LONG-TERM DEBT                                                                                                                                                              |       | 620,172           |       | 599,128           |       |
|                                                                                                                                                                        |       |              |       |              |       |
| OTHER  LIABILITIES                                                                                                                                                          |       | 30,857            |       | 25,378            |       |
|                                                                                                                                                                        |       |              |       |              |       |
| LONG-TERM  DEFERRED INCOME TAX LIABILITIES                                                                                                                                  |       | 42,986            |       | 42,922            |       |
|                                                                                                                                                                        |       |              |       |              |       |
| Total  liabilities                                                                                                                                                          |       | 836,029           |       | 811,450           |       |
|                                                                                                                                                                        |       |              |       |              |       |
| MINORITY  INTERESTS IN CONSOLIDATED SUBSIDIARIES                                                                                                                            |       | 13,412            |       | 11,229            |       |
|                                                                                                                                                                        |       |              |       |              |       |
| STOCKHOLDERS’  EQUITY:                                                                                                                                                 |       |              |       |              |       |
| Common Shares,  $0.01 par value: 150,000,000 shares authorized; 64,754,813 and 64,813,563  issued and outstanding as of September 30, 2007 and June 30, 2007,  respectively |       | 506,428           |       | 505,939           |       |
| Accumulated  deficit                                                                                                                                                        |       | (106,806          | )     | (111,687          | )          |
| Accumulated  other comprehensive income                                                                                                                                     |       | 25,499            |       | 7,022             |       |
|                                                                                                                                                                        |       |              |       |              |       |
| Total  stockholders’ equity                                                                                                                                            |       | 425,121           |       | 401,274           |       |
|                                                                                                                                                                        |       |              |       |              |       |
| TOTAL                                                                                                                                                                       |       | $                 | 1,274,562  |              | $          | 1,223,953 |   |

 

Seenotes to condensed consolidated financial statements.

 

4

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**SOLERA HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THETHREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**

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

**(Unaudited)**
| ** **                                                                                                                                | ** ** | **Three Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                | ** ** | **2007**                              | ** ** | **2006** | ** ** |
|                                                                                                                                      |       |                                  |       |   |   |
| Revenues                                                                                                                                  |       | $                                     | 124,181    |   | $ | 111,482 |   |
|                                                                                                                                      |       |                                  |       |   |   |
| Cost of revenues:                                                                                                                         |       |                                  |       |   |   |
| Operating  expenses                                                                                                                       |       | 32,340                                |       | 32,710 |   |
| Systems  development and programming costs                                                                                                |       | 15,973                                |       | 16,176 |   |
|                                                                                                                                      |       |                                  |       |   |   |
| Total cost of  revenues (excluding depreciation and amortization)                                                                         |       | 48,313                                |       | 48,886 |   |
|                                                                                                                                      |       |                                  |       |   |   |
| Selling, general  and administrative expenses                                                                                             |       | 33,542                                |       | 30,890 |   |
| Depreciation and  amortization                                                                                                            |       | 22,405                                |       | 25,176 |   |
| Restructuring  charges                                                                                                                    |       | 1,623                                 |       | 895 |   |
| Interest expense                                                                                                                          |       | 11,162                                |       | 17,857 |   |
| Other (income)  expense — net                                                                                                        |       | (1,156                                | )          | 4,340 |   |
|                                                                                                                                      |       |                                  |       |   |   |
|                                                                                                                                      |       | 67,576                                |       | 79,158 |   |
|                                                                                                                                      |       |                                  |       |   |   |
| Income/(loss)  before provision for income taxes and minority interests                                                                   |       | 8,292                                 |       | (16,562 | )  |
|                                                                                                                                      |       |                                  |       |   |   |
| Income tax  provision                                                                                                                     |       | 2,877                                 |       | 243 |   |
|                                                                                                                                      |       |                                  |       |   |   |
| Minority  interest in net income of consolidated subsidiaries                                                                             |       | 1,561                                 |       | 1,085 |   |
|                                                                                                                                      |       |                                  |       |   |   |
| Net  income/(loss)                                                                                                                        |       | 3,854                                 |       | (17,890 | )  |
|                                                                                                                                      |       |                                  |       |   |   |
| Dividends and  redeemable preferred unit accretion                                                                                        |       | —                                |       | 4,191 |   |
|                                                                                                                                      |       |                                  |       |   |   |
| Net  income/(loss) allocable to common stockholders/unitholders                                                                           |       | $                                     | 3,854      |   | $ | (22,081 | )  |
|                                                                                                                                      |       |                                  |       |   |   |
| Net  income/(loss) allocable to common stockholders/unitholders per share/unit:                                                           |       |                                  |       |   |   |
| Basic                                                                                                                                     |       | $                                     | 0.06       |   | $ | (0.76 | )  |
| Diluted                                                                                                                                   |       | $                                     | 0.06       |   | $ | (0.76 | )  |
|                                                                                                                                      |       |                                  |       |   |   |
| Weighted-average  shares/units used in the calculation of net income/(loss) per share/unit  allocable to common stockholders/unitholders: |       |                                  |       |   |   |
| Basic                                                                                                                                     |       | 62,833                                |       | 29,038 |   |
| Diluted                                                                                                                                   |       | 64,589                                |       | 29,038 |   |

 

Seenotes to condensed consolidated financial statements.

 

5

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**SOLERA HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**

**(In thousands)**

**(Unaudited)**
| ** **                                                                                          | ** ** | **Three Months Ended  September 30,** | ** **    |
|-----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|---------------|
| ** **                                                                                          | ** ** | **2007**                                        | ** **    | **2006** | ** ** |
|                                                                                                |       |                                            |          |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                              |       |                                            |          |   |   |
| Net income /  (loss)                                                                                |       | $                                               |  3,854   |   | $ |  (17,890 | ) |
| Adjustments to  reconcile net income / (loss) to net cash provided by operating activities:         |       |                                            |          |   |   |
| Depreciation and  amortization                                                                      |       | 22,405                                          |          | 25,176 |   |
| Minority  interests in net income of consolidated subsidiaries                                      |       | 1,561                                           |          | 1,085 |   |
| Provision for  doubtful accounts                                                                    |       | 50                                              |          | 124 |   |
| Stock/unit-based  payment compensation                                                              |       | 602                                             |          | 96 |   |
| Deferred income  taxes                                                                              |       | (2,568                                          | )             | (2,278 | ) |
| Change in fair  value of financial instrument                                                       |       | 32                                              |          | 4,275 |   |
| Other                                                                                               |       | 434                                             |          | 29 |   |
| Changes in  operating assets and liabilities — net of effects from acquisition of  businesses: |       |                                            |          |   |   |
| (Increase)  decrease in accounts receivable                                                         |       | 3,175                                           |          | (11,997 | ) |
| (Increase)  decrease in other assets                                                                |       | (1,763                                          | )             | 556 |   |
| Increase  (decrease) in accounts payable                                                            |       | (22                                             | )             | 12,525 |   |
| Decrease in  accrued expenses and other liabilities                                                 |       | (1,849                                          | )             | (364 | ) |
| Increase in  accrued interest                                                                       |       | 313                                             |          | 3,513 |   |
| Net cash  provided by operating activities                                                          |       | 26,224                                          |          | 14,850 |   |
|                                                                                                |       |                                            |          |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                              |       |                                            |          |   |   |
| Capital  expenditures                                                                               |       | (4,913                                          | )             | (6,895 | ) |
| Acquisitions of  business — net of cash acquired                                               |       | —                                          |          | (1,040 | ) |
| Investment in  joint venture                                                                        |       | (295                                            | )             | — |   |
| Net cash used in  investing activities                                                              |       | (5,208                                          | )             | (7,935 | ) |
|                                                                                                |       |                                            |          |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                              |       |                                            |          |   |   |
| Principal  payment on financed asset acquisition                                                    |       | (544                                            | )             | (484 | ) |
| Repayments under  revolving credit facility                                                         |       | (6,929                                          | )             | (4,000 | ) |
| Repayments of  long-term debt                                                                       |       | (1,545                                          | )             | (1,303 | ) |
| Repurchase of  common shares                                                                        |       | (112                                            | )             | — |   |
| Net cash used in  financing activities                                                              |       | (9,130                                          | )             | (5,787 | ) |
|                                                                                                |       |                                            |          |   |   |
| EFFECT OF  FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                      |       | 5,370                                           |          | (179 | ) |
|                                                                                                |       |                                            |          |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                                            |       | 17,256                                          |          | 949 |   |
|                                                                                                |       |                                            |          |   |   |
| CASH AND CASH  EQUIVALENTS — Beginning of period                                               |       | 89,868                                          |          | 88,826 |   |
|                                                                                                |       |                                            |          |   |   |
| CASH AND CASH  EQUIVALENTS — End of period                                                     |       | $                                               |  107,124 |   | $ |  89,775 |   |
|                                                                                                |       |                                            |          |   |   |
| SUPPLEMENTAL  CASH FOW INFORMATION                                                                  |       |                                            |          |   |   |
| — Dividends and  redeemable preferred unit accretion                                           |       | $                                               |  —  |   | $ |  4,191 |   |
| — Cash paid for  interest                                                                      |       | $                                               |  10,405  |   | $ |  13,825 |   |
| SUPPLEMENTAL  DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                            |       |                                            |          |   |   |
| — Capital assets  financed                                                                     |       | $                                               |  660     |   | $ |  5,768 |   |

 

See notes to condensedconsolidated financial statements.

 

 

6

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**SOLERAHOLDINGS, INC. AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

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

**(Unaudited)**

**1.**                      ORGANIZATION AND BASIS OFPRESENTATION

***Description of Business***   Solera Holdings, Inc. andsubsidiaries (the “Company” or “Solera”) is a leading global provider ofsoftware and services to the automobile insurance claims processing industry.Its software and services help its customers: estimate the costs to repairdamaged vehicles; determine pre-collision fair market values for vehiclesdamaged beyond repair; automate steps of the claims process; outsource steps ofthe claims process that insurance companies have historically performedinternally; and monitor and manage their businesses through data reporting andanalysis. The Company has operations in 49 countries and derives most of itsrevenues from its estimating and workflow software.

 

Solera was formed inMarch 2005. On April 13, 2006, Solera acquired the Claims ServicesGroup (“CSG”), a business unit of Automatic Data Processing, Inc. (“ADP”),for approximately $1.0 billion. Prior to the acquisition of CSG, Solera’soperations consisted primarily of developing its business plan, recruitingpersonnel, providing consulting services, raising capital and identifying andevaluating operating assets for acquisition.

 

Solera accounted for theacquisition of CSG using the purchase method of accounting. As a result, theacquisition of CSG has and will continue to affect the results of operations significantly.The Company allocated the aggregate acquisition consideration to the tangibleand intangible assets acquired and liabilities assumed based on theirrespective fair values as of the date of the acquisition. This has resulted ina significant increase in its annual depreciation and amortization expense. Inaddition, due to the effects of the increased borrowings to finance the CSGacquisition, its interest expense has increased significantly in the periodsfollowing the acquisition.

 

***Principles of Consolidation and Basis ofPresentation  *** The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with United States (“U.S.”)generally accepted accounting principles and applicable regulations of the Securitiesand Exchange Commission (“SEC”) and should be read in conjunction with ouraudited Consolidated Financial Statements for the fiscal year ended June 30,2007, included in our Annual Report on Form 10-K filed with the SEC onSeptember 17, 2007. The Company’s operating results for the three months endedSeptember 30, 2007 are not necessarily indicative of the results that maybe expected for future quarters and the fiscal year ending June 30, 2008.

 

The preparation of the accompanying unaudited condensedconsolidated financial statements requires the use of estimates that affect thereported amounts of assets, liabilities, revenues, expenses and contingencies.Estimates are updated on an ongoing basis and are evaluated based on historicalexperience and current circumstances. Changes in facts and circumstances in thefuture may give rise to changes in these estimates which may cause actualresults to differ from current estimates.

The unaudited condensedconsolidated financial statements include the accounts of the Company and itssubsidiaries. All significant intercompany accounts and transactions have beeneliminated in consolidation.

 

**2.**                      SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies were describedin Note 2 to our audited Consolidated Financial Statements for the fiscal yearended June 30, 2007, included in our Annual Report on Form 10-K. Theseaccounting policies have not significantly changed.

 

***Recent AccountingPronouncements—***In June 2006, the FASB issued FASBInterpretation No 48,*Accounting forUncertainty in Income Taxes, an Interpretation of FASB Statement No. 109*  (“FIN 48”). FIN 48 clarifies the accountingfor income taxes by prescribing a minimum recognition threshold a tax positionis required to meet before being recognized in the financial statements andalso provides guidance on derecognition, measurement, classification, interestand penalties, accounting in interim periods, disclosure and transition.Effective July 1, 2007, the Company adopted FIN 48 which required a $1,027cumulative credit adjustment to decrease accumulated deficit. As a result ofFIN 48, we could have greater volatility in our effective tax rate in thefuture.

 

 

7

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In September 2006,the FASB issued SFAS No. 157,*FairValue Measurements* (“SFAS No. 157”). This statement clarifiesthe definition of fair value, establishes a framework for measuring fair valueand expands the disclosures on fair value measurements. SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007. The Companyis currently evaluating the effect that the adoption of SFAS No. 157 willhave, if any, on its consolidated results of operations and financialcondition.

 

In February 2007,the FASB issued SFAS No. 159,*The FairValue Option for Financial Assets and Financial Liabilities* (“SFASNo. 159”). SFAS No. 159 permits companies to choose to measurecertain financial instruments and certain other items at fair value. Thestandard requires that unrealized gains and losses on items for which the fairvalue option has been elected be reported in earnings. SFAS No. 159 iseffective for the Company beginning in the first quarter of fiscal year 2009,although earlier adoption is permitted. The Company is currently evaluating theimpact that SFAS No. 159 will have on its consolidated financialstatements.

 

In March 2007, theFASB ratified Emerging Issues Task Force (“EITF”) Issue No. 06-11, *Accounting for Income Tax Benefits of Dividends on Share-Based PaymentAwards*(“EITF No.06-11”).  EITF 06-11 requires companies to recognize the income taxbenefit realized from dividends or dividend equivalents that are charged toretained earnings and paid to employees for non-vested equity-classifiedemployee stock-based payment awards as an increase to additional paid-incapital. EITF 06-11 is effective for fiscal years beginning afterSeptember 15, 2007. The Company does not expect that EITF 06-11 willhave a material impact on its results of operations or cash flows.

 

In June 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 therelated services are performed. EITF No. 07-3 is effective, on a prospectivebasis, for fiscal years beginning after December 15, 2007. We are currentlyevaluating the effect that the adoption of EITF No. 07-3 will have on ourconsolidated results of operations and financial condition.

 

**3.**                      NET INCOME (LOSS) PERCOMMON SHARE

The Company calculatesnet income (loss) per common share/unit in accordance with SFAS No. 128, *Earnings Per Share* (“SFAS No. 128”). UnderSFAS No. 128, basic net income (loss) per common share/unit is calculated bydividing net income (loss) by the weighted-average number of commonshares/units outstanding during the reporting period excluding shares/unitssubject to repurchase.

Reconciliation ofshares/units used in this calculation table of basic and diluted net income(loss) per share/unit for the three months ended September 30, 2007 and 2006,is as follows (in thousands except for per share/unit data):
| ** **                                                                                                | ** ** | **Three Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Net  income/(loss)                                                                                        |       | $                                              | 3,854      |   | $ | (22,081 | ) |
| Weighted-average  number of common shares/units                                                           |       | 62,833                                         |       | 31,047 |   |
| Weighted-average  antidilutive common shares/units                                                        |       | —                                         |       | (2,009 | ) |
| Weighted-average  number of common shares/units used to compute basic net income/(loss) per  share/unit   |       | 62,833                                         |       | 29,038 |   |
| Effect of  dilutive common stock equivalents:                                                             |       |                                           |       |   |   |
| Stock options to  purchase common stock                                                                   |       | —                                         |       | — |   |
| Restricted  common stock awards                                                                           |       | 1,756                                          |       | — |   |
| Weighted-average  number of common shares/units used to compute diluted net income/(loss) per  share/unit |       | 64,589                                         |       | 29,038 |   |
|                                                                                                      |       |                                           |       |   |   |
| Basic net  income/(loss) per share/unit                                                                   |       | $                                              | 0.06       |   | $ | (0.76 | ) |
| Diluted net  income/(loss) per share/unit                                                                 |       | $                                              | 0.06       |   | $ | (0.76 | ) |

 

 

8

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For the three monthsended September 30, 2007 potential common stock equivalents of 32,459 are notincluded in the diluted net income per share calculation above, because theireffect was antidilutive for the period. For the three months ended September30, 2006, outstanding redeemable preferred units of 204,239 and nonvestedcarried common units of 1,876,276 have been excluded, as they are antidilutivedue to the Company’s net loss for the period.

**4.**                      RESTRUCTURING CHARGES

The Company recordedrestructuring charges of $1,623 during the three months ended September 30,2007, which consisted primarily of one-time termination benefits of $575 andnet facilities consolidation charges of $1,048. One-time termination benefitsrelate to the termination of approximately 17 employees during the three monthsended September 30, 2007. As part of the restructuring, the Company recorded anet $2,522 one-time adjustment to reflect the non-cash write-off of leaserelated assets and furniture as a result of the facilities consolidationeffort. The restructuring balance at September 30, 2007 also included $425 in cumulativetranslation adjustments and other restructuring activity. For the three monthsended September 30, 2006 there was a charge of $895 for terminationbenefits.  The Solera restructuringinitiatives were designed to achieve efficiencies and reduce costs in responseto changes in projected demand for certain services. The restructuring reservesare included in Accrued expenses and other current liabilities in the condensedconsolidated balance sheets. 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 Plan** | ** ** | **Total** | ** ** |
|----------------------------------|------------|-----------------------------------------------------------------|------------|-------------------------------------|------------|-----------|------------|
| ** **                       | ** ** | **EMEA**                                                        | ** ** | **Americas**                        | ** ** | **EMEA**  | ** ** | **Americas** | ** ** | **EMEA** | ** ** | **Americas** | ** ** | **Total** | ** ** |
|                             |       |                                                            |       |                                |       |      |       |   |   |   |   |   |   |   |   |
| Balance—June 30,  2007 |       | $                                                               | 6          |                                | $          | 180       |       | $ | 4,104 |   | $ | 1,309 |   | $ | 4,110 |   | $ | 1,489 |   | $ | 5,599 |   |
| Additions/adjustments            |       | 1                                                               |       | —                              |       | 235       |       | 4,334 |   | 236 |   | 4,334 |   | 4,570 |   |
| Payments                         |       | —                                                          |       | (9                                  | )          | (196      | )          | (1,143 | ) | (196 | ) | (1,152 | ) | (1,348 | ) |
| Balance—September  30, 2007 |       | $                                                               | 7          |                                | $          | 171       |       | $ | 4,143 |   | $ | 4,500 |   | $ | 4,150 |   | $ | 4,671 |   | $ | 8,821 |   |

The EMEA businesssegment encompasses the Company’s operations in Europe, the Middle East, Africaand Asia. The Americas business unit encompasses the Company’s operations inNorth America and Central and South America.

**5.**                      GOODWILL ANDINTANGIBLE ASSETS — NET

Changes in goodwill during the three month periodended September 30, 2007, by business segment are as follows:
| ** **                          | ** ** | **EMEA** | ** ** | **Americas** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|----------|------------|--------------|------------|-----------|------------|
|                                |       |     |       |         |       |      |       |
| Balance—June 30,  2007         |       | $        | 478,355    |         | $          | 90,810    |       | $ | 569,165 |   |
| Adjustments                         |       | 78       |       | —       |       | 78        |       |
| Cumulative  translation adjustments |       | 29,443   |       | 545          |       | 29,988    |       |
|                                |       |     |       |         |       |      |       |
| Balance—September  30, 2007    |       | $        | 507,876    |         | $          | 91,355    |       | $ | 599,231 |   |

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

 
| ** **                         | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|------------------------------------|------------|-------------------|------------|--------------|------------|
| ** **                         | ** ** | **2007**          | ** ** | **2007**     | ** ** |
| Intangibles  (excluding goodwill): |       |              |       |         |       |
| Internally  developed software     |       | $                 | 23,612     |         | $          | 22,151 |   |
| Customer  relationships            |       | 192,924           |       | 185,946      |       |
| Trademarks                         |       | 15,172            |       | 14,369       |       |
| Software and  database technology  |       | 259,097           |       | 249,347      |       |
|                               |       | 490,805           |       | 471,813      |       |
| Less accumulated  amortization     |       | (131,338          | )          | (108,827     | )          |
| Intangible  assets — net      |       | $                 | 359,467    |         | $          | 362,986 |   |

 

9

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Intangibleassets (except goodwill) have finite lives and, as such, are subject toamortization. The weighted average remaining useful life of the intangibleassets is 11.94 years (2.20 years for internally developed software, 18.75years for customer relationships, 2.75 years for trademarks and 7.75 years forsoftware and database). Internally developed software is amortized on astraight-line basis. Other intangible assets are amortized on anaccelerated basis to reflect the pattern in which economic benefits of theintangible assets are consumed. Amortization of intangibles totaled $18,182 and$21,387 for the three months ended September 30, 2007 and 2006, respectively.Estimated amortization expense of the Company’s existing intangible assets forthe next five fiscal years ended June 30 are as follows:
| 2008 (remaining  9 months) |   | $       | 57,778  |   |
|----------------------------|--------|---------|---------|--------|
| 2009                       |   | 64,398  |    |
| 2010                       |   | 53,374  |    |
| 2011                       |   | 40,911  |    |
| 2012                       |   | 32,248  |    |
| Thereafter                 |   | 110,758 |    |
|                       |   |    |    |
| Total                      |   | $       | 359,467 |   |

 

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

**6.**                      FINANCIAL INSTRUMENTSAND DERIVATIVES

***FinancialInstruments*** —At September 30, 2007 and June 30, 2007, the carrying amounts of cashequivalents, receivables, accounts payable and other liabilities approximatedtheir fair values because of the short-term maturities of these financialinstruments. The carrying amounts of long-term debt at September 30, 2007 andJune 30, 2007, approximated fair value based 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 a foreign currency exchange option (the “FX Option”)that gives the Company the option to call USD $200,000 at a strike price of1.1646 EUR/USD at any time up to February 8, 2011. This FX Option is notdesignated as a hedging instrument. In February 2006, the Company paidapproximately $7,912 for the FX Option. As of September 30, 2007 andJune 30, 2007, the fair value of the FX Option approximated $937 and $970,respectively, and was recorded in Other assets in the condensed consolidatedbalance sheets. The decrease in fair value of approximately $33 was recognizedin Other (income) expense in the condensed consolidated statement ofoperations, during the three months ended September 30, 2007.

 

In June 2007, the Companyentered into three USD-based interest rate swaps with notional amounts of$50,000, $80,965 and $75,000 with maturities on June 30, 2011 whichrequire the Company to pay fixed rates of 5.445%, 5.418% and 5.445%,respectively, and also entered into three Euro-based interest rate swaps withnotional amounts of € 69,821, € 50,000 and € 60,000 withmaturities on June 30, 2011 which require the Company to pay fixed ratesof 4.603%, 4.679% and 4.685%, respectively. These interest rate swaps aredesignated and documented at the inception of the hedge as cash flow hedges andare evaluated for effectiveness quarterly. The effective portion of the gain orloss on these hedges is reported as a component of Accumulated othercomprehensive income/(loss) in stockholders’ equity and reclassified intoearnings when the hedged transaction affects earnings. The ineffective portionon these cash flow hedges is recognized in interest expense. The estimated fairvalue of $4,945 on USD-based swaps and €1,291 ($1,842) on Euro-based swaps wasrecorded in Other liabilities in the consolidated balance sheet as of September30, 2007. The change of $5,439 in the fair value of swaps reflects theeffective portion of loss on these hedges and is reported as a component ofAccumulated other comprehensive income in stockholders’ equity.

 

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

 

10

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**7.**                      LONG-TERM DEBT

Long-term debt consists of the following:
| ** **                                        | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|---------------------------------------------------|------------|-------------------|------------|--------------|------------|
| ** **                                        | ** ** | **2007**          | ** ** | **2007**     | ** ** |
| Senior secured  credit facilities:                |       |              |       |         |       |
| Amended and  restated first lien credit facility: |       |              |       |         |       |
| European  revolver loan, due April 2012           |       | $                 | 1,427      |         | $          | 8,073 |   |
| Domestic term  loan, due May 2014                 |       | 228,850           |       | 229,425      |       |
| European term  loan, due May 2014                 |       | 397,618           |       | 375,770      |       |
| Total                                             |       | 627,895           |       | 613,268      |       |
| Less current  portion                             |       | 7,723             |       | 14,140       |       |
| Long-term  portion                                |       | $                 | 620,172    |         | $          | 599,128 |   |

 

***SeniorSecured Credit Facilities*** — On May 16, 2007, in conjunction with the closing ofinitial public offering, the Company entered into an Amended and RestatedSenior Credit Facility Agreement with a syndicate of commercial lenders,consisting of a $50,000 Revolving Credit Facility, a $230,000 Domestic TermLoan and a € 280,000 European Term Loan.  As ofSeptember 30, 2007, the Company had $1,427, $228,850 and $397,618(€ 278,600) in outstanding loans under the Revolving Credit Facility, the DomesticTerm Loan and the European Term Loan, respectively, with interest ratesof 8.0%, 7.6875% and 6.75%, respectively. Borrowings under the Amended andRestated Senior Credit Facility bear interest, to be reset at the Company’soption, at a rate determined by the sole lead arranger of the syndicate ofcommercial lenders equal to (1) the offer rate on dollars based on theBritish Bankers’ Association Settlement Rate for deposits or (2) the offerrate on the Euro from the Banking Federation of the European Union, or(3) in the event such rates are not available, then the offered quotationrate to first class banks in the London inter-bank market or Europeaninter-bank market by Citibank USA Inc. for deposits, respectively, in eachcase, plus an applicable margin that varies based upon the Company’sconsolidated leverage ratio, as defined in the agreement. Beginning onJune 30, 2007, consecutive quarterly principal payments of $575 and €700are required for the Domestic Term Loan and European Term Loan, respectively,under the Amended and Restated Senior Credit Facility with the remainingbalance due in May 2014. The Amended and Restated Senior Secured CreditFacility allows for voluntary prepayments under specified conditions andrequires mandatory prepayments and commitment reductions upon the occurrence ofcertain events, including among others, sale of assets, receipt of insurance orcondemnation proceeds, excess cash flow and issuances of debt and equitysecurities.

 

The obligations under theAmended and Restated Senior Credit Facility are secured by substantially all ofthe assets of the Company. The Amended and Restated Senior Credit Facilitycontains certain covenants including, among others, requirements related tofinancial reporting, maintenance of operations, compliance with applicable lawsand regulations, maintenance of interest rate protection and compliance withspecified financial covenants, as well as restrictions related to liens,investments, additional indebtedness, dispositions of assets or subsidiaryinterests, dividends, distributions, issuances of equity securities,transactions with affiliates, capital expenditures and certain other changes inthe business. The Amended and Restated Senior Credit Facility contains aleverage ratio, which is applicable only to the revolving loans and appliesonly if at least $10,000 of revolving loans, including outstanding letters ofcredit, are outstanding for at least 10 days during the prior fiscal quarter.

 

***FutureMinimum Principal Payments***— Future minimum principal payments as of September30, 2007 are as follows:
| 2008 (remaining  9 months) |   | $       | 4,722   |   |
|----------------------------|--------|---------|---------|--------|
| 2009                       |   | 6,296   |    |
| 2010                       |   | 6,296   |    |
| 2011                       |   | 6,296   |    |
| 2012                       |   | 7,723   |    |
| Thereafter                 |   | 596,562 |    |
|                       |   |    |    |
| Total                      |   | $       | 627,895 |   |

 

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**8.**                      EMPLOYEE BENEFITPLANS

***Stock-Based Compensation—***Effective July 1, 2006, the Company adoptedSFAS No. 123 (revised 2004), *Share-Based Payment*(“SFAS 123(R)”) which requires the measurement and recognition of compensationexpense for all stock-based payment awards made to employees and directors,including employee stock options and share awards, based on estimated fairvalues recognized over the requisite service period.

 

The Company adopted SFAS123(R) using the prospective transition method. Under this method, SFAS123(R) is applied to new awards and to awards modified, repurchased orcancelled after the adoption date of July 1, 2006. Compensation cost thatwas previously recorded under APB Opinion No. 25 for awards outstanding atthe adoption date, such as unvested options, will continue to be recognized asthe options vest. Accordingly, for the three months ended September 30,2007, stock-based compensation expense includes compensation cost related toestimated fair values of awards granted after the date of adoption of SFAS123(R) and compensation costs related to unvested awards at the date ofadoption based on the intrinsic values as previously recorded under APB OpinionNo. 25.

 

The fair value of stockand options awards granted after July 1, 2006 is estimated on the grantdate using the Black-Scholes option valuation model. This valuation model forstock-based compensation expense requires the Company to make assumptions andjudgments about the variables used in the calculation including the expectedterm (weighted average period of time that the shares and options granted areexpected to be outstanding), the volatility of the Company’s common shares, anassumed risk free interest rate and the estimated forfeitures of unvested shareawards. No compensation cost is recorded for awards that do not vest. Forawards granted after July 1, 2006, and valued in accordance with SFAS123(R), the Company used the straight-line method for expense attribution.Expected volatilities utilized in the model are based on a combination ofimplied market volatilities, historical volatility of the Company’s stock priceand other factors. The risk-free rate is derived from the U.S. Treasury yieldcurve in effect at the time of grant.

 

Stock-based compensation expense of $602 and $191 wasrecognized in net income / (loss) for the three months ended September 30, 2007and 2006, respectively, as well as related tax benefits of $180 and $67, respectively.

 

As of September 30, 2007, the total remainingunrecognized compensation cost related to non-vested stock options, andrestricted stock awards amounted to $8,663 which will be amortized over aweighted average period of 3.4 years.

 

The fair value forstock-based awards was estimated at the date of grant with the followingassumptions: a risk-free interest rate of 4.5%; a dividend yield of 0.0%; aweighted average volatility factor of 32.8%; a weighted average expected lifeof 6.1 years; and an exercise price of $16.00 per share for the May 2007 grantsand $17.19 per share for the September 2007 grants.

 

***Restricted Stock—***The Company has a restricted stockprogram under which shares of common stock have been issued to certain keyemployees. These shares are restricted as to transfer and in certaincircumstances must be returned to the Company at the original purchase price.The Company records stock compensation expense relating to the issuance ofrestricted stock over the period during which the transfer restrictions exist,which may be up to five years from the date of grant. The value of the Company’srestricted stock, based on market prices, is recognized as compensation expenseover the restriction period on a straight-line basis.

 

For the three monthsended September 30, 2007, the Company granted the right to purchase 4,900restricted common stock/units and is summarized 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           |       | 980,159                                                         |       |                                                             |       |                                                         |       | $                                                                                       | 7,572      |   |
| Granted on  September 12, 2007          |       | 4,900                                                           |       | $                                                                | 0.01       |                                                         | $          | 17.19                                                                                   |       | $ | 84 |   |
| Cancellations                           |       | (54,483                                                         | )          | $                                                                | 0.30       |                                                         | $          | 2.94                                                                                    |       | $ | (149 | ) |
|  Outstanding at September 30, 2007 |       | 930,576                                                         |       |                                                             |       |                                                         |       | $                                                                                       | 7,507      |   |

 

 

12

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During the three months ended September 30, 2007, theCompany recorded $468 as an expense related to these rights, with an estimatedtax benefit of $163. The remaining portion of the expense of $6,213 is expectedto be recognized over the weighted average vesting period of 3.3 years.

 

***Stock Options*****—**Stock options are granted to employees at exerciseprices equal to the fair market value of the Company’s common stock on thedates 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 September 30, 2007was $3,017.

 

On September 12, 2007,the Company granted 37,600 options to its employees to purchase common stock ata $17.19 grant price per share and a fair value of $7.10 per share. Summarizedinformation about stock options outstanding at September 30, 2007 is asfollows:

 
| ** **                         | ** ** | **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                            |       | 37,600                |       | $                            | 17.19      |                                                             | 10.0       |                                 | 267        |   |
| Exercised                          |       | —                |       | —                       |       | —                                                           |       | —                               |       |
| Forfeited                          |       | (8,800                | )          | $                            | 16.00      |                                                             | 9.6        |                                 | (58        | ) |
| Outstanding at  September 30, 2007 |       | 452,400               |       | $                            | 16.10      |                                                             | 9.7        |                                 | $          | 3,017 |   |

 

The stock-basedcompensation expense related to stock options included in the net income was$134 for the three months ended September 30, 2007, and the estimated totalremaining compensation of $2,450, before estimated forfeitures, is expected tobe recognized over the remaining vesting period of 3.8 years.

 

 

***Pension Plans  *** The Company’s foreign subsidiaries sponsor variousdefined benefit plans and individual defined benefit arrangements coveringcertain eligible employees. The benefits under these pension plans are based onyears of service and compensation levels. Funding is limited to statutoryrequirements. The measurement date for all defined benefit plans wasJune 30, 2007.

 

The components of net pension expense were as follows:
| ** **                                             | ** ** | **Three Months Ended September 30,** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                             | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
|                                                   |       |                                           |       |   |   |
| Service cost —  benefits earned during the period |       | $                                              | 800        |   | $ | 300 |   |
| Interest cost on  projected benefits                   |       | 600                                            |       | 400 |   |
| Expected return  on plan assets                        |       | (600                                           | )          | (400 | ) |
|                                                   |       | $                                              | 800        |   | $ | 300 |   |

 

**9.**                      PROVISION FOR INCOMETAXES

The Company recorded an income tax provision of $2,877and $243 for the three months ended September 30, 2007 and 2006,respectively.  Factors that impact ourincome tax provision include (but are not limited to) the mix of jurisdictionalearnings, establishment of valuation allowances in certain jurisdictions, andvarying jurisdictional income tax rates that are applied to related earnings.

 

The Company adopted Financial Accounting StandardsBoard Interpretation No. 48, *Accounting forUncertainties in Income Taxes — an Interpretation of FASB StatementNo. 109* (“FIN 48”), effective July 1, 2007. FIN 48contains a two-step approach to recognizing and measuring uncertain taxpositions accounted for in accordance with SFAS No. 109, “Accounting for IncomeTaxes.” The first step is to evaluate the tax position for recognition bydetermining if the weight of available evidence indicates that it is morelikely than not that the position will be sustained on audit, including resolutionof related appeals or litigation processes, if any. The second step is tomeasure the tax benefit as the largest amount that is more than 50% likely ofbeing realized upon ultimate settlement.

 

 

13

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The Company recorded a $1,027 cumulative creditadjustment to decrease accumulated deficit as a result of the adoption.

As ofthe adoption date of July 1, 2007, the Company had gross unrecognized taxbenefits of $8,387. The total amount of tax benefits, if recognized, that wouldaffect the effective tax rate upon subsequent realization is $234 as a resultof valuation allowance, application of local tax laws and purchase priceaccounting.

TheCompany’s continuing practice is to recognize interest and penalties related toincome tax matters as a component of income tax expense. As of the date ofadoption of FIN 48, the Company had accrued $30 for interest and penaltiesrelated to uncertain tax positions unrecognized tax benefits.

Accordingto the acquisition agreement dated February 8, 2006 between ADP and Solera, ADPhas indemnified all tax liabilities related to the pre-acquisition period (i.e.prior to April 13, 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

Thecomponents of comprehensive income for the three months endedSeptember 30, 2007 and 2006 are as follows:
| ** **                                            | ** ** | **Three Months Ended September 30,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Net  income/(loss)                                    |       | $                                              | 3,854      |   | $ | (22,081 | ) |
| Other  Comprehensive income (loss):                   |       |                                           |       |   |   |
| Foreign currency  translation adjustments             |       | 23,917                                         |       | (417 | ) |
| Unrealized net  gain (loss) on derivative instruments |       | (5,439                                         | )          | — |   |
|                                                  |       |                                           |       |   |   |
| Comprehensive  income/(loss)                          |       | $                                              | 22,332     |   | $ | (22,498 | ) |

 

**11.**               SEGMENT AND GEOGRAPHIC INFORMATION

The Company manages itsbusiness operations through two strategic business units. Based upon theinformation reported to the chief operating decision maker,who is the Chief Executive Officer, the Company has the following reportablesegments: EMEA and Americas. The EMEA business unit 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. The Company does not allocate certain costs to its reportablesegments. These costs are managed at the corporate level and include costsrelated to financing activities of the Company. The Company evaluates theperformance of its reportable segments based on operating results before incometaxes:

 
| ** **                                                 | ** ** | **EMEA** | ** **   | **Americas** | ** ** | **Corporate** | ** ** | **Total** | ** **   |
|------------------------------------------------------------|------------|----------|--------------|--------------|------------|---------------|------------|-----------|--------------|
| **Three  Months Ended September 30, 2006**                 |       |     |         |         |       |          |       |      |         |
| Revenues                                                   |       | $        |  65,426 |         | $          |  46,056  |       | $         |  — |   | $ |  111,482 |   |
| Earnings (loss)  before income taxes and minority interest |       | 8,504    |         | 2,029        |       | (27,095       | )          | (16,562   | )            |
| Assets                                                     |       | 899,097  |         | 317,337      |       | 40,128        |       | 1,256,562 |         |
| Capital  expenditures                                      |       | 2,082    |         | 4,813        |       | —        |       | 6,895     |         |
| Depreciation and  amortization                             |       | 14,194   |         | 10,982       |       | —        |       | 25,176    |         |
| Interest expense                                           |       | 3        |         | 112          |       | 17,742        |       | 17,857    |         |
| Other (income)  expense — net                         |       | (541     | )            | (178         | )          | 5,059         |       | 4,340     |         |
|                                                            |            |          |              |              |            |               |            |           |              |  |  |  |  |

 
| **Three  Months Ended September 30, 2007**                 |   |    |         |    |   |         |   |      |         |
|------------------------------------------------------------|--------|---------|--------------|---------|--------|--------------|--------|-----------|--------------|
| Revenues                                                   |   | $       |  74,453 |    | $      |  49,728 |   | $         |  — |   | $ |  124,181 |   |
| Earnings (loss)  before income taxes and minority interest |   | 21,728  |         | 4,728   |   | (18,164      | )      | 8,292     |         |
| Assets                                                     |   | 935,570 |         | 323,010 |   | 15,982       |   | 1,274,562 |         |
| Capital  expenditures                                      |   | 1,407   |         | 3,506   |   | —       |   | 4,913     |         |
| Depreciation and  amortization                             |   | 13,161  |         | 9,244   |   | —       |   | 22,405    |         |
| Interest expense                                           |   | 14      |         | 70      |   | 11,078       |   | 11,162    |         |
| Other (income)  expense — net                         |   | (1,511  | )            | (692    | )      | 1,047        |   | (1,156    | )            |
|                                                            |        |         |              |         |        |              |        |           |              |  |  |  |  |

 

14

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The Company conducts its sales, marketing and customerservice activities throughout the world. Geographic revenue information is based on the location of the customer. No singlecountry other than the United States, the Netherlands, the United Kingdom andGermany accounted for 10% or more of total external revenue or of long-livedassets.

 
| ** **                                   | ** ** | **Europe *** | ** **   | **United   States** | ** ** | **The  Netherlands** | ** ** | **United  Kingdom** | ** **   | **Germany** | ** ** | **All   Other** | ** ** | **Total** | ** **   |
|----------------------------------------------|------------|--------------|--------------|--------------------------|------------|----------------------|------------|---------------------|--------------|-------------|------------|----------------------|------------|-----------|--------------|
| **Three  Months Ended  September 30, 2006**  |       |         |         |                     |       |                 |       |                |         |        |       |                 |       |      |         |
| Revenues                                     |       | $            |  25,066 |                     | $          |  35,243         |       | $                   |  13,514 |        | $          |  11,307         |       | $         |  11,520 |   | $ |  14,832 |   | $ |  111,482 |   |
| Property and  equipment — net           |       | 3,809        |         | 20,271                   |       | 365                  |       | 6,738               |         | 8,254       |       | 4,743                |       | 44,180    |         |
|                                         |       |         |         |                     |       |                 |       |                |         |        |       |                 |       |      |         |
| **Three  Months Ended   September 30, 2007** |       |         |         |                     |       |                 |       |                |         |        |       |                 |       |      |         |
| Revenues                                     |       | $            |  30,204 |                     | $          |  36,665         |       | $                   |  13,846 |        | $          |  13,728         |       | $         |  12,152 |   | $ |  17,586 |   | $ |  124,181 |   |
| Property and  equipment — net           |       | 3,964        |         | 26,183                   |       | 279                  |       | 8,528               |         | 8,545       |       | 4,622                | ** ** | 52,121    | ** **   |

----

*        Excludesthe Netherlands, the United Kingdom and Germany.

**12.**               SUBSEQUENT EVENTS

On October 10, 2007, the Company completed a secondarystock offering of shares of the Company’s common stock. In the secondaryoffering, selling stockholders sold 18,131,435 shares of common stock at apublic offering price of $18.75 per share. All shares were sold by certainexisting selling stockholders of Solera, and no shares were issued or sold bythe Company. An additional 2,513,015 shares of common stock were sold bycertain existing selling stock-holders pursuant to the underwriters’ over-allotmentoption.  The Company did not receive any of the proceeds from the sale ofshares by the selling stockholders. Refer to the Registration statement on FormS-1/A filed on September 26, 2007 (File No. 333-146113) and the Company’s finalsecondary stock offering prospectus on Form 424(b)1 filed with the SEC onOctober 4, 2007 (File No. 333-146113) for additional offering information.

 

15

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

The following discussionof the financial condition and results of operations of the Company should beread in conjunction with the 2007 Consolidated Financial Statements andaccompanying notes included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (“SEC”) on September 17, 2007. * *Youshould read the following discussion and analysis of our financial conditionand results of operations in conjunction with our condensed consolidatedfinancial statements and the notes to those statements included elsewhere inthis Quarterly Report on Form 10-Q. The statements in this discussionregarding industry outlook, our expectations regarding our future performance,liquidity and capital resources and other non-historical statements areforward-looking statements. These forward-looking statements are subject tonumerous risks and uncertainties, including, but not limited to, thosedescribed under Part I, Item 1A, “Risk Factors”, included in our Annual Report onForm 10-K. Our actual results could differ materially from the resultsdescribed in or implied by the forward-looking statements contained in thefollowing discussion and analysis.

 

**Overviewof the Business**

 

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

 

**CompanyHistory**

 

Solera Holdings, LLC wasinitially formed in March 2005. On April 13, 2006, subsidiaries ofSolera Holdings, LLC acquired the Claims Services Group (“CSG”), a businessunit of Automatic Data Processing (“ADP”), for approximately $1.0 billion (the “Acquisition”).Prior to the Acquisition, Solera Holdings, LLC’s operations consisted primarilyof developing our business plan, recruiting personnel, providing consultingservices, raising capital and identifying and evaluating operating assets foracquisition.

 

We accounted for theAcquisition using the purchase method of accounting. As a result, theAcquisition has and will continue to affect our results of operationssignificantly. We allocated the aggregate acquisition consideration to thetangible and intangible assets acquired and liabilities assumed based on theirrespective fair values as of the date of the Acquisition, which resulted in anincrease in the accounting bases of some of our assets. This has resulted in asignificant increase in our annual depreciation and amortization expenses. Inaddition, due to the effects of the increased borrowings to finance theAcquisition, our interest expense has increased significantly in the periodsfollowing the Acquisition. As a result, the financial information for periodsbeginning on or after July 1, 2006 is not comparable to the informationprior to this date.

 

Prior to the Acquisition,our business was operated as CSG, a business unit of ADP. As a result, thecombined financial information of CSG is presented on a carve-out basis andreflects the assets, liabilities, revenues and expenses that were attributed orallocated to it as a business unit of ADP. The historical financial results inthe combined financial statements, which are included in our 2007 Annual Reporton Form 10-K, may not be indicative of the results that would have beenachieved had we operated as a stand-alone entity. These combined financialstatements include costs for facilities, functions and services used by CSG atADP sites that it shared with other ADP business units and costs for certainfunctions and services performed by centralized ADP organizations and directlycharged to CSG based on usage. The combined statements of earnings for CSGinclude allocations of certain expenses of ADP, including general corporateoverhead, insurance, stock compensation and pension plans, royalty fees,facilities and other expenses. These allocations were based on a variety offactors.

 

On May 10, 2007, inconnection with our initial public offering, we converted from a limitedliability company into a Delaware corporation, and all of the Class ACommon Units and Class B Preferred Units of Solera Holdings, LLC wereconverted into shares of our common stock.

 

**Segments**

 

We operate our businessusing two reportable segments: EMEA and Americas. Our EMEA segment consists ofour operations in Europe, the Middle East, Africa and Asia. Our Americassegment consists of our operations in North, Central and South America. We donot allocate certain costs to reportable segments. These costs are managed atthe corporate level and include costs related to financing activities of the Company.

 

16

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The table below sets forth our revenues by regional operating segment andas a percentage of our total revenues for the periods indicated.
| **($’s in millions)** | ** ** | **Three Months Ended September 30,** | ** ** |
|----------------------------|------------|-----------------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| EMEA                       |       | $                                                   | 74.5       |   | 60.0 | % | $ | 65.4 |   | 58.7 | % |
| Americas                   |       | 49.7                                                |       | 40.0 |   | 46.1 |   | 41.3 |   |
| Total                      |       | $                                                   | 124.2      |   | 100.0 | % | $ | 111.5 |   | 100.0 | % |
|                            |            |                                                     |            |  |  |  |  |  |  |  |  |  |

 

Set forth below is our percentage of revenues for theperiods presented from each of our principal customer categories:
| **($’s in millions)**      | ** ** | **Three Months Ended September 30,** | ** ** |
|---------------------------------|------------|-----------------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| Insurance  companies            |       | $                                                   | 50.1       |   | 40.3 | % | $ | 44.9 |   | 40.3 | % |
| Collision repair  facilities    |       | 46.9                                                |       | 37.8 |   | 41.0 |   | 36.8 |   |
| Independent  assessors          |       | 13.2                                                |       | 10.6 |   | 11.9 |   | 10.7 |   |
| Automotive  recyclers and other |       | 14.0                                                |       | 11.3 |   | 13.7 |   | 12.2 |   |
| Total                           |       | $                                                   | 124.2      |   | 100.0 | % | $ | 111.5 |   | 100.0 | % |

For the three months ended September 30, 2007, the United States, theNetherlands and the United Kingdom were the only countries that individuallyrepresented more than 10% of total revenues.

The accounting policies for each of our segments are the same. We evaluatethe operating performance of our segments based primarily upon their respectiverevenues and EBITDA. For the most part, we do not evaluate our costs andexpenses on a per segment basis.

**Components of Revenuesand Expenses**

***Revenues***

 

We generate revenues fromthe sale of software and services to our customers pursuant to negotiatedcontracts or pricing agreements. Pricing for our software and services is setforth in these agreements and negotiated with each customer. We generally billour customers monthly under one or more of the following bases:

 

•   price per transaction;

 

•   fixed monthly amount for a prescribed number oftransactions;

 

•   fixed monthly subscription rate;

 

•   price per set of services rendered; or

 

•   price per system delivered.

 

Our software and servicesare often sold as packages, without individual pricing for each component. Ourrevenues are reflected net of customer sales allowances, which we estimatebased on both our examination of a subset of customer accounts and historicalexperience.

 

Our core offering is ourestimating and workflow software, which is used by our insurance company,collision repair facility and independent assessor customers and which webelieve represents the majority of our revenues. We believe that our salvageand recycling software, business intelligence and consulting services, sharedservices and other offerings represent in the aggregate a smaller portion ofour revenues. We currently derive an insubstantial portion of our revenues fromour shared services offerings. We believe that our estimating and workflowsoftware will continue to represent a majority of our revenue for theforeseeable future.

 

***Cost of Revenues (excluding depreciation and amortization)***

 

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

 

 

17

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***Operating Expenses***

 

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

 

***Systems Development and Programming Costs***

 

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

 

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

 

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

 

***Depreciation and Amortization***

 

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

 

***Interest Expense***

 

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

 

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

 

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

 

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

 

Several of our customersown minority interests in our local operating subsidiaries. Minority interestsin net income of consolidated subsidiaries reflect such customers’proportionate interest in the earnings of such operating subsidiaries.

 

***Income Tax Provision***

 

Prior to our corporatereorganization on May 10, 2007, we were a limited liability company and,therefore, we were not subject to entity-level federal income taxation.However, even as a limited liability company, we incurred income taxes on ouroperations as they were held by taxable entities in the U.S. and in foreignjurisdictions. Historical financial statements for our predecessor, which was aC corporation for federal income tax purposes, are based on corporate tax ratesfor the periods presented. Prior to our corporate reorganization, our incometaxes were payable by our equity holders at rates applicable to them. Followingour conversion to a C corporation, transactions recorded by us are subject tofederal income taxation for which we do not expect a significant impact to ouroverall income tax liability. Income taxes have been provided for all itemsincluded in the statements of income (loss) included herein, regardless of whensuch items were reported for tax purposes or when the taxes were actually paidor refunded.

 

As part of the Acquisition,a portion of the purchase price was allocated to intangible assets andgoodwill. For most jurisdictions in which we operate, the amortization chargesand impairment charges will not be deductible for income tax purposes. The netdeferred tax liability as shown on our balance sheet is primarily the result ofthe difference between book and tax basis of the acquired intangible assets.

 

**FactorsAffecting Our Operating Results**

 

***Overview.  ***The automobile insurance claims processing industry isinfluenced by growth and trends in the automobile insurance industry. Demandfor our software and services is generally related to automobile usage and thepenetration of

 

 

18

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automobile insurance in our markets. A large portion of our operatingcosts are fixed and we generate a large percentage of our revenues fromperiodic-and transaction-based fees related to software and ongoing claimsprocessing services.

 

Our operating results areand will be influenced by a variety of factors, including:

 

•   gain and loss of customers;

 

•   pricing pressures;

 

•   expansions into new markets, which requires us toincur costs prior to generating revenues;

 

•   expenses to develop new software or services;

 

•   restructuring charges related to efficiencyinitiatives;

 

•   the Acquisition in April 2006, including thedebt we incurred; and

 

•   our corporate reorganization and the refinancingtransactions.

 

***Foreign currency.  ***During the three months ended September30, 2007, we generated approximately 71% of our revenues, and incurred amajority of our costs, in currencies other than the U.S. dollar, primarily theEuro. We currently do not hedge our exposure to foreign currency risks. In ourhistorical financial statements, we re-measure our local currency financialresults in U.S. dollars based on average exchange rates prevailing during areporting period or the exchange rate at the end of that period. Thesere-measurements resulted in foreign currency translation adjustments of $23.9million for the three months ended September 30, 2007 recorded as a componentof Accumulated other comprehensive income in Stockholders’ equity.  Foreign currency gains flowing through ourconsolidated statement of operations for the three months ended September 30,2007 were $0.1 million.

 

In February 2006, weentered into a foreign exchange option that gave us the right to call$200.0 million in U.S. dollars at a strike price of €1.1646 per U.S.dollar at any time up to February 8, 2011. We paid approximately$7.9 million for this option. The fair value of this option wasapproximately $0.9 million as of September 30, 2007 and $1.0 millionas of June 30, 2007, and was recorded in Other assets in our condensedconsolidated balance sheet. Decreases in fair value of approximately$0.1 million and $0.6 million were recognized in other expense in thestatement of operations during the three months ended September 30, 2007 and2006, respectively.

 

***Non-cash charges.  ***On July 25, 2006, November 8,2006 and January 26, 2007, we granted the right to purchase Class Acommon units of Solera Holdings, LLC to certain employees. Under these andother arrangements, we issued an aggregate of 625,429 Class A common unitsto 20 of our employees for $0.2 million in January 2007 and anaggregate of 50,000 Class A common units to two of our employees for$15,000 in February 2007. In May 2007, we issued restricted stockunits covering an aggregate of 304,730 shares and 428,400 stock options tocertain of our employees. We expect to incur a pre-tax, non-cash charge ofapproximately $9.8 million in connection with these issuances, expensedratably over vesting periods of up to 60 months. In September 2007 we issuedrestricted stock units covering an aggregate of 4,900 shares and 37,600 stockoptions to certain of our employees. We expect to incur a pre-tax, non-cashcharge of approximately $0.4 million in connection with these issuances, expensedratably over vesting periods of up to 48 months. During the three months endedSeptember 30, 2007, we recognized approximately $0.6 million ascompensation expense.

 

***Restructuring charges*****.*  ***We have incurred restructuring charges(or reversal) in each period presented and also expect to incur additionalrestructuring charges, primarily relating to severance costs, over the nextseveral quarters as we work to improve efficiencies in our business. We arecurrently evaluating several plans that would eliminate redundant personnel ineach of our segments, as well as reduce our need for certain facilities. If allof these plans were to be executed upon, we would expect to incur additionalrestructuring charges of approximately $2.0 million to $3.0 millionover the next nine months. These potential charges, consisting primarily oftermination benefits, will significantly reduce our cash balances. Theresulting benefit of these restructuring plans, if implemented, would reduceour cost of revenues and our selling, general and administrative expenses byapproximately $2.5 million to $4.0 million on an annual basis. We donot expect reduced revenues or an increase in other expenses as a result of anyof these restructuring plans.

 

 

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**Resultsof Operations**

 

The table belowsets forth our results of operations data expressed as a percentage of revenuesfor the periods indicated:

 
| ** **                                                                | ** ** | **Three Months Ended September 30,** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                | ** ** | **2007**                                       | ** ** | **2006** | ** ** |
| Revenues                                                                  |       | 100.0                                          | %          | 100.0 | % |
|                                                                      |       |                                           |       |   |   |
| Cost of  revenues:                                                        |       |                                           |       |   |   |
| Operating  expenses                                                       |       | 26.0                                           |       | 29.3 |   |
| Systems  development and programming costs                                |       | 12.9                                           |       | 14.5 |   |
| Total cost of  revenues (excluding depreciation and amortization)         |       | 38.9                                           |       | 43.8 |   |
|                                                                      |       |                                           |       |   |   |
| Selling, general  & administrative expenses                           |       | 27.0                                           |       | 27.7 |   |
| Depreciation and  amortization                                            |       | 18.0                                           |       | 22.6 |   |
| Restructuring  charges                                                    |       | 1.3                                            |       | 0.8 |   |
| Interest expense                                                          |       | 9.0                                            |       | 16.0 |   |
| Other (income)  expense - net                                             |       | (0.9                                           | )          | 3.9 |   |
|                                                                      |       | 54.4                                           |       | 71.0 |   |
|                                                                      |       |                                           |       |   |   |
| Earnings (loss) before  provision for income taxes and minority interests |       | 6.7                                            |       | (14.8 | ) |
|                                                                      |       |                                           |       |   |   |
| Income tax  provision                                                     |       | 2.3                                            |       | 0.2 |   |
|                                                                      |       |                                           |       |   |   |
| Minority  interest in net income of consolidated subsidiaries             |       | 1.3                                            |       | 1.0 |   |
|                                                                      |       |                                           |       |   |   |
| Net earnings  (loss) from continuing operations                           |       | 3.1                                            | %          | (16.0% | ) |

 

 

The tablebelow sets forth statement of operations data, including the amount andpercentage changes for the periods indicated:
| **($’s in millions)**                                               | ** ** | **Three Months Ended September 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                               | ** ** | **2007**                                       | ** ** | **2006**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Revenues                                                                 |       | $                                              | 124.2      |       | $          | 111.5             |       | $ | 12.7 |   | 11.4 | % |
|                                                                     |       |                                           |       |       |       |              |       |   |   |
| Cost of  revenues:                                                       |       |                                           |       |       |       |              |       |   |   |
| Operating  expenses                                                      |       | 32.3                                           |       | 32.7       |       | (0.4              | )          | (1.1 | )% |
| Systems  development and programming costs                               |       | 16.0                                           |       | 16.2       |       | (0.2              | )          | (1.3 | )% |
| Total cost of  revenues (excluding depreciation and amortization)        |       | 48.3                                           |       | 48.9       |       | (0.6              | )          | (1.2 | )% |
|                                                                     |       |                                           |       |       |       |              |       |   |   |
| Selling, general  & administrative expenses                          |       | 33.5                                           |       | 30.9       |       | 2.6               |       | 8.6 | % |
| Depreciation and  amortization                                           |       | 22.4                                           |       | 25.2       |       | (2.8              | )          | (11.0 | )% |
| Restructuring  charges                                                   |       | 1.6                                            |       | 0.9        |       | 0.7               |       | 81.3 | % |
| Interest expense                                                         |       | 11.2                                           |       | 17.9       |       | (6.7              | )          | (37.5 | )% |
| Other (income)  expense - net                                            |       | (1.1                                           | )          | 4.3        |       | (5.4              | )          | (126.6 | )% |
|                                                                     |       | 67.6                                           |       | 79.2       |       | (11.6             | )          | (14.6 | )% |
|                                                                     |       |                                           |       |       |       |              |       |   |   |
| Earnings (loss) before  provision for income taxes and minority interest |       | 8.3                                            |       | (16.6      | )          | 24.9              |       | 150.1 | % |
|                                                                     |       |                                           |       |       |       |              |       |   |   |
| Income tax  provision                                                    |       | 2.9                                            |       | 0.2        |       | 2.7               |       | 1,083.9 | % |
|                                                                     |       |                                           |       |       |       |              |       |   |   |
| Minority  interest in net income of consolidated subsidiaries            |       | 1.5                                            |       | 1.1        |       | 0.4               |       | 43.9 | % |
|                                                                     |       |                                           |       |       |       |              |       |   |   |
| Net earnings  (loss) from continuing operations                          |       | $                                              | 3.9        |       | $          | (17.9             | )          | $ | 21.8 |   | 121.5 | % |

 

 

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*Revenues.*    Revenues increased $12.7 million due to higherrevenues in both our EMEA and Americas segments. Our EMEA revenues increased$9.1 million, or 13.8%, to $74.5 million due to growth in transactionand subscription revenues in several countries from both existing and newcustomers. Our Americas revenues increased $3.6 million, or 8.0%, to$49.7 million due to growth in transaction and subscription revenues inthe U.S., Canada, Brazil and Mexico, partially offset by the prior year’s lossof several significant U.S. insurance customer contracts.  Revenue growth for each of our customercategories was as follows:
| **($’s in millions)**      | ** ** | **Three Months Ended September 30, 2007** | ** ** |
|---------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                      | ** ** | **Revenue   Growth**                                     | ** ** | **Percentage   Change** | ** ** |
| Insurance  companies            |       | $                                                             | 5.2        |   | 11.5 | % |
| Collision repair  facilities    |       | 5.9                                                           |       | 14.5 | % |
| Independent  assessors          |       | 1.3                                                           |       | 10.9 | % |
| Automotive  recyclers and other |       | 0.3                                                           |       | 2.1 | % |
| Total                           |       | $                                                             | 12.7       |   | 11.4 | % |

 

*Operatingexpenses.  * Operating expenses decreased $0.4 million, or 1.1%, due to a $1.2million reduction in operating expenses in our EMEA segment, offset by a $0.8million increase in our Americas segments. The lower costs in our EMEA segmentwere due to a $1.9 million decrease in temporary personnel, a $0.3 milliondecrease in other operating expenses, and a $0.2 million decrease in otherpersonnel costs offset by a $0.9 million increase in third party licenseand royalty costs, and a $0.3 million increase in data center and externalsupport and maintenance costs. The increased costs in our Americas segment weredue to a $0.4 million increase in personnel costs, a $0.3 million increasein outside services, and a $0.3 million increase in other operating expenses,offset by a $0.2 million decrease in third party license and royalty fees.We continually evaluate our operating costs in order to identify inefficienciesand eliminate unnecessary costs. We anticipate that, although our operatingexpenses will continue to increase, they will decline as a percentage ofrevenues over the next several years.

 

*Systemsdevelopment and programming costs.  * Systems development and programming costs decreased$0.2 million, or 1.3 %, due to a $0.4 million increase in costs inour Americas segment, offset by a $0.6 million reduction in costs in our EMEAsegment. The increased costs in our Americas segment were due to an increase inconsulting fees and a net increase in personnel costs due to a reduction in theamount of internal use software development costs we capitalized.  For the current quarter we capitalized $0.4million less for the development of internal use software compared to the firstquarter of 2006, which was partially offset by an overall decrease in directpersonnel costs. The decreased costs in our EMEA segment were related to a $0.7million reduction in personnel costs, and a $0.3 million decrease in generaloperating expenses, offset by a $0.4 million increase in consulting expenses.Our systems development and programming costs fluctuate throughout the yearbased upon the levels and timing of product releases. We expect our systemsdevelopment and programming costs to remain relatively stable over the nextseveral quarters.

 

*Selling,general and administrative expenses.  * Selling, general and administrative expensesincreased $2.6 million, or 8.6%, due to increased costs of $2.5 millionin our Americas segment, a $0.6 million increase in deferred compensationexpense in our Corporate segment and decreased costs of $0.5 million inour EMEA segment. The increased costs in our Americas segment were the resultof a $1.8 million increase in personnel costs and a $0.7 million increase infacilities expenses. The reduction in costs in our EMEA segment was the resultof a $0.6 million decrease in consulting fees, and a $0.3 million decrease inadvertising, offset by an increase in personnel costs. We expect these expensesto continue to increase as we incur additional costs associated with being apublic company and as we continue to expand our business into new markets.

 

*Depreciationand amortization.  * Depreciation and amortization decreased by$2.8 million primarily due to lower intangibles amortization expenseresulting from the Acquisition. We amortize these intangible assets on anaccelerated basis to reflect the pattern in which economic benefits of theintangible assets are consumed. Although we expect to experience significantdepreciation and amortization in the future as we amortize intangible assetspurchased in the Acquisition, we anticipate that the amount of totaldepreciation and amortization expense will continue to decline over the nextseveral years.

 

*Restructuringcharges.  *Restructuring charges of $1.6 million were incurred during three months endedSeptember 30, 2007 as a result of operational reviews conducted after theAcquisition and relate almost entirely to one-time termination benefits andfacilities consolidation costs. We expect to incur additional restructuringcharges, relating primarily to severance costs, over the next several quartersas we work to improve efficiencies in our business.

 

 

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*Interestexpense.  *Interest expense decreased $6.7 million due to lower borrowings under ourcredit facilities, which were in part due to the refinancing transactionscompleted on May 16, 2007 in conjunction with our initial public offering.We expect that our annual interest expense will continue to decrease as werepay outstanding indebtedness.

 

*Other(income) expense-net.  * Total other (income) expense-net decreased$5.4 million due to lower net realized and unrealized losses on ourderivative instruments and increased interest income.

 

*Incometax provision.  * We recorded an income tax provision of $2.9 millionand $0.2 million for the three months ended September 30, 2007 and2006, respectively.  Factors that impactour income tax provision include (but are not limited to) the mix ofjurisdictional earnings, establishment of valuation allowances in certainjurisdictions, and varying jurisdictional income tax rates that are applied toretained earnings.

 

**Liquidityand Capital Resources**

Prior to the Acquisition,our predecessor’s principal sources of liquidity were capital contributionsfrom ADP and cash generated from operations. Since the Acquisition, ourprincipal sources of cash have included cash generated from operations and bankborrowings. Our principal uses of cash have included debt service, capitalexpenditures and working capital. We expect that these will remain ourprincipal uses of cash in the future; however, we may use additional cash topursue additional acquisitions. We expect our cash needs to service debt willdecrease in future periods as a result of the application of proceeds from therefinancing transactions completed in conjunction with our initial publicoffering which were used to repay debt.

 

We believe that cash flowfrom operating activities and borrowings under our amended and restated seniorcredit facility will be sufficient to fund currently anticipated workingcapital, planned capital spending and debt service requirements for the foreseeablefuture, including at least the next twelve months. We regularly reviewacquisition and other strategic opportunities, which may require additionaldebt or equity financing. We currently do not have any pending agreements orunderstandings with respect to any acquisition or other strategic opportunity.

 

***Cash and Cash Equivalents***

 

As of September 30,2007, we had cash and cash equivalents of $107.1 million. We fund ouroperations, working capital and capital expenditures with our cash on hand andshort-term borrowings under our credit facility. Our cash on hand andshort-term borrowings vary significantly based on our cash flows as set forthbelow.

 

***Cash Flows***

The following summarizes our primary sources and usesof cash in the periods presented:
| ** **                      | ** ** | **Three Months Ended September 30,** | ** ** |
|---------------------------------|------------|-----------------------------------------------------|------------|
| **($’s in millions)** | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
|                            |       |                                                |       |   |   |
| Operating  activities           |       | $                                                   | 26.2       |   | $ | 14.9 |   |
| Investing  activities           |       | $                                                   | (5.2       | ) | $ | (7.9 | ) |
| Financing  activities           |       | $                                                   | (9.1       | ) | $ | (5.8 | ) |

 

*Operatingactivities.  * Cash provided by operating activities was $26.2 million and$14.9 million during the three months ending September 2007 and 2006,respectively. The increase in cash provided by operating activities for thethree months ended September 30, 2007 was primarily the result of a $21.7 millionincrease in net income compared with the three months ended September 30, 2006,offset by lower non-cash adjustments. For the three months ended September 30,2007 the non-cash adjustments included reductions in depreciation andamortization and changes in the fair value of a financial instrument. Thechange in operating assets and liabilities was a net reduction of $4.4 millionfrom the three months ended September 30, 2006 due primarily to reductions inaccounts payable and accounts receivable.

 

*Investingactivities.  *Investing activities for the three months ending September 30,2007 and 2006 were $5.2 million and $7.9 million, respectively.  Capital expenditures, consisting ofcomputers, computer software, leasehold improvements and furniture andfixtures, were $4.9 million and $6.9 million, respectively. During the threemonths ended September 30, 2006 we acquired a small operating entity in theNetherlands for approximately $1.0 million.

 

 

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*Financingactivities.  * Cash used in financing activities for the three months endingSeptember 30, 2007 and 2006 was $9.1 million and $5.8 million,respectively.  For the three months endedSeptember 30, 2007 and 2006, we paid $6.9 million and $4.0 million,respectively, on our revolving credit facility.

 

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

 

In connection with ourinitial public offering, we entered into an amended and restated senior creditfacility. Our Amended and Restated Senior Credit Facility consists of a $50.0 millionrevolving credit facility, a $230.0 million domestic term loan and a€280.0 million European term loan. As of September 30, 2007, we had$1.4 million, $228.8 million and $397.6 million (€278.6 million)in outstanding loans under the revolving credit facility, domestic term loanand European term loan, respectively, with interest rates of 8.0%, 7.6875% and6.75%, respectively. The Amended and Restated Senior Credit Facility contains aleverage ratio, which is applicable only to the revolving loans and appliesonly if at least $10.0 million of revolving loans, including outstandingletters of credit, are outstanding for at least 10 days during the prior fiscalquarter.

 

In addition, the Amendedand Restated Senior Credit Facility contains covenants restricting us fromundertaking specified corporate actions, including asset dispositions,acquisitions, payment of dividends and other specified payments, changes ofcontrol, incurrence of indebtedness, creation of liens, making loans andinvestments and transactions with affiliates.

 

**Off-BalanceSheet Arrangements**

Our off-balance sheetarrangements comprise our operating leases. As of September 30, 2007, wehad no outstanding letters of credit.

 

**Inflationand Seasonality**

 

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

 

**CriticalAccounting Policies and Estimates**

 

The accompanyingcondensed consolidated financial statements of Solera Holdings, Inc. havebeen prepared in accordance with generally accepted accounting principles. Thepreparation of these financial statements requires us to make estimates andjudgments that affect the amounts reported in those financial statements. On anongoing basis, we evaluate estimates. We base our estimates on historicalexperiences and assumptions which we believe to be reasonable under thecircumstances. Those estimates form the basis for our judgments that affect theamounts reported in the financial statements. Actual results could differ fromour estimates under different assumptions or conditions. Our significantaccounting policies, which may be affected by our estimates and assumptions,are more fully described in Note 2 to the audited Consolidated FinancialStatements of Solera Holdings, Inc. for the fiscal year ended June 30,2007 and in Part II, Item 7 “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” included in our Annual Report on Form 10-Kfiled with the SEC on September 17, 2007.

 

**RecentAccounting Pronouncements**

Recent accountingpronouncements are detailed in Note 2 to our condensed consolidated financialstatements of this Quarterly Report on Form 10-Q.

**Forward-LookingStatements**

This section and otherparts of this Quarterly Report on Form 10-Q contain forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, or the Securities Act, and Section 21E of the ExchangeAct. In some cases, forward-looking statements can be identified by words suchas “anticipates”, “expects”, “believes”, “plans”, “predicts” and similar terms.Such forward-looking statements are based on current expectations, estimatesand projections about our industry, management’s beliefs and assumptions madeby management. Forward-looking statements are not guarantees of futureperformance and our actual results may differ significantly from the resultsdiscussed in the forward-looking statements. Factors that might cause suchdifferences include, but are not limited to those discussed in Part I,Item 1A, “Risk Factors”, of our Annual Report on Form 10-K filed with the SECon September 17, 2007. Unless otherwise 

 

 

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required by law, we expressly disclaim any obligation to updatepublicly any forward-looking statements, whether as result of new information,future events or otherwise.

 

**AvailableInformation**

 

Our internet websiteaddress is www.solerainc.com. Our annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and amendments tothose reports filed or furnished pursuant to Section 13 or 15(d) ofthe Exchange Act will be available free of charge through our website as soonas reasonably practicable after they are electronically filed with, orfurnished to, the Securities and Exchange Commission. Our website and theinformation contained or incorporated therein are not intended to beincorporated into this report.

 

**Item 3.****          ****Quantitative and Qualitative Disclosures About MarketRisk.**

**ForeignCurrency Risk**

 

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

 

**InterestRate Risk**

 

We are exposed tointerest rate risks primarily through borrowings under our revolving loanarrangement and term loans. Interest on these borrowings is based upon variableinterest rates. Our weighted-average borrowings outstanding under the revolvingloan arrangement and term loans during the three months ended September 30,2007 was $622.4 million, and the weighted-average interest rate in effect atSeptember 30, 2007 was 6.713%. 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.

 

In June 2007, we enteredinto three USD-based interest rate swaps with notional amounts of$50.0 million, $81.0 million and $75.0 million with maturitieson June 30, 2011, which require us to pay fixed rates of 5.445%, 5.418% and5.445%, respectively, and also entered into three Euro-based interest rateswaps with notional amounts of €69.8 million, €50.0 million, and€60.0 million with maturities on June 30, 2011, which require us to payfixed rates of 4.603%, 4.679%, and 4.685%, respectively. These interest rateswaps are designated and documented at their inception as cash flow hedges andare evaluated for effectiveness quarterly. The effective portion of the gain orloss on these hedges is reported as a component of Accumulated othercomprehensive income/(loss) in stockholders’ equity and reclassified intoearnings when the hedged transaction affects earnings. The ineffective portionon these cash flow hedges is recognized in interest expense. The estimated fairvalue of $4.9 million on U.S. dollar-based swaps and €1.3 million ($1.8million) on Euro-based swaps was recorded in Other liabilities in theconsolidated balance sheet as of September 30, 2007. The change of $5.4 millionin the fair value of swaps, net of tax, reflects the effective portion of losson these hedges and is reported as a component of Accumulated othercomprehensive income in stockholders’ equity.

 

**Item4.  Controls and Procedures.**

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in reports pursuant to 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.

 

As required byRule 13a-15(b) under the Exchange Act, we carried out an evaluation, underthe supervision and with the participation of our management, including theChief Executive Officer and the Chief Financial Officer, of the effectiveness 

 

 

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of the design and operation of our disclosure controls and procedures.Based on the foregoing, our Chief Executive Officer and Chief Financial Officerdetermined that disclosure controls and procedures were effective at areasonable assurance level as of the end of the period covered by thisQuarterly Report.

 

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

 

This Quarterly Reportdoes not include a report of management’s assessment regarding internal controlover financial reporting or an attestation report of our registered publicaccounting firm due to a transition period established by rules of the SEC fornewly public companies.

 

**PART II—OTHERINFORMATION**

**Item1.  Legal Proceedings.**

As a normal incident ofthe business in which we are engaged, various claims, charges and litigationare asserted or commenced against us. We believe that final judgments, if any,which may be rendered against us in current litigation, are adequately reservedfor, covered by insurance or would not have a material adverse effect on ourfinancial position. We have from time to time been the subject of allegationsthat our repair estimating and total loss software and services producedresults that favored our insurance company customers. 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 estimationproducts to be unfairly low.

 

**Item 1A.Risk Factors.**

Investingin our common stock involves a high degree of risk. In addition to the otherinformation set forth in this Quarterly Report on Form 10-Q, you shouldcarefully consider the factors discussed under the heading “Risk Factors” inour Annual Report on Form 10-K filed with the SEC on September 17, 2007, aswell as information in our other public filings, press releases and in our safeharbor statement before making a decision to invest in our common stock. If anyof these risks occur, our business, results of operations and financial conditionmay be materially and adversely affected. In that event, the trading price ofour common stock could decline, and you could lose all or part of yourinvestment. The risks described in the Annual Report on Form10-K, and the additional information provided in this Form 10-Q and elsewhere,as described above, may not describe every risk facing our Company. Additionalrisks and uncertainties not currently known to us or that we currently deem tobe immaterial also may materially adversely affect our business, financialcondition and/or operating results.

 

**Item 6.Exhibits.**
| **Exhibit No.** | ** ** | **Description**                                                                                                           |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------|
| 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)**     |

 

November 14, 2007

 

 

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