##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 333-49389
 Activant Solutions Inc.
  Delaware
    
    94-2160013(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)7683 Southfront RoadLivermore, CA
(Address of principal executive offices)
    
    94551
(Zip Code)
 (925) 449-0606
 o þ
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at August 9, 2010Common Stock, par value $0.01 per share
    
    10 shares




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##### 



ACTIVANT SOLUTIONS INC.
 REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2010
 INDEX
 PageForward-Looking Statements
    
    
    2PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2010 and September 30, 2009
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the
Three and Nine Months Ended June 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2010
and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    42PART II  OTHER INFORMATION
    
    
    43Item 1. Legal Proceedings
    
    
    43Item 1A. Risk Factors
    
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3. Defaults Upon Senior Securities
    
    
    43Item 4. (Removed and Reserved)
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43SIGNATURE
    
    
    44EXHIBIT INDEX
    
    
    45EX-31.1EX-31.2EX-32.1EX-32.2




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
    
    the negative effect of the recent credit crisis and unfavorable market conditions on our
customers and on our business;
    
    the financial situation in the U.S. and global capital and credit markets;
    
    our substantial indebtedness and our ability to incur additional indebtedness;
    
    certain covenants in our debt documents, including covenants that require us to satisfy
a maximum total leverage ratio and a minimum interest coverage ratio;
    
    failure to anticipate, meet or respond to our customers needs or requirements;
    
    failure of our proprietary technology to support our customers future needs or it
becoming obsolete;
    
    failure to develop new relationships and maintain existing relationships with well-known
market participants and/or key customers and/or loss of significant customer revenues;
    
    shortage or delays in the receipt of equipment or hardware necessary to develop our
business management solutions and systems;
    
    failure to maintain adequate financial and management processes and controls;
    
    loss of recurring subscription service revenues;
    
    failure to integrate and retain our senior management personnel;
    
    failure of our Activant Eagle and Vision products to gain acceptance within the
automotive parts aftermarket;
    
    costs and difficulties of integrating current and future acquisitions;
    
    the amount of any additional impairment charges, including to goodwill, due to the
continuing global economic uncertainty and credit crisis;
    
    changes in the manner or basis on which we receive third-party information used to
maintain our electronic automotive parts and applications catalog;
    
    failure by certain of our existing customers to upgrade to our current generation of
systems;
    
    failure to effectively compete;
    
    substantial fluctuations in our sales cycles applicable to our systems sales;
    
    consolidation trends, attrition, migration to competitors products and reductions in
support levels among our customers and in the market segments in which we operate;
    
    failure to adequately protect our proprietary rights and intellectual property or
limitations on the availability of legal or technical means of effecting such protection;
    
    claims by third parties that we are infringing on their proprietary rights or other
adverse claims;
    
    defects or errors in our software or information services;
    
    failure to obtain software and information we license from third parties;
    
    interruptions of our connectivity applications and our systems;
    
    claims for damages against us in the event of a failure of our customers systems or in
the implementation of those systems;
    
    fluctuations in the value of foreign currencies;
    
    natural disasters, terrorist attacks or other catastrophic events;
    
    differing interests of debt security holders and our controlling stockholders or
investors; and
    
    the other factors described under the heading Risk Factors in our Annual Report on
Form 10-K for the fiscal year ended September 30, 2009.
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 June 30,
    
    
    September 30,(in thousands, except share data)
    
    2010
    
    
    2009ASSETS:Current assets:Cash and cash equivalents
    
    $
    68,724
    
    
    $
    44,573Trade accounts receivable, net of allowance for
doubtful accounts of $4,051 at June 30, 2010
and $4,446 at September 30, 2009
    
    
    34,051
    
    
    
    34,196Inventories
    
    
    4,216
    
    
    
    4,985Deferred income taxes
    
    
    3,255
    
    
    
    1,080Income taxes receivable
    
    
    1,387
    
    
    
    Prepaid expenses and other current assets
    
    
    5,748
    
    
    
    5,482Assets of discontinued operations (Note 10)
    
    
    
    
    
    
    7,418Total current assets
    
    
    117,381
    
    
    
    97,734Property and equipment, net
    
    
    6,089
    
    
    
    5,968Intangible assets, net
    
    
    173,400
    
    
    
    190,847Goodwill
    
    
    541,454
    
    
    
    541,454Deferred financing costs
    
    
    7,246
    
    
    
    8,903Other assets
    
    
    3,539
    
    
    
    3,178Total assets
    
    $
    849,109
    
    
    $
    848,084LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    15,879
    
    
    $
    18,030Payroll related accruals
    
    
    17,453
    
    
    
    17,417Deferred revenue
    
    
    34,201
    
    
    
    28,191Current portion of long-term debt
    
    
    
    
    
    
    5,886Accrued expenses and other current liabilities
    
    
    15,318
    
    
    
    19,717Liabilities of discontinued operations (Note 10)
    
    
    
    
    
    
    2,278Total current liabilities
    
    
    82,851
    
    
    
    91,519Long-term debt, net of discount
    
    
    506,895
    
    
    
    517,009Deferred tax liabilities
    
    
    51,802
    
    
    
    53,837Other liabilities
    
    
    16,547
    
    
    
    19,189Total liabilities
    
    
    658,095
    
    
    
    681,554Commitments and contingencies
    
    
    
    
    
    
    Common Stock:Par value $0.01, authorized 1,000 shares, 10
shares issued and outstanding at June 30,
2010 and September 30, 2009
    
    
    
    
    
    
    Additional paid-in capital
    
    
    260,414
    
    
    
    257,570Accumulated deficit
    
    
    (60,263
    )
    
    
    (80,680
    )Other accumulated comprehensive loss:Unrealized loss on cash flow hedges
    
    
    (6,133
    )
    
    
    (8,593
    )Cumulative translation adjustment
    
    
    (3,004
    )
    
    
    (1,767
    )Total stockholders equity
    
    
    191,014
    
    
    
    166,530Total liabilities and stockholders equity
    
    $
    849,109
    
    
    $
    848,084
  3




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ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Systems
    
    $
    30,019
    
    
    $
    26,844
    
    
    $
    90,289
    
    
    $
    88,190Services
    
    
    60,472
    
    
    
    62,319
    
    
    
    183,347
    
    
    
    187,144Total revenues
    
    
    90,491
    
    
    
    89,163
    
    
    
    273,636
    
    
    
    275,334Cost of revenues (exclusive of depreciation and
amortization of $4.7 million, $4.3 million, $13.9
million, and $13.3 million for the three months
ended June 30, 2010 and 2009 and nine months
ended June 30, 2010 and 2009, respectively,
included in amounts shown separately below):Systems (Note 7)
    
    
    15,461
    
    
    
    15,091
    
    
    
    49,324
    
    
    
    48,490Services (Note 7)
    
    
    19,577
    
    
    
    20,051
    
    
    
    59,193
    
    
    
    62,710Total cost of revenues
    
    
    35,038
    
    
    
    35,142
    
    
    
    108,517
    
    
    
    111,200Gross profit
    
    
    55,453
    
    
    
    54,021
    
    
    
    165,119
    
    
    
    164,134Operating expenses:Sales and marketing (Note 7)
    
    
    14,456
    
    
    
    13,399
    
    
    
    43,010
    
    
    
    41,054Product development (Note 7)
    
    
    8,520
    
    
    
    8,757
    
    
    
    25,886
    
    
    
    27,412General and administrative (Note 7)
    
    
    6,841
    
    
    
    6,082
    
    
    
    19,370
    
    
    
    17,859Depreciation and amortization
    
    
    9,831
    
    
    
    9,272
    
    
    
    29,613
    
    
    
    28,508Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,000Restructuring costs
    
    
    (59
    )
    
    
    (40
    )
    
    
    1,915
    
    
    
    4,251Total operating expenses
    
    
    39,589
    
    
    
    37,470
    
    
    
    119,794
    
    
    
    226,084Operating income (loss)
    
    
    15,864
    
    
    
    16,551
    
    
    
    45,325
    
    
    
    (61,950
    )Interest expense
    
    
    (7,644
    )
    
    
    (9,722
    )
    
    
    (23,347
    )
    
    
    (32,398
    )Gain on retirement of debt
    
    
    
    
    
    
    4,631
    
    
    
    
    
    
    
    18,958Other income (expense), net
    
    
    (269
    )
    
    
    22
    
    
    
    162
    
    
    
    (604
    )Income (loss) from continuing operations before
income taxes
    
    
    7,951
    
    
    
    11,482
    
    
    
    22,140
    
    
    
    (75,994
    )Income tax expense
    
    
    1,901
    
    
    
    5,218
    
    
    
    7,544
    
    
    
    14,435Income (loss) from continuing operations
    
    
    6,050
    
    
    
    6,264
    
    
    
    14,596
    
    
    
    (90,429
    )Income (loss) from discontinued operations, net of
income taxes (Note 10)
    
    
    (315
    )
    
    
    1,350
    
    
    
    (357
    )
    
    
    3,559Gain from sale of discontinued operations, net of
income taxes (Note 10)
    
    
    6,178
    
    
    
    
    
    
    
    6,178
    
    
    
    Net income (loss)
    
    $
    11,913
    
    
    $
    7,614
    
    
    $
    20,417
    
    
    $
    (86,870
    )Comprehensive income (loss):Net income (loss)
    
    $
    11,913
    
    
    $
    7,614
    
    
    $
    20,417
    
    
    $
    (86,870
    )Unrealized gain (loss) on cash flow hedges
    
    
    907
    
    
    
    2,025
    
    
    
    2,460
    
    
    
    (2,933
    )Foreign currency translation adjustment
    
    
    (431
    )
    
    
    290
    
    
    
    (1,237
    )
    
    
    (1,253
    )Comprehensive income (loss)
    
    $
    12,389
    
    
    $
    9,929
    
    
    $
    21,640
    
    
    $
    (91,056
    )
  4




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ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended June 30,(in thousands)
    
    2010
    
    
    2009Operating activities:Net income (loss)
    
    $
    20,417
    
    
    $
    (86,870
    )(Income) loss from discontinued operations, net of tax
    
    
    357
    
    
    
    (3,559
    )Gain from sale of discontinued operations, net of tax
    
    
    (6,178
    )
    
    
    Income (loss) from continuing operations
    
    
    14,596
    
    
    
    (90,429
    )Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by operating activities:Impairment of goodwill
    
    
    
    
    
    
    107,000Gain on retirement of debt
    
    
    
    
    
    
    (18,958
    )Stock-based compensation expense
    
    
    2,827
    
    
    
    2,810Depreciation
    
    
    3,925
    
    
    
    3,886Amortization of intangible assets
    
    
    25,688
    
    
    
    24,622Amortization of deferred financing costs
    
    
    1,657
    
    
    
    1,781Provision for doubtful accounts
    
    
    1,698
    
    
    
    1,180Deferred income taxes
    
    
    (4,210
    )
    
    
    (1,971
    )Changes in assets and liabilities:Trade accounts receivable
    
    
    (1,553
    )
    
    
    7,504Inventories
    
    
    769
    
    
    
    (499
    )Prepaid expenses and other assets
    
    
    (2,014
    )
    
    
    (1,247
    )Accounts payable
    
    
    (2,151
    )
    
    
    (2,856
    )Deferred revenue
    
    
    6,010
    
    
    
    2,616Accrued expenses and other liabilities
    
    
    (5,780
    )
    
    
    1,426Net cash provided by operating activities  continuing operations
    
    
    41,462
    
    
    
    36,865Net cash provided by (used in) operating activities  discontinued
operations
    
    
    (490
    )
    
    
    4,064Net cash provided by operating activities
    
    
    40,972
    
    
    
    40,929Investing activities:Purchases of property and equipment
    
    
    (4,051
    )
    
    
    (1,456
    )Capitalized computer software and database costs
    
    
    (8,238
    )
    
    
    (6,552
    )Net cash used in investing activities  continuing operations
    
    
    (12,289
    )
    
    
    (8,008
    )Net cash provided by (used in) investing activities  discontinued
operations (including proceeds from sale of business)
    
    
    11,468
    
    
    
    (2
    )Net cash used in investing activities
    
    
    (821
    )
    
    
    (8,010
    )Financing activities:Repurchases of common stock
    
    
    
    
    
    
    (189
    )Payments on long-term debt
    
    
    (16,000
    )
    
    
    (13,512
    )Repurchases of debt
    
    
    
    
    
    
    (39,840
    )Net cash used in financing activities
    
    
    (16,000
    )
    
    
    (53,541
    )Net cash from continuing operations
    
    
    13,173
    
    
    
    (24,684
    )Net cash from discontinued operations
    
    
    10,978
    
    
    
    4,062Net change in cash and cash equivalents
    
    
    24,151
    
    
    
    (20,622
    )Cash and cash equivalents, beginning of period
    
    
    44,573
    
    
    
    64,789Cash and cash equivalents, end of period
    
    $
    68,724
    
    
    $
    44,167Supplemental disclosures of cash flow informationCash paid during the period for interest
    
    $
    24,179
    
    
    $
    38,288Cash paid during the period for income taxes
    
    $
    19,602
    
    
    $
    6,873Cash received during the period for income taxes
    
    $
    (127
    )
    
    $
    (237
    )
  5




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ACTIVANT SOLUTIONS INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
     NOTE 2  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND OTHER LEGISLATION
    6




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NOTE 3  GOODWILL
 (in thousands)
 Retail Distribution Group
    
    $
    207,166Wholesale Distribution
    
    
    334,288Total
    
    $
    541,454
   NOTE 4  DEBT
 (in thousands)
 June 30,
    
    
    September 30,2010
    
    
    2009Senior secured credit facility due 2013
    
    $
    326,241
    
    
    $
    331,227Senior secured credit facility (incremental term loan) due 2013
    
    
    66,359
    
    
    
    67,373Senior subordinated notes due 2016
    
    
    114,295
    
    
    
    114,295Revolving credit facility due 2011
    
    
    
    
    
    
    10,000Total debt
    
    
    506,895
    
    
    
    522,895Current portion
    
    
    
    
    
    
    (5,886
    )Total long-term debt, net of discount
    
    $
    506,895
    
    
    $
    517,009
 7




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Senior Secured Credit Agreement
       
    
    under the term loan, 1.00% with respect to base rate borrowings and 2.00% with respect to
Eurodollar rate borrowings;
    
    under the incremental term loan, 1.50% with respect to base rate borrowings and 2.50% with
respect to Eurodollar rate borrowings; and
    
    under the revolving credit facility, 1.00% with respect to base rate borrowings and 2.00%
with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of
certain leverage ratios.
  8




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Derivative Instruments and Hedging Activities
   (in thousands)
 Unrealized loss in OCI at September 30, 2009
    
    $
    (13,723
    )Net increase in fair value
    
    
    3,784Unrealized loss in OCI at June 30, 2010
    
    $
    (9,939
    )
 (in thousands)
 Fair Value of Derivative InstrumentsDerivative Assets
    
    Derivative LiabilitiesLocation in the
    
    
    
    Location in theCondensed
    
    
    
    CondensedConsolidated
    
    
    
    ConsolidatedNotional Amount
    
    Balance Sheet
    
    Fair Value
    
    Balance Sheet
    
    Fair ValueInterest rate swaps due November 2011
    
    $140,000
    
    Other assets
    
    $
    
    Other liabilities
    
    $(9,939)Effect of Derivative Instruments on Condensed Consolidated Statements of Operations and OCIGain recognized
    
    Gain/(Loss) reclassified from OCI intoLoss recognized in earnings (1)
    
    in OCI
    
    earnings (2)Location
    
    Amount
    
    Amount
    
    Location
    
    AmountInterest rate swaps
    
    Interest expense
    
    $(5,650)
    
    $3,784
    
    Interest expense
    
    $
 
 (1)
    
    Includes amounts related to periodic settlements required under our derivative
contracts.(2)
    
    Represents ineffectiveness related to the interest rate swaps. 9




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Senior Subordinated Notes due 2016
        NOTE 5  FAIR VALUE
  10




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
    
    Level 1  uses quoted prices in active markets for identical assets or liabilities we
have the ability to access.
    
    Level 2  uses observable inputs other than quoted prices in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
    
    Level 3  uses one or more significant inputs that are unobservable and supported by
little or no market activity, and that reflect the use of significant management
judgment.
    (in thousands)
 Quoted Prices in Active
    
    
    Significant Other
    
    
    SignificantMarkets for Identical
    
    
    Observable
    
    
    UnobservableAssets and Liabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Total(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Fair ValueAssets:Cash equivalents (1)
    
    $
    15,658
    
    
    $
    
    
    
    $
    
    
    
    $
    15,658Deferred compensation plan assets (2)
    
    
    2,378
    
    
    
    
    
    
    
    
    
    
    
    2,378Liabilities:Interest rate swap due 2011(3)
    
    
    
    
    
    
    (9,939
    )
    
    
    
    
    
    
    (9,939
    )Deferred compensation plan liabilities (3)
    
    
    (2,084
    )
    
    
    
    
    
    
    
    
    
    
    (2,084
    )Total
    
    $
    15,952
    
    
    $
    (9,939
    )
    
    $
    
    
    
    $
    6,013
 
 (1)
    
    Included in cash and cash equivalents in our condensed consolidated balance sheet.(2)
    
    Included in other assets in our condensed consolidated balance sheet.(3)
    
    Included in other liabilities in our condensed consolidated balance sheet. Other Financial Assets and Liabilities
   11




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NOTE 6  INCOME TAXES
      NOTE 7  EMPLOYEE STOCK PLANS
 Stock-based Compensation Expense
 (in thousands)
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of revenuesSystems
    
    $
    18
    
    
    $
    7
    
    
    $
    44
    
    
    $
    24Services
    
    
    57
    
    
    
    67
    
    
    
    175
    
    
    
    162Operating expensesSales and marketing
    
    
    336
    
    
    
    182
    
    
    
    1,026
    
    
    
    582Product development
    
    
    72
    
    
    
    75
    
    
    
    223
    
    
    
    220General and administrative
    
    
    438
    
    
    
    603
    
    
    
    1,359
    
    
    
    1,822Total
    
    $
    921
    
    
    $
    934
    
    
    $
    2,827
    
    
    $
    2,810
  Valuation Assumptions
  12




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Three Months Ended June 30,
    
    Nine Months Ended June 30,2010
    
    2009
    
    2010
    
    2009Expected term
    
    6.66
    years
    
    6.66
    years
    
    6.66
    years
    
    6.66
    yearsExpected volatility
    
    
    41.00
    %
    
    
    76.00
    %
    
    
    44.29
    %
    
    
    72.69
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Risk-free rate
    
    
    1.79
    %
    
    
    2.56
    %
    
    
    2.56
    %
    
    
    1.73
    %
  NOTE 8  RESTRUCTURING COSTS
   (in thousands)
 Balance atSeptember 30,
    
    
    Restructuring
    
    
    
    
    
    
    Balance at2009
    
    
    Charges
    
    
    Payments
    
    
    June 30, 20102010 Actions  Severance and Related Benefits
    
    $
    
    
    
    $
    1,640
    
    
    $
    (1,499
    )
    
    $
    1412010 Actions  Facility Closings
    
    
    
    
    
    
    269
    
    
    
    (78
    )
    
    
    1912009 Actions  Severance and Related Benefits
    
    
    30
    
    
    
    
    
    
    
    (30
    )
    
    
    2009 Actions  Facility Closings
    
    
    812
    
    
    
    6
    
    
    
    (368
    )
    
    
    450$
    842
    
    
    $
    1,915
    
    
    $
    (1,975
    )
    
    $
    782
 13




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##### Table of Contents



NOTE 9  SEGMENT REPORTING
    
    
    Retail Distribution Group segment The retail distribution
vertical market consists of independent hardware retailers; home improvement centers;
paint, glass and wallpaper stores; farm supply stores; retail nurseries and garden centers;
independent lumber and building material dealers; pharmacies; and other specialty
retailers, primarily in the United States, as well as customers involved in the
manufacture, distribution, sale and installation of new and remanufactured parts used in
the maintenance and repair of automobiles and light trucks; and includes manufacturers,
warehouse distributors, parts stores, professional installers in North America, the United
Kingdom and Ireland, as well as several chains in North America.
    
    Wholesale Distribution segment The wholesale distribution
vertical market consists of distributors of a range of products including electrical
supply; plumbing; medical supply; heating and air conditioning; tile; industrial machinery
and equipment; industrial supplies; fluid power; janitorial and sanitation products; paper
and packaging; and service establishment equipment vendors, primarily in the United States.
    
    Other Other primarily consisted of our productivity tools
business, which was involved with software migration services and application development.
As further discussed in Note 10, in April 2010 we sold our productivity tools business
which historically represented substantially all of Other. Amounts associated with the
productivity tools business have been presented as discontinued operations in our financial
statements. In the fiscal 2009 periods there was an immaterial amount of remaining revenue
in Other that was not allocated to the other segments. In fiscal 2010, all revenues were
recorded in either the Retail Distribution Group segment or the Wholesale Distribution
segment.
 Segment Revenue and Contribution Margin
   14




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(in thousands)
 Three Months Ended June 30, 2010
    
    Nine Months Ended June 30, 2010Retail
    
    
    
    
    
    
    
    
    
    
    
    
    
    RetailDistribution
    
    Wholesale
    
    
    
    
    
    
    
    
    
    Distribution
    
    WholesaleGroup
    
    Distribution
    
    Other
    
    Total
    
    Group
    
    Distribution
    
    Other
    
    TotalRevenues
    
    $
    53,621
    
    
    $
    36,870
    
    
    $
    
    
    
    $
    90,491
    
    
    $
    161,635
    
    
    $
    112,001
    
    
    $
    
    
    
    $
    273,636Contribution margin
    
    $
    16,625
    
    
    $
    16,370
    
    
    $
    
    
    
    $
    32,995
    
    
    $
    50,760
    
    
    $
    47,509
    
    
    $
    
    
    
    $
    98,269
 Three Months Ended June 30, 2009
    
    Nine Months Ended June 30, 2009Retail
    
    
    
    
    
    
    
    
    
    
    
    
    
    RetailDistribution
    
    Wholesale
    
    
    
    
    
    
    
    
    
    Distribution
    
    WholesaleGroup
    
    Distribution
    
    Other
    
    Total
    
    Group
    
    Distribution
    
    Other
    
    TotalRevenues
    
    $
    50,989
    
    
    $
    38,075
    
    
    $
    99
    
    
    $
    89,163
    
    
    $
    158,068
    
    
    $
    116,998
    
    
    $
    268
    
    
    $
    275,334Contribution margin
    
    $
    16,597
    
    
    $
    15,946
    
    
    $
    99
    
    
    $
    32,642
    
    
    $
    51,112
    
    
    $
    46,795
    
    
    $
    268
    
    
    $
    98,175
     Three Months Ended June 30,
    
    
    Nine Months Ended June 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Segment contribution margin
    
    $
    32,995
    
    
    $
    32,642
    
    
    $
    98,269
    
    
    $
    98,175Corporate and unallocated costs
    
    
    (6,438
    )
    
    
    (5,925
    )
    
    
    (18,589
    )
    
    
    (17,556
    )Stock-based compensation expense
    
    
    (921
    )
    
    
    (934
    )
    
    
    (2,827
    )
    
    
    (2,810
    )Depreciation and amortization
    
    
    (9,831
    )
    
    
    (9,272
    )
    
    
    (29,613
    )
    
    
    (28,508
    )Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107,000
    )Restructuring costs
    
    
    59
    
    
    
    40
    
    
    
    (1,915
    )
    
    
    (4,251
    )Interest expense
    
    
    (7,644
    )
    
    
    (9,722
    )
    
    
    (23,347
    )
    
    
    (32,398
    )Gain on retirement of debt
    
    
    
    
    
    
    4,631
    
    
    
    
    
    
    
    18,958Other income (expense), net
    
    
    (269
    )
    
    
    22
    
    
    
    162
    
    
    
    (604
    )Income from continuing operations before income taxes
    
    $
    7,951
    
    
    $
    11,482
    
    
    $
    22,140
    
    
    $
    (75,994
    )
 15




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NOTE 10  DISCONTINUED OPERATIONS
  (in thousands)
 Three months ended June 30,
    
    
    Nine months ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue from discontinued operations
    
    $
    267
    
    
    $
    1,762
    
    
    $
    6,452
    
    
    $
    7,810Expenses from discontinued operations
    
    
    258
    
    
    
    1,728
    
    
    
    4,661
    
    
    
    5,635Income from discontinued operations
before income taxes
    
    
    9
    
    
    
    34
    
    
    
    1,791
    
    
    
    2,175Income tax expense (benefit)
    
    
    324
    
    
    
    (1,316
    )
    
    
    2,148
    
    
    
    (1,384
    )Income (loss) from discontinued
operations, net of income taxes
    
    $
    (315
    )
    
    $
    1,350
    
    
    $
    (357
    )
    
    $
    3,559
 (in thousands)
 June 30,
    
    
    September 30,2010
    
    
    2009Trade accounts receivable, net of allowance for doubtful accounts
    
    $
    
    
    
    $
    216Deferred income taxes
    
    
    
    
    
    
    3,205Prepaid expenses and other current assets
    
    
    
    
    
    
    42Property and equipment, net
    
    
    
    
    
    
    105Intangible assets, net
    
    
    
    
    
    
    1,547Goodwill
    
    
    
    
    
    
    2,264Other assets
    
    
    
    
    
    
    39Assets of discontinued operations
    
    $
    
    
    
    $
    7,418Payroll related accruals
    
    $
    
    
    
    $
    370Deferred revenue
    
    
    
    
    
    
    1,771Accrued expenses and other current liabilities
    
    
    
    
    
    
    137Liabilities of discontinued operations
    
    $
    
    
    
    $
    2,278
  NOTE 11  LITIGATION
    16




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17




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NOTE 12  GUARANTOR CONSOLIDATION
  Condensed Consolidating Balance Sheet as of June 30, 2010
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETS:Current assets:Cash and cash equivalents
    
    $
    66,211
    
    
    $
    7
    
    
    $
    2,506
    
    
    $
    
    
    
    $
    68,724Trade accounts receivable, net of allowance for
doubtful accounts
    
    
    17,730
    
    
    
    13,403
    
    
    
    2,918
    
    
    
    
    
    
    
    34,051Inventories
    
    
    3,683
    
    
    
    310
    
    
    
    223
    
    
    
    
    
    
    
    4,216Deferred income taxes
    
    
    2,214
    
    
    
    1,041
    
    
    
    
    
    
    
    
    
    
    
    3,255Income taxes receivable
    
    
    290
    
    
    
    
    
    
    
    1,097
    
    
    
    
    
    
    
    1,387Prepaid expenses and other current assets
    
    
    5,408
    
    
    
    211
    
    
    
    129
    
    
    
    
    
    
    
    5,748Total current assets
    
    
    95,536
    
    
    
    14,972
    
    
    
    6,873
    
    
    
    
    
    
    
    117,381Property and equipment, net
    
    
    5,920
    
    
    
    60
    
    
    
    109
    
    
    
    
    
    
    
    6,089Intangible assets, net
    
    
    154,078
    
    
    
    18,051
    
    
    
    1,271
    
    
    
    
    
    
    
    173,400Goodwill
    
    
    442,145
    
    
    
    91,956
    
    
    
    1,316
    
    
    
    6,037
    
    
    
    541,454Investments in subsidiaries
    
    
    16,769
    
    
    
    
    
    
    
    
    
    
    
    (16,769
    )
    
    
    Intercompany receivables (payables)
    
    
    (127,031
    )
    
    
    122,658
    
    
    
    4,373
    
    
    
    
    
    
    
    Deferred financing costs
    
    
    7,246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,246Other assets
    
    
    3,352
    
    
    
    164
    
    
    
    23
    
    
    
    
    
    
    
    3,539Total assets
    
    $
    598,015
    
    
    $
    247,861
    
    
    $
    13,965
    
    
    $
    (10,732
    )
    
    $
    849,109LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    14,471
    
    
    $
    1,129
    
    
    $
    279
    
    
    $
    
    
    
    $
    15,879Payroll related accruals
    
    
    10,982
    
    
    
    6,130
    
    
    
    341
    
    
    
    
    
    
    
    17,453Deferred revenue
    
    
    13,091
    
    
    
    20,095
    
    
    
    1,015
    
    
    
    
    
    
    
    34,201Accrued expenses and other current liabilities
    
    
    (1,115
    )
    
    
    16,357
    
    
    
    76
    
    
    
    
    
    
    
    15,318Total current liabilities
    
    
    37,429
    
    
    
    43,711
    
    
    
    1,711
    
    
    
    
    
    
    
    82,851Long-term debt
    
    
    506,895
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    506,895Deferred tax and other liabilities
    
    
    69,775
    
    
    
    (2,168
    )
    
    
    742
    
    
    
    
    
    
    
    68,349Total liabilities
    
    
    614,099
    
    
    
    41,543
    
    
    
    2,453
    
    
    
    
    
    
    
    658,095Total stockholders equity (deficit)
    
    
    (16,084
    )
    
    
    206,318
    
    
    
    11,512
    
    
    
    (10,732
    )
    
    
    191,014Total liabilities and stockholders equity
(deficit)
    
    $
    598,015
    
    
    $
    247,861
    
    
    $
    13,965
    
    
    $
    (10,732
    )
    
    $
    849,109
 18




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Condensed Consolidating Balance Sheet as of September 30, 2009
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETS:Current assets:Cash and cash equivalents
    
    $
    42,001
    
    
    $
    215
    
    
    $
    2,357
    
    
    $
    
    
    
    $
    44,573Trade accounts receivable, net of allowance
for doubtful accounts
    
    
    16,818
    
    
    
    14,383
    
    
    
    2,995
    
    
    
    
    
    
    
    34,196Inventories
    
    
    3,576
    
    
    
    1,185
    
    
    
    224
    
    
    
    
    
    
    
    4,985Deferred income taxes
    
    
    (137
    )
    
    
    1,217
    
    
    
    
    
    
    
    
    
    
    
    1,080Prepaid expenses and other current assets
    
    
    4,886
    
    
    
    454
    
    
    
    142
    
    
    
    
    
    
    
    5,482Assets of discontinued operations
    
    
    6
    
    
    
    
    
    
    
    7,412
    
    
    
    
    
    
    
    7,418Total current assets
    
    
    67,150
    
    
    
    17,454
    
    
    
    13,130
    
    
    
    
    
    
    
    97,734Property and equipment, net
    
    
    5,337
    
    
    
    518
    
    
    
    113
    
    
    
    
    
    
    
    5,968Intangible assets, net
    
    
    166,128
    
    
    
    23,134
    
    
    
    1,585
    
    
    
    
    
    
    
    190,847Goodwill
    
    
    442,175
    
    
    
    91,956
    
    
    
    1,286
    
    
    
    6,037
    
    
    
    541,454Investments in subsidiaries
    
    
    16,769
    
    
    
    
    
    
    
    
    
    
    
    (16,769
    )
    
    
    Intercompany receivables (payables)
    
    
    (83,980
    )
    
    
    99,035
    
    
    
    (15,055
    )
    
    
    
    
    
    
    Deferred financing costs
    
    
    8,903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,903Other assets
    
    
    3,013
    
    
    
    181
    
    
    
    (16
    )
    
    
    
    
    
    
    3,178Total assets
    
    $
    625,495
    
    
    $
    232,278
    
    
    $
    1,043
    
    
    $
    (10,732
    )
    
    $
    848,084LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    16,456
    
    
    $
    1,635
    
    
    $
    (61
    )
    
    $
    
    
    
    $
    18,030Payroll related accruals
    
    
    (13,178
    )
    
    
    29,850
    
    
    
    745
    
    
    
    
    
    
    
    17,417Deferred revenue
    
    
    7,801
    
    
    
    19,497
    
    
    
    893
    
    
    
    
    
    
    
    28,191Current portion of long-term debt
    
    
    5,886
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,886Accrued expenses and other current liabilities
    
    
    16,798
    
    
    
    1,701
    
    
    
    1,218
    
    
    
    
    
    
    
    19,717Liabilities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    2,278
    
    
    
    
    
    
    
    2,278Total current liabilities
    
    
    33,763
    
    
    
    52,683
    
    
    
    5,073
    
    
    
    
    
    
    
    91,519Long-term debt
    
    
    517,009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    517,009Deferred tax and other liabilities
    
    
    75,701
    
    
    
    (2,723
    )
    
    
    48
    
    
    
    
    
    
    
    73,026Total liabilities
    
    
    626,473
    
    
    
    49,960
    
    
    
    5,121
    
    
    
    
    
    
    
    681,554Total stockholders equity (deficit)
    
    
    (978
    )
    
    
    182,318
    
    
    
    (4,078
    )
    
    
    (10,732
    )
    
    
    166,530Total liabilities and stockholders equity
(deficit)
    
    $
    625,495
    
    
    $
    232,278
    
    
    $
    1,043
    
    
    $
    (10,732
    )
    
    $
    848,084
 19




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Three Months Ended June 30, 2010
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    17,368
    
    
    $
    11,874
    
    
    $
    777
    
    
    $
    
    
    
    $
    30,019Services
    
    
    33,585
    
    
    
    24,156
    
    
    
    2,731
    
    
    
    
    
    
    
    60,472Total revenues
    
    
    50,953
    
    
    
    36,030
    
    
    
    3,508
    
    
    
    
    
    
    
    90,491Cost of revenues:Systems
    
    
    9,186
    
    
    
    5,626
    
    
    
    649
    
    
    
    
    
    
    
    15,461Services
    
    
    12,956
    
    
    
    5,244
    
    
    
    1,377
    
    
    
    
    
    
    
    19,577Total cost of revenues
    
    
    22,142
    
    
    
    10,870
    
    
    
    2,026
    
    
    
    
    
    
    
    35,038Gross profit
    
    
    28,811
    
    
    
    25,160
    
    
    
    1,482
    
    
    
    
    
    
    
    55,453Operating expenses:Sales and marketing
    
    
    9,091
    
    
    
    4,914
    
    
    
    451
    
    
    
    
    
    
    
    14,456Product development
    
    
    3,776
    
    
    
    4,351
    
    
    
    393
    
    
    
    
    
    
    
    8,520General and administrative
    
    
    6,272
    
    
    
    356
    
    
    
    213
    
    
    
    
    
    
    
    6,841Depreciation and amortization
    
    
    7,994
    
    
    
    1,739
    
    
    
    98
    
    
    
    
    
    
    
    9,831Restructuring costs
    
    
    (54
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (59
    )Total operating expenses
    
    
    27,079
    
    
    
    11,355
    
    
    
    1,155
    
    
    
    
    
    
    
    39,589Operating income
    
    
    1,732
    
    
    
    13,805
    
    
    
    327
    
    
    
    
    
    
    
    15,864Interest expense
    
    
    (7,589
    )
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    (7,644
    )Other income (expense), net
    
    
    (385
    )
    
    
    7
    
    
    
    109
    
    
    
    
    
    
    
    (269
    )Income (loss) from continuing operations before income
taxes
    
    
    (6,242
    )
    
    
    13,812
    
    
    
    381
    
    
    
    
    
    
    
    7,951Income tax (benefit) expense
    
    
    (10,675
    )
    
    
    14,589
    
    
    
    (2,013
    )
    
    
    
    
    
    
    1,901Income (loss) from continuing operations
    
    
    4,433
    
    
    
    (777
    )
    
    
    2,394
    
    
    
    
    
    
    
    6,050Income (loss) from discontinued operations, net of income
taxes
    
    
    290
    
    
    
    (3
    )
    
    
    (602
    )
    
    
    
    
    
    
    (315
    )Gain from sale of discontinued operations, net of income
taxes
    
    
    (7,134
    )
    
    
    
    
    
    
    13,312
    
    
    
    
    
    
    
    6,178Net income (loss)
    
    $
    (2,411
    )
    
    $
    (780
    )
    
    $
    15,104
    
    
    $
    
    
    
    $
    11,913
 20




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Three Months Ended June 30, 2009
 Non-Guarantor
    
    
    Guarantor(in thousands)
    
    Principal Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    13,099
    
    
    $
    13,010
    
    
    $
    735
    
    
    $
    
    
    
    $
    26,844Services
    
    
    35,496
    
    
    
    24,378
    
    
    
    2,445
    
    
    
    
    
    
    
    62,319Total revenues
    
    
    48,595
    
    
    
    37,388
    
    
    
    3,180
    
    
    
    
    
    
    
    89,163Cost of revenues:Systems
    
    
    9,236
    
    
    
    5,336
    
    
    
    519
    
    
    
    
    
    
    
    15,091Services
    
    
    12,392
    
    
    
    6,258
    
    
    
    1,401
    
    
    
    
    
    
    
    20,051Total cost of revenues
    
    
    21,628
    
    
    
    11,594
    
    
    
    1,920
    
    
    
    
    
    
    
    35,142Gross profit
    
    
    26,967
    
    
    
    25,794
    
    
    
    1,260
    
    
    
    
    
    
    
    54,021Operating expenses:Sales and marketing
    
    
    7,206
    
    
    
    5,661
    
    
    
    532
    
    
    
    
    
    
    
    13,399Product development
    
    
    3,677
    
    
    
    4,762
    
    
    
    318
    
    
    
    
    
    
    
    8,757General and administrative
    
    
    5,575
    
    
    
    377
    
    
    
    130
    
    
    
    
    
    
    
    6,082Depreciation and amortization
    
    
    7,306
    
    
    
    1,798
    
    
    
    168
    
    
    
    
    
    
    
    9,272Restructuring costs
    
    
    26
    
    
    
    84
    
    
    
    (150
    )
    
    
    
    
    
    
    (40
    )Total operating expenses
    
    
    23,790
    
    
    
    12,682
    
    
    
    998
    
    
    
    
    
    
    
    37,470Operating income
    
    
    3,177
    
    
    
    13,112
    
    
    
    262
    
    
    
    
    
    
    
    16,551Interest expense
    
    
    (9,718
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (9,722
    )Gain on retirement of debt
    
    
    4,631
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,631Other income (expense), net
    
    
    (144
    )
    
    
    50
    
    
    
    116
    
    
    
    
    
    
    
    22Income (loss) from continuing
operations before income taxes
    
    
    (2,054
    )
    
    
    13,158
    
    
    
    378
    
    
    
    
    
    
    
    11,482Income tax expense
    
    
    5,208
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    5,218Income (loss) from continuing operations
    
    
    (7,262
    )
    
    
    13,148
    
    
    
    378
    
    
    
    
    
    
    
    6,264Income from discontinued operations,
net of income taxes
    
    
    368
    
    
    
    
    
    
    
    982
    
    
    
    
    
    
    
    1,350Net income (loss)
    
    $
    (6,894
    )
    
    $
    13,148
    
    
    $
    1,360
    
    
    $
    
    
    
    $
    7,614
 21




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Nine Months Ended June 30, 2010
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    51,494
    
    
    $
    36,114
    
    
    $
    2,681
    
    
    $
    
    
    
    $
    90,289Services
    
    
    101,724
    
    
    
    73,487
    
    
    
    8,136
    
    
    
    
    
    
    
    183,347Total revenues
    
    
    153,218
    
    
    
    109,601
    
    
    
    10,817
    
    
    
    
    
    
    
    273,636Cost of revenues:Systems
    
    
    29,718
    
    
    
    17,715
    
    
    
    1,891
    
    
    
    
    
    
    
    49,324Services
    
    
    38,480
    
    
    
    16,471
    
    
    
    4,242
    
    
    
    
    
    
    
    59,193Total cost of revenues
    
    
    68,198
    
    
    
    34,186
    
    
    
    6,133
    
    
    
    
    
    
    
    108,517Gross profit
    
    
    85,020
    
    
    
    75,415
    
    
    
    4,684
    
    
    
    
    
    
    
    165,119Operating expenses:Sales and marketing
    
    
    25,555
    
    
    
    15,755
    
    
    
    1,700
    
    
    
    
    
    
    
    43,010Product development
    
    
    11,188
    
    
    
    13,494
    
    
    
    1,204
    
    
    
    
    
    
    
    25,886General and administrative
    
    
    17,865
    
    
    
    1,023
    
    
    
    482
    
    
    
    
    
    
    
    19,370Depreciation and amortization
    
    
    23,912
    
    
    
    5,304
    
    
    
    397
    
    
    
    
    
    
    
    29,613Restructuring costs
    
    
    877
    
    
    
    467
    
    
    
    571
    
    
    
    
    
    
    
    1,915Total operating expenses
    
    
    79,397
    
    
    
    36,043
    
    
    
    4,354
    
    
    
    
    
    
    
    119,794Operating income
    
    
    5,623
    
    
    
    39,372
    
    
    
    330
    
    
    
    
    
    
    
    45,325Interest expense
    
    
    (23,234
    )
    
    
    (8
    )
    
    
    (105
    )
    
    
    
    
    
    
    (23,347
    )Other income (expense), net
    
    
    (6,420
    )
    
    
    253
    
    
    
    6,329
    
    
    
    
    
    
    
    162Income (loss) from continuing operations
before income taxes
    
    
    (24,031
    )
    
    
    39,617
    
    
    
    6,554
    
    
    
    
    
    
    
    22,140Income tax (benefit) expense
    
    
    (7,810
    )
    
    
    15,615
    
    
    
    (261
    )
    
    
    
    
    
    
    7,544Income (loss) from continuing operations
    
    
    (16,221
    )
    
    
    24,002
    
    
    
    6,815
    
    
    
    
    
    
    
    14,596Income (loss) from discontinued operations,
net of income taxes
    
    
    3,820
    
    
    
    (3
    )
    
    
    (4,174
    )
    
    
    
    
    
    
    (357
    )Gain from sale of discontinued operations,
net of income taxes
    
    
    (7,134
    )
    
    
    
    
    
    
    13,312
    
    
    
    
    
    
    
    6,178Net income (loss)
    
    $
    (19,535
    )
    
    $
    23,999
    
    
    $
    15,953
    
    
    $
    
    
    
    $
    20,417
 22




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Nine Months Ended June 30, 2009
 Non-Guarantor
    
    
    Guarantor(in thousands)
    
    Principal Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    44,402
    
    
    $
    41,257
    
    
    $
    2,531
    
    
    $
    
    
    
    $
    88,190Services
    
    
    105,667
    
    
    
    73,785
    
    
    
    7,692
    
    
    
    
    
    
    
    187,144Total revenues
    
    
    150,069
    
    
    
    115,042
    
    
    
    10,223
    
    
    
    
    
    
    
    275,334Cost of revenues:Systems
    
    
    28,116
    
    
    
    18,826
    
    
    
    1,548
    
    
    
    
    
    
    
    48,490Services
    
    
    39,149
    
    
    
    19,635
    
    
    
    3,926
    
    
    
    
    
    
    
    62,710Total cost of revenues
    
    
    67,265
    
    
    
    38,461
    
    
    
    5,474
    
    
    
    
    
    
    
    111,200Gross profit
    
    
    82,804
    
    
    
    76,581
    
    
    
    4,749
    
    
    
    
    
    
    
    164,134Operating expenses:Sales and marketing
    
    
    22,885
    
    
    
    16,521
    
    
    
    1,648
    
    
    
    
    
    
    
    41,054Product development
    
    
    11,470
    
    
    
    14,979
    
    
    
    963
    
    
    
    
    
    
    
    27,412General and administrative
    
    
    15,910
    
    
    
    1,249
    
    
    
    700
    
    
    
    
    
    
    
    17,859Depreciation and amortization
    
    
    22,605
    
    
    
    5,421
    
    
    
    482
    
    
    
    
    
    
    
    28,508Impairment of goodwill
    
    
    107,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,000Restructuring costs
    
    
    2,910
    
    
    
    345
    
    
    
    996
    
    
    
    
    
    
    
    4,251Total operating expenses
    
    
    182,780
    
    
    
    38,515
    
    
    
    4,789
    
    
    
    
    
    
    
    226,084Operating income (loss)
    
    
    (99,976
    )
    
    
    38,066
    
    
    
    (40
    )
    
    
    
    
    
    
    (61,950
    )Interest expense
    
    
    (32,385
    )
    
    
    (11
    )
    
    
    (2
    )
    
    
    
    
    
    
    (32,398
    )Gain on retirement of debt
    
    
    18,958
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,958Other income (expense), net
    
    
    (270
    )
    
    
    31
    
    
    
    (365
    )
    
    
    
    
    
    
    (604
    )Income (loss) from continuing
operations before income taxes
    
    
    (113,673
    )
    
    
    38,086
    
    
    
    (407
    )
    
    
    
    
    
    
    (75,994
    )Income tax expense
    
    
    14,347
    
    
    
    11
    
    
    
    77
    
    
    
    
    
    
    
    14,435Income (loss) from continuing operations
    
    
    (128,020
    )
    
    
    38,075
    
    
    
    (484
    )
    
    
    
    
    
    
    (90,429
    )Income from discontinued operations,
net of income taxes
    
    
    2,616
    
    
    
    
    
    
    
    943
    
    
    
    
    
    
    
    3,559Net income (loss)
    
    $
    (125,404
    )
    
    $
    38,075
    
    
    $
    459
    
    
    $
    
    
    
    $
    (86,870
    )
 23




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the Nine Months Ended June 30, 2010
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities  continuing operations
    
    $
    49,364
    
    
    $
    (69
    )
    
    $
    (7,833
    )
    
    $
    
    
    
    $
    41,462Net cash
provided by (used in) operating
activities  discontinued
operations
    
    
    (588
    )
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    (490
    )Net cash provided by (used in)
operating activities
    
    
    48,776
    
    
    
    (69
    )
    
    
    (7,735
    )
    
    
    
    
    
    
    40,972Investing activities:Purchase of property and equipment
    
    
    (3,911
    )
    
    
    (139
    )
    
    
    (1
    )
    
    
    
    
    
    
    (4,051
    )Capitalized computer software costs and
databases
    
    
    (8,238
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,238
    )Net cash
used in investing activities  continuing operations
    
    
    (12,149
    )
    
    
    (139
    )
    
    
    (1
    )
    
    
    
    
    
    
    (12,289
    )Net cash provided by investing activities 
discontinued operations
    
    
    3,583
    
    
    
    
    
    
    
    7,885
    
    
    
    
    
    
    
    11,468Net cash provided by (used in) investing
activities
    
    
    (8,566
    )
    
    
    (139
    )
    
    
    7,884
    
    
    
    
    
    
    
    (821
    )Financing activities:Payment on long-term debt
    
    
    (16,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,000
    )Net cash used in financing activities
    
    
    (16,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,000
    )Net cash from continuing operations
    
    
    21,215
    
    
    
    (208
    )
    
    
    (7,834
    )
    
    
    
    
    
    
    13,173Net cash from discontinued operations
    
    
    2,995
    
    
    
    
    
    
    
    7,983
    
    
    
    
    
    
    
    10,978Net change in cash and cash equivalents
    
    
    24,210
    
    
    
    (208
    )
    
    
    149
    
    
    
    
    
    
    
    24,151Cash and cash equivalents, beginning of period
    
    
    42,001
    
    
    
    215
    
    
    
    2,357
    
    
    
    
    
    
    
    44,573Cash and cash equivalents, end of period
    
    $
    66,211
    
    
    $
    7
    
    
    $
    2,506
    
    
    $
    
    
    
    $
    68,724
 24




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the Nine Months Ended June 30, 2009
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities  continuing operations
    
    $
    40,082
    
    
    $
    (2,644
    )
    
    $
    (573
    )
    
    $
    
    
    
    $
    36,865Net cash provided by (used in) operating
activities  discontinued operations
    
    
    4,299
    
    
    
    
    
    
    
    (235
    )
    
    
    
    
    
    
    4,064Net cash provided by (used in) operating
activities
    
    
    44,381
    
    
    
    (2,644
    )
    
    
    (808
    )
    
    
    
    
    
    
    40,929Investing activities:Purchase of property and equipment
    
    
    (1,439
    )
    
    
    (5
    )
    
    
    (12
    )
    
    
    
    
    
    
    (1,456
    )Capitalized computer software costs and
databases
    
    
    (6,552
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,552
    )Net cash
used in investing activities 
continuing operations
    
    
    (7,991
    )
    
    
    (5
    )
    
    
    (12
    )
    
    
    
    
    
    
    (8,008
    )Net cash used in investing activities 
discontinued operations
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )Net cash used in investing activities
    
    
    (7,992
    )
    
    
    (5
    )
    
    
    (13
    )
    
    
    
    
    
    
    (8,010
    )Financing activities:Repurchases of common stock
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Payments on long-term debt
    
    
    (13,512
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,512
    )Repurchases of debt
    
    
    (39,840
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,840
    )Net cash used in financing activities
    
    
    (53,541
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,541
    )Net cash from continuing operations
    
    
    (21,450
    )
    
    
    (2,649
    )
    
    
    (585
    )
    
    
    
    
    
    
    (24,684
    )Net cash from discontinued operations
    
    
    4,298
    
    
    
    
    
    
    
    (236
    )
    
    
    
    
    
    
    4,062Net change in cash and cash equivalents
    
    
    (17,152
    )
    
    
    (2,649
    )
    
    
    (821
    )
    
    
    
    
    
    
    (20,622
    )Cash and cash equivalents, beginning of
period
    
    
    55,926
    
    
    
    2,931
    
    
    
    5,932
    
    
    
    
    
    
    
    64,789Cash and cash equivalents, end of period
    
    $
    38,774
    
    
    $
    282
    
    
    $
    5,111
    
    
    $
    
    
    
    $
    44,167
 25




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations
 You should read the following discussion and analysis in conjunction with our financial
statements and related notes included above. This discussion contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of a variety of factors,
including those set forth under Part I, Item 1A  Risk Factors included in our Annual Report on
Form 10-K for the fiscal year ended September 30, 2009.
 Overview
   Revenues
  ▪
    
    The retail distribution market consists of a range of specialty retail and distribution
vertical markets, including independent hardware retailers; home improvement centers;
paint, glass and wallpaper stores; farm supply stores; retail nurseries and garden centers;
independent lumber and building material dealers; pharmacies; and other specialty
retailers, primarily in the United States; and customers involved in the manufacture,
distribution, sale and installation of new and remanufactured parts used in the maintenance
and repair of automobiles and light trucks (including manufacturers, warehouse
distributors, parts stores, and professional installers) in North America, the United
Kingdom and Ireland, as well as several retail chains in North America. For the nine months
ended June 30, 2010, we generated approximately 59.1% of our total revenues from the retail
distribution vertical market.▪
    
    The wholesale distribution market consists of distributors of a range of products,
including electrical supply; plumbing; medical supply; heating and air conditioning; tile;
industrial machinery and equipment; industrial supplies; fluid power; janitorial and
sanitation products; paper and packaging; and service establishment equipment vendors,
primarily in the United States. For the nine months ended June 30, 2010, we generated
approximately 40.9% of our total revenues from the wholesale distribution vertical market.
  •
    
    Systems, which is comprised primarily of proprietary software applications, professional
services, training, and third-party software and may include hardware and peripherals and
forms.•
    
    Services, which is comprised primarily of product support, content, and supply chain
services. Product support services are comprised of customer support activities, including
software, hardware and network support through our help desk, web help, software updates,
preventive and remedial on-site maintenance and depot repair services. Our content services
are comprised of proprietary database and data management products such as our
comprehensive electronic automotive parts and applications catalog and point-of-sale
business analysis data. Supply chain services are comprised of connectivity services,
e-commerce,
 26




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##### Table of Contents



networking and security monitoring management solutions. We generally provide
our services on a subscription basis, and accordingly, revenues are generally recurring in
nature.
 Cost of Revenues
  ▪
    
    Cost of systems revenues and systems gross margins Cost of systems revenues
consists primarily of direct costs of software duplication, our logistics organization,
cost of hardware, salary related costs of professional services and installation personnel,
royalty payments, and allocated overhead expenses.▪
    
    Cost of services revenues and services gross margins Cost of services
revenues primarily consist of material and direct labor associated with our help desk,
material and labor and production costs associated with our automotive catalog and other
content offerings as well as overhead expenses. Generally, our services revenues have a
higher gross margin than our systems revenues.
  Operating Expenses
  ▪
    
    Sales and marketing Sales and marketing expense consists primarily of
salaries and bonuses, commissions for our sales force, travel, stock-based compensation
expense, marketing expenses and allocated overhead expenses. Our marketing approach is to
develop strategic relationships, as well as endorsement and alliance agreements, with many
of the well-known market participants in the vertical markets that we serve. The goal of
these programs is to enhance the productivity of our sales teams and to create leveraged
selling opportunities for system sales and content and supply chain offerings.▪
    
    Product development Product development expense consists primarily of
salaries and bonuses, stock-based compensation expense, outside services and allocated
overhead expenses. Our product development strategy includes development of additional
functionality for our existing products as well as developing new products for our existing
customer base and prospective new customers.▪
    
    General and administrative General and administrative expense primarily
consists of salaries and bonuses, stock-based compensation expense, outside services,
acquisition related costs and facility and information technology allocations for the
general executive, finance, human resource and legal services functions. General and
administrative expenses are not allocated to our segments.▪
    
    Depreciation and amortization Depreciation and amortization expense consists of
depreciation of our fixed assets and amortization of our intangible assets. Depreciation
and amortization are not allocated to our segments.▪
    
    Impairment of goodwill We account for goodwill and other intangibles in accordance
with the relevant authoritative principles. Business acquisitions typically result in
goodwill and other intangible assets, and the recorded values of those assets may become
impaired. The determination of the value of these intangible assets requires management to
make estimates and assumptions that affect our consolidated financial statements. Goodwill
and other intangibles are tested for impairment on an annual basis as of July 1, and
between annual tests if indicators of potential impairment exist, using a fair-value-based
approach.▪
    
    Restructuring costs Restructuring costs relate to management approved
restructuring actions to eliminate certain employee positions and to consolidate certain
excess facilities with the intent to streamline and focus our operations and more properly
align our cost structure with our projected revenue streams. Restructuring costs are not
allocated to our segments.
 Non-Operating Expenses
  ▪
    
    Interest expense Interest expense represents interest on our outstanding
debt as a result of our 2006 merger with Activant Solutions Holdings Inc. and subsequent
acquisitions.
 27




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##### Table of Contents



▪
    
    Gain on retirement of debt Gain on retirement of debt represents the gain in
connection with the debt we have repurchased, net of any related deferred financing fees to
be written off as well as any related transaction fees. Subject to the restrictions and
limitations set forth under the senior secured credit agreement and the indenture governing
the senior subordinated notes, we and our subsidiaries, affiliates or significant
stockholders may from time to time purchase, repay, redeem or retire additional amounts of
our outstanding debt, in privately negotiated or open market transactions, by tender offer
or otherwise.▪
    
    Other income (expense), net Other income (expense), net primarily consists of interest
income, other non-income based taxes, foreign currency gains or losses and gains or losses
on marketable securities.▪
    
    Income tax expense Income tax expense is based on state, federal and
foreign taxable income determined in accordance with current enacted laws and tax rates.
 General Business Conditions and Trends
    .
  Results of Operations
 Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
 Total revenues
  28




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##### Table of Contents



(in thousands)
 Three Months Ended June 30,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Retail Distribution Group revenues:Systems
    
    $
    18,121
    
    
    $
    13,787
    
    
    $
    4,334
    
    
    
    31.4
    %Services
    
    
    35,500
    
    
    
    37,202
    
    
    
    (1,702
    )
    
    
    (4.6
    )%Total Retail Distribution Group revenues
    
    $
    53,621
    
    
    $
    50,989
    
    
    $
    2,632
    
    
    
    5.2
    %Wholesale Distribution revenues:Systems
    
    $
    11,898
    
    
    $
    13,010
    
    
    $
    (1,112
    )
    
    
    (8.5
    )%Services
    
    
    24,972
    
    
    
    25,065
    
    
    
    (93
    )
    
    
    (0.4
    )%Total Wholesale Distribution revenues
    
    $
    36,870
    
    
    $
    38,075
    
    
    $
    (1,205
    )
    
    
    (3.2
    )%Other revenues:Systems
    
    $
    
    
    
    $
    47
    
    
    $
    (47
    )
    
    
    (100.0
    )%Services
    
    
    
    
    
    
    52
    
    
    
    (52
    )
    
    
    (100.0
    )%Total Other revenues
    
    $
    
    
    
    $
    99
    
    
    $
    (99
    )
    
    
    (100.0
    )%Total revenues:Systems
    
    $
    30,019
    
    
    $
    26,844
    
    
    $
    3,175
    
    
    
    11.8
    %Services
    
    
    60,472
    
    
    
    62,319
    
    
    
    (1,847
    )
    
    
    (3.0
    )%Total revenues
    
    $
    90,491
    
    
    $
    89,163
    
    
    $
    1,328
    
    
    
    1.5
    %
  ▪
    
    Retail Distribution Group revenues Retail Distribution Group revenues
increased by $2.6 million, or 5.2%, during the three months ended June 30, 2010 compared to
the same period a year ago. Systems revenues increased primarily as a result of an
increase in the average transaction size of new and customer migration system sales due to
large strategic transitions and sales to multi chain stores
including those in newer markets. In addition,
we continue to have strong sales of additional products and modules to existing customers.
Services revenues experienced a decrease primarily as a result of a contractual price
reduction and attrition on legacy platforms due to the continued slow economy, partially
offset by growth in our content and connectivity offerings.▪
    
    Wholesale Distribution revenues Wholesale Distribution revenues decreased
by $1.2 million, or 3.2%, during the three months ended June 30, 2010 compared to the same
period a year ago. The systems revenues decrease was due to a reduction in the unit volume
of new system sales and associated professional services revenues, primarily due
to a lagging economic recovery in commercial construction and other sectors partially
offset by the sale of additional products and modules. Services revenues decreased
primarily as a result of a deferral of support revenue, partially offset by annual support
price increases.
 Total cost of revenues and gross margins as a percentage of revenues
 (in thousands)
 Three Months Ended June 30,2010
    
    2009
    
    VarianceCost of systems revenues
    
    $
    15,461
    
    
    $
    15,091
    
    
    $
    370Systems gross margins
    
    
    48.5
    %
    
    
    43.8
    %Cost of services revenues
    
    $
    19,577
    
    
    $
    20,051
    
    
    $
    (474
    )Services gross margins
    
    
    67.6
    %
    
    
    67.8
    %Total cost of revenues
    
    $
    35,038
    
    
    $
    35,142
    
    
    $
    (104
    )Total gross margins
    
    
    61.3
    %
    
    
    60.6
    %
 ▪
    
    Cost of systems revenues and systems gross margins Cost of systems
revenues increased by $0.4 million during the three months ended June 30, 2010 compared to
the same period a year ago, primarily as a result of higher direct costs associated with
 29




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higher overall systems revenues. Systems gross margins increased by 4.7 percentage points
in the three months ended June 30, 2010 from the comparable period a year ago primarily
attributable to improved professional services utilization in retail distribution as well
as higher hardware equipment margins.▪
    
    Cost of services revenues and services gross margins Cost of services
revenues decreased by $0.5 million primarily as a result of reductions in third party
maintenance and support costs. Services gross margins decreased by 0.2 percentage points
in the three months ended June 30, 2010 from the comparable period a year ago as a result
of a  contractual price reduction, customer support revenue deferral and attrition on legacy
platforms, partially offset by customer support price increases and reductions in third
party maintenance and support costs.
 Total operating expenses
 (in thousands)
 Three Months Ended June 30,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Sales and marketing
    
    $
    14,456
    
    
    $
    13,399
    
    
    $
    1,057
    
    
    
    7.9
    %Product development
    
    
    8,520
    
    
    
    8,757
    
    
    
    (237
    )
    
    
    (2.7
    )%General and administrative
    
    
    6,841
    
    
    
    6,082
    
    
    
    759
    
    
    
    12.5
    %Depreciation and amortization
    
    
    9,831
    
    
    
    9,272
    
    
    
    559
    
    
    
    6.0
    %Restructuring costs
    
    
    (59
    )
    
    
    (40
    )
    
    
    (19
    )
    
    
    47.1
    %Total operating expenses
    
    $
    39,589
    
    
    $
    37,470
    
    
    $
    2,119
    
    
    
    5.7
    %
  ▪
    
    Sales and marketingSales and marketing expenses increased by $1.1 million,
or 7.9%, for the three months ended June 30, 2010 compared to the three months ended June
30, 2009. The increase was primarily the result of an addition of $1.3 million in
commissions, $0.3 million in outside services, and $0.3 million in marketing related
expenses, partially offset by a decrease of $0.6 million in bad
debt expense and $0.2
million in travel and recruiting expenses.▪
    
    Product developmentProduct development expenses decreased $0.2 million, or
2.7%, for the three months ended June 30, 2010 compared to the three months ended June 30,
2009. The decrease was primarily the result of a $0.1 million reduction in compensation
and employee related costs and lower software development expenses of $0.5 million as a
result of more of these costs being capitalized, partially offset by an increase of $0.4
million in outside services.▪
    
    General and administrativeGeneral and administrative expenses increased by
$0.8 million, or 12.5%, for the three months ended June 30, 2010 compared to the three
months ended June 30, 2009. The increase is primarily the result
of $0.6 million in
additional compensation and employee related expenses and
$0.2 million in legal fees,
partially offset by $0.1 million in recruiting expenses.▪
    
    Depreciation and amortizationDepreciation and amortization expense was $9.8
million for the three months ended June 30, 2010 compared to $9.3 million for the three
months ended June 30, 2009. The increase was primarily a result of an increase in capital
expenditures during fiscal year 2010.▪
    
    Restructuring costs During fiscal years 2010 and 2009, our management
approved restructuring actions primarily related to eliminating certain employee positions
and consolidating certain excess facilities with the intent to streamline and focus our
operations and more properly align our cost structure with our projected revenue streams.
We recorded a credit to restructuring expense of approximately $0.1 million and less than
$0.1 million for the three months ended June 30, 2010 and 2009, respectively. See Note 8
to our unaudited condensed consolidated financial statements.
 Interest expense
  30




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Gain on retirement of debt
  Other income (expense), net
  Income tax expense
  Contribution margin
      31




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(in thousands)
 Three Months Ended June 30,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Retail Distribution Group
    
    $
    16,625
    
    
    $
    16,597
    
    
    $
    28
    
    
    
    0.2
    %Wholesale Distribution
    
    
    16,370
    
    
    
    15,946
    
    
    
    424
    
    
    
    2.7
    %Other
    
    
    
    
    
    
    99
    
    
    
    (99
    )
    
    
    (100.0
    )%Total contribution margin
    
    $
    32,995
    
    
    $
    32,642
    
    
    $
    353
    
    
    
    1.1
    %
 ▪
    
    Retail Distribution Group contribution margin The contribution margin
for the Retail Distribution Group remained relatively flat during the three months ended
June 30, 2010 compared to the same period a year ago, primarily as a result of higher
systems revenues and corresponding gross margin, improved professional services utilization
and increased software and database capitalization, partially offset by contractual support
price reductions, legacy platform attrition and higher commissions and bonus related costs.▪
    
    Wholesale Distribution contribution margin The contribution margin for Wholesale
Distribution increased $0.4 million during the three months ended June 30, 2010 compared to
the three months ended June 30, 2009, primarily as the result of lower compensation related
costs, lower third party support costs, support price increases and lower bad debt expense
partially offset by lower systems revenue volume and corresponding gross margin and support
revenue deferral.
 (in thousands)
 Three Months Ended June 30,2010
    
    
    2009Segment contribution margin
    
    $
    32,995
    
    
    $
    32,642Corporate and unallocated costs
    
    
    (6,438
    )
    
    
    (5,925
    )Stock-based compensation expense
    
    
    (921
    )
    
    
    (934
    )Depreciation and amortization
    
    
    (9,831
    )
    
    
    (9,272
    )Restructuring costs
    
    
    59
    
    
    
    40Interest expense
    
    
    (7,644
    )
    
    
    (9,722
    )Gain on retirement of debt
    
    
    
    
    
    
    4,631Other income (expense), net
    
    
    (269
    )
    
    
    22Income from continuing operations before income taxes
    
    $
    7,951
    
    
    $
    11,482
 Nine Months Ended June 30, 2010 Compared to Nine Months Ended June 30, 2009
 Total revenues
  32




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(in thousands)
 Nine Months Ended June 30,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Retail Distribution Group revenues:Systems
    
    $
    54,087
    
    
    $
    46,827
    
    
    $
    7,260
    
    
    
    15.5
    %Services
    
    
    107,548
    
    
    
    111,241
    
    
    
    (3,693
    )
    
    
    (3.3
    )%Total Retail Distribution Group revenues
    
    $
    161,635
    
    
    $
    158,068
    
    
    $
    3,567
    
    
    
    2.3
    %Wholesale Distribution revenues:Systems
    
    $
    36,202
    
    
    $
    41,275
    
    
    $
    (5,073
    )
    
    
    (12.3
    )%Services
    
    
    75,799
    
    
    
    75,723
    
    
    
    76
    
    
    
    0.1
    %Total Wholesale Distribution revenues
    
    $
    112,001
    
    
    $
    116,998
    
    
    $
    (4,997
    )
    
    
    (4.3
    )%Other revenues:Systems
    
    $
    
    
    
    $
    88
    
    
    $
    (88
    )
    
    
    (100.0
    )%Services
    
    
    
    
    
    
    180
    
    
    
    (180
    )
    
    
    (100.0
    )%Total Other revenues
    
    $
    
    
    
    $
    268
    
    
    $
    (268
    )
    
    
    (100.0
    )%Total revenues:Systems
    
    $
    90,289
    
    
    $
    88,190
    
    
    $
    2,099
    
    
    
    2.4
    %Services
    
    
    183,347
    
    
    
    187,144
    
    
    
    (3,797
    )
    
    
    (2.0
    )%Total revenues
    
    $
    273,636
    
    
    $
    275,334
    
    
    $
    (1,698
    )
    
    
    (0.6
    )%
  ▪
    
    Retail Distribution Group revenues Retail Distribution Group revenues
increased by $3.6 million, or 2.3%. Systems revenues increased primarily as a result of an
increase in the average transaction size of new and customer migration system sales due to
large strategic transitions and sales to multi chain stores including those in newer markets. In addition,
we continue to have strong sales of additional products and modules to existing customers.
Services revenues experienced a decrease primarily as a result of contractual price
reductions, legacy platform attrition due to the continued slow economy and known attrition
of a major customer.▪
    
    Wholesale Distribution revenues Wholesale Distribution revenues decreased
by $5.0 million, or 4.3%. The systems revenues decrease was substantially due to a
reduction in the unit volume of new system sales and associated professional services
revenues, primarily due to a lagging economic recovery in commercial construction
and other sectors, partially offset by the sale of additional products and modules.
Services revenues increased slightly as a result of price increases for support services,
partially offset by deferral of support revenue and attrition on legacy platforms due to
the continued economic downturn in the markets served.
 Total cost of revenues and gross margins as a percentage of revenues
 (in thousands)
 Nine Months Ended June 30,2010
    
    2009
    
    VarianceCost of systems revenues
    
    $
    49,324
    
    
    $
    48,490
    
    
    $
    834Systems gross margins
    
    
    45.4
    %
    
    
    45.0
    %Cost of services revenues
    
    $
    59,193
    
    
    $
    62,710
    
    
    $
    (3,517
    )Services gross margins
    
    
    67.7
    %
    
    
    66.5
    %Total cost of revenues
    
    $
    108,517
    
    
    $
    111,200
    
    
    $
    (2,683
    )Total gross margins
    
    
    60.3
    %
    
    
    59.6
    %
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▪
    
    Cost of systems revenues and systems gross margins Cost of systems
revenues increased by $0.8 million during the nine months ended June 30, 2010 compared to
the same period a year ago, primarily as a result of a $1.3 million inventory valuation
change in estimate to lower the cost basis of inventory as a result of a review and
analysis of on-hand quantities relative to current and anticipated demand as well as the
higher volume of hardware equipment sales. Systems gross margins increased by 0.4
percentage points in the nine months ended June 30, 2010 from the comparable period a year
ago as a result of higher systems revenue volume and a favorable mix of higher margin
hardware and improved professional services utilization.▪
    
    Cost of services revenues and services gross margins Cost of services
revenues decreased by $3.5 million during the nine months ended June 30, 2010 compared to
the same period a year ago, primarily as a result of labor related cost reductions on
legacy platforms, reductions in third party maintenance and support costs and outside
services partially offset by increased bonus expense. Services gross margins increased by
1.2 percentage points in the nine months ended June 30, 2010 from the comparable period a
year ago as a result of service price increases, reductions in labor related costs in
legacy products and lower third party maintenance and support costs, partially offset by
contractual price reductions, attrition on legacy platforms and known attrition of a major
customer.
 Total operating expenses
 (in thousands)
 Nine Months Ended June 30,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Sales and marketing
    
    $
    43,010
    
    
    $
    41,054
    
    
    $
    1,956
    
    
    
    4.8
    %Product development
    
    
    25,886
    
    
    
    27,412
    
    
    
    (1,526
    )
    
    
    (5.6
    )%General and administrative
    
    
    19,370
    
    
    
    17,859
    
    
    
    1,511
    
    
    
    8.5
    %Depreciation and amortization
    
    
    29,613
    
    
    
    28,508
    
    
    
    1,105
    
    
    
    3.9
    %Impairment of goodwill
    
    
    
    
    
    
    107,000
    
    
    
    (107,000
    )
    
    
    (100.0
    )%Restructuring costs
    
    
    1,915
    
    
    
    4,251
    
    
    
    (2,336
    )
    
    
    (54.9
    )%Total operating expenses
    
    $
    119,794
    
    
    $
    226,084
    
    
    $
    (106,290
    )
    
    
    (47.0
    )%
  ▪
    
    Sales and marketing Sales and marketing expenses increased by $2.0 million,
or 4.8%, for the nine months ended June 30, 2010 compared to the nine months ended June 30,
2009. The increase was primarily the result of additional expenses of $2.5 million in
commissions, $0.8 million in outside services, $0.2 million in marketing related expenses,
and an increase in bad debt
expense of $0.3 million, partially offset by a reduction of
$1.6 million in other compensation and
employee related expenses and associated allocated expenses.▪
    
    Product development Product development expenses decreased $1.5 million, or
5.6%, for the nine months ended June 30, 2010 compared to the nine months ended June 30,
2009. The decrease was primarily the result of a $0.7 million reduction in compensation
and employee related costs and lower software development expenses of $1.7 million as a
result of more of these costs being capitalized, partially offset by additional expenses of
$0.9 million in outside services.▪
    
    General and administrative General and administrative expenses increased by
$1.5 million, or 8.5%, for the nine months ended June 30, 2010 compared to the nine months
ended June 30, 2009. The increase is primarily the result of an additional $1.4 million in
compensation and employee related expenses, $0.4 million in legal and outside services and
$0.4 million in insurance costs, partially offset by a reduction of $0.3 million of
acquisition related costs.▪
    
    Depreciation and amortization Depreciation and amortization expense was
$29.6 million for the nine months ended June 30, 2010 compared to $28.5 million for the
nine months ended June 30, 2009. The increase was primarily a result of an increase in
capital expenditures during fiscal year 2010.▪
    
    Impairment of goodwill Due to the continuing global economic uncertainty
and credit crisis and the significant decrease in the level of overall consumer spending,
including spending in the vertical markets that we serve, we determined it necessary to
evaluate goodwill for impairment in the prior year. We recorded a goodwill impairment
charge of $107.0 million in the Retail Distribution Group during the nine months ended June
30, 2009. See Note 3 to our unaudited condensed consolidated financial statements. We had
no similar charges in the nine months ended June 30, 2010.
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▪
    
    Restructuring costs During fiscal years 2010 and 2009, our management
approved restructuring actions primarily related to eliminating certain employee positions
and consolidating certain excess facilities with the intent to streamline and focus our
operations and more properly align our cost structure with our projected revenue streams.
During the nine months ended June 30, 2010 and 2009, we recorded restructuring charges of
approximately $1.9 million and $4.3 million, respectively. See Note 8 to our unaudited
condensed consolidated financial statements.
 Interest expense
  Gain on retirement of debt
  Other income (expense), net
  Income tax expense
  Contribution margin
  (in thousands)
 Nine Months Ended June 30,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Retail Distribution Group
    
    $
    50,760
    
    
    $
    51,112
    
    
    $
    (352
    )
    
    
    (0.7
    )%Wholesale Distribution
    
    
    47,509
    
    
    
    46,795
    
    
    
    714
    
    
    
    1.5
    %Other
    
    
    
    
    
    
    268
    
    
    
    (268
    )
    
    
    (100.0
    )%Total contribution margin
    
    $
    98,269
    
    
    $
    98,175
    
    
    $
    94
    
    
    
    0.1
    %
 ▪
    
    Retail Distribution Group contribution margin The contribution margin
for the Retail Distribution Group decreased by $0.4 million during the nine months ended
June 30, 2010 compared to the same period in the prior year, primarily as a result of the
previously mentioned change in inventory valuation estimate, lower services revenues due to
contractual price reductions, legacy platform attrition and a higher mix of hardware
systems revenues, partially offset by increased systems revenue
dollars, improved
professional services gross margins and an increase in database and software capitalization
costs.
 35




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▪
    
    Wholesale Distribution contribution margin The contribution margin for Wholesale
Distribution increased by $0.7 million during the nine months ended June 30, 2010 compared
to the same period in the prior year, primarily as a result of support price increases and
lower compensation related expenses and third party maintenance costs, partially offset by
lower systems revenue volume, the impact on services revenue from legacy platform
attrition, higher bad debt expense and the previously mentioned change in inventory
valuation estimate.
 (in thousands)
 Nine Months Ended June 30,2010
    
    
    2009Segment contribution margin
    
    $
    98,269
    
    
    $
    98,175Corporate and unallocated costs
    
    
    (18,589
    )
    
    
    (17,556
    )Stock-based compensation expense
    
    
    (2,827
    )
    
    
    (2,810
    )Depreciation and amortization
    
    
    (29,613
    )
    
    
    (28,508
    )Impairment of goodwill
    
    
    
    
    
    
    (107,000
    )Restructuring costs
    
    
    (1,915
    )
    
    
    (4,251
    )Interest expense
    
    
    (23,347
    )
    
    
    (32,398
    )Gain on retirement of debt
    
    
    
    
    
    
    18,958Other income (expense), net
    
    
    162
    
    
    
    (604
    )Income (loss) from continuing operations before income taxes
    
    $
    22,140
    
    
    $
    (75,994
    )
 Liquidity and Capital Resources
 Overview
   Senior Secured Credit Agreement
    36




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
    
    under the term loan, 1.00% with respect to base rate borrowings and 2.00% with respect to
Eurodollar rate borrowings;
    
    under the incremental term loan, 1.50% with respect to base rate borrowings and 2.50% with
respect to Eurodollar rate borrowings; and
    
    under the revolving credit facility, 1.00% with respect to base rate borrowings and 2.00%
with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of
certain leverage ratios.
    
    
    incur additional indebtedness (including contingent liabilities);
    
    create liens on assets;
    
    enter into sale-leaseback transactions;
    
    engage in mergers or acquisitions;
    
    dispose of assets;
    
    pay dividends and restricted payments;
    
    make investments (including joint ventures);
    
    make capital expenditures;
    
    prepay other indebtedness (including the notes);
    
    engage in certain transactions with affiliates;
    
    amend agreements governing our subordinated indebtedness (including the notes);
    
    amend organizational documents and other material agreements; and
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##### Table of Contents




    
    materially change the nature of our business.
  
    
    a maximum total leverage ratio; and
    
    a minimum interest coverage ratio.
  Derivative Instruments and Hedging Activities
  Senior Subordinated Notes due 2016
       38




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Nine Months Ended June 30, 2010 Compared to Nine Months Ended June 30, 2009
      Covenant Compliance
   39




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##### Table of Contents



(in thousands)
 Twelve Months EndedJune 30,2010
    
    
    2009Net income (loss)
    
    $
    15,252
    
    
    $
    (84,614
    )Acquisition costs
    
    
    804
    
    
    
    208Deferred revenue purchase accounting adjustment
    
    
    
    
    
    
    907Adjusted net income (loss)
    
    
    16,056
    
    
    
    (83,499
    )Interest expense
    
    
    31,926
    
    
    
    43,922Income tax expense and other income-based taxes
    
    
    16,106
    
    
    
    17,604Depreciation and amortization
    
    
    39,960
    
    
    
    38,429Gain on asset sales, net of tax
    
    
    (6,178
    )
    
    
    Gain on retirement of debt
    
    
    
    
    
    
    (18,958
    )Non-cash charges (impairment charges and
stock-based compensation expense)
    
    
    11,108
    
    
    
    110,848Non-recurring cash charges and restructuring charges
    
    
    3,145
    
    
    
    5,345Deferred compensation payments
    
    
    278
    
    
    
    309Sponsor payments
    
    
    130
    
    
    
    157Foreign exchange gain
    
    
    (665
    )
    
    
    312Pro-forma adjustment
    
    
    
    
    
    
    68Disposed of EBITDA
    
    
    (1,863
    )
    
    
    (3,927
    )Adjusted EBITDA
    
    $
    110,003
    
    
    $
    110,610
 40




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##### Table of Contents



CovenantRequirements
    
    Our RatioSenior Secured Credit Agreement (1)Maximum consolidated total debt to adjusted EBITDA ratio
    
    
    4.50x
    
    
    
    4.05Minimum adjusted EBITDA to consolidated interest expense
    
    
    2.50x
    
    
    
    3.71Senior Subordinated Notes (2)Minimum adjusted EBITDA to fixed charges ratio required
to incur additional indebtedness pursuant to ratio
provisions
    
    
    2.00x
    
    
    
    3.71
 
 (1)
    
    Our senior secured credit agreement requires us to maintain a consolidated total debt to
adjusted EBITDA ratio of a maximum of 3.75x by the end of the quarter ending December 31,
2010. Consolidated total debt is defined in the senior secured credit agreement as total debt
other than certain indebtedness and is reduced by the amount of cash and cash equivalents on
our consolidated balance sheet in excess of $7.5 million. As of June 30, 2010, our
consolidated total debt was $445.7 million, consisting of total debt other than certain
indebtedness totaling $506.9 million, net of cash and cash equivalents in excess of $7.5
million totaling $61.2 million. We are also required to maintain an adjusted EBITDA to
consolidated interest expense ratio of a minimum of 2.75x by the end of the quarter ending
December 31, 2010. Consolidated interest expense is defined in the senior secured credit
agreement as consolidated cash interest expense less cash interest income and is further
adjusted for certain non-cash interest expenses and other items. Failure to satisfy these
ratio requirements would constitute a default under the senior secured credit agreement. If
our lenders failed to waive any such default, our repayment obligations
under the senior secured credit agreement could be accelerated. This would also constitute a
default under the indenture governing the senior subordinated notes.(2)
    
    Our ability to incur additional indebtedness and make certain restricted payments under the
indenture governing the senior subordinated notes, subject to specified exceptions, is tied
to adjusted EBITDA to fixed charges ratio of at least 2.00x, except that we may incur certain
indebtedness and make certain restricted payments and certain permitted investments without
regard to the ratio. Fixed charges is defined in the indenture governing the senior
subordinated notes as consolidated interest expense less interest income, adjusted for
acquisitions, and further adjusted for non-cash interest expense. Recently Issued Accounting Pronouncements and Other Legislation
       41




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##### Table of Contents



Item 3 Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
  Foreign Currency Risk
   
 Item 4 Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Limitations on Effectiveness of Controls
  42




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1 Legal Proceedings
     
 Item 1A Risk Factors
  
 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3 Defaults Upon Senior Securities
  
 Item 4 (Removed and Reserved)
 
 Item 5 Other Information
  
 Item 6 Exhibits
  43




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##### Table of Contents



SIGNATURE
  ACTIVANT SOLUTIONS INC.Date:  August 9, 2010
    By:

/s/ Kathleen M. CruscoKathleen M. CruscoSenior Vice President and Chief Financial Officer
(Principal Financial and Duly Authorized Officer) 44




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##### Table of Contents



EXHIBIT INDEX
 Incorporated by ReferenceExhibit
    
    
    
    
    
    File
    
    Date of
    
    Exhibit
    
    ProvidedNumber
    
    Exhibit Description
    
    Form
    
    Number
    
    First Filing
    
    Number
    
    Herewith31.1
    
    Certification
pursuant to Section
302 of the
Sarbanes-Oxley Act
of 2002 by Pervez
A. Qureshi
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification
pursuant to Section
302 of the
Sarbanes-Oxley Act
of 2002 by Kathleen
M. Crusco
    
    
    
    
    
    
    
    
    
    X32.1*
    
    Certification
pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002 by Pervez
A. Qureshi
    
    
    
    
    
    
    
    
    
    X32.2*
    
    Certification
pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002 by Kathleen
M. Crusco
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    This certification is not deemed filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liability
of that section. Such certification will not be deemed to be incorporated by reference into
any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference. 45