##### 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 March 31, 2009
 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
    
    94551(Address of principal executive offices)
    
    (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 May 13, 2009Common Stock, par value $0.01 per share
    
    10 shares




---



##### 



ACTIVANT SOLUTIONS INC.
 REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2009
 INDEX
 PageForward-Looking Statements
    
    
    2PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2009 and September 30, 2008
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended March 31, 2009 and March 31, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2009 and March 31, 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    40PART II  OTHER INFORMATION
    
    
    41Item 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3. Defaults Upon Senior Securities
    
    
    41Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 5. Other Information
    
    
    42Item 6. Exhibits
    
    
    42SIGNATURE
    
    
    43EXHIBIT INDEX
    
    
    44EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
   
    
    the negative affect of the current credit crisis and unfavorable market conditions on
our customers and on our business;
    
    the financial crisis 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 or respond to our customers needs and 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 key
industry participants and/or key customers and/or loss of significant customer revenues;
    
    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 recent and future acquisitions, including our
acquisitions of Silk Systems and Intuits distribution software management division
(Eclipse);
    
    the amount of our goodwill impairment charges during fiscal year 2009 and any additional
impairment charges 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, or failure to maintain current systems sales levels of
one-time sales of software licenses and hardware;
    
    consolidation trends among our customers and consolidation trends 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;
    
    interruptions of our connectivity applications or catastrophic failure of our data
center, telecommunications or information technology infrastructure;
    
    claims for damages against us in the event of a failure of our customers systems;
    
    fluctuations in the value of foreign currencies;
    
    differing interests of debt security holders and our controlling stockholders or
investors;
    
    failure to maintain adequate financial and management processes and controls; and
    
    the other factors described under the heading Risk Factors in our Annual Report on
Form 10-K for the year ended September 30, 2008 and elsewhere in this report, including
under Part II, Item 1A of this report.
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 March 31,
    
    
    September 30,(in thousands, except share data)
    
    2009
    
    
    2008ASSETS:Current assets:Cash and cash equivalents
    
    $
    63,027
    
    
    $
    64,789Trade accounts receivable, net of allowance
for doubtful accounts of $4,335 and $5,415 at
March 31, 2009 and September 30, 2008,
respectively
    
    
    46,401
    
    
    
    46,572Inventories
    
    
    5,176
    
    
    
    5,310Deferred income taxes
    
    
    6,854
    
    
    
    6,226Income taxes receivable
    
    
    
    
    
    
    1,186Prepaid expenses and other current assets
    
    
    5,394
    
    
    
    5,124Total current assets
    
    
    126,852
    
    
    
    129,207Property and equipment, net
    
    
    6,965
    
    
    
    8,942Intangible assets, net
    
    
    204,466
    
    
    
    217,058Goodwill
    
    
    554,625
    
    
    
    662,209Deferred financing costs
    
    
    10,806
    
    
    
    13,130Other assets
    
    
    1,993
    
    
    
    2,172Total assets
    
    $
    905,707
    
    
    $
    1,032,718LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    18,507
    
    
    $
    19,181Payroll related accruals
    
    
    12,256
    
    
    
    15,020Deferred revenue
    
    
    40,993
    
    
    
    33,952Current portion of long-term debt
    
    
    
    
    
    
    3,325Accrued expenses and other current liabilities
    
    
    19,704
    
    
    
    15,484Total current liabilities
    
    
    91,460
    
    
    
    86,962Long-term debt
    
    
    577,895
    
    
    
    613,787Deferred tax liabilities
    
    
    52,014
    
    
    
    54,028Other liabilities
    
    
    24,301
    
    
    
    18,625Total liabilities
    
    
    745,670
    
    
    
    773,402Commitments and contingencies
    
    
    
    
    
    
    Common Stock:Par value $0.01 per share, 1,000 shares
authorized, 10 shares issued and outstanding,
at March 31, 2009 and September 30, 2008
    
    
    
    
    
    
    Additional paid-in capital
    
    
    255,853
    
    
    
    254,148Retained earnings (accumulated deficit)
    
    
    (83,129
    )
    
    
    11,355Other accumulated comprehensive loss:Unrealized loss on cash flow hedges
    
    
    (2,145
    )
    
    
    (5,585
    )Cumulative translation adjustment
    
    
    (10,542
    )
    
    
    (602
    )Total stockholders equity
    
    
    160,037
    
    
    
    259,316Total liabilities and stockholders equity
    
    $
    905,707
    
    
    $
    1,032,718
  3




---



##### Table of Contents



ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 (UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Systems
    
    $
    30,912
    
    
    $
    44,612
    
    
    $
    64,444
    
    
    $
    90,529Services
    
    
    65,041
    
    
    
    63,480
    
    
    
    127,775
    
    
    
    126,473Total revenues
    
    
    95,953
    
    
    
    108,092
    
    
    
    192,219
    
    
    
    217,002Cost of revenues (exclusive of
depreciation and amortization of $4,549,
$4,231, $9,060, and $8,005 for the three
months ended March 31, 2009 and 2008 and
six months ended March 31, 2009 and 2008,
respectively, included in amounts shown
separately below):Systems (Note 8)
    
    
    16,923
    
    
    
    25,258
    
    
    
    34,888
    
    
    
    51,655Services (Note 8)
    
    
    21,641
    
    
    
    23,556
    
    
    
    43,646
    
    
    
    46,779Total cost of revenues
    
    
    38,564
    
    
    
    48,814
    
    
    
    78,534
    
    
    
    98,434Gross profit
    
    
    57,389
    
    
    
    59,278
    
    
    
    113,685
    
    
    
    118,568Operating expenses:Sales and marketing (Note 8)
    
    
    12,581
    
    
    
    16,102
    
    
    
    27,598
    
    
    
    32,527Product development (Note 8)
    
    
    9,656
    
    
    
    11,012
    
    
    
    19,814
    
    
    
    23,136General and administrative (Note 8)
    
    
    5,837
    
    
    
    8,451
    
    
    
    11,567
    
    
    
    15,947Depreciation and amortization
    
    
    9,683
    
    
    
    9,326
    
    
    
    19,388
    
    
    
    17,921Impairment of goodwill
    
    
    82,000
    
    
    
    
    
    
    
    107,000
    
    
    
    Acquisition related costs
    
    
    52
    
    
    
    407
    
    
    
    228
    
    
    
    658Restructuring costs
    
    
    2,691
    
    
    
    322
    
    
    
    4,449
    
    
    
    490Total operating expenses
    
    
    122,500
    
    
    
    45,620
    
    
    
    190,044
    
    
    
    90,679Operating income (loss)
    
    
    (65,111
    )
    
    
    13,658
    
    
    
    (76,359
    )
    
    
    27,889Interest expense
    
    
    (9,688
    )
    
    
    (14,182
    )
    
    
    (22,676
    )
    
    
    (27,872
    )Gain on retirement of debt
    
    
    14,327
    
    
    
    
    
    
    
    14,327
    
    
    
    Other income (expense), net
    
    
    (298
    )
    
    
    509
    
    
    
    (627
    )
    
    
    1,073Income (loss) before income taxes
    
    
    (60,770
    )
    
    
    (15
    )
    
    
    (85,335
    )
    
    
    1,090Income tax expense
    
    
    8,913
    
    
    
    42
    
    
    
    9,149
    
    
    
    554Net income (loss)
    
    $
    (69,683
    )
    
    $
    (57
    )
    
    $
    (94,484
    )
    
    $
    536Comprehensive loss:Net income (loss)
    
    $
    (69,683
    )
    
    $
    (57
    )
    
    $
    (94,484
    )
    
    $
    536Unrealized loss on cash flow hedges
    
    
    (249
    )
    
    
    (4,001
    )
    
    
    (4,958
    )
    
    
    (6,652
    )Foreign currency translation adjustment
    
    
    122
    
    
    
    (171
    )
    
    
    (1,543
    )
    
    
    (220
    )Comprehensive loss
    
    $
    (69,810
    )
    
    $
    (4,229
    )
    
    $
    (100,985
    )
    
    $
    (6,336
    )
  4




---



##### Table of Contents



ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Six Months Ended March 31,(in thousands)
    
    2009
    
    
    2008Operating activities:Net income (loss)
    
    $
    (94,484
    )
    
    $
    536Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Impairment of goodwill
    
    
    107,000
    
    
    
    Gain on retirement of debt
    
    
    (14,327
    )
    
    
    Loss on disposal of assets
    
    
    19
    
    
    
    Stock-based compensation expense
    
    
    1,894
    
    
    
    1,772Depreciation
    
    
    2,762
    
    
    
    3,032Amortization of intangible assets
    
    
    16,626
    
    
    
    14,889Amortization of deferred financing costs
    
    
    1,210
    
    
    
    1,240Provision for doubtful accounts
    
    
    335
    
    
    
    1,905Deferred income taxes
    
    
    (2,642
    )
    
    
    (9,820
    )Changes in assets and liabilities:Trade accounts receivable
    
    
    (164
    )
    
    
    8,894Inventories
    
    
    134
    
    
    
    (803
    )Prepaid expenses and other assets
    
    
    1,095
    
    
    
    (1,993
    )Accounts payable
    
    
    (723
    )
    
    
    (2,513
    )Deferred revenue
    
    
    7,041
    
    
    
    534Accrued expenses and other liabilities
    
    
    1,235
    
    
    
    5,945Net cash provided by operating activities
    
    
    27,011
    
    
    
    23,618Investing activities:Purchases of property and equipment
    
    
    (823
    )
    
    
    (3,059
    )Capitalized computer software and database costs
    
    
    (4,034
    )
    
    
    (3,237
    )Net cash used in investing activities
    
    
    (4,857
    )
    
    
    (6,296
    )Financing activities:Repurchases of common stock
    
    
    (189
    )
    
    
    (14
    )Payments on long-term debt
    
    
    (3,512
    )
    
    
    (375
    )Repurchases of debt
    
    
    (20,215
    )
    
    
    Deferred financing costs
    
    
    
    
    
    
    (107
    )Net cash used in financing activities
    
    
    (23,916
    )
    
    
    (496
    )Net change in cash and cash equivalents
    
    
    (1,762
    )
    
    
    16,826Cash and cash equivalents, beginning of period
    
    
    64,789
    
    
    
    33,379Cash and cash equivalents, end of period
    
    $
    63,027
    
    
    $
    50,205Supplemental disclosures of cash flow informationCash paid during the period for interest
    
    $
    24,160
    
    
    $
    23,827Cash paid during the period for income taxes (net of receipts)
    
    $
    5,223
    
    
    $
    5,012
  5




---



##### Table of Contents



ACTIVANT SOLUTIONS INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2009
 (UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
    NOTE 2  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classifications or Measurements under Statement 13 Effective Date of FASB
Statement No. 157, Determining the Fair Value of a Financial Asset When the Market
for That Asset is Not Active. Accounting for Leases
 Disclosures about Derivative Instruments and Hedging
ActivitiesAn Amendment of FASB Statement No. 133
 NOTE 3  INVENTORIES
  6




---



##### Table of Contents



NOTE 4  GOODWILL
  March 31,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2007Hardlines and Lumber
    
    $
    108,413
    
    
    $
    186,480
    
    
    $
    187,462Wholesale Distribution
    
    
    334,956
    
    
    
    335,018
    
    
    
    343,140Automotive
    
    
    99,534
    
    
    
    128,534
    
    
    
    129,350Other
    
    
    11,722
    
    
    
    12,177
    
    
    
    12,254Total
    
    $
    554,625
    
    
    $
    662,209
    
    
    $
    672,206
 Business Goodwill and Other Intangible Assets
  NOTE 5  DEBT
  March 31,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008Senior secured term loan due 2013
    
    $
    418,600
    
    
    $
    422,112Senior subordinated notes due 2016
    
    
    139,295
    
    
    
    175,000Revolving credit facility due 2011
    
    
    20,000
    
    
    
    20,000Total debt
    
    
    577,895
    
    
    
    617,112Current portion
    
    
    
    
    
    
    (3,325
    )Long-term debt
    
    $
    577,895
    
    
    $
    613,787
 Senior Secured Credit Agreement
  7




---



##### Table of Contents




    
    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, 1.25% with respect to base rate borrowings and 2.25%
with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of
certain leverage ratios.
   Derivative Instruments and Hedging Activities
  8




---



##### Table of Contents



Accounting for Derivative Instruments and Hedging Activities
  (in thousands)Unrealized loss in OCI as September 30, 2008
    
    $
    (9,282
    )Net decrease in fair value
    
    
    (7,308
    )Net realized gains due to ineffectiveness reclassified to earnings
    
    
    543Unrealized loss in OCI as March 31, 2009
    
    $
    (16,047
    )
  Fair Value of Derivative InstrumentsDerivative Assets
    
    Derivative LiabilitiesLocation in the
    
    
    
    
    
    Location in theCondensed
    
    
    
    
    
    CondensedNotional
    
    Consolidated
    
    
    
    
    
    Consolidated(in thousands)
    
    Amount
    
    Balance Sheet
    
    Fair Value
    
    Balance Sheet
    
    Fair ValuePrepaid expenses
    
    
    
    
    
    Accrued expensesand other current
    
    
    
    
    
    and other currentInterest rate swaps due 2009
    
    $
    50,000
    
    
    assets
    
    $
    
    
    
    liabilities
    
    $
    (1,587
    )Interest rate swaps due 2011
    
    $
    140,000
    
    
    Other assets
    
    $
    
    
    
    Other liabilities
    
    $
    (15,003
    )
 Effect of Derivative Instruments on Condensed Consolidated Statements of OperationsGain (loss) recognized in earnings
    
    Gain (loss)
    
    Gain/(Loss) reclassified from OCI(1)
    
    recognized in OCI
    
    into earnings (2)Location
    
    Amount
    
    Amount
    
    Location
    
    AmountInterest rate swaps
    
    Interest expense
    
    $
    (2,872
    )
    
    $
    (7,308
    )
    
    Interest expense
    
    $
    543
 
 (1)
    
    Includes amounts related to periodic settlements required under our derivative
contracts.(2)
    
    Represents ineffectiveness related to the interest rate swaps. Senior Subordinated Notes due 2016
   9




---



##### Table of Contents



NOTE 6  FAIR VALUE
    10




---



##### Table of Contents



Quoted Prices in Active
    
    
    
    
    
    
    SignificantMarkets for Identical
    
    
    Significant Other
    
    
    UnobservableAssets and Liabilities
    
    
    Observable Inputs
    
    
    Inputs
    
    
    Total(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Fair ValueAssets:Cash equivalents (1)
    
    $
    40,652
    
    
    $
    
    
    
    $
    
    
    
    $
    40,652Liabilities:Interest rate swap due 2009(2)
    
    
    
    
    
    
    (1,587
    )
    
    
    
    
    
    
    (1,587
    )Interest rate swap due 2011(3)
    
    
    
    
    
    
    (15,003
    )
    
    
    
    
    
    
    (15,003
    )Total
    
    $
    40,652
    
    
    $
    (16,590
    )
    
    $
    
    
    
    $
    24,062
 
 (1)
    
    Included in cash and cash equivalents in our condensed consolidated balance sheet as of
March 31, 2009.(2)
    
    Included in accrued expenses and other current liabilities in our condensed
consolidated balance sheet as of March 31, 2009.(3)
    
    Included in other liabilities in our condensed consolidated balance sheet as of March
31, 2009. NOTE 7  INCOME TAXES
 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB
Statement No. 109"(FIN No. 48)
     NOTE 8  EMPLOYEE STOCK PLANS
 Stock-based Compensation Expense
 11




---



##### Table of Contents



Share-Based Payment,
 Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of revenuesSystems
    
    $
    8
    
    
    $
    8
    
    
    $
    18
    
    
    $
    16Services
    
    
    47
    
    
    
    72
    
    
    
    96
    
    
    
    141Operating expensesSales and marketing
    
    
    174
    
    
    
    214
    
    
    
    402
    
    
    
    418Product development
    
    
    72
    
    
    
    72
    
    
    
    148
    
    
    
    144General and administrative
    
    
    530
    
    
    
    524
    
    
    
    1,230
    
    
    
    1,053Total
    
    $
    831
    
    
    $
    890
    
    
    $
    1,894
    
    
    $
    1,772
  Valuation Assumptions
   Three Months Ended March 31,
    
    Six Months Ended March 31,2009
    
    2008
    
    2009
    
    2008Expected term
    
    6.66 years
    
    
    6.66 years
    
    
    6.66 years
    
    
    6.66 yearsExpected volatility
    
    
    72.00
    %
    
    
    50.00
    %
    
    
    72.00
    %
    
    
    50.00
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Risk-free rate
    
    
    1.67
    %
    
    
    2.47
    %
    
    
    1.55
    %
    
    
    3.19
    %
  NOTE 9  RESTRUCTURING COSTS
 Accounting for Costs Associated with Exit or Disposal Activities
  12




---



##### Table of Contents



Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atSeptember 30,
    
    
    Restructuring
    
    
    
    
    
    
    March 31,(in thousands)
    
    2008
    
    
    Charges
    
    
    Payments
    
    
    20092009 Actions  Severance and Related Benefits
    
    $
    
    
    
    $
    3,162
    
    
    $
    (2,656
    )
    
    $
    5062009 Actions  Facility Closings
    
    
    
    
    
    
    1,286
    
    
    
    (270
    )
    
    
    1,0162008 Actions  Severance and Related Benefits
    
    
    216
    
    
    
    1
    
    
    
    (45
    )
    
    
    172$
    216
    
    
    $
    4,449
    
    
    $
    (2,971
    )
    
    $
    1,694
 NOTE 10  SEGMENT REPORTING
 Disclosures about Segments of an Enterprise
and Related Information.
  
    
    Hardlines and Lumber segment The hardlines and lumber 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.
    
    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.
    
    Automotive segment The automotive vertical market consists of 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 and Europe
as well as several chains in North America.
    
    Other Other primarily consists of our productivity tools business, which is involved
with software migration services and application development tools.
 Segment Revenue and Contribution Margin
   13




---



##### Table of Contents



Three Months Ended March 31, 2009
    
    Six Months Ended March 31, 2009Hardlines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hardlinesand
    
    Wholesale
    
    Auto-
    
    
    
    
    
    
    
    
    
    and
    
    Wholesale
    
    Auto-(in thousands)
    
    Lumber
    
    Distribution
    
    motive
    
    Other
    
    Total
    
    Lumber
    
    Distribution
    
    motive
    
    Other
    
    TotalRevenues
    
    $
    34,171
    
    
    $
    40,524
    
    
    $
    18,996
    
    
    $
    2,262
    
    
    $
    95,953
    
    
    $
    68,395
    
    
    $
    78,922
    
    
    $
    38,685
    
    
    $
    6,217
    
    
    $
    192,219Contribution Margin
    
    $
    11,874
    
    
    $
    16,441
    
    
    $
    6,954
    
    
    $
    556
    
    
    $
    35,825
    
    
    $
    20,779
    
    
    $
    30,849
    
    
    $
    13,736
    
    
    $
    2,477
    
    
    $
    67,841
 Three Months Ended March 31, 2008
    
    Six Months Ended March 31, 2008Hardlines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hardlinesand
    
    Wholesale
    
    Auto-
    
    
    
    
    
    
    
    
    
    and
    
    Wholesale
    
    Auto-Lumbers
    
    Distribution
    
    motive
    
    Other
    
    Total
    
    Lumbers
    
    Distribution
    
    motive
    
    Other
    
    TotalRevenues
    
    $
    37,102
    
    
    $
    43,444
    
    
    $
    22,439
    
    
    $
    5,107
    
    
    $
    108,092
    
    
    $
    76,892
    
    
    $
    85,884
    
    
    $
    44,224
    
    
    $
    10,002
    
    
    $
    217,002Contribution Margin
    
    $
    7,300
    
    
    $
    16,824
    
    
    $
    7,869
    
    
    $
    896
    
    
    $
    32,889
    
    
    $
    16,263
    
    
    $
    32,588
    
    
    $
    15,111
    
    
    $
    684
    
    
    $
    64,646
 
   Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Segment contribution margin
    
    $
    35,825
    
    
    $
    32,889
    
    
    $
    67,841
    
    
    $
    64,646Corporate and unallocated costs
    
    
    (5,679
    )
    
    
    (8,286
    )
    
    
    (11,241
    )
    
    
    (15,916
    )Stock-based compensation expense
    
    
    (831
    )
    
    
    (890
    )
    
    
    (1,894
    )
    
    
    (1,772
    )Depreciation and amortization
    
    
    (9,683
    )
    
    
    (9,326
    )
    
    
    (19,388
    )
    
    
    (17,921
    )Impairment of goodwill
    
    
    (82,000
    )
    
    
    
    
    
    
    (107,000
    )
    
    
    Acquisition related costs
    
    
    (52
    )
    
    
    (407
    )
    
    
    (228
    )
    
    
    (658
    )Restructuring costs
    
    
    (2,691
    )
    
    
    (322
    )
    
    
    (4,449
    )
    
    
    (490
    )Interest expense
    
    
    (9,688
    )
    
    
    (14,182
    )
    
    
    (22,676
    )
    
    
    (27,872
    )Gain on retirement of debt
    
    
    14,327
    
    
    
    
    
    
    
    14,327
    
    
    
    Other income (expense), net
    
    
    (298
    )
    
    
    509
    
    
    
    (627
    )
    
    
    1,073Income (loss) before income taxes
    
    $
    (60,770
    )
    
    $
    (15
    )
    
    $
    (85,335
    )
    
    $
    1,090
 14




---



##### Table of Contents



NOTE 11  GUARANTOR CONSOLIDATION
  Condensed Consolidating Balance Sheet as of March 31, 2009
 Guarantor
    
    
    Non-Principal
    
    
    Guarantor
    
    
    Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETS:Current assets:Cash and cash equivalents
    
    $
    58,078
    
    
    $
    1,483
    
    
    $
    3,466
    
    
    $
    
    
    
    $
    63,027Trade accounts receivable, net of allowance for
doubtful accounts
    
    
    22,115
    
    
    
    20,652
    
    
    
    3,634
    
    
    
    
    
    
    
    46,401Inventories
    
    
    3,499
    
    
    
    1,525
    
    
    
    152
    
    
    
    
    
    
    
    5,176Deferred income taxes
    
    
    5,354
    
    
    
    1,435
    
    
    
    65
    
    
    
    
    
    
    
    6,854Income taxes receivable
    
    
    (1,931
    )
    
    
    1,441
    
    
    
    490
    
    
    
    
    
    
    
    Prepaid expenses and other current assets
    
    
    4,619
    
    
    
    379
    
    
    
    396
    
    
    
    
    
    
    
    5,394Total current assets
    
    
    91,734
    
    
    
    26,915
    
    
    
    8,203
    
    
    
    
    
    
    
    126,852Property and equipment, net
    
    
    5,986
    
    
    
    695
    
    
    
    284
    
    
    
    
    
    
    
    6,965Intangible assets, net
    
    
    176,141
    
    
    
    26,523
    
    
    
    1,802
    
    
    
    
    
    
    
    204,466Goodwill
    
    
    458,853
    
    
    
    91,284
    
    
    
    (1,549
    )
    
    
    6,037
    
    
    
    554,625Investments in subsidiaries
    
    
    16,768
    
    
    
    
    
    
    
    
    
    
    
    (16,768
    )
    
    
    Intercompany receivables (payables)
    
    
    (34,698
    )
    
    
    42,919
    
    
    
    (8,221
    )
    
    
    
    
    
    
    Deferred financing costs
    
    
    10,806
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,806Other assets
    
    
    1,611
    
    
    
    356
    
    
    
    26
    
    
    
    
    
    
    
    1,993Total assets
    
    $
    727,201
    
    
    $
    188,692
    
    
    $
    545
    
    
    $
    (10,731
    )
    
    $
    905,707LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    15,845
    
    
    $
    2,832
    
    
    $
    (176
    )
    
    $
    6
    
    
    $
    18,507Payroll related accruals
    
    
    3,645
    
    
    
    7,889
    
    
    
    722
    
    
    
    
    
    
    
    12,256Deferred revenue
    
    
    13,773
    
    
    
    23,321
    
    
    
    3,899
    
    
    
    
    
    
    
    40,993Accrued expenses and other current liabilities
    
    
    19,495
    
    
    
    1,581
    
    
    
    (1,372
    )
    
    
    
    
    
    
    19,704Total current liabilities
    
    
    52,758
    
    
    
    35,623
    
    
    
    3,073
    
    
    
    6
    
    
    
    91,460Long-term debt
    
    
    577,895
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577,895Deferred tax and other liabilities
    
    
    80,000
    
    
    
    (2,158
    )
    
    
    (1,527
    )
    
    
    
    
    
    
    76,315Total liabilities
    
    
    710,653
    
    
    
    33,465
    
    
    
    1,546
    
    
    
    6
    
    
    
    745,670Total stockholders equity (deficit)
    
    
    16,548
    
    
    
    155,227
    
    
    
    (1,001
    )
    
    
    (10,737
    )
    
    
    160,037Total liabilities and stockholders equity
(deficit)
    
    $
    727,201
    
    
    $
    188,692
    
    
    $
    545
    
    
    $
    (10,731
    )
    
    $
    905,707
 15




---



##### Table of Contents



Condensed Consolidating Balance Sheet as of September 30, 2008
 Guarantor
    
    
    Non-Principal
    
    
    Guarantor
    
    
    Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETS:Current assets:Cash and cash equivalents
    
    $
    55,926
    
    
    $
    2,931
    
    
    $
    5,932
    
    
    $
    
    
    
    $
    64,789Trade accounts receivable, net of
allowance for doubtful accounts
    
    
    27,223
    
    
    
    14,808
    
    
    
    4,541
    
    
    
    
    
    
    
    46,572Inventories
    
    
    4,000
    
    
    
    1,050
    
    
    
    260
    
    
    
    
    
    
    
    5,310Deferred income taxes
    
    
    4,726
    
    
    
    1,435
    
    
    
    65
    
    
    
    
    
    
    
    6,226Income taxes receivable
    
    
    671
    
    
    
    282
    
    
    
    233
    
    
    
    
    
    
    
    1,186Prepaid expenses and other current assets
    
    
    4,616
    
    
    
    223
    
    
    
    285
    
    
    
    
    
    
    
    5,124Total current assets
    
    
    97,162
    
    
    
    20,729
    
    
    
    11,316
    
    
    
    
    
    
    
    129,207Property and equipment, net
    
    
    7,586
    
    
    
    852
    
    
    
    504
    
    
    
    
    
    
    
    8,942Intangible assets, net
    
    
    185,128
    
    
    
    29,912
    
    
    
    2,018
    
    
    
    
    
    
    
    217,058Goodwill
    
    
    560,023
    
    
    
    97,631
    
    
    
    (1,482
    )
    
    
    6,037
    
    
    
    662,209Investments in subsidiaries
    
    
    12,018
    
    
    
    
    
    
    
    787
    
    
    
    (12,805
    )
    
    
    Intercompany receivables (payables)
    
    
    4,660
    
    
    
    10,102
    
    
    
    (14,762
    )
    
    
    
    
    
    
    Deferred financing costs
    
    
    13,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,130Other assets
    
    
    1,769
    
    
    
    362
    
    
    
    41
    
    
    
    
    
    
    
    2,172Total assets
    
    $
    881,476
    
    
    $
    159,588
    
    
    $
    (1,578
    )
    
    $
    (6,768
    )
    
    $
    1,032,718LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT)Current liabilities:Accounts payable
    
    $
    15,938
    
    
    $
    2,347
    
    
    $
    890
    
    
    $
    6
    
    
    $
    19,181Payroll related accruals
    
    
    9,204
    
    
    
    4,132
    
    
    
    1,684
    
    
    
    
    
    
    
    15,020Deferred revenue
    
    
    12,861
    
    
    
    18,306
    
    
    
    2,785
    
    
    
    
    
    
    
    33,952Current portion of long-term debt
    
    
    3,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,325Accrued expenses and other current
liabilities
    
    
    16,622
    
    
    
    196
    
    
    
    (1,334
    )
    
    
    
    
    
    
    15,484Total current liabilities
    
    
    57,950
    
    
    
    24,981
    
    
    
    4,025
    
    
    
    6
    
    
    
    86,962Long-term debt
    
    
    613,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    613,787Deferred tax and other liabilities
    
    
    76,759
    
    
    
    (2,159
    )
    
    
    (1,947
    )
    
    
    
    
    
    
    72,653Total liabilities
    
    
    748,496
    
    
    
    22,822
    
    
    
    2,078
    
    
    
    6
    
    
    
    773,402Total stockholders equity (deficit)
    
    
    132,980
    
    
    
    136,766
    
    
    
    (3,656
    )
    
    
    (6,774
    )
    
    
    259,316Total liabilities and stockholders
equity (deficit)
    
    $
    881,476
    
    
    $
    159,588
    
    
    $
    (1,578
    )
    
    $
    (6,768
    )
    
    $
    1,032,718
 16




---



##### Table of Contents



Condensed Consolidating Statement of Operations for the Three Months Ended March 31, 2009
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    15,406
    
    
    $
    14,507
    
    
    $
    999
    
    
    $
    
    
    
    $
    30,912Services
    
    
    35,851
    
    
    
    25,408
    
    
    
    3,782
    
    
    
    
    
    
    
    65,041Total revenues
    
    
    51,257
    
    
    
    39,915
    
    
    
    4,781
    
    
    
    
    
    
    
    95,953Cost of revenues:Systems
    
    
    8,790
    
    
    
    7,224
    
    
    
    909
    
    
    
    
    
    
    
    16,923Services
    
    
    13,168
    
    
    
    6,735
    
    
    
    1,738
    
    
    
    
    
    
    
    21,641Total cost of revenues
    
    
    21,958
    
    
    
    13,959
    
    
    
    2,647
    
    
    
    
    
    
    
    38,564Gross profit
    
    
    29,299
    
    
    
    25,956
    
    
    
    2,134
    
    
    
    
    
    
    
    57,389Operating expenses:Sales and marketing
    
    
    6,948
    
    
    
    4,889
    
    
    
    744
    
    
    
    
    
    
    
    12,581Product development
    
    
    3,742
    
    
    
    5,252
    
    
    
    662
    
    
    
    
    
    
    
    9,656General and administrative
    
    
    5,248
    
    
    
    402
    
    
    
    187
    
    
    
    
    
    
    
    5,837Depreciation and amortization
    
    
    7,732
    
    
    
    1,802
    
    
    
    149
    
    
    
    
    
    
    
    9,683Impairment of goodwill
    
    
    82,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,000Acquisition related costs
    
    
    3
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    52Restructuring costs
    
    
    2,114
    
    
    
    208
    
    
    
    369
    
    
    
    
    
    
    
    2,691Total operating expenses
    
    
    107,787
    
    
    
    12,602
    
    
    
    2,111
    
    
    
    
    
    
    
    122,500Operating income (loss)
    
    
    (78,488
    )
    
    
    13,354
    
    
    
    23
    
    
    
    
    
    
    
    (65,111
    )Interest expense
    
    
    (9,682
    )
    
    
    (3
    )
    
    
    (3
    )
    
    
    
    
    
    
    (9,688
    )Gain on retirement of debt
    
    
    14,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,327Other income (expense), net
    
    
    92
    
    
    
    26
    
    
    
    (416
    )
    
    
    
    
    
    
    (298
    )Income (loss) before income taxes
    
    
    (73,751
    )
    
    
    13,377
    
    
    
    (396
    )
    
    
    
    
    
    
    (60,770
    )Income tax expense
    
    
    8,841
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    8,913Net income (loss)
    
    $
    (82,592
    )
    
    $
    13,377
    
    
    $
    (468
    )
    
    $
    
    
    
    $
    (69,683
    )
 17




---



##### Table of Contents



Condensed Consolidating Statement of Operations for the Three Months Ended March 31, 2008
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    22,571
    
    
    $
    19,649
    
    
    $
    2,392
    
    
    $
    
    
    
    $
    44,612Services
    
    
    35,423
    
    
    
    23,749
    
    
    
    4,308
    
    
    
    
    
    
    
    63,480Total revenues
    
    
    57,994
    
    
    
    43,398
    
    
    
    6,700
    
    
    
    
    
    
    
    108,092Cost of revenues:Systems
    
    
    13,512
    
    
    
    8,799
    
    
    
    2,947
    
    
    
    
    
    
    
    25,258Services
    
    
    15,118
    
    
    
    6,451
    
    
    
    1,987
    
    
    
    
    
    
    
    23,556Total cost of revenues
    
    
    28,630
    
    
    
    15,250
    
    
    
    4,934
    
    
    
    
    
    
    
    48,814Gross profit
    
    
    29,364
    
    
    
    28,148
    
    
    
    1,766
    
    
    
    
    
    
    
    59,278Operating expenses:Sales and marketing
    
    
    9,514
    
    
    
    5,587
    
    
    
    1,001
    
    
    
    
    
    
    
    16,102Product development
    
    
    4,894
    
    
    
    5,252
    
    
    
    866
    
    
    
    
    
    
    
    11,012General and administrative
    
    
    6,993
    
    
    
    719
    
    
    
    739
    
    
    
    
    
    
    
    8,451Depreciation and amortization
    
    
    7,533
    
    
    
    1,623
    
    
    
    170
    
    
    
    
    
    
    
    9,326Acquisition related costs
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407Restructuring costs
    
    
    322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    322Total operating expenses
    
    
    29,663
    
    
    
    13,181
    
    
    
    2,776
    
    
    
    
    
    
    
    45,620Operating income (loss)
    
    
    (299
    )
    
    
    14,967
    
    
    
    (1,010
    )
    
    
    
    
    
    
    13,658Interest expense
    
    
    (14,178
    )
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (14,182
    )Other income (expense), net
    
    
    529
    
    
    
    (423
    )
    
    
    403
    
    
    
    
    
    
    
    509Income (loss) before income taxes
    
    
    (13,948
    )
    
    
    14,544
    
    
    
    (611
    )
    
    
    
    
    
    
    (15
    )Income tax expense
    
    
    40
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    42Net income (loss)
    
    $
    (13,988
    )
    
    $
    14,542
    
    
    $
    (611
    )
    
    $
    
    
    
    $
    (57
    )
 18




---



##### Table of Contents



Condensed Consolidating Statement of Operations for the Six Months Ended March 31, 2009
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    33,418
    
    
    $
    28,247
    
    
    $
    2,779
    
    
    $
    
    
    
    $
    64,444Services
    
    
    70,617
    
    
    
    49,407
    
    
    
    7,751
    
    
    
    
    
    
    
    127,775Total revenues
    
    
    104,035
    
    
    
    77,654
    
    
    
    10,530
    
    
    
    
    
    
    
    192,219Cost of revenues:Systems
    
    
    18,884
    
    
    
    13,786
    
    
    
    2,218
    
    
    
    
    
    
    
    34,888Services
    
    
    26,996
    
    
    
    13,377
    
    
    
    3,273
    
    
    
    
    
    
    
    43,646Total cost of revenues
    
    
    45,880
    
    
    
    27,163
    
    
    
    5,491
    
    
    
    
    
    
    
    78,534Gross profit
    
    
    58,155
    
    
    
    50,491
    
    
    
    5,039
    
    
    
    
    
    
    
    113,685Operating expenses:Sales and marketing
    
    
    15,685
    
    
    
    10,165
    
    
    
    1,748
    
    
    
    
    
    
    
    27,598Product development
    
    
    7,863
    
    
    
    10,615
    
    
    
    1,336
    
    
    
    
    
    
    
    19,814General and administrative
    
    
    10,306
    
    
    
    792
    
    
    
    469
    
    
    
    
    
    
    
    11,567Depreciation and amortization
    
    
    15,440
    
    
    
    3,623
    
    
    
    325
    
    
    
    
    
    
    
    19,388Impairment of goodwill
    
    
    107,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,000Acquisition related costs
    
    
    44
    
    
    
    82
    
    
    
    102
    
    
    
    
    
    
    
    228Restructuring costs
    
    
    3,037
    
    
    
    261
    
    
    
    1,151
    
    
    
    
    
    
    
    4,449Total operating expenses
    
    
    159,375
    
    
    
    25,538
    
    
    
    5,131
    
    
    
    
    
    
    
    190,044Operating income (loss)
    
    
    (101,220
    )
    
    
    24,953
    
    
    
    (92
    )
    
    
    
    
    
    
    (76,359
    )Interest expense
    
    
    (22,666
    )
    
    
    (7
    )
    
    
    (3
    )
    
    
    
    
    
    
    (22,676
    )Gain on retirement of debt
    
    
    14,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,327Other expense, net
    
    
    (126
    )
    
    
    (20
    )
    
    
    (481
    )
    
    
    
    
    
    
    (627
    )Income (loss) before income taxes
    
    
    (109,685
    )
    
    
    24,926
    
    
    
    (576
    )
    
    
    
    
    
    
    (85,335
    )Income tax expense
    
    
    9,072
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    9,149Net income (loss)
    
    $
    (118,757
    )
    
    $
    24,926
    
    
    $
    (653
    )
    
    $
    
    
    
    $
    (94,484
    )
 19




---



##### Table of Contents



Condensed Consolidating Statement of Operations for the Six Months Ended March 31, 2008
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    45,923
    
    
    $
    39,035
    
    
    $
    5,571
    
    
    $
    
    
    
    $
    90,529Services
    
    
    70,978
    
    
    
    46,786
    
    
    
    8,709
    
    
    
    
    
    
    
    126,473Total revenues
    
    
    116,901
    
    
    
    85,821
    
    
    
    14,280
    
    
    
    
    
    
    
    217,002Cost of revenues:Systems
    
    
    28,098
    
    
    
    16,712
    
    
    
    6,845
    
    
    
    
    
    
    
    51,655Services
    
    
    29,935
    
    
    
    12,872
    
    
    
    3,972
    
    
    
    
    
    
    
    46,779Total cost of revenues
    
    
    58,033
    
    
    
    29,584
    
    
    
    10,817
    
    
    
    
    
    
    
    98,434Gross profit
    
    
    58,868
    
    
    
    56,237
    
    
    
    3,463
    
    
    
    
    
    
    
    118,568Operating expenses:Sales and marketing
    
    
    18,752
    
    
    
    11,466
    
    
    
    2,309
    
    
    
    
    
    
    
    32,527Product development
    
    
    10,141
    
    
    
    11,139
    
    
    
    1,856
    
    
    
    
    
    
    
    23,136General and administrative
    
    
    13,012
    
    
    
    1,456
    
    
    
    1,479
    
    
    
    
    
    
    
    15,947Depreciation and amortization
    
    
    14,802
    
    
    
    2,754
    
    
    
    365
    
    
    
    
    
    
    
    17,921Acquisition related costs
    
    
    658
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    658Restructuring costs
    
    
    490
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    490Total operating expenses
    
    
    57,855
    
    
    
    26,815
    
    
    
    6,009
    
    
    
    
    
    
    
    90,679Operating income (loss)
    
    
    1,013
    
    
    
    29,422
    
    
    
    (2,546
    )
    
    
    
    
    
    
    27,889Interest expense
    
    
    (27,865
    )
    
    
    (1
    )
    
    
    (6
    )
    
    
    
    
    
    
    (27,872
    )Other income, net
    
    
    179
    
    
    
    207
    
    
    
    687
    
    
    
    
    
    
    
    1,073Income (loss) before income taxes
    
    
    (26,673
    )
    
    
    29,628
    
    
    
    (1,865
    )
    
    
    
    
    
    
    1,090Income tax expense
    
    
    551
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    554Net income (loss)
    
    $
    (27,224
    )
    
    $
    29,626
    
    
    $
    (1,866
    )
    
    $
    
    
    
    $
    536
 20




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the Six Months Ended March 31, 2009
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    30,919
    
    
    $
    (1,443
    )
    
    $
    (2,465
    )
    
    $
    
    
    
    $
    27,011Investing activities:Purchases of property and equipment
    
    
    (817
    )
    
    
    (5
    )
    
    
    (1
    )
    
    
    
    
    
    
    (823
    )Capitalized computer software and
database costs
    
    
    (4,034
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,034
    )Net cash used in investing activities
    
    
    (4,851
    )
    
    
    (5
    )
    
    
    (1
    )
    
    
    
    
    
    
    (4,857
    )Financing activities:Repurchases of common stock
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Payments on long-term debt
    
    
    (3,512
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,512
    )Repurchases of debt
    
    
    (20,215
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,215
    )Net cash used in financing activities
    
    
    (23,916
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,916
    )Net change in cash and cash
equivalents
    
    
    2,152
    
    
    
    (1,448
    )
    
    
    (2,466
    )
    
    
    
    
    
    
    (1,762
    )Cash and cash equivalents, beginning
of period
    
    
    55,926
    
    
    
    2,931
    
    
    
    5,932
    
    
    
    
    
    
    
    64,789Cash and cash equivalents, end of
period
    
    $
    58,078
    
    
    $
    1,483
    
    
    $
    3,466
    
    
    $
    
    
    
    $
    63,027
 Condensed Consolidating Statement of Cash Flows for the Six Months Ended March 31, 2008
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    15,230
    
    
    $
    7,166
    
    
    $
    1,222
    
    
    $
    
    
    
    $
    23,618Investing activities:Purchases of property and equipment
    
    
    (2,799
    )
    
    
    (145
    )
    
    
    (115
    )
    
    
    
    
    
    
    (3,059
    )Capitalized computer software and
database costs
    
    
    (3,237
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,237
    )Net cash used in investing activities
    
    
    (6,036
    )
    
    
    (145
    )
    
    
    (115
    )
    
    
    
    
    
    
    (6,296
    )Financing activities:Repurchases of common stock
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )Payments on long-term debt
    
    
    (375
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (375
    )Deferred financing costs
    
    
    (107
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )Net cash used in financing activities
    
    
    (496
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (496
    )Net change in cash and cash
equivalents
    
    
    8,698
    
    
    
    7,021
    
    
    
    1,107
    
    
    
    
    
    
    
    16,826Cash and cash equivalents, beginning
of period
    
    
    24,862
    
    
    
    4,154
    
    
    
    4,363
    
    
    
    
    
    
    
    33,379Cash and cash equivalents, end of
period
    
    $
    33,560
    
    
    $
    11,175
    
    
    $
    5,470
    
    
    $
    
    
    
    $
    50,205
 21




---



##### 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 Risk Factors included in our Annual Report on Form 10-K for the year ended
September 30, 2008, filed with the SEC on December 19, 2008, and under Part II, Item 1A of this
report.
 Overview
 Disclosures about Segments of an Enterprise and Related Information.
   §
    
    The hardlines and lumber 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. For the six months ended
March 31, 2009, we generated approximately 35.6% of our total revenues from the hardlines
and lumber vertical market.§
    
    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. For the six months ended March 31,
2009, we generated approximately 41.1% of our total revenues from the wholesale
distribution vertical market.§
    
    The automotive vertical market consists of 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 and Europe as well as
several chains in North America. For the six months ended March 31, 2009, we generated
approximately 20.1% of our total revenues from the automotive vertical market.§
    
    Other primarily consists of our productivity tools business, which is involved with
software migration services and application development tools. For the six months ended
March 31, 2009, we generated approximately 3.2% of our total revenues from other.
  
    
    Systems, which is comprised primarily of proprietary software applications;
implementation services; training; forms and paper products; and third-party software,
hardware and peripherals.
 22




---



##### Table of Contents




    
    Services, which is comprised primarily of product support and content and supply chain
services. Product support services are comprised of customer support activities, including
hardware, software and network support through our advice line, 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,
ecommerce, networking and security monitoring management solutions. We generally provide
our services on a subscription basis, and accordingly, revenues are generally recurring in
nature.
 Basis of Presentation
   Key Trends
   §
    
    Factors affecting revenue growth:
 o
    
    Extended sales cycles and deferral of purchase decisions.As a result of
the tightening credit markets and recession, customers and prospective customers
remain cautious with new capital investments leading to extended sales cycles and
more last minute decisions deferring the purchase of a system. This has contributed
to year over year declines in systems revenues in all of our vertical markets.o
    
    Lower Automotive customer retention rates affecting services revenues:
 §
    
    A major customer, General Parts, Inc., has been migrating from our
platforms since fiscal year 2005, resulting in a decline in services
revenues.§
    
    Services revenues have also declined, although to a lesser extent, as a
result of our smaller independent automotive customers going out of business
due to the current economic downturn.
 §
    
    Factors affecting cost structure and expenses:
 o
    
    Restructuring actions.As a result of the slowing economy, in fiscal year
2008 as well as in the first half of fiscal year 2009, our management approved
restructuring actions primarily related to eliminating certain employee positions
and consolidating certain excess facilities. We recorded approximately $4.4 million
of restructuring charges related to these actions during the six months ended March
31, 2009.o
    
    Expense Management.We also continue to focus on managing our
discretionary expenses. In addition to our restructuring actions, we have reduced
operating expenses; primarily incentive bonuses, commissions and travel expenses.
 23




---



##### Table of Contents



.
 Historical Results of Operations
 Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
 Total revenues
  24




---



##### Table of Contents



Three Months Ended March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber revenues:Systems
    
    $
    13,009
    
    
    $
    17,171
    
    
    $
    (4,162
    )
    
    
    (24.2
    )%Services
    
    
    21,162
    
    
    
    19,931
    
    
    
    1,231
    
    
    
    6.2
    %Total Hardlines and Lumber revenues
    
    $
    34,171
    
    
    $
    37,102
    
    
    $
    (2,931
    )
    
    
    (7.9
    )%Wholesale Distribution revenues:Systems
    
    $
    14,526
    
    
    $
    19,649
    
    
    $
    (5,123
    )
    
    
    (26.1
    )%Services
    
    
    25,998
    
    
    
    23,795
    
    
    
    2,203
    
    
    
    9.3
    %Total Wholesale Distribution revenues
    
    $
    40,524
    
    
    $
    43,444
    
    
    $
    (2,920
    )
    
    
    (6.7
    )%Automotive revenues:Systems
    
    $
    2,658
    
    
    $
    4,238
    
    
    $
    (1,580
    )
    
    
    (37.3
    )%Services
    
    
    16,338
    
    
    
    18,201
    
    
    
    (1,863
    )
    
    
    (10.2
    )%Total Automotive revenues
    
    $
    18,996
    
    
    $
    22,439
    
    
    $
    (3,443
    )
    
    
    (15.3
    )%Other revenues:Systems
    
    $
    719
    
    
    $
    3,554
    
    
    $
    (2,835
    )
    
    
    (79.8
    )%Services
    
    
    1,543
    
    
    
    1,553
    
    
    
    (10
    )
    
    
    (0.6
    )%Total Other revenues
    
    $
    2,262
    
    
    $
    5,107
    
    
    $
    (2,845
    )
    
    
    (55.7
    )%Total revenues:Systems
    
    $
    30,912
    
    
    $
    44,612
    
    
    $
    (13,700
    )
    
    
    (30.7
    )%Services
    
    
    65,041
    
    
    
    63,480
    
    
    
    1,561
    
    
    
    2.5
    %Total revenues
    
    $
    95,953
    
    
    $
    108,092
    
    
    $
    (12,139
    )
    
    
    (11.2
    )%
  §
    
    Hardlines and Lumber revenues Hardlines and Lumber revenues decreased by $2.9
million, or 7.9%. The systems revenue decrease was attributed to a reduction in the
volume of new system sales and the sale of additional products and modules, primarily as a
result of our customers exercising caution on making capital expenditures both due to the
weak economy and a slowing retail and residential housing environment. Services revenues
increased primarily as a result of our price increases for support services.§
    
    Wholesale Distribution revenues Wholesale Distribution revenues decreased by $2.9
million, or 6.7%. The systems revenue decrease was substantially attributable to a
reduction in the volume of new systems and the sale of additional products and modules,
primarily due to the weak economy and extended customer sales cycles. Services revenue
increased primarily as a result of our price increases for support services.§
    
    Automotive revenues Automotive revenues decreased by $3.4 million, or 15.3%. The
systems revenue decrease was attributed to a reduction in the volume of new system sales
and the sale of additional products and modules, primarily due to the weak economy and
extended sales cycle as well as the transition to new platforms. Services revenue
decreased primarily as a result of the known attrition of a major customer, General Parts,
Inc., and lower retention rates as a result of the global economic downturn.§
    
    Other revenues Other revenues decreased $2.8 million, or 55.7%, driven primarily by
lower systems sales as a result of a slow down in planned migrations by our customers to
new systems due to Hewlett-Packards continued support of one of its legacy systems through
2010.
 25




---



##### Table of Contents



Total cost of revenues and gross margins as a percentage of revenues
  Three Months Ended March 31,(in thousands)
    
    2009
    
    2008
    
    VarianceCost of systems revenues
    
    $
    16,923
    
    
    $
    25,258
    
    
    $
    (8,335
    )Systems gross margins
    
    
    45.3
    %
    
    
    43.4
    %Cost of services revenues
    
    $
    21,641
    
    
    $
    23,556
    
    
    $
    (1,915
    )Services gross margins
    
    
    66.7
    %
    
    
    62.9
    %Total cost of revenues
    
    $
    38,564
    
    
    $
    48,814
    
    
    $
    (10,250
    )Total gross margins
    
    
    59.8
    %
    
    
    54.8
    %
 §
    
    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 costs of professional services and installation headcount, royalty
payments, and allocations of overhead expenses, including facility and information
technology (IT) costs.Cost of systems revenues decreased by $8.3 million primarily as a result of lower direct
costs associated with lower overall systems revenues. System gross margins increased by 1.9
percentage points in the three months ended March 31, 2009 from the comparable period a year
ago. The increase is primarily attributed to improved margins on hardware equipment and
hardware installation as well as a mix shift to a higher concentration of wholesale
distribution systems revenue.§
    
    Cost of services revenues and services gross margins Cost of services revenues
primarily consist of material and direct labor associated with our advice line, material,
labor and production costs associated with our automotive catalog and allocations of
overhead expenses, including facility and IT costs. Generally, our services revenues have a
higher gross margin than our systems revenues.Cost of services revenues decreased by $1.9 million primarily as a result of labor related
cost reductions. Services gross margins increased by 3.8 percentage points in the three
months ended March 31, 2009 from the comparable period a year ago as a result of service
price increases and reductions in labor related costs and outsourced support costs. Total operating expenses
  Three
Months Ended March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Sales and marketing
    
    $
    12,581
    
    
    $
    16,102
    
    
    $
    (3,521
    )
    
    
    (21.9
    )%Product development
    
    
    9,656
    
    
    
    11,012
    
    
    
    (1,356
    )
    
    
    (12.3
    )%General and administrative
    
    
    5,837
    
    
    
    8,451
    
    
    
    (2,614
    )
    
    
    (30.9
    )%Depreciation and amortization
    
    
    9,683
    
    
    
    9,326
    
    
    
    357
    
    
    
    3.8
    %Impairment of goodwill
    
    
    82,000
    
    
    
    
    
    
    
    82,000
    
    
    
    Acquisition related costs
    
    
    52
    
    
    
    407
    
    
    
    (355
    )
    
    
    (87.3
    )%Restructuring costs
    
    
    2,691
    
    
    
    322
    
    
    
    2,369
    
    
    
    736.2
    %Total operating expenses
    
    $
    122,500
    
    
    $
    45,620
    
    
    $
    76,880
    
    
    
    168.5
    %
  §
    
    Sales and marketing Sales and marketing expense consists primarily of salaries and
commissions for our sales force, stock-based compensation expense, marketing expenses and an
allocation of overhead expenses including facilities and IT costs. Sales and marketing
expenses decreased by $3.5 million, or 21.9%, for the three months ended March 31, 2009
compared to the three months ended March 31, 2008. The decrease was primarily the result of
a reduction of $2.5 million
 26




---



##### Table of Contents



of labor related expenses, $0.3 million in travel, $0.2 million in outside services and $0.3
million of lower bad debt expense.§
    
    Product development Product development expense consists primarily of salaries,
stock-based compensation expense, outside services and an allocation of overhead expenses,
including facilities and IT costs. Product development expense decreased $1.4 million, or
12.3%, for the three months ended March 31, 2009 compared to the three months ended March
31, 2008. The decrease was primarily the result of reduction of $0.8 million in labor
related costs and $0.2 million in outside services as well as a $0.3 million increase in
software and database capitalization.§
    
    General and administrative General and administrative expense primarily consists of
salaries and bonuses; stock-based compensation expense; facility costs; finance, human
resource and legal services; IT support and telecommunication costs. General and
administrative expenses decreased by $2.6 million, or 30.9%, for the three months ended
March 31, 2009 compared to the three months ended March 31, 2008. The decrease is
primarily the result of a reduction of $0.3 million in labor related costs, $0.5 million in
legal and outside services, as well as the non-recurrence of $1.9 million of costs related
to strategic initiatives in the prior year.§
    
    Depreciation and amortization Depreciation and amortization expense consists of
depreciation of our fixed assets and amortization of our intangible assets. Depreciation
and amortization is not allocated to our segments. Depreciation and amortization expense
was $9.7 million for the three months ended March 31, 2009 compared to $9.3 million for the
three months ended March 31, 2008. The increase resulted primarily from the amortization
of the additional $36.0 million of intangible assets associated with the acquisition of
Eclipse.§
    
    Impairment of goodwill Due to the continuing global economic uncertainty and credit
crisis and the significant decrease in the level of overall spending, including spending in
the vertical markets that we serve, we determined it necessary to evaluate goodwill for
impairment as of December 31, 2008. We account for goodwill in accordance with Statement
of Financial Accounting Standards (SFAS) No. 141, BusinessCombinations, and SFAS No.
142, Goodwill and Other Intangible Assets. In accordance with SFAS No. 142, we completed
step two of our impairment analysis during the three months ended March 31, 2009, and
recorded an additional $82.0 million of goodwill impairment charges, comprised of $59.5
million related to Hardlines and Lumber and $29.5 million related to Automotive.Goodwill is 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. Our annual
testing through fiscal year 2008 indicated no impairment of goodwill had occurred. However,
the continuing global economic uncertainty and credit crisis have negatively impacted the
level of overall spending, including spending in the vertical markets that we serve. As a
result, we determined it necessary to evaluate goodwill for impairment as of December 31,
2008. In accordance with SFAS No. 142, we completed step one of the impairment analysis for
each of our reporting units and concluded that as of December 31, 2008, the fair value of
our Hardlines and Lumber and our Automotive reporting units was below their respective
carrying values, including goodwill. As such, step two of the impairment test was initiated
in accordance with SFAS No. 142. We were unable to complete the step two analysis prior to
filing our condensed consolidated financial statements for the three months ended December
31, 2008, due to its time consuming nature and the complexities of determining the implied
fair value of goodwill for each of these reporting units, but based on the work performed as
of the filing date of our quarterly report for that period, we recorded an estimated
goodwill impairment charge of $25.0 million, comprised of $18.5 million related to Hardlines
and Lumber and $6.5 million related to Automotive. As discussed above, during the three
months ended March 31, 2009, we completed the step two analysis and recorded an additional
$82.0 million of goodwill impairment charges. We will not be required to make any current
or future cash payments as a result of these impairment charges. As mentioned above,
goodwill is tested for impairment on an annual basis as of July 1. We will continue to
monitor whether conditions exist that indicate additional potential impairment has occurred.
If such conditions exist, we may be required to record additional impairments in the future
and such impairments, if any, may be material. See Note 4 to our unaudited condensed
consolidated financial statements for additional information about our goodwill impairment.§
    
    Acquisition related costs Acquisition related costs for the three months ended March
31, 2009 and 2008 were $0.1 million and $0.4 million, respectively, which primarily
included consulting fees and other professional services incurred in connection with
systems integration activities related to Eclipse.§
    
    Restructuring costs During the three months ended March 31, 2009 and 2008, our
management approved additional 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. In accordance with SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities,we recorded a charge of approximately $2.7 million and
$0.3 million, respectively, related to these actions.
 27




---



##### Table of Contents



Interest expense
  Gain on retirement of debt
  Other income (expense), net
  Income tax expense
  Contribution margin
      28




---



##### Table of Contents



Three Months Ended March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber
    
    $
    11,874
    
    
    $
    7,300
    
    
    $
    4,574
    
    
    
    62.7
    %Wholesale Distribution
    
    
    16,441
    
    
    
    16,824
    
    
    
    (383
    )
    
    
    (2.3
    )%Automotive
    
    
    6,954
    
    
    
    7,869
    
    
    
    (915
    )
    
    
    (11.6
    )%Other
    
    
    556
    
    
    
    896
    
    
    
    (340
    )
    
    
    (37.9
    )%Total contribution margin
    
    $
    35,825
    
    
    $
    32,889
    
    
    $
    2,936
    
    
    
    8.9
    %
 §
    
    Hardlines and Lumber contribution margin The contribution margin for Hardlines and
Lumber increased $4.6 million despite the revenue decrease of $2.9 million. The increase
in contribution margin was primarily attributed to improved hardware equipment and
installation margins; professional service utilization; support price increases; and
aggressive cost management of labor related costs, outside services and travel.§
    
    Wholesale Distribution contribution margin The contribution margin for Wholesale
Distribution decreased by $0.4 million primarily as the result of $2.9 million in lower
revenues, which drove lower gross margins. The revenue decrease was attributed to reduced
system revenue as a result of the economic downturn partially offset by support price
increases. The revenue reduction impact on contribution margin was largely offset by
aggressive cost management in labor related costs.§
    
    Automotive contribution margin The contribution margin for Automotive decreased by
$0.9 million primarily due to $3.4 million of lower revenues which drove lower gross
margins. The revenue decrease was attributed to reduced system revenue, primarily due to
the weak economy, extended sales cycles and the transition to new platforms as well as a
reduction in services revenue primarily as a result of the known attrition of a major
customer, General Parts, Inc., and lower retention rates as a result of the global economic
downturn. The revenue reduction impact on contribution margin was partially offset by
lower labor related costs, additional database capitalization and lower bad debt expense.§
    
    Other contribution margin The contribution margin for Other decreased by $0.3
million, primarily due to $2.8 million in reduced revenues as a result of a slow down in
planned migrations by our customers to new systems due to Hewlett-Packards continued
support of one of its legacy systems through 2010. The revenue reduction was largely
offset by reduced labor related costs and outside services.
  Three Months Ended March 31,(in thousands)
    
    2009
    
    
    2008Segment contribution margin
    
    $
    35,825
    
    
    $
    32,889Corporate and unallocated costs
    
    
    (5,679
    )
    
    
    (8,286
    )Stock-based compensation expense
    
    
    (831
    )
    
    
    (890
    )Depreciation and amortization
    
    
    (9,683
    )
    
    
    (9,326
    )Impairment of goodwill
    
    
    (82,000
    )
    
    
    Acquisition related costs
    
    
    (52
    )
    
    
    (407
    )Restructuring costs
    
    
    (2,691
    )
    
    
    (322
    )Interest expense
    
    
    (9,688
    )
    
    
    (14,182
    )Gain on retirement of debt
    
    
    14,327
    
    
    
    Other income (expense), net
    
    
    (298
    )
    
    
    509Loss before income taxes
    
    $
    (60,770
    )
    
    $
    (15
    )
 29




---



##### Table of Contents



Six Months Ended March 31, 2009 Compared to Six Months Ended March 31, 2008
 Total revenues
   Six Months Ended March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber revenues:Systems
    
    $
    27,146
    
    
    $
    36,847
    
    
    $
    (9,701
    )
    
    
    (26.3
    )%Services
    
    
    41,249
    
    
    
    40,045
    
    
    
    1,204
    
    
    
    3.0
    %Total Hardlines and Lumber revenues
    
    $
    68,395
    
    
    $
    76,892
    
    
    $
    (8,497
    )
    
    
    (11.1
    )%Wholesale Distribution revenues:Systems
    
    $
    28,265
    
    
    $
    39,034
    
    
    $
    (10,769
    )
    
    
    (27.6
    )%Services
    
    
    50,657
    
    
    
    46,850
    
    
    
    3,807
    
    
    
    8.1
    %Total Wholesale Distribution revenues
    
    $
    78,922
    
    
    $
    85,884
    
    
    $
    (6,962
    )
    
    
    (8.1
    )%Automotive revenues:Systems
    
    $
    5,894
    
    
    $
    7,749
    
    
    $
    (1,855
    )
    
    
    (23.9
    )%Services
    
    
    32,791
    
    
    
    36,475
    
    
    
    (3,684
    )
    
    
    (10.1
    )%Total Automotive revenues
    
    $
    38,685
    
    
    $
    44,224
    
    
    $
    (5,539
    )
    
    
    (12.5
    )%Other revenues:Systems
    
    $
    3,139
    
    
    $
    6,899
    
    
    $
    (3,760
    )
    
    
    (54.5
    )%Services
    
    
    3,078
    
    
    
    3,103
    
    
    
    (25
    )
    
    
    (0.8
    )%Total Other revenues
    
    $
    6,217
    
    
    $
    10,002
    
    
    $
    (3,785
    )
    
    
    (37.8
    )%Total revenues:Systems
    
    $
    64,444
    
    
    $
    90,529
    
    
    $
    (26,085
    )
    
    
    (28.8
    )%Services
    
    
    127,775
    
    
    
    126,473
    
    
    
    1,302
    
    
    
    1.0
    %Total revenues
    
    $
    192,219
    
    
    $
    217,002
    
    
    $
    (24,783
    )
    
    
    (11.4
    )%
  §
    
    Hardlines and Lumber revenues Hardlines and Lumber revenues decreased by $8.5 million,
or 11.1%. The systems revenue decrease was attributed to a reduction in the volume of new
system sales and the sale of additional products and modules, primarily as a result of our
customers exercising caution on making capital expenditures both due to the weak economy
and a slowing retail and residential housing environment. Services revenues increased
primarily as a result of our price increases for support services.§
    
    Wholesale Distribution revenues Wholesale Distribution revenues decreased by $7.0
million, or 8.1%. The systems revenue decrease was substantially attributable to a
reduction in the volume of new systems and the sale of additional products and modules,
primarily due to the weak economy and extended customer sales cycles. Services revenue
increased primarily as a result of our price increases for support services.§
    
    Automotive revenues Automotive revenues decreased by $5.5 million, or 12.5%. The
systems revenue decrease was attributed to a reduction in the volume of new system sales
and the sale of additional products and modules, primarily due to the weak economy and
extended sales cycles as well as the transition to new platforms. Services revenue
decreased
 30




---



##### Table of Contents



primarily as a result of the known attrition of a major customer, General Parts,
Inc., and lower retention rates as a result of the global economic downturn.
 §
    
    Other revenues Other revenues decreased $3.8 million, or 37.8%, driven primarily by
lower systems sales as a result of a slow down in planned migrations by our customers to
new systems due to Hewlett-Packards continued support of one of its legacy systems through
2010.
 Total cost of revenues and gross margins as a percentage of revenues
  Six Months ended March 31,(in thousands)
    
    2009
    
    2008
    
    VarianceCost of systems revenues
    
    $
    34,888
    
    
    $
    51,655
    
    
    $
    (16,767
    )Systems gross margins
    
    
    45.9
    %
    
    
    42.9
    %Cost of services revenues
    
    $
    43,646
    
    
    $
    46,779
    
    
    $
    (3,133
    )Services gross margins
    
    
    65.8
    %
    
    
    63.0
    %Total cost of revenues
    
    $
    78,534
    
    
    $
    98,434
    
    
    $
    (19,900
    )Total gross margins
    
    
    59.1
    %
    
    
    54.6
    %
 §
    
    Cost of systems revenues and systems gross margins Cost of systems revenues decreased
by $16.8 million primarily as a result of lower direct costs associated with lower overall
systems revenues. System gross margins increased by 3.0 percentage points in the six
months ended March 31, 2009 from the comparable period a year ago. The increase is
primarily attributed to improved margins on hardware equipment and hardware installation,
improved utilization of professional services personnel, as well as a mix shift to a higher
concentration of wholesale distribution systems revenue.§
    
    Cost of services revenues and services gross margins Cost of services revenues
decreased by $3.1 million primarily as a result of labor related cost reductions. Services
gross margins increased by 2.8 percentage points in the six months ended March 31, 2009
from the comparable period a year ago as a result of service price increases and the
reductions in labor related costs and outsourced support costs.
 Total operating expenses
  Six Months Ended March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Sales and marketing
    
    $
    27,598
    
    
    $
    32,527
    
    
    $
    (4,929
    )
    
    
    (15.2
    )%Product development
    
    
    19,814
    
    
    
    23,136
    
    
    
    (3,322
    )
    
    
    (14.4
    )%General and administrative
    
    
    11,567
    
    
    
    15,947
    
    
    
    (4,380
    )
    
    
    (27.5
    )%Depreciation and amortization
    
    
    19,388
    
    
    
    17,921
    
    
    
    1,467
    
    
    
    8.2
    %Impairment of goodwill
    
    
    107,000
    
    
    
    
    
    
    
    107,000
    
    
    
    Acquisition related costs
    
    
    228
    
    
    
    658
    
    
    
    (430
    )
    
    
    (65.3
    )%Restructuring costs
    
    
    4,449
    
    
    
    490
    
    
    
    3,959
    
    
    
    807.9
    %Total operating expenses
    
    $
    190,044
    
    
    $
    90,679
    
    
    $
    99,365
    
    
    
    109.6
    %
  §
    
    Sales and marketing Sales and marketing expense decreased by $4.9 million, or 15.2%,
for the six months ended March 31, 2009 compared to the six months ended March 31, 2008.
The decrease was primarily the result of a reduction of $3.3 million in labor related
expenses, $1.0 million of bad debt expense, $0.3 million in travel, and $0.2 million in
outside services.
 31




---



##### Table of Contents



§
    
    Product development Product development expense decreased $3.3 million, or 14.4%, for
the six months ended March 31, 2009 compared to the six months ended March 31, 2008. The
decrease was primarily the result of a reduction of $2.2 million in labor related costs,
$0.3 million in outside services as well as a $0.6 million increase in software and
database capitalization.§
    
    General and administrative General and administrative expense decreased by $4.4
million, or 27.5%, for the six months ended March 31, 2009 compared to the six months ended
March 31, 2008. The decrease is primarily the result of a reduction of $1.3 million in
labor related costs, $0.7 million in reduced legal fees and outside services as well as a
$0.3
million one-time insurance cost reduction and the non-recurrence of $2.2 million of costs
related to strategic initiatives in the prior year.§
    
    Depreciation and amortization Depreciation and amortization expense was $19.4 million
for the six months ended March 31, 2009 compared to $17.9 million for the six months ended
March 31, 2008. The increase resulted primarily from the amortization of the additional
$36.0 million of intangible assets associated with the acquisition of Eclipse.§
    
    Impairment of goodwillDue to the continuing global economic uncertainty and credit
crisis and the significant decrease in the level of overall spending, including spending in
the vertical markets that we serve, we determined it necessary to evaluate goodwill for
impairment as of December 31, 2008. We account for goodwill in accordance with SFAS No.
141, BusinessCombinations, and SFAS No. 142, Goodwill and Other Intangible Assets. In
accordance with SFAS No. 142, we recorded a goodwill impairment charge of $107.0 million,
comprised of $78.0 million related to Hardlines and Lumber and $29.0 million related to
Automotive, during the six months ended March 31, 2009.Goodwill is 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. Our annual
testing through fiscal year 2008 indicated no impairment of goodwill had occurred. However,
the continuing global economic uncertainty and credit crisis have negatively impacted the
level of overall spending, including spending in the vertical markets that we serve. As a
result, we determined it necessary to evaluate goodwill for impairment as of December 31,
2008. In accordance with SFAS No. 142, we completed step one of the impairment analysis for
each of our reporting units and concluded that as of December 31, 2008, the fair value of
our Hardlines and Lumber and our Automotive reporting units was below their respective
carrying values, including goodwill. As such, step two of the impairment test was initiated
in accordance with SFAS No. 142. We were unable to complete the step two analysis prior to
filing our condensed consolidated financial statements for the three months ended December
31, 2008, due to its time consuming nature and the complexities of determining the implied
fair value of goodwill for each of these reporting units, but based on the work performed as
of the filing date of our quarterly report for that period, we recorded an estimated
goodwill impairment charge of $25.0 million, comprised of $18.5 million related to Hardlines
and Lumber and $6.5 million related to Automotive. During the three months ended March 31,
2009, we completed the step two analysis and recorded an additional $82.0 million of
goodwill impairment charges comprised of $59.5 million related to Hardlines and Lumber and
$22.5 million related to Automotive. We will not be required to make any current or future
cash payments as a result of these impairment charges. As mentioned above, goodwill is
tested for impairment on an annual basis as of July 1. We will continue to monitor whether
conditions exist that indicate additional potential impairment has occurred. If such
conditions exist, we may be required to record additional impairments in the future and such
impairments, if any, may be material. See Note 4 to our unaudited condensed consolidated
financial statements.§
    
    Acquisition related costs Acquisition related costs for the six months ended March 31,
2009 and 2008 were $0.2 million and $0.7 million, respectively, which primarily included
consulting fees and other professional services incurred in connection with systems
integration activities related to Eclipse.§
    
    Restructuring costs During the six months ended March 31, 2009 and 2008, our
management approved additional restructuring actions primarily related to eliminating
certain additional 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. In accordance with SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities,we recorded a charge of approximately $4.4
million and $0.5 million, respectively, related to these actions.
 Interest expense
  32




---



##### Table of Contents



Gain on retirement of debt
  Other income (expense), net
  Income tax expense
  Contribution margin
       Six Months Ended March 31,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber
    
    $
    20,779
    
    
    $
    16,263
    
    
    $
    4,516
    
    
    
    27.8
    %Wholesale Distribution
    
    
    30,849
    
    
    
    32,588
    
    
    
    (1,739
    )
    
    
    (5.3
    )%Automotive
    
    
    13,736
    
    
    
    15,111
    
    
    
    (1,375
    )
    
    
    (9.1
    )%Other
    
    
    2,477
    
    
    
    684
    
    
    
    1,793
    
    
    
    262.1
    %Total contribution margin
    
    $
    67,841
    
    
    $
    64,646
    
    
    $
    3,195
    
    
    
    4.9
    %
 33




---



##### Table of Contents



§
    
    Hardlines and Lumber contribution margin The contribution margin for Hardlines and
Lumber increased $4.5 million despite the revenue decrease of $8.5 million. The increase
in contribution margin was primarily attributed to improved hardware equipment and
installation margins; professional service utilization; support price increases; and
aggressive cost management of labor related costs, outside services and travel.§
    
    Wholesale Distribution contribution margin The contribution margin for Wholesale
Distribution decreased by $1.7 million primarily as the result of $7.0 million in lower
revenues, which drove lower gross margins. The revenue decrease was attributed to reduced
systems revenue as a result of economic downturn partially offset by our support price
increases.
The revenue reduction impact on contribution margin was largely offset by aggressive cost
management in labor related costs.§
    
    Automotive contribution margin The contribution margin for Automotive decreased by
$1.4 million primarily due to $5.5 million of lower revenues, which drove lower gross
margins. The systems revenue decrease was attributed to a reduction in the volume of new
system sales and the sale of additional products and modules, primarily due to the weak
economy and extended sales cycles as well as the transition to new platforms. Services
revenue decreased primarily as a result of the known attrition of a major customer, General
Parts, Inc., and lower retention rates as a result of the global economic downturn. The
revenue reduction impact on contribution margin was partially offset by an increase in
database capitalization, reduced labor related costs and lower bad debt expense.§
    
    Other contribution margin The contribution margin for Other increased by $1.8 million,
primarily due to reduced labor costs and outside services, which offset the $3.8 million in
reduced revenues as a result of a slow down in planned migrations by our customers to new
systems due to Hewlett-Packards continued support of one of its legacy systems through
2010.
  Six Months Ended March 31,(in thousands)
    
    2009
    
    
    2008Segment contribution margin
    
    $
    67,841
    
    
    $
    64,646Corporate and unallocated costs
    
    
    (11,241
    )
    
    
    (15,916
    )Stock-based compensation expense
    
    
    (1,894
    )
    
    
    (1,772
    )Depreciation and amortization
    
    
    (19,388
    )
    
    
    (17,921
    )Impairment of goodwill
    
    
    (107,000
    )
    
    
    Acquisition related costs
    
    
    (228
    )
    
    
    (658
    )Restructuring costs
    
    
    (4,449
    )
    
    
    (490
    )Interest expense
    
    
    (22,676
    )
    
    
    (27,872
    )Gain on retirement of debt
    
    
    14,327
    
    
    
    Other income (expense), net
    
    
    (627
    )
    
    
    1,073Income (loss) before income taxes
    
    $
    (85,335
    )
    
    $
    1,090
 Change in Contractual Obligations
  Liquidity and Capital Resources
 Overview
   34




---



##### Table of Contents



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, 1.25% with respect to base rate borrowings and 2.25%
with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of
certain leverage ratios.
  35




---



##### Table of Contents




    
    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
    
    change the nature of our business.
  
    
    a maximum total leverage ratio; and
    
    a minimum interest coverage ratio.
  Hedging and Derivative Instruments
  Senior Subordinated Notes due 2016
    
    
    incur additional indebtedness;
    
    pay dividends on or make other distributions or repurchase our capital stock;
    
    make certain investments;
    
    enter into certain types of transactions with affiliates;
    
    use assets as security in other transactions; and
    
    sell certain assets or merge with or into other companies.
  36




---



##### Table of Contents



Six Months Ended March 31, 2009 Compared to Six Months Ended March 31, 2008
      Covenant Compliance
  37




---



##### Table of Contents



Twelve Months EndedMarch 31,(in thousands)
    
    2009
    
    
    2008Net income (loss)
    
    $
    (91,399
    )
    
    $
    490Acquisition costs
    
    
    263
    
    
    
    891Deferred revenue purchase accounting adjustment
    
    
    927
    
    
    
    1,733Adjusted net income (loss)
    
    
    (90,209
    )
    
    
    3,114Interest expense
    
    
    46,000
    
    
    
    52,400Income tax expense and other income-based taxes
    
    
    13,794
    
    
    
    6,910Depreciation and amortization
    
    
    38,721
    
    
    
    33,319Gain on retirement of debt
    
    
    (14,327
    )
    
    
    Non-cash charges (impairment charges and
stock-based compensation expense)
    
    
    110,410
    
    
    
    3,722Non-recurring cash charges and restructuring charges
    
    
    8,333
    
    
    
    2,852Deferred compensation payments
    
    
    237
    
    
    
    446Sponsor payments
    
    
    132
    
    
    
    103Foreign exchange gain
    
    
    330
    
    
    
    (518
    )Acquired company EBITDA
    
    
    
    
    
    
    6,723Pro- forma adjustments
    
    
    367
    
    
    
    1,466Adjusted EBITDA
    
    $
    113,788
    
    
    $
    110,537
 38




---



##### Table of Contents



CovenantRequirements
    
    Our RatioSenior Secured Credit Agreement (1)Maximum consolidated total debt to adjusted EBITDA ratio
    
    
    5.00x
    
    
    
    4.59Minimum adjusted EBITDA to consolidated interest expense
    
    
    2.00x
    
    
    
    2.63Senior Subordinated Notes (2)Minimum adjusted EBITDA to fixed charges ratio required to incur additional
indebtedness pursuant to ratio provisions
    
    
    2.00x
    
    
    
    2.63
 
 (1)
    
    Our senior secured credit agreement requires us to maintain a consolidated total debt to
adjusted EBITDA ratio of a maximum of 4.75x at the end of the fiscal year ending September
30, 2009, 4.50x by the end of the fiscal year ending September 30, 2010 and 3.75x by the end
of the fiscal year ending September 30, 2011. 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 March 31, 2009, our consolidated total debt was $522.4 million,
consisting of total debt other than certain indebtedness totaling $577.9 million, net of cash
and cash equivalents in excess of $7.5 million totaling $55.5 million. We are also required
to maintain a adjusted EBITDA to consolidated interest expense ratio of a minimum of 2.25x at
the end of the fiscal year ending September 30, 2009, 2.50x by the end of the fiscal year
ending September 30, 2010 and 2.75x by the end of the fiscal year ending September 30, 2011.
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
 Fair Value Measurements Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classifications or Measurements under
Statement 13 Effective Date of FASB Statement No. 157, Determining the
Fair Value of a Financial Asset When the Market for That Asset is Not Active. Accounting for Leases
 Disclosures about Derivative Instruments and Hedging
Activities  An Amendment of FASB Statement No. 133
 39




---



##### 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
  40




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1 Legal Proceedings
  
 Item 1A Risk Factors
  We have recorded a goodwill impairment charge and if our goodwill is further impaired in the
future, we may record additional charges to earnings, which could adversely impact our results of
operations.
 Goodwill and Other Intangible Assets
 
 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3 Defaults Upon Senior Securities
  
 Item 4 Submission of Matters to a Vote of Security Holders
  41




---



##### Table of Contents



Item 5 Other Information
  
 Item 6 Exhibits
  Incorporated by ReferenceDateofExhibit
    
    
    
    
    
    File
    
    First
    
    Exhibit
    
    ProvidedNumber
    
    Exhibit Description
    
    Form
    
    Number
    
    Filing
    
    Number
    
    Herewith10.1*
    
    Activant Solutions Inc. Incentive Bonus Plan
    
    
    
    
    
    
    
    
    
    X31.1
    
    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
 
 *
    
    Represents a management contract or compensatory plan.**
    
    This certification is not deemed filed for purposes of Section 18 of 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 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by reference. 42




---



##### Table of Contents



SIGNATURE
  ACTIVANT SOLUTIONS INC.Date: May 13, 2009
    
    By:
    
    /s/ KATHLEEN M. CRUSCOKathleen M. CruscoSenior Vice President and Chief Financial Officer(Principal Financial and Duly Authorized Officer)
 43




---



##### Table of Contents



EXHIBIT INDEX
 Incorporated by ReferenceExhibit
    
    
    
    
    
    File
    
    Date of
    
    Exhibit
    
    ProvidedNumber
    
    Exhibit Description
    
    Form
    
    Number
    
    First Filing
    
    Number
    
    Herewith10.1*
    
    Activant Solutions Inc. Incentive Bonus Plan
    
    
    
    
    
    
    
    
    
    X31.1
    
    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
 
 *
    
    Represents a management contract or compensatory plan.**
    
    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. 44