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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 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
(State or other jurisdiction of 
incorporation or organization)
    
    94-2160013
(I.R.S. Employer
Identification No.)7683 Southfront Road 
Livermore, CA
(Address of principal executive offices)
    
    94551
(Zip Code)
 (925) 449-0606
 o þ
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o
 o þ
  Class
    
    Outstanding at August 12, 2009Common Stock, par value $0.01 per share
    
    10 shares




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##### 



ACTIVANT SOLUTIONS INC.
 REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2009
 INDEX
 PageForward-Looking Statements
    
    
    2PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2009 and September 30, 2008
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three and Nine Months Ended June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June
30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    43PART II  OTHER INFORMATION
    
    
    44Item 1. Legal Proceedings
    
    
    44Item 1A. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3. Defaults Upon Senior Securities
    
    
    44Item 4. Submission of Matters to a Vote of Security Holders
    
    
    44Item 5. Other Information
    
    
    44Item 6. Exhibits
    
    
    45SIGNATURE
    
    
    46EXHIBIT INDEX
    
    
    47EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2




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FORWARD-LOOKING STATEMENTS
   
    
    the negative effect 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 any future goodwill 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, our subsequent
quarterly reports and elsewhere in this report, including
under Part II, Item 1A of this report.
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 June 30,
    
    
    September 30,(in thousands, except share data)
    
    2009
    
    
    2008ASSETS:Current assets:Cash and cash equivalents
    
    $
    44,167
    
    
    $
    64,789Trade accounts receivable, net of allowance
for doubtful accounts of $4,564 and $5,415 at
June 30, 2009 and September 30, 2008,
respectively
    
    
    35,004
    
    
    
    45,138Inventories
    
    
    5,809
    
    
    
    5,310Deferred income taxes
    
    
    6,673
    
    
    
    6,226Income taxes receivable
    
    
    
    
    
    
    1,186Prepaid expenses and other current assets
    
    
    6,499
    
    
    
    5,124Total current assets
    
    
    98,152
    
    
    
    127,773Property and equipment, net
    
    
    6,341
    
    
    
    8,942Intangible assets, net
    
    
    198,895
    
    
    
    217,058Goodwill
    
    
    551,218
    
    
    
    662,209Deferred financing costs
    
    
    9,492
    
    
    
    13,130Other assets
    
    
    3,208
    
    
    
    2,172Total assets
    
    $
    867,306
    
    
    $
    1,031,284LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    16,375
    
    
    $
    19,181Payroll related accruals
    
    
    15,444
    
    
    
    15,020Deferred revenue
    
    
    34,248
    
    
    
    32,518Current portion of long-term debt
    
    
    
    
    
    
    3,325Accrued expenses and other current liabilities
    
    
    16,835
    
    
    
    15,484Total current liabilities
    
    
    82,902
    
    
    
    85,528Long-term debt
    
    
    542,895
    
    
    
    613,787Deferred tax liabilities
    
    
    51,965
    
    
    
    54,028Other liabilities
    
    
    18,634
    
    
    
    18,625Total liabilities
    
    
    696,396
    
    
    
    771,968Commitments and contingenciesCommon Stock:Par value $0.01 per share, 1,000 shares
authorized, 10 shares issued and outstanding,
at June 30, 2009 and September 30, 2008Additional paid-in capital
    
    
    256,798
    
    
    
    254,148Retained earnings (accumulated deficit)
    
    
    (75,515
    )
    
    
    11,355Accumulated other comprehensive loss:Unrealized loss on cash flow hedges
    
    
    (8,518
    )
    
    
    (5,585
    )Cumulative translation adjustment
    
    
    (1,855
    )
    
    
    (602
    )Total stockholders equity
    
    
    170,910
    
    
    
    259,316Total liabilities and stockholders equity
    
    $
    867,306
    
    
    $
    1,031,284
  3




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ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Systems
    
    $
    27,188
    
    
    $
    40,440
    
    
    $
    91,632
    
    
    $
    130,969Services
    
    
    63,737
    
    
    
    63,283
    
    
    
    191,512
    
    
    
    189,756Total revenues
    
    
    90,925
    
    
    
    103,723
    
    
    
    283,144
    
    
    
    320,725Cost of revenues (exclusive of depreciation
and amortization of $4,272, $4,403, $13,332,
and $12,408 for the three months ended June
30, 2009 and 2008 and nine months ended June
30, 2009 and 2008, respectively, included in
amounts shown separately below):Systems (Note 8)
    
    
    15,627
    
    
    
    22,365
    
    
    
    50,515
    
    
    
    74,020Services (Note 8)
    
    
    20,523
    
    
    
    23,081
    
    
    
    64,169
    
    
    
    69,860Total cost of revenues
    
    
    36,150
    
    
    
    45,446
    
    
    
    114,684
    
    
    
    143,880Gross profit
    
    
    54,775
    
    
    
    58,277
    
    
    
    168,460
    
    
    
    176,845Operating expenses:Sales and marketing (Note 8)
    
    
    13,338
    
    
    
    15,356
    
    
    
    40,936
    
    
    
    47,883Product development (Note 8)
    
    
    9,453
    
    
    
    10,774
    
    
    
    29,267
    
    
    
    33,910General and administrative (Note 8)
    
    
    6,058
    
    
    
    8,211
    
    
    
    17,625
    
    
    
    24,158Depreciation and amortization
    
    
    9,348
    
    
    
    9,640
    
    
    
    28,736
    
    
    
    27,561Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    107,000
    
    
    
    Acquisition related costs
    
    
    32
    
    
    
    264
    
    
    
    260
    
    
    
    922Restructuring costs
    
    
    (40
    )
    
    
    1,636
    
    
    
    4,409
    
    
    
    2,126Total operating expenses
    
    
    38,189
    
    
    
    45,881
    
    
    
    228,233
    
    
    
    136,560Operating income (loss)
    
    
    16,586
    
    
    
    12,396
    
    
    
    (59,773
    )
    
    
    40,285Interest expense
    
    
    (9,722
    )
    
    
    (11,800
    )
    
    
    (32,398
    )
    
    
    (39,672
    )Gain on retirement of debt
    
    
    4,631
    
    
    
    
    
    
    
    18,958
    
    
    
    Other income (expense), net
    
    
    21
    
    
    
    469
    
    
    
    (606
    )
    
    
    1,542Income (loss) before income taxes
    
    
    11,516
    
    
    
    1,065
    
    
    
    (73,819
    )
    
    
    2,155Income tax expense
    
    
    3,902
    
    
    
    236
    
    
    
    13,051
    
    
    
    790Net income (loss)
    
    $
    7,614
    
    
    $
    829
    
    
    $
    (86,870
    )
    
    $
    1,365Comprehensive income (loss):Net income (loss)
    
    $
    7,614
    
    
    $
    829
    
    
    $
    (86,870
    )
    
    $
    1,365Unrealized gain (loss) on cash flow hedges
    
    
    2,025
    
    
    
    3,966
    
    
    
    (2,933
    )
    
    
    (2,686
    )Foreign currency translation adjustment
    
    
    290
    
    
    
    (292
    )
    
    
    (1,253
    )
    
    
    (512
    )Comprehensive income (loss)
    
    $
    9,929
    
    
    $
    4,503
    
    
    $
    (91,056
    )
    
    $
    (1,833
    )
  4




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ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended June 30,(in thousands)
    
    2009
    
    
    2008Operating activities:Net income (loss)
    
    $
    (86,870
    )
    
    $
    1,365Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Impairment of goodwill
    
    
    107,000
    
    
    
    Gain on retirement of debt
    
    
    (18,958
    )
    
    
    Loss on disposal of assets
    
    
    19
    
    
    
    Stock-based compensation expense
    
    
    2,839
    
    
    
    2,279Depreciation
    
    
    4,021
    
    
    
    4,554Amortization of intangible assets
    
    
    24,715
    
    
    
    23,007Amortization of deferred financing costs
    
    
    1,781
    
    
    
    1,860Provision for doubtful accounts
    
    
    1,180
    
    
    
    2,418Deferred income taxes
    
    
    (2,510
    )
    
    
    (9,731
    )Changes in assets and liabilities:Trade accounts receivable
    
    
    8,954
    
    
    
    9,573Inventories
    
    
    (499
    )
    
    
    393Prepaid expenses and other assets
    
    
    (1,225
    )
    
    
    1,582Accounts payable
    
    
    (2,856
    )
    
    
    (4,086
    )Deferred revenue
    
    
    1,730
    
    
    
    2,314Accrued expenses and other
    
    
    1,608
    
    
    
    37Net cash provided by operating activities
    
    
    40,929
    
    
    
    35,565Investing activities:Purchases of property and equipment
    
    
    (1,458
    )
    
    
    (4,114
    )Capitalized computer software and database costs
    
    
    (6,552
    )
    
    
    (4,912
    )Net cash used in investing activities
    
    
    (8,010
    )
    
    
    (9,026
    )Financing activities:Repurchases of common stock
    
    
    (189
    )
    
    
    (13
    )Payments on long-term debt
    
    
    (13,512
    )
    
    
    (563
    )Repurchases of debt
    
    
    (39,840
    )
    
    
    Deferred financing costs
    
    
    
    
    
    
    (117
    )Net cash used in financing activities
    
    
    (53,541
    )
    
    
    (693
    )Net change in cash and cash equivalents
    
    
    (20,622
    )
    
    
    25,846Cash and cash equivalents, beginning of period
    
    
    64,789
    
    
    
    33,379Cash and cash equivalents, end of period
    
    $
    44,167
    
    
    $
    59,225Supplemental disclosures of cash flow informationCash paid during the period for interest
    
    $
    38,288
    
    
    $
    41,089Cash paid during the period for income taxes (net of receipts)
    
    $
    6,636
    
    
    $
    6,952
  5




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ACTIVANT SOLUTIONS INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION
     NOTE 2  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Interim Disclosures
About Fair Value of Financial Instruments. Disclosures about Fair Value of Financial
Instruments Interim Financial Reporting
  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, and FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.
 6




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Accounting for Leases
 Disclosures about Derivative Instruments and Hedging
ActivitiesAn Amendment of FASB Statement No. 133
 Business Combinationsa replacement of FASB
Statement 141
 NOTE 3  INVENTORIES
  NOTE 4  GOODWILL
  June 30,
    
    
    September 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2007Hardlines and Lumber
    
    $
    107,952
    
    
    $
    186,480
    
    
    $
    187,462Wholesale Distribution
    
    
    334,288
    
    
    
    335,018
    
    
    
    343,140Automotive
    
    
    99,214
    
    
    
    128,534
    
    
    
    129,350Other
    
    
    9,764
    
    
    
    12,177
    
    
    
    12,254Total
    
    $
    551,218
    
    
    $
    662,209
    
    
    $
    672,206
 Business Combinations Goodwill and Other Intangible Assets
 7




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NOTE 5  DEBT
  June 30,
    
    
    September 30,(in thousands)
    
    2009
    
    
    2008Senior secured term loan due 2013
    
    $
    418,600
    
    
    $
    422,112Senior subordinated notes due 2016
    
    
    114,295
    
    
    
    175,000Revolving credit facility due 2011
    
    
    10,000
    
    
    
    20,000Total debt
    
    
    542,895
    
    
    
    617,112Current portion
    
    
    
    
    
    
    (3,325
    )Long-term debt
    
    $
    542,895
    
    
    $
    613,787
 Senior Secured Credit Agreement
     8




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
    
    under the term loan, 1.00% with respect to base rate borrowings and 2.00% with respect to
Eurodollar rate borrowings;
    
    under the incremental term loan, 1.50% with respect to base rate borrowings and 2.50% with
respect to Eurodollar rate borrowings; and
    
    under the revolving credit
facility, 1.00% with respect to base rate borrowings and 2.00%
with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of
certain leverage ratios.
   Derivative Instruments and Hedging Activities
  Accounting for Derivative Instruments and Hedging Activities
  (in thousands)Unrealized loss in OCI as September 30, 2008
    
    $
    (9,282
    )Net decrease in fair value
    
    
    (4,854
    )Unrealized loss in OCI as June 30, 2009
    
    $
    (14,136
    )
 9




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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 ValueInterest rate swaps due 2009
    
    $  50,000
    
    Prepaid expenses and other current assets
    
    $ 
    
    Accrued expenses and other current liabilities
    
    $  (1,130)Interest rate swaps due 2011
    
    $140,000
    
    Other assets
    
    $ 
    
    Other liabilities
    
    $(13,006)
 Effect of Derivative Instruments on Condensed Consolidated Statements of OperationsLoss recognized in
    
    Gain/(Loss) reclassified from OCI intoLoss recognized in earnings (1)
    
    OCI
    
    earnings (2)Location
    
    Amount
    
    Amount
    
    Location
    
    AmountInterest rate swaps
    
    Interest expense
    
    $(4,924)
    
    $(4,854)
    
    Interest expense
    
    $ 
 
 (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
      10




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NOTE 6  FAIR VALUE
   
    
    Level 1  uses quoted prices in active markets for identical assets or liabilities we
have the ability to access.
    
    Level 2  uses observable inputs other than quoted prices in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
    
    Level 3  uses one or more significant inputs that are unobservable and supported by
little or no market activity, and that reflect the use of significant management judgment
    11




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Quoted Prices inActive Markets for
    
    
    Significant
    
    
    SignificantIdentical Assets
    
    
    Other Observable
    
    
    Unobservableand Liabilities
    
    
    Inputs
    
    
    Inputs
    
    
    Total(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Fair ValueAssets:Cash equivalents (1)
    
    $
    25,657
    
    
    $
    
    
    
    $
    
    
    
    $
    25,657Deferred compensation plan assets (2)
    
    
    2,540
    
    
    
    
    
    
    
    
    
    
    
    2,540Liabilities:Interest rate swap due 2009(3)
    
    
    
    
    
    
    (1,130
    )
    
    
    
    
    
    
    (1,130
    )Interest rate swap due 2011(4)
    
    
    
    
    
    
    (13,006
    )
    
    
    
    
    
    
    (13,006
    )Deferred compensation plan liabilities(4)
    
    
    (1,848
    )
    
    
    
    
    
    
    
    
    
    
    (1,848
    )Total
    
    $
    26,349
    
    
    $
    (14,136
    )
    
    $
    
    
    
    $
    12,213
 
 (1)
    
    Included in cash and cash equivalents in our condensed consolidated balance sheet as of
June 30, 2009.(2)
    
    Included in other assets in our condensed consolidated balance sheet as of June 30,
2009.(3)
    
    Included in accrued expenses and other current liabilities in our condensed
consolidated balance sheet as of June 30, 2009.(4)
    
    Included in other liabilities in our condensed consolidated balance sheet as of June
30, 2009. Other Financial Assets and Liabilities
   NOTE 7  INCOME TAXES
 Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109
     12




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NOTE 8  EMPLOYEE STOCK PLANS
 Stock-based Compensation Expense
 Share-Based Payment,
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of revenuesSystems
    
    $
    8
    
    
    $
    6
    
    
    $
    26
    
    
    $
    22Services
    
    
    68
    
    
    
    32
    
    
    
    164
    
    
    
    173Operating expensesSales and marketing
    
    
    183
    
    
    
    194
    
    
    
    585
    
    
    
    612Product development
    
    
    76
    
    
    
    71
    
    
    
    224
    
    
    
    215General and administrative
    
    
    610
    
    
    
    204
    
    
    
    1,840
    
    
    
    1,257Total
    
    $
    945
    
    
    $
    507
    
    
    $
    2,839
    
    
    $
    2,279
  Valuation Assumptions
   Three Months Ended June 30,
    
    Nine Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Expected term
    
    6.66 years
    
    6.66 years
    
    6.66 years
    
    6.66 yearsExpected volatility
    
    
    76.00
    %
    
    
    50.00
    %
    
    
    72.69
    %
    
    
    50.00
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Risk-free rate
    
    
    2.56
    %
    
    
    3.21
    %
    
    
    1.73
    %
    
    
    3.20
    %
  NOTE 9  RESTRUCTURING COSTS
 Accounting for Costs Associated with Exit or Disposal Activities
 13




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Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atSeptember 30,
    
    
    Restructuring
    
    

    
    
    
    
    June 30,(in thousands)
    
    2008
    
    
    Charges
    
    
    Payments
    
    
    20092009 Actions  Severance and Related Benefits
    
    $
    
    
    
    $
    3,221
    
    
    $
    (2,951
    )
    
    $
    2702009 Actions  Facility Closings
    
    
    
    
    
    
    1,321
    
    
    
    (425
    )
    
    
    8962008 Actions  Severance and Related Benefits
    
    
    216
    
    
    
    (133
    )
    
    
    (45
    )
    
    
    38$
    216
    
    
    $
    4,409
    
    
    $
    (3,421
    )
    
    $
    1,204
 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
  14




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##### Table of Contents



(in thousands)Three Months Ended June 30, 2009
    
    Nine Months Ended June 30, 2009Hardlines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hardlinesand
    
    Wholesale
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    WholesaleLumber
    
    Distribution
    
    Auto-motive
    
    Other
    
    Total
    
    Lumber
    
    Distribution
    
    Auto-motive
    
    Other
    
    TotalRevenues
    
    $
    33,415
    
    
    $
    38,075
    
    
    $
    17,574
    
    
    $
    1,861
    
    
    $
    90,925
    
    
    $
    101,810
    
    
    $
    116,998
    
    
    $
    56,258
    
    
    $
    8,078
    
    
    $
    283,144Contribution Margin
    
    $
    10,451
    
    
    $
    15,946
    
    
    $
    6,146
    
    
    $
    122
    
    
    $
    32,665
    
    
    $
    31,230
    
    
    $
    46,795
    
    
    $
    19,882
    
    
    $
    2,599
    
    
    $
    100,506
 Three Months Ended June 30, 2008
    
    Nine Months Ended June 30, 2008Hardlines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hardlinesand
    
    Wholesale
    
    
    
    
    
    
    
    
    
    
    
    
    
    and
    
    WholesaleLumber
    
    Distribution
    
    Auto-motive
    
    Other
    
    Total
    
    Lumber
    
    Distribution
    
    Auto-motive
    
    Other
    
    TotalRevenues
    
    $
    36,343
    
    
    $
    41,172
    
    
    $
    20,795
    
    
    $
    5,413
    
    
    $
    103,723
    
    
    $
    113,235
    
    
    $
    127,056
    
    
    $
    65,019
    
    
    $
    15,415
    
    
    $
    320,725Contribution Margin
    
    $
    9,127
    
    
    $
    15,838
    
    
    $
    6,434
    
    
    $
    1,318
    
    
    $
    32,717
    
    
    $
    25,390
    
    
    $
    48,426
    
    
    $
    21,545
    
    
    $
    2,003
    
    
    $
    97,364
    15




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##### Table of Contents



Three Months Ended June 30,
    
    
    Nine Months Ended June 30,(thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Segment contribution margin
    
    $
    32,665
    
    
    $
    32,717
    
    
    $
    100,506
    
    
    $
    97,364Corporate and unallocated costs
    
    
    (5,794
    )
    
    
    (8,274
    )
    
    
    (17,035
    )
    
    
    (24,191
    )Stock-based compensation expense
    
    
    (945
    )
    
    
    (507
    )
    
    
    (2,839
    )
    
    
    (2,279
    )Depreciation and amortization
    
    
    (9,348
    )
    
    
    (9,640
    )
    
    
    (28,736
    )
    
    
    (27,561
    )Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    (107,000
    )
    
    
    Acquisition related costs
    
    
    (32
    )
    
    
    (264
    )
    
    
    (260
    )
    
    
    (922
    )Restructuring costs
    
    
    40
    
    
    
    (1,636
    )
    
    
    (4,409
    )
    
    
    (2,126
    )Interest expense
    
    
    (9,722
    )
    
    
    (11,800
    )
    
    
    (32,398
    )
    
    
    (39,672
    )Gain on retirement of debt
    
    
    4,631
    
    
    
    
    
    
    
    18,958
    
    
    
    Other income (expense), net
    
    
    21
    
    
    
    469
    
    
    
    (606
    )
    
    
    1,542Income (loss) before income taxes
    
    $
    11,516
    
    
    $
    1,065
    
    
    $
    (73,819)
    
    
    
    $2,155
 16




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NOTE 11  GUARANTOR CONSOLIDATION
  Condensed Consolidating Balance Sheet as of June 30, 2009
 Guarantor
    
    
    Non-Principal
    
    
    Guarantor
    
    
    Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETS:Current assets:Cash and cash equivalents
    
    $
    38,774
    
    
    $
    282
    
    
    $
    5,111
    
    
    $
    
    
    
    $
    44,167Trade accounts receivable, net of allowance
for doubtful accounts
    
    
    15,070
    
    
    
    16,638
    
    
    
    3,296
    
    
    
    
    
    
    
    35,004Inventories
    
    
    4,231
    
    
    
    1,346
    
    
    
    232
    
    
    
    
    
    
    
    5,809Deferred income taxes
    
    
    5,173
    
    
    
    1,435
    
    
    
    65
    
    
    
    
    
    
    
    6,673Income taxes receivable (payable)
    
    
    (2,458
    )
    
    
    1,788
    
    
    
    670
    
    
    
    
    
    
    
    Prepaid expenses and other current assets
    
    
    5,462
    
    
    
    643
    
    
    
    394
    
    
    
    
    
    
    
    6,499Total current assets
    
    
    66,252
    
    
    
    22,132
    
    
    
    9,768
    
    
    
    
    
    
    
    98,152Property and equipment, net
    
    
    5,488
    
    
    
    594
    
    
    
    259
    
    
    
    
    
    
    
    6,341Intangible assets, net
    
    
    172,373
    
    
    
    24,829
    
    
    
    1,693
    
    
    
    
    
    
    
    198,895Goodwill
    
    
    455,445
    
    
    
    91,284
    
    
    
    (1,549
    )
    
    
    6,038
    
    
    
    551,218Investments in subsidiaries
    
    
    16,769
    
    
    
    
    
    
    
    
    
    
    
    (16,769
    )
    
    
    Intercompany receivables (payables)
    
    
    (61,561
    )
    
    
    71,612
    
    
    
    (10,051
    )
    
    
    
    
    
    
    Deferred financing costs
    
    
    9,492
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,492Other assets
    
    
    3,065
    
    
    
    135
    
    
    
    8
    
    
    
    
    
    
    
    3,208Total assets
    
    $
    667,323
    
    
    $
    210,586
    
    
    $
    128
    
    
    $
    (10,731
    )
    
    $
    867,306LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    14,419
    
    
    $
    2,038
    
    
    $
    (82
    )
    
    $
    
    
    
    $
    16,375Payroll related accruals
    
    
    (4,302
    )
    
    
    18,696
    
    
    
    1,050
    
    
    
    
    
    
    
    15,444Deferred revenue
    
    
    8,788
    
    
    
    22,197
    
    
    
    3,263
    
    
    
    
    
    
    
    34,248Accrued expenses and other current liabilities
    
    
    17,063
    
    
    
    1,430
    
    
    
    (1,658
    )
    
    
    
    
    
    
    16,835Total current liabilities
    
    
    35,968
    
    
    
    44,361
    
    
    
    2,573
    
    
    
    
    
    
    
    82,902Long-term debt
    
    
    542,895
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    542,895Deferred tax and other liabilities
    
    
    74,320
    
    
    
    (2,158
    )
    
    
    (1,563
    )
    
    
    
    
    
    
    70,599Total liabilities
    
    
    653,183
    
    
    
    42,203
    
    
    
    1,010
    
    
    
    
    
    
    
    696,396Total stockholders equity (deficit)
    
    
    14,140
    
    
    
    168,383
    
    
    
    (882
    )
    
    
    (10,731
    )
    
    
    170,910Total liabilities and stockholders equity
(deficit)
    
    $
    667,323
    
    
    $
    210,586
    
    
    $
    128
    
    
    $
    (10,731
    )
    
    $
    867,306
 17




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##### 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
    
    
    25,789
    
    
    
    14,808
    
    
    
    4,541
    
    
    
    
    
    
    
    45,138Inventories
    
    
    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
    
    
    95,728
    
    
    
    20,729
    
    
    
    11,316
    
    
    
    
    
    
    
    127,773Property 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
    
    $
    880,042
    
    
    $
    159,588
    
    
    $
    (1,578
    )
    
    $
    (6,768
    )
    
    $
    1,031,284LIABILITIES 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
    
    
    11,427
    
    
    
    18,306
    
    
    
    2,785
    
    
    
    
    
    
    
    32,518Current portion of long-term debt
    
    
    3,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,325Accrued expenses and other current
liabilities
    
    
    16,622
    
    
    
    196
    
    
    
    (1,334
    )
    
    
    
    
    
    
    15,484Total current liabilities
    
    
    56,516
    
    
    
    24,981
    
    
    
    4,025
    
    
    
    6
    
    
    
    85,528Long-term debt
    
    
    613,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    613,787Deferred tax and other liabilities
    
    
    76,759
    
    
    
    (2,159
    )
    
    
    (1,947
    )
    
    
    
    
    
    
    72,653Total liabilities
    
    
    747,062
    
    
    
    22,822
    
    
    
    2,078
    
    
    
    6
    
    
    
    771,968Total stockholders equity (deficit)
    
    
    132,980
    
    
    
    136,766
    
    
    
    (3,656
    )
    
    
    (6,774
    )
    
    
    259,316Total liabilities and stockholders
equity (deficit)
    
    $
    880,042
    
    
    $
    159,588
    
    
    $
    (1,578
    )
    
    $
    (6,768
    )
    
    $
    1,031,284
 18




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Three Months Ended June 30, 2009
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    13,429
    
    
    $
    13,010
    
    
    $
    749
    
    
    $
    
    
    
    $
    27,188Services
    
    
    35,744
    
    
    
    24,379
    
    
    
    3,614
    
    
    
    
    
    
    
    63,737Total revenues
    
    
    49,173
    
    
    
    37,389
    
    
    
    4,363
    
    
    
    
    
    
    
    90,925Cost of revenues:Systems
    
    
    9,237
    
    
    
    5,471
    
    
    
    919
    
    
    
    
    
    
    
    15,627Services
    
    
    12,515
    
    
    
    6,258
    
    
    
    1,750
    
    
    
    
    
    
    
    20,523Total cost of revenues
    
    
    21,752
    
    
    
    11,729
    
    
    
    2,669
    
    
    
    
    
    
    
    36,150Gross profit
    
    
    27,421
    
    
    
    25,660
    
    
    
    1,694
    
    
    
    
    
    
    
    54,775Operating expenses:Sales and marketing
    
    
    7,260
    
    
    
    5,198
    
    
    
    880
    
    
    
    
    
    
    
    13,338Product development
    
    
    3,710
    
    
    
    5,090
    
    
    
    653
    
    
    
    
    
    
    
    9,453General and administrative
    
    
    5,574
    
    
    
    354
    
    
    
    130
    
    
    
    
    
    
    
    6,058Depreciation and amortization
    
    
    7,377
    
    
    
    1,798
    
    
    
    173
    
    
    
    
    
    
    
    9,348Acquisition related costs
    
    
    9
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    32Restructuring costs
    
    
    27
    
    
    
    83
    
    
    
    (150
    )
    
    
    
    
    
    
    (40
    )Total operating expenses
    
    
    23,957
    
    
    
    12,546
    
    
    
    1,686
    
    
    
    
    
    
    
    38,189Operating income
    
    
    3,464
    
    
    
    13,114
    
    
    
    8
    
    
    
    
    
    
    
    16,586Interest expense
    
    
    (9,718
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (9,722
    )Gain on retirement of debt
    
    
    4,631
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,631Other income (expense), net
    
    
    (146
    )
    
    
    51
    
    
    
    116
    
    
    
    
    
    
    
    21Income (loss) before income taxes
    
    
    (1,769
    )
    
    
    13,161
    
    
    
    124
    
    
    
    
    
    
    
    11,516Income tax expense
    
    
    3,892
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    3,902Net income (loss)
    
    $
    (5,661
    )
    
    $
    13,151
    
    
    $
    124
    
    
    $
    
    
    
    $
    7,614
 19




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Three Months Ended June 30, 2008
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    18,909
    
    
    $
    17,428
    
    
    $
    4,103
    
    
    $
    
    
    
    $
    40,440Services
    
    
    34,828
    
    
    
    23,715
    
    
    
    4,740
    
    
    
    
    
    
    
    63,283Total revenues
    
    
    53,737
    
    
    
    41,143
    
    
    
    8,843
    
    
    
    
    
    
    
    103,723Cost of revenues:Systems
    
    
    12,104
    
    
    
    7,575
    
    
    
    2,686
    
    
    
    
    
    
    
    22,365Services
    
    
    14,531
    
    
    
    6,405
    
    
    
    2,145
    
    
    
    
    
    
    
    23,081Total cost of revenues
    
    
    26,635
    
    
    
    13,980
    
    
    
    4,831
    
    
    
    
    
    
    
    45,446Gross profit
    
    
    27,102
    
    
    
    27,163
    
    
    
    4,012
    
    
    
    
    
    
    
    58,277Operating expenses:Sales and marketing
    
    
    8,277
    
    
    
    5,814
    
    
    
    1,265
    
    
    
    
    
    
    
    15,356Product development
    
    
    4,482
    
    
    
    5,377
    
    
    
    915
    
    
    
    
    
    
    
    10,774General and administrative
    
    
    6,738
    
    
    
    683
    
    
    
    790
    
    
    
    
    
    
    
    8,211Depreciation and amortization
    
    
    7,614
    
    
    
    1,854
    
    
    
    172
    
    
    
    
    
    
    
    9,640Acquisition related costs
    
    
    238
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    264Restructuring costs
    
    
    1,085
    
    
    
    
    
    
    
    551
    
    
    
    
    
    
    
    1,636Total operating expenses
    
    
    28,434
    
    
    
    13,754
    
    
    
    3,693
    
    
    
    
    
    
    
    45,881Operating income (loss)
    
    
    (1,332
    )
    
    
    13,409
    
    
    
    319
    
    
    
    
    
    
    
    12,396Interest expense
    
    
    (11,792
    )
    
    
    (5
    )
    
    
    (3
    )
    
    
    
    
    
    
    (11,800
    )Other income, net
    
    
    18
    
    
    
    45
    
    
    
    406
    
    
    
    
    
    
    
    469Income (loss) before income taxes
    
    
    (13,106
    )
    
    
    13,449
    
    
    
    722
    
    
    
    
    
    
    
    1,065Income tax expense
    
    
    232
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    236Net income (loss)
    
    $
    (13,338
    )
    
    $
    13,446
    
    
    $
    721
    
    
    $
    
    
    
    $
    829
 20




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Nine Months Ended June 30, 2009
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    46,847
    
    
    $
    41,257
    
    
    $
    3,528
    
    
    $
    
    
    
    $
    91,632Services
    
    
    106,361
    
    
    
    73,786
    
    
    
    11,365
    
    
    
    
    
    
    
    191,512Total revenues
    
    
    153,208
    
    
    
    115,043
    
    
    
    14,893
    
    
    
    
    
    
    
    283,144Cost of revenues:Systems
    
    
    28,121
    
    
    
    19,257
    
    
    
    3,137
    
    
    
    
    
    
    
    50,515Services
    
    
    39,511
    
    
    
    19,635
    
    
    
    5,023
    
    
    
    
    
    
    
    64,169Total cost of revenues
    
    
    67,632
    
    
    
    38,892
    
    
    
    8,160
    
    
    
    
    
    
    
    114,684Gross profit
    
    
    85,576
    
    
    
    76,151
    
    
    
    6,733
    
    
    
    
    
    
    
    168,460Operating expenses:Sales and marketing
    
    
    22,945
    
    
    
    15,363
    
    
    
    2,628
    
    
    
    
    
    
    
    40,936Product development
    
    
    11,573
    
    
    
    15,705
    
    
    
    1,989
    
    
    
    
    
    
    
    29,267General and administrative
    
    
    15,880
    
    
    
    1,146
    
    
    
    599
    
    
    
    
    
    
    
    17,625Depreciation and amortization
    
    
    22,817
    
    
    
    5,421
    
    
    
    498
    
    
    
    
    
    
    
    28,736Impairment of goodwill
    
    
    107,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,000Acquisition related costs
    
    
    53
    
    
    
    105
    
    
    
    102
    
    
    
    
    
    
    
    260Restructuring costs
    
    
    3,064
    
    
    
    344
    
    
    
    1,001
    
    
    
    
    
    
    
    4,409Total operating expenses
    
    
    183,332
    
    
    
    38,084
    
    
    
    6,817
    
    
    
    
    
    
    
    228,233Operating income (loss)
    
    
    (97,756
    )
    
    
    38,067
    
    
    
    (84
    )
    
    
    
    
    
    
    (59,773
    )Interest expense
    
    
    (32,384
    )
    
    
    (11
    )
    
    
    (3
    )
    
    
    
    
    
    
    (32,398
    )Gain on retirement of debt
    
    
    18,958
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,958Other income (expense), net
    
    
    (272
    )
    
    
    31
    
    
    
    (365
    )
    
    
    
    
    
    
    (606
    )Income (loss) before income taxes
    
    
    (111,454
    )
    
    
    38,087
    
    
    
    (452
    )
    
    
    
    
    
    
    (73,819
    )Income tax expense
    
    
    12,964
    
    
    
    10
    
    
    
    77
    
    
    
    
    
    
    
    13,051Net income (loss)
    
    $
    (124,418
    )
    
    $
    38,077
    
    
    $
    (529
    )
    
    $
    
    
    
    $
    (86,870
    )
 21




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Condensed Consolidating Statement of Operations for the Nine Months Ended June 30, 2008
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    64,003
    
    
    $
    57,291
    
    
    $
    9,675
    
    
    $
    
    
    
    $
    130,969Services
    
    
    105,815
    
    
    
    70,501
    
    
    
    13,440
    
    
    
    
    
    
    
    189,756Total revenues
    
    
    169,818
    
    
    
    127,792
    
    
    
    23,115
    
    
    
    
    
    
    
    320,725Cost of revenues:Systems
    
    
    40,206
    
    
    
    24,285
    
    
    
    9,529
    
    
    
    
    
    
    
    74,020Services
    
    
    44,480
    
    
    
    19,260
    
    
    
    6,120
    
    
    
    
    
    
    
    69,860Total cost of revenues
    
    
    84,686
    
    
    
    43,545
    
    
    
    15,649
    
    
    
    
    
    
    
    143,880Gross profit
    
    
    85,132
    
    
    
    84,247
    
    
    
    7,466
    
    
    
    
    
    
    
    176,845Operating expenses:Sales and marketing
    
    
    27,028
    
    
    
    17,281
    
    
    
    3,574
    
    
    
    
    
    
    
    47,883Product development
    
    
    14,624
    
    
    
    16,516
    
    
    
    2,770
    
    
    
    
    
    
    
    33,910General and administrative
    
    
    19,752
    
    
    
    2,138
    
    
    
    2,268
    
    
    
    
    
    
    
    24,158Depreciation and amortization
    
    
    22,417
    
    
    
    4,607
    
    
    
    537
    
    
    
    
    
    
    
    27,561Acquisition related costs
    
    
    896
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    922Restructuring costs
    
    
    1,575
    
    
    
    
    
    
    
    551
    
    
    
    
    
    
    
    2,126Total operating expenses
    
    
    86,292
    
    
    
    40,568
    
    
    
    9,700
    
    
    
    
    
    
    
    136,560Operating income (loss)
    
    
    (1,160
    )
    
    
    43,679
    
    
    
    (2,234
    )
    
    
    
    
    
    
    40,285Interest expense
    
    
    (39,658
    )
    
    
    (5
    )
    
    
    (9
    )
    
    
    
    
    
    
    (39,672
    )Other income (expense), net
    
    
    1,024
    
    
    
    (575
    )
    
    
    1,093
    
    
    
    
    
    
    
    1,542Income (loss) before income taxes
    
    
    (39,794
    )
    
    
    43,099
    
    
    
    (1,150
    )
    
    
    
    
    
    
    2,155Income tax expense
    
    
    783
    
    
    
    5
    
    
    
    2
    
    
    
    
    
    
    
    790Net income (loss)
    
    $
    (40,577
    )
    
    $
    43,094
    
    
    $
    (1,152
    )
    
    $
    
    
    
    $
    1,365
 22




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the Nine Months Ended June 30, 2009
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    44,381
    
    
    $
    (2,644
    )
    
    $
    (808
    )
    
    $
    
    
    
    $
    40,929Investing activities:Purchases of property and equipment
    
    
    (1,440
    )
    
    
    (5
    )
    
    
    (13
    )
    
    
    
    
    
    
    (1,458
    )Capitalized computer software and
database costs
    
    
    (6,552
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,552
    )Net cash used in investing activities
    
    
    (7,992
    )
    
    
    (5
    )
    
    
    (13
    )
    
    
    
    
    
    
    (8,010
    )Financing activities:Repurchases of common stock
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Payments on long-term debt
    
    
    (13,512
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,512
    )Repurchases of debt
    
    
    (39,840
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,840
    )Net cash used in financing activities
    
    
    (53,541
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,541
    )Net change in cash and cash
equivalents
    
    
    (17,152
    )
    
    
    (2,649
    )
    
    
    (821
    )
    
    
    
    
    
    
    (20,622
    )Cash and cash equivalents, beginning
of period
    
    
    55,926
    
    
    
    2,931
    
    
    
    5,932
    
    
    
    
    
    
    
    64,789Cash and cash equivalents, end of
period
    
    $
    38,774
    
    
    $
    282
    
    
    $
    5,111
    
    
    $
    
    
    
    $
    44,167
 Condensed Consolidating Statement of Cash Flows for the Nine Months Ended June 30, 2008
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    30,988
    
    
    $
    2,091
    
    
    $
    2,486
    
    
    $
    
    
    
    $
    35,565Investing activities:Purchases of property and equipment
    
    
    (3,813
    )
    
    
    (150
    )
    
    
    (151
    )
    
    
    
    
    
    
    (4,114
    )Capitalized computer software and
database costs
    
    
    (4,912
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,912
    )Net cash used in investing activities
    
    
    (8,725
    )
    
    
    (150
    )
    
    
    (151
    )
    
    
    
    
    
    
    (9,026
    )Financing activities:Repurchases of common stock
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )Payments on long-term debt
    
    
    (563
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (563
    )Deferred financing fees
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )Net cash used in financing activities
    
    
    (693
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (693
    )Net change in cash and cash
equivalents
    
    
    21,570
    
    
    
    1,941
    
    
    
    2,335
    
    
    
    
    
    
    
    25,846Cash and cash equivalents, beginning
of period
    
    
    24,862
    
    
    
    4,154
    
    
    
    4,363
    
    
    
    
    
    
    
    33,379Cash and cash equivalents, end of
period
    
    $
    46,432
    
    
    $
    6,095
    
    
    $
    6,698
    
    
    $
    
    
    
    $
    59,225
 23




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion and analysis in conjunction with our financial statements
and related notes included above. This discussion contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a variety of factors, including
those set forth under 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, our subsequent quarterly reports and under Part II, Item 1A of this
report.
 Overview
 Disclosures about Segments of an Enterprise and Related Information.
  Basis of Presentation
 Regulation S-X.
   Revenues
  
    
    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 nine months ended June 30, 2009, we generated approximately 36.0% 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 nine months ended June 30,
2009, we generated approximately 41.3% of our total revenues from the wholesale
distribution vertical market.
 24




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##### Table of Contents




    
    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 nine months ended June 30, 2009, we generated
approximately 19.9% 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 nine months ended
June 30, 2009, we generated approximately 2.8% 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.
    
    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.
 Cost of Revenues
  
    
    Cost of systems revenues and systems gross margins Cost of systems revenues consists
primarily of direct costs of software duplication, our logistics organization, cost of
hardware, salary costs of professional services and installation headcount, royalty
payments, and allocated overhead expenses.
    
    Cost of services revenues and services gross margins Cost of services revenues
primarily consist of material and direct labor associated with our advice line, material,
labor and production costs associated with our automotive catalog and allocated overhead
expenses. Generally, our services revenues have a higher gross margin than our systems
revenues.
  Operating Expenses
  
    
    Sales and marketing Sales and marketing expense consists primarily of salaries and
commissions for our sales force, stock-based compensation expense, marketing expenses and
allocated overhead expenses. Our marketing approach is to develop strategic relationships,
as well as endorsement and alliance agreements, with many of the well-known market
participants in the vertical markets that we serve. The goal of these programs is to
enhance the productivity of the field sales team and to create leveraged selling
opportunities for system sales and content and supply chain offerings.
    
    Product development Product development expense consists primarily of salaries,
stock-based compensation expense, outside services and allocated overhead expenses. Our
product development strategy includes development of additional functionality for our
existing products as well as developing new products for our existing customer base and
prospective new customers.
    
    General and administrative General and administrative expense primarily consists of
salaries and bonuses, stock-based
 25




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##### Table of Contents



compensation expense, facility costs, finance, human resource and legal services, IT support
and telecommunication costs.
 Key Trends
   
    
    Factors affecting revenue growth:
 
    
    Extended sales cycles contributed to year over year declines in systems
revenues in all of our vertical market:
 
    
    Due to the tightened credit markets and the on-going recession, we
continue to see a lot of caution in our customers decision making. This
caution has contributed to instances where some of our customers are either
not making decisions or deferring decisions.
    
    We are beginning to see a slightly higher level of optimism among some of
our customers. However, we are unable to determine at this time if this
optimism will continue, or if it will ultimately result in increasing systems
sales and revenues in the near term.
 
    
    Support price increases:
 
    
    The year over year increase in services revenue in the Hardlines and
Lumber and Wholesale Distribution verticals is largely attributed to support
price increases.
 
    
    Increased customer attrition:
 
    
    We are experiencing the impact of slow paying customers as well as an
increased number of customer bankruptcies.
    
    Although it is not widespread throughout our customer base, we are also
experiencing more customers electing to reduce items covered under their
maintenance agreements and/or reduce the number of enabled user licenses, as
their employee base shrinks and as they look for ways to reduce their costs.
 
    
    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:
 
    
    Restructuring actions.As a result of the slowing economy, in fiscal year
2008 as well as in the nine months ended June 30, 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 nine months ended June
30, 2009.
    
    Expense management.We benefited as a result of our focus on managing
our discretionary expenses. In addition to our restructuring actions, we have
reduced operating expenses; primarily incentive bonuses, certain benefits,
commissions and travel expenses.
   26




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##### Table of Contents



.
 Historical Results of Operations
 Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
 Total revenues
   Three Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber revenues:Systems
    
    $
    12,351
    
    
    $
    16,162
    
    
    $
    (3,811
    )
    
    
    (23.6
    )%Services
    
    
    21,064
    
    
    
    20,181
    
    
    
    883
    
    
    
    4.4
    %Total Hardlines and Lumber revenues
    
    $
    33,415
    
    
    $
    36,343
    
    
    $
    (2,928
    )
    
    
    (8.1
    )%Wholesale Distribution revenues:Systems
    
    $
    13,010
    
    
    $
    17,425
    
    
    $
    (4,415
    )
    
    
    (25.3
    )%Services
    
    
    25,065
    
    
    
    23,747
    
    
    
    1,318
    
    
    
    5.6
    %Total Wholesale Distribution revenues
    
    $
    38,075
    
    
    $
    41,172
    
    
    $
    (3,097
    )
    
    
    (7.5
    )%Automotive revenues:Systems
    
    $
    1,436
    
    
    $
    2,964
    
    
    $
    (1,528
    )
    
    
    (51.6
    )%Services
    
    
    16,138
    
    
    
    17,831
    
    
    
    (1,693
    )
    
    
    (9.5
    )%Total Automotive revenues
    
    $
    17,574
    
    
    $
    20,795
    
    
    $
    (3,221
    )
    
    
    (15.5
    )%Other revenues:Systems
    
    $
    391
    
    
    $
    3,889
    
    
    $
    (3,498
    )
    
    
    (89.9
    )%Services
    
    
    1,470
    
    
    
    1,524
    
    
    
    (54
    )
    
    
    (3.6
    )%Total Other revenues
    
    $
    1,861
    
    
    $
    5,413
    
    
    $
    (3,552
    )
    
    
    (65.6
    )%Total revenues:Systems
    
    $
    27,188
    
    
    $
    40,440
    
    
    $
    (13,252
    )
    
    
    (32.8
    )%Services
    
    
    63,737
    
    
    
    63,283
    
    
    
    454
    
    
    
    0.7
    %Total revenues
    
    $
    90,925
    
    
    $
    103,723
    
    
    $
    (12,798
    )
    
    
    (12.3
    )%
 27




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##### Table of Contents




    
    Hardlines and Lumber revenues Hardlines and Lumber revenues decreased by $2.9
million, or 8.1%. 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 slow 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 $3.1
million, or 7.5%. 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 $3.2 million, or 15.5%. 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 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 $3.6 million, or 65.6%, driven primarily by
prospective customers slowing down planned system migrations due to Hewlett-Packards
continued support of one of its legacy systems.
 Total cost of revenues and gross margins as a percentage of revenues
  Three Months Ended June 30,(in thousands)
    
    2009
    
    2008
    
    VarianceCost of systems revenues
    
    $
    15,627
    
    
    $
    22,365
    
    
    $
    (6,738
    )Systems gross margins
    
    
    42.5
    %
    
    
    44.7
    %Cost of services revenues
    
    $
    20,523
    
    
    $
    23,081
    
    
    $
    (2,558
    )Services gross margins
    
    
    67.8
    %
    
    
    63.5
    %Total cost of revenues
    
    $
    36,150
    
    
    $
    45,446
    
    
    $
    (9,296
    )Total gross margins
    
    
    60.2
    %
    
    
    56.2
    %
 
    
    Cost of systems revenues and systems gross marginsCost of systems revenues decreased
by $6.7 million primarily as a result of lower direct costs associated with lower overall
systems revenues. System gross margins decreased by 2.2 percentage points in the three
months ended June 30, 2009 from the comparable period a year ago. The decrease is
primarily attributed to lower professional services revenues and margins due to lower new
system sales.
    
    Cost of services revenues and services gross marginsCost of services revenues
decreased by $2.6 million primarily as a result of labor related cost reductions. Services
gross margins increased by 4.3 percentage points in the three months ended June 30, 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.
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Total operating expenses
  Three Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Sales and marketing
    
    $
    13,338
    
    
    $
    15,356
    
    
    $
    (2,018
    )
    
    
    (13.1
    )%Product development
    
    
    9,453
    
    
    
    10,774
    
    
    
    (1,321
    )
    
    
    (12.3
    )%General and administrative
    
    
    6,058
    
    
    
    8,211
    
    
    
    (2,153
    )
    
    
    (26.2
    )%Depreciation and amortization
    
    
    9,348
    
    
    
    9,640
    
    
    
    (292
    )
    
    
    (3.0
    )%Acquisition related costs
    
    
    32
    
    
    
    264
    
    
    
    (232
    )
    
    
    (87.7
    )%Restructuring costs
    
    
    (40
    )
    
    
    1,636
    
    
    
    (1,676
    )
    
    
    (102.5
    )%Total operating expenses
    
    $
    38,189
    
    
    $
    45,881
    
    
    $
    (7,692
    )
    
    
    (16.8
    )%
  
    
    Sales and marketingSales and marketing expenses decreased by $2.0 million, or 13.1%,
for the three months ended June 30, 2009 compared to the three months ended June 30, 2008.
The decrease was primarily the result of a reduction of $1.9 million of labor related
expenses, $0.3 million in outside services and $0.2 million in marketing and trade show
expenses, partially offset by $0.6 million of increased bad debt expense.
    
    Product developmentProduct development expense decreased $1.3 million, or 12.3%, for
the three months ended June 30, 2009 compared to the three months ended June 30, 2008. The
decrease was primarily the result of reduction of $0.4 million in labor related costs and
$0.4 million in outside services and third-party service costs as well as $0.5 million in
additional capitalization of software and database costs.
    
    General and administrativeGeneral and administrative expenses decreased by $2.2
million, or 26.2%, for the three months ended June 30, 2009 compared to the three months
ended June 30, 2008. The decrease is primarily the result of a reduction of $0.3 million
in labor related costs, 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 $9.3 million for the three months ended June 30, 2009 compared to $9.6 million for the
three months ended June 30, 2008. The decrease resulted primarily from the full
amortization of intangible assets slightly offset by amortization expense resulting from
additional capitalization of software and database costs, in the current period.
    
    Acquisition related costs Acquisition related costs for the three months ended June
30, 2009 and 2008 were less than $0.1 million and approximately $0.3 million, respectively,
which primarily included consulting fees and other professional services incurred in
connection with systems integration activities related to Eclipse.
    
    Restructuring costs During fiscal years 2009 and 2008, our management approved
restructuring actions primarily related to eliminating certain employee positions and
consolidating certain excess facilities with the intent to streamline and focus our
operations and more properly align our cost structure with our projected revenue streams.
In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities,we recorded a credit to restructuring charges of less than $0.1 million and
restructuring charges of approximately $1.6 million, respectively, related to these
actions. The negative charge recorded for the three months ended June 30, 2009, is
primarily due to the reversal of severance and related benefits that will no longer be paid
and for revisions to the estimated net present values of remaining net lease payments
associated with consolidated facilities.
 Interest expense
  Gain on retirement of debt
  29




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Other income (expense), net
  Income tax expense
  Contribution margin
      30




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Three Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber
    
    $
    10,451
    
    
    $
    9,127
    
    
    $
    1,324
    
    
    
    14.5
    %Wholesale Distribution
    
    
    15,946
    
    
    
    15,838
    
    
    
    108
    
    
    
    0.7
    %Automotive
    
    
    6,146
    
    
    
    6,434
    
    
    
    (288
    )
    
    
    (4.5
    )%Other
    
    
    122
    
    
    
    1,318
    
    
    
    (1,196
    )
    
    
    (90.7
    )%Total contribution margin
    
    $
    32,665
    
    
    $
    32,717
    
    
    $
    (52
    )
    
    
    (0.2
    )%
 
    
    Hardlines and Lumber contribution margin The contribution margin for Hardlines and
Lumber increased $1.3 million despite the revenue decrease of $2.9 million. The increase
in contribution margin was primarily attributed to support price increases; improved
hardware margins; aggressive cost management of labor related costs; lower outside services
as well as additional capitalization of software and database costs, partially offset by
increased bad debt expense.
    
    Wholesale Distribution contribution margin The contribution margin for Wholesale
Distribution increased slightly by $0.1 million. The increase was a result of support
price increases and aggressive cost management in labor related costs which was largely
offset by reduced system revenue as a result of the economic downturn as well as increased
bad debt expense.
    
    Automotive contribution margin The contribution margin for Automotive decreased by
$0.3 million primarily due to $3.2 million of lower revenues which drove lower gross
margins. The revenue decrease was attributed to reduced system revenue, primarily due to
the weak economy and 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 capitalization of software and database costs and
lower bad debt expense.
    
    Other contribution margin The contribution margin for Other decreased by $1.2
million, primarily due to $3.6 million in reduced revenues as a result of prospective
customers slowing down planned system migrations due to Hewlett-Packards continued support
of one of its legacy systems. The revenue reduction was largely offset by reduced labor
related costs and outside services.
  Three Months Ended June 30,(in thousands)
    
    2009
    
    
    2008Segment contribution margin
    
    $
    32,665
    
    
    $
    32,717Corporate and unallocated costs
    
    
    (5,794
    )
    
    
    (8,274
    )Stock-based compensation expense
    
    
    (945
    )
    
    
    (507
    )Depreciation and amortization
    
    
    (9,348
    )
    
    
    (9,640
    )Acquisition related costs
    
    
    (32
    )
    
    
    (264
    )Restructuring costs
    
    
    40
    
    
    
    (1,636
    )Interest expense
    
    
    (9,722
    )
    
    
    (11,800
    )Gain on retirement of debt
    
    
    4,631
    
    
    
    Other income, net
    
    
    21
    
    
    
    469Income before income taxes
    
    $
    11,516
    
    
    $
    1,065
 31




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Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008
 Total revenues
   Nine Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber revenues:Systems
    
    $
    39,497
    
    
    $
    53,009
    
    
    $
    (13,512
    )
    
    
    (25.5
    )%Services
    
    
    62,313
    
    
    
    60,226
    
    
    
    2,087
    
    
    
    3.5
    %Total Hardlines and Lumber revenues
    
    $
    101,810
    
    
    $
    113,235
    
    
    $
    (11,425
    )
    
    
    (10.1
    )%Wholesale Distribution revenues:Systems
    
    $
    41,275
    
    
    $
    56,459
    
    
    $
    (15,184
    )
    
    
    (26.9
    )%Services
    
    
    75,723
    
    
    
    70,597
    
    
    
    5,126
    
    
    
    7.3
    %Total Wholesale Distribution revenues
    
    $
    116,998
    
    
    $
    127,056
    
    
    $
    (10,058
    )
    
    
    (7.9
    )%Automotive revenues:Systems
    
    $
    7,330
    
    
    $
    10,713
    
    
    $
    (3,383
    )
    
    
    (31.6
    )%Services
    
    
    48,928
    
    
    
    54,306
    
    
    
    (5,378
    )
    
    
    (9.9
    )%Total Automotive revenues
    
    $
    56,258
    
    
    $
    65,019
    
    
    $
    (8,761
    )
    
    
    (13.5
    )%Other revenues:Systems
    
    $
    3,530
    
    
    $
    10,788
    
    
    $
    (7,258
    )
    
    
    (67.3
    )%Services
    
    
    4,548
    
    
    
    4,627
    
    
    
    (79
    )
    
    
    (1.7
    )%Total Other revenues
    
    $
    8,078
    
    
    $
    15,415
    
    
    $
    (7,337
    )
    
    
    (47.6
    )%Total revenues:Systems
    
    $
    91,632
    
    
    $
    130,969
    
    
    $
    (39,337
    )
    
    
    (30.0
    )%Services
    
    
    191,512
    
    
    
    189,756
    
    
    
    1,756
    
    
    
    0.9
    %Total revenues
    
    $
    283,144
    
    
    $
    320,725
    
    
    $
    (37,581
    )
    
    
    (11.7
    )%
  
    
    Hardlines and Lumber revenues Hardlines and Lumber revenues decreased by $11.4
million, or 10.1%. 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 slow 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 $10.1
million, or 7.9%. 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 $8.8 million, or 13.5%. 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 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.
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
    
    Other revenues Other revenues decreased $7.3 million, or 47.6%, driven primarily by
prospective customers slowing down planned system migrations due to Hewlett-Packards
continued support of one of its legacy systems.
 Total cost of revenues and gross margins as a percentage of revenues
  Nine Months ended June 30,(in thousands)
    
    2009
    
    2008
    
    VarianceCost of systems revenues
    
    $
    50,515
    
    
    $
    74,020
    
    
    $
    (23,505
    )Systems gross margins
    
    
    44.9
    %
    
    
    43.5
    %Cost of services revenues
    
    $
    64,169
    
    
    $
    69,860
    
    
    $
    (5,691
    )Services gross margins
    
    
    66.5
    %
    
    
    63.2
    %Total cost of revenues
    
    $
    114,684
    
    
    $
    143,880
    
    
    $
    (29,196
    )Total gross margins
    
    
    59.5
    %
    
    
    55.1
    %
 
    
    Cost of systems revenues and systems gross margins Cost of systems revenues decreased
by $23.5 million primarily as a result of lower direct costs associated with lower overall
systems revenues. System gross margins increased by 1.4 percentage points in the nine
months ended June 30, 2009 from the comparable period a year ago. The increase is
primarily attributed to improved margins on hardware 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 $5.7 million primarily as a result of labor related cost reductions. Services
gross margins increased by 3.3 percentage points in the nine months ended June 30, 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
  Nine Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Sales and marketing
    
    $
    40,936
    
    
    $
    47,883
    
    
    $
    (6,947
    )
    
    
    (14.5
    )%Product development
    
    
    29,267
    
    
    
    33,910
    
    
    
    (4,643
    )
    
    
    (13.7
    )%General and administrative
    
    
    17,625
    
    
    
    24,158
    
    
    
    (6,533
    )
    
    
    (27.1
    )%Depreciation and amortization
    
    
    28,736
    
    
    
    27,561
    
    
    
    1,175
    
    
    
    4.3
    %Impairment of goodwill
    
    
    107,000
    
    
    
    
    
    
    
    107,000
    
    
    
    100.0
    %Acquisition related costs
    
    
    260
    
    
    
    922
    
    
    
    (662
    )
    
    
    (71.8
    )%Restructuring costs
    
    
    4,409
    
    
    
    2,126
    
    
    
    2,283
    
    
    
    107.4
    %Total operating expenses
    
    $
    228,233
    
    
    $
    136,560
    
    
    $
    91,673
    
    
    
    67.1
    %
  
    
    Sales and marketing Sales and marketing expense decreased by $6.9 million, or 14.5%,
for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008.
The decrease was primarily the result of a reduction of $5.2 million in labor related
expenses, $0.4 million of bad debt expense, $0.3 million in travel, $0.5 million in outside
services and $0.5 million in marketing and trade show expenses.
    
    Product development Product development expense decreased $4.6 million, or 13.7%, for
the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008. The
decrease was primarily the result of a reduction of $2.7 million in labor related costs,
$0.6 million in third-party service costs, $0.5 million in outside services as well as $1.0
 33




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million in additional capitalization of software and database costs.
    
    General and administrative General and administrative expense decreased by $6.5
million, or 27.1%, for the nine months ended June 30, 2009 compared to the nine months
ended June 30, 2008. The decrease is primarily the result of a reduction of $0.8 million
in labor related costs, $0.9 million in reduced legal fees and outside services as well as
a $0.3 million one-time insurance cost reduction, $0.2 million in travel, and the
non-recurrence of $3.6 million of costs related to strategic initiatives in the prior year.
    
    Depreciation and amortization Depreciation and amortization expense was $28.7 million
for the nine months ended June 30, 2009 compared to $27.6 million for the nine months ended
June 30, 2008. The increase resulted primarily from amortization expense resulting from
additional capitalization of software and database costs, slightly offset by the full
amortization of intangible assets, in the current year.
    
    Impairment of goodwill We account for goodwill in accordance with SFAS No. 141,
BusinessCombinations, and SFAS No. 142, Goodwill and Other Intangible Assets. 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 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. During the nine months ended June 30, 2009, 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. For the purposes of this
analysis, our estimates of fair value were based on a combination of the income approach,
which estimates the fair value of our reporting units based on the future discounted cash
flows, and the market approach, which estimates the fair value of our reporting units based
on comparable market prices. 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 if 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 nine months ended June
30, 2009 and 2008 were $0.3 million and $0.9 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 nine months ended June 30, 2009 and 2008, our
management approved 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
$2.1 million, respectively, related to these actions.
 Interest expense
  Gain on retirement of debt
  34




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Other income (expense), net
  Income tax expense
  Contribution margin
      35




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Nine Months Ended June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber
    
    $
    31,230
    
    
    $
    25,390
    
    
    $
    5,840
    
    
    
    23.0
    %Wholesale Distribution
    
    
    46,795
    
    
    
    48,426
    
    
    
    (1,631
    )
    
    
    (3.4
    )%Automotive
    
    
    19,882
    
    
    
    21,545
    
    
    
    (1,663
    )
    
    
    (7.7
    )%Other
    
    
    2,599
    
    
    
    2,003
    
    
    
    596
    
    
    
    29.8
    %Total contribution margin
    
    $
    100,506
    
    
    $
    97,364
    
    
    $
    3,142
    
    
    
    3.2
    %
 
    
    Hardlines and Lumber contribution margin The contribution margin for Hardlines and
Lumber increased $5.8 million despite the revenue decrease of $11.4 million. The increase
in contribution margin was primarily attributed to improved hardware margins; professional
service utilization; support price increases; and aggressive cost management of labor
related costs, increased software capitalization and lower bad debt expense.
    
    Wholesale Distribution contribution margin The contribution margin for Wholesale
Distribution decreased by $1.6 million primarily as the result of $10.1 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
$1.7 million primarily due to $8.8 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 $0.6
million, primarily due to reduced labor costs and outside services, which offset the $7.3
million in reduced revenues as a result of prospective customers slowing down planned
system migrations due to Hewlett-Packards continued support of one of its legacy systems.
  Nine Months Ended June 30,(in thousands)
    
    2009
    
    
    2008Segment contribution margin
    
    $
    100,506
    
    
    $
    97,364Corporate and unallocated costs
    
    
    (17,035
    )
    
    
    (24,191
    )Stock-based compensation expense
    
    
    (2,839
    )
    
    
    (2,279
    )Depreciation and amortization
    
    
    (28,736
    )
    
    
    (27,561
    )Impairment of goodwill
    
    
    (107,000
    )
    
    
    Acquisition related costs
    
    
    (260
    )
    
    
    (922
    )Restructuring costs
    
    
    (4,409
    )
    
    
    (2,126
    )Interest expense
    
    
    (32,398
    )
    
    
    (39,672
    )Gain on retirement of debt
    
    
    18,958
    
    
    
    Other income (expense), net
    
    
    (606
    )
    
    
    1,542Income (loss) before income taxes
    
    $
    (73,819
    )
    
    $
    2,155
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Change in Contractual Obligations
  Liquidity and Capital Resources
 Overview
   Senior Secured Credit Agreement
      37




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
    
    under the term loan, 1.00% with respect to base rate borrowings and 2.00% with respect to
Eurodollar rate borrowings;
    
    under the incremental term loan, 1.50% with respect to base rate borrowings and 2.50% with
respect to Eurodollar rate borrowings; and
    
    under the revolving credit
facility, 1.00% with respect to base rate borrowings and 2.00%
with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of
certain leverage ratios.
   
    
    incur additional indebtedness (including contingent liabilities);
    
    create liens on assets;
    
    enter into sale-leaseback transactions;
    
    engage in mergers or acquisitions;
    
    dispose of assets;
    
    pay dividends and restricted payments;
    
    make investments (including joint ventures);
    
    make capital expenditures;
    
    prepay other indebtedness (including the notes);
    
    engage in certain transactions with affiliates;
    
    amend agreements governing our subordinated indebtedness (including the notes);
    
    amend organizational documents and other material agreements; and
    
    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
   38




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
    
    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.
   Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008
      39




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##### Table of Contents



Covenant Compliance
    40




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##### Table of Contents



Twelve Months EndedJune 30,(in thousands)
    
    2009
    
    
    2008Net loss
    
    $
    (84,614
    )
    
    $
    (27
    )Acquisition costs
    
    
    208
    
    
    
    946Deferred revenue purchase accounting adjustment
    
    
    907
    
    
    
    1,703Adjusted net income (loss)
    
    
    (83,499
    )
    
    
    2,622Interest expense
    
    
    43,922
    
    
    
    52,426Income tax expense and other income-based taxes
    
    
    17,604
    
    
    
    6,363Depreciation and amortization
    
    
    38,429
    
    
    
    35,511Gain on retirement of debt
    
    
    (18,958
    )
    
    
    Non-cash charges (impairment charges and
stock-based compensation expense)
    
    
    110,848
    
    
    
    3,149Non-recurring cash charges and restructuring charges
    
    
    5,345
    
    
    
    6,109Deferred compensation payments
    
    
    309
    
    
    
    289Sponsor payments
    
    
    157
    
    
    
    86Foreign exchange (gain) loss
    
    
    312
    
    
    
    (598
    )Acquired company EBITDA
    
    
    
    
    
    
    2,086Pro-forma adjustments
    
    
    68
    
    
    
    1,693Adjusted EBITDA
    
    $
    114,537
    
    
    $
    109,736
  CovenantRequirements
    
    Our RatioSenior Secured Credit Agreement (1)Maximum consolidated total debt to adjusted EBITDA ratio
    
    
    5.00x
    
    
    
    4.42Minimum adjusted EBITDA to consolidated interest expense
    
    
    2.00x
    
    
    
    2.79Senior Subordinated Notes (2)Minimum adjusted EBITDA to fixed charges ratio required to incur additional
indebtedness pursuant to ratio provisions
    
    
    2.00x
    
    
    
    2.79
 
 (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 June 30, 2009, our consolidated total debt was $506.2 million, consisting
of total debt other than certain indebtedness totaling $542.9 million, net of cash and cash
equivalents in excess of $7.5 million totaling $36.7 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. 41




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Recently Issued Accounting Pronouncements
 Interim Disclosures
About Fair Value of Financial Instruments. Disclosures about Fair Value of Financial
Instruments Interim Financial Reporting
  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, and FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. Accounting for Leases
 Disclosures about Derivative Instruments and Hedging
ActivitiesAn Amendment of FASB Statement No. 133
 Business Combinationsa replacement of FASB
Statement 141
 
 Item 3 Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk
  Foreign Currency Risk
  42




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Item 4 Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Limitations on Effectiveness of Controls
  43




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PART II  OTHER INFORMATION
 
 Item 1 Legal Proceedings
  
 Item 1A Risk Factors
  If we do not develop new relationships and maintain our existing relationships with key customers
and/or well-known market participants, our revenues could decline significantly and our operating
results could be materially adversely affected.
  
 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
  
 Item 5 Other Information
 s
 44




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##### Table of Contents



Item 6 Exhibits
  Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    File
    
    Date of
    
    Exhibit
    
    ProvidedNumber
    
    Exhibit Description
    
    Form
    
    Number
    
    First Filing
    
    Number
    
    Herewith10.1
    *
    
    Form of
Indemnification
Priority Agreement among Activant
Group Inc.,
Activant Solutions
Inc. and each of
their non-executive
directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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.**
    
    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. 45




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##### Table of Contents



SIGNATURE
  ACTIVANT SOLUTIONS INC.Date: August 12, 2009
    By:
    /s/ KATHLEEN M. CRUSCOKathleen M. CruscoSenior Vice President and Chief Financial Officer
(Principal Financial and Duly Authorized Officer) 46




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EXHIBIT INDEX
 Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    File
    
    Date of
    
    Exhibit
    
    ProvidedNumber
    
    Exhibit Description
    
    Form
    
    Number
    
    First Filing
    
    Number
    
    Herewith10.1
    *
    
    Form of
Indemnification
Priority Agreement
among Activant
Group Inc.,
Activant Solutions
Inc. and each of
their non-executive
directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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.**
    
    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. 47