##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 333-49389
 Activant Solutions Inc.
  Delaware
(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 May 11, 2010Common Stock, par value $0.01 per share
    
    10 shares




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##### 



ACTIVANT SOLUTIONS INC.
 REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2010
 INDEX
 PageForward-Looking Statements
    
    2PART I  FINANCIAL INFORMATION
    
    3Item 1. Financial Statements (Unaudited)
    
    3Condensed Consolidated Balance Sheets as of March 31, 2010 and September 30, 2009
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the
Three and Six Months Ended March 31, 2010 and 2009
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2010
and 2009
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    42Item 4. Controls and Procedures.
    
    42PART II  OTHER INFORMATION
    
    43Item 1. Legal Proceedings
    
    43Item 1A. Risk Factors
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    43Item 3. Defaults Upon Senior Securities
    
    43Item 5. Other Information
    
    43Item 6. Exhibits
    
    43SIGNATURE
    
    44EXHIBIT INDEX
    
    45EX-31.1EX-31.2EX-32.1EX-32.2




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




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PART I  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 (in thousands, except share data)
    
    March 31,
    
    
    September 30,2010
    
    
    2009ASSETS:Current assets:Cash and cash equivalents
    
    $
    45,980
    
    
    $
    44,573Trade accounts receivable, net of allowance for
doubtful accounts of $4,563 at March 31, 2010
and $4,446 at September 30, 2009
    
    
    35,635
    
    
    
    34,196Inventories
    
    
    5,097
    
    
    
    4,985Deferred income taxes
    
    
    3,286
    
    
    
    1,080Prepaid expenses and other current assets
    
    
    3,860
    
    
    
    5,482Assets of discontinued operations (Note 10)
    
    
    5,971
    
    
    
    7,418Total current assets
    
    
    99,829
    
    
    
    97,734Property and equipment, net
    
    
    5,382
    
    
    
    5,968Intangible assets, net
    
    
    179,302
    
    
    
    190,847Goodwill
    
    
    541,454
    
    
    
    541,454Deferred financing costs
    
    
    7,798
    
    
    
    8,903Other assets
    
    
    3,667
    
    
    
    3,178Total assets
    
    $
    837,432
    
    
    $
    848,084LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    17,281
    
    
    $
    18,030Payroll related accruals
    
    
    13,641
    
    
    
    17,417Deferred revenue
    
    
    35,838
    
    
    
    29,883Current portion of long-term debt
    
    
    
    
    
    
    5,886Accrued expenses and other current liabilities
    
    
    11,733
    
    
    
    18,025Liabilities of discontinued operations (Note 10)
    
    
    3,149
    
    
    
    2,278Total current liabilities
    
    
    81,642
    
    
    
    91,519Long-term debt, net of discount
    
    
    506,895
    
    
    
    517,009Deferred tax liabilities
    
    
    53,537
    
    
    
    53,837Other liabilities
    
    
    17,651
    
    
    
    19,189Total liabilities
    
    
    659,725
    
    
    
    681,554Commitments and contingencies
    
    
    
    
    
    
    Common Stock:Par value $0.01, authorized 1,000 shares, 10
shares issued and outstanding at March 31,
2010 and September 30, 2009
    
    
    
    
    
    
    Additional paid-in capital
    
    
    259,496
    
    
    
    257,570Accumulated deficit
    
    
    (72,176
    )
    
    
    (80,680
    )Other accumulated comprehensive loss:Unrealized loss on cash flow hedges
    
    
    (7,040
    )
    
    
    (8,593
    )Cumulative translation adjustment
    
    
    (2,573
    )
    
    
    (1,767
    )Total stockholders equity
    
    
    177,707
    
    
    
    166,530Total liabilities and stockholders equity
    
    $
    837,432
    
    
    $
    848,084
  3




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ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (UNAUDITED)
 Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    March 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Systems
    
    $
    33,630
    
    
    $
    30,213
    
    
    $
    60,270
    
    
    $
    61,346Services
    
    
    61,390
    
    
    
    63,571
    
    
    
    122,875
    
    
    
    124,825Total revenues
    
    
    95,020
    
    
    
    93,784
    
    
    
    183,145
    
    
    
    186,171Cost of revenues (exclusive of depreciation
and amortization of $4,786, $4,544, $9,232,
and $9,050 for the three months ended March
31, 2010 and 2009 and six months ended March
31, 2010 and 2009, respectively, included in
amounts shown separately below):Systems (Note 7)
    
    
    18,984
    
    
    
    16,333
    
    
    
    33,863
    
    
    
    33,399Services (Note 7)
    
    
    20,019
    
    
    
    21,159
    
    
    
    39,616
    
    
    
    42,659Total cost of revenues
    
    
    39,003
    
    
    
    37,492
    
    
    
    73,479
    
    
    
    76,058Gross profit
    
    
    56,017
    
    
    
    56,292
    
    
    
    109,666
    
    
    
    110,113Operating expenses:Sales and marketing (Note 7)
    
    
    14,342
    
    
    
    12,657
    
    
    
    28,554
    
    
    
    27,655Product development (Note 7)
    
    
    8,620
    
    
    
    9,036
    
    
    
    17,366
    
    
    
    18,655General and administrative (Note 7)
    
    
    6,359
    
    
    
    5,828
    
    
    
    12,529
    
    
    
    11,549Depreciation and amortization
    
    
    10,296
    
    
    
    9,607
    
    
    
    19,782
    
    
    
    19,236Impairment of goodwill
    
    
    
    
    
    
    82,000
    
    
    
    
    
    
    
    107,000Acquisition related costs
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    228Restructuring costs
    
    
    1,068
    
    
    
    2,533
    
    
    
    1,974
    
    
    
    4,291Total operating expenses
    
    
    40,685
    
    
    
    121,713
    
    
    
    80,205
    
    
    
    188,614Operating income (loss)
    
    
    15,332
    
    
    
    (65,421
    )
    
    
    29,461
    
    
    
    (78,501
    )Interest expense
    
    
    (7,784
    )
    
    
    (9,688
    )
    
    
    (15,703
    )
    
    
    (22,676
    )Gain on retirement of debt
    
    
    
    
    
    
    14,327
    
    
    
    
    
    
    
    14,327Other income (expense), net
    
    
    141
    
    
    
    (298
    )
    
    
    431
    
    
    
    (626
    )Income (loss) from continuing operations
before income taxes
    
    
    7,689
    
    
    
    (61,080
    )
    
    
    14,189
    
    
    
    (87,476
    )Income tax expense
    
    
    2,711
    
    
    
    9,488
    
    
    
    5,643
    
    
    
    9,217Income (loss) from continuing operations
    
    
    4,978
    
    
    
    (70,568
    )
    
    
    8,546
    
    
    
    (96,693
    )Income (loss) from discontinued operations,
net of income taxes (Note 10)
    
    
    (996
    )
    
    
    885
    
    
    
    (42
    )
    
    
    2,209Net income (loss)
    
    $
    3,982
    
    
    $
    (69,683
    )
    
    $
    8,504
    
    
    $
    (94,484
    )Comprehensive income (loss):Net income (loss)
    
    $
    3,982
    
    
    $
    (69,683
    )
    
    $
    8,504
    
    
    $
    (94,484
    )Unrealized gain (loss) on cash flow hedges
    
    
    367
    
    
    
    (249
    )
    
    
    1,553
    
    
    
    (4,958
    )Foreign currency translation adjustment
    
    
    (824
    )
    
    
    122
    
    
    
    (806
    )
    
    
    (1,543
    )Comprehensive income (loss)
    
    $
    3,525
    
    
    $
    (69,810
    )
    
    $
    9,251
    
    
    $
    (100,985
    )
  4




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ACTIVANT SOLUTIONS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (in thousands)
    
    Six Months Ended March 31,2010
    
    
    2009Operating activities:Net income (loss)
    
    $
    8,504
    
    
    $
    (94,484
    )(Income) loss from discontinued operations, net of tax
    
    
    42
    
    
    
    (2,209
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Impairment of goodwill
    
    
    
    
    
    
    107,000Gain on retirement of debt
    
    
    
    
    
    
    (14,327
    )Stock-based compensation expense
    
    
    1,906
    
    
    
    1,876Depreciation
    
    
    2,832
    
    
    
    2,672Amortization of intangible assets
    
    
    16,950
    
    
    
    16,564Amortization of deferred financing costs
    
    
    1,105
    
    
    
    1,210Provision for doubtful accounts
    
    
    757
    
    
    
    325Deferred income taxes
    
    
    (2,506
    )
    
    
    (3,217
    )Changes in assets and liabilities:Trade accounts receivable
    
    
    (2,196
    )
    
    
    165Inventories
    
    
    (112
    )
    
    
    134Prepaid expenses and other assets
    
    
    1,133
    
    
    
    1,152Accounts payable
    
    
    (749
    )
    
    
    (723
    )Deferred revenue
    
    
    5,955
    
    
    
    4,828Accrued expenses and other liabilities
    
    
    (10,859
    )
    
    
    2,125Net cash provided by operating activities  continuing operations
    
    
    22,762
    
    
    
    23,091Net cash provided by operating activities  discontinued operations
    
    
    2,390
    
    
    
    3,920Net cash provided by operating activities
    
    
    25,152
    
    
    
    27,011Investing activities:Purchases of property and equipment
    
    
    (2,246
    )
    
    
    (813
    )Capitalized computer software and database costs
    
    
    (5,405
    )
    
    
    (4,034
    )Net cash used in investing activities  continuing operations
    
    
    (7,651
    )
    
    
    (4,847
    )Net cash used in investing activities  discontinued operations
    
    
    (94
    )
    
    
    (10
    )Net cash used in investing activities
    
    
    (7,745
    )
    
    
    (4,857
    )Financing activities:Repurchases of common stock
    
    
    
    
    
    
    (189
    )Payments on long-term debt
    
    
    (16,000
    )
    
    
    (3,512
    )Repurchases of debt
    
    
    
    
    
    
    (20,215
    )Net cash used in financing activities  continuing operations
    
    
    (16,000
    )
    
    
    (23,916
    )Net cash from continuing operations
    
    
    (889
    )
    
    
    (5,672
    )Net cash from discontinued operations
    
    
    2,296
    
    
    
    3,910Net change in cash and cash equivalents
    
    
    1,407
    
    
    
    (1,762
    )Cash and cash equivalents, beginning of period
    
    
    44,573
    
    
    
    64,789Cash and cash equivalents, end of period
    
    $
    45,980
    
    
    $
    63,027Supplemental disclosures of cash flow informationCash paid during the period for interest
    
    $
    14,288
    
    
    $
    24,160Cash paid during the period for income taxes
    
    $
    14,613
    
    
    $
    5,223Cash received during the period for income taxes
    
    $
    (127
    )
    
    $
    
  5




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ACTIVANT SOLUTIONS INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2010
(UNAUDITED)
 NOTE
1  BASIS OF PRESENTATION
     NOTE
2  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND OTHER LEGISLATION
     6




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NOTE
3  GOODWILL
 (in thousands)
 Retail Distribution Group
    
    $
    207,166Wholesale Distribution
    
    
    334,288Total
    
    $
    541,454
   NOTE
4  DEBT
 (in thousands)
 March 31,
    
    
    September 30,2010
    
    
    2009Senior secured credit facility due 2013
    
    $
    326,241
    
    
    $
    331,227Senior secured credit facility
(incremental term loan) due 2013
    
    
    66,359
    
    
    
    67,373Senior subordinated notes due 2016
    
    
    114,295
    
    
    
    114,295Revolving credit facility due 2011
    
    
    
    
    
    
    10,000Total debt
    
    
    506,895
    
    
    
    522,895Current portion
    
    
    
    
    
    
    (5,886
    )Total long-term debt, net of discount
    
    $
    506,895
    
    
    $
    517,009
 7




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




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Derivative Instruments and Hedging Activities
   (in thousands)
 Unrealized loss in OCI at September 30, 2009
    
    $
    (13,723
    )Net increase in fair value
    
    
    2,389Unrealized loss in OCI at March 31, 2010
    
    $
    (11,334
    )
 (in thousands)
 Fair Value of Derivative InstrumentsDerivative Assets
    
    
    Derivative LiabilitiesLocation in the
    
    
    
    
    
    
    Location in theCondensed
    
    
    
    
    
    
    CondensedConsolidated Balance
    
    
    
    
    
    
    ConsolidatedNotional Amount
    
    
    Sheet
    
    
    Fair Value
    
    
    Balance Sheet
    
    
    Fair ValueInterest rate swaps due November 2011
    
    $
    140,000
    
    
    Other assets
    
    $
    
    
    
    Other liabilities
    
    $
    (11,334
    )
 Effect of Derivative Instruments on Condensed Consolidated Statements of Operations and OCIGain recognized in
    
    
    Gain/(Loss) reclassified from OCI intoLoss recognized in earnings (1)
    
    
    OCI
    
    
    earnings (2)Location
    
    
    Amount
    
    
    Amount
    
    
    Location
    
    
    AmountInterest rate swaps
    
    Interest expense
    
    $
    (3,861
    )
    
    $
    2,389
    
    
    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
  9




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NOTE
5  FAIR VALUE
   
    
    Level 1  uses quoted prices in active markets for identical assets or liabilities we
have the ability to access.
 10




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
    
    Level 2  uses observable inputs other than quoted prices in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
 
    
    Level 3  uses one or more significant inputs that are unobservable and supported by
little or no market activity, and that reflect the use of significant management
judgment.
    (in thousands)
 Quoted Pricesin Active Marketsfor IdenticalAssets and
    
    
    Significant Other
    
    
    SignificantLiabilities
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    Total(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Fair ValueAssets:Cash equivalents (1)
    
    $
    15,658
    
    
    $
    
    
    
    $
    
    
    
    $
    15,658Deferred compensation plan assets (2)
    
    
    2,483
    
    
    
    
    
    
    
    
    
    
    
    2,483Liabilities:Interest
rate swap due 2011 (3)
    
    
    
    
    
    
    (11,334
    )
    
    
    
    
    
    
    (11,334
    )Deferred
compensation plan liabilities (3)
    
    
    (1,984
    )
    
    
    
    
    
    
    
    
    
    
    (1,984
    )Total
    
    $
    16,157
    
    
    $
    (11,334
    )
    
    $
    
    
    
    $
    4,823
 
 (1)
    
    Included in cash and cash equivalents in our condensed consolidated balance sheet.(2)
    
    Included in other assets in our condensed consolidated balance sheet.(3)
    
    Included in other liabilities in our condensed consolidated balance sheet. Other Financial Assets and Liabilities
   11




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NOTE 6  INCOME TAXES
      NOTE 7  EMPLOYEE STOCK PLANS
 Stock-based Compensation Expense
 (in thousands)
 Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of revenuesSystems
    
    $
    18
    
    
    $
    7
    
    
    $
    26
    
    
    $
    17Services
    
    
    57
    
    
    
    46
    
    
    
    118
    
    
    
    95Operating expensesSales and marketing
    
    
    326
    
    
    
    173
    
    
    
    690
    
    
    
    400Product development
    
    
    76
    
    
    
    71
    
    
    
    151
    
    
    
    145General and administrative
    
    
    441
    
    
    
    525
    
    
    
    921
    
    
    
    1,219Total
    
    $
    918
    
    
    $
    822
    
    
    $
    1,906
    
    
    $
    1,876
  Valuation Assumptions
  12




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Three Months Ended March 31,
    
    Six Months Ended March 31,2010
    
    2009
    
    2010
    
    2009Expected term
    
    6.66 years
    
    6.66 years
    
    6.66 years
    
    6.66 yearsExpected volatility
    
    44.00%
    
    72.00%
    
    44.29%
    
    72.00%Expected dividends
    
    0.00%
    
    0.00%
    
    0.00%
    
    0.00%Risk-free rate
    
    2.56%
    
    1.67%
    
    2.56%
    
    1.55%
  NOTE 8  RESTRUCTURING COSTS
   (in thousands)
 Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atSeptember 30,
    
    
    Restructuring
    
    
    
    
    
    
    March 31,2009
    
    
    Charges
    
    
    Payments
    
    
    20102010 Actions  Severance and Related Benefits
    
    $
    
    
    
    $
    1,699
    
    
    $
    (1,340
    )
    
    $
    3592010 Actions  Facility Closings
    
    
    
    
    
    
    269
    
    
    
    (34
    )
    
    
    2352009 Actions  Severance and Related Benefits
    
    
    30
    
    
    
    
    
    
    
    (30
    )
    
    
    2009 Actions  Facility Closings
    
    
    812
    
    
    
    6
    
    
    
    (326
    )
    
    
    492$
    842
    
    
    $
    1,974
    
    
    $
    (1,730
    )
    
    $
    1,086
 NOTE 9  SEGMENT REPORTING
  13




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##### Table of Contents




    
    Retail Distribution Group segment The retail distribution
vertical market consists of independent hardware retailers; home improvement centers;
paint, glass and wallpaper stores; farm supply stores; retail nurseries and garden centers;
independent lumber and building material dealers; pharmacies; and other specialty
retailers, primarily in the United States, as well as customers involved in the
manufacture, distribution, sale and installation of new and remanufactured parts used in
the maintenance and repair of automobiles and light trucks; and includes manufacturers,
warehouse distributors, parts stores, professional installers in North America, the United
Kingdom and Ireland, as well as several chains in North America.
    
    Wholesale Distribution segment The wholesale distribution
vertical market consists of distributors of a range of products including electrical
supply; plumbing; medical supply; heating and air conditioning; tile; industrial machinery
and equipment; industrial supplies; fluid power; janitorial and sanitation products; paper
and packaging; and service establishment equipment vendors, primarily in the United States.
    
    Other Other primarily consisted of our productivity tools
business, which was involved with software migration services and application development.
As further discussed in Note 10, in April 2010 we sold our productivity tools business
which historically represented substantially all of Other. Amounts associated with the
productivity tools business have been presented as discontinued operations in our financial
statements. In the fiscal 2009 periods there was an immaterial amount of remaining revenue
in Other that was not allocated to the other segments. In fiscal 2010, all revenues were
recorded in either the Retail Distribution Group segment or the Wholesale Distribution
segment.
 Segment Revenue and Contribution Margin
   (in thousands)
 Three Months Ended March 31, 2010
    
    
    Six Months Ended March 31, 2010Retail
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RetailDistribution
    
    
    Wholesale
    
    
    
    
    
    
    
    
    
    
    Distribution
    
    
    WholesaleGroup
    
    
    Distribution
    
    
    Other
    
    
    Total
    
    
    Group
    
    
    Distribution
    
    
    Other
    
    
    TotalRevenues
    
    $
    55,938
    
    
    $
    39,082
    
    
    $
    
    
    
    $
    95,020
    
    
    $
    108,015
    
    
    $
    75,130
    
    
    $
    
    
    
    $
    183,145Contribution margin
    
    $
    17,824
    
    
    $
    16,016
    
    
    $
    
    
    
    $
    33,840
    
    
    $
    34,135
    
    
    $
    31,139
    
    
    $
    
    
    
    $
    65,274
 Three Months Ended March 31, 2009
    
    
    Six Months Ended March 31, 2009Retail
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RetailDistribution
    
    
    Wholesale
    
    
    
    
    
    
    
    
    
    
    Distribution
    
    
    WholesaleGroup
    
    
    Distribution
    
    
    Other
    
    
    Total
    
    
    Group
    
    
    Distribution
    
    
    Other
    
    
    TotalRevenues
    
    $
    53,167
    
    
    $
    40,524
    
    
    $
    93
    
    
    $
    93,784
    
    
    $
    107,080
    
    
    $
    78,922
    
    
    $
    169
    
    
    $
    186,171Contribution margin
    
    $
    18,828
    
    
    $
    16,441
    
    
    $
    93
    
    
    $
    35,362
    
    
    $
    34,515
    
    
    $
    30,849
    
    
    $
    169
    
    
    $
    65,533
 14




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##### Table of Contents



Three Months Ended March 31,
    
    
    Six Months Ended March 31,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Segment contribution margin
    
    $
    33,840
    
    
    $
    35,362
    
    
    $
    65,274
    
    
    $
    65,533Corporate and unallocated costs
    
    
    (6,226
    )
    
    
    (5,769
    )
    
    
    (12,151
    )
    
    
    (11,403
    )Stock-based compensation expense
    
    
    (918
    )
    
    
    (822
    )
    
    
    (1,906
    )
    
    
    (1,876
    )Depreciation and amortization
    
    
    (10,296
    )
    
    
    (9,607
    )
    
    
    (19,782
    )
    
    
    (19,236
    )Impairment of goodwill
    
    
    
    
    
    
    (82,000
    )
    
    
    
    
    
    
    (107,000
    )Acquisition related costs
    
    
    
    
    
    
    (52
    )
    
    
    
    
    
    
    (228
    )Restructuring costs
    
    
    (1,068
    )
    
    
    (2,533
    )
    
    
    (1,974
    )
    
    
    (4,291
    )Interest expense
    
    
    (7,784
    )
    
    
    (9,688
    )
    
    
    (15,703
    )
    
    
    (22,676
    )Gain on retirement of debt
    
    
    
    
    
    
    14,327
    
    
    
    
    
    
    
    14,327Other income (expense), net
    
    
    141
    
    
    
    (298
    )
    
    
    431
    
    
    
    (626
    )Income (loss) from continuing
operations before income taxes
    
    $
    7,689
    
    
    $
    (61,080
    )
    
    $
    14,189
    
    
    $
    (87,476
    )
 NOTE 10  DISCONTINUED OPERATIONS
  (in thousands)
 Three months ended March 31,
    
    
    Six months ended March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue from discontinued operations
    
    $
    2,711
    
    
    $
    2,169
    
    
    $
    6,185
    
    
    $
    6,048Expenses from discontinued operations
    
    
    2,323
    
    
    
    1,859
    
    
    
    4,403
    
    
    
    3,906Income from discontinued operations
before income taxes
    
    
    388
    
    
    
    310
    
    
    
    1,782
    
    
    
    2,142Income tax expense (benefit)
    
    
    1,384
    
    
    
    (575
    )
    
    
    1,824
    
    
    
    (67
    )Income (loss) from discontinued
operations, net of income taxes
    
    $
    (996
    )
    
    $
    885
    
    
    $
    (42
    )
    
    $
    2,209
 15




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##### Table of Contents



(in thousands)
 March 31,
    
    
    September 30,2010
    
    
    2009Trade accounts receivable, net of allowance for doubtful accounts
    
    $
    1,514
    
    
    $
    216Deferred income taxes
    
    
    434
    
    
    
    3,205Prepaid expenses and other current assets
    
    
    188
    
    
    
    42Property and equipment, net
    
    
    47
    
    
    
    105Intangible assets, net
    
    
    1,485
    
    
    
    1,547Goodwill
    
    
    2,264
    
    
    
    2,264Other assets
    
    
    39
    
    
    
    39Assets of discontinued operations
    
    $
    5,971
    
    
    $
    7,418Payroll related accruals
    
    $
    476
    
    
    $
    370Deferred revenue
    
    
    2,565
    
    
    
    1,771Accrued expenses and other current liabilities
    
    
    108
    
    
    
    137Liabilities of discontinued operations
    
    $
    3,149
    
    
    $
    2,278
  16




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##### Table of Contents



NOTE 11  GUARANTOR CONSOLIDATION
  Condensed Consolidating Balance Sheet as of March 31, 2010
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETS:Current assets:Cash and cash equivalents
    
    $
    40,156
    
    
    $
    181
    
    
    $
    5,643
    
    
    $
    
    
    
    $
    45,980Trade accounts receivable, net of allowance for doubtful accounts
    
    
    18,731
    
    
    
    13,701
    
    
    
    3,203
    
    
    
    
    
    
    
    35,635Inventories
    
    
    4,116
    
    
    
    711
    
    
    
    270
    
    
    
    
    
    
    
    5,097Deferred income taxes
    
    
    2,193
    
    
    
    1,080
    
    
    
    13
    
    
    
    
    
    
    
    3,286Prepaid expenses and other current assets
    
    
    3,655
    
    
    
    78
    
    
    
    127
    
    
    
    
    
    
    
    3,860Assets of discontinued operations
    
    
    1,055
    
    
    
    
    
    
    
    4,916
    
    
    
    
    
    
    
    5,971Total current assets
    
    
    69,906
    
    
    
    15,751
    
    
    
    14,172
    
    
    
    
    
    
    
    99,829Property and equipment, net
    
    
    5,183
    
    
    
    92
    
    
    
    107
    
    
    
    
    
    
    
    5,382Intangible assets, net
    
    
    158,189
    
    
    
    19,745
    
    
    
    1,368
    
    
    
    
    
    
    
    179,302Goodwill
    
    
    442,175
    
    
    
    91,956
    
    
    
    1,286
    
    
    
    6,037
    
    
    
    541,454Investments in subsidiaries
    
    
    16,769
    
    
    
    
    
    
    
    
    
    
    
    (16,769
    )
    
    
    Intercompany receivables (payables)
    
    
    (100,025
    )
    
    
    111,338
    
    
    
    (11,313
    )
    
    
    
    
    
    
    Deferred financing costs
    
    
    7,798
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,798Other assets
    
    
    3,541
    
    
    
    139
    
    
    
    (13
    )
    
    
    
    
    
    
    3,667Total assets
    
    $
    603,536
    
    
    $
    239,021
    
    
    $
    5,607
    
    
    $
    (10,732
    )
    
    $
    837,432LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    15,965
    
    
    $
    1,055
    
    
    $
    261
    
    
    $
    
    
    
    $
    17,281Payroll related accruals
    
    
    1,300
    
    
    
    11,783
    
    
    
    558
    
    
    
    
    
    
    
    13,641Deferred revenue
    
    
    13,950
    
    
    
    20,565
    
    
    
    1,323
    
    
    
    
    
    
    
    35,838Accrued expenses and other current liabilities
    
    
    8,663
    
    
    
    1,732
    
    
    
    1,338
    
    
    
    
    
    
    
    11,733Liabilities of discontinued operations
    
    
    73
    
    
    
    
    
    
    
    3,076
    
    
    
    
    
    
    
    3,149Total current liabilities
    
    
    39,951
    
    
    
    35,135
    
    
    
    6,556
    
    
    
    
    
    
    
    81,642Long-term debt
    
    
    506,895
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    506,895Deferred tax and other liabilities
    
    
    73,876
    
    
    
    (3,211
    )
    
    
    523
    
    
    
    
    
    
    
    71,188Total liabilities
    
    
    620,722
    
    
    
    31,924
    
    
    
    7,079
    
    
    
    
    
    
    
    659,725Total stockholders equity (deficit)
    
    
    (17,186
    )
    
    
    207,097
    
    
    
    (1,472
    )
    
    
    (10,732
    )
    
    
    177,707Total liabilities and stockholders equity (deficit)
    
    $
    603,536
    
    
    $
    239,021
    
    
    $
    5,607
    
    
    $
    (10,732
    )
    
    $
    837,432
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Condensed Consolidating Balance Sheet as of September 30, 2009
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETS:Current assets:Cash and cash equivalents
    
    $
    42,001
    
    
    $
    215
    
    
    $
    2,357
    
    
    $
    
    
    
    $
    44,573Trade accounts receivable, net of allowance for doubtful accounts
    
    
    16,818
    
    
    
    14,383
    
    
    
    2,995
    
    
    
    
    
    
    
    34,196Inventories
    
    
    3,576
    
    
    
    1,185
    
    
    
    224
    
    
    
    
    
    
    
    4,985Deferred income taxes
    
    
    (137
    )
    
    
    1,217
    
    
    
    
    
    
    
    
    
    
    
    1,080Prepaid expenses and other current assets
    
    
    4,886
    
    
    
    454
    
    
    
    142
    
    
    
    
    
    
    
    5,482Assets of discontinued operations
    
    
    6
    
    
    
    
    
    
    
    7,412
    
    
    
    
    
    
    
    7,418Total current assets
    
    
    67,150
    
    
    
    17,454
    
    
    
    13,130
    
    
    
    
    
    
    
    97,734Property and equipment, net
    
    
    5,337
    
    
    
    518
    
    
    
    113
    
    
    
    
    
    
    
    5,968Intangible assets, net
    
    
    166,128
    
    
    
    23,134
    
    
    
    1,585
    
    
    
    
    
    
    
    190,847Goodwill
    
    
    442,175
    
    
    
    91,956
    
    
    
    1,286
    
    
    
    6,037
    
    
    
    541,454Investments in subsidiaries
    
    
    16,769
    
    
    
    
    
    
    
    
    
    
    
    (16,769
    )
    
    
    Intercompany receivables (payables)
    
    
    (83,980
    )
    
    
    99,035
    
    
    
    (15,055
    )
    
    
    
    
    
    
    Deferred financing costs
    
    
    8,903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,903Other assets
    
    
    3,013
    
    
    
    181
    
    
    
    (16
    )
    
    
    
    
    
    
    3,178Total assets
    
    $
    625,495
    
    
    $
    232,278
    
    
    $
    1,043
    
    
    $
    (10,732
    )
    
    $
    848,084LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    16,456
    
    
    $
    1,635
    
    
    $
    (61
    )
    
    $
    
    
    
    $
    18,030Payroll related accruals
    
    
    (13,178
    )
    
    
    29,850
    
    
    
    745
    
    
    
    
    
    
    
    17,417Deferred revenue
    
    
    8,993
    
    
    
    20,021
    
    
    
    869
    
    
    
    
    
    
    
    29,883Current portion of long-term debt
    
    
    5,886
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,886Accrued expenses and other current liabilities
    
    
    15,606
    
    
    
    1,177
    
    
    
    1,242
    
    
    
    
    
    
    
    18,025Liabilities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    2,278
    
    
    
    
    
    
    
    2,278Total current liabilities
    
    
    33,763
    
    
    
    52,683
    
    
    
    5,073
    
    
    
    
    
    
    
    91,519Long-term debt
    
    
    517,009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    517,009Deferred tax and other liabilities
    
    
    75,701
    
    
    
    (2,723
    )
    
    
    48
    
    
    
    
    
    
    
    73,026Total liabilities
    
    
    626,473
    
    
    
    49,960
    
    
    
    5,121
    
    
    
    
    
    
    
    681,554Total stockholders equity (deficit)
    
    
    (978
    )
    
    
    182,318
    
    
    
    (4,078
    )
    
    
    (10,732
    )
    
    
    166,530Total liabilities and stockholders equity (deficit)
    
    $
    625,495
    
    
    $
    232,278
    
    
    $
    1,043
    
    
    $
    (10,732
    )
    
    $
    848,084
 18




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Three Months Ended March 31, 2010
 Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Principal Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    19,018
    
    
    $
    13,635
    
    
    $
    977
    
    
    $
    
    
    
    $
    33,630Services
    
    
    33,990
    
    
    
    24,720
    
    
    
    2,680
    
    
    
    
    
    
    
    61,390Total revenues
    
    
    53,008
    
    
    
    38,355
    
    
    
    3,657
    
    
    
    
    
    
    
    95,020Cost of revenues:Systems
    
    
    11,411
    
    
    
    6,919
    
    
    
    654
    
    
    
    
    
    
    
    18,984Services
    
    
    13,005
    
    
    
    5,625
    
    
    
    1,389
    
    
    
    
    
    
    
    20,019Total cost of revenues
    
    
    24,416
    
    
    
    12,544
    
    
    
    2,043
    
    
    
    
    
    
    
    39,003Gross profit
    
    
    28,592
    
    
    
    25,811
    
    
    
    1,614
    
    
    
    
    
    
    
    56,017Operating expenses:Sales and marketing
    
    
    8,073
    
    
    
    5,730
    
    
    
    539
    
    
    
    
    
    
    
    14,342Product development
    
    
    3,746
    
    
    
    4,479
    
    
    
    395
    
    
    
    
    
    
    
    8,620General and administrative
    
    
    5,948
    
    
    
    315
    
    
    
    96
    
    
    
    
    
    
    
    6,359Depreciation and amortization
    
    
    8,330
    
    
    
    1,813
    
    
    
    153
    
    
    
    
    
    
    
    10,296Restructuring costs
    
    
    658
    
    
    
    383
    
    
    
    27
    
    
    
    
    
    
    
    1,068Total operating expenses
    
    
    26,755
    
    
    
    12,720
    
    
    
    1,210
    
    
    
    
    
    
    
    40,685Operating income
    
    
    1,837
    
    
    
    13,091
    
    
    
    404
    
    
    
    
    
    
    
    15,332Interest expense
    
    
    (7,730
    )
    
    
    (4
    )
    
    
    (50
    )
    
    
    
    
    
    
    (7,784
    )Other income (expense), net
    
    
    (381
    )
    
    
    163
    
    
    
    359
    
    
    
    
    
    
    
    141Income (loss) from continuing operations before income taxes
    
    
    (6,274
    )
    
    
    13,250
    
    
    
    713
    
    
    
    
    
    
    
    7,689Income tax expense
    
    
    1,102
    
    
    
    475
    
    
    
    1,134
    
    
    
    
    
    
    
    2,711Income (loss) from continuing operations
    
    
    (7,376
    )
    
    
    12,775
    
    
    
    (421
    )
    
    
    
    
    
    
    4,978Income (loss) from discontinued operations, net of income taxes
    
    
    1,458
    
    
    
    
    
    
    
    (2,454
    )
    
    
    
    
    
    
    (996
    )Net income (loss)
    
    $
    (5,918
    )
    
    $
    12,775
    
    
    $
    (2,875
    )
    
    $
    
    
    
    $
    3,982
 19




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Three Months Ended March 31, 2009
 Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Principal Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    14,771
    
    
    $
    14,507
    
    
    $
    935
    
    
    $
    
    
    
    $
    30,213Services
    
    
    35,636
    
    
    
    25,408
    
    
    
    2,527
    
    
    
    
    
    
    
    63,571Total revenues
    
    
    50,407
    
    
    
    39,915
    
    
    
    3,462
    
    
    
    
    
    
    
    93,784Cost of revenues:Systems
    
    
    8,787
    
    
    
    7,070
    
    
    
    476
    
    
    
    
    
    
    
    16,333Services
    
    
    13,033
    
    
    
    6,735
    
    
    
    1,391
    
    
    
    
    
    
    
    21,159Total cost of revenues
    
    
    21,820
    
    
    
    13,805
    
    
    
    1,867
    
    
    
    
    
    
    
    37,492Gross profit
    
    
    28,587
    
    
    
    26,110
    
    
    
    1,595
    
    
    
    
    
    
    
    56,292Operating expenses:Sales and marketing
    
    
    6,947
    
    
    
    5,282
    
    
    
    428
    
    
    
    
    
    
    
    12,657Product development
    
    
    3,704
    
    
    
    5,013
    
    
    
    319
    
    
    
    
    
    
    
    9,036General and administrative
    
    
    5,240
    
    
    
    402
    
    
    
    186
    
    
    
    
    
    
    
    5,828Depreciation and amortization
    
    
    7,662
    
    
    
    1,802
    
    
    
    143
    
    
    
    
    
    
    
    9,607Impairment of goodwill
    
    
    82,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,000Acquisition related costs
    
    
    4
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    52Restructuring costs
    
    
    1,961
    
    
    
    208
    
    
    
    364
    
    
    
    
    
    
    
    2,533Total operating expenses
    
    
    107,518
    
    
    
    12,755
    
    
    
    1,440
    
    
    
    
    
    
    
    121,713Operating income (loss)
    
    
    (78,931
    )
    
    
    13,355
    
    
    
    155
    
    
    
    
    
    
    
    (65,421
    )Interest expense
    
    
    (9,683
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    
    
    
    
    (9,688
    )Gain on retirement of debt
    
    
    14,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,327Other income (expense), net
    
    
    90
    
    
    
    28
    
    
    
    (416
    )
    
    
    
    
    
    
    (298
    )Income (loss) from continuing operations before income taxes
    
    
    (74,197
    )
    
    
    13,380
    
    
    
    (263
    )
    
    
    
    
    
    
    (61,080
    )Income tax expense
    
    
    9,416
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    9,488Income (loss) from continuing operations
    
    
    (83,613
    )
    
    
    13,380
    
    
    
    (335
    )
    
    
    
    
    
    
    (70,568
    )Income from discontinued operations, net of income taxes
    
    
    677
    
    
    
    
    
    
    
    208
    
    
    
    
    
    
    
    885Net income (loss)
    
    $
    (82,936
    )
    
    $
    13,380
    
    
    $
    (127
    )
    
    $
    
    
    
    $
    (69,683
    )
 20




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Six Months Ended March 31, 2010
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    34,126
    
    
    $
    24,240
    
    
    $
    1,904
    
    
    $
    
    
    
    $
    60,270Services
    
    
    68,139
    
    
    
    49,331
    
    
    
    5,405
    
    
    
    
    
    
    
    122,875Total revenues
    
    
    102,265
    
    
    
    73,571
    
    
    
    7,309
    
    
    
    
    
    
    
    183,145Cost of revenues:Systems
    
    
    20,532
    
    
    
    12,089
    
    
    
    1,242
    
    
    
    
    
    
    
    33,863Services
    
    
    25,524
    
    
    
    11,227
    
    
    
    2,865
    
    
    
    
    
    
    
    39,616Total cost of revenues
    
    
    46,056
    
    
    
    23,316
    
    
    
    4,107
    
    
    
    
    
    
    
    73,479Gross profit
    
    
    56,209
    
    
    
    50,255
    
    
    
    3,202
    
    
    
    
    
    
    
    109,666Operating expenses:Sales and marketing
    
    
    16,464
    
    
    
    10,841
    
    
    
    1,249
    
    
    
    
    
    
    
    28,554Product development
    
    
    7,412
    
    
    
    9,143
    
    
    
    811
    
    
    
    
    
    
    
    17,366General and administrative
    
    
    11,593
    
    
    
    667
    
    
    
    269
    
    
    
    
    
    
    
    12,529Depreciation and amortization
    
    
    15,918
    
    
    
    3,565
    
    
    
    299
    
    
    
    
    
    
    
    19,782Restructuring costs
    
    
    931
    
    
    
    472
    
    
    
    571
    
    
    
    
    
    
    
    1,974Total operating expenses
    
    
    52,318
    
    
    
    24,688
    
    
    
    3,199
    
    
    
    
    
    
    
    80,205Operating income
    
    
    3,891
    
    
    
    25,567
    
    
    
    3
    
    
    
    
    
    
    
    29,461Interest expense
    
    
    (15,645
    )
    
    
    (8
    )
    
    
    (50
    )
    
    
    
    
    
    
    (15,703
    )Other income (expense), net
    
    
    (6,035
    )
    
    
    246
    
    
    
    6,220
    
    
    
    
    
    
    
    431Income (loss) from continuing operations before income taxes
    
    
    (17,789
    )
    
    
    25,805
    
    
    
    6,173
    
    
    
    
    
    
    
    14,189Income tax expense
    
    
    2,865
    
    
    
    1,026
    
    
    
    1,752
    
    
    
    
    
    
    
    5,643Income (loss) from continuing operations
    
    
    (20,654
    )
    
    
    24,779
    
    
    
    4,421
    
    
    
    
    
    
    
    8,546Income (loss) from discontinued operations, net of income taxes
    
    
    3,530
    
    
    
    
    
    
    
    (3,572
    )
    
    
    
    
    
    
    (42
    )Net income (loss)
    
    $
    (17,124
    )
    
    $
    24,779
    
    
    $
    849
    
    
    $
    
    
    
    $
    8,504
 21




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##### Table of Contents



Condensed Consolidating Statement of Operations for the Six Months Ended March 31, 2009
 GuarantorNon-Guarantor(in thousands)
    
    Principal Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    31,303
    
    
    $
    28,247
    
    
    $
    1,796
    
    
    $
    
    
    
    $
    61,346Services
    
    
    70,171
    
    
    
    49,407
    
    
    
    5,247
    
    
    
    
    
    
    
    124,825Total revenues
    
    
    101,474
    
    
    
    77,654
    
    
    
    7,043
    
    
    
    
    
    
    
    186,171Cost of revenues:Systems
    
    
    18,880
    
    
    
    13,490
    
    
    
    1,029
    
    
    
    
    
    
    
    33,399Services
    
    
    26,757
    
    
    
    13,377
    
    
    
    2,525
    
    
    
    
    
    
    
    42,659Total cost of revenues
    
    
    45,637
    
    
    
    26,867
    
    
    
    3,554
    
    
    
    
    
    
    
    76,058Gross profit
    
    
    55,837
    
    
    
    50,787
    
    
    
    3,489
    
    
    
    
    
    
    
    110,113Operating expenses:Sales and marketing
    
    
    15,679
    
    
    
    10,860
    
    
    
    1,116
    
    
    
    
    
    
    
    27,655Product development
    
    
    7,793
    
    
    
    10,217
    
    
    
    645
    
    
    
    
    
    
    
    18,655General and administrative
    
    
    10,290
    
    
    
    791
    
    
    
    468
    
    
    
    
    
    
    
    11,549Depreciation and amortization
    
    
    15,299
    
    
    
    3,623
    
    
    
    314
    
    
    
    
    
    
    
    19,236Impairment of goodwill
    
    
    107,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,000Acquisition related costs
    
    
    45
    
    
    
    81
    
    
    
    102
    
    
    
    
    
    
    
    228Restructuring costs
    
    
    2,884
    
    
    
    261
    
    
    
    1,146
    
    
    
    
    
    
    
    4,291Total operating expenses
    
    
    158,990
    
    
    
    25,833
    
    
    
    3,791
    
    
    
    
    
    
    
    188,614Operating income (loss)
    
    
    (103,153
    )
    
    
    24,954
    
    
    
    (302
    )
    
    
    
    
    
    
    (78,501
    )Interest expense
    
    
    (22,667
    )
    
    
    (7
    )
    
    
    (2
    )
    
    
    
    
    
    
    (22,676
    )Gain on retirement of debt
    
    
    14,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,327Other expense
    
    
    (126
    )
    
    
    (19
    )
    
    
    (481
    )
    
    
    
    
    
    
    (626
    )Income (loss) from continuing
operations before income taxes
    
    
    (111,619
    )
    
    
    24,928
    
    
    
    (785
    )
    
    
    
    
    
    
    (87,476
    )Income tax expense
    
    
    9,139
    
    
    
    1
    
    
    
    77
    
    
    
    
    
    
    
    9,217Income (loss) from continuing
operations
    
    
    (120,758
    )
    
    
    24,927
    
    
    
    (862
    )
    
    
    
    
    
    
    (96,693
    )Income (loss) from
discontinued operations, net
of income taxes
    
    
    2,248
    
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    2,209Net income (loss)
    
    $
    (118,510
    )
    
    $
    24,927
    
    
    $
    (901
    )
    
    $
    
    
    
    $
    (94,484
    )
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Condensed Consolidating Statement of Cash Flows for the Six Months Ended March 31, 2010
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided
by operating
activities 
continuing
operations
    
    $
    19,293
    
    
    $
    92
    
    
    $
    3,377
    
    
    $
    
    
    
    $
    22,762Net cash provided by operating
activities  discontinued operations
    
    
    2,406
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    2,390Net cash provided by operating
activities
    
    
    21,699
    
    
    
    92
    
    
    
    3,361
    
    
    
    
    
    
    
    25,152Investing activities:Purchase of property and equipment
    
    
    (2,098
    )
    
    
    (126
    )
    
    
    (22
    )
    
    
    
    
    
    
    (2,246
    )Capitalized computer software costs and databases
    
    
    (5,405
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,405
    )Net cash used in investing activities  continuing
operations
    
    
    (7,503
    )
    
    
    (126
    )
    
    
    (22
    )
    
    
    
    
    
    
    (7,651
    )Net cash used in investing activities  discontinued
operations
    
    
    (41
    )
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    (94
    )Net cash used in investing activities
    
    
    (7,544
    )
    
    
    (126
    )
    
    
    (75
    )
    
    
    
    
    
    
    (7,745
    )Financing activities:Payment on long-term debt
    
    
    (16,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,000
    )Net cash used in financing activities  continuing
operations
    
    
    (16,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,000
    )Net cash from continuing operations
    
    
    (4,210
    )
    
    
    (34
    )
    
    
    3,355
    
    
    
    
    
    
    
    (889
    )Net cash from discontinued operations
    
    
    2,365
    
    
    
    
    
    
    
    (69
    )
    
    
    
    
    
    
    2,296Net change in cash and cash equivalents
    
    
    (1,845
    )
    
    
    (34
    )
    
    
    3,286
    
    
    
    
    
    
    
    1,407Cash and cash equivalents, beginning of period
    
    
    42,001
    
    
    
    215
    
    
    
    2,357
    
    
    
    
    
    
    
    44,573Cash and cash equivalents, end of period
    
    $
    40,156
    
    
    $
    181
    
    
    $
    5,643
    
    
    $
    
    
    
    $
    45,980
 23




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the Six Months Ended March 31, 2009
 GuarantorPrincipal
    
    
    
    
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in)
operating activities  continuing
operations
    
    $
    26,659
    
    
    $
    (1,443
    )
    
    $
    (2,125
    )
    
    $
    
    
    
    $
    23,091Net cash provided by (used in) operating activities
 discontinued operations
    
    
    4,260
    
    
    
    
    
    
    
    (340
    )
    
    
    
    
    
    
    3,920Net cash provided by (used in) operating activities
    
    
    30,919
    
    
    
    (1,443
    )
    
    
    (2,465
    )
    
    
    
    
    
    
    27,011Investing activities:Purchase of property and equipment
    
    
    (808
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (813
    )Capitalized computer software
costs and databases
    
    
    (4,034
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,034
    )Net cash used in investing
activities  continuing operations
    
    
    (4,842
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (4,847
    )Net cash used in investing
activities  discontinued
operations
    
    
    (9
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (10
    )Net cash used in investing activities
    
    
    (4,851
    )
    
    
    (5
    )
    
    
    (1
    )
    
    
    
    
    
    
    (4,857
    )Financing activities:Repurchases of common stock
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Payments on long-term debt
    
    
    (3,512
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,512
    )Repurchases of debt
    
    
    (20,215
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,215
    )Net cash used in financing
activities  continuing operations
    
    
    (23,916
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,916
    )Net cash from continuing operations
    
    
    (2,099
    )
    
    
    (1,448
    )
    
    
    (2,125
    )
    
    
    
    
    
    
    (5,672
    )Net cash from discontinued operations
    
    
    4,251
    
    
    
    
    
    
    
    (341
    )
    
    
    
    
    
    
    3,910Net change in cash and cash
equivalents
    
    
    2,152
    
    
    
    (1,448
    )
    
    
    (2,466
    )
    
    
    
    
    
    
    (1,762
    )Cash and cash equivalents, beginning
of period
    
    
    55,926
    
    
    
    2,931
    
    
    
    5,932
    
    
    
    
    
    
    
    64,789Cash and cash equivalents, end of
period
    
    $
    58,078
    
    
    $
    1,483
    
    
    $
    3,466
    
    
    $
    
    
    
    $
    63,027
 24




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations
 You should read the following discussion and analysis in conjunction with our financial
statements and related notes included above. This discussion contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of a variety of factors,
including those set forth under Part I, Item 1A  Risk Factors included in our Annual Report on
Form 10-K for the fiscal year ended September 30, 2009.
 Overview
   Revenues
  
    
    The retail distribution market consists of a range of specialty retail and distribution
vertical markets, primarily in the United States, including independent hardware retailers;
home improvement centers; paint, glass and wallpaper stores; farm supply stores; retail
nurseries and garden centers; independent lumber and building material dealers; pharmacies;
and other specialty retailers, and includes manufacturers, warehouse distributors, parts
stores, professional installers in North America, the United Kingdom and Ireland, as well
as several chains in North America. For the six months ended March 31, 2010, we generated
approximately 59.0% of our total revenues from the retail distribution vertical market.
    
    The wholesale distribution market consists of a range of distributors including
electrical supply; plumbing; medical supply; heating and air conditioning; tile; industrial
machinery and equipment; industrial supplies; fluid power; janitorial and sanitation
products; paper and packaging; and service establishment equipment vendors, primarily in
the United States. For the six months ended March 31, 2010, we generated approximately
41.0% of our total revenues from the wholesale distribution vertical market.
  
    
    Systems, which is comprised primarily of proprietary software applications, professional
services, training, and third-party software and may include hardware and peripherals and
forms.
    
    Services, which is comprised primarily of product support, content, and supply chain
services. Product support services are comprised of customer support activities, including
software, hardware and network support through our help desk, web help, software updates,
preventive and remedial on-site maintenance and depot repair services. Our content services
are comprised of proprietary database and data management products such as our
comprehensive electronic automotive parts and applications catalog and point-of-sale
business analysis data. Supply chain services are comprised of connectivity services,
e-commerce, networking and security monitoring management solutions. We generally provide
our services on a subscription basis, and accordingly, revenues are generally recurring in
nature.
 25




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##### Table of Contents



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




    
    Gain on retirement of debt Gain on retirement of debt represents the gain in
connection with the debt we have repurchased, net of any related deferred financing fees to
be written off as well as any related transaction fees. Subject to the restrictions and
limitations set forth under the senior secured credit agreement and the indenture governing
the senior subordinated notes, we and our subsidiaries, affiliates or significant
stockholders may from time to time purchase, repay, redeem or retire additional amounts of
our outstanding debt, in privately negotiated or open market transactions, by tender offer
or otherwise.
    
    Other income (expense), net Other income (expense), net primarily consists of interest
income, other non-income based taxes, foreign currency gains or losses and gains or losses
on marketable securities.
    
    Income tax expense Income tax expense is based on state, federal and
foreign taxable income determined in accordance with current enacted laws and tax rates.
 General Business Conditions and Trends
    .
  Results of Operations
 Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
 Total revenues
  27




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##### Table of Contents



(in thousands)
 Three Months Ended March 31,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Retail Distribution Group revenues:Systems
    
    $
    19,987
    
    
    $
    15,667
    
    
    $
    4,320
    
    
    
    27.6
    %Services
    
    
    35,951
    
    
    
    37,500
    
    
    
    (1,549
    )
    
    
    (4.1
    )%Total Retail Distribution Group revenues
    
    $
    55,938
    
    
    $
    53,167
    
    
    $
    2,771
    
    
    
    5.2
    %Wholesale Distribution revenues:Systems
    
    $
    13,643
    
    
    $
    14,526
    
    
    $
    (883
    )
    
    
    (6.1
    )%Services
    
    
    25,439
    
    
    
    25,998
    
    
    
    (559
    )
    
    
    (2.2
    )%Total Wholesale Distribution revenues
    
    $
    39,082
    
    
    $
    40,524
    
    
    $
    (1,442
    )
    
    
    (3.6
    )%Other revenues:Systems
    
    $
    
    
    
    $
    20
    
    
    $
    (20
    )
    
    
    (100.0
    )%Services
    
    
    
    
    
    
    73
    
    
    
    (73
    )
    
    
    (100.0
    )%Total Other revenues
    
    $
    
    
    
    $
    93
    
    
    $
    (93
    )
    
    
    (100.0
    )%Total revenues:Systems
    
    $
    33,630
    
    
    $
    30,213
    
    
    $
    3,417
    
    
    
    11.3
    %Services
    
    
    61,390
    
    
    
    63,571
    
    
    
    (2,181
    )
    
    
    (3.4
    )%Total revenues
    
    $
    95,020
    
    
    $
    93,784
    
    
    $
    1,236
    
    
    
    1.3
    %
  
    
    Retail Distribution Group revenues Retail Distribution Group revenues
increased by $2.8 million, or 5.2%. Systems revenues increased primarily as a result of
continued strong sales of additional products and modules. Services revenues experienced a
decrease primarily as a result of contractual price reductions, lower customer retention
rates due to the global economic downturn and known attrition of a major customer.
    
    Wholesale Distribution revenues Wholesale Distribution revenues decreased
by $1.4 million, or 3.6%. The systems revenues decrease was substantially due to more
deferred revenues recognized in the prior years as well as a reduction in the unit volume
of new system sales and associated professional services revenue, primarily due
to a lagging economic recovery in commercial, construction and other sectors partially
offset by the sale of additional products and modules. Services revenues decreased
primarily as a result of lower customer retention rates due to the economic downturn
partially offset by our price increases for support services.
 Total cost of revenues and gross margins as a percentage of revenues
 (in thousands)
 Three Months Ended March 31,2010
    
    
    2009
    
    
    VarianceCost of systems revenues
    
    $
    18,984
    
    
    $
    16,333
    
    
    $
    2,651Systems gross margins
    
    
    43.5
    %
    
    
    45.9
    %Cost of services revenues
    
    $
    20,019
    
    
    $
    21,159
    
    
    $
    (1,140
    )Services gross margins
    
    
    67.4
    %
    
    
    66.7
    %Total cost of revenues
    
    $
    39,003
    
    
    $
    37,492
    
    
    $
    1,511Total gross margins
    
    
    59.0
    %
    
    
    60.0
    %
 28




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##### Table of Contents




    
    Cost of systems revenues and systems gross margins Cost of systems
revenues increased by $2.7 million primarily as a result of higher direct costs associated
with higher overall systems revenues and a $1.3 million valuation adjustment to lower the
cost basis of inventory as a result of a comprehensive review and analysis of on-hand
quantities relative to current and anticipated prospective demand for new systems and for
replacement and add-on items for existing systems, including legacy systems, in the install
base. Systems gross margins decreased by 2.4 percentage points in the three months ended
March 31, 2010 from the comparable period a year ago primarily attributable to the impact
of the inventory adjustment described above.
    
    Cost of services revenues and services gross margins Cost of services
revenues decreased by $1.1 million primarily as a result of labor related cost reductions
on legacy platforms, reductions in third party maintenance and support costs and outside
services. Services gross margins increased by 0.7 percentage points in the three months
ended March 31, 2010 from the comparable period a year ago as a result of customer support
price increases, reductions in labor related costs in legacy products and third party
maintenance and support costs partially offset by contractual price reductions and lower
customer retention rates.
 Total operating expenses
 (in thousands)
 Three Months Ended March 31,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Sales and marketing
    
    $
    14,342
    
    
    $
    12,657
    
    
    $
    1,685
    
    
    
    13.3
    %Product development
    
    
    8,620
    
    
    
    9,036
    
    
    
    (416
    )
    
    
    (4.6
    )%General and administrative
    
    
    6,359
    
    
    
    5,828
    
    
    
    531
    
    
    
    9.1
    %Depreciation and amortization
    
    
    10,296
    
    
    
    9,607
    
    
    
    689
    
    
    
    7.2
    %Impairment of goodwill
    
    
    
    
    
    
    82,000
    
    
    
    (82,000
    )
    
    
    (100.0
    )%Acquisition related costs
    
    
    
    
    
    
    52
    
    
    
    (52
    )
    
    
    (100.0
    )%Restructuring costs
    
    
    1,068
    
    
    
    2,533
    
    
    
    (1,465
    )
    
    
    (57.8
    )%Total operating expenses
    
    $
    40,685
    
    
    $
    121,713
    
    
    $
    (81,028
    )
    
    
    (66.6
    )%
  
    
    Sales and marketingSales and marketing expenses increased by $1.7 million,
or 13.3%, for the three months ended March 31, 2010 compared to the three months ended March
31, 2009. The increase was primarily the result of an addition of $0.4 million in
compensation related expenses, $0.8 million in bad debt expense and $0.3 million in outside
services.
    
    Product developmentProduct development expenses decreased $0.4 million, or
4.6%, for the three months ended March 31, 2010 compared to the three months ended March
31, 2009. The decrease was primarily the result of increased capitalization of database
and software development expenses of $0.7 million and a reduction in compensation related
expenses of $0.1 million, partially offset by an increase of $0.4 million in outside
services.
    
    General and administrativeGeneral and administrative expenses increased by
$0.5 million, or 9.1%, for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009. The increase is primarily the result of $0.5 million in
additional compensation related expenses.
    
    Depreciation and amortizationDepreciation and amortization expense was
$10.3 million for the three months ended March 31, 2010 compared to $9.6 million for the
three months ended March 31, 2009. The increase was primarily a result of an increase in
capital expenditures during fiscal year 2010.
    
    Impairment of goodwill Due to the global macroeconomic environment and
impacts of the credit crisis as well as the significant decrease in the level of overall
spending, including spending in the vertical markets that we serve, we determined it
necessary to evaluate goodwill for impairment as of March 31, 2009. We recorded a goodwill
impairment charge of $82.0 million in the Retail Distribution Group during the three months
ended March 31, 2009. See Note 3 to our unaudited condensed consolidated financial
statements. We had no similar charges in the three months ended March 31, 2010.
    
    Acquisition related costs There were no acquisition related costs for the
three months ended March 31, 2010 compared to $0.1 million in the three months ended March
31, 2009. The prior year costs primarily included consulting fees and other professional
services incurred in connection with systems integration activities.
 29




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##### Table of Contents




    
    Restructuring costs During fiscal years 2010 and 2009, our management
approved restructuring actions primarily related to eliminating certain employee positions
and consolidating certain excess facilities with the intent to streamline and focus our
operations and more properly align our cost structure with our projected revenue streams.
During the three months ended March 31, 2010 and 2009, we recorded restructuring charges of
approximately $1.1 million and $2.5 million, respectively. See Note 8 to our unaudited
condensed consolidated financial statements.
 Interest expense
  Gain on retirement of debt
  Other income (expense), net
  Income tax expense
  Contribution margin
      30




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##### Table of Contents



(in
thousands)
 Three Months Ended March 31,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Retail Distribution Group
    
    $
    17,824
    
    
    $
    18,828
    
    
    $
    (1,004
    )
    
    
    (5.3
    )%Wholesale Distribution
    
    
    16,016
    
    
    
    16,441
    
    
    
    (425
    )
    
    
    (2.6
    )%Other
    
    
    
    
    
    
    93
    
    
    
    (93
    )
    
    
    (100.0
    )%Total contribution margin
    
    $
    33,840
    
    
    $
    35,362
    
    
    $
    (1,522
    )
    
    
    (4.3
    )%
 
    
    Retail Distribution Group contribution margin The contribution margin
for Retail Distribution Group decreased by $1.0 million primarily as a result of the
previously mentioned inventory valuation adjustment as well as service revenue contractual
price reductions and lower customer retention rates, partially offset by increased systems
revenue volume and product development capitalization. Sales and marketing expenses
increased primarily as a result of higher compensation related expenses and increased
travel. Product development expenses decreased primarily as a result of increased software
and database capitalization costs, partially offset by increased compensation related
expenses.
    
    Wholesale Distribution contribution margin The contribution margin for Wholesale
Distribution decreased by $0.4 million primarily as the result of lower systems revenue
volume, the previously mentioned inventory valuation adjustment and the impact of lower
customer retention rates, partially offset by lower third party support costs. Sales and
marketing expenses increased primarily as a result of higher bad debt expense. Product
development expenses decreased primarily as a result of lower compensation related
expenses.
 (in thousands)
 Three Months Ended March 31,2010
    
    
    2009Segment contribution margin
    
    $
    33,840
    
    
    $
    35,362Corporate and unallocated costs
    
    
    (6,226
    )
    
    
    (5,769
    )Stock-based compensation expense
    
    
    (918
    )
    
    
    (822
    )Depreciation and amortization
    
    
    (10,296
    )
    
    
    (9,607
    )Impairment of goodwill
    
    
    
    
    
    
    (82,000
    )Acquisition related costs
    
    
    
    
    
    
    (52
    )Restructuring costs
    
    
    (1,068
    )
    
    
    (2,533
    )Interest expense
    
    
    (7,784
    )
    
    
    (9,688
    )Gain on retirement of debt
    
    
    
    
    
    
    14,327Other income (expense), net
    
    
    141
    
    
    
    (298
    )Income (loss) from continuing
operations before income taxes
    
    $
    7,689
    
    
    $
    (61,080
    )
 Six Months Ended March 31, 2010 Compared to Six Months Ended March 31, 2009
 Total revenues
  31




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(in thousands)
 Six Months Ended March 31,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Retail Distribution Group revenues:Systems
    
    $
    35,967
    
    
    $
    33,040
    
    
    $
    2,927
    
    
    
    8.9
    %Services
    
    
    72,048
    
    
    
    74,040
    
    
    
    (1,992
    )
    
    
    (2.7
    )%Total Retail Distribution Group revenues
    
    $
    108,015
    
    
    $
    107,080
    
    
    $
    935
    
    
    
    0.9
    %Wholesale Distribution revenues:Systems
    
    $
    24,303
    
    
    $
    28,265
    
    
    $
    (3,962
    )
    
    
    (14.0
    )%Services
    
    
    50,827
    
    
    
    50,657
    
    
    
    170
    
    
    
    0.3
    %Total Wholesale Distribution revenues
    
    $
    75,130
    
    
    $
    78,922
    
    
    $
    (3,792
    )
    
    
    (4.8
    )%Other revenues:Systems
    
    $
    
    
    
    $
    41
    
    
    $
    (41
    )
    
    
    (100.0
    )%Services
    
    
    
    
    
    
    128
    
    
    
    (128
    )
    
    
    (100.0
    )%Total Other revenues
    
    $
    
    
    
    $
    169
    
    
    $
    (169
    )
    
    
    (100.0
    )%Total revenues:Systems
    
    $
    60,270
    
    
    $
    61,346
    
    
    $
    (1,076
    )
    
    
    (1.8
    )%Services
    
    
    122,875
    
    
    
    124,825
    
    
    
    (1,950
    )
    
    
    (1.6
    )%Total revenues
    
    $
    183,145
    
    
    $
    186,171
    
    
    $
    (3,026
    )
    
    
    (1.6
    )%
  
    
    Retail Distribution Group revenues Retail Distribution Group revenues
increased by $0.9 million, or 0.9%. Systems revenues increased primarily as a result of
continued strong sales of additional products and modules. Services revenues experienced a
decrease primarily as a result of contractual price reductions, lower customer retention
rates due to the global economic downturn and known attrition of a major customer.
    
    Wholesale Distribution revenues Wholesale Distribution revenues decreased
by $3.8 million, or 4.8%. The systems revenues decrease was substantially due to more
deferred revenues recognized in the prior year as well as a reduction in the unit volume
of new system sales and associated professional services revenue, primarily due
to a lagging economic recovery in commercial, construction and other sectors, partially
offset by the sale of additional products and modules. Services revenues increased
slightly as a result of price increases for support services, partially offset by lower
customer retention rates due to the economic downturn.
 Total cost of revenues and gross margins as a percentage of revenues
 (in thousands)
 Six Months Ended March 31,2010
    
    
    2009
    
    
    VarianceCost of systems revenues
    
    $
    33,863
    
    
    $
    33,399
    
    
    $
    464Systems gross margins
    
    
    43.8
    %
    
    
    45.6
    %Cost of services revenues
    
    $
    39,616
    
    
    $
    42,659
    
    
    $
    (3,043
    )Services gross margins
    
    
    67.8
    %
    
    
    65.8
    %Total cost of revenues
    
    $
    73,479
    
    
    $
    76,058
    
    
    $
    (2,579
    )Total gross margins
    
    
    59.9
    %
    
    
    59.1
    %
 32




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##### Table of Contents




    
    Cost of systems revenues and systems gross margins Cost of systems
revenues increased by $0.5 million primarily as a result of a higher mix of hardware
equipment sales and the previously mentioned inventory valuation adjustment, partially
offset by improved professional services margins. Systems gross margins decreased by 1.8
percentage points in the six months ended March 31, 2010 from the comparable period a year
ago primarily attributable to the lower systems revenue and impact of the previously
mentioned inventory valuation adjustment.
    
    Cost of services revenues and services gross margins Cost of services
revenues decreased by $3.0 million primarily as a result of labor related cost reductions
on legacy platforms, reductions in third party maintenance and support costs and outside
services partially offset by increased bonus expense. Services gross margins increased by
2.0 percentage points in the six months ended March 31, 2010 from the comparable period a
year ago as a result of service price increases, reductions in labor related costs in
legacy products and lower third party maintenance and support costs, partially offset by
contractual price reductions, increased compensation related expenses and lower customer
retention rates.
 Total operating expenses
 (in thousands)
 Six Months Ended March 31,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Sales and marketing
    
    $
    28,554
    
    
    $
    27,655
    
    
    $
    899
    
    
    
    3.3
    %Product development
    
    
    17,366
    
    
    
    18,655
    
    
    
    (1,289
    )
    
    
    (6.9
    )%General and administrative
    
    
    12,529
    
    
    
    11,549
    
    
    
    980
    
    
    
    8.5
    %Depreciation and amortization
    
    
    19,782
    
    
    
    19,236
    
    
    
    546
    
    
    
    2.8
    %Impairment of goodwill
    
    
    
    
    
    
    107,000
    
    
    
    (107,000
    )
    
    
    (100.0
    )%Acquisition related costs
    
    
    
    
    
    
    228
    
    
    
    (228
    )
    
    
    (100.0
    )%Restructuring costs
    
    
    1,974
    
    
    
    4,291
    
    
    
    (2,317
    )
    
    
    (54.0
    )%Total operating expenses
    
    $
    80,205
    
    
    $
    188,614
    
    
    $
    (108,409
    )
    
    
    (57.5
    )%
  
    
    Sales and marketing Sales and marketing expenses increased by $0.9 million,
or 3.3%, for the six months ended March 31, 2010 compared to the six months ended March 31,
2009. The increase was primarily the result of additional expenses of $1.2 million in
commissions, $0.9 million in bad debt expenses and $0.4 million in marketing and outside
services, partially offset by a reduction of $1.2 million in compensation related expenses
and $0.2 million in relocation and recruiting expenses.
    
    Product development Product development expenses decreased $1.3 million, or
6.9%, for the six months ended March 31, 2010 compared to the six months ended March 31,
2009. The decrease was primarily the result of a $0.5 million reduction in compensation
related costs and lower software development expenses of $1.3 million as a result of more
of these costs being capitalized, partially offset by additional expenses of $0.5 million
in outside services.
    
    General and
administrative General and administrative expenses increased by
$1.0 million, or 8.5%, for the six months ended March 31, 2010 compared to the six months
ended March 31, 2009. The increase is primarily the result of additional expenses of $0.5
million in compensation related expenses and $0.4 million in legal and outsourced services.
    
    Depreciation and amortization Depreciation and amortization expense was $19.8 million for the six
months ended March 31, 2010 compared to $19.2 million for the six months ended March 31,
2009. The increase was primarily a result of an increase in capital expenditures during
fiscal year 2010.
    
    Impairment of goodwill Due to the continuing global economic uncertainty
and credit crisis and the significant decrease in the level of overall spending, including
spending in the vertical markets that we serve, we determined it necessary to evaluate
goodwill for impairment as of March 31, 2009. We recorded a goodwill impairment charge of
$107.0 million in the Retail Distribution Group during the six months ended March 31, 2009.
See Note 3 to our unaudited condensed consolidated financial statements. We had no
similar charges in the six months ended March 31, 2010.
    
    Acquisition related costs There were no acquisition related costs for the
six months ended March 31, 2010 compared to $0.2 million in the six months ended March 31,
2009. The prior year costs primarily included consulting fees and other professional
services incurred in connection with systems integration activities related to Eclipse.
 33




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##### Table of Contents




    
    Restructuring costs During fiscal years 2010 and 2009, our management
approved restructuring actions primarily related to eliminating certain employee positions
and consolidating certain excess facilities with the intent to streamline and focus our
operations and more properly align our cost structure with our projected revenue streams.
During the six months ended March 31, 2010 and 2009, we recorded restructuring charges of
approximately $2.0 million and $4.3 million, respectively. See Note 8 to our unaudited
condensed consolidated financial statements.
 Interest expense
  Gain on retirement of debt
  Other income (expense), net
  Income tax expense
  Contribution margin
  (in thousands)
 Six Months Ended March 31,2010
    
    
    2009
    
    
    Variance $
    
    
    Variance %Retail Distribution Group
    
    $
    34,135
    
    
    $
    34,515
    
    
    $
    (380
    )
    
    
    (1.1
    )%Wholesale Distribution
    
    
    31,139
    
    
    
    30,849
    
    
    
    290
    
    
    
    0.9
    %Other
    
    
    
    
    
    
    169
    
    
    
    (169
    )
    
    
    (100.0
    )%Total contribution margin
    
    $
    65,274
    
    
    $
    65,533
    
    
    $
    (259
    )
    
    
    (0.4
    )%
 
    
    Retail Distribution Group contribution margin The contribution margin
for Retail Distribution Group decreased by $0.4 million primarily as a result of the
previously mentioned inventory valuation adjustment, service revenue contractual price
reductions, lower customer retention rates and a higher mix of hardware systems revenue,
partially offset by increased systems revenue volume, improved professional services gross
margins and an increase of database and software capitalization of costs. Sales and
marketing expenses increased primarily as a result of higher compensation related expenses.
Product development expenses decreased primarily as a result of increased database and
software capitalization of costs, partially offset by increased compensation related
expenses and outside services.
    
    Wholesale Distribution contribution margin The contribution margin for Wholesale
Distribution increased by $0.3 million primarily as a result of support price increases
partially offset by lower systems revenue volume, the previously mentioned inventory
valuation adjustment and the impact of lower customer retention rates partially offset by
lower compensation related expenses and third party maintenance costs. Sales and marketing
increased as a result of higher bad debt expense, partially offset by lower compensation
related costs. Product development expenses decreased primarily as a result of
compensation related expenses due to headcount reductions on legacy platforms.
 34




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##### Table of Contents



(in thousands)
 Six Months Ended March 31,2010
    
    
    2009Segment contribution margin
    
    $
    65,274
    
    
    $
    65,533Corporate and unallocated costs
    
    
    (12,151
    )
    
    
    (11,403
    )Stock-based compensation expense
    
    
    (1,906
    )
    
    
    (1,876
    )Depreciation and amortization
    
    
    (19,782
    )
    
    
    (19,236
    )Impairment of goodwill
    
    
    
    
    
    
    (107,000
    )Acquisition related costs
    
    
    
    
    
    
    (228
    )Restructuring costs
    
    
    (1,974
    )
    
    
    (4,291
    )Interest expense
    
    
    (15,703
    )
    
    
    (22,676
    )Gain on retirement of debt
    
    
    
    
    
    
    14,327Other income (expense), net
    
    
    431
    
    
    
    (626
    )Income (loss) from continuing operations before income taxes
    
    $
    14,189
    
    
    $
    (87,476
    )
 Liquidity and Capital Resources
 Overview
   Senior Secured Credit Agreement
    35




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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
    
    materially change the nature of our business.
  
    
    a maximum total leverage ratio; and
    
    a minimum interest coverage ratio.
  36




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Derivative Instruments and Hedging Activities
  Senior Subordinated Notes due 2016
       37




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Six Months Ended March 31, 2010 Compared to Six Months Ended March 31, 2009
      Covenant Compliance
   38




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(in thousands)
 Twelve Months EndedMarch 31,(in thousands)
    
    2010
    
    
    2009Net income (loss)
    
    $
    10,953
    
    
    $
    (91,399
    )Acquisition costs
    
    
    522
    
    
    
    263Deferred revenue purchase accounting adjustment
    
    
    
    
    
    
    927Adjusted net income (loss)
    
    
    11,475
    
    
    
    (90,209
    )Interest expense
    
    
    34,004
    
    
    
    46,000Income tax expense and other income-based taxes
    
    
    17,681
    
    
    
    13,794Depreciation and amortization
    
    
    39,463
    
    
    
    38,721Gain on retirement of debt
    
    
    (4,631
    )
    
    
    (14,327
    )Non-cash charges (impairment charges and
stock-based compensation expense)
    
    
    11,143
    
    
    
    110,410Non-recurring cash charges and restructuring charges
    
    
    3,258
    
    
    
    8,333Deferred compensation payments
    
    
    291
    
    
    
    237Sponsor payments
    
    
    157
    
    
    
    132Foreign exchange gain
    
    
    (653
    )
    
    
    330Proforma adjustments
    
    
    
    
    
    
    367Adjusted EBITDA
    
    $
    112,188
    
    
    $
    113,788
 39




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##### Table of Contents



CovenantRequirements
    
    Our RatioSenior Secured Credit Agreement (1)Maximum consolidated total debt to adjusted EBITDA ratio
    
    
    4.50x
    
    
    
    4.18Minimum adjusted EBITDA to consolidated interest expense
    
    
    2.50x
    
    
    
    3.60Senior Subordinated Notes (2)Minimum adjusted EBITDA to fixed charges ratio
required to incur additional indebtedness
pursuant to ratio provisions
    
    
    2.00x
    
    
    
    3.60
 
 (1)
    
    Our senior secured credit agreement requires us to maintain a consolidated total debt to
adjusted EBITDA ratio of a maximum of 3.75x by the end of the quarter ending December 31,
2010. Consolidated total debt is defined in the senior secured credit agreement as total debt
other than certain indebtedness and is reduced by the amount of cash and cash equivalents on
our consolidated balance sheet in excess of $7.5 million. As of March 31, 2010, our
consolidated total debt was $468.4 million, consisting of total debt other than certain
indebtedness totaling $506.9 million, net of cash and cash equivalents in excess of $7.5
million totaling $38.5 million. We are also required to maintain an adjusted EBITDA to
consolidated interest expense ratio of a minimum of 2.75x by the end of the quarter ending
December 31, 2010. Consolidated interest expense is defined in the senior secured credit
agreement as consolidated cash interest expense less cash interest income and is further
adjusted for certain non-cash interest expenses and other items. Failure to satisfy these
ratio requirements would constitute a default under the senior secured credit agreement. If
our lenders failed to waive any such default, our repayment obligations under the senior
secured credit agreement could be accelerated. This would also constitute a default under
the indenture governing the senior subordinated notes.(2)
    
    Our ability to incur additional indebtedness and make certain restricted payments under the
indenture governing the senior subordinated notes, subject to specified exceptions, is tied
to adjusted EBITDA to fixed charges ratio of at least 2.00x, except that we may incur certain
indebtedness and make certain restricted payments and certain permitted investments without
regard to the ratio. Fixed charges is defined in the indenture governing the senior
subordinated notes as consolidated interest expense less interest income, adjusted for
acquisitions, and further adjusted for non-cash interest expense. Recently Issued Accounting Pronouncements and Other Legislation
       40




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41




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




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




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SIGNATURE
  ACTIVANT SOLUTIONS INC.Date:  May 11, 2010
    By:
    /s/ KATHLEEN M. CRUSCOKathleen M. CruscoSenior Vice President and Chief Financial Officer
(Principal Financial and Duly Authorized Officer) 44




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