##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 0-5734
 AGILYSYS, INC.
  Ohio
    
    34-0907152(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)28925 Fountain Parkway, Solon, Ohio
    
    44139(Address of principal executive offices)
    
    (ZIP Code)
 
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



AGILYSYS, INC.
 Index
 Part I. Financial InformationItem 1 Financial Statements
    
    
    3Condensed Consolidated Statements of Operations (Unaudited)  Three and Six
Months Ended September 30, 2010 and 2009
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2010 (Unaudited) and
March 31, 2010
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)  Six Months
Ended September 30, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)  September
30, 2010
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    26Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4 Controls and Procedures
    
    
    40Part II. Other InformationItem 1 Legal Proceedings
    
    
    40Item 1A Risk Factors
    
    
    40Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3 Defaults Upon Senior Securities
    
    
    40Item 4 [Removed and Reserved]
    
    
    40Item 5 Other Information
    
    
    41Item 6 Exhibits
    
    
    41Signatures
    
    
    42EX-10.AEX-10.BEX-10.CEX-31.1EX-31.2EX-31.3EX-32.1EX-32.2EX-32.3
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
   Three months ended
    
    
    Six months endedSeptember 30
    
    
    September 30(In thousands, except share and per share data)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales:Products
    
    $
    151,230
    
    
    $
    126,811
    
    
    $
    255,359
    
    
    $
    231,234Services
    
    
    32,582
    
    
    
    29,362
    
    
    
    60,896
    
    
    
    54,943Total net sales
    
    
    183,812
    
    
    
    156,173
    
    
    
    316,255
    
    
    
    286,177Cost of goods sold:Products
    
    
    128,893
    
    
    
    99,508
    
    
    
    215,570
    
    
    
    184,919Services
    
    
    14,134
    
    
    
    12,791
    
    
    
    26,034
    
    
    
    25,534Total cost of goods sold
    
    
    143,027
    
    
    
    112,299
    
    
    
    241,604
    
    
    
    210,453Gross margin
    
    
    40,785
    
    
    
    43,874
    
    
    
    74,651
    
    
    
    75,724Operating expenses:Selling, general, and administrative expenses
    
    
    43,473
    
    
    
    40,033
    
    
    
    83,538
    
    
    
    84,840Asset impairment charges
    
    
    59
    
    
    
    
    
    
    
    59
    
    
    
    Restructuring charges
    
    
    10
    
    
    
    54
    
    
    
    403
    
    
    
    68Operating (loss) income
    
    
    (2,757
    )
    
    
    3,787
    
    
    
    (9,349
    )
    
    
    (9,184
    )Other (income) expenses:Other income, net
    
    
    (873
    )
    
    
    (316
    )
    
    
    (1,956
    )
    
    
    (1,071
    )Interest income
    
    
    (17
    )
    
    
    (3
    )
    
    
    (40
    )
    
    
    (26
    )Interest expense
    
    
    278
    
    
    
    230
    
    
    
    564
    
    
    
    429(Loss) income before income taxes
    
    
    (2,145
    )
    
    
    3,876
    
    
    
    (7,917
    )
    
    
    (8,516
    )Income tax expense
    
    
    69
    
    
    
    988
    
    
    
    4,549
    
    
    
    1,003(Loss) income from continuing operations
    
    
    (2,214
    )
    
    
    2,888
    
    
    
    (12,466
    )
    
    
    (9,519
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (52
    )
    
    
    
    
    
    
    (41
    )Net (loss) income
    
    $
    (2,214
    )
    
    $
    2,836
    
    
    $
    (12,466
    )
    
    $
    (9,560
    )(Loss) income per share  basic:(Loss) income from continuing operations
    
    $
    (0.10
    )
    
    $
    0.13
    
    
    $
    (0.55
    )
    
    $
    (0.42
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (0.10
    )
    
    $
    0.13
    
    
    $
    (0.55
    )
    
    $
    (0.42
    )(Loss) income per share  diluted:(Loss) income from continuing operations
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (0.55
    )
    
    $
    (0.42
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (0.55
    )
    
    $
    (0.42
    )Weighted average shares outstanding:Basic
    
    
    22,750,474
    
    
    
    22,625,654
    
    
    
    22,750,254
    
    
    
    22,626,491Diluted
    
    
    22,750,474
    
    
    
    22,879,030
    
    
    
    22,750,254
    
    
    
    22,626,491Cash dividends per share
    
    $
    
    
    
    $
    0.03
    
    
    $
    
    
    
    $
    0.06
 See accompanying notes to condensed consolidated financial statements.
 3




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September 30,
    
    
    March 31,(In thousands, except share and per share data)
    
    2010
    
    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,073
    
    
    $
    65,535Accounts receivable, net of allowances of $2,093 and $1,716, respectively
    
    
    157,627
    
    
    
    104,808Inventories, net
    
    
    22,555
    
    
    
    14,446Deferred income taxes  current, net
    
    
    
    
    
    
    144Prepaid expenses and other current assets
    
    
    3,851
    
    
    
    5,047Income taxes receivable
    
    
    10,268
    
    
    
    10,394Total current assets
    
    
    233,374
    
    
    
    200,374Goodwill
    
    
    50,557
    
    
    
    50,418Intangible assets, net of accumulated amortization of $58,492 and $55,806, respectively
    
    
    30,789
    
    
    
    32,510Deferred income taxes  non-current, net
    
    
    
    
    
    
    899Other non-current assets
    
    
    17,866
    
    
    
    18,175Property and equipment:Furniture and equipment
    
    
    40,878
    
    
    
    40,299Software
    
    
    49,099
    
    
    
    41,864Leasehold improvements
    
    
    9,703
    
    
    
    9,699Project expenditures not yet in use
    
    
    2,440
    
    
    
    7,025102,120
    
    
    
    98,887Accumulated depreciation and amortization
    
    
    74,986
    
    
    
    70,892Property and equipment, net
    
    
    27,134
    
    
    
    27,995Total assets
    
    $
    359,720
    
    
    $
    330,371LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    103,725
    
    
    $
    70,171Deferred revenue
    
    
    25,907
    
    
    
    23,810Accrued liabilities
    
    
    18,066
    
    
    
    17,705Deferred income taxes  current, net
    
    
    303
    
    
    
    Capital lease obligations  current
    
    
    492
    
    
    
    311Total current liabilities
    
    
    148,493
    
    
    
    111,997Deferred income taxes  non-current, net
    
    
    3,530
    
    
    
    412Other non-current liabilities
    
    
    19,576
    
    
    
    19,038Commitments and contingencies (see Note 10)Shareholders equityCommon shares, without par value, at $0.30 stated value; 80,000,000 shares authorized;
31,606,831 shares issued; and 23,011,111 and 22,932,043 shares outstanding
at September 30, 2010 and March 31, 2010, respectively
    
    
    9,482
    
    
    
    9,482Treasury shares (8,595,720 at September 30, 2010 and 8,674,788 at March 31, 2010)
    
    
    (2,578
    )
    
    
    (2,602
    )Capital in excess of stated value
    
    
    (7,222
    )
    
    
    (8,770
    )Retained earnings
    
    
    189,668
    
    
    
    202,134Accumulated other comprehensive loss
    
    
    (1,229
    )
    
    
    (1,320
    )Total shareholders equity
    
    
    188,121
    
    
    
    198,924Total liabilities and shareholders equity
    
    $
    359,720
    
    
    $
    330,371
 See accompanying notes to condensed consolidated financial statements.
 4




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##### Table of Contents



Six months endedSeptember 30(In thousands)
    
    2010
    
    
    2009Operating activitiesNet loss
    
    $
    (12,466
    )
    
    $
    (9,560
    )Add: Loss from discontinued operations
    
    
    
    
    
    
    41Loss from continuing operations
    
    
    (12,466
    )
    
    
    (9,519
    )Adjustments to reconcile loss from continuing operations to net cash (used for) provided by operating activities:Gain on the redemption of Company-owned life insurance policies
    
    
    (2,065
    )
    
    
    Gain on the redemption of investment in The Reserve Funds Primary Fund
    
    
    (147
    )
    
    
    (70
    )Asset impairment charges
    
    
    59
    
    
    
    Loss on the sale of securities
    
    
    
    
    
    
    91Depreciation
    
    
    2,024
    
    
    
    1,891Amortization
    
    
    4,949
    
    
    
    7,827Deferred income taxes
    
    
    4,429
    
    
    
    (38
    )Stock based compensation
    
    
    1,760
    
    
    
    1,073Change in cash surrender value of Company-owned life insurance policies
    
    
    618
    
    
    
    (699
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (52,847
    )
    
    
    28,338Inventories
    
    
    (8,103
    )
    
    
    5,234Accounts payable
    
    
    33,619
    
    
    
    64,821Accrued and other liabilities
    
    
    2,146
    
    
    
    (16,468
    )Income taxes payable (receivable)
    
    
    120
    
    
    
    (798
    )Other changes, net
    
    
    922
    
    
    
    (889
    )Other non-cash adjustments, net
    
    
    644
    
    
    
    77Total adjustments
    
    
    (11,872
    )
    
    
    90,390Net cash (used for) provided by operating activities
    
    
    (24,338
    )
    
    
    80,871Investing activitiesProceeds from The Reserve Funds Primary Fund
    
    
    147
    
    
    
    2,337Proceeds from redemption of/borrowings against Company-owned life insurance policies
    
    
    2,248
    
    
    
    12,500Additional investments in Company-owned life insurance policies
    
    
    (746
    )
    
    
    (1,176
    )Proceeds from the sale of marketable securities
    
    
    14
    
    
    
    42Additional investments in marketable securities
    
    
    
    
    
    
    (45
    )Purchases of software, property, and equipment
    
    
    (3,616
    )
    
    
    (5,923
    )Net cash (used for) provided by investing activities
    
    
    (1,953
    )
    
    
    7,735Financing activitiesFloor plan financing agreement, net
    
    
    
    
    
    
    (74,468
    )Proceeds from borrowings under credit facility
    
    
    15,325
    
    
    
    5,000Principal payments under credit facility
    
    
    (15,325
    )
    
    
    (5,000
    )Debt financing costs
    
    
    
    
    
    
    (1,520
    )Issuance of common shares
    
    
    
    
    
    
    33Dividends paid
    
    
    
    
    
    
    (1,360
    )Principal payments under long-term obligations
    
    
    (308
    )
    
    
    (206
    )Net cash used for financing activities
    
    
    (308
    )
    
    
    (77,521
    )Effect of exchange rate changes on cash
    
    
    137
    
    
    
    664Cash flows (used for) provided by continuing operations
    
    
    (26,462
    )
    
    
    11,749Cash flows of discontinued operations:Operating cash flows
    
    
    
    
    
    
    204Net (decrease) increase in cash
    
    
    (26,462
    )
    
    
    11,953Cash at beginning of the period
    
    
    65,535
    
    
    
    36,244Cash at end of the period
    
    $
    39,073
    
    
    $
    48,197
 See accompanying notes to condensed consolidated financial statements.
 5




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##### Table of Contents



(Table amounts in thousands, except per share data)
 1. Nature of Operations and Financial Statement Presentation
 Nature of Operations
    Basis of Presentation
     6




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##### Table of Contents



st
 Use of Estimates
  Reclassifications
  Correction of Error
  2. Summary of Significant Accounting Policies
  Benefit Plans
  Credit Facility
  7




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##### Table of Contents



Recently Adopted Accounting Standards
  Recently Issued Accounting Standards
   Proposed Accounting Standards
  8




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##### Table of Contents



3. Recent Acquisition
  Triangle Hospitality Solutions Limited
  4. Discontinued Operations
 China and Hong Kong Operations
  9




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##### Table of Contents



5. Comprehensive Loss
  Foreign
    
    
    Unamortized netcurrency
    
    
    actuarial lossestranslation
    
    
    and prior service
    
    
    Accumulated other
    
    
    Comprehensiveadjustment
    
    
    costs
    
    
    comprehensive loss
    
    
    (loss) incomeBalance at April 1, 2010
    
    $
    (664
    )
    
    $
    (656
    )
    
    $
    (1,320
    )Change during the three months
ended June 30, 2010
    
    
    (204
    )
    
    
    57
    
    
    
    (147
    )
    
    
    (147
    )Balance at June 30, 2010
    
    $
    (868
    )
    
    $
    (599
    )
    
    $
    (1,467
    )Net loss for the three months
ended June 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,252
    )Change during the three months
ended September 30, 2010
    
    
    235
    
    
    
    3
    
    
    
    238
    
    
    
    238Balance at September 30, 2010
    
    $
    (633
    )
    
    $
    (596
    )
    
    $
    (1,229
    )Net loss for the three months
ended September 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,214
    )Total comprehensive loss for the
six months ended September
30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (12,375
    )
 Unamortized netForeign currency
    
    
    
    
    
    
    actuarial lossestranslation
    
    
    Unrealized loss on
    
    
    and prior service
    
    
    Accumulated other
    
    
    Comprehensiveadjustment
    
    
    securities
    
    
    costs
    
    
    comprehensive loss
    
    
    income (loss)Balance at April 1, 2009
    
    $
    (1,984
    )
    
    $
    (91
    )
    
    $
    (815
    )
    
    $
    (2,890
    )Change during the three
months
ended June 30, 2009
    
    
    731
    
    
    
    
    
    
    
    
    
    
    
    731
    
    
    
    731Balance at June 30, 2009
    
    $
    (1,253
    )
    
    $
    (91
    )
    
    $
    (815
    )
    
    $
    (2,159
    )Net loss for the three months
ended June 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,396
    )Change during the three
months
ended September 30, 2009
    
    
    362
    
    
    
    104
    
    
    
    
    
    
    
    466
    
    
    
    466Balance at September 30, 2009
    
    $
    (891
    )
    
    $
    13
    
    
    $
    (815
    )
    
    $
    (1,693
    )Net income for the three
months
ended September 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,836Total comprehensive loss for
the six
months ended September 30,
2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,363
    )
 6. Restructuring Charges
   10




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Severance andother employmentcosts
    
    
    Facilities
    
    
    SERP
    
    
    TotalBalance at April 1, 2010
    
    $
    1,289
    
    
    $
    649
    
    
    $
    
    
    
    $
    1,938Additions
    
    
    
    
    
    
    (5
    )
    
    
    383
    
    
    
    378Accretion of lease obligations
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Settlement of benefit plan
obligations
    
    
    
    
    
    
    
    
    
    
    (383
    )
    
    
    (383
    )Payments
    
    
    (368
    )
    
    
    (60
    )
    
    
    
    
    
    
    (428
    )Balance at June 30, 2010
    
    
    921
    
    
    
    599
    
    
    
    
    
    
    
    1,520Additions
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Accretion of lease obligations
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    15Payments
    
    
    (370
    )
    
    
    (59
    )
    
    
    
    
    
    
    (429
    )Balance at September 30, 2010
    
    $
    551
    
    
    $
    550
    
    
    $
    
    
    
    $
    1,101
  7. Stock Based Compensation
  11




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Stock Options
  Six months ended September 302010
    
    
    2009Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageNumber of
    
    
    exercise
    
    
    Number of
    
    
    exerciseshares
    
    
    price
    
    
    shares
    
    
    priceOutstanding at April 1
    
    
    2,000,000
    
    
    $
    11.65
    
    
    
    2,157,165
    
    
    $
    11.63Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    (13,333
    )
    
    
    2.51Cancelled/expired
    
    
    (27,499
    )
    
    
    13.74
    
    
    
    (113,831
    )
    
    
    14.29Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at September 30
    
    
    1,972,501
    
    
    $
    11.62
    
    
    
    2,030,001
    
    
    $
    11.54Options exercisable at September 30
    
    
    1,972,501
    
    
    $
    11.62
    
    
    
    1,511,654
    
    
    $
    13.44
   Options outstanding and exercisableWeighted averageWeighted
    
    
    remainingaverage
    
    
    contractualExercise price range
    
    Number
    
    
    exercise price
    
    
    life (in years)$2.19 $8.29
    
    
    491,667
    
    
    $
    2.57
    
    
    
    8.16$8.30  $9.95
    
    
    253,500
    
    
    
    9.34
    
    
    
    5.47$9.96  $11.61
    
    
    30,000
    
    
    
    11.17
    
    
    
    0.81$11.62  $13.26
    
    
    47,500
    
    
    
    12.85
    
    
    
    1.83$13.27  $14.92
    
    
    303,000
    
    
    
    13.79
    
    
    
    3.88$14.93  $16.58
    
    
    708,834
    
    
    
    15.66
    
    
    
    5.70$16.59  $22.21
    
    
    138,000
    
    
    
    22.21
    
    
    
    6.641,972,501
    
    
    $
    11.62
    
    
    
    5.90
 12




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Stock-Settled Stock Appreciation Rights
  Six months ended September 302010
    
    
    2009Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageNumber of
    
    
    exercise
    
    
    Number of
    
    
    exerciserights
    
    
    price
    
    
    rights
    
    
    priceOutstanding at April 1
    
    
    505,150
    
    
    $
    6.92
    
    
    
    
    
    
    $
    Granted
    
    
    902,400
    
    
    
    6.20
    
    
    
    496,150
    
    
    
    6.69Exercised
    
    
    (16,499
    )
    
    
    6.29
    
    
    
    
    
    
    
    Cancelled/expired
    
    
    (833
    )
    
    
    6.83
    
    
    
    
    
    
    
    Forfeited
    
    
    (1,667
    )
    
    
    6.83
    
    
    
    (4,000
    )
    
    
    6.83Outstanding at September 30
    
    
    1,388,551
    
    
    $
    6.46
    
    
    
    492,150
    
    
    $
    6.69SSARs exercisable at September 30
    
    
    139,248
    
    
    $
    6.79
    
    
    
    
    
    
    $
    
   Number
    
    
    Number
    
    
    Remaining contractualExercise price range
    
    SSARs outstanding
    
    
    SSARs exercisable
    
    
    life (in years)$4.62
    
    
    8,000
    
    
    
    
    
    
    
    5.73$4.71
    
    
    8,000
    
    
    
    2,666
    
    
    
    5.83$6.20
    
    
    902,400
    
    
    
    
    
    
    
    6.69$6.83
    
    
    435,151
    
    
    
    136,582
    
    
    
    5.64$9.35
    
    
    35,000
    
    
    
    
    
    
    
    9.221,388,551
    
    
    
    139,248
    
    
    
    6.41
   13




---



##### Table of Contents



Six months ended September 302010
    
    2009Dividend yield
    
    
    0
    %
    
    
    1.32%  1.57
    %Risk-free interest rate
    
    
    1.94
    %
    
    
    1.81%  2.09
    %Expected life (years)
    
    
    4.5
    
    
    
    4.5Expected volatility
    
    
    81.92
    %
    
    
    78.05%  79.24
    %On August 5, 2009, the Companys Board of Directors voted to eliminate the payment of cash
dividends on the Companys common shares. For awards granted prior to August 5, 2009, the dividend
yield reflects the Companys historical dividend yield on the date of award. Awards granted after
August 5, 2009 were valued using a zero percent dividend yield, which is the yield expected during
the life of the award. The risk-free interest rate is based on the yield of a zero-coupon U.S.
Treasury bond whose maturity period equals the options expected term. The expected term reflects
employee-specific future exercise expectations and historical exercise patterns, as appropriate.
The expected volatility is based on historical volatility of the Companys common shares. The
Companys ownership base has been and may continue to be concentrated in a few shareholders, which
has increased and could continue to increase the volatility of the Companys common share price
over time. The fair market value of SSARs granted during the six months ended September 30, 2010
was $3.92 per SSAR.Restricted SharesThe Company granted shares to certain of its Directors and executives under
the 2006 Plan, the vesting of which is service-based. The following table summarizes the activity
during the six months ended September 30, 2010 and 2009 for restricted shares awarded by the
Company:Six months ended September 302010
    
    
    2009Outstanding at April 1
    
    
    25,000
    
    
    
    12,000Granted
    
    
    90,321
    
    
    
    87,557Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30
    
    
    115,321
    
    
    
    99,557
   14




---



##### Table of Contents



Performance Shares
    Six months endedSeptember 302010
    
    
    2009Outstanding at April 1
    
    
    160,548
    
    
    
    40,000Granted
    
    
    
    
    
    
    306,500Vested
    
    
    (52,980
    )
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at September 30
    
    
    107,568
    
    
    
    346,500
 8. Income Taxes
  Three months ended
    
    
    Six months endedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009Effective income tax rate
    
    
    (3.2
    )%
    
    
    25.5
    %
    
    
    (57.5
    )%
    
    
    (11.8
    )%
  15




---



##### Table of Contents



9. (Loss) Earnings Per Share
  Three months ended
    
    
    Six months endedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:(Loss) income from continuing operations  basic and diluted
    
    $
    (2,214
    )
    
    $
    2,888
    
    
    $
    (12,466
    )
    
    $
    (9,519
    )Loss from discontinued operations  basic and diluted
    
    
    
    
    
    
    (52
    )
    
    
    
    
    
    
    (41
    )Net (loss) income  basic and diluted
    
    $
    (2,214
    )
    
    $
    2,836
    
    
    $
    (12,466
    )
    
    $
    (9,560
    )Denominator:Weighted average shares outstanding  basic
    
    
    22,750
    
    
    
    22,626
    
    
    
    22,750
    
    
    
    22,626Effect of dilutive securities:Share-based compensation awards
    
    
    
    
    
    
    253
    
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    22,750
    
    
    
    22,879
    
    
    
    22,750
    
    
    
    22,626(Loss) per share  basic:(Loss) income from continuing operations
    
    $
    (0.10
    )
    
    $
    0.13
    
    
    $
    (0.55
    )
    
    $
    (0.42
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (0.10
    )
    
    $
    0.13
    
    
    $
    (0.55
    )
    
    $
    (0.42
    )(Loss) income per share  diluted:(Loss) income from continuing operations
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (0.55
    )
    
    $
    (0.42
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (0.10
    )
    
    $
    0.12
    
    
    $
    (0.55
    )
    
    $
    (0.42
    )
   16




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##### Table of Contents



10. Commitments and Contingencies
   11. Investment in Magirus  Sold in November 2008
    17




---



##### Table of Contents



12. Additional Balance Sheet Information
  September 30, 2010
    
    
    March 31, 2010| |Other non-current assets:Company-owned life insurance policies
    
    $
    16,357
    
    
    $
    15,904Marketable securities
    
    
    7
    
    
    
    21Other
    
    
    1,502
    
    
    
    2,250Total
    
    $
    17,866
    
    
    $
    18,175Accrued liabilities:Salaries, wages, and related benefits
    
    $
    8,593
    
    
    $
    8,248SERP obligations
    
    
    
    
    
    
    2,504Other employee benefit obligations
    
    
    
    
    
    
    35Restructuring liabilities
    
    
    662
    
    
    
    1,206Other taxes payable
    
    
    6,792
    
    
    
    3,170Other
    
    
    2,019
    
    
    
    2,542Total
    
    $
    18,066
    
    
    $
    17,705Other non-current liabilities:BEP obligations
    
    $
    4,828
    
    
    $
    4,705SERP obligations
    
    
    6,456
    
    
    
    5,908Other employee benefit obligations
    
    
    419
    
    
    
    419Income taxes payable
    
    
    5,940
    
    
    
    5,879Restructuring liabilities
    
    
    439
    
    
    
    732Capital lease obligations
    
    
    505
    
    
    
    384Other
    
    
    989
    
    
    
    1,011Total
    
    $
    19,576
    
    
    $
    19,038
  13. Business Segments
 Description of Business Segments
  18




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##### Table of Contents



2
 Measurement of Segment Operating Results and Segment Assets
     19




---



##### Table of Contents



Reportable segments
    
    
    Corporate/HSG
    

    RSG
    
    TSG
    
    Other
    
    ConsolidatedThree months ended September 30, 2010Total revenue
    
    $
    20,641
    
    
    $
    29,157
    
    
    $
    134,182
    
    
    $
    
    
    
    $
    183,980Elimination of intersegment revenue
    
    
    (63
    )
    
    
    (105
    )
    
    
    
    
    
    
    
    
    
    
    (168
    )Revenue from external customers
    
    $
    20,578
    
    
    $
    29,052
    
    
    $
    134,182
    
    
    $
    
    
    
    $
    183,812Gross margin
    
    $
    12,216
    
    
    $
    5,547
    
    
    $
    23,022
    
    
    $
    
    
    
    $
    40,785Gross margin percentage
    
    
    59.4
    %
    
    
    19.1
    %
    
    
    17.2
    %
    
    
    
    
    
    
    22.2
    %Operating income (loss)
    
    $
    214
    
    
    $
    1,079
    
    
    $
    4,317
    
    
    $
    (8,367
    )
    
    $
    (2,757
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    873
    
    
    
    873Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (261
    )
    
    
    (261
    )Income (loss) from continuing operations before income taxes
    
    $
    214
    
    
    $
    1,079
    
    
    $
    4,317
    
    
    $
    (7,755
    )
    
    $
    (2,145
    )Other information:Capital expenditures
    
    $
    391
    
    
    $
    104
    
    
    $
    11
    
    
    $
    1,357
    
    
    $
    1,863Non-cash charges:Depreciation and amortization (1)
    
    $
    1,071
    
    
    $
    81
    
    
    $
    706
    
    
    $
    1,398
    
    
    $
    3,256Asset impairment charges
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    10Total
    
    $
    1,130
    
    
    $
    81
    
    
    $
    706
    
    
    $
    1,408
    
    
    $
    3,325Three months ended September 30, 2009Total revenue
    
    $
    23,473
    
    
    $
    23,638
    
    
    $
    109,251
    
    
    $
    
    
    
    $
    156,362Elimination of intersegment revenue
    
    
    (134
    )
    
    
    (20
    )
    
    
    (35
    )
    
    
    
    
    
    
    (189
    )Revenue from external customers
    
    $
    23,339
    
    
    $
    23,618
    
    
    $
    109,216
    
    
    $
    
    
    
    $
    156,173Gross margin
    
    $
    14,237
    
    
    $
    4,694
    
    
    $
    24,909
    
    
    $
    34
    
    
    $
    43,874Gross margin percentage
    
    
    61.0
    %
    
    
    19.9
    %
    
    
    22.8
    %
    
    
    
    
    
    
    28.1
    %Operating income (loss)
    
    $
    3,753
    
    
    $
    917
    
    
    $
    5,946
    
    
    $
    (6,829
    )
    
    $
    3,787Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    316Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (227
    )
    
    
    (227
    )Income (loss) from continuing operations before income taxes
    
    $
    3,753
    
    
    $
    917
    
    
    $
    5,946
    
    
    $
    (6,740
    )
    
    $
    3,876Other information:Capital expenditures
    
    $
    1,045
    
    
    $
    
    
    
    $
    30
    
    
    $
    1,387
    
    
    $
    2,462Non-cash charges:Depreciation and amortization (1)
    
    $
    1,104
    
    
    $
    44
    
    
    $
    817
    
    
    $
    1,205
    
    
    $
    3,170Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    54Total
    
    $
    1,104
    
    
    $
    44
    
    
    $
    817
    
    
    $
    1,259
    
    
    $
    3,224
 
 (1)
    
    Does not include the amortization of deferred financing fees totaling $131,000 and $132,000
for the three months ended September 30, 2010 and 2009, respectively, which related to
Corporate/Other. 20




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##### Table of Contents



Reportable segments
    
    
    Corporate/HSG
    
    RSG
    
    TSG
    
    Other
    
    ConsolidatedSix months ended September 30, 2010Total revenue
    
    $
    43,689
    
    
    $
    53,070
    
    
    $
    219,739
    
    
    $
    
    
    
    $
    316,498Elimination of intersegment revenue
    
    
    (63
    )
    
    
    (180
    )
    
    
    
    
    
    
    
    
    
    
    (243
    )Revenue from external customers
    
    $
    43,626
    
    
    $
    52,890
    
    
    $
    219,739
    
    
    $
    
    
    
    $
    316,255Gross margin
    
    $
    25,503
    
    
    $
    11,217
    
    
    $
    37,931
    
    
    $
    
    
    
    $
    74,651Gross margin percentage
    
    
    58.5
    %
    
    
    21.2
    %
    
    
    17.3
    %
    
    
    
    
    
    
    23.6
    %Operating income (loss)
    
    $
    2,454
    
    
    $
    2,847
    
    
    $
    2,565
    
    
    $
    (17,215
    )
    
    $
    (9,349
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,956
    
    
    
    1,956Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (524
    )
    
    
    (524
    )Income (loss) from continuing operations before income taxes
    
    $
    2,454
    
    
    $
    2,847
    
    
    $
    2,565
    
    
    $
    (15,783
    )
    
    $
    (7,917
    )Other information:Capital expenditures
    
    $
    1,356
    
    
    $
    104
    
    
    $
    73
    
    
    $
    2,083
    
    
    $
    3,616Non-cash charges:Depreciation and amortization (2)
    
    $
    2,162
    
    
    $
    161
    
    
    $
    1,505
    
    
    $
    2,883
    
    
    $
    6,711Asset impairment charges
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    403
    
    
    
    403Total
    
    $
    2,221
    
    
    $
    161
    
    
    $
    1,505
    
    
    $
    3,286
    
    
    $
    7,173Six months ended September 30, 2009Total revenue
    
    $
    39,517
    
    
    $
    48,083
    
    
    $
    198,766
    
    
    $
    
    
    
    $
    286,366Elimination of intersegment revenue
    
    
    (134
    )
    
    
    (20
    )
    
    
    (35
    )
    
    
    
    
    
    
    (189
    )Revenue from external customers
    
    $
    39,383
    
    
    $
    48,063
    
    
    $
    198,731
    
    
    $
    
    
    
    $
    286,177Gross margin
    
    $
    23,777
    
    
    $
    10,070
    
    
    $
    42,638
    
    
    $
    (761
    )
    
    $
    75,724Gross margin percentage
    
    
    60.4
    %
    
    
    21.0
    %
    
    
    21.5
    %
    
    
    
    
    
    
    26.5
    %Operating income (loss)
    
    $
    1,605
    
    
    $
    2,327
    
    
    $
    3,035
    
    
    $
    (16,151
    )
    
    $
    (9,184
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,071
    
    
    
    1,071Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (403
    )
    
    
    (403
    )Income (loss) from continuing operations before income taxes
    
    $
    1,605
    
    
    $
    2,327
    
    
    $
    3,035
    
    
    $
    (15,483
    )
    
    $
    (8,516
    )Other information:Capital expenditures
    
    $
    2,176
    
    
    $
    7
    
    
    $
    30
    
    
    $
    3,710
    
    
    $
    5,923Non-cash charges:Depreciation and amortization (2)
    
    $
    2,227
    
    
    $
    94
    
    
    $
    4,768
    
    
    $
    2,409
    
    
    $
    9,498Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    68Total
    
    $
    2,227
    
    
    $
    94
    
    
    $
    4,768
    
    
    $
    2,477
    
    
    $
    9,566
 
 (2)
    
    Does not include the amortization of deferred financing fees totaling $262,000 and $220,000
for the six months ended September 30, 2010 and 2009, respectively, which related to
Corporate/Other. 21




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##### Table of Contents



Enterprise-Wide Disclosures
  Three months ended
    
    
    Six months endedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009Hardware
    
    $
    129,303
    
    
    $
    106,766
    
    
    $
    210,582
    
    
    $
    194,234Software
    
    
    21,927
    
    
    
    20,044
    
    
    
    44,777
    
    
    
    37,000Services
    
    
    32,582
    
    
    
    29,363
    
    
    
    60,896
    
    
    
    54,943Total
    
    $
    183,812
    
    
    $
    156,173
    
    
    $
    316,255
    
    
    $
    286,177
 14. Fair Value Measurements
     22




---



##### Table of Contents



Fair value measurement usedActive markets
    
    
    Quoted prices in
    
    
    Active marketsRecorded value
    
    
    for identical assets
    
    
    similar instruments
    
    
    for unobservableas of
    
    
    or liabilities
    
    
    and observable
    
    
    inputsSeptember 30, 2010
    
    
    (Level 1)
    
    
    inputs (Level 2)
    
    
    (Level 3)Assets:Available for sale marketable securities
    
    $
    7
    
    
    $
    7Company-owned life insurance
    
    
    16,357
    
    
    
    
    
    
    
    
    
    
    $
    16,357Liabilities:BEP
    
    $
    4,828
    
    
    
    
    
    
    $
    4,828
 Fair value measurement usedActive markets
    
    
    Quoted prices in
    
    
    Active marketsRecorded value
    
    
    for identical assets
    
    
    similar instruments
    
    
    for unobservableas of
    
    
    or liabilities
    
    
    and observable
    
    
    inputsMarch 31, 2010
    
    
    (Level 1)
    
    
    inputs (Level 2)
    
    
    (Level 3)Assets:Available for sale marketable securities
    
    $
    21
    
    
    $
    21Company-owned life insurance  current
    
    
    191
    
    
    
    
    
    
    
    
    
    
    $
    191Company-owned life insurance  non-current
    
    
    15,904
    
    
    
    
    
    
    
    
    
    
    
    15,904Liabilities:BEP
    
    $
    4,705
    
    
    
    
    
    
    $
    4,705
     Six months ended September 302010
    
    
    2009Company-owned
life insurance:Balance on April 1
    
    $
    16,095
    
    
    $
    26,172Realized gains/(losses)
    
    
    2,065
    
    
    
    Unrealized (losses)/gains relating to
instruments still held at the reporting date
    
    
    (618
    )
    
    
    699Purchases, sales, issuances, and settlements (net)
    
    
    (1,185
    )
    
    
    (11,371
    )Balance on September 30
    
    $
    16,357
    
    
    $
    15,500
 23




---



##### Table of Contents



as of
    
    
    or liabilities
    
    
    and observable
    
    
    inputsSeptember 30, 2010
    
    
    (Level 1)
    
    
    inputs (Level 2)
    
    
    (Level 3)Assets:Goodwill
    
    $
    50,557
    
    
    
    
    
    
    
    
    
    
    $
    50,557Intangible assets
    
    
    30,789
    
    
    
    
    
    
    
    
    
    
    
    30,789Liabilities:SERP obligations
    
    $
    6,456
    
    
    
    
    
    
    
    
    
    
    $
    6,456Other employee benefit plans obligations
    
    
    419
    
    
    
    
    
    
    
    
    
    
    
    419Restructuring liabilities  current
    
    
    662
    
    
    
    
    
    
    
    
    
    
    
    662Restructuring liabilities  non-current
    
    
    439
    
    
    
    
    
    
    
    
    
    
    
    439
 Fair value measurement usedActive markets
    
    
    Quoted prices in
    
    
    Active marketsRecorded value
    
    
    for identical assets
    
    
    similar instruments
    
    
    for unobservableas of
    
    
    or liabilities
    
    
    and observable
    
    
    inputsMarch 31, 2010
    
    
    (Level 1)
    
    
    inputs (Level 2)
    
    
    (Level 3)Assets:Goodwill
    
    $
    50,418
    
    
    
    
    
    
    
    
    
    
    $
    50,418Intangible assets
    
    
    32,510
    
    
    
    
    
    
    
    
    
    
    
    32,510Liabilities:SERP obligations  current
    
    $
    2,504
    
    
    
    
    
    
    
    
    
    
    $
    2,504SERP obligations  non-current
    
    
    5,908
    
    
    
    
    
    
    
    
    
    
    
    5,908Other employee benefit plans obligations  current
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Other employee benefit plans obligations  non-current
    
    
    419
    
    
    
    
    
    
    
    
    
    
    
    419Restructuring liabilities  current
    
    
    1,206
    
    
    
    
    
    
    
    
    
    
    
    1,206Restructuring liabilities  non-current
    
    
    732
    
    
    
    
    
    
    
    
    
    
    
    732
     24




---



##### Table of Contents



Six months ended September 30, 2010OtherIntangible
    
    
    SERP
    
    
    benefit plans
    
    
    RestructuringGoodwill
    
    
    assets
    
    
    obligations
    
    
    obligations
    
    
    liabilitiesBalance on April 1
    
    $
    50,418
    
    
    $
    32,510
    
    
    $
    8,412
    
    
    $
    454
    
    
    $
    1,938Realized losses
    
    
    
    
    
    
    (59
    )
    
    
    (383
    )
    
    
    
    
    
    
    Unrealized gains/(losses) relating to
instruments still held at the reporting date
    
    
    139
    
    
    
    
    
    
    
    (596
    )
    
    
    
    
    
    
    Purchases, sales, issuances, and settlements (net)
    
    
    
    
    
    
    (1,662
    )
    
    
    (977
    )
    
    
    (35
    )
    
    
    (837
    )Balance on September 30
    
    $
    50,557
    
    
    $
    30,789
    
    
    $
    6,456
    
    
    $
    419
    
    
    $
    1,101
 Six months ended September 30, 2009OtherIntangible
    
    
    SERP
    
    
    benefit plans
    
    
    RestructuringGoodwill
    
    
    assets
    
    
    obligations
    
    
    obligations
    
    
    liabilitiesBalance on April 1
    
    $
    50,382
    
    
    $
    36,659
    
    
    $
    18,285
    
    
    $
    1,109
    
    
    $
    9,927Realized gains/(losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gains/(losses) relating to
instruments still held at the reporting date
    
    
    541
    
    
    
    
    
    
    
    (815
    )
    
    
    
    
    
    
    Purchases, sales, issuances, and settlements (net)
    
    
    (360
    )
    
    
    (3,930
    )
    
    
    (8,390
    )
    
    
    (130
    )
    
    
    (3,969
    )Balance on September 30
    
    $
    50,563
    
    
    $
    32,729
    
    
    $
    9,080
    
    
    $
    979
    
    
    $
    5,958
   25




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 In Managements Discussion and Analysis of Financial Condition and Results of Operations,
(MD&A), management explains the general financial condition and results of operations for
Agilysys, Inc. and its subsidiaries (Agilysys or the Company) including:
 
    
    what factors affect the Companys business;
    
    what the Companys earnings and costs were;
    
    why those earnings and costs were different from the year before;
    
    where the earnings came from;
    
    how the Companys financial condition was affected; and
    
    where the cash will come from to fund future operations.
 The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of
Operations and Condensed Consolidated Statements of Cash Flows and provides information that
management believes is important to assessing and understanding the Companys consolidated
financial condition and results of operations. This Quarterly Report on Form 10-Q (Quarterly
Report) updates information included in the Companys Annual Report on Form 10-K (Annual Report)
for the fiscal year ended March 31, 2010, filed with the Securities and Exchange Commission
(SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial
Statements and related Notes that appear in Item 1 of this Quarterly Report as well as the
Companys Annual Report for the year ended March 31, 2010. Information provided in the MD&A may
include forward-looking statements that involve risks and uncertainties. Many factors could cause
actual results to be materially different from those contained in the forward-looking statements.
Additional information concerning forward-looking statements is contained in Forward-Looking
Information below and in Risk Factors included in Part I, Item 1A of the Companys Annual Report
for the fiscal year ended March 31, 2010. Management believes that this information, discussion,
and disclosure is important in making decisions about investing in the Company. Table amounts are
in thousands.
 Introduction
 Business Segments
  
    
    Growing sales of its proprietary offerings, both software and services.
    
    Diversifying its customer base across geographies and industries.
    
    Capitalizing on the Companys intellectual property and emerging technology trends.
 26




---



##### Table of Contents




    
    Leveraging the Companys investment in Oracle Enterprise Resource Planning (ERP) software
to further improve operating efficiencies and reduce costs.
 Revenues  Defined
  
    
    Revenues  The Company presents revenues net of sales returns and allowances.
    
    Product revenues  The Company defines product revenues as revenues earned from the
sales of hardware equipment and proprietary and remarketed software.
    
    Services revenues  The Company defines services revenues as revenues earned from
the sales of proprietary and remarketed services and support.
 General Company Overview
      27




---



##### Table of Contents



Results of Operations  Second Fiscal 2011 Quarter Compared to Second Fiscal 2010 Quarter
 Net Sales and Operating Income (Loss)
  Three months endedSeptember 30
    
    
    Increase (decrease)(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $
    
    
    %Net Sales:Product
    
    $
    151,230
    
    
    $
    126,811
    
    
    $
    24,419
    
    
    
    19.3
    %Service
    
    
    32,582
    
    
    
    29,362
    
    
    
    3,220
    
    
    
    11.0
    %Total
    
    
    183,812
    
    
    
    156,173
    
    
    
    27,639
    
    
    
    17.7
    %Cost of goods sold:Product
    
    
    128,893
    
    
    
    99,508
    
    
    
    29,385
    
    
    
    29.5
    %Service
    
    
    14,134
    
    
    
    12,791
    
    
    
    1,343
    
    
    
    10.5
    %Total
    
    
    143,027
    
    
    
    112,299
    
    
    
    30,728
    
    
    
    27.4
    %Gross margin:Product
    
    
    22,337
    
    
    
    27,303
    
    
    
    (4,966
    )
    
    
    (18.2
    )%Service
    
    
    18,448
    
    
    
    16,571
    
    
    
    1,877
    
    
    
    11.3
    %Total
    
    
    40,785
    
    
    
    43,874
    
    
    
    (3,089
    )
    
    
    (7.0
    )%Gross margin percentage:Product
    
    
    14.8
    %
    
    
    21.5
    %Service
    
    
    56.6
    %
    
    
    56.4
    %Total
    
    
    22.2
    %
    
    
    28.1
    %Operating expenses:Selling, general, and administrative expenses
    
    
    43,473
    
    
    
    40,033
    
    
    
    3,440
    
    
    
    8.6
    %Asset impairment charges
    
    
    59
    
    
    
    
    
    
    
    59
    
    
    nmRestructuring charges
    
    
    10
    
    
    
    54
    
    
    
    (44
    )
    
    nmTotal
    
    
    43,542
    
    
    
    40,087
    
    
    
    3,455
    
    
    
    8.6
    %Operating (loss) income:Operating (loss) income
    
    $
    (2,757
    )
    
    $
    3,787
    
    
    $
    (6,544
    )
    
    
    (172.8
    )%Operating (loss) income percentage
    
    
    (1.5
    )%
    
    
    2.4
    %
 nm  not meaningful 28




---



##### Table of Contents



Three months ended September 30
    
    
    (Decrease) increase(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $
    
    
    %HospitalityTotal sales from external customers
    
    $
    20,578
    
    
    $
    23,339
    
    
    $
    (2,761
    )
    
    
    (11.8
    )%Gross margin
    
    $
    12,216
    
    
    $
    14,237
    
    
    $
    (2,021
    )
    
    
    (14.2
    )%59.4
    %
    
    
    61.0
    %Operating income
    
    $
    214
    
    
    $
    3,753
    
    
    $
    (3,539
    )
    
    
    (94.3
    )%RetailTotal sales from external customers
    
    $
    29,052
    
    
    $
    23,618
    
    
    $
    5,434
    
    
    
    23.0
    %Gross margin
    
    $
    5,547
    
    
    $
    4,694
    
    
    $
    853
    
    
    
    18.2
    %19.1
    %
    
    
    19.9
    %Operating income
    
    $
    1,079
    
    
    $
    917
    
    
    $
    162
    
    
    
    17.7
    %TechnologyTotal sales from external customers
    
    $
    134,182
    
    
    $
    109,216
    
    
    $
    24,966
    
    
    
    22.9
    %Gross margin
    
    $
    23,022
    
    
    $
    24,909
    
    
    $
    (1,887
    )
    
    
    (7.6
    )%17.2
    %
    
    
    22.8
    %Operating income
    
    $
    4,317
    
    
    $
    5,946
    
    
    $
    (1,629
    )
    
    
    (27.4
    )%Corporate and OtherGross margin
    
    $
    
    
    
    $
    34
    
    
    $
    (34
    )
    
    
    (100.0
    )%Operating loss
    
    $
    (8,367
    )
    
    $
    (6,829
    )
    
    $
    (1,538
    )
    
    
    (22.5
    )%ConsolidatedTotal sales from external customers
    
    $
    183,812
    
    
    $
    156,173
    
    
    $
    27,639
    
    
    
    17.7
    %Gross margin
    
    $
    40,785
    
    
    $
    43,874
    
    
    $
    (3,089
    )
    
    
    (7.0
    )%22.2
    %
    
    
    28.1
    %Operating (loss) income
    
    $
    (2,757
    )
    
    $
    3,787
    
    
    $
    (6,544
    )
    
    
    (172.8
    )%
 Net sales.
  29




---



##### Table of Contents



Gross margin.
  Operating expenses.
  Asset impairment charges.
 Restructuring charges.
 30




---



##### Table of Contents



Other (Income) Expenses
 Three months endedSeptember 30
    
    
    Favorable (unfavorable)(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $
    
    
    %Other (income) expenses:Other income, net
    
    $
    (873
    )
    
    $
    (316
    )
    
    $
    557
    
    
    
    176.3
    %Interest income
    
    
    (17
    )
    
    
    (3
    )
    
    
    14
    
    
    
    466.7
    %Interest expense
    
    
    278
    
    
    
    230
    
    
    
    (48
    )
    
    
    (20.9
    )%Total other (income) expenses, net
    
    $
    (612
    )
    
    $
    (89
    )
    
    $
    523
    
    
    
    587.6
    %
 Other (income) expenses, net.
 Interest income.
 Interest expense.
 Income Taxes
 Three months ended September 302010
    
    
    2009Effective income tax rate
    
    
    (3.2
    )%
    
    
    25.5
    %
  31




---



##### Table of Contents



Results of Operations  First Half of Fiscal 2011 Compared to First Half of Fiscal 2010
 Net Sales and Operating Income (Loss)
  Six months endedSeptember 30
    
    
    Increase (decrease)(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $
    
    
    %Net Sales:Product
    
    $
    255,359
    
    
    $
    231,234
    
    
    $
    24,125
    
    
    
    10.4
    %Service
    
    
    60,896
    
    
    
    54,943
    
    
    
    5,953
    
    
    
    10.8
    %Total
    
    
    316,255
    
    
    
    286,177
    
    
    
    30,078
    
    
    
    10.5
    %Cost of goods sold:Product
    
    
    215,570
    
    
    
    184,919
    
    
    
    30,651
    
    
    
    16.6
    %Service
    
    
    26,034
    
    
    
    25,534
    
    
    
    500
    
    
    
    2.0
    %Total
    
    
    241,604
    
    
    
    210,453
    
    
    
    31,151
    
    
    
    14.8
    %Gross margin:Product
    
    
    39,789
    
    
    
    46,315
    
    
    
    (6,526
    )
    
    
    (14.1
    )%Service
    
    
    34,862
    
    
    
    29,409
    
    
    
    5,453
    
    
    
    18.5
    %Total
    
    
    74,651
    
    
    
    75,724
    
    
    
    (1,073
    )
    
    
    (1.4
    )%Gross margin percentage:Product
    
    
    15.6
    %
    
    
    20.0
    %Service
    
    
    57.2
    %
    
    
    53.5
    %Total
    
    
    23.6
    %
    
    
    26.5
    %Operating expenses:Selling, general, and administrative expenses
    
    
    83,538
    
    
    
    84,840
    
    
    
    (1,302
    )
    
    
    (1.5
    )%Asset impairment charges
    
    
    59
    
    
    
    
    
    
    
    59
    
    
    nmRestructuring charges
    
    
    403
    
    
    
    68
    
    
    
    335
    
    
    nmTotal
    
    
    84,000
    
    
    
    84,908
    
    
    
    (908
    )
    
    
    (1.1
    )%Operating loss:Operating loss
    
    $
    (9,349
    )
    
    $
    (9,184
    )
    
    $
    (165
    )
    
    
    (1.8
    )%Operating loss percentage
    
    
    (3.0
    )%
    
    
    (3.2
    )%
 nm  not meaningful 32




---



##### Table of Contents



Six months ended September 30
    
    
    Increase (decrease)(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $
    
    
    %HospitalityTotal sales from external customers
    
    $
    43,626
    
    
    $
    39,383
    
    
    $
    4,243
    
    
    
    10.8
    %Gross margin
    
    $
    25,503
    
    
    $
    23,777
    
    
    $
    1,726
    
    
    
    7.3
    %58.5
    %
    
    
    60.4
    %Operating income
    
    $
    2,454
    
    
    $
    1,605
    
    
    $
    849
    
    
    
    52.9
    %RetailTotal sales from external customers
    
    $
    52,890
    
    
    $
    48,063
    
    
    $
    4,827
    
    
    
    10.0
    %Gross margin
    
    $
    11,217
    
    
    $
    10,070
    
    
    $
    1,147
    
    
    
    11.4
    %21.2
    %
    
    
    21.0
    %Operating income
    
    $
    2,847
    
    
    $
    2,327
    
    
    $
    520
    
    
    
    22.3
    %TechnologyTotal sales from external customers
    
    $
    219,739
    
    
    $
    198,731
    
    
    $
    21,008
    
    
    
    10.6
    %Gross margin
    
    $
    37,931
    
    
    $
    42,638
    
    
    $
    (4,707
    )
    
    
    (11.0
    )%17.3
    %
    
    
    21.5
    %Operating income
    
    $
    2,565
    
    
    $
    3,035
    
    
    $
    (470
    )
    
    
    (15.5
    )%Corporate and OtherGross margin
    
    $
    
    
    
    $
    (761
    )
    
    $
    761
    
    
    
    100.0
    %Operating loss
    
    $
    (17,215
    )
    
    $
    (16,151
    )
    
    $
    (1,064
    )
    
    
    (6.6
    )%ConsolidatedTotal sales from external customers
    
    $
    316,255
    
    
    $
    286,177
    
    
    $
    30,078
    
    
    
    10.5
    %Gross margin
    
    $
    74,651
    
    
    $
    75,724
    
    
    $
    (1,073
    )
    
    
    (1.4
    )%23.6
    %
    
    
    26.5
    %Operating loss
    
    $
    (9,349
    )
    
    $
    (9,184
    )
    
    $
    (165
    )
    
    
    (1.8
    )%
 Net sales.
  33




---



##### Table of Contents



Gross margin.
  Operating expenses.
  Asset impairment charges.
 Restructuring charges.
  34




---



##### Table of Contents



Other (Income) Expenses
 Six months endedSeptember 30
    
    
    Favorable (unfavorable)(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $
    
    
    %Other (income) expenses:Other income, net
    
    $
    (1,956
    )
    
    $
    (1,071
    )
    
    $
    885
    
    
    
    82.6
    %Interest income
    
    
    (40
    )
    
    
    (26
    )
    
    
    14
    
    
    
    53.8
    %Interest expense
    
    
    564
    
    
    
    429
    
    
    
    (135
    )
    
    
    (31.5
    )%Total other (income) expenses, net
    
    $
    (1,432
    )
    
    $
    (668
    )
    
    $
    764
    
    
    
    114.4
    %
 Other (income) expenses, net.
 Interest income.
 Interest expense.
 Income Taxes
 Six months ended September 302010
    
    
    2009Effective income tax rate
    
    
    (57.5
    )%
    
    
    (11.8
    )%
  35




---



##### Table of Contents



Business Combination
 Triangle Hospitality Solutions Limited
  Discontinued Operations
 China and Hong Kong Operations
  Investment in Magirus  Sold in November 2008
    36




---



##### Table of Contents



Recently Adopted and Recently Issued Accounting Standards
  Liquidity and Capital Resources
 Overview
        37




---



##### Table of Contents



Cash Flow
 Six months endedSeptember 30
    
    
    Increase (decrease)(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    $Net cash (used for) provided by continuing operations:Operating activities
    
    $
    (24,338
    )
    
    $
    80,871
    
    
    $
    (105,209
    )Investing activities
    
    
    (1,953
    )
    
    
    7,735
    
    
    
    (9,688
    )Financing activities
    
    
    (308
    )
    
    
    (77,521
    )
    
    
    77,213Effect of foreign currency fluctuations on cash
    
    
    137
    
    
    
    664
    
    
    
    (527
    )Cash flows (used for) provided by continuing operations
    
    
    (26,462
    )
    
    
    11,749
    
    
    
    (38,211
    )Net operating and investing cash flows provided by
discontinued operations
    
    
    
    
    
    
    204
    
    
    
    (204
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (26,462
    )
    
    $
    11,953
    
    
    $
    (38,415
    )
 Cash flow (used for) provided by operating activities.
 Cash flow (used for) provided by investing activities.
 38




---



##### Table of Contents



Cash flow used for financing activities.
 Contractual Obligations
  Off-Balance Sheet Arrangements
  Critical Accounting Policies
  Forward-Looking Information
   39




---



##### Table of Contents



Item 3.

    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.

    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Change in Internal Control over Financial Reporting
   
 PART II. OTHER INFORMATION
 
 Item 1.

    Legal Proceedings
  
 Item 1A.

    Risk Factors
  
 Item 2.

    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.

    Defaults Upon Senior Securities
  
 Item 4.

    [Removed and Reserved]
 40




---



##### Table of Contents



Item 5.

    Other Information
  
 Item 6.

    Exhibits
 10(a)
    
    Employment Agreement by and between Agilysys, Inc. and Henry R. Bond effective October 18,
2010.10(b)
    
    Separation Agreement by and between Agilysys, Inc. and Kenneth J. Kossin, Jr. dated as of
September 15, 2010.10(c)
    
    Form of Restricted Stock Award Agreement.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.31.3
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of Sarbanes-Oxley Act of 2002.32.3
    
    Certification of Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
 41




---



##### Table of Contents



AGILYSYS, INC.Date:  November 5, 2010
    /s/ Kenneth J. Kossin, Jr.Kenneth J. Kossin, Jr.Chief Accounting Officer
(Principal Accounting Officer and 
Duly Authorized Officer) 42