e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
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.
(Exact name of registrant as specified in its charter)
|
|
|
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) |
(440) 519-8700
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of Common Shares of the registrant outstanding as of October 29, 2010 was
23,041,111.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30 |
|
|
September 30 |
|
(In thousands, except share and per share data) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
151,230 |
|
|
$ |
126,811 |
|
|
$ |
255,359 |
|
|
$ |
231,234 |
|
Services |
|
|
32,582 |
|
|
|
29,362 |
|
|
|
60,896 |
|
|
|
54,943 |
|
|
|
|
Total net sales |
|
|
183,812 |
|
|
|
156,173 |
|
|
|
316,255 |
|
|
|
286,177 |
|
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
128,893 |
|
|
|
99,508 |
|
|
|
215,570 |
|
|
|
184,919 |
|
Services |
|
|
14,134 |
|
|
|
12,791 |
|
|
|
26,034 |
|
|
|
25,534 |
|
|
|
|
Total cost of goods sold |
|
|
143,027 |
|
|
|
112,299 |
|
|
|
241,604 |
|
|
|
210,453 |
|
Gross margin |
|
|
40,785 |
|
|
|
43,874 |
|
|
|
74,651 |
|
|
|
75,724 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
43,473 |
|
|
|
40,033 |
|
|
|
83,538 |
|
|
|
84,840 |
|
Asset impairment charges |
|
|
59 |
|
|
|
|
|
|
|
59 |
|
|
|
|
|
Restructuring charges |
|
|
10 |
|
|
|
54 |
|
|
|
403 |
|
|
|
68 |
|
|
|
|
Operating (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 |
|
|
|
22,626,491 |
|
Diluted |
|
|
22,750,474 |
|
|
|
22,879,030 |
|
|
|
22,750,254 |
|
|
|
22,626,491 |
|
|
|
|
Cash dividends per share |
|
$ |
|
|
|
$ |
0.03 |
|
|
$ |
|
|
|
$ |
0.06 |
|
See accompanying notes to condensed consolidated financial statements.
3
AGILYSYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts at September 30, 2010 are unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
(In thousands, except share and per share data) |
|
2010 |
|
|
2010 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
39,073 |
|
|
$ |
65,535 |
|
Accounts receivable, net of allowances of $2,093 and $1,716, respectively |
|
|
157,627 |
|
|
|
104,808 |
|
Inventories, net |
|
|
22,555 |
|
|
|
14,446 |
|
Deferred income taxes current, net |
|
|
|
|
|
|
144 |
|
Prepaid expenses and other current assets |
|
|
3,851 |
|
|
|
5,047 |
|
Income taxes receivable |
|
|
10,268 |
|
|
|
10,394 |
|
|
Total current assets |
|
|
233,374 |
|
|
|
200,374 |
|
Goodwill |
|
|
50,557 |
|
|
|
50,418 |
|
Intangible assets, net of accumulated amortization of $58,492 and $55,806, respectively |
|
|
30,789 |
|
|
|
32,510 |
|
Deferred income taxes non-current, net |
|
|
|
|
|
|
899 |
|
Other non-current assets |
|
|
17,866 |
|
|
|
18,175 |
|
Property and equipment: |
|
|
|
|
|
|
|
|
Furniture and equipment |
|
|
40,878 |
|
|
|
40,299 |
|
Software |
|
|
49,099 |
|
|
|
41,864 |
|
Leasehold improvements |
|
|
9,703 |
|
|
|
9,699 |
|
Project expenditures not yet in use |
|
|
2,440 |
|
|
|
7,025 |
|
|
|
|
|
102,120 |
|
|
|
98,887 |
|
Accumulated depreciation and amortization |
|
|
74,986 |
|
|
|
70,892 |
|
|
Property and equipment, net |
|
|
27,134 |
|
|
|
27,995 |
|
|
Total assets |
|
$ |
359,720 |
|
|
$ |
330,371 |
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
103,725 |
|
|
$ |
70,171 |
|
Deferred revenue |
|
|
25,907 |
|
|
|
23,810 |
|
Accrued liabilities |
|
|
18,066 |
|
|
|
17,705 |
|
Deferred income taxes current, net |
|
|
303 |
|
|
|
|
|
Capital lease obligations current |
|
|
492 |
|
|
|
311 |
|
|
Total current liabilities |
|
|
148,493 |
|
|
|
111,997 |
|
Deferred income taxes non-current, net |
|
|
3,530 |
|
|
|
412 |
|
Other non-current liabilities |
|
|
19,576 |
|
|
|
19,038 |
|
Commitments and contingencies (see Note 10) |
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Common 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 |
|
|
|
9,482 |
|
Treasury 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 |
|
|
|
202,134 |
|
Accumulated other comprehensive loss |
|
|
(1,229 |
) |
|
|
(1,320 |
) |
|
Total shareholders equity |
|
|
188,121 |
|
|
|
198,924 |
|
|
Total liabilities and shareholders equity |
|
$ |
359,720 |
|
|
$ |
330,371 |
|
|
See accompanying notes to condensed consolidated financial statements.
4
AGILYSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
September 30 |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
|
Operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,466 |
) |
|
$ |
(9,560 |
) |
|
Add: Loss from discontinued operations |
|
|
|
|
|
|
41 |
|
|
Loss 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 Funds Primary Fund |
|
|
(147 |
) |
|
|
(70 |
) |
Asset impairment charges |
|
|
59 |
|
|
|
|
|
Loss on the sale of securities |
|
|
|
|
|
|
91 |
|
Depreciation |
|
|
2,024 |
|
|
|
1,891 |
|
Amortization |
|
|
4,949 |
|
|
|
7,827 |
|
Deferred income taxes |
|
|
4,429 |
|
|
|
(38 |
) |
Stock based compensation |
|
|
1,760 |
|
|
|
1,073 |
|
Change in cash surrender value of Company-owned life insurance policies |
|
|
618 |
|
|
|
(699 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(52,847 |
) |
|
|
28,338 |
|
Inventories |
|
|
(8,103 |
) |
|
|
5,234 |
|
Accounts payable |
|
|
33,619 |
|
|
|
64,821 |
|
Accrued and other liabilities |
|
|
2,146 |
|
|
|
(16,468 |
) |
Income taxes payable (receivable) |
|
|
120 |
|
|
|
(798 |
) |
Other changes, net |
|
|
922 |
|
|
|
(889 |
) |
Other non-cash adjustments, net |
|
|
644 |
|
|
|
77 |
|
|
Total adjustments |
|
|
(11,872 |
) |
|
|
90,390 |
|
|
Net cash (used for) provided by operating activities |
|
|
(24,338 |
) |
|
|
80,871 |
|
Investing activities |
|
|
|
|
|
|
|
|
Proceeds from The Reserve Funds Primary Fund |
|
|
147 |
|
|
|
2,337 |
|
Proceeds from redemption of/borrowings against Company-owned life insurance policies |
|
|
2,248 |
|
|
|
12,500 |
|
Additional investments in Company-owned life insurance policies |
|
|
(746 |
) |
|
|
(1,176 |
) |
Proceeds from the sale of marketable securities |
|
|
14 |
|
|
|
42 |
|
Additional 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 |
) |
|
|
7,735 |
|
Financing activities |
|
|
|
|
|
|
|
|
Floor plan financing agreement, net |
|
|
|
|
|
|
(74,468 |
) |
Proceeds from borrowings under credit facility |
|
|
15,325 |
|
|
|
5,000 |
|
Principal payments under credit facility |
|
|
(15,325 |
) |
|
|
(5,000 |
) |
Debt financing costs |
|
|
|
|
|
|
(1,520 |
) |
Issuance of common shares |
|
|
|
|
|
|
33 |
|
Dividends 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 |
|
|
|
664 |
|
|
Cash flows (used for) provided by continuing operations |
|
|
(26,462 |
) |
|
|
11,749 |
|
Cash flows of discontinued operations: |
|
|
|
|
|
|
|
|
Operating cash flows |
|
|
|
|
|
|
204 |
|
|
Net (decrease) increase in cash |
|
|
(26,462 |
) |
|
|
11,953 |
|
Cash at beginning of the period |
|
|
65,535 |
|
|
|
36,244 |
|
|
Cash at end of the period |
|
$ |
39,073 |
|
|
$ |
48,197 |
|
|
See accompanying notes to condensed consolidated financial statements.
5
AGILYSYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table amounts in thousands, except per share data)
1. Nature of Operations and Financial Statement Presentation
Nature of Operations
Agilysys, Inc. and its subsidiaries (the Company) provides innovative information technology
(IT) solutions to corporate and public-sector customers with special expertise in select vertical
markets, including retail, hospitality, and technology solutions. The Company operates extensively
in North America with additional sales and support offices in the United Kingdom and in Asia.
The Company operates in three reportable business segments: Hospitality Solutions Group (HSG),
Retail Solutions Group (RSG), and Technology Solutions Group (TSG). Additional information
regarding the Companys reportable business segments are described in Note 13 to Condensed
Consolidated Financial Statements.
The significant accounting policies applied in preparing the Companys unaudited condensed
consolidated financial statements are summarized below:
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the Companys
accounts. The Companys investments in subsidiaries are reported using the consolidation method.
All inter-company accounts have been eliminated. The Companys fiscal year ends on March 31.
References to a particular year refer to the fiscal year ending in March of that year. For example,
fiscal 2011 refers to the fiscal year ending March 31, 2011.
The unaudited interim financial statements of the Company are prepared in accordance with U.S.
generally accepted accounting principles (GAAP) for interim financial information, the
instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities
Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the
Exchange Act. Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to
such rules and regulations relating to interim financial statements.
The Condensed Consolidated Balance Sheet as of September 30, 2010, as well as the Condensed
Consolidated Statements of Operations for the three- and six-month periods ended September 30, 2010
and 2009, and the Condensed Consolidated Statements of Cash Flows for the six-month periods ended
September 30, 2010 and 2009, have been prepared by the Company without audit. However, these
financial statements have been prepared on the same basis as those in the audited annual financial
statements. In the opinion of management, all adjustments necessary to fairly present the results
of operations, financial position, and cash flows have been made. Except as discussed below, such
adjustments were of a normal recurring nature. Further, the Company has evaluated all significant
events occurring subsequent to the date of the Condensed Consolidated Financial Statements and
through the filing of this Quarterly Report and concluded that there are no additional significant
subsequent events requiring recognition or disclosure.
These unaudited interim financial statements of the Company should be read together with the
consolidated financial statements and related notes included in the Companys Annual Report on Form
10-K for the year ended March 31, 2010, filed with the Securities and Exchange Commission (SEC)
on June 10, 2010.
6
The Company experiences a disproportionately large percentage of quarterly sales in the last month
of its fiscal quarters. In addition, the Company experiences a seasonal increase in sales during
its fiscal third quarter ending December 31st. Accordingly, the results of operations
for the three and six months ended September 30, 2010 are not necessarily indicative of the
operating results for the full fiscal year or any future period.
Use of Estimates
The Company makes certain estimates and assumptions when preparing financial statements according
to GAAP that affect the reported amounts of assets and liabilities at the financial statement dates
and the reported amounts of revenues and expenses during the periods presented. These estimates and
assumptions involve judgments with respect to many factors that are difficult to predict and are
beyond the Companys control. Actual results could be materially different from these estimates.
The Company revises the estimates and assumptions as new information becomes available.
Reclassifications
Certain fiscal 2010 product and service revenues and costs of sales were reclassified (no impact on
total gross margin) in order to conform to current period reporting presentations. Certain fiscal
2010 amounts related to corporate-owned life insurance policies were reclassified to conform to
current period reporting presentation (no impact on income from continuing operations or cash flows
(used for) provided by operations).
Correction of Error
During the first quarter of fiscal 2011, the Company recorded an adjustment to increase income tax
expense by $3.8 million. The adjustment increased the Companys valuation allowance against its
U.S. deferred tax assets and represents a correction of an error. In fiscal 2009, the Company
erroneously considered the tax effect of indefinite-lived intangible assets as a source of future
taxable income, when it established a significant U.S. valuation allowance against its U.S.
deferred tax assets. Income (loss) before income taxes did not change. Net loss increased by $3.8
million, or $0.17 per share, due to this adjustment. Management performed an evaluation under Staff
Accounting Bulletin No. 108 and concluded the effect of this adjustment was immaterial to prior
years financial statements as well as the projected full-year fiscal 2011 financial statements.
2. Summary of Significant Accounting Policies
A detailed description of the Companys significant accounting policies can be found in the audited
financial statements for the fiscal year ended March 31, 2010, included in the Companys Annual
Report on Form 10-K. Except as described below, there have been no material changes in the
Companys significant accounting policies and estimates from those disclosed therein.
Benefit Plans
Effective September 7, 2009, the Company suspended employer matching contributions to The
Retirement Plan of Agilysys, Inc., which is the Companys 401(k) plan, and the Agilysys, Inc.
Benefits Equalization Plan (BEP), as part of cost reduction initiatives implemented during the
second quarter of fiscal 2010. The Company announced that it intends to resume making matching
contributions to these defined contribution retirement plans effective January 1, 2011.
Credit Facility
The Company maintains a $50.0 million asset based revolving credit agreement (Credit Facility)
with Bank of America, N.A. (the Lender), which may be increased to $75.0 million by a $25.0
million accordion provision for borrowings and letters of credit and will mature on May 5, 2012.
The Company had no amounts outstanding under the Credit Facility as of September 30, 2010 and $49.9
million was available for future borrowings. The Company was in compliance with all covenants under
the Credit Facility in order to borrow up to the maximum $49.9 million available as of September
30, 2010. However, subsequent to September 30,
7
2010, the Company was and still would be limited to
borrowing no more than $34.9 million under the Credit Facility in order to maintain compliance with
the fixed charge coverage ratio as defined in the Credit Facility.
Additional information with respect to the Credit Facility is contained in the Companys Annual
Report on Form 10-K for the fiscal year ended March 31, 2010, filed with the SEC. Except as
discussed in the Companys fiscal 2010 Annual Report, there were no changes to the Credit Facility
since it was executed on May 5, 2009.
Recently Adopted Accounting Standards
In January 2010, the Financial Accounting Standards Board (FASB) issued authoritative guidance
regarding fair value measurements. This guidance requires additional disclosure within the
rollforward of activity for assets and liabilities measured at fair value on a recurring basis,
including transfers of assets and liabilities between Level 1 and Level 2 of the fair value
hierarchy and the separate presentation of purchases, sales, issuances, and settlements of assets
and liabilities within Level 3 of the fair value hierarchy. In addition, this guidance requires
enhanced disclosures of the valuation techniques and inputs used in the fair value measurements
within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods
beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances, and
settlements of Level 3 measurements, which are effective for fiscal years beginning after December
15, 2010. On April 1, 2010, the Company adopted the required provisions of this guidance (see Note
14 to Condensed Consolidated Financial Statements). The adoption of this guidance did not have an
impact on the Companys financial position, results of operations, or cash flows.
Recently Issued Accounting Standards
In October 2009, the FASB issued authoritative guidance on revenue arrangements with multiple
deliverable elements, which is effective for the Company on April 1, 2011 for new revenue
arrangements or material modifications to existing arrangements. The guidance amends the criteria
for separating consideration in arrangements with multiple deliverable elements. This guidance
establishes a selling price hierarchy for determining the selling price of a deliverable based on:
1) vendor-specific objective evidence; 2) third-party evidence; or 3) estimates. This guidance also
eliminates the residual method of allocation and requires that arrangement consideration be
allocated at the inception of an arrangement to all deliverables using the relative selling price
method. In addition, this guidance significantly expands the required disclosures related to
revenue arrangements with multiple deliverable elements. Entities may elect to adopt the guidance
through either prospective application for revenue arrangements entered into, or materially
modified, after the effective date, or through retrospective application to all revenue
arrangements for all periods presented. Early adoption is permitted. The Company is currently
evaluating the impact that this guidance will have on its financial position, results of
operations, cash flows, or related disclosures.
In October 2009, the FASB issued authoritative guidance on revenue arrangements that include
software elements, which is effective for the Company on April 1, 2011. The guidance changes
revenue recognition for tangible products containing software elements and non-software elements as
follows: 1) the tangible product element is always excluded from the software revenue recognition
guidance even when sold together with the software element; 2) the software element of the tangible
product element is also excluded from the software revenue guidance when the software and
non-software elements function together to deliver the products essential functionality; and 3)
undelivered elements in a revenue arrangement related to the non-software element are also excluded
from the software revenue recognition guidance. Entities must select the same transition method and
same period for the adoption of both this guidance and the guidance on revenue arrangements with
multiple deliverable elements. The Company is currently evaluating the impact that this guidance
will have on its financial position, results of operations, cash flows, or related disclosures.
Proposed Accounting Standards
In August 2010, the FASB issued proposed authoritative guidance on lease accounting. This proposal
effectively eliminates off-balance sheet accounting for all leases by eliminating the concepts of
capital and operating leases. This proposed guidance would require all leased assets and lease
obligations to be recognized
8
in financial statements. In addition, expense recognition will be
accelerated under the proposed guidance because straight-line rent expense will be replaced by
amortization and interest expense. Comments on the proposed guidance are due by December 15, 2010
and there is currently no specified effective date for the proposal. The Company is currently in
the process of identifying the anticipated impact this proposed guidance would have on its future
financial position, results of operations, cash flows, and related disclosures.
In July 2010, the FASB also issued revised proposed authoritative guidance on loss contingency
disclosures, with a focus on providing financial statement users with enhanced information about
loss contingencies. The proposed guidance would: (1) expand the scope of loss contingencies subject
to disclosure to include certain remote contingencies; (2) increase the quantitative and
qualitative disclosures entities must provide to enable users to assess the nature, potential
magnitude, and potential timing (if known) of loss contingencies; and (3) for public entities,
require a tabular reconciliation for changes in amounts recognized for loss contingencies.
Comments on the proposed guidance were due by September 20, 2010. On October 27, 2010, the FASB
announced that the expanded disclosure requirements would not be required in 2010 (fiscal 2011 for
the Company) and there is currently no specified effective date for the proposal. The Company is
currently in the process of determining the anticipated impact of this proposed guidance on its
future disclosures.
Management continually evaluates the potential impact, if any, on its financial position, results
of operations, and cash flows, of all recent accounting pronouncements and, if significant, makes
the appropriate disclosures required by such new accounting pronouncements.
3. Recent Acquisition
The Company allocates the cost of its acquisitions to the assets acquired and liabilities assumed
based on their estimated fair values. The excess of the cost over the fair value of the identified
net assets acquired is recorded as goodwill. Additional information with respect to the Companys
acquisitions is included in the Companys Annual Report on Form 10-K for the year ended March 31,
2010.
Triangle Hospitality Solutions Limited
As previously disclosed, on April 9, 2008, the Company acquired all of the shares of Triangle
Hospitality Solutions Limited (Triangle), the UK-based reseller and specialist for the Companys
InfoGenesis products and services, for $2.7 million, comprised of $2.4 million in cash and $0.3
million of assumed liabilities. Based on managements preliminary allocations of the acquisition
cost to the net assets acquired (accounts receivable, inventory, and accounts payable),
approximately $2.7 million was originally assigned to goodwill. In the third quarter of fiscal
2009, a purchase price adjustment to increase goodwill by $0.4 million was recorded. In the first
quarter of fiscal 2010, the Company completed the allocation of acquisition costs to the net assets
acquired, which resulted in an increase to goodwill of $0.1 million, net of currency translation
adjustments. At September 30, 2010, the goodwill attributed to the Triangle acquisition was $3.0
million. Goodwill resulting from the Triangle acquisition is deductible for income tax purposes.
4. Discontinued Operations
China and Hong Kong Operations
As previously disclosed, in July 2008, the Company decided to discontinue its TSG operations in
China and Hong Kong. In January 2009, the Company sold the stock related to TSGs China operations
and certain assets of TSGs Hong Kong operations, receiving proceeds of $1.4 million, which
resulted in a pre-tax loss on the sale of discontinued operations of $0.8 million. The remaining
unsold assets and liabilities related to TSGs Hong Kong operations, which primarily consist of
amounts associated with service and maintenance agreements, were substantially settled as of March
31, 2010. The discontinued operations presented on the Companys Condensed Consolidated Statements
of Operations for the three and six months ended September 30, 2009 consisted of losses of $52,000
and $41,000, respectively, both net of taxes of zero, from the remaining operations of TSGs Hong
Kong operations. Additional information with respect to the Companys
9
discontinued operations is
included in the Companys Annual Report on Form 10-K for the year ended March 31, 2010.
5. Comprehensive Loss
Comprehensive loss is the total of net (loss) income as currently reported under GAAP plus other
comprehensive (loss) income. Other comprehensive (loss) income considers the effects of additional
transactions and economic events that are not required to be recorded in determining net income,
but rather are reported as a separate
component of shareholders equity. Changes in the components of accumulated other comprehensive
loss for the three and six months ended September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
Unamortized net |
|
|
|
|
|
|
|
|
|
currency |
|
|
actuarial losses |
|
|
|
|
|
|
|
|
|
translation |
|
|
and prior service |
|
|
Accumulated other |
|
|
Comprehensive |
|
|
|
adjustment |
|
|
costs |
|
|
comprehensive loss |
|
|
(loss) income |
|
Balance 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 |
|
|
|
238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 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 net |
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
actuarial losses |
|
|
|
|
|
|
|
|
|
translation |
|
|
Unrealized loss on |
|
|
and prior service |
|
|
Accumulated other |
|
|
Comprehensive |
|
|
|
adjustment |
|
|
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 |
|
|
|
731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance 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 |
|
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009 |
|
$ |
(891 |
) |
|
$ |
13 |
|
|
$ |
(815 |
) |
|
$ |
(1,693 |
) |
|
|
|
|
Net income for the three
months
ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for
the six
months ended September 30,
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(8,363 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Restructuring Charges
The Company recognizes restructuring charges when a plan that materially changes the scope of the
Companys business or the manner in which that business is conducted is adopted and communicated to
the impacted parties, and the expenses have been incurred or are reasonably estimable. In addition,
the Company assesses the property and equipment associated with the related facilities for
impairment. The remaining useful lives of property and equipment associated with the related
operations are re-evaluated based on the respective restructuring plan, resulting in the
acceleration of depreciation and amortization of certain assets. Additional information regarding
the Companys respective restructuring plans is included in the Companys Annual Report on Form
10-K for the year ended March 31, 2010.
The Company recorded $0.4 million in additional non-cash restructuring charges during the first six
months of fiscal 2011, primarily comprised of settlement costs incurred in the first quarter of
fiscal 2011 related to the payment of an obligation to a former executive under the Companys
Supplemental Executive Retirement Plan
10
(SERP) and ongoing facility lease obligations. During the
first half of fiscal 2010, the Company recorded insignificant additional restructuring charges
associated with ongoing facility lease obligations. The additional restructuring charges recorded
in fiscal 2011 and fiscal 2010 related to the previously disclosed restructuring actions taken in
fiscal 2009.
Since fiscal 2009, the Company has incurred charges totaling $42.0 million related to restructuring
actions disclosed, comprised of $0.4 million, $0.8 million, and $40.8 million in fiscal years 2011,
2010, and 2009, respectively. Approximately $23.5 million of these restructuring charges related to
TSG, with the remaining $18.5 million related to Corporate/Other. The Company expects to incur
additional restructuring charges related to previously announced restructuring actions of
approximately $0.5 million for the remainder of fiscal 2011 and through fiscal 2012 for non-cash
settlement charges related to the expected payment of a SERP obligation to a former executive and
for ongoing facility obligations.
The following table presents a reconciliation of the beginning and ending balances of the Companys
restructuring liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and |
|
|
|
|
|
|
|
|
|
|
|
|
other employment |
|
|
|
|
|
|
|
|
|
|
|
|
costs |
|
|
Facilities |
|
|
SERP |
|
|
Total |
|
|
Balance at April 1, 2010 |
|
$ |
1,289 |
|
|
$ |
649 |
|
|
$ |
|
|
|
$ |
1,938 |
|
Additions |
|
|
|
|
|
|
(5 |
) |
|
|
383 |
|
|
|
378 |
|
Accretion of lease obligations |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
Settlement of benefit plan
obligations |
|
|
|
|
|
|
|
|
|
|
(383 |
) |
|
|
(383 |
) |
Payments |
|
|
(368 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
(428 |
) |
|
Balance at June 30, 2010 |
|
|
921 |
|
|
|
599 |
|
|
|
|
|
|
|
1,520 |
|
Additions |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
Accretion of lease obligations |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
Payments |
|
|
(370 |
) |
|
|
(59 |
) |
|
|
|
|
|
|
(429 |
) |
|
Balance at September 30, 2010 |
|
$ |
551 |
|
|
$ |
550 |
|
|
$ |
|
|
|
$ |
1,101 |
|
|
These liabilities are recorded within Accrued liabilities and Other non-current
liabilities in the accompanying Condensed Consolidated Balance Sheets. Of the remaining $1.1
million liability at September 30, 2010, $0.2 million of severance and other employment costs are
expected to be paid during fiscal 2011 and $0.3 million is expected to be paid during fiscal 2012.
Approximately $0.1 million is expected to be paid during
the remainder of fiscal 2011 for ongoing facility lease obligations. Facility lease obligations are
expected to continue through fiscal 2014.
7. Stock Based Compensation
The Company has a shareholder-approved 2006 Stock Incentive Plan (the
2006 Plan). Under the 2006 Plan, the Company may grant stock options, stock appreciation rights,
restricted shares, restricted share units, and performance shares for up to 3.2 million common
shares. The maximum aggregate number of restricted shares, restricted share units, and performance
shares that may be granted under the 2006 Plan is 1.6 million. The aggregate number of shares
underlying all awards granted under the 2006 Plan in any two consecutive fiscal year period may not
exceed 1.6 million shares plus the aggregate number of shares underlying awards previously
cancelled, terminated, or forfeited. For stock option awards, the exercise price must be set at
least equal to the closing market price of the Companys common shares on the date of grant. The
maximum term of option awards is 10 years from the date of grant. Stock option awards vest over a
period established by the Compensation Committee of the Board of Directors. Stock appreciation
rights may be granted in conjunction with, or independently from, a stock option granted under the
2006 Plan. Stock appreciation rights, granted in connection with a stock option, are exercisable
only to the extent that the stock option to which it relates is exercisable and the stock
appreciation rights terminate upon the termination or exercise of the related stock option. The
maximum term of stock appreciation rights awards is 10 years. Restricted shares, restricted share
units, and performance shares may be issued at no cost or, at a purchase price that may be below
their fair market value, but are subject to forfeiture and restrictions on their sale or other
transfer. Subject to individual
11
award agreements, restricted shares have the right to receive
dividends, if any, subject to the same forfeiture provisions that apply to the underlying awards.
Performance share awards may be granted, where the right to receive shares in the future is
conditioned upon the attainment of specified performance objectives and such other conditions,
restrictions, and contingencies. Performance shares have the right to receive dividends, if any,
subject to the same forfeiture provisions that apply to the underlying awards. The Company may
distribute authorized but unissued shares or treasury shares to satisfy share option and
appreciation right exercises or restricted share and performance share awards. As of September 30,
2010, there were no restricted share units awarded from the 2006 Plan.
Stock Options
The following table summarizes the activity for the six months ended September
30, 2010 and 2009 for stock options awarded by the Company under the 2006 Plan and prior plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
average |
|
|
|
Number of |
|
|
exercise |
|
|
Number of |
|
|
exercise |
|
|
|
shares |
|
|
price |
|
|
shares |
|
|
price |
|
|
Outstanding at April 1 |
|
|
2,000,000 |
|
|
$ |
11.65 |
|
|
|
2,157,165 |
|
|
$ |
11.63 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
(13,333 |
) |
|
|
2.51 |
|
Cancelled/expired |
|
|
(27,499 |
) |
|
|
13.74 |
|
|
|
(113,831 |
) |
|
|
14.29 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30 |
|
|
1,972,501 |
|
|
$ |
11.62 |
|
|
|
2,030,001 |
|
|
$ |
11.54 |
|
|
Options exercisable at September 30 |
|
|
1,972,501 |
|
|
$ |
11.62 |
|
|
|
1,511,654 |
|
|
$ |
13.44 |
|
|
Compensation expense recorded within Selling, general and administrative expenses in
the accompanying Condensed Consolidated Statements of Operations for stock options during the three
and six months ended September 30, 2010 was zero and $0.3 million, respectively. Compensation
expense recorded for stock options during the three and six months ended September 30, 2009 was
$0.1 million and $0.2 million, respectively. The compensation expense recorded in the first half of
fiscal 2011 included $0.2 million for the accelerated vesting of stock option expense due to a
change in control provision contained in the original award agreements that
was triggered by MAK Capital and its affiliates reaching 20% ownership in the Company during
the first quarter of fiscal 2011. As a result, the Company does not have any remaining unrecognized
stock based compensation expense related to non-vested stock options.
The following table summarizes the status of stock options outstanding at September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable |
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
|
Weighted |
|
|
remaining |
|
|
|
|
|
|
|
average |
|
|
contractual |
|
Exercise 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 |
|
|
|
6.64 |
|
|
|
|
|
1,972,501 |
|
|
$ |
11.62 |
|
|
|
5.90 |
|
|
12
Stock-Settled Stock Appreciation Rights
Stock-Settled Appreciation Rights (SSARs) are rights
granted to an employee to receive value equal to the difference in the price of the Companys
common shares on the date of the grant and on the date of exercise. This value is settled in common
shares of the Company. The following table summarizes the activity during the six months ended
September 30, 2010 and 2009 for SSARs awarded by the Company under the 2006 Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
average |
|
|
|
Number of |
|
|
exercise |
|
|
Number of |
|
|
exercise |
|
|
|
rights |
|
|
price |
|
|
rights |
|
|
price |
|
|
Outstanding at April 1 |
|
|
505,150 |
|
|
$ |
6.92 |
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
902,400 |
|
|
|
6.20 |
|
|
|
496,150 |
|
|
|
6.69 |
|
Exercised |
|
|
(16,499 |
) |
|
|
6.29 |
|
|
|
|
|
|
|
|
|
Cancelled/expired |
|
|
(833 |
) |
|
|
6.83 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,667 |
) |
|
|
6.83 |
|
|
|
(4,000 |
) |
|
|
6.83 |
|
|
Outstanding at September 30 |
|
|
1,388,551 |
|
|
$ |
6.46 |
|
|
|
492,150 |
|
|
$ |
6.69 |
|
|
SSARs exercisable at September 30 |
|
|
139,248 |
|
|
$ |
6.79 |
|
|
|
|
|
|
$ |
|
|
|
A total of 4,935 shares, net of 2,463 shares withheld to cover the employees applicable
income taxes, were issued from treasury shares to settle SSARs exercised during the first half of
fiscal 2011.
The following table summarizes the status of SSARs outstanding at September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Number |
|
|
Remaining contractual |
|
Exercise 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 |
|
|
|
|
|
|
|
9.22 |
|
|
|
|
|
1,388,551 |
|
|
|
139,248 |
|
|
|
6.41 |
|
|
Compensation expense recorded within Selling, general and administrative expenses in the
accompanying Condensed Consolidated Statements of Operations for SSARs was $0.5 million and $0.2
million for the three months ended September 30, 2010 and 2009, respectively. Compensation expense
recorded for SSARs was $1.0 million and $0.5 million for the six months ended September 30, 2010
and 2009, respectively. As of September 30, 2010, total unrecognized stock based compensation
expense related to non-vested SSARs was $2.3 million, which is expected to be recognized over the
vesting period, which is a weighted-average period of 17 months.
The fair market value of each SSAR granted is estimated on the grant date using the
Black-Scholes-Merton option pricing model. The following assumptions were made in estimating fair
value of the SSARs granted during the six months ended September 30, 2010 and 2009:
13
|
|
|
|
|
|
|
|
|
|
|
Six months ended September 30 |
|
|
2010 |
|
2009 |
|
Dividend yield
|
|
|
0 |
% |
|
|
1.32% 1.57 |
% |
Risk-free interest rate
|
|
|
1.94 |
% |
|
|
1.81% 2.09 |
% |
Expected life (years)
|
|
|
4.5 |
|
|
|
4.5 |
|
Expected volatility
|
|
|
81.92 |
% |
|
|
78.05% 79.24 |
% |
|
On August 5, 2009, the Companys Board of Directors voted to eliminate the payment of cash
dividends on the Companys common shares. For awards granted prior to August 5, 2009, the dividend
yield reflects the Companys 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 options 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 Companys common shares. The
Companys 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 Companys 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 Shares
|
The 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 30 |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
Outstanding at April 1 |
|
|
25,000 |
|
|
|
12,000 |
|
Granted |
|
|
90,321 |
|
|
|
87,557 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
Outstanding at September 30 |
|
|
115,321 |
|
|
|
99,557 |
|
|
Compensation expense related to restricted share awards is recognized over the restriction period
based upon the closing market price of the Companys common shares on the grant date. Compensation
expense recorded within Selling, general and administrative expenses in the accompanying
Condensed Consolidated Statements of Operations for restricted share awards was $0.2 million and
$0.1 million for the three months ended September 30, 2010 and 2009, respectively. Compensation
expense recorded for restricted share awards was $0.3 million for each of the six months ended
September 30, 2010 and 2009. As of September 30, 2010, there was $0.5 million of total unrecognized
compensation cost related to restricted share awards, which is expected to be recognized over a
weighted-average period of 16 months. The Company will not include restricted shares in the
calculation of earnings per share until they are earned.
The fair market value of restricted shares is determined based on the closing price of the
Companys common shares on the grant date.
14
Performance Shares
The Company granted shares to certain of its executives under the 2006 Plan, the
earning of which was contingent upon meeting various company-wide performance goals as of March 31,
2010. The earned performance shares vest over three years. The fair value of the performance share
grant was determined based on the closing market price of the Companys common shares on the grant
date and assumed that performance goals would be met at target. Once attaining the performance
goals becomes probable, compensation expense is recognized on a straight-line basis over the
vesting period. If such goals are not met, no compensation cost will be recognized and any
compensation cost previously recognized during the vesting period will be reversed. The Company
will not include performance shares in the calculation of earnings per share until they are vested.
The net compensation expense was recorded within Selling, general and administrative expenses in
the accompanying Condensed Consolidated Statements of Operations. During the three months ended
September 30, 2010, compensation expense related to performance shares was $0.1 million. As a
result of changes in the expected attainment in performance goals related to performance shares
granted in fiscal 2010, a credit to compensation expense of $0.1 million was recorded during the
three months ended September 30, 2009. Compensation expense related to performance share awards was
$0.2 million and $0.1 million during the six months ended September 30, 2010 and 2009,
respectively. No performance shares were granted during the first half of fiscal 2011. As of
September 30, 2010, there was $0.3 million in unrecognized compensation cost related to the May 22,
2009 performance share awards, the vesting of which is solely based on service requirements. This
unrecognized compensation cost is expected to be recognized over the weighted-average vesting
period of 14 months.
The following table summarizes the activity during the six months ended September 30, 2010 and 2009 for
performance shares awarded by the Company under the 2006 Plan:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
Outstanding at April 1 |
|
|
160,548 |
|
|
|
40,000 |
|
Granted |
|
|
|
|
|
|
306,500 |
|
Vested |
|
|
(52,980 |
) |
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
Outstanding at September 30 |
|
|
107,568 |
|
|
|
346,500 |
|
|
8. Income Taxes
The effective tax rates from continuing operations for the three and six months ended September 30,
2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Effective income tax rate |
|
|
(3.2 |
)% |
|
|
25.5 |
% |
|
|
(57.5 |
)% |
|
|
(11.8 |
)% |
Income tax expense is based on the Companys estimate of the effective tax rate expected to be
applicable for the respective full year. For the second quarter and first half of fiscal 2011, the
effective tax rate was different than the statutory rate due primarily to the recognition of net
operating losses, as deferred tax assets, which were offset by increases in the valuation
allowance. In addition, an increase in the valuation allowance was recorded due to the correction
of an error during the first quarter of fiscal 2011, as more fully described in Note 1 to the
Condensed Consolidated Financial Statements. Other items effecting the rate include foreign and
state taxes and a discrete item related to a net increase to unrecognized tax benefits. For the
second quarter and first half of fiscal 2010, the effective tax rate for continuing operations was
lower than the statutory rate due primarily to the recognition of net operating losses as deferred
tax assets, which were offset by increases in the valuation
15
allowance. Other items effecting the
rate in the prior year include state tax expense as well as a discrete item related to an increase
to unrecognized tax benefits.
The Company anticipates the completion of a state income tax audit in the next 12 months which
could reduce the accrual for unrecognized tax benefits by $0.5 million. The Company is routinely
audited and is currently
under examination by the Internal Revenue Service (IRS) for the tax years ended March 31, 2009,
2008, and 2007 and by the Canada Revenue Agency (CRA) for the tax years ended March 31, 2005 and
2004. Due to the ongoing nature of current examinations in multiple jurisdictions, other changes
could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot
be estimated at this time.
9. (Loss) Earnings Per Share
The following data show the amounts used in computing (loss) earnings per share and the effect on
income and the weighted average number of dilutive potential common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
22,626 |
|
Effect 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 |
) |
|
Basic (loss) earnings per share is computed as net income available to common shareholders
divided by the weighted average basic shares outstanding. The outstanding shares used to calculate
the weighted average basic shares excludes 223,532, and 406,498 of restricted shares and
performance shares (including reinvested dividends) at September 30, 2010 and 2009, respectively,
as these shares were issued but were not vested and, therefore, not considered outstanding for
purposes of computing basic earnings per share at the balance sheet dates. Diluted (loss) earnings
per share is computed by sequencing each series of potential issuance of common shares from the
most dilutive to the least dilutive. Diluted (loss) earnings per share is determined as the lowest
earnings or highest loss per incremental share in the sequence of potential common shares. When a
loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive
impact of share-based compensation awards because doing so would be anti-dilutive to the loss per
share. Therefore, for the three months ended September 30, 2010 and each of the six months ended
September 30, 2010 and 2009, basic weighted-average shares outstanding were used in calculating the
diluted net loss per share.
For each of the three and six months ended September 30, 2010, stock options and SSARs on 3.4
million common shares were not included in computing diluted earnings per share because their
effects were anti-dilutive. For the three and six months ended September 30, 2009, stock options
and SSARs on 1.8 million
16
common shares and 2.5 million common shares, respectively, were not
included in computing diluted earnings per share because their effects were anti-dilutive.
10. Commitments and Contingencies
The Company is the subject of various threatened or pending legal actions and contingencies in the
normal course of conducting its business. The Company provides for costs related to these matters
when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of
certain of these matters on the Companys future results of operations and liquidity cannot be
predicted because any such effect depends on future results of operations and the amount or timing
of the resolution of such matters. While it is not possible to predict with certainty, management
believes that the ultimate resolution of such individual or aggregated matters will not have a
material adverse effect on the consolidated financial position, results of operations, or cash
flows of the Company.
As of September 30, 2010, the Companys expected to reach its minimum purchase commitments from a
vendor of $330.0 million per year through fiscal 2012, as disclosed in the Companys Annual Report
on Form 10-K for the year ended March 31, 2010.
11. Investment in Magirus Sold in November 2008
In November 2008, the Company sold its 20% ownership interest in Magirus AG (Magirus), a
privately owned European enterprise computer systems distributor headquartered in Stuttgart,
Germany, for $2.3 million. In July 2008, the Company also received a dividend from Magirus of $7.3
million related to Magirus fiscal 2008 sale of a portion of its distribution business. As a
result, the Company received total proceeds of $9.6 million from Magirus during the fiscal year
ended March 31, 2009. Prior to March 31, 2008, the Company decided to sell its 20% investment in
Magirus. Therefore, the Company classified its ownership interest in Magirus as an investment held
for sale until it was sold.
On April 1, 2008, the Company began to account for its investment in Magirus using the cost method,
rather than the equity method of accounting. The Company changed to the cost method because
management did not have the ability to exercise significant influence over Magirus, which is one of
the requirements contained in the FASB authoritative guidance that is necessary in order to account
for an investment in common stock under the equity method of accounting.
Because of the Companys inability to obtain and include audited financial statements of Magirus
for the fiscal years ended March 31, 2008 and 2007 as required by Rule 3-09 of Regulation S-X, the
SEC previously stated that it will not permit effectiveness of any new securities registration
statements or post-effective amendments, if any, until such time as the Company files audited
financial statements that reflect the disposition of Magirus or the Company requests, and the SEC
grants, relief to the Company from the requirements of Rule 3-09 of Regulation S-X. As part of this
restriction, the Company is not currently permitted to file any new securities registration
statements that are intended to automatically go into effect when they are filed, nor can the
Company make offerings under effective registration statements or under Rules 505 and 506 of
Regulation D where any purchasers of securities are not accredited investors under Rule 501(a) of
Regulation D. These restrictions do not apply to the following: offerings or sales of securities
upon the conversion of outstanding convertible securities or upon the exercise of outstanding
warrants or rights; dividend or interest reinvestment plans; employee benefit plans, including
stock option plans; transactions involving secondary offerings; or sales of securities under Rule
144A.
17
12. Additional Balance Sheet Information
Additional information related to the Companys Condensed Consolidated Balance Sheets is as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
March 31, 2010 |
|
| | |
Other non-current assets: |
|
|
|
|
|
|
|
|
Company-owned life insurance policies |
|
$ |
16,357 |
|
|
$ |
15,904 |
|
Marketable securities |
|
|
7 |
|
|
|
21 |
|
Other |
|
|
1,502 |
|
|
|
2,250 |
|
|
Total |
|
$ |
17,866 |
|
|
$ |
18,175 |
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Salaries, wages, and related benefits |
|
$ |
8,593 |
|
|
$ |
8,248 |
|
SERP obligations |
|
|
|
|
|
|
2,504 |
|
Other employee benefit obligations |
|
|
|
|
|
|
35 |
|
Restructuring liabilities |
|
|
662 |
|
|
|
1,206 |
|
Other taxes payable |
|
|
6,792 |
|
|
|
3,170 |
|
Other |
|
|
2,019 |
|
|
|
2,542 |
|
|
Total |
|
$ |
18,066 |
|
|
$ |
17,705 |
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities: |
|
|
|
|
|
|
|
|
BEP obligations |
|
$ |
4,828 |
|
|
$ |
4,705 |
|
SERP obligations |
|
|
6,456 |
|
|
|
5,908 |
|
Other employee benefit obligations |
|
|
419 |
|
|
|
419 |
|
Income taxes payable |
|
|
5,940 |
|
|
|
5,879 |
|
Restructuring liabilities |
|
|
439 |
|
|
|
732 |
|
Capital lease obligations |
|
|
505 |
|
|
|
384 |
|
Other |
|
|
989 |
|
|
|
1,011 |
|
|
Total |
|
$ |
19,576 |
|
|
$ |
19,038 |
|
|
Other non-current assets in the table above include the cash surrender value of certain
Company-owned life insurance policies. These policies are presented net of policy loans and are
maintained to informally fund the Companys employee benefit plan obligations included within
Accrued liabilities and Other non-current liabilities in the table above. The Company adjusts
the carrying value of these contracts to the cash surrender value (which is considered fair value)
at the end of each reporting period. Such periodic adjustments are included in Other income, net
within the accompanying Condensed Consolidated Statements of Operations. Additional information
with respect to the Company-owned life insurance policies is included in the Companys Annual
Report on Form 10-K for the year ended March 31, 2010.
13. Business Segments
Description of Business Segments
The Company has three reportable business segments: HSG, RSG, and TSG. The reportable segments are
each managed separately and are supported by various practices as well as Company-wide functional
departments. These functional support departments include general accounting, tax, and information
technology. Certain costs associated with the functional support departments are contained within
Corporate/Other and are not allocated back to the reportable business segments. Corporate/Other is
not a reportable business segment as defined by GAAP.
18
Beginning in the first quarter of fiscal 2011, the Company allocated certain general and
administrative costs related to the accounts receivable and collections, accounts payable, legal,
payroll, and benefits functional departments to the reportable business segments in order to
provide a better reflection of the costs needed to operate the business segments. Prior period
results have been adjusted to conform to the current period presentation.
HSG is a leading technology provider to the hospitality industry, offering application software and
services that streamline management of operations, property, and inventory for customers in the
gaming, hotel and resort, cruise lines, food management services, and sports and entertainment
markets.
RSG is a leader in designing solutions that help make retailers more productive and provide their
customers with an enhanced shopping experience. RSG solutions help improve operational efficiency,
technology utilization, customer satisfaction, and in-store profitability, including mobility and
wireless, customized pricing, inventory, and customer relationship management systems. The group
also provides implementation plans and supplies the complete package of hardware needed to operate
the systems, including servers, receipt printers, point-of-sale terminals, and wireless devices for
in-store use by the retailers store associates.
TSG is a leading provider of IBM, HP, Oracle, EMC2, and Hitachi Data Systems enterprise
IT solutions for the complex data center needs of customers in a variety of industries including
education, finance, government, healthcare, and telecommunications, among others. The solutions
offered include enterprise architecture and high availability, infrastructure optimization, storage
and resource management, identity management, and business continuity. In fiscal 2011, along with
the implementation of a new Oracle ERP system, the Company re-configured its former IBM, HP, and
Sun reporting units into IBM, East, West, and Service Providers (which is primarily comprised of
sales to telecommunications and cable company service providers). This change does not have an
impact on TSGs prior period operating results. The TSG reportable business segment is an
aggregation of the Companys IBM, East, West, and Service Providers reporting units due to the
similarity of their economic and operating characteristics.
Measurement of Segment Operating Results and Segment Assets
The Companys President and Chief Executive Officer, who is the Chief Operating Decision Maker
(CODM), evaluates performance and allocates resources to its reportable segments based on
operating income. The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies elsewhere in these Notes to Condensed
Consolidated Financial Statements. Intersegment sales are recorded at pre-determined amounts to
allow for inter-company profit to be included in the operating results of the individual reportable
segments. Such inter-company profit is eliminated for consolidated financial reporting purposes.
The CODM does not evaluate a measurement of segment assets when evaluating the performance of the
Companys reportable segments. As such, financial information relating to segment assets is not
provided in the table below.
Verizon Communications, Inc. accounted for 32.0% and 42.5% of TSGs total revenues, and 23.3% and
29.7% of total Company revenues for the three months ended September 30, 2010 and 2009,
respectively. Verizon Communications, Inc. accounted for 30.4% and 42.3% of TSGs total revenues,
and 21.1% and 29.4% of total Company revenues for the six months ended September 30, 2010 and 2009,
respectively.
The following table presents segment profit and related information for each of the Companys
reportable segments. Please refer to Note 6 to Condensed Consolidated Financial Statements for
further information on the Corporate/Other restructuring charges.
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segments |
|
|
Corporate/ |
|
|
|
|
|
|
HSG |
|
RSG |
|
TSG |
|
Other |
|
Consolidated |
|
Three months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
20,641 |
|
|
$ |
29,157 |
|
|
$ |
134,182 |
|
|
$ |
|
|
|
$ |
183,980 |
|
Elimination of intersegment revenue |
|
|
(63 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
Revenue from external customers |
|
$ |
20,578 |
|
|
$ |
29,052 |
|
|
$ |
134,182 |
|
|
$ |
|
|
|
$ |
183,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
12,216 |
|
|
$ |
5,547 |
|
|
$ |
23,022 |
|
|
$ |
|
|
|
$ |
40,785 |
|
Gross 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 |
|
|
|
873 |
|
Interest 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 |
|
|
$ |
1,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (1) |
|
$ |
1,071 |
|
|
$ |
81 |
|
|
$ |
706 |
|
|
$ |
1,398 |
|
|
$ |
3,256 |
|
Asset impairment charges |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59 |
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
10 |
|
|
|
|
Total |
|
$ |
1,130 |
|
|
$ |
81 |
|
|
$ |
706 |
|
|
$ |
1,408 |
|
|
$ |
3,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
23,473 |
|
|
$ |
23,638 |
|
|
$ |
109,251 |
|
|
$ |
|
|
|
$ |
156,362 |
|
Elimination of intersegment revenue |
|
|
(134 |
) |
|
|
(20 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
(189 |
) |
|
|
|
Revenue from external customers |
|
$ |
23,339 |
|
|
$ |
23,618 |
|
|
$ |
109,216 |
|
|
$ |
|
|
|
$ |
156,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
14,237 |
|
|
$ |
4,694 |
|
|
$ |
24,909 |
|
|
$ |
34 |
|
|
$ |
43,874 |
|
Gross margin percentage |
|
|
61.0 |
% |
|
|
19.9 |
% |
|
|
22.8 |
% |
|
|
|
|
|
|
28.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
3,753 |
|
|
$ |
917 |
|
|
$ |
5,946 |
|
|
$ |
(6,829 |
) |
|
$ |
3,787 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
316 |
|
|
|
316 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227 |
) |
|
|
(227 |
) |
|
|
|
Income (loss) from continuing operations before income taxes |
|
$ |
3,753 |
|
|
$ |
917 |
|
|
$ |
5,946 |
|
|
$ |
(6,740 |
) |
|
$ |
3,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
1,045 |
|
|
$ |
|
|
|
$ |
30 |
|
|
$ |
1,387 |
|
|
$ |
2,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (1) |
|
$ |
1,104 |
|
|
$ |
44 |
|
|
$ |
817 |
|
|
$ |
1,205 |
|
|
$ |
3,170 |
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
54 |
|
|
|
|
Total |
|
$ |
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segments |
|
|
Corporate/ |
|
|
|
|
|
|
HSG |
|
RSG |
|
TSG |
|
Other |
|
Consolidated |
|
Six months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
43,689 |
|
|
$ |
53,070 |
|
|
$ |
219,739 |
|
|
$ |
|
|
|
$ |
316,498 |
|
Elimination of intersegment revenue |
|
|
(63 |
) |
|
|
(180 |
) |
|
|
|
|
|
|
|
|
|
|
(243 |
) |
|
|
|
Revenue from external customers |
|
$ |
43,626 |
|
|
$ |
52,890 |
|
|
$ |
219,739 |
|
|
$ |
|
|
|
$ |
316,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
25,503 |
|
|
$ |
11,217 |
|
|
$ |
37,931 |
|
|
$ |
|
|
|
$ |
74,651 |
|
Gross 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 |
|
|
|
1,956 |
|
Interest 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 |
|
|
$ |
3,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (2) |
|
$ |
2,162 |
|
|
$ |
161 |
|
|
$ |
1,505 |
|
|
$ |
2,883 |
|
|
$ |
6,711 |
|
Asset impairment charges |
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59 |
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
403 |
|
|
|
403 |
|
|
|
|
Total |
|
$ |
2,221 |
|
|
$ |
161 |
|
|
$ |
1,505 |
|
|
$ |
3,286 |
|
|
$ |
7,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
39,517 |
|
|
$ |
48,083 |
|
|
$ |
198,766 |
|
|
$ |
|
|
|
$ |
286,366 |
|
Elimination of intersegment revenue |
|
|
(134 |
) |
|
|
(20 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
(189 |
) |
|
|
|
Revenue from external customers |
|
$ |
39,383 |
|
|
$ |
48,063 |
|
|
$ |
198,731 |
|
|
$ |
|
|
|
$ |
286,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
23,777 |
|
|
$ |
10,070 |
|
|
$ |
42,638 |
|
|
$ |
(761 |
) |
|
$ |
75,724 |
|
Gross 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 |
|
|
|
1,071 |
|
Interest 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 |
|
|
$ |
5,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (2) |
|
$ |
2,227 |
|
|
$ |
94 |
|
|
$ |
4,768 |
|
|
$ |
2,409 |
|
|
$ |
9,498 |
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
68 |
|
|
|
|
Total |
|
$ |
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
Enterprise-Wide Disclosures
The Companys assets are primarily located in the United States. Further, revenues attributable to
customers outside the United States accounted for less than 5% of total revenues for each of the
three- and six-month periods ended September 30, 2010 and less than 4% of total revenues for each
of the three- and six-month periods ended September 30, 2009. Total revenues for the Companys
three specific product areas are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Hardware |
|
$ |
129,303 |
|
|
$ |
106,766 |
|
|
$ |
210,582 |
|
|
$ |
194,234 |
|
Software |
|
|
21,927 |
|
|
|
20,044 |
|
|
|
44,777 |
|
|
|
37,000 |
|
Services |
|
|
32,582 |
|
|
|
29,363 |
|
|
|
60,896 |
|
|
|
54,943 |
|
|
Total |
|
$ |
183,812 |
|
|
$ |
156,173 |
|
|
$ |
316,255 |
|
|
$ |
286,177 |
|
|
14. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or would be paid to
transfer a liability in an orderly transaction between market participants on the measurement date.
The fair value of financial assets and liabilities are measured on a recurring or non-recurring
basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted
to fair value each time a financial statement is prepared. Financial assets and liabilities
measured on a non-recurring basis are those that are adjusted to fair value when a significant
event occurs. In determining fair value of financial assets and liabilities, the Company uses
various valuation techniques. For many financial instruments, pricing inputs are readily observable
in the market, the valuation methodology used is widely accepted by market participants, and the
valuation does not require significant management discretion. For other financial instruments,
pricing inputs are less observable in the market and may require management judgment. The
availability of pricing inputs observable in the market varies from instrument to instrument and
depends on a variety of factors including the type of instrument, whether the instrument is
actively traded, and other characteristics particular to the transaction.
The Company estimates the fair value of financial instruments using available market information
and generally accepted valuation methodologies. The Company assesses the inputs used to measure
fair value using a three-tier hierarchy. The hierarchy indicates the extent to which pricing inputs
used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted
prices for identical assets or liabilities and are the most observable. Level 2 inputs include
unadjusted quoted prices for similar assets and liabilities that are either directly or indirectly
observable, or other observable inputs such as interest rates, foreign currency exchange rates,
commodity rates, and yield curves. Level 3 inputs are not observable in the market and include the
Companys own judgments about the assumptions market participants would use in pricing the asset or
liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment
disclosed in the tables below.
Additional information with respect to the Companys fair value measurements is included in the
Companys Annual Report on Form 10-K for the year ended March 31, 2010.
There were no significant transfers between Levels 1, 2, and 3 during the three- and six month
periods ended September 30, 2010.
22
The following tables present information about the Companys financial assets and liabilities
measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation
techniques utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement used |
|
|
|
|
|
|
|
Active markets |
|
|
Quoted prices in |
|
|
Active markets |
|
|
|
Recorded value |
|
|
for identical assets |
|
|
similar instruments |
|
|
for unobservable |
|
|
|
as of |
|
|
or liabilities |
|
|
and observable |
|
|
inputs |
|
|
|
September 30, 2010 |
|
|
(Level 1) |
|
|
inputs (Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale marketable securities |
|
$ |
7 |
|
|
$ |
7 |
|
|
|
|
|
|
|
|
|
Company-owned life insurance |
|
|
16,357 |
|
|
|
|
|
|
|
|
|
|
$ |
16,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BEP |
|
$ |
4,828 |
|
|
|
|
|
|
$ |
4,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement used |
|
|
|
|
|
|
|
Active markets |
|
|
Quoted prices in |
|
|
Active markets |
|
|
|
Recorded value |
|
|
for identical assets |
|
|
similar instruments |
|
|
for unobservable |
|
|
|
as of |
|
|
or liabilities |
|
|
and observable |
|
|
inputs |
|
|
|
March 31, 2010 |
|
|
(Level 1) |
|
|
inputs (Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale marketable securities |
|
$ |
21 |
|
|
$ |
21 |
|
|
|
|
|
|
|
|
|
Company-owned life insurance current |
|
|
191 |
|
|
|
|
|
|
|
|
|
|
$ |
191 |
|
Company-owned life insurance non-current |
|
|
15,904 |
|
|
|
|
|
|
|
|
|
|
|
15,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BEP |
|
$ |
4,705 |
|
|
|
|
|
|
$ |
4,705 |
|
|
|
|
|
The Company maintains an investment in available for sale marketable securities in which cost
approximates fair value. The recorded value of the Companys investment in available for sale
marketable securities is based on quoted prices in active markets and, therefore, is classified
within Level 1 of the fair value hierarchy.
The recorded value of the Company-owned life insurance policies is adjusted to the cash surrender
value of the policies which are not observable in the market, and therefore, are classified within
Level 3 of the fair value hierarchy. Changes in the cash surrender value of these policies are
recorded within Other income, net in the Condensed Consolidated Statements of Operations.
Although company-owned life insurance policies are exempt from such disclosure requirements,
management believes the disclosures are useful to financial statement users.
The recorded value of the BEP obligation is measured as employee deferral contributions and Company
matching contributions less distributions made from the plan, and adjusted for the returns on the
hypothetical investments selected by the participants, which are indirectly observable and
therefore, classified within Level 2 of the fair value hierarchy.
The following table presents a summary of changes in the fair value of the Level 3 assets and
liabilities for the six months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Six months ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
Company-owned
life insurance: |
|
|
|
|
|
|
|
|
Balance on April 1 |
|
$ |
16,095 |
|
|
$ |
26,172 |
|
Realized gains/(losses) |
|
|
2,065 |
|
|
|
|
|
Unrealized (losses)/gains relating to
instruments still held at the reporting date |
|
|
(618 |
) |
|
|
699 |
|
Purchases, sales, issuances, and settlements (net) |
|
|
(1,185 |
) |
|
|
(11,371 |
) |
|
|
|
|
|
|
|
Balance on September 30 |
|
$ |
16,357 |
|
|
$ |
15,500 |
|
|
|
|
|
|
|
|
23
Realized gains represent the amounts recognized during the first quarter of fiscal 2011 on the
redemption of certain Company-owned life insurance policies and are recorded within Other income,
net in the accompanying Condensed Consolidated Statements of Operations. Unrealized losses related
to the Company-owned life insurance policies are recorded within Other income, net in the
accompanying Condensed Consolidated Statements of Operations.
The following tables present information about the Companys financial and nonfinancial assets and
liabilities measured at fair value on a nonrecurring basis and indicate the fair value hierarchy of
the valuation techniques utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as of |
|
|
or liabilities |
|
|
and observable |
|
|
inputs |
|
|
|
September 30, 2010 |
|
|
(Level 1) |
|
|
inputs (Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
50,557 |
|
|
|
|
|
|
|
|
|
|
$ |
50,557 |
|
Intangible assets |
|
|
30,789 |
|
|
|
|
|
|
|
|
|
|
|
30,789 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP obligations |
|
$ |
6,456 |
|
|
|
|
|
|
|
|
|
|
$ |
6,456 |
|
Other employee benefit plans obligations |
|
|
419 |
|
|
|
|
|
|
|
|
|
|
|
419 |
|
Restructuring liabilities current |
|
|
662 |
|
|
|
|
|
|
|
|
|
|
|
662 |
|
Restructuring liabilities non-current |
|
|
439 |
|
|
|
|
|
|
|
|
|
|
|
439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement used |
|
|
|
|
|
|
|
Active markets |
|
|
Quoted prices in |
|
|
Active markets |
|
|
|
Recorded value |
|
|
for identical assets |
|
|
similar instruments |
|
|
for unobservable |
|
|
|
as of |
|
|
or liabilities |
|
|
and observable |
|
|
inputs |
|
|
|
March 31, 2010 |
|
|
(Level 1) |
|
|
inputs (Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
50,418 |
|
|
|
|
|
|
|
|
|
|
$ |
50,418 |
|
Intangible assets |
|
|
32,510 |
|
|
|
|
|
|
|
|
|
|
|
32,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP obligations current |
|
$ |
2,504 |
|
|
|
|
|
|
|
|
|
|
$ |
2,504 |
|
SERP obligations non-current |
|
|
5,908 |
|
|
|
|
|
|
|
|
|
|
|
5,908 |
|
Other employee benefit plans obligations current |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
35 |
|
Other employee benefit plans obligations non-current |
|
|
419 |
|
|
|
|
|
|
|
|
|
|
|
419 |
|
Restructuring liabilities current |
|
|
1,206 |
|
|
|
|
|
|
|
|
|
|
|
1,206 |
|
Restructuring liabilities non-current |
|
|
732 |
|
|
|
|
|
|
|
|
|
|
|
732 |
|
Goodwill of the Companys reporting units is measured for impairment on an annual basis, or in
interim periods if indicators of potential impairment exist, using a combination of an income
approach and a market approach.
The Companys intangible assets are valued at their estimated fair value at time of acquisition.
The Company evaluates the fair value of its finite-lived intangible assets when impairment
indicators are present and its indefinite-lived intangible assets on an annual basis, or in interim
periods if indicators of potential impairment exist. The same approach described above for the
goodwill valuation is also used to value indefinite-lived intangible assets.
The recorded value of the Companys SERP and other benefit plans obligations is based on estimates
developed by management by evaluating actuarial information and includes assumptions such as
discount rates, future compensation increases, expected retirement dates, payment forms, and
mortality. The recorded value of these obligations is measured on an annual basis, or upon the
occurrence of a plan curtailment or settlement.
The Companys restructuring liabilities primarily consist of one-time termination benefits to
former employees and ongoing costs related to long-term operating lease obligations. The recorded
value of the termination benefits to employees is adjusted to the expected remaining obligation
each period based on the arrangements made with the former employees. The recorded value of the
ongoing lease obligations is based on the remaining lease term and payment amount, net of sublease
income plus interest, discounted to present value. Changes in subsequent periods resulting from a
revision to either the timing or the amount of estimated cash flows over the future period are
measured using the credit-adjusted, risk-free rate that was used to measure the restructuring
liabilities initially.
24
The inputs used to value the Companys goodwill, intangible assets, SERP obligations, other
employee benefit plans obligations, and restructuring liabilities are not observable in the market
and therefore, these amounts are classified within Level 3 in the fair value hierarchy.
The following table presents a summary of changes in the fair value of the Level 3 assets and
liabilities for the six months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Intangible |
|
|
SERP |
|
|
benefit plans |
|
|
Restructuring |
|
|
|
Goodwill |
|
|
assets |
|
|
obligations |
|
|
obligations |
|
|
liabilities |
|
Balance on April 1 |
|
$ |
50,418 |
|
|
$ |
32,510 |
|
|
$ |
8,412 |
|
|
$ |
454 |
|
|
$ |
1,938 |
|
Realized 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, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Intangible |
|
|
SERP |
|
|
benefit plans |
|
|
Restructuring |
|
|
|
Goodwill |
|
|
assets |
|
|
obligations |
|
|
obligations |
|
|
liabilities |
|
Balance on April 1 |
|
$ |
50,382 |
|
|
$ |
36,659 |
|
|
$ |
18,285 |
|
|
$ |
1,109 |
|
|
$ |
9,927 |
|
Realized 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized losses on the Companys SERP obligation were primarily comprised of the actuarial losses
recognized due to the settlement of a SERP obligation to a former executive and are recorded
within Restructuring charges in the accompanying Condensed Consolidated Statements of Operations.
Additional information regarding the Companys restructuring actions is included in Note 6 to
Condensed Consolidated Financial Statements.
Unrealized gains related to goodwill represent fluctuations due to the movement of foreign
currencies relative to the U.S. dollar. Cumulative currency translation adjustments are recorded
within Other comprehensive income in the accompanying Condensed Consolidated Balance Sheets.
Unrealized losses related to the Companys SERP obligation represent the unamortized actuarial
losses, net of taxes, and are recorded within Other comprehensive income in the accompanying
Condensed Consolidated Balance Sheets.
25
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
In Managements 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 Companys business; |
|
|
|
what the Companys earnings and costs were; |
|
|
|
why those earnings and costs were different from the year before; |
|
|
|
where the earnings came from; |
|
|
|
how the Companys 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 Companys consolidated
financial condition and results of operations. This Quarterly Report on Form 10-Q (Quarterly
Report) updates information included in the Companys 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
Companys 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 Companys 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
Agilysys is a leading provider of innovative information technology (IT) solutions to corporate
and public-sector customers, with special expertise in select markets, including retail and
hospitality. The Company develops technology solutions including hardware, software, and
services to help customers resolve their most complicated IT data center and point-of-sale needs.
The Company possesses data center expertise in enterprise architecture and high availability,
infrastructure optimization, storage and resource management, and business continuity. Agilysys
point-of-sale solutions include: proprietary property management, inventory and procurement,
point-of-sale, and document management software, proprietary services including expertise in
mobility and wireless solutions for retailers, and resold hardware, software, and services. A
significant portion of the point-of-sale related revenue is recurring from software support and
hardware maintenance agreements. Headquartered in Solon, Ohio, Agilysys operates extensively
throughout North America, with additional sales and support offices in the United Kingdom and Asia.
Agilysys has three reportable segments: Hospitality Solutions Group (HSG), Retail Solutions Group
(RSG), and Technology Solutions Group (TSG). See Note 13 to Condensed Consolidated Financial
Statements titled, Business Segments, which is included in Item 1, for additional information.
The primary objective of the Companys ongoing strategic planning process is to create shareholder
value by exploiting growth opportunities and strengthening its competitive position within the
specific technology solutions and in the wider markets that it competes. The plan builds on the
Companys existing strengths and targets growth driven by new technology trends and market
opportunities. The Companys strategic plan specifically focuses on:
|
|
|
Growing sales of its proprietary offerings, both software and services. |
|
|
|
|
Diversifying its customer base across geographies and industries. |
|
|
|
|
Capitalizing on the Companys intellectual property and emerging technology trends. |
26
|
|
|
Leveraging the Companys investment in Oracle Enterprise Resource Planning (ERP) software
to further improve operating efficiencies and reduce costs. |
Revenues Defined
As required by the SEC, the Company separately presents revenues earned as either product revenues
or services revenues in its Condensed Consolidated Statements of Operations. In addition to the SEC
requirements, the Company may, at times also refer to revenues as defined below. The terminology,
definitions, and applications of terms the Company uses to describe its revenues may be different
from those used by other companies and caution should be used when comparing these financial
measures to those of other companies. The Company uses the following terms to describe revenues:
|
|
|
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
Total net sales rose $30.1 million or 10.5% in the six months ended September 30, 2010 compared
with the six months ended September 30, 2009, primarily driven by increased sales volumes across
all the Companys product and services offerings. Fiscal 2010 net sales were adversely impacted by
a general decrease in IT spending activity within the markets the Company serves as a result of
weak macroeconomic and financial market conditions.
While the Companys business has shown improvement in the first half of fiscal 2011 compared to the
same prior year period, market conditions still reflect uncertainty regarding the overall business
environment and demand for IT products and services. The Company continues to believe that it is
well-positioned to capitalize on future increases in IT spending, which will allow for the further
leveraging of its business model and earnings growth.
Gross margin as a percentage of sales decreased 290 basis points to 23.6% for the first half of
fiscal 2011 compared to the first half of fiscal 2010, primarily due to lower hardware and software
gross margins as a result of lower vendor rebates and increased pricing pressure. These lower
hardware and software margins were partially offset by services gross margins, which increased 370
basis points, due to improved pricing.
In July 2008, the Company decided to exit TSGs portion of the China and Hong Kong businesses. HSG
continues to operate throughout Asia. In January 2009, the Company sold its TSG China operations
and certain assets of TSGs Hong Kong operations, receiving proceeds of $1.4 million. For financial
reporting purposes, the remaining prior period operating results of TSGs Hong Kong business were
classified within discontinued operations. Accordingly, the discussion and analysis presented
below, including the comparison to prior periods, reflects the continuing business of Agilysys.
As discussed in Note 13 to Condensed Consolidated Financial Statements, in fiscal 2011, the Company
began to allocate certain general and administrative costs related to the accounts receivable and
collections, accounts payable, legal, payroll, and benefits functional departments to the
reportable business segments in order to provide a better reflection of the costs needed to operate
the business segments. Prior period business segment results have been adjusted to conform to the
current period presentation. Also as discussed in Note 13 to Condensed Consolidated Financial
Statements, Verizon Communications, Inc. accounted for 32.0% and 42.5% of TSGs total revenues, and
23.3% and 29.7% of total Company revenues for the three months ended September 30, 2010 and 2009,
respectively, as well as, 30.4% and 42.3% of TSGs total revenues, and 21.1% and 29.4% of total
Company revenues for the six months ended September 30, 2010 and 2009, respectively.
27
Results of Operations Second Fiscal 2011 Quarter Compared to Second Fiscal 2010 Quarter
Net Sales and Operating Income (Loss)
The following table presents the Companys consolidated revenues and operating results for the
three months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
September 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 |
|
|
nm |
Restructuring charges |
|
|
10 |
|
|
|
54 |
|
|
|
(44 |
) |
|
nm |
|
Total |
|
|
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 |
% |
|
|
|
|
|
|
|
|
|
28
The following table presents the Companys operating results by business segment for the three
months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
|
(Decrease) increase |
|
(Dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
Hospitality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 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 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 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 Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
|
|
|
$ |
34 |
|
|
$ |
(34 |
) |
|
|
(100.0 |
)% |
Operating loss |
|
$ |
(8,367 |
) |
|
$ |
(6,829 |
) |
|
$ |
(1,538 |
) |
|
|
(22.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 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. The $27.6 million increase in net sales during the second quarter of fiscal 2011
compared to the second quarter of fiscal 2010 was driven by higher hardware, software, and services
volumes, which increased $22.5 million, $1.9 million, and $3.2 million, respectively, in the second
quarter of fiscal 2011 compared to the second quarter of the prior year period. These revenue
increases reflect a general improvement in customer demand, which benefited RSG and TSG, as well as
increased success in bundling more software with TSG hardware sales in the current year.
HSGs sales decreased $2.8 million in the second quarter of fiscal 2011 compared to the same prior
year period primarily as a result of decreases in hardware and software revenues of $1.9 million
and $1.5 million, respectively, which were partially offset by an increase in services revenues of
$0.6 million. HSGs hardware and software revenues in the prior year quarter included a large
customer order that did not repeat in the current year. RSG revenues increased $5.4 million due to
growth in hardware and services revenues of $4.3 million and $1.5 million, respectively, as a
result of higher volumes. This growth was partially offset by a decrease of $0.4 million in
software revenues. TSGs sales increased $25.0 million, as hardware, software, and services
revenues grew $20.2 million, $3.8 million, and $1.0 million, respectively, in the second quarter of
fiscal 2011 compared to the same prior year period due to higher volumes.
29
Gross margin. The Companys total gross margin percentage decreased to 22.2% for the quarter ended
September 30, 2010 compared to 28.1% for the same prior year quarter, primarily due to lower
hardware gross margins, particularly within TSG. Services gross margins remained relatively flat in
the second quarter of fiscal 2011 compared to the second quarter of fiscal 2010. The decline in
product gross margins reflects a higher proportion of hardware revenues, for which the gross
margins are lower, compared to proprietary software and services revenues, for which the gross
margins are higher. The lower hardware gross margins also reflect lower vendor rebates and
competitive pricing experienced during the current year quarter.
The decrease of 160 basis points in HSGs gross margin percentage was primarily attributable to a
greater proportion of lower margin hardware revenues during the second quarter of fiscal 2011
versus software and services revenues, for which margins were higher. RSGs gross margin percentage
for the quarter ended September 30, 2010 decreased 80 basis points compared to the same prior year
quarter due to a higher proportion of hardware revenues, for which gross margins are lower,
compared to proprietary services revenues, for which the gross margins are higher. TSGs gross
margin percentage decreased 560 basis points in the second quarter of fiscal 2011 compared to the
second quarter of fiscal 2010. The decline in TSGs gross margin percentage was driven by lower
vendor rebates and competitive pricing on hardware in the current year quarter compared to the
prior year quarter.
Operating expenses. The Companys operating expenses consist of selling, general, and
administrative (SG&A) expenses, asset impairment charges, and restructuring charges. SG&A
expenses increased $3.4 million, or 8.6%, during the second quarter of fiscal 2011 compared to the
second quarter of fiscal 2010. This increase in the Companys operating expenses was primarily
attributable to increases in compensation and benefits due to higher incentive costs resulting from
the higher sales volumes in the current year quarter. In addition, during the prior year quarter
the Company also capitalized certain costs related to the development of the Guest 360 software
product and implementation of the Oracle ERP system, whereas the costs related to these projects
were expensed as maintenance costs during the current year quarter.
From a business segment perspective, SG&A expenses increased $1.5 million and $0.7 million in HSG
and RSG, respectively, partially offset by a decrease of $0.3 million in TSG. Corporate/Other SG&A
expenses increased $1.5 million in the second quarter of the current year compared with the second
quarter of the prior year. The increase in HSGs and RSGs expenses was primarily driven by higher
compensation and benefits costs in the current year second quarter compared to the same prior year
quarter. In the prior year second quarter, HSG capitalized certain costs related to the development
of its Guest 360 software product, which was released for general sale in June 2010. The higher
costs in RSG primarily reflect higher incentive costs due to the higher sales volume in the second
quarter of fiscal 2011. The decrease in TSGs SG&A expenses was driven by lower compensation and
benefits costs and lower travel and entertainment expenses. The increase in Corporate/Other SG&A
expenses was due to higher outside services costs and higher software amortization expenses related
to the Companys Oracle ERP system, which was implemented in April 2010.
Asset impairment charges. The Company tests its goodwill and long-lived assets for impairment upon
identification of impairment indicators, or at least annually. The asset impairment charges
recorded during the three months ended September 30, 2010 related to certain capitalized intangible
software assets that management determined were no longer being sold by the business.
Restructuring charges. During the second quarter of both fiscal 2011 and fiscal 2010, the Company
recorded insignificant additional restructuring charges primarily associated with ongoing lease
obligations related to the previously disclosed restructuring actions taken in fiscal 2009.
Additional information regarding the Companys respective restructuring plans is included in the
Companys Annual Report on Form 10-K for the year ended March 31, 2010.
30
Other (Income) Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
September 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. The $0.9 million of other income in the second quarter of fiscal
2011 primarily represents increases in the cash surrender value of Company-owned life insurance
policies of $0.2 million, gains recognized as a result of movements in foreign currencies relative
to the U.S. dollar of $0.4 million, and a gain of $0.1 million recorded on the proceeds received
from the Companys investment in The Reserve Funds Primary Fund (the Primary Fund). At September
30, 2010, the Company had a remaining uncollected balance of its Primary Fund investment of $0.4
million, for which a reserve was previously recorded in fiscal 2009. The $0.3 million of other
income in the prior year includes $0.4 million of increases in the cash surrender value of
Company-owned life insurance policies, partially offset by losses incurred as a result of movements
in foreign currencies, particularly the Canadian dollar, relative to the U.S. dollar.
Interest income. Interest income remained flat during the quarter ended September 30, 2010 compared
to the same prior year quarter. In fiscal 2009, management changed to a more conservative
investment strategy and maintained this strategy in fiscal 2010 and fiscal 2011.
Interest expense. Interest expense consists of costs associated with the Companys credit facility,
the amortization of deferred financing fees, interest expense on borrowings against certain
Company-owned life insurance policies, and capital leases. Interest expense remained relatively
flat quarter-over-quarter.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
Effective income tax rate |
|
|
(3.2 |
)% |
|
|
25.5 |
% |
Income tax expense is based on the Companys estimate of the effective tax rate expected to be
applicable for the respective full year. For the second quarter of fiscal 2011, the effective tax
rate was different than the statutory rate due primarily to the recognition of net operating
losses, as deferred tax assets, which were offset by increases in the valuation allowance. Other
items effecting the rate include foreign and state taxes and a discrete item related to
unrecognized tax benefits. For the second quarter of fiscal 2010, the effective tax rate for
continuing operations was lower than the statutory rate due primarily to the recognition of net
operating losses as deferred tax assets, which were offset by increases in the valuation allowance.
Other items effecting the rate in the prior year include state tax expense, a foreign tax benefit,
and a discrete item related to unrecognized tax benefits.
31
Results of Operations First Half of Fiscal 2011 Compared to First Half of Fiscal 2010
Net Sales and Operating Income (Loss)
The following table presents the Companys consolidated revenues and operating results for the six
months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
September 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 |
|
|
nm |
Restructuring charges |
|
|
403 |
|
|
|
68 |
|
|
|
335 |
|
|
nm |
|
Total |
|
|
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 |
)% |
|
|
|
|
|
|
|
|
|
32
The following table presents the Companys operating results by business segment for the six
months ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended September 30 |
|
|
Increase (decrease) |
|
(Dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
Hospitality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 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 Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
$ |
|
|
|
$ |
(761 |
) |
|
$ |
761 |
|
|
|
100.0 |
% |
Operating loss |
|
$ |
(17,215 |
) |
|
$ |
(16,151 |
) |
|
$ |
(1,064 |
) |
|
|
(6.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 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. The $30.1 million increase in net sales during the first half of fiscal 2011
compared with the first half of fiscal 2010 was driven by higher volumes across all the Companys
products and services offerings, with increases of $16.3 million, $7.8 million, and $6.0 million in
hardware, software, and services, respectively. These increases reflect a general improvement in
customer demand and increased success in bundling more software with TSG hardware sales in the
current year.
HSGs sales increased $4.2 million in the first half of fiscal 2011 compared to the same prior year
period due to increases in hardware and services revenues of $1.4 million and $4.1 million,
respectively, partially offset by a decrease in software revenues of $1.3 million. The increase in
HSGs services revenues is primarily as a result of improved proprietary services demand,
particularly in the food services market. RSG sales increased $4.8 million due to increases of $4.0
million and $1.6 million in hardware and services revenues, respectively, partially offset by a
$0.8 million decline in services revenues. The increases in RSGs hardware and services revenues in
the first half of the current year compared to the first half of the prior year were attributable
to higher volumes. TSGs revenues grew $21.0 million, driven by increases of $10.9 million, $9.9
million, and $0.2 million in hardware, software, and services revenues, respectively, in the first
half of fiscal 2011 compared to the same prior year period.
33
Gross margin. The Companys total gross margin percentage declined to 23.6% for the six months
ended September 30, 2010 compared to 26.5% for the same prior year period, as a result of lower
hardware and software gross margins, which reflect lower vendor rebates and continued pricing
pressure. The lower hardware and software gross margins were partially offset by a 370 basis point
increase in services gross margins, which primarily resulted from improved pricing.
The decrease of 190 basis points in HSGs gross margin percentage was primarily attributable to
product and customer mix. RSGs gross margin percentage for the six months ended September 30, 2010
increased slightly by 20 basis points compared to the same prior year period due to improved
pricing on hardware. TSGs gross margin percentage decreased 420 basis points from the first half
of fiscal 2010 compared to the first half of fiscal 2011. The decline in TSGs gross margin
percentage was driven by lower vendor rebates and competitive pricing on hardware in the first half
of fiscal 2011 compared to the first half of fiscal 2010.
Operating expenses. The Companys operating expenses consist of selling, general, and
administrative (SG&A) expenses, asset impairment charges, and restructuring charges. SG&A
expenses decreased $1.3 million, or 1.5%, during the first half of fiscal 2011 compared with the
first half of fiscal 2010. This reduction in the Companys operating expenses was primarily
attributable to lower acquisition-related intangible asset amortization expense, which more than
offset a slight increase in compensation and benefits costs due to higher incentive costs and
increases in outside services costs and software amortization expenses in conjunction with the
Companys Oracle EBS system implementation.
From a business segment perspective, SG&A expenses increased $0.8 million and $0.6 million in HSG
and RSG, respectively, offset by a $4.2 million decrease in TSG. Corporate/Other SG&A expenses
increased $1.5 million in the first half of the current year compared to the first half of the
prior year. The increase in HSGs and RSGs SG&A expenses was primarily a result of higher
compensation costs in the first half of the current year compared to the same prior year period. In
the first half of the prior year, HSG capitalized certain costs related to the development of its
Guest 360 software product, which was released for general sale in June 2010. The higher costs in
RSG primarily reflect higher incentive costs due to the higher sales volume in the current year.
The decrease in TSGs SG&A expenses was primarily driven by lower amortization expense for
intangible assets, as customer and supplier relationship intangible assets associated with the
Companys acquisition of Innovative Systems Design, Inc. in fiscal 2008 were fully amortized as of
June 30, 2009. The increase in Corporate/Other SG&A expenses was due to higher outside services
costs and higher software amortization expenses related to the Companys Oracle ERP system, which
was implemented in April 2010.
Asset impairment charges. The Company tests its goodwill and long-lived assets for impairment upon
identification of impairment indicators, or at least annually. The asset impairment charges
recorded during the first half of fiscal 2011 related to certain capitalized intangible software
assets that management determined were no longer being sold by the business.
Restructuring charges. The Company recorded a total of $0.4 million in additional restructuring
charges during the first half of fiscal 2011, primarily comprised of non-cash settlement costs
related to the payment of an obligation to a former executive under the Companys Supplemental
Executive Retirement Plan (SERP) and other ongoing lease obligations. During the first half of
fiscal 2010, the Company recorded $0.1 million in additional restructuring charges primarily
associated with ongoing lease obligations. The additional restructuring charges recorded in fiscal
2011 and fiscal 2010 related to the previously disclosed restructuring actions taken in fiscal
2009. Additional information regarding the Companys respective restructuring plans is included in
the Companys Annual Report on Form 10-K for the year ended March 31, 2010.
Since fiscal 2009, the Company has incurred charges totaling $42.0 million related to previously
disclosed restructuring actions, comprised of $0.4 million, $0.8 million, and $40.8 million in
fiscal years 2011, 2010, and 2009, respectively. Approximately $23.5 million of these restructuring
charges related to TSG, with the remaining $18.5 million related to Corporate/Other. The Company
expects to incur additional restructuring charges of approximately $0.5 million for the remainder
of fiscal 2011 and through fiscal 2012 for non-cash settlement charges related to the expected
payment of a SERP obligation to a former executive and for ongoing facility obligations.
34
Other (Income) Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
September 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. The $2.0 million of other income in the first half of fiscal
2011 primarily represents a gain of $2.1 million recorded on the $2.2 million in proceeds received
as a death benefit from certain Company-owned life insurance policies, gains recognized as a result
of the movement of foreign currencies relative to the U.S. dollar of $0.3 million, and a gain of
$0.1 million recorded for the proceeds received as a distribution of The Reserve Fund investment.
These proceeds were partially offset by decreases in the cash surrender value of Company-owned life
insurance policies of $0.6 million. The $1.1 million of other income in the prior year includes
$0.7 million of increases in the cash surrender value of Company-owned life insurance policies and
gains recognized as a result of movements in foreign currencies, particularly the Canadian dollar,
relative to the U.S. dollar.
Interest income. Interest income remained flat during the six months ended September 30, 2010
compared to the same prior year period. In fiscal 2009, management changed to a more conservative
investment strategy and maintained this strategy in fiscal 2010 and fiscal 2011.
Interest expense. Interest expense consists of costs associated with the Companys credit facility,
the amortization of deferred financing fees, interest expense on borrowings against certain
Company-owned life insurance policies, and capital leases. Interest expense increased $0.1 million
during the first half of fiscal 2010 compared to the first half of fiscal 2011. The Company
executed its current credit facility on May 5, 2009. Prior to that date, the Company did not have
an active credit facility in place.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
Six months ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
Effective income tax rate |
|
|
(57.5 |
)% |
|
|
(11.8 |
)% |
Income tax expense is based on the Companys estimate of the effective tax rate expected to be
applicable for the respective full year. For the first half of fiscal 2011, the effective tax rate
was different than the statutory rate due primarily to the recognition of net operating losses, as
deferred tax assets, which were offset by increases in the valuation allowance. In addition, an
increase in the valuation allowance was recorded due to the correction of an error during the first
quarter of fiscal 2011, as more fully described in Note 1 to the Condensed Consolidated Financial
Statements. For the first half of fiscal 2010, the effective tax rate for continuing operations was
lower than the statutory rate due primarily to the recognition of net operating losses as deferred
tax assets, which were offset by increases in the valuation allowance. Other items effecting the
rate in the prior year include state tax expense, as well as a discrete item related to
unrecognized tax benefits.
35
Business Combination
Triangle Hospitality Solutions Limited
On April 9, 2008, the Company acquired all of the shares of Triangle Hospitality Solutions Limited
(Triangle), the UK-based reseller and specialist for the Companys InfoGenesis products and
services, for $2.7 million, comprised of $2.4 million in cash and $0.3 million of assumed
liabilities. Based on managements preliminary allocations of the acquisition cost to the net
assets acquired (accounts receivable, inventory, and accounts payable), approximately $2.7 million
was originally assigned to goodwill. In the third quarter of fiscal 2009, a purchase price
adjustment to increase goodwill by $0.4 million was recorded. In the first quarter of fiscal 2010,
management completed the allocation of acquisition costs to the net assets acquired, which resulted
in an increase in goodwill of $0.1 million, net of currency translation adjustments. At September
30, 2010, the goodwill attributed to the Triangle acquisition was $3.0 million. Goodwill resulting
from the Triangle acquisition is deductible for income tax purposes.
Discontinued Operations
China and Hong Kong Operations
In July 2008, the Company decided to discontinue its TSG operations in China and Hong Kong. During
January 2009, the Company sold the stock related to TSGs China operations and certain assets of
TSGs Hong Kong operations, receiving proceeds of $1.4 million, which resulted in a pre-tax loss on
the sale of discontinued operations of $0.8 million. The remaining unsold assets and liabilities
related to TSGs Hong Kong operations, which primarily consist of amounts associated with service
and maintenance agreements, were substantially settled as of March 31, 2010. The discontinued
operations presented on the Companys Condensed Consolidated Statements of Operations for the three
and six months ended September 30, 2009 consisted of losses of $52,000 and $41,000, respectively,
net of taxes of zero in both periods, from the remaining operations of TSGs Hong Kong operations.
Investment in Magirus Sold in November 2008
In November 2008, the Company sold its 20% ownership interest in Magirus AG (Magirus), a
privately owned European enterprise computer systems distributor headquartered in Stuttgart,
Germany, for $2.3 million. In July 2008, the Company also received a dividend of $7.3 million from
Magirus related to Magirus fiscal 2008 sale of a portion of its distribution business. As a
result, the Company received total proceeds of $9.6 million from Magirus during the fiscal year
ended March 31, 2009. Prior to March 31, 2008, the Company decided to sell its 20% investment in
Magirus. Therefore, the Company classified its ownership interest in Magirus as an investment held
for sale until it was sold.
On April 1, 2008, the Company began to account for its investment in Magirus using the cost method,
rather than the equity method of accounting. The Company changed to cost method because management
did not have the ability to exercise significant influence over Magirus, which is one of the
requirements contained in the FASB authoritative guidance that is necessary in order to account for
an investment in common stock under the equity method of accounting.
Because of the Companys inability to obtain and include audited financial statements of Magirus
for fiscal years ended March 31, 2008 and 2007 as required by Rule 3-09 of Regulation S-X, the SEC
previously stated that it will not currently permit effectiveness of any new securities
registration statements or post-effective amendments, if any, until such time as the Company files
audited financial statements that reflect the disposition of Magirus or the Company requests, and
the SEC grants, relief to the Company from the requirements of Rule 3-09 of Regulation S-X. As part
of this restriction, the Company is not currently permitted to file any new securities registration
statements that are intended to automatically go into effect when they are filed, nor can the
Company make offerings under effective registration statements or under Rules 505 and 506 of
Regulation D where any purchasers of securities are not accredited investors under Rule 501(a) of
Regulation D. These restrictions do not apply to the following: offerings or sales of securities
upon the conversion of outstanding convertible securities or upon the exercise of outstanding
warrants or rights; dividend
36
or interest reinvestment plans; employee benefit plans, including stock option plans; transactions
involving secondary offerings; or sales of securities under Rule 144A.
Recently Adopted and Recently Issued Accounting Standards
A description of recently adopted and recently issued accounting pronouncements is included in Note
2 to Condensed Consolidated Financial Statements, which is included in Item 1 of this Quarterly
Report on Form 10-Q. Management continually evaluates the potential impact, if any, on its
financial position, results of operations, and cash flows, of all recent accounting pronouncements
and, if significant, makes the appropriate disclosures. During the six months ended September 30,
2010, no material changes resulted from the adoption of recent accounting pronouncements.
Liquidity and Capital Resources
Overview
The Companys operating cash requirements consist primarily of working capital needs, operating
expenses, capital expenditures, and payments of principal and interest on indebtedness outstanding,
which were primarily comprised of lease and rental obligations at September 30, 2010. The Company
believes that cash flow from operating activities, cash on hand, availability under the credit
facility as discussed below, and access to capital markets will provide adequate funds to meet its
short-term and long-term liquidity requirements.
The Company maintains a $50.0 million asset-based revolving credit agreement (the Credit
Facility) with Bank of America, N.A. (the Lender), which may be increased to $75.0 million by a
$25.0 million accordion feature for borrowings and letters of credit, that matures on May 5,
2012. The Companys obligations under the Credit Facility are secured by significantly all of the
Companys assets. The Credit Facility contains mandatory repayment provisions, representations,
warranties, and covenants customary for a secured credit facility of this type. The Credit Facility
replaced a prior $200.0 million unsecured credit facility and a floor plan inventory financing
arrangement that were terminated in the fourth quarter of fiscal 2009 and the first quarter of
fiscal 2010, respectively. Additional information with respect to the Credit Facility is contained
in the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2010.
At September 30, 2010, the maximum amount available for borrowing under the Credit Facility was
$49.9 million. The maximum commitment limit of $50.0 million was reduced by outstanding letters of
credit. The Company was in compliance with all covenants under the Credit Facility as of September
30, 2010 and through the date of the filing of this Quarterly Report. However, subsequent to
September 30, 2010, the Company was and still would be limited to borrowing no more than $34.9
million under the Credit Facility in order to maintain compliance with the fixed charge coverage
ratio as defined in the Credit Facility.
The Company had no amounts outstanding under the Credit Facility as of September 30, 2010 and
through the date of the filing of this Quarterly Report. Except as discussed in the Companys
Annual Report for the fiscal year ended March 31, 2010, there have been no changes to the Credit
Facility since it was executed on May 5, 2009.
As of September 30, 2010 and March 31, 2010, the Companys total debt was approximately $1.0
million and $0.7 million, respectively, comprised of capital lease obligations in both periods.
Additional information regarding the Companys financing arrangements is included in its Annual
Report for the fiscal year ended March 31, 2010.
As of September 30, 2010, 100% of the Companys cash and cash equivalents was deposited in bank
accounts. Therefore, the Company believes that credit risk is limited with respect to its cash and
cash equivalents balances.
37
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
September 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 |
) |
|
|
77,213 |
|
Effect 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. The $24.3 million in cash used by
operating activities during the six months ended September 30, 2010 consisted of a $12.5 million
loss from continuing operations, $12.3 million in non-cash adjustments to the loss from continuing
operations, and a negative $24.1 million of changes in operating assets and liabilities.
Significant changes in operating assets and liabilities included a $52.8 million increase in
accounts receivable and an $8.1 million increase in inventories, partially offset by a $33.6
million increase in accounts payable, a $2.1 million increase in accrued liabilities, and $1.1
million of other changes in operating assets and liabilities. The change in accounts receivable is
reflective of an increase in the volume of sales that occurred in September 2010 (i.e., the last
month of the fiscal quarter) compared to March 2010. The increase in accounts receivable is also
related to the transition of invoicing to the Companys new Oracle ERP platform. The Company
believes that the transition process has been mostly completed. Invoicing and collections improved
in the second quarter of fiscal 2011 and are expected to continue improving in future quarters. The
increases in accounts payable and in inventories were a result of the higher sales volume in
September 2010 compared to March 2010 and several large orders that did not ship as of September
30, 2010. The increase in accrued liabilities primarily related to higher deferred revenues due to
certain contracts for which revenues could not be recognized as of September 30, 2010. The $80.9
million in cash provided by operating activities for the first half of fiscal 2010 primarily
consisted of changes in operating assets and liabilities, including a $28.3 million decrease in
accounts receivable, a $5.2 million decrease in inventory, and a $64.8 million increase in accounts
payable, partially offset by a $16.5 million decrease in accrued liabilities. The reduction in
accrued liabilities primarily related to amounts paid during the first half of the prior year with
respect to restructuring actions taken in fiscal 2009, including cash paid to settle employee
benefit plan obligations. The increase in accounts payable reflected the termination of the
Companys inventory financing agreement that was previously used to finance inventory purchases in
May 2009. Going forward, the Company is financing inventory purchases through accounts payable.
Cash flow (used for) provided by investing activities. The $2.0 million in cash used for investing
activities during the six months ended September 30, 2010 resulted from the receipt of $2.2 million
in proceeds as a redemption of certain Company-owned life insurance policies and $0.1 million in
proceeds received as a partial distribution of the Companys previously disclosed claim on its
investment in the Primary Fund, partially offset by $0.7 million used for additional investments in
Company-owned life insurance policies and $3.6 million used for the purchase of software, property,
and equipment. The $7.7 million in cash provided by investing activities during the six months
ended September 30, 2009 was primarily driven by $12.5 million in proceeds from borrowings against
Company-owned life insurance policies, which were used to settle employee benefit plan obligations,
and $2.3 million in proceeds received related to the claim on the Primary Fund, partially offset by
$1.2 million in additional investments in Company-owned life insurance policies and $5.9 million
used for the purchase of software, property, and equipment. The Company has no obligation to repay,
and does not intend to repay, the amounts borrowed against Company-owned life insurance policies.
38
Cash flow used for financing activities. During the six months ended September 30, 2010, the
Company used $0.3 million in cash for financing activities, which represented payments on capital
lease obligations. The $77.5 million in cash used for financing activities during the six months
ended September 30, 2009 was primarily comprised of $74.5 million repayment of the balance
outstanding on the Companys former inventory financing facility, which was terminated in May 2009.
In addition, the Company paid $1.5 million in debt financing fees related to its current credit
facility and paid $1.4 million in cash dividends.
Contractual Obligations
As of September 30, 2010, there were no significant changes to the Companys contractual
obligations as presented in its Annual Report for the year ended March 31, 2010.
Off-Balance Sheet Arrangements
The Company has not entered into any off-balance sheet arrangements that have had or are reasonably
likely to have a current or future effect on the Companys financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures,
or capital resources.
Critical Accounting Policies
A detailed description of the Companys significant accounting policies is included in the
Companys Annual Report for the year ended March 31, 2010. There have been no material changes in
the Companys significant accounting policies and estimates since March 31, 2010.
Forward-Looking Information
This Quarterly Report contains certain management expectations, which may constitute
forward-looking information within the meaning of Section 27A of the Securities Act of 1933,
Section 21E of the Securities and Exchange Act of 1934, and the Private Securities Reform Act of
1995. Forward-looking information speaks only as to the date of this Quarterly Report and may be
identified by use of words such as may, will, believes, anticipates, plans, expects,
estimates, projects, targets, forecasts, continues, seeks, or the negative of those
terms or similar expressions. Many important factors could cause actual results to be materially
different from those in forward-looking information including, without limitation, competitive
factors, disruption of supplies, changes in market conditions, pending or future claims or
litigation, or technology advances. No assurances can be provided as to the outcome of cost
reductions, expected benefits and outcomes from our recent ERP implementation, business strategies,
future financial results, unanticipated downturns to our relationships with customers and
macroeconomic demand for IT products and services, unanticipated difficulties integrating
acquisitions, new laws and government regulations, interest rate changes, consequences of MAK
Capitals shareholder-approved control share acquisition proposal, and unanticipated deterioration
in economic and financial conditions in the United States and around the world, or the
consequences. The Company does not undertake to update or revise any forward-looking information
even if events make it clear that any projected results, actions, or impact, express or implied,
will not be realized.
Other potential risks and uncertainties that may cause actual results to be materially different
from those in forward-looking information are described in Risk Factors, which is included in
Part I, Item 1A of the Companys Annual Report for the fiscal year ended March 31, 2010.
39
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
For quantitative and qualitative disclosures about market risk affecting the Company, see Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, contained in the Companys Annual
Report for the fiscal year ended March 31, 2010. There have been no material changes in the
Companys market risk exposures since March 31, 2010.
|
|
Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision of and with the participation of management, including the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), the Company evaluated the effectiveness of the
design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as of the end of the period
covered by this Quarterly Report. Based on that evaluation, including the assessment and input of
management, the CEO and CFO concluded that, as of the end of the period covered by this Quarterly
Report, the Companys disclosure controls and procedures were effective.
Change in Internal Control over Financial Reporting
The Company continues to integrate each acquired entitys internal controls over financial
reporting into the Companys own internal controls over financial reporting, and will continue to
review and, if necessary, make changes to each acquired entitys internal controls over financial
reporting until such time as integration is complete.
During the first quarter of fiscal 2011, the Company implemented a new Oracle 12i order to cash ERP
system. The implementation of the system is expected to improve the management and efficiency of
the Companys data and information flow through the automation and integration of its sales order
and product procurement functions. There have been no other changes in the Companys internal
control over financial reporting during the first half of fiscal 2011 that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting.
PART II. OTHER INFORMATION
|
|
Item 1. |
Legal Proceedings |
None.
There have been no material changes in the risk factors included in our Annual Report for the
fiscal year ended March 31, 2010 that may materially affect the Companys business, results of
operations, or financial condition.
|
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
|
|
Item 3. |
Defaults Upon Senior Securities |
None.
|
|
Item 4. |
[Removed and Reserved] |
40
|
|
Item 5. |
Other Information |
None.
|
|
|
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
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
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