Activant Solutions 10Q 2009 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009


o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 333-49389

Activant Solutions Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		94-2160013 (I.R.S. Employer Identification No.)

7683 Southfront Road Livermore, CA (Address of principal executive offices)		94551 (Zip Code)

(925) 449-0606
(Registrant’s telephone number,
including area code)

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 o No þ Although Activant Solutions Inc. is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act, the company has filed all Exchange Act reports for the preceding 12 months.

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 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 Activant Solutions Inc. is not currently required to submit and post Interactive Data Files pursuant to Rule 405 of Regulation S-T.

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.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer þ
(Do not check if a smaller reporting company)

Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at August 12, 2009
Common Stock, par value $0.01 per share		10 shares

ACTIVANT SOLUTIONS INC.

REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2009

INDEX


			Page

Forward-Looking Statements			2

PART I — FINANCIAL INFORMATION			3

Item 1. Financial Statements (Unaudited)			3

Condensed Consolidated Balance Sheets as of June 30, 2009 and September 30, 2008			3

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended June 30, 2009 and 2008			4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2009 and 2008			5

Notes to Condensed Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24

Item 3. Quantitative and Qualitative Disclosures About Market Risk			42

Item 4. Controls and Procedures			43

PART II — OTHER INFORMATION			44

Item 1. Legal Proceedings			44

Item 1A. Risk Factors			44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44

Item 3. Defaults Upon Senior Securities			44

Item 4. Submission of Matters to a Vote of Security Holders			44

Item 5. Other Information			44

Item 6. Exhibits			45

SIGNATURE			46

EXHIBIT INDEX			47
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to safe harbors under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this report under “Part I, Item 2 —Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 1A — Risk Factors” are forward-looking statements. We have based these forward-looking statements on our current expectations about future events. While we believe these expectations are reasonable, these forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Our actual results may differ materially from those suggested by these forward-looking statements for various reasons, including those discussed in this report under “Part I, Item 2 —Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 1A — Risk Factors.”

Some of the key factors that could cause actual results to differ from our expectations are:

	•		the negative effect of the current credit crisis and unfavorable market conditions on our customers and on our business;

	•		the financial crisis in the U.S. and global capital and credit markets;

	•		our substantial indebtedness and our ability to incur additional indebtedness;

	•		certain covenants in our debt documents, including covenants that require us to satisfy a maximum total leverage ratio and a minimum interest coverage ratio;

	•		failure to anticipate or respond to our customers’ needs and requirements;

	•		failure of our proprietary technology to support our customers’ future needs or it becoming obsolete;

	•		failure to develop new relationships and maintain existing relationships with key industry participants and/or key customers and/or loss of significant customer revenues;

	•		loss of recurring subscription service revenues;

	•		failure to integrate and retain our senior management personnel;

	•		failure of our Activant Eagle and Vision products to gain acceptance within the automotive parts aftermarket;

	•		costs and difficulties of integrating recent and future acquisitions, including our acquisitions of Silk Systems and Intuit’s distribution software management division (Eclipse);

	•		the amount of any future goodwill impairment charges due to the continuing global economic uncertainty and credit crisis;

	•		changes in the manner or basis on which we receive third-party information used to maintain our electronic automotive parts and applications catalog;

	•		failure by certain of our existing customers to upgrade to our current generation of systems;

	•		failure to effectively compete;

	•		substantial fluctuations in, or failure to maintain current systems sales levels of one-time sales of software licenses and hardware;

	•		consolidation trends among our customers and consolidation trends in the market segments in which we operate;

	•		failure to adequately protect our proprietary rights and intellectual property or limitations on the availability of legal or technical means of effecting such protection;

	•		claims by third parties that we are infringing on their proprietary rights or other adverse claims;

	•		defects or errors in our software or information services;

	•		interruptions of our connectivity applications or catastrophic failure of our data center, telecommunications or information technology infrastructure;

	•		claims for damages against us in the event of a failure of our customers’ systems;

	•		fluctuations in the value of foreign currencies;

	•		differing interests of debt security holders and our controlling stockholders or investors;

	•		failure to maintain adequate financial and management processes and controls; and

	•		the other factors described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2008, our subsequent quarterly reports and elsewhere in this report, including under Part II, Item 1A of this report.

Given these risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements included in this report. The forward-looking statements included in this report are made only as of the date hereof. Except as required by law, we do not undertake, and specifically decline, any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments.

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

ACTIVANT SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)


	June 30,			September 30,
(in thousands, except share data)	2009			2008

ASSETS:
Current assets:
Cash and cash equivalents	$	44,167		$	64,789
Trade accounts receivable, net of allowance for doubtful accounts of $4,564 and $5,415 at June 30, 2009 and September 30, 2008, respectively		35,004			45,138
Inventories		5,809			5,310
Deferred income taxes		6,673			6,226
Income taxes receivable		—			1,186
Prepaid expenses and other current assets		6,499			5,124

Total current assets		98,152			127,773

Property and equipment, net		6,341			8,942
Intangible assets, net		198,895			217,058
Goodwill		551,218			662,209
Deferred financing costs		9,492			13,130
Other assets		3,208			2,172

Total assets	$	867,306		$	1,031,284


LIABILITIES AND STOCKHOLDER’S EQUITY:
Current liabilities:
Accounts payable	$	16,375		$	19,181
Payroll related accruals		15,444			15,020
Deferred revenue		34,248			32,518
Current portion of long-term debt		—			3,325
Accrued expenses and other current liabilities		16,835			15,484

Total current liabilities		82,902			85,528

Long-term debt		542,895			613,787
Deferred tax liabilities		51,965			54,028
Other liabilities		18,634			18,625

Total liabilities		696,396			771,968


Commitments and contingencies

Common Stock:
Par value $0.01 per share, 1,000 shares authorized, 10 shares issued and outstanding, at June 30, 2009 and September 30, 2008
Additional paid-in capital		256,798			254,148
Retained earnings (accumulated deficit)		(75,515	)		11,355
Accumulated other comprehensive loss:
Unrealized loss on cash flow hedges		(8,518	)		(5,585	)
Cumulative translation adjustment		(1,855	)		(602	)

Total stockholder’s equity		170,910			259,316

Total liabilities and stockholder’s equity	$	867,306		$	1,031,284

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

ACTIVANT SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)


	Three Months Ended						Nine Months Ended
	June 30,						June 30,
(in thousands)	2009			2008			2009			2008

Revenues:
Systems	$	27,188		$	40,440		$	91,632		$	130,969
Services		63,737			63,283			191,512			189,756

Total revenues		90,925			103,723			283,144			320,725


Cost of revenues (exclusive of depreciation and amortization of $4,272, $4,403, $13,332, and $12,408 for the three months ended June 30, 2009 and 2008 and nine months ended June 30, 2009 and 2008, respectively, included in amounts shown separately below):
Systems (Note 8)		15,627			22,365			50,515			74,020
Services (Note 8)		20,523			23,081			64,169			69,860

Total cost of revenues		36,150			45,446			114,684			143,880


Gross profit		54,775			58,277			168,460			176,845


Operating expenses:
Sales and marketing (Note 8)		13,338			15,356			40,936			47,883
Product development (Note 8)		9,453			10,774			29,267			33,910
General and administrative (Note 8)		6,058			8,211			17,625			24,158
Depreciation and amortization		9,348			9,640			28,736			27,561
Impairment of goodwill		—			—			107,000			—
Acquisition related costs		32			264			260			922
Restructuring costs		(40	)		1,636			4,409			2,126

Total operating expenses		38,189			45,881			228,233			136,560


Operating income (loss)		16,586			12,396			(59,773	)		40,285

Interest expense		(9,722	)		(11,800	)		(32,398	)		(39,672	)
Gain on retirement of debt		4,631			—			18,958			—
Other income (expense), net		21			469			(606	)		1,542

Income (loss) before income taxes		11,516			1,065			(73,819	)		2,155
Income tax expense		3,902			236			13,051			790

Net income (loss)	$	7,614		$	829		$	(86,870	)	$	1,365


Comprehensive income (loss):
Net income (loss)	$	7,614		$	829		$	(86,870	)	$	1,365
Unrealized gain (loss) on cash flow hedges		2,025			3,966			(2,933	)		(2,686	)
Foreign currency translation adjustment		290			(292	)		(1,253	)		(512	)

Comprehensive income (loss)	$	9,929		$	4,503		$	(91,056	)	$	(1,833	)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

ACTIVANT SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


	Nine Months Ended June 30,
(in thousands)	2009			2008

Operating activities:
Net income (loss)	$	(86,870	)	$	1,365
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Impairment of goodwill		107,000			—
Gain on retirement of debt		(18,958	)		—
Loss on disposal of assets		19			—
Stock-based compensation expense		2,839			2,279
Depreciation		4,021			4,554
Amortization of intangible assets		24,715			23,007
Amortization of deferred financing costs		1,781			1,860
Provision for doubtful accounts		1,180			2,418
Deferred income taxes		(2,510	)		(9,731	)
Changes in assets and liabilities:
Trade accounts receivable		8,954			9,573
Inventories		(499	)		393
Prepaid expenses and other assets		(1,225	)		1,582
Accounts payable		(2,856	)		(4,086	)
Deferred revenue		1,730			2,314
Accrued expenses and other		1,608			37

Net cash provided by operating activities		40,929			35,565


Investing activities:
Purchases of property and equipment		(1,458	)		(4,114	)
Capitalized computer software and database costs		(6,552	)		(4,912	)

Net cash used in investing activities		(8,010	)		(9,026	)


Financing activities:
Repurchases of common stock		(189	)		(13	)
Payments on long-term debt		(13,512	)		(563	)
Repurchases of debt		(39,840	)		—
Deferred financing costs		—			(117	)

Net cash used in financing activities		(53,541	)		(693	)


Net change in cash and cash equivalents		(20,622	)		25,846
Cash and cash equivalents, beginning of period		64,789			33,379

Cash and cash equivalents, end of period	$	44,167		$	59,225


Supplemental disclosures of cash flow information
Cash paid during the period for interest	$	38,288		$	41,089
Cash paid during the period for income taxes (net of receipts)	$	6,636		$	6,952

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

ACTIVANT SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(UNAUDITED)

NOTE 1 — BASIS OF PRESENTATION

The accompanying condensed consolidated balance sheets as of June 30, 2009 and September 30, 2008 and the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended June 30, 2009 and 2008 and cash flows for the nine months ended June 30, 2009 and 2008 represent our financial position, results of operations and cash flows as of and for the periods then ended.

Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. While our management has based their assumptions and estimates on the facts and circumstances existing at June 30, 2009, actual results could differ from those estimates and operating results for the three and nine months ended June 30, 2009 are not necessarily indicative of the results that may be achieved for the fiscal year ending September 30, 2009. Certain reclassifications have been made to the prior period presentation to conform to the current period presentation.

In the opinion of our management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results for the interim periods presented. These financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008, filed with the Securities and Exchange Commission (the “SEC”) on December 19, 2008.

In preparing the accompanying condensed consolidated financial statements, we have reviewed, as determined necessary by our management, events that have occurred after June 30, 2009, up until the issuance of the financial statements, which occurred on August 12, 2009. As of such date, our management was not aware of any subsequent events requiring additional disclosure.

NOTE 2 — RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2009, we adopted the Financial Accounting and Standards Board (“FASB”) Staff Position (“FSP”) No. 107-1 and Accounting Principles Board Opinion (“APB”) No. 28-1,Interim Disclosures About Fair Value of Financial Instruments.FSP 107-1 extends the disclosure requirements under Financial Accounting Standards (“SFAS”) No. 107,Disclosures about Fair Value of Financial Instruments, to interim financial statements of publicly traded companies as defined in APB Opinion No. 28,Interim Financial Reporting. FSP 107-1 was effective for interim reporting periods ending after June 15, 2009. See Note 6 to our unaudited condensed consolidated financial statements for required disclosures. This Statement does not impact the unaudited condensed consolidated statements of operations as it is disclosure only in nature.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”. SFAS No. 165 establishes the standards for accounting for and disclosure of subsequent events. It defines subsequent events as those events or transactions that occur after the balance sheet date, but before the financial statements are issued or available to be issued. The statement defines subsequent events as either recognized or non-recognized and requires the date through which an entity evaluates subsequent events be disclosed. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. We adopted SFAS No. 165 in June 2009. See Note 1 for additional information regarding subsequent events.

Accounting for Leases, and certain other lease-related accounting pronouncements. FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are already recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. FSP 157-3 clarifies the application of SFAS 157 in determining the fair value of financial assets and liabilities in a market that is not active and provides examples to illustrate key considerations in determining such fair value. FSP 157-4 amends SFAS 157 to provide additional guidance on estimating fair value when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset and liability. We concluded that FSP-1, FSP-2 and FSP-4 would not have an impact on our financial statements. FSP-3 was included in the implementation of SFAS 157. See Note 6 for additional information regarding the adoption of SFAS No. 157.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about derivative and hedging activities. These disclosures should enable financial statement users to understand how and why a company uses derivative instruments and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. We adopted SFAS No. 161 on January 1, 2009. See Note 5 for additional information regarding the required disclosures of our derivative instruments and hedging activities. This Statement does not impact the unaudited condensed consolidated statements of operations as it is disclosure only in nature.

In December 2007, the FASB issued SFAS No. 141(R),Business Combinations—a replacement of FASB Statement 141, which significantly changes the principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree, and the goodwill acquired. This statement is effective prospectively, except for certain retrospective adjustments to deferred tax balances, for fiscal years beginning after December 15, 2008. We are in the process of evaluating this standard and therefore have not yet determined the impact, if any, it may have on our consolidated financial statements.

NOTE 3 — INVENTORIES

Inventories primarily consist of purchased parts and finished goods. Inventories are valued at the lower of cost or estimated fair market value with cost computed on an average cost basis. Consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value. We record write downs for excess and obsolete inventory equal to the difference between the cost of inventory and the estimated fair market value based upon assumptions about future product life-cycles, product demand and market conditions. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

NOTE 4 — GOODWILL

The carrying amount of goodwill by reportable segment is as follows:


	June 30,		September 30,		September 30,
(in thousands)	2009		2008		2007
Hardlines and Lumber	$	107,952	$	186,480	$	187,462
Wholesale Distribution		334,288		335,018		343,140
Automotive		99,214		128,534		129,350
Other		9,764		12,177		12,254

Total	$	551,218	$	662,209	$	672,206

We account for goodwill in accordance with SFAS No. 141,Business Combinations, and SFAS No. 142,Goodwill and Other Intangible Assets. Goodwill is tested for impairment on an annual basis as of July 1, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach. Our annual testing through fiscal year 2008 indicated no impairment of goodwill had occurred. However, the continuing global economic uncertainty and credit crisis have negatively impacted the level of overall spending, including spending in the vertical markets that we serve. As a result, we determined it necessary to evaluate goodwill for impairment as of December 31, 2008. In accordance with SFAS No. 142, we completed the impairment analysis for each of our reporting units and concluded that as of December 31, 2008, the fair value of our Hardlines and Lumber and our Automotive reporting units was below their respective carrying values, including goodwill. During the nine months ended June 30, 2009, we recorded a goodwill impairment charge of $107.0 million, comprised of $78.0 million related to Hardlines and Lumber and $29.0 million related to Automotive. For the purposes of this analysis, our estimates of fair value were based on a combination of the income approach, which estimates the fair value of our reporting units based on the future discounted cash flows, and the market approach, which estimates the fair value of our reporting units based on comparable market prices. We will not be required

to make any current or future cash payments as a result of these impairment charges. As mentioned above, goodwill is tested for impairment on an annual basis as of July 1. We will continue to monitor if conditions exist that indicate additional potential impairment has occurred. If such conditions exist, we may be required to record additional impairments in the future and such impairments, if any, may be material.

We also recorded other adjustments to goodwill during the nine months ended June 30, 2009, totaling $4.0 million as a result of resolving certain pre-acquisition tax liabilities. See Note 7 for further information.

NOTE 5 — DEBT

Long-term debt consisted of the following:


	June 30,		September 30,
(in thousands)	2009		2008
Senior secured term loan due 2013	$	418,600	$	422,112
Senior subordinated notes due 2016		114,295		175,000
Revolving credit facility due 2011		10,000		20,000

Total debt		542,895		617,112
Current portion		—		(3,325	)

Long-term debt	$	542,895	$	613,787

Senior Secured Credit Agreement

We have a senior secured credit agreement that provides for (i) a seven-year term loan in the amount of $390.0 million, amortized at a rate of 1.00% per year on a quarterly basis for the first six and three-quarters years after May 2, 2006, except such amortized loan payments that may otherwise be due are reduced dollar-for-dollar by any voluntary prepayments or mandatory repayments we make, with the balance payable on May 2, 2013, and (ii) a five-year revolving credit facility that permits loans in an aggregate amount of up to $40.0 million, which includes a $5.0 million letter of credit facility and a swing line facility. In addition, subject to certain terms and conditions, the senior secured credit agreement provides for one or more uncommitted incremental term loan and/or revolving credit facilities in an aggregate amount not to exceed $75.0 million. In August 2007, we borrowed the $75.0 million incremental term loan, which matures on May 2, 2013. At that time we also borrowed $20.0 million of the revolving credit facility. During the nine months ended June 30, 2009, we repaid $10.0 million in principal payments towards the revolving credit facility. Prior to fiscal year 2009, we did not make any principal repayments towards the revolving credit facility.

On September 15, 2008, Lehman Brothers Holdings Inc. (“Lehman Brothers”) filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York. A Lehman Brothers subsidiary, Lehman Commercial Paper Inc. (“Lehman CPI”), is one of the lenders under our senior secured credit agreement, having provided a commitment of $7.0 million under the revolving credit facility, of which $3.5 million was outstanding at June 30, 2009. We have not requested any additional borrowing under the senior secured credit agreement subsequent to Lehman Brothers’ bankruptcy filing, and it is not certain whether Lehman CPI will participate in any future requests for funding or whether another lender might assume its commitment.

In addition, another of our lenders under our senior secured credit agreement, The CIT Group/Equipment Financing Inc. (a CIT Group, Inc. (“CIT”) subsidiary), has publicly stated that it may need to seek bankruptcy protection. CIT reportedly sought and was unable to obtain U.S. government financial assistance in July of 2009 and many analysts have publicly expressed doubt as to whether it can avoid bankruptcy without such assistance. Regardless of whether it enters bankruptcy, it is not certain whether CIT will participate in any future requests for funding as a result of its financial difficulties. CIT Group/Equipment Financing Inc. has provided a commitment of $7.5 million, of which $1.5 million was outstanding as of June 30, 2009. We currently believe that the other lenders under our senior secured credit agreement, as well as our other financial counterparties, will be able to fulfill their respective obligations. There can be no assurance, however, that those other lenders or counterparties will not also experience a significant adverse event that could impact their abilities to fulfill their obligations to us.

We are required to repay installments on the loans under the term loan facility in quarterly principal amounts of 1.0% of their funded total principal amount for the first six years and nine months, with the remaining amount payable on the date that is seven years from the date of the closing of the senior secured credit agreement. Principal amounts outstanding under the revolving credit facility are due and payable in full at maturity, on May 2, 2011. We are required each year, generally concurrent with the filing of our Annual Report on Form 10-K, to make a mandatory principal repayment equal to one-half of excess cash flow, as defined in the senior secured credit agreement, for the preceding fiscal year. Any mandatory repayments due are reduced dollar-for-dollar by any voluntary prepayments made during the year. To date we have prepaid substantially all of the required amortized principal payments required under the senior secured credit agreement.

For the period ended September 30, 2006, and for the years ended September 30, 2007 and 2008, we repaid $1.9 million, $25.2 million and $15.8 million, respectively, in principal payments towards the term loans, which substantially reduced the future unamortized principal payments due per the amortization schedule. For the nine months ended June 30, 2009, we repaid approximately $3.5 million in principal payments of which approximately $3.3 million represented the fiscal year 2008 mandatory repayment and approximately $0.2 million was a voluntary prepayment. Prior to fiscal year 2008, we did not make any mandatory repayments. Any future mandatory principal repayments will be dependent upon us generating excess cash flow, as defined in the senior secured credit agreement.

The borrowings under the senior secured credit agreement bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the higher of (1) the prime rate of Deutsche Bank Trust Company Americas, and (2) the federal funds rate plus 1/2 of 1%; or (b) a reserve adjusted Eurodollar rate on deposits for periods of one-, two-, three-, or six-months (or, to the extent agreed to by each applicable lender, nine- or twelve-months or less than one month). The initial applicable margin for the borrowings is:

•		under the term loan, 1.00% with respect to base rate borrowings and 2.00% with respect to Eurodollar rate borrowings;

•		under the incremental term loan, 1.50% with respect to base rate borrowings and 2.50% with respect to Eurodollar rate borrowings; and

•		under the revolving credit facility, 1.00% with respect to base rate borrowings and 2.00% with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of certain leverage ratios.

In addition to paying interest on outstanding principal under the senior secured credit agreement, we are required to pay a commitment fee to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. The initial commitment fee rate is 0.50% per annum. The commitment fee rate may be reduced subject to our attaining certain leverage ratios, none of which had been attained as of June 30, 2009. We must also pay customary letter of credit fees for issued and outstanding letters of credit. As of June 30, 2009, we had $0.3 million of letters of credit issued and outstanding.

Substantially all of our assets and those of our subsidiaries are pledged as collateral under the senior secured credit agreement.

Derivative Instruments and Hedging Activities

Our objective in using interest rate swaps is to add stability to interest expense and to manage and reduce the risk inherent in interest rate fluctuations. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for our making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. At the time we entered into the senior secured credit agreement, we entered into four interest rate swaps to effectively convert a notional amount of $245.0 million of floating rate debt to fixed rate debt. In November 2007 and 2008, interest rate swaps with a notional amount of $25.0 million and $30.0 million, respectively, matured.

We account for these interest rate swaps as cash flow hedges in accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities. We estimate the fair value of the interest rate swaps based on quoted prices and market observable data of similar instruments. If the interest rate swap agreements are terminated prior to maturity, the fair value of the interest rate swaps recorded in accumulated other comprehensive income (loss) (“OCI”) may be recognized in the condensed consolidated statements of operations based on an assessment of the agreements at the time of terminations. During the nine months ended June 30, 2009, we did not discontinue any interest rate swaps. The realized gains and losses on these instruments are recorded in earnings as adjustments to interest expense. The unrealized gains and losses are recognized in OCI. At June 30, 2009, cumulative net unrealized losses of approximately $14.1 million, before taxes, were recorded in OCI, of which an estimated $7.6 million are expected to be reclassified to net income within the next twelve months, providing an offsetting economic impact against the underlying transaction. To the extent any of the interest rate swaps are deemed ineffective, a portion of the unrealized gains and losses is recorded in interest expense rather than OCI.

The following table summarizes the derivative-related activity, excluding taxes, in OCI for the nine months ended June 30, 2009:


(in thousands)
Unrealized loss in OCI as September 30, 2008	$	(9,282	)
Net decrease in fair value		(4,854	)

Unrealized loss in OCI as June 30, 2009	$	(14,136	)

The following tables summarize the fair value and realized and unrealized gains (losses) of the interest rate swaps as of and for the nine months ended June 30, 2009:


		Fair Value of Derivative Instruments
		Derivative Assets		Derivative Liabilities
		Location in the		Location in the
		Condensed		Condensed
	Notional	Consolidated		Consolidated
(in thousands)	Amount	Balance Sheet	Fair Value	Balance Sheet	Fair Value

Interest rate swaps due 2009	$ 50,000	Prepaid expenses and other current assets	$ —	Accrued expenses and other current liabilities	$ (1,130)
Interest rate swaps due 2011	$140,000	Other assets	$ —	Other liabilities	$(13,006)


	Effect of Derivative Instruments on Condensed Consolidated Statements of Operations
			Loss recognized in	Gain/(Loss) reclassified from OCI into
	Loss recognized in earnings (1)		OCI	earnings (2)
	Location	Amount	Amount	Location	Amount

Interest rate swaps	Interest expense	$(4,924)	$(4,854)	Interest expense	$ —


(1)		Includes amounts related to periodic settlements required under our derivative contracts.

(2)		Represents ineffectiveness related to the interest rate swaps.

Senior Subordinated Notes due 2016

We also issued $175.0 million aggregate principal amount of 9.5% senior subordinated notes due May 2, 2016. The notes were issued in a private transaction that was not subject to the registration requirements of the Securities Act. The notes subsequently were exchanged for substantially identical notes registered with the SEC, pursuant to a registration rights agreement entered into in connection with the indenture under which these notes were issued.

During the three months ended June 30, 2009, we repurchased approximately $25.0 million in face value of our senior subordinated notes in open market transactions for an aggregate purchase price of approximately $19.9 million (including accrued interest of $0.3 million). In connection with the debt repurchase, we wrote off deferred financing costs and other transaction fees of $0.8 million. As a result of these repurchases we recorded a gain on retirement of debt in the amount of $4.6 million. During the nine months ended June 30, 2009, we repurchased approximately $60.7 million in face value of our senior subordinated notes in open market transactions for an aggregate purchase price of approximately $41.1 million (including accrued interest of $1.3 million). In connection with the debt repurchase, we wrote off deferred financing costs and other transaction fees of $1.9 million. As a result of these repurchases we recorded a gain on retirement of debt in the amount of $19.0 million. Pursuant to the American Recovery and Reinvestment Act of 2009, we have elected to defer payment of the income taxes associated with these gains until they are paid ratably from 2014 to 2018. The repurchased notes have been retired. As of June 30, 2009, senior subordinated notes representing $114.3 million in principal amount were outstanding. Subject to the restrictions and limitations set forth under the senior secured credit agreement and the indenture governing the senior subordinated notes, we and our subsidiaries, affiliates or significant stockholders may from time to time purchase, repay, redeem or retire additional amounts of our outstanding debt or equity securities (including any publicly issued debt), in privately negotiated or open market transactions, by tender offer or otherwise.

Each of our domestic subsidiaries, as primary obligors and not as sureties, jointly and severally, irrevocably and unconditionally guarantees, on an unsecured senior subordinated basis, the performance and full and punctual payment when due, whether at maturity, by acceleration or otherwise, of all of our obligations under the indenture and the notes. The notes are our unsecured senior subordinated obligations and are subordinated in right of payment to all of our existing and future senior indebtedness (including the senior secured credit agreement), are effectively subordinated to all of our secured indebtedness (including the senior secured credit agreement) and are senior in right of payment to all of our existing and future subordinated indebtedness.

The terms of the senior secured credit agreement and the indenture governing the senior subordinated notes restrict certain activities by us, the most significant of which include limitations on additional indebtedness, liens, guarantees, payment or declaration of dividends, sale of assets and transactions with affiliates. In addition, the senior secured credit agreement requires us to maintain a maximum total leverage ratio and a minimum interest coverage ratio. The senior secured credit agreement and the indenture also contain certain customary affirmative covenants and events of default. At June 30, 2009, we were in compliance with all of the senior secured credit agreement’s and the indenture’s covenants.

Compliance with these covenants is dependent on the results of our operations, which are subject to a number of factors including

current economic conditions. Based on our forecasts for the remainder of fiscal year 2009, which incorporate continued economic weakness in our business and our vertical markets, we currently anticipate that we will be able to meet or exceed these financial tests and covenants during this period. This expectation is based on our cost and revenue expectations for the remainder of fiscal year 2009. Should the current economic recession cause our business or our vertical markets to deteriorate beyond our expectations or should our cost cutting initiatives prove insufficient we may not be able to satisfy these financial tests and covenants.

In order to help ensure compliance with our covenants under our senior secured credit facilities, we may take additional actions in the future, including implementing additional cost cutting initiatives, making additional repurchases of some of our debt or making further changes to our operations. In the event of a default of the financial covenants referred to above, we may (but no more than two times in four fiscal quarters) cure the default by raising equity capital from our existing investors in an amount sufficient to pass, but not to exceed, the financial covenant. While we believe that these additional remedies provide us with some additional flexibility in maintaining compliance with our tests and covenants, they do not assure us that we will not find ourselves in violation of these tests and covenants. Upon the occurrence of an event of default under the senior secured credit facilities, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. Any such acceleration would also result in a default under the indenture governing the senior subordinated notes.

NOTE 6 — FAIR VALUE

Effective October 1, 2008, we adopted SFAS No. 157, which defines fair value, establishes a framework for measuring fair value as well as expands on required disclosures regarding fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

SFAS No. 157 inputs are referred to as assumptions that market participants would use in pricing the asset or liability. The uses of inputs in the valuation process are categorized into a three-level fair value hierarchy.

	•		Level 1 — uses quoted prices in active markets for identical assets or liabilities we have the ability to access.

	•		Level 2 — uses observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

	•		Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment

Our Level 1 assets and liabilities consist of cash equivalents, which are primarily invested in money market funds, deferred compensation assets, which consist of corporate-owned life insurance policies that are valued at their net surrender value, and deferred compensation liabilities, valued based on various publicly traded mutual funds. These assets and liabilities are classified as Level 1 because they are valued using quoted prices and other relevant information generated by market transactions involving identical assets and liabilities.

We use derivative financial instruments, specifically interest rate swaps, for non-trading purposes. We entered into interest rate swaps to manage and reduce the risk inherent in interest rate fluctuations arising from previously un-hedged interest payments associated with floating rate debt. We account for the interest rate swaps discussed above under Note 5 as cash flow hedges. Derivative contracts with negative net fair values are recorded in other liabilities. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. We have determined that our derivative valuation in its entirety should be classified as Level 2.

In compliance with SFAS No. 157, we record adjustments to appropriately reflect our nonperformance risk and the respective counterparty’s nonperformance risk in our fair value measurements. As of June 30, 2009, we have assessed the significance of the impact of nonperformance risk on the overall valuation of our derivative position and have determined that it is not significant to the overall valuation of the derivatives.

The fair value of our cash equivalents, deferred compensation plan assets and liabilities and interest rate swaps was determined using the following inputs as of June 30, 2009:


	Quoted Prices in
	Active Markets for			Significant			Significant
	Identical Assets			Other Observable			Unobservable
	and Liabilities			Inputs			Inputs		Total
(in thousands)	(Level 1)			(Level 2)			(Level 3)		Fair Value
Assets:
Cash equivalents (1)	$	25,657		$	—		$	—	$	25,657
Deferred compensation plan assets (2)		2,540			—			—		2,540

Liabilities:
Interest rate swap due 2009(3)		—			(1,130	)		—		(1,130	)
Interest rate swap due 2011(4)		—			(13,006	)		—		(13,006	)
Deferred compensation plan liabilities(4)		(1,848	)		—			—		(1,848	)

Total	$	26,349		$	(14,136	)	$	—	$	12,213


(1)		Included in cash and cash equivalents in our condensed consolidated balance sheet as of June 30, 2009.

(2)		Included in other assets in our condensed consolidated balance sheet as of June 30, 2009.

(3)		Included in accrued expenses and other current liabilities in our condensed consolidated balance sheet as of June 30, 2009.

(4)		Included in other liabilities in our condensed consolidated balance sheet as of June 30, 2009.

Other Financial Assets and Liabilities

Financial assets and liabilities with carrying amounts approximating fair value include cash and cash equivalents, trade accounts receivable, accounts payable and accrued expenses and other current liabilities. The carrying amount of these financial assets and liabilities approximates fair value because of their short maturities.

Long-term debt, including current-portion of long-term debt, as of June 30, 2009 had a carrying amount of $542.9 million and fair value of $518.9 million. As of September 30, 2008 long-term debt, including current-portion of long-term debt, had a carrying amount of $617.1 million and fair value of $607.1 million. The carrying amount is based on interest rates available upon the date of the issuance of debt. The carrying amount of long-term debt is reported in the condensed consolidated balance sheets. The fair value is based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities.

NOTE 7 — INCOME TAXES

We recorded a provision for income tax expense of $3.9 million and $13.1 million for the three and nine months ended June 30, 2009, respectively. For the three and nine months ended June 30, 2008, we recorded a provision for income tax expense of $0.2 million and $0.8 million, respectively. This tax provision was derived by applying an estimated worldwide effective tax rate against consolidated income before income taxes for the three and nine months ended June 30, 2009 and 2008. The estimated worldwide effective tax rate contemplated estimated variances from the U.S. federal statutory rate for the fiscal year ending September 30, 2009, including the impact of permanently non-deductible expenses, estimated changes in valuation allowances against deferred tax assets, and state income taxes. The provision for income tax was further adjusted by period events occurring during the nine months ended June 30, 2009 including the impairment of goodwill and unrecognized tax benefits per FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”.

Our balance sheet included unrecognized tax benefits of approximately $2.3 million as of June 30, 2009 and $6.0 million as of September 30, 2008. The decrease was a result of the conclusion of our recently completed U.S. federal tax examination on our 2004 through 2007 tax years resulting in a significant portion of these unrecognized tax benefits being recorded as an adjustment to goodwill. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $1.3 million as of June 30, 2009 and $1.0 million as of September 30, 2008.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. The balance of accrued interest and penalties was approximately $0.3 million and $0.5 million as of June 30, 2009 and September 30, 2008, respectively.

As of June 30, 2009, we believe it is reasonably possible that total unrecognized tax benefits will decrease by approximately $0.6 million within the following twelve months with the expiration of statute of limitations in various jurisdictions.

We are subject to taxation in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. As of June 30, 2009, we are no longer subject to examination by U.S. federal taxing authorities for fiscal years prior to 2008. The company remains subject to examination by state and foreign jurisdictions for various periods prior to June 30, 2009.

NOTE 8 — EMPLOYEE STOCK PLANS

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense recorded under SFAS 123(R),Share-Based Payment,for the three and nine months ended June 30, 2009 and 2008 and its allocation within the condensed consolidated statements of operations and comprehensive loss:


	Three Months Ended				Nine Months Ended
	June 30,				June 30,
(in thousands)	2009		2008		2009		2008
Cost of revenues
Systems	$	8	$	6	$	26	$	22
Services		68		32		164		173
Operating expenses
Sales and marketing		183		194		585		612
Product development		76		71		224		215
General and administrative		610		204		1,840		1,257

Total	$	945	$	507	$	2,839	$	2,279

We also recognized a total income tax benefit in the condensed consolidated statements of operations and comprehensive income (loss) related to the total stock-based compensation expense amounts above, of approximately $0.4 million, $1.1 million, $0.2 million, and $0.9 million for the three and nine months ended June 30, 2009 and 2008, respectively.

Valuation Assumptions

We estimate the fair value of stock options using a Black-Scholes option pricing model that uses certain assumptions including expected term, expected volatility of the underlying stock, expected dividend pay-out rate and risk-free rate of return. The expected term is based on historical data and represents the period of time that stock options granted are expected to be outstanding. Due to the fact that the common stock underlying the options is not publicly traded, the expected volatility is based on a comparable group of companies for the period. We do not intend to pay dividends on our common stock for the foreseeable future, and accordingly, use a dividend yield of zero. The risk-free rate for periods within the contractual life of the option is based on the Treasury Bill coupon rate for U.S. Treasury securities in effect at the time of the grant with a maturity approximating the expected term.

The fair value of each award granted from the Activant Group Inc. 2006 Stock Incentive Plan (the “2006 Option Plan”), during the three and nine months ended June 30, 2009 and 2008, was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:


	Three Months Ended June 30,						Nine Months Ended June 30,
	2009			2008			2009			2008
Expected term	6.66 years			6.66 years			6.66 years			6.66 years
Expected volatility		76.00	%		50.00	%		72.69	%		50.00	%
Expected dividends		0.00	%		0.00	%		0.00	%		0.00	%
Risk-free rate		2.56	%		3.21	%		1.73	%		3.20	%

The weighted-average estimated grant date fair value, as defined by SFAS No. 123(R), for the employee stock options granted under the 2006 Option Plan during the nine months ended June 30, 2009 and 2008 were $3.04 per share and $2.42 per share, respectively.

NOTE 9 — RESTRUCTURING COSTS

During the nine months ended June 30, 2009, our management approved additional restructuring plans for eliminating certain employee positions and consolidating certain excess facilities with the intent to streamline and focus our operations and to more properly align our cost structure with current business conditions and our projected future revenue streams. These plans included the elimination of approximately 250 employee positions and the consolidation of space within multiple facilities locations. As of June 30, 2009, substantially all of the affected employees had been notified and terminated, and all of the facilities consolidations had been completed. In accordance with SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities, we recorded a credit to restructuring charges of less than $0.1 million and restructuring charges of approximately $4.4 million for the three and nine months ended June 30, 2009, respectively, related to workforce reductions (comprised of severance and related benefits) and consolidation of facilities. The negative charge recorded for the three months ended June 30, 2009, is primarily due to the reversal of severance and related benefits that will no longer be paid and for revisions to the estimated net present values of remaining net lease payments associated with consolidated facilities. All restructuring charges were recorded in “Restructuring Costs” in the

condensed consolidated statements of operations and comprehensive income (loss).

We also undertook certain restructuring actions in fiscal year 2008. In accordance with SFAS No. 146, we recorded restructuring charges of approximately $1.6 million and $2.1 million related to workforce reductions (comprised of severance and related benefits) and consolidation of facilities in the three and nine months ended June 30, 2008, respectively. All of the affected employees had been notified and substantially all had been terminated as of June 30, 2009. Our restructuring liability for these fiscal year 2008 actions was less than $0.1 million as of June 30, 2009. During the nine months ended June 30, 2009, we accrued additional charges for these past actions related to certain employee termination benefits that are required to be accrued from the time of notification through the date specified in the benefit. The remaining employee termination benefits are expected to be paid in fiscal year 2010.

Our restructuring liability at June 30, 2009, was approximately $1.2 million and the changes in our restructuring liabilities for the nine months then ended were as follows:


	Balance at								Balance at
	September 30,		Restructuring						June 30,
(in thousands)	2008		Charges			Payments			2009
2009 Actions — Severance and Related Benefits	$	—	$	3,221		$	(2,951	)	$	270
2009 Actions — Facility Closings		—		1,321			(425	)		896
2008 Actions — Severance and Related Benefits		216		(133	)		(45	)		38

	$	216	$	4,409		$	(3,421	)	$	1,204

NOTE 10 — SEGMENT REPORTING

We are a leading provider of business management solutions to wholesale and retail distribution businesses. We have developed substantial expertise in serving businesses with complex distribution and retail requirements in three primary vertical markets: hardlines and lumber, wholesale distribution and automotive, which are considered our segments for reporting purposes. The segments are determined in accordance with how our management views and evaluates our business and based on the criteria as outlined in SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information.

Because these segments reflect the manner in which our management reviews our business, they necessarily involve judgments that our management believes are reasonable in light of the circumstances under which they are made. These judgments may change over time or may be modified to reflect new facts or circumstances. Segments may also be changed or modified to reflect technologies and applications that are newly created, or that change over time, or other business conditions that evolve, each of which may result in reassessing specific segments and the elements included within each of those segments. Recent events, including changes in our senior management, may affect the manner in which we present segments in the future. A description of the businesses served by each of our reportable segments follows:

	•		Hardlines and Lumber segment— The hardlines and lumber vertical market consists of independent hardware retailers; home improvement centers; paint, glass and wallpaper stores; farm supply stores; retail nurseries and garden centers; independent lumber and building material dealers; pharmacies; and other specialty retailers, primarily in the United States.

	•		Wholesale Distribution segment— The wholesale distribution vertical market consists of distributors of a range of products including electrical supply; plumbing; medical supply; heating and air conditioning; tile; industrial machinery and equipment; industrial supplies; fluid power; janitorial and sanitation products; paper and packaging; and service establishment equipment vendors, primarily in the United States.

	•		Automotive segment— The automotive vertical market consists of customers involved in the manufacture, distribution, sale and installation of new and remanufactured parts used in the maintenance and repair of automobiles and light trucks, and includes manufacturers, warehouse distributors, parts stores, professional installers in North America and Europe as well as several chains in North America.

	•		Other— Other primarily consists of our productivity tools business, which is involved with software migration services and application development tools.

Segment Revenue and Contribution Margin

segment based on several metrics, including contribution margin as defined below, which is not a financial measure calculated in accordance with GAAP. Asset data is not reviewed by our management at the segment level and therefore is not included.

Segment contribution margin includes all segment revenues less the related cost of sales, direct marketing, sales expense, and product development expenses. A significant portion of each segment’s expenses arises from shared services and centrally managed infrastructure support costs that we allocate to the segments to determine segment contribution margin. These expenses primarily include information technology services, facilities, and telecommunications costs.

Our reportable segment financial information for the three and nine months ended June 30, 2009 and 2008 are as follows:


(in thousands)
	Three Months Ended June 30, 2009										Nine Months Ended June 30, 2009
	Hardlines										Hardlines
	and		Wholesale								and		Wholesale
	Lumber		Distribution		Auto-motive		Other		Total		Lumber		Distribution		Auto-motive		Other		Total

Revenues	$	33,415	$	38,075	$	17,574	$	1,861	$	90,925	$	101,810	$	116,998	$	56,258	$	8,078	$	283,144
Contribution Margin	$	10,451	$	15,946	$	6,146	$	122	$	32,665	$	31,230	$	46,795	$	19,882	$	2,599	$	100,506


	Three Months Ended June 30, 2008										Nine Months Ended June 30, 2008
	Hardlines										Hardlines
	and		Wholesale								and		Wholesale
	Lumber		Distribution		Auto-motive		Other		Total		Lumber		Distribution		Auto-motive		Other		Total

Revenues	$	36,343	$	41,172	$	20,795	$	5,413	$	103,723	$	113,235	$	127,056	$	65,019	$	15,415	$	320,725
Contribution Margin	$	9,127	$	15,838	$	6,434	$	1,318	$	32,717	$	25,390	$	48,426	$	21,545	$	2,003	$	97,364

Certain of our operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated costs include sales and marketing costs other than direct sales and marketing, general and administrative costs, such as legal and finance, stock-based compensation expense, depreciation and amortization of intangible assets, impairment of goodwill, acquisition related costs, restructuring costs, gain on retirement of debt, interest expense, and other income (expense).

There are significant judgments that our management makes with respect to the direct and indirect allocation of costs that may affect the calculation of contribution margins. While our management believes these and other related judgments are reasonable and appropriate, others could assess such matters in ways different than our company’s management.

The exclusion of costs not considered directly allocable to individual business segments results in contribution margin not taking into account substantial costs of doing business. We use contribution margin, in part, to evaluate the performance of, and allocate resources to, each of the segments. While our management may consider contribution margin to be an important measure of comparative operating performance, this measure should be considered in addition to, but not as a substitute for, net income (loss), cash flow and other measures of financial performance prepared in accordance with GAAP that are otherwise presented in our financial statements. In addition, our calculation of contribution margin may be different from the calculation used by other companies and, therefore, comparability may be affected.

The reconciliation of total segment contribution margin to our consolidated income (loss) before income taxes is as follows:


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

Income (loss) before income taxes	$	11,516		$	1,065		$	(73,819)			$2,155

NOTE 11 — GUARANTOR CONSOLIDATION

The senior secured credit agreement and the senior subordinated notes are guaranteed by our existing, wholly-owned domestic subsidiaries HM COOP LLC, Activant Wholesale Distribution Solutions Inc., Speedware Group, Inc. and Speedware America, Inc. (collectively, the “Guarantors”). Since September 30, 2006, (i) the following subsidiaries have been merged into Activant Solutions Inc.: Triad Systems Financial Corporation, Triad Data Corporation, CCI/TRIAD Gem, Inc., Enterprise Computing Inc., Speedware Holdings, Inc., CCI/ARD, Inc. and Speedware USA, Inc.; and (ii) the following subsidiaries have been merged into Activant Wholesale Distribution Solutions Inc. (formerly known as Prophet 21 New Jersey, Inc.): Prophet 21 Investment Corporation, Prophet 21 Canada, Inc., SDI Merger Corporation, Distributor Information Systems Corporation, Trade Services Systems, Inc., STANPak Systems, Inc., Prelude Systems Inc. and Greenland Holding Corp. Our other subsidiaries (collectively, the “Non-Guarantors”) are not guarantors of the senior secured credit agreement and the senior subordinated notes. The accompanying condensed consolidating balance sheets as of June 30, 2009 and September 30, 2008 and the accompanying condensed consolidating statements of operations for the three and nine months ended June 30, 2009 and 2008 and cash flows for the nine months ended June 30, 2009 and 2008 represent the financial position, results of operations and cash flows of our Guarantors and Non-Guarantors.

Condensed Consolidating Balance Sheet as of June 30, 2009


	Guarantor						Non-
	Principal			Guarantor			Guarantor
(in thousands)	Operations			Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS:
Current assets:
Cash and cash equivalents	$	38,774		$	282		$	5,111		$	—		$	44,167
Trade accounts receivable, net of allowance for doubtful accounts		15,070			16,638			3,296			—			35,004
Inventories		4,231			1,346			232			—			5,809
Deferred income taxes		5,173			1,435			65			—			6,673
Income taxes receivable (payable)		(2,458	)		1,788			670			—			—
Prepaid expenses and other current assets		5,462			643			394			—			6,499

Total current assets		66,252			22,132			9,768			—			98,152

Property and equipment, net		5,488			594			259			—			6,341
Intangible assets, net		172,373			24,829			1,693			—			198,895
Goodwill		455,445			91,284			(1,549	)		6,038			551,218
Investments in subsidiaries		16,769			—			—			(16,769	)		—
Intercompany receivables (payables)		(61,561	)		71,612			(10,051	)		—			—
Deferred financing costs		9,492			—			—			—			9,492
Other assets		3,065			135			8			—			3,208

Total assets	$	667,323		$	210,586		$	128		$	(10,731	)	$	867,306


LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	14,419		$	2,038		$	(82	)	$	—		$	16,375
Payroll related accruals		(4,302	)		18,696			1,050			—			15,444
Deferred revenue		8,788			22,197			3,263			—			34,248
Accrued expenses and other current liabilities		17,063			1,430			(1,658	)		—			16,835

Total current liabilities		35,968			44,361			2,573			—			82,902

Long-term debt		542,895			—			—			—			542,895
Deferred tax and other liabilities		74,320			(2,158	)		(1,563	)		—			70,599

Total liabilities		653,183			42,203			1,010						696,396

Total stockholder’s equity (deficit)		14,140			168,383			(882	)		(10,731	)		170,910

Total liabilities and stockholder’s equity (deficit)	$	667,323		$	210,586		$	128		$	(10,731	)	$	867,306

Condensed Consolidating Balance Sheet as of September 30, 2008


	Guarantor					Non-
	Principal		Guarantor			Guarantor
(in thousands)	Operations		Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS:
Current assets:
Cash and cash equivalents	$	55,926	$	2,931		$	5,932		$	—		$	64,789
Trade accounts receivable, net of allowance for doubtful accounts		25,789		14,808			4,541			—			45,138
Inventories		4,000		1,050			260			—			5,310
Deferred income taxes		4,726		1,435			65			—			6,226
Income taxes receivable		671		282			233			—			1,186
Prepaid expenses and other current assets		4,616		223			285			—			5,124

Total current assets		95,728		20,729			11,316			—			127,773

Property and equipment, net		7,586		852			504			—			8,942
Intangible assets, net		185,128		29,912			2,018			—			217,058
Goodwill		560,023		97,631			(1,482	)		6,037			662,209
Investments in subsidiaries		12,018		—			787			(12,805	)		—
Intercompany receivables (payables)		4,660		10,102			(14,762	)		—			—
Deferred financing costs		13,130		—			—			—			13,130
Other assets		1,769		362			41			—			2,172

Total assets	$	880,042	$	159,588		$	(1,578	)	$	(6,768	)	$	1,031,284


LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	15,938	$	2,347		$	890		$	6		$	19,181
Payroll related accruals		9,204		4,132			1,684			—			15,020
Deferred revenue		11,427		18,306			2,785			—			32,518
Current portion of long-term debt		3,325		—			—			—			3,325
Accrued expenses and other current liabilities		16,622		196			(1,334	)		—			15,484

Total current liabilities		56,516		24,981			4,025			6			85,528

Long-term debt		613,787		—			—			—			613,787
Deferred tax and other liabilities		76,759		(2,159	)		(1,947	)		—			72,653

Total liabilities		747,062		22,822			2,078			6			771,968

Total stockholder’s equity (deficit)		132,980		136,766			(3,656	)		(6,774	)		259,316

Total liabilities and stockholder’s equity (deficit)	$	880,042	$	159,588		$	(1,578	)	$	(6,768	)	$	1,031,284

Condensed Consolidating Statement of Operations for the Three Months Ended June 30, 2009


	Guarantor
	Principal			Guarantor			Non-Guarantor
(in thousands)	Operations			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Revenues:
Systems	$	13,429		$	13,010		$	749		$	—	$	27,188
Services		35,744			24,379			3,614			—		63,737

Total revenues		49,173			37,389			4,363			—		90,925


Cost of revenues:
Systems		9,237			5,471			919			—		15,627
Services		12,515			6,258			1,750			—		20,523

Total cost of revenues		21,752			11,729			2,669			—		36,150


Gross profit		27,421			25,660			1,694			—		54,775


Operating expenses:
Sales and marketing		7,260			5,198			880			—		13,338
Product development		3,710			5,090			653			—		9,453
General and administrative		5,574			354			130			—		6,058
Depreciation and amortization		7,377			1,798			173			—		9,348
Acquisition related costs		9			23			—			—		32
Restructuring costs		27			83			(150	)		—		(40	)

Total operating expenses		23,957			12,546			1,686			—		38,189


Operating income		3,464			13,114			8			—		16,586

Interest expense		(9,718	)		(4	)		—			—		(9,722	)
Gain on retirement of debt		4,631			—			—			—		4,631
Other income (expense), net		(146	)		51			116			—		21

Income (loss) before income taxes		(1,769	)		13,161			124			—		11,516
Income tax expense		3,892			10			—			—		3,902

Net income (loss)	$	(5,661	)	$	13,151		$	124		$	—	$	7,614

Condensed Consolidating Statement of Operations for the Three Months Ended June 30, 2008


	Guarantor
	Principal			Guarantor			Non-Guarantor
(in thousands)	Operations			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Revenues:
Systems	$	18,909		$	17,428		$	4,103		$	—	$	40,440
Services		34,828			23,715			4,740			—		63,283

Total revenues		53,737			41,143			8,843			—		103,723


Cost of revenues:
Systems		12,104			7,575			2,686			—		22,365
Services		14,531			6,405			2,145			—		23,081

Total cost of revenues		26,635			13,980			4,831			—		45,446


Gross profit		27,102			27,163			4,012			—		58,277


Operating expenses:
Sales and marketing		8,277			5,814			1,265			—		15,356
Product development		4,482			5,377			915			—		10,774
General and administrative		6,738			683			790			—		8,211
Depreciation and amortization		7,614			1,854			172			—		9,640
Acquisition related costs		238			26			—			—		264
Restructuring costs		1,085			—			551			—		1,636

Total operating expenses		28,434			13,754			3,693			—		45,881


Operating income (loss)		(1,332	)		13,409			319			—		12,396

Interest expense		(11,792	)		(5	)		(3	)		—		(11,800	)
Other income, net		18			45			406			—		469

Income (loss) before income taxes		(13,106	)		13,449			722			—		1,065
Income tax expense		232			3			1			—		236

Net income (loss)	$	(13,338	)	$	13,446		$	721		$	—	$	829

Condensed Consolidating Statement of Operations for the Nine Months Ended June 30, 2009


	Guarantor
	Principal			Guarantor			Non-Guarantor
(in thousands)	Operations			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Revenues:
Systems	$	46,847		$	41,257		$	3,528		$	—	$	91,632
Services		106,361			73,786			11,365			—		191,512

Total revenues		153,208			115,043			14,893			—		283,144


Cost of revenues:
Systems		28,121			19,257			3,137			—		50,515
Services		39,511			19,635			5,023			—		64,169

Total cost of revenues		67,632			38,892			8,160			—		114,684


Gross profit		85,576			76,151			6,733			—		168,460


Operating expenses:
Sales and marketing		22,945			15,363			2,628			—		40,936
Product development		11,573			15,705			1,989			—		29,267
General and administrative		15,880			1,146			599			—		17,625
Depreciation and amortization		22,817			5,421			498			—		28,736
Impairment of goodwill		107,000			—			—			—		107,000
Acquisition related costs		53			105			102			—		260
Restructuring costs		3,064			344			1,001			—		4,409

Total operating expenses		183,332			38,084			6,817			—		228,233


Operating income (loss)		(97,756	)		38,067			(84	)		—		(59,773	)

Interest expense		(32,384	)		(11	)		(3	)		—		(32,398	)
Gain on retirement of debt		18,958			—			—			—		18,958
Other income (expense), net		(272	)		31			(365	)		—		(606	)

Income (loss) before income taxes		(111,454	)		38,087			(452	)		—		(73,819	)
Income tax expense		12,964			10			77			—		13,051

Net income (loss)	$	(124,418	)	$	38,077		$	(529	)	$	—	$	(86,870	)

Condensed Consolidating Statement of Operations for the Nine Months Ended June 30, 2008


	Guarantor
	Principal			Guarantor			Non-Guarantor
(in thousands)	Operations			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Revenues:
Systems	$	64,003		$	57,291		$	9,675		$	—	$	130,969
Services		105,815			70,501			13,440			—		189,756

Total revenues		169,818			127,792			23,115			—		320,725


Cost of revenues:
Systems		40,206			24,285			9,529			—		74,020
Services		44,480			19,260			6,120			—		69,860

Total cost of revenues		84,686			43,545			15,649			—		143,880


Gross profit		85,132			84,247			7,466			—		176,845


Operating expenses:
Sales and marketing		27,028			17,281			3,574			—		47,883
Product development		14,624			16,516			2,770			—		33,910
General and administrative		19,752			2,138			2,268			—		24,158
Depreciation and amortization		22,417			4,607			537			—		27,561
Acquisition related costs		896			26			—			—		922
Restructuring costs		1,575			—			551			—		2,126

Total operating expenses		86,292			40,568			9,700			—		136,560


Operating income (loss)		(1,160	)		43,679			(2,234	)		—		40,285

Interest expense		(39,658	)		(5	)		(9	)		—		(39,672	)
Other income (expense), net		1,024			(575	)		1,093			—		1,542

Income (loss) before income taxes		(39,794	)		43,099			(1,150	)		—		2,155
Income tax expense		783			5			2			—		790

Net income (loss)	$	(40,577	)	$	43,094		$	(1,152	)	$	—	$	1,365

Condensed Consolidating Statement of Cash Flows for the Nine Months Ended June 30, 2009


	Guarantor
	Principal			Guarantor			Non-Guarantor
(in thousands)	Operations			Subsidiaries			Subsidiaries			Eliminations		Consolidated

Net cash provided by (used in) operating activities	$	44,381		$	(2,644	)	$	(808	)	$	—	$	40,929


Investing activities:
Purchases of property and equipment		(1,440	)		(5	)		(13	)		—		(1,458	)
Capitalized computer software and database costs		(6,552	)		—			—			—		(6,552	)

Net cash used in investing activities		(7,992	)		(5	)		(13	)		—		(8,010	)


Financing activities:
Repurchases of common stock		(189	)		—			—			—		(189	)
Payments on long-term debt		(13,512	)		—			—			—		(13,512	)
Repurchases of debt		(39,840	)		—			—			—		(39,840	)

Net cash used in financing activities		(53,541	)		—			—			—		(53,541	)


Net change in cash and cash equivalents		(17,152	)		(2,649	)		(821	)		—		(20,622	)
Cash and cash equivalents, beginning of period		55,926			2,931			5,932			—		64,789

Cash and cash equivalents, end of period	$	38,774		$	282		$	5,111		$	—	$	44,167

Condensed Consolidating Statement of Cash Flows for the Nine Months Ended June 30, 2008


	Guarantor
	Principal			Guarantor			Non-Guarantor
(in thousands)	Operations			Subsidiaries			Subsidiaries			Eliminations		Consolidated

Net cash provided by operating activities	$	30,988		$	2,091		$	2,486		$	—	$	35,565


Investing activities:
Purchases of property and equipment		(3,813	)		(150	)		(151	)		—		(4,114	)
Capitalized computer software and database costs		(4,912	)		—			—			—		(4,912	)

Net cash used in investing activities		(8,725	)		(150	)		(151	)		—		(9,026	)


Financing activities:
Repurchases of common stock		(13	)		—			—			—		(13	)
Payments on long-term debt		(563	)		—			—			—		(563	)
Deferred financing fees		(117	)		—			—			—		(117	)

Net cash used in financing activities		(693	)		—			—			—		(693	)


Net change in cash and cash equivalents		21,570			1,941			2,335			—		25,846
Cash and cash equivalents, beginning of period		24,862			4,154			4,363			—		33,379

Cash and cash equivalents, end of period	$	46,432		$	6,095		$	6,698		$	—	$	59,225

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our financial statements and related notes included above. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under “Risk Factors” included in our Annual Report onForm 10-K for the year ended September 30, 2008, filed with the SEC on December 19, 2008, our subsequent quarterly reports and under Part II, Item 1A of this report.

Overview

We are a leading provider of business management solutions to wholesale and retail distribution businesses. With over 35 years of operating history, we have developed substantial expertise in serving businesses with complex distribution and retail requirements in three primary vertical markets: hardlines and lumber, wholesale distribution and the automotive parts aftermarket. For reporting purposes, we consider each of these vertical markets separate segments. The segments are determined in accordance with how our management views and evaluates our business and based on the criteria as outlined in the Financial Accounting Standards Board (“FASB”) Statement No. 131,Disclosures about Segments of an Enterprise and Related Information.See Note 10 to our unaudited condensed consolidated financial statements for additional information.

Basis of Presentation

The discussion and analysis of our financial condition and results of operations is based upon our accompanying unaudited condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 ofRegulation S-X. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. While our management has based their assumptions and estimates on the facts and circumstances existing at June 30, 2009, actual results could differ from those estimates and operating results for the three and nine months ended June 30, 2009 and are not necessarily indicative of the results that may be achieved for the year ending September 30, 2009. Certain reclassifications have been made to the prior period presentation to conform to the current period presentation.

In the opinion of our management, this discussion and analysis of our financial condition and results of operations reflects all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results for the interim periods presented.

The key components of our results of operations are as follows:

Revenues

Our revenues are primarily derived from customers that operate in three vertical markets — hardlines and lumber, wholesale distribution, and automotive. We also derive revenue from our productivity tools business, which we include in Other.

	•		The hardlines and lumber vertical market consists of independent hardware retailers; home improvement centers; paint, glass and wallpaper stores; farm supply stores; retail nurseries and garden centers; independent lumber and building material dealers; pharmacies; and other specialty retailers, primarily in the United States. For the nine months ended June 30, 2009, we generated approximately 36.0% of our total revenues from the hardlines and lumber vertical market.

	•		The wholesale distribution vertical market consists of distributors of a range of products including electrical supply; plumbing; medical supply; heating and air conditioning; tile; industrial machinery and equipment; industrial supplies; fluid power; janitorial and sanitation products; paper and packaging; and service establishment equipment vendors, primarily in the United States. For the nine months ended June 30, 2009, we generated approximately 41.3% of our total revenues from the wholesale distribution vertical market.

	•		The automotive vertical market consists of customers involved in the manufacture, distribution, sale and installation of new and remanufactured parts used in the maintenance and repair of automobiles and light trucks, and includes manufacturers, warehouse distributors, parts stores, professional installers in North America and Europe as well as several chains in North America. For the nine months ended June 30, 2009, we generated approximately 19.9% of our total revenues from the automotive vertical market.

	•		Other primarily consists of our productivity tools business, which is involved with software migration services and application development tools. For the nine months ended June 30, 2009, we generated approximately 2.8% of our total revenues from other.

Using a combination of proprietary software and extensive expertise in these vertical markets, we provide complete business management solutions consisting of tailored systems, product support, and content and supply chain services designed to meet the unique requirements of our customers. Our fully integrated systems and services include point-of-sale, inventory management, general accounting and enhanced data management that enable our customers to manage their day-to-day operations. Our revenues are derived from the following business management solutions:

	•		Systems, which is comprised primarily of proprietary software applications; implementation services; training; forms and paper products; and third-party software, hardware and peripherals.

	•		Services, which is comprised primarily of product support and content and supply chain services. Product support services are comprised of customer support activities, including hardware, software and network support through our advice line, software updates, preventive and remedial on-site maintenance and depot repair services. Our content services are comprised of proprietary database and data management products such as our comprehensive electronic automotive parts and applications catalog and point-of-sale business analysis data. Supply chain services are comprised of connectivity services, ecommerce, networking and security monitoring management solutions. We generally provide our services on a subscription basis, and accordingly, revenues are generally recurring in nature.

Cost of Revenues

Our cost of revenues and gross margins are derived from systems and services as follows:

	•		Cost of systems revenues and systems gross margins— Cost of systems revenues consists primarily of direct costs of software duplication, our logistics organization, cost of hardware, salary costs of professional services and installation headcount, royalty payments, and allocated overhead expenses.

	•		Cost of services revenues and services gross margins— Cost of services revenues primarily consist of material and direct labor associated with our advice line, material, labor and production costs associated with our automotive catalog and allocated overhead expenses. Generally, our services revenues have a higher gross margin than our systems revenues.

We allocate overhead expenses including facilities and information technology costs to all departments based on headcount. As such, general overhead expenses are included in costs of revenues and each operating expense category.

Operating Expenses

Our operating expenses consist primarily of sales and marketing, product development, and general and administrative expenses.

	•		Sales and marketing— Sales and marketing expense consists primarily of salaries and commissions for our sales force, stock-based compensation expense, marketing expenses and allocated overhead expenses. Our marketing approach is to develop strategic relationships, as well as endorsement and alliance agreements, with many of the well-known market participants in the vertical markets that we serve. The goal of these programs is to enhance the productivity of the field sales team and to create leveraged selling opportunities for system sales and content and supply chain offerings.

	•		Product development— Product development expense consists primarily of salaries, stock-based compensation expense, outside services and allocated overhead expenses. Our product development strategy includes development of additional functionality for our existing products as well as developing new products for our existing customer base and prospective new customers.

	•		General and administrative— General and administrative expense primarily consists of salaries and bonuses, stock-based

compensation expense, facility costs, finance, human resource and legal services, IT support and telecommunication costs.

Key Trends

The global economic environment continues to remain weak and the United States remains in an economic recession. This weakness coupled with rising unemployment and deteriorating credit quality have impacted our performance in the vertical markets we serve and will affect our performance for the rest of this year and into 2010 and potentially beyond.

While there have been recent signs that the global economic environment rate of decline has slowed down, we believe our results have been, and are continuing to be, impacted by the following:

•

Factors affecting revenue growth:

•

Extended sales cycles contributed to year over year declines in systems revenues in all of our vertical market:

	•		Due to the tightened credit markets and the on-going recession, we continue to see a lot of caution in our customers’ decision making. This caution has contributed to instances where some of our customers are either not making decisions or deferring decisions.

	•		We are beginning to see a slightly higher level of optimism among some of our customers. However, we are unable to determine at this time if this optimism will continue, or if it will ultimately result in increasing systems sales and revenues in the near term.

•

Support price increases:

•

The year over year increase in services revenue in the Hardlines and Lumber and Wholesale Distribution verticals is largely attributed to support price increases.

•

Increased customer attrition:

	•		We are experiencing the impact of slow paying customers as well as an increased number of customer bankruptcies.

	•		Although it is not widespread throughout our customer base, we are also experiencing more customers electing to reduce items covered under their maintenance agreements and/or reduce the number of enabled user licenses, as their employee base shrinks and as they look for ways to reduce their costs.

•

Lower Automotive customer retention rates affecting services revenues:

	•		A major customer, General Parts, Inc., has been migrating from our platforms since fiscal year 2005, resulting in a decline in services revenues.

	•		Services revenues have also declined, although to a lesser extent, as a result of our smaller independent automotive customers going out of business due to the current economic downturn.

•

Factors affecting cost structure and expenses:

	•		Restructuring actions.As a result of the slowing economy, in fiscal year 2008 as well as in the nine months ended June 30, 2009, our management approved restructuring actions primarily related to eliminating certain employee positions and consolidating certain excess facilities. We recorded approximately $4.4 million of restructuring charges related to these actions during the nine months ended June 30, 2009.

	•		Expense management.We benefited as a result of our focus on managing our discretionary expenses. In addition to our restructuring actions, we have reduced operating expenses; primarily incentive bonuses, certain benefits, commissions and travel expenses.

We continue to use excess cash to pay down our outstanding debt obligations. We made principal payments and repurchases of approximately $74.2 million in face value of our debt during the nine months ended June 30, 2009.

Demand for our systems and support offerings are correlated with the economic conditions in each vertical market and the global macroeconomic conditions. We will continue to focus on executing in the areas we can control by continuing to provide high value

products and services while managing our expenses.Despite the challenging economic environment and corresponding reduction in revenue, cash provided by operating activities increased for the nine months ended June 30, 2009 in comparison to the same period in the prior fiscal year. If the macroeconomic environment continues to be weak, however, it will likely continue to have a negative effect on our revenue and may have a negative effect on our operating margin growth rate. If this were to occur it may impact our ability to meet certain financial tests under our senior secured credit agreement and the indenture governing our senior subordinated notes.

Historical Results of Operations

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Total revenues

Our Hardlines and Lumber, Wholesale Distribution and Automotive segments accounted for approximately 36.8%, 41.9% and 19.3%, respectively, of our revenues during the three months ended June 30, 2009. This compares to the three months ended June 30, 2008, where our Hardlines and Lumber, Wholesale Distribution, and Automotive segments accounted for approximately 35.0%, 39.7% and 20.1%, respectively, of our revenues. See Note 10 to our unaudited condensed consolidated financial statements for further information on our segments, including a summary of our segment revenues and contribution margin.

The following table sets forth, for the periods indicated, our segment revenues by business management solution and the variance thereof:


	Three Months Ended June 30,
(in thousands)	2009		2008		Variance $			Variance %
Hardlines and Lumber revenues:
Systems	$	12,351	$	16,162	$	(3,811	)		(23.6	)%
Services		21,064		20,181		883			4.4	%

Total Hardlines and Lumber revenues	$	33,415	$	36,343	$	(2,928	)		(8.1	)%


Wholesale Distribution revenues:
Systems	$	13,010	$	17,425	$	(4,415	)		(25.3	)%
Services		25,065		23,747		1,318			5.6	%

Total Wholesale Distribution revenues	$	38,075	$	41,172	$	(3,097	)		(7.5	)%


Automotive revenues:
Systems	$	1,436	$	2,964	$	(1,528	)		(51.6	)%
Services		16,138		17,831		(1,693	)		(9.5	)%

Total Automotive revenues	$	17,574	$	20,795	$	(3,221	)		(15.5	)%


Other revenues:
Systems	$	391	$	3,889	$	(3,498	)		(89.9	)%
Services		1,470		1,524		(54	)		(3.6	)%

Total Other revenues	$	1,861	$	5,413	$	(3,552	)		(65.6	)%


Total revenues:
Systems	$	27,188	$	40,440	$	(13,252	)		(32.8	)%
Services		63,737		63,283		454			0.7	%

Total revenues	$	90,925	$	103,723	$	(12,798	)		(12.3	)%

Total revenues for the three months ended June 30, 2009 decreased by $12.8 million, or 12.3%, compared to the three months ended June 30, 2008. The decrease in revenues over the comparable period a year ago is primarily a result of an overall decrease in systems sales as well as a decrease in services revenues in Automotive, partially offset by an increase in services revenues in Hardlines and Lumber and Wholesale Distribution.

	•		Hardlines and Lumber revenues— Hardlines and Lumber revenues decreased by $2.9 million, or 8.1%. The systems revenue decrease was attributed to a reduction in the volume of new system sales and the sale of additional products and modules, primarily as a result of our customers exercising caution on making capital expenditures both due to the weak economy and a slow retail and residential housing environment. Services revenues increased primarily as a result of our price increases for support services.

	•		Wholesale Distribution revenues— Wholesale Distribution revenues decreased by $3.1 million, or 7.5%. The systems revenue decrease was substantially attributable to a reduction in the volume of new systems and the sale of additional products and modules, primarily due to the weak economy and extended customer sales cycles. Services revenue increased primarily as a result of our price increases for support services.

	•		Automotive revenues— Automotive revenues decreased by $3.2 million, or 15.5%. The systems revenue decrease was attributed to a reduction in the volume of new system sales and the sale of additional products and modules, primarily due to the weak economy and extended sales cycle as well as the transition to new platforms. Services revenue decreased primarily as a result of the known attrition of a major customer, General Parts, Inc., and lower retention rates as a result of the global economic downturn.

	•		Other revenues— Other revenues decreased $3.6 million, or 65.6%, driven primarily by prospective customers slowing down planned system migrations due to Hewlett-Packard’s continued support of one of its legacy systems.

Total cost of revenues and gross margins as a percentage of revenues

The following table sets forth, for the periods indicated, our gross margin as a percentage of revenues.


	Three Months Ended June 30,
(in thousands)	2009			2008			Variance
Cost of systems revenues	$	15,627		$	22,365		$	(6,738	)
Systems gross margins		42.5	%		44.7	%

Cost of services revenues	$	20,523		$	23,081		$	(2,558	)
Services gross margins		67.8	%		63.5	%

Total cost of revenues	$	36,150		$	45,446		$	(9,296	)
Total gross margins		60.2	%		56.2	%

	•		Cost of systems revenues and systems gross margins—Cost of systems revenues decreased by $6.7 million primarily as a result of lower direct costs associated with lower overall systems revenues. System gross margins decreased by 2.2 percentage points in the three months ended June 30, 2009 from the comparable period a year ago. The decrease is primarily attributed to lower professional services revenues and margins due to lower new system sales.

	•		Cost of services revenues and services gross margins—Cost of services revenues decreased by $2.6 million primarily as a result of labor related cost reductions. Services gross margins increased by 4.3 percentage points in the three months ended June 30, 2009 from the comparable period a year ago as a result of service price increases and reductions in labor related costs and outsourced support costs.

Total operating expenses

The following table sets forth, for the periods indicated, operating expenses and the variance thereof:


	Three Months Ended June 30,
(in thousands)	2009			2008		Variance $			Variance %
Sales and marketing	$	13,338		$	15,356	$	(2,018	)		(13.1	)%
Product development		9,453			10,774		(1,321	)		(12.3	)%
General and administrative		6,058			8,211		(2,153	)		(26.2	)%
Depreciation and amortization		9,348			9,640		(292	)		(3.0	)%
Acquisition related costs		32			264		(232	)		(87.7	)%
Restructuring costs		(40	)		1,636		(1,676	)		(102.5	)%

Total operating expenses	$	38,189		$	45,881	$	(7,692	)		(16.8	)%

Total operating expenses decreased by $7.7 million for the three months ended June 30, 2009, compared to the three months ended June 30, 2008. The decrease was primarily a result of reductions in labor related expenses, strategic initiative costs, restructuring costs, commissions, and outside services as well as an increase in software and database capitalization, partially offset by increased bad debt expense.

	•		Sales and marketing—Sales and marketing expenses decreased by $2.0 million, or 13.1%, for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. The decrease was primarily the result of a reduction of $1.9 million of labor related expenses, $0.3 million in outside services and $0.2 million in marketing and trade show expenses, partially offset by $0.6 million of increased bad debt expense.

	•		Product development—Product development expense decreased $1.3 million, or 12.3%, for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. The decrease was primarily the result of reduction of $0.4 million in labor related costs and $0.4 million in outside services and third-party service costs as well as $0.5 million in additional capitalization of software and database costs.

	•		General and administrative—General and administrative expenses decreased by $2.2 million, or 26.2%, for the three months ended June 30, 2009 compared to the three months ended June 30, 2008. The decrease is primarily the result of a reduction of $0.3 million in labor related costs, as well as the non-recurrence of $1.9 million of costs related to strategic initiatives in the prior year.

	•		Depreciation and amortization— Depreciation and amortization expense consists of depreciation of our fixed assets and amortization of our intangible assets. Depreciation and amortization is not allocated to our segments. Depreciation and amortization expense was $9.3 million for the three months ended June 30, 2009 compared to $9.6 million for the three months ended June 30, 2008. The decrease resulted primarily from the full amortization of intangible assets slightly offset by amortization expense resulting from additional capitalization of software and database costs, in the current period.

	•		Acquisition related costs— Acquisition related costs for the three months ended June 30, 2009 and 2008 were less than $0.1 million and approximately $0.3 million, respectively, which primarily included consulting fees and other professional services incurred in connection with systems integration activities related to Eclipse.

	•		Restructuring costs— During fiscal years 2009 and 2008, our management approved restructuring actions primarily related to eliminating certain employee positions and consolidating certain excess facilities with the intent to streamline and focus our operations and more properly align our cost structure with our projected revenue streams. In accordance with SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities,we recorded a credit to restructuring charges of less than $0.1 million and restructuring charges of approximately $1.6 million, respectively, related to these actions. The negative charge recorded for the three months ended June 30, 2009, is primarily due to the reversal of severance and related benefits that will no longer be paid and for revisions to the estimated net present values of remaining net lease payments associated with consolidated facilities.

Interest expense

Interest expense for the three months ended June 30, 2009 was $9.7 million compared to $11.8 million for the three months ended June 30, 2008. The decrease in interest expense was primarily a result of the reduction in our outstanding debt as a result of principal payments and repurchases of our existing debt made in the past nine months totaling approximately $74.2 million as well as lower interest rates in the three months ended June 30, 2009 compared to the same period in 2008.

Gain on retirement of debt

million). In connection with the debt repurchase, we wrote off deferred financing costs and other transaction fees of $0.8 million. As a result of these repurchases we recorded a gain on retirement of debt in the amount of $4.6 million. Pursuant to the American Recovery and Reinvestment Act of 2009, we have elected to defer payment of the income taxes associated with these gains until they are paid ratably from 2014 to 2018.

Other income (expense), net

Other income (expense), net primarily consists of interest income, foreign currency gains or losses and gains or losses on marketable securities. Other income (expense), net for the three months ended June 30, 2009 was income of less than $0.1 million compared to income of $0.5 million for the three months ended June 30, 2008. The decrease was primarily a result of lower interest income in the three months ended June 30, 2009 compared to the prior period due to a decrease in interest rates as well as a decrease in our short-term investments.

Income tax expense

We recognized income tax expense of $3.9 million, or 33.9% of pre-tax income, for the three months ended June 30, 2009 compared to an income tax expense of $0.2 million, or 22.2% of pre-tax income, in the comparable period in 2008. The increase in income tax expense is due to higher pre-tax income during the three months ended June 30, 2009. Our effective tax rate for the three months ended June 30, 2009 differed from the statutory rate primarily due to the non-deductible state taxes, net of U.S. income tax benefit. See Note 7 to our unaudited condensed consolidated financial statements for additional information about income taxes.

Contribution margin

The results of the reportable segments are derived directly from our management reporting system. The results are based on our method of internal reporting and are not necessarily in conformity with GAAP. Our management measures the performance of each segment based on several metrics, including contribution margin as defined below, which is not a financial measure calculated in accordance with GAAP. Asset data is not reviewed by our management at the segment level and therefore is not included.

There are significant judgments our management makes with respect to the direct and indirect allocation of costs that may affect the calculation of contribution margins. While our management believes these and other related judgments are reasonable and appropriate, others could assess such matters in ways different than our company’s management.

The exclusion of costs not considered directly allocable to individual business segments results in contribution margin not taking into account substantial costs of doing business. While our management may consider contribution margin to be an important measure of comparative operating performance, this measure should be considered in addition to, but not as a substitute for, net income, cash flow and other measures of financial performance prepared in accordance with GAAP that are otherwise presented in our financial statements. In addition, our calculation of contribution margin may be different from the calculation used by other companies and, therefore, comparability may be affected.

Contribution margin for the three months ended June 30, 2009 and 2008 is as follows:


	Three Months Ended June 30,
(in thousands)	2009		2008		Variance $			Variance %

Hardlines and Lumber	$	10,451	$	9,127	$	1,324			14.5	%
Wholesale Distribution		15,946		15,838		108			0.7	%
Automotive		6,146		6,434		(288	)		(4.5	)%
Other		122		1,318		(1,196	)		(90.7	)%

Total contribution margin	$	32,665	$	32,717	$	(52	)		(0.2	)%

	•		Hardlines and Lumber contribution margin— The contribution margin for Hardlines and Lumber increased $1.3 million despite the revenue decrease of $2.9 million. The increase in contribution margin was primarily attributed to support price increases; improved hardware margins; aggressive cost management of labor related costs; lower outside services as well as additional capitalization of software and database costs, partially offset by increased bad debt expense.

	•		Wholesale Distribution contribution margin— The contribution margin for Wholesale Distribution increased slightly by $0.1 million. The increase was a result of support price increases and aggressive cost management in labor related costs which was largely offset by reduced system revenue as a result of the economic downturn as well as increased bad debt expense.

	•		Automotive contribution margin— The contribution margin for Automotive decreased by $0.3 million primarily due to $3.2 million of lower revenues which drove lower gross margins. The revenue decrease was attributed to reduced system revenue, primarily due to the weak economy and extended sales cycles and the transition to new platforms as well as a reduction in services revenue primarily as a result of the known attrition of a major customer, General Parts, Inc., and lower retention rates as a result of the global economic downturn. The revenue reduction impact on contribution margin was partially offset by lower labor related costs, additional capitalization of software and database costs and lower bad debt expense.

	•		Other contribution margin— The contribution margin for Other decreased by $1.2 million, primarily due to $3.6 million in reduced revenues as a result of prospective customers slowing down planned system migrations due to Hewlett-Packard’s continued support of one of its legacy systems. The revenue reduction was largely offset by reduced labor related costs and outside services.

The reconciliation of total segment contribution margin to our consolidated income before income taxes for the three months ended June 30, 2009 and 2008 is as follows:


	Three Months Ended June 30,
(in thousands)	2009			2008
Segment contribution margin	$	32,665		$	32,717
Corporate and unallocated costs		(5,794	)		(8,274	)
Stock-based compensation expense		(945	)		(507	)
Depreciation and amortization		(9,348	)		(9,640	)
Acquisition related costs		(32	)		(264	)
Restructuring costs		40			(1,636	)
Interest expense		(9,722	)		(11,800	)
Gain on retirement of debt		4,631			—
Other income, net		21			469

Income before income taxes	$	11,516		$	1,065

Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008

Total revenues

Our Hardlines and Lumber, Wholesale Distribution and Automotive segments accounted for approximately 36.0%, 41.3% and 19.9%, respectively, of our revenues during the nine months ended June 30, 2009. This compares to the nine months ended June 30, 2008, where our Hardlines and Lumber, Wholesale Distribution, and Automotive segments accounted for approximately 35.3%, 39.6% and 20.3%, respectively, of our revenues. See Note 10 to our unaudited condensed consolidated financial statements for further information on our segments, including a summary of our segment revenues and contribution margin.

The following table sets forth, for the periods indicated, our segment revenues by business management solution and the variance thereof:


	Nine Months Ended June 30,
(in thousands)	2009		2008		Variance $			Variance %
Hardlines and Lumber revenues:
Systems	$	39,497	$	53,009	$	(13,512	)		(25.5	)%
Services		62,313		60,226		2,087			3.5	%

Total Hardlines and Lumber revenues	$	101,810	$	113,235	$	(11,425	)		(10.1	)%


Wholesale Distribution revenues:
Systems	$	41,275	$	56,459	$	(15,184	)		(26.9	)%
Services		75,723		70,597		5,126			7.3	%

Total Wholesale Distribution revenues	$	116,998	$	127,056	$	(10,058	)		(7.9	)%


Automotive revenues:
Systems	$	7,330	$	10,713	$	(3,383	)		(31.6	)%
Services		48,928		54,306		(5,378	)		(9.9	)%

Total Automotive revenues	$	56,258	$	65,019	$	(8,761	)		(13.5	)%


Other revenues:
Systems	$	3,530	$	10,788	$	(7,258	)		(67.3	)%
Services		4,548		4,627		(79	)		(1.7	)%

Total Other revenues	$	8,078	$	15,415	$	(7,337	)		(47.6	)%


Total revenues:
Systems	$	91,632	$	130,969	$	(39,337	)		(30.0	)%
Services		191,512		189,756		1,756			0.9	%

Total revenues	$	283,144	$	320,725	$	(37,581	)		(11.7	)%

Total revenues for the nine months ended June 30, 2009 decreased by $37.6 million, or 11.7%, compared to the nine months ended June 30, 2008. The decrease in revenues over the comparable period a year ago is primarily a result of an overall decrease in systems sales as well as a decrease in services revenues in Automotive, partially offset by an increase in services revenues in Hardlines and Lumber and Wholesale Distribution.

	•		Hardlines and Lumber revenues— Hardlines and Lumber revenues decreased by $11.4 million, or 10.1%. The systems revenue decrease was attributed to a reduction in the volume of new system sales and the sale of additional products and modules, primarily as a result of our customers exercising caution on making capital expenditures both due to the weak economy and a slow retail and residential housing environment. Services revenues increased primarily as a result of our price increases for support services.

	•		Wholesale Distribution revenues— Wholesale Distribution revenues decreased by $10.1 million, or 7.9%. The systems revenue decrease was substantially attributable to a reduction in the volume of new systems and the sale of additional products and modules, primarily due to the weak economy and extended customer sales cycles. Services revenue increased primarily as a result of our price increases for support services.

	•		Automotive revenues— Automotive revenues decreased by $8.8 million, or 13.5%. The systems revenue decrease was attributed to a reduction in the volume of new system sales and the sale of additional products and modules, primarily due to the weak economy and extended sales cycles as well as the transition to new platforms. Services revenue decreased primarily as a result of the known attrition of a major customer, General Parts, Inc., and lower retention rates as a result of the global economic downturn.

•

Other revenues— Other revenues decreased $7.3 million, or 47.6%, driven primarily by prospective customers slowing down planned system migrations due to Hewlett-Packard’s continued support of one of its legacy systems.

Total cost of revenues and gross margins as a percentage of revenues

The following table sets forth, for the periods indicated, our gross margin as a percentage of revenues.


	Nine Months ended June 30,
(in thousands)	2009			2008			Variance
Cost of systems revenues	$	50,515		$	74,020		$	(23,505	)
Systems gross margins		44.9	%		43.5	%

Cost of services revenues	$	64,169		$	69,860		$	(5,691	)
Services gross margins		66.5	%		63.2	%

Total cost of revenues	$	114,684		$	143,880		$	(29,196	)
Total gross margins		59.5	%		55.1	%

	•		Cost of systems revenues and systems gross margins— Cost of systems revenues decreased by $23.5 million primarily as a result of lower direct costs associated with lower overall systems revenues. System gross margins increased by 1.4 percentage points in the nine months ended June 30, 2009 from the comparable period a year ago. The increase is primarily attributed to improved margins on hardware as well as a mix shift to a higher concentration of wholesale distribution systems revenue.

	•		Cost of services revenues and services gross margins— Cost of services revenues decreased by $5.7 million primarily as a result of labor related cost reductions. Services gross margins increased by 3.3 percentage points in the nine months ended June 30, 2009 from the comparable period a year ago as a result of service price increases and the reductions in labor related costs and outsourced support costs.

Total operating expenses

The following table sets forth, for the periods indicated, operating expenses and the variance thereof:


	Nine Months Ended June 30,
(in thousands)	2009		2008		Variance $			Variance %
Sales and marketing	$	40,936	$	47,883	$	(6,947	)		(14.5	)%
Product development		29,267		33,910		(4,643	)		(13.7	)%
General and administrative		17,625		24,158		(6,533	)		(27.1	)%
Depreciation and amortization		28,736		27,561		1,175			4.3	%
Impairment of goodwill		107,000		—		107,000			100.0	%
Acquisition related costs		260		922		(662	)		(71.8	)%
Restructuring costs		4,409		2,126		2,283			107.4	%

Total operating expenses	$	228,233	$	136,560	$	91,673			67.1	%

Total operating expenses increased by $91.7 million, or 67.1%, for the nine months ended June 30, 2009, compared to the nine months ended June 30, 2008. The increase was driven primarily by the impairment of goodwill and restructuring costs as well as increases in amortization offset by reductions in labor related expenses, strategic initiative costs, outside services and additional capitalization of software and database costs.

	•		Sales and marketing— Sales and marketing expense decreased by $6.9 million, or 14.5%, for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008. The decrease was primarily the result of a reduction of $5.2 million in labor related expenses, $0.4 million of bad debt expense, $0.3 million in travel, $0.5 million in outside services and $0.5 million in marketing and trade show expenses.

	•		Product development— Product development expense decreased $4.6 million, or 13.7%, for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008. The decrease was primarily the result of a reduction of $2.7 million in labor related costs, $0.6 million in third-party service costs, $0.5 million in outside services as well as $1.0

			million in additional capitalization of software and database costs.

	•		General and administrative— General and administrative expense decreased by $6.5 million, or 27.1%, for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008. The decrease is primarily the result of a reduction of $0.8 million in labor related costs, $0.9 million in reduced legal fees and outside services as well as a $0.3 million one-time insurance cost reduction, $0.2 million in travel, and the non-recurrence of $3.6 million of costs related to strategic initiatives in the prior year.

	•		Depreciation and amortization— Depreciation and amortization expense was $28.7 million for the nine months ended June 30, 2009 compared to $27.6 million for the nine months ended June 30, 2008. The increase resulted primarily from amortization expense resulting from additional capitalization of software and database costs, slightly offset by the full amortization of intangible assets, in the current year.

	•		Impairment of goodwill— We account for goodwill in accordance with SFAS No. 141,BusinessCombinations, and SFAS No. 142,Goodwill and Other Intangible Assets. Goodwill is tested for impairment on an annual basis as of July 1, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach. Our annual testing through fiscal year 2008 indicated no impairment of goodwill had occurred. However, the continuing global economic uncertainty and credit crisis have negatively impacted the level of overall spending, including spending in the vertical markets that we serve. As a result, we determined it necessary to evaluate goodwill for impairment as of December 31, 2008. In accordance with SFAS No. 142, we completed the impairment analysis for each of our reporting units and concluded that as of December 31, 2008, the fair value of our Hardlines and Lumber and our Automotive reporting units was below their respective carrying values, including goodwill. During the nine months ended June 30, 2009, we recorded a goodwill impairment charge of $107.0 million, comprised of $78.0 million related to Hardlines and Lumber and $29.0 million related to Automotive. For the purposes of this analysis, our estimates of fair value were based on a combination of the income approach, which estimates the fair value of our reporting units based on the future discounted cash flows, and the market approach, which estimates the fair value of our reporting units based on comparable market prices. We will not be required to make any current or future cash payments as a result of these impairment charges. As mentioned above, goodwill is tested for impairment on an annual basis as of July 1. We will continue to monitor if conditions exist that indicate additional potential impairment has occurred. If such conditions exist, we may be required to record additional impairments in the future and such impairments, if any, may be material. See Note 4 to our unaudited condensed consolidated financial statements.

	•		Acquisition related costs— Acquisition related costs for the nine months ended June 30, 2009 and 2008 were $0.3 million and $0.9 million, respectively, which primarily included consulting fees and other professional services incurred in connection with systems integration activities related to Eclipse.

	•		Restructuring costs— During the nine months ended June 30, 2009 and 2008, our management approved restructuring actions primarily related to eliminating certain additional employee positions and consolidating certain excess facilities with the intent to streamline and focus our operations and more properly align our cost structure with our projected revenue streams. In accordance with SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities,we recorded a charge of approximately $4.4 million and $2.1 million, respectively, related to these actions.

Interest expense

Interest expense for the nine months ended June 30, 2009 was $32.4 million compared to $39.7 million for the nine months ended June 30, 2008. The decrease in interest expense was primarily a result of the reduction in our outstanding debt as a result of principal payments and repurchases of our existing debt made in the past nine months totaling approximately $74.2 million as well as lower interest rates in the nine months ended June 30, 2009 compared to the same period in 2008.

Gain on retirement of debt

Recovery and Reinvestment Act of 2009, we have elected to defer payment of the income taxes associated with these gains until they are paid ratably from 2014 to 2018.

Other income (expense), net

Other income (expense), net for the nine months ended June 30, 2009 was a loss of $0.6 million compared to income of $1.5 million for the nine months ended June 30, 2008. The decrease was a primarily a result of the fluctuations in our foreign currency gains and losses as well as a decrease in our interest income as a result of lower interest rates in the nine months ended June 30, 2009 compared to the same period in 2008.

Income tax expense

We recognized income tax expense of $13.1 million, or 17.7% of pre-tax loss, for the nine months ended June 30, 2009 compared to an income tax expense of $0.8 million, or 36.7% of pre-tax income, in the comparable period in 2008. The increase in income tax expense is primarily due to higher pre-tax income (after giving effect to the non-deductible goodwill impairment charge) during the nine months ended June 30, 2009. Our effective tax rate for the nine months ended June 30, 2009 differed from the statutory rate primarily due to the non-deductible goodwill impairment charge and state taxes, net of U.S. income tax benefit. See Note 7 to our unaudited condensed consolidated financial statements for additional information about income taxes.

Contribution margin

The exclusion of costs not considered directly allocable to individual business segments results in contribution margin not taking into account substantial costs of doing business. While our management may consider contribution margin to be an important measure of comparative operating performance, this measure should be considered in addition to, but not as a substitute for, net income, cash flow and other measures of financial performance prepared in accordance with GAAP that are otherwise presented in our financial statements. In addition, our calculation of contribution margin may be different from the calculation used by other companies and, therefore, comparability may be affected.

Contribution margin for the nine months ended June 30, 2009 and 2008 is as follows:


	Nine Months Ended June 30,
(in thousands)	2009		2008		Variance $			Variance %

Hardlines and Lumber	$	31,230	$	25,390	$	5,840			23.0	%
Wholesale Distribution		46,795		48,426		(1,631	)		(3.4	)%
Automotive		19,882		21,545		(1,663	)		(7.7	)%
Other		2,599		2,003		596			29.8	%

Total contribution margin	$	100,506	$	97,364	$	3,142			3.2	%

	•		Hardlines and Lumber contribution margin— The contribution margin for Hardlines and Lumber increased $5.8 million despite the revenue decrease of $11.4 million. The increase in contribution margin was primarily attributed to improved hardware margins; professional service utilization; support price increases; and aggressive cost management of labor related costs, increased software capitalization and lower bad debt expense.

	•		Wholesale Distribution contribution margin— The contribution margin for Wholesale Distribution decreased by $1.6 million primarily as the result of $10.1 million in lower revenues, which drove lower gross margins. The revenue decrease was attributed to reduced systems revenue as a result of economic downturn partially offset by our support price increases. The revenue reduction impact on contribution margin was largely offset by aggressive cost management in labor related costs.

	•		Automotive contribution margin— The contribution margin for Automotive decreased by $1.7 million primarily due to $8.8 million of lower revenues, which drove lower gross margins. The systems revenue decrease was attributed to a reduction in the volume of new system sales and the sale of additional products and modules, primarily due to the weak economy and extended sales cycles as well as the transition to new platforms. Services revenue decreased primarily as a result of the known attrition of a major customer, General Parts, Inc., and lower retention rates as a result of the global economic downturn. The revenue reduction impact on contribution margin was partially offset by an increase in database capitalization, reduced labor related costs and lower bad debt expense.

	•		Other contribution margin— The contribution margin for Other increased by $0.6 million, primarily due to reduced labor costs and outside services, which offset the $7.3 million in reduced revenues as a result of prospective customers slowing down planned system migrations due to Hewlett-Packard’s continued support of one of its legacy systems.

The reconciliation of total segment contribution margin to our consolidated income (loss) before income taxes for the nine months ended June 30, 2009 and 2008 is as follows:


	Nine Months Ended June 30,
(in thousands)	2009			2008
Segment contribution margin	$	100,506		$	97,364
Corporate and unallocated costs		(17,035	)		(24,191	)
Stock-based compensation expense		(2,839	)		(2,279	)
Depreciation and amortization		(28,736	)		(27,561	)
Impairment of goodwill		(107,000	)		—
Acquisition related costs		(260	)		(922	)
Restructuring costs		(4,409	)		(2,126	)
Interest expense		(32,398	)		(39,672	)
Gain on retirement of debt		18,958			—
Other income (expense), net		(606	)		1,542

Income (loss) before income taxes	$	(73,819	)	$	2,155

Change in Contractual Obligations

Liquidity and Capital Resources

Overview

Our principal liquidity requirements are for working capital, capital expenditures and debt service. Our ability to service our indebtedness will depend on our ability to generate cash in the future.

Our cash and cash equivalents balance at June 30, 2009 was $44.2 million. As of June 30, 2009, we had $542.9 million in outstanding indebtedness comprised primarily of $418.6 million aggregate principal amount of senior secured term loans (including an incremental term loan) due 2013 pursuant to our senior secured credit agreement, $10.0 million aggregate principal amount of loans due 2011 pursuant to our revolving credit facility and $114.3 million aggregate principal amount of senior subordinated notes due 2016. As previously discussed and as further discussed below, during the nine months ended June 30, 2009, we repurchased approximately $60.7 million aggregate principal amount of our senior subordinated notes resulting in gain on retirement of debt of $19.0 million.

Senior Secured Credit Agreement

We have a senior secured credit agreement that provides for (i) a seven-year term loan in the amount of $390.0 million, amortized at a rate of 1.00% per year on a quarterly basis for the first six and three-quarters years after May 2, 2006, except such amortized loan payments that may otherwise be due are reduced dollar-for-dollar by any voluntary prepayments or mandatory repayments we make, with the balance payable on May 2, 2013, and (ii) a five-year revolving credit facility that permits loans in an aggregate amount of up to $40.0 million, which includes a $5.0 million letter of credit facility and a swing line facility. In addition, subject to certain terms and conditions, the senior secured credit agreement provides for one or more uncommitted incremental term loan and/or revolving credit facilities in an aggregate amount not to exceed $75.0 million. In August 2007, we borrowed the $75.0 million incremental term loan, which matures on May 2, 2013, as well as $20.0 million of the revolving credit facility. During the nine months ended June 30, 2009, we repaid $10.0 million in principal payments towards the revolving credit facility. Prior to fiscal year 2009, we did not make any principal repayments towards the revolving credit facility.

In addition, another of our lenders under our senior secured credit agreement, The CIT Group/Equipment Financing Inc., (a CIT Group, Inc. (“CIT”) subsidiary), has publicly stated that it may need to seek bankruptcy protection. CIT reportedly sought and was unable to obtain U.S. government financial assistance in July of 2009 and many analysts have publicly expressed doubt as to whether it can avoid bankruptcy without such assistance. Regardless of whether it enters bankruptcy, it is not certain whether CIT will participate in any future requests for funding as a result of its financial difficulties. CIT Group/Equipment Financing Inc. has provided a commitment of $7.5 million, of which $1.5 million was outstanding as of June 30, 2009. We currently believe that the other lenders under our senior secured credit agreement, as well as our other financial counterparties, will be able to fulfill their respective obligations. There can be no assurance, however, that those other lenders or counterparties will not also experience a significant adverse event that could impact their abilities to fulfill their obligations to us.

For the period ended September 30, 2006 and for the years ended September 30, 2007 and 2008, we repaid $1.9 million, $25.2 million and $15.8 million, respectively, in principal payments towards the term loans, which substantially reduced the future unamortized principal payments due per the amortization schedule. For the nine months ended June 30, 2009, we repaid proximately $3.5 million in principal payments of which approximately $3.3 million represented the fiscal year 2008 mandatory repayment and approximately $0.2 million was a voluntary prepayment. Prior to fiscal year 2008, we did not make any mandatory repayments. Any future mandatory principal repayments will be dependent upon us generating excess cash flow, as defined in the senior secured credit agreement.

•		under the term loan, 1.00% with respect to base rate borrowings and 2.00% with respect to Eurodollar rate borrowings;

•		under the incremental term loan, 1.50% with respect to base rate borrowings and 2.50% with respect to Eurodollar rate borrowings; and

•		under the revolving credit facility, 1.00% with respect to base rate borrowings and 2.00% with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of certain leverage ratios.

The senior secured credit agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to:

•		incur additional indebtedness (including contingent liabilities);

•		create liens on assets;

•		enter into sale-leaseback transactions;

•		engage in mergers or acquisitions;

•		dispose of assets;

•		pay dividends and restricted payments;

•		make investments (including joint ventures);

•		make capital expenditures;

•		prepay other indebtedness (including the notes);

•		engage in certain transactions with affiliates;

•		amend agreements governing our subordinated indebtedness (including the notes);

•		amend organizational documents and other material agreements; and

•		change the nature of our business.

In addition, the senior secured credit agreement requires us to maintain the following financial covenants:

•		a maximum total leverage ratio; and

•		a minimum interest coverage ratio.

The senior secured credit agreement also contains certain customary affirmative covenants and events of default. Substantially all of our assets and those of our subsidiaries are pledged as collateral under the senior secured credit agreement.

Hedging and Derivative Instruments

At the time we entered into the senior secured credit agreement, we entered into four interest rate swaps to manage and reduce the risk inherent in interest rate fluctuations and to effectively convert a notional amount of $245.0 million of floating rate debt to fixed rate debt. In November 2007 and 2008, interest rate swaps with a notional amount of $25.0 million and $30.0 million, respectively, matured. As of June 30, 2009, we had outstanding interest rate swaps with a notional amount of $190.0 million. As of and for the nine months ended June 30, 2009, there is no cumulative ineffectiveness related to these interest rate swaps.

Senior Subordinated Notes due 2016

maturity, by acceleration or otherwise, of all of our obligations under the indenture and the notes. The notes are our unsecured senior subordinated obligations and are subordinated in right of payment to all of our existing and future senior indebtedness (including the senior secured credit agreement), are effectively subordinated to all of our secured indebtedness (including the senior secured credit agreement) and are senior in right of payment to all of our existing and future subordinated indebtedness.

The indenture governing our senior subordinated notes limits our (and most of our subsidiaries’) ability to:

•		incur additional indebtedness;

•		pay dividends on or make other distributions or repurchase our capital stock;

•		make certain investments;

•		enter into certain types of transactions with affiliates;

•		use assets as security in other transactions; and

•		sell certain assets or merge with or into other companies.

Subject to certain exceptions, the indenture governing the senior subordinated notes permits us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

During the nine months ended June 30, 2009, we repurchased approximately $60.7 million in face value of our senior subordinated notes in open market transactions for an aggregate purchase price of approximately $41.1 million (including accrued interest of $1.3 million). In connection with the debt repurchase, we wrote off deferred financing costs and other transaction fees of $1.9 million. As a result of these repurchases we recorded a gain on retirement of debt in the amount of $19.0 million. The repurchased notes have been retired. As of June 30, 2009, senior subordinated notes representing $114.3 million in principal amount were outstanding. We and our subsidiaries, affiliates or significant stockholders may from time to time, in our sole discretion, purchase, repay, redeem or retire additional amounts of our outstanding debt or equity securities (including any publicly issued debt), in privately negotiated or open market transactions, by tender offer or otherwise.

Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008

Our net cash provided by operating activities for the nine months ended June 30, 2009 and June 30, 2008 was $40.9 million and $35.6 million, respectively. After giving effect to the non-cash goodwill impairment charge and non-operating gain on retirement of debt impacting net loss in the nine months ended June 30, 2009, the increase in cash flow provided by operating activities for the nine months then ended compared to the prior year period was primarily due to deferred income taxes and changes in certain working capital items. Specifically, deferred income taxes provided $7.2 million, accrued expenses and other provided $1.6 million and accounts payable provided $1.2 million more cash compared to the same period last year, partially offset by the use of cash of $2.8 million for prepaid expenses and other assets, and $0.6 million for accounts receivable.

Our investing activities used net cash of $8.0 million and $9.0 million during the nine months ended June 30, 2009 and 2008, respectively. The decrease in cash used in investing activities from the prior year was primarily due to a decrease in purchases of property and equipment, partially offset by an increase in capitalized computer software and database costs. We purchased property and equipment of $1.5 million and $4.1 million and capitalized computer software and database development costs of $6.6 million and $4.9 million for the nine months ended June 30, 2009 and 2008, respectively.

Our financing activities used cash of $53.5 million and $0.7 million for the nine months ended June 30, 2009 and 2008, respectively. The increase in cash used in financing activities for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008 was primarily due to the repurchase of our senior subordinated notes for $39.8 million as well as payments on our senior secured term loan of $3.5 million and prepayment of our revolving credit facility of $10.0 million in the current period.

We believe that cash flows from operations, together with amounts available under the senior secured credit agreement, will be sufficient to fund our working capital, capital expenditures and debt service requirements for at least the next twelve months. Our ability to meet our working capital and debt service requirements, however, is subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. If we are not able to meet such requirements, we may be required to seek additional financing. There can be no assurance that we will be able to obtain financing from other sources on terms acceptable to us, if at all.

From time to time, we intend to pursue acquisitions, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We expect to fund future acquisitions primarily with cash flow from operations and borrowings, including borrowing from amounts available under our senior secured credit agreement or through new debt issuances. We may also issue additional equity either directly or in connection with any such acquisitions. There can be no assurance that acquisition funds will be available on terms acceptable to us, or at all.

Covenant Compliance

Under the senior secured credit agreement, we are required to satisfy a maximum total leverage ratio, a minimum interest coverage ratio and other financing conditions tests, which become increasingly stringent over the term of the senior secured credit facility. As of June 30, 2009, we are in compliance with the financial and non-financial covenants. Compliance with these covenants is dependent on the results of our operations, which are subject to a number of factors including current economic conditions. Based on our forecasts for the remainder of fiscal year 2009, which incorporate continued economic weakness in our business and our vertical markets, we currently anticipate that we will be able to meet or exceed these financial tests and covenants during this period. This expectation is based on our cost and revenue expectations for the remainder of fiscal year 2009. Should the current economic recession cause our business or our vertical markets to deteriorate beyond our expectations or should our cost cutting initiatives prove insufficient we may not be able to satisfy these financial tests and covenants. In addition to these factors, our continued ability to meet those financial ratios and tests can be affected by other events beyond our control or risks in our business (see “Part I, Item 1A — Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2008, filed with the SEC on December 19, 2008, our subsequent quarterly reports and “Part II, Item 1A — Risk Factors” of this report). A breach of any of these covenants could result in a default, unless waived or cured, under the senior secured credit facilities, and our senior subordinated notes. In order to help ensure compliance with our covenants under our senior secured credit facilities we may take additional actions in the future, including implementing additional cost cutting initiatives, making additional repurchases of some of our debt or making further changes to our operations. In the event of a default of the financial covenants referred to above, we may (but no more than two times in four fiscal quarters) cure the default by raising equity capital from our existing investors in an amount sufficient to pass, but not to exceed, the financial covenant. While we believe that these additional remedies provide us with some additional flexibility in maintaining compliance with our tests and covenants, they do not assure us that we will not find ourselves in violation of these tests and covenants. Upon the occurrence of an event of default under the senior secured credit facilities, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. Any such acceleration would also result in a default under the indenture governing the senior subordinated notes. If this occurs, we may not be able to pay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be available on terms that are acceptable to us, particularly given the current crisis in the debt market in which the general availability of credit is substantially reduced and the cost of borrowing is generally higher with more restrictive terms. Furthermore, if we are required to amend our senior secured credit agreement, we may be required to pay significant amounts to obtain a waiver or the lenders thereunder may require that interest rates applicable to our loans increase as a condition to agreeing to any such amendment.

We use consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”), as further adjusted, a non-GAAP financial measure, to determine our compliance with certain covenants contained in our senior secured credit agreement and in the indenture governing our senior subordinated notes. For covenant calculation purposes, “adjusted EBITDA” is defined as consolidated net income (loss) adjusted to exclude interest, taxes, depreciation and amortization, and further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under our senior secured credit facilities and the indenture governing our senior subordinated notes. The breach of covenants in our senior secured credit agreement that are tied to ratios based on adjusted EBITDA could result in a default under that agreement and under our indenture governing the senior subordinated notes. Our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on adjusted EBITDA.

Adjusted EBITDA does not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. While adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters that we may consider not to be indicative of our ongoing operations. In particular, the definition of adjusted EBITDA in the indenture allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income (loss). However, these are expenses that may recur, vary greatly and are difficult to predict. Further, our debt instruments require that adjusted EBITDA be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year.

The following is a reconciliation of net loss, which is a GAAP measure of our operating results, to adjusted EBITDA (as described in our senior secured credit agreement and the indenture governing our senior subordinated notes, including related calculations) for the twelve months ended June 30, 2009 and 2008.


	Twelve Months Ended
	June 30,
(in thousands)	2009			2008
Net loss	$	(84,614	)	$	(27	)
Acquisition costs		208			946
Deferred revenue purchase accounting adjustment		907			1,703

Adjusted net income (loss)		(83,499	)		2,622
Interest expense		43,922			52,426
Income tax expense and other income-based taxes		17,604			6,363
Depreciation and amortization		38,429			35,511
Gain on retirement of debt		(18,958	)		—
Non-cash charges (impairment charges and stock-based compensation expense)		110,848			3,149
Non-recurring cash charges and restructuring charges		5,345			6,109
Deferred compensation payments		309			289
Sponsor payments		157			86
Foreign exchange (gain) loss		312			(598	)
Acquired company EBITDA		—			2,086
Pro-forma adjustments		68			1,693

Adjusted EBITDA	$	114,537		$	109,736

Our financial covenant requirements and ratios for the period ended June 30, 2009 were as follows:


	Covenant
	Requirements		Our Ratio
Senior Secured Credit Agreement (1)
Maximum consolidated total debt to adjusted EBITDA ratio		5.00x		4.42
Minimum adjusted EBITDA to consolidated interest expense		2.00x		2.79

Senior Subordinated Notes (2)
Minimum adjusted EBITDA to fixed charges ratio required to incur additional indebtedness pursuant to ratio provisions		2.00x		2.79


(1)		Our senior secured credit agreement requires us to maintain a consolidated total debt to adjusted EBITDA ratio of a maximum of 4.75x at the end of the fiscal year ending September 30, 2009, 4.50x by the end of the fiscal year ending September 30, 2010 and 3.75x by the end of the fiscal year ending September 30, 2011. Consolidated total debt is defined in the senior secured credit agreement as total debt other than certain indebtedness and is reduced by the amount of cash and cash equivalents on our consolidated balance sheet in excess of $7.5 million. As of June 30, 2009, our consolidated total debt was $506.2 million, consisting of total debt other than certain indebtedness totaling $542.9 million, net of cash and cash equivalents in excess of $7.5 million totaling $36.7 million. We are also required to maintain a adjusted EBITDA to consolidated interest expense ratio of a minimum of 2.25x at the end of the fiscal year ending September 30, 2009, 2.50x by the end of the fiscal year ending September 30, 2010 and 2.75x by the end of the fiscal year ending September 30, 2011. Consolidated interest expense is defined in the senior secured credit agreement as consolidated cash interest expense less cash interest income and is further adjusted for certain non-cash interest expenses and other items. Failure to satisfy these ratio requirements would constitute a default under the senior secured credit agreement. If our lenders failed to waive any such default, our repayment obligations under the senior secured credit agreement could be accelerated. This would also constitute a default under the indenture governing the senior subordinated notes.

(2)		Our ability to incur additional indebtedness and make certain restricted payments under the indenture governing the senior subordinated notes, subject to specified exceptions, is tied to adjusted EBITDA to fixed charges ratio of at least 2.00x, except that we may incur certain indebtedness and make certain restricted payments and certain permitted investments without regard to the ratio. Fixed charges is defined in the indenture governing the senior subordinated notes as consolidated interest expense less interest income, adjusted for acquisitions, and further adjusted for non-cash interest expense.

Recently Issued Accounting Pronouncements

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”. SFAS No. 165 establishes the standards for accounting for and disclosure of subsequent events. It defines subsequent events as those events or transactions that occur after the balance sheet date, but before the financial statements are issued or available to be issued. The statement defines subsequent events as either recognized or non-recognized and requires the date through which an entity evaluates subsequent events be disclosed. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. We adopted SFAS No. 165 in June 2009. See Note 1 to our unaudited condensed consolidated financial statements for additional information regarding subsequent events.

Effective October 1, 2008, we adopted SFAS No. 157,Fair Value Measurements, and its related amendments. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, rather it applies to existing accounting pronouncements that require or permit fair value measurements. The FASB amended SFAS No. 157 by issuing FSP 157-1,Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classifications or Measurements under Statement 13, FSP 157-2,Effective Date of FASB Statement No. 157,FSP 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active, and FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP 157-1 amends SFAS 157 to exclude SFAS 13,Accounting for Leases, and certain other lease-related accounting pronouncements. FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are already recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. FSP 157-3 clarifies the application of SFAS 157 in determining the fair value of financial assets and liabilities in a market that is not active and provides examples to illustrate key considerations in determining such fair value. FSP 157-4 amends SFAS 157 to provide additional guidance on estimating fair value when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset and liability. We concluded that FSP-1, FSP-2 and FSP-4 would not have an impact on our financial statements. FSP-3 was included in the implementation of SFAS 157. See Note 6 to our unaudited condensed consolidated financial statements for additional information regarding the adoption of SFAS No. 157.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about derivative and hedging activities. These disclosures should enable financial statement users to understand how and why a company uses derivative instruments and how derivative instruments and related hedged items affect a company’s financial position, financial performance and cash flows. We adopted SFAS No. 161 on January 1, 2009. See Note 5 to our unaudited condensed consolidated financial statements for additional information regarding the required disclosures of our derivative instruments and hedging activities. This Statement does not impact the unaudited condensed consolidated statements of operations as it is disclosure only in nature.

Item 3—Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

At June 30, 2009, we had $418.6 million aggregate principal amount outstanding of term loans due 2013 pursuant to our senior secured credit agreement, $114.3 million of 9.5% senior subordinated notes due 2016 and $10.0 million borrowings under our revolving credit facility due 2011. The term loans and the revolving credit facility bear interest at floating rates. In May 2006, we entered into four interest rate swaps to manage and reduce the risk inherent in interest rate fluctuations and to effectively convert a notional amount of $245.0 million of floating rate debt to fixed rate debt. In November 2008 and 2007, interest rate swaps with a notional amount of $30.0 million and $25.0 million, respectively, matured. As of June 30, 2009, we had outstanding interest rate swaps with a notional amount of $190.0 million. Giving effect to the interest rate swaps, a 0.25% increase in floating rates would increase our interest expense by $0.5 million annually. See “Hedging and Derivative Instruments” under Note 5 to our unaudited condensed consolidated financial statements, which section is incorporated herein by reference.

Foreign Currency Risk

The majority of our operations are based in the United States and, accordingly, the majority of our transactions are denominated in U.S. dollars; however, we do have foreign-based operations where transactions are denominated in foreign currencies and are

subject to market risk with respect to fluctuations in the relative value of currencies. Currently, we have operations in Canada, the United Kingdom and Ireland and conduct transactions in the local currency of each location.

We monitor our foreign currency exposure and, from time to time, will attempt to reduce our exposure through hedging. At June 30, 2009, we had no foreign currency contracts outstanding.

Item 4—Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. This term refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the SEC in its rules and forms. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures were effective as of June 30, 2009 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2009, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurances that the objectives of the control system are met. The design of a control system reflects resource constraints, and the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, have been or will be detected.

PART II — OTHER INFORMATION

Item 1—Legal Proceedings

We are a party to various legal proceedings and administrative actions, all of which are of an ordinary or routine nature incidental to our operations. We do not believe that such proceedings and actions will, individually or in the aggregate, have a material adverse effect on our results of operations, financial condition or cash flows.

Item 1A—Risk Factors

Our Annual Report on Form 10-K for the fiscal year ended September 30, 2008, filed with the SEC on December 19, 2008 (the “Annual Report”), includes a detailed discussion of our risk factors under the heading “Part I, Item 1A — Risk Factors.” Set forth below are certain changes from the risk factors previously disclosed in our Annual Report and our subsequent quarterly reports. You should carefully consider the risk factors discussed in this quarterly report and our Annual Report as well as the other information in this quarterly report. If any of the following risks or the risks discussed in the Annual Report or subsequent quarterly reports occurs, our business, financial condition, results of operations and future growth prospects could suffer.

If we do not develop new relationships and maintain our existing relationships with key customers and/or well-known market participants, our revenues could decline significantly and our operating results could be materially adversely affected.

We have developed strategic relationships with many well-known market participants in the hardlines and lumber vertical market, wholesale distribution and the automotive vertical markets. For example, we are a preferred and/or a recommended business management solutions provider for the members of the True Value Company and Do it Best Corp. cooperatives and Aftermarket Auto Parts Alliance, Inc. We believe that our ability to increase revenues depends in part upon maintaining our existing customer and market relationships, including exclusive, preferred and/or recommended provider status, and developing new relationships. We may not be able to renew or replace our existing licensing agreements upon expiration or maintain our market relationships that allow us to market and sell our products effectively. In June 2008, our marketing, distribution and development agreement with Ace Hardware Corp. (“Ace”) expired. On July 20, 2009 we entered into a new Marketing Agreement with Ace. Individual Ace members are not obligated to use our products or support services under this agreement and there can be no assurance that Ace members will continue to purchase such products or services from us. The loss or diminishment of key relationships, such as this, in whole or in part, could materially adversely impact our business.

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3—Defaults Upon Senior Securities

None.

Item 4—Submission of Matters to a Vote of Security Holders

None.

Item 5—Other Information

On August 11, 2009, we and our parent company, Activant Group Inc., entered into indemnification priority agreements with certain of our directors, namely Messrs. Ballard, Barber, Bernard, Crabill, Henske and Tunnell. These agreements clarify that where there is a jointly-indemnifiable claim against these directors that may arise due to the service of such directors on our board of directors and on behalf of our parent and controlled affiliates, we will be primarily liable for any indemnification obligations on account of such service. Any indemnification from other third parties associated with such directors shall be secondary. The indemnification priority agreements do not create any new obligations or liabilities for us, our parent or our respective controlled affiliates beyond those already contained in our respective organizational documents and indemnification agreements. The foregoing summary of the material terms of the indemnification priority agreementsis qualified in its entirety by reference to the form of indemnification priority agreement filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.

Item 6—Exhibits

The exhibits to this report are as follows:


				Incorporated by Reference
Exhibit						File		Date of		Exhibit		Provided
Number			Exhibit Description	Form		Number		First Filing		Number		Herewith
	10.1	*	Form of Indemnification Priority Agreement among Activant Group Inc., Activant Solutions Inc. and each of their non-executive directors		—		—		—		—		X
	31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Pervez A. Qureshi		—		—		—		—		X
	31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Kathleen M. Crusco		—		—		—		—		X
	32.1	**	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Pervez A. Qureshi		—		—		—		—		X
	32.2	**	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Kathleen M. Crusco		—		—		—		—		X


*		Represents a management contract.

**		This certification is not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ACTIVANT SOLUTIONS INC.
Date: August 12, 2009	By:	/s/ KATHLEEN M. CRUSCO
		Kathleen M. Crusco
		Senior Vice President and Chief Financial Officer (Principal Financial and Duly Authorized Officer)

EXHIBIT INDEX


				Incorporated by Reference
Exhibit						File		Date of		Exhibit		Provided
Number			Exhibit Description	Form		Number		First Filing		Number		Herewith
	10.1	*	Form of Indemnification Priority Agreement among Activant Group Inc., Activant Solutions Inc. and each of their non-executive directors		—		—		—		—		X
	31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Pervez A. Qureshi		—		—		—		—		X
	31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Kathleen M. Crusco		—		—		—		—		X
	32.1	**	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Pervez A. Qureshi		—		—		—		—		X
	32.2	**	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Kathleen M. Crusco		—		—		—		—		X


*		Represents a management contract.

**		This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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Activant Solutions Inactive 10-Q2009 Q3 Quarterly report

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