Solera (SLH) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission File Number 001-33461

Solera Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	26-1103816
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
15030 Avenue of Science San Diego, California 92128	(858) 724-1600
(Address of Principal Executive Offices, including Zip Code)	(Registrant’s Telephone Number, Including Area Code)

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the issuer’s common stock, as of November 6, 2008, was 64,948,579.

TABLE OF CONTENTS

			Page(s)
PART I
	Item 1.	Financial Statements (Unaudited)	3 to 18
		Consolidated Balance Sheets as of September 30, 2008 and June 30, 2008.	3
		Consolidated Statements of Operations for the three month periods ended September 30, 2008 and September 30, 2007.	4
		Consolidated Statements of Cash Flows for the three month periods ended September 30, 2008 and September 30, 2007.	5
		Notes to Consolidated Financial Statements.	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19 to 29
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	30
	Item 4.	Controls and Procedures.	31
PART II
	Item 1.	Legal Proceedings	32
	Item 1A	Risk Factors	32 to 42
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
	Item 3.	Defaults Upon Senior Securities	43
	Item 4.	Submission of Matters to a Vote of Security Holders	43
	Item 5.	Other Information	43
	Item 6.	Exhibits	43

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SOLERA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2008 AND JUNE 30, 2008

(In thousands, except share amounts)

	September 30, 2008 (Unaudited)			June 30, 2008 (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	159,969		$	149,311
Accounts receivable — net		91,705			95,843
Other receivables		8,995			9,784
Other current assets		18,121			18,314
Deferred income tax assets		4,285			4,802
Total current assets		283,075			278,054
PROPERTY AND EQUIPMENT — Net		46,478			49,243
OTHER ASSETS		20,066			22,980
LONG TERM DEFERRED INCOME TAX ASSETS		5,219			5,162
GOODWILL		599,975			646,098
INTANGIBLE ASSETS — Net		298,612			330,218
TOTAL	$	1,253,425		$	1,331,755
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	29,514		$	32,191
Accrued expenses and other current liabilities		94,150			103,597
Income taxes payable		14,441			12,449
Deferred income tax liabilities		695			842
Current portion of long-term debt		5,984			6,336
Total current liabilities		144,784			155,415
LONG-TERM DEBT		588,337			624,570
OTHER LIABILITIES		30,520			33,475
LONG-TERM DEFERRED INCOME TAX LIABILITIES		34,262			36,558
Total liabilities		797,903			850,018
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES		16,096			15,429
STOCKHOLDERS’ EQUITY:
Common shares, $0.01 par value: 150,000,000 shares authorized; 64,938,889 and 64,816,018 issued and outstanding as of September 30, 2008 and June 30, 2008, respectively		513,373			510,900
Accumulated deficit		(95,810	)		(110,157	)
Accumulated other comprehensive income		21,863			65,565
Total stockholders’ equity		439,426			466,308
TOTAL	$	1,253,425		$	1,331,755

See accompanying notes to consolidated financial statements.

3

SOLERA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2008 AND 2007

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,
	2008			2007
Revenues	$	142,992		$	124,181
Cost of revenues:
Operating expenses		33,279			32,340
Systems development and programming costs		16,258			15,973
Total cost of revenues (excluding depreciation and amortization)		49,537			48,313
Selling, general and administrative expenses		38,734			33,542
Depreciation and amortization		21,236			22,405
Restructuring charges		471			1,623
Interest expense		11,066			11,162
Other income — net		(3,498	)		(1,156	)
		68,009			67,576
Income before provision for income taxes and minority interests		25,446			8,292
Income tax provision		9,009			2,877
Minority interest in net income of consolidated subsidiaries		2,090			1,561
Net income		14,347			3,854
Net income per share:
Basic	$	0.22		$	0.06
Diluted	$	0.22		$	0.06
Weighted-average shares used in the calculation of net income per share:
Basic		64,365			62,833
Diluted		64,978			64,589

See accompanying notes to consolidated financial statements.

4

SOLERA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2008 AND 2007

(In thousands)

(Unaudited)

	Three Months Ended September 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,347		$	3,854
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,236			22,405
Minority interests in net income of consolidated subsidiaries		2,090			1,561
Provision for doubtful accounts		219			50
Stock-based compensation		1,568			602
Deferred income taxes		(221	)		(2,568	)
Change in fair value of financial instrument		(2,980	)		32
Other		54			434
Changes in operating assets and liabilities — net of effects from acquisition of businesses:
Decrease in accounts receivable		143			3,175
Decrease (increase) in other assets		2,402			(1,763	)
Decrease in accounts payable		(1,089	)		(22	)
Decrease in accrued expenses and other liabilities		(4,005	)		(1,849	)
Increase in accrued interest		53			313
Net cash provided by operating activities		33,817			26,224
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(5,695	)		(4,913	)
Acquisitions of business — net of cash acquired		(1,864	)		—
Investment in joint venture		—			(295	)
Net cash used in investing activities		(7,559	)		(5,208	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on financed asset acquisition		(1,344	)		(544	)
Repayments under revolving credit facility		—			(6,929	)
Repayments of long-term debt		(1,526	)		(1,545	)
Repurchase of common shares		—			(112	)
Proceeds from stock purchase plan and exercise of stock options		905			—
Net cash used in financing activities		(1,965	)		(9,130	)
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(13,635	)		5,370
NET CHANGE IN CASH AND CASH EQUIVALENTS		10,658			17,256
CASH AND CASH EQUIVALENTS — Beginning of period		149,311			89,868
CASH AND CASH EQUIVALENTS — End of period	$	159,969		$	107,124
SUPPLEMENTAL CASH FLOW INFORMATION
— Cash paid for interest	$	10,915		$	10,405
— Cash paid for income taxes	$	5,339		$	3,926
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
— Capital assets financed	$	329		$	660

See accompanying notes to consolidated financial statements.

5

SOLERA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Description of Business Solera Holdings, Inc. and subsidiaries (the “Company” or “Solera”) is a leading global provider of software and services to the automobile insurance claims processing industry. Its software and services help its customers: estimate the costs to repair damaged vehicles; determine pre-collision fair market values for vehicles damaged beyond repair; automate steps of the claims process; outsource steps of the claims process that insurance companies have historically performed internally; and monitor and manage their businesses through data reporting and analysis. The Company is active in over 50 countries and derives most of its revenues from its estimating and workflow software.

Solera was formed in March 2005. In April 2006, Solera acquired the Claims Services Group (“CSG”), a business unit of Automatic Data Processing, Inc. (“ADP”), for approximately $1.0 billion. Prior to the acquisition of CSG, Solera’s operations consisted primarily of developing its business plan, recruiting personnel, providing consulting services, raising capital and identifying and evaluating operating assets for acquisition.

Solera accounted for the acquisition of CSG using the purchase method of accounting. The Company allocated the aggregate acquisition consideration to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the date of the acquisition.

In May 2007, the Company completed an initial public offering of shares of the Company’s common stock. In the initial public offering, the Company sold 19,200,000 shares of common stock and the selling stockholders sold 10,987,500 shares of common stock. In connection with the initial public offering, the Company amended its corporate status and converted from a Delaware limited liability company into a Delaware corporation with 150,000,000 authorized shares of common stock, par value $0.01, and 15,000,000 authorized shares of preferred stock, par value $0.01. Upon the effectiveness of the conversion, all of the Company’s outstanding preferred and common units were automatically converted into shares of common stock based on their relative rights as set forth in the Company’s limited liability company agreement. As a result, 31,633,211 common units were converted into 31,633,211 shares of common stock, and 204,016 preferred units were converted into 13,889,974 shares of common stock.

Principles of Consolidation and Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles and applicable regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the Company’s audited Consolidated Financial Statements for the fiscal year ended June 30, 2008, included in its Annual Report on Form 10-K filed with the SEC on August 29, 2008. The Company’s operating results for the three months ended September 30, 2008 are not necessarily indicative of the results that may be expected for future quarters.

The preparation of the accompanying unaudited consolidated financial statements requires the use of estimates that affect the reported amounts of assets, liabilities, revenues, expenses and contingencies. Estimates are updated on an ongoing basis and are evaluated based on historical experience and current circumstances. Changes in facts and circumstances in the future may give rise to changes in these estimates which may cause actual results to differ from current estimates.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

6

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Solera’s significant accounting policies are described in Note 2 to the Company’s audited Consolidated Financial Statements for the fiscal year ended June 30, 2008, included in the Company’s Annual Report on Form 10-K. As of November 6, 2008 these accounting policies have not significantly changed.

Recent Accounting Pronouncements—In September 2006, the Financial Accounting Standards Board, or FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). This statement clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements. The Company adopted SFAS No. 157 effective for the Company beginning in the first quarter of fiscal year 2009. The adoption of SFAS No. 157, resulted in a reduction to liabilities of approximately $370,000 and is reported as a component of Accumulated other comprehensive income in stockholders’ equity.

In February 2008, SFAS No. 157 was amended by FASB Staff Position No. 157-2,Effective Date of Measurements (“FSP No. 157-2”), which deferred the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for those recognized or disclosed on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. The Company is currently evaluating the effect that the implementation of FSP No. 157-2 will have on its consolidated financial statements beginning in the first quarter of fiscal year 2010.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. The Company adopted SFAS No. 159 on July 1, 2008 and did not elect the fair value option for any of its financial assets or liabilities.

In March 2007, the FASB ratified EITF Issue No. 06-11,Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (“EITF No. 06-11”). EITF No. 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee stock-based payment awards as an increase to additional paid-in capital. EITF No. 06-11 is effective for the Company, in the first quarter of fiscal year 2009. The adoption of EITF No. 06-11 has had no material impact on the Company’s financial position or results of operations.

In June 2007, the FASB ratified EITF Issue No. 07-3,Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities(“EITF No. 07-3”). EITF No. 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. EITF No. 07-3, became effective, on a prospective basis, for the Company in the first quarter of fiscal year 2009. The adoption of EITF No. 07-3, has had no material impact on the Company’s financial position or results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160 amends ARB 51, “Consolidated Financial Statements”, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 changes the way the consolidated income statement is presented. It requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. The adoption of SFAS No. 160 may require increased disclosures in the Company’s consolidated financial statements. SFAS No. 160 is effective for the Company beginning in the first quarter of fiscal year 2010 and will apply prospectively, except for the presentation and disclosure requirements, which will apply retrospectively. The Company is currently assessing the impact that adoption of SFAS No. 160 will have on its consolidated financial statements.

7

In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations(“SFAS No. 141(R)”). SFAS No. 141(R) expands the definition of a business combination and requires the fair value of the purchase price of an acquisition, including the issuance of equity securities, to be determined on the acquisition date. SFAS No. 141(R) also requires that all assets, liabilities, contingent considerations, and contingencies of an acquired business be recorded at fair value at the acquisition date. In addition, SFAS No. 141(R) requires that acquisition costs generally be expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. SFAS No. 141 (R) is effective for the Company beginning in the first quarter of fiscal year 2010 with early adoption prohibited. The Company is currently evaluating the effect that the implementation of SFAS No. 141(R) will have on its consolidated financial statements on future acquisitions.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS No.161 applies to all derivative instruments within the scope of SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS No. 133”), as well as related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS No. 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning with the Company’s fiscal year 2010, with early application permitted. The Company is currently evaluating the disclosure implications of SFAS No. 161.

In April 2008, the FASB released FASB Staff Position 142-3,Determination of the Useful Life of Intangible Assets (“FSP No. 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,Goodwill and Other Intangible Assets. The intent of FSP No. 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other U.S. generally accepted accounting principles. FSP No. 142-3 is effective for the Company as of the beginning of fiscal year 2010. The Company is currently evaluating the potential impact, if any, the adoption of FSP No. 142-3 will have on its consolidated financial position, results of operations and cash flows.

In May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not expect the adoption of SFAS No. 162 to have a material effect on its consolidated results of operations and financial condition.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN No. 48”). FIN No. 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements and also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN No. 48 effective, July 1, 2007.

3. NET INCOME PER COMMON SHARE

The Company calculates net income per common share in accordance with SFAS No. 128,Earnings Per Share (“SFAS No. 128”). Under SFAS No. 128, basic net income per common share is calculated by dividing net income by the weighted-average number of common shares outstanding during the reporting period excluding shares subject to repurchase.

8

Reconciliation of shares used in this calculation of basic and diluted net income per share for the three month periods ended September 30, 2008 and 2007 is as follows (in thousands, except per share data):

	Three Months Ended September 30,
	2008			2007
Net income	$	14,347		$	3,854
Weighted-average number of common shares		64,881			64,781
Weighted-average common shares subject to repurchase		(516	)		(1,948	)
Weighted-average number of common shares used to compute basic net income per share		64,365			62,833
Effect of dilutive common stock equivalents:
Stock options to purchase common stock		80			—
Restricted common stock awards		533			1,756
Weighted-average number of common shares used to compute diluted net income per share		64,978			64,589
Basic net income per share	$	0.22		$	0.06
Diluted net income per share	$	0.22		$	0.06

For the three month periods ended September 30, 2008 and 2007 potential common stock equivalents of 87,650 and 32,459, respectively, are not included in the diluted net income per share calculation above, because their effect was antidilutive for the period.

4. RESTRUCTURING CHARGES

The Solera restructuring initiatives have been focused on the objective of eliminating waste and improving operational efficiencies. The restructuring reserves are included in Accrued expenses and Other current liabilities and Other liabilities in the consolidated balance sheets.

The Company recorded restructuring charges of $471,000 and $1,623,000 during the three month periods ended September 30, 2008 and 2007, respectively. For the three months ended September 30, 2008, the charges were primarily for termination benefits. For the three months ended September 30, 2007, the charges consisted primarily of net facilities consolidation charges of $1,048,000 and termination benefits of $575,000.

For the restructuring charges recorded during the three months ended September 30, 2008, approximately $399,000 and $72,000 resulted from employee terminations and restructuring activities that pertained to Operating and system development and programming expenses, and Selling, general and administrative expenses, respectively. For the restructuring charges recorded during the three months ended September 30, 2007, approximately $303,000 and $1,320,000 resulted from employee terminations and restructuring activities that pertained to Operating and system development and programming expenses and Selling, general and administrative expenses, respectively.

The restructuring balances at September 30, 2008 of $13,385,000 included severance-related liabilities of $11,678,000, lease related liabilities as a result of facilities consolidation efforts of $2,478,000 and cumulative translation adjustments of ($771,000). The restructuring balances at June 30, 2008 of $14,563,000 included severance-related liabilities of $11,269,000, lease related liabilities as a result of facilities consolidation efforts of $2,610,000 and cumulative translation adjustments of $684,000.

In February 2008, the Company concluded its employee termination activity under theAmericas 2007 plan, which commenced in February 2007 and was designed to create appropriate resource levels and efficiencies for various functional groups across the Americas segment, which encompasses the Company’s operations in North America, Central America and South America. Termination benefits for this plan related to the termination of approximately 112 employees. Remaining restructuring liabilities under this plan are comprised of amortization of lease related liabilities over the remaining 6 year term of the lease.

9

Under theEMEA 2007 plan, the Company focused on creating a more efficient and flexible employee work force for parts of its European operations in the EMEA segment, which encompasses the Company’s operations in Europe, the Middle East, Africa, and Asia. Termination benefits of $3,400,000 for this plan related to the termination of approximately 45 employees during the fiscal year ended June 30, 2007.

In February 2008 the Company initiated a new plan,Americas 2008, which is focused on creating a more efficient and flexible employee work force across the Americas. Termination benefits of $469,000 and $1,751,000 for this plan relate to the termination of approximately 16 and 100 employees during the three month periods ended September 30, 2008 and the fiscal year ended June 30, 2008, respectively.

In June 2008, the Company initiated a new plan,EMEA 2008, which is focused on creating a more efficient and flexible employee work force for parts of its European operations. Termination benefits of $9,515,000 for this plan related to the termination of approximately 50 employees during the fiscal year ended June 30, 2008, offset by a currency translation adjustment of ($675,000) for the three months ended September 30, 2008. Additional termination benefits of $849,000, occurred during the three months ended September 30, 2008, related to the termination of 14 employees as part of the acquisition of UC Universal Consulting Software GmbH, and was recorded as a component of goodwill as of the purchase date.

The following table summarizes the charges for restructuring and related activities, including payments made and the ending reserve balances by business segment (in thousands):

			Solera Restructuring plans												Total
	CSG 1		EMEA 07			EMEA 08			Americas 07			Americas 08			EMEA			Americas			Total
Balance—June 30, 2008	$	142	$	1,397		$	9,515		$	2,628		$	881		$	10,919		$	3,644		$	14,563
Additions		—		—			849			2			469			849			471			1,320
Payments/amortization		—		(533	)		(339	)		(152	)		(703	)		(872	)		(855	)		(1,727	)
Translation adjustments		—		(96	)		(675	)		—			—			(771	)		—			(771	)
Balance—September 30, 2008	$	142	$	768		$	9,350		$	2,478		$	647		$	10,125		$	3,260		$	13,385

¹ Restructuring plan from acquisition of CSG

5. GOODWILL AND INTANGIBLE ASSETS—NET

Changes in goodwill by business segment during the three month period ended September 30, 2008 are as follows (in thousands):

	EMEA			Americas			Total
Balance—June 30, 2008	$	557,084		$	89,014		$	646,098
Additions from acquisition		2,985			—			2,985
Translation adjustments		(48,975	)		(133	)		(49,108	)
Balance—September 30, 2008	$	511,094		$	88,881		$	599,975

Components of intangible assets, excluding goodwill, as of September 30, 2008 and June 30, 2008 are as follows (in thousands):

	September 30, 2008			June 30, 2008
Intangibles (excluding goodwill):
Internally developed software	$	28,148		$	27,862
Customer relationships		193,540			202,970
Trademarks		16,011			17,264
Software and database technology		270,600			285,015
		508,299			533,111
Less accumulated amortization		(209,687	)		(202,893	)
Intangible assets—net	$	298,612		$	330,218

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Intangible assets (excluding goodwill) have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is 11.0 years (2.3 years for internally developed software, 17.8 years for customer relationships, 1.8 years for trademarks and 6.8 years for software and database). Internally developed software is amortized on a straight-line basis. Other intangible assets are amortized on an accelerated basis to reflect the pattern in which economic benefits of the intangible assets are consumed. Amortization of intangibles totaled $16,917,000 and $18,182,000 for the three month periods ended September 30, 2008 and 2007, respectively. Estimated amortization expense of the Company’s existing intangible assets for the next five fiscal years ending June 30 are as follows (in thousands):

2009 (remaining 9 months)	$	49,977
2010		56,185
2011		44,855
2012		33,986
2013		26,417
Thereafter		87,192
Total	$	298,612

The above useful lives represent the Company’s best estimates. However, actual lives may differ from these estimates. In addition, the expected future amortization may vary based on fluctuations in foreign currency exchange rates.

6. FAIR VALUE MEASUREMENTS

The Company adopted SFAS No. 157 on July 1, 2008 for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

SFAS No. 157 defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the Company’s own credit risk.

In addition to defining fair value, SFAS No. 157 expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

• Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

• Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

The following section describes the valuation methodologies the Company uses to measure different financial assets and liabilities at fair value.

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Investments Other Than Derivatives

The Company’s investments, other than derivatives, primarily include foreign government bonds, and money market accounts.

In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to the Companys Level 1 investments such as international money markets, and foreign government bills. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company would use quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These investments would be included in Level 2. The Company does not currently hold any Level 2 investments. The Company would value Level 3 investments using internally developed valuation models, whose inputs would include interest rate curves, credit spreads, stock prices, volatilities and any other relevant inputs. Unobservable inputs used in these models are significant to the fair value of the investments. The Company does not currently hold any Level 3 investments.

Derivatives

In general, and where applicable, the Company would use quoted prices in an active market for identical derivative assets and liabilities that are traded on exchanges. These derivative assets and liabilities would be included in Level 1. The Company does not currently have any Level 1 derivatives. The fair values for the derivative assets and liabilities included in Level 2 are estimated using industry standard valuation techniques to extrapolate future reset rates from period end yield curves and standard valuation models based on the Black-Scholes option valuation model. Market-based observable inputs including spot and forward rates, volatilities and interest rate curves at observable intervals are used as inputs to the models. Level 2 derivative assets and liabilities primarily would include certain over-the-counter options, and futures. In certain cases, market-based observable inputs are not available and the Company would use management judgment to develop assumptions which would be used to determine fair value. These derivative assets and liabilities would be included in Level 3. The Company does not currently have any Level 3 derivatives.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents our assets and liabilities measured at fair value on a recurring basis at September 30, 2008 (in thousands):

	Level 1		Level 2			Level 3		Total
Assets
Foreign government bills(1)	$	43,941	$	—		$	—	$	43,941
Cash equivalents - money market funds(1)		29,124		—			—		29,124
Restricted cash - money market funds(2)		686							686
Foreign currency option		—		4,781			—		4,281
Total	$	73,751	$	4,781		$	—	$	78,532
Liabilities
Interest rate swaps		—		9,216	(3)		—		9,216
Total	$	—	$	9,216		$	—	$	9,216

⁽¹⁾ Included in cash and cash equivalents on the Company’s consolidated balance sheet.

⁽²⁾ Included in other assets on the Company’s consolidated balance sheet.

⁽³⁾ Amount includes adjustment of $370,000 due to the adoption of SFAS No. 157.

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7. FINANCIAL INSTRUMENTS AND DERIVATIVES

Financial Instruments — At September 30, 2008 and June 30, 2008, the carrying amounts of cash equivalents, receivables, accounts payable and other liabilities approximated their fair values because of the short-term maturities of these financial instruments. The carrying amounts of long-term debt at September 30, 2008 and June 30, 2008 approximated fair value based on prevailing interest rates.

Derivatives — In the normal course of business, the Company is exposed to interest rate changes and foreign currency fluctuations. The Company strives to limit these risks through the use of derivatives such as interest rate swaps and foreign exchange options. Derivatives are not used for speculative purposes.

In February 2006, the Company entered into a foreign currency exchange option (the “FX Option”) that gives the Company the option to call $200,000,000 at a strike price of 1.1646 EUR/USD at any time up to February 8, 2011. The FX Option is not designated as a hedging instrument. In February 2006, the Company paid approximately $7,912,000 for the FX Option.

As of September 30, 2008 and June 30, 2008, the fair value of the FX option approximated $4,781,000 and $1,801,000, respectively, and was recorded in Other assets in the consolidated balance sheets. The increase in fair value of approximately $2,980,000 during the three months ended September 30, 2008, was due to increased volatility in foreign currency rates, and changes in interest rates, and was recognized in Other income in the consolidated statement of operations.

In June 2007, the Company entered into three U.S. dollar-based interest rate swaps with notional amounts of $50,000,000, $80,965,000 ($72,865,000 as of September 30, 2008 per the planned reduction in notional amounts over the life of the swap contract), and $75,000,000, all with maturities on June 30, 2011, which require the Company to pay fixed rates of 5.445%, 5.418%, and 5.445%, respectively, and also entered into three Euro-based interest rate swaps with notional amounts of € 69,821,000 (€46,667,000 as of September 30, 2008 per the planned reduction in notional amounts over the life of the swap contract), €50,000,000, and €60,000,000, all with maturities on June 30, 2011, which require the Company to pay fixed rates of 4.603%, 4.679%, and 4.685%, respectively. These interest rate swaps were designated and documented at their inception as cash flow hedges and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of Accumulated other comprehensive income in stockholders’ equity and reclassified into earnings when the hedged transaction affects earnings. The ineffective portion on these cash flow hedges is recognized in interest expense. The estimated fair values of ($8,501,000) and ($8,678,000) on U.S. dollar-based swaps and (€495,000)/($715,000) and €1,686,000/$2,662,000 on Euro-based swaps were recorded in Other assets/(Other liabilities) in the consolidated balance sheet as of September 30, 2008 and June 30, 2008, respectively. The decrease, net of tax, in the fair value of these swaps of $2,375,000 during the three months ended September 30, 2008, reflects the effective portion of loss on these hedges and is reported as a component of Accumulated other comprehensive income in stockholders’ equity.

The estimated fair values of the Company’s derivatives were determined based on quoted market prices and may not be representative of actual values that could have been realized or that will be realized in the future.

8. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

	September 30, 2008		June 30, 2008
Amended and restated first lien credit facility:
Domestic term loan, due May 2014	$	218,146	$	218,697
European term loan, due May 2014		376,175		412,209
Total		594,321		630,906
Less current portion		5,984		6,336
Long-term portion	$	588,337	$	624,570

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Senior Secured Credit Facilities — On May 16, 2007, in conjunction with the closing of its initial public offering, the Company entered into an Amended and Restated Senior Credit Facility Agreement with a syndicate of commercial lenders, consisting of a $50,000,000, Revolving Credit Facility, a $230,000,000 Domestic Term Loan and a €280,000,000 European Term Loan. As of September 30, 2008, the Company had $0, $218,147,000 and $376,175,000 (€260,419,000) in outstanding loans under the Revolving Credit Facility, the Domestic Term Loan and the European Term Loan, respectively, with interest rates of 4.819%, 4.819%, and 6.954%, respectively. Borrowings under the amended and restated senior credit facility bear interest, to be reset at the Company’s option, at a rate determined by the sole lead arranger of the syndicate of commercial lenders equal to (1) the offer rate on dollars based on the British Bankers’ Association Settlement Rate for deposits or (2) the offer rate on the Euro from the Banking Federation of the European Union, or (3) in the event such rates are not available, then the offered quotation rate to first class banks in the London inter-bank market or European inter-bank market by Citibank USA Inc. for deposits, respectively, in each case, plus an applicable margin that varies based upon the Company’s consolidated leverage ratio, as defined in the agreement. Beginning on June 30, 2007, consecutive quarterly minimum principal payments of $575,000 and €700,000 are required for the Domestic Term Loan and European Term Loan, respectively, under the Amended and Restated Senior Credit Facility with the remaining balance due in May 2014. Future quarterly minimum principal payments will be reduced each time a voluntary prepayment occurs. The Amended and Restated Senior Secured Credit Facility allows for voluntary prepayments under specified conditions and requires mandatory prepayments and commitment reductions upon the occurrence of certain events, including among others, sale of assets, receipt of insurance or condemnation proceeds, excess cash flow and issuances of debt and equity securities.

For the three months ended September 30, 2008, the Company’s cumulative principal payments under the European and Domestic Term Loan principal payments were $942,000 (€654,000) and $551,000, respectively, which amounts equal the minimum quarterly payments applicable during the period. Except for the quarterly minimum principal payment, the decrease in the European term loan balance during the three months ended September 30, 2008 was due to changes in foreign currency exchange rates.

The obligations under the Amended and Restated Senior Credit Facility are secured by substantially all of the assets of the Company. The Amended and Restated Senior Credit Facility contains certain covenants including, among others, requirements related to financial reporting, maintenance of operations, compliance with applicable laws and regulations, maintenance of interest rate protection and compliance with specified financial covenants, as well as restrictions related to liens, investments, business combinations, additional indebtedness, dispositions of assets or subsidiary interests, dividends, distributions, issuances of equity securities, transactions with affiliates, capital expenditures and certain other changes in the business. The Amended and Restated Senior Credit Facility contains a leverage ratio, which is applicable only to the revolving loans and applies only if at least $10,000,000 of revolving loans, including outstanding letters of credit, are outstanding for at least ten days during the prior fiscal quarter. Any amounts drawn on the revolver become due in full April 2012.

Future Minimum Principal Payments— Future minimum principal payments for the next five fiscal years ending June 30 are as follows (in thousands):

2009 (remaining 9 months)	$	4,488
2010		5,985
2011		5,985
2012		5,985
2013		5,985
Thereafter		565,893
Total	$	594,321

9. EMPLOYEE BENEFIT PLANS

Stock-Based Compensation—Effective July 1, 2006, the Company adopted SFAS No. 123(R),Share-Based Payment (“SFAS No. 123(R)”) which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors, including employee stock options and share awards, based on estimated fair values recognized over the requisite service period.

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The Company adopted SFAS No. 123(R) using the prospective transition method. Under this method, SFAS No. 123(R) is applied to new awards and to awards modified, repurchased or cancelled after the adoption date of July 1, 2006. Compensation cost that was previously recorded under Accounting Principles Board (“APB”) Opinion No. 25 for awards outstanding at the adoption date, such as unvested stock awards, will continue to be recognized as the stock awards vest. Accordingly, for the three months ended September 30, 2008, stock-based compensation expense includes compensation cost related to estimated fair values of awards granted after the date of adoption of SFAS No. 123(R) and compensation costs related to unvested awards at the date of adoption based on the intrinsic values as previously recorded under APB Opinion No. 25.

The fair value of stock and option awards granted after July 1, 2006 is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation including the expected term (weighted average period of time that the shares and options granted are expected to be outstanding), the volatility of the Company’s common shares, an assumed risk free interest rate and the estimated forfeitures of unvested share awards. No compensation cost is recorded for awards that do not vest. For awards granted after July 1, 2006 and valued in accordance with SFAS No. 123(R), the Company used the straight-line method for expense attribution. Expected volatilities utilized in the model are based on a combination of implied market volatilities, historical volatility of the Company’s stock price and other factors. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The expected term of option grants is the estimated weighted-average period until exercise or cancellation of vested options, allowed for under SAB No. 107 and SAB No. 110 guidance.

Stock-based compensation expense of $1,568,000 and $602,000 was recognized in net income for the three month periods ended September 30, 2008 and 2007, respectively.

As of September 30, 2008 and 2007, the total remaining unrecognized compensation cost related to unvested stock options and restricted stock awards, net of estimated forfeitures, amounted to $13,493,000 and $8,663,000, which will be amortized over a weighted average period of 3.3 and 3.4 years, respectively.

Restricted Stock—The Company has a restricted stock program under which shares of common stock have been issued to certain employees, which may vest up to five years from the date of grant. These shares are restricted as to transfer and in certain circumstances must be returned to the Company at the original purchase price. Following the Company’s May 2007 initial public offering, the Company granted restricted stock units to certain employees and directors. The restricted stock units are issued pursuant to a vesting schedule and generally vest ratably over four years. The value of the Company’s restricted stock units, based on market prices, is recognized as compensation expense over the restriction period in accordance to their vesting terms.

The stock-based compensation expense related to restricted stock awards and restricted stock units included in net income was $1,019,000 and $468,000 for the three month periods ended September 30, 2008 and 2007, respectively.

A summary of the status of unvested stock awards and restricted stock units as of September 30, 2008 is presented below:

	Number of restricted common stock/units		Purchase price per common stock/unit		Weighted Average Fair value per common stock/unit
Nonvested at June 30, 2008	804,682		$	0.20	$	9.33
Granted	25,000		$	0.01	$	28.98
Vested/Released	(50,442	)	$	0.25	$	5.29
Forfeited	(11,275	)	$	0.01	$	19.40
Nonvested at September 30, 2008	767,965		$	0.20	$	10.01

Due to the significant difference between the purchase price and fair value per common share/unit, the fair value of the right to purchase these restricted shares/units and intrinsic value of the restricted shares/units were equal.

The estimated total remaining unamortized compensation expense of $6,327,000, net of forfeitures, is expected to be recognized over the remaining vesting period of 3.2 years. The fair value of awards granted and vested during the three months ended September 30, 2008, was $659,000 and $330,000, respectively. The fair value of awards granted and vested during the three months ended September 30, 2007, was $267,000 and $0, respectively.

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Stock Options—Stock options are granted to employees at exercise prices equal to the fair market value of the Company’s common stock on the date of grant. Stock options are issued pursuant to a vesting schedule, generally vest ratably over four years and have a term of 10 years. Compensation expense for stock options is recognized over the requisite service period for each separately vesting portion of the stock option award. The stock-based compensation expense related to stock options included in the net income was $526,000 and $134,000 for the three month periods ended September 30, 2008 and 2007, respectively. The estimated total remaining unamortized compensation expense of $7,166,000, net of forfeitures, is expected to be recognized over the remaining vesting period of 3.4 years.

The aggregate intrinsic value of total stock options outstanding and exercisable at September 30, 2008 was $5,889,000 and $1,018,000, respectively. The fair value of awards vested during the three months ended September 30, 2008 was $206,000. The weighted average remaining contractual life of total stock options outstanding and exercisable at September 30, 2008 was 9.3 years and 8.7 years, respectively.

A summary of the Company’s stock option activity for the three months ended September 30, 2008 is as follows:

	Number of Options		Weighted Average Exercise Price
Outstanding at June 30, 2008	1,067,403		$	22.49
Granted	75,700		$	29.02
Exercised	(40,875	)	$	16.00
Cancelled	(27,500	)	$	19.00
Outstanding at September 30, 2008	1,074,728		$	22.82
Exercisable at September 30, 2008	79,475		$	16.26

The intrinsic value for stock options exercised during the three months ended September 30, 2008 was $569,000. Cash received from options exercised during the three month periods ended September 30, 2008 and 2007 was $ 654,000 and $0, respectively. The tax benefit related to options exercised during the three month periods ended September 30, 2008 and 2007 was $197,000 and $0, respectively.

The fair value for stock options granted during the three month periods ended September 30, 2008 and 2007, was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

	Three Months Ended September 30,
	2008			2007
Stock option grants:
Expected term of stock options (years)		6.1			6.1
Risk-free interest rate		3.2	%		4.5	%
Dividend Yield		—			—
Volatility		26.8	%		32.8	%
Weighted-average grant-date fair value (per share)	$	9.69		$	6.63

Employee Stock Purchase Plan—The Company offers an Employee Stock Purchase Plan (“the ESPP”) that allows eligible employees to purchase shares of common stock at a price equal to 95% of the lower of the fair market value of the common stock at the beginning of the offering period and the end of the offering period. Compensation expense for the ESPP is recognized on a straight-line basis over the offering period. Each offering period has a six-month term, which runs either from January 1 to June 30 or from July 1 to December 31. For the three months ended September 30, 2008, the Company recorded compensation expense of $23,000. During the three months ended September 30, 2008, the Company issued 9,637 shares under the ESPP, representing approximately $221,000 in employee contributions accumulated during the January 1, 2008 through June 30, 2008 offering period, which contributions were used to purchase shares in July 2008.

Pension Plans The Company’s foreign subsidiaries sponsor various defined benefit plans and individual defined benefit arrangements covering certain eligible employees. The benefits under these pension plans are based on years of service and compensation levels. Funding is limited to statutory requirements.

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The components of net pension expense were as follows (in thousands):

	Three Months Ended September 30,
	2008			2007
Service cost — benefits earned during the period	$	735		$	800
Interest cost on projected benefits		881			600
Expected return on plan assets		(773	)		(600	)
Net pension expense	$	843		$	800

10. PROVISION FOR INCOME TAXES

The Company recorded an income tax provision of $9,009,000 and $2,877,000 for the three month periods ended September 30, 2008 and 2007, respectively. The expected tax provision derived from applying the federal statutory rate to the Company’s income before income taxes for the three months ended September 30, 2008 differed from the Company’s recorded income tax provision primarily due to lower foreign income tax rates in certain jurisdictions, offset by valuation allowance applied to particular entities’ net operating losses that do not meet the more-likely-than not standard of realizability of these deferred tax assets and foreign withholding tax liabilities. The impact from the changes in California state tax law that were enacted on September 30, 2008 has been included in the Company’s provision for the three months ended September 30, 2008.

The FIN No. 48 unrecognized tax benefits, if recognized, would impact the income tax provision by $11,089,000 and $5,350,000 as of September 30, 2008 and 2007, respectively. Accrued interest and penalties at September 30, 2008 and 2007 were approximately $360,000 and $30,000, respectively.

Pursuant to the acquisition agreement dated February 8, 2006 between ADP and Solera, ADP has indemnified Solera for all tax liabilities related to the pre-acquisition period, attributable to the “Claims Services Group” acquired on April 13, 2006. The Company is liable for any tax assessments for the post-acquisition period for its U.S. and foreign jurisdictions. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next twelve months.

11. COMPREHENSIVE (LOSS) INCOME

The components of comprehensive (loss) income for the three month periods ended September 30, 2008 and 2007 are as follows (in thousands):

	Three Months Ended September 30,
	2008			2007
Net income	$	14,347		$	3,854
Other Comprehensive (loss)/income:
Foreign currency translation adjustments		(41,327	)		23,917
Unrealized net loss on derivative instruments		(2,375	)		(5,439	)
Comprehensive (loss)/income	$	(29,355	)	$	22,332

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12. SEGMENT AND GEOGRAPHIC INFORMATION

The Company manages its business operations through two strategic business units, which, based upon the information reported to the chief operating decision maker, who is the Chief Executive Officer, the Company’s two reportable segments: EMEA and Americas. The EMEA business unit encompasses the Company’s operations in Europe, the Middle East, Africa and Asia. The Americas business unit encompasses the Company’s operations in North America, Central and South America. Based on management fee studies, the Companys Corporate segment allocates certain cost related to providing services to its reportable segments. These costs are managed at the corporate level and include costs related to financing activities, business development and oversight, and tax, audit and other professional fees of the Company. The Company evaluates the performance of its reportable segments based on operating results before income taxes:

(in thousands)	EMEA			Americas			Corporate			Total
Three Months Ended September 30, 2007
Revenues	$	74,453		$	49,728		$	—		$	124,181
Income (loss) before income taxes and minority interest		21,728			4,728			(18,164	)		8,292
Assets		935,570			323,010			15,982			1,274,562
Capital expenditures		1,407			3,506			—			4,913
Depreciation and amortization		13,161			9,244			—			22,405
Interest expense		14			70			11,078			11,162
Other (income) expense — net		(1,511	)		(692	)		1,047			(1,156	)
Three Months Ended September 30, 2008
Revenues	$	90,319		$	52,673		$	—		$	142,992
Income (loss) before income taxes and minority interest		29,020			11,984			(15,558	)		25,446
Assets		951,794			291,957			9,674			1,253,425
Capital expenditures		2,031			3,664			—			5,695
Depreciation and amortization		13,024			8,206			6			21,236
Interest expense		16			70			10,980			11,066
Other income — net		(2,227	)		(62	)		(1,209	)		(3,498	)

The Company conducts its sales, marketing and customer service activities throughout the world. Geographic revenue information is based on the location of the customer. No single country other than the United States, the Netherlands, the United Kingdom and Germany accounted for 10% or more of total external revenue or of long-lived assets.

(in thousands)	Europe *		United States		The Netherlands		United Kingdom		Germany		All Other		Total
Three Months Ended September 30, 2007
Revenues	$	30,204	$	36,665	$	13,846	$	13,728	$	12,152	$	17,586	$	124,181
Property and equipment — net		3,964		26,183		279		8,528		8,545		4,622		52,121
Three Months Ended September 30, 2008
Revenues	$	38,595	$	36,579	$	17,719	$	13,900	$	15,178	$	21,021	$	142,992
Property and equipment — net		3,480		22,740		251		7,629		7,686		4,692		46,478

* Excludes the Netherlands, the United Kingdom and Germany.

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CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are identified by the use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend” “may”, “plan”, “predict”, “project” and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies and include, but are not limited to, statements about: changes in the amount of our existing unrecognized tax benefits; our revenue mix; factors that may effect our future operating results, the impact of currency exchange rate fluctuations on our financial results, our expectations regarding equity-related expenses, our income taxes; restructuring plans, potential restructuring charges and their impact on our revenues; our operating expense growth and operating expenses as a percentage of our revenues; stability of our development and programming costs; growth of our selling, general and administrative expenses; decrease of total depreciation and amortization expense; decrease in interest expense and possible impact of future foreign currency fluctuations; our use of cash and liquidity position going forward; and cash needs to service our debt.

Actual results could differ materially from those projected, implied or anticipated by our forward-looking statements. Some of the factors that could cause actual results to differ include: those set forth in the sections titled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and elsewhere as described in this Quarterly Report on Form 10-Q. These factors include, but are not limited to: our reliance on a limited number of customers for a substantial portion of our revenues; effects of competition on our software and service pricing and our business; unpredictability and volatility of our operating results, which include the volatility associated with foreign currency exchange risks and uncertainty in global economic conditions; our ability to increase market share, successfully introduce new software and services and expand our operations to new geographic locations; time and expenses associated with customers switching from competitive software and services to our software and services; rapid technology changes in our industry; effects of changes in or violations by us or our customers of government regulations; costs and possible future losses or impairments relating to our 2006 acquisition of the Claims Services Group from Automatic Data Processing, Inc.; use of cash to service our debt; country-specific risks associated with operating in multiple countries; and other factors that are described from time to time in our periodic filings with the Securities and Exchange Commission (“SEC”), including those set forth in this filing in Part II, Item 1A – “Risk Factors.”

All forward-looking statements are qualified in their entirety by this cautionary statement, and we undertake no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.

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

The following discussion of our financial condition and results of operations should be read in conjunction with the 2008 Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended June 30, 2008 filed with the SEC on August 29, 2008. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q.

All percentage amounts and ratios were calculated using the underlying data in whole dollars. Operating results for the first quarter of fiscal year 2009, is not necessarily indicative of the results that may be expected for any future period. We measure the effects on our results that are attributed to the change in foreign currency rates, by measuring the incremental difference between translating the current results at the monthly average rates for the same period from the prior year, compared to the monthly average rates used to translate current year actual results.

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Overview of the Business

We are the leading global provider of software and services to the automobile insurance claims processing industry. Our customers include insurance companies, collision repair facilities, independent assessors and automotive recyclers. We help our customers:

• estimate the costs to repair damaged vehicles and determine pre-collision fair market values for vehicles damaged beyond repair;

• automate and outsource steps of the claims process that insurance companies have historically performed internally; and

• improve their ability to monitor and manage their businesses through data reporting and analysis.

As of September 30, 2008, we served over 55,000 customers and were active in more than 50 countries with approximately 2,000 full-time employees. Our customers include more than 900 automobile insurance companies, 33,000 collision repair facilities, 7,000 independent assessors and 3,000 automotive recyclers. We derive revenues from many of the world’s largest automobile insurance companies, including each of the ten largest automobile insurance companies in Europe and at least nine of the ten largest automobile insurance companies in North America.

Company History

Solera Holdings, LLC was formed in March 2005. In April 2006, subsidiaries of Solera Holdings, LLC acquired the Claims Services Group (“CSG”), a business unit of Automatic Data Processing (“ADP”), for approximately $1.0 billion (“the April 2006 Acquisition”). Prior to the April 2006 Acquisition, Solera Holdings, LLC’s operations consisted primarily of developing our business plan, recruiting personnel, providing consulting services, raising capital and identifying and evaluating operating assets for acquisition.

We accounted for the April 2006 Acquisition using the purchase method of accounting. We allocated the aggregate April 2006 Acquisition consideration to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the date of the April 2006 Acquisition, which resulted in an increase in the accounting basis of some of our assets.

In May 2007, in connection with our initial public offering, we converted from a limited liability company into a Delaware corporation, and all of the Class A Common Units and Class B Preferred Units of Solera Holdings, LLC were converted into shares of our common stock.

Segments

We operate our business using two reportable segments: EMEA and Americas. Our EMEA segment consists of our operations in Europe, the Middle East, Africa and Asia. Our Americas segment consists of our operations in North, Central and South America. Based on management fee studies, our Corporate segment allocates certain costs related to providing services to our reportable segments. These costs are managed at the corporate level and include costs related to our financing activities, business development and oversight, and tax, audit and other professional fees. The accounting policies for each of our segments are the same. We evaluate the performance of our reportable segments based primarily upon their respective revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”). For the most part, we do not evaluate our costs and expenses on a per segment basis.

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The table below sets forth our revenues by reportable segment and as a percentage of our total revenues for the periods indicated.

	Three Months Ended September 30,
(dollars in millions)	2008				2007
EMEA	$	90.3	63.2	%	$	74.5	60.0	%
Americas		52.7	36.8			49.7	40.0
Total	$	143.0	100.0	%	$	124.2	100.0	%

Set forth below is our percentage of revenues for the periods presented from each of our principal customer categories:

	Three Months Ended September 30,
(dollars in millions)	2008				2007
Insurance companies	$	60.4	42.3	%	$	50.1	40.3	%
Collision repair facilities		53.5	37.4			46.9	37.8
Independent assessors		14.6	10.2			13.2	10.6
Automotive recyclers and other		14.5	10.1			14.0	11.3
Total	$	143.0	100.0	%	$	124.2	100.0	%

During the first quarter of fiscal year 2009, the United States, the Netherlands, and Germany were the only countries that individually represented more than 10% of total revenues.

The accounting policies for each of our segments are the same. We evaluate the operating performance of our segments based primarily upon their respective revenues and income before interest, taxes, depreciation and amortization. For the most part, we do not evaluate our costs and expenses on a per segment basis.

Components of Revenues and Expenses

Revenues

We generate revenues from the sale of software and services to our customers pursuant to negotiated contracts or pricing agreements. Pricing for our software and services is set forth in these agreements and negotiated with each customer. We generally bill our customers monthly under one or more of the following bases:

• price per transaction;

• fixed monthly amount for a prescribed number of transactions;

• fixed monthly subscription rate;

• price per set of services rendered; or

• price per system delivered.

Our software and services are often sold as packages, without individual pricing for each component. Our revenues are reflected net of customer sales allowances, which we estimate based on both our examination of a subset of customer accounts and historical experience.

Our core offering is our estimating and workflow software, which is used by our insurance company, collision repair facility and independent assessor customers and which represents the majority of our revenues. Our salvage and recycling software, business intelligence and consulting services, shared services and other offerings represent in the aggregate a smaller portion of our revenues. We believe that our estimating and workflow software will continue to represent a majority of our revenue for the foreseeable future.

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Cost of Revenues (excluding depreciation and amortization)

Our costs and expenses applicable to revenues represent the total of operating expenses and systems development and programming costs, which are discussed below.

Operating Expenses

Our operating expenses include: compensation and benefit costs for our operations, database development and customer service personnel; other costs related to operations, database development and customer support functions; third-party data and royalty costs; and costs related to computer software and hardware used in the delivery of our software and services.

Systems Development and Programming Costs

Systems development and programming costs include: compensation and benefit costs for our product development and product management personnel; other costs related to our product development and product management functions; and costs related to external software consultants involved in systems development and programming activities.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses include: compensation and benefit costs for our sales, marketing, administrative and corporate personnel; other costs related to our sales, marketing, administrative and corporate functions; costs related to our facilities; and professional and legal fees.

Depreciation and Amortization

Depreciation includes depreciation attributable to buildings, leasehold improvements, data processing and computer equipment, furniture and fixtures. Amortization includes amortization attributable to software purchases and software developed or obtained for internal use and our intangible assets, the majority of which were acquired in the April 2006 Acquisition.

Interest Expense

Interest expense consists primarily of payments of interest on our credit facilities and amortization of related debt issuance costs.

Other Income-Net

Other income-net consists of foreign exchange gains and losses on notes receivable and notes payable to affiliates as well as other miscellaneous income and expense.

Minority Interests in Net Income of Consolidated Subsidiaries

Several of our customers own minority interests in certain of our local operating subsidiaries. Minority interests in net income of consolidated subsidiaries reflect such customers’ proportionate interest in the earnings of such operating subsidiaries.

Income Tax Provision

The expected tax provision derived from applying the federal statutory rate to our income before income taxes during the first quarter of fiscal year 2009, differed from our recorded income tax provision primarily due to lower foreign income tax rates reducing the effective tax rate, offset by valuation allowances on certain subsidiary losses which do not meet the more-likely-than not standard of realizability of those deferred tax assets and foreign withholding tax liabilities. Our tax provision for the remainder of fiscal year 2009 continues to heavily depend on the jurisdictional mix of pretax earnings, our actual and forecasted profitability, establishment of valuation allowances in certain jurisdictions, and varying jurisdictional income tax rates that are applied to related earnings.

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Factors Affecting Our Operating Results

Overview. The automobile insurance claims processing industry is influenced by growth and trends in the automobile insurance industry. Demand for our software and service is generally related to automobile usage and the penetration of automobile insurance in our markets. A large portion of our operating costs are fixed, and we generate a large percentage of our revenues from periodic-and transaction-based fees related to software and ongoing claims processing services.

Our operating results are and will be influenced by a variety of factors, including:

• gain and loss of customers;

• fluctuations in foreign currency exchange rates;

• pricing pressures;

• expansions into new markets, which require us to incur costs prior to generating revenues;

• expenses to develop new software or services;

• restructuring charges related to efficiency initiatives;

• the April 2006 Acquisition, including the debt we incurred; and

• our corporate reorganization and the refinancing transactions.

Foreign currency. During the first quarter of fiscal year 2009, we generated approximately 74% of our revenues and incurred a majority of our costs in currencies other than the U.S. dollar, primarily the Euro. We currently do not hedge our exposure to foreign currency risks except for the foreign exchange option noted below. In our historical financial statements, we re-measure our local currency financial results in U.S. dollars based on average exchange rates prevailing during a reporting period or the exchange rate at the end of that period. These re-measurements resulted in a foreign currency translation adjustment loss of $41.3 million during the first quarter of fiscal year 2009, recorded as a component of Accumulated other comprehensive income in stockholders’ equity. Net foreign currency losses flowing through our consolidated statement of operations during the first quarter of fiscal year 2009, was $0.8 million.

The U.S. dollar has strengthened significantly versus most major foreign currencies we have used to transact our business over the last several months. For example, one Euro was equal to approximately $1.58 on June 30, 2008, $1.44 on September 30, 2008, and $1.31 on October 31, 2008. The change from June 30, 2008 to October 31, 2008 represents a strengthening of the U.S. dollar versus the Euro of approximately 17.1%. We anticipate that currency exchange rates will have a negative impact on our revenues, but have a positive impact on our interest expense and our intangibles amortization expense for the full fiscal year ending June 30, 2009.

In February 2006, we entered into a foreign exchange option that gave us the right to call $200.0 million in U.S. dollars at a strike price of €1.1646 per U.S. dollar at any time up to February 8, 2011. We paid approximately $7.9 million for this option. The fair value of this option was approximately $4.8 million as of September 30, 2008 and was recorded in Other assets in our consolidated balance sheet. Increases in fair value of approximately $3.0 million, due to increased volatility in spot rates for the U.S. dollar and Euro and changes in interest rates, was recognized in Other income in our statement of operations during the first quarter of fiscal year 2009.

Non-cash charges.We incurred a pre-tax, non-cash charge of $1.6 million, during the first quarter of fiscal year 2009, related to all restricted stock units and stock options outstanding as of September 30, 2008. We expect the remaining pre-tax, non-cash charge to be approximately $13.5 million, expensed ratably over vesting periods of up to 60 months.

Restructuring charges. We have incurred restructuring charges in each period presented and also expect to incur additional restructuring charges, primarily relating to severance costs, over the next several quarters as we work to improve efficiencies in our business. We are currently evaluating several plans that would eliminate redundant personnel in each of our segments, as well as reduce our need for certain facilities. If we execute all of these plans, we would expect to incur restructuring charges over the next twelve months. These potential charges, consisting primarily of termination benefits, will reduce our cash balances. We do not expect reduced revenues or an increase in other expenses as a result of any of these restructuring plans.

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Results of Operations

Amounts and percentages throughout our discussion and analysis of financial conditions and results of operations may reflect rounding adjustments.

The table below sets forth statement of operations data expressed as a percentage of revenues for the periods indicated.

	Three Months Ended September 30,
	2008		2007
Revenues	100.0	%	100.0	%
Cost of revenues:
Operating expenses	23.3		26.0
Systems development and programming costs	11.3		12.9
Total cost of revenues (excluding depreciation and amortization)	34.6		38.9
Selling, general & administrative expenses	27.1		27.0
Depreciation and amortization	14.9		18.0
Restructuring charges	0.3		1.3
Interest expense	7.7		9.0
Other income - net	(2.4	)	(0.9	)
	47.6		54.4
Income before provision for income taxes and minority interests	17.8		6.7
Income tax provision	6.3		2.3
Minority interest in net income of consolidated subsidiaries	1.5		1.3
Net income	10.0	%	3.1	%

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The table below sets forth statement of operations data, including the amount and percentage changes for the periods indicated:

	Three Months Ended September 30,
	2008			2007			Change
(dollars in millions)							$			%
Revenues	$	143.0		$	124.2		$	18.8		15.1	%
Cost of revenues:
Operating expenses		33.3			32.3			1.0		2.9	%
Systems development and programming costs		16.3			16.0			0.3		1.8	%
Total cost of revenues (excluding depreciation and amortization)		49.6			48.3			1.3		2.5	%
Selling, general & administrative expenses		38.7			33.5			5.2		15.5	%
Depreciation and amortization		21.2			22.4			(1.2	)	(5.2	)%
Restructuring charges		0.5			1.6			(1.1	)	(71.0	)%
Interest expense		11.1			11.2			(0.1	)	(0.9	)%
Other income – net		(3.5	)		(1.1	)		(2.4	)	202.9	%
		68.0			67.6			0.4		0.6	%
Net income before provision for income taxes and minority interest		25.4			8.3			17.1		(206.9	)%
Income tax provision		9.0			2.9			6.1		213.1	%
Minority interest in net income of consolidated subsidiaries		2.1			1.5			0.6		33.9	%
Net income	$	14.3		$	3.9		$	10.4		(272.2	)%

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Revenues

During the first quarter of fiscal year 2009, revenues increased $18.8 million, or 15.1% (9.2% after changes in foreign currency exchange rates), compared to the prior year period, due to higher revenues in both our EMEA and Americas segments. Our EMEA revenues were $90.3 million, an increase of $15.9 million, or 21.3% (12.7% after changes in foreign currency exchange rates) compared to the prior year period primarily due to a $7.5 million (net of foreign currency effect) growth in transaction, subscription and flat fee revenues in several countries from both existing and new customers, and a $6.4 million increase in the value of the Euro and other currencies versus the U.S. dollar. Our Americas revenues were $52.7 million, an increase of $2.9 million, or 5.9% (4.0% after changes in foreign currency exchange rates) compared to the prior year period, due to a $2.0 million increase in transaction and subscription revenues in the U.S., Canada, Brazil and Mexico, and $0.9 million increase in the value of the non U.S. currencies versus the U.S. dollar.

Revenue growth for each of our customer categories was as follows:

	Three Months Ended September 30, 2008
(dollars in millions)	Revenue Growth		Percentage Change
Insurance companies	$	10.3	20.7	%
Collision repair facilities		6.6	14.0	%
Independent assessors		1.4	10.5	%
Automotive recyclers and other		0.5	3.4	%
Total	$	18.8	15.1	%

Operating Expenses

During the first quarter of fiscal year 2009, operating expenses increased $1.0 million, or 2.9% (a 2.4% decrease after changes in foreign currency exchange rates) compared to the prior year period, due to an increase in operating expenses in our EMEA segment, partially offset by lower operating expenses in the Americas segment. Operating expenses increased $3.5 million, or 21.9% (12.3% after changes in foreign currency exchange rates), in our EMEA segment compared to the prior year period primarily due to a $1.5 million increase in the value of the Euro and other currencies versus the U.S. dollar, a $1.5 million increase in third party license fees and $0.4 million increase in personnel expenses. Operating expenses decreased $2.5 million, or 15.3% (16.3% after changes in foreign currency exchange rates) in our Americas segment compared to the prior year period, primarily due to a $2.0 million decrease in personnel costs, a $0.5 million decrease in distribution costs, and a $0.5 million decrease in outside services, partially offset by a $0.2 million increase in the value of non U.S. currencies versus the U.S. dollar.

We continually evaluate our operating costs in order to identify inefficiencies and eliminate unnecessary costs. We anticipate that, although our operating expenses may increase, they will decline as a percentage of revenues over the next several quarters.

Systems Development and Programming Costs

During the first quarter of fiscal year 2009, systems development and programming costs, or SD&P, increased $0.3 million, or 1.8% (a 3.8 % decrease after changes in foreign currency exchange rates) compared to the prior year period, due to higher SD&P in our EMEA segment partially offset by lower SD&P in our Americas segment. SD&P increased $1.1 million, or 12.1% (3.0% after changes in foreign currency exchange rates), in our EMEA segment compared to the prior year period primarily due to a $0.8 million increase in the value of the Euro and other currencies versus the U.S. dollar, a $0.5 million increase in consulting associated with the development of software updates and new software releases, and a $0.1 million increase in personnel cost, offset by a decrease of $0.4 million for outside service cost. SD&P expenses decreased $0.8 million or 12.6% (13.4% after changes in foreign currency exchange rates) in our Americas segment compared to the prior year period, primarily due to a $0.7 million decrease in personnel costs.

Our SD&P costs fluctuate throughout the year based upon the levels and timing of product releases. We expect our SD&P costs to remain relatively stable over the next several quarters.

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Selling, General and Administrative Expenses

During the first quarter of fiscal year 2009, selling, general and administrative expenses, or SG&A, increased $5.2 million, or 15.5% (10.6% after changes in foreign currency exchange rates) compared to the prior year period due to a $2.4 million increase in personnel cost primarily in our EMEA segment, a $2.3 million increase in the value of foreign currencies versus the U.S. dollar, and a $1.0 million increase in stock compensation expense, partially offset by a $0.2 million net decline in professional fees, administrative cost, facilities cost, and car and equipment cost.

We expect these expenses to continue to increase as we continue to expand our business into new markets, and we incur additional costs associated with being a public company.

Depreciation and Amortization

During the first quarter of fiscal year 2009, depreciation and amortization decreased by $1.2 million or 5.2% (10.8% after changes in foreign currency exchange rates), compared to the prior year period due primarily to lower intangibles amortization expense of $2.3 million for identifiable assets such as our client list and database purchased in the April 2006 Acquisition, and a $0.1 decrease in depreciation of fixed assets, offset by a $1.2 million increase in the value of foreign currencies. These intangible assets are amortized on an accelerated schedule to reflect the pattern in which economic benefits of the intangible assets are consumed. Although we expect to experience significant depreciation and amortization in the future as we amortize intangible assets purchased in the April 2006 Acquisition, we anticipate that the amount of total depreciation and amortization expense will continue to decline over the next several years.

Restructuring Charges

During the first quarter of fiscal year 2009, we recorded restructuring charges of $0.5 million related to one-time termination benefits in connection with the Americas 2008 plan, which began in February 2008. We expect to incur additional restructuring charges, relating primarily to severance costs, over the next several quarters as we work to improve efficiencies in our business.

Interest Expense

During the first quarter of fiscal year 2009, interest expense decreased $0.1 million or 0.9% (6.7% after changes in foreign currency exchange rates), compared to the prior year period. Interest expense declined $0.8 million due to lower borrowings under our credit facilities, partially offset by an increase of $0.7 million in the value of the Euro versus the U.S. dollar. We expect that our annual interest expense will continue to decrease as we repay outstanding indebtedness, not withstanding the potential of future acquisitions. The decrease or increase in interest expense may also be impacted by future foreign currency fluctuations.

Other Income-Net

During the first quarter of fiscal year 2009, Other income – net increased $2.4 million to $3.5 million from $1.1 million, compared to the same period last year, due to increases in the value of our derivative instrument of $3.0 million, and interest income of $0.3 million, partially offset by $0.9 million net realized and unrealized losses on foreign exchange transactions.

Income Tax Provision

The Company recorded an income tax provision of $9.0 million and $2.9 million during the first quarter of fiscal year 2009, and 2008, respectively. Factors that impact our income tax provision include (but are not limited to) the mix of jurisdictional earnings, establishment of valuation allowances in certain jurisdictions, and varying jurisdictional income tax rates that are applied to related earnings.

Liquidity and Capital Resources

Prior to the April 2006 Acquisition, our predecessor’s principal sources of liquidity were capital contributions from ADP and cash generated from operations. Since the April 2006 Acquisition, our principal sources of cash have included cash generated from operations and bank borrowings. Our principal uses of cash have included debt service, capital expenditures and working capital. We expect that these will remain our principal uses of cash; however, in the future we may use cash for acquisitions.

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We believe that cash flow from operating activities and borrowings under our amended and restated senior credit facility will be sufficient to fund currently anticipated working capital, planned capital spending and debt service requirements for at least the next twelve months. We regularly review acquisition and other strategic opportunities, which may require additional debt or equity financing. We currently do not have any significant pending agreements with respect to any acquisition or other similar transactions.

Cash and Cash Equivalents

As of September 30, 2008, we had cash and cash equivalents of $160.0 million. We fund our operations, working capital and capital expenditures with our cash on hand and short-term borrowings under our credit facility. Our cash on hand and short-term borrowings vary significantly based on our cash flows as set forth below.

Cash Flows

The following summarizes our primary sources and uses of cash in the periods presented:

	Three Months Ended September 30,
(dollars in millions)	2008			2007
Operating activities	$	33.8		$	26.2
Investing activities	$	(7.6	)	$	(5.2	)
Financing activities	$	(2.0	)	$	(9.1	)

Operating activities. Cash provided by operating activities was $33.8 million and $26.2 million, during the first quarter of fiscal year 2009 and 2008, respectively. The increase in cash provided by operating activities for the first quarter of fiscal year 2009, was primarily the result of a $10.4 million increase in net income and a decrease of $4.1 million in our tax assets and liabilities, offset by a decrease of $13.4 million in personnel related liabilities, compared with the first quarter of fiscal year 2008.

Investing activities. Cash used in investing activities for the first quarter of fiscal year 2009 and 2008, was $7.6 million and $5.2 million, respectively. Capital expenditures, consisting of computers, computer software, leasehold improvements and furniture and fixtures, were $5.7 million and $4.9 million, for the first quarter of fiscal year 2009 and 2008, respectively. During the first quarter of fiscal year 2009, we paid $1.9 million net of cash received, as part of the acquisition of UC Universal Consulting Software GmbH.

Financing activities. Cash used in financing activities for the first quarter of fiscal year 2009 and 2008 was $2.0 million and $9.1 million, respectively. The decrease in cash used in financing activities for the first quarter of fiscal year 2009 was primarily due to the complete repayment of the revolving credit facility during the first quarter of fiscal year 2008 versus no activity or outstanding balances during the first quarter of fiscal year 2009.

Amended and Restated Senior Credit Facility

In connection with our initial public offering, we entered into an amended and restated senior credit facility. Our amended and restated senior credit facility consists of a $50.0 million revolving credit facility, a $230.0 million domestic term loan and a €280.0 million European term loan. As of September 30, 2008, we had $0, $218.1 million and $376.2 million (€260.4 million) in outstanding loans under the revolving credit facility, domestic term loan and European term loan, respectively, with interest rates of 4.819%, 4.819%, and 6.954% respectively. The amended and restated senior credit facility contains a leverage ratio, which is applicable to only the revolving loans and applies only if at least $10.0 million of revolving loans, including outstanding letters of credit, are outstanding for at least 10 days during the prior fiscal quarter.

In addition, the amended and restated senior credit facility contains covenants restricting us from undertaking specified corporate actions, including asset dispositions, acquisitions, payment of dividends and other specified payments, changes of control, incurrence of indebtedness, creation of liens, making loans and investments and transactions with affiliates.

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Off-Balance Sheet Arrangements

Our off-balance sheet arrangements consist of our operating leases. There have been no material changes in our off-balance sheet arrangements since June 30, 2008, the end of our fiscal year.

Inflation and Seasonality

We believe inflation has not had a material effect on our financial condition or results of operations in recent years. Our business does not experience any material level of seasonality.

Critical Accounting Policies and Estimates

Our consolidated financial statements, included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in our financial statements. On an ongoing basis, we evaluate estimates. We base our estimates on historical experiences and assumptions which we believe to be reasonable under the circumstances. Those estimates form the basis for our judgments that affect the amounts reported in the financial statements. Actual results could differ from our estimates under different assumptions or conditions. Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in Note 2 to our audited Consolidated Financial Statements for the year ended June 30, 2008 and our critical accounting policies are more fully described in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each of which were included in our Annual Report on Form 10-K for the year ended June 30, 2008 filed with the SEC on August 29, 2008. As of November 6, 2008, there have not been any significant changes in our critical accounting policies and estimates.

Recent Accounting Pronouncements

Recent accounting pronouncements are detailed in Note 2 to our consolidated financial statements of this Quarterly Report on Form 10-Q.

Available Information

Our internet website address is www.solerainc.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act will be available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Our website and the information contained or incorporated therein are not intended to be incorporated into this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Foreign Currency Risk

We conduct operations in many countries around the world. Our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk when we enter into either a purchase or sale transaction using a currency other than our functional currency. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant domestic currency and then translated into U.S. dollars for inclusion in our consolidated financial statements. Exchange rates between these currencies and U.S. dollars have fluctuated significantly over the last few years and may continue to do so in the future. A substantial portion of our revenues and costs are denominated in or effectively indexed to U.S. dollars, but the majority of our revenues and costs are denominated in Euros, British pounds, Swiss francs, Canadian dollars and other currencies.

The U.S. dollar has strengthened significantly versus most major foreign currencies we have used to transact our business over the last several months. For example, one Euro was equal to approximately $1.58 on June 30, 2008, $1.44 on September 30, 2008, and $1.31 on October 31, 2008. The change from June 30, 2008 to October 31, 2008 represents a strengthening of the U.S. Dollar versus the Euro of approximately 17.1%. Assuming that currency exchange rates remain constant, we anticipate that the recent strengthening of the U.S. dollar will have a negative impact on our revenues, but have a positive impact on our interest expense and our intangibles amortization expense for the full fiscal year ending June 30, 2009, compared to the same period last year. Currency exchange rates had a positive impact on our revenues during the first quarter of fiscal year 2009, compared to the same period last year. A hypothetical 5% increase or decrease in the U.S. dollar versus other currencies in which we transact our business would have resulted in a $5.3 million change to our revenues during the three months ended September 30, 2008, and a $21.3 million change on an annual basis.

Historically, we have not undertaken hedging strategies to minimize the effect of currency fluctuations on our results of operations and financial condition; however, we may decide this is necessary in the future.

Interest Rate Risk

We are exposed to interest rate risks primarily through borrowings under our revolving loan arrangement and term loans. Interest on these borrowings is based upon variable interest rates. Our weighted-average borrowings outstanding under the revolving loan arrangement and term loans during the three months ended September 30, 2008 was $607.8 million and the weighted-average interest rate in effect at September 30, 2008 was 6.2%. Based on the foregoing, a hypothetical 1% increase or decrease in interest rates would have resulted in a $1.6 million change to our interest expense for the three months ended September 30, 2008, and a $6.4 million change to interest expense on an annual basis.

In June 2007, we entered into three U.S. dollar-based interest rate swaps with notional amounts of $50.0 million, $81.0 million ($72.9 million as of September 30, 2008 per the planned reduction in notional amounts over the life of the swap contract), and $75.0 million, each with maturities on June 30, 2011, which require us to pay fixed rates of 5.445%, 5.418%, and 5.445%, respectively. We also entered into three Euro-based interest rate swaps with notional amounts of €69.8 million (€46.7 million as of September 30, 2008 per the planned reduction in notional amounts over the life of the swap contract), €50.0 million, and €60.0 million, and each with maturities on June 30, 2011, which require us to pay fixed rates of 4.603%, 4.679%, and 4.685%, respectively. These interest rate swaps are designated and documented at their inception as cash flow hedges and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of Accumulated other comprehensive income/(loss) in stockholders’ equity and reclassified into earnings when the hedged transaction affects earnings. The ineffective portion on these cash flow hedges is recognized in Interest expense. The estimated fair value of $8.5 million on U.S. dollar-based swaps and €0.5 million ($0.7 million) on Euro-based swaps was recorded in Other liabilities in the consolidated balance sheet as of September 30, 2008. The change of $2.4 million in the fair value of swaps, net of tax, reflects the effective portion of loss on these hedges and is reported as a component of Accumulated other comprehensive income in stockholders’ equity.

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Item 4. Controls and Procedures.

In accordance with Section 302 of the Sarbanes-Oxley Act of 2002 and the Securities Exchange Act of 1934 Section 13(a) or Section 15(d), management, under the supervision and with the participation of the chief executive officer (“CEO”) and chief financial officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures at the end of the period covered by this report as well as any changes in disclosure controls and procedures that occurred during the period covered by this report. Our management, including our CEO and CFO, has concluded that our disclosure controls and procedures are effective as of September 30, 2008.

No changes in our internal control over financial reporting occurred during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to significantly modify our disclosure controls and procedures.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As a normal incident of the business in which we are engaged, various claims, charges and litigation are asserted or commenced against us. We believe that final judgments, if any, which may be rendered against us in current litigation, are adequately reserved for, covered by insurance or would not have a material adverse effect on our financial position. We have from time to time been the subject of allegations that our repair estimating and total loss software and services produced results that favored our insurance company customers. In addition, we are currently one of the defendants in a putative class action lawsuit alleging that we have colluded with our insurance company customers to cause the estimates of vehicle fair market value generated by our total loss estimation products to be unfairly low. We have been named as a third party defendant in a lawsuit by a major insurance company against a Preferred Provider Organization (“PPO”), which was a former customer of our predecessor’s medical claims software products. The PPO has claimed that our predecessor’s failure to properly update its database led or may have led to errors that caused the insurance company to discount their charges, resulting in numerous claims against the insurance company. We have answered the third party complaint denying all of the third party plaintiff’s allegations. We intend to vigorously defend ourselves against the third party plaintiff’s claims and believe this third party complaint is without merit.

ITEM 1A. RISK FACTORS

In addition to the cautionary statement regarding forward-looking statements included above in this Quarterly Report on Form 10-Q, we also provide the following cautionary discussion of risks and uncertainties relevant to our business. These risks and uncertainties, as well as other factors that we may not be aware of, could cause our actual results to differ materially from expected and historical results and could cause assumptions that underlie our business plans, expectations and statements in this Quarterly Report on Form 10-Q to be inaccurate.

We depend on a limited number of customers for a substantial portion of our revenues, and the loss of, or a significant reduction in volume from, any of these customers would harm our financial results.

We derive a substantial portion of our revenues from sales to large insurance companies. In fiscal year 2008, we derived 14.6% of our revenues from our ten largest insurance company customers. The largest three of these customers accounted for 3.0%, 2.4% and 1.5%, respectively, of our revenues during this period. During the three months ended September 30, 2008, we derived 14.4% of our revenues from our ten largest insurance company customers. The largest three of these customers accounted for 2.6%, 2.1% and 1.6%, respectively, of our revenues during this period. A loss of one or more of these customers would result in a significant decrease in our revenues, including the business generated by collision repair facilities associated with those customers. During fiscal year 2008, we were notified by a U.S. insurance company customer that it will not renew its contract with us, and this customer has initiated the transitioning of our services to another provider. This contract accounted for approximately 1.4% of revenues in fiscal year 2008. Furthermore, many of our arrangements with European customers are terminable by them on short notice or at any time. In addition, disputes with customers may lead to delays in payments to us, terminations of agreements or litigation. Additional terminations or non-renewals of customer contracts or reductions in business from our large customers would harm our business, financial condition and results of operations.

Competitive pressures may require us to significantly lower our prices.

Pricing pressures have required us to significantly lower prices for some of our software and services in several of our markets. We may be required to implement further price reductions in response to the following:

• price reductions by competitors;

• the consolidation of property and casualty insurance companies;

• the introduction of competing software or services; or

• a decrease in the frequency of accidents.

If we are required to accept lower prices for our software and services, it would result in decreased revenues and harm our business, financial condition and results of operations.

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Our industry is highly competitive, and our failure to compete effectively could result in a loss of customers and market share, which could harm our revenues and operating results

The markets for our automobile insurance claims processing software and services are highly competitive. In the U.S., our principal competitors are CCC Information Services Group Inc. and Mitchell International Inc. In Europe, our principal competitors are EurotaxGlass’s Group and DAT, GmbH. If one or more of our competitors develop software or services that are superior to ours or are more effective in marketing their software or services, our market share could decrease, thereby reducing our revenues. In addition, if one or more of our competitors retain existing or attract new customers for which we have developed new software or services, we may not realize expected revenues from these new offerings, thereby reducing our profitability.

Some of our current or future competitors may have or develop closer customer relationships, develop stronger brands, have greater access to capital, lower cost structures and/or more attractive system design and operational capabilities than we have. Consolidation within our industry could result in the formation of competitors with substantially greater financial, management or marketing resources than we have, and such competitors could utilize their substantially greater resources and economies of scale in a manner that affects our ability to compete in the relevant market or markets. For example, in April 2008, CCC Information Services Group Inc. and Mitchell International Inc., our principal competitors in the U.S., announced they have signed an agreement to combine their companies. If their merger is consummated, the combined company will have a significant market share in the U.S. market. As a result of consolidation, our competitors may be able to adapt more quickly to new technologies and customer needs, devote greater resources to promoting or selling their products and services, initiate and withstand substantial price competition, expand into new markets, hire away our key employees, change or limit access to key information and systems, take advantage of acquisition or other strategic opportunities more readily and develop and expand their product and service offerings more quickly than we can. In addition, our competitors may form strategic or exclusive relationships with each other and with other companies in attempts to compete more successfully against us. These relationships may increase our competitors’ ability, relative to ours, to address customer needs with their software and service offerings, which may enable them to rapidly increase their market share.

Moreover, many insurance companies have historically entered into agreements with automobile insurance claims processing service providers like us and our competitors whereby the insurance company agrees to use that provider on an exclusive or preferred basis for particular products and services and agrees to require collision repair facilities, independent assessors and other vendors to use that provider. If our competitors are more successful than we are at negotiating these exclusive or preferential arrangements, we may lose market share even in markets where we retain other competitive advantages.

In addition, our insurance company customers have varying degrees of in-house development capabilities, and one or more of them have expanded and may seek to further expand their capabilities in the areas in which we operate. Many of our customers are larger and have greater financial and other resources than we do and could commit significant resources to product development. Our software and services have been, and may in the future be, replicated by our insurance company customers in-house, which could result in our loss of those customers and their associated repair facilities, independent assessors and other vendors, resulting in decreased revenues and net income.

The time and expense associated with switching from our competitors’ software and services to ours may limit our growth.

The costs for an insurance company to switch providers of claims processing software and services can be significant and the process can sometimes take 12 to 18 months to complete. As a result, potential customers may decide that it is not worth the time and expense to begin using our software and services, even if we offer competitive and economic advantages. If we are unable to convince these customers to switch to our software and services, our ability to increase market share will be limited, which could harm our revenues and operating results.

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Our future operating results may be subject to volatility as a result of exposure to foreign currency exchange risks.

We derive most of our revenues, and incur most of our costs, including a portion of our debt service costs, in currencies other than the U.S. dollar, mainly the Euro. Except for certain derivative instruments described within Note 7 of the Notes to the Consolidated Financial Statements included within this Quarterly Report on Form 10-Q, we currently do not hedge our exposure to foreign currency risks. In our historical financial statements, we re-measure our local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period or the exchange rate at the end of that period. These re-measurements resulted in foreign currency translation adjustments of $58.7 million in fiscal year 2008 and $41.3 million in the first quarter of fiscal year 2009. Recent global economic conditions have impacted currency exchange rates. Over the last several months, the U.S. dollar has strengthened significantly versus most major foreign currencies we use to transact our business. For example, one Euro was equal to approximately $1.58 on June 30, 2008, and on October 31, 2008, one Euro was equal to approximately $1.31. The change from June 30, 2008 to October 31, 2008 represents a strengthening of the U.S. dollar versus the Euro of approximately 17.1%. Further fluctuations in exchange rates against the U.S. dollar could decrease our revenues, increase our costs and expenses and therefore harm our future operating results.

Our industry is subject to rapid technological changes, and if we fail to keep pace with these changes, our market share and revenues will decline.

Our industry is characterized by rapidly changing technology, evolving industry standards and frequent introductions of, and enhancements to, existing software and services, all with an underlying pressure to reduce cost. Industry changes could render our offerings less attractive or obsolete, and we may be unable to make the necessary adjustments to our offerings at a competitive cost, or at all. We also incur substantial expenses in researching, developing, designing and marketing new software and services. The development or adaptation of these new technologies may result in unanticipated expenditures and capital costs that would not be recovered in the event that our new software or services are unsuccessful. The research, development, production and marketing of new software and services are also subject to changing market requirements, as well as the satisfaction of applicable regulatory requirements and customers’ approval procedures and other factors, each of which could prevent us from successfully marketing any new software and services or responding to competing technologies. The success of new software in our industry also often depends on the ability to be first to market, and our failure to be first to market with any particular software project could limit our ability to recover the development expenses associated with that project. If we cannot develop new technologies, software and services or any of our existing software or services are rendered obsolete, our revenues and income could decline and we may lose market share to our competitors, which would impact our future operations and financial results.

Changes in or violations by us or our customers of applicable government regulations could reduce demand for or limit our ability to provide our software and services in those jurisdictions.

Our insurance company customers are subject to extensive government regulations, mainly at the state level in the U.S. and at the country level in our non-U.S. markets. Some of these regulations relate directly to our software and services, including regulations governing the use of total loss and estimating software. If our insurance company customers fail to comply with new or existing insurance regulations, including those applicable to our software and services, they could lose their certifications to provide insurance and/or reduce their usage of our software and services, either of which would reduce our revenues. Also, we are subject to direct regulation in some markets, and our failure to comply with these regulations could significantly reduce our revenues or subject us to government sanctions. In addition, future regulations could force us to implement costly changes to our software and/or databases or have the effect of prohibiting or rendering less valuable one or more of our offerings. Moreover, some states in the U.S. have changed their regulations to permit insurance companies to use book valuations for total loss calculations, making our total loss software potentially less valuable to insurance companies in those states. Some states have adopted total loss regulations, that, among other things, require insurers use a methodology deemed acceptable to the respective government agency.

We submit our methodology to such agencies, and if they do not approve our methodology, we will not be able to perform total loss valuations in their respective states. Other states are considering legislation that would limit the data that our software can provide to our insurance company customers. In the event that demand for or our ability to provide our software and services decreases in particular jurisdictions due to regulatory changes, our revenues and margins may decrease.

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In addition, the Belgian Competition Department notified us that it has chosen to continue to investigate a complaint relating to estimates generated by our software of the costs to repair damaged vehicles originally brought by a trade association representing collision repair facilities that was withdrawn by the trade association in 2005. Pursuant to European Union competition laws, the Belgian Competition Department has asserted its authority to conduct this investigation as it relates to the Western European region. The South African Competition Commission is investigating a complaint brought by a trade association representing collision repair facilities against the South African Insurance Association, as well as motor vehicle insurers and assessors, relating to estimates generated by our software of the costs to repair damaged vehicles.

We have a large amount of goodwill and other intangible assets as a result of the April 2006 Acquisition. Our earnings will be harmed if we suffer an impairment of our goodwill or other intangible assets.

We have a large amount of goodwill and other intangible assets and are required to perform an annual assessment for possible impairment for accounting purposes. At June 30, 2008 and September 30, 2008, we had goodwill and other intangible assets of $976.3 million and $898.6 million, respectively. If we do not achieve our planned operating results or other factors impair these assets, we may be required to incur a non-cash impairment charge. Any impairment charges in the future will adversely affect our results of operations.

We may incur significant restructuring and severance charges in future periods, which would harm our operating results and cash position or increase debt.

We incurred restructuring charges of $13.3 million in fiscal year 2008 and an additional $0.5 million in the three months ended September 30, 2008. These charges consist primarily of termination benefits paid or to be paid to employees. As of September 30, 2008, our remaining obligation associated with these restructuring charges and others from prior periods is $13.4 million. We regularly evaluate our existing operations and capacity, and we expect to incur additional restructuring charges as a result of future personnel reductions, related restructuring, and productivity and technology enhancements, which could exceed the levels of our historical charges. We are currently evaluating further plans that, if all implemented, would result in additional restructuring charges ranging from $5.0 to $10.0 million over the next 12 to 18 months. These potential charges could harm our operating results and significantly reduce our cash position or increase debt. In addition, we may incur certain unforeseen costs once these activities are implemented.

We require a significant amount of cash to service our indebtedness, which reduces the cash available to finance our organic growth, make strategic acquisitions and enter into alliances and joint ventures; our amended and restated senior credit facility contains restrictive covenants that limit our ability to engage in certain activities.

We have a significant amount of indebtedness. As of September 30, 2008, our indebtedness, including current maturities, was $594.3 million, and we would have been able to borrow an additional $50.0 million under our amended and restated senior credit facility. During fiscal year 2008 and the three months ended September 30, 2008, our aggregate interest expense was $45.7 million and $11.1 million, respectively, and the cash paid for interest was $44.9 million and $10.9 million, respectively.

Our indebtedness could:

• make us more vulnerable to unfavorable economic conditions and reduce our revenues;

• make it more difficult to obtain additional financing in the future for working capital, capital expenditures or other general corporate purposes;

• require us to dedicate or reserve a large portion of our cash flow from operations for making payments on our indebtedness which would prevent us from using it for other purposes including software development;

• make us susceptible to fluctuations in market interest rates that affect the cost of our borrowings to the extent that our variable rate debt is not covered by interest rate derivative agreements; and

• make it more difficult to pursue strategic acquisitions, joint ventures, alliances and collaborations.

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Our ability to service our indebtedness will depend on our future performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors. Some of these factors are beyond our control. If we cannot generate sufficient cash flow from operations to service our indebtedness and to meet our other obligations and commitments, we may be required to refinance our debt or to dispose of assets to obtain funds for such purpose. We cannot assure you that debt refinancings or asset dispositions could be completed on a timely basis or on satisfactory terms, if at all, or would be permitted by the terms of our debt instruments.

Our amended and restated senior credit facility contains covenants that restrict our and our subsidiaries’ ability to make certain distributions with respect to our capital stock, prepay other debt, encumber our assets, incur additional indebtedness, make capital expenditures above specified levels, engage in business combinations or undertake various other corporate activities. These covenants may also require us also to maintain certain specified financial ratios, including those relating to total leverage and interest coverage.

Our failure to comply with any of these covenants could result in the acceleration of our outstanding indebtedness. If acceleration occurs, we would not be able to repay our debt and it is unlikely that we would be able to borrow sufficient additional funds to refinance our debt. Even if new financing is made available to us, it may not be available on acceptable or reasonable terms. An acceleration of our indebtedness would impair our ability to operate as a going concern.

Current uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters and makes it more likely that our actual results could differ materially from expectations.

Our operations and performance depend on worldwide economic conditions, which have recently deteriorated significantly in many countries where our products and services are sold, and may remain depressed for the foreseeable future. These conditions make it difficult for our customers and potential customers to accurately forecast and plan future business activities, and could cause our customers and potential customers to slow or reduce spending on our products. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide or in particular economic markets. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.

We have a history of net losses and may not maintain profitability in the future.

For fiscal years 2008, 2007 and 2006, we had net income (loss) of $0.6 million, ($80.9) million and ($18.9) million, respectively. As of September 30, 2008, we had an accumulated deficit of approximately $95.8 million. Fiscal year 2008 was our first year since the April 2006 Acquisition for which we did not report a significant loss, and the quarters ended September 30, 2007, December 31, 2007, March 31, 2008 and September 30, 2008 were our only profitable quarters since the April 2006 Acquisition. We will need to maintain or increase revenues and maintain or reduce expenses, which include the amortization of the remaining $298.6 million of intangible assets that we had as of September 30, 2008 and interest expense associated with our indebtedness, to improve or sustain our profitability. We cannot assure you that we will achieve a significant level of profitability. Future decreases in profitability could reduce our stock price, and future net losses would reduce our stock price.

We have a very limited operating history as a stand-alone company, which may make it difficult to evaluate our future operating results.

Prior to the April 2006 Acquisition, our predecessor operated as a business unit of ADP. Our predecessor relied on ADP during this period for many of its internal functions, including accounting, tax, payroll, technology and administrative and operational support. We now perform these functions and services with internal resources or through third-party service providers. If we are unable to effectively perform these services internally or maintain substitute arrangements on terms that are favorable to us, our business, financial condition and results of operations would be adversely affected.

Our software and services rely on information generated by third parties and any interruption of our access to such information could materially harm our operating results.

We believe that our success depends significantly on our ability to provide our customers access to data from many different sources. For example, a substantial portion of the data used in our repair estimating software is derived from parts and repair data provided by, among others, original equipment manufacturers, or OEMs, aftermarket parts suppliers, data aggregators, automobile dealerships and vehicle repair facilities. We obtain much of our data about vehicle parts and components and collision repair labor and costs through license agreements with OEMs, automobile dealers, and other providers. EurotaxGlass’s Group, one of our primary competitors in Europe, provides us with valuation and paint data for use in our European markets pursuant to a similar arrangement, and Mitchell International, one of our primary competitors in the U.S., provides us with vehicle glass data for use in our U.S. markets pursuant to a similar arrangement. Many of the license agreements through which we obtain data are for terms of one year and may be terminated without cost to the provider on short notice.

If one or more of our licenses are terminated or if we are unable to renew one or more of these licenses on favorable terms or at all, we may be unable to access alternative data sources that would provide comparable information without incurring substantial additional costs. Recently, some OEM sources have indicated to us that they intend to materially increase the licensing costs for their data. While we do not believe that our access to most individual sources of data is material to our operations, prolonged industry-wide price increases or reductions in data availability could make receiving certain data more difficult and could result in significant cost increases, which would materially harm our operating results.

System failures, delays and other problems could harm our reputation and business, cause us to lose customers and expose us to customer liability.

Our success depends on our ability to provide accurate, consistent and reliable services and information to our customers on a timely basis. Our operations could be interrupted by any damage to or failure of:

• our computer software or hardware or our customers’ or third-party service providers’ computer software or hardware;

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• our networks, our customers’ networks or our third-party service providers’ networks; and

• our connections to and outsourced service arrangements with third parties, such as Acxiom, which hosts data and applications for us and our customers.

Our systems and operations are also vulnerable to damage or interruption from:

• power loss or other telecommunications failures;

• earthquakes, fires, floods, hurricanes and other natural disasters;

• computer viruses or software defects;

• physical or electronic break-ins, sabotage, intentional acts of vandalism and similar events; and

• errors by our employees or third-party service providers.

As part of our ongoing process improvements efforts, we have and will continue to migrate product and system platforms to next generation platforms, and the risks noted above will be exacerbated by our migration efforts. Because many of our services play a mission-critical role for our customers, any damage to or failure of the infrastructure we rely on, including those of our customers and vendors, could disrupt our ability to deliver information to and provide services for our customers in a timely manner, which could result in the loss of current and/or potential customers. In addition, we generally indemnify our customers to a limited extent for damages they sustain related to the unavailability of, or errors in, the software and services we provide; therefore, a significant interruption of, or errors in, our software and services could expose us to significant customer liability.

Security breaches could result in lost revenues, litigation claims and/or harm to our reputation.

Our databases contain confidential data relating to our customers, policyholders and other industry participants. Security breaches, particularly those involving connectivity to the Internet, and the trend toward broad consumer and general public notification of such incidents, could significantly harm our business, financial condition or results of operations. Our databases could be vulnerable to physical system or network break-ins or other inappropriate access, which could result in claims against us and/or harm our reputation. In addition, potential competitors may obtain our data illegally and use it to provide services that are competitive to ours.

We are active in over 50 countries, where we are subject to country-specific risks that could adversely impact our business and results of operations.

In fiscal year 2008 and the three months ended September 30, 2008, we generated approximately 73% and 74% of our revenues outside the U.S., respectively, and we expect revenues from non-U.S. markets to continue to represent a majority of our total revenues. Business and operations in individual countries are subject to changes in local government regulations and policies, including those related to tariffs and trade barriers, investments, taxation, currency exchange controls and repatriation of earnings. Our results are also subject to the difficulties of coordinating our activities across more than 50 different countries. Furthermore, our business strategy includes expansion of our operations into new and developing markets, which will require even greater international coordination, expose us to additional local government regulations and involve markets in which we do not have experience or established operations. In addition, our operations in each country are vulnerable to changes in socio-economic conditions and monetary and fiscal policies, intellectual property protection disputes, the settlement of legal disputes through foreign legal systems, the collection of receivables through foreign legal systems, exposure to possible expropriation or other governmental actions, unsettled political conditions and possible terrorist attacks. These and other factors may harm our operations in those countries and therefore our business and results of operations.

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Our operating results may vary widely from period to period, which may cause our stock price to decline.

Our contracts with insurance companies generally require time-consuming authorization procedures by the customer, which can result in additional delays between when we incur development costs and when we begin generating revenues from those software or service offerings. Our quarterly and annual revenues and operating results may fluctuate significantly in the future. In addition, we incur significant operating expenses while we are researching and designing new software and related services, and we typically do not receive corresponding payments in those same periods. As a result, the number of new software and service offerings that we are able to implement, successfully or otherwise, can cause significant variations in our cash flow from operations, and we may experience a decrease in our net income as we incur the expenses necessary to develop and design new software and services. We also may experience variations in our earnings due to other factors beyond our control, such as the introduction of new software or services by our competitors, customer acceptance of new software or services, the volume of usage of our offerings by existing customers, variations of vehicle accident rates due to factors such as changes in fuel prices or new vehicle purchases and their impact on vehicle usage, and competitive conditions, or changes in competitive conditions, in our industry generally. We may also incur significant or unanticipated expenses when contracts expire, are terminated or are not renewed. Any of these events could harm our financial condition and results of operations and cause our stock price to decline.

Future acquisitions and joint ventures or dispositions may require significant resources and/or result in significant unanticipated losses, costs or liabilities.

We have grown in part, and in the future may continue to grow, by making acquisitions or entering into joint ventures or similar arrangements. Acquisitions and joint ventures require significant investment and managerial attention, which may be diverted from our other operations, and could entail a number of additional risks, including:

• problems with effective integration of operations and/or management;

• loss of key customers, suppliers or employees;

• increased operating costs; and

• exposure to unanticipated liabilities.

Furthermore, we participate in joint ventures in some countries. Our partners in these ventures may have interests and goals that are inconsistent with or different from ours, which could result in the joint venture taking actions that negatively impact our growth in the local market and consequently harm our business or financial condition. If we are unable to find suitable partners or if suitable partners are unwilling to enter into joint ventures with us, our growth into new geographic markets may slow, which would harm our results of operations.

Additionally, we may finance future acquisitions and/or joint ventures with cash from operations, additional indebtedness and/or the issuance of additional securities, any of which may impair the operation of our business or present additional risks, such as reduced liquidity or increased interest expense. We may seek also to restructure our business in the future by disposing of certain of our assets, which may harm our future operating results, divert significant managerial attention from our operations and/or require us to accept non-cash consideration, the market value of which may fluctuate.

We may require additional capital in the future, which may not be available on favorable terms, or at all.

Our future capital requirements depend on many factors, including our ability to develop and market new software and services and to generate revenues at levels sufficient to cover ongoing expenses. If we need to raise additional capital, equity or debt financing may not be available at all or may be available only on terms that are not favorable to us. In the case of equity financings, dilution to our stockholders could result, and in any case such securities may have rights, preferences and privileges that are senior to our outstanding common stock. In the case of debt financings, we may have to grant additional security interests in our assets to lenders and agree to restrictive business and operating covenants. If we cannot obtain adequate capital on favorable terms or at all, we may be unable to support future growth or operating requirements and, accordingly, our business, financial condition and results of operations could be harmed.

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Privacy concerns could require us to exclude data from our software and services, which may reduce the value of our offerings to our customers, damage our reputation and deter current and potential users from using our software and services.

In the European Union and other jurisdictions, there are significant restrictions on the use of personal data. Violations of these laws would harm our business. In addition, concerns about our collection, use or sharing of automobile insurance claims information or other privacy-related matters, even if unfounded, could damage our reputation and operating results.

Our business depends on our brands, and if we are not able to maintain and enhance our brands, our business and operating results could be harmed.

We believe that the brand identity that we have developed has significantly contributed to the success of our business. We also believe that maintaining and enhancing our brands, such as Audatex, ABZ, Hollander, Informex, Sidexa and IMS, are critical to the expansion of our software and services to new customers in both existing and new markets. Maintaining and enhancing our brands may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain our brands or if we incur excessive expenses in this effort, our business, operating results and financial condition will be harmed. We anticipate that, as our markets become increasingly competitive, maintaining and enhancing our brands may become increasingly difficult and expensive. Maintaining and enhancing our brands will depend largely on our ability to be a technology innovator and to continue to provide high quality software and services, which we may not do successfully. To date, we have not engaged in extensive direct brand promotion activities, and we may not successfully implement brand enhancement efforts in the future.

Third parties may claim that we are infringing upon their intellectual property rights, and we could be prevented from selling our software or suffer significant litigation expense even if these claims have no merit.

Our competitive position is driven in part by our intellectual property and other proprietary rights. Third parties, however, may claim that software, products or technology, including claims data or other data, which we obtain from other parties are infringing upon the intellectual property rights of others, and we may be unaware of intellectual property rights of others that may cover some of our assets, technology, software or services. Any litigation initiated against us regarding patents, trademarks, copyrights or other intellectual property rights, even litigation relating to claims without merit, could be costly and time-consuming and could divert our management and key personnel from operating our business. In addition, if any third party has a meritorious or successful claim that we are infringing upon its intellectual property rights, we may be forced to change our software or enter into licensing arrangements with third parties, which may be costly or impractical. These claims may also require us to stop selling our software and/or services as currently designed, which could harm our competitive position. We also may be subject to significant damages or injunctions that prevent the further development and sale of certain of our software or services and may result in a material loss in revenue.

We may be unable to protect our intellectual property and property rights, either without incurring significant costs or at all, which would harm our business.

We rely on a combination of trade secrets, copyrights, know-how, trademarks, patents, license agreements and contractual provisions, as well as internal procedures, to establish and protect our intellectual property rights. The steps we have taken and will take to protect our intellectual property rights may not deter infringement, duplication, misappropriation or violation of our intellectual property by third parties. In addition, any of the intellectual property we own or license from third parties may be challenged, invalidated, circumvented or rendered unenforceable. Furthermore, the laws of some of the countries in which products similar to ours may be developed may not protect our software and intellectual property to the same extent as U.S. laws or at all. We may be unable to protect our rights in trade secrets and unpatented proprietary technology in these countries. We may also be unable to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees or current employees, despite the existence of nondisclosure and confidentiality agreements and other contractual restrictions. If our trade secrets become known or we fail to otherwise protect our intellectual property, we may not receive any return on the resources expended to create the intellectual property or generate any competitive advantage based on it.

Pursuing infringers of our intellectual property could result in significant litigation costs and diversion of management resources, and any failure to pursue or successfully litigate claims against infringers could result in competitors using our technology and offering similar products and services, potentially resulting in loss of competitive advantage and decreased revenues. We are currently engaged in litigation in Canada against an alleged infringer of certain of our copyrights.

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Currently, we believe that one or more of our customers in our EMEA segment may be infringing our intellectual property by making and distributing unauthorized copies of our software. Enforcement of these intellectual property rights may be difficult and may require considerable resources.

We depend on a limited number of key personnel who would be difficult to replace. If we lose the services of these individuals, or are unable to attract new talent, our business will be adversely affected.

We depend upon the ability and experience of our key personnel, who have substantial experience with our operations, the rapidly changing automobile insurance claims processing industry and the markets in which we offer our software and services. The loss of the services of one or more of our senior executives or key employees, particularly our Chairman of the Board, Chief Executive Officer and President, Tony Aquila, could harm our business and operations. In October 2008, Jack Pearlstein, our Chief Financial Officer, Treasurer and Assistant Secretary, informed us that he intends to retire. The effective date of Mr. Pearlstein’s retirement has not yet been determined, and he informed us that he intends to continue to serve as our Chief Financial Officer, Treasurer and Assistant Secretary, to assist in the search for a new Chief Financial Officer and to facilitate an orderly transition. We have initiated a search for a new Chief Financial Officer, and we are defining a transition plan. The transition date has not yet been established.

Our success depends on our ability to continue to attract, manage and retain other qualified management, sales and technical personnel as we grow. We may not be able to continue to attract or retain such personnel in the future.

Current or future litigation could have a material adverse impact on us.

We have been and continue to be involved in legal proceedings, claims and other litigation that arise in the ordinary course of business. For example, we have been involved in disputes with collision repair facilities, acting individually and as a group in some situations that claim that we have colluded with our insurance company customers to depress the repair time estimates generated by our repair estimating software. In addition, we are currently one of the defendants in a putative class action lawsuit alleging that we have colluded with our insurance company customers to cause the estimates of vehicle fair market value generated by our total loss estimation software to be unfairly low. Furthermore, we are also subject to assertions by our customers and strategic partners that we have not complied with the terms of our agreements with them, some of which are the subject of pending litigation and any of which could in the future lead to arbitration or litigation. While we do not expect the outcome of any such pending or threatened litigation to have a material adverse effect on our financial position, litigation is unpredictable and excessive verdicts, both in the form of monetary damages and injunction, could occur. In the future, we could incur judgments or enter into settlements of claims that could harm our financial position and results of operations.

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Requirements associated with being a public company increase our costs significantly, as well as divert significant company resources and management attention.

Prior to our initial public offering in May 2007, we were not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or the other rules and regulations of the SEC or any securities exchange relating to public companies. We continue to work with our legal, independent accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, the expenses that are required as a result of being a public company are and will likely continue to be material. Compliance with the various reporting and other requirements applicable to public companies also require considerable time and attention of management. Until we have more experience operating as a public company, we may have difficulty predicting or estimating the amount of the additional costs we may incur, the timing of such costs or the degree of impact that our management’s attention to these matters will have on our business. In addition, the changes we make may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis.

In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Our certificate of incorporation and by-laws contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.

Some provisions of our certificate of incorporation and by-laws may have the effect of delaying, discouraging or preventing a merger or acquisition that our stockholders may consider favorable, including transactions in which stockholders may receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace or remove our board of directors. These provisions include:

• authorization of the issuance of “blank check” preferred stock without the need for action by stockholders;

• the removal of directors only by the affirmative vote of the holders of two-thirds of the shares of our capital stock entitled to vote;

• any vacancy on the board of directors, however occurring, including a vacancy resulting from an enlargement of the board, may only be filled by vote of the directors then in office;

• inability of stockholders to call special meetings of stockholders and limited ability of stockholders to take action by written consent; and

• advance notice requirements for board nominations and proposing matters to be acted on by stockholders at stockholder meetings.

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If we are not able to maintain adequate compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, we may be subject to sanctions by regulatory authorities.

Section 404 of the Sarbanes-Oxley Act requires that we regularly evaluate and determine the effectiveness of our internal control over financial reporting. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 contained our first management evaluation of our internal controls over financial reporting and our independent auditor’s first attestation to our internal controls over financial reporting for fiscal year 2008. We will continue to evaluate our internal control systems to allow management to report on, and our independent auditors to attest to, our internal controls. We will continue to perform the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. If we are not able to comply with the requirements of Section 404, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC, or the New York Stock Exchange. Any such action could adversely affect our financial results or investors’ confidence in us and could cause our stock price to fall.

We currently do not intend to pay dividends on our common stock, and as a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We currently do not expect to declare or pay dividends on our common stock in the foreseeable future. In addition, our amended and restated senior credit facility limits our ability to declare and pay cash dividends on our common stock. As a result, your only opportunity to achieve a return on your investment in us will be if the market price of our common stock appreciates and you sell your shares at a profit. We cannot assure you that the market price for our common stock will ever exceed the price that you pay.

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

Not applicable.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit No.	Description
31.1	Certification by Tony Aquila, Chief Executive Officer.
31.2	Certification by Jack Pearlstein, Chief Financial Officer.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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.

SOLERA HOLDINGS, INC.

/s/ Tony Aquila

Tony Aquila

Chief Executive Officer and President

(Principal Executive Officer)

/s/ Jack Pearlstein

Jack Pearlstein

Chief Financial Officer, Secretary and Treasurer

(Principal Financial and Accounting Officer)

November 6, 2008

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