FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended March
31, 2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For transition period
from to
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Commission file number 0-5734
AGILYSYS, INC.
(Exact name of registrant as specified in its charter)
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Ohio
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34-0907152
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State or other jurisdiction of incorporation or organization
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(I.R.S. Employer Identification No.)
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28925 Fountain Parkway, Solon, Ohio
(Address of principal executive offices)
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44139
(Zip Code)
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Registrants telephone number, including area code:
(440) 519-8700
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Shares, without par value
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NASDAQ
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of Common Shares held by
non-affiliates as of September 30, 2008 (the second fiscal
quarter in which this
Form 10-K
relates) was $139,709,258 computed on the basis of the last
reported sale price per share ($10.09) of such shares on the
Nasdaq Stock Market LLC.
As of June 1, 2009, the Registrant had the following number
of Common Shares outstanding: 22,639,773, of which 5,666,343
were held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive Proxy Statement to
be used in connection with its Annual Meeting of Shareholders to
be held on July 31, 2009 are incorporated by reference into
Part III of this
Form 10-K.
Except as otherwise stated, the information contained in this
Annual Report on
Form 10-K
is as of March 31, 2009.
AGILYSYS, INC.
ANNUAL REPORT ON
FORM 10-K
Year Ended March 31, 2009
TABLE OF CONTENTS
Item 1. Business.
Reference herein to any particular year or quarter refers to
periods within the companys fiscal year ended
March 31. For example, 2009 refers to the fiscal year ended
March 31, 2009.
Overview
Agilysys, Inc. (Agilysys or the company)
is a leading provider of innovative IT solutions to corporate
and public-sector customers, with special expertise in select
markets, including retail and hospitality. The company develops
technology solutions including hardware, software
and services to help customers resolve their most
complicated IT needs. The company possesses expertise in
enterprise architecture and high availability, infrastructure
optimization, storage and resource management, and business
continuity, and provides industry-specific software, services
and expertise to the retail and hospitality markets.
Headquartered in Solon, Ohio, Agilysys operates extensively
throughout North America, with additional sales offices in the
United Kingdom and in Asia. Agilysys has three reportable
segments: Hospitality Solutions Group (HSG), Retail
Solutions Group (RSG), and Technology Solutions
Group (TSG).
History and
Significant Events
Agilysys was organized as an Ohio corporation in 1963. While
originally focused on electronic components distribution, the
company grew to become a leading distributor in both electronic
components and enterprise computer systems products and
solutions.
As of the fiscal year ended March 31, 2002, the company was
structured into two divisions, the Computer Systems Division
(CSD), which focused on the distribution and
reselling of enterprise computer systems products and solutions,
and the Industrial Electronics Division (IED), which
focused on the distribution of electronic components. Each
division represented, on average, approximately one-half of the
companys total revenues.
In 2002, the company conducted a review of strategic
alternatives and developed a long-term strategic plan designed
to increase the intrinsic value of the company. The
companys strategic transformation began with its
divestiture of IED, to focus solely on the computer systems
business. The sale of the electronic components business meant
that the company was less dependent on the more cyclical markets
in the components business. In addition, this allowed the
company to invest more in the computer systems business, which
offered greater potential for sustainable growth at higher
levels of profitability. The remaining CSD business consisted of
the KeyLink Systems Distribution Business (KSG) and
the IT Solutions Business. KSG operated as a distributor of
enterprise computing products selling to resellers, which then
sold directly to end-user customers. The IT Solutions Business
operated as a reseller providing enterprise servers, software,
storage and services and sold directly to end-user customers.
Overall, the company was a leading distributor and reseller of
enterprise computer systems, software, storage and services from
HP, IBM, Intel, Enterasys, Hitachi Data Systems, Oracle, EMC,
and other leading manufacturers.
The proceeds from the sale of the electronic components
distribution business, combined with cash generated from the
companys ongoing operations, were used to retire long-term
debt and accelerate the growth of the company, both organically
and through a series of acquisitions. The growth of the company
has been supported by a series of acquisitions that
strategically expanded the companys range of solutions and
markets served, including:
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The September 2003 acquisition of Kyrus Corporation, a leading
provider of retail store solutions and services with a focus on
the supermarket, chain drug and general retail segments of the
retail industry.
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The February 2004 acquisition of
Inter-American
Data, Inc., a leading developer and provider of property
management, materials management and document management
software and related proprietary services to the hotel casino
and destination resort segments of the hospitality industry.
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The May 2005 acquisition of The CTS Corporations
(CTS), a services organization specializing in IT
storage solutions for large and medium-sized corporate and
public-sector customers.
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The December 2005 acquisition of a competitors operations
in China. This provided Agilysys entry into the enterprise IT
solutions market in Hong Kong and China serving large and
medium-sized businesses in those growing markets.
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The January 2007 acquisition of Visual One Systems Corporation
(Visual One), which provided Agilysys with expertise
around the marketing, development and sale of
Microsoft®
Windows®-based
software for the hospitality industry, including additional
applications in property management, condominium, golf course,
spa,
point-of-sale,
and catering management. Visual One was integrated into the
companys existing hospitality solutions business.
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In March 2007, the company completed its transformation with the
sale of the assets and operations of KSG. This final event
completed the Agilysys multi-year transformation to move closer
to the customer and higher up the IT value scale, effectively
positioning
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the company to focus on its higher-growth IT Solutions Business.
As a result of the divestiture, the company freed itself from
the increasing channel conflict and marketplace restrictions
that existed in the business. The divestiture also provided the
company with the financial flexibility to grow through the
pursuit of additional acquisitions, including:
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The April 2007 acquisition of Stack Computer
(Stack), a technology integrator with a strong focus
in high availability storage solutions. Stack has a significant
relationship with
EMC2, and
also does business with Cisco, Veritas, and other suppliers.
Stacks customers, primarily located on the west coast,
include leading corporations in the financial services,
healthcare, and manufacturing industries.
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The June 2007 acquisition of InfoGenesis, Inc.
(InfoGenesis), a solutions provider for the food and
beverage markets serving casinos, hotels and resorts, cruise
lines, stadiums and food service. An independent solution
provider, InfoGenesis offers enterprise-class,
point-of-sale
solutions that provide end users an intuitive, secure and easy
way to process customer transactions across multiple departments
or locations, including comprehensive corporate and store
reporting.
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The July 2007 acquisition of Innovative Systems Design, Inc.
(Innovative), an integrator and value-added reseller
of servers, enterprise storage management products and
professional services. Innovative is the largest
U.S. commercial reseller of Sun Microsystems servers and
storage products.
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The February 2008 acquisition of Eatec Corporation
(Eatec), which enhanced the companys standing
as a leading inventory and procurement solution provider to the
hospitality and food service markets. Eatecs customers
include well-known restaurants, hotels, stadiums, and
entertainment venues in North America and around the world as
well as many public service institutions.
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The April 2008 acquisition of Triangle Hospitality Solutions
Limited (Triangle), a European reseller of
point-of-sale
software and solutions for InfoGenesis. The acquisition expanded
Agilysys European footprint in the hospitality, stadium
and arena markets.
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Today, Agilysys offers diversified products and solutions from
leading IT vendors such as HP, Sun, EMC, Oracle, and IBM. The
company is a leading systems integrator of retail
point-of-sale,
self-service and wireless solutions with proprietary business
consulting, implementation and hardware maintenance services.
HSG offers property, activity, material, and inventory
management software applications to automate functions for the
hotel casino and destination resort segments of the hospitality
industry. In addition, HSG provides Microsoft Windows-based
software solutions as well as IBM servers and storage products.
During fiscal 2009, the company took aggressive action to reduce
its cost structure and improve profitability. Specifically, the
company executed the following restructuring actions over the
past year:
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restructured the
go-to-market
strategy for TSGs professional services offering;
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exited the Asian operations of TSG;
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reduced corporate overhead and realigned executive management;
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closed corporate offices in Boca Raton, Florida and relocated
headquarters back to Solon, Ohio; and
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realigned certain operational and administrative departments and
streamlined certain processes to reduce costs and drive
efficiencies.
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Industry
According to information published in May 2009 by International
Data Corporation (IDC), a leading provider of
technology intelligence and market data, IT spending in the
United States was estimated at $490 billion in calendar
year 2008. The global IT market has been softening, according to
IDC figures. In 2009, IDC projects hardware sales to decline by
16% in the United States and 3.6% globally, while software and
services are projected to increase modestly at 4% and 3%,
respectively. The recent slowdown in this market negatively
affected the companys revenues and results of operations
for fiscal 2009.
The non-consumer IT industry consists of a supply chain made up
of suppliers, distributors, resellers, and corporate and
public-sector customers. Agilysys operates in the reseller
category as a solution provider, as well as an independent
software vendor (ISV) in the hospitality industry
and system integrator in the retail industry.
In recent years, the role of solution providers in the industry
has become more important as suppliers have shifted an
increasing portion of their business away from direct sales, and
many end-users are working more with solution providers to
develop, implement and integrate comprehensive and increasingly
complex solutions.
To ensure the efficient and cost-effective delivery of products
and services to market, IT suppliers are increasingly
outsourcing functions such as logistics, order management, sales
and technical support. Solution providers play crucial roles in
this outsourcing strategy by offering customers technically
skilled and market-focused sales and services organizations.
Certain solution providers, such as Agilysys, offer additional
proprietary products and services that complement a total,
customer-focused solution.
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Products and
Services
Within the solutions segment in which Agilysys operates, product
sets include enterprise servers, data storage hardware, systems
infrastructure software, networking equipment and IT services
related to implementation and support. IDC estimates United
States spending in these product sets was $490 billion in
calendar year 2008, and is not expected to return to an annual
growth rate of 6% until calendar year 2012.
Total revenues from continuing operations for the companys
three specific product areas are as follows:
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For The Year Ended March 31
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(In thousands)
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2009
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2008
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2007
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Hardware
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$
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508,704
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$
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562,314
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$
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328,435
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Software
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76,998
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71,900
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32,866
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Services
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145,018
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125,954
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92,439
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Total
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$
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730,720
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$
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760,168
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$
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453,740
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During 2009, 2008, and 2007, sales of the companys three
largest suppliers products and services accounted for 65%,
65%, and 69%, respectively, of the companys sales volume.
Sales of HP products and services accounted for 22%, 27%, and
49% of the companys sales volumes in 2009, 2008, and 2007,
respectively. Sales of IBM products and services accounted for
12%, 15%, and 20% in 2009, 2008, and 2007, respectively. Sales
of Sun products and services through Innovative, which was
purchased in July 2007, accounted for 31% and 23% of the sales
volume in 2009 and 2008, respectively.
The loss of any of the top three suppliers or a combination of
certain other suppliers could have a material adverse effect on
the companys business, results of operations and financial
condition unless alternative products manufactured by others are
available to the company. In addition, although the company
believes that its relationships with suppliers are good, there
can be no assurance that the companys suppliers will
continue to supply products on terms acceptable to the company.
Through agreements with its suppliers, Agilysys is authorized to
sell all or some of the suppliers products. The
authorization with each supplier is subject to specific terms
and conditions regarding such items as purchase discounts and
supplier incentive programs including sales volume incentives
and cooperative advertising reimbursements. A substantial
portion of the companys profitability results from these
supplier incentive programs. These incentive programs are at the
discretion of the supplier. From time to time, suppliers may
terminate the right of the company to sell some or all of their
products or change these terms and conditions or reduce or
discontinue the incentives or programs offered. Any such
termination or implementation of such changes could have a
material adverse impact on the companys results of
operations.
Segment
Reporting
Operating segments are defined as components of an enterprise
for which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
determining how to allocate resources and in assessing
performance. Operating segments can be aggregated for segment
reporting purposes so long as certain economic and operating
aggregation criteria are met. With the divestiture of KSG in
2007, the continuing operations of the company represented one
business segment that provided IT solutions to corporate and
public-sector customers. In 2008, the company evaluated its
business groups and developed a structure to support the
companys strategic direction as it has transformed to a
pervasive solution provider largely in the North American IT
market. With this transformation, the company now has three
reportable segments: HSG, RSG, and TSG. See Note 13 to
Consolidated Financial Statements titled, Business
Segments, for a discussion of the companys segment
reporting.
Customers
Agilysys customers include large and medium-sized
companies, divisions or departments of corporations in the
Fortune 1000, and public-sector institutions. The company
serves customers in a wide range of industries, including
telecommunications, education, finance, government, healthcare,
hospitality, manufacturing and retail. In 2009, Verizon
Communications, Inc. represented approximately 22.7% of
Agilysys total sales and 32.6% of TSGs total sales.
In 2008, Verizon Communications, Inc. represented approximately
11.7% of the companys total sales and 16.3% of TSGs
total sales. No single customer accounted for more than 10% of
Agilysys total sales or the total sales of any reporting
business segment during 2007.
Uneven Sales
Patterns and Seasonality
The company experiences a disproportionately large percentage of
quarterly sales in the last month of its fiscal quarters. In
addition, TSG experiences a seasonal increase in sales during
its fiscal third quarter ending December 31st. Third quarter
sales were 31%, 33%, and 33% of annual revenues for 2009, 2008,
and 2007, respectively. Agilysys believes that this sales
pattern is industry-wide. Although the company
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is unable to predict whether this uneven sales pattern will
continue over the long term, the company anticipates that this
trend will remain in the foreseeable future.
Backlog
The company historically has not had a significant backlog of
orders. There was no significant backlog at March 31, 2009.
Competition
The reselling of innovative computer technology solutions is
competitive, primarily with respect to price, but also with
respect to service levels. The company faces competition with
respect to developing and maintaining relationships with
customers. Agilysys competes for customers with other solution
providers and occasionally with some of its suppliers.
There are very few large, public enterprise product reseller
companies in the IT solution provider market. As such,
Agilysys competition is typically small or regional,
privately held technology solution providers with
$50 million to $200 million in revenues. The company
competes with large companies such as Berbee Information
Networks Corporation (a division of CDW Corporation), Forsythe
Solutions Group, Inc., and Logicalis Group within TSG, and
Micros Systems, Inc. and Radiant Systems, Inc. within HSG.
Employees
As of June 1, 2009, Agilysys had approximately
1,250 employees. The company is not a party to any
collective bargaining agreements, has had no strikes or work
stoppages and considers its employee relations to be excellent.
Markets
Agilysys sells its products principally in the United States and
Canada and entered the China, Hong Kong and U.K. markets through
acquisitions. Sales to customers outside of the United States
and Canada are not a significant portion of the companys
sales. In January 2009, the company sold the stock of
TSGs operations in China and certain assets of TSGs
Hong Kong operations. However, HSG still continues to operate
and grow in Asia, specifically in Hong Kong, Macau, and
Singapore.
Access to
Information
Agilysys annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and any amendments to these reports are available free of charge
through its Internet site
(http://www.agilysys.com)
as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the Securities and
Exchange Commission (SEC). The information posted on
the companys Internet site is not incorporated into this
Annual Report on
Form 10-K.
In addition, the SEC maintains an Internet site
(http://www.sec.gov)
that contains reports, proxy and information statements, and
other information regarding issuers that file electronically
with the SEC.
Item 1A. Risk
Factors.
Our business
could be materially adversely affected if we cannot successfully
implement changes to our information technology to support a
changed business.
Our current information systems environment was principally
designed for the distribution business. We are in the process of
converting legacy business information systems to a single
Enterprise Resource Planning system. We committed significant
resources to this conversion, which began in fiscal 2009 and is
expected to be completed in fiscal 2010. This conversion is
complex and while we are using a controlled project plan, we may
not be able to successfully implement changes to and manage our
internal systems, procedures and controls. If we are unable to
successfully complete this implementation in an efficient or
timely manner, it could materially adversely affect our business.
Our profitability
is partly dependent upon restructuring and executing planned
cost savings.
Recently, we initiated actions intended to reduce our cost
structure and improve profitability. Specifically, we
implemented the following restructuring actions over the past
year:
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restructured the
go-to-market
strategy for TSGs professional services offering;
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exited Asian operations of TSG;
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reduced corporate overhead and realigned executive management;
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closed corporate offices in Boca Raton, Florida and relocated
corporate headquarters back to Solon, Ohio; and
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realigned certain operational and administrative departments and
streamlined certain processes to reduce costs and drive
efficiencies.
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If our cost reduction efforts are ineffective or our estimates
of cost savings are inaccurate, our revenues and profitability
could be negatively impacted. We may not be successful in
achieving the operating efficiencies and operating cost
reductions expected from these
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efforts, and may experience business disruptions associated with
the restructuring and cost reduction activities. These efforts
may not produce the full efficiency and cost reduction benefits
that we expect. Further, such benefits may be realized later
than expected, and the costs of implementing these measures may
be greater than anticipated.
We are dependent
on a single customer for a significant portion of our
revenues.
In 2009 and 2008 more than 10% of our revenues were derived from
Verizon Communications, Inc. (Verizon). If we were
to lose Verizon as a customer, or if Verizon was to become
insolvent or otherwise unable to pay for products and services,
or was to become unwilling or unable to make payments in a
timely manner, it could have a material adverse effect on the
companys business, results of operations, financial
condition or liquidity. A further or extended economic downturn
could reduce profitability and cash flow.
We are highly
dependent on key suppliers and supplier programs.
We presently depend on a small number of key suppliers,
including IBM, HP and Sun Microsystems. Our contracts with these
suppliers vary in duration and are generally terminable by
either party at will upon notice. The loss of any of these
suppliers or a combination of certain other suppliers could have
a material adverse effect on the companys business,
results of operations and financial condition. From time to
time, a supplier may terminate the companys right to sell
some or all of a suppliers products or change the terms
and conditions of the supplier relationship or reduce or
discontinue the incentives or programs offered. Any termination
or the implementation of these changes could have a material
negative impact on the companys results of operations.
We are dependent
on a long-term product procurement agreement with Arrow
Electronics, Inc.
We have entered into a long-term product procurement agreement
to purchase a wide variety of products totaling a minimum of
$330 million per year until 2012 from Arrow Electronics,
Inc. Our success will be dependent on competitive pricing, the
availability of products on a timely basis and maintenance of
certain service levels by Arrow.
Prolonged
economic weakness causes a decline in spending for information
technology, adversely affecting our financial results.
Our revenue and profitability depend on the overall demand for
our products and services and continued growth in the use of
technology in business by our customers, their customers, and
suppliers. In challenging economic environments, our customers
may reduce or defer their spending on new technologies. At the
same time, many companies have already invested substantial
resources in their current technological resources, and they may
be reluctant or slow to adopt new approaches that could disrupt
existing personnel, processes and infrastructures. Delays or
reductions in demand for information technology by end users
could have a material adverse effect on the demand for our
products and services. In the last year, we have experienced
weakening in the demand for our products and services. If the
markets for our products and services continue to soften, our
business, results of operations or financial condition could be
materially adversely affected.
If we fail to
maintain an effective system of internal controls or discover
material weaknesses in our internal controls over financial
reporting, we may not be able to report our financial results
accurately or timely or detect fraud, which could have a
material adverse effect on our business. While we believe that
our plans to remediate our 2009 material weakness in internal
controls over financial reporting, discussed in Item 9A of
this report, will return us to the status of having adequate
internal controls over financial reporting, we continue to be
exposed to risks that those internal controls may be inadequate
and we may have difficulty accurately reporting our financial
results on a timely basis.
An effective internal control environment is necessary for the
company to produce reliable financial reports and is an
important part of its effort to prevent financial fraud.
Section 404 of the Sarbanes-Oxley Act of 2002 requires our
management to report on, and our independent registered public
accounting firm to attest to, the effectiveness of our internal
control structure and procedures for financial reporting. We
have an ongoing program to perform the system and process
evaluation and testing necessary to comply with these
requirements and to remediate internal control deficiencies and
material weaknesses.
While management evaluates the effectiveness of the
companys internal controls on a regular basis, these
controls may not always be effective. There are inherent
limitations on the effectiveness of internal controls, including
collusion, management override, and failure in human judgment.
In addition, control procedures are designed to reduce rather
than eliminate business risks. In the event that our chief
executive officer, chief financial officer or independent
registered public accounting firm determines that our internal
controls over financial reporting are not effective as defined
under Section 404, we may be unable to produce reliable
financial reports or prevent fraud, which could materially
adversely affect our business. In addition, we may be subject to
sanctions or investigation by regulatory authorities, such as
the SEC or NASDAQ. Any such actions could affect investor
perceptions of the company and result in an adverse reaction in
the
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financial markets due to a loss of confidence in the reliability
of our financial statements, which could cause the market price
of our common stock to decline or limit our access to capital.
We make estimates
and assumptions in connection with the preparation of the
companys Consolidated Financial Statements, and any
changes to those estimates and assumptions could have a material
adverse effect on our results of operations.
In connection with the preparation of the companys
Consolidated Financial Statements, we use certain estimates and
assumptions based on historical experience and other factors.
Our most critical accounting estimates are described in
Managements Discussion and Analysis of Financial
Condition and Results of Operations in this Annual Report
and we describe other significant accounting policies in
Note 1 to Consolidated Financial Statements titled,
Operations and Summary of Significant Accounting
Policies, which are included in Part II, Item 15
of this Annual Report. In addition, as discussed in Note 12
to Consolidated Financial Statements titled, Commitments and
Contingencies, we make certain estimates under the
provisions of SFAS No. 5 Accounting for
Contingencies, including decisions related to provisions
for legal proceedings and other contingencies. While we believe
that these estimates and assumptions are reasonable under the
circumstances, they are subject to significant uncertainties,
some of which are beyond our control. Should any of these
estimates and assumptions change or prove to be incorrect, it
could have a material adverse effect on our results of
operations.
The market for
our products and services is affected by changing technology and
if we fail to anticipate and adapt to such changes, our results
of operations may suffer.
The markets in which the company competes are characterized by
ongoing technological change, new product introductions,
evolving industry standards and changing needs of customers. Our
competitive position and future success will depend on our
ability to anticipate and adapt to changes in technology and
industry standards. If we fail to successfully manage the
challenges of rapidly changing technology, the companys
results of operations could be materially adversely affected.
Our profitability
could suffer if we are not able to maintain favorable
pricing.
Our profitability is dependent on the rates we are able to
charge for our services. If we are not able to maintain
favorable pricing for our services, our profit margin and our
profitability could suffer. The rates we are able to charge for
our services are affected by a number of factors, including:
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our customers perceptions of our ability to add value
through our services;
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competition;
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introduction of new services or products by us or our
competitors;
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our competitors pricing policies;
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our ability to charge higher prices where market demand or the
value of our services justifies it;
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our ability to accurately estimate, attain and sustain contract
revenues, margins and cash flows over long contract periods;
|
|
procurement practices of our customers; and
|
|
general economic and political conditions.
|
Capital markets
are currently experiencing a period of dislocation and
instability, which has had and could continue to have a negative
impact on our business and operations.
The general disruption in the U.S. capital markets has
impacted the broader financial and credit markets and reduced
the availability of debt and equity capital for the market as a
whole. These conditions could persist for a prolonged period of
time or worsen in the future. The resulting lack of available
credit, lack of confidence in the financial sector, increased
volatility in the financial markets and reduced business
activity could materially and adversely affect our business,
financial condition, results of operations and our ability to
obtain and manage our liquidity. Any such developments could
have a material adverse impact on our business, financial
condition and results of operations.
Credit market
developments may adversely affect our business and results of
operations by reducing availability under our credit
agreement.
In the current volatile state of the credit markets, there is
risk that any lenders, even those with strong balance sheets and
sound lending practices, could fail or refuse to honor their
legal commitments and obligations under existing credit
commitments, including but not limited to: extending credit up
to the maximum permitted by a credit facility, allowing access
to additional credit features and otherwise accessing capital
and/or
honoring loan commitments. On May 5, 2009, we entered into
a new credit facility, as discussed in Item 7 of this
Annual Report titled, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
under the subsection titled, Liquidity and Capital
Resources and in Note 8 to Consolidated Financial
Statements titled, Financing Arrangements. Although we do
not intend to borrow in the near term, if our lender fails to
honor its legal commitments under our credit facility, it could
be difficult in
6
the current environment to replace this facility on similar
terms. The failure of the lender under the companys credit
facility may impact the companys ability to borrow money
to finance its operating activities.
Disruptions in
the financial and credit markets may adversely impact the
spending of our customers, which could adversely affect our
business, results of operations and financial
condition.
Demand for our products and services depends in large part upon
the level of capital of our customers. Decreased customer
spending could have a material adverse effect on the demand for
our services and our business, results of operations and
financial condition. In addition, the disruptions in the
financial markets may also have an adverse impact on regional
economies or the world economy, which could negatively impact
the capital and maintenance expenditures of our customers. There
can be no assurance that government responses to the disruptions
on the financial markets will restore confidence, stabilize
markets or increase liquidity and the availability of credit.
These conditions may reduce the willingness or ability of our
customers and prospective customers to commit funds to purchase
our products and services, or their ability to pay for our
products and services after purchase.
When we make
acquisitions, we may not be able to successfully integrate them
or attain the anticipated benefits.
As part of our operating history and growth strategy, we have
acquired other businesses. In the future, we may continue to
seek acquisition candidates in selected markets and from time to
time engage in exploratory discussions with suitable candidates.
We can provide no assurance that we will be able to identify and
acquire targeted businesses or obtain financing for such
acquisitions on satisfactory terms. The process of integrating
acquired businesses into our operations may result in unforeseen
difficulties and may require a disproportionate amount of
resources and management attention. In particular, the
integration of acquired technologies with our existing products
could cause delays in the introduction of new products. In
connection with future acquisitions, we may incur significant
charges to earnings as a result of, among other things, the
write-off of purchased research and development.
Future acquisitions may be financed through the issuance of
common stock, which may dilute the ownership of our
shareholders, or through the incurrence of additional
indebtedness. Furthermore, we can provide no assurance that
competition for acquisition candidates will not escalate,
thereby increasing the costs of making acquisitions or making
suitable acquisitions unattainable. Acquisitions involve
numerous risks, including the following:
|
|
|
problems combining the acquired operations, technologies or
products;
|
|
unanticipated costs or liabilities;
|
|
diversion of managements attention;
|
|
adverse effects on existing business relationships with
suppliers and customers;
|
|
risks associated with entering markets in which we have limited
or no prior experience; and
|
|
potential loss of key employees, particularly those of the
acquired organizations.
|
For example, until we actually assume operating control of the
business assets and operations, it is difficult to ascertain
with precision the actual value or the potential liabilities of
our acquisitions. If we are unsuccessful in integrating our
acquisitions, or if the integration is more difficult than
anticipated, we may experience disruptions that could have a
material adverse effect on our business or the acquisition. In
addition, we may not realize all of the anticipated benefits
from our acquisitions, which could result in an impairment of
goodwill or other intangible assets.
Consolidation in
the industries that we serve could adversely affect our
business.
Customers that we serve may seek to achieve economies of scale
and other synergies by combining with or acquiring other
companies. If two or more of our current customers combine their
operations, it may decrease the amount of work that we perform
for these customers. If one of our current clients merges or
consolidates with a company that relies on another provider for
its consulting, systems integration and technology, or
outsourcing services, we may lose work from that client or lose
the opportunity to gain additional work. If two or more of our
suppliers merge or consolidate operations, the increased market
power of the larger company could also increase our product
costs and place competitive pressures on us. Any of these
possible results of industry consolidation could adversely
affect our business.
We May Incur
Additional Goodwill and Intangible Asset Impairment Charges that
Adversely Affect Our Operating Results.
We review goodwill for impairment annually and more frequently
if events and circumstances indicate that our goodwill and other
indefinite-lived intangible assets may be impaired and that the
carrying value may not be recoverable. Factors we consider
important that could trigger an impairment review include, but
are not limited to, significant underperformance relative to
historical or projected future operating results, significant
changes in the manner of use of the acquired assets or the
strategy for our overall business, significant negative
7
industry or economic trends, a significant decline in our stock
price for a sustained period, and decreases in our market
capitalization below the recorded amount of our net assets for a
sustained period.
As a result of significant declines in macroeconomic conditions,
there has been a decline in global equity valuations since April
2008 that impacted our market capitalization. Based upon the
results of impairment tests performed during fiscal 2009, we
concluded that a portion of our goodwill and identifiable
intangible assets were impaired. As such, we recognized total
non-cash impairment charges in the first, second, and fourth
quarters of 2009 for goodwill and intangible assets of
$231.9 million, not including $20.6 million that
related to the CTS business acquired in May 2005 that was
classified as restructuring charges, as of March 31, 2009.
The impairment charge did not impact our consolidated cash
flows, liquidity, or capital resources. See Note 1 to
Consolidated Financial Statements titled, Operations and
Summary of Significant Accounting Policies and the
subsection titled, Critical Accounting Policies,
Estimates & Assumptions in Item 7 titled,
Managements Discussion and Analysis of Financial
Condition and Results of Operations
(MD&A) for further discussion of the impairment
testing of goodwill and identifiable intangible assets.
A continued decline in general economic conditions or global
equity valuations, could impact the judgments and assumptions
about the fair value of our businesses and we could be required
to record additional impairment charges in the future, which
would impact our consolidated balance sheet, as well as our
consolidated statement of operations. If we were required to
recognize an additional impairment charge in the future, the
charge would not impact our consolidated cash flows, current
liquidity, or capital resources.
We are subject to
litigation, which may be costly.
As a company that does business with many customers, employees
and suppliers, we are subject to a variety of legal and
regulatory actions, including, but not limited to, claims made
by or against us relating to taxes, health and safety, employee
benefit plans, employment discrimination, contract compliance,
intellectual property rights, and intellectual property
licenses. The results of such legal and regulatory actions are
difficult to predict. Although we are not aware of any instances
of non-compliance with laws, regulations, contracts, or
agreements and we do not believe that any of our products and
services infringe any property rights or licenses, we may incur
significant legal expenses if any such claim were filed. If we
are unsuccessful in defending a claim, it could have a material
adverse effect on our business, financial condition, or results
of operations.
Business
disruptions could seriously harm our future revenue and
financial condition and increase our costs and
expenses.
Our operations and the operations of our significant suppliers
could be subject to power shortages, telecommunications
failures, fires, extreme weather conditions, medical epidemics,
and other natural or manmade disasters or business
interruptions. The occurrence of any of these business
disruptions could have a material adverse effect on our results
of operations. While we maintain disaster recovery plans and
insurance with coverages we believe to be adequate, claims may
exceed insurance coverage limits, may not be covered by
insurance, or insurance may not continue to be available on
commercially reasonable terms.
We may be unable
to hire enough qualified employees or we may lose key
employees.
We rely on the continued service of our senior management,
including our Chief Executive Officer, members of our executive
team and other key employees and the hiring of new qualified
employees. In the technology services industry, there is
substantial and continuous competition for highly-skilled
personnel. We also may experience increased compensation costs
that are not offset by either improved productivity or higher
prices. We may not be successful in recruiting new personnel and
in retaining and motivating existing personnel. With rare
exceptions, we do not have long-term employment or
non-competition agreements with our employees. Members of our
senior management team have left the company recently, and we
cannot assure you that there will not be additional departures,
which may be disruptive to our operations.
Part of our total compensation program includes share-based
compensation. Share-based compensation is an important tool in
attracting and retaining employees in our industry. If the
market price of our stock declines or remains low, it may
adversely affect our ability to retain or attract employees. In
addition, because we expense all share-based compensation, we
may in the future change our share-based and other compensation
practices. Some of the changes we consider from time to time
include the reduction in the number of employees granted
options, a reduction in the number of options granted per
employee and a change to alternative forms of share-based
compensation. Any changes in our compensation practices or
changes made by competitors could affect our ability to retain
and motivate existing personnel and recruit new personnel.
As a publicly
traded company, our stock price is subject to certain market
trends that are out of our control and that may not reflect our
actual intrinsic value.
We can experience short-term increases and declines in our stock
price due to factors other than those specific to our business,
such as economic news or other events generally affecting the
trading markets. These fluctuations could favorably or
unfavorably impact our
8
business, financial condition, or results of operations. Our
ownership base has been and may continue to be concentrated in a
few shareholders, which could increase the volatility of our
stock price over time.
We may be
required to adopt International Financial Reporting Standards
(IFRS). The ultimate adoption of such standards
could negatively impact our business, financial condition or
results of operations.
Although not yet required, we could be required to adopt IFRS
which is different from accounting principles generally accepted
in the United States of America for our accounting and reporting
standards. The implementation and adoption of new standards
could favorably or unfavorably impact our business, financial
condition, or results of operations.
Item 1B. Unresolved
Staff Comments.
None.
Item 2. Properties.
The companys principal corporate offices are located in a
100,000 square foot facility in Solon, Ohio. As of
March 31, 2009, the company owned or leased a total of
approximately 353,266 square feet of space for its
continuing operations, of which approximately
332,307 square feet is devoted to product warehouse and
sales offices. The companys major leases contain renewal
options for periods of up to 8 years. On December 2,
2008, the Boca Raton, Florida facility was closed and the
company is looking for a tenant to sublease the facility. For
information concerning the companys rental obligations,
see the discussion of contractual obligations under Item 7
contained in Part II, as well as Note 7 to
Consolidated Financial Statements contained in Part IV, of
this Annual Report on
Form 10-K.
The company believes that its product warehouse and office
facilities are well maintained, are suitable and provide
adequate space for the operations of the company.
The companys materially important facilities as of
March 31, 2009, are set forth in the table below:
|
|
|
|
|
|
|
|
|
Location
|
|
Type of facility
|
|
Approximate square footage
|
|
Segment
|
|
Leased or owned
|
|
Solon, Ohio
|
|
Warehouse and administrative offices
|
|
100,000
|
|
Corporate
|
|
Leased
|
Alpharetta, Georgia
|
|
Administrative offices
|
|
29,500
|
|
HSG
|
|
Leased
|
Las Vegas, Nevada
|
|
Administrative offices
|
|
26,665
|
|
HSG
|
|
Leased
|
Edison, New Jersey
|
|
Administrative offices
|
|
21,500
|
|
TSG
|
|
Leased
|
Taylors, South Carolina
|
|
Warehouse and administrative offices
|
|
77,500
|
|
RSG
|
|
Leased
|
|
Item 3. Legal
Proceedings.
In 2006, the company filed a lawsuit against the former
shareholders of CTS, a company that was purchased by Agilysys in
May 2005. In the lawsuit, Agilysys alleged that principals of
CTS failed to disclose pertinent information during the
acquisition, representing a material breach in the
representations of the acquisition purchase agreement. On
January 30, 2009, a jury ruled in favor of the company,
finding the former shareholders of CTS liable for breach of
contract, and awarded damages in the amount of
$2.3 million. The jury also awarded to Agilysys its
reasonable attorneys fees in an amount to be determined at
a later hearing. Judgment will be entered upon an award of
attorneys fees, at which time the parties have thirty days
to file an appeal. No amounts have yet been accrued or received
from the former shareholders of CTS or their insurance company.
Item 4. Submission
of Matters to a Vote of Security Holders.
The 2008 Annual Meeting of Shareholders of Agilysys, Inc.
(2008 Annual Meeting) was held on March 26,
2009. The following Directors were re-elected to serve until the
annual meeting in 2011:
|
|
|
|
|
|
|
Director
|
|
For
|
|
Against
|
|
Withheld
|
|
Thomas A. Commes
|
|
16,926,138
|
|
|
|
1,106,358
|
R. Andrew Cueva
|
|
17,799,059
|
|
|
|
233,437
|
Howard M. Knicely
|
|
16,982,761
|
|
|
|
1,049,735
|
|
9
On March 11, 2009, the company and Ramius LLC and its
affiliates entered into an agreement (the Settlement
Agreement) to settle the proxy contest regarding the
election of Directors at the companys 2008 Annual Meeting.
For information regarding the Settlement Agreement and the
companys expenses related to the solicitation, please
refer to the companys Schedule 14A filed with the SEC
on March 17, 2009.
The term of office for the following Directors continued after
the 2008 Annual Meeting: Martin F. Ellis, Keith M. Kolerus,
Robert A. Lauer, Robert G. McCreary, III, John Mutch, and
Steve Tepedino. Effective May 21, 2009, Steve Tepedino
tendered his resignation from the companys Board of
Directors for professional reasons.
Also at the 2008 Annual Meeting, shareholders voted to ratify
the appointment of Ernst & Young LLP as the
companys independent registered public accounting firm for
the fiscal year ended March 31, 2009. Shareholders voted as
follows:
|
|
|
|
|
|
|
|
|
For
|
|
Against
|
|
Abstentions
|
|
Broker Non-Votes
|
|
18,752,711
|
|
57,990
|
|
40,611
|
|
|
|
|
|
Item 4A. Executive
Officers of the Registrant.
The information provided below is furnished pursuant to
Instruction 3 to Item 401(b) of
Regulation S-K.
The following table sets forth the name, age, current position
and principal occupation and employment during the past five
years through June 1, 2009, of the companys executive
officers.
There is no relationship by blood, marriage or adoption among
the listed officers. Mr. Ellis holds office until
terminated as set forth in his employment agreement. All other
executive officers serve until terminated.
Executive
Officers of the Registrant
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|
|
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|
|
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Name
|
|
Age
|
|
Current Position at June 1, 2009
|
|
Other Positions
|
|
Martin F. Ellis
|
|
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44
|
|
|
President and Chief Executive Officer of the company since
October 2008.
|
|
Executive Vice President, Treasurer and Chief Financial Officer
from June 2005 to October 2008. Executive Vice President,
Corporate Development and Investor Relations from July 2003 to
June 2005. Prior to July 2003, Senior Vice President, Principal,
and Head of Corporate Finance for Stern Stewart & Co.
|
Paul A. Civils
|
|
|
58
|
|
|
Senior Vice President and General Manager since November 2008.
|
|
Vice President and General Manager, Retail Solutions from
October 2003 to November 2008. Prior to October 2003, Vice
President, Retail Direct Sales for Kyrus Corporation.
|
John T. Dyer
|
|
|
34
|
|
|
Vice President and Controller since November 2008.
|
|
Director of Internal Audit from March 2007 to November 2008.
Prior to 2004 and to March 2007, various progressive positions
in finance, accounting, internal audit, and management with The
Sherwin-Williams Company.
|
10
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Current Position at June 1, 2009
|
|
Other Positions
|
|
Kenneth J. Kossin, Jr.
|
|
|
44
|
|
|
Senior Vice President and Chief Financial Officer since October
2008.
|
|
Vice President and Controller from October 2005 to October 20,
2008. Assistant Controller from April 2004 to October 2005.
Prior to April 2004, Director of General Accounting for Roadway,
Express, Inc.
|
Anthony Mellina
|
|
|
53
|
|
|
Senior Vice President and General Manager since November 2008.
|
|
Senior Vice President, Sun Technology Solutions from October
2007 to November 2008. Prior to October 2007, Chief Executive
Officer for Innovative Systems Design, Inc. from July 2003.
|
Tina Stehle
|
|
|
52
|
|
|
Senior Vice President and General Manager since November 2008.
|
|
Senior Vice President Hospitality Solutions from July 2007 to
November 2008. Vice President and General Manager, Hospitality
Solutions from August 2006 to July 2007. Vice President,
Software Sales from February 2004 to August 2006. Prior to
February 2004, Vice President of Software Services for
Inter-American Data, Inc.
|
Curtis C. Stout
|
|
|
38
|
|
|
Vice President and Treasurer since November 2008.
|
|
Vice President, Corporate Development and Planning from April
2007 to November 2008. Director, Business Planning and
Development from April 2004 to March 2007. From July 2000 to
April 2004, various roles in corporate development.
|
Kathleen A. Weigand
|
|
|
50
|
|
|
General Counsel and Senior Vice President, Human Resources since
March 2009.
|
|
Executive Vice President, General Counsel, and Secretary for
U-Store It Trust from January 2006 to December 2008. Deputy
General Counsel and Assistant Secretary for Eaton Corporation
from 2003 to 2005. Prior to 2003, Vice President, Assistant
General Counsel, and Assistant Secretary for TRW Inc.
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11
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Shareholder Matters
and Issuer
Purchases of Equity Securities.
|
The companys common shares, without par value, are traded
on the NASDAQ Stock Market LLC. Common share prices are quoted
daily under the symbol AGYS. The high and low market
prices and dividends per share for the common shares for each
quarter during the past two fiscal years are presented in the
table below.
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|
|
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|
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|
|
|
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|
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|
|
|
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|
|
Year ended March 31,
2009
|
|
|
|
First quarter
|
|
|
Second quarter
|
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|
Third quarter
|
|
|
Fourth quarter
|
|
|
Year
|
|
|
|
Dividends declared per common share
|
|
|
$0.03
|
|
|
|
$0.03
|
|
|
|
$0.03
|
|
|
|
$0.03
|
|
|
|
$0.12
|
|
Price range per common share
|
|
|
$9.65-$12.64
|
|
|
|
$10.09-$13.34
|
|
|
|
$2.09-$9.48
|
|
|
|
$3.26-$4.93
|
|
|
|
$2.09-$13.34
|
|
Closing price on last day of period
|
|
|
$11.34
|
|
|
|
$10.09
|
|
|
|
$4.29
|
|
|
|
$4.30
|
|
|
|
$4.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2008
|
|
|
|
First quarter
|
|
|
Second quarter
|
|
|
Third quarter
|
|
|
Fourth quarter
|
|
|
Year
|
|
|
|
Dividends declared per common share
|
|
|
$0.03
|
|
|
|
$0.03
|
|
|
|
$0.03
|
|
|
|
$0.03
|
|
|
|
$0.12
|
|
Price range per common share
|
|
|
$21.03-$23.45
|
|
|
|
$14.50-$23.46
|
|
|
|
$12.68-$18.53
|
|
|
|
$11.13-$15.30
|
|
|
|
$11.13-$23.46
|
|
Closing price on last day of period
|
|
|
$22.50
|
|
|
|
$16.90
|
|
|
|
$15.12
|
|
|
|
$11.60
|
|
|
|
$11.60
|
|
|
As of May 29, 2009, there were 22,639,773 common shares of
the company outstanding, and there were 2,156 shareholders of
record. However, the company believes that there is a larger
number of beneficial holders of its common shares. The closing
price of the common shares on May 29, 2009, was $6.46 per
share.
The company pays cash dividends on common shares quarterly upon
authorization by the Board of Directors. Regular payment dates
have been the first day of August, November, February and May.
The company maintains a Dividend Reinvestment Plan whereby cash
dividends and additional monthly cash investments up to a
maximum of $5,000 per month may be invested in the
companys common shares at no commission cost.
The company adopted a Shareholder Rights Plan in 1999 that
expired on May 10, 2009. For further information about the
Shareholder Rights Plan, see Note 14 to Consolidated
Financial Statements titled, Shareholders Equity
and contained in Part IV hereof.
No repurchases of common shares were made by or on behalf of the
Company during the fourth quarter of fiscal 2009.
12
Shareholder
Return Performance Presentation
The following chart compares the value of $100 invested in the
companys common shares, including reinvestment of
dividends, with a similar investment in the Russell 2000 Index
(the Russell 2000) and the companies listed in the
SIC Code 5045-Computer and Computer Peripheral Equipment and
Software (the companys Peer Group) for the
period March 31, 2004, through March 31, 2009:
Comparison of
Cumulative Five Year Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed returns
|
|
|
|
|
|
|
Fiscal years ending
|
|
Company Name / Index
|
|
Base period March 2004
|
|
|
March 2005
|
|
|
March 2006
|
|
|
March 2007
|
|
|
March 2008
|
|
|
March 2009
|
|
|
|
Agilysys, Inc.
|
|
|
100.00
|
|
|
|
168.11
|
|
|
|
129.71
|
|
|
|
195.42
|
|
|
|
101.56
|
|
|
|
38.45
|
|
Russell 2000
|
|
|
100.00
|
|
|
|
105.41
|
|
|
|
132.66
|
|
|
|
140.50
|
|
|
|
122.23
|
|
|
|
76.39
|
|
Peer Group
|
|
|
100.00
|
|
|
|
102.32
|
|
|
|
113.88
|
|
|
|
118.59
|
|
|
|
96.29
|
|
|
|
65.61
|
|
|
13
Item 6. Selected
Financial Data.
The following selected consolidated financial and operating data
was derived from the audited consolidated financial statements
of the company and should be read in conjunction with the
companys Consolidated Financial Statements and Notes
thereto, and Item 7 contained in part II of this
Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended March 31
|
|
(In thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Operating results (a)(b)(c)(d)(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
730,720
|
|
|
$
|
760,168
|
|
|
$
|
453,740
|
|
|
$
|
463,375
|
|
|
$
|
377,029
|
|
Restructuring charges (credits)
|
|
$
|
40,801
|
|
|
$
|
(75
|
)
|
|
$
|
(2,531
|
)
|
|
$
|
5,337
|
|
|
$
|
515
|
|
Asset impairment charges
|
|
$
|
231,856
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
(Loss) income from continuing operations, net of taxes
|
|
$
|
(282,187
|
)
|
|
$
|
1,858
|
|
|
$
|
(9,927
|
)
|
|
$
|
(20,541
|
)
|
|
$
|
(25,118
|
)
|
(Loss) income from discontinued operations, net of taxes
|
|
|
(1,947
|
)
|
|
|
1,801
|
|
|
|
242,782
|
|
|
|
48,655
|
|
|
|
44,603
|
|
|
Net (loss) income
|
|
$
|
(284,134
|
)
|
|
$
|
3,659
|
|
|
$
|
232,855
|
|
|
$
|
28,114
|
|
|
$
|
19,485
|
|
|
Per share data (a)(b)(c)(d)(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations basic and
diluted
|
|
$
|
(12.49
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.32
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(0.89
|
)
|
(Loss) income from discontinued operations basic and
diluted
|
|
|
(0.09
|
)
|
|
|
0.06
|
|
|
|
7.91
|
|
|
|
1.63
|
|
|
|
1.58
|
|
|
Net income basic and diluted
|
|
$
|
(12.58
|
)
|
|
$
|
0.13
|
|
|
$
|
7.59
|
|
|
$
|
0.94
|
|
|
$
|
0.69
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,586,603
|
|
|
|
28,252,137
|
|
|
|
30,683,766
|
|
|
|
29,935,200
|
|
|
|
28,100,612
|
|
Diluted
|
|
|
22,586,603
|
|
|
|
28,766,112
|
|
|
|
30,683,766
|
|
|
|
29,935,200
|
|
|
|
28,100,612
|
|
Financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
374,436
|
|
|
$
|
695,871
|
|
|
$
|
893,716
|
|
|
$
|
760,940
|
|
|
$
|
818,492
|
|
Long-term obligations (f)
|
|
$
|
157
|
|
|
$
|
255
|
|
|
$
|
3
|
|
|
$
|
99
|
|
|
$
|
59,624
|
|
Mandatorily redeemable convertible trust preferred securities (g)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125,317
|
|
Total shareholders equity
|
|
$
|
192,717
|
|
|
$
|
479,465
|
|
|
$
|
626,844
|
|
|
$
|
385,176
|
|
|
$
|
332,451
|
|
|
|
|
|
(a)
|
|
In 2008, the company acquired
Stack, InfoGenesis, Innovative and Eatec. Accordingly, the
results of operations for these acquisitions are included in the
accompanying consolidated financial statements since the
acquisition date. See Note 2 to Consolidated Financial
Statements titled, Acquisitions, for additional
information.
|
(b)
|
|
In 2007, the company sold the
assets and operations of KSG. The operating results of KSG are
classified as discontinued operations for all periods presented.
See Note 3 to Consolidated Financial Statements titled,
Discontinued Operations, for additional information
regarding the companys sale of KSGs assets and
operations.
|
(c)
|
|
In 2007, the company included the
operating results of Visual One in the results of operations
from the date of acquisition. In 2006, the company included the
results of operations of CTS from its date of acquisition.
|
14
|
|
|
(d)
|
|
In 2008, an impairment charge of
$4.9 million was recognized on the companys equity
investment in Magirus AG (Magirus). In 2007, the
company recognized an impairment charge of $5.9 million
($5.1 million after taxes) on its equity method investment
in Magirus. See Note 6 to Consolidated Financial Statements
titled, Investment in Magirus Sold in November
2008, for further information regarding this investment.
|
(e)
|
|
In 2009 and 2008, discontinued
operations primarily represents TSGs China and Hong Kong
operations and the resolution of certain contingencies. The
company sold the stock of TSGs China operations and
certain assets of TSGs Hong Kong operations in January
2009. In 2007 and 2006 discontinued operations primarily
represents TSGs China and Hong Kong operations and the
companys KSG business that was sold in 2007. In 2005,
discontinued operations primarily represents the companys
KSG business and certain continuing occupancy costs related to
the IED business that was sold in 2003.
|
(f)
|
|
The companys Senior Notes
matured in 2007. In 2006, the companys Senior Notes were
reclassified from long-term obligations to a current liability.
|
(g)
|
|
In 2006, the company completed the
redemption of its 6.75% Mandatorily Redeemable Convertible
Trust Preferred Securities (Trust Preferred
Securities). Trust Preferred Securities with a
carrying value of $105.4 million were redeemed for cash at
a total expense of $109.0 million. In addition,
Trust Preferred Securities with a carrying value of
$19.9 million were converted into common shares of the
company.
|
Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
In Managements Discussion and Analysis of
Financial Condition and Results of Operations,
(MD&A), management explains the general
financial condition and results of operations for Agilysys, Inc.
and its subsidiaries including:
|
|
|
what factors affect the companys business;
|
|
what the companys earnings and costs were;
|
|
why those earnings and costs were different from the year
before;
|
|
where the earnings came from;
|
|
how the companys financial condition was affected;
and
|
|
where the cash will come from to fund future operations.
|
The MD&A analyzes changes in specific line items in the
Consolidated Statements of Operations and Consolidated
Statements of Cash Flows and provides information that
management believes is important to assessing and understanding
the companys consolidated financial condition and results
of operations. The discussion should be read in conjunction with
the Consolidated Financial Statements and related Notes that
appear in Item 15 of this Annual Report on
Form 10-K
titled, Financial Statements and Supplementary Data.
Information provided in the MD&A may include
forward-looking statements that involve risks and uncertainties.
Many factors could cause actual results to be materially
different from those contained in the forward-looking
statements. See Forward-Looking Information below
and Item 1A Risk Factors in Part I of this
Annual Report on
Form 10-K
for additional information concerning these items. Management
believes that this information, discussion, and disclosure is
important in making decisions about investing in the company.
Overview
Agilysys, Inc. (Agilysys or the company)
is a leading provider of innovative IT solutions to corporate
and public-sector customers, with special expertise in select
markets, including retail and hospitality. The company uses
technology including hardware, software and
services to help customers resolve their most
complicated IT needs. The company possesses expertise in
enterprise architecture and high availability, infrastructure
optimization, storage and resource management, and business
continuity, and provides industry-specific software, services
and expertise to the retail and hospitality markets.
Headquartered in Solon, Ohio effective October 2008, Agilysys
operates extensively throughout North America, with additional
sales offices in the United Kingdom and Hong Kong. Agilysys has
three reportable segments: Hospitality Solutions
(HSG), Retail Solutions (RSG), and
Technology Solutions (TSG). See Note 13 to
Consolidated Financial Statements titled, Business
Segments, which is included in Item 15, for additional
discussion.
In July 2008, the company decided to exit TSGs portion of
the Hong Kong and China businesses. HSG continues to operate in
Hong Kong. In January 2009, the company closed the sale of
the stock of TSGs China operations and certain assets of
TSGs Hong Kong operations, receiving proceeds of
$1.4 million. As disclosed in previous filings, the company
sold KSG in March 2007 and now operates solely as an IT
solutions provider. The following long-term goals were
established by the company with the divestiture of KSG:
|
|
|
Target gross margin in excess of 20% and earnings before
interest, taxes, depreciation and amortization of 6% within
three years.
|
|
While in the near term return on invested capital will be
diluted due to acquisitions and legacy costs, the company
continues to target long-term return on invested capital of 15%.
|
As a result of the decline in GDP growth, a weak macroeconomic
environment, significant risk in the credit markets, and changes
in demand for IT products, the company will not achieve its
long-term revenue goals announced in early 2007, and is
re-evaluating its
long-term
revenue goals and acquisition strategy. The company remains
committed to its gross margin, earnings before interest, taxes,
depreciation and amortization margins and target long-term
return on invested capital goals. Given the current economic
conditions, the company is focused on aligning cost structure
with current and expected revenue levels, improving
efficiencies, and increasing cash flows.
15
Fiscal 2009 was a transitional year for the company, as the
companys headquarters were relocated back to Ohio and new
leaders stepped into the companys executive officer roles.
In fiscal 2009, the company experienced a slowdown in sales as a
result of the softening of the IT market in North America, with
net sales decreasing 3.9%
year-over-year.
The decline in net sales was tempered by a contribution of
$72.2 million in incremental sales during the year from
recently acquired businesses. Gross margin as a percentage of
sales increased 370 basis points
year-over-year
to 27.2% at March 31, 2009 versus 23.5% at March 31,
2008, which exceeded the companys long-term goal of
achieving gross margins in excess of 20% within three years.
For financial reporting purposes, the current and prior period
operating results of KSG and TSGs Hong Kong and China
businesses have been classified within discontinued operations
for all periods presented. Accordingly, the discussion and
analysis presented below, including the comparison to prior
periods, reflects the continuing business of Agilysys.
Results of
Operations
2009 Compared
with 2008
Net Sales and
Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31
|
|
Increase (decrease)
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
$
|
|
%
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
585,702
|
|
$
|
634,214
|
|
$
|
(48,512)
|
|
|
(7.6)%
|
Service
|
|
|
145,018
|
|
|
125,954
|
|
|
19,064
|
|
|
15.1%
|
|
Total
|
|
|
730,720
|
|
|
760,168
|
|
|
(29,448)
|
|
|
(3.9)%
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
456,779
|
|
|
539,496
|
|
|
(82,717)
|
|
|
(15.3)%
|
Service
|
|
|
75,263
|
|
|
42,181
|
|
|
33,082
|
|
|
78.4%
|
|
Total
|
|
|
532,042
|
|
|
581,677
|
|
|
(49,635)
|
|
|
(8.5)%
|
|
Gross margin
|
|
|
198,678
|
|
|
178,491
|
|
|
20,187
|
|
|
11.3%
|
Gross margin percentage
|
|
|
27.2%
|
|
|
23.5%
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
206,075
|
|
|
196,422
|
|
|
9,653
|
|
|
4.9%
|
Asset impairment charges
|
|
|
231,856
|
|
|
|
|
|
231,856
|
|
|
nm
|
Restructuring charges (credits)
|
|
|
40,801
|
|
|
(75)
|
|
|
40,876
|
|
|
nm
|
|
Operating loss
|
|
$
|
(280,054)
|
|
$
|
(17,856)
|
|
$
|
(262,198)
|
|
|
nm
|
Operating loss percentage
|
|
|
(38.3)%
|
|
|
(2.3)%
|
|
|
|
|
|
|
|
nm not meaningful.
Net sales. The $29.4 million decrease in
net sales was driven by a decline in hardware revenues resulting
from lower volumes. These lower volumes were attributable to a
general decrease in IT spending as a result of weakening
macroeconomic conditions, which particularly affected TSG.
Hardware revenue decreased $53.6 million
year-over-year.
The decrease in hardware revenue was partially offset by
increases of $5.1 million and $19.1 million in
software and services revenues, respectively.
TSGs sales decreased $36.7 million primarily due to
lower hardware volumes, primarily due to lower hardware sales
volumes. RSGs sales decreased $7.6 million primarily
due to a large single customer sale in 2008 that did not repeat
in 2009. HSGs sales increased $14.8 million driven by
the incremental sales attributable to the InfoGenesis and Eatec
acquisitions, which contributed $12.5 million and
$4.6 million, respectively.
Gross margin. The $20.2 million increase
in gross margin was driven by a favorable product mix and vendor
rebates. The decrease in product gross margin reflects the lower
volumes of hardware sales combined with a higher proportion of
proprietary software sales, which carry lower costs for the
company, and a change in customer mix. The decrease in service
gross margin reflects the integration of InfoGenesis, including
conformity with HSGs practices, as well as a change in the
TSG service model as a result of the 2009 restructuring actions.
16
TSGs gross margin increased $5.2 million driven by
the Innovative acquisition, which incrementally contributed
$17.6 million. RSGs gross margin increased
$3.1 million, which is attributable to a favorable mix of
service revenues. HSGs gross margin increased
$13.3 million primarily due to the InfoGenesis and Eatec
acquisitions, which contributed $12.1 million and
$3.3 million, respectively.
Operating Expenses. The companys
operating expenses consist of selling, general, and
administrative (SG&A) expenses, asset
impairment charges, and restructuring charges (credits).
SG&A expenses increased $9.7 million attributable to
increases of $9.4 million, $1.3 million, and
$2.6 million in HSG, RSG, and TSG, respectively, partially
offset by a reduction in corporate SG&A expenses of
$3.6 million. The increase in HSGs operating expenses
is primarily a result of the acquisitions of InfoGenesis, Eatec,
and Triangle which contributed $2.4 million,
$3.7 million, and $1.5 million in incremental
expenses, respectively, with the remainder of the increase due
to salaries and wages expenses for the segments organic
business. The increase in RSGs SG&A expenses is
primarily related to an increase in salaries and wages expenses
of $1.9 million. The increase in TSGs operating
expenses is primarily due to incremental expenses incurred with
respect to Innovative, which was acquired in the second quarter
of 2008. The reduction in corporate operating expenses is a
direct result of the restructuring actions taken in 2009. From
March 31, 2008 to March 31, 2009, the Company reduced
its total workforce by approximately 9%. In addition, the
Company suspended wage increases for fiscal 2010.
The companys asset impairment charges consist of goodwill
impairment charges of $229.5 million, not including
goodwill impairment of $16.8 million and a
$3.8 million in finite-lived intangible asset impairment
charges classified within restructuring charges, and an
indefinite-lived intangible asset impairment charge of
$2.4 million. The goodwill and intangible asset impairment
charges are discussed further in Note 4 to Consolidated
Financial Statements titled, Restructuring Charges (Credits)
and in Note 5 to Consolidated Financial Statements
titled, Goodwill and Intangible Assets.
The company recorded restructuring charges of $40.8 million
during 2009. The restructuring charges consist of
$23.5 million recorded during the first two quarters of
2009 related to the professional services restructuring actions,
$13.4 million recorded during the third quarter of 2009
related to the third quarter management restructuring actions
and relocation of the companys headquarters from Boca
Raton, Florida to Solon, Ohio, and $3.9 million recorded
during the fourth quarter of 2009 related to both the third and
the fourth quarter management restructuring actions. The
restructuring credits in 2008 resulted from an adjustment to
previously accrued severance amounts and a write-off of certain
leasehold improvements, net of adjustments related to actual and
accrued
sub-lease
income and common area costs. The companys restructuring
actions in 2009 and 2008 are discussed further in the
Restructuring Charges (Credits) subsection of this
MD&A and in Note 4 to Consolidated Financial
Statements titled, Restructuring Charges (Credits).
Other Expenses
(Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31
|
|
|
Favorable (unfavorable)
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Other expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income), net
|
|
$
|
2,570
|
|
|
$
|
(6,566
|
)
|
|
$
|
(9,136
|
)
|
|
|
(139.1)%
|
Interest income
|
|
|
(524
|
)
|
|
|
(13,101
|
)
|
|
|
(12,577
|
)
|
|
|
(96.0)%
|
Interest expense
|
|
|
1,183
|
|
|
|
875
|
|
|
|
(308
|
)
|
|
|
(35.2)%
|
|
Total other expenses (income), net
|
|
$
|
3,229
|
|
|
$
|
(18,792
|
)
|
|
$
|
(22,021
|
)
|
|
|
(117.2)%
|
|
Other expenses (income), net. In 2009, the
$2.6 million in other expenses primarily included
$3.0 million in impairment charges recorded for the
companys investment in The Reserve Funds Primary
Fund. These impairment charges are discussed further in the
subsection of this MD&A below titled, Investments,
and in Note 1 to Consolidated Financial Statements titled,
Operations and Summary of Significant Accounting
Policies. In 2008, the $6.6 million in other income
primarily included a $15.1 million gain on the sale of the
Magirus investment, which was partially offset by the
companys share of Magirus annual operating losses of
$6.2 million and an impairment charge of $4.9 million
recorded to write down the companys equity method
investment in Magirus to fair value. Other income in 2008 also
included $1.4 million gain the company recognized on the
redemption of an investment in an affiliated company.
Interest income. The $12.6 million
unfavorable change in interest income was due to a lower average
cash and cash equivalent balances in 2009 compared to 2008. The
higher cash and cash equivalent balance in 2008 was driven by
the sale of KSG for $485.0 million on March 31, 2007.
However, the companys cash and cash equivalent balance
declined during 2008 and 2009, as the company used the cash to
acquire businesses and purchase its common shares for treasury.
Interest expense. Interest expense increased
$0.3 million in 2009 compared to 2008 due to a non-cash
charge for unamortized deferred financing fees recorded in the
third quarter of 2009 as a result of the termination of the
companys then existent revolving credit facility, as
discussed in Liquidity and Capital Resources below.
17
Income
Taxes
The company recorded an income tax benefit from continuing
operations at an effective tax rate of 0.4% in 2009 compared
with an income tax benefit at an effective rate of 381.1% in
2008. The effective tax rate for 2009 is lower than the
statutory rate primarily due to the impairment of nondeductible
goodwill and an increase in the valuation allowance for federal
and state deferred tax assets. The effective tax rate for 2008
was higher than the statutory rate principally due to the
reversal of the valuation allowance associated with Magirus, the
settlement of an IRS audit, and other changes in liabilities
related to state taxes that were partially offset by higher
meals and entertainment expenses incurred in marketing the
companys products.
2008 Compared
with 2007
Net Sales and
Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31
|
|
Increase (decrease)
|
(Dollars in thousands)
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
634,214
|
|
$
|
361,301
|
|
$
|
272,913
|
|
|
75.5%
|
Service
|
|
|
125,954
|
|
|
92,439
|
|
|
33,515
|
|
|
36.3%
|
|
Total
|
|
|
760,168
|
|
|
453,740
|
|
|
306,428
|
|
|
67.5%
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
539,496
|
|
|
310,329
|
|
|
229,167
|
|
|
73.8%
|
Service
|
|
|
42,181
|
|
|
24,662
|
|
|
17,519
|
|
|
71.0%
|
|
Total
|
|
|
581,677
|
|
|
334,991
|
|
|
246,686
|
|
|
73.6%
|
|
Gross margin
|
|
|
178,491
|
|
|
118,749
|
|
|
59,742
|
|
|
50.3%
|
Gross margin percentage
|
|
|
23.5%
|
|
|
26.2%
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
196,422
|
|
|
129,611
|
|
|
66,811
|
|
|
51.5%
|
Restructuring credits
|
|
|
(75)
|
|
|
(2,531)
|
|
|
2,456
|
|
|
(97.0)%
|
|
Operating loss
|
|
$
|
(17,856)
|
|
$
|
(8,331)
|
|
$
|
(9,525)
|
|
|
114.3%
|
Operating loss percentage
|
|
|
(2.3)%
|
|
|
(1.8)%
|
|
|
|
|
|
|
|
Net sales. The $306.4 million increase in
net sales was largely driven by an increase in hardware revenue.
Hardware revenue increased $233.9 million
year-over-year.
The increase in hardware revenue was principally due to higher
revenues generated from the acquisitions which contributed
$205.7 million. Innovative contributed $162.0 million
of the $205.7 million.
TSGs sales increased $222.9 million primarily due to
the Innovative and Stack acquisitions, which contributed
$175.3 million and $46.2 million, respectively.
HSGs sales increased $46.9 million primarily due to
the InfoGenesis and Eatec acquisitions, which contributed $30.9
and $0.8 million respectively. RSGs sales increased
$37.0 million primarily due to sales volume increases.
Gross Margin. The $59.7 million increase
in gross margin was driven by the overall increase in sales.
Changes in product mix, pricing under our procurement agreement
with Arrow and margins of our acquisitions all contributed to
the lower gross margin percentage.
TSGs gross margin increased $32.5 million primarily
due to the Innovative and Stack acquisitions, which contributed
$35.6 million and $6.1 million, respectively.
HSGs gross margin increased $24.1 million primarily
due to the InfoGenesis and Eatec acquisitions, which contributed
$15.0 and $0.7 million, respectively. RSGs gross
margin increased $5.1 million, which can be directly
attributable to the increase in sales.
Operating Expenses. The companys
operating expenses consist of selling, general, and
administrative (SG&A) expenses and
restructuring credits. The $66.8 million increase in
SG&A expenses was mainly driven by the following key
factors: incremental operating expenses of $0.4 million,
$23.3 million, $16.4 million, and $8.3 million
related to the acquisitions of Eatec, Innovative, InfoGenesis,
and Stack, respectively, outside services expense of
$4.3 million, and rental expense of $2.6 million. The
remaining increase in SG&A was principally due to higher
stock-based compensation and benefits costs in 2008.
18
Restructuring credits decreased $2.5 million during 2008.
The decline was principally due to the $4.9 million
reversal of the remaining restructuring liability that was
initially recognized in 2003 for an unutilized leased facility.
In connection with the sale of KSG, management determined that
the company would utilize the formerly abandoned leased facility
to house the majority of its remaining IT Solutions Business and
corporate personnel. Accordingly, the reversal of the remaining
restructuring liability was classified as a restructuring credit
in the consolidated statement of operations in 2007. The 2007
restructuring credit was offset by a charge of approximately
$1.7 million for the termination of a facility lease that
was previously exited as part of a prior restructuring effort
and a $0.5 million charge for one-time termination benefits
resulting from a workforce reduction that was executed in
connection with the sale of KSG.
Other (Income)
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31
|
|
|
Favorable (unfavorable)
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
Other (income) expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
$
|
(6,566
|
)
|
|
$
|
6,008
|
|
|
$
|
12,574
|
|
|
|
209.3%
|
Interest income
|
|
|
(13,101
|
)
|
|
|
(5,133
|
)
|
|
|
7,968
|
|
|
|
155.2%
|
Interest expense
|
|
|
875
|
|
|
|
2,656
|
|
|
|
1,781
|
|
|
|
67.1%
|
|
Total other (income) expense
|
|
$
|
(18,792
|
)
|
|
$
|
3,531
|
|
|
$
|
22,323
|
|
|
|
632.2%
|
|
Other (income) expense, net. The
$12.6 million favorable change in other (income) expense,
net, was due to a $1.4 million gain recognized on the
redemption of the companys investment in an affiliated
company in the first quarter of 2008. The company recognized a
$1.4 million increase in foreign currency transaction gains
during 2008 compared with 2007 due to changes in exchange rates.
Additionally, there was a $9.8 million
year-over-year
increase in earnings from the companys equity method
investment that included a 2008 fourth quarter gain of
$15.1 million as a result of the sale by Magirus the
investment of a portion of its distribution business. In the
fourth quarter of 2008, the company recognized a
$4.9 million impairment charge to write down the
companys equity method investment to its fair value
compared to a $5.9 million impairment charge for the write
down of the companys equity method investment to its
estimated realizable value in 2007. The write-down was driven by
changing market conditions and the equity method investees
recent operating losses that indicated an
other-than-temporary
loss condition and the eventual sale of the investment in 2009.
Interest income. The $8.0 million
favorable change in interest income was due to higher average
cash and cash equivalent balance in 2008 compared with 2007. The
higher cash and cash equivalent balance was driven by the sale
of KSG for $485.0 million on March 31, 2007. However,
the companys cash and cash equivalent balance has declined
during 2008 as the company has used cash to acquire several
businesses and purchase common shares for treasury.
Income
Taxes
The company recorded an income tax benefit from continuing
operations at an effective tax rate of 381.1% in 2008 compared
with an income tax benefit at an effective rate of 14.3% in
2007. The increase in the effective tax rate is primarily
attributable to the reversal of the valuation allowance
associated with Magirus, the settlement of an IRS audit, and
other changes in liabilities related to state taxes which were
partially offset by higher meals and entertainment expenses
incurred in marketing the companys products.
Off-Balance Sheet
Arrangements
The company has not entered into any off-balance sheet
arrangements that have or are reasonably likely to have a
current or future effect on the companys financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or
capital resources.
19
Contractual
Obligations
The following table provides aggregate information regarding the
companys contractual obligations as of March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by fiscal year
|
|
|
|
|
|
|
Less than
|
|
|
1 to 3
|
|
|
3 to 5
|
|
|
More than
|
|
(Dollars in thousands)
|
|
Total
|
|
|
1 year
|
|
|
Years
|
|
|
Years
|
|
|
5 years
|
|
|
|
Capital leases (1)
|
|
$
|
444
|
|
|
$
|
268
|
|
|
$
|
172
|
|
|
$
|
4
|
|
|
$
|
|
|
Operating leases (2)
|
|
|
18,675
|
|
|
|
4,986
|
|
|
|
6,157
|
|
|
|
3,700
|
|
|
|
3,832
|
|
SERP liability (3)
|
|
|
18,286
|
|
|
|
11,103
|
|
|
|
4,816
|
|
|
|
|
|
|
|
2,367
|
|
Other benefits (4)
|
|
|
980
|
|
|
|
881
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Purchase obligations (5)
|
|
|
990,000
|
|
|
|
330,000
|
|
|
|
660,000
|
|
|
|
|
|
|
|
|
|
Restructuring liabilities (6)
|
|
|
9,927
|
|
|
|
7,901
|
|
|
|
1,663
|
|
|
|
363
|
|
|
|
|
|
Unrecognized tax positions (7)
|
|
|
5,651
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,043,963
|
|
|
$
|
356,339
|
|
|
$
|
672,808
|
(8)
|
|
$
|
4,067
|
(8)
|
|
$
|
6,298
|
(8)
|
|
|
|
|
(1)
|
|
Additional information regarding
the companys capital lease obligations is contained in
Note 7 to Consolidated Financial Statements titled,
Financing Arrangements.
|
(2)
|
|
Lease obligations are presented net
of contractually binding
sub-lease
arrangements. Additional information regarding the
companys operating lease obligations is contained in
Note 7 to Consolidated Financial Statements titled,
Lease Commitments.
|
(3)
|
|
On April 1, 2000, the company
implemented a nonqualified defined benefit pension plan for
certain of its executive officers, including its current CEO
(the SERP). The SERP provides retirement benefits
for the participants. The projected benefit obligation
recognized by the company for this plan was $18.3 million
at March 31, 2009. With the exception of the companys
current CEO, the remaining participants have separated from
employment as of March 31, 2009. Therefore, the timing of
the payments due has been determined based on the actual
retirement date selected by the former executive, or, for the
current CEO and others who were not eligible for retirement at
the time of their separation, based on the normal retirement
date as defined by the plan. See Note 9 to Consolidated
Financial Statements titled, Additional Balance Sheet
Information and Note 11 to Consolidated Financial
Statements titled, Employee Benefit Plans, for additional
information regarding the SERP.
|
(4)
|
|
The company entered into agreements
with two former executives, providing each with additional years
of service for purposes of calculating benefits under the SERP.
Since these agreements were executed outside the SERP, the
company recorded the benefit obligation attributable to the
additional service awarded under these agreements as a separate
liability. The projected benefit liability recognized by the
company was approximately $1.0 million at March 31,
2009. Both former executives have separated from employment as
of March 31, 2009. Therefore, the timing of the payments
due has been determined based on the actual retirement date
selected by one former executive and based on the normal
retirement date as defined by the SERP for the other former
executive.
|
(5)
|
|
In connection with the sale of KSG,
the company entered into a product procurement agreement
(PPA) with Arrow Electronics, Inc. Under the PPA,
the company is required to purchase a minimum of
$330 million worth of products each year through the fiscal
year ending March 31, 2012, adjusted for product
availability and other factors.
|
(6)
|
|
The company has recorded
restructuring liabilities primarily related to the restructuring
actions taken in 2009. See the section to the MD&A titled,
Restructuring Charges (Credits), and Note 4 to
Consolidated Financial Statements titled, Restructuring
Charges (Credits), for additional information regarding
these restructuring liabilities.
|
(7)
|
|
The company has accrued a liability
for unrecognized positions at March 31, 2009 in accordance
with the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48). See Note 10 to Consolidated
Financial Statements titled, Income Taxes, for further
information regarding unrecognized tax positions. The timing of
certain potential cash outflows related to these unrecognized
tax positions is not reasonably determinable and therefore are
not scheduled.
|
(8)
|
|
The amount of total contractual
obligations with maturities greater than one year is not
reasonably determinable, as discussed in note (7) above.
|
The company anticipates that cash on hand, funds from continuing
operations, and access to capital markets will provide adequate
funds to finance capital spending and working capital needs and
to service its obligations and other commitments arising during
the foreseeable future.
Liquidity and
Capital Resources
Overview
The companys operating cash requirements consist primarily
of working capital needs, operating expenses, capital
expenditures and payments of principal and interest on
indebtedness outstanding, which primarily consists of lease and
rental obligations at March 31, 2009. The company believes
that cash flow from operating activities, cash on hand,
availability under the credit facility as discussed below, and
access to capital markets will provide adequate funds to meet
its short-and long-term liquidity requirements. Additional
information regarding the companys financing arrangements
is provided in Note 8 to Consolidated Financial Statements
titled, Financing Arrangements.
As of March 31, 2009 and 2008, the companys total
debt was approximately $0.4 million and $0.5 million,
respectively, comprised of capital lease obligations in both
periods.
20
Revolving Credit
Facility
As of January 20, 2009, the company terminated its
$200 million unsecured credit facility with Bank of
America, N.A. (as successor to LaSalle Bank National
Association), as lead arranger, book runner and administrative
agent, and certain other lenders party thereto (the Credit
Facility). The Credit Facility included a $20 million
sub-facility
for letters of credit issued by Bank of America, N.A., or one of
its affiliates, and a $20 million
sub-facility
for swingline loans, which are short-term loans generally used
for working capital requirements. The Credit Facility was
available to the company for refinancing debt existing at the
time, providing for working capital requirements, capital
expenditures and general corporate purposes of the company,
including acquisitions. As of October 17, 2008, the
companys ability to borrow under its Credit Facility was
suspended due to the companys failure to timely file its
Annual Report on
Form 10-K
for the fiscal year ended March 31, 2008, and other
technical defaults. The company had not borrowed under the
Credit Facility since it was entered into in October of 2005.
The company decided to terminate the Credit Facility in January
2009. There were no penalties associated with early termination
of the Credit Facility, however $0.4 million of deferred
debt fees were immediately expensed during the third quarter as
a result of the termination.
The company executed a Loan and Security Agreement dated
May 5, 2009 (the New Credit Facility) with Bank
of America, N.A., as agent for the lenders from time to time
party thereto (Lenders). The companys
obligations under the New Credit Facility are secured by the
companys assets (as defined in the new Credit Facility).
This New Credit Facility replaces the companys previous
credit facility, which was terminated on January 20, 2009.
The company also maintained an unsecured inventory financing
agreement (the Floor Plan Financing Facility) with
International Business Machines. This Floor Plan Financing
Facility was terminated on May 4, 2009, and the company
will primarily fund working capital through open accounts
payable provided by its trade vendors.
The May 5, 2009 New Credit Facility provides
$50 million of credit (which may be increased to
$75 million by a $25 million accordion
provision) for borrowings and letters of credit and will
mature May 5, 2012. The New Credit Facility establishes a
borrowing base for availability of loans predicated on the level
of the companys accounts receivable meeting banking
industry criteria. The aggregate unpaid principal amount of all
borrowings, to the extent not previously repaid, is repayable at
maturity. Borrowings also are repayable at such other earlier
times as may be required under or permitted by the terms of the
New Credit Facility. LIBOR Loans bear interest at LIBOR for the
applicable interest period plus an applicable margin ranging
from 3.0% to 3.5%. Base rate loans (as defined in the New Credit
Facility) bear interest at the Base Rate (as defined in the New
Credit Facility) plus an applicable margin ranging from 2.0% to
2.5%. Interest is payable on the first of each month in arrears.
There is no premium or penalty for prepayment of borrowings
under the New Credit Facility.
The New Credit Facility contains normal mandatory repayment
provisions, representations, and warranties and covenants for a
secured credit facility of this type. The New Credit Facility
also contains customary events of default upon the occurrence of
which, among other remedies, the Lenders may terminate their
commitments and accelerate the maturity of indebtedness and
other obligations under the New Credit Facility.
As of June 5, 2009, the company had no amounts outstanding
under the New Credit Facility and $50.0 million was
available for future borrowings. The company has no intention to
borrow amounts under the New Credit Facility in the near term.
Cash
Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31
|
|
|
Increase (decrease)
|
|
|
Year ended March 31
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
2007
|
|
|
|
Net Cash (used for) provided by continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(86,078
|
)
|
|
$
|
(159,544
|
)
|
|
$
|
73,466
|
|
|
$
|
153,990
|
|
Investing activities
|
|
|
(5,440
|
)
|
|
|
(240,654
|
)
|
|
|
235,214
|
|
|
|
469,976
|
|
Financing activities
|
|
|
56,822
|
|
|
|
(137,391
|
)
|
|
|
194,213
|
|
|
|
(51,287
|
)
|
Effect of foreign currency fluctuations on cash
|
|
|
911
|
|
|
|
1,314
|
|
|
|
(403
|
)
|
|
|
(97
|
)
|
|
Cash flows used for (provided by) continuing operations
|
|
|
(33,785
|
)
|
|
|
(536,275
|
)
|
|
|
502,490
|
|
|
|
572,582
|
|
Net operating and investing cash flows provided by (used for)
discontinued operations
|
|
|
94
|
|
|
|
1,995
|
|
|
|
(1,901
|
)
|
|
|
(115,388
|
)
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(33,691
|
)
|
|
$
|
(534,280
|
)
|
|
$
|
500,589
|
|
|
$
|
457,194
|
|
|
21
Cash flow (used for) provided by operating
activities. The $86.1 million in cash used
for operating activities in 2009 included funds used for the
$35.0 million payment of the Innovative earn-out that
reduced accrued liabilities, a decrease in accounts payable of
$74.5 million due to the establishment of the IBM floor
plan financing agreement in February 2008, which was recorded as
a financing activity, and was partially offset by a
$14.9 million reduction in accounts receivable and other
changes in working capital. The $159.5 million in cash used
for operating activities in 2008 included $123.4 million
used for federal income taxes paid primarily for the gain on the
sale of KSG, with the remainder used for changes in working
capital.
Cash flow (used for) provided by investing
activities. In 2009, the $5.4 million in
cash used for investing activities primarily represents
$5.2 million that was reclassified from cash equivalents to
long-term investments for the companys remaining claim on
The Reserve Funds Primary Fund, $2.4 million paid for
the acquisition of Triangle, and $7.1 million for the
purchase of property, plant, and equipment, partially offset by
$9.5 million received from the sale of the Magirus
investment. The 2008 investing activities principally reflect
the $236.2 million in cash (net of cash acquired) that the
company paid for the acquisitions of Eatec, Innovative,
InfoGenesis, and Stack. In 2007, cash provided by investing
activities of $470.0 million was attributable to the
$485.0 million in proceeds received from the sale of KSG,
partially offset by $10.6 million paid for the acquisition
of Visual One.
Cash flow provided by (used for) financing
activities. The $56.8 million in cash
provided by financing activities in 2009 resulted from
$59.6 million in proceeds related to the companys
floor plan financing agreement, partially offset by
$2.7 million in dividends paid. The $137.4 million in
cash used by financing activities in 2008 was principally driven
by the $150.0 million repurchase of the companys
common shares and $3.4 million in dividends paid, partially
offset by $14.6 million in proceeds related to the floor
plan financing agreement and $1.4 million in proceeds from
stock options exercised. The 2007 cash used for financing
activities primarily was attributable to $59.6 million in
principal payments under long term obligations, including
$59.4 million related to retiring the companys senior
notes, partially offset by $10.1 million in proceeds from
stock options exercised.
Critical
Accounting Policies, Estimates &
Assumptions
MD&A is based upon the companys consolidated
financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. The
preparation of these financial statements requires the company
to make significant estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, and expenses
and related disclosure of contingent assets and liabilities. The
company regularly evaluates its estimates, including those
related to bad debts, inventories, investments, intangible
assets, income taxes, restructuring and contingencies,
litigation and supplier incentives. The company bases its
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.
The companys most significant accounting policies relate
to the sale, purchase, and promotion of its products. The
policies discussed below are considered by management to be
critical to an understanding of the companys consolidated
financial statements because their application places the most
significant demands on managements judgment, with
financial reporting results relying on estimation about the
effect of matters that are inherently uncertain. No significant
adjustments to the companys accounting policies were made
in 2009. Specific risks for these critical accounting policies
are described in the following paragraphs.
For all of these policies, management cautions that future
events rarely develop exactly as forecasted, and the best
estimates routinely require adjustment.
Revenue recognition. The company derives
revenue from three primary sources: server, storage and point of
sale hardware, software, and services. Revenue is recorded in
the period in which the goods are delivered or services are
rendered and when the following criteria are met: persuasive
evidence of an arrangement exists, delivery has occurred or
services have been rendered, the sales price to the customer is
fixed or determinable, and collectibility is reasonably assured.
The company reduces revenue for estimated discounts, sales
incentives, estimated customer returns and other allowances.
Discounts are offered based on the volume of products and
services purchased by customers. Shipping and handling fees
billed to customers are recognized as revenue and the related
costs are recognized in cost of goods sold.
Revenue for hardware sales is recognized when the product is
shipped to the customer and when obligations that affect the
customers final acceptance of the arrangement have been
fulfilled. A majority of the companys hardware sales
involves shipment directly from its suppliers to the end-user
customers. In such transactions, the company is responsible for
negotiating price both with the supplier and the customer,
payment to the supplier, establishing payment terms and product
returns with the customer, and bears credit risk if the customer
does not pay for the goods. As the principal contact with the
customer, the company recognizes revenue and cost of goods sold
when it is notified by the supplier that the product has been
shipped. In certain limited instances, as shipping terms
dictate, revenue is recognized upon receipt at the point of
destination.
The company offers proprietary software as well as remarketed
software for sale to its customers. A majority of the
companys software sales do not require significant
production, modification, or customization at the time of
shipment (physically or electronically) to
22
the customer. Substantially all of the companys software
license arrangements do not include acceptance provisions. As
such, revenue from both proprietary and remarketed software
sales is recognized when the software has been shipped. For
software delivered electronically, delivery is considered to
have occurred when the customer either takes possession of the
software via downloading or has been provided with the requisite
codes that allow for immediate access to the software based on
the U.S Eastern time zone time stamp.
The company also offers proprietary and third-party services to
its customers. Proprietary services generally include:
consulting, installation, integration, training, and
maintenance. Revenue relating to maintenance services is
recognized evenly over the coverage period of the underlying
agreement. Many of the companys software arrangements
include consulting services sold separately under consulting
engagement contracts. When the arrangements qualify as service
transactions as defined in AICPA Statement of Position
No. 97-2
(SOP 97-2),
Software Revenue Recognition, consulting revenues
from these arrangements are accounted for separately from the
software revenues. The significant factors considered in
determining whether the revenues should be accounted for
separately include the nature of the services (i.e.,
consideration of whether the services are essential to the
functionality of the software), degree of risk, availability of
services from other vendors, timing of payments, and the impact
of milestones or other customer acceptance criteria on revenue
realization. If there is significant uncertainty about the
project completion or receipt of payment for consulting
services, the revenues are deferred until the uncertainty is
resolved.
For certain long-term proprietary service contracts with fixed
or not to exceed fee arrangements, the company
estimates proportional performance using the hours incurred as a
percentage of total estimated hours to complete the project
consistent with the
percentage-of-completion
method of accounting. Accordingly, revenue for these contracts
is recognized based on the proportion of the work performed on
the contract. If there is no sufficient basis to measure
progress toward completion, the revenues are recognized when
final customer acceptance is received. Adjustments to contract
price and estimated service hours are made periodically, and
losses expected to be incurred on contracts in progress are
charged to operations in the period such losses are determined.
The aggregate of billings on uncompleted contracts in excess of
related costs is shown as a current asset.
If an arrangement does not qualify for separate accounting of
the software and consulting services, then the software revenues
are recognized together with the consulting services using the
percentage-of-completion
or completed contract method of accounting. Contract accounting
is applied to arrangements that include: milestones or
customer-specific acceptance criteria that may affect the
collection of revenues, significant modification or
customization of the software, or provisions that tie the
payment for the software to the performance of consulting
services.
In addition to proprietary services, the company offers
third-party service contracts to its customers. In such
instances, the supplier is the primary obligor in the
transaction and the company bears credit risk in the event of
nonpayment by the customer. Since the company is acting as an
agent or broker with respect to such sales transactions, the
company reports revenue only in the amount of the
commission (equal to the selling price less the cost
of sale) received rather than reporting revenue in the full
amount of the selling price with separate reporting of the cost
of sale.
Allowance for Doubtful Accounts. The company
maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments. These allowances are based on both recent trends of
certain customers estimated to be a greater credit risk, as well
as historical trends of the entire customer pool. If the
financial condition of the companys customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. To mitigate
this credit risk the company performs periodic credit
evaluations of its customers.
Inventories. Inventories are stated at the
lower of cost or market, net of related reserves. The cost of
inventory is computed using a weighted-average method. The
companys inventory is monitored to ensure appropriate
valuation. Adjustments of inventories to lower of cost or
market, if necessary, are based upon contractual provisions
governing turnover and assumptions about future demand and
market conditions. If assumptions about future demand change
and/or
actual market conditions are less favorable than those projected
by management, additional adjustments to inventory valuations
may be required. The company provides a reserve for
obsolescence, which is calculated based on several factors
including an analysis of historical sales of products and the
age of the inventory. Actual amounts could be different from
those estimated.
Income Taxes. Income tax expense includes
U.S. and foreign income taxes and is based on reported
income before income taxes. Deferred income taxes reflect the
effect of temporary differences between assets and liabilities
that are recognized for financial reporting purposes and the
amounts that are recognized for income tax purposes. The
carrying value of the companys deferred tax assets is
dependent upon the companys ability to generate sufficient
future taxable income in certain tax jurisdictions. Should the
company determine that it is not able to realize all or part of
its deferred tax assets in the future, an adjustment to the
deferred tax assets is expensed in the period such determination
is made to an amount that is more likely than not to be
realized. The company presently records a valuation allowance to
reduce its deferred tax assets to the amount that is more likely
than not to be realized. While the company has considered future
taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in
the event that the company were to determine that it would be
able to realize its deferred tax assets in the future in
23
excess of its net recorded amount (including valuation
allowance), an adjustment to the tax valuation allowance would
decrease tax expense in the period such determination was made.
In July 2006, the FASB issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty
in Income Taxes an Interpretation of FASB Statement
No. 109, (FAS 109). FIN 48
provides guidance for the accounting for uncertainty in income
taxes recognized in our financial statements in accordance with
FAS 109. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The
evaluation of a tax position in accordance with FIN 48 is a
two-step process. The first step is recognition: The
determination of whether or not it is more-likely-than-not that
a tax position will be sustained upon examination, including
resolution of any related appeals or litigation processes, based
on the technical merits of the position. In evaluating whether a
tax position has met the more-likely-than-not recognition
threshold, management presumes that the position will be
examined by the appropriate tax authority and that the tax
authority will have full knowledge of all relevant information.
The second step is measurement: A tax position that meets the
more-likely-than-not threshold is measured to determine the
amount of benefit to recognize in the financial statements. The
measurement process requires the determination of the range of
possible settlement amounts and the probability of achieving
each of the possible settlements. The tax position is measured
at the largest amount of benefit that is greater than fifty
percent likely of being realized upon ultimate settlement. No
tax benefits are recognized for positions that do not meet the
more-likely-than-not threshold. Tax positions that previously
failed to meet the more-likely-than-not threshold should be
recognized in the first subsequent financial reporting period in
which that threshold is met. Previously recognized tax positions
that no longer meet the more-likely-than-not recognition
threshold should be derecognized in the first subsequent
financial reporting period in which the threshold is no longer
met. In addition, FIN 48 requires the cumulative effect of
adoption to be recorded as an adjustment to the opening balance
of retained earnings. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The company adopted
FIN 48 effective April 1, 2007, as required and
recognized a cumulative effect of accounting change of
approximately $2.9 million, which decreased beginning
retained earnings in the accompanying Consolidated Statements of
Shareholders Equity for the year ended March 31, 2008
and increased accrued liabilities in the accompanying
Consolidated Balance Sheets as of March 31, 2008. The
companys income taxes and the impact of adopting
FIN 48 are described further in Note 10 to
Consolidated Financial Statements, Income Taxes.
Goodwill and Long-Lived Assets. Goodwill
represents the excess purchase price paid over the fair value of
the net assets of acquired companies. Goodwill is subject to
impairment testing at least annually. Goodwill is also subject
to testing as necessary, if changes in circumstances or the
occurrence of certain events indicate potential impairment. In
assessing the recoverability of the companys goodwill,
identified intangibles, and other long-lived assets, significant
assumptions regarding the estimated future cash flows and other
factors to determine the fair value of the respective assets
must be made, as well as the related estimated useful lives. The
fair value of goodwill and long-lived assets is estimated using
a discounted cash flow valuation model. If these estimates or
their related assumptions change in the future as a result of
changes in strategy or market conditions, the company may be
required to record impairment charges for these assets in the
period such determination was made.
Restructuring and Other Special Charges. The
company records reserves in connection with the reorganization
of its ongoing business. The reserves principally include
estimates related to employee separation costs and the
consolidation and impairment of facilities that will no longer
be used in continuing operations. Actual amounts could be
different from those estimated. Determination of the asset
impairments is discussed above in Goodwill and Long-Lived
Assets. Facility reserves are calculated using a present
value of future minimum lease payments, offset by an estimate
for future sublease income provided by external brokers. Present
value is calculated using a credit-adjusted risk-free rate with
a maturity equivalent to the lease term.
Valuation of Accounts Payable. The
companys accounts payable has been reduced by amounts
claimed by vendors for amounts related to incentive programs.
Amounts related to incentive programs are recorded as
adjustments to cost of goods sold or operating expenses,
depending on the nature of the program. There is a time delay
between the submission of a claim by the company and
confirmation of the claim by our vendors. Historically, the
companys estimated claims have approximated amounts agreed
to by vendors.
Supplier Programs. The company receives funds
from suppliers for product sales incentives and marketing and
training programs, which are generally recorded, net of direct
costs, as adjustments to cost of goods sold or operating
expenses according to the nature of the program. The product
sales incentives are generally based on a particular
quarters sales activity and are primarily formula-based.
Some of these programs may extend over one or more quarterly
reporting periods. The company accrues supplier sales incentives
and other supplier incentives as earned based on sales of
qualifying products or as services are provided in accordance
with the terms of the related program. Actual supplier sales
incentives may vary based on volume or other sales achievement
levels, which could result in an increase or reduction in the
estimated amounts previously accrued, and can, at times, result
in significant earnings fluctuations on a quarterly basis.
24
Recently
Issued Accounting Pronouncements
In December 2008, the FASB issued Staff Position
No. 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets an amendment of
SFAS 132(R) (FSP FAS 132(R)-1). This
standard requires disclosure about an entitys investment
policies and strategies, the categories of plan assets,
concentrations of credit risk and fair value measurements of
plan assets. The standard is effective for fiscal years
beginning after December 15, 2008, or fiscal 2010 for the
company. The company is currently evaluating the impact, if any,
that the adoption of FSP FAS 132(R)-1 will have on its
financial position, results of operations, or cash flows.
In November 2008, the FASBs Emerging Issues Task Force
published Issue
No. 08-6,
Equity Method Investment Accounting Considerations
(EITF 08-06).
This issue addresses the impact that FAS 141(R) and
FAS 160 might have on the accounting for equity method
investments, including how the initial carrying value of an
equity method investment should be determined, how it should be
tested for impairment, and how changes in classification from
equity method to cost method should be treated.
EITF 08-06
is to be implemented prospectively and is effective for fiscal
years beginning after December 15, 2008, or fiscal 2010 for
the company. The standard will have an impact on the company
only for acquisitions and investments in noncontrolling
interests made after April 1, 2009. The company is
currently evaluating the impact, if any, the adoption of
EITF 08-06
will have on its financial position, results of operations, or
cash flows.
In May 2008, the FASB issued Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(FAS 162). FAS 162 identifies the sources
of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity
with generally accepted accounting principles in the United
States (U.S. GAAP). FAS 162 directs the
U.S. GAAP hierarchy to the entity, not the independent
auditors, as the entity is responsible for selecting accounting
principles for financial statements that are presented in
conformity with U.S. GAAP. FAS 162 is effective
November 15, 2008. The adoption of FAS 162 did not
have a significant impact on the companys financial
position, results of operations, or cash flows.
In April 2008, the FASB issued Staff Position
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS 142-3).
This standard 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
FAS 142, Goodwill and Other Intangible Assets. FSP
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods
within that fiscal year, or fiscal 2010 for the company. Early
adoption is prohibited.
FSP 142-3
applies prospectively to intangible assets acquired after
adoption. The company does not expect the adoption of FSP
FAS 142-3
to have a significant impact on its financial position, results
of operations, or cash flows.
In December 2007, the FASB issued Statement No. 141(R),
Business Combinations (Statement 141(R)).
Statement 141(R) significantly changes the accounting for and
reporting of business combination transactions. Statement 141(R)
is effective for fiscal years beginning after December 15,
2008, or fiscal 2010 for the company. The standard will have an
impact on the company only for acquisitions made after
April 1, 2009. The company is currently evaluating the
impact that Statement 141(R) will have on its financial
position, results of operations and cash flows.
In December 2007, the FASB issued Statement No. 160,
Accounting and Reporting for Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51 (Statement 160). Statement 160
clarifies the classification of noncontrolling interests in
consolidated statements of financial position and the accounting
for and reporting of transactions between the reporting entity
and holders of such noncontrolling interests. Statement 160 is
effective for the first annual reporting period beginning after
December 15, 2008, or fiscal 2010 for the company. The
company is currently evaluating the impact that Statement 160
will have on its financial position, results of operations and
cash flows.
Business
Combinations
2009
Acquisition
Triangle
Hospitality Solutions Limited
On April 9, 2008, the company acquired all of the shares of
Triangle Hospitality Solutions Limited (Triangle),
the UK-based reseller and specialist for the companys
InfoGenesis products and services for $2.7 million,
comprised of $2.4 million in cash and $0.3 million of
assumed liabilities. Accordingly, the results of operations for
Triangle have been included in the accompanying Consolidated
Financial Statements from that date forward. Triangle enhanced
the companys international presence and growth strategy in
the UK, as well as solidified the companys leading
position in the hospitality and stadium and arena markets
without increasing InfoGenesis ultimate customer base.
Triangle added to the companys hospitality solutions suite
with the ability to offer customers the Triangle mPOS solution,
which is a handheld
point-of-sale
solution which seamlessly integrates with InfoGenesis products.
Based on managements preliminary allocation of the
acquisition cost to the net assets acquired (accounts
receivable, inventory, and accounts payable), approximately
$2.7 million was originally assigned to goodwill. Due to a
purchase price adjustment during the third quarter of fiscal
2009 of $0.4 million,
25
the goodwill attributed to the Triangle acquisition is
$3.1 million at March 31, 2009. Goodwill resulting
from the Triangle acquisition will be deductible for income tax
purposes.
2008
Acquisitions
Eatec
On February 19, 2008, the company acquired all of the
shares of Eatec Corporation (Eatec), a privately
held developer and marketer of inventory and procurement
software. Accordingly, the results of operations for Eatec have
been included in the accompanying Consolidated Financial
Statements from that date forward. Eatecs software,
EatecNetX (now called Eatec Solutions by Agilysys), is a
recognized leading, open architecture-based, inventory and
procurement management system. The software provides customers
with the data and information necessary to enable them to
increase sales, reduce product costs, improve back-office
productivity and increase profitability. Eatec customers include
well-known restaurants, hotels, stadiums and entertainment
venues in North America and around the world as well as many
public service institutions. The acquisition further enhances
the companys position as a leading inventory and
procurement solution provider to the hospitality and foodservice
markets. Eatec was acquired for a total cost of
$25.0 million. Based on managements allocation of the
acquisition cost to the net assets acquired, approximately
$18.3 million was assigned to goodwill.
During the second quarter of 2009, management completed its
purchase price allocation and assigned $6.2 million of the
acquisition cost to identifiable intangible assets as follows:
$1.4 million to non-compete agreements, which will be
amortized between two and seven years; $2.2 million to
customer relationships, which will be amortized over seven
years; $1.8 million to developed technology, which will be
amortized over five years; and $0.8 million to trade names,
which has an indefinite life.
During the first, second and fourth quarters of 2009, goodwill
impairment charges were taken relating to the Eatec acquisition
in the amounts of $1.3 million, $14.4 million, and
$3.4 million, respectively. As of March 31, 2009,
$1.7 million remains on the companys balance sheet in
goodwill relating to the Eatec acquisition.
Innovative
Systems Design, Inc.
On July 2, 2007, the company acquired all of the shares of
Innovative Systems Design, Inc. (Innovative), the
largest U.S. commercial reseller of Sun Microsystems
servers and storage products. Accordingly, the results of
operations for Innovative have been included in the accompanying
Consolidated Financial Statements from that date forward.
Innovative is an integrator and solution provider of servers,
enterprise storage management products and professional
services. The acquisition of Innovative establishes a new and
significant relationship between Sun Microsystems and the
company. Innovative was acquired for an initial cost of
$108.6 million. Additionally, the company was required to
pay an earn-out of two dollars for every dollar of earnings
before interest, taxes, depreciation, and amortization, or
EBITDA, greater than $50.0 million in cumulative EBITDA
over the first two years after consummation of the acquisition.
The earn-out was limited to a maximum payout of
$90.0 million. As a result of existing and anticipated
EBITDA, during the fourth quarter of 2008, the company
recognized $35.0 million of the $90.0 million maximum
earn-out, which was made in April 2008. In addition, due to
certain changes in the sourcing of materials, the company
amended its agreement with the Innovative shareholders whereby
the maximum payout available to the Innovative shareholders was
limited to $58.65 million, inclusive of the
$35.0 million paid. The EBITDA target required for the
shareholders to be eligible for an additional payout is now
$67.5 million in cumulative EBITDA over the first two years
after the close of the acquisition. No amounts have been accrued
as of March 31, 2008, as it is not probable that any
additional payout will be made.
During the fourth quarter of 2008, management completed its
purchase price allocation and assigned $29.7 million of the
acquisition cost to identifiable intangible assets as follows:
$4.8 million to non-compete agreements, $5.5 million
to customer relationships, and $19.4 million to supplier
relationships which will be amortized over useful lives ranging
from two to five years.
Based on managements allocation of the acquisition cost to
the net assets acquired, approximately $97.8 million was
assigned to goodwill. Goodwill resulting from the Innovative
acquisition will be deductible for income tax purposes. During
the fourth quarter of 2009, a goodwill impairment charge was
taken relating to the Innovative acquisition for
$74.5 million. As of March 31, 2009,
$23.3 million remains on the companys balance sheet
as goodwill relating to the Innovative acquisition.
InfoGenesis
On June 18, 2007, the company acquired all of the shares of
IG Management Company, Inc. and its wholly-owned subsidiaries,
InfoGenesis and InfoGenesis Asia Limited (collectively,
InfoGenesis), an independent software vendor and
solution provider to the hospitality market. Accordingly, the
results of operations for InfoGenesis have been included in the
accompanying Consolidated Financial Statements from that date
forward. InfoGenesis offers enterprise-class
point-of-sale
solutions that provide end users a highly intuitive, secure and
easy way to process customer transactions across multiple
departments or locations, including comprehensive corporate and
store reporting. InfoGenesis has a significant presence in
casinos, hotels and resorts, cruise lines, stadiums and
foodservice. The acquisition provides the
26
company a complementary offering that extends its reach into new
segments of the hospitality market, broadens its customer base
and increases its software application offerings. InfoGenesis
was acquired for a total acquisition cost of $90.6 million.
InfoGenesis had intangible assets with a net book value of
$15.9 million as of the acquisition date, which were
included in the acquired net assets to determine goodwill.
Intangible assets were assigned values as follows:
$3.0 million to developed technology, which will be
amortized between six months and three years; $4.5 million
to customer relationships, which will be amortized between two
and seven years; and $8.4 million to trade names, which
have an indefinite life. Based on managements allocation
of the acquisition cost to the net assets acquired,
approximately $71.8 million was assigned to goodwill.
Goodwill resulting from the InfoGenesis acquisition will not be
deductible for income tax purposes. During the first, second,
and fourth quarters of 2009, goodwill impairment charges were
taken relating to the InfoGenesis acquisition in the amounts of
$3.9 million, $57.4 million, and $3.8 million,
respectively. As of March 31, 2009, $6.7 million
remains on the companys balance sheet as goodwill relating
to the InfoGenesis acquisition.
Pro Forma
Disclosure of Financial Information
The following table summarizes the companys unaudited
consolidated results of operations as if the InfoGenesis and
Innovative acquisitions occurred on April 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Net sales
|
|
$
|
730,720
|
|
|
$
|
841,101
|
|
|
$
|
729,851
|
|
(Loss) income from continuing operations
|
|
$
|
(282,187
|
)
|
|
$
|
7,068
|
|
|
$
|
4,556
|
|
Net (loss) income
|
|
$
|
(284,134
|
)
|
|
$
|
8,908
|
|
|
$
|
241,541
|
|
(Loss) earnings per share basic income from
continuing operations
|
|
$
|
(12.49
|
)
|
|
$
|
0.25
|
|
|
$
|
0.15
|
|
Net (loss) income
|
|
$
|
(12.58
|
)
|
|
$
|
0.32
|
|
|
$
|
7.87
|
|
(Loss) earnings per share diluted income from
continuing operations
|
|
$
|
(12.49
|
)
|
|
$
|
0.25
|
|
|
$
|
0.15
|
|
Net (loss) income
|
|
$
|
(12.58
|
)
|
|
$
|
0.31
|
|
|
$
|
7.87
|
|
|
Stack Computer,
Inc.
On April 2, 2007, the company acquired all of the shares of
Stack Computer, Inc. (Stack). Stacks customers
include leading corporations in the financial services,
healthcare and manufacturing industries. Accordingly, the
results of operations for Stack have been included in the
accompanying Consolidated Financial Statements from that date
forward. Stack also operates a highly sophisticated solution
center, which is used to emulate customer IT environments, train
staff and evaluate technology. The acquisition of Stack
strategically provides the company with product solutions and
services offerings that significantly enhance its existing
storage and professional services business. Stack was acquired
for a total acquisition cost of $25.2 million.
Management made an adjustment of $0.8 million to the fair
value of acquired capital equipment and assigned
$11.7 million of the acquisition cost to identifiable
intangible assets as follows: $1.5 million to non-compete
agreements, which will be amortized over five years using the
straight-line amortization method; $1.3 million to customer
relationships, which will be amortized over five years using an
accelerated amortization method; and $8.9 million to
supplier relationships, which will be amortized over ten years
using an accelerated amortization method.
Based on managements allocation of the acquisition cost to
the net assets acquired, approximately $13.3 million was
assigned to goodwill. Goodwill resulting from the Stack
acquisition is deductible for income tax purposes. During the
first and second quarters of 2009, goodwill impairment charges
were taken relating to the Stack acquisition in the amounts of
$7.8 million and $2.1 million, respectively. As of
March 31, 2009, $3.4 million remains on the
companys balance sheet as goodwill relating to the Stack
acquisition.
2007
Acquisition
Visual One
Systems Corporation
On January 23, 2007, the company acquired all the shares of
Visual One, a leading developer and marketer of
Microsoft®
Windows®-based
software for the hospitality industry. Accordingly, the results
of operations for Visual One have been included in the
accompanying Consolidated Financial Statements from that date
forward. The acquisition provides the company additional
expertise around the development, marketing and sale of software
applications for the hospitality industry, including property
management, condominium, golf course, spa,
point-of-sale,
and sales and catering management applications. Visual
Ones customers include well-known North American
27
and international full-service hotels, resorts, conference
centers and condominiums of all sizes. The aggregate acquisition
cost was $14.4 million.
During the second quarter of 2008, management assigned
$4.9 million of the acquisition cost to identifiable
intangible assets as follows: $3.8 million to developed
technology, which will be amortized over six years using the
straight-line method; $0.6 million to non-compete
agreements, which will be amortized over eight years using the
straight-line amortization method; and $0.5 million to
customer relationships, which will be amortized over five years
using an accelerated amortization method.
Based on managements allocation of the acquisition cost to
the net assets acquired, including identified intangible assets,
approximately $9.4 million was assigned to goodwill.
Goodwill resulting from the Visual One acquisition is not
deductible for income tax purposes. During the first, second,
and fourth quarters of 2009, goodwill impairment charges were
taken relating to the Visual One acquisition in the amounts of
$0.5 million, $7.5 million, and $0.5 million,
respectively. As of March 31, 2009, $0.9 million
remains on the companys balance sheet as goodwill relating
to the Visual One acquisition.
Discontinued
Operations
China and Hong
Kong Operations
In July, 2008, the company met the requirements of FASB issued
Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144) to
classify TSGs China and Hong Kong operations as
held-for-sale
and discontinued operations, and began exploring divestiture
opportunities for these operations. Agilysys acquired TSGs
China and Hong Kong businesses in December 2005. During January
2009, the company sold the stock related to TSGs China
operations and certain assets of TSGs Hong Kong
operations, receiving proceeds of $1.4 million, which
resulted in a pre-tax loss on the sale of discontinued
operations of $0.8 million. The assets and liabilities of
these operations are classified as discontinued operations on
the companys Consolidated Balance Sheets, and the
operations are reported as discontinued operations for the
periods presented in accordance with Statement 144. The
remaining unsold assets and liabilities of TSGs China and
Hong Kong operations have been classified as discontinued
operations on the companys balance sheet as of
March 31, 2009 and 2008.
Sale of Assets
and Operations of KeyLink Systems Distribution
Business
During 2007, the company sold the assets and operations of KSG
for $485.0 million in cash, subject to a working capital
adjustment. At March 31, 2007, the final working capital
adjustment was $10.8 million. Through the sale of KSG, the
company exited all distribution-related businesses and now
exclusively sells directly to end-user customers. By monetizing
the value of KSG, the company significantly increased its
financial flexibility and has redeployed the proceeds to
accelerate the growth of its ongoing business both organically
and through acquisition. The sale of KSG represented a disposal
of a component of an entity. As such, the operating results of
KSG, along with the gain on sale, have been reported as a
component of discontinued operations.
Restructuring
Charges (Credits)
2009
Restructuring Activity
Fourth Quarter Management
Restructuring. During the fourth quarter of 2009,
the company took additional steps to realign its cost and
management structure. During the quarter, an additional four
company vice presidents were terminated, as well as other
support and sales personnel. These actions resulted in a
restructuring charge of $3.7 million during the quarter,
comprised mainly of termination benefits for the above-mentioned
management changes. Also included in the restructuring charges
was a non-cash charge for a curtailment loss of
$1.2 million under the companys SERP. These
restructuring charges are included in the Corporate segment.
Third Quarter Management Restructuring. During
the third quarter of 2009, the company took steps to realign its
cost and management structure. During October 2008, the
companys former Chairman, President and CEO announced his
retirement, effective immediately. In addition, four company
vice presidents were terminated, as well as other support
personnel. The company also relocated its headquarters from Boca
Raton, Florida, to Solon, Ohio, where the company has a facility
with a large number of employees, and cancelled the lease on its
financial interests in two airplanes. These actions resulted in
a restructuring charge of $13.4 million as of
December 31, 2008, comprised mainly of termination benefits
for the above-mentioned management changes and the costs
incurred to relocate the corporate headquarters. Also included
in the restructuring charges was a non-cash charge for a
curtailment loss of $4.5 million under the companys
SERP. An additional $0.2 million expense was incurred in
the fourth quarter of 2009 as a result of an impairment to the
leasehold improvements at the companys former headquarters
in Boca Raton. These restructuring charges are included in the
Corporate segment.
First Quarter Professional Services
Restructuring. During the first quarter of 2009,
the company performed a detailed review of the business to
identify opportunities to improve operating efficiencies and
reduce costs. As part of this cost reduction effort, management
reorganized the professional services
go-to-market
strategy by consolidating its management and delivery groups.
The company will continue to offer specific proprietary
professional services, including identity management, security,
and storage virtualization; however, it
28
will increase the use of external business partners. The cost
reduction resulted in a $2.5 million and $0.4 million
charge for one-time termination benefits relating to a workforce
reduction in the first and second quarters of 2009,
respectively. The workforce reduction was comprised mainly of
service delivery personnel. Payment of these one-time
termination benefits was substantially complete in 2009. This
restructuring also resulted in a $20.6 million impairment
to goodwill and intangible assets in the first quarter of 2009,
related to the companys 2005 acquisition of CTS. The
entire $23.5 million restructuring charge relates to TSG.
The three restructuring actions discussed above resulted in a
$40.8 million restructuring charge for the year ended
March 31, 2009.
2007
Restructuring Activity
During 2007, the company recorded a restructuring charge of
approximately $0.5 million for one-time termination
benefits resulting from a workforce reduction that was executed
in connection with the sale of KSG. The workforce reduction was
comprised mainly of corporate personnel. Payment of the one-time
termination benefits was substantially complete in 2008.
Investments
The Reserve
Funds Primary Fund
At September 30, 2008, the company had $36.2 million
invested in The Reserve Funds Primary Fund. Due to
liquidity issues associated with the bankruptcy of Lehman
Brothers, Inc., The Primary Fund temporarily ceased honoring
redemption requests, but the Board of Trustees of The Primary
Fund subsequently voted to liquidate the assets of the fund and
approved a distribution of cash to the investors. As of
March 31, 2009, the company has received $31.0 million
of the investment, with $5.2 million remaining in The
Primary Fund. As a result of the delay in cash distribution, we
have reclassified the remaining $5.2 million from cash and
cash equivalents to investments in other non-current assets on
the balance sheet, and, accordingly, have presented the
reclassification as a cash outflow from investing activities in
the consolidated statements of cash flows. In addition, as of
March 31, 2009, the company estimated and recorded a loss
on its investment in the fund. The loss was estimated as 8.3% of
the companys original investment in the fund, resulting in
a $3.0 million charge to other expense. In April 2009, the
company received an additional distribution of $1.6 million
from The Primary Fund. The company is unable to estimate the
timing of future distributions, which are expected to aggregate
to approximately $0.6 million.
This investment is a financial instrument that falls within the
scope of FASB Statement No. 157, Fair Value Measurements
(FAS 157), and accordingly, was measured at
its fair value of $2.2 million at March 31, 2009,
which is net of the impairment charges recorded during 2009.
FAS 157 classifies the inputs used to measure fair value
into three levels as follows:
Level 1: Unadjusted quoted prices in active
markets for identical assets or liabilities;
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Level 2: Unadjusted quoted prices in active markets for
similar assets or liabilities, or unadjusted quoted prices for
identical or similar assets or liabilities in markets that are
not active, or inputs other than quoted prices that are
observable for the asset or liability; and
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Level 3: Unobservable inputs for the asset or
liability.
The companys investment in The Primary Fund was classified
as a Level 2 financial instrument at March 31, 2009,
as its fair value was determined using information other than
quoted prices that is available on The Reserve Funds
website.
Investment in
Marketable Securities
The company invests in marketable securities to satisfy future
obligations of its employee benefit plans. The marketable
securities are held in a Rabbi Trust and are classified within
Other non-current assets on the companys
Consolidated Balance Sheets. The companys investment in
marketable equity securities are held for an indefinite period
and thus are classified as available for sale. The aggregate
fair value of the securities was $37,000 and $0.1 million
at March 31, 2009 and 2008, respectively. During 2009,
sales proceeds and realized losses were $0.1 million and
$24,000, respectively. During 2008, sale proceeds and realized
gain were $6.1 million and $0.2 million, respectively.
The company used the sale proceeds to fund corporate-owned life
insurance policies.
Investment in
Magirus Sold in November 2008
In November 2008, the company sold its 20% ownership interest in
Magirus, a privately owned European enterprise computer systems
distributor headquartered in Stuttgart, Germany, for
$2.3 million. In addition, the company received a dividend
from Magirus (as a result of Magirus selling a portion of its
distribution business in fiscal 2008) of $7.3 million
in July 2008, resulting in $9.6 million of total proceeds
received in fiscal 2009. The company adjusted the fair value of
the investment as of March 31, 2008, to the net present
value of the subsequent cash proceeds, resulting in fourth
quarter 2008 charges of (i) a $5.5 million reversal of
the cumulative currency translation adjustment in accordance
with
EITF 01-5,
Application of FASB Statement No. 52 to an Investment
Being Evaluated for Impairment That Will Be Disposed of, and
(ii) an impairment charge of $4.9 million to write the
held-for-sale
investment to its fair value less cost to sell.
The company had decided to sell its 20% investment in Magirus
prior to March 31, 2008, and met the qualifications to
consider the asset as held for sale. As a result, the company
reclassified its Magirus investment to investment held for sale
at March 31, 2008 in accordance with FAS 144.
29
Because of the companys inability to obtain and include
audited financial statements of Magirus for fiscal years ended
March 31, 2008 and 2007 as required by
Rule 3-09
of
Regulation S-X,
the SEC has stated that it will not permit effectiveness of any
new securities registration statements or post-effective
amendments, if any, until such time as the company files audited
financial statements that reflect the disposition of Magirus and
the company requests and the SEC grants relief to the company
from the requirements of
Rule 3-09.
As part of this restriction, the company is not permitted to
file any new securities registration statements that are
intended to automatically go into effect when they are filed,
nor can the company make offerings under effective registration
statements or under Rules 505 and 506 of Regulation D
where any purchasers of securities are not accredited investors
under Rule 501(a) of Regulation D. These restrictions
do not apply to the following: offerings or sales of securities
upon the conversion of outstanding convertible securities or
upon the exercise of outstanding warrants or rights; dividend or
interest reinvestment plans; employee benefit plans, including
stock option plans; transactions involving secondary offerings;
or sales of securities under Rule 144.
On April 1, 2008, the company invoked FASB Interpretation
No. 35, Criteria for Applying the Equity Method of
Accounting for Investments in Common Stock
(FIN 35), for its investment in
Magirus. The invocation of FIN 35 required the company to
account for its investment in Magirus via cost, rather than
equity accounting. FIN 35 clarifies the criteria for
applying the equity method of accounting for investments of 50%
or less of the voting stock of an investee enterprise. The cost
method was used by the company because management did not have
the ability to exercise significant influence over Magirus,
which is one of the presumptions in APB Opinion No. 18,
The Equity Method of Accounting for Investments in Common
Stock, necessary to account for an investment in common
stock under the equity method.
Investment in
Affiliated Companies
During 2008, the investment in an affiliated company was
redeemed by the affiliated company for $4.8 million in
cash, resulting in a $1.4 million gain on redemption of the
investment. The gain was classified within other income
(expense), net in the consolidated statement of operations.
Stock Based
Compensation
The company accounts for stock based compensation in accordance
with the fair value recognition provisions of FASB Statement
123R, Share-Based Payment (FAS 123R),
which was adopted on April 1, 2006. The company adopted the
provisions of FAS 123R using the modified prospective
application and, accordingly, results for prior periods have not
been restated. Prior to April 1, 2006, the company
accounted for stock based compensation in accordance with the
intrinsic value method. As such, no stock based employee
compensation cost was recognized by the company for stock option
awards, as all options granted to employees had an exercise
price equal to the market value of the underlying stock on the
date of grant.
Compensation cost charged to operations relating to stock based
compensation during 2009 was $0.5 million. This included
$3.5 million in reversals of stock based compensation
expense in 2009 due to actual forfeitures of non-vested shares
and performance shares, and a change in the estimate of the
forfeiture rate which was updated due to the management
restructuring actions. As of March 31, 2009, total
unrecognized stock based compensation expense related to
unvested stock options was $0.5 million, which is expected
to be recognized over a weighted-average period of
18 months. In addition, as of March 31, 2009, total
unrecognized stock based compensation expense related to
non-vested shares and performance shares was $0.1 million
and $0.2 million, respectively, which is expected to be
recognized over a weighted-average period of 12 months.
Risk Control
and Effects of Foreign Currency and Inflation
The company extends credit based on customers financial
condition and, generally, collateral is not required. Credit
losses are provided for in the Consolidated Financial Statements
when collections are in doubt.
The company sells internationally and enters into transactions
denominated in foreign currencies. As a result, the company is
subject to the variability that arises from exchange rate
movements. The effects of foreign currency on operating results
did not have a material impact on the companys results of
operations for the 2009, 2008 or 2007 fiscal years.
The company believes that inflation has had a nominal effect on
its results of operations in fiscal 2009, 2008 and 2007 and does
not expect inflation to be a significant factor in fiscal 2010.
Forward
Looking Information
This Annual Report on
Form 10-K
contains certain management expectations, which may constitute
forward-looking information within the meaning of
Section 27A of the Securities Act of 1933, Section 21E
of the Securities and Exchange Act of 1934 and the Private
Securities Reform Act of 1995. Forward-looking information
speaks only as to the date of this presentation and may be
identified by use of words such as may,
will, believes, anticipates,
plans, expects, estimates,
projects, targets,
forecasts, continues, seeks,
or the negative of those terms or similar expressions. Many
important factors could cause actual results to be materially
different from those in forward-looking information including,
without limitation, competitive factors, disruption of supplies,
changes in market conditions, pending or future claims or
litigation, or technology advances. No assurances can be
provided as to the outcome of cost
30
reductions, business strategies, future financial results,
unanticipated downturns to our relationships with customers,
unanticipated difficulties integrating acquisitions, new laws
and government regulations, interest rate changes, and
unanticipated deterioration in economic and financial conditions
in the United States and around the world. We do not undertake
to update or revise any forward-looking information even if
events make it clear that any projected results, actions, or
impact, express or implied, will not be realized.
Other potential risks and uncertainties that may cause actual
results to be materially different from those in forward-looking
information are described in this Annual Report on
Form 10-K
filed with the SEC, under Item 1A, Risk
Factors. Copies are available from the SEC or the Agilysys
web site.
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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The company has assets, liabilities and cash flows in foreign
currencies creating foreign exchange risk. Systems are in place
for continuous measurement and evaluation of foreign exchange
exposures so that timely action can be taken when considered
desirable. Reducing exposure to foreign currency fluctuations is
an integral part of the companys risk management program.
Financial instruments in the form of forward exchange contracts
are employed, when deemed necessary, as one of the methods to
reduce such risk. There were no foreign currency exchange
contracts executed by the company during 2009, 2008, or 2007.
As discussed within Liquidity and Capital Resources in
the MD&A, on January 20, 2009, the company terminated
its five-year $200 million revolving credit facility. At
the time of the termination, there were no amounts outstanding
under this credit facility. Therefore, the company did not have
a revolving credit facility in place at March 31, 2009.
There were no amounts outstanding under this credit facility in
2009, 2008, or 2007. On May 5, 2009, the company entered
into a new $50 million revolving credit facility. While the
company is exposed to interest rate risk from the floating-rate
pricing mechanisms on its new revolving credit facility, it does
not expect interest rate risk to have a significant impact on
its business, financial condition, or results of operations
during 2010.
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Item 8.
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Financial
Statements and Supplementary Data.
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The information required by this item is set forth in the
Financial Statements and Supplementary Data contained in
Part IV of this Annual Report on
Form 10-K.
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Item 9.
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Change
in and Disagreements With Accountants on Accounting and
Financial Disclosures.
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None.
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Item 9A.
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Controls
and Procedures.
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Evaluation of
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer (CEO) and Chief Financial Officer
(CFO), evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by
this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the material
weakness related to the companys hospitality and retail
order processing operations, identified in 2008 has been
remediated. In addition, the CEO and CFO concluded that our
disclosure controls and procedures as of the end of the period
covered by this report are not effective solely because of the
material weakness relating to the companys internal
control over financial reporting as described below in
Managements Report on Internal Controls Over
Financial Reporting. In light of the 2008 and 2009
material weaknesses, the company performed additional analysis
and post-closing procedures to provide reasonable assurance that
the information required to be disclosed by us in reports filed
under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods
specified in the SECs rules and forms and
(ii) accumulated and communicated to our management,
including the CEO and CFO, as appropriate to allow timely
decisions regarding disclosure. A controls system cannot provide
absolute assurance, however, that the objectives of the controls
system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, within a company have been detected.
Managements
Report on Internal Control Over Financial Reporting
The management of the company, under the supervision of the CEO
and CFO, is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision of our Chief Executive Officer and Chief
Financial Officer, management conducted an evaluation of the
effectiveness of our internal control over financial reporting
as of March 31, 2009 based on the framework in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Based on that evaluation, management has concluded
31
that the company did not maintain effective internal control
over financial reporting as of March 31, 2009, due to the
material weakness discussed below.
Revenue Recognition Controls The aggregation of
several errors in the companys revenue recognition cycle,
primarily related to the
set-up of
specific customer terms and conditions, resulted in a material
weakness in the operating effectiveness of revenue recognition
controls.
Management has performed a review of the companys internal
control processes and procedures surrounding the revenue
recognition cycle. As a result of this review, the company has
taken and continues to implement the following steps to prevent
future errors from occurring:
1. The company will conduct a comprehensive review of all
existing customer terms and conditions compared to existing
customer
set-up
within the customer database.
2. Implement enhanced process and controls around new
customer
set-up and
customer maintenance.
3. Increase quarterly sales cut-off testing procedures to
include a review of terms and conditions of customer sales
contracts.
4. Implement quarterly physical inventory counts at
specific company warehouses to account for and properly reverse
revenue relating to the consolidation and storage of customer
owned product.
5. Implement a more extensive analysis and enhance the
reconciliation and review process related to revenue and cost of
goods sold accounts.
Ernst & Young LLP, our independent registered public
accounting firm, has issued their report regarding the
companys internal control over financial reporting as of
March 31, 2009, which is included elsewhere herein.
Change in
Internal Control over Financial Reporting
In 2009, control improvements were implemented in an effort to
remediate the errors in the companys hospitality and
retail segments order processing operations that resulted
in a material weakness in the operating effectiveness of revenue
recognition controls as of March 31, 2008. These control
improvements included:
1. Mandatory ongoing training for sales operations
personnel including procedure and process review, as well as the
awareness and significance of key controls.
2. Sales Operations Management review and approval process
for all transactions greater than $100,000.
3. Comprehensive documentation checklist that is required
to be completed prior to the processing of a sales transaction.
4. Enhanced monthly sales cut-off testing by the
companys Internal Audit Department to ensure the proper
and timely processing of a transaction.
5. Sales Operations Management personnel restructuring.
Also during 2009, in an effort to remediate the material
weakness that was reported in the third quarter of 2009, control
improvements were implemented over the calculation of stock
based compensation and the recognition of expense for a defined
benefit plan curtailment. These control improvements included:
1. Perform a secondary quarterly review of stock
compensation and defined benefit plan activity, and the related
accounting.
2. Upon the termination or retirement of an executive
employee, perform an additional revaluation of the accounting
for such defined benefit plans to determine propriety of
accounting and expense recognition.
As a result of these control improvements and other measures the
company has taken to date, management believes that the material
weaknesses reported as of March 31, 2008, and
December 31, 2008, have been remediated as of
March 31, 2009.
The company continues to integrate each acquired entitys
internal controls over financial reporting into the
companys own internal controls over financial reporting,
and will continue to review and, if necessary, make changes to
each acquired entitys internal controls over financial
reporting until such time as integration is complete. Other than
the items described above, no changes in our internal control
over financial reporting occurred during the companys last
quarter of 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting. However, during the first quarter of 2010, the
company began implementing the remedial measures related to the
material weakness identified as of March 31, 2009,
described above.
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Item 9B.
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Other
Information.
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None.
32
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Item 10.
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Directors,
Executive Officers and Corporate Governance.
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Information required by this Item as to the Directors of the
company, the Audit Committee and the procedures by which
shareholders may recommend nominations appearing under the
headings Election of Directors and Corporate
Governance and Related Matters in the companys Proxy
Statement to be used in connection with the companys 2009
Annual Meeting of Shareholders to be held on July 31, 2009
(the 2009 Proxy Statement) is incorporated herein by
reference. Information with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 by the
companys Directors, executive officers, and holders of
more than five percent of the companys equity
securities will be set forth in the 2009 Proxy Statement under
the heading Section 16 (a) Beneficial Ownership
Reporting Compliance. Information required by this Item as
to the executive officers of the company is included as
Item 4A in Part I of this Annual Report on
Form 10-K
as permitted by Instruction 3 to Item 401(b) of
Regulation S-K.
The company has adopted a code of ethics that applies to the
Chief Executive Officer, Chief Financial Officer, and Controller
known as the Code of Ethics for Senior Financial
Officers as well as a code of business conduct that
applies to all employees of the company known as the Code
of Business Conduct. Each of these documents is available
on the companys website at
http://www.agilysys.com.
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Item 11.
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Executive
Compensation.
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The information required by this Item is set forth in the
companys 2009 Proxy Statement under the headings,
Executive Compensation and Corporate
Governance Related Matters, which is incorporated herein
by reference.
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters.
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The information required by this Item is set forth in the
companys 2009 Proxy Statement under the headings
Share Ownership, and Equity Compensation Plan
Information, which information is incorporated herein by
reference.
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Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
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The information required by this item is set forth in the
companys 2009 Proxy Statement under the headings
Corporate Governance and Related Matters and
Related Person Transactions, which information is
incorporated herein by reference.
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Item 14.
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Principal
Accountant Fees and Services.
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The information required by this Item is set forth in the
companys 2009 Proxy Statement under the heading
Independent Registered Public Accounting Firm, which
information is incorporated herein by reference.
part IV
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Item 15.
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Exhibits,
Financial Statement Schedules.
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(a)(1) Financial statements. The following
consolidated financial statements are included herein and are
incorporated by reference in Part II, Item 8 of this
Annual Report on
Form 10-K:
Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm
Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm on Internal Control Over Financial
Reporting
Consolidated Statements of Operations for the years ended
March 31, 2009, 2008, and 2007
Consolidated Balance Sheets as of March 31, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended
March 31, 2009, 2008, and 2007
Consolidated Statements of Shareholders Equity for the
years ended March 31, 2009, 2008, and 2007
Notes to Consolidated Financial Statements
(a)(2) Financial statement schedule. The
following financial statement schedule is included herein and is
incorporated by reference in Part II, Item 8 of this
Annual Report on
Form 10-K:
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted since they are not
applicable or the required information is included in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits. Exhibits included herein and
incorporated by reference are contained in the Exhibit Index of
this Annual Report on
Form 10-K.
33
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Agilysys, Inc. has duly caused
this Annual Report on
Form 10-K
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cleveland, State of Ohio, on
June 5, 2009.
AGILYSYS, INC.
Martin F. Ellis
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities as of
June 5, 2009.
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Signature
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Title
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/s/ Martin
F. Ellis
Martin
F. Ellis
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President, Chief Executive Officer and Director
(Principal Executive Officer)
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/s/ Kenneth
J. Kossin, Jr.
Kenneth
J. Kossin, Jr.
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Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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/s/ Keith
M. Kolerus
Keith
M. Kolerus
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Chairman, Director
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/s/ Thomas
A. Commes
Thomas
A. Commes
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Director
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/s/ R.
Andrew Cueva
R.
Andrew Cueva
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Director
|
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/s/ Howard
V. Knicely
Howard
V. Knicely
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Director
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/s/ Robert
A. Lauer
Robert
A. Lauer
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Director
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|
/s/ Robert
G. McCreary, III
Robert
G. McCreary, III
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Director
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/s/ John
Mutch
John
Mutch
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Director
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34
agilysys, inc. and subsidiaries
ANNUAL REPORT ON
FORM 10-K
Year Ended March 31, 2009
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page
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36
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37
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38
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39
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40
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41
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42
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75
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35
The Board of Directors and Shareholders
of Agilysys, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Agilysys, Inc. and subsidiaries as of March 31, 2009 and
2008, and the related consolidated statements of operations,
cash flows and shareholders equity for each of the three
years in the period ended March 31, 2009. We have also
audited the accompanying financial statement schedule listed in
the index at Item 15(a)(2). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Agilysys, Inc. and subsidiaries at
March 31, 2009 and 2008, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended March 31, 2009, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Notes 1, 10 and 11 to Consolidated
Financial Statements, on April 1, 2007, the Company adopted
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes and on
March 31, 2007, the Company adopted Statement of Financial
Accounting Standards No. 158, Employers Accounting
for Defined Benefit Pension and Other Post Retirement Plans.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Agilysys, Inc.s internal control over financial reporting
as of March 31, 2009, based on criteria established in the
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated June 8, 2009 expressed an adverse opinion
thereon.
Cleveland, Ohio
June 8, 2009
36
The Board of Directors and Shareholders
of Agilysys, Inc. and Subsidiaries
We have audited Agilysys, Inc. and subsidiaries internal
control over financial reporting as of March 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Agilysys, Inc. and subsidiaries management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying Report of Management on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.
The aggregation of several errors in the Companys customer
set-up
process for terms and conditions over new product sales of the
retail and hospitality segments resulted in a material weakness
in the operating effectiveness of revenue recognition controls.
This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the
2009 consolidated financial statements, and this report does not
affect our report dated June 8, 2009, on those financial
statements. In our opinion, because of the effect of the
material weakness described above on the achievement of the
objectives of the control criteria, Agilysys, Inc. and
subsidiaries have not maintained effective internal control over
financial reporting as of March 31, 2009, based on the COSO
criteria.
We have also audited, in accordance with the Standards of the
Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Agilysys, Inc. and
Subsidiaries as of March 31, 2009 and 2008, and the related
consolidated statements of operations shareholders equity,
and cash flows for each of the three years in the period ended
March 31, 2009 and our report dated June 8, 2009
expressed an unqualified opinion thereon.
Cleveland, Ohio
June 8, 2009
37
agilysys, inc. and subsidiaries
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31
|
|
(In thousands, except share and per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
585,702
|
|
|
$
|
634,214
|
|
|
$
|
361,301
|
|
Services
|
|
|
145,018
|
|
|
|
125,954
|
|
|
|
92,439
|
|
|
Total net sales
|
|
|
730,720
|
|
|
|
760,168
|
|
|
|
453,740
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
456,779
|
|
|
|
539,496
|
|
|
|
310,329
|
|
Services
|
|
|
75,263
|
|
|
|
42,181
|
|
|
|
24,662
|
|
|
Total cost of goods sold
|
|
|
532,042
|
|
|
|
581,677
|
|
|
|
334,991
|
|
Gross margin
|
|
|
198,678
|
|
|
|
178,491
|
|
|
|
118,749
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
206,075
|
|
|
|
196,422
|
|
|
|
129,611
|
|
Asset impairment charges
|
|
|
231,856
|
|
|
|
|
|
|
|
|
|
Restructuring charges (credits)
|
|
|
40,801
|
|
|
|
(75
|
)
|
|
|
(2,531
|
)
|
|
Operating loss
|
|
|
(280,054
|
)
|
|
|
(17,856
|
)
|
|
|
(8,331
|
)
|
Other expenses (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income), net
|
|
|
2,570
|
|
|
|
(6,566
|
)
|
|
|
6,008
|
|
Interest income
|
|
|
(524
|
)
|
|
|
(13,101
|
)
|
|
|
(5,133
|
)
|
Interest expense
|
|
|
1,183
|
|
|
|
875
|
|
|
|
2,656
|
|
|
(Loss) income before income taxes
|
|
|
(283,283
|
)
|
|
|
936
|
|
|
|
(11,862
|
)
|
Benefit for income taxes
|
|
|
(1,096
|
)
|
|
|
(922
|
)
|
|
|
(1,935
|
)
|
|
(Loss) income from continuing operations
|
|
|
(282,187
|
)
|
|
|
1,858
|
|
|
|
(9,927
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations of discontinued components, net of
taxes
|
|
|
(1,464
|
)
|
|
|
1,801
|
|
|
|
47,053
|
|
(Loss) gain on disposal of discontinued component, net of taxes
|
|
|
(483
|
)
|
|
|
|
|
|
|
195,729
|
|
|
(Loss) income from discontinued operations
|
|
|
(1,947
|
)
|
|
|
1,801
|
|
|
|
242,782
|
|
|
Net (loss) income
|
|
$
|
(284,134
|
)
|
|
$
|
3,659
|
|
|
$
|
232,855
|
|
|
(Loss) earnings per share basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(12.49
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.32
|
)
|
(Loss) income from discontinued operations
|
|
|
(0.09
|
)
|
|
|
0.06
|
|
|
|
7.91
|
|
|
Net (loss) income
|
|
$
|
(12.58
|
)
|
|
$
|
0.13
|
|
|
$
|
7.59
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,586,603
|
|
|
|
28,252,137
|
|
|
|
30,683,766
|
|
Diluted
|
|
|
22,586,603
|
|
|
|
28,766,112
|
|
|
|
30,683,766
|
|
|
See accompanying notes to consolidated financial statements.
38
agilysys, inc. and subsidiaries
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
(In thousands, except share and per share data)
|
|
2009
|
|
|
2008
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36,244
|
|
|
$
|
69,935
|
|
Accounts receivable, net of allowance of $3,005 in 2009 and
$2,392 in 2008
|
|
|
152,276
|
|
|
|
166,900
|
|
Inventories, net of allowance of $2,411 in 2009 and $1,334 in
2008
|
|
|
27,216
|
|
|
|
25,408
|
|
Deferred income taxes current, net
|
|
|
6,836
|
|
|
|
3,788
|
|
Prepaid expenses and other current assets
|
|
|
4,564
|
|
|
|
2,756
|
|
Income taxes receivable
|
|
|
3,539
|
|
|
|
4,960
|
|
Assets of discontinued operations current
|
|
|
1,075
|
|
|
|
5,026
|
|
|
Total current assets
|
|
|
231,750
|
|
|
|
278,773
|
|
Goodwill
|
|
|
50,382
|
|
|
|
297,560
|
|
Intangible assets, net of amortization of $47,413 in 2009 and
$27,456 in 2008
|
|
|
35,699
|
|
|
|
55,625
|
|
Investment in cost basis company held for sale
|
|
|
|
|
|
|
9,549
|
|
Deferred income taxes non-current, net
|
|
|
511
|
|
|
|
|
|
Other non-current assets
|
|
|
29,008
|
|
|
|
25,779
|
|
Assets of discontinued operations non-current
|
|
|
56
|
|
|
|
1,013
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
Building
|
|
|
|
|
|
|
57
|
|
Furniture and equipment
|
|
|
39,610
|
|
|
|
37,624
|
|
Software
|
|
|
38,124
|
|
|
|
37,514
|
|
Leasehold improvements
|
|
|
8,380
|
|
|
|
8,896
|
|
Project expenditures not yet in use
|
|
|
8,562
|
|
|
|
4,148
|
|
|
|
|
|
94,676
|
|
|
|
88,239
|
|
Accumulated depreciation and amortization
|
|
|
67,646
|
|
|
|
60,667
|
|
|
Property and equipment, net
|
|
|
27,030
|
|
|
|
27,572
|
|
|
Total assets
|
|
$
|
374,436
|
|
|
$
|
695,871
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
22,367
|
|
|
$
|
96,199
|
|
Floor plan financing in default
|
|
|
74,159
|
|
|
|
14,552
|
|
Deferred revenue
|
|
|
18,709
|
|
|
|
16,232
|
|
Accrued liabilities
|
|
|
43,482
|
|
|
|
57,812
|
|
Long-term debt current
|
|
|
238
|
|
|
|
305
|
|
Liabilities of discontinued operations current
|
|
|
1,176
|
|
|
|
3,811
|
|
|
Total current liabilities
|
|
|
160,131
|
|
|
|
188,911
|
|
Other non-current liabilities
|
|
|
21,588
|
|
|
|
27,263
|
|
Liabilities of discontinued operations non-current
|
|
|
|
|
|
|
232
|
|
Commitments and contingencies (see Note 12)
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common shares, without par value, at $0.30 stated value;
80,000,000 shares authorized; 31,523,218 shares
issued; and 22,626,440 and 22,590,440 shares outstanding in
2009 and 2008, respectively
|
|
|
9,366
|
|
|
|
9,366
|
|
Capital in excess of stated value
|
|
|
(11,036
|
)
|
|
|
(11,469
|
)
|
Retained earnings
|
|
|
199,947
|
|
|
|
486,799
|
|
Treasury stock (8,896,778 in 2009 and 8,978,378 in 2008)
|
|
|
(2,670
|
)
|
|
|
(2,694
|
)
|
Accumulated other comprehensive loss
|
|
|
(2,890
|
)
|
|
|
(2,537
|
)
|
|
Total shareholders equity
|
|
|
192,717
|
|
|
|
479,465
|
|
|
Total liabilities and shareholders equity
|
|
$
|
374,436
|
|
|
$
|
695,871
|
|
|
See accompanying notes to consolidated financial statements.
39
agilysys, inc. and subsidiaries
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(284,134
|
)
|
|
$
|
3,659
|
|
|
$
|
232,855
|
|
Add: Loss (income) from discontinued operations
|
|
|
1,947
|
|
|
|
(1,801
|
)
|
|
|
(242,782
|
)
|
|
(Loss) income from continuing operations
|
|
|
(282,187
|
)
|
|
|
1,858
|
|
|
|
(9,927
|
)
|
Adjustments to reconcile (loss) income from continuing
operations to net cash (used for) provided by operating
activities (net of effects from business acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
249,983
|
|
|
|
|
|
|
|
|
|
Impairment of investment in The Reserve Funds Primary Fund
|
|
|
3,001
|
|
|
|
|
|
|
|
|
|
Impairment of investment in cost basis company
|
|
|
|
|
|
|
4,921
|
|
|
|
5,892
|
|
(Gain) loss on cost investment
|
|
|
(56
|
)
|
|
|
(8,780
|
)
|
|
|
970
|
|
Gain on redemption of cost investment
|
|
|
|
|
|
|
(1,330
|
)
|
|
|
|
|
Loss on disposal of property and equipment
|
|
|
494
|
|
|
|
12
|
|
|
|
1,501
|
|
Depreciation
|
|
|
4,032
|
|
|
|
3,261
|
|
|
|
2,507
|
|
Amortization
|
|
|
23,651
|
|
|
|
20,552
|
|
|
|
6,283
|
|
Deferred income taxes
|
|
|
(7,035
|
)
|
|
|
(2,649
|
)
|
|
|
2,178
|
|
Stock based compensation
|
|
|
457
|
|
|
|
6,039
|
|
|
|
4,238
|
|
Excess tax benefit from exercise of stock options
|
|
|
|
|
|
|
(97
|
)
|
|
|
(1,854
|
)
|
Changes in working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
14,909
|
|
|
|
24,794
|
|
|
|
(988
|
)
|
Inventories
|
|
|
(1,763
|
)
|
|
|
(5,713
|
)
|
|
|
122
|
|
Accounts payable
|
|
|
(74,484
|
)
|
|
|
(53,144
|
)
|
|
|
30,136
|
|
Accrued liabilities
|
|
|
(17,845
|
)
|
|
|
(11,675
|
)
|
|
|
(11,286
|
)
|
Income taxes payable
|
|
|
14,483
|
|
|
|
(138,694
|
)
|
|
|
132,771
|
|
Other changes, net
|
|
|
(1,808
|
)
|
|
|
2,013
|
|
|
|
(1,316
|
)
|
Other non-cash adjustments, net
|
|
|
(11,910
|
)
|
|
|
(912
|
)
|
|
|
(7,237
|
)
|
|
Total adjustments
|
|
|
196,109
|
|
|
|
(161,402
|
)
|
|
|
163,917
|
|
|
Net cash (used for) provided by operating activities
|
|
|
(86,078
|
)
|
|
|
(159,544
|
)
|
|
|
153,990
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Claim on The Reserve Funds Primary Fund
|
|
|
(5,268
|
)
|
|
|
|
|
|
|
|
|
Change in cash surrender value of company owned life insurance
policies
|
|
|
(248
|
)
|
|
|
(439
|
)
|
|
|
269
|
|
Proceeds from redemption of cost basis investment
|
|
|
9,513
|
|
|
|
4,770
|
|
|
|
|
|
Proceeds from sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
1,147
|
|
Proceeds from sale of business
|
|
|
|
|
|
|
|
|
|
|
485,000
|
|
Acquisition of business, net of cash acquired
|
|
|
(2,381
|
)
|
|
|
(236,210
|
)
|
|
|
(10,613
|
)
|
Purchase of property and equipment
|
|
|
(7,056
|
)
|
|
|
(8,775
|
)
|
|
|
(6,250
|
)
|
Proceeds from escrow settlement
|
|
|
|
|
|
|
|
|
|
|
423
|
|
|
Net cash (used for) provided by investing activities
|
|
|
(5,440
|
)
|
|
|
(240,654
|
)
|
|
|
469,976
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan financing agreement, net
|
|
|
59,607
|
|
|
|
14,552
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
(149,999
|
)
|
|
|
|
|
Principal payment under long-term obligations
|
|
|
(67
|
)
|
|
|
(197
|
)
|
|
|
(59,567
|
)
|
Issuance of common shares
|
|
|
|
|
|
|
1,447
|
|
|
|
10,101
|
|
Excess tax benefit from exercise of stock options
|
|
|
|
|
|
|
213
|
|
|
|
1,854
|
|
Dividends paid
|
|
|
(2,718
|
)
|
|
|
(3,407
|
)
|
|
|
(3,675
|
)
|
|
Net cash provided by (used for) financing activities
|
|
|
56,822
|
|
|
|
(137,391
|
)
|
|
|
(51,287
|
)
|
Effect of exchange rate changes on cash
|
|
|
911
|
|
|
|
1,314
|
|
|
|
(97
|
)
|
|
Cash flows (used for) provided by continuing operations
|
|
|
(33,785
|
)
|
|
|
(536,275
|
)
|
|
|
572,582
|
|
Cash flows of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
|
94
|
|
|
|
1,995
|
|
|
|
(115,315
|
)
|
Investing cash flows
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
Net (decrease) increase in cash
|
|
|
(33,691
|
)
|
|
|
(534,280
|
)
|
|
|
457,194
|
|
Cash at beginning of year
|
|
|
69,935
|
|
|
|
604,215
|
|
|
|
147,021
|
|
|
Cash at end of year
|
|
$
|
36,244
|
|
|
$
|
69,935
|
|
|
$
|
604,215
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
74
|
|
|
$
|
618
|
|
|
$
|
3,135
|
|
Cash payments for income taxes, net of refunds received
|
|
$
|
339
|
|
|
$
|
140,450
|
|
|
$
|
22,978
|
|
Change in value of
available-for-sale
securities, net of taxes
|
|
$
|
(17
|
)
|
|
$
|
(169
|
)
|
|
$
|
86
|
|
|
See accompanying notes to consolidated financial statements.
40
agilysys, inc. and subsidiaries
Consolidated
Statements of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated
|
|
|
Capital in
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
value of
|
|
|
excess of
|
|
|
|
|
|
|
|
|
compensation
|
|
|
other
|
|
|
|
|
|
|
Treasury
|
|
|
Common
|
|
|
common
|
|
|
stated
|
|
|
Treasury
|
|
|
Retained
|
|
|
on restricted
|
|
|
comprehensive
|
|
|
|
|
(In thousands, except per share data)
|
|
shares
|
|
|
shares
|
|
|
shares
|
|
|
value
|
|
|
shares
|
|
|
earnings
|
|
|
stock
|
|
|
income (loss)
|
|
|
Total
|
|
|
|
|
Balance at April 1, 2006
|
|
|
(54
|
)
|
|
|
30,527
|
|
|
$
|
9,093
|
|
|
$
|
113,972
|
|
|
$
|
(17
|
)
|
|
$
|
260,255
|
|
|
$
|
(168
|
)
|
|
$
|
2,041
|
|
|
$
|
385,176
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,855
|
|
|
|
|
|
|
|
|
|
|
|
232,855
|
|
Unrealized translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(772
|
)
|
|
|
(772
|
)
|
Unrealized gain on securities net of $54 in taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
86
|
|
Minimum pension liability, net of $477 in taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(753
|
)
|
|
|
(753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,416
|
|
Reversal of unearned compensation in restricted stock award
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply FASB Statement No. 158, net
of $1,432 in taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,266
|
)
|
|
|
(2,266
|
)
|
Cash dividends ($0.12 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,675
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,675
|
)
|
Non-cash stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,232
|
|
Shares issued upon exercise of stock options
|
|
|
|
|
|
|
804
|
|
|
|
241
|
|
|
|
10,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,402
|
|
Nonvested shares issued from treasury shares
|
|
|
32
|
|
|
|
32
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,854
|
|
Purchase of common shares for treasury
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
(291
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(295
|
)
|
|
Balance at March 31, 2007
|
|
|
(35
|
)
|
|
|
31,350
|
|
|
$
|
9,334
|
|
|
$
|
129,750
|
|
|
$
|
(11
|
)
|
|
$
|
489,435
|
|
|
$
|
|
|
|
$
|
(1,664
|
)
|
|
$
|
626,844
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,659
|
|
|
|
|
|
|
|
|
|
|
|
3,659
|
|
Unrealized translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,503
|
)
|
|
|
(1,503
|
)
|
Unrealized loss on securities net of $8 in taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169
|
)
|
|
|
(169
|
)
|
FASB Statement No. 158 net actuarial losses and prior
service cost, net of $505 in taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
799
|
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,786
|
|
Record cumulative effect FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,888
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,888
|
)
|
Cash dividends ($0.12 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,407
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,407
|
)
|
Non-cash stock based compensation expense
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
5,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,332
|
|
Shares issued upon exercise of stock options
|
|
|
|
|
|
|
110
|
|
|
|
32
|
|
|
|
1,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,446
|
|
Self tender offer buyback of common shares for
treasury
|
|
|
(8,975
|
)
|
|
|
|
|
|
|
|
|
|
|
(147,305
|
)
|
|
|
(2,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149,998
|
)
|
Self tender expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,570
|
)
|
Nonvested shares issued from treasury shares
|
|
|
32
|
|
|
|
32
|
|
|
|
|
|
|
|
697
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
707
|
|
Tax benefit related to exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
Balance at March 31, 2008
|
|
|
(8,978
|
)
|
|
|
31,568
|
|
|
$
|
9,366
|
|
|
$
|
(11,469
|
)
|
|
$
|
(2,694
|
)
|
|
$
|
486,799
|
|
|
$
|
|
|
|
$
|
(2,537
|
)
|
|
$
|
479,465
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284,134
|
)
|
|
|
|
|
|
|
|
|
|
|
(284,134
|
)
|
Unrealized translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,741
|
)
|
|
|
(1,741
|
)
|
Unrealized loss on securities net of $(7) in tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
(17
|
)
|
FASB Statement No. 158 net actuarial losses and prior
service cost, net of $871 in taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,405
|
|
|
|
1,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284,487
|
)
|
Cash dividends ($0.12 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,718
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,718
|
)
|
Non-cash stock based compensation expense
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
433
|
|
Nonvested shares issued from treasury shares
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
Balance at March 31, 2009
|
|
|
(8,897
|
)
|
|
|
31,523
|
|
|
$
|
9,366
|
|
|
$
|
(11,036
|
)
|
|
$
|
(2,670
|
)
|
|
$
|
199,947
|
|
|
$
|
|
|
|
$
|
(2,890
|
)
|
|
$
|
192,717
|
|
|
See accompanying notes to consolidated financial statements
41
agilysys, inc. and subsidiaries
Notes to
Consolidated Financial Statements
(Table amounts in
thousands, except per share data and Note 16)
1.
OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations. Agilysys, Inc. and its
subsidiaries (the company or Agilysys)
provides innovative IT solutions to corporate and public-sector
customers with special expertise in select vertical markets,
including retail, hospitality and technology solutions. The
company operates extensively in North America and has sales
offices in the United Kingdom and in Asia.
The company has three reportable segments: Hospitality Solutions
Group (HSG), Retail Solutions Group
(RSG), and Technology Solutions Group
(TSG). Additional information regarding the
companys reportable segments is discussed in Note 13,
Business Segments.
The companys fiscal year ends on March 31. References
to a particular year refer to the fiscal year ending in March of
that year. For example, 2009 refers to the fiscal year ended
March 31, 2009.
Principles of consolidation. The consolidated
financial statements include the accounts of the company.
Investments in affiliated companies are accounted for by the
equity or cost method, as appropriate. All inter-company
accounts have been eliminated. Unless otherwise indicated,
amounts in the Notes to Consolidated Financial Statements refer
to continuing operations.
Use of estimates. Preparation of consolidated
financial statements in conformity with U.S. generally
accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual
results could differ from those estimates.
Foreign currency translation. The financial
statements of the companys foreign operations are
translated into U.S. dollars for financial reporting
purposes. The assets and liabilities of foreign operations whose
functional currencies are not in U.S. dollars are
translated at the period-end exchange rates, while revenues and
expenses are translated at weighted-average exchange rates
during the fiscal year. The cumulative translation effects are
reflected as a component of accumulated other comprehensive
income (loss) within shareholders equity. Gains and losses
on monetary transactions denominated in other than the
functional currency of an operation are reflected in other
income (expense). Foreign currency gains and losses from changes
in exchange rates have not been material to the consolidated
operating results of the company.
Related party transactions. The Secretary of
the company is also a partner in the law firm, Calfee,
Halter & Griswold LLP (Calfee), which
provides certain legal services to the company. Legal costs paid
to Calfee by the company were $2.0 million for fiscal year
2009, $2.6 million for fiscal year 2008 and
$1.0 million for fiscal year 2007.
In connection with the move of our headquarters from Ohio to
Florida and then back to Ohio during fiscal years 2007, 2008,
and 2009, we provided relocation assistance to our executive
officers who were required to relocate. This relocation
assistance included costs related to temporary housing,
commuting expenses, sales and broker commissions, moving
expenses, costs to maintain the executives former
residence while it was on the market and the loss, if any,
associated with the sale of the executives former
residence. For more information, refer to the Summary
Compensation Table for fiscal year 2007, 2008, and 2009, in the
companys 2009 Proxy Statement under the heading,
Executive Compensation.
All related party transactions with the company require the
prior approval of or ratification by the companys Audit
Committee. The company, through its Nominating and Corporate
Governance Committee, also makes a formal yearly inquiry of all
of its officers and directors for purposes of disclosure of
related person transactions, and any such newly revealed related
person transactions are conveyed to the Audit Committee. All
officers and directors are charged with updating this
information with the companys general counsel.
Segment reporting. Operating segments are
defined as components of an enterprise for which separate
financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Operating
segments may be aggregated for segment reporting purposes so
long as certain aggregation criteria are met. With the
divestiture of the companys KeyLink Systems Distribution
Business in 2007, the continuing operations of the company
represented one business segment that provided IT solutions to
corporate and public-sector customers. In 2008, the company
evaluated its business groups and developed a structure to
support the companys strategic direction as it has
transformed to a pervasive solution provider largely in the
North American IT market. With this transformation, the company
now has three reportable segments: HSG, RSG, and TSG. See
Note 13 for a discussion of the companys segment
reporting.
42
Revenue recognition. The company derives
revenue from three primary sources: server, storage and point of
sale hardware, software, and services. Revenue is recorded in
the period in which the goods are delivered or services are
rendered and when the following criteria are met: persuasive
evidence of an arrangement exists, delivery has occurred or
services have been rendered, the sales price to the customer is
fixed or determinable, and collectibility is reasonably assured.
The company reduces revenue for estimated discounts, sales
incentives, estimated customer returns and other allowances.
Discounts are offered based on the volume of products and
services purchased by customers. Shipping and handling fees
billed to customers are recognized as revenue and the related
costs are recognized in cost of goods sold.
Revenue for hardware sales is recognized when the product is
shipped to the customer and when obligations that affect the
customers final acceptance of the arrangement have been
fulfilled. A majority of the companys hardware sales
involves shipment directly from its suppliers to the end-user
customers. In such transactions, the company is responsible for
negotiating price both with the supplier and the customer,
payment to the supplier, establishing payment terms and product
returns with the customer, and bears credit risk if the customer
does not pay for the goods. As the principal contact with the
customer, the company recognizes revenue and cost of goods sold
when it is notified by the supplier that the product has been
shipped. In certain limited instances, as shipping terms
dictate, revenue is recognized upon receipt at the point of
destination.
The company offers proprietary software as well as remarketed
software for sale to its customers. A majority of the
companys software sales do not require significant
production, modification, or customization at the time of
shipment (physically or electronically) to the customer.
Substantially all of the companys software license
arrangements do not include acceptance provisions. As such,
revenue from both proprietary and remarketed software sales is
recognized when the software has been shipped. For software
delivered electronically, delivery is considered to have
occurred when the customer either takes possession of the
software via downloading or has been provided with the requisite
codes that allow for immediate access to the software based on
the U.S. Eastern time zone time stamp.
The company also offers proprietary and third-party services to
its customers. Proprietary services generally include:
consulting, installation, integration, training, and
maintenance. Revenue relating to maintenance services is
recognized evenly over the coverage period of the underlying
agreement. Many of the companys software arrangements
include consulting services sold separately under consulting
engagement contracts. When the arrangements qualify as service
transactions as defined in AICPA Statement of Position
No. 97-2
(SOP 97-2),
Software Revenue Recognition, consulting revenues
from these arrangements are accounted for separately from the
software revenues. The significant factors considered in
determining whether the revenues should be accounted for
separately include the nature of the services (i.e.,
consideration of whether the services are essential to the
functionality of the software), degree of risk, availability of
services from other vendors, timing of payments, and the impact
of milestones or other customer acceptance criteria on revenue
realization. If there is significant uncertainty about the
project completion or receipt of payment for consulting
services, the revenues are deferred until the uncertainty is
resolved.
For certain long-term proprietary service contracts with fixed
or not to exceed fee arrangements, the company
estimates proportional performance using the hours incurred as a
percentage of total estimated hours to complete the project
consistent with the percentage-of-completion method of
accounting. Accordingly, revenue for these contracts is
recognized based on the proportion of the work performed on the
contract. If there is no sufficient basis to measure progress
toward completion, the revenues are recognized when final
customer acceptance is received. Adjustments to contract price
and estimated service hours are made periodically, and losses
expected to be incurred on contracts in progress are charged to
operations in the period such losses are determined. The
aggregate of billings on uncompleted contracts in excess of
related costs is shown as a current asset.
If an arrangement does not qualify for separate accounting of
the software and consulting services, then the software revenues
are recognized together with the consulting services using the
percentage-of-completion or completed contract method of
accounting. Contract accounting is applied to arrangements that
include: milestones or customer-specific acceptance criteria
that may affect the collection of revenues, significant
modification or customization of the software, or provisions
that tie the payment for the software to the performance of
consulting services.
In addition to proprietary services, the company offers
third-party service contracts to its customers. In such
instances, the supplier is the primary obligor in the
transaction and the company bears credit risk in the event of
nonpayment by the customer. Since the company is acting as an
agent or broker with respect to such sales transactions, the
company reports revenue only in the amount of the
commission (equal to the selling price less the cost
of sale) received rather than reporting revenue in the full
amount of the selling price with separate reporting of the cost
of sale.
Stock-based compensation. The company has a
stock incentive plan under which it may grant non-qualified
stock options, incentive stock options, time-vested restricted
shares, performance-vested restricted shares, and performance
shares. Shares issued pursuant to awards under the plan may be
made out of treasury or authorized but unissued shares. The
company also has an employee stock purchase plan.
43
The company records compensation cost related to stock options,
restricted shares, and performance shares granted to certain
employees and non-employee directors in accordance with the fair
value recognition provisions of FASB Statement No. 123R,
Share-Based Payment (FAS 123R). The company
adopted FAS 123R effective April 1, 2006, using the
modified prospective transition method. Under this transition
method, compensation cost recognized since April 1, 2006
includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of
April 1, 2006, based on the grant date fair value estimated
in accordance with the original provisions of FAS 123, and
(b) compensation cost for all share-based payments granted
subsequent to April 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of
FAS 123R. Cash flows resulting from the tax benefits from
tax deductions in excess of the compensation cost recognized for
options exercised (excess tax benefits) are classified as
financing cash flows in the Statement of Cash Flows, in
accordance with the provisions of FAS 123R. As no stock
options were exercised during the year ended March 31,
2009, no excess tax benefits were recognized in fiscal 2009.
Earnings per share. Basic earnings per share
is computed by dividing net income available to common
shareholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed using the
weighted average number of common and dilutive common equivalent
shares outstanding during the period and adjusting income
available to common shareholders for the assumed conversion of
all potentially dilutive securities, as necessary. The dilutive
common equivalent shares outstanding are computed by sequencing
each series of issues of potential common shares from the most
dilutive to the least dilutive. Diluted earnings per share is
determined as the lowest earnings per incremental share in the
sequence of potential common shares.
Comprehensive income (loss). Comprehensive
income (loss) is the total of net (loss) income plus all other
changes in net assets arising from non-owner sources, which are
referred to as other comprehensive income (loss). Changes in the
components of accumulated other comprehensive income (loss) for
2007, 2008, and 2009 are as follows:
|
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FASB
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Statement No. 158
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net actuarial
|
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|
|
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|
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Foreign
|
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Unrealized
|
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|
gains,
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Accumulated
|
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|
|
currency
|
|
|
gain (loss)
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losses and
|
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other
|
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|
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translation
|
|
|
on
|
|
|
prior
|
|
|
comprehensive
|
|
|
|
adjustment
|
|
|
securities
|
|
|
service cost
|
|
|
income (loss)
|
|
|
|
|
Balance at April 1, 2006
|
|
$
|
2,032
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
2,041
|
|
Change during 2007
|
|
|
(772
|
)
|
|
|
86
|
|
|
|
(3,019
|
)
|
|
|
(3,705
|
)
|
|
Balance at March 31, 2007
|
|
|
1,260
|
|
|
|
95
|
|
|
|
(3,019
|
)
|
|
|
(1,664
|
)
|
Change during 2008
|
|
|
(1,503
|
)
|
|
|
(169
|
)
|
|
|
799
|
|
|
|
(873
|
)
|
|
Balance at March 31, 2008
|
|
|
(243
|
)
|
|
|
(74
|
)
|
|
|
(2,220
|
)
|
|
|
(2,537
|
)
|
Change during 2009
|
|
|
(1,741
|
)
|
|
|
(17
|
)
|
|
|
1,405
|
|
|
|
(353
|
)
|
|
Balance at March 31, 2009
|
|
$
|
(1,984
|
)
|
|
$
|
(91
|
)
|
|
$
|
(815
|
)
|
|
$
|
(2,890
|
)
|
|
Fair value measurements. The companys
financial instruments include cash and cash equivalents, the
cash surrender value of company-owed life insurance policies,
marketable securities, accounts receivable, accounts payable,
floor plan financing, and short-term and long-term debt. The
carrying value of these financial instruments approximates their
fair values at March 31, 2009 and 2008 due to short-term
maturities. Long-term debt is comprised of capital lease
obligations, valued at the lesser of the minimum lease payment
or the fair value of the underlying asset in accordance with
FASB Statement No. 13, Accounting for Leases.
Cash and cash equivalents. The company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents. Other highly liquid investments considered cash
equivalents with no established maturity date are fully
redeemable on demand (without penalty) with settlement of
principal and accrued interest on the following business day
after instruction to redeem. Such investments are readily
convertible to cash with no penalty.
At September 30, 2008, the company had $36.2 million
invested in The Reserve Funds Primary Fund. Due to
liquidity issues associated with the bankruptcy of Lehman
Brothers, Inc., The Primary Fund temporarily ceased honoring
redemption requests, but the Board of Trustees of The Primary
Fund subsequently voted to liquidate the assets of the fund and
approved a distribution of cash to the investors. As of
March 31, 2009, the company has received $31.0 million
of the investment, with $5.2 million remaining in The
Primary Fund. As a result of the delay in cash distribution, we
have reclassified the remaining $5.2 million from cash and
cash equivalents to investments in other non-current assets on
the balance sheet, and, accordingly, have presented the
reclassification as a cash outflow from investing activities in
the consolidated statements of cash flows. In addition, as of
March 31, 2009, the company estimated and recorded a
44
loss on its investment in the fund. The loss was estimated as
8.3% of the companys original investment in the fund,
resulting in a $3.0 million charge to other expense. In
April 2009, the company received an additional distribution of
$1.6 million from the Primary Fund. The company is unable
to estimate the timing of future distributions, which are
expected to aggregate to $0.6 million.
This investment is a financial instrument that falls within the
scope of FASB Statement No. 157, Fair Value Measurements
(FAS 157), and accordingly, was measured at
its fair value of $2.2 million at March 31, 2009, which is
net of the impairment charges recorded during 2009. FAS 157
classifies the inputs used to measure fair value into three
levels as follows:
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Level 1: Unadjusted quoted prices in active markets
for identical assets or liabilities;
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Level 2: Unadjusted quoted prices in active markets
for similar assets or liabilities, or unadjusted quoted prices
for identical or similar assets or liabilities in markets that
are not active, or inputs other than quoted prices that are
observable for the asset or liability; and
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|
Level 3: Unobservable inputs for the asset or
liability.
|
The companys investment in The Primary Fund was classified
as a Level 2 financial instrument at March 31, 2009,
as its fair value was determined using information other than
quoted prices that is available on The Reserve Funds
website.
Concentrations of credit risk. Financial
instruments that potentially subject the company to
concentrations of credit risk consist principally of accounts
receivable. Concentration of credit risk on accounts receivable
is mitigated by the companys large number of customers and
their dispersion across many different industries and
geographies. The company extends credit based on customers
financial condition and, generally, collateral is not required.
To further reduce credit risk associated with accounts
receivable, the company also performs periodic credit
evaluations of its customers. In addition, the company does not
expect any party to fail to perform according to the terms of
its contract.
In 2009, Verizon Communications, Inc. represented approximately
22.7% of Agilysys total sales and 32.6% of the TSG
segments total sales. In 2008, Verizon Communications,
Inc. represented approximately 11.7% of the companys total
sales and 16.3% of the TSG segments total sales. No single
customer accounted for more than 10% of Agilysys total sales
during 2007.
Allowance for doubtful accounts. The company
maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments. These allowances are based on both recent trends of
certain customers estimated to be a greater credit risk as well
as historic trends of the entire customer pool. If the financial
condition of the companys customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required. To mitigate this credit
risk the company performs frequent credit evaluations of its
customers.
Inventories. The companys inventories
are comprised of finished goods. Inventories are stated at the
lower of cost or market, net of related reserves. The cost of
inventory is computed using a weighted-average method. The
companys inventory is monitored to ensure appropriate
valuation. Adjustments of inventories to the lower of cost or
market, if necessary, are based upon contractual provisions such
as turnover and assumptions about future demand and market
conditions. If assumptions about future demand change
and/or
actual market conditions are less favorable than those projected
by management, additional adjustments to inventory valuations
may be required. The company provides a reserve for
obsolescence, which is calculated based on several factors
including an analysis of historical sales of products and the
age of the inventory. Actual amounts could be different from
those estimated.
Investment in marketable securities. The
company invests in marketable securities to satisfy future
obligations of its employee benefit plans. The marketable
securities are held in a Rabbi Trust. The companys
investment in marketable equity securities are held for an
indefinite period and thus are classified as available for sale.
The aggregate fair value of the securities at March 31,
2009, and 2008 were $37,000 and $0.1 million, respectively.
Realized gains and losses are determined on the basis of
specific identification. During 2009, securities with a fair
value at the date of sale of $0.1 million were sold. The
gross realized loss based on specific identification on such
sales totaled $24,000. During 2008, sales proceeds and realized
gain were $6.1 million and $0.2 million, respectively.
The net adjustment to unrealized holding gains on
available-for-sale securities in other comprehensive income
totaled $23,000. At March 31, 2009, the gross unrealized
loss on available-for-sale securities was $24,000 (before taxes).
Investments in affiliated companies. The
company may periodically enter into certain investments for the
promotion of business and strategic objectives, and typically
does not attempt to reduce or eliminate the inherent market
risks on these investments. During 2008, the investment in an
affiliated company was redeemed by the affiliated company for
$4.8 million in cash, resulting in a $1.4 million gain
on redemption of the investment. The gain was classified within
other income (expense), net in the Consolidated
Statements of Operations.
Intangible assets. Purchased intangible assets
with finite lives are primarily amortized using the
straight-line method over the estimated economic lives of the
assets. Purchased intangible assets relating to customer
relationships and supplier relationships are being amortized
using an accelerated or straight-line method, which reflects the
period the asset is expected to contribute to the future cash
flows of the company. The companys finite-lived intangible
assets are being amortized over periods ranging from six months
to ten years.
45
The company has an indefinite-lived intangible asset relating to
purchased trade names. The indefinite-lived intangible asset is
not amortized; rather, it is tested for impairment at least
annually by comparing the carrying amount of the asset with the
fair value. An impairment loss is recognized if the carrying
amount is greater than fair value.
During the first quarter of 2009, management took actions to
realign its cost structure. These actions included a
$3.8 million impairment charge related to the
companys customer relationship intangible asset that was
classified within restructuring charges. The restructuring
actions are described further in Note 4, Restructuring
Charges (Credits). Then, in connection with the annual
goodwill impairment test performed as of February 1, 2009
(discussed below), the indefinite-lived intangible asset was
evaluated for impairment, as required by FASB Statement
No. 142, Goodwill and Other Intangible Assets
(FAS 142). Based on this analysis, the
company concluded that an impairment existed. As a result, in
the fourth quarter of 2009, the company recorded an impairment
charge of $2.4 million related to the indefinite-lived
intangible asset.
Goodwill. Goodwill represents the excess
purchase price paid over the fair value of the net assets of
acquired companies. Goodwill is subject to impairment testing at
least annually. Goodwill is also subject to testing as
necessary, if changes in circumstances or the occurrence of
certain events indicate potential impairment. In the first
quarter of 2009, impairment indicators arose with respect to the
companys goodwill. Therefore, during the first quarter of
2009, the company initiated a step-two analysis in
accordance with FAS 142. The step-two analysis
consists of comparing the fair value of each reporting unit
(calculated using discounted cash flow analyses and weighted
average costs of capital of 15.5% to 23.5%, depending on the
risks of the various reporting units), to the implied goodwill
of the unit, in accordance with FAS 142. As the
step-two analysis was not complete, the company
recognized an estimated impairment charge of $33.6 million
as of June 30, 2008, pending completion of the analysis.
This amount did not include $16.8 million in goodwill
impairment related to CTS that was recorded to restructuring
charges in the first quarter of 2009. The step-two
analysis was updated and completed in the second quarter of
2009, resulting in the company recognizing an additional
goodwill impairment charge of $112.0 million.
The company conducted its annual goodwill impairment test as of
February 1, 2009 and updated the analyses performed in the
first and second quarters of 2009. Based on the analysis, the
company concluded that a further impairment of goodwill had
occurred. As a result, the company recorded an additional
impairment charge of $83.9 million in the fourth quarter of
2009. Total goodwill impairment charges recorded during 2009
were $229.5 million, not including the $16.8 million
recorded as restructuring charges in the first quarter of 2009.
There were no new impairment indicators at March 31, 2009.
Long-lived assets. Property and equipment are
recorded at cost. Major renewals and improvements are
capitalized, as are interest costs on capital projects. Minor
replacements, maintenance, repairs and reengineering costs are
expensed as incurred. When assets are sold or otherwise disposed
of, the cost and related accumulated depreciation are eliminated
from the accounts and any resulting gain or loss is recognized.
Depreciation and amortization are provided in amounts sufficient
to amortize the cost of the assets, including assets recorded
under capital leases, which make up a negligible portion of
total assets, over their estimated useful lives using the
straight-line method. The estimated useful lives for
depreciation and amortization are as follows: buildings and
building improvements 7 to 30 years;
furniture 7 to 10 years; equipment
3 to 10 years; software 3 to 10 years; and
leasehold improvements over the shorter of the economic life or
the lease term. Internal use software costs are expensed or
capitalized depending on the project stage. Amounts capitalized
are amortized over the estimated useful lives of the software,
ranging from 3 to 10 years, beginning with the
projects completion. Capitalized project expenditures are
not depreciated until the underlying assets are placed into
service. Total depreciation expense on property and equipment
was $4.0 million, $3.3 million and $2.5 million
during 2009, 2008 and 2007, respectively. Total amortization
expense on capitalized software was $3.1 million,
$2.6 million, and $3.0 million during 2009, 2008, and
2007, respectively.
The company evaluates the recoverability of its long-lived
assets whenever changes in circumstances or events may indicate
that the carrying amounts may not be recoverable. An impairment
loss is recognized in the event the carrying value of the assets
exceeds the future undiscounted cash flows attributable to such
assets. As of March 31, 2009, the company concluded that no
impairment indicators existed.
Valuation of accounts payable. The
companys accounts payable has been reduced by amounts
claimed to vendors for returns and other amounts related to
incentive programs. Amounts related to incentive programs are
recorded as adjustments to cost of goods sold or operating
expenses, depending on the nature of the program. There is a
time delay between the submission of a claim by the company and
confirmation of the claim by our vendors. Historically, the
companys estimated claims have approximated amounts agreed
to by vendors.
Supplier programs. The company participates in
certain programs provided by various suppliers that enable it to
earn volume incentives. These incentives are generally earned by
achieving quarterly sales targets. The amounts earned under
these programs are recorded as a reduction of cost of sales when
earned. In addition, the company receives incentives from
suppliers related to cooperative
46
advertising allowances and other programs. These incentives
generally relate to agreements with the suppliers and are
recorded, when earned, as a reduction of cost of sales or
advertising expense, as appropriate. All costs associated with
advertising and promoting products are expensed in the year
incurred. Cooperative reimbursements from suppliers, which are
earned and available, are recorded in the period the related
advertising expenditure is incurred.
Concentrations of supplier risk. During 2009,
2008, and 2007, sales of the companys three largest
suppliers products and services accounted for 65%, 65%,
and 69%, respectively, of the companys sales volume. The
companys largest supplier, Sun, whose products are sold
through Innovative, which was purchased in July 2007, accounted
for 31% and 23% of the companys sales volume in 2009 and
2008, respectively. Sales of products sourced through HP
accounted for 22%, 27% and 49% of the companys sales
volume in 2009, 2008 and 2007, respectively. Sales of products
sourced by IBM accounted for 12%, 15% and 20% of the
companys sales volume in 2009, 2008, and 2007,
respectively. The loss of any of the top three suppliers or a
combination of certain other suppliers could have a material
adverse effect on the companys business, results of
operations and financial condition unless alternative products
manufactured by others are available to the company. In
addition, although the company believes that its relationships
with suppliers are good, there can be no assurance that the
companys suppliers will continue to supply products on
terms acceptable to the company.
Income taxes. Income tax expense includes
U.S. and foreign income taxes and is based on reported
income before income taxes. Deferred income taxes reflect the
effect of temporary differences between assets and liabilities
that are recognized for financial reporting purposes and the
amounts that are recognized for income tax purposes. These
deferred taxes are measured by applying currently enacted tax
laws. Valuation allowances are recognized to reduce the deferred
tax assets to an amount that is more likely than not to be
realized. In determining whether it is more likely than not that
deferred tax assets will be realized, the company considers such
factors as (a) expectations of future taxable income,
(b) expectations of material changes in the present
relationship between income reported for financial and tax
purposes, and (c) tax-planning strategies.
In July 2006, the FASB issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty
in Income Taxes an Interpretation of FASB Statement
No. 109, (FAS 109). FIN 48
provides guidance for the accounting for uncertainty in income
taxes recognized in our financial statements in accordance with
FAS 109. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The
evaluation of a tax position in accordance with FIN 48 is a
two-step process. The first step is recognition: The
determination of whether or not it is more-likely-than-not that
a tax position will be sustained upon examination, including
resolution of any related appeals or litigation processes, based
on the technical merits of the position. In evaluating whether a
tax position has met the more-likely-than-not recognition
threshold, management presumes that the position will be
examined by the appropriate tax authority and that the tax
authority will have full knowledge of all relevant information.
The second step is measurement: A tax position that meets the
more-likely-than-not threshold is measured to determine the
amount of benefit to recognize in the financial statements. The
measurement process requires the determination of the range of
possible settlement amounts and the probability of achieving
each of the possible settlements. The tax position is measured
at the largest amount of benefit that is greater than fifty
percent likely of being realized upon ultimate settlement. No
tax benefits are recognized for positions that do not meet the
more-likely-than-not threshold. Tax positions that previously
failed to meet the more-likely-than-not threshold should be
recognized in the first subsequent financial reporting period in
which that threshold is met. Previously recognized tax positions
that no longer meet the more-likely-than-not recognition
threshold should be derecognized in the first subsequent
financial reporting period in which the threshold is no longer
met. In addition, FIN 48 requires the cumulative effect of
adoption to be recorded as an adjustment to the opening balance
of retained earnings. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The company adopted
FIN 48 effective April 1, 2007, as required and
recognized a cumulative effect of accounting change of
approximately $2.9 million, which decreased beginning
retained earnings in the accompanying Consolidated Statements of
Shareholders Equity for the year ended March 31, 2008
and increased accrued liabilities in the accompanying
Consolidated Balance Sheets as of March 31, 2008. The
companys income taxes and the impact of adopting
FIN 48 are described further in Note 10.
Non-cash investing activities. During 2008,
the companys investment in an affiliated company was
redeemed by the affiliated company for $4.8 million in
cash, resulting in a $1.4 million gain on redemption of the
investment. The gain was classified within other income
(expense), net in the Consolidated Statements of
Operations.
Recently adopted accounting standards. In May
2008, the FASB issued Statement No. 162, The Hierarchy
of Generally Accepted Accounting Principles
(FAS 162). FAS 162 identifies the sources
of accounting principles and the framework for selecting the
principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity
with generally accepted accounting principles in the United
States (U.S. GAAP). FAS 162 directs the
U.S. GAAP hierarchy to the entity, not the independent
auditors, as the entity is responsible for selecting accounting
principles for financial statements that are presented in
conformity with
47
U.S. GAAP. FAS 162 is effective November 15,
2008. The adoption of FAS 162 did not have a significant
impact on the companys financial position, results of
operations, or cash flows.
In March 2008, The FASB issued Statement No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (FAS 161). FAS 161
enhances the disclosures about an entitys derivative and
hedging activities. FAS 161 is effective for fiscal periods
beginning after November 15, 2008. The company adopted
FAS 161 on January 1, 2009, as required. The adoption
of FAS 161 did not have a significant impact on the
companys financial position, results of operations and
cash flows.
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities including an amendment of FASB Statement
No. 115 (FAS 159). FAS 159 allows
measurement at fair value of eligible financial assets and
liabilities that are not otherwise measured at fair value. If
the fair value option for an eligible item is elected,
unrealized gains and losses for that item will be reported in
current earnings at each subsequent reporting date. FAS 159
also establishes presentation and disclosure requirements
designed to draw comparison between the different measurement
attributes the company elects for similar types of assets and
liabilities. FAS 159 is effective for fiscal years
beginning after November 15, 2007. The company adopted
FAS 159 on April 1, 2008, as required, but elected not
to apply the fair value option to any of its financial
instruments.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (FAS 157).
FAS 157 provides a single definition of fair value, a
framework for measuring fair value, and expanded disclosures
concerning fair value. Previously, different definitions of fair
value were contained in various accounting pronouncements
creating inconsistencies in measurement and disclosures.
FAS 157 applies under those previously issued
pronouncements that prescribe fair value as the relevant measure
of value, except for FAS 123R and its related
interpretations and pronouncements that require or permit
measurement similar to fair value but are not intended to
measure fair value. FAS 157 is effective for fiscal years
beginning after November 15, 2007. The company adopted
FAS 157 on April 1, 2008 for its financial assets, as
required. See also the discussion above under the caption,
Fair value measurements. The adoption of FAS 157 did
not have a significant impact on the companys financial
position, results of operations, or cash flows.
In February 2008, the FASB issued Staff Position
No. 157-1,
Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13, which specifically excluded
lease obligations accounted for under the provisions of
FAS 13 from the scope of FAS 157. Also in February
2008, the FASB issued Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157 (FSP
FAS 157-2),
which delayed the effective date of FAS 157 with respect to
nonfinancial assets and nonfinancial liabilities not remeasured
at fair value on a recurring basis until fiscal years beginning
after November 15, 2008, or fiscal 2010 for the company.
Accordingly, the Company has not yet applied the requirements of
FAS 157 to certain nonfinancial assets for which fair value
measurements are determined only when there is an indication of
potential impairment, primarily goodwill, intangible assets,
non-financial assets and liabilities related to acquired
businesses, and impairment and restructuring activities.
Recently issued accounting standards. In
December 2008, the FASB issued Staff Position No. 132(R)-1,
Employers Disclosures about Postretirement Benefit Plan
Assets, an amendment of SFAS 132(R) (FSP
FAS 132(R)-1). This standard requires disclosure
about an entitys investment policies and strategies, the
categories of plan assets, concentrations of credit risk and
fair value measurements of plan assets. The standard is
effective for fiscal years beginning after December 15,
2008, or fiscal 2010 for the company. The company is currently
evaluating the impact, if any, that the adoption of FSP
FAS 132(R)-1 will have on its financial position, results
of operations, or cash flows.
In November 2008, the FASBs Emerging Issues Task Force
published Issue
No. 08-6,
Equity Method Investment Accounting Considerations
(EITF 08-06).
This issue addresses the impact that FAS 141(R) and
FAS 160 might have on the accounting for equity method
investments, including how the initial carrying value of an
equity method investment should be determined, how it should be
tested for impairment, and how changes in classification from
equity method to cost method should be treated.
EITF 08-06
is to be implemented prospectively and is effective for fiscal
years beginning after December 15, 2008, or fiscal 2010 for
the company. The standard will have an impact on the company
only for acquisitions and investments in noncontolling interests
made after April 1, 2009. The company is currently
evaluating the impact, if any, the adoption of
EITF 08-06
will have on its financial position, results of operations, or
cash flows.
In April 2008, the FASB issued Staff Position
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS 142-3).
This standard 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
FAS 142, Goodwill and Other Intangible Assets. FSP
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods
within that fiscal year, or fiscal 2010 for the company. Early
adoption is prohibited.
FSP 142-3
applies prospectively to intangible assets acquired after
adoption. The company does not expect the adoption of FSP
FAS 142-3
to have a significant impact on its financial position, results
of operations, or cash flows.
48
In December 2007, the FASB issued Statement No. 141(R),
Business Combinations (Statement 141(R)).
Statement 141(R) significantly changes the accounting for and
reporting of business combination transactions. Statement 141(R)
is effective for fiscal years beginning after December 15,
2008, or fiscal 2010 for the company. The standard will have an
impact on the company only for acquisitions made after
April 1, 2009. The company is currently evaluating the
impact that Statement 141(R) will have on its financial
position, results of operations and cash flows.
In December 2007, the FASB issued Statement No. 160,
Accounting and Reporting for Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51 (Statement 160). Statement 160
clarifies the classification of noncontrolling interests in
consolidated statements of financial position and the accounting
for and reporting of transactions between the reporting entity
and holders of such noncontrolling interests. Statement 160 is
effective for the first annual reporting period beginning after
December 15, 2008, or fiscal 2010 for the company. The
company is currently evaluating the impact that Statement 160
will have on its financial position, results of operations and
cash flows.
Reclassifications. Certain amounts in the
prior periods consolidated financial statements have been
reclassified to conform to the current periods
presentation, primarily to reflect the results of discontinued
operations of the KeyLink Systems Distribution Business and the
TSG business segments China and Hong Kong operations (see
Note 3).
2.
RECENT ACQUISITIONS
2009
Acquisition
Triangle
Hospitality Solutions Limited
On April 9, 2008, the company acquired all of the shares of
Triangle Hospitality Solutions Limited (Triangle),
the UK-based reseller and specialist for the companys
InfoGenesis products and services for $2.7 million,
comprised of $2.4 million in cash and $0.3 million of
assumed liabilities. Accordingly, the results of operations for
Triangle have been included in these Consolidated Financial
Statements from that date forward. Triangle enhanced the
companys international presence and growth strategy in the
UK, as well as solidified the companys leading position in
the hospitality and stadium and arena markets without increasing
InfoGenesis ultimate customer base. Triangle added to the
companys hospitality solutions suite with the ability to
offer customers the Triangle mPOS solution, which is a handheld
point-of-sale solution which seamlessly integrates with
InfoGenesis products. Based on managements preliminary
allocation of the acquisition cost to the net assets acquired
(accounts receivable, inventory, and accounts payable),
approximately $2.7 million was originally assigned to
goodwill. Due to a purchase price adjustment during the third
quarter of fiscal 2009 of $0.4 million, the goodwill
attributed to the Triangle acquisition is $3.1 million at
March 31, 2009. Goodwill resulting from the Triangle
acquisition will be deductible for income tax purposes.
2008
Acquisitions
Eatec
On February 19, 2008, the company acquired all of the
shares of Eatec Corporation (Eatec), a privately
held developer and marketer of inventory and procurement
software. Accordingly, the results of operations for Eatec have
been included in these Consolidated Financial Statements from
that date forward. Eatecs software, EatecNetX (now called
Eatec Solutions by Agilysys), is a recognized leading, open
architecture-based, inventory and procurement management system.
The software provides customers with the data and information
necessary to enable them to increase sales, reduce product
costs, improve back-office productivity and increase
profitability. Eatec customers include well-known restaurants,
hotels, stadiums and entertainment venues in North America and
around the world as well as many public service institutions.
The acquisition further enhances the companys position as
a leading inventory and procurement solution provider to the
hospitality and foodservice markets. Eatec was acquired for a
total cost of $25.0 million. Based on managements
allocation of the acquisition cost to the net assets acquired,
approximately $18.3 million was assigned to goodwill.
During the second quarter of 2009, management completed its
purchase price allocation and assigned $6.2 million of the
acquisition cost to identifiable intangible assets as follows:
$1.4 million to non-compete agreements, which will be
amortized between two and seven years; $2.2 million to
customer relationships, which will be amortized over seven
years; $1.8 million to developed technology, which will be
amortized over five years; and $0.8 million to trade names,
which has an indefinite life.
49
During the first, second and fourth quarters of 2009, goodwill
impairment charges were taken relating to the Eatec acquisition
in the amounts of $1.3 million, $14.4 million, and
$3.4 million, respectively. As of March 31, 2009,
$1.7 million remains on the companys balance sheet in
goodwill relating to the Eatec acquisition.
Innovative
Systems Design, Inc.
On July 2, 2007, the company acquired all of the shares of
Innovative Systems Design, Inc. (Innovative), the
largest U.S. commercial reseller of Sun Microsystems
servers and storage products. Accordingly, the results of
operations for Innovative have been included in these
Consolidated Financial Statements from that date forward.
Innovative is an integrator and solution provider of servers,
enterprise storage management products and professional
services. The acquisition of Innovative establishes a new and
significant relationship between Sun Microsystems and the
company. Innovative was acquired for an initial cost of
$108.6 million. Additionally, the company was required to
pay an earn-out of two dollars for every dollar of earnings
before interest, taxes, depreciation, and amortization, or
EBITDA, greater than $50.0 million in cumulative EBITDA
over the first two years after consummation of the acquisition.
The earn-out was limited to a maximum payout of
$90.0 million. As a result of existing and anticipated
EBITDA, during the fourth quarter of 2008, the company
recognized $35.0 million of the $90.0 million maximum
earn-out, which was made in April 2008. In addition, due to
certain changes in the sourcing of materials, the company
amended its agreement with the Innovative shareholders whereby
the maximum payout available to the Innovative shareholders was
limited to $58.65 million, inclusive of the
$35.0 million paid. The EBITDA target required for the
shareholders to be eligible for an additional payout is now
$67.5 million in cumulative EBITDA over the first two years
after the close of the acquisition. No amounts have been accrued
as of March 31, 2009, as it is not probable that any
additional payout will be made.
During the fourth quarter of 2008, management completed its
purchase price allocation and assigned $29.7 million of the
acquisition cost to identifiable intangible assets as follows:
$4.8 million to non-compete agreements, $5.5 million
to customer relationships, and $19.4 million to supplier
relationships that will be amortized over useful lives ranging
from two to five years.
Based on managements allocation of the acquisition cost to
the net assets acquired, approximately $97.8 million was
assigned to goodwill. Goodwill resulting from the Innovative
acquisition will be deductible for income tax purposes. During
the fourth quarter of 2009, a goodwill impairment charge was
taken relating to the Innovative acquisition for
$74.5 million. As of March 31, 2009,
$23.3 million remains on the companys balance sheet
as goodwill relating to the Innovative acquisition.
InfoGenesis
On June 18, 2007, the company acquired all of the shares of
IG Management Company, Inc. and its wholly-owned subsidiaries,
InfoGenesis and InfoGenesis Asia Limited (collectively,
InfoGenesis), an independent software vendor and
solution provider to the hospitality market. Accordingly, the
results of operations for InfoGenesis have been included in
these Consolidated Financial Statements from that date forward.
InfoGenesis offers enterprise-class point-of-sale solutions that
provide end users a highly intuitive, secure and easy way to
process customer transactions across multiple departments or
locations, including comprehensive corporate and store
reporting. InfoGenesis has a significant presence in casinos,
hotels and resorts, cruise lines, stadiums and foodservice. The
acquisition provides the company a complementary offering that
extends its reach into new segments of the hospitality market,
broadens its customer base and increases its software
application offerings. InfoGenesis was acquired for a total
acquisition cost of $90.6 million.
InfoGenesis had intangible assets with a net book value of
$15.9 million as of the acquisition date, which were
included in the acquired net assets to determine goodwill.
Intangible assets were assigned values as follows:
$3.0 million to developed technology, which will be
amortized between six months and three years; $4.5 million
to customer relationships, which will be amortized between two
and seven years; and $8.4 million to trade names, which
have an indefinite life. Based on managements allocation
of the acquisition cost to the net assets acquired,
approximately $71.8 million was assigned to goodwill.
Goodwill resulting from the InfoGenesis acquisition will not be
deductible for income tax purposes. During the first, second,
and fourth quarters of 2009, goodwill impairment charges were
taken relating to the InfoGenesis acquisition in the amounts of
$3.9 million, $57.4 million, and $3.8 million,
respectively. As of March 31, 2009, $6.7 million
remains on the companys balance sheet as goodwill relating
to the InfoGenesis acquisition.
50
Pro Forma
Disclosure of Financial Information
The following table summarizes the companys unaudited
consolidated results of operations as if the InfoGenesis and
Innovative acquisitions occurred on April 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net sales
|
|
$
|
730,720
|
|
|
$
|
841,101
|
|
|
$
|
729,851
|
|
(Loss) income from continuing operations
|
|
$
|
(282,187
|
)
|
|
$
|
7,068
|
|
|
$
|
4,556
|
|
Net (loss) income
|
|
$
|
(284,134
|
)
|
|
$
|
8,908
|
|
|
$
|
241,541
|
|
(Loss) earnings per share basic income from
continuing operations
|
|
$
|
(12.49
|
)
|
|
$
|
0.25
|
|
|
$
|
0.15
|
|
Net (loss) income
|
|
$
|
(12.58
|
)
|
|
$
|
0.32
|
|
|
$
|
7.87
|
|
(Loss) earnings per share diluted income from
continuing operations
|
|
$
|
(12.49
|
)
|
|
$
|
0.25
|
|
|
$
|
0.15
|
|
Net (loss) income
|
|
$
|
(12.58
|
)
|
|
$
|
0.31
|
|
|
$
|
7.87
|
|
|
Stack Computer,
Inc.
On April 2, 2007, the company acquired all of the shares of
Stack Computer, Inc. (Stack). Stacks customers
include leading corporations in the financial services,
healthcare and manufacturing industries. Accordingly, the
results of operations for Stack have been included in these
Consolidated Financial Statements from that date forward. Stack
also operates a highly sophisticated solution center, which is
used to emulate customer IT environments, train staff and
evaluate technology. The acquisition of Stack strategically
provides the company with product solutions and services
offerings that significantly enhance its existing storage and
professional services business. Stack was acquired for a total
acquisition cost of $25.2 million.
Management made an adjustment of $0.8 million to the fair
value of acquired capital equipment and assigned
$11.7 million of the acquisition cost to identifiable
intangible assets as follows: $1.5 million to non-compete
agreements, which will be amortized over five years using the
straight-line amortization method; $1.3 million to customer
relationships, which will be amortized over five years using an
accelerated amortization method; and $8.9 million to
supplier relationships, which will be amortized over ten years
using an accelerated amortization method.
Based on managements allocation of the acquisition cost to
the net assets acquired, approximately $13.3 million was
assigned to goodwill. Goodwill resulting from the Stack
acquisition is deductible for income tax purposes. During the
first and second quarters of 2009, goodwill impairment charges
were taken relating to the Stack acquisition in the amounts of
$7.8 million and $2.1 million, respectively. As of
March 31, 2009, $3.4 million remains on the
companys balance sheet as goodwill relating to the Stack
acquisition.
2007
Acquisition
Visual One
Systems Corporation
On January 23, 2007, the company acquired all the shares of
Visual One Systems Corporation (Visual One), a
leading developer and marketer of
Microsoft®
Windows®-based
software for the hospitality industry. Accordingly, the results
of operations for Visual One have been included in these
Consolidated Financial Statements from that date forward. The
acquisition provides the company additional expertise around the
development, marketing and sale of software applications for the
hospitality industry, including property management,
condominium, golf course, spa,
point-of-sale,
and sales and catering management applications. Visual
Ones customers include well-known North American and
international full-service hotels, resorts, conference centers
and condominiums of all sizes. The aggregate acquisition cost
was $14.4 million.
During the second quarter of 2008, management assigned
$4.9 million of the acquisition cost to identifiable
intangible assets as follows: $3.8 million to developed
technology, which will be amortized over six years using the
straight-line method; $0.6 million to non-compete
agreements, which will be amortized over eight years using the
straight-line amortization method; and $0.5 million to
customer relationships, which will be amortized over five years
using an accelerated amortization method.
Based on managements allocation of the acquisition cost to
the net assets acquired, including identified intangible assets,
approximately $9.4 million was assigned to goodwill.
Goodwill resulting from the Visual One acquisition is not
deductible for income tax purposes. During the first, second,
and fourth quarters of 2009, goodwill impairment charges were
taken relating to the Visual One acquisition in the amounts of
$0.5 million, $7.5 million, and $0.5 million,
respectively. As of March 31, 2009, $0.9 million
remains on the companys balance sheet as goodwill relating
to the Visual One acquisition.
51
3.
DISCONTINUED
OPERATIONS
China and Hong
Kong Operations
In July, 2008, the company met the requirements of FASB issued
Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144) to
classify TSGs China and Hong Kong operations as
held-for-sale
and discontinued operations, and began exploring divestiture
opportunities for these operations. Agilysys acquired TSGs
China and Hong Kong businesses in December 2005. During January
2009, the company sold the stock related to TSGs China
operations, and certain assets of TSGs Hong Kong
operations, receiving proceeds of $1.4 million, which
resulted in a pre-tax loss on the sale of discontinued
operations of $0.8 million. Therefore, the assets and
liabilities of these operations were classified as discontinued
operations on the companys Consolidated Balance Sheets,
and the operations were reported as discontinued operations on
the companys Consolidated Statements of Operations for the
periods presented in accordance with FAS 144.
Sale of Assets
and Operations of KeyLink Systems Distribution
Business
During 2007, the company sold the assets and operations of KSG
for $485.0 million in cash, subject to a working capital
adjustment. At March 31, 2007, the final working capital
adjustment was $10.8 million. Through the sale of KSG, the
company exited all distribution-related businesses and now
exclusively sells directly to end-user customers. By monetizing
the value of KSG, the company significantly increased its
financial flexibility and has redeployed the proceeds to
accelerate the growth of its ongoing business both organically
and through acquisition. The sale of KSG represented a disposal
of a component of an entity. As such, the operating results of
KSG, along with the gain on sale, have been reported as a
component of discontinued operations.
In connection with the sale of KSG, the company entered into a
product procurement agreement (PPA) with Arrow
Electronics, Inc. Under the PPA, the company is required to
purchase a minimum of $330 million worth of products each
year during the term of the agreement (5 years), adjusted
for product availability and other factors.
The income from discontinued operations for the year ended
March 31, 2007, includes KSG net sales of
$1.3 billion, pre-tax income of $79.2 million and net
income of $48.6 million.
Income from discontinued operations for the year ended
March 31, 2008, consists primarily of the settlement of
obligations and contingencies of KSG that existed as of the date
the assets and operations of KSG were sold.
Components of
Results of Discontinued Operations
For the years ended March 31, 2009, 2008, and 2007 the
(loss) income from discontinued operations was comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of KSG
|
|
$
|
|
|
|
$
|
|
|
|
$
|
80,178
|
|
Resolution of contingencies
|
|
|
(1,620
|
)
|
|
|
4,664
|
|
|
|
|
|
Loss from operations of IED
|
|
|
(11
|
)
|
|
|
(8
|
)
|
|
|
(827
|
)
|
Loss from operations of the TSGs China and Hong Kong
businesses
|
|
|
(752
|
)
|
|
|
(1,178
|
)
|
|
|
(1,708
|
)
|
Loss on sale of TSGs China and Hong Kong businesses
|
|
|
(787
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of KSG
|
|
|
|
|
|
|
|
|
|
|
318,517
|
|
|
|
|
|
(3,170
|
)
|
|
|
3,478
|
|
|
|
396,160
|
|
(Benefit) provision for income taxes
|
|
|
(1,223
|
)
|
|
|
1,677
|
|
|
|
153,378
|
|
|
(Loss) income from discontinued operations
|
|
$
|
(1,947
|
)
|
|
$
|
1,801
|
|
|
$
|
242,782
|
|
|
52
4.
RESTRUCTURING
CHARGES (CREDITS)
2009
Restructuring Activity
Fourth Quarter Management
Restructuring. During the fourth quarter of 2009,
the company took additional steps to realign its cost and
management structure. During the quarter, an additional four
company vice presidents were terminated, as well as other
support and sales personnel. These actions resulted in a
restructuring charge of $3.7 million during the quarter,
comprised mainly of termination benefits for the above-mentioned
management changes. Also included in the restructuring charges
was a non-cash charge for a curtailment loss of
$1.2 million under the companys Supplemental
Executive Retirement Plan. These restructuring charges are
included in the Corporate segment.
Third Quarter Management Restructuring. During
the third quarter of 2009, the company took steps to realign its
cost and management structure. During October 2008, the
companys former Chairman, President and CEO announced his
retirement, effective immediately. In addition, four company
vice presidents were terminated, as well as other support
personnel. The company also relocated its headquarters from Boca
Raton, Florida, to Solon, Ohio, where the company has a facility
with a large number of employees, and cancelled the lease on its
financial interests in two airplanes. These actions resulted in
a restructuring charge of $13.4 million as of
December 31, 2008, comprised mainly of termination benefits
for the above-mentioned management changes and the costs
incurred to relocate the corporate headquarters. Also included
in the restructuring charges was a non-cash charge for a
curtailment loss of $4.5 million under the companys
Supplemental Executive Retirement Plan. An additional
$0.2 million expense was incurred in the
fourth quarter of 2009 as a result of an impairment to the
Leasehold Improvements at the companys former headquarters
in Boca Raton, Florida. These restructuring charges are included
in the Corporate segment.
First Quarter Professional Services
Restructuring. During the first quarter of 2009,
the company performed a detailed review of the business to
identify opportunities to improve operating efficiencies and
reduce costs. As part of this cost reduction effort, management
reorganized the professional services
go-to-market
strategy by consolidating its management and delivery groups.
The company will continue to offer specific proprietary
professional services, including identity management, security,
and storage virtualization; however, it will increase the use of
external business partners. The cost reduction resulted in a
$2.5 million and $0.4 million charge for one-time
termination benefits relating to a workforce reduction in the
first and second quarters of 2009, respectively. The workforce
reduction was comprised mainly of service delivery personnel.
Payment of these one-time termination benefits was substantially
complete in 2009. This restructuring also resulted in a
$20.6 million impairment to goodwill and intangible assets
in the first quarter of 2009, related to the companys 2005
acquisition of The CTS Corporations (CTS). The
entire $23.5 million restructuring charge relates to the
TSG business segment.
The three restructuring actions discussed above resulted in a
$40.8 million restructuring charge for the year ending
March 31, 2009.
2007
Restructuring Activity
During 2007, the company recorded a restructuring charge of
approximately $0.5 million for one-time termination
benefits resulting from a workforce reduction that was executed
in connection with the sale of KSG. The workforce reduction was
comprised mainly of corporate personnel. Payment of the one-time
termination benefits was substantially complete in 2008.
53
Following is a reconciliation of the beginning and ending
balances of the restructuring liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
|
|
Goodwill and
|
|
|
|
|
|
|
|
|
|
and Other
|
|
|
|
|
|
|
|
|
Long Lived
|
|
|
|
|
|
|
|
|
|
Employment
|
|
|
|
|
|
Other
|
|
|
Intangible
|
|
|
SERP
|
|
|
|
|
|
|
Costs
|
|
|
Facilities
|
|
|
Expenses
|
|
|
Assets
|
|
|
Curtailment
|
|
|
Total
|
|
|
|
|
Balance at April 1, 2007
|
|
$
|
535
|
|
|
$
|
100
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
635
|
|
Accretion of lease obligations
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Payments
|
|
|
(513
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(583
|
)
|
Adjustments
|
|
|
(21
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
Balance at March 31, 2008
|
|
$
|
1
|
|
|
$
|
43
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
44
|
|
Additions
|
|
|
12,919
|
|
|
|
1,422
|
|
|
|
171
|
|
|
|
20,571
|
|
|
|
5,664
|
|
|
|
40,747
|
|
Accretion of lease obligations
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
Write off of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,571
|
)
|
|
|
|
|
|
|
(20,571
|
)
|
Curtailment of benefit plan obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,664
|
)
|
|
|
(5,664
|
)
|
Payments
|
|
|
(4,074
|
)
|
|
|
(477
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,683
|
)
|
|
Balance at March 31, 2009
|
|
$
|
8,846
|
|
|
$
|
1,042
|
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,927
|
|
|
Of the remaining $9.9 million liability at March 31,
2009, $7.6 million of severance and other employment costs
are expected to be paid during 2010, $1.0 million is
expected to be paid in 2011, and $0.3 million is expected
to be paid in fiscal year 2012. Approximately $0.3 million
is expected to be paid during 2010 for ongoing facility
obligations. Facility obligations are expected to continue
through 2014.
Components of
Restructuring Charges (Credits)
Included in the Consolidated Statements of Operations is a
$40.8 million restructuring charge for 2009, which is
comprised of the following: $54,000 for accretion expense,
$12.9 million for severance adjustments, $20.6 million
for CTS goodwill and intangible asset impairment,
$5.7 million related to SERP and additional service credits
liability curtailments, $1.4 million related to the Boca
Raton, Florida facility, and $0.1 million related to the
management transition and the buyout of the airplane lease.
In 2008, the $75,000 restructuring credits were primarily
comprised of accretion expense for lease obligations, credits
related to the difference between actual and accrued sublease
income and common area costs, and a credit for severance
adjustments. In 2007, the $2.5 million restructuring
credits were primarily comprised of a $4.9 million credit
for the remainder of a restructuring liability recognized in
2003 for an abandoned facility, partially offset by
$1.7 million in expense related to the termination of a
lease agreement and $0.4 million in expense related to the
write-off of leasehold improvements.
5.
GOODWILL AND
INTANGIBLE ASSETS
Goodwill
Goodwill is tested for impairment annually, or upon
identification of impairment indicators, at the reporting unit
level. Statement 142 describes a reporting unit as an operating
segment or one level below the operating segment (depending on
whether certain criteria are met), as that term is used in FASB
Statement 131, Disclosures About Segments of an Enterprise
and Related Information. Goodwill has been allocated to the
companys reporting units that are anticipated to benefit
from the synergies of the business combinations generating the
underlying goodwill. As discussed in Note 13, the company
has three operating segments and five reporting units.
The company conducts its annual goodwill impairment test on
February 1, and did so in 2008 without a need to expand the
impairment test to step-two of FAS 142. However, during
fiscal 2009, indictors of potential impairment caused the
company to conduct interim impairment tests. Those indicators
included the following: a significant decrease in market
capitalization, a decline in recent operating results, and a
decline in the companys business outlook primarily due to
the macroeconomic environment. In accordance with FAS 142,
the company completed step one of the impairment analysis and
concluded that, as of June 30, 2008, the fair value of
three of its
54
reporting units was below their respective carrying values,
including goodwill. The three reporting units that showed
potential impairment were RSG, HSG, and Stack (a reporting unit
within the TSG business segment). As such, step two of the
impairment test was initiated in accordance with FAS 142.
As of June 30, 2008, the step-two analysis had not been
completed due to its time consuming nature. In accordance with
paragraph 22 of FAS 142, the company recorded an
estimate in the amount of $33.6 million as a non-cash
goodwill impairment charge as of June 30, 2008. The
step-two analysis was completed after updating the discounted
cash flow analyses for changes occurring in the second quarter
of 2009, resulting in an additional impairment charge of
$112.0 million as of September 30, 2008. The annual
goodwill impairment test was conducted as of February 1,
2009 and goodwill was determined to be impaired by an additional
$83.9 million. In total, goodwill impairment charges
recorded in 2009 were $229.5 million, excluding the
$16.8 million classified as restructuring charges and
discussed in Note 4, Restructuring Charges
(Credits). The
year-to-date
goodwill impairment totals for each of the three reporting
segments were $24.9 million for RSG, $120.1 million
for HSG, and $84.5 million for TSG.
The changes in the carrying amount of goodwill for the years
ended March 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Beginning of year
|
|
$
|
297,560
|
|
|
$
|
93,197
|
|
Goodwill acquired Triangle (see note 2)
|
|
|
3,051
|
|
|
|
|
|
Goodwill (adjustment) acquired Eatec (see
note 2)
|
|
|
(3,953
|
)
|
|
|
24,778
|
|
Goodwill acquired Innovative (see note 2)
|
|
|
56
|
|
|
|
97,781
|
|
Goodwill acquired InfoGenesis (see note 2)
|
|
|
138
|
|
|
|
71,662
|
|
Goodwill acquired Stack (see note 2)
|
|
|
|
|
|
|
13,328
|
|
Goodwill adjustment Visual One (see note 2)
|
|
|
|
|
|
|
(2,507
|
)
|
Goodwill impairment classified as discontinued
operations China
|
|
|
|
|
|
|
(586
|
)
|
Goodwill impairment classified as discontinued
operations Hong Kong
|
|
|
|
|
|
|
(274
|
)
|
Goodwill impairment classified as restructuring CTS
|
|
|
(16,811
|
)
|
|
|
|
|
Goodwill impairment Kyrus
|
|
|
(24,912
|
)
|
|
|
|
|
Goodwill impairment IAD
|
|
|
(27,363
|
)
|
|
|
|
|
Goodwill impairment Visual One
|
|
|
(8,524
|
)
|
|
|
|
|
Goodwill impairment Stack
|
|
|
(9,881
|
)
|
|
|
|
|
Goodwill impairment InfoGenesis
|
|
|
(65,065
|
)
|
|
|
|
|
Goodwill impairment Innovative
|
|
|
(74,575
|
)
|
|
|
|
|
Goodwill impairment Eatec
|
|
|
(19,135
|
)
|
|
|
|
|
Impact of foreign currency translation
|
|
|
(204
|
)
|
|
|
181
|
|
|
End of year
|
|
$
|
50,382
|
|
|
$
|
297,560
|
|
|
55
Intangible
Assets
The following table summarizes the companys intangible
assets at March 31, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
amount
|
|
|
amortization
|
|
|
amount
|
|
|
amount
|
|
|
amortization
|
|
|
amount
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
24,957
|
|
|
$
|
(18,341
|
)
|
|
$
|
6,616
|
|
|
$
|
26,526
|
|
|
$
|
(13,627
|
)
|
|
$
|
12,899
|
|
Supplier relationships
|
|
|
28,280
|
|
|
|
(19,094
|
)
|
|
|
9,186
|
|
|
|
28,280
|
|
|
|
(8,336
|
)
|
|
|
19,944
|
|
Non-competition agreements
|
|
|
9,610
|
|
|
|
(3,884
|
)
|
|
|
5,726
|
|
|
|
8,210
|
|
|
|
(2,015
|
)
|
|
|
6,195
|
|
Developed technology
|
|
|
10,085
|
|
|
|
(6,014
|
)
|
|
|
4,071
|
|
|
|
8,285
|
|
|
|
(3,398
|
)
|
|
|
4,887
|
|
Patented technology
|
|
|
80
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
80
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
73,012
|
|
|
|
(47,413
|
)
|
|
|
25,599
|
|
|
|
71,381
|
|
|
|
(27,456
|
)
|
|
|
43,925
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
10,100
|
|
|
|
N/A
|
|
|
|
10,100
|
|
|
|
11,700
|
|
|
|
N/A
|
|
|
|
11,700
|
|
|
Total intangible assets
|
|
$
|
83,112
|
|
|
$
|
(47,413
|
)
|
|
$
|
35,699
|
|
|
$
|
83,081
|
|
|
$
|
(27,456
|
)
|
|
$
|
55,625
|
|
|
Customer relationships are being amortized over estimated useful
lives between two and seven years; non-competition agreements
are being amortized over estimated useful lives between two and
eight years; developed technology is being amortized over
estimated useful lives between three and eight years; supplier
relationships are being amortized over estimated useful lives
between two and ten years.
During the first quarter of 2009, the company recorded a
$3.8 million impairment charge related to TSGs
customer relationship intangible asset that was classified
within restructuring charges. The restructuring actions are
described further in Note 4, Restructuring Charges
(Credits). In the fourth quarter of 2009, in connection with
the annual goodwill impairment test performed as of
February 1, 2009, the company concluded that an impairment
of its indefinite-lived intangible asset existed. As a result,
the company recorded an impairment charge of $2.4 million
related to the indefinite-lived intangible asset, which related
to HSG.
Amortization expense relating to intangible assets for the years
ended March 31, 2009, 2008 and 2007 was $20.0 million,
$17.7 million, and $3.1 million, respectively.
The estimated amortization expense relating to intangible assets
for each of the five succeeding fiscal years is as follows:
|
|
|
|
|
|
|
Amount
|
|
|
|
|
Year ending March 31
|
|
|
|
|
2010
|
|
$
|
8,392
|
|
2011
|
|
|
4,744
|
|
2012
|
|
|
4,512
|
|
2013
|
|
|
3,357
|
|
2014
|
|
|
2,134
|
|
|
Total estimated amortization expense for the next five years
|
|
$
|
23,139
|
|
|
56
6.
INVESTMENT IN
MAGIRUS SOLD IN NOVEMBER 2008
In November 2008, the company sold its 20% ownership interest in
Magirus AG (Magirus), a privately owned European
enterprise computer systems distributor headquartered in
Stuttgart, Germany, for $2.3 million. In addition, the
company received a dividend from Magirus (as a result of Magirus
selling a portion of its distribution business in fiscal
2008) of $7.3 million in July 2008, resulting in
$9.6 million of total proceeds received in fiscal 2009. The
company adjusted the fair value of the investment as of
March 31, 2008, to the net present value of the subsequent
cash proceeds, resulting in fourth quarter 2008 charges of
(i) a $5.5 million reversal of the cumulative currency
translation adjustment in accordance with
EITF 01-5,
Application of FASB Statement No. 52 to an Investment
Being Evaluated for Impairment That Will Be Disposed of, and
(ii) an impairment charge of $4.9 million to write the
held-for-sale
investment to its fair value less cost to sell.
The company had decided to sell its 20% investment in Magirus
prior to March 31, 2008, and met the qualifications to
consider the asset as held for sale. As a result, the company
reclassified its Magirus investment to investment held for sale
in accordance with Statement 144.
Because of the companys inability to obtain and include
audited financial statements of Magirus for fiscal years ended
March 31, 2008 and 2007 as required by
Rule 3-09
of
Regulation S-X,
the SEC has stated that it will not permit effectiveness of any
new securities registration statements or post-effective
amendments, if any, until such time as the company files audited
financial statements that reflect the disposition of Magirus and
the company requests and the SEC grants relief to the company
from the requirements of
Rule 3-09.
As part of this restriction, the company is not permitted to
file any new securities registration statements that are
intended to automatically go into effect when they are filed,
nor can the company make offerings under effective registration
statements or under Rules 505 and 506 of Regulation D
where any purchasers of securities are not accredited investors
under Rule 501(a) of Regulation D. These restrictions
do not apply to the following: offerings or sales of securities
upon the conversion of outstanding convertible securities or
upon the exercise of outstanding warrants or rights; dividend or
interest reinvestment plans; employee benefit plans, including
stock option plans; transactions involving secondary offerings;
or sales of securities under Rule 144.
On April 1, 2008, the company invoked FASB Interpretation
No. 35, Criteria for Applying the Equity Method of
Accounting for Investments in Common Stock
(FIN 35), for its investment in
Magirus. The invocation of FIN 35 required the company to
account for its investment in Magirus via cost, rather than
equity accounting. FIN 35 clarifies the criteria for
applying the equity method of accounting for investments of 50%
or less of the voting stock of an investee enterprise. The cost
method was used by the company because management did not have
the ability to exercise significant influence over Magirus,
which is one of the presumptions in APB Opinion No. 18,
The Equity Method of Accounting for Investments in Common
Stock, necessary to account for an investment in common
stock under the equity method.
7.
LEASE COMMITMENTS
Capital
Leases
The company is the lessee of certain equipment under capital
leases expiring in various years through 2013. The assets and
liabilities under capital leases are recorded at the lower of
the present value of the minimum lease payments or the fair
value of the asset. The assets are depreciated over the lower of
their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in
depreciation expense.
57
Minimum future lease payments under capital leases as of
March 31, 2009, for each of the next five years and in the
aggregate are:
|
|
|
|
|
|
|
Amount
|
|
|
|
|
Year ending March 31
|
|
|
|
|
2010
|
|
$
|
268
|
|
2011
|
|
|
101
|
|
2012
|
|
|
71
|
|
2013
|
|
|
4
|
|
2014
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
444
|
|
Less: amount representing interest
|
|
|
(49
|
)
|
|
Present value of minimum lease payments
|
|
$
|
395
|
|
|
Interest rates on capitalized leases vary from 7.3% to 14.4% and
are imputed based on the lower of the companys incremental
borrowing rate at the inception of each lease or the
lessors implicit rate of return.
Operating
Leases
The company leases certain facilities and equipment under
non-cancelable operating leases which expire at various dates
through 2017. Certain facilities and equipment leases contain
renewal options for periods up to ten years. In most cases,
management expects that in the normal course of business, leases
will be renewed or replaced by other leases.
The following is a schedule by year of future minimum rental
payments required under operating leases, excluding real estate
taxes and insurance, which have initial or remaining
non-cancelable lease terms in excess of a year as of
March 31, 2009:
|
|
|
|
|
|
|
Amount
|
|
|
|
|
Year ending March 31
|
|
|
|
|
2010
|
|
$
|
4,986
|
|
2011
|
|
|
3,758
|
|
2012
|
|
|
2,399
|
|
2013
|
|
|
2,089
|
|
2014
|
|
|
1,611
|
|
Thereafter
|
|
|
3,832
|
|
|
Total minimum lease payments
|
|
$
|
18,675
|
|
|
Total minimum future rental payments have been reduced by
$16,000 of sublease rentals estimated to be received in the
future under non-cancelable subleases. Rental expense for all
non-cancelable operating leases amounted to $8.0 million,
$7.9 million, and $4.5 million for 2009, 2008, and
2007, respectively.
58
8.
FINANCING
ARRANGEMENTS
The following is a summary of long-term obligations at
March 31, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
IBM floor plan agreement
|
|
$
|
74,159
|
|
|
$
|
14,552
|
|
Capital lease obligations
|
|
|
395
|
|
|
|
560
|
|
|
|
|
|
74,554
|
|
|
|
15,112
|
|
Less: current maturities of long-term obligations
|
|
|
(74,397
|
)
|
|
|
(14,857
|
)
|
|
|
|
$
|
157
|
|
|
$
|
255
|
|
|
Revolving Credit
Agreements
On January 20, 2009, the company terminated its
$200 million unsecured credit facility with Bank of
America, N.A. (as successor to LaSalle Bank National
Association), as lead arranger, book runner and administrative
agent, and certain other lenders party thereto (the Credit
Facility). As of October 17, 2008, the companys
ability to borrow under this Credit Facility was suspended due
to the companys failure to timely file its Annual Report
on
Form 10-K
for the fiscal year ended March 31, 2008, and other
technical defaults. There were no amounts outstanding under this
Credit Facility on the termination date and the company had
never borrowed under the Credit Facility since it was entered
into in October 2005. The company decided to terminate this
Credit Facility to avoid paying additional fees associated with
the facility. There were no penalties associated with the early
termination of the Credit Facility, however $0.4 million of
deferred financing fees were immediately expensed in the third
quarter of 2009 as a result of the termination.
On May 5, 2009, the company executed a Loan and Security
Agreement (the New Credit Facility) with Bank of
America, N.A., as agent for the lenders from time to time party
thereto, which replaced the previous Credit Facility that was
terminated on January 20, 2009. The New Credit Facility
provides $50 million of credit (which may be increased to
$75 million by a $25 million accordion
provision) for borrowings and letters of credit and will
mature May 5, 2012. The companys obligations under
the New Credit Facility are secured by all of the companys
assets. The New Credit Facility establishes a borrowing base for
availability of loans predicated on the level of the
companys accounts receivable meeting banking industry
criteria. The aggregate unpaid principal amount of all
borrowings, to the extent not previously repaid, is repayable at
maturity. Borrowings also are repayable at such other earlier
times as may be required under or permitted by the terms of the
New Credit Facility. LIBOR Loans under this New Credit Facility
bear interest at LIBOR for the applicable interest period plus
an applicable margin ranging from 3.0% to 3.5%. Base rate loans
(as defined in the New Credit Facility) bear interest at the
Base Rate (as defined in the New Credit Facility) plus an
applicable margin ranging from 2.0% to 2.5%. Interest is payable
on the first of each month in arrears. There is no premium or
penalty for prepayment of borrowings under the New Credit
Facility.
The New Credit Facility contains normal mandatory repayment
provisions, representations, and warranties and covenants for a
secured credit facility of this type. The New Credit Facility
also contains customary Events of Defaults upon the occurrence
of which, among other remedies, the Lenders may terminate their
commitments and accelerate the maturity of indebtedness and
other obligations under the New Credit Facility.
As of June 5, 2009, the company had no amounts outstanding
under the New Credit Facility and $50.0 million was
available for future borrowings. The company has no intention to
borrow amounts under the New Credit Facility in the near term.
IBM Floor Plan
Agreement
On February 22, 2008, the company entered into the Fourth
Amended and Restated Agreement for Inventory Financing
(Unsecured) (Inventory Financing Agreement) with IBM
Credit LLC, a wholly-owned subsidiary of International Business
Machines Corporation (IBM). In addition to providing
the Inventory Financing Agreement, IBM has engaged and may
engage as a primary supplier to the company in the ordinary
course of business. Under the Inventory Financing Agreement, the
company may finance the purchase of products from authorized
suppliers up to an aggregate outstanding amount of
$145 million. The lender may, in its sole discretion,
59
temporarily increase the amount of the credit line but in no
event shall the amount of the credit line exceed
$250 million. Financing charges will only accrue on amounts
outstanding more than 75 days. The company was in default
of its covenants as a result of its failure to timely file its
Annual Report on
Form 10-K
for March 31, 2008, and other technical requirements. As a
result of these defaults, IBM could lower or cancel the
companys credit line; however, the credit line remained
open and fully available through February 1, 2009. On
February 2, 2009, the company was informed that IBM has
lowered the credit line from $150 million to
$100 million due to the loss of a significant syndicate
partner in the credit line. Other than the lowering of the
credit line, there have been no changes and both parties
continued to operate under the existing terms. The company
entered into the IBM flooring arrangement in February 2008 to
realize the benefit of extended payment terms. This Inventory
Financing Agreement provided the company 75 days of
interest-free financing, which was better than the trade
accounts payable terms provided by the companys vendors.
Prior to February 2008, the company solely utilized trade
accounts payable to finance working capital.
The company was in discussions with IBM regarding an increase or
overline component to the inventory financing agreement, whether
through establishing a new comprehensive financing agreement or
due to the passage of time as credit market conditions improve.
However, on May 4, 2009, the company decided to terminate
its Inventory Financing Agreement with IBM and will primarily
fund working capital through open accounts payable provided by
its trade vendors, or the New Credit Facility discussed above.
At the time of the termination, there was $60.9 million
outstanding under this Inventory Financing Agreement that the
company subsequently repaid using cash on hand.
60
9.
ADDITIONAL BALANCE
SHEET INFORMATION
Additional information related to the companys
Consolidated Balance Sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
Corporate-owned life insurance policies
|
|
$
|
26,172
|
|
|
$
|
25,024
|
|
Marketable securities
|
|
|
37
|
|
|
|
133
|
|
Investment in The Reserve Funds Primary Fund
|
|
|
638
|
|
|
|
|
|
Other
|
|
|
2,161
|
|
|
|
622
|
|
|
Total
|
|
$
|
29,008
|
|
|
$
|
25,779
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Salaries, wages, and related benefits
|
|
$
|
9,575
|
|
|
$
|
13,424
|
|
Employee benefit plan obligations
|
|
|
12,113
|
|
|
|
|
|
Restructuring liabilities
|
|
|
7,901
|
|
|
|
365
|
|
Other taxes payable
|
|
|
5,016
|
|
|
|
3,981
|
|
Income taxes payable
|
|
|
855
|
|
|
|
|
|
Innovative earn-out
|
|
|
|
|
|
|
35,000
|
|
Innovative accrued unvouchered liabilities
|
|
|
5,675
|
|
|
|
3,398
|
|
Other
|
|
|
2,347
|
|
|
|
1,644
|
|
|
Total
|
|
$
|
43,482
|
|
|
$
|
57,812
|
|
|
Other non-current liabilities:
|
|
|
|
|
|
|
|
|
Employee benefit plan obligations
|
|
$
|
11,078
|
|
|
$
|
20,221
|
|
Income taxes payable
|
|
|
7,168
|
|
|
|
5,367
|
|
Restructuring liabilities
|
|
|
2,026
|
|
|
|
|
|
Long-term debt
|
|
|
157
|
|
|
|
255
|
|
Deferred income taxes
|
|
|
|
|
|
|
169
|
|
Other
|
|
|
1,159
|
|
|
|
1,251
|
|
|
Total
|
|
$
|
21,588
|
|
|
$
|
27,263
|
|
|
Other non-current assets in the table above includes the cash
surrender value of certain corporate-owned life insurance
policies. These policies are maintained to informally fund the
companys obligations with respect to the employee benefit
plan obligations included within accrued liabilities and other
non-current liabilities in the table above. The company adjusts
the carrying value of these contracts to the cash surrender
value (which is considered fair value) at the end of each
reporting period. Such periodic adjustments are included in
selling, general and administrative expenses within the
accompanying Consolidated Statements of Operations. Additional
information with respect to the companys corporate-owned
life insurance policies and employee benefit plan obligations is
provided in Note 11, Employee Benefit Plans.
61
10.
INCOME TAXES
The components of income (loss) before income taxes from
continuing operations and income tax provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Loss) income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(283,732
|
)
|
|
$
|
2,021
|
|
|
$
|
(12,991
|
)
|
Foreign
|
|
|
449
|
|
|
|
(1,085
|
)
|
|
|
1,129
|
|
|
Total
|
|
$
|
(283,283
|
)
|
|
$
|
936
|
|
|
$
|
(11,862
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
3,958
|
|
|
$
|
2,632
|
|
|
$
|
(4,583
|
)
|
State and local
|
|
|
1,813
|
|
|
|
(514
|
)
|
|
|
196
|
|
Foreign
|
|
|
168
|
|
|
|
(391
|
)
|
|
|
274
|
|
|
Total
|
|
$
|
5,939
|
|
|
$
|
1,727
|
|
|
$
|
(4,113
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(7,526
|
)
|
|
$
|
(2,571
|
)
|
|
$
|
2,563
|
|
State and local
|
|
|
491
|
|
|
|
(250
|
)
|
|
|
292
|
|
Foreign
|
|
|
|
|
|
|
172
|
|
|
|
(677
|
)
|
|
Total
|
|
|
(7,035
|
)
|
|
|
(2,649
|
)
|
|
|
2,178
|
|
|
Benefit for income taxes
|
|
$
|
(1,096
|
)
|
|
$
|
(922
|
)
|
|
$
|
(1,935
|
)
|
|
A reconciliation of the federal statutory rate to the
companys effective income tax rate for continuing
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Provision (benefit) for state taxes
|
|
|
2.5
|
|
|
|
205.5
|
|
|
|
(2.3
|
)
|
Impact of foreign operations
|
|
|
(0.3
|
)
|
|
|
(12.7
|
)
|
|
|
|
|
Goodwill impairment
|
|
|
(16.7
|
)
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(18.2
|
)
|
|
|
(113.5
|
)
|
|
|
4.5
|
|
(Settlement) adjustment of income tax audits
|
|
|
(0.3
|
)
|
|
|
339.8
|
|
|
|
5.2
|
|
Meals & entertainment
|
|
|
(0.3
|
)
|
|
|
(488.1
|
)
|
|
|
(3.9
|
)
|
Equity investment Magirus
|
|
|
|
|
|
|
702.0
|
|
|
|
(17.1
|
)
|
Compensation
|
|
|
(0.5
|
)
|
|
|
(203.2
|
)
|
|
|
(5.0
|
)
|
Other
|
|
|
(0.8
|
)
|
|
|
(83.7
|
)
|
|
|
(2.1
|
)
|
|
Effective rate
|
|
|
0.4
|
%
|
|
|
381.1
|
%
|
|
|
14.3
|
%
|
|
62
Deferred tax assets and liabilities as of March 31, 2009
and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
2,765
|
|
|
$
|
3,935
|
|
Allowance for doubtful accounts
|
|
|
1,039
|
|
|
|
852
|
|
Inventory valuation reserve
|
|
|
1,254
|
|
|
|
467
|
|
Restructuring reserve
|
|
|
3,568
|
|
|
|
121
|
|
Federal domestic net operating losses
|
|
|
|
|
|
|
107
|
|
Foreign net operating losses
|
|
|
435
|
|
|
|
502
|
|
Investment
|
|
|
|
|
|
|
365
|
|
State net operating losses
|
|
|
1,017
|
|
|
|
501
|
|
Deferred compensation
|
|
|
8,150
|
|
|
|
7,054
|
|
Deferred revenue
|
|
|
778
|
|
|
|
(23
|
)
|
Goodwill and other intangible assets
|
|
|
32,694
|
|
|
|
(8,914
|
)
|
Other
|
|
|
8,919
|
|
|
|
1,232
|
|
|
|
|
|
60,619
|
|
|
|
6,199
|
|
Less: valuation allowance
|
|
|
(52,177
|
)
|
|
|
(999
|
)
|
|
Total
|
|
$
|
8,442
|
|
|
$
|
5,200
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment & software amortization
|
|
$
|
1,037
|
|
|
$
|
1,516
|
|
Other
|
|
|
58
|
|
|
|
65
|
|
|
Total
|
|
|
1,095
|
|
|
|
1,581
|
|
|
Total deferred tax assets
|
|
$
|
7,347
|
|
|
$
|
3,619
|
|
|
At March 31, 2009, the companys Hong Kong subsidiary
had $2.4 million of net operating loss carryforwards that
can be carried forward indefinitely. At March 31, 2009, the
company also had $34.6 million of state net operating loss
carryforwards that expire, if unused, in years 2010 through 2026.
At March 31, 2009, the total valuation allowance against
deferred tax assets of $52.2 million was mainly comprised
of a valuation allowance of $51.8 million for federal and
state deferred tax assets, and a valuation allowance of
$0.4 million associated with deferred tax assets in Hong
Kong that will not be realized. In assessing the realizability
of deferred tax assets, management considers whether it is
more-likely-than-not that some or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax
assets depends on the generation of future taxable income during
the periods in which those temporary differences are deductible.
Management considers the scheduled reversal of deferred tax
liabilities (including the impact of available carryback and
carryforward periods), projected taxable income, and tax
planning strategies in making this assessment. In order to fully
realize the deferred tax assets, the company will need to
generate future taxable income before the expiration of the
deferred tax assets governed by the tax code. Based on the level
of historical taxable income over the periods for which the
deferred tax assets are deductible, management believes that it
is more-likely-than-not that the company will not realize the
benefits of these deductible differences.
63
Effective April 1, 2007, the company adopted the provisions
of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (FIN 48).
FIN 48 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a
tax return. For those benefits to be recognized, a tax position
must be more-likely-than-not to be sustained upon examination by
taxing authorities. A reconciliation of the beginning and ending
balance of unrecognized tax benefits is as follows:
|
|
|
|
|
|
Balance at April 1, 2008
|
|
$
|
5,997
|
|
Additions:
|
|
|
|
|
Relating to positions taken during current year
|
|
|
260
|
|
Relating to positions taken during prior year
|
|
|
1,401
|
|
Reductions:
|
|
|
|
|
Relating to tax settlements
|
|
|
(964
|
)
|
Relating to positions taken during prior year
|
|
|
(588
|
)
|
Relating to lapse in statute
|
|
|
(353
|
)
|
Due to business acquisitions
|
|
|
(102
|
)
|
|
Balance at March 31, 2009
|
|
$
|
5,651
|
|
|
The company recognizes interest accrued on any unrecognized tax
benefits as a component of income tax expense. Penalties are
recognized as a component of selling, general and administrative
expenses. As of March 31, 2009 and 2008, the company had
approximately $2.0 million and $1.7 million of
interest and penalties accrued, respectively.
As of March 31, 2009, the company has a liability of
$5.7 million related to uncertain tax positions, the
recognition of which would affect the companys effective
income tax rate.
The company anticipates the completion of state income tax
audits in the next 12 months which could reduce the accrual
for unrecognized tax benefits by $1.2 million. The company
believes that, other than the changes noted above, it is
impractical to determine the positions for which it is
reasonably possible that the total of uncertain tax benefits
will significantly increase or decrease in the next twelve
months.
The company is currently under examination by the Internal
Revenue Service (IRS) for the tax year ended March 31,
2007. The examination commenced in the fourth quarter of 2009.
The company is currently being audited by multiple state taxing
jurisdictions. In material jurisdictions, the company has tax
years open back to and including 2000.
11.
EMPLOYEE BENEFIT
PLANS
The company maintains profit-sharing and 401(k) plans for
employees meeting certain service requirements. Generally, the
plans allow eligible employees to contribute a portion of their
compensation, with the company matching $1.00 for every $1.00 on
the first 1% of the employees pre-tax contributions and
$0.50 for every $1.00 up to the next 5% of the employees
pre-tax contributions. The company may also make discretionary
contributions each year for the benefit of all eligible
employees under the plans. Total profit sharing and company
matching contributions were $4.0 million,
$3.2 million, and $3.0 million for 2009, 2008, and
2007, respectively.
The company also provides a non-qualified benefit equalization
plan (BEP) covering certain employees, which
provides for employee deferrals and company retirement deferrals
so that the total retirement deferrals equal amounts that would
have been contributed to the companys 401(k) plan if it
were not for limitations imposed by income tax regulations. The
benefit obligation related to the BEP was $3.4 and
$5.6 million at March 31, 2009 and 2008, respectively.
Contribution expense for the BEP was $0.2 million,
$0.1 million, and $0.4 million in 2009, 2008, and
2007, respectively.
The company also provides a supplemental executive retirement
plan (SERP) for certain officers of the company. The
SERP is a non-qualified plan designed to provide retirement
benefits for the plan participants. The projected benefit
obligation recognized by the company related to the SERP was
$18.3 and $14.0 million at March 31, 2009 and 2008,
respectively. At March 31, 2009, the benefit obligation
recognized by the company represents the projected benefit
obligation, in accordance with Statement of Financial Accounting
64
Standards No. 158, Employers Accounting for
Defined Benefit Pension and Other Post Retirement Plans
(FAS 158) adoption standards. The
accumulated benefit obligation related to the SERP was
$17.9 million and $12.5 million at March 31,
2009, and 2008, respectively. The annual expense for the SERP
was $1.3 million, $1.3 million, and $1.1 million
in 2009, 2008, and 2007, respectively.
In connection with the management restructuring actions taken in
the third quarter of 2009, the company recorded non-cash
curtailment charges of $4.5 million for the SERP, which are
included within restructuring charges on the Consolidated
Statements of Operations. The curtailment charges pertain to the
retirement of the companys former CEO and termination of
certain officers. In connection with the management
restructuring actions taken in the fourth quarter of 2009, the
company recorded additional non-cash curtailment charges of
$0.9 million and $0.3 million related to the SERP and
the additional service credits liability curtailments,
respectively, which are also included within restructuring
charges on the Consolidated Statements of Operations. The 2009
fourth quarter charges relate to the termination of another
officer. Total curtailment charges recorded as restructuring
expenses for the SERP and the additional service liability
curtailments in 2009 were $5.4 million and
$0.3 million, respectively.
Certain participants in the SERP were eligible for early
retirement under the terms of the SERP and have elected to
receive lump sum distributions from the plan and the additional
service credits liability in 2010. The company will fund the
payments by taking loans against the cash surrender value of the
life insurance policies that informally fund the SERP.
Accordingly, the company has classified approximately
$12.1 million of the projected benefit liability as a
current accrued liability on the Consolidated Balance Sheets.
Additional information related to the classification of the
current and long-term portion of the SERP and additional service
credits liability is presented in Note 9, Additional
Balance Sheet Information.
In conjunction with the BEP and SERP, the company has invested
in life insurance policies related to certain employees and
marketable securities held in a Rabbi Trust to satisfy future
obligations of the plans. The value of the policies was
$23.4 million and $22.4 million at March 31,
2009, and 2008, respectively. The life insurance policies are
valued at their cash surrender value and the marketable
securities held in a Rabbi trust are valued at fair market
value. At March 31, 2009, the marketable securities held in
the Rabbi trust had a fair value of $37,000.
The following benefit payments are expected to be made to
participants related to the SERP and additional service credits
obligations:
|
|
|
|
|
|
2010
|
|
$
|
11,984
|
|
2011
|
|
|
2,384
|
|
2012
|
|
|
2,432
|
|
2013
|
|
|
|
|
2014
|
|
|
|
|
Thereafter
|
|
|
2,466
|
|
|
Total
|
|
$
|
19,266
|
|
|
Subsequent to March 31, 2009, the company took loans
totaling $12.5 million against the cash surrender value of
the corporate-owned life insurance policies. The proceeds were
used and will be used to satisfy the SERP and additional service
credits obligations related to two former executives who retired
from the company during 2009. The company has no obligation to
repay these loans and does not intend to repay them.
12.
COMMITMENTS AND
CONTINGENCIES
The company is the subject of various threatened or pending
legal actions and contingencies in the normal course of
conducting its business. The company provides for costs related
to these matters when a loss is probable and the amount can be
reasonably estimated. The effect of the outcome of these matters
on the companys future results of operations and liquidity
cannot be predicted because any such effect depends on future
results of operations and the amount or timing of the resolution
of such matters. While it is not possible to predict with
certainty, management believes that the ultimate resolution of
such individual or aggregated matters will not have a material
adverse effect on the consolidated financial position, results
of operations or cash flows of the company.
65
In 2006, the company filed a lawsuit against the former
shareholders of CTS, a company that was purchased by Agilysys in
May 2005. In the lawsuit, Agilysys alleged that principals of
CTS failed to disclose pertinent information during the
acquisition, representing a material breach in the
representations of the acquisition purchase agreement. On
January 30, 2009, a jury ruled in favor of the company,
finding the former shareholders of CTS liable for breach of
contract, and awarded damages in the amount of
$2.3 million. The jury also awarded to Agilysys its
reasonable attorneys fees in an amount to be determined at
a later hearing. Judgment will be entered upon an award of
attorneys fees, at which time the parties have thirty days
to file an appeal. No amounts have yet been accrued or received
from the former shareholders of CTS or their insurance company.
As of March 31, 2009 and 2008, the company had minimum
purchase commitments under a product procurement agreement with
a supplier totaling $1.0 million and $1.3 million,
respectively.
13.
BUSINESS SEGMENTS
Description of
Business Segments
The company has three reportable business segments: Hospitality
Solutions Group (HSG), Retail Solutions Group
(RSG), and Technology Solutions Group
(TSG). The reportable segments are each managed
separately and are supported by various practices as well as
company-wide functional departments. The segment information for
2007 that is provided below has been restated as a result of the
2008 change in the composition of the companys reportable
segments.
HSG is a leading technology provider to the hospitality
industry, offering application software and services that
streamline management of operations, property and inventory for
customers in the gaming, hotel and resort, cruise lines, food
management services, and sports and entertainment markets.
RSG is a leader in designing solutions that help make retailers
more productive and provide their customers with an enhanced
shopping experience. RSG solutions help improve operational
efficiency, technology utilization, customer satisfaction and
in-store profitability, including customized pricing, inventory
and customer relationship management systems. The group also
provides implementation plans and supplies the complete package
of hardware needed to operate the systems, including servers,
receipt printers,
point-of-sale
terminals and wireless devices for in-store use by the
retailers store associates.
TSG is an aggregation of the companys IBM, HP, and Sun
reporting units due to the similarity of their economic and
operating characteristics. During the fourth quarter of 2009,
the Stack reporting unit was integrated into the HP reporting
unit . TSG is a leading provider of HP, Sun, Oracle, IBM, and
EMC2
enterprise IT solutions for the complex needs of customers in a
variety of industries including education, finance,
government, healthcare and telecommunications, among others. The
solutions offered include enterprise architecture and high
availability, infrastructure optimization, storage and resource
management, identity management and business continuity.
Measurement of
Segment Operating Results and Segment Assets
The company evaluates performance and allocates resources to its
reportable segments based on operating income and adjusted
EBITDA, which is defined as operating (loss) income plus
depreciation and amortization expense. Certain costs and
expenses arising from the companys functional departments
are not allocated to the reportable segments for performance
evaluation purposes. The accounting policies of the reportable
segments are the same as those described in the summary of
significant accounting policies elsewhere in the footnotes to
the consolidated financial statements.
As a result of the March 2007 divestiture of KSG and
acquisitions, and due to the debt covenant and Inventory
Financing Agreement definitions, the company believes that
adjusted EBITDA is a meaningful measure to the users of the
financial statements and has been a required measurement in the
companys prior debt agreements to reflect another measure
of the companys performance. Adjusted EBITDA differs from
U.S. GAAP and should not be considered an alternative
measure to operating cash flows as required by U.S. GAAP.
Management has reconciled adjusted EBITDA to operating (loss)
income in the following chart.
Intersegment sales are recorded at pre-determined amounts to
allow for intercompany profit to be included in the operating
results of the individual reportable segments. Such intercompany
profit is eliminated for consolidated financial reporting
purposes.
The companys chief operating decision maker does not
evaluate a measurement of segment assets when evaluating the
performance of the companys reportable segments. As such,
financial information relating to segment assets is not provided
in the financial information below.
66
The following table presents segment profit and related
information for each of the companys reportable segments.
As discussed in Note 1, Verizon Communications, Inc.
represented approximately 32.6% and 16.3% of the TSG
segments total sales in 2009 and 2008 respectively. No
single customer accounted for more than 10% of a reporting
business segments total sales in 2007. Please refer to
Note 4 for further information on the TSG and Corporate
restructuring charges, and Note 5 for the TSG, RSG, and HSG
goodwill and intangible asset impairment charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Hospitality
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
99,826
|
|
|
$
|
85,103
|
|
|
$
|
37,875
|
|
Elimination of intersegment revenue
|
|
|
(190
|
)
|
|
|
(280
|
)
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
99,636
|
|
|
$
|
84,823
|
|
|
$
|
37,875
|
|
|
Gross margin
|
|
$
|
60,505
|
|
|
$
|
47,193
|
|
|
$
|
23,082
|
|
|
|
|
|
60.7%
|
|
|
|
55.6%
|
|
|
|
60.9%
|
|
Depreciation and Amortization
|
|
$
|
5,931
|
|
|
$
|
4,865
|
|
|
$
|
1,160
|
|
Operating (loss) income
|
|
|
(114,133
|
)
|
|
|
4,125
|
|
|
|
5,535
|
|
|
Adjusted EBITDA
|
|
$
|
(108,202
|
)
|
|
$
|
8,990
|
|
|
$
|
6,695
|
|
|
Goodwill and intangible asset impairment
|
|
$
|
122,488
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
122,478
|
|
|
$
|
130,223
|
|
|
$
|
93,064
|
|
Elimination of intersegment revenue
|
|
|
(319
|
)
|
|
|
(493
|
)
|
|
|
(288
|
)
|
|
Revenue from external customers
|
|
$
|
122,159
|
|
|
$
|
129,730
|
|
|
$
|
92,776
|
|
|
Gross margin
|
|
$
|
27,659
|
|
|
$
|
24,599
|
|
|
$
|
19,491
|
|
|
|
|
|
22.6%
|
|
|
|
19.0%
|
|
|
|
21.0%
|
|
Depreciation and Amortization
|
|
$
|
129
|
|
|
$
|
376
|
|
|
$
|
503
|
|
Operating (loss) income
|
|
|
(17,055
|
)
|
|
|
5,692
|
|
|
|
2,559
|
|
|
Adjusted EBITDA
|
|
$
|
(16,926
|
)
|
|
$
|
6,068
|
|
|
$
|
3,062
|
|
|
Goodwill impairment
|
|
$
|
24,912
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
512,108
|
|
|
$
|
554,655
|
|
|
$
|
330,610
|
|
Elimination of intersegment revenue
|
|
|
(3,183
|
)
|
|
|
(9,040
|
)
|
|
|
(7,934
|
)
|
|
Revenue from external customers
|
|
$
|
508,925
|
|
|
$
|
545,615
|
|
|
$
|
322,676
|
|
|
Gross margin
|
|
$
|
108,085
|
|
|
$
|
102,843
|
|
|
$
|
70,341
|
|
|
|
|
|
21.2%
|
|
|
|
18.8%
|
|
|
|
21.8%
|
|
Depreciation and Amortization
|
|
$
|
16,673
|
|
|
$
|
14,491
|
|
|
$
|
2,032
|
|
Operating (loss) income
|
|
|
(88,581
|
)
|
|
|
14,296
|
|
|
|
17,149
|
|
|
Adjusted EBITDA
|
|
$
|
(71,908
|
)
|
|
$
|
28,787
|
|
|
$
|
19,181
|
|
|
Goodwill impairment
|
|
$
|
84,456
|
|
|
$
|
|
|
|
$
|
|
|
Restructuring charge
|
|
$
|
23,573
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
|
|
|
$
|
|
|
|
$
|
413
|
|
|
Gross margin
|
|
$
|
2,429
|
|
|
$
|
3,856
|
|
|
$
|
5,835
|
|
|
Depreciation and Amortization(1)
|
|
$
|
4,366
|
|
|
$
|
3,855
|
|
|
$
|
4,880
|
|
Operating loss
|
|
|
(60,285
|
)
|
|
|
(41,969
|
)
|
|
|
(33,574
|
)
|
|
Adjusted EBITDA
|
|
$
|
(55,919
|
)
|
|
$
|
(38,114
|
)
|
|
$
|
(28,694
|
)
|
|
Restructuring charge
|
|
$
|
17,228
|
|
|
$
|
(75
|
)
|
|
$
|
(2,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
734,412
|
|
|
$
|
769,981
|
|
|
$
|
461,962
|
|
Elimination of intersegment revenue
|
|
|
(3,692
|
)
|
|
|
(9,813
|
)
|
|
|
(8,222
|
)
|
|
Revenue from external customers
|
|
$
|
730,720
|
|
|
$
|
760,168
|
|
|
$
|
453,740
|
|
|
Gross margin
|
|
$
|
198,678
|
|
|
$
|
178,491
|
|
|
$
|
118,749
|
|
|
|
|
|
27.2%
|
|
|
|
23.5%
|
|
|
|
26.2%
|
|
Depreciation and Amortization(1)
|
|
$
|
27,099
|
|
|
$
|
23,587
|
|
|
$
|
8,575
|
|
Operating loss
|
|
|
(280,054
|
)
|
|
|
(17,856
|
)
|
|
|
(8,331
|
)
|
|
Adjusted EBITDA
|
|
$
|
(252,955
|
)
|
|
$
|
5,731
|
|
|
$
|
244
|
|
|
Goodwill and intangible asset impairment
|
|
$
|
231,856
|
|
|
$
|
|
|
|
$
|
|
|
Restructuring charge
|
|
$
|
40,801
|
|
|
$
|
(75
|
)
|
|
$
|
(2,531
|
)
|
|
|
|
|
(1)
|
|
Does not include the amortization
of deferred financing fees totaling $584, $226, and $215 in
2009, 2008, and 2007, respectively, which related to the
Corporate/Other segment.
|
67
Enterprise-Wide
Disclosures
The companys assets are primarily located in the United
States of America. Further, revenues attributable to customers
outside the United States of America accounted for 4%, 5% and 8%
of total revenues for 2009, 2008 and 2007, respectively. Total
revenues for the companys three specific product areas are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Hardware
|