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, 2008
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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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Common Share Purchase Rights
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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 o
No þ
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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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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, 2007 (the second fiscal
quarter in which this
Form 10-K
relates) was $438,479,643 computed on the basis of the last
reported sale price per share ($16.90) of such shares on the
Nasdaq Stock Market LLC.
As of December 9, 2008, the Registrant had the following
number of Common Shares outstanding: 22,672,040, of which
890,686 were held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Except as otherwise stated, the information contained in this
Annual Report on
Form 10-K
is as of March 31, 2008.
AGILYSYS, INC.
ANNUAL REPORT ON
FORM 10-K
Year Ended March 31, 2008
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, 2008 refers to the fiscal year ended
March 31, 2008.
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 Cleveland, Ohio, Agilysys operates extensively
throughout North America, with additional sales offices in the
United Kingdom and China. Agilysys has three reportable
segments: Hospitality Solutions, Retail Solutions, and
Technology Solutions.
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 would be less dependent on the more cyclical
markets in the components business. In addition, this would
allow 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 and the
IT Solutions Business. The KeyLink Systems Distribution Business
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 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, 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, 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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1
In March 2007, the company completed its transformation with the
sale of the assets and operations of its KeyLink Systems
Distribution Business. This final event completed the Agilysys
multi-year transformation to move closer to the customer and
higher up the IT value scale, effectively positioning it 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, a technology
integrator with a strong focus in high availability storage
solutions. Stack has a significant relationship with EMC, 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., 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., an
integrator and value-added reseller of servers, enterprise
storage management products and professional services. Innovativ
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, which
enhanced the companys standing as a leading inventory and
procurement solution provider to the hospitality and foodservice
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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Subsequent to our March 31 year end, the April 2008
acquisition of Triangle Hospitality Solutions Ltd., 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, 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. In
addition, the companys Hospitality Solutions Group
provides Microsoft Windows-based software solutions as well as
IBM servers and storage products. The Hospitality Solutions
Group also offers property, activity, material, and inventory
management software applications to automate functions for the
hotel casino and destination resort segments of the hospitality
industry.
Industry
According to information published in May 2008 by IDC
(International Data Corporation), a leading provider of
technology intelligence and market data, IT spending in North
America was estimated at $500 billion. The IT market in
North America has been softening, according to IDC figures. A
slowdown in this market has negatively affected the
companys revenues and results of operations.
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 increasingly have been
outsourcing functions such as logistics, order management, sales
and technical support. Solution providers play crucial roles in
this outsourcing strategy by offering to 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.
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 North
American spending in these product sets was $240 billion in
calendar year 2007, and is expected to grow to $301 billion
by calendar year 2012.
2
Total revenues from continuing operations for the companys
three specific product areas are as follows:
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For The Year Ended March 31
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(In thousands)
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2008
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2007
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2006
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Hardware
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$
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572,044
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348,463
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$
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351,886
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Software
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72,701
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33,260
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30,016
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Services
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126,215
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92,847
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87,082
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Total
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$
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770,960
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$
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474,570
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$
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468,984
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During 2008, 2007 and 2006, sales of the companys three
largest suppliers products and services accounted for 76%,
65%, and 64%, respectively, of the companys sales volume.
Sales of HP products and services accounted for 36%, 45%, and
39% of the companys sales volumes in 2008, 2007, and 2006,
respectively. Sales of IBM products and services accounted for
19%, 20%, and 25% in 2008, 2007, and 2006, respectively. Sales
of Sun products and services through Innovativ, which was
purchased in July 2007, accounted for 21% of the sales volume in
2008.
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 cooperative supplier
incentive programs and advertising 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 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: Hospitality Solutions Group, Retail
Solutions Group, and Technology Solutions Group. See
note 13 to consolidated financial statements included in
Item 15 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 education,
finance, government, healthcare, hospitality, manufacturing and
retail. In 2008, Verizon Communications, Inc. represented
approximately 11.5% of total sales. No single customer accounted
for more than 10 percent of Agilysys total sales during
2007 or 2006.
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, the companys Technology Solutions Group
experiences a seasonal increase in sales during its fiscal third
quarter ending in December. Third quarter sales were 32%, 32%,
and 29% of annual revenues for 2008, 2007, and 2006,
respectively. Agilysys believes that this sales pattern is
industry-wide. Although the company is unable to predict whether
this uneven sales pattern will continue over the long term, the
company anticipates that this trend will remain the same in the
foreseeable future.
3
Backlog
The company historically has not had a significant backlog of
orders. There was no significant backlog at March 31, 2008.
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 does occasionally
compete with large companies such as Berbee Information Networks
Corporation (a division of CDW Corporation), Forsythe Solutions
Group, Inc., Logicalis Group, Micros Systems, Inc. and Radiant
Systems, Inc.
Employees
As of December 1, 2008, Agilysys had 1,328 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
acquisition. Sales to customers outside of the United States and
Canada are not a significant portion of the companys
sales. As of July 2008, management has decided to sell its China
and Hong Kong operations.
Access to
Information
Agilysys makes its annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and any amendments to these reports 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.
Failure to timely
file our periodic reports with the SEC could result in the
delisting of our common shares by Nasdaq.
Our common shares are subject to potential delisting from The
Nasdaq Stock Market as a result of our failure to timely file
this Annual Report on
Form 10-K
with the SEC. On July 3, 2008, we received a Nasdaq Staff
determination letter indicating that, as a result of our failure
to file with the SEC our Annual Report on
Form 10-K
for the year ended March 31, 2008, we failed to comply with
Nasdaq Marketplace Rule 4310(c)(14) which requires us to
make, on a timely basis, all filings with the SEC required by
the Securities Exchange Act of 1934, as amended. We subsequently
received an additional Staff determination regarding our failure
to timely file with the SEC our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008. On August 28,
2008, we attended a hearing before a Nasdaq Listing
Qualifications Panel (Panel), at which we presented
our plan to regain compliance with Nasdaqs filing
requirement. The Panel subsequently determined to grant our
request for continued listing, provided the Company file our
Annual Report on
Form 10-K
for the year ended March 31, 2008 and Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2008 with the SEC, on or
before December 30, 2008. We subsequently received an
additional notice from The Nasdaq Stock Market indicating that
our failure to timely file with the SEC our Quarterly Report on
Form 10-Q
for the quarter ending September 30, 2008 potentially
serves as an additional basis for delisting. Upon the filing of
this Annual Report on
Form 10-K
and subsequent filing of the two delayed Quarterly Reports on
Form 10-Q,
we expect the Panel to determine that the Company has evidenced
compliance with its decision and to grant the Companys
request for continued listing, however, there can be no
assurance that it will do so.
If we are unable to continue to maintain our listing on The
Nasdaq Stock Market, it may become more difficult for our
shareholders to sell our common shares in the public market, and
the price of our common shares may be adversely affected due to
the likelihood of decreased liquidity resulting from delisting.
In addition, our ability to raise additional necessary capital
through equity financing, and attract and retain personnel by
means of equity compensation, would be greatly impaired.
Furthermore, we would expect decreases in
4
institutional and other investor demand, analyst interest,
market making activity and information available concerning
trading prices and volume, and fewer broker-dealers would be
willing to execute trades with respect to our common shares.
Our business
could be materially adversely affected if we cannot successfully
implement changes to our information technology to support a
changed business.
We may not be able to successfully implement changes to and
manage our internal systems, procedures and controls. Our
current information systems environment was principally designed
for the distribution business and, although we are in the
process of implementing a new information system, we may be
unable to successfully support the implementation in an
efficient or timely manner.
When we make
acquisitions, we may not be able to successfully integrate them
or attain the anticipated benefits.
If we are unsuccessful in integrating our acquisitions, or if
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.
Our profitability
will be partly dependent upon restructuring and executing
planned cost savings.
If our cost reduction efforts are ineffective or our estimates
of costs available to be saved 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 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 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 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.
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. 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 such
termination or implementation of such changes could have a
material negative impact on the companys 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
technological change, new product introductions, evolving
industry standards and changing needs of customers. The
companys future success will depend on its ability to
anticipate and adapt to changes in technology and industry
standards. If the company fails to successfully manage the
challenges of rapidly changing technology, the companys
results of operations may suffer.
Prolonged
economic weakness could cause 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. Delays or reductions in demand for
information technology by end users could materially adversely
affect 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.
5
While we believe
that our plans to remediate our 2008 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.
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 remediate internal control
deficiencies and material weaknesses and perform the system and
process evaluation and testing necessary to comply with these
requirements. As a result, we expect to incur increased expense
and to devote additional management resources to
Section 404 remediation and compliance. In the event that
our chief executive officer, chief financial officer or
independent registered public accounting firm determine that our
internal controls over financial reporting are not effective as
defined under Section 404, investor perceptions of the
company may be adversely effected and could cause a decline in
the market price of our stock.
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 than 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.
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. If our lender(s) fail to honor their
legal commitments under our credit facility, it could be
difficult in the current environment to replace our credit
facility on similar terms. The failure of any of the lenders
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.
Delays in filing
periodic reports and financial restatements may adversely affect
the Companys stock price and ability to raise
capital.
We did not file our quarterly reports on
Form 10-Q
for the quarters ended June 30, 2008 and September 30,
2008 and this annual report on
Form 10-K
for the year ended March 31, 2008 within the time periods
required by SEC regulations. The delays in filing our periodic
reports and related financial statements may harm investor
confidence and negatively affect our stock price. In addition,
the failure to
6
timely file such reports results in restrictions placed on us by
the SEC to use certain registration statements, which could
adversely affect our ability to raise additional capital.
Item 1B. Unresolved
Staff Comments.
None.
Item 2. Properties.
At March 31, 2008, the companys principal corporate
offices were located in a 10,250 square foot facility in
Boca Raton, Florida. On October 20, 2008, the principal
corporate offices were relocated to Solon, Ohio. As of
March 31, 2008, the company owned or leased a total of
approximately 392,919 square feet of space for its
continuing operations, of which approximately
282,669 square feet is devoted to product warehouse and
sales offices. The companys major leases contain renewal
options for periods of up to 9 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
as well as note 7 to consolidated financial statements
contained in Part IV hereof. 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 facilities of 75,000 square feet or
larger, as of March 31, 2008, are set forth in the table
below.
|
|
|
|
|
|
|
Location
|
|
Type of facility
|
|
Approximate square footage
|
|
Leased or owned
|
|
Solon, Ohio
|
|
Warehouse and office facility
|
|
100,000
|
|
Leased
|
Taylors, South Carolina
|
|
Warehouse and office facility
|
|
77,500
|
|
Leased
|
|
Item 3. Legal
Proceedings.
The company is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to
its business.
Item 4. Submission
of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the companys
security holders during the last quarter of the fiscal year
ended March 31, 2008, nor have any matters been submitted
to a vote of the companys security holders as of the date
of this Report.
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, 2008, of the companys executive
officers.
There is no relationship by blood, marriage or adoption among
the listed officers. Mr. Rhein holds office until
terminated as set forth in his employment agreement.
Mr. Rheins contract was terminated October 20,
2008, upon his retirement. All other executive officers serve
until terminated.
7
Executive
Officers of the Registrant (6)
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Current Position at June 1, 2008
|
|
Other Positions
|
|
Arthur Rhein (1)
|
|
|
63
|
|
|
Chairman of the Board, President and Chief Executive Officer of
the company since April 2003.
|
|
|
Robert J. Bailey (2)
|
|
|
52
|
|
|
Executive Vice President since May 2002.
|
|
|
Peter J. Coleman (2)
|
|
|
54
|
|
|
Executive Vice President since May 2002.
|
|
|
Martin F. Ellis (3)
|
|
|
44
|
|
|
Executive Vice President, Treasurer and Chief Financial Officer
since June 2005
|
|
Executive Vice President, Corporate Development and Investor
Relations from July 2003 to June 3, 2005. Prior to July 2003,
Senior Vice President, Principal, and Head of Corporate Finance
for Stern Stewart & Co.
|
Kenneth J. Kossin, Jr. (4)
|
|
|
44
|
|
|
Vice President and Controller since October 2005
|
|
Assistant Controller from April 2004 to October 2005. Prior to
April 2004, Director of General Accounting for Roadway, Express,
Inc.
|
Richard A. Sayers II
|
|
|
58
|
|
|
Executive Vice President, Chief Human Resources Officer since
May 2002.
|
|
|
Rita A. Thomas
|
|
|
42
|
|
|
Vice President, Corporate Counsel & Assistant Secretary
since August 2006.
|
|
Prior to August 2006, Associate General Counsel.
|
Lawrence N. Schultz
|
|
|
61
|
|
|
Secretary of the company since 1999.
|
|
Prior to 2003 to present, Partner of the law firm of Calfee,
Halter & Griswold LLP. (5)
|
|
|
|
|
(1)
|
|
Mr. Rhein retired from the
company on October 20, 2008.
|
(2)
|
|
On October 21, 2008, the
employment of both Mr. Bailey and Mr. Coleman was
terminated.
|
(3)
|
|
On October 20, 2008,
Mr. Ellis was elected to serve as President and Chief
Executive Officer.
|
(4)
|
|
On October 20, 2008,
Mr. Kossin was elected to serve as Senior Vice President
and Chief Financial Officer.
|
(5)
|
|
The law firm of Calfee,
Halter & Griswold LLP serves as counsel to the company.
|
(6)
|
|
On October 20, 2008,
Mr. Curtis C. Stout was elected to serve as Vice President
and Treasurer and on November 14, 2008, Mr. John T.
Dyer was elected to serve as Vice President and Controller.
|
8
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2007
|
|
|
|
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
|
|
|
$13.38-$18.00
|
|
|
|
$12.19-$17.51
|
|
|
|
$13.84-$17.00
|
|
|
|
$18.26-$23.00
|
|
|
|
$12.19-$23.00
|
|
Closing price on last day of period
|
|
|
$18.00
|
|
|
|
$14.00
|
|
|
|
$16.74
|
|
|
|
$22.47
|
|
|
|
$22.47
|
|
|
As of December 9, 2008, there were 22,672,040 common shares
of the company outstanding, and there were
2,162 shareholders of record. The closing price of the
common shares on December 9, 2008, was $3.60 per share.
Cash dividends on common shares are payable 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 has adopted a Shareholder Rights Plan. For further
information about the Shareholder Rights Plan, see note 14
to the consolidated financial statements contained in
Part IV hereof.
9
The following table presents information about repurchases of
common stock made by the company during the fourth quarter of
fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number
|
|
|
|
Total
|
|
|
Average
|
|
|
Shares Purchased
|
|
|
of Shares that May
|
|
|
|
Number of
|
|
|
Price
|
|
|
as Part of Publicly
|
|
|
Yet be Purchased
|
|
|
|
Shares
|
|
|
Paid per
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
Period
|
|
Purchased
|
|
|
Share
|
|
|
or Programs
|
|
|
Programs
|
|
|
|
January 1, 2008 through January 31, 2008
|
|
|
1,510,243
|
|
|
$
|
14.66
|
|
|
|
1,510,243
|
|
|
|
608,846
|
(1)
|
February 1, 2008 through February 29, 2008
|
|
|
430,633
|
|
|
|
13.58
|
|
|
|
430,633
|
|
|
|
|
(2)
|
March 1, 2008 through March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total End of Fourth Quarter
|
|
|
1,940,876
|
|
|
$
|
14.49
|
|
|
|
1,940,876
|
|
|
|
|
|
|
|
|
|
(1)
|
|
On August 21, 2007, the
company announced that it initiated a Dutch Auction
tender offer for up to 6,000,000 shares. On
September 19, 2007, the company accepted for purchase
4,653,287 of the companys common shares at a purchase
price of $18.50 per share, for a total cost of approximately
$86.1 million, excluding related transaction costs. The
tender offer was funded through cash on hand. On
September 14, 2007, the company entered into a written
trading plan that complies with
Rule 10b5-1
under the Securities Exchange Act of 1934, as amended, which
provided for the purchase of up to 2,000,000 of the
companys common shares (the September 2007 10b5-1
Plan) during the one-year period following
September 17, 2007. In November 2007, the company completed
the repurchase of the shares pursuant to the September 2007
10b5-1 Plan on the open market for a total cost of
$30.4 million, excluding related transaction costs. On
December 14, 2007, the company entered into another written
trading plan that complies with
Rule 10b5-1
under the Securities Exchange Act of 1934, as amended, which
provided for the purchase of up to 2,500,000 of the
companys common shares (the December 2007 10b5-1
Plan). By December 31, 2007, 380,911 of the
2,500,000 shares were repurchased, resulting in the maximum
number of shares that may yet be repurchased under the plan of
2,119,089 shares. The Board of Directors only authorized a
cash outlay of $150 million, which complies with the credit
facility approval limit.
|
(2)
|
|
By February 11, 2008,
2,321,787 of the 2,500,000 shares were redeemed for a total
cost of $33.5 million. The $150 million maximum cash
outlay was achieved; therefore the purchase of common shares for
treasury was completed.
|
10
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, 2003, through March 31, 2008:
Comparison of
Cumulative Five Year Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed returns
|
|
|
|
|
|
|
Years ending
|
|
Company Name / Index
|
|
Base period March 2003
|
|
|
March 2004
|
|
|
March 2005
|
|
|
March 2006
|
|
|
March 2007
|
|
|
March 2008
|
|
|
|
Agilysys, Inc.
|
|
|
100.00
|
|
|
|
141.33
|
|
|
|
237.58
|
|
|
|
183.31
|
|
|
|
276.18
|
|
|
|
143.53
|
|
Russell 2000
|
|
|
100.00
|
|
|
|
163.83
|
|
|
|
172.70
|
|
|
|
217.34
|
|
|
|
230.18
|
|
|
|
200.25
|
|
Peer Group
|
|
|
100.00
|
|
|
|
183.68
|
|
|
|
185.79
|
|
|
|
206.58
|
|
|
|
214.95
|
|
|
|
174.40
|
|
|
11
Item 6. Selected
Financial Data.
The following selected consolidated financial and operating data
has been 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 Managements
Discussion and Analysis of Financial Condition and Results of
Operations, which are elsewhere included in this Annual Report
on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended March 31
|
|
(In thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Operating results (a)(b)(c)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
770,960
|
|
|
$
|
474,570
|
|
|
$
|
468,984
|
|
|
$
|
377,029
|
|
|
$
|
338,152
|
|
Income (loss) from continuing operations, net of taxes
|
|
$
|
681
|
|
|
$
|
(11,635
|
)
|
|
$
|
(20,744
|
)
|
|
$
|
(25,118
|
)
|
|
$
|
(24,676
|
)
|
Income from discontinued operations, net of taxes
|
|
|
2,978
|
|
|
|
244,490
|
|
|
|
48,858
|
|
|
|
44,603
|
|
|
|
33,339
|
|
|
Net income
|
|
$
|
3,659
|
|
|
$
|
232,855
|
|
|
$
|
28,114
|
|
|
$
|
19,485
|
|
|
$
|
8,663
|
|
|
Per share data (a)(b)(c)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations basic and
diluted
|
|
$
|
0.03
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(0.89
|
)
|
|
$
|
(0.88
|
)
|
Income from discontinued operations basic and diluted
|
|
|
0.10
|
|
|
|
7.97
|
|
|
|
1.63
|
|
|
|
1.58
|
|
|
|
1.20
|
|
|
Net income basic and diluted
|
|
$
|
0.13
|
|
|
$
|
7.59
|
|
|
$
|
0.94
|
|
|
$
|
0.69
|
|
|
$
|
0.32
|
|
|
Cash dividends per share
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,252,137
|
|
|
|
30,683,766
|
|
|
|
29,935,200
|
|
|
|
28,100,612
|
|
|
|
27,743,769
|
|
Diluted
|
|
|
28,766,112
|
|
|
|
30,683,766
|
|
|
|
29,935,200
|
|
|
|
28,100,612
|
|
|
|
27,743,769
|
|
Financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
695,871
|
|
|
$
|
893,716
|
|
|
$
|
763,513
|
|
|
$
|
818,492
|
|
|
$
|
768,550
|
|
Long-term obligations (e)
|
|
$
|
680
|
|
|
$
|
3
|
|
|
$
|
99
|
|
|
$
|
59,624
|
|
|
$
|
59,503
|
|
Mandatorily Redeemable Convertible Trust Preferred
Securities (f)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125,317
|
|
|
$
|
125,425
|
|
Total shareholders equity
|
|
$
|
479,465
|
|
|
$
|
626,844
|
|
|
$
|
385,176
|
|
|
$
|
332,451
|
|
|
$
|
308,990
|
|
|
|
|
|
(a)
|
|
In 2008, the company acquired
Stack, InfoGenesis, Innovativ and Eatec. Accordingly, the
results of operations for the acquisitions have been included in
the accompanying consolidated financial statements since the
acquisition date. See note 2 to the consolidated financial
statements for additional information.
|
(b)
|
|
In 2007, the company sold the
assets and operations of its KeyLink Systems Distribution
Business (KSG). The operating results of KSG have
been classified as discontinued operations for all periods
presented. See Note 3 to the consolidated financial
statements for additional information regarding the
companys sale of KSGs assets and operations.
|
(c)
|
|
In 2007, the company included the
operating results of Visual One Systems Corporation in the
results of operations from the date of acquisition. In 2006, the
company included the results of operations of both The CTS
Corporations and the Hong Kong and China operations of Mainline
Information Systems, Inc. from their respective dates of
acquisition. In 2004, the company included the results of
operations of both Kyrus Corporation and
Inter-American
Data, Inc. from their respective dates of acquisition.
|
12
|
|
|
(d)
|
|
In 2008, an impairment charge of
$4.9 million was recognized on the companys equity
investment in 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 for further information regarding this investment.
|
(e)
|
|
The companys Senior Notes
matured in 2007. In 2006, the companys Senior Notes were
reclassified from long-term obligations to a current liability.
|
(f)
|
|
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.
|
The following discussion and analysis provides information
which management believes is relevant to an assessment and
understanding of Agilysys, Inc.s consolidated results of
operations and financial condition. The discussion should be
read in conjunction with the consolidated financial statements
and related notes that appear elsewhere in this document.
Information set forth in Managements Discussion and
Analysis of Financial Condition and Results of Operations
may include forward-looking statements that involve risks and
uncertainties. Many factors could cause actual results to differ
materially 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.
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 Cleveland, Ohio effective October 2008,
Agilysys operates extensively throughout North America, with
additional sales offices in the United Kingdom and China. The
China operations are held for sale effective July 2008. Agilysys
has three reportable segments: Hospitality Solutions, Retail
Solutions, and Technology Solutions. See note 13 to
consolidated financial statements included in Item 15, for
additional discussion.
As disclosed in previous filings, the company sold its KeyLink
Systems Distribution business (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:
|
|
|
Grow sales to $1 billion in two years and to
$1.5 billion in three years. Much of the growth will come
from acquisitions.
|
|
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 of the macroeconomic environment,
significant risk in the credit markets and changes in demand for
IT products, the company is reevaluating its long-term revenue
goals and acquisition strategy.
The company experienced solid demand across its base business
and its newly acquired businesses in 2008, with base business
net sales increasing 7.5% year-over-year and newly acquired
businesses contributing $262.6 million of incremental sales
during the year. Gross margin as a percentage of sales decreased
two percentage points year-over-year at 23.4% and 25.4% at
March 31, 2008, and 2007, respectively, which was above our
long-term goal of achieving gross margins in excess of 20%.
For financial reporting purposes, the prior period operating
results of KSG have been classified as discontinued operations.
Accordingly, the discussion and analysis presented below,
including the comparison to prior periods, reflects the
continuing business of Agilysys.
The following discussion of the companys results of
operations and financial condition is intended to provide
information that will assist in understanding the companys
financial statements, including key changes in financial
statement components and the primary factors that accounted for
those changes.
13
Results of
Operations
2008 Compared
with 2007
Net Sales and
Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31
|
|
Increase (decrease)
|
(Dollars in thousands)
|
|
2008
|
|
2007
|
|
$
|
|
%
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
644,745
|
|
$
|
381,723
|
|
$
|
263,022
|
|
|
68.9
|
Service
|
|
|
126,215
|
|
|
92,847
|
|
|
33,368
|
|
|
35.9
|
|
Total
|
|
|
770,960
|
|
|
474,570
|
|
|
296,390
|
|
|
62.5
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
549,057
|
|
|
328,831
|
|
|
220,226
|
|
|
67.0
|
Service
|
|
|
41,749
|
|
|
25,032
|
|
|
16,717
|
|
|
66.8
|
|
Total
|
|
|
590,806
|
|
|
353,863
|
|
|
236,943
|
|
|
67.0
|
|
Gross margin
|
|
|
180,154
|
|
|
120,707
|
|
|
59,447
|
|
|
49.2
|
Gross margin percentage
|
|
|
23.4%
|
|
|
25.4%
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
199,258
|
|
|
133,185
|
|
|
66,073
|
|
|
49.6
|
Restructuring credits
|
|
|
(75)
|
|
|
(2,531)
|
|
|
2,456
|
|
|
97.0
|
|
Operating loss
|
|
$
|
(19,029)
|
|
$
|
(9,947)
|
|
$
|
(9,082)
|
|
|
(91.3)
|
Operating loss percentage
|
|
|
(2.5)%
|
|
|
(2.1)%
|
|
|
|
|
|
|
|
Net sales. The $296.4 million increase in
net sales was largely driven by an increase in hardware revenue.
Hardware revenue increased $223.6 million year-over-year.
The increase in hardware revenue was principally due to higher
revenues generated from the acquisitions which contributed
$205.7 million. Innovativ contributed $162.0 million
of the $205.7 million.
The technology solutions business sales increased
$212.9 million primarily due to the Innovative and Stack
acquisitions, which contributed $175.3 million and
$46.2 million, respectively. The hospitality solutions
business sales increased $46.9 million primarily due to the
InfoGenesis and Eatec acquisitions, which contributed $31.4 and
$0.9 million respectively. The retail solutions business
sales increased $37.0 million primarily due to respective
changes in sales volume.
Gross Margin. The $59.4 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.
The technology solutions business gross margin increased
$32.2 million primarily due to the Innovative and Stack
acquisitions, which contributed $34.1 million and
$6.1 million, respectively. The hospitality solutions
business gross margin increased $24.1 million primarily due
to the InfoGenesis and Eatec acquisitions, which contributed
$15.5 and $0.8 million, respectively. The retail solutions
business 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 $66.1 million increase in
SG&A expenses was mainly driven by the following key
factors: incremental operating expenses of $0.4, $25.8, $16.6,
and $8.3 million related to the acquisitions of Eatec,
Innovativ, InfoGenesis, and Stack, respectively, outside
services expense of $4.2 million, and rental expense of
$2.5 million. The remaining increase in SG&A was
principally due to higher stock-based compensation and benefits
costs.
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 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
14
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
|
|
$
|
(6,632
|
)
|
|
$
|
6,025
|
|
|
$
|
12,657
|
|
|
|
210.1%
|
|
Interest income
|
|
|
(13,101
|
)
|
|
|
(5,133
|
)
|
|
|
7,968
|
|
|
|
155.2%
|
|
Interest expense
|
|
|
945
|
|
|
|
2,731
|
|
|
|
1,786
|
|
|
|
65.4%
|
|
|
Total other (income) expenses
|
|
$
|
(18,788
|
)
|
|
$
|
3,623
|
|
|
$
|
22,411
|
|
|
|
618.6%
|
|
|
Other (income) expense, net. The
$12.7 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 the current year. The company
recognized a $1.5 million increase in foreign currency
transaction gains during the current year compared with last
year 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 which included a
fourth quarter gain on sale 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 the current year compared
with last year. 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 the current year as the
company has used cash to acquire 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 FIN 48 which were
partially offset by higher meals and entertainment expenses
incurred in marketing the companys products.
15
2007 Compared
with 2006
Net Sales and
Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31
|
|
Increase (decrease)
|
(Dollars in thousands)
|
|
2007
|
|
2006
|
|
$
|
|
%
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
381,723
|
|
$
|
381,902
|
|
$
|
(179)
|
|
|
NM
|
Service
|
|
|
92,847
|
|
|
87,082
|
|
|
5,765
|
|
|
6.6%
|
|
Total
|
|
|
474,570
|
|
|
468,984
|
|
|
5,586
|
|
|
1.2%
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
328,831
|
|
|
336,339
|
|
|
(7,508)
|
|
|
(2.2)%
|
Service
|
|
|
25,032
|
|
|
25,676
|
|
|
(644)
|
|
|
(2.5)%
|
|
Total
|
|
|
353,863
|
|
|
362,015
|
|
|
(8,152)
|
|
|
(2.3)%
|
|
Gross margin
|
|
|
120,707
|
|
|
106,969
|
|
|
13,738
|
|
|
12.8%
|
Gross margin percentage
|
|
|
25.4%
|
|
|
22.8%
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
133,185
|
|
|
123,058
|
|
|
10,127
|
|
|
8.2%
|
Restructuring (credits) charges
|
|
|
(2,531)
|
|
|
5,337
|
|
|
(7,868)
|
|
|
(147.4)%
|
|
Operating loss
|
|
$
|
(9,947)
|
|
$
|
(21,426)
|
|
$
|
11,479
|
|
|
53.6%
|
Operating loss percentage
|
|
|
(2.1)%
|
|
|
(4.6)%
|
|
|
|
|
|
|
|
Net sales. The $5.6 million increase in
net sales was driven by an increase in services revenue.
Proprietary service revenue increased $3.0 million
year-over-year. The increase in proprietary service revenue was
principally due to higher revenues generated from the
companys hospitality solutions group. Remarketed service
revenue, which is classified on a net basis within
the statement of operations, increased $2.7 million
year-over-year. The increase in remarketed service revenue was
principally due to higher sales volume of HP remarketed services.
The technology solutions business sales increased
$22.6 million, the hospitality solutions business sales
decreased $4.9 million and the retail solutions business
sales decreased $11.0 million primarily due to respective
changes in sales volumes.
Gross Margin. The $13.7 million increase
in gross margin was driven by the overall increase in sales as
well as a higher mix of software and service revenue, which
traditionally results in higher gross margin.
The technology solutions business gross margin increased
$7.9 million, which is directly attributable to the
increase in net sales while the hospitality and retail solutions
businesses experienced declining sales, margins increased $1.3
million and $0.2 million respectively between 2008 and 2007. The
increase is due to higher service sales, which carry higher
margins over declines in product sales, which have lower margins.
Operating Expenses. The companys
operating expenses consist of SG&A expenses and
restructuring (credits) charges. The $10.1 million increase
in SG&A expenses was mainly driven by the following key
factors: incremental operating expenses of $3.0 million
associated with the companys entrance into the China
market, incremental operating expenses of $0.9 million
related to the acquisition of Visual One, share-based
compensation expense of $3.6 million, offset by a
$2.5 million decline in bad debt expense. Regarding the
increase in stock-based compensation expense, the company began
to expense stock option awards at the beginning of 2007 upon
adoption of FAS 123R. Regarding the decline in bad debt expense,
the company continued to experience an overall improvement in
its accounts receivable base. The remaining increase in
SG&A was principally due to higher compensation and
benefits costs driven by annual wage increases for the
companys employee base.
Restructuring (credits) charges decreased $7.9 million
during 2007. 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 leased
facility to house the majority of its remaining IT Solutions
Business and
16
corporate personnel. Accordingly, the reversal of the remaining
restructuring liability was classified as a restructuring credit
in the consolidated statement of operations. The 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. Additionally, 2006 included
charges of $4.2 million to consolidate a portion of the
companys operations to reduce costs and increase future
operating efficiencies. As part of the 2006 restructuring
effort, the company exited certain leased facilities, reduced
its workforce and executed a senior management realignment and
consolidation of responsibilities.
Other (Income)
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31
|
|
|
Favorable (unfavorable)
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
Other (income) expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income), net
|
|
$
|
6,025
|
|
|
$
|
(1,094
|
)
|
|
$
|
(7,119
|
)
|
|
|
(650.7)%
|
Interest income
|
|
|
(5,133
|
)
|
|
|
(4,451
|
)
|
|
|
682
|
|
|
|
15.3%
|
Interest expense
|
|
|
2,731
|
|
|
|
6,069
|
|
|
|
3,338
|
|
|
|
55.0%
|
Loss on redemption of Mandatorily Redeemable Convertible Trust
Preferred Securities
|
|
|
|
|
|
|
4,811
|
|
|
|
4,811
|
|
|
|
100.0%
|
|
Total other expenses
|
|
$
|
3,623
|
|
|
$
|
5,335
|
|
|
$
|
1,712
|
|
|
|
32.1%
|
|
Other (income) net. The $7.1 million
unfavorable change in other expense (income), net, was
principally due to a $0.9 million decline in earnings from
the companys equity method investment and
$5.9 million impairment charge for the write-down of the
companys equity method investment to its estimated
realizable value. 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.
Interest expense. The $3.3 million
favorable change in interest expense was largely driven by the
companys lower debt level resulting from the retirement of
its 9.5% Senior Notes in August 2006.
Loss on redemption of Trust Preferred
Securities. In connection with the companys
redemption of its Trust Preferred Securities in the first
quarter of 2006, the company wrote off deferred financing fees
of $2.7 million. The financing fees, incurred at the time
of issuing the Trust Preferred Securities, were being
amortized over a
30-year
period ending on March 31, 2028, which was the maturity
date of the Trust Preferred Securities. The write off of
deferred financing fees, along with the $2.1 million
premium paid for the redemption, resulted in a loss of
$4.8 million in 2006.
Income
Taxes
The company recorded an income tax benefit from continuing
operations at an effective tax rate of 14.3% in 2007 compared
with an income tax benefit at an effective rate of 26.0% in
2006. The decrease in the rate is primarily attributable to the
indefinite reinvestment of all earnings (losses) generated by
the companys foreign equity method investment, including
the 2007 impairment charge recognized by the company for the
write-down of its investment. In 2007, the company recognized a
tax benefit (reduction in valuation allowance) for
$1.2 million of Canada deferred tax assets.
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.
17
Contractual
Obligations
The following table provides aggregated information regarding
the companys contractual obligations as of March 31,
2008. These obligations are discussed in detail in the preceding
paragraphs and notes 7 and 8 to the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
647
|
|
|
$
|
305
|
|
|
$
|
289
|
|
|
$
|
53
|
|
|
$
|
|
|
Operating leases (1)
|
|
|
21,177
|
|
|
|
5,625
|
|
|
|
7,547
|
|
|
|
3,390
|
|
|
|
4,615
|
|
Purchase obligations (2)
|
|
|
1,320,000
|
|
|
|
330,000
|
|
|
|
660,000
|
|
|
|
330,000
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,341,824
|
|
|
$
|
335,930
|
|
|
$
|
667,836
|
|
|
$
|
333,443
|
|
|
$
|
4,615
|
|
|
|
|
|
(1)
|
|
Lease obligations are presented net
of contractually binding sub-lease arrangements.
|
(2)
|
|
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.
|
At March 31, 2008, the company had $3.6 million
accrued for potential income tax uncertainties and
$20.2 million accrued for employee benefit plan
obligations, both of which are excluded from the contractual
obligations table as the timing of payment cannot be reasonably
estimated.
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 mainly consists of lease and
rental obligations at March 31, 2008. The company believes
that cash flow from operating activities, cash on hand, and
access to capital markets will provide adequate funds to meet
its short-and long-term liquidity requirements.
As of March 31, 2008, the companys total debt was
approximately $1.0 million and consisted of
$0.5 million of capital lease obligations and
$0.5 million of long term customer deposits. As of
March 31, 2007, the companys total debt was
approximately $0.1 million, and consisted of capital lease
obligations.
Revolving Credit
Facility
The company had a $200 million unsecured credit facility
(Facility) that expires in 2010. At March 31, 2008,
the company had $199 million available under the Facility given
certain letter of credit commitments. The Facility included a
$20 million sub-facility for letters of credit and a $20 million
sub-facility for swingline loans. The Facility was available to
refinance existing debt, provide for working capital
requirements, capital expenditures and general corporate
purposes of the company including acquisitions. Borrowings under
the Facility bore interest at various levels over LIBOR. The
Facility contained various compliance and financial covenants.
The company was in default of its covenants as a result of its
failure to timely file this report with the SEC and other
technical requirements. There were no amounts outstanding under
the Facility at March 31, 2008.
18
Cash
Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31
|
|
|
Increase (decrease)
|
|
|
Year ended March 31
|
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
2006
|
|
|
|
Net Cash (used for) provided by continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(160,613
|
)
|
|
$
|
152,386
|
|
|
$
|
(312,999
|
)
|
|
$
|
(25,411
|
)
|
Investing activities
|
|
|
(240,654
|
)
|
|
|
469,976
|
|
|
|
(710,630
|
)
|
|
|
(37,744
|
)
|
Financing activities
|
|
|
(137,390
|
)
|
|
|
(51,288
|
)
|
|
|
(86,102
|
)
|
|
|
(105,985
|
)
|
Effect of foreign currency fluctuations on cash
|
|
|
1,314
|
|
|
|
(97
|
)
|
|
|
1,411
|
|
|
|
367
|
|
|
Cash flows (used for) provided by continuing operations
|
|
|
(537,343
|
)
|
|
|
570,977
|
|
|
|
(1,108,320
|
)
|
|
|
(168,773
|
)
|
Net operating and investing cash flows provided by (used for)
discontinued operations
|
|
|
3,272
|
|
|
|
(114,160
|
)
|
|
|
117,432
|
|
|
|
74,743
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(534,071
|
)
|
|
$
|
456,817
|
|
|
$
|
(990,888
|
)
|
|
$
|
(94,030
|
)
|
|
Cash flow (used for) provided by operating
activities. The $313.0 million decline in
cash used for operating activities was due to the decrease in
accrued income taxes payable of $271.5 million as a result
of the payment of taxes related to the gain on sale of KSG. The
remainder of the increase was principally driven by changes in
working capital.
Cash flow (used for) provided by investing
activities. The $710.6 million decline in
cash used for investing activities was principally due to the
$485.0 million proceeds received from the sale of KSG in
2007. Additionally, more cash was used in 2008 for business
acquisitions compared with 2007. The companys cash outflow
for the acquisition of Eatec, Innovativ, InfoGenesis, and Stack
in 2008 was $236.2 million (net of cash acquired) compared
with $10.6 million (net of cash acquired) for Visual One in
2007.
Cash flow used for financing activities. The
$86.1 million decline in cash used for financing activities
was principally driven by the companys redemption of its
common shares for treasury for a total cost of
$150.0 million and the increase in cash of $14.6 relating
to the floor plan financing agreement. In 2007, there was a
$59.6 million use of cash for principal payments under long
term obligations, of which $59.4 million related to the
companys retirement of its Senior Notes.
Critical
Accounting Policies, Estimates &
Assumptions
The management discussion and analysis of its financial
condition and results of operations are 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 material
adjustments to the companys accounting policies were made
in 2008. 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 and storage 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 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.
19
Regarding hardware sales, revenue is generally recognized when
the product is shipped to the customer and when there are not
unfulfilled obligations that affect the customers final
acceptance of the arrangement. A portion 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
with the customer and product returns, 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.
Regarding software sales, the company offers proprietary
software as well as remarketed software to its customers.
Generally, software sales do not require significant production,
modification, or customization at the time of shipment
(physically or electronically) to the customer. As such, revenue
from both proprietary and remarketed software sales is generally
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.
Regarding sales of services, the company offers proprietary and
third-party services to its customers. Proprietary services
generally are as follows: consulting, installation, integration,
and maintenance. Revenue relating to consulting, installation,
and integration services is recognized when the service is
performed. For certain long-term proprietary service contracts,
the company follows the percentage-of-completion method of
accounting. Accordingly, income is recognized in the ratio that
work performed bears to estimated total work to be performed on
the contract. 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. Revenue relating to maintenance services is
recognized evenly over the coverage period of the underlying
agreement. 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 frequent 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.
Deferred Taxes. 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 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.
Goodwill and Long-Lived Assets. 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.
20
Restructuring and Other Special Charges. The
company recorded a reserve in connection with reorganizing its
ongoing business. The reserve principally includes estimates
related to employee separation costs and the consolidation and
impairment of facilities deemed inconsistent with continuing
operations. Actual amounts could be different from those
estimated. Determination of the impairment of assets 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.
Recently
Issued Accounting Pronouncements
In May 2008, the FASB issued Statement No. 163,
Accounting for Financial Guarantee Insurance Contracts, and
interpretation of FASB Statement No. 60
(Statement 163). Statement 163 requires that an
insurance enterprise recognize a claim liability prior to an
event of default (insured event) when there is evidence that
credit deterioration has occurred in an insured financial
obligation. Statement 163 is effective for fiscal years after
December 15, 2008, or fiscal year 2010 for the company. The
company is currently evaluating the impact, if any, that
Statement 163 will have on its financial position, results of
operations and cash flows.
In May 2008, the FASB issued Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(Statement 162). Statement 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 GAAP. Statement 162 is effective 60 days
following the SECs approval of the Public Company
Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The company is currently
evaluating the impact, if any, that Statement 162 will have on
its financial position, results of operations and 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 (Statement 161). Statement 161
enhances the disclosures about an entitys derivative and
hedging activities. Statement 161 is effective for fiscal
periods beginning after November 15, 2008, or
January 1, 2009, for the company. The company is currently
evaluating the impact, if any, that Statement 161 will have on
its financial position, results of operations and 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 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.
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 (Statement 159). Statement 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. Statement
159 also establishes presentation and disclosure requirements
designed to draw comparison between the different measurement
attributes the company elects for similar
21
types of assets and liabilities. Statement 159 is effective for
fiscal years beginning after November 15, 2007, or fiscal
2009 for the company. The company is currently evaluating the
impact that Statement 159 will have on its financial position,
results of operations and cash flows.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (Statement 157).
Statement 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.
Statement 157 applies under those previously issued
pronouncements that prescribe fair value as the relevant measure
of value, except FAS No. 123R and related
interpretations and pronouncements that require or permit
measurement similar to fair value but are not intended to
measure fair value. Statement 157 is effective for fiscal years
beginning after November 15, 2007, or fiscal 2009 for the
company. The company is currently evaluating the impact that
Statement 157 will have on its financial position, results of
operations and cash flows.
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. As a result of the implementation of
FIN 48, the company recognized approximately
$2.9 million increase in the liability for unrecognized tax
benefits, which was accounted for as a reduction to the
April 1, 2007 balance of retained earnings. As of
March 31, 2008 and 2007, the company had a liability of
uncertain tax positions, excluding interest, penalty, and
federal benefit of $6.0 million and $8.1 million
respectively. A reconciliation of the beginning and ending
balance of unrecognized tax benefits is as follows:
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Balance at March 31, 2007
|
|
$
|
8,055
|
|
Additions:
|
|
|
|
|
Relating to positions taken during current year
|
|
|
1,372
|
|
Due to business acquisitions
|
|
|
3,454
|
|
Reductions:
|
|
|
|
|
Relating to tax settlements
|
|
|
(4,635
|
)
|
Relating to positions taken during prior year
|
|
|
(899
|
)
|
Due to business acquisitions
|
|
|
(1,350
|
)
|
|
Balance at March 31, 2008
|
|
$
|
5,997
|
|
|
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, 2008, and 2007, the company had
approximately $1.2 million and $1.0 million of
interest and penalties accrued, respectively.
As of March 31, 2008, the company has a liability of
$2.6 million related to uncertain tax positions and
$1.0 million related to interest and penalties, the
recognition of which would affect the companys effective
income tax rate.
The company anticipates the completion of a state income tax
audit in the next twelve months which could reduce the
accrual for unrecognized tax benefits by $0.2 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 being audited by multiple state taxing
jurisdictions. In material jurisdictions, the company has
potential tax examination years open back to and including 1998
which may be subject to tax authority examination.
Business
Combinations
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 condensed consolidated
financial statements from that date forward. Eatecs
software, EatecNetX (now called Eatec Solutions by Agilysys), is
a
22
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 preliminary
allocation of the acquisition cost to the net assets acquired,
approximately $24.8 million has been assigned to goodwill.
The company is still in the process of valuing certain
intangible assets; accordingly, allocation of the acquisition
cost is subject to modification in the future. Goodwill
resulting from the Eatec acquisition will not be deductible for
income tax purposes.
Innovative
Systems Design, Inc.
On July 2, 2007, the company acquired all of the shares of
Innovative Systems Design, Inc. (Innovativ), the
largest U.S. commercial reseller of Sun Microsystems
servers and storage products. Accordingly, the results of
operations for Innovativ have been included in the accompanying
condensed consolidated financial statements from that date
forward. Innovativ is an integrator and solution provider of
servers, enterprise storage management products and professional
services. The acquisition of Innovativ establishes a new and
significant relationship between Sun Microsystems and the
company. Innovativ was acquired for an initial cost of
$108.6 million. Additionally, the company agreed 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 originally was limited to a maximum payout of
$90.0 million. During the fourth quarter of 2008, the
company recognized $35.0 million of the $90.0 million
maximum earn-out, which was paid in the first quarter of 2009.
In addition, the company amended its agreement with the
Innovativ shareholders whereby the maximum payout available to
the Innovativ shareholders was limited to $58.65 million,
inclusive of the $35 million. 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.
During the fourth quarter, 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. The calculated Innovativ intangible
asset amortization expense for the fourth quarter was
$3.4 million. The company actually recorded
$7.0 million during the fourth quarter, which includes the
final estimated amortization upon completion of the purchase
price allocation and change in estimate for the second and third
quarter recorded expense.
Based on managements allocation of the acquisition cost to
the net assets acquired, approximately $97.8 million has
been assigned to goodwill. Goodwill resulting from the Innovativ
acquisition will be deductible for income tax purposes.
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. 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.
Based on managements preliminary allocation of the
acquisition cost to the net assets acquired, approximately
$71.7 million has been assigned to goodwill. InfoGenesis
had intangible assets with a net book value of
$18.3 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, $4.5 million to
customer relationships, and $10.8 million to trade names,
which have an indefinite life. Management will amortize the
developed technology and the customer relationships over useful
lives ranging from six months to seven years. Amortization
expense of $0.6 million and $2.0 million for the
quarter and year ended March 31, 2008, respectively, has
been recognized by the company relating to the identified
intangible assets. Management is in the process of evaluating
the acquired intangible assets, including an evaluation of
additional intangible assets not previously recognized by
InfoGenesis, and determining the appropriate fair value.
Management expects to complete this analysis within one year of
the date of acquisition. Accordingly, allocation of the
acquisition cost is subject to modification in the future. In
subsequent periods, the nature and amount of any material
adjustments made to the initial allocation of the purchase price
will be disclosed. Goodwill resulting from the InfoGenesis
acquisition will not be deductible for income tax purposes.
23
The following is a condensed balance sheet showing the fair
values of the assets acquired and the liabilities assumed as of
the date of acquisition:
Condensed balance
sheet as of the date of acquisition
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Innovativ
|
|
|
InfoGenesis
|
|
|
|
Current assets
|
|
$
|
82,815
|
|
|
$
|
18,321
|
|
Property and equipment
|
|
|
1,247
|
|
|
|
5,944
|
|
Intangible assets
|
|
|
29,730
|
|
|
|
18,291
|
|
Goodwill arising after the acquisition
|
|
|
97,781
|
|
|
|
71,662
|
|
|
Total Assets
|
|
|
211,573
|
|
|
|
114,218
|
|
Current Liabilities
|
|
|
67,630
|
|
|
|
18,281
|
|
Long-term debt
|
|
|
|
|
|
|
649
|
|
Other long-term obligations
|
|
|
|
|
|
|
8,185
|
|
|
Total liabilities
|
|
|
67,630
|
|
|
|
27,115
|
|
|
Net assets acquired
|
|
$
|
143,943
|
|
|
$
|
87,103
|
|
|
Pro Forma
Disclosure of Financial Information
The following table summarizes the companys unaudited
consolidated results of operations as if the InfoGenesis and
Innovativ acquisitions occurred on April 1:
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended March 31
|
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
Net Sales
|
|
$
|
851,893
|
|
|
$
|
750,681
|
|
Income from continuing operations
|
|
$
|
2,252
|
|
|
$
|
3,194
|
|
Net income
|
|
$
|
5,242
|
|
|
$
|
241,749
|
|
Earnings per share basic and diluted
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.08
|
|
|
$
|
0.10
|
|
Net income
|
|
$
|
0.19
|
|
|
$
|
7.88
|
|
Earnings per share diluted
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.08
|
|
|
$
|
0.10
|
|
Net income
|
|
$
|
0.18
|
|
|
$
|
7.88
|
|
|
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. 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 has made a preliminary 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
24
using an accelerated amortization method. The cumulative
amortization expense of $1.3 million relating to the
identified intangible assets from the acquisition date through
December 31, 2007, was recognized during the third quarter
of 2008.
Based on managements allocation of the acquisition cost to
the net assets acquired, approximately $13.3 million has
been assigned to goodwill. Goodwill resulting from the Stack
acquisition is deductible for income tax purposes.
2007
Acquisition
Visual One
Systems Corporation
On January 23, 2007, the company acquired all the shares of
Visual One Systems Corporation (Visual One Systems),
a leading developer and marketer of Microsoft Windows-based
software for the hospitality industry. The acquisition provides
the company with 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 One Systems 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. Amortization expense
of $0.2 million and $1.1 million for the quarter and
year ended March 31, 2008, respectively, has been
recognized by the company relating to the identified intangible
assets.
Based on managements allocation of the acquisition cost to
the net assets acquired, including identified intangible assets,
approximately $9.4 million has been assigned to goodwill.
Goodwill resulting from the Visual One Systems acquisition is
not deductible for income tax purposes.
2006
Acquisitions
Mainline China
and Hong Kong
On December 8, 2005, the company acquired the China and
Hong Kong operations of Mainline Information Systems, Inc.
Accordingly, the results of operations for the China and Hong
Kong operations have been included in the accompanying
consolidated financial statements from that date forward. The
business specializes in IBM information technology enterprise
solutions for large and medium-sized businesses and banking
institutions in the China market, and has sales offices in
Beijing, Guangzhou, Shanghai and Hong Kong. The business
provides the company the opportunity to begin operations in
China with a nucleus of local workforce. The aggregate
acquisition cost for the China and Hong Kong operations was
$0.8 million. Based on managements allocation of the
acquisition cost to the net assets acquired, approximately
$0.8 million was assigned to goodwill. Goodwill resulting
from the acquisition of the China and Hong Kong operations will
not be deductible for income tax purposes.
The CTS
Corporations
On May 31, 2005, the company acquired The
CTS Corporations (CTS), a independent services
organization, specializing in information technology storage
solutions for large and medium-sized corporate customers and
public-sector clients. Accordingly, the results of operations
for CTS have been included in the accompanying consolidated
financial statements from that date forward. The addition of CTS
enhances the companys offering of comprehensive storage
solutions. The aggregate acquisition cost was
$27.8 million, which included repayment of
$2.6 million of CTS debt. Based on managements
allocation of the acquisition cost to the net assets acquired,
approximately $17.6 million was assigned to goodwill in
2006. Additionally, specifically identifiable intangible assets
were assigned a fair value of $9.8 million. Of the
intangible assets acquired, $9.4 million was assigned to
customer relationships, which is being amortized over ten years
using an accelerated method and $0.4 million was assigned
to non-compete agreements, which are being amortized over four
years using the straight-line method. During 2007, the company
adjusted the estimated fair value of acquired tax assets by $0.8
million, with a corresponding decrease to goodwill. Goodwill
resulting from the CTS acquisition will not be deductible for
income tax purposes.
Discontinued
Operations
Sale of KeyLink
Systems Distribution Business Assets and Operations
During 2007, the company sold the assets and operations of its
KeyLink Systems Distribution Business (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
25
KSG, the company exited all distribution-related businesses and
exclusively sells directly to end-user customers. By monetizing
the value of KSG, the company significantly increased its
financial flexibility and intends to redeploy the proceeds to
accelerate the growth, both organically and through acquisition,
of its IT solutions business. 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
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.
2006
Restructuring Activity
During 2006, the company recorded restructuring charges of
$4.2 million to consolidate a portion of its operations in
order to reduce costs and increase operating efficiencies. Costs
incurred in connection with the restructuring comprised one-time
termination benefits and other associated costs resulting from
workforce reductions as well as facilities costs relating to the
exit of certain leased facilities. Costs of $2.5 million
were incurred to reduce the workforce of KSG, professional
services business and to execute a senior management realignment
and consolidation of responsibilities. Facilities costs of
$1.7 million represented the present value of qualifying
exit costs, offset by an estimate for future sublease income.
Investments
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 was $0.1 million
and $6.2 million at March 31, 2008 and 2007,
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 Held For Sale at March 31,
2008
During 2008, the company maintained an equity interest in
Magirus AG (Magirus), a privately-owned European
enterprise computer systems distributor headquartered in
Stuttgart, Germany. The company held a 20% interest in Magirus
and accounted for the investment under the equity method.
Because of changing market conditions, Magirus experienced
several consecutive quarterly operating losses in fiscal 2007
which indicated an other-than-temporary loss condition.
Accordingly, at March 31, 2007, the companys
investment was written down to its estimated realizable value.
The amount of the write-down of $5.9 million was charged to
operations in 2007.
Prior to March 31, 2008, the company met the qualifications
to consider the asset as held for sale and decided to sell its
20% investment in Magirus. As a result, the company reclassified
its Magirus investment to investment held for sale in accordance
with FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (Statement
144).
Magirus has continued to experience consecutive quarterly
operating losses in each quarter of 2008 and, in the third
quarter, Magirus sold the IBM and HP portion of its distribution
business. Agilysys recorded, as other income, 20% of the equity
basis operating gains and losses totaling $6.2 million.
Additionally, the company increased the value of the investment
by recording an annual currency translation adjustment of
$3.4 million which was slightly offset by a
$0.1 million dividend which was recorded as a return of
capital. Subsequent to March 31, 2008, the company received
a dividend from Magirus (as a result of Magirus selling its
distribution business in fiscal 2008) of approximately
$7.3 million and sold its 20% ownership interest of
Magirus for approximately $2.3 million, resulting in
approximately $9.6 million of total proceeds received in
fiscal 2009. As a result of these events, the company adjusted
the fair market value of the investment as of March 31,
2008, to the net present value of the subsequent cash proceeds,
resulting in 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
an impairment charge of $4.9 million to write the
held-for-sale investment to its fair value less cost to sell.
As a result 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,
if any, of the Companys securities registration statements
or post-effective amendments until such time as the company
files audited financial
26
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: 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.
As of April 1, 2008, the company has 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 requires 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 is being used by the company because management does 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
options during 2008 was $3.5 million. As of March 31,
2008, total unrecognized stock based compensation expense
related to non-vested stock options was $1.8 million, which
is expected to be recognized over a weighted-average period of
13 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 2008, 2007 or 2006 fiscal years.
The company believes that inflation has had a nominal effect on
its results of operations in fiscal 2008, 2007 and 2006 and does
not expect inflation to be a significant factor in fiscal 2009.
Forward
Looking Information
Portions of this report contain current management expectations,
which may constitute forward-looking information. When used in
this Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere throughout
this Annual Report on
Form 10-K,
the words believes, anticipates,
plans, expects and similar expressions
are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933,
Section 21E of the Securities Exchange Act of 1934 and the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect managements current
opinions and are subject to certain risks and uncertainties that
could cause actual results to differ materially from those
stated or implied.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date
hereof. The company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Risks and
uncertainties include, but are not limited to, those described
above in Item 1A, Risk Factors.
27
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
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 2008, 2007, or 2006.
The company is currently exposed to interest rate risk from the
floating-rate pricing mechanisms on its revolving credit
facility; however, there were no amounts outstanding under the
credit facility in 2008, 2007, or 2006.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
The information required by this item is set forth beginning at
page 64 of this Annual Report on
Form 10-K.
|
|
Item 9.
|
Change
in and Disagreements With Accountants on Accounting and
Financial Disclosures.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation of
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, 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 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 material weakness,
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 Chief Executive
Officer and Chief Financial Officer, 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, 2008 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 that
the company did not maintain effective internal control over
financial reporting as a result of the material weakness
discussed below as of March 31, 2008.
Revenue Recognition Controls The aggregation of
several errors in the companys hospitality and retail
segments order processing operations 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 hospitality and
retail order processing operations. As a result of this review,
the company has taken and continues to implement the following
steps to prevent future errors from occurring:
1. Mandatory training for all sales operations personnel
including procedure and process review, and awareness and
significance of key controls;
2. Additional review and approval on documents supporting
all transactions greater than $100,000 by the Sales Operations
Management; and
3. Enhanced monthly sales cutoff testing by the
companys Internal Audit Department to ensure proper and
timely revenue recognition.
28
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, 2008, which is included elsewhere herein.
Change in
Internal Control over Financial Reporting
The company continues to integrate each acquired entitys
internal controls over financial reporting into the
companys own internal controls over financial reporting,
and will continue to review and, if necessary, make changes to
each acquired entitys internal controls over financial
reporting until such time as integration is complete. No change
in our internal control over financial reporting occurred during
the companys last quarter of 2008 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting. However, during the
first quarter of fiscal 2009, the company began implementing the
remedial measures described above.
|
|
Item 9B.
|
Other
Information.
|
None.
29
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
At the companys next Annual Meeting the shareholders will
elect three Class B Directors for a three-year term ending
at the Annual Meeting in 2011. The Board of Directors have not
yet determined a date for the Annual Meeting or the nominees for
election at the Annual Meeting.
For each of the Directors who served on the Board of Directors
for the company, as of March 31, 2008, the following table
shows: name; principal job for the past five years and
directorships in other publicly-held corporations; the year
during which service as a Director began or will begin; age; and
when the service as a Director ends or will end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation or Employment
|
|
Director
|
|
|
|
|
|
|
for Past Five Years and Other
|
|
Continuously
|
|
|
|
Term
|
Name
|
|
Directorships of Publicly-Held Corporations
|
|
Since
|
|
Age
|
|
Expiration
|
|
|
Class A Directors
|
Keith M. Kolerus (1)
|
|
Retired Vice President, American Division, National
Semiconductor (Computer Components), from 1996 to February 1998;
Chairman of the Board of Directors of ACI Electronics, LLC,
since 2004; Chairman of the Board of Directors, National
Semiconductor Japan Ltd., from 1995 to 1998.
|
|
|
1998
|
|
|
|
62
|
|
|
|
2010
|
|
Robert A. Lauer
|
|
Retired from Accenture (formerly known as Andersen Consulting)
in August 2000, Mr. Lauer held numerous managing partner
responsibilities, operational and service line leadership roles
during his thirty-one year career, most recently serving as
Managing Partner of Andersen Consultings eHuman
Performance Global Line of Business.
|
|
|
2001
|
|
|
|
64
|
|
|
|
2010
|
|
Robert G. McCreary, III
|
|
Founder and currently a principal of CapitalWorks, LLC (Private
Equity Group), Mr. McCreary has served in numerous managing
partner positions in investment banking firms and as a partner
in a large regional corporate law firm.
|
|
|
2001
|
|
|
|
56
|
|
|
|
2010
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation or Employment
|
|
Director
|
|
|
|
|
|
|
for Past Five Years and Other
|
|
Continuously
|
|
|
|
Term
|
Name
|
|
Directorships of Publicly-Held Corporations
|
|
Since
|
|
Age
|
|
Expiration
|
|
|
Class B Directors
|
Thomas A. Commes
|
|
Retired President and Chief Operating Officer of The
Sherwin-Williams Company (Paints and Painting Supplies
Manufacturer and Distributor) from June 1986 to March 1999 and a
Director of The Sherwin-Williams Company from April 1980 to
March 1999; Director, Applied Industrial Technologies, Inc.,
Pella Corporation and
U-Store-It
Trust (REIT).
|
|
|
1999
|
|
|
|
66
|
|
|
|
2011
|
|
Curtis J. Crawford(2)
|
|
Founder, President and Chief Executive Officer of XCEO, Inc.
(Executive Counseling and Coaching Services); Dr. Crawford
currently serves as a member of the Board of Directors of E.I.
DuPont de Nemours and Company, ITT Industries, Inc., and ON
Semiconductors.
|
|
|
2005
|
|
|
|
60
|
|
|
|
2011
|
|
Howard V. Knicely
|
|
Executive Vice President, Human Resources & Communications
of TRW, Inc. (Aerospace, Software Systems and Automotive
Components) from 1995 through 2002; from 1989 to 1995, Executive
Vice President, Human Resources, Communications and Information
Systems at TRW; Director of TRW from April 2001 through 2002.
|
|
|
2002
|
|
|
|
72
|
|
|
|
2011
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation or Employment
|
|
Director
|
|
|
|
|
|
|
for Past Five Years and Other
|
|
Continuously
|
|
|
|
Term
|
Name
|
|
Directorships of Publicly-Held Corporations
|
|
Since
|
|
Age
|
|
Expiration
|
|
|
Class C Directors
|
Charles F. Christ
|
|
Retired Vice President and General Manager of Components
Division, Digital Equipment Corporation (Computer and Office
Equipment) from July 1994 to July 1997; Chairman of Board of
Directors of Dot Hill Systems Corp. since July 2000; President,
Chief Executive Officer and a member of the Board of Directors
of Symbios, Inc. from 1997 to August of 1998; member of the
Board of Directors of Maxtor, Inc. from August of 1995 until its
acquisition in 2006.
|
|
|
1997
|
|
|
|
69
|
|
|
|
2009
|
|
Arthur Rhein(3)
|
|
Chairman of the Board of the company since April 30, 2003;
President and Chief Executive Officer of the company since April
1, 2002; prior thereto, President and Chief Operating Officer of
the company since April 1997; Director of Orbit International,
Inc. since August 2004.
|
|
|
1990
|
|
|
|
62
|
|
|
|
2009
|
|
Eileen M. Rudden
|
|
Retired Vice President, and General Manager Unified
Communications Division, Avaya, Inc. (Communication Networks and
Systems), from 2003 to September 2007; Entrepreneur in
Residence, Axxon Capital, 2001 to 2003: Board of Directors of
John H. Harland Company, from 1999 to May 2007.
|
|
|
2007
|
|
|
|
58
|
|
|
|
2009
|
|
|
|
|
|
(1)
|
|
Mr. Kolerus was elected by the
Board as its independent Chairman on October 20, 2008.
|
(2)
|
|
Mr. Crawford resigned from the
Board, effective June 24, 2008. The Board appointed
Mr. R. Andrew Cueva to replace the vacancy created by
Mr. Crawfords resignation. Mr. Cueva, 38, is
Managing Director of MAK Capital Fund, L.P. since 2005.
|
(3)
|
|
Mr. Rhein retired from the
Board effective October 20, 2008. The Board appointed
Mr. Martin F. Ellis to serve as Chief Executive Officer of
the company due to Mr. Rheins retirement.
Mr. Ellis is President and Chief Executive Officer of the
Company since October 20, 2008, prior thereto, Executive
Vice President and Chief Financial Officer of the Company since
June 3, 2005, and prior thereto, Executive Vice President
Corporate Development and Investor Relations of the Company
since June, 2003.
|
Corporate
Governance and Related Matters
Corporate
Governance Guidelines
In May 2006, the Board of Directors adopted Amended Corporate
Governance Guidelines created and approved by the Nominating and
Corporate Governance Committee. The Guidelines provide a sound
framework to assist the Board in fulfilling its responsibilities
to shareholders. Under these Guidelines, the Board exercises its
role in overseeing the company by electing qualified and
competent officers, and by monitoring the performance of the
company. The Guidelines state that the Board and its Committees
will exercise oversight in the areas of CEO and executive pay,
director nomination, corporate governance, succession planning,
financial reporting, internal controls, and strategic and
operational issues. The Guidelines also state Board policy on
eligibility for the Board, including director independence
32
and qualifications for Board candidates, and Board policy
describing events that require resignation from the Board. A
complete copy of the Guidelines is available on the
companys website at www.agilysys.com.
Independence
It is the policy of the Board that a substantial majority of its
members should be independent. Upon the review and
recommendation of the Nominating and Corporate Governance
Committee, the Board has determined that all members of the
Audit, Compensation and Nominating and Corporate Governance
Committees are independent according to SEC
regulations and applicable stock exchange listing standards, and
that the members of these Committees have no direct or indirect
material relationships with the company other than their
position as Directors. The Board has also determined that all
members of the Audit Committee meet the additional independence
requirements for audit committee membership.
The following company Directors are independent:
Charles F. Christ
Thomas A. Commes
Curtis J. Crawford (1)
Howard V. Knicely
Keith M. Kolerus
Robert A. Lauer
Robert G. McCreary, III
Eileen M. Rudden
|
|
|
(1)
|
|
Mr. Crawford resigned from the
Board, effective June 24, 2008. The Board appointed
Mr. R. Andrew Cueva to replace the vacancy created by
Mr. Crawfords resignation. Mr. Cueva is an
independent director and meets the additional independence
requirements for audit committee membership.
|
Code of
Ethics
The company has adopted a Code of Business Conduct that applies
to all directors, officers and employees of the company. In
addition, the company has adopted a Code of Ethics for Senior
Financial Executives that applies to the Chief Executive
Officer, Chief Financial Officer and Controller of the company
and any person performing a similar function. The Code of
Business Conduct and the Code of Ethics for Senior Financial
Executives are available on the companys website at
www.agilysys.com. The company has in place a hotline,
managed by an independent third party, that all employees can
use to anonymously report potential violations of the Code of
Business Conduct or the Code of Ethics for Senior Financial
Executives.
Meeting of Board
of Directors and Attendance at Annual Meeting
The Board of Directors held seven meetings during 2008. During
2008, no Director attended less than 75% of the aggregate of
(i) the total number of meetings of the Board of Directors
held during the period he served as a Director and (ii) the
total number of meetings held by Committees of the Board on
which he/she served, during the periods that he/she served.
Independent Directors meet regularly in executive session at
each Board meeting. Such executive sessions were previously
chaired, on a rotating basis, by the Chairmen of the Audit,
Compensation, and Nominating and Corporate Governance
Committees. On October 20, 2008, the Board elected
Mr. Keith Kolerus as its independent chairman, replacing
Mr. Arthur Rhein, who retired effective that same day. As a
result, the Board will no longer require that the executive
sessions be chaired on a rotating basis.
It is the policy of the Board that all of its members attend the
Annual Meeting of Shareholders absent exceptional cause. All of
the Directors were in attendance at the July 2007 Annual Meeting
except one.
Shareholder
Communication with Directors
Shareholders and others who wish to communicate with the Board
of Directors as a whole, or with any individual Director, may do
so by sending a written communication to such Director(s) in
care of the company at its headquarters address. The
companys general counsel will forward the communication to
the Director(s) as instructed by the Director.
33
Committees of the
Board
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Nominating and
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Executive (4)
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Audit (4)
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Compensation (4)
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Corporate Governance (4)
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Charles F. Christ
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X
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Thomas A. Commes (1)
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X
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Chairman
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X
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Curtis J. Crawford (2)
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X
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Chairman
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Keith M. Kolerus
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X
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X
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Robert A. Lauer
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X
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Robert G. McCreary, III
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X
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Arthur Rhein (3)
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Chairman
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Eileen M. Rudden
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X
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Howard V. Knicely
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Chairman
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X
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(1)
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Audit Committee Financial Expert
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(2)
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Mr. Crawford resigned from the
Board effective June 24, 2008. Mr. McCreary was
appointed as the Chairman of the Nominating and Corporate
Governance Committee following Mr. Crawfords
resignation. The Board did not replace Mr. Crawfords
seat on the Compensation Committee.
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(3)
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Mr. Rhein retired from the
Board, effective October 20, 2008.
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(4)
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Neither Mr. R. Andrew Cueva
nor Mr. Martin Ellis the Boards newest
members have been appointed to serve on any of the
Committees of the Board at this time.
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Executive Committee. The Executive Committee
exercises the power and authority of the Board of Directors as
needed between regular Board meetings. The Executive Committee
met once during the last fiscal year.
Audit Committee. The Audit Committee,
established in accordance with Section 3(a)(58)(A) of the
Exchange Act, reviews with the companys independent
registered public accounting firm the proposed scope of the
companys annual audits and audit results, reviews the
adequacy of internal financial controls, reviews internal audit
functions, is directly responsible for the appointment,
determination of compensation, retention and general oversight
of the independent registered public accounting firm and reviews
any concerns identified by either the internal or external
auditor. The Audit Committee held four meetings during the last
fiscal year. The Board of Directors has determined that all
Audit Committee members are financially literate under the
current Nasdaq listing standards. The Board has also determined
that Thomas A. Commes qualifies as an audit committee
financial expert under the rules adopted by the SEC under
the Sarbanes-Oxley Act of 2002. In January, 2005, the Board
adopted an Amended and Restated Charter, which is available on
the companys website at www.agilysys.com.
Compensation Committee. The purpose and
mission of the Compensation Committee of the Board of Directors
of the company is to enhance shareholder value by ensuring the
pay available to the Board of Directors, Chief Executive Officer
and other executive officers enables the company to attract and
retain high-quality leadership and is consistent with the
companys executive pay policy. As part of its
responsibility in this regard, the Compensation Committee
oversees the companys pay plans and policies, annually
reviews and determines all pay (including base salary and the
companys annual cash incentive, long-term stock incentive,
retirement and perquisite plans and programs), administers the
companys incentive programs (including establishing
performance goals, determining the extent to which performance
goals are achieved and calculating awards), administers the
companys equity pay plans (including making grants to the
companys executive officers) and regularly evaluates the
effectiveness of the overall executive pay program. A more
complete description of the Compensation Committees
functions is found in the Compensation Committees charter,
which is available on the companys website at
www.agilysys.com.
The Compensation Committee held six meetings during the last
fiscal year.
The companys Legal department and Human Resources
department support the Compensation Committee in its work and,
in some cases, as a result of delegation of authority by the
Compensation Committee, fulfill various functions in
administering the companys pay programs. In addition, the
Compensation Committee has the authority to engage the services
of outside advisers, experts and others to assist the Committee.
In fiscal year 2008, the Compensation Committee relied on the
services of Pearl Meyer & Partners, an executive
34
pay consulting firm, to provide input to facilitate the
Compensation Committees decision-making process regarding
the executive pay programs for the executive officers.
Specifically, the executive pay consulting firm:
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Provided input on executive pay levels among a peer group of
companies and from published and private salary surveys;
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Provided long-term incentive plan alternatives;
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Prepared tally sheets covering all aspects of executive
pay; and
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Assisted in the preparation of the Compensation Discussion and
Analysis.
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While the Compensation Committee directly retains the executive
pay consulting firm, in carrying out assignments the executive
pay consulting firm also interacted with the companys
executive officers when necessary and appropriate. Specifically,
the executive pay consulting firm interacted with the Chief
Executive Officer, Chief Financial Officer and Chief Human
Resources and Compliance Officer, who provided data and insight
on the companys compensation programs and business
strategies.
Several executive officers, including the Chief Executive
Officer and the Chief Human Resources and Compliance Officer,
attend Compensation Committee meetings when executive
compensation, company performance, and individual performance
are discussed and evaluated by Compensation Committee members.
The executive officers provide their thoughts and
recommendations on executive pay issues during these meetings
and also provide updates on financial performance, divestitures,
mergers and acquisitions, industry status and other factors that
may impact executive pay. Decisions regarding the Chief
Executive Officers compensation were based solely on the
Compensation Committees deliberations while compensation
decisions regarding other executive officers took into
consideration recommendations from the Chief Executive Officer.
Only Compensation Committee members make decisions on executive
pay and approve all outcomes.
Nominating and Corporate Governance
Committee. The Nominating and Corporate
Governance Committee held four meetings during the last fiscal
year. The Nominating and Corporate Governance Committee assists
the Board in finding and nominating qualified people for
election to the Board, assessing and evaluating the Boards
effectiveness, and establishing, implementing and overseeing the
companys governance programs and policies. The committee
has hired a third-party executive recruitment firm to help find
acceptable nominees for the Board. In January, 2005, the Board
adopted an Amended and Restated Charter of the Nominating and
Corporate Governance Committee, which is available on the
companys website at www.agilysys.com.
The Nominating and Corporate Governance Committee is responsible
for reviewing the qualifications of, and recommending to the
Board of Directors, individuals to be nominated for membership
on the Board of Directors. The Committee considers nominees
using the criteria for the composition of the Board and the
qualifications of members as outlined in the companys
Corporate Governance Guidelines.
The Nominating and Corporate Governance Committee will consider
shareholder recommendations for nominees for membership on the
Board of Directors. Shareholders may make a nominee
recommendation by sending the nomination to the Chairman of the
Nominating and Corporate Governance Committee, at the
companys headquarters address. The recommendation must
include:
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The name and address of the candidate;
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A brief biography, including his or her job for at least the
last ten years, and why the candidate is qualified; and
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The candidates signed consent to serve as a Director if
elected and to be named in the proxy statement.
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The Committee may request additional information from such
candidate to assist in its evaluation. The Committee will
evaluate any shareholder-recommended nominees in the same way it
evaluates candidates recommended by other sources, as described
above.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires the Companys Directors and certain of its
executive officers and persons who beneficially own more than
10% of the Common Shares to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC.
These persons are also required to furnish the Company with
copies of any filed Forms. Based solely on the Companys
review of the copies of Forms it has received, the Company
believes that each of its Directors, executive officers and
beneficial owners of more than 10% of the Common Shares
satisfied the Section 16(a) filing requirements during
2008, with the exception of Kenneth J. Kossin, Jr., and
Rita A. Thomas, each of whom made one late Form 4 filing
reporting a single stock option grant transaction.
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Item 11.
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Executive
Compensation.
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Compensation
Committee Interlocks and Insider Participation
None of the members of the Compensation Committee during fiscal
year 2008 or as of the date of this annual report is or has been
an officer or employee of the company, and no executive officer
of the company served on the compensation committee or board of
any company that employed any member of the companys
Compensation Committee or Directors.
35
Executive
Compensation
Compensation
Discussion and Analysis
The Compensation Committee adopted a pay philosophy, objectives
and structure for our Chief Executive Officer and Chief
Financial Officer, as well as the three next highest paid
executive officers together, the Named
Officers designed to achieve business goals and
create long-term shareholder value. Following input from our
executive compensation consultant, the Compensation Committee
reaffirmed this compensation philosophy, objectives and
structure at its meeting on May 23, 2008.
Compensation
Philosophy
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To pay a base salary and annual cash incentives and provide
long-term stock incentives targeted at a minimum of the
50th percentile of industry specific market
surveys; and
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To annually review compensation components based on industry
specific market surveys and to tie compensation to the dynamics
of the business strategy.
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Compensation
Objectives
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To attract, retain and motivate executives who can significantly
contribute to the success of the company;
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To reward the achievement of business objectives that have been
approved by the Board;
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To provide a rational, consistent and competitive executive
compensation program that is well understood by those to whom it
applies; and
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To tie a significant portion of executive compensation to the
long-term performance of our Common Shares.
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Compensation
Structure
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Base Salary fixed pay that takes into account each
executives roles and responsibilities, experience,
functional expertise and individual performance;
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Annual Incentives(1) cash-based variable pay based
on the achievement of company financial and business goals, with
target incentives set as a percentage of salary; and
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Long-Term Incentives incentives based on the equity
of the company in the form of performance shares and restricted
stock granted, designed to influence our executive officers to
maximize shareholder value.
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(1) In August 2008, our compensation committee modified the
basis of Annual Incentives for our Named Officers to be based on
achievement of subjective measures.
Key
Considerations Guiding Specific Decisions
Annual Goal
Setting
Each fiscal year, written goals are established for the Named
Officers. These goals are tied to the financial, strategic and
operational goals of the company and include company and
business specific financial targets relating to net sales, gross
margin, EBITDA and similar financial measures.
Each Named Officers goals are established with input from
and are reviewed by the independent Board members. The Chief
Executive Officer evaluates the performance and recommends the
total compensation award for each Named Officer, other than
himself. The Chief Executive Officers performance, against
these established goals, is reviewed by the Compensation
Committee and, based upon that evaluation; the Committee
determines the compensation of the Chief Executive Officer. The
Committee also reviews the performance of the companys
other Named Officers, taking into consideration the Chief
Executive Officers recommendation, and determines their
compensation based on that review.
External
Benchmarking
We did not conduct a formal external executive compensation
study in fiscal year 2008 due to the ongoing change to our
business mix. For purposes of determining fiscal 2008 pay levels
for our Named Officers, we relied on our fiscal 2007 study. The
information was used as a guide by the Compensation Committee in
making specific compensation decisions.
For fiscal year 2009, we conducted a formal executive
compensation study that showed our current pay levels for Named
Officers are generally commensurate with the market median. The
information was reviewed by the Compensation Committee in the
context of our executive pay philosophy, objectives and current
Named Officer pay levels prior to making decisions regarding
salary levels and
36
approving target annual incentives and equity grants for fiscal
year 2009. We also conducted a formal compensation study that
the Compensation Committee and full board used in setting fiscal
2009 Director pay.
Pay
Mix
The table below shows the target pay mix for each Named Officer
for fiscal year 2008:
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Target Annual
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Long Term
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Salary as
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Incentives as
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Incentive as
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% of Total
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% of Total
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% of Total
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Executive
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Title
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Compensation
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Compensation
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Compensation
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Arthur Rhein
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President & Chief Executive Officer
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30%
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30%
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40%
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Martin F. Ellis
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Executive Vice President & Chief Financial Officer
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35%
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21%
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44%
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Robert J. Bailey
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Executive Vice President
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35%
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21%
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44%
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Peter J. Coleman
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Executive Vice President
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35%
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21%
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44%
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Richard A. Sayers, II
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Executive Vice President, Chief Human Resources and Compliance
Officer
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35%
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21%
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44%
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Note: The above table takes into account
target annual incentives, not actual annual incentive payouts.
Long-term incentive percentages are based on the annualized
FAS 123R fair value of the equity stock grants as of the
date of the grants made in fiscal year 2008 for
Messrs. Ellis, Bailey, Coleman and Sayers and the
annualized value of the stock option grants made to
Mr. Rhein in fiscal 2007. All of the equity grants
discussed above were designed to be three-year grants, and vest
over the same three-year period, with no additional grants
planned for the following two years.
Pay Elements
and Programs
Taken together, the incentive components, which are at-risk pay,
represent a majority of the direct pay for each Named Officer,
while fixed compensation (salary) represents a minority of total
pay. Generally, our Chief Executive Officer has a larger overall
incentive pay opportunity than other executives because he is
believed to have a greater ability to influence financial and
shareholder return performance. Our Named Officers have greater
opportunities for long-term equity-based incentive compensation
than annual cash incentive compensation. As a result, greater
emphasis is placed on long-term shareholder value creation than
annual financial performance.
We set salaries based on the executives position,
individual performance and relation to pay levels in the
competing market. We also take into account changes in salaries
in the overall general market. Salaries are reviewed annually by
our Compensation Committee at its first meeting after the fiscal
year end, and changes in salary are based on the factors
discussed above as well as input from our Chief Executive
Officer. However, none of the factors are weighted according to
any specific formula and new salaries are set based on the
Compensation Committees discretion and judgment. At its
meeting in May 2008, our Compensation Committee did not increase
the salary of any of our Named Officers. In its meeting on
November 13, 2008, our Compensation Committee discussed
recommendations for the salary of Mr. Ellis, who was
promoted to President and Chief Executive Officer on
October 20, 2008, and Mr. Kenneth J. Kossin, Jr.,
who was promoted to Sr. Vice President and Chief Financial
Officer on October 20, 2008. In determining the salaries,
the Committee applied the same compensation philosophy as
described above, applying current data obtained from our
executive pay consultant based on salary surveys and information
of companies in the industry with revenue similar to that of the
company. On November 14, 2008, our Board agreed to the
changes in salary for each as follows:
Mr. Ellis $450,000; Mr. Kossin
$285,000.
Annual incentives are designed to motivate executives to achieve
key business goals and objective. We expect that achieving these
goals and objectives will result in the creation of shareholder
value. Target annual incentives are set at a percentage of
salary.
At its May 2007 meeting, the Compensation Committee approved the
Fiscal Year 2008 Annual Incentive Plan (the 2008 Annual
Plan). In the 2008 Annual Plan, we set a target incentive
for Mr. Rhein of 100% of salary and targets for each of the
other executive officers
37
of 60% of salary. Each of these targets was at least at the
minimum of the market median, based on information provided by
our executive pay consultant. We set maximum payments at 250% of
target incentive and threshold payments at 25% of target
incentive. Our Compensation Committee believes the payout range
provides an effective basis for annual incentive payouts based
on the expected near-term volatility of our performance as we
transform the company strategically. No annual incentive
payments will be made if threshold financial performance metrics
are not met.
The 2008 Annual Plan used three performance measures in order to
determine annual incentive payouts, as follows: revenues (25%),
EBITDA (50%) and discretionary based on business objectives
(25%). The financial performance metrics had to achieve 75% of
target before threshold would be paid and 150% of target must be
achieved for maximum payout. Each of the above performance
measures was independent of the others.
These performance measures were set at levels that were believed
to represent achievable performance at the threshold levels,
more demanding performance at the 100% target incentive levels,
and significantly more difficult performance at the maximum
levels, based on recent performance, historical trends and
future expectations. For fiscal year 2008, actual outcomes
versus the performance objectives resulted in an overall
achievement payout of 47.1% of target, which triggered payments
as represented in the Summary Compensation Table.
At its May 23, 2008 meeting, our Compensation Committee
elected to use the same metrics and weighting as those used
under the 2008 annual plan for fiscal year 2009 annual
incentives. However, in the August 1, 2008 meeting, our
Compensation Committee modified the basis of the Annual
Incentives for our Named Officers to be based on the achievement
of subjective measures. In its meeting on November 13,
2008, our Compensation Committee discussed recommendations for
the annual incentives of Mr. Ellis, who was promoted to
President and Chief Executive Officer on October 20, 2008,
and Mr. Kenneth J. Kossin, Jr., who was promoted to
Sr. Vice President and Chief Financial Officer on
October 20, 2008. On November 14, 2008, our Board
agreed to annual incentives for each as follows:
Mr. Ellis $337,500; Mr. Kossin
$142,500.
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(3)
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Long-Term Equity
Incentives
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We use our 2006 Stock Incentive Plan (the 2006 Equity
Plan) to grant various types of stock-based, or equity
incentives, including stock options, stock-settled stock
appreciation rights, restricted stock and restricted stock
units, performance shares and units, and other equity-based and
cash awards. The range of equity awards provides us the
flexibility to address specific pay objectives for our executive
officers, including motivating the creation of shareholder value
and retaining and attracting executives and other employees.
We have no role in the timing of the equity awards, but we
provide recommendations to the Compensation Committee regarding
who should receive the awards and the amounts. The equity
awards, amounts and timing are at the discretion of our
Compensation Committee. We chose to award performance shares and
restricted stock in fiscal year 2008 for the following reasons:
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Performance shares were used to drive long-term financial
performance over a three year period, ending on March 31,
2010. The performance measures and targets used as the basis for
earning the performance shares were a six-month annualized
revenue run rate of $1.5 billion by the six months of
fiscal 2010 and an EBITDA margin of 6% by or before the same
time frame.
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Restricted shares were used to provide retention for the senior
management team while we continued to affect our long-term
strategy.
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The Compensation Committee determines equity awards in its first
Compensation Committee meeting after the beginning of our fiscal
year and the grant price is set at the market-closing price on
that day. The following grants were made to the Named Officers
in fiscal year 2008:
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Mr. Rhein did not receive a stock award;
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Messrs. Ellis, Bailey and Coleman each received 40,000
performance shares and 20,000 restricted shares; and
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Mr. Sayers received 32,000 performance shares and 16,000
restricted shares.
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The number of shares awarded in the above grants was at the
market median, consistent with our pay philosophy. The
performance and restricted shares represent three years of
long-term incentive grants, and were made with the expectation
that no new equity grants would be made in either fiscal year
2009 or 2010.
Threshold, target and maximum performance objectives were also
set for each long-term performance measure. Performance at
threshold will result in vesting of 50% of the performance
shares, while performance at maximum will result in vesting of
150% of the performance shares. The performance shares will
cliff vest on March 31, 2010 based on the companys
success in achieving performance targets. Messrs. Bailey and
Coleman forfeited these shares upon termination of employment on
October 21, 2008.
The restricted stock will vest on the following schedule: 10% of
the shares vested on March 31, 2008, 30% will vest on
March 31, 2009 and the remaining 60% will vest on
March 31, 2010. Messrs. Bailey and Coleman forfeited all of
these shares, except the 10% that vested on March 31, 2008,
upon termination of employment on October 21, 2008.
38
As part of the negotiations for extending the term of
Mr. Rheins employment agreement for an additional
year to March 31, 2010 the
Compensation Committee agreed to provide Mr. Rhein a
restricted stock grant of 70,000 shares, to be made on
April 1, 2009, the first day of the extension of
Mr. Rheins employment agreement. The restricted
shares would have vested on March 31, 2010, assuming
continued employment by Mr. Rhein through that date.
However, Mr. Rhein retired on October 20, 2008,
thereby forfeiting these shares.
At its meeting in May 2008, the Compensation Committee did not
grant any additional equity awards to the Named Officers. In its
meeting on November 13, 2008, our Compensation Committee
discussed recommendations for equity awards for Mr. Ellis,
who was promoted to President and Chief Executive Officer on
October 20, 2008, and for Mr. Kenneth J.
Kossin, Jr., who was promoted to Sr. Vice President and
Chief Financial Officer on October 20, 2008. On
November 13, 2008, our Compensation Committee agreed to
give Mr. Kossin 45,000 stock options set at $2.51 a share
(the closing market price of the companys shares on that
day). On November 14, 2008, our Board agreed to give
Mr. Ellis 150,000 stock options set at $2.19 a share (the
closing market price of the companys shares on that day).
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(4)
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Deferred
Compensation Plans
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We allow our Named Officers to defer pay into a nonqualified
deferred compensation plan, which we call the Benefit
Equalization Plan (the BEP). We established the BEP
to provide our executives with the ability to contribute amounts
for retirement and to receive company profit sharing
contributions and 401(k) matches in excess of the contribution
amounts allowed under our tax-qualified Section 401(k)
Plan. We limit participation in the BEP to a select group of
management and other highly-paid employees, including the Named
Officers. The BEP is an unfunded plan and company-owned life
insurance is purchased as a source of funds to pay the benefits
from the BEP.
The Nonqualified Deferred Compensation Table provides additional
information on specific deferrals of pay, our matching of these
deferrals, if any, and balances in the BEP for each executive
officer. In addition, the discussion appearing in the
Nonqualified Deferred Compensation Plan section, below,
describes the BEP in more detail.
We started our Supplemental Executive Retirement Plan
(SERP) during fiscal year 2000 to provide cash
retirement benefits to a select group of key management
employees including the executive officers. Certain tax laws
limit the retirement benefits that highly-paid executives can
receive from a qualified retirement plan and the
SERP is designed to provide retirement benefits that are not
subject to these limits. In addition, the SERP provides a tool
to help us competitively recruit and retain executive officers.
The SERP provides cash benefits on an annual amount not to
exceed 50% of the executives final average annual
earnings, including both salary and annual incentives. The cash
benefit amount is reduced by other company-funded retirement
benefits, such as the match provided in the Section 401(k)
Plan, profit sharing amounts, and other company contributions to
the BEP, as well as 50% of Social Security retirement benefits.
The value of accrued benefits for each executive officer is
found in the Pension Benefits Table and the SERP is discussed in
more detail in the footnotes and the discussion appearing with
that table.
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(6)
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Other
Compensation Executive Benefits &
Perquisites
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We provide a program of executive benefits and perquisites to
our Named Officers including, but not limited to, additional
life and long-term disability insurance plans, contributions to
company benefit plans, automobile allowance, personal use of the
companys fractional interest in an airplane, financial
planning, attendance by guests at supplier events and club dues.
In addition, following the move of our corporate headquarters in
the 2007 fiscal year to Florida, each executive officer was
eligible for relocation monetary assistance for expenses
incurred during this relocation. These executive benefits and
perquisites are described in more detail in the Summary
Compensation Table and related footnotes. We believe these
benefit and perquisite programs enhance part of an overall
competitive package that serves to attract and retain executive
officers.
Post-Termination
Payments Change of Control and Severance
Payments
Our executive officers are parties to various employment, change
of control and non-competition agreements as follows:
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Mr. Rhein 2005 Amended and Restated Employment
Agreement (Employment Agreement), executed
December 23, 2005, and the 2008 Amendment and Extension
Agreement, executed January 28, 2008 (Extension
Agreement), with the Extension Agreement lengthening the
term of employment by one year and providing Mr. Rhein with
the equity grants described above;
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Mr. Ellis Change of Control Agreement, executed
on June 30, 2003, as amended on May 31, 2005, and a
Non-Competition Agreement executed on May 31, 2005, as
amended in May 2007; and
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Messrs. Bailey, Coleman and Sayers
Non-Competition and Change of Control Agreements, executed
February 25, 2000 and amended in January 2003 and in May
2007.
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39
The above agreements provide for severance payments which are
payable in the event of termination of the executives
employment by us without cause. In addition, should a change of
control of the company occur and the executive is terminated
without cause related to the change of control or if the
executive resigns for Good Reason, as defined in the agreements,
the executive will receive severance payments for a specified
time period. The major termination and change of control
provisions of the agreements are summarized below as of fiscal
year ended March 31, 2008 for each executive and are
covered in more detail in both the Termination and Change of
Control Table and the related discussion, below.
Mr. Rhein
(1)
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Through March 31, 2009, upon termination by us of
Mr. Rheins employment for reasons other than his
disability or for cause, or upon termination by Mr. Rhein
of his employment for Good Reason, we would have been required
to pay Mr. Rhein his base salary through the date of
termination and a prorated award of his target incentive for the
year in which the termination occurred, and severance payments
equal to 24 months salary and target annual incentive. In
addition, we would have been required to continue his group
benefits, executive benefits and most perquisites for a period
of two years from the date of termination of his employment.
Mr. Rheins Employment Agreement provided for other
lesser severance payments in the event of termination for his
death or disability. If, during the term of the Extension
Agreement (from April 1, 2009 to March 31, 2010), we
were to terminate Mr. Rheins employment other than
for cause, he would have been entitled to his base salary,
annual incentive, and the benefits described above through
March 31, 2010. Also during the term of the Extension
Agreement, we modified Mr. Rheins ability to
terminate his employment for Good Reason. The definition of Good
Reason no longer included change of his title or change in his
responsibilities, so long as he continued to have job
responsibilities consistent with those of an executive officer.
|
|
Upon termination of Mr. Rheins employment, following
a change of control of the company, Mr. Rhein would have
been entitled to cash equal to three times the sum of his salary
and target annual incentive. In addition, all equity incentives
would have become immediately available to Mr. Rhein upon a
change of control and group benefits, executive benefits and
most perquisites continue for three years as well. To trigger
payment, a termination related to a change of control must have
been for reasons other than Mr. Rheins disability or
for cause or must have been for Good Reason by Mr. Rhein.
|
|
|
|
(1)
|
|
On October 20, 2008, we
entered into a Separation Agreement with Mr. Rhein as a
result of his retirement as the companys Chairman,
President and Chief Executive Officer. Mr. Rheins
Separation Agreement provides that the company will pay and
provide Mr. Rhein with the rights, obligations, payments
and benefits as provided by the Employment Agreement, as amended
and extended by the Extension Agreement, in the event of a
Protected Termination (within the meaning of the Employment
Agreement). In connection with his separation agreement,
Mr. Rhein and the company released all claims against each
other. Pursuant to the terms of his Employment Agreement,
Mr. Rhein will receive his base salary through
October 20, 2008, a prorated portion of any award to which
he is entitled under the Annual Incentive Plan for the current
fiscal year and severance payments equal to 24 months
salary and target annual incentives. In addition, Mr. Rhein
is entitled to the payments and benefits provided for under the
relevant plans and arrangements of the company, and the company
must continue Mr. Rheins group benefits, executive
benefits and most perquisites for a period of two years.
|
Messrs. Ellis,
Bailey, Coleman and Sayers (1)
|
|
|
Upon termination by us of any of Messrs. Ellis, Bailey,
Coleman or Sayers without cause, we must pay severance equal to
twenty-four months salary and target annual incentive. In
addition, we must continue to provide the group benefits,
executive benefits and most perquisites for one year.
|
|
If any of these executives are terminated following a change of
control of the company, we must pay cash equal to twenty-four
times the greater of that executives highest monthly base
salary paid during the twelve months prior to the change in
control or that executives highest monthly base salary
paid or payable by the company at any time from the ninety day
period preceding a change of control through the
executives termination date. In addition, we must pay the
executive a lump sum of the greater of four times that
executives highest aggregate amount of incentive
compensation paid during any six consecutive months of the
twelve months preceding a change of control or four times that
executives highest aggregate amount of incentive
compensation paid during any six consecutive months preceding
the date of termination. In addition, all equity incentives will
become immediately available to them upon a termination after a
change of control and we will continue to provide group
benefits, executive benefits and most perquisites for two years.
|
|
|
|
(1)
|
|
On October 21, 2008, we
terminated the employment of Messrs. Bailey and Coleman
without cause. Mr. Bailey will receive all rights, payments
and benefits available to him under his Non-Competition
Agreement as described above (Bailey Severance
Period). Mr. Coleman will receive all rights,
payments and benefits available to him under his Non-Competition
Agreement as described above for twenty-four months
(Coleman Severance Period).
|
In his role as our President and Chief Executive Officer,
Mr. Ellis will continue his employment under the current
terms of his Non-Competition Agreement and Change of Control
Agreement.
40
We believe the terms described in the above summary provisions
are competitive. In addition, we believe the various agreements
serve the dual purpose of helping to attract and retain key
executive officers and help us to compete with other companies
for executive talent.
Additional
Issues
|
|
A.
|
Adjustment or
Recovery of Awards
|
We do not maintain any specific plans or policies that provide
for the adjustment or recovery of pay-related awards if certain
performance levels are modified as a result of any requirement
to restate our financials. However, under Section 304 of
the Sarbanes-Oxley Act, if we are required to restate our
financials due to material noncompliance with any financial
reporting requirements as a result of misconduct, our Chief
Executive Officer and Chief Financial Officer must reimburse us
for (1) any bonus or other incentive-based or equity-based
compensation received during the 12 months following the
first public issuance of the non-complying document, and
(2) any profits realized from the sale of our securities
during those 12 months.
|
|
B.
|
Consideration of
Prior Amounts Realized
|
We do not consider prior pay outcomes, including stock
compensation gains, in setting future pay levels. The
Compensation Committee believes this approach furthers our
philosophy of rewarding future financial and shareholder
performance.
|
|
C.
|
Stock Ownership
Guidelines
|
Our Compensation Committee approved stock ownership guidelines
for our named executive officers on May 1, 2001, reflected
as a multiple of the base salary for each named executive
officer. The guidelines were originally implemented to ensure
the Named Officers and the shareholders shared a commonality of
interest. The current Named Officers are each required to own
the stock of the company (directly or indirectly), as follows:
|
|
|
Chief Executive Officer (formerly Mr. Rhein and currently
Mr. Ellis) shares valued at five times base
salary; and
|
|
Executive Vice President (formerly Messrs. Bailey, Coleman,
Ellis and currently Mr. Sayers) shares valued
at one times base salary.
|
|
|
D.
|
Impact of Tax and
Accounting Considerations
|
In general, we consider the various tax and accounting
implications of the pay mechanisms that we use to provide pay to
our executive officers. We analyze the accounting cost
associated with long-term incentive grants when determining the
grant amounts for executive officers. Section 162(m) of the
Internal Revenue Code generally prohibits any publicly held
corporation from taking a federal income tax deduction for pay
to the chief executive officer and the next four highest
compensated officers in excess of $1 million in any taxable
year. Exceptions are made for certain qualified
performance-based pay. It is our objective to maximize the
effectiveness of our executive pay plans in this regard. The pay
instruments we use, including salaries, annual incentives and
stock options, are tax deductible to the extent that they are
performance based or less than $1 million for each named
executive officer in a given year.
We expect to complete our compliance with Internal Revenue Code
Section 409A and final regulations issued in April 2007 by
December 31, 2008, as required by IRS notice
2007-86.
Section 409A relates to deferred pay and amounts includable
in gross income. Changes may be made to the SERP, BEP and the
employment/change of control/non-competition agreements with our
executive officers if necessary to achieve compliance with
Section 409A.
Compensation
Committee Report
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with the companys management. Based on that review and
discussion, the Compensation Committee recommended to the Board
of Directors that the Compensation Discussion and Analysis be
incorporated into the companys Annual Report on
Form 10-K.
The Compensation
Committee of the Board of Directors (1)
Howard V.
Knicely, Chairman
Charles F. Christ
Robert A. Lauer
|
|
|
(1)
|
|
Mr. Curtis J. Crawford was a
member of the Compensation Committee of the Board during 2008
until his resignation from the Board in June of 2008. The Board
did not replace Mr. Crawford with another member of the
Board on this Committee.
|
41
The above Compensation Committee Report does not constitute
soliciting material and should not be deemed filed with the
Securities and Exchange Commission or subject to
Regulation 14A or 14C (other than as provided in
Item 407 of
Regulation S-K)
or to the liabilities of Section 18 of the Exchange Act,
and is not to be deemed incorporated by reference into any of
the companys filings under the Securities Act or the
Exchange Act whether made before or after this Annual Report on
Form 10-K,
except to the extent that the company specifically requests that
the information in this Compensation Committee Report be treated
as soliciting material or specifically incorporates this
Compensation Committee Report by reference into a document filed
under the Securities Act or the Exchange Act.
Summary
Compensation
The following table and related notes provide information about
the compensation for the Named Officers:
Summary
Compensation Table for Fiscal Year 2008
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Change in
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Pension
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Value and
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Non-
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Non-
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equity
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Qualified
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Incentive
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Deferred
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Plan
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Compen-
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All Other
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Stock
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Option
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Compen-
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sation
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Compen-
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Name and Principal Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Awards (5)
|
|
|
Awards (1)
|
|
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sation (2)
|
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Earnings (3)
|
|
|
sation (4)
|
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Total
|
|
|
|
|
Arthur Rhein
|
|
FY08
|
|
$
|
725,000
|
|
|
|
|
|
|
$
|
|
|
|
$
|
1,135,894
|
|
|
$
|
341,745
|
|
|
$
|
(446,217
|
)
|
|
$
|
293,764
|
|
|
$
|
2,050,186
|
|
Chairman, President and
|
|
FY07
|
|
$
|
725,000
|
|
|
|
|
|
|
$
|
|
|
|
$
|
1,402,080
|
|
|
$
|
877,250
|
|
|
$
|
1,644,167
|
|
|
$
|
182,325
|
|
|
$
|
4,830,822
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Ellis
|
|
FY08
|
|
$
|
345,000
|
|
|
|
|
|
|
$
|
527,920
|
|
|
$
|
178,513
|
|
|
$
|
97,497
|
|
|
$
|
54,620
|
|
|
$
|
45,901
|
|
|
$
|
1,249,451
|
|
Executive Vice President,
|
|
FY07
|
|
$
|
345,000
|
|
|
|
|
|
|
$
|
106,100
|
|
|
$
|
372,510
|
|
|
$
|
250,470
|
|
|
$
|
38,014
|
|
|
$
|
200,408
|
|
|
$
|
1,312,502
|
|
Treasurer and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Robert J. Bailey
|
|
FY08
|
|
$
|
345,000
|
|
|
|
|
|
|
$
|
467,732
|
|
|
$
|
147,026
|
|
|
$
|
97,497
|
|
|
$
|
207,405
|
|
|
$
|
169,963
|
|
|
$
|
1,434,623
|
|
Executive Vice President
|
|
FY07
|
|
$
|
345,000
|
|
|
|
|
|
|
$
|
|
|
|
$
|
284,955
|
|
|
$
|
250,470
|
|
|
$
|
115,507
|
|
|
$
|
161,710
|
|
|
$
|
1,157,642
|
|
Peter J. Coleman
|
|
FY08
|
|
$
|
345,000
|
|
|
|
|
|
|
$
|
467,732
|
|
|
$
|
144,072
|
|
|
$
|
97,497
|
|
|
$
|
136,631
|
|
|
$
|
49,459
|
|
|
$
|
1,240,391
|
|
Executive Vice President
|
|
FY07
|
|
$
|
345,000
|
|
|
|
|
|
|
$
|
|
|
|
$
|
277,397
|
|
|
$
|
250,470
|
|
|
$
|
86,025
|
|
|
$
|
220,385
|
|
|
$
|
1,179,277
|
|
Richard A. Sayers II
|
|
FY08
|
|
$
|
270,000
|
|
|
|
|
|
|
$
|
374,185
|
|
|
$
|
|
|
|
$
|
76,302
|
|
|
$
|
141,809
|
|
|
$
|
49,432
|
|
|
$
|
911,728
|
|
Executive Vice President,
|
|
FY07
|
|
$
|
270,000
|
|
|
|
|
|
|
$
|
|
|
|
$
|
333,549
|
|
|
$
|
196,020
|
|
|
$
|
206,618
|
|
|
$
|
238,512
|
|
|
$
|
1,244,699
|
|
Chief Human Resources and Compliance Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
(1)
|
|
The Named Officers did not receive
any stock option grants during fiscal year 2008. The amounts
reported reflect fiscal year 2008 compensation expense for the
prior year stock option grants. The amounts do not reflect the
actual value that our Named Officers will realize upon
exercising these options that amount will be
determined based on the option exercise price and the price of
our Common Shares on the date the options are exercised.
Assumptions used in the calculation of these amounts are
provided elsewhere in this Annual Report on
Form 10-K
at March 31, 2008. In addition, because Mr. Sayers is
eligible for retirement and his option awards vest on his
retirement, FAS 123R requires the accrual of the entire
expense associated with his option grant in the year in which it
occurs rather than over the option vesting period.
Messrs. Bailey, Coleman and Ellis are not eligible for
retirement and their option expense is accounted for over the
three-year vesting period. Mr. Rhein is eligible for
retirement, but these options are forfeited should he retire
prior to March 31, 2009. Therefore, the expense associated
with his option grant was also accrued over the vesting period
until March 31, 2009.
|
(2)
|
|
The amounts shown represent
payments under our 2008 Annual Plan. For a description of our
2008 Annual Plan, see the Compensation Discussion and Analysis
section above.
|
42
|
|
|
(3)
|
|
The amounts shown represent the
increase or decrease in actuarial value of our SERP defined
benefit plan. All amounts for each Named Officer represent
increases and decreases in the accumulated benefit obligation
under the SERP for the one year period ended March 31,
2008. The significant variation in these figures is a function
primarily of the age, years of service and time to retirement
for each executive officer. None of the amounts in this column
represents above-market earnings from the BEP.
Mr. Rheins figure in this column decreased due to the
fact that his SERP was fully vested and accrued for on his 62nd
birthday and delaying the receipt of the SERP payouts reduces
the actuarial estimate of the payout due to a lower life
expectancy.
|
(4)
|
|
A significant portion of the
amounts in this column represents relocation expenses related to
the move of the companys headquarters from Ohio to Florida
during fiscal year 2007. As a result, as shown in the All Other
Compensation Table, the relocation expenses are one-time
expenses not likely to be repeated in the near future.
|
(5)
|
|
The amounts reported reflect our
fiscal year 2008 FAS 123R expense for the April 28,
2005 restricted share award to Mr. Ellis pursuant to our
2000 Stock Incentive Plan and the May 22, 2007 restricted
share and performance share award to Messrs. Ellis, Bailey,
Coleman and Sayers pursuant to our 2006 Equity Plan. The
assumptions used in calculating the FAS 123R expense of the
restricted share awards and performance share awards are
provided elsewhere in this report.
|
All Other
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ongoing Executive Benefits and Perquisites
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
|
|
|
Executive
|
|
|
|
|
|
Sub-
|
|
|
One-Time
|
|
|
|
|
|
|
|
|
|
401(k)
|
|
|
BEP
|
|
|
Restricted
|
|
|
Life
|
|
|
All
|
|
|
Total
|
|
|
Costs (1)
|
|
|
Grand
|
|
|
|
Year
|
|
|
Match
|
|
|
Contribution
|
|
|
Stock
|
|
|
Insurance
|
|
|
Other(2)
|
|
|
Ongoing
|
|
|
Relocation
|
|
|
Total
|
|
|
|
|
Rhein
|
|
|
FY08
|
|
|
$
|
7,078
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,530
|
|
|
$
|
124,065
|
(3)
|
|
$
|
137,673
|
|
|
$
|
156,091
|
|
|
$
|
293,764
|
|
Ellis
|
|
|
FY08
|
|
|
$
|
7,174
|
|
|
$
|
12,250
|
|
|
$
|
2,156
|
|
|
$
|
969
|
|
|
$
|
23,352
|
|
|
$
|
45,901
|
|
|
$
|
|
|
|
$
|
45,901
|
|
Bailey
|
|
|
FY08
|
|
|
$
|
7,148
|
|
|
$
|
12,250
|
|
|
$
|
635
|
|
|
$
|
2,294
|
|
|
$
|
28,835
|
|
|
$
|
51,162
|
|
|
$
|
118,801
|
|
|
$
|
169,963
|
|
Coleman
|
|
|
FY08
|
|
|
$
|
6,056
|
|
|
$
|
13,728
|
|
|
$
|
635
|
|
|
$
|
2,513
|
|
|
$
|
26,527
|
|
|
$
|
49,459
|
|
|
$
|
|
|
|
$
|
49,459
|
|
Sayers
|
|
|
FY08
|
|
|
$
|
7,599
|
|
|
$
|
7,902
|
|
|
$
|
506
|
|
|
$
|
3,602
|
|
|
$
|
29,823
|
|
|
$
|
49,432
|
|
|
$
|
|
|
|
$
|
49,432
|
|
|
|
|
|
(1)
|
|
These costs are related to the
relocation of the companys headquarters from Cleveland,
Ohio to Boca Raton, Florida.
|
(2)
|
|
This column consists of auto
allowances, attendance at a supplier event, executive long-term
disability agreements, and club dues.
|
(3)
|
|
For Mr. Rhein, all other
compensation includes $65,781 for club dues which includes
$45,000 for a one time membership fee for a country club. Split
dollar life insurance of $1,892, financial planning and personal
use of our fractional interest in an airplane is also included
in this column. Personal use of our fractional interest in an
airplane consists of the incremental variable costs associated
with such personal usage of our fractional lease interest in an
airplane which consists of an hourly charge based on flight
time, fuel cost, federal excise tax (7.5%) and a domestic
segment fee applied to the number of passengers for each such
personal trip. Because the airplane is used primarily for
business travel, the determination of the cost for personal use
of the airplane excludes monthly fixed costs we pay for leasing
the fractional interest. When the guests or families of our
executives occasionally fly on the airplane as additional
passengers on business flights, the aggregate incremental cost
to us is de minimis and, therefore, no costs for this
type of use are included in our calculations. When executives
and their guests or families occasionally fly on the airplane as
additional passengers on personal flights, the personal use cost
for each executive is calculated by dividing the total variable
cost of the flight evenly among the total number of persons on
the flight, then allocating to the executive the amount of the
variable cost associated with the number of guests and/or family
on that flight with him or her. As of December 5, 2008, we
no longer maintain a fractional interest in any airplane.
Therefore, the perquisite described in this footnote is no
longer available to Named Officers.
|
Employment Agreement with Mr. Rhein. On
December 23, 2005, we entered into the Amended and Restated
Employment Agreement with Mr. Rhein (the Employment
Agreement), beginning on December 23, 2005
(Effective Date), and ending on March 31, 2009.
On January 28, 2008, we entered into the Extension
Agreement, whereby we modified certain of the terms of the
Employment Agreement to be effective on April 1, 2009, and
extended the ending date to March 31, 2010. The period
between April 1, 2009 and March 31, 2010 is referred
to as the Extension Term.
The Employment Agreement provided that Mr. Rhein would
receive an annual salary of $725,000 effective April 1,
2006. Mr. Rheins salary was subject to annual review
at the beginning of each fiscal year, commencing with fiscal
year 2008, by the Compensation Committee or the Board.
Mr. Rheins annual salary could have been increased,
but not decreased as the Compensation Committee, or the Board,
determined. The Extension Agreement provided that
Mr. Rheins base compensation rate for the final year
of his employment would be the same as his base compensation
rate paid to him during the prior year ending March 31,
2009. Mr. Rheins annual salary did not increase
during the remainder of the employment term. Under the
Employment Agreement, Mr. Rhein was eligible to participate
in other benefit plans, including, but not limited to, our
Section 401(k) Plan, our plans for providing severance
benefits to our executive officers, 2000 Stock Incentive Plan
and 2006 Equity Plan, SERP, BEP, short- and long-term disability
plans, group term life insurance plan (including life insurance
protection in an amount not less than 200% of his earnings as
reported on IRS
Form W-2
for the prior calendar year), medical plan, dental plan, and any
other plans or programs we may have adopted from time to time
and in which our executive officers, or employees in general,
are eligible to participate. Mr. Rheins target annual
incentive was 100% of salary, with a range from zero%
43
to 250% of his salary. The Extension Agreement provided that
Mr. Rhein would have received all benefits, perquisites and
would participate in all plans as provided for in the Employment
Agreement, including participation in the Annual Incentive Plan.
In connection with entering into the Employment Agreement, the
Compensation Committee delivered a letter to Mr. Rhein (the
Rhein Letter Agreement) under which Mr. Rhein
received a stock option grant of 250,000 shares on
April 3, 2006 (the first business day after April 1,
2006) and a second stock option grant of
250,000 shares on July 28, 2006, the date our
shareholders approved the 2006 Equity Plan, with respective
exercise prices equal to fair market value on the dates of
grant. These grants would become exercisable during his
continued employment at a rate of 10% on March 31, 2007, an
additional 30% on March 31, 2008, and a final 60% on
March 31, 2009. The Rhein Letter Agreement further provided
that vesting of such options would not be accelerated due to
Mr. Rheins retirement or termination for Good Reason
(as such term is defined in the Employment Agreement). In
connection with Mr. Rheins retirement in October of
2008, the Separation Agreement with Mr. Rhein, dated
October 20, 2008, provided that the company agreed to treat
Mr. Rheins retirement effectively as a termination
without cause. Therefore, the vesting of the above options
accelerated and are fully exercisable until their expiration in
2016.
Under the Extension Agreement, Mr. Rhein would have
received 70,000 restricted Common Shares on April 1, 2009,
vesting on March 31, 2010, based solely on the performance
vesting terms applicable to EVP LTIP Awards as
authorized and approved by the Compensation Committee in its
meeting of June 29, 2007. However, Mr. Rhein forfeited
these Common Shares upon his retirement.
For a discussion of additional terms or the employment
arrangements with Mr. Rhein, including post-termination and
change-of-control payments and restrictive covenants, see the
section titled Termination and Change of Control,
below.
Grants of
Plan-Based Awards
The following table and related notes and discussion summarize
grants of equity and non-equity incentive compensation awards to
our Named Officers for fiscal year 2008.
Grants of
Plan-Based Awards for Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
Compen-
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
|
|
|
sation
|
|
|
Estimated Possible Future
Payouts
|
|
|
Shares of
|
|
|
Fair Value
|
|
|
|
Grant
|
|
|
Committee
|
|
|
under Non-Equity Plan
Awards (1)
|
|
|
Stock or
|
|
|
of Stock
|
|
Name
|
|
Date
|
|
|
Action Date
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
or Units (2)
|
|
|
Awards
|
|
|
|
Arthur Rhein
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
181,250
|
|
|
$
|
725,000
|
|
|
$
|
1,812,500
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Martin F. Ellis
|
|
|
5/22/07
|
|
|
|
5/21/07
|
|
|
$
|
51,750
|
|
|
$
|
207,000
|
|
|
$
|
517,500
|
|
|
|
60,000
|
|
|
$
|
1,325,400
|
|
Robert J. Bailey
|
|
|
5/22/07
|
|
|
|
5/21/07
|
|
|
$
|
51,750
|
|
|
$
|
207,000
|
|
|
$
|
517,500
|
|
|
|
60,000
|
|
|
$
|
1,325,400
|
|
Peter J. Coleman
|
|
|
5/22/07
|
|
|
|
5/21/07
|
|
|
$
|
51,750
|
|
|
$
|
207,000
|
|
|
$
|
517,500
|
|
|
|
60,000
|
|
|
$
|
1,325,400
|
|
Richard A. Sayers II
|
|
|
5/22/07
|
|
|
|
5/21/07
|
|
|
$
|
40,500
|
|
|
$
|
162,000
|
|
|
$
|
405,000
|
|
|
|
48,000
|
|
|
$
|
1,060,320
|
|
|
|
|
|
(1)
|
|
The amounts shown in the columns
under the heading Estimated Possible Future Payouts
under Non-Equity Incentive Plan Awards represent
threshold, target and maximum under the 2008 Annual Plan. The
threshold amounts are 25% of the target amounts and the maximum
amounts are 250% of target. Mr. Rheins target is 100%
of salary and the targets for the remaining executive officers
are 60% of salary. The amounts under the column entitled
Threshold reflect the minimum payment levels if both
the minimum revenue and EBITDA thresholds have been met, which
are 25% of the amounts shown under the column entitled
Target and the amounts shown in the column entitled
Maximum are 250% of the amounts shown under the
column entitled Target. Actual payouts for fiscal
2007 pursuant to these awards are shown in the Summary
Compensation Table in the column titled Non-Equity
Incentive Plan Compensation.
|
(2)
|
|
The share price on the date of
grant was $22.09. The restricted stock will vest on the
following schedule: 10% of the shares vested on March 31,
2008, 30% will vest on March 31, 2009 and the remaining 60%
will vest on March 31, 2010. The unvested restricted stock
awarded to Messrs. Bailey and Coleman have been forfeited
as a result of termination of their employment.
|
44
Outstanding
Equity Awards at Fiscal Year 2008 Year-End
The following table and related notes and discussion summarize
certain information with respect to outstanding equity awards
held by the Named Officers as of March 31, 2008.
Outstanding
Equity Awards at Fiscal Year 2008 Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Market Value
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
or Units
|
|
|
of Shares or
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
of Stock
|
|
|
Units of Stock
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Date
|
|
|
that Have
|
|
|
that Have
|
|
Name
|
|
Exercisable (1)
|
|
|
Unexercisable (2)
|
|
|
Price
|
|
|
Expiration
|
|
|
Not Vested (3)
|
|
|
Not Vested (4)
|
|
|
|
|
Arthur Rhein
|
|
|
62,700
|
|
|
|
8,100
|
|
|
$
|
12.25
|
|
|
|
4/28/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
42,400
|
|
|
|
11,400
|
|
|
$
|
8.75
|
|
|
|
1/15/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
$
|
13.75
|
|
|
|
4/26/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
170,000
|
|
|
|
|
|
|
$
|
13.01
|
|
|
|
6/13/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
180,000
|
|
|
|
|
|
|
$
|
14.62
|
|
|
|
4/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
111,900
|
|
|
|
|
|
|
$
|
7.69
|
|
|
|
6/17/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
222,500
|
|
|
|
|
|
|
$
|
13.76
|
|
|
|
7/28/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
|
|
|
|
$
|
13.57
|
|
|
|
4/28/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
150,000
|
|
|
$
|
15.17
|
|
|
|
4/3/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
150,000
|
|
|
$
|
15.85
|
|
|
|
7/28/2016
|
|
|
|
|
|
|
|
|
|
Martin F. Ellis
|
|
|
40,000
|
|
|
|
|
|
|
$
|
8.33
|
|
|
|
7/1/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
37,000
|
|
|
|
|
|
|
$
|
13.76
|
|
|
|
7/28/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
$
|
13.57
|
|
|
|
4/28/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
5,000
|
|
|
$
|
16.58
|
|
|
|
5/23/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
20,000
|
|
|
$
|
15.85
|
|
|
|
7/28/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(5)
|
|
$
|
464,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
(6)
|
|
$
|
208,800
|
|
Robert J. Bailey
|
|
|
29,900
|
|
|
|
|
|
|
$
|
8.75
|
|
|
|
1/15/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
$
|
14.62
|
|
|
|
4/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
$
|
7.69
|
|
|
|
6/17/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
$
|
13.76
|
|
|
|
7/28/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
|
|
|
|
$
|
13.57
|
|
|
|
4/28/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
20,000
|
|
|
$
|
15.85
|
|
|
|
7/28/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(5)
|
|
$
|
464,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
(6)
|
|
$
|
208,800
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Market Value
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
or Units
|
|
|
of Shares or
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
of Stock
|
|
|
Units of Stock
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Date
|
|
|
that Have
|
|
|
that Have
|
|
Name
|
|
Exercisable (1)
|
|
|
Unexercisable (2)
|
|
|
Price
|
|
|
Expiration
|
|
|
Not Vested (3)
|
|
|
Not Vested (4)
|
|
|
|
|
Peter J. Coleman
|
|
|
10,000
|
|
|
|
|
|
|
$
|
12.25
|
|
|
|
4/28/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
13,876
|
|
|
|
|
|
|
$
|
8.75
|
|
|
|
1/15/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
$
|
13.75
|
|
|
|
4/26/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
$
|
13.01
|
|
|
|
6/13/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
$
|
14.62
|
|
|
|
4/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
|
|
|
|
|
$
|
7.69
|
|
|
|
6/17/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
$
|
13.76
|
|
|
|
7/28/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
|
|
|
|
$
|
13.57
|
|
|
|
4/28/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
20,000
|
|
|
$
|
15.85
|
|
|
|
7/28/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
(5)
|
|
$
|
464,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000
|
(6)
|
|
$
|
208,800
|
|
Richard A. Sayers II
|
|
|
15,800
|
|
|
|
|
|
|
$
|
8.75
|
|
|
|
1/15/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
|
|
|
$
|
7.00
|
|
|
|
4/8/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
$
|
13.75
|
|
|
|
4/26/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
$
|
13.01
|
|
|
|
6/13/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
$
|
14.62
|
|
|
|
4/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
31,000
|
|
|
|
|
|
|
$
|
13.76
|
|
|
|
7/28/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
$
|
13.57
|
|
|
|
4/28/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
15,000
|
|
|
$
|
15.85
|
|
|
|
7/28/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,000
|
(7)
|
|
$
|
371,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,400
|
(8)
|
|
$
|
167,040
|
|
|
|
|
|
(1)
|
|
With reference to this column in
descending order (A) Mr. Rheins options
vested as follows: 62,700: 20,900 on 4/28/99, 20,900 on
4/28/00 and
20,900 on 4/28/01; 42,400: 21,200 on 1/15/01 and 21,200
on 1/15/02; 200,000: 66,600 on 4/26/01, 66,600 on
4/26/02, and 66,800 on 4/26/03; 170,000: 56,700 on
4/1/02, 56,700 on 4/1/03, and 56,600 on 4/1/04; 180,000:
60,000 on 4/1/03, 60,000 on
4/1/04 and
60,000 on 4/1/05; 111,900: 37,300 on 4/1/04, 37,300 on
4/1/05, and 37,300 on 4/1/06; 222,500: 74,166 on 4/1/05,
74,167 on 4/1/06 and 74,167 on 4/1/07; 225,000 on
3/31/06; 100,000: 25,000 on 3/31/07 and 75,000 on 3/31/08
and 100,000: 25,000 on
3/31/07 and
75,000 on 3/31/08. (B) Mr. Ellis options
vested as follows: 40,000: 13,333 on 4/1/04, 13,333 on
4/1/05 and 13,334 on
4/1/06;
37,000: 12,332 on 4/1/05, 12,334 on 4/1/06 and 12,334 on
4/1/07; 50,000 on 3/31/06; 10,000: 5,000 on
3/31/07 and 5,000 on 3/31/08; and 40,000: 20,000 on
3/31/07 and 20,000 on 3/31/08.
(C) Mr. Baileys options vested as
follows: 29,900: 11,400 on
1/15/06;
11,400 on 1/15/07 and 7,100 on 1/15/08; 50,000: 16,666 on
4/1/03; 16,667 on 4/1/04 and 16,667 on 4/1/05; 7,000 on
4/1/06;
40,000: 13,333 on 4/1/05, 13,333 on 4/1/06 and 13,334 on
4/1/07; 55,000 on 3/31/06; and 40,000: 20,000 on
3/31/07 and 20,000 on 3/31/08.
(D) Mr. Colemans options vested as
follows: 10,000: 3,400 on 4/28/02 and 6,600 on 4/28/03;
13,876: 10,676 on 1/15/06 and 3,200 on 1/15/07;
60,000: 20,000 on 4/26/01, 20,000 on 4/26/02 and 20,000
on 4/26/03; 50,000: 16,700 on
4/1/02,
16,700 on 4/1/03, and 16,600 on 4/1/04; 50,000: 16,666 on
4/1/03, 16,667 on 4/1/04, and 16,667 on 4/1/05; 7,000 on
4/1/06; 40,000: 13,333 on 4/1/05, 13,333 on 4/1/06 and
13,334 on 4/1/07; 55,000 on 3/31/06; and 40,000:
20,000 on 3/31/07 and 20,000 on
3/31/08;.
(E) Mr. Sayers options vested as follows:
15,800: 800 on 4/15/00 and 15,0000 on 4/15/01; 12,500
on 4/8/01; 40,000: 13,300 on 4/26/01, 13,300 on
4/26/02, and 13,400 on 4/26/03; 40,000: 13,300 on 4/1/02,
13,300 on 4/1/03, 13,400 on 4/1/04; 40,000: 13,334 on
4/1/03, 13,333 on 4/1/04 and 13,333 on 4/1/05; 31,000:
10,332 on 4/1/05, 10,334 on 4/1/06, and 10,334 on
4/1/07;
45,000 on 3/31/06; and 30,000: 15,000 on 3/31/07
and 15,000 on 3/31/08. Messrs. Bailey and Coleman have
forfeited the unvested options as a result of termination of
their employment. Messrs. Bailey and Coleman have
90 days from the date of termination of their employment
(October 21, 2008) to exercise their vested options.
All of Mr. Rheins unvested options are forfeited
except for those granted pursuant to the 2006 Equity Plan and
the Rhein Letter Agreement (described above), which all became
vested and exercisable upon his retirement on October 20,
2008. Mr. Rhein had 30 days from the date of his
retirement to exercise options granted to him and vested under
the 1991 Stock Option Plan. Mr. Rhein did not exercise
these options. Mr. Rhein also has 90 days from the
date of his retirement to exercise his vested options
|
46
|
|
|
|
|
under the 2000 Stock Option Plan.
Mr. Rhein has until 2016 to exercise his options granted to
him under the 2006 Equity Plan and vested pursuant to the Rhein
Letter Agreement.
|
(2)
|
|
With reference to this column, in
descending order, (A) Mr. Rheins options
vest as follows: 8,100 on 4/28/08; 11,400 on
1/15/09; 150,000 on 3/31/09; and 150,000 on
7/28/09 (B) Mr. Ellis options vest as
follows: 5,000 on 3/31/09 and 20,000 on 3/31/09.
(C) Mr. Baileys options vest as follows:
20,000 on 3/31/09. (D) Mr. Colemans
options vest as follows; 20,000 on 3/31/09.
(E) Mr. Sayers options vest as follows:
15,000 on 3/31/09. Messrs. Bailey and Coleman have
forfeited the unvested options as a result of termination of
their employment. All of Mr. Rheins unvested options
are forfeited except for those granted pursuant to the 2006
Equity Plan and the Rhein Letter Agreement (described above),
which all became vested and exercisable upon his retirement on
October 20, 2008. Mr. Rhein had 30 days from the
date of his retirement to exercise options granted to him and
vested under the 1991 Stock Option Plan. Mr. Rhein did not
exercise these options. Mr. Rhein also has 90 days
from the date of his retirement to exercise his vested options
under the 2000 Stock Option Plan. Mr. Rhein has until 2016
to exercise his options granted to him under the 2006 Equity
Plan and vested pursuant to the Rhein Letter Agreement.
|
(3)
|
|
Represents 60,000 shares of
restricted stock and performance shares that were granted to
Messrs. Ellis, Bailey and Coleman in 2007 and
48,000 shares to Mr. Sayers. Restricted stock award
and performance awards were made pursuant to the companys
2006 Equity Plan. See footnotes 2 and 3 of the Grants of
Plan-Based Awards for Fiscal Year 2008 table for vesting
schedule.
|
(4)
|
|
Based on the closing price of our
Common Shares on March 31, 2008 of $11.60 per share.
|
(5)
|
|
Represents 40,000 performance
shares that were awarded in 2007 pursuant to the Companys
2006 Equity Plan. The performance shares cliff vest on
March 31, 2010. Messrs. Bailey and Coleman have forfeited
these shares as a result of termination of employment on
October 21, 2008.
|
(6)
|
|
Represents 20,000 restricted stock
awards, 10% of which vested on March 31, 2008. The
restricted stock awards were made pursuant to the Companys
2006 Equity Plan. See footnote 3 of the Grants of
Plan-Based Awards for Fiscal 2008 table for the complete
vesting schedule. Messrs. Bailey and Coleman have forfeited all
of these shares except those that vested on March 31, 2008,
as a result of termination of employment on October 21,
2008.
|
(7)
|
|
Represents 32,000 performance
shares that were awarded in 2007 pursuant to the Companys
2006 Equity Plan. The performance shares cliff vest on
March 31, 2010.
|
(8)
|
|
Represents 16,000 restricted stock
awards, 10% of which vested on March 31, 2008. The
restricted stock awards were made pursuant to the Companys
2006 Equity Plan. See footnote 3 of the Grants of
Plan-Based Awards for Fiscal 2008 table for the complete
vesting schedule.
|
Option Exercises
and Stock Vested For Fiscal Year 2008
The following table and related notes and discussion summarize
certain information with respect to the exercise of options to
purchase Common Shares and the vesting of other stock awards by
the Named Officers during fiscal year 2008.
Option Exercises
and Stock Vested for Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option awards
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
Stock awards
|
|
|
|
Acquired on
|
|
|
Value Realized on
|
|
|
Number of Share
|
|
|
Value Realized on
|
|
Name
|
|
Exercise
|
|
|
Exercise (1)
|
|
|
Acquired on Vesting
|
|
|
Vesting (1)
|
|
|
|
Arthur Rhein
|
|
|
8,040
|
|
|
$
|
75,794
|
|
|
|
|
|
|
|
|
|
Martin F. Ellis
|
|
|
|
|
|
$
|
|
|
|
|
14,500
|
|
|
$
|
168,200
|
|
Robert J. Bailey
|
|
|
8,000
|
|
|
$
|
31,520
|
|
|
|
2,000
|
|
|
$
|
23,200
|
|
Peter J. Coleman
|
|
|
|
|
|
$
|
|
|
|
|
2,000
|
|
|
$
|
23,200
|
|
Richard A. Sayers II
|
|
|
|
|
|
$
|
|
|
|
|
1,600
|
|
|
$
|
18,560
|
|
|
|
|
|
(1)
|
|
Value realized on the exercise of
the options is determined by calculating the difference between
the market price per Common Share on the date of exercise and
the exercise price of each option award. The value realized on
vesting of stock awards is determined by multiplying the number
of Common Shares underlying the stock awards by the market value
on the vesting date of such stock awards.
|
Retirement
Benefits for Fiscal Year 2008
The following table provides information relating to potential
payments under our SERP to the Named Officers. The SERP is a
nonqualified defined benefit plan that we implemented on
April 1, 2000. The SERP participants include the Named
Officers and those other executive officers, if any, who are
approved for participation by the Compensation Committee. The
plan provides benefits equal to 50% of covered pay. Covered pay
is defined as annual salary plus actual annual incentive pay
paid in a given year. The average of the highest three years of
covered pay in the last five consecutive fiscal years prior to
retirement is used as the basis for calculating benefits. The
benefit formula is defined as 3.33% of final average covered pay
times continuous service, capped at 15 years. The SERP
benefit is offset by our
47
matching and profit sharing contributions under the
Section 401(k) Plan and BEP contributions as well as 50% of
the participants estimated Social Security retirement
benefits payable at age 62, attributable to wages earned
from the date of hire.
Normal retirement is at age 65 with early retirement
defined as the attainment of age 55 plus seven years of
continuous service. The benefit is actuarially reduced for any
benefits taken prior to age 60. Benefits may be taken in
the form of life or
joint-and-survivor
annuities or as a lump sum.
Pension Benefits
for Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Years
|
|
|
Present Value of
|
|
|
Payments During
|
|
Name
|
|
Plan Name
|
|
|
Credited Service
|
|
|
Accumulated Benefit
|
|
|
Last Fiscal Year
|
|
|
|
Arthur Rhein (1)
|
|
|
SERP
|
|
|
|
26
|
|
|
$
|
7,031,976
|
|
|
|
|
|
Martin F. Ellis
|
|
|
SERP
|
|
|
|
4
|
|
|
$
|
180,917
|
|
|
|
|
|
Robert J. Bailey (2)
|
|
|
SERP
|
|
|
|
31
|
|
|
$
|
1,139,855
|
|
|
|
|
|
Peter J. Coleman (3)
|
|
|
SERP
|
|
|
|
35
|
|
|
$
|
1,192,511
|
|
|
|
|
|
Richard A. Sayers II
|
|
|
SERP
|
|
|
|
15
|
(4)
|
|
$
|
1,390,609
|
|
|
|
|
|
|
|
|
|
(1)
|
|
On the date of
Mr. Rheins retirement (October 20, 2008), he is
fully vested in the SERP and may make an election to take his
benefits.
|
(2)
|
|
As a result of our termination of
Mr. Baileys employment on October 21, 2008,
Mr. Bailey will continue to accrue years of service and age
requirements during the Bailey Severance Period.
|
(3)
|
|
As a result of our termination of
Mr. Colemans employment on October 21, 2008,
Mr. Coleman will continue to accrue years of service and
age requirements during the Coleman Severance Period. At the end
of the Coleman Severance Period, Mr. Coleman will be
eligible for early retirement benefits.
|
(4)
|
|
On April 1, 2002, we signed
the 2002 SERP Agreement with Mr. Sayers, providing him with
additional years of service for the purposes of calculating
benefits under the SERP if Mr. Sayers remained employed
with the company until March 14, 2006. We hired
Mr. Sayers in the middle of his career and wanted to
provide additional benefits to him if he retired between
age 55 and 65. The 2002 SERP Agreement allowed
Mr. Sayers to count 15 years of service for the
benefit calculations if we continued to employ him through March
of 2006. This allowance declines by a year for each year he
works beyond age 55 and will be entirely eliminated by the
time he reaches age 63. Mr. Sayers currently has nine
actual years of service. Therefore, an additional six years is
credited as a result of this 2002 SERP Agreement.
|
Nonqualified
Deferred Compensation Plans
The following table presents deferred compensation for our BEP
for the Named Officers.
Participants in the BEP must make irrevocable and timely
elections to defer salary and annual incentive amounts into the
BEP. We also provide both profit sharing amounts and matching
amounts in the BEP as if the amounts deferred by the participant
in the BEP were the equivalent to a pre-tax participant
contribution to the Section 401(k) Plan. The BEP disregards
certain government regulatory limitations that are applicable to
the Section 401(k) Plan. Participants may direct the
investment of their accounts by choosing from among a group of
investment funds.
Participants will receive amounts from the BEP on their normal
retirement date, which is defined for BEP purposes as the date
on which they reach age 65. Participants who elect to take
early retirement may receive their BEP benefits earlier than
age 65, provided they have made an appropriate and timely
election. A termination of employment for reasons of death or
disability allows the participants beneficiary to receive
the benefit in the form initiated by the participant. If a
participants employment is terminated for cause, amounts
credited for matching and profit sharing purposes are forfeited,
although salary and annual incentive amounts deferred by the
participant are still paid. BEP participants may elect to take
their benefits as either a lump sum or in the form of a series
of substantially equal annual installments, which may range
between two and twenty years based on an election made by the
participant.
48
Nonqualified
Deferred Compensation for Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registrant
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Contributions
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
Contributions In
|
|
|
In Last Fiscal
|
|
|
Earnings In
|
|
|
Withdrawals/
|
|
|
Balance At Last
|
|
Name
|
|
Last Fiscal Year
|
|
|
Year (1)
|
|
|
Last Fiscal Year
|
|
|
Distributions
|
|
|
Fiscal Year End
|
|
|
|
|
Arthur Rhein
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(19,665
|
)
|
|
|
|
|
|
$
|
468,583
|
|
Martin F. Ellis
|
|
$
|
101,430
|
|
|
$
|
12,250
|
(2)
|
|
$
|
(11,710
|
)
|
|
|
|
|
|
$
|
288,919
|
|
Robert J. Bailey
|
|
$
|
35,728
|
|
|
$
|
12,250
|
|
|
$
|
(70,314
|
)
|
|
|
|
|
|
$
|
1,129,894
|
|
Peter J. Coleman
|
|
$
|
119,094
|
|
|
$
|
13,728
|
|
|
$
|
(43,508
|
)
|
|
|
|
|
|
$
|
642,728
|
|
Richard A. Sayers II
|
|
$
|
27,961
|
|
|
$
|
7,902
|
|
|
$
|
(12,710
|
)
|
|
|
|
|
|
$
|
493,872
|
|
|
|
|
|
(1)
|
|
These amounts are reflected in the
Summary Compensation Table in the total of the column titled
All Other Compensation.
|
(2)
|
|
Mr. Ellis is 80% vested in the
portion of his balance attributable to our contributions.
|
Termination and
Change of Control
The following table and related notes and discussion summarize
certain information related to the total potential payments made
to the executives as of March 31, 2008, in the event of
termination of employment including upon a change of control.
Please also refer to Compensation Discussion and Analysis
Post-Termination Payments Change of
Control and Severance Payments for additional related
information. The amounts shown in the table below assume that
such termination was effective as of March 30, 2008, the
last business day of fiscal 2008. The actual amounts to be paid
can only be determined at the time of an actual termination.
2005 Amended and Restated Employment Agreement and 2008
Amendment and Extension Agreement with
Mr. Rhein. The terms of
Mr. Rheins Employment Agreement provided that if
Mr. Rheins employment was terminated by us other than
due to his Disability or for Cause or was terminated by
Mr. Rhein for Good Reason (as those terms are defined in
the Employment Agreement and described in Footnote 2 of the
Termination and Change of Control table, below), he
would have been entitled to the following:
(i) Salary through the date of his termination of his
employment;
(ii) Pro rata award under the annual incentive plan for the
year of his termination of employment;
(iii) Payment of his annual salary and target annual
incentives as follows: for the one year period from the date of
the termination, we would have continued to pay
Mr. Rheins annual salary and an amount in equal
monthly installments equal to his target annual incentive for
the year of his termination of employment; and within
30 days following the date which was one year from the date
of such termination of employment, an amount in a single sum
equal to the sum of his annual salary plus his target annual
incentive for the year of his termination of employment;
(iv) For two years from the date of the termination, such
other benefits as are provided under our relevant plans and
arrangements;
(v) Directors and officers liability insurance
coverage until the later of the date on which Mr. Rhein
attained age sixty-five (65) or the date which was two
years from the date of his termination of employment;
(vi) Continuation of life insurance throughout the payment
term;
(vii) An automobile allowance for two years in accordance
with our automobile policy for executive officers (but not less
than $12,000 per year);
(viii) An allowance for estate, financial and tax planning
of $10,000 per year for two years;
(ix) For two years, reimbursement for reasonable club dues
and membership fees consistent with our past practices; and
(x) For two years, continued participation in all of our
benefit plans in which he was a participant at the time of his
termination of employment.
The Separation Agreement with Mr. Rhein dated
October 20, 2008, entitles Mr. Rhein to receive the
rights, payments and benefits described above.
If during the Extension Term, Mr. Rheins employment
was terminated by us other than for Cause, he would have
received his base salary and annual incentive compensation and
would continue to receive all benefits, perquisites and
participate in all plans as described above for the balance of
the Extension Term. The definition of Good Reason
was modified for the Extension Term to exclude a change of
Mr. Rheins title or a change in his responsibilities
and obligations as a Good Reason for
Mr. Rheins termination of his employment.
49
If Mr. Rheins employment was terminated by
Mr. Rhein for Good Reason (as those terms are defined in
the Employment Agreement and described in Footnote 2 of the
Termination and Change of Control table, below)), he
would have been entitled to the following:
(i) Salary through the date of his termination of his
employment;
(ii) Pro rata award under the annual incentive plan for the
year of his termination of employment;
(iii) Payment of his annual salary and target annual
incentives as follows: for the one year period from the date of
the termination, we would have continued to pay
Mr. Rheins annual salary and an amount in equal
monthly installments equal to his target annual incentive for
the year of his termination of employment; and within
30 days following the date which was one year from the date
of such termination of employment, an amount in a single sum
equal to the sum of his annual salary plus his target annual
incentive for the year of his termination of employment;
(iv) For two years from the date of the termination, such
other benefits as are provided under our relevant plans and
arrangements;
(v) Directors and officers liability insurance
coverage until the later of the date on which Mr. Rhein
attained age sixty-five (65) or the date which was two
years from the date of his termination of employment;
(vi) Continuation of life insurance throughout the payment
term;
(vii) An automobile allowance for two years in accordance
with our automobile policy for executive officers (but not less
than $12,000 per year);
(viii) An allowance for estate, financial and tax planning
of $10,000 per year for two years;
(ix) For two years, reimbursement for reasonable club dues
and membership fees consistent with our past practices; and
(x) For two years, continued participation in all of our
benefit plans in which he was a participant at the time of his
termination of employment.
If Mr. Rheins employment was terminated due to his
death, Disability or Retirement (as defined in the Employment
Agreement), he (or his beneficiaries or estate, in the case of
his death) would have been entitled to the following:
(i) Salary through the end of the month of the termination
of his employment;
(ii) Pro rata award under the Annual Incentive Plan for the
year of his termination of employment;
(iii) Directors and officers liability insurance
coverage for two years after such termination; and
(iv) Such other benefits as are provided under our relevant
plans and arrangements.
In addition, if termination of employment was due to
Mr. Rheins death or Disability, all of
Mr. Rheins outstanding stock options would have
become exercisable in full. Also, restrictions on his restricted
stock (if any) would have lapsed. If termination was due to
Mr. Rheins Retirement, all of Mr. Rheins
outstanding stock options would have become exercisable in full,
except for those options granted in the Rhein Letter Agreement,
the restricted Common Shares granted to him in the Extension
Agreement and any options granted on or after the Effective
Date. Options granted to Mr. Rhein on or after the
Effective Agreement Date would not have become exercisable to
any greater extent after termination due to
Mr. Rheins Retirement, even in the event of his death
or Disability. Outstanding stock options which were granted to
Mr. Rhein after April 1, 2003 would not have
terminated prior to the end of their respective terms due to
such termination. In the event of termination of employment due
to Mr. Rheins Disability or Retirement, he would also
have been entitled to continuation of life insurance and medical
insurance coverage substantially equivalent to the coverage for
himself, his spouse and his dependents provided under our
medical plan at the time of such Retirement or Disability, until
Mr. Rhein attained age 65.
If Mr. Rheins employment was terminated in connection
with a Change in Control (as defined in the Employment
Agreement), he would have been entitled to receive the following:
(i) Within 30 days following such termination, a
single sum payment equal to three times the sum of his salary
and target annual incentive for the year of his termination of
employment;
(ii) All other payments and benefits as described above (in
the event of termination other than for Disability or Cause or
if Mr. Rhein terminates his employment for Good Reason) for
a three-year period from the date of his termination of
employment;
(iii) All of Mr. Rheins then outstanding stock
options, whether or not then exercisable, would have become
exercisable in full (except if Mr. Rheins termination
was for Good Reason then those options related to Rhein Letter
Agreement would not vest early) and then outstanding stock
options which were granted to Rhein after April 1, 2003,
would not terminate prior to the end of their respective terms;
(iv) Any restrictions on Mr. Rheins restricted
stock would lapse;
(v) A cash payment (the Excise Tax Payment)
equal to the amount of excise taxes which he is required to pay
pursuant to Section 4999 of the Internal Revenue Code of
1986, as amended (Code), as a result of any
parachute payments as defined in
Section 280G(b)(2) of the Code made by or on behalf of the
company or any successor thereto, under the Employment Agreement
or otherwise, resulting in an excess parachute
payment as defined in Section 280G(b)(1) of the
Code; and
50
(vi) An increase in the Excise Tax Payment due to
Mr. Rhein by the aggregate of the amount of federal, state
and local income, excise and penalty taxes, and any interest on
any of the foregoing, for which he would be liable on account of
the Excise Tax Payment, such that he would have received the
Excise Tax Payment net of all income, excise and penalty taxes,
and any interest on any of the foregoing, imposed on him on
account of the receipt of the Excise Tax Payment.
If during the Extension Term Mr. Rhein no longer held the
title as our Chief Executive Officer he was not entitled to the
Change in Control benefits described above.
Upon either voluntary termination without Good Reason, or
termination for Cause, Mr. Rhein would not have been
entitled to further payments under either the Employment
Agreement or the Extension Agreement.
The Employment Agreement also contains provisions regarding
confidentiality, and, except upon involuntary termination not
for Cause or voluntary termination within one year after a
Change in Control, non-competition and non-interference, for two
years following termination of employment. These terms would
have remained in place during the Extension Agreement.
Non-Competition Agreements and Change of Control
Agreements. On February 25, 2000, we entered
into non-competition agreements and change of control agreements
with Messrs. Bailey, Coleman and Sayers, which were amended
in January of 2003, May of 2007 and again in October of 2008 to
make administrative changes. On June 30, 2003, we entered
into a change of control agreement with Mr. Ellis, which
was amended in May of 2005, May 31, 2005 and again in
October of 2008 to make administrative changes, and we entered
into a non-competition agreement with Mr. Ellis which was
amended in May of 2007. The terms of the non-competition
agreements and change of control agreements for
Messrs. Bailey, Coleman, Ellis and Sayers are the same (the
Executive Agreements)
Under the Executive Agreements, in the event we terminate an
executives employment without cause, the executive is
entitled to his monthly salary, target annual incentive and
benefit coverage for twenty-four months following such
termination. Messrs. Bailey and Coleman are entitled to
these payments and benefits as a result of our termination of
their employment on October 21, 2008. In the event an
executives employment is terminated for cause or he
voluntarily resigns his position, we have no obligations for
such payments or benefits coverage under the Executive
Agreements. If any of these executives is terminated for cause
or voluntarily terminates his employment, the executive is
prohibited under the Executive Agreement for the two-year period
following any such termination (the Noncompetition
Period) from being employed by, owning, operating or
similar involvement, directly or indirectly, with a business
that competes with us, including but not limited to the sale of
information technology products and services, enterprise
computer systems, and related consulting, integration,
maintenance and professional services in the geographical area
in which we conduct our business. In the event that the
executive is terminated without cause, we may, in our sole
discretion, elect to pay the executive his regular salary and
target annual incentive for all or any part of the
Noncompetition Period, which payments are separate and in
addition to the severance payments and benefits coverage
described above and, so long as we make such payments, the
executive will be bound by the non-competition provisions
described above. The Executive Agreements also contain
nondisclosure and non-interference provisions. In the event of a
change of control, the provisions of the change of control
agreement described below will supersede those of the
non-competition agreement with respect to severance and
non-competition terms.
Under the Executive Agreements, if during the 12 month
period following a change of control (as defined in the
Executive Agreements), any of these executives is discharged
without cause or voluntarily terminates his employment for good
reason, the executive is entitled to receive a lump sum amount
within 30 days of such termination of employment equal to
24 times the greater of (i) the executives highest
monthly salary paid during the twelve month period preceding a
change in control or (ii) the executives highest
monthly salary paid or payable by us at any time from the ninety
day period preceding a change of control through the date of
termination. In addition, the executive is entitled to receive a
lump sum amount equal to two times the annual incentive plan
target applicable to the executive at the time of termination.
Further, the executive is entitled to receive 24 times the
monthly amount paid such executive as an auto allowance
immediately preceding a change of control. For two years
following such termination, the executive is entitled to all
benefits and service credits for benefits under all of our
employee benefit plans, programs or arrangements, or the
economic equivalent where such crediting is not permitted. Under
the Executive Agreements, cause is defined as
(i) an act or acts of personal dishonesty taken by the
employee and intended to result in personal enrichment of the
employee at our expense or (ii) the conviction of the
employee of a felony.
If any payment received by the executive in connection with a
change of control is deemed a parachute payment
under Section 280G of the Internal Revenue Code of 1986, as
amended, resulting in an excess parachute payment
within the meaning of such Section 280G(b), he will be
entitled under the change of control agreement to a cash payment
in an amount equal to the 20% excise tax, if any, payable by him
pursuant to the provisions of Section 4999, which amount
will be increased by the aggregate of the amount of any federal,
state, and local income taxes and excise taxes for which he may
become liable on account of the receipt of the excise tax gross
up payment.
51
Termination and
Change in Control
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|
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|
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|
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|
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Arthur
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Martin
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Robert J.
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Peter J.
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Richard A.
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Rhein
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Ellis
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Bailey
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Coleman
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Sayers II
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Voluntary Termination or Termination With Cause
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|
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Base & Incentive
|
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$
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|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Stock Options Accelerated Vesting
|
|
$
|
32,490
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(1)
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|
|
|
|
|
|
|
|
|
|
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|
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Termination without Cause (2)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Base & Incentive
|
|
$
|
2,900,000
|
|
|
$
|
1,104,000
|
(3)
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|
$
|
1,104,000
|
(3)
|
|
$
|
1,104,000
|
(3)
|
|
$
|
864,000
|
(3)
|
Stock Options Accelerated Vesting
|
|
$
|
32,490
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
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|
|
Auto Allowance
|
|
$
|
24,000
|
|
|
$
|
20,400
|
|
|
$
|
20,400
|
|
|
$
|
20,400
|
|
|
$
|
20,400
|
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Financial Planning
|
|
$
|
20,000
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|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Health Insurance
|
|
$
|
6,480
|
|
|
$
|
18,504
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|
|
$
|
15,372
|
|
|
$
|
18,504
|
|
|
$
|
21,560
|
|
|
Total:
|
|
$
|
2,982,970
|
|
|
$
|
1,142,904
|
|
|
$
|
1,139,772
|
|
|
$
|
1,142,904
|
|
|
$
|
905,960
|
|
Change in Control: Termination without Cause or by the
Employee for Good Reason (4)(5)
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Severance Base & Incentive
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|
$
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4,350,000
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|
|
$
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1,104,000
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|
|
$
|
1,104,000
|
|
|
$
|
1,104,000
|
|
|
$
|
864,000
|
|
Stock Options Accelerated Vesting
|
|
$
|
32,490
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|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
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Stock Accelerated Vesting
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|
$
|
|
|
|
$
|
672,800
|
|
|
$
|
672,800
|
|
|
$
|
672,800
|
|
|
$
|
538,240
|
|
Supplemental Executive Retirement Plan (6)
|
|
$
|
|
|
|
$
|
461,310
|
|
|
$
|
1,041,324
|
|
|
$
|
1,098,578
|
|
|
$
|
264,852
|
|
Club Dues
|
|
$
|
60,627
|
(7)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Auto Allowance
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|
$
|
36,000
|
|
|
$
|
20,400
|
|
|
$
|
20,400
|
|
|
$
|
20,400
|
|
|
$
|
20,400
|
|
Estate/Financial/Tax Planning
|
|
$
|
30,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Health Insurance
|
|
$
|
9,720
|
|
|
$
|
18,504
|
|
|
$
|
15,372
|
|
|
$
|
18,504
|
|
|
$
|
21,560
|
|
Excise Tax
Gross-Up
|
|
$
|
|
|
|
$
|
888,967
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|
|
$
|
978,580
|
|
|
$
|
1,068,869
|
|
|
$
|
|
|
|
Total:
|
|
$
|
4,518,837
|
|
|
$
|
3,165,981
|
|
|
$
|
3,832,476
|
|
|
$
|
3,983,151
|
|
|
$
|
1,709,052
|
|
Death/Disability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Accelerated Vesting
|
|
$
|
32,490
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Normal Retirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Accelerated Vesting
|
|
$
|
32,490
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
(1)
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|
If termination was at a time when
Mr. Rhein could have retired (as defined in the SERP),
Mr. Rheins stock options (except for the 500,000
options granted to Mr. Rhein in 2007) would be
exercisable in full.
|
(2)
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|
Includes termination by
Mr. Rhein for Good Reason. Good Reason is
defined in Mr. Rheins employment agreement as
(i) any reduction in his title or position or a change in
his reporting relationship; (ii) a material reduction in
his duties or responsibilities; (iii) Mr. Rheins
pay is reduced or his participation
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52
|
|
|
|
|
in any benefit plan, program or
arrangement is eliminated, or benefits payable to Mr. Rhein
under any such plan, program or arrangement or his perquisites
are materially reduced or restricted, except where either
(x) such reduction, restriction, elimination or other
change is both generally applicable to all members of senior
management and does not reduce either his annual salary or
target annual bonus, or (y) such reduction, restriction or
elimination or other change is merely the result of application
of a formula measuring individual or corporate performance or
both; (iv) there is a material breach or material default
by the company or successors of any of Mr. Rheins
employment-related agreements that is not cured in a reasonable
period of time after written notice of the breach or default;
(v) his principal place of work with the company or
successor is relocated to a location that exceeds by
50 miles the distance from the location of his residence at
the time of such relocation of the companys headquarters
(where they were located on the date of his employment
agreement); or (vi) a successor to the company does not
assume the employment agreement. Under the 2008 Extension, the
definition of Good Reason was modified to eliminate
items (i) and (ii) above.
|
(3)
|
|
The amount reflects a total of
24 months regular base pay and target incentive. An
additional two years of regular base pay and target incentive
would be paid to each executive at our option in exchange for an
agreement not to compete. If we choose not to require an
agreement not to compete, these executives would receive only
24 months total base pay and target incentive.
|
(4)
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|
For Mr. Rhein, payments are
made after Change in Control if he is terminated by us for other
than disability or cause or if Mr. Rhein terminates for
Good Reason as defined in footnote 2, above. During the
Extension Term, if Mr. Rhein no longer has the title of our
Chief Executive Officer, he is not entitled to Change in Control
benefits.
|
(5)
|
|
For Messrs. Ellis, Bailey,
Coleman and Sayers, Good Reason is defined as
(i) a material adverse change in his responsibilities;
(ii) substantial reduction in target annual compensation,
or (iii) any requirement that he relocate to a facility
that is no more than 50 miles from his current location.
|
(6)
|
|
Reflects the value which is the
difference between SERP benefits which are only paid as a result
of change in control and SERP benefits paid out immediately (for
those currently eligible to retire ) or upon normal retirement.
The SERP contains a slightly different definition of
change in control from the employment agreements,
but for purposes of the possible benefit calculation, we have
assumed each has occurred.
|
(7)
|
|
Represents regular on-going monthly
dues as opposed to initiation fees.
|
Director
Compensation Table
The following table and related notes and discussion summarize
certain information about our non-employee Directors and their
annual or long-term compensation for the fiscal year ended
March 31, 2008. Our independent Board members are paid as
follows:
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|
|
An annual retainer of $30,000 (1) ;
|
|
Audit Committee, Nominating and Corporate Governance Committee
and Compensation Committee members are paid an additional
$15,000 per year;
|
|
Chairs of the Compensation Committee and Nominating and
Corporate Governance Committee receive an additional $10,000 per
year; and
|
|
The Chair of the Audit Committee is paid an additional $15,000
per year.
|
(1)
|
On November 14, 2008, our
Board agreed to pay Mr. Keith Kolerus a $75,000 retainer,
prorated between October 20, 2008 (the date on which
Mr. Kolerus was appointed the independent chairman of the
Board) and the end of our current fiscal year, March 31,
2009, in connection with Mr. Kolerus additional
responsibilities as the companys independent Chairman.
This retainer is in addition to the normal Board retainer
described above. Our Compensation Committee may consider
renewing this Board fee during its annual meeting to review
Board member compensation, usually held in May of each year.
|
We pay no additional fees for Board or Committee meeting
attendance. In addition, each of our outside Directors received
4,000 common shares, granted at the Compensation Committee
meeting on May 21, 2007 at a grant price of $22.09 and
ratified by the independent members of the Board on May 22,
2007, and which vested in full on May 22, 2007. At its
May 23, 2008 meeting, the Compensation Committee
recommended to the full Board a new fiscal 2009 compensation
plan that fixed the annual equity grant at $100,000. The Board
of Directors approved the compensation plan based on the results
from the formal compensation study that took place earlier this
year.
We also provide a Deferred Compensation Plan (the Deferral
Plan) for our independent Directors. The Deferral Plan
allows a Director to elect to defer all or a part of their pay
for the following year, which deferral will continue until the
election is revoked. Deferred pay is credited to a
Directors account, at the Directors option, as a
cash allotment or stock allotment. Amounts deferred as a cash
allotment bear interest at the National City Bank prime interest
rate. Amounts deferred as a stock allotment are credited to the
Directors account as the stock equivalent of the number of
Common Shares that could be purchased with the dollar amount of
the allotment at the last sales price of the Common Shares on
the last trading day of the applicable quarter. Distributions of
the final account balance in a Directors account are
payable in cash in five equal annual installments, or such other
distribution schedule requested by the Director and which is
acceptable to us, commencing six months after the date on which
the person ceases to be a Director or the date on which the
Director elects to terminate participation in the Deferral Plan.
The final account balance of stock allotments is the cash amount
equal to a Directors aggregate stock equivalents
multiplied by the last sales price of such shares on Nasdaq on
the nearest trading day preceding the Directors
termination of participation in the Deferral Plan, subject to
adjustment thereafter to reflect the market price of such shares
on the last day of each fiscal quarter, until distributions are
fully paid. The Deferral Plan also provides for various payment
terms to beneficiaries in the event of the Directors death.
Our Directors are subject to share ownership guidelines. The
guidelines require ownership of 5,000 shares within the
first term following the Directors election to the Board.
53
Director
Compensation for Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned or
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
Paid in
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
|
|
Name
|
|
Cash (1)
|
|
|
Awards (2)
|
|
|
Awards (3)(4)
|
|
|
Compensation
|
|
|
Total
|
|
|
|
Charles F. Christ
|
|
$
|
60,000
|
|
|
$
|
88,360
|
|
|
|
|
|
|
|
|
|
|
$
|
148,360
|
|
Thomas A. Commes
|
|
$
|
75,000
|
|
|
$
|
88,360
|
|
|
|
|
|
|
|
|
|
|
$
|
163,360
|
|
Curtis J. Crawford (5)
|
|
$
|
70,000
|
|
|
$
|
88,360
|
|
|
|
|
|
|
|
|
|
|
$
|
158,360
|
|
Howard K. Knicely
|
|
$
|
70,000
|
|
|
$
|
88,360
|
|
|
|
|
|
|
|
|
|
|
$
|
158,360
|
|
Keith M. Kolerus
|
|
$
|
45,000
|
|
|
$
|
88,360
|
|
|
|
|
|
|
|
|
|
|
$
|
133,360
|
|
Robert A. Lauer
|
|
$
|
45,000
|
|
|
$
|
88,360
|
|
|
|
|
|
|
|
|
|
|
$
|
133,360
|
|
Robert G. McCreary, III
|
|
$
|
45,000
|
|
|
$
|
88,360
|
|
|
|
|
|
|
|
|
|
|
$
|
133,360
|
|
Eileen M. Rudden (6)
|
|
$
|
15,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,000
|
|
Thomas C. Sullivan (7)
|
|
$
|
15,000
|
|
|
$
|
88,360
|
|
|
|
|
|
|
|
|
|
|
$
|
103,360
|
|
|
|
|
|
(1)
|
|
Refer to the narrative immediately
before the Director Compensation for Fiscal Year 2008 table for
a discussion of various cash amounts paid to Directors.
|
(2)
|
|
On May 21, 2007, the grant of
4,000 Common Shares was approved to each of the non-employee
Directors pursuant to the 2006 Equity Plan. The Stock
Awards column represents the 2008 FAS 123R expense for the
May 21, 2007 restricted stock award.
|
(3)
|
|
As of March 31, 2008, the
aggregate number of unexercised stock options held by each
current non-employee Director was as follows: Mr. Christ,
37,500; Mr. Commes, 52,500; Mr. Crawford, 7,500;
Mr. Kolerus, 22,500; Mr. Knicely, 30,000;
Mr. Lauer, 37,500; Mr. McCreary, 37,500. All of the
outstanding stock options were exercisable as of March 31,
2008.
|
(4)
|
|
On November 14, 2008, as a
result of Mr. Kolerus being named the Chairman of our
Board, our Board granted to Mr. Kolerus an option to
purchase 25,000 shares of our company stock at $2.19 a
share (the closing trading price of the stock on that day),
vesting 100% on March 31, 2009, subject only to
Mr. Kolerus continuing in his role as Chairman of our Board
at that time.
|
(5)
|
|
Mr. Crawford resigned from the
Board on June 25, 2008. Mr. R. Andrew Cueva has been
appointed to the Board to fill this vacancy.
|
(6)
|
|
Ms. Eileen M. Rudden was
appointed to the Board on October 29, 2007 to fill the
vacancy of Mr. Thomas C. Sullivan. Mr. Rudden received
a pro-rata portion of directors fees for the period of her
service.
|
(7)
|
|
Mr. Sullivan retired from the
Board on October 24, 2007. Mr. Sullivan received a
pro-rata portion of directors fees for the period of his
services. On April 21, 2008, Mr. Sullivan received a
payout of $270,950 from the Deferral Plan. The Deferral Plan
payout represented fee amounts deferred by Mr. Sullivan
during his tenure as a Director.
|
54
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters.
|
Share
Ownership
The following table shows the number of common shares of the
company beneficially owned by each current Director of the
company; the Chief Executive Officer and each of the Executive
Officers of the company; all Directors and Executive Officers as
a group; persons known to the company to own beneficially in
excess of 5% of the total outstanding common shares; and the
percent of the class so owned as of December 9, 2008 unless
otherwise indicated.
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Number of
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Common Shares
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Beneficially
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Percent
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Name
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Owned (1)
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of Class
|
|
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Directors (Excluding Executive Officers) (2)
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Charles F. Christ
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55,720
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(3)
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.2
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Thomas A. Commes
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90,714
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(4)
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.4
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R. Andrew Cueva
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2,422,932
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(5)
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11
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Howard V. Knicely
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49,214
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(6)
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.2
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Keith M. Kolerus
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57,714
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(7)
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.3
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Robert A. Lauer
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60,714
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(8)
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.3
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Robert G. McCreary, III
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82,491
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(8)
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.4
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Eileen M. Rudden
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13,200
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|
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*
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Executive Officers (2)
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Martin F. Ellis
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309,282
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(9)
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1.4
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Richard A. Sayers, II
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367,327
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(10)
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1.6
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All Directors and Executive Officers as a group (14 persons)
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1,529,288
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(11)
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6.6
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Other Persons
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Dimensional Fund Advisors L.P.
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2,603,777
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(12)
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11.4
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1299 Ocean Ave., 11th Floor
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|
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Santa Monica, California 90401
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|
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MAK Capital One, LLC et al.
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4,047,281
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(13)
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17.9
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6100 Red Hook Quarter, 18B, Suites C, 1-6
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St. Thomas, VI 00802
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Goodwood, Inc.
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1,968,260
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(14)
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8.7
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212 King Street West, Suite 201
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|
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Toronto, ON, Canada M5H 1K5
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Arthur Rhein
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1,771,135
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(15)(16)
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7
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101 Plaza Real South, Apt. 918
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Boca Raton, Florida 33432
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Barclays Global Investors, NA
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1,414,537
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(17)
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6.2
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45 Fremont Street
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San Francisco, California 94105
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Ramius LLC et al.
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2,942,994
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(18)
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13
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599 Lexington Avenue, 20th Floor
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New York, New York 10022
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*
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Shares owned are less than
one-tenth of one percent of class.
|
55
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|
|
(1)
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|
Except where otherwise indicated,
beneficial ownership of the common shares held by the persons
listed in the table above comprises both sole voting and
dispositive power, or voting and dispositive power that is
shared with the spouses of such persons.
|
(2)
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|
The address of each Director and
Executive Officer is 28925 Fountain Parkway, Solon, Ohio 44139.
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(3)
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|
Includes 37,500 common shares which
the Director had the right to acquire within 60 days of
December 9, 2008 through the exercise of stock options
granted to the Director under the 1999 and 2000 Stock Option
Plans for Outside Directors, and the 2000 Stock Incentive Plan.
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(4)
|
|
Includes 52,500 common shares which
the Director had the right to acquire within 60 days of
December 9, 2008 through the exercise of stock options
granted to the Director under the 1999 and 2000 Stock Option
Plans for Outside Directors, and the 2000 Stock Incentive Plan.
|
(5)
|
|
Mr. Cueva is deemed to share
beneficial ownership in the reported Agilysys, Inc., common
shares (the securities) that MAK Capital
Fund L.P. may be deemed to beneficially own. However,
Mr. Cueva disclaims beneficial ownership of the securities,
except to the extent of his pecuniary interest in MAK Capital
Fund L.P.s interest in such securities. The inclusion of
the securities shall not be deemed an admission of beneficial
ownership of all of the reported securities.
|
(6)
|
|
Includes 30,000 common shares which
the Director had the right to acquire within 60 days of
December 9, 2008 through the exercise of stock options
granted to the Director under the 2000 Stock Option Plan for
Outside Directors and the 2000 Stock Incentive Plan.
|
(7)
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|
Includes 22,500 common shares which
the Director had the right to acquire within 60 days of
December 9, 2008 through the exercise of stock options
granted to the Director under the 1999 and 2000 Stock Option
Plans for Outside Directors, and the 2000 Stock Incentive Plan.
|
(8)
|
|
Includes 37,500 common shares which
the Director had the right to acquire within 60 days of
December 9, 2008 through the exercise of stock options
granted to Directors under the 2000 Stock Option Plan for
Outside Directors and the 2000 Stock Incentive Plan.
|
(9)
|
|
Includes (i) 177,000 common
shares which Mr. Ellis had the right to acquire within
60 days of December 9, 2008 through the exercise of
stock options granted to him under the 2000 Stock Incentive
Plan; and (ii) 58,000 restricted common shares which
Mr. Ellis was granted under the 2006 Stock Incentive Plan,
as to which Mr. Ellis has sole voting power, but no
dispositive power until such shares have become vested.
|
(10)
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|
Includes (i) 254,300 common
shares which Mr. Sayers had the right as a result of
Mr. Sayers eligibility for early retirement to
acquire within 60 days of December 9, 2008 through the
exercise of stock options granted to him under the 1991 Stock
Option Plan and the 2000 Stock Incentive Plan; and
(ii) 46,400 restricted common shares which Mr. Sayers
was granted under the 2006 Stock Incentive Plan, as to which
Mr. Sayers has sole voting power, but no dispositive power
until such shares have become vested. The company defines
eligibility for early retirement as the attainment of
55 years of age and 7 years of continuous service.
|
(11)
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|
The number of common shares shown
as beneficially owned by the Companys Directors and
Executive Officers as a group includes (i) 664,900 common
shares which such persons have the right to acquire within
60 days of December 9, 2008 through the exercise of
stock options granted to them under the 1991 Stock Option Plan,
the 2000 Stock Incentive Plan, the 1995 Stock Option Plan for
Outside Directors, the 1999 Stock Option Plan for Outside
Directors and the 2000 Stock Option Plan for Outside Directors;
and (ii) 104,400 restricted common shares granted under the
2006 Stock Incentive Plan, as to which participants have sole
voting power, but no dispositive power until such shares have
become vested.
|
(12)
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As reported on a
Schedule 13G/A dated March 5, 2008.
|
(13)
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|
As reported on a Schedule 13D
dated July 1, 2008.
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(14)
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As reported on a
Schedule 13G/A dated February 15, 2008.
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(15)
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|
Includes 1,509,400 common shares
that Mr. Rhein has the right to acquire within 60 days
of December 9, 2008 through the exercise of stock options
granted to him under the 2000 Stock Incentive Plan.
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(16)
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|
Includes 97,175 common shares that
Mr. Rhein has pledged as security pursuant to a brokerage
margin account.
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(17)
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|
As reported on a Schedule 13G
dated February 5, 2008.
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(18)
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|
As reported on a
Schedule 13D/A dated October 10, 2008. Ramius, LLC et.
al filed a Schedule 13D/A with the SEC on October 10,
2008 indicating that, as of October 9, 2008:
(A) Ramius Value and Opportunity Master Fund, Ltd had sole
voting and dispositive power with respect to 2,342,130 common
shares; (B) each of Parche, LLC and Ramius Enterprise
Master Fund Ltd had sole voting and dispositive power with
respect to 323,761 common shares; (C) RCG PB, Ltd. had sole
voting and dispositive power with respect to 277,103 common
shares; (D) Ramius Advisors, LLC had sole voting and
dispositive power with respect to 600,864 common shares;
(E) RCG Starboard Advisors, LLC had sole voting and
dispositive power with respect to 2,665,891 common shares;
(F) each of Ramius LLC and C4S & Co., L.L.C. had
sole voting and dispositive power with respect to 2,942,994
common shares; (G) each of Peter A. Cohen, Morgan B. Stark,
Jeffrey M. Solomon and Thomas W. Strauss had shared voting and
dispositive power with respect to 2,942,994 common shares; and
(H) Steve Tepedino had sole voting and dispositive power
with respect to 7,670 common shares. Ramius, LLC et al. also
reported that each of John Mutch and James Zierick did not
directly own any common shares, but, as respective members of a
group for the purposes of Section 13(d)(3) of
the Exchange Act, are each deemed to be a beneficial owner of
the 2,343,130 common shares owned by Value and Opportunity
Master Fund, 323,761 common shares owed by Parch, LLC and
277,103 common shares owned by RCG PB, Ltd. Both Mr. Mutch
and Mr. Zierick have disclaimed beneficial ownership of
such common shares. The address of the principal office of each
of RCG Starboard Advisors, LLC, Parche, LLC, Ramius, LLC,
C4S & Co., L.L.C, and Messrs. Cohen, Stark,
Strauss and Solomon is 599 Lexington Avenue, 20th Floor, New
York, New York 10022. The address of the principal office of
each of Ramius Value and Opportunity Master Fund Ltd,
Ramius Enterprise Master Fund Ltd and RCG PB, Ltd. is
c/o Citco
Fund Services (Cayman Islands) Limited, Corporate Center,
West Bay Road, Grand Cayman, Cayman Islands, British West
Indies. The principal business address of Mr. Mutch is
c/o MV
Advisors, LLC, 420 Stevens Avenue, Suite 270, Solana Beach, CA
92075. The principal business address of Mr. Zierick is
c/o Aspyra,
Inc.,
26115-A
Mureau Road, Calabasas, CA 91320. The principal business address
of Mr. Tepedino is 8655 East Via de Ventura,
Suite E-300,
Scottsdale, AZ 85258.
|
56
The following table provides certain information with respect to
all of the companys equity compensation plans in effect as
of March 31, 2008.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Remaining Available for
|
|
|
|
be Issued upon Exercise
|
|
|
Exercise Price of
|
|
|
Future Issuance Under
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Equity Compensation
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Plans
|
|
|
|
Equity compensation plans approved by shareholders (i.e.,
1991 Stock Option Plan, Amended and Restated 2000 Stock
Incentive Plan, 2006 Stock Incentive Plan and 1995, 1999 and
2000 Stock Option Plans for Outside Directors)
|
|
|
3,526,910
|
|
|
$
|
14.24
|
|
|
|
2,008,168
|
|
Equity compensation plans not approved by shareholders
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
Total
|
|
|
3,526,910
|
|
|
$
|
14.24
|
|
|
|
2,008,168
|
|
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
While the company does not have a written related person
transaction policy, the companys Code of Business Conduct
requires employees, officers and directors to report conflicts
or suspected conflicts to the company. Any conflicts require the
consideration of executive management or, in the case of
conflicts involving executive management, consideration by the
Board of Directors.
It is the policy of the Board that a substantial majority of its
members should be independent. Upon the review and
recommendation of the Nominating and Corporate Governance
Committee, the Board has determined that all members of the
Audit, Compensation and Nominating and Corporate Governance
Committees are independent according to SEC
regulations and applicable stock exchange listing standards, and
that the members of these Committees have no direct or indirect
material relationships with the company other than their
position as Directors. The Board has also determined that all
members of the Audit Committee meet the additional independence
requirements for audit committee membership.
The following company Directors are independent:
Charles F. Christ
Thomas A. Commes
Curtis J. Crawford (1)
Howard V. Knicely
Keith M. Kolerus
Robert A. Lauer
Robert G. McCreary, III
Eileen M. Rudden
|
|
|
(1)
|
|
Mr. Crawford resigned from the
Board, effective June 24, 2008. The Board appointed
Mr. R. Andrew Cueva to replace the vacancy created by
Mr. Crawfords resignation. Mr. Cueva is an
independent Director and meets the additional independence
requirements for audit committee membership as well.
|
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
The Audit Committee has reviewed the audit fees of
Ernst & Young LLP, the companys independent
registered public accounting firm. Fees for services rendered by
Ernst & Young for fiscal years 2008 and 2007 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit-Related
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Audit Fees
|
|
|
Fees
|
|
|
Tax Fees
|
|
|
All Other Fees
|
|
|
|
2008
|
|
$
|
1,836,500
|
|
|
$
|
233,200
|
|
|
$
|
267,000
|
|
|
$
|
-0-
|
|
2007
|
|
$
|
1,546,300
|
|
|
$
|
376,000
|
|
|
$
|
88,500
|
|
|
$
|
-0-
|
|
|
57
Audit Fees consist of fees billed for professional
services provided for the annual audit of the companys
financial statements, annual audit of internal control over
financial reporting, review of the interim financial statements
included in quarterly reports and services that are normally
provided by Ernst & Young in connection with statutory
and regulatory filings. Audit-Related Fees generally
include fees for employee benefits plan audits, business
acquisitions and accounting consultations. Tax Fees
include tax compliance and tax advice services. All Other
Fees generally relate to services provided in connection
with non-audit acquisition activities.
It is the Audit Committees policy that all audit and
non-audit services are pre-approved by the Audit Committee.
Consistent with its charter, the Audit Committee has delegated
pre-approval authority to the Chairman of the Audit Committee
between meetings when it is necessary to expedite services,
provided that any pre-approvals so delegated are reported to the
Audit Committee at its next scheduled meeting. All audit and
non-audit services were pre-approved by the Audit Committee
consistent with this policy during fiscal years 2008 and 2007.
Representatives of Ernst & Young are expected to be
present at the Annual Meeting, when scheduled. They will have an
opportunity to make a statement if they so desire and are
expected to be available to respond to appropriate questions.
58
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
(a)(1) Financial statements. The following
consolidated financial statements are included in this Annual
Report on
Form 10-K
beginning on page 62:
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, 2008, 2007, and 2006
Consolidated Balance Sheets as of March 31, 2008 and 2007
Consolidated Statements of Cash Flows for the years ended
March 31, 2008, 2007, and 2006
Consolidated Statements of Shareholders Equity for the
years ended March 31, 2008, 2007, and 2006
Notes to Consolidated Financial Statements
(a)(2) Financial statement schedule. The
following financial statement schedule is included in this
Annual Report on
Form 10-K
on page 99:
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. See the Index to Exhibits
beginning at page 100 of this Annual Report on
Form 10-K.
59
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
December 15, 2008.
AGILYSYS, INC.
|
|
|
|
|
/s/ Martin
F. Ellis
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
December 15, 2008.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Martin
F. Ellis
Martin
F. Ellis
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
/s/ Kenneth
J. Kossin, Jr.
Kenneth
J. Kossin, Jr.
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ Keith
M. Kolerus
Keith
M. Kolerus
|
|
Chairman, Director
|
|
|
|
/s/ Charles
F. Christ
Charles
F. Christ
|
|
Director
|
|
|
|
/s/ Thomas
A. Commes
Thomas
A. Commes
|
|
Director
|
|
|
|
/s/ R.
Andrew Cueva
R.
Andrew Cueva
|
|
Director
|
|
|
|
/s/ Howard
V. Knicely
Howard
V. Knicely
|
|
Director
|
|
|
|
/s/ Robert
A. Lauer
Robert
A. Lauer
|
|
Director
|
|
|
|
/s/ Robert
G. McCreary, III
Robert
G. McCreary, III
|
|
Director
|
|
|
|
/s/ Eileen
M. Rudden
Eileen
M. Rudden
|
|
Director
|
60
agilysys, inc. and subsidiaries
ANNUAL REPORT ON
FORM 10-K
Year Ended March 31, 2008
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
62
|
|
|
|
|
63
|
|
|
|
|
64
|
|
|
|
|
65
|
|
|
|
|
66
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
99
|
|
61
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, 2008 and
2007, and the related consolidated statements of operations,
cash flows and shareholders equity for each of the three
years in the period ended March 31, 2008. 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, 2008 and 2007, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended March 31, 2008, 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 the consolidated
financial statements, on April 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment, 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, 2008, 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 December 15, 2008 expressed an adverse opinion
thereon.
Cleveland, Ohio
December 15, 2008
62
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, 2008,
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 following material weakness has been identified and included
in managements assessment.
|
|
|
|
|
The aggregation of several errors in the Companys order
processing operations 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
2008 consolidated financial statements, and this report does not
affect our report dated December 15, 2008, 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 has not
maintained effective internal control over financial reporting
as of March 31, 2008, based on the COSO criteria.
Cleveland, Ohio
December 15, 2008
63
agilysys, inc. and subsidiaries
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31
|
|
(In thousands, except share and per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
644,745
|
|
|
$
|
381,723
|
|
|
$
|
381,902
|
|
Services
|
|
|
126,215
|
|
|
|
92,847
|
|
|
|
87,082
|
|
|
Total net sales
|
|
|
770,960
|
|
|
|
474,570
|
|
|
|
468,984
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
549,057
|
|
|
|
328,831
|
|
|
|
336,339
|
|
Services
|
|
|
41,749
|
|
|
|
25,032
|
|
|
|
25,676
|
|
|
Total cost of goods sold
|
|
|
590,806
|
|
|
|
353,863
|
|
|
|
362,015
|
|
Gross margin
|
|
|
180,154
|
|
|
|
120,707
|
|
|
|
106,969
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
199,258
|
|
|
|
133,185
|
|
|
|
123,058
|
|
Restructuring (credits) charges
|
|
|
(75
|
)
|
|
|
(2,531
|
)
|
|
|
5,337
|
|
|
Operating loss
|
|
|
(19,029
|
)
|
|
|
(9,947
|
)
|
|
|
(21,426
|
)
|
Other (income) expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense, net
|
|
|
(6,632
|
)
|
|
|
6,025
|
|
|
|
(1,094
|
)
|
Interest income
|
|
|
(13,101
|
)
|
|
|
(5,133
|
)
|
|
|
(4,451
|
)
|
Interest expense
|
|
|
945
|
|
|
|
2,731
|
|
|
|
6,069
|
|
Loss on redemption of Mandatorily Redeemable Convertible
Trust Preferred Securities
|
|
|
|
|
|
|
|
|
|
|
4,811
|
|
|
Loss before income taxes
|
|
|
(241
|
)
|
|
|
(13,570
|
)
|
|
|
(26,761
|
)
|
Provision (benefit) for income taxes
|
|
|
(922
|
)
|
|
|
(1,935
|
)
|
|
|
(6,966
|
)
|
Distributions on Mandatorily Redeemable Convertible
Trust Preferred Securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
949
|
|
|
Income (loss) from continuing operations
|
|
|
681
|
|
|
|
(11,635
|
)
|
|
|
(20,744
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued components, net of taxes
|
|
|
2,978
|
|
|
|
48,761
|
|
|
|
48,858
|
|
Gain on disposal of discontinued component, net of taxes
|
|
|
|
|
|
|
195,729
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
2,978
|
|
|
|
244,490
|
|
|
|
48,858
|
|
|
Net income
|
|
$
|
3,659
|
|
|
$
|
232,855
|
|
|
$
|
28,114
|
|
|
Earnings (loss) per share Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.03
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.69
|
)
|
Income from discontinued operations
|
|
|
0.10
|
|
|
|
7.97
|
|
|
|
1.63
|
|
|
Net income
|
|
$
|
0.13
|
|
|
$
|
7.59
|
|
|
$
|
0.94
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,252,137
|
|
|
|
30,683,766
|
|
|
|
29,935,200
|
|
Diluted
|
|
|
28,766,112
|
|
|
|
30,683,766
|
|
|
|
29,935,200
|
|
|
See accompanying notes to consolidated financial statements.
64
agilysys, inc. and subsidiaries
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
(In thousands, except share and per share data)
|
|
2008
|
|
|
2007
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
70,596
|
|
|
$
|
604,667
|
|
Accounts receivable, net of allowance of $2,431 in 2008 and
$1,186 in 2007
|
|
|
170,357
|
|
|
|
111,211
|
|
Inventories, net of allowance of $1,334 in 2008 and $1,045 in
2007
|
|
|
25,646
|
|
|
|
9,922
|
|
Deferred income taxes
|
|
|
3,788
|
|
|
|
3,092
|
|
Prepaid expenses and other current assets
|
|
|
3,056
|
|
|
|
3,494
|
|
Income taxes receivable
|
|
|
4,960
|
|
|
|
|
|
Assets of discontinued operations current
|
|
|
369
|
|
|
|
206
|
|
|
Total current assets
|
|
|
278,772
|
|
|
|
732,592
|
|
Goodwill
|
|
|
298,420
|
|
|
|
93,197
|
|
Intangible assets, net of amortization of $27,456 in 2008 and
$9,744 in 2007
|
|
|
55,625
|
|
|
|
8,716
|
|
Investments in affiliated companies-held for sale in 2008
|
|
|
9,549
|
|
|
|
11,231
|
|
Other non-current assets
|
|
|
25,779
|
|
|
|
30,701
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
Building
|
|
|
57
|
|
|
|
|
|
Furniture and equipment
|
|
|
37,909
|
|
|
|
30,257
|
|
Software
|
|
|
37,514
|
|
|
|
35,639
|
|
Leasehold improvements
|
|
|
13,323
|
|
|
|
6,974
|
|
|
|
|
|
88,803
|
|
|
|
72,870
|
|
Accumulated depreciation and amortization
|
|
|
61,077
|
|
|
|
55,591
|
|
|
Property and equipment, net
|
|
|
27,726
|
|
|
|
17,279
|
|
|
Total assets
|
|
$
|
695,871
|
|
|
$
|
893,716
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
98,928
|
|
|
$
|
84,286
|
|
Floor plan financing
|
|
|
14,552
|
|
|
|
|
|
Income taxes payable
|
|
|
|
|
|
|
134,607
|
|
Deferred revenue
|
|
|
16,232
|
|
|
|
6,715
|
|
Accrued liabilities
|
|
|
58,282
|
|
|
|
19,950
|
|
Current portion of long-term debt
|
|
|
308
|
|
|
|
116
|
|
Liabilities of discontinued operations current
|
|
|
610
|
|
|
|
162
|
|
|
Total current liabilities
|
|
|
188,912
|
|
|
|
245,836
|
|
Deferred income taxes
|
|
|
169
|
|
|
|
62
|
|
Other non-current liabilities
|
|
|
27,093
|
|
|
|
20,751
|
|
Liabilities of discontinued operations noncurrent
|
|
|
232
|
|
|
|
223
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Common shares, without par value, at $0.30 stated value;
authorized 80,000,000 shares; 31,568,818 and
31,349,476 shares outstanding in 2008 and 2007, respectively
|
|
|
9,366
|
|
|
|
9,334
|
|
Capital in excess of stated value
|
|
|
(11,469
|
)
|
|
|
129,750
|
|
Retained earnings
|
|
|
486,799
|
|
|
|
489,435
|
|
Treasury stock (8,978,378 in 2008 and 35,304 in 2007)
|
|
|
(2,694
|
)
|
|
|
(11
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(2,537
|
)
|
|
|
(1,664
|
)
|
|
Total shareholders equity
|
|
|
479,465
|
|
|
|
626,844
|
|
|
Total liabilities and shareholders equity
|
|
$
|
695,871
|
|
|
$
|
893,716
|
|
|
See accompanying notes to consolidated financial statements.
65
agilysys, inc. and subsidiaries
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,659
|
|
|
$
|
232,855
|
|
|
$
|
28,114
|
|
Less: Income from discontinued operations
|
|
|
(2,978
|
)
|
|
|
(244,490
|
)
|
|
|
(48,858
|
)
|
|
Income (loss) from continuing operations
|
|
|
681
|
|
|
|
(11,635
|
)
|
|
|
(20,744
|
)
|
Adjustments to reconcile income (loss) from continuing
operations to net cash (used for) provided by operating
activities (net of effects from business acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment impairment
|
|
|
4,921
|
|
|
|
5,892
|
|
|
|
|
|
(Gain) loss on equity investment
|
|
|
(8,780
|
)
|
|
|
970
|
|
|
|
464
|
|
Gain on redemption of investment by affiliated company
|
|
|
(1,330
|
)
|
|
|
|
|
|
|
(622
|
)
|
Loss on redemption of Mandatorily Redeemable Convertible
Trust Preferred Securities
|
|
|
|
|
|
|
|
|
|
|
4,811
|
|
Loss on disposal of property and equipment
|
|
|
12
|
|
|
|
1,501
|
|
|
|
302
|
|
Depreciation
|
|
|
3,369
|
|
|
|
1,565
|
|
|
|
1,822
|
|
Amortization
|
|
|
20,552
|
|
|
|
6,315
|
|
|
|
6,978
|
|
Deferred income taxes
|
|
|
(4,571
|
)
|
|
|
1,478
|
|
|
|
(2,274
|
)
|
Stock based compensation
|
|
|
6,039
|
|
|
|
4,239
|
|
|
|
591
|
|
Excess tax benefit from exercise of stock options
|
|
|
(97
|
)
|
|
|
(1,854
|
)
|
|
|
|
|
Changes in working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
24,794
|
|
|
|
(988
|
)
|
|
|
(12,771
|
)
|
Inventories
|
|
|
(5,713
|
)
|
|
|
122
|
|
|
|
1,165
|
|
Accounts payable
|
|
|
(53,144
|
)
|
|
|
30,136
|
|
|
|
(8,873
|
)
|
Accrued liabilities
|
|
|
(11,675
|
)
|
|
|
(11,286
|
)
|
|
|
(243
|
)
|
Income taxes payable
|
|
|
(138,694
|
)
|
|
|
132,771
|
|
|
|
1,224
|
|
Other working capital
|
|
|
2,013
|
|
|
|
(1,316
|
)
|
|
|
4,752
|
|
Other non-cash adjustments
|
|
|
1,010
|
|
|
|
(5,524
|
)
|
|
|
(1,993
|
)
|
|
Total adjustments
|
|
|
(161,294
|
)
|
|
|
164,021
|
|
|
|
(4,667
|
)
|
|
Net cash (used for) provided by operating activities
|
|
|
(160,613
|
)
|
|
|
152,386
|
|
|
|
(25,411
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash surrender value of company owned life insurance
policies
|
|
|
(439
|
)
|
|
|
269
|
|
|
|
(494
|
)
|
Proceeds from sale of investment in affiliated company
|
|
|
4,770
|
|
|
|
|
|
|
|
788
|
|
Purchase of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(6,822
|
)
|
Proceeds from sale of marketable securities
|
|
|
|
|
|
|
1,147
|
|
|
|
|
|
Proceeds from sale of business
|
|
|
|
|
|
|
485,000
|
|
|
|
|
|
Acquisition of business, net of cash acquired
|
|
|
(236,210
|
)
|
|
|
(10,613
|
)
|
|
|
(27,964
|
)
|
Purchase of property and equipment
|
|
|
(8,775
|
)
|
|
|
(6,250
|
)
|
|
|
(3,252
|
)
|
Proceeds from escrow settlement
|
|
|
|
|
|
|
423
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities
|
|
|
(240,654
|
)
|
|
|
469,976
|
|
|
|
(37,744
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan financing agreement, net
|
|
|
14,552
|
|
|
|
|
|
|
|
|
|
Self tender offer buyback of common shares for
treasury
|
|
|
(149,999
|
)
|
|
|
|
|
|
|
|
|
Redemption of Mandatorily Redeemable Convertible
Trust Preferred Securities
|
|
|
|
|
|
|
|
|
|
|
(107,536
|
)
|
Principal payment under long-term obligations
|
|
|
(196
|
)
|
|
|
(59,567
|
)
|
|
|
(286
|
)
|
Issuance of common shares
|
|
|
1,447
|
|
|
|
10,100
|
|
|
|
5,445
|
|
Excess tax benefit from exercise of stock options
|
|
|
213
|
|
|
|
1,854
|
|
|
|
|
|
Dividends paid
|
|
|
(3,407
|
)
|
|
|
(3,675
|
)
|
|
|
(3,608
|
)
|
|
Net cash used for financing activities
|
|
|
(137,390
|
)
|
|
|
(51,288
|
)
|
|
|
(105,985
|
)
|
Effect of exchange rate changes on cash
|
|
|
1,314
|
|
|
|
(97
|
)
|
|
|
367
|
|
|
Cash flows (used for) provided by continuing operations
|
|
|
(537,343
|
)
|
|
|
570,977
|
|
|
|
(168,773
|
)
|
Cash flows of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
|
3,272
|
|
|
|
(114,087
|
)
|
|
|
74,767
|
|
Investing cash flows
|
|
|
|
|
|
|
(73
|
)
|
|
|
(24
|
)
|
|
Net (decrease) increase in cash
|
|
|
(534,071
|
)
|
|
|
456,817
|
|
|
|
(94,030
|
)
|
Cash at beginning of year
|
|
|
604,667
|
|
|
|
147,850
|
|
|
|
241,880
|
|
|
Cash at end of year
|
|
$
|
70,596
|
|
|
$
|
604,667
|
|
|
$
|
147,850
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions on Mandatorily Redeemable Convertible
Trust Preferred Securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,482
|
|
Other
|
|
|
618
|
|
|
|
3,135
|
|
|
|
6,068
|
|
Cash payments for income taxes, net of refunds received
|
|
|
140,450
|
|
|
|
22,978
|
|
|
|
10,478
|
|
Change in value of available-for-sale securities, net of taxes
|
|
|
(169
|
)
|
|
|
86
|
|
|
|
9
|
|
|
See accompanying notes to consolidated financial statements.
66
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, 2005
|
|
|
(46
|
)
|
|
|
28,821
|
|
|
$
|
8,578
|
|
|
$
|
88,927
|
|
|
$
|
(14
|
)
|
|
$
|
235,749
|
|
|
$
|
(873
|
)
|
|
$
|
84
|
|
|
$
|
332,451
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,114
|
|
|
|
|
|
|
|
|
|
|
|
28,114
|
|
Unrealized translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,948
|
|
|
|
1,948
|
|
Unrealized gain on securities net of $4 in taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,071
|
|
Cash dividends ($0.12 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,608
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,608
|
)
|
Shares issued upon exercise of stock options
|
|
|
|
|
|
|
469
|
|
|
|
141
|
|
|
|
5,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,442
|
|
Tax benefit related to exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
659
|
|
Tax benefit related to forfeiture of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
Shares issued upon conversion of Trust Preferred Securities
|
|
|
45
|
|
|
|
1,265
|
|
|
|
366
|
|
|
|
19,031
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,410
|
|
Forfeiture of restricted stock award
|
|
|
(53
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
(434
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
Restricted stock award
|
|
|
|
|
|
|
25
|
|
|
|
8
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
594
|
|
|
|
|
|
|
|
594
|
|
|
Balance at March 31, 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|