UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 0-5734
AGILYSYS, INC.
(Exact name of registrant as specified in its charter)
Ohio | 34-0907152 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
28925 Fountain Parkway, Solon, Ohio |
44139 | |
(Address of principal executive offices) | (ZIP Code) |
(440) 519-8700
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of Common Shares of the registrant outstanding as of October 31, 2011 was 22,630,116.
AGILYSYS, INC.
Part I. | Financial Information | 3 | ||||||
Item 1 | Financial Statements | 3 | ||||||
3 | ||||||||
Condensed Consolidated Balance Sheets September 30, 2011 (Unaudited) and March 31, 2011 |
4 | |||||||
5 | ||||||||
Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2011 |
6 | |||||||
Item 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations |
29 | ||||||
Item 3 | 43 | |||||||
Item 4 | 43 | |||||||
Part II. | Other Information | 43 | ||||||
Item 1 | 43 | |||||||
Item 1A | 43 | |||||||
Item 2 | 43 | |||||||
Item 3 | 44 | |||||||
Item 4 | 44 | |||||||
Item 5 | 44 | |||||||
Item 6 | 44 | |||||||
Signatures | 45 |
2
Item 1. | Financial Statements |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended | Six months ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
(In thousands, except share and per share data) |
2011 | 2010 | 2011 | 2010 | ||||||||||||
Net sales: |
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Products |
$ | 27,094 | $ | 24,664 | $ | 55,879 | $ | 48,156 | ||||||||
Services |
26,494 | 24,662 | 51,595 | 47,957 | ||||||||||||
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Total net sales |
53,588 | 49,326 | 107,474 | 96,113 | ||||||||||||
Cost of goods sold: |
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Products |
20,605 | 19,721 | 43,966 | 36,549 | ||||||||||||
Services |
11,367 | 11,843 | 22,365 | 22,844 | ||||||||||||
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Total cost of goods sold |
31,972 | 31,564 | 66,331 | 59,393 | ||||||||||||
Gross margin |
21,616 | 17,762 | 41,143 | 36,720 | ||||||||||||
Operating expenses: |
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Selling, general, and administrative expenses |
24,460 | 24,347 | 48,563 | 47,450 | ||||||||||||
Asset impairment charges |
| 59 | | 59 | ||||||||||||
Restructuring charges |
2,370 | 10 | 4,716 | 403 | ||||||||||||
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Operating loss |
(5,214 | ) | (6,654 | ) | (12,136 | ) | (11,192 | ) | ||||||||
Other expenses (income): |
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Other expenses (income), net |
308 | (856 | ) | 271 | (1,959 | ) | ||||||||||
Interest income |
(17 | ) | (17 | ) | (49 | ) | (40 | ) | ||||||||
Interest expense |
539 | 278 | 877 | 563 | ||||||||||||
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Loss from continuing operations before income taxes |
(6,044 | ) | (6,059 | ) | (13,235 | ) | (9,756 | ) | ||||||||
Income tax (benefit) expense |
(2,806 | ) | (1,143 | ) | (4,557 | ) | 3,452 | |||||||||
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Loss from continuing operations |
(3,238 | ) | (4,916 | ) | (8,678 | ) | (13,208 | ) | ||||||||
Income from discontinued operations, net of taxes |
10,487 | 2,702 | 11,138 | 742 | ||||||||||||
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Net income (loss) |
$ | 7,249 | $ | (2,214 | ) | $ | 2,460 | $ | (12,466 | ) | ||||||
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(Loss) income per share basic and diluted: |
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Loss from continuing operations |
$ | (0.14 | ) | $ | (0.22 | ) | $ | (0.38 | ) | $ | (0.58 | ) | ||||
Income from discontinued operations |
0.46 | 0.12 | 0.49 | 0.03 | ||||||||||||
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Net income (loss) |
$ | 0.32 | $ | (0.10 | ) | $ | 0.11 | $ | (0.55 | ) | ||||||
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Weighted average shares outstanding: |
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Basic and diluted |
22,853,057 | 22,750,474 | 22,902,872 | 22,750,254 |
See accompanying notes to condensed consolidated financial statements (unaudited).
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts at September 30, 2011 are unaudited)
(In thousands, except share and per share data) |
September 30, 2011 |
March 31, 2011 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 93,662 | $ | 70,559 | ||||
Accounts receivable, net of allowances of $248 and $661, respectively |
30,114 | 31,926 | ||||||
Inventories, net |
13,649 | 10,921 | ||||||
Deferred income taxes current, net |
85 | | ||||||
Prepaid expenses |
2,844 | 2,829 | ||||||
Income taxes receivable |
1,365 | 1,403 | ||||||
Other current assets |
11,333 | 6,344 | ||||||
Assets of discontinued operations current |
| 105,810 | ||||||
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Total current assets |
153,052 | 229,792 | ||||||
Goodwill |
15,104 | 15,211 | ||||||
Intangible assets, net of accumulated amortization of $21,601 and $20,069, respectively |
21,962 | 22,535 | ||||||
Other non-current assets |
4,066 | 11,709 | ||||||
Assets of discontinued operations non-current |
| 8,296 | ||||||
Property and equipment: |
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Furniture and equipment |
40,467 | 40,573 | ||||||
Software |
49,720 | 49,548 | ||||||
Leasehold improvements |
9,628 | 8,841 | ||||||
Project expenditures not yet in use |
114 | 668 | ||||||
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99,929 | 99,630 | |||||||
Accumulated depreciation and amortization |
78,991 | 74,775 | ||||||
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Property and equipment, net |
20,938 | 24,855 | ||||||
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Total assets |
$ | 215,122 | $ | 312,398 | ||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 15,910 | $ | 17,852 | ||||
Deferred revenue |
14,604 | 23,995 | ||||||
Accrued liabilities |
27,104 | 14,594 | ||||||
Income taxes payable |
125 | 265 | ||||||
Deferred income taxes current, net |
| 77 | ||||||
Capital lease obligations current |
970 | 999 | ||||||
Liabilities of discontinued operations current |
| 89,005 | ||||||
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Total current liabilities |
58,713 | 146,787 | ||||||
Deferred income taxes non-current, net |
4,093 | 3,894 | ||||||
Capital lease obligations non-current |
619 | 907 | ||||||
Other non-current liabilities |
6,453 | 11,972 | ||||||
Liabilities of discontinued operations non-current |
| 734 | ||||||
Commitments and contingencies (see Note 10) |
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Shareholders equity |
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Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 22,575,300 and 23,022,398 shares outstanding at September 30, 2011 and March 31, 2011, respectively |
9,482 | 9,482 | ||||||
Treasury shares (9,031,531 at September 30, 2011 and 8,584,433 at March 31, 2011) |
(2,709 | ) | (2,575 | ) | ||||
Capital in excess of stated value |
(10,325 | ) | (5,421 | ) | ||||
Retained earnings |
149,119 | 146,659 | ||||||
Accumulated other comprehensive loss |
(323 | ) | (41 | ) | ||||
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Total shareholders equity |
145,244 | 148,104 | ||||||
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Total liabilities and shareholders equity |
$ | 215,122 | $ | 312,398 | ||||
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See accompanying notes to condensed consolidated financial statements (unaudited).
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended | ||||||||
September 30 | ||||||||
(In thousands) |
2011 | 2010 | ||||||
Operating activities |
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Net income (loss) |
$ | 2,460 | $ | (12,466 | ) | |||
Less: Income from discontinued operations |
(11,138 | ) | (742 | ) | ||||
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Loss from continuing operations |
(8,678 | ) | (13,208 | ) | ||||
Adjustments to reconcile loss from continuing operations to net cash used for operating activities: |
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Restructuring charges |
4,716 | 403 | ||||||
Gain on the redemption of Company-owned life insurance policies |
| (2,065 | ) | |||||
Gain on the redemption of investment in The Reserve Funds Primary Fund |
| (147 | ) | |||||
Asset impairment charges |
| 59 | ||||||
Loss on the sale of securities |
166 | | ||||||
Depreciation |
3,432 | 1,786 | ||||||
Amortization |
3,376 | 3,681 | ||||||
Deferred income taxes |
36 | 4,429 | ||||||
Stock based compensation |
1,989 | 1,437 | ||||||
Change in cash surrender value of Company-owned life insurance policies |
(68 | ) | 301 | |||||
Changes in operating assets and liabilities: |
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Accounts receivable |
1,751 | (7,000 | ) | |||||
Inventories |
(2,729 | ) | (3,417 | ) | ||||
Accounts payable |
(1,935 | ) | 494 | |||||
Accrued and other liabilities |
(5,826 | ) | (1,950 | ) | ||||
Income taxes payable |
(763 | ) | 372 | |||||
Other changes, net |
(14 | ) | (209 | ) | ||||
Other non-cash adjustments, net |
(561 | ) | 69 | |||||
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Total adjustments |
3,570 | (1,757 | ) | |||||
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Net cash used for operating activities |
(5,108 | ) | (14,965 | ) | ||||
Investing activities |
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Proceeds from the sale of business |
59,470 | | ||||||
Proceeds from The Reserve Funds Primary Fund |
| 147 | ||||||
Proceeds from redemption of/borrowings against Company-owned life insurance policies |
| 2,248 | ||||||
Additional investments in Company-owned life insurance policies |
(46 | ) | (746 | ) | ||||
Proceeds from the sale of marketable securities |
2,036 | 14 | ||||||
Additional investments in marketable securities |
(22 | ) | | |||||
Purchases of software, property, and equipment |
(1,464 | ) | (3,543 | ) | ||||
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Net cash provided by (used for) investing activities |
59,974 | (1,880 | ) | |||||
Financing activities |
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Proceeds from borrowings under credit facility |
| 15,325 | ||||||
Principal payments under credit facility |
| (15,325 | ) | |||||
Repurchases of common shares |
(6,617 | ) | | |||||
Repurchases of shares to satisfy employee tax withholding |
(972 | ) | (188 | ) | ||||
Principal payments under long-term obligations |
(609 | ) | (306 | ) | ||||
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Net cash used for financing activities |
(8,198 | ) | (494 | ) | ||||
Effect of exchange rate changes on cash |
(151 | ) | 166 | |||||
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Cash flows provided by (used for) continuing operations |
46,517 | (17,173 | ) | |||||
Cash flows of discontinued operations: |
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Operating cash flows, net |
(23,336 | ) | (13,096 | ) | ||||
Investing cash flows, net |
| (73 | ) | |||||
Financing cash flows, net |
(78 | ) | (2 | ) | ||||
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Net increase (decrease) in cash |
23,103 | (30,344 | ) | |||||
Cash at beginning of the period |
70,559 | 62,801 | ||||||
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Cash at end of the period |
$ | 93,662 | $ | 32,457 | ||||
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See accompanying notes to condensed consolidated financial statements (unaudited).
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table amounts in thousands, except per share data)
1. Nature of Operations and Financial Statement Presentation
Nature of Operations
Agilysys, Inc. and its subsidiaries (the Company) are leading developers and marketers of proprietary enterprise software, services, and solutions to the hospitality and retail industries. The Company specializes in market-leading point-of-sale, property management, inventory and procurement, and mobile and wireless solutions that are designed to streamline operations, improve efficiency, and enhance the consumers experience. The Company operates extensively in North America with additional sales and support offices in the United Kingdom and in Asia.
Until August 1, 2011, the Company operated in three reportable business segments: Hospitality Solutions Group (HSG), Retail Solutions Group (RSG), and Technology Solutions Group (TSG). On August 1, 2011, the Company completed the sale of TSG. The assets and liabilities, as well as the results of operations and cash flows, of TSG are classified as discontinued operations within the Companys Condensed Consolidated Financial Statements for the periods presented. See Note 3 to Condensed Consolidated Financial Statements for a discussion regarding the disposal of TSG. Additional information regarding the Companys continuing reportable business segments are described in Note 12 to Condensed Consolidated Financial Statements.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the Companys accounts. The Companys investments in subsidiaries are reported using the consolidation method. All inter-company accounts have been eliminated. The Companys fiscal year ends on March 31. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal 2012 refers to the fiscal year ending March 31, 2012.
The unaudited interim financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to the Quarterly Report on Form 10-Q (Quarterly Report) under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.
The Condensed Consolidated Balance Sheet as of September 30, 2011, as well as the Condensed Consolidated Statements of Operations for the three- and six-month periods ended September 30, 2011 and 2010, and the Condensed Consolidated Statements of Cash Flows for the six-month periods ended September 30, 2011 and 2010, have been prepared by the Company without audit. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements. In the opinion of management, all adjustments necessary to fairly present the results of operations, financial position, and cash flows have been made. Except as discussed below, such adjustments were of a normal recurring nature. Further, the Company has evaluated all significant events occurring subsequent to the date of the Condensed Consolidated Financial Statements and through the filing of this Quarterly Report and concluded that there are no additional significant subsequent events requiring recognition or disclosure.
These unaudited interim financial statements of the Company should be read together with the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the year ended March 31, 2011, filed with the Securities and Exchange Commission (SEC) on June 14, 2011.
6
The results of operations for the three and six months ended September 30, 2011 are not necessarily indicative of the operating results for the full fiscal year or any future period.
Use of Estimates
The Company makes certain estimates and assumptions when preparing financial statements according to GAAP that affect the reported amounts of assets and liabilities at the financial statement dates and the reported amounts of revenues and expenses during the periods presented. These estimates and assumptions involve judgments with respect to many factors that are difficult to predict and are beyond the Companys control. Actual results could be materially different from these estimates. The Company revises the estimates and assumptions as new information becomes available.
Reclassifications
Certain fiscal 2010 product and service revenues and costs of sales were reclassified (with no impact on total gross margin) in order to conform to current period reporting presentations. Certain fiscal 2010 amounts related to corporate-owned life insurance policies were reclassified to conform to current period reporting presentation (with no impact on loss from continuing operations or cash flows used for operations).
Correction of Error
During the first quarter of fiscal 2011, the Company recorded an adjustment to increase income tax expense by $3.8 million. The adjustment increased the Companys valuation allowance against its U.S. deferred tax assets and represents a correction of an error. In fiscal 2009, the Company erroneously considered the tax effect of indefinite-lived intangible assets as a source of future taxable income, when it established a significant U.S. valuation allowance against its U.S. deferred tax assets. Income (loss) before income taxes did not change. Net loss increased by $3.8 million, or $0.17 per share, due to this adjustment. Management performed an evaluation under SEC Staff Accounting Bulletin (SAB) No. 108 and concluded the effect of this adjustment was immaterial to prior years financial statements as well as the projected full-year fiscal 2011 financial statements.
Credit Facility
Until July 29, 2011, the Company maintained a $50.0 million Loan and Security Agreement among the Company, and certain of its subsidiaries, and Bank of America, N.A. (the Lender), dated May 5, 2009 (Credit Facility). Additional information with respect to the Credit Facility is contained in the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2011. The Company terminated the Credit Facility on July 29, 2011 in conjunction with the sale of TSG. As a result of the proceeds the Company received from the sale of TSG, the Company determined that it no longer required the liquidity provided by the Credit Facility. As a result of the termination of the Credit Facility, the Company expensed approximately $0.4 million in unamortized deferred financing fees that related to the Credit Facility during the second quarter of fiscal 2012.
2. Summary of Significant Accounting Policies
A detailed description of the Companys significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, 2011, included in the Companys Annual Report on Form 10-K. Except as described below, there have been no material changes in the Companys significant accounting policies and estimates from those disclosed therein.
Change in Accounting Estimate
The Company previously announced that, after completion of the TSG sale, it will relocate its corporate headquarters from Solon, Ohio to Alpharetta, Georgia to better align corporate functions with the Companys operating units and reduce costs. This relocation is expected to be completed by March 31, 2012. Therefore, the
7
Company changed the useful life of the leasehold improvements and depreciable property and equipment related to the Solon, Ohio facility such that these assets will be fully depreciated by March 31, 2012. As a result, the Company recorded accelerated depreciation expense of $1.4 million classified within Selling, general, and administrative expenses in the Companys Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2011. This change also reduced the basic and diluted loss per share for each of the three and six months ended September 30, 2011 by $0.06 per share.
Recently Adopted Accounting Standards
In January 2010, the Financial Accounting Standards Board (FASB) issued authoritative guidance regarding fair value measurements. This guidance requires additional disclosure within the rollforward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances, and settlements of assets and liabilities within Level 3 of the fair value hierarchy (see Note 12 to Condensed Consolidated Financial Statements for definitions of the fair value hierarchy levels). In addition, this guidance requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances, and settlements of Level 3 measurements, which are effective for fiscal years beginning after December 15, 2010. On April 1, 2010, the Company adopted the required provisions of this guidance (see Note 12 to Condensed Consolidated Financial Statements). On April 1, 2011, the Company adopted the remaining provisions of this authoritative guidance, as required (also see Note 12 to Condensed Consolidated Financial Statements). The adoption of this guidance did not have an impact on the Companys financial position, results of operations, or cash flows.
In October 2009, the FASB issued authoritative guidance on revenue arrangements with multiple deliverable elements (e.g., hardware with services), which is effective for the Company on April 1, 2011 for new revenue arrangements or material modifications to existing arrangements. The guidance amends the criteria for separating consideration in arrangements with multiple deliverable elements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable based on: 1) vendor-specific objective evidence; 2) third-party evidence; or 3) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands the required disclosures related to revenue arrangements with multiple deliverable elements. Entities may elect to adopt the guidance through either prospective application for revenue arrangements entered into, or materially modified, after the effective date, or through retrospective application to all revenue arrangements for all periods presented. Early adoption is permitted. The Company adopted the provisions of this guidance on April 1, 2011, as required. The adoption of this guidance did not have an impact on the Companys financial position, results of operations, cash flows, or related disclosures.
In October 2009, the FASB issued authoritative guidance on revenue arrangements that include software elements, which is effective for the Company on April 1, 2011. The guidance changes revenue recognition for tangible products containing software elements and non-software elements as follows: 1) the tangible product element is always excluded from the software revenue recognition guidance even when sold together with the software element; 2) the software element of the tangible product element is also excluded from the software revenue guidance when the software and non-software elements function together to deliver the products essential functionality; and 3) undelivered elements in a revenue arrangement related to the non-software element are also excluded from the software revenue recognition guidance. Entities must select the same transition method and same period for the adoption of both this guidance and the guidance on revenue arrangements with multiple deliverable elements. The Company adopted the provisions of this guidance on April 1, 2011, as required. The adoption of this guidance did not have an impact on the Companys financial position, results of operations, cash flows, or related disclosures.
8
Recently Issued Accounting Standards
In September 2011, the FASB issued authoritative guidance on goodwill impairment that gives companies the option to perform a qualitative assessment that may allow them to skip the annual two-step test and reduce costs. This authoritative guidance gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step test. Otherwise, a company can skip the two-step test, which would reduce the cost and complexity of testing goodwill for impairment. The provisions of this authoritative guidance are effective for the Company beginning on April 1, 2012. The Company is currently evaluating the provisions of this guidance, but does not expect this guidance to have a significant impact on the Companys financial position, results of operations, cash flows, or related disclosures.
In June 2011, the FASB issued authoritative guidance on the presentation of comprehensive income in an entitys financial statements, which is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This authoritative guidance supersedes the presentation options currently available under GAAP and facilitates convergence of GAAP and International Financial Reporting Standards (IFRS) by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders equity and requiring that all nonowner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions of this authoritative guidance are to be applied retrospectively and are effective for the Company beginning on April 1, 2012. The Company is currently evaluating the provisions of this guidance, but does not expect this guidance to have a significant impact on the Companys financial position, results of operations, cash flows, or related disclosures.
In May 2011, the FASB issued amendments to its authoritative guidance on fair value measurements and disclosures, which represents the converged guidance of the FASB and the International Accounting Standards Board (collectively, the Boards) on fair value measurements. The collective efforts of the Boards and their staffs, reflected in this authoritative guidance, resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term fair value. The Boards concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRS. The amendments in this authoritative guidance are required to be applied prospectively, and are effective for the Company beginning April 1, 2012. The Company is currently evaluating the provisions of this guidance, but does not expect this guidance to have a significant impact on the Companys financial position, results of operations, cash flows, or related disclosures.
Management continually evaluates the potential impact, if any, on its financial position, results of operations, and cash flows, of all recent accounting pronouncements and, if significant, makes the appropriate disclosures required by such new accounting pronouncements.
3. Discontinued Operations
On May 28, 2011, the Company entered into a definitive agreement to sell its TSG business for an aggregate purchase price of $64.0 million in cash, subject to a possible downward adjustment based on final working capital, to OnX Enterprise Solutions Limited and its subsidiary OnX Acquisition LLC (together, OnX), a leading IT solutions provider based in Toronto, Canada. On July 28, 2011, the Companys shareholders approved the sale and the transaction closed on August 1, 2011, the date on which certain other contingencies specified in the sale agreement were satisfied. Upon the close of the transaction, the aggregate purchase price of $64.0 million was reduced by the payment of agreed-upon fees of $3.3 million for severance costs and $1.2 million for third-party services in support of the transition, resulting in net proceeds received by the Company of $59.5 million.
9
With the sale of TSG, the Company is focused on creating shareholder value by exploiting growth opportunities and strengthening its competitive position within the hospitality and retail markets in which it competes. The sale of TSG represented a disposal of a component of an entity. As such, the operating results of TSG, along with the gain on sale, have been reported as a component of discontinued operations in the Companys Condensed Consolidated Statements of Operations for the periods presented. In addition, the assets and liabilities of the TSG business are classified as discontinued operations in the Companys Condensed Consolidated Balance Sheets as of March 31, 2011.
The income from discontinued operations for the three months ended September 30, 2011, includes TSG net sales of $26.1 million, a pre-tax loss of $3.1 million, a net loss of $2.1 million (net of a tax benefit of $1.0 million), and a gain recognized on the sale of $12.6 million (net of taxes of $8.1 million). The income from discontinued operations for the six months ended September 30, 2011, includes TSG net sales of $123.8 million, a pre-tax loss of $1.8 million, a net loss of $1.5 million (net of a tax benefit of $0.3 million), and a gain recognized on the sale of $12.6 million (net of taxes of $8.1 million). Included in the calculation of the gain on the sale was the write-off of $5.4 million in goodwill related to TSG that remained on the Companys balance sheet until the sale was completed.
Income from discontinued operations for the three months ended September 30, 2010 includes TSG net sales of $133.5 million, pre-tax income of $3.9 million, and net income of $2.7 million. Income from discontinued operations for the six months ended September 30, 2010 includes TSG net sales of $218.6 million, pre-tax income of $1.8 million, and net income of $0.7 million.
Components of Results of Discontinued Operations
For the three and six months ended September 30, 2011 and 2010 the income from discontinued operations was comprised of the following:
Three months ended September 30, |
Six months ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Discontinued operations: |
||||||||||||||||
(Loss) income from operations of TSG |
$ | (3,142 | ) | $ | 3,914 | $ | (1,781 | ) | $ | 1,839 | ||||||
Gain on sale of TSG |
20,686 | | 20,686 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
17,544 | 3,914 | 18,905 | 1,839 | |||||||||||||
Provision for income taxes |
7,057 | 1,212 | 7,767 | 1,097 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from discontinued operations |
$ | 10,487 | $ | 2,702 | $ | 11,138 | $ | 742 | ||||||||
|
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|
|
|
|
|
|
4. Comprehensive Loss
Comprehensive loss is the total of net income (loss) as currently reported under GAAP plus other comprehensive income (loss). Other comprehensive income (loss) considers the effects of additional transactions and economic events that are not required to be recorded in determining net income, but rather are reported as a separate component of shareholders equity. Changes in the components of accumulated other comprehensive loss for the three and six months ended September 30, 2011 and 2010 are as follows:
10
Foreign currency translation adjustment |
Unamortized net actuarial gains |
Unrealized losses on securities |
Accumulated other comprehensive (loss) income |
Comprehensive income (loss) |
||||||||||||||||
Balance at April 1, 2011 |
$ | (99 | ) | $ | 58 | $ | | $ | (41 | ) | ||||||||||
Change during the three months ended June 30, 2011 |
86 | | (9 | ) | 77 | $ | 77 | |||||||||||||
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|
|
|
|
|
|
|
|||||||||||||
Balance at June 30, 2011 |
$ | (13 | ) | $ | 58 | $ | (9 | ) | $ | 36 | ||||||||||
Net loss for the three months ended June 30, 2011 |
(4,789 | ) | ||||||||||||||||||
Change during the three months ended September 30, 2011 |
(114 | ) | | (245 | ) | (359 | ) | (359 | ) | |||||||||||
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|
|
|
|
|
|
|||||||||||||
Balance at September 30, 2011 |
$ | (127 | ) | $ | 58 | $ | (254 | ) | $ | (323 | ) | |||||||||
Net income for the three months ended September 30, 2011 |
7,249 | |||||||||||||||||||
|
|
|||||||||||||||||||
Total comprehensive income for the six months ended September 30, 2011 |
$ | 2,178 | ||||||||||||||||||
|
|
Foreign currency translation adjustment |
Unamortized net actuarial losses and prior service costs |
Accumulated other comprehensive (loss) income |
Comprehensive (loss) income |
|||||||||||||
Balance at April 1, 2010 |
$ | (664 | ) | $ | (656 | ) | $ | (1,320 | ) | |||||||
Change during the three months ended June 30, 2010 |
(204 | ) | 57 | (147 | ) | $ | (147 | ) | ||||||||
|
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|
|
|
|
|||||||||||
Balance at June 30, 2010 |
$ | (868 | ) | $ | (599 | ) | $ | (1,467 | ) | |||||||
Net loss for the three months ended June 30, 2010 |
(10,252 | ) | ||||||||||||||
Change during the three months ended September 30, 2010 |
235 | 3 | 238 | 238 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Balance at September 30, 2010 |
$ | (633 | ) | $ | (596 | ) | $ | (1,229 | ) | |||||||
Net loss for the three months ended September 30, 2010 |
(2,214 | ) | ||||||||||||||
|
|
|||||||||||||||
Total comprehensive loss for the six months ended September 30, 2010 |
$ | (12,375 | ) | |||||||||||||
|
|
5. Restructuring Charges
The Company recognizes restructuring charges when a plan that materially changes the scope of the Companys business or the manner in which that business is conducted is adopted and communicated to the impacted parties, and the expenses have been incurred or are reasonably estimable. In addition, the Company assesses the property and equipment associated with the related facilities for impairment. The remaining useful lives of property and equipment associated with the related operations are re-evaluated based on the respective restructuring plan, resulting in the acceleration of depreciation and amortization of certain assets. Additional information regarding the Companys respective restructuring plans is included in the Companys Annual Report on Form 10-K for the year ended March 31, 2011.
Fiscal 2012 Restructuring Plan
In the first quarter of fiscal 2012, the Company announced restructuring actions, including the relocation of its corporate headquarters from Solon, Ohio to Alpharetta, Georgia, designed to better align corporate functions with the Companys operating units and reduce costs following the sale of TSG. In addition, the Company announced that its President and Chief Executive Officer was stepping down. These restructuring actions are expected to be mostly completed by March 31, 2012 and have impacted or will impact approximately 160 employees. The Company recorded $4.7 million in restructuring charges during the first six months of fiscal 2012, primarily comprised of severance and related benefits, with $0.8 million, $0.4 million, and $3.5 million related to HSG, RSG and Corporate/Other, respectively. The Company expects to incur between approximately $9.0 million and $11.0 million in additional restructuring charges for severance and related benefits, relocation,
11
and facilities related to these restructuring actions during the remainder of fiscal 2012 and the first quarter of fiscal 2013. As a result of taking these restructuring actions, the Company expects to realize between approximately $14.0 million and $16.0 million in cost savings, which are expected to be primarily realized during fiscal 2013.
Fiscal 2009 Restructuring Plan
The Company recorded $0.4 million in additional non-cash restructuring charges during the first six months of fiscal 2011, primarily comprised of settlement costs incurred in the first quarter of fiscal 2011 related to the payment of an obligation to a former executive under the Companys Supplemental Executive Retirement Plan (SERP) and ongoing facility lease obligations. The additional restructuring charges recorded in fiscal 2011 related to the previously disclosed restructuring actions taken in fiscal 2009.
Since fiscal 2009, the Company has incurred charges totaling $18.5 million related to restructuring actions taken in fiscal 2009 and previously disclosed, comprised of $0.4 million, $0.8 million, and $17.3 million in fiscal years 2011, 2010, and 2009, respectively, which related to Corporate/Other. The Company expects to incur minimal additional net restructuring charges related to the fiscal 2009 restructuring actions for the remainder of fiscal 2012 and through fiscal 2014 for non-cash settlement charges related to the expected payment of a SERP obligation to a former executive and for ongoing facility obligations.
The following table presents a reconciliation of the beginning and ending balances of the Companys restructuring liabilities:
Severance and other employment costs |
Facilities | Total | ||||||||||
Balance at April 1, 2011 |
$ | 289 | $ | 444 | $ | 733 | ||||||
Additions |
2,362 | | 2,362 | |||||||||
Accretion of lease obligations |
| (16 | ) | (16 | ) | |||||||
Payments |
(304 | ) | (40 | ) | (344 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at June 30, 2011 |
2,347 | 388 | 2,735 | |||||||||
Additions |
2,371 | | 2,371 | |||||||||
Accretion of lease obligations |
| (1 | ) | (1 | ) | |||||||
Payments |
(610 | ) | (44 | ) | (654 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at September 30, 2011 |
$ | 4,108 | $ | 343 | $ | 4,451 | ||||||
|
|
|
|
|
|
These liabilities are recorded within Accrued liabilities and Other non-current liabilities in the accompanying Condensed Consolidated Balance Sheets. Of the remaining $4.5 million liability at September 30, 2011, $1.3 million of severance and other employment costs are expected to be paid during fiscal 2012, $2.5 million is expected to be paid during fiscal 2013 and the remaining $0.3 million is expected to be paid during fiscal 2014. Approximately $85,000 is expected to be paid during the remainder of fiscal 2012 for ongoing facility lease obligations. Facility lease obligations for the Companys former corporate headquarters in Boca Raton, Florida are expected to continue through fiscal 2014.
6. Stock Based Compensation
The Company has a shareholder-approved 2006 Stock Incentive Plan (the 2006 Plan), as well as a 2000 Stock Option Plan for Outside Directors and a 2000 Stock Incentive Plan (collectively, the 2000 Plans), that all have vested awards outstanding. The Company is no longer granting awards under the 2006 Plan and 2000 Plans.
On July 28, 2011, the Companys shareholders approved the 2011 Stock Incentive Plan (the 2011 Plan). Under the 2011 Plan, the Company may grant non-qualified stock options, incentive stock options, stock-settled stock appreciation rights (SSARs), restricted shares, and restricted share units for up to 3.0 million common
12
shares. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2011 Plan is 1.0 million. The maximum number of shares subject to restricted shares or restricted share units that may be granted to an individual in a calendar year is 400,000 shares, and the maximum number of shares subject to stock options or SSARs that may be granted to an individual in a calendar year is 800,000 shares.
For stock options and SSARs, the exercise price must be set at least equal to the closing market price of the Companys common shares on the date of grant. The maximum term of stock option and SSAR awards is seven years from the date of grant. Stock option and SSARs awards vest over a period established by the Compensation Committee of the Board of Directors. SSARs may be granted in conjunction with, or independently from, a stock option granted under the 2011 Plan. SSARs granted in connection with a stock option are exercisable only to the extent that the stock option to which it relates is exercisable and the SSARs terminate upon the termination or exercise of the related stock option.
Restricted shares and restricted share units, whether time-vested or performance-based, may be issued at no cost or at a purchase price that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other transfer. Performance-based awards may be conditioned upon the attainment of specified performance objectives and other conditions, restrictions, and contingencies. Restricted shares and restricted share units have the right to receive dividends, or dividend equivalents in the case of restricted share units, if any, subject to the same forfeiture provisions that apply to the underlying awards. Subject to certain exceptions set forth in the 2011 Plan, for awards to employees, no performance-based restricted shares or restricted share units shall be based on a restriction period of less than one year, and any time-based restricted shares or restricted share units shall have a minimum restriction period of three years.
The Company may distribute authorized but unissued shares or treasury shares to satisfy share option and SSARs exercises or restricted shares awarded.
Stock Options
The following table summarizes the activity for the six months ended September 30, 2011 for stock options awarded by the Company under the 2006 Plan and prior plans:
Number of Options |
Weighted
-Average Exercise Price |
Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
(per share) | (in years) | |||||||||||||||
Outstanding at April 1, 2011 |
1,867,501 | $ | 11.74 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
(290,000 | ) | 3.22 | |||||||||||||
Forfeited |
| | ||||||||||||||
Cancelled/expired |
(50,000 | ) | 14.43 | |||||||||||||
|
|
|
|
|||||||||||||
Outstanding and exercisable at September 30, 2011 |
1,527,501 | $ | 13.26 | 3.6 | $ | 852 | ||||||||||
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax difference between the $7.13 closing price of the Companys common shares on September 30, 2011 over the exercise price of the stock option, multiplied by the number of stock options outstanding and exercisable. Under GAAP, the aggregate intrinsic value is not recorded for financial accounting purposes and the value changes daily based on changes in the fair market value of the Companys common shares.
The following table presents additional information related to stock option activity during the six months ended September 30, 2011 and 2010:
13
Six
months ended September 30, 2011 |
Six
months ended September 30, 2010 |
|||||||
Compensation expense |
$ | | $ | 206 | ||||
Total vest-date fair value of stock options vesting |
$ | | $ | 532 | ||||
Total intrinsic value of stock options exercised |
$ | 1,625 | $ | |
Compensation expense for stock options was recorded within Selling, general and administrative expenses in the Consolidated Statements of Operations during the six months ended September 30, 2010. The compensation expense recorded in the first half of fiscal 2011 included $0.2 million for the accelerated vesting of stock option expense due to a change in control provision contained in the original award agreements that was triggered by MAK Capital and its affiliates reaching 20% ownership in the Company during the first quarter of fiscal 2011. As a result, the Company did not have any remaining unrecognized stock based compensation expense related to non-vested stock options as of June 30, 2010.
A total of 176,311 shares, net of 78,956 shares withheld to cover the applicable exercise price of the award and 34,733 shares withheld to cover the employees minimum applicable income taxes, were issued from treasury shares to settle stock options exercised during the first half of fiscal 2012. The shares withheld were returned to treasury shares.
In fiscal 2012 and fiscal 2011 the Company was in a net operating loss position for U.S. federal income taxes. Therefore, the Company did not recognize and will not recognize an income tax benefit related to stock options exercised until that tax benefit can be realized.
Stock-Settled Stock Appreciation Rights
SSARs are rights granted to an employee to receive value equal to the difference in the price of the Companys common shares on the date of the grant and on the date of exercise. This value is settled in common shares of the Company.
The Company uses a Black-Scholes-Merton option pricing model to estimate the fair value of SSARs. The following table summarizes the principal assumptions utilized in valuing SSARs granted in the half of fiscal 2012 and fiscal 2011:
Six months ended September 30 |
||||||||
2011 | 2010 | |||||||
Dividend yield |
0 | % | 0 | % | ||||
Risk-free interest rate |
2.09 | % | 1.94 | % | ||||
Expected life (years) |
4.5 | 4.5 | ||||||
Expected volatility |
80.75 | % | 81.92 | % |
The dividend yield reflects the Companys historical dividend yield on the date of the award. On August 5, 2009, the Companys Board of Directors voted to eliminate the payment of cash dividends on the Companys common shares. For awards granted prior to August 5, 2009, the dividend yield reflects the Companys historical dividend yield on the date of award. Awards granted after August 5, 2009 were valued using a zero percent dividend yield, which is the yield expected during the life of the award. The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury bond whose maturity period approximates the expected life of the SSARs. The Company utilizes the simplified method as described by the SEC in SAB No. 110 to calculate the expected life of the SSARs. Under SAB No. 110, the expected life is based on the midpoint between the vesting date and the end of the contractual term of the SSARs award. The Company believes that SSARs awarded in the first half of fiscal 2012 and fiscal 2011 meet the criteria established by the SEC for the use of the simplified method. The expected stock price volatility is based on the volatility of the Companys
14
common shares for the most recent historical period equal to the expected life of the SSARs. The Companys ownership base has been and may continue to be concentrated in a few shareholders, which has increased and could continue to increase the volatility of the Companys common share price over time. The estimated fair value of the SSARs granted, less expected forfeitures, is recognized over the vesting period of the awards utilizing the graded vesting method. Under this method, the compensation cost related to unvested amounts begins to be recognized as of the grant date.
The following table summarizes the activity during the six months ended September 30, 2011 for SSARs awarded by the Company under the 2011 Plan and the 2006 Plan:
Number of Rights |
Weighted
-Average Exercise Price |
Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
(per right) | (in years) | |||||||||||||||
Outstanding at April 1, 2011 |
1,317,684 | $ | 6.50 | |||||||||||||
Granted |
266,450 | 7.42 | ||||||||||||||
Exercised |
(473,867 | ) | 6.33 | |||||||||||||
Forfeited |
(5,054 | ) | 7.42 | |||||||||||||
Cancelled/expired |
(41,733 | ) | 6.41 | |||||||||||||
|
|
|
|
|||||||||||||
Outstanding at September 30, 2011 |
1,063,480 | $ | 6.80 | 5.5 | $ | 510 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Exercisable at September 30, 2011 |
788,084 | $ | 6.55 | 4.1 | $ | 510 | ||||||||||
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax difference between the $7.13 closing price of the Companys common shares on September 30, 2011 over the exercise price of the SSARs, multiplied by the number of SSARs outstanding or outstanding and exercisable. Under GAAP, the aggregate intrinsic value is not recorded for financial accounting purposes and the value changes daily based on changes in the fair market value of the Companys common shares.
The following table presents additional information related to SSARs activity during the three and six months ended September 30, 2011 and 2010:
Three months ended September 30 |
Six months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Compensation expense |
$ | 246 | $ | 466 | $ | 1,469 | $ | 844 | ||||||||
Income tax benefit related to SSARs exercised: |
||||||||||||||||
Classified in operating activities in the Consolidated Statements of Cash Flows |
$ | | $ | | $ | | $ | | ||||||||
Classified in financing activities in the Consolidated Statements of Cash Flows |
$ | | $ | | $ | | $ | | ||||||||
Total intrinsic value of SSARs exercised |
$ | 1,064 | $ | | $ | 1,135 | $ | 189 | ||||||||
Total vest-date fair value of SSARs vesting |
$ | | $ | | $ | 2,807 | $ | |
Compensation expense for SSARs was recorded within Selling, general and administrative expenses in the Consolidated Statements of Operations during the three and six months ended September 30, 2011 and 2010. The compensation expense recorded in the first quarter of fiscal 2012 included $1.4 million for the accelerated vesting of SSARs expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As of September 30, 2011, total unrecognized stock
15
based compensation expense related to non-vested SSARs was $1.0 million, which is expected to be recognized over a weighted-average vesting period of 2.7 years.
A total of 66,186 shares, net of 12,212 shares withheld to cover the exercise price on certain incentive stock options exercised and 51,470 shares withheld to cover the employees minimum applicable income taxes, were issued from treasury shares to settle SSARs exercised during the first half of fiscal 2012. A total of 4,935 shares, net of 2,463 shares withheld to cover the employees minimum applicable income taxes, were issued from treasury shares to settle SSARs exercised during the first half of fiscal 2011. The shares withheld were returned to treasury shares.
In fiscal 2012 and fiscal 2011 the Company was in a net operating loss position for U.S. federal income taxes. Therefore, the Company did not recognize and will not recognize an income tax benefit related to SSARs exercised until that tax benefit can be realized.
Restricted Shares
The Company granted shares to certain of its Directors and executives under the 2011 Plan and the 2006 Plan, the vesting of which is service-based. The following table summarizes the activity during the six months ended September 30, 2011 for restricted shares awarded by the Company:
Number of shares |
Weighted -Average Grant-Date Fair Value |
|||||||
Outstanding at April 1, 2011 |
35,000 | $ | 8.18 | |||||
Granted |
142,835 | $ | 7.42 | |||||
Vested |
(39,000 | ) | $ | 7.61 | ||||
Forfeited |
(3,167 | ) | $ | 7.42 | ||||
|
|
|
|
|||||
Outstanding at September 30, 2011 |
135,668 | $ | 7.56 | |||||
|
|
|
|
The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of the Companys common shares on the grant date. During the first half of fiscal 2012, a total of 10,734 shares were withheld from the vested restricted shares to cover the employees minimum applicable income taxes. The shares withheld were returned to treasury shares.
The following table presents additional information related to restricted stock activity during the three and six months ended September 30, 2011 and 2010:
Three months ended September 30 |
Six months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Compensation expense |
$ | 271 | $ | 200 | $ | 417 | $ | 271 | ||||||||
Total vest-date fair value of restricted stock vesting |
$ | 120 | $ | | $ | 290 | $ | |
Compensation expense related to restricted stock awards is recognized ratably over the restriction period based upon the closing market price of the Companys common shares on the grant date. Compensation expense for restricted stock was recorded within Selling, general and administrative expenses in the Consolidated Statements of Operations during the three and six months ended September 30, 2011 and 2010. The fiscal 2012 compensation expense included $0.1 million for the accelerated vesting of restricted stock expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of
16
TSG on May 31, 2011. As of September 30, 2011, total unrecognized stock based compensation expense related to non-vested restricted stock was $0.8 million, which is expected to be recognized over a weighted-average vesting period of 1.9 years. The Company will not include restricted stock in the calculation of earnings per share until the shares are vested.
Performance Shares
The Company granted shares to certain of its executives under the 2006 Plan, the vesting of which is contingent upon meeting various Company-wide performance goals as of March 31, 2010. The earned performance shares vest over three years. The weighted-average grant date fair value of the performance share grants was determined based on the closing market price of the Companys common shares on the grant date and assumed that performance goals would be met at target.
The following table summarizes the activity during the six months ended September 30, 2011 for performance shares awarded by the Company under the 2006 Plan:
Number of shares |
Weighted -Average Grant-Date Fair Value |
|||||||
(per share) | ||||||||
Outstanding at April 1, 2011 |
49,438 | $ | 6.83 | |||||
Granted |
| | ||||||
Vested |
(49,438 | ) | 6.83 | |||||
Forfeited |
| | ||||||
|
|
|
|
|||||
Outstanding at September 30, 2011 |
| $ | | |||||
|
|
|
|
The weighted-average grant date fair value of the performance shares is determined based upon the closing price of the Companys common shares on the grant date. During the half of fiscal 2012, a total of 18,529 shares were withheld from the vested performance shares to cover the employees minimum applicable income taxes. The shares withheld were returned to treasury shares.
The following table presents additional information related to performance share activity during the three and six months ended September 30, 2011 and 2010:
Three months ended September 30 |
Six months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Compensation expense |
$ | | $ | 58 | $ | 103 | $ | 116 | ||||||||
Total vest-date fair value of performance shares vesting |
$ | | $ | | $ | 337 | $ | 539 |
Once attainment of the performance goals becomes probable, compensation expense related to performance share awards is recognized ratably over the vesting period based upon the closing market price of the Companys common shares on the grant date. The compensation expense for performance shares was recorded within Selling, general and administrative expenses in the Consolidated Statements of Operations during the three and six months ended September 30, 2011 and 2010. The fiscal 2012 compensation expense included $0.2 million for the accelerated vesting of performance share expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As a result, subsequent to May 31, 2011, there was no remaining unrecognized stock based compensation expense related to non-vested performance shares.
17
7. Repurchases of Common Shares
On August 1, 2011, the Company announced that its Board of Directors provided authorization to repurchase up to 1.6 million of the Companys common shares. Under this authorization, the Company may purchase shares from time to time through open market purchases, including transactions pursuant to Rule 10b5-1 plans, or privately negotiated transactions. Unless renewed, the share repurchase program will expire on March 31, 2012.
During the second quarter of fiscal 2012, the Company repurchased 800,000 of its common shares for an aggregate of $6.6 million, representing an average purchase price of $8.27 per common share.
As of September 30, 2011, 800,000 common shares remained authorized for repurchase and 9.0 million common shares were held in treasury.
8. Income Taxes
The effective tax rates from continuing operations for the three and six months ended September 30, 2011 and 2010 were as follows:
Three months ended September 30 |
Six months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Effective income tax rate |
46.4 | % | 18.9 | % | 34.4 | % | (35.4 | )% |
Income tax expense is based on the Companys estimate of the effective tax rate expected to be applicable for the respective full year. For the second quarter and first half of fiscal 2012, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets, which were partially offset by increases in the valuation allowance. Other items effecting the rate in the current year quarter include foreign and state taxes and a discrete item related to a decrease in unrecognized tax benefits. For the second quarter and first half of fiscal 2011, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance. In addition, an increase in the valuation allowance was recorded due to the correction of an error, as more fully described in Note 1 to Condensed Consolidated Financial Statements. Other items effecting the rate include foreign and state taxes and a discrete item related to a net increase to unrecognized tax benefits.
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months a reduction in unrecognized tax benefits may occur in the range of zero to $0.5 million based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations. The Company is routinely audited and is currently under examination by the Internal Revenue Service (IRS) for the tax year ended March 31, 2010. Due to the ongoing nature of current examinations in multiple jurisdictions, other changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.
18
9. Earnings (Loss) Per Share
The following data show the amounts used in computing earnings (loss) per share and the effect on income and the weighted average number of dilutive potential common shares:
Three months ended September 30 |
Six months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator: |
||||||||||||||||
Loss from continuing operations - basic and diluted |
$ | (3,238 | ) | $ | (4,916 | ) | $ | (8,678 | ) | $ | (13,208 | ) | ||||
Income from discontinued operations - basic and diluted |
10,487 | 2,702 | 11,138 | 742 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) - basic and diluted |
$ | 7,249 | $ | (2,214 | ) | $ | 2,460 | $ | (12,466 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Weighted average shares outstanding - basic |
22,853 | 22,750 | 22,903 | 22,750 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Share-based compensation awards |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average shares outstanding - diluted |
22,853 | 22,750 | 22,903 | 22,750 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) per share - basic and diluted: |
||||||||||||||||
Loss from continuing operations |
$ | (0.14 | ) | $ | (0.22 | ) | $ | (0.38 | ) | $ | (0.58 | ) | ||||
Income from discontinued operations |
0.46 | 0.12 | 0.49 | 0.03 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 0.32 | $ | (0.10 | ) | $ | 0.11 | $ | (0.55 | ) | ||||||
|
|
|
|
|
|
|
|
Basic earnings (loss) per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 135,668 of restricted shares at September 30, 2011 and 223,532 of restricted shares and performance shares (including reinvested dividends) at September 30, 2010, as these shares were issued but were not vested and, therefore, not considered outstanding for purposes of computing basic earnings per share at the balance sheet dates. Diluted earnings (loss) per share is computed by sequencing each series of potential issuance of common shares from the most dilutive to the least dilutive. Diluted earnings (loss) per share is determined as the lowest earnings or highest loss per incremental share in the sequence of potential common shares. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive to the loss per share. In addition, when a loss from continuing operations is reported, adjusting the denominator of diluted earnings per share would also be anti-dilutive to the loss per share, even if an entity has net income after adjusting for a discontinued operation. Therefore, for each of the three and six months ended September 30, 2011 and 2010, basic weighted-average shares outstanding were used in calculating the diluted net loss per share.
For each of the three and six months ended September 30, 2011, stock options and SSARs on 2.6 million common shares were not included in computing diluted earnings per share because their effects were anti-dilutive. For each of the three and six months ended September 30, 2010, stock options and SSARs on 3.4 million common shares were not included in computing diluted earnings per share because their effects were anti-dilutive.
10. Commitments and Contingencies
The Company is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. The Company provides for costs related to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of certain of these matters on the Companys future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on the consolidated financial position, results of operations, or cash flows of the Company.
19
As of September 30, 2011, the Company is expected to reach its minimum purchase commitments from a vendor of $330.0 million per year through fiscal 2012, which were disclosed in the Companys Annual Report on Form 10-K for the year ended March 31, 2011. The majority of this obligation, representing $310.0 million, was assumed by OnX upon the completion of the TSG divestiture. The remaining $20.0 million obligation was retained by the Company and the Company expects to reach its commitment during fiscal 2012.
11. Additional Balance Sheet Information
Additional information related to the Companys Condensed Consolidated Balance Sheets is as follows:
September 30, 2011 | March 31, 2011 | |||||||
Other current assets: |
||||||||
Marketable securities restricted in Rabbi Trust |
$ | 11,317 | $ | 5,791 | ||||
Other |
16 | 553 | ||||||
|
|
|
|
|||||
Total |
$ | 11,333 | $ | 6,344 | ||||
|
|
|
|
|||||
Other non-current assets: |
||||||||
Corporate-owned life insurance policies |
$ | 3,437 | $ | 3,323 | ||||
Marketable securities restricted in Rabbi Trust |
| 7,950 | ||||||
Other |
629 | 436 | ||||||
|
|
|
|
|||||
Total |
$ | 4,066 | $ | 11,709 | ||||
|
|
|
|
|||||
Accrued liabilities: |
||||||||
Salaries, wages, and related benefits |
$ | 4,950 | $ | 4,943 | ||||
SERP obligations |
5,736 | 5,675 | ||||||
BEP obligations |
3,173 | | ||||||
Other employee benefit obligations |
116 | 116 | ||||||
Restructuring liabilities |
3,433 | 475 | ||||||
Accrued income tax provision |
4,421 | | ||||||
Other taxes payable |
1,333 | 1,226 | ||||||
Other |
3,942 | 2,159 | ||||||
|
|
|
|
|||||
Total |
$ | 27,104 | $ | 14,594 | ||||
|
|
|
|
|||||
Other non-current liabilities: |
||||||||
BEP obligations |
$ | | $ | 5,629 | ||||
Other employee benefit obligations |
305 | 305 | ||||||
Income taxes payable |
3,385 | 4,337 | ||||||
Restructuring liabilities |
1,018 | 258 | ||||||
Other |
1,745 | 1,443 | ||||||
|
|
|
|
|||||
Total |
$ | 6,453 | $ | 11,972 | ||||
|
|
|
|
The marketable securities included in the table above within Other current assets and Other non-current assets are maintained in a Rabbi Trust to informally fund the Companys obligations with respect to employee benefit plan obligations under the SERP and Benefits Equalization Plan (BEP), which are included within Accrued liabilities and Other non-current liabilities.
The corporate-owned life insurance policies included in the table above within Other non-current assets represent split-dollar endorsement life insurance policies for which the related benefit obligation is included within Other non-current liabilities. The Company presents these contracts at their cash surrender value (which is considered fair value), net of policy loans. The Company adjusts the carrying value of these contracts to the cash surrender value at the end of each reporting period. Such periodic adjustments are included in Other expenses (income), net within the accompanying Condensed Consolidated Statements of Operations.
20
Additional information with respect to the Companys marketable securities, corporate-owned life insurance policies, and employee benefit plans obligations is provided in the Companys Annual Report on Form 10-K for the year ended March 31, 2011.
The accrued income tax provision in the table above reflects the tax effect on the gain on the sale of TSG, which was computed in accordance with the FASBs authoritative guidance on income tax accounting and recorded in the second quarter of fiscal 2012.
12. Business Segments
Description of Business Segments
The Company has two reportable business segments: HSG and RSG. The reportable segments are each managed separately and are supported by various practices as well as Company-wide functional departments. These functional support departments include general accounting, tax, and information technology. Certain costs associated with the functional support departments are contained within Corporate/Other and are not allocated back to the reportable business segments. Corporate/Other is not a reportable business segment as defined by GAAP. As a result of the sale of the Companys TSG business, which is disclosed in Note 3, Corporate/Other costs have been restated for all prior periods presented to reflect the portion of the functional support department costs that were transferred to OnX.
HSG is a leading technology provider of software, hardware and services to the hospitality industry, offering industry leading enterprise solutions for property management, point of sale, inventory and procurement, document management, and mobility-enabled guest engagement. HSG solutions allow customers in the gaming, hotel and resort, cruise line, foodservice management, higher education, and sports and entertainment markets to enhance guest services, increase revenue opportunities, and reduce operational expenses.
RSG is a leader in designing solutions that help make retailers more productive and provide their customers with an enhanced shopping experience. RSG solutions help improve operational efficiency, technology utilization, customer satisfaction, and in-store profitability, including mobility and wireless, customized pricing, inventory, and customer relationship management systems. The group also provides implementation plans and supplies the complete package of hardware needed to operate the systems, including servers, receipt printers, point-of-sale terminals, and wireless devices for in-store use by the retailers store associates.
Measurement of Segment Operating Results and Segment Assets
The Companys President and Chief Executive Officer, who is the Chief Operating Decision Maker (CODM), evaluates performance and allocates resources to its reportable segments based on operating income. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies elsewhere in these Notes to Condensed Consolidated Financial Statements. Intersegment sales are recorded at pre-determined amounts to allow for inter-company profit to be included in the operating results of the individual reportable segments. Such inter-company profit is eliminated for consolidated financial reporting purposes.
The CODM does not evaluate a measurement of segment assets when evaluating the performance of the Companys reportable segments. As such, financial information relating to segment assets is not provided in the table below.
The following table presents segment profit and related information for each of the Companys reportable segments and Corporate/Other. Please refer to Note 5 to Condensed Consolidated Financial Statements for further information on the fiscal 2012 and fiscal 2011 restructuring charges.
21
Reportable segments | Corporate/ | |||||||||||||||
HSG | RSG | Other | Consolidated | |||||||||||||
Three months ended September 30, 2011 |
||||||||||||||||
Total revenue |
$ | 22,631 | $ | 31,173 | $ | | $ | 53,804 | ||||||||
Elimination of intersegment revenue |
| (216 | ) | | (216 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenue from external customers |
$ | 22,631 | $ | 30,957 | $ | | $ | 53,588 | ||||||||
Gross margin |
$ | 14,523 | $ | 7,093 | $ | | $ | 21,616 | ||||||||
Gross margin percentage |
64.2 | % | 22.9 | % | 40.3 | % | ||||||||||
Operating income (loss) |
$ | 1,401 | $ | 2,168 | $ | (8,783 | ) | $ | (5,214 | ) | ||||||
Other expenses, net |
| | (308 | ) | (308 | ) | ||||||||||
Interest expense, net |
| | (522 | ) | (522 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
$ | 1,401 | $ | 2,168 | $ | (9,613 | ) | $ | (6,044 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Other information: |
||||||||||||||||
Capital expenditures |
$ | 708 | $ | | $ | | $ | 708 | ||||||||
Non-cash charges: |
||||||||||||||||
Depreciation and amortization (1) |
$ | 1,118 | $ | 155 | $ | 2,556 | $ | 3,829 | ||||||||
Restructuring charges |
619 | 231 | 1,520 | 2,370 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,737 | $ | 386 | $ | 4,076 | $ | 6,199 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Three months ended September 30, 2010 |
||||||||||||||||
Total revenue |
$ | 20,633 | $ | 28,861 | $ | | $ | 49,494 | ||||||||
Elimination of intersegment revenue |
(63 | ) | (105 | ) | | (168 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenue from external customers |
$ | 20,570 | $ | 28,756 | $ | | $ | 49,326 | ||||||||
Gross margin |
$ | 12,215 | $ | 5,547 | $ | | $ | 17,762 | ||||||||
Gross margin percentage |
59.4 | % | 19.3 | % | 36.0 | % | ||||||||||
Operating income (loss) |
$ | 214 | $ | 1,079 | $ | (7,947 | ) | $ | (6,654 | ) | ||||||
Other income, net |
| | 856 | 856 | ||||||||||||
Interest expense, net |
| | (261 | ) | (261 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
$ | 214 | $ | 1,079 | $ | (7,352 | ) | $ | (6,059 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Other information: |
||||||||||||||||
Capital expenditures |
$ | 391 | $ | 104 | $ | 1,357 | $ | 1,852 | ||||||||
Non-cash charges: |
||||||||||||||||
Depreciation and amortization (1) |
$ | 1,071 | $ | 81 | $ | 1,397 | $ | 2,549 | ||||||||
Asset impairment charges |
59 | | | 59 | ||||||||||||
Restructuring charges |
| | 10 | 10 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,130 | $ | 81 | $ | 1,407 | $ | 2,618 | ||||||||
|
|
|
|
|
|
|
|
(1) | Does not include the amortization of deferred financing fees totaling $437,000 and $131,000 for the three months ended September 30, 2011 and 2010, respectively, which related to Corporate/Other. |
22
Reportable segments | Corporate/ | |||||||||||||||
HSG | RSG | Other | Consolidated | |||||||||||||
Six months ended September 30, 2011 |
||||||||||||||||
Total revenue |
$ | 43,591 | $ | 64,278 | $ | | $ | 107,869 | ||||||||
Elimination of intersegment revenue |
| (395 | ) | | (395 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenue from external customers |
$ | 43,591 | $ | 63,883 | $ | | $ | 107,474 | ||||||||
Gross margin |
$ | 27,790 | $ | 13,353 | $ | | $ | 41,143 | ||||||||
Gross margin percentage |
63.8 | % | 20.9 | % | 38.3 | % | ||||||||||
Operating income (loss) |
$ | 1,916 | $ | 4,263 | $ | (18,315 | ) | $ | (12,136 | ) | ||||||
Other expenses, net |
| | (271 | ) | (271 | ) | ||||||||||
Interest expense, net |
| | (828 | ) | (828 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
$ | 1,916 | $ | 4,263 | $ | (19,414 | ) | $ | (13,235 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Other information: |
||||||||||||||||
Capital expenditures |
$ | 1,457 | $ | 7 | $ | | $ | 1,464 | ||||||||
Non-cash charges: |
||||||||||||||||
Depreciation and amortization (2) |
$ | 2,176 | $ | 306 | $ | 3,758 | $ | 6,240 | ||||||||
Restructuring charges |
806 | 365 | 3,545 | 4,716 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,982 | $ | 671 | $ | 7,303 | $ | 10,956 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Six months ended September 30, 2010 |
||||||||||||||||
Total revenue |
$ | 43,682 | $ | 52,674 | $ | | $ | 96,356 | ||||||||
Elimination of intersegment revenue |
(63 | ) | (180 | ) | | (243 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenue from external customers |
$ | 43,619 | $ | 52,494 | $ | | $ | 96,113 | ||||||||
Gross margin |
$ | 25,503 | $ | 11,217 | $ | | $ | 36,720 | ||||||||
Gross margin percentage |
58.5 | % | 21.4 | % | 38.2 | % | ||||||||||
Operating income (loss) |
$ | 2,454 | $ | 2,847 | $ | (16,493 | ) | $ | (11,192 | ) | ||||||
Other income, net |
| | 1,959 | 1,959 | ||||||||||||
Interest expense, net |
| | (523 | ) | (523 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
$ | 2,454 | $ | 2,847 | $ | (15,057 | ) | $ | (9,756 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Other information: |
||||||||||||||||
Capital expenditures |
$ | 1,356 | $ | 104 | $ | 2,083 | $ | 3,543 | ||||||||
Non-cash charges: |
||||||||||||||||
Depreciation and amortization (2) |
$ | 2,162 | $ | 161 | $ | 2,882 | $ | 5,205 | ||||||||
Asset impairment charges |
59 | | | 59 | ||||||||||||
Restructuring charges |
| | 403 | 403 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,221 | $ | 161 | $ | 3,285 | $ | 5,667 | ||||||||
|
|
|
|
|
|
|
|
(2) | Does not include the amortization of deferred financing fees totaling $568,000 and $262,000 for the six months ended September 30, 2011 and 2010, respectively, which related to Corporate/Other. |
23
Enterprise-Wide Disclosures
The Companys assets are primarily located in the United States. Further, revenues attributable to customers outside the United States accounted for approximately 7% and 5% of total revenues for the three- and six-month periods ended September 30, 2011, respectively. Revenues attributable to customers outside the United States accounted for approximately 7% and 8% of total revenues for the three- and six-month periods ended September 30, 2010, respectively. Total revenues for the Companys three specific product areas are as follows:
Three months ended September 30 |
Six months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Hardware |
$ | 22,846 | $ | 21,218 | $ | 47,702 | $ | 40,505 | ||||||||
Software |
4,248 | 3,446 | 8,177 | 7,651 | ||||||||||||
Services |
26,494 | 24,662 | 51,595 | 47,957 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 53,588 | $ | 49,326 | $ | 107,474 | $ | 96,113 | ||||||||
|
|
|
|
|
|
|
|
13. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value of financial assets and liabilities are measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. In determining fair value of financial assets and liabilities, the Company uses various valuation techniques. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment. The availability of pricing inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction.
The Company estimates the fair value of financial instruments using available market information and generally accepted valuation methodologies. The Company assesses the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which pricing inputs used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted prices for identical assets or liabilities and are the most observable. Level 2 inputs include unadjusted quoted prices for similar assets and liabilities that are either directly or indirectly observable, or other observable inputs such as interest rates, foreign currency exchange rates, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include the Companys own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the tables below.
Additional information with respect to the Companys fair value measurements is included in the Companys Annual Report on Form 10-K for the year ended March 31, 2011.
There were no transfers between Levels 1, 2, and 3 during the three- and six-month periods ended September 30, 2011 and 2010.
24
The following tables present information about the Companys financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:
Fair value measurement used | ||||||||||||||||
Recorded value as of September 30, 2011 |
Active markets for identical assets or liabilities (Level 1) |
Quoted prices in similar instruments and observable inputs (Level 2) |
Active markets for unobservable inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
Available for sale restricted marketable securities current |
$ | 11,317 | $ | 11,317 | $ | | $ | | ||||||||
Corporate-owned life insurance non-current |
3,437 | | | 3,437 | ||||||||||||
Liabilities: |
||||||||||||||||
BEP current |
$ | 3,173 | $ | | $ | 3,173 | $ | |
Fair value measurement used | ||||||||||||||||
Recorded value as of March 31, 2011 |
Active markets for identical assets or liabilities (Level 1) |
Quoted prices in similar instruments and observable inputs (Level 2) |
Active markets for unobservable inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
Available for sale restricted marketable securities current |
$ | 5,791 | $ | 5,791 | $ | | $ | | ||||||||
Available for sale restricted marketable securities non-current |
7,950 | 7,950 | | | ||||||||||||
Corporate-owned life insurance non-current |
3,323 | | | 3,323 | ||||||||||||
Liabilities: |
||||||||||||||||
BEP non-current |
$ | 5,629 | $ | | $ | 5,629 | $ | |
The Company maintains an investment in available for sale marketable securities in which cost approximates fair value. The recorded value of the Companys investment in available for sale marketable securities is based on quoted prices in active markets and, therefore, is classified within Level 1 of the fair value hierarchy. As of September 30, 2011, the Company has approximately $0.3 million of unrealized losses related to this investment, which is recorded within Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets.
The recorded value of the Corporate-owned life insurance policies is adjusted to the cash surrender value of the policies which are not observable in the market, and therefore, are classified within Level 3 of the fair value hierarchy. Changes in the cash surrender value of these policies are recorded within Other expenses (income), net in the Condensed Consolidated Statements of Operations. Although corporate-owned life insurance policies are exempt from such disclosure requirements, management believes the disclosures are useful to financial statement users.
The recorded value of the BEP obligation is measured as employee deferral contributions and Company matching contributions less distributions made from the plan, and adjusted for the returns on the hypothetical investments selected by the participants, which are indirectly observable and therefore, classified within Level 2 of the fair value hierarchy.
25
The following table presents a summary of changes in the fair value of the Level 3 assets and liabilities related to the Companys continuing operations for the six months ended September 30, 2011 and 2010:
Six months ended September 30 |
||||||||
2011 | 2010 | |||||||
Corporate-owned life insurance: |
||||||||
Balance on April 1 |
$ | 3,323 | $ | 16,095 | ||||
Realized gains |
68 | 1,764 | ||||||
Unrealized gains (losses) relating to instruments still held at the reporting date |
| | ||||||
Purchases |
46 | 746 | ||||||
Sales |
| | ||||||
Issuances |
| | ||||||
Settlements |
| (2,248 | ) | |||||
|
|
|
|
|||||
Balance on September 30 |
$ | 3,437 | $ | 16,357 | ||||
|
|
|
|
Realized gains recorded during the first half of fiscal 2012 represent the amounts recognized for the increase in the cash surrender value of Corporate-owned life insurance policies and are recorded within Other expenses (income), net in the accompanying Condensed Consolidated Statements of Operations. Realized gains recorded during the first half of fiscal 2011 represent the amounts recognized on the redemption of certain Corporate-owned life insurance policies, net of amounts recognized for the decrease in the cash surrender value of these policies, and are recorded within Other expenses (income), net in the accompanying Condensed Consolidated Statements of Operations.
The following tables present information about the Companys financial and nonfinancial assets and liabilities measured at fair value on a nonrecurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:
Fair value measurement used | ||||||||||||||||
Recorded value as of September 30, 2011 |
Active markets for identical assets or liabilities (Level 1) |
Quoted prices in similar instruments and observable inputs (Level 2) |
Active markets for unobservable inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
Goodwill |
$ | 15,104 | $ | | $ | | $ | 15,104 | ||||||||
Intangible assets |
21,962 | | | 21,962 | ||||||||||||
Liabilities: |
||||||||||||||||
SERP obligations current |
$ | 5,736 | $ | | $ | | $ | 5,736 | ||||||||
Other employee benefit plans obligations current |
116 | | | 116 | ||||||||||||
Restructuring liabilties current |
3,433 | | | 3,433 | ||||||||||||
Restructuring liabilties non-current |
1,018 | | | 1,018 | ||||||||||||
Other employee benefit plans obligations non-current |
305 | | | 305 |
Fair value measurement used | ||||||||||||||||
Recorded value as of March 31, 2011 |
Active markets for identical assets or liabilities (Level 1) |
Quoted prices in similar instruments and observable inputs (Level 2) |
Active markets for unobservable inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
Goodwill |
$ | 15,211 | $ | | $ | | $ | 15,211 | ||||||||
Intangible assets |
22,535 | | | 22,535 | ||||||||||||
Liabilities: |
||||||||||||||||
SERP obligations current |
$ | 5,675 | $ | | $ | | $ | 5,675 | ||||||||
Other employee benefit plans obligations current |
116 | | | 116 | ||||||||||||
Restructuring liabilties current |
475 | | | 475 | ||||||||||||
Restructuring liabilties non-current |
258 | | | 258 | ||||||||||||
Other employee benefit plans obligations non-current |
305 | | | 305 |
Goodwill of the Companys reporting units is measured for impairment on an annual basis, or in interim periods if indicators of potential impairment exist, using a combination of an income approach and a market approach.
26
The Companys intangible assets are valued at their estimated fair value at time of acquisition. The Company evaluates the fair value of its finite-lived intangible assets when impairment indicators are present and its indefinite-lived intangible assets on an annual basis, or in interim periods if indicators of potential impairment exist. The same approach described above for the goodwill valuation is also used to value indefinite-lived intangible assets.
The recorded value of the Companys SERP and other benefit plans obligations is based on estimates developed by management by evaluating actuarial information and includes assumptions such as discount rates, future compensation increases, expected retirement dates, payment forms, and mortality. The recorded value of these obligations is measured on an annual basis, or upon the occurrence of a plan curtailment or settlement.
The Companys restructuring liabilities primarily consist of one-time termination benefits to former employees and ongoing costs related to long-term operating lease obligations. The recorded value of the termination benefits to employees is adjusted to the expected remaining obligation for each period based on the arrangements made with the former employees. The recorded value of the ongoing lease obligations is based on the remaining lease term and payment amount, net of sublease income plus interest, discounted to present value. Changes in subsequent periods resulting from a revision to either the timing or the amount of estimated cash flows over the future period are measured using the credit-adjusted, risk-free rate that was used to measure the restructuring liabilities initially.
The inputs used to value the Companys goodwill, intangible assets, SERP obligations, other employee benefit plans obligations, and restructuring liabilities are not observable in the market and therefore, these amounts are classified within Level 3 in the fair value hierarchy.
The following table presents a summary of changes in the fair value of the Level 3 assets and liabilities related to the Companys continuing operations for the six months ended September 30, 2011 and 2010:
Six months ended September 30, 2011 | ||||||||||||||||||||
Goodwill | Intangible assets |
SERP obligations |
Other employee benefit plans obligations |
Restructuring liabilities |
||||||||||||||||
Balance at April 1, 2011 |
$ | 15,211 | $ | 22,535 | $ | 5,675 | $ | 421 | $ | 733 | ||||||||||
Realized losses |
| | | | | |||||||||||||||
Unrealized losses relating to instruments still held at the reporting date |
(107 | ) | | | | | ||||||||||||||
Purchases |
| 959 | 61 | | 4,716 | |||||||||||||||
Sales |
| | | | | |||||||||||||||
Issuances |
| | | | | |||||||||||||||
Settlements |
| | | | (998 | ) | ||||||||||||||
Amortization |
| (1,532 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at September 30, 2011 |
$ | 15,104 | $ | 21,962 | $ | 5,736 | $ | 421 | $ | 4,451 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Six months ended September 30, 2010 | ||||||||||||||||||||
Goodwill | Intangible assets |
SERP obligations |
Other employee benefit plans obligations |
Restructuring liabilities |
||||||||||||||||
Balance at April 1, 2010 |
$ | 15,010 | $ | 23,755 | $ | 8,412 | $ | 454 | $ | 1,938 | ||||||||||
Realized losses |
| (59 | ) | 383 | | | ||||||||||||||
Unrealized gains relating to instruments still held at the reporting date |
156 | | (596 | ) | | | ||||||||||||||
Purchases |
| 965 | 761 | | 403 | |||||||||||||||
Sales |
| | | | | |||||||||||||||
Issuances |
| | | | | |||||||||||||||
Settlements |
| | (2,504 | ) | (35 | ) | (1,240 | ) | ||||||||||||
Amortization |
| (1,365 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at September 30, 2010 |
$ | 15,166 | $ | 23,296 | $ | 6,456 | $ | 419 | $ | 1,101 | ||||||||||
|
|
|
|
|
|
|
|
|
|
27
Realized losses on the Companys SERP obligation were primarily comprised of the actuarial losses recognized due to the settlement of a SERP obligation to a former executive and are recorded within Restructuring charges in the accompanying Condensed Consolidated Statements of Operations. Additional information regarding the Companys restructuring actions is included in Note 5 to Condensed Consolidated Financial Statements.
Unrealized gains related to goodwill represent fluctuations due to the movement of foreign currencies relative to the U.S. dollar. Cumulative currency translation adjustments are recorded within Accumulated other comprehensive loss in the accompanying Condensed Consolidated Balance Sheets. Unrealized losses related to the Companys SERP obligation represent the unamortized actuarial losses, net of taxes, and are recorded within Accumulated other comprehensive loss in the accompanying Condensed Consolidated Balance Sheets.
14. Subsequent Events
On October 13, 2011, the Company entered into an agreement to terminate the lease on its current corporate headquarters facility located in Solon, Ohio effective March 31, 2012 in consideration of a one-time termination payment of $2.0 million plus brokerage fees of approximately $0.1 million. The Company will record the termination payment and associated brokerage fees within Restructuring charges in its Condensed Consolidated Statements of Operations in the third quarter of fiscal 2012. Ongoing costs associated with this facility, including rent, utilities, maintenance, etc., which will be incurred through March 31, 2012, will be recorded within Selling, general, and administrative expenses in the Companys Condensed Consolidated Statements of Operations.
On October 31, 2011, the Company announced the departure of an executive officer. As a result of this termination, the Company will record approximately $0.5 million in severance and related benefits within Restructuring charges in its Condensed Consolidated Statements of Operations in the third quarter of fiscal 2012.
Subsequent to September 30, 2011 and through November 7, 2011, the Company made additional repurchases of approximately 344,000 of its common shares for an aggregate of approximately $2.9 million, representing an average purchase price of $8.34 per common share. Approximately 456,000 common shares remain authorized for repurchase under the current common share repurchase authorization, which is described in Note 7 to Condensed Consolidated Financial Statements.
28
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
In Managements Discussion and Analysis of Financial Condition and Results of Operations, (MD&A), management explains the general financial condition and results of operations for Agilysys, Inc. and its subsidiaries (Agilysys or the Company) including:
| what factors affect the Companys business; |
| what the Companys earnings and costs were; |
| why those earnings and costs were different from the year before; |
| where the earnings came from; |
| how the Companys financial condition was affected; and |
| where the cash will come from to fund future operations. |
The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that management believes is important to assessing and understanding the Companys consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q (Quarterly Report) updates information included in the Companys Annual Report on Form 10-K (Annual Report) for the fiscal year ended March 31, 2011, filed with the Securities and Exchange Commission (SEC). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as the Companys Annual Report for the year ended March 31, 2011. Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. Additional information concerning forward-looking statements is contained in Forward-Looking Information below and in Risk Factors included in Part I, Item 1A of the Companys Annual Report for the fiscal year ended March 31, 2011. Management believes that this information, discussion, and disclosure is important in making decisions about investing in the Company. Table amounts are in thousands.
Introduction
Agilysys is a leading developer and marketer of proprietary enterprise software, services, and solutions to the hospitality and retail industries. The Company develops technology solutions including hardware, software, and services to help customers resolve their most complicated hospitality and retail business systems needs. Agilysys hospitality and retail business systems solutions include: property management systems, inventory and procurement solutions, point-of-sale solutions, and document management software. Proprietary services include expertise in mobility and wireless solutions for retailers, and resold hardware, software, and services. A significant portion of the point-of-sale related revenue is recurring from software support and hardware maintenance agreements. Headquartered in Solon, Ohio, Agilysys operates extensively throughout North America, with additional sales and support offices in the United Kingdom and Asia. Agilysys has two reportable segments: Hospitality Solutions Group (HSG) and Retail Solutions Group (RSG). See Note 12 to Condensed Consolidated Financial Statements titled, Business Segments, which is included in Item 1, for additional information.
The primary objective of the Companys ongoing strategic planning process is to create shareholder value by exploiting growth opportunities and strengthening its competitive position within the specific technology solutions and in the end markets it services. The plan builds on the Companys existing strengths and targets industry leading growth and peer beating financial and operating results driven by new technology trends and market opportunities. The Companys strategic plan specifically focuses on:
| Growing sales of its proprietary offerings, both software and services. |
| Diversifying its customer base across geographies and industries. |
| Capitalizing on the Companys intellectual property and emerging technology trends. |
| Optimizing the Companys facilities footprint and corporate expense while locating corporate services closer to the operating businesses. |
29
The Companys top priorities include improving operating performance and financial results, profitably growing the business, and returning capital to shareholders. To that end, the Company will use its cash, including the proceeds from the recent sale of TSG, to fund working capital needs, make select investments in the businesses, and return excess cash to shareholders as prudently as possible. The Company intends to achieve its objectives through a tighter coupling and management of the operating expenses of the businesses and sharpening the focus of our investments to concentrate on growth opportunities with the highest return by seeking the highest margin revenue opportunities in the markets in which it competes.
Revenues - Defined
As required by the SEC, the Company separately presents revenues earned as either product revenues or services revenues in its Condensed Consolidated Statements of Operations. In addition to the SEC requirements, the Company may, at times, also refer to revenues as defined below. The terminology, definitions, and applications of terms the Company uses to describe its revenues may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. The Company uses the following terms to describe revenues:
| Revenues The Company presents revenues net of sales returns and allowances. |
| Product revenues The Company defines product revenues as revenues earned from the sales of hardware equipment and proprietary and remarketed software. |
| Services revenues The Company defines services revenues as revenues earned from the sales of proprietary and remarketed services and support. |
General Company Overview
Total net sales rose $11.4 million or 11.8% in the six months ended September 30, 2011 compared with the six months ended September 30, 2010, primarily driven by increased sales volumes across all the Companys product and services offerings.
While the Companys revenues have improved in the first half of fiscal 2012 compared with the same prior year period, market conditions still reflect uncertainty regarding the overall business environment and demand for technology products and services. The Company continues to believe that it is well-positioned to capitalize on future growth in technology-related spending across its customer base in the global hospitality and general and specialty retail markets, which will allow for the further leveraging of its business model and earnings growth.
Gross margin as a percentage of sales increased 10 basis points to 38.3% for the first half of fiscal 2012 compared to the first half of fiscal 2011. This increase was due to higher services gross margins, which increased 430 basis points, as a result of lower costs related to proprietary services projects. The higher services gross margins were partially offset by lower product gross margins, which decreased 280 basis points, due to a greater proportion of lower margin hardware sales compared to proprietary software sales, for which the margins are higher.
Matters Affecting Comparability
Due to the gross margin pressure the Company experienced in fiscal 2011, management began to execute annualized cost savings of approximately $7.0 million in the fourth quarter of fiscal 2011, which include reductions in headcount and in professional fees. Of this amount, approximately $5.3 million has been realized to date, including $3.5 million in the first half of fiscal 2012.
On August 1, 2011, the Company completed the previously announced sale of its Technology Solutions Group (TSG) business to OnX Enterprise Solutions Limited and its subsidiary OnX Acquisition LLC (together OnX). For financial reporting purposes, TSGs operating results for fiscal 2012 through the completion of the sale and for the fiscal 2011 periods presented were classified within discontinued operations. Accordingly, the
30
discussion and analysis presented below, including comparisons to prior year periods, reflects the continuing business of Agilysys.
In the first quarter of fiscal 2012, the Company announced certain restructuring actions, including the relocation of its corporate headquarters from Solon, Ohio to Alpharetta, Georgia, designed to better align corporate functions with the Companys operating units and reduce costs following the sale of TSG. During the three and six months ended September 30, 2011, the Company incurred approximately $2.4 million and $4.7 million, respectively, in restructuring costs related to these actions. During the three months ended September 30, 2010, the Company incurred minimal restructuring charges for ongoing lease obligations related to restructuring actions taken in fiscal 2009. During the six months ended September 30, 2010, the Company incurred approximately $0.4 million in restructuring costs primarily comprised of non-cash settlement costs related to the payment of an obligation to a former executive under the Companys Supplemental Executive Retirement Plan (SERP) and other ongoing lease obligations related to restructuring actions taken in fiscal 2009. Additional information regarding the Companys restructuring actions is provided below and in Note 5 to Condensed Consolidated Financial Statements.
31
Results of Operations Second Fiscal 2012 Quarter Compared to Second Fiscal 2011 Quarter
Net Sales and Operating (Loss) Income
The following table presents the Companys consolidated revenues and results from continuing operations for the three months ended September 30, 2011 and 2010:
Three months ended September 30 |
Increase (decrease) | |||||||||||||||
(Dollars in thousands) |
2011 | 2010 | $ | % | ||||||||||||
Net Sales: |
||||||||||||||||
Products |
$ | 27,094 | $ | 24,664 | $ | 2,430 | 9.9 | % | ||||||||
Services |
26,494 | 24,662 | 1,832 | 7.4 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
53,588 | 49,326 | 4,262 | 8.6 | % | |||||||||||
Cost of goods sold: |
||||||||||||||||
Products |
20,605 | 19,721 | 884 | 4.5 | % | |||||||||||
Services |
11,367 | 11,843 | (476 | ) | (4.0 | )% | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
31,972 | 31,564 | 408 | 1.3 | % | |||||||||||
Gross margin: |
||||||||||||||||
Products |
6,489 | 4,943 | 1,546 | 31.3 | % | |||||||||||
Services |
15,127 | 12,819 | 2,308 | 18.0 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
21,616 | 17,762 | 3,854 | 21.7 | % | |||||||||||
Gross margin percentage: |
||||||||||||||||
Products |
23.9 | % | 20.0 | % | ||||||||||||
Services |
57.1 | % | 52.0 | % | ||||||||||||
|
|
|
|
|||||||||||||
Total |
40.3 | % | 36.0 | % | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling, general, and administrative expenses |
24,460 | 24,347 | 113 | 0.5 | % | |||||||||||
Asset impairment charges |
| 59 | (59 | ) | nm | |||||||||||
Restructuring charges |
2,370 | 10 | 2,360 | nm | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
26,830 | 24,416 | 2,414 | 9.9 | % | |||||||||||
Operating loss from continuing operations: |
||||||||||||||||
Operating loss |
$ | (5,214 | ) | $ | (6,654 | ) | $ | 1,440 | 21.6 | % | ||||||
Operating loss percentage |
(9.7 | )% | (13.5 | )% |
nm - not meaningful
32
The following table presents the Companys results from continuing operations by business segment for the three months ended September 30, 2011 and 2010:
Three months ended September 30 |
Increase (decrease) | |||||||||||||||
(Dollars in thousands) |
2011 | 2010 | $ | % | ||||||||||||
Hospitality |
||||||||||||||||
Total sales from external customers |
$ | 22,631 | $ | 20,570 | $ | 2,061 | 10.0 | % | ||||||||
Gross margin |
$ | 14,523 | $ | 12,215 | $ | 2,308 | 18.9 | % | ||||||||
64.2 | % | 59.4 | % | |||||||||||||
Operating income |
$ | 1,401 | $ | 214 | $ | 1,187 | 554.7 | % | ||||||||
Retail |
||||||||||||||||
Total sales from external customers |
$ | 30,957 | $ | 28,756 | $ | 2,201 | 7.7 | % | ||||||||
Gross margin |
$ | 7,093 | $ | 5,547 | $ | 1,546 | 27.9 | % | ||||||||
22.9 | % | 19.3 | % | |||||||||||||
Operating income |
$ | 2,168 | $ | 1,079 | $ | 1,089 | 100.9 | % | ||||||||
Corporate and Other |
||||||||||||||||
Operating loss |
$ | (8,783 | ) | $ | (7,947 | ) | $ | (836 | ) | (10.5 | )% | |||||
Consolidated |
||||||||||||||||
Total sales from external customers |
$ | 53,588 | $ | 49,326 | $ | 4,262 | 8.6 | % | ||||||||
Gross margin |
$ | 21,616 | $ | 17,762 | $ | 3,854 | 21.7 | % | ||||||||
40.3 | % | 36.0 | % | |||||||||||||
Operating loss |
$ | (5,214 | ) | $ | (6,654 | ) | $ | 1,440 | 21.6 | % |
Net sales. The $4.3 million increase in net sales during the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 was driven by higher hardware, software, and services volumes, which increased $1.7 million, $0.8 million, and $1.8 million, respectively, in the second quarter of fiscal 2012 compared to the second quarter of the prior year period. These revenue increases reflect higher volumes due to an improvement in customer demand.
HSGs sales increased $2.1 million in the second quarter of fiscal 2012 compared to the same prior year period primarily due to higher services revenues of $1.3 million as a result of growth in proprietary services projects. HSGs hardware and software revenues also increased $0.8 million compared to the same prior year quarter. RSGs revenues increased $2.2 million due to growth in product revenues of $1.6 million as a result of higher volumes. RSGs services revenues also increased $0.6 million.
Gross margin. The Companys total gross margin percentage increased to 40.3% for the quarter ended September 30, 2011 compared to 36.0% for the same prior year quarter, due to higher product and services gross margins. Product and services gross margins increased 390 basis points and 510 basis points, respectively in the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011. The increase in product gross margins reflects higher hardware gross margins, as well as, a greater proportion of proprietary software revenues compared to the prior year quarter. The gross margins on proprietary software revenues are higher than the gross margins on hardware revenues. The increase in services gross margins reflects lower project related costs for proprietary services projects.
From a business segment perspective, HSGs gross margins increased 480 basis points, primarily attributable to improved services gross margins due to lower project related costs for proprietary services projects. RSGs gross margins increased 360 basis points, primarily attributable to the mix of products and services sold during the current year period.
33
Operating expenses. The Companys operating expenses consist of selling, general, and administrative (SG&A) expenses, asset impairment charges, and restructuring charges. SG&A expenses increased slightly by $0.1 million, or 0.5%, during the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011. However, the Companys operating expenses during the second quarter of fiscal 2012 include approximately $1.4 million of additional depreciation expense related to the accelerated depreciation of property and equipment located at the Companys corporate headquarters in Solon, Ohio. In June 2011, the Company announced that it was relocating its corporate headquarters to Alpharetta, Georgia by March 31, 2012. Accordingly, the Company changed its useful life estimate for the property and equipment located at the current corporate headquarters.
From a business segment perspective, SG&A expenses increased $0.6 million and $0.2 million in HSG and RSG, respectively. Corporate/Other SG&A expenses decreased $0.7 million in the second quarter of the current year compared with the second quarter of the prior year. The increase in HSGs and RSGs expenses was primarily driven by higher compensation and benefits costs in the current year second quarter compared to the same prior year quarter due to the reinstatement of the employer matching contribution to the Companys 401(k) Plan. The decrease in Corporate/Other SG&A expenses was primarily due to lower outside services costs. In the prior year, the Company expensed as maintenance costs certain costs incurred in relation to the implementation of the Oracle Enterprise Resource Planning (ERP) software for its North American operations. The lower outside services costs were partially offset by the accelerated depreciation of the property and equipment located at the Companys current corporate headquarters.
Asset impairment charges. The Company tests its goodwill and long-lived assets for impairment upon identification of impairment indicators, or at least annually. The asset impairment charges recorded during the three months ended September 30, 2010 related to certain capitalized intangible software assets that management determined were no longer being sold by the business.
Restructuring charges. In the first quarter of fiscal 2012, the Company announced restructuring actions, including the relocation of its corporate headquarters from Solon, Ohio to Alpharetta, Georgia, designed to better align corporate functions with the Companys operating units and reduce costs following the sale of TSG. In addition, the Company announced that its President and Chief Executive Officer was stepping down. These restructuring actions are expected to be mostly completed by March 31, 2012 and have impacted or will impact approximately 160 employees. During the second quarter of fiscal 2011, the Company recorded $2.4 million in restructuring charges, primarily comprised of severance and related benefits, with $0.6 million, $0.3 million, and $1.5 million related to HSG and RSG, and Corporate/Other, respectively. The Company expects to incur between approximately $9.0 million and $11.0 million in additional restructuring charges for severance and related benefits, relocation, and facilities related to these restructuring actions during the remainder of fiscal 2012 and the first quarter of fiscal 2013. As a result of taking these restructuring actions, the Company expects to realize between approximately $14.0 million and $16.0 million in annual cost savings, which are expected to be primarily realized during fiscal 2013.
During the second quarter of fiscal 2011, the Company recorded insignificant additional restructuring charges primarily associated with ongoing lease obligations for the Companys former corporate headquarters in Boca Raton, Florida, which was part of the previously disclosed restructuring actions taken in fiscal 2009. Additional information regarding the Companys respective restructuring plans is included in the Companys Annual Report on Form 10-K for the year ended March 31, 2011.
34
Other Expenses (Income)
Three months ended September 30 |
(Unfavorable) favorable | |||||||||||||||
(Dollars in thousands) |
2011 | 2010 | $ | % | ||||||||||||
Other expenses (income): |
||||||||||||||||
Other expenses (income), net |
$ | 308 | $ | (856 | ) | $ | (1,164 | ) | (136.0 | )% | ||||||
Interest income |
(17 | ) | (17 | ) | | | ||||||||||
Interest expense |
539 | 278 | (261 | ) | (93.9 | )% | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other expenses (income), net |
$ | 830 | $ | (595 | ) | $ | (1,425 | ) | (239.5 | )% | ||||||
|
|
|
|
|
|
|
|
Other expenses (income), net. The $0.3 million of other expense in the second quarter of fiscal 2012 primarily consists of losses recognized as a result of movements in foreign currencies relative to the U.S. dollar.
The $0.9 million of other income in the second quarter of fiscal 2011 primarily represents increases in the cash surrender value of Company-owned life insurance policies of $0.2 million, gains recognized as a result of movements in foreign currencies relative to the U.S. dollar of $0.4 million, and a gain of $0.1 million recorded on the proceeds received from the Companys investment in The Reserve Funds Primary Fund (the Primary Fund). At September 30, 2010, the Company had a remaining uncollected balance of its Primary Fund investment of $0.4 million, for which a reserve was previously recorded in fiscal 2009.
Interest income. Interest income remained flat during the quarter ended September 30, 2011 compared to the same prior year quarter. In fiscal 2009, management changed to a more conservative investment strategy and continued to maintain this strategy through fiscal 2012.
Interest expense. Interest expense consists of costs associated with the Companys Credit Facility, the amortization of deferred financing fees, interest expense on borrowings against certain Company-owned life insurance policies, and capital leases. Interest expense increased $0.3 million during the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011. The Company terminated its existing Credit Facility on July 29, 2011 and immediately expensed approximately $0.4 million in unamortized deferred financing fees related to this Credit Facility.
Income Taxes
Three Months Ended September 30 |
||||||||
2011 | 2010 | |||||||
Effective income tax rate |
46.4 | % | 18.9 | % |
Income tax expense is based on the Companys estimate of the effective tax rate expected to be applicable for the respective full year. For the second quarter of fiscal 2012, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance. Other items effecting the rate in the current year quarter include foreign and state taxes and a discrete item related to a decrease in unrecognized tax benefits. For the second quarter of fiscal 2011, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance. Other items effecting the rate include foreign and state taxes and a discrete item related to unrecognized tax benefits.
35
Results of Operations First Half of Fiscal 2012 Compared to First Half of Fiscal 2011
Net Sales and Operating Income (Loss)
The following table presents the Companys consolidated revenues and operating results from continuing operations for the six months ended September 30, 2011 and 2010:
Six months ended September 30 |
Increase (decrease) | |||||||||||||||
(Dollars in thousands) |
2011 | 2010 | $ | % | ||||||||||||
Net Sales: |
||||||||||||||||
Products |
$ | 55,879 | $ | 48,156 | $ | 7,723 | 16.0 | % | ||||||||
Services |
51,595 | 47,957 | 3,638 | 7.6 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
107,474 | 96,113 | 11,361 | 11.8 | % | |||||||||||
Cost of goods sold: |
||||||||||||||||
Products |
43,966 | 36,549 | 7,417 | 20.3 | % | |||||||||||
Services |
22,365 | 22,844 | (479 | ) | (2.1 | )% | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
66,331 | 59,393 | 6,938 | 11.7 | % | |||||||||||
Gross margin: |
||||||||||||||||
Products |
11,913 | 11,607 | 306 | 2.6 | % | |||||||||||
Services |
29,230 | 25,113 | 4,117 | 16.4 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
41,143 | 36,720 | 4,423 | 12.0 | % | |||||||||||
Gross margin percentage: |
||||||||||||||||
Products |
21.3 | % | 24.1 | % | ||||||||||||
Services |
56.7 | % | 52.4 | % | ||||||||||||
|
|
|
|
|||||||||||||
Total |
38.3 | % | 38.2 | % | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling, general, and administrative expenses |
48,563 | 47,450 | 1,113 | 2.3 | % | |||||||||||
Asset impairment charges |
| 59 | (59 | ) | nm | |||||||||||
Restructuring charges |
4,716 | 403 | 4,313 | nm | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
53,279 | 47,912 | 5,367 | 11.2 | % | |||||||||||
Operating loss from continuing operations: |
||||||||||||||||
Operating loss |
$ | (12,136 | ) | $ | (11,192 | ) | $ | (944 | ) | (8.4 | )% | |||||
Operating loss percentage |
(11.3 | )% | (11.6 | )% |
nm - not meaningful
36
The following table presents the Companys operating results from continuing operations by business segment for the six months ended September 30, 2011 and 2010:
Six months ended September 30 |
(Decrease) increase | |||||||||||||||
(Dollars in thousands) |
2011 | 2010 | $ | % | ||||||||||||
Hospitality |
||||||||||||||||
Total sales from external customers |
$ | 43,591 | $ | 43,619 | $ | (28 | ) | (0.1 | )% | |||||||
Gross margin |
$ | 27,790 | $ | 25,503 | $ | 2,287 | 9.0 | % | ||||||||
63.8 | % | 58.5 | % | |||||||||||||
Operating income |
$ | 1,916 | $ | 2,454 | $ | (538 | ) | (21.9 | )% | |||||||
Retail |
||||||||||||||||
Total sales from external customers |
$ | 63,883 | $ | 52,494 | $ | 11,389 | 21.7 | % | ||||||||
Gross margin |
$ | 13,353 | $ | 11,217 | $ | 2,136 | 19.0 | % | ||||||||
20.9 | % | 21.4 | % | |||||||||||||
Operating income |
$ | 4,263 | $ | 2,847 | $ | 1,416 | 49.7 | % | ||||||||
Corporate and Other |
||||||||||||||||
Operating loss |
$ | (18,315 | ) | $ | (16,493 | ) | $ | (1,822 | ) | (11.0 | )% | |||||
Consolidated |
||||||||||||||||
Total sales from external customers |
$ | 107,474 | $ | 96,113 | $ | 11,361 | 11.8 | % | ||||||||
Gross margin |
$ | 41,143 | $ | 36,720 | $ | 4,423 | 12.0 | % | ||||||||
38.3 | % | 38.2 | % | |||||||||||||
Operating loss |
$ | (12,136 | ) | $ | (11,192 | ) | $ | (944 | ) | (8.4 | )% |
Net sales. The $11.4 million increase in net sales during the first half of fiscal 2012 compared with the first half of fiscal 2011 was driven by higher volumes across all the Companys products and services offerings, with increases of $7.2 million, $0.6 million, and $3.6 million in hardware, software, and services, respectively. These increases reflect a general improvement in customer demand.
HSGs sales remained relatively flat in the first half of fiscal 2012 compared to the same prior year period, as increased services revenues were offset by lower hardware and software revenues. In the prior year period, HSG recognized a large hardware sale that did not repeat in the current year period.
RSG sales increased $11.4 million due to increases across all product and services offerings, with increases of $9.3 million, $0.7 million, and $1.4 million in hardware, software, and services revenues, respectively. The increases in RSGs revenues in the first half of the current year compared to the first half of the prior year were attributable to higher volumes.
Gross margin. The Companys total gross margin percentage increased 10 basis points to 38.3% for the six months ended September 30, 2011 compared to 38.2% for the same prior year period, primarily due to higher services gross margins, which increased 430 basis points, as a result of lower than expected costs related to proprietary services projects. The higher services gross margins were partially offset by product gross margins, which decreased 280 basis points, due to lower hardware gross margins compared to the same prior year period.
HSGs gross margins increased 530 basis points, which was primarily attributable to product mix and lower project related costs for proprietary services projects. RSGs gross margin percentage for the six months ended September 30, 2011 decreased slightly by 50 basis points compared to the same prior year period due to a greater proportion of lower margin hardware sales, as well as, lower gross margins on those hardware sales.
37
Operating expenses. The Companys operating expenses consist of SG&A expenses, asset impairment charges, and restructuring charges. SG&A expenses increased $1.1 million, or 2.3%, during the first half of fiscal 2012 compared with the first half of fiscal 2011. This increase in the Companys operating expenses was primarily due to higher compensation costs and the additional depreciation and amortization expense of $1.4 million recorded during the period for the accelerated depreciation of property and equipment located at the Companys corporate headquarters in Solon, Ohio. These higher costs were partially offset by lower outside services costs.
From a business segment perspective, SG&A expenses increased $2.1 million and $0.3 million in HSG and RSG, respectively. Corporate/Other SG&A expenses decreased $1.3 million in the first half of the current year compared to the first half of the prior year. The increase in HSGs and RSGs SG&A expenses was primarily a result of higher compensation costs in the first half of the current year compared to the same prior year period due to the reinstatement of the employer matching contribution to the Companys 401(k) Plan and the acceleration of stock compensation expense as a result of the announcement of the TSG sale. The decrease in Corporate/Other SG&A expenses was due to lower outside services costs. In the first half of fiscal 2012, the Company expensed as maintenance costs certain costs incurred in relation to the implementation of the Oracle ERP software for its North American operations. The lower outside services costs were partially offset by the accelerated depreciation of the property and equipment located at the Companys current corporate headquarters.
Asset impairment charges. The Company tests its goodwill and long-lived assets for impairment upon identification of impairment indicators, or at least annually. The asset impairment charges recorded during the first half of fiscal 2011 related to certain capitalized intangible software assets that management determined were no longer being sold by the business.
Restructuring charges. In the first quarter of fiscal 2012, the Company announced restructuring actions, including the relocation of its corporate headquarters from Solon, Ohio to Alpharetta, Georgia, designed to better align corporate functions with the Companys operating units and reduce costs following the sale of TSG. In addition, the Company announced that its President and Chief Executive Officer was stepping down to pursue other interests. These restructuring actions are expected to be mostly completed by March 31, 2012 and have impacted or will impact approximately 160 employees. The Company recorded a total of $4.7 million in restructuring charges during the first half of fiscal 2012, primarily comprised of severance and related benefits, with $0.8 million, $0.4 million, and $3.5 million related to HSG and RSG, and Corporate/Other, respectively. The Company expects to incur between approximately $9.0 million and $11.0 million in additional restructuring charges for severance and related benefits, relocation, and facilities related to these restructuring actions during the remainder of fiscal 2012 and the first quarter of fiscal 2013. As a result of taking these restructuring actions, the Company expects to realize between approximately $14.0 million and $16.0 million in annual cost savings, which are expected to be primarily realized during fiscal 2013.
The Company recorded a total of $0.4 million in additional restructuring charges during the first half of fiscal 2011, primarily comprised of non-cash settlement costs related to the payment of an obligation to a former executive under the Companys SERP and other ongoing lease obligations. The additional restructuring charges recorded in fiscal 2011 related to the previously disclosed restructuring actions taken in fiscal 2009. Additional information regarding the Companys respective restructuring plans is included in the Companys Annual Report on Form 10-K for the year ended March 31, 2010.
38
Since fiscal 2009, the Company has incurred charges totaling $18.5 million related to previously disclosed restructuring actions, comprised of $0.4 million, $0.8 million, and $17.3 million in fiscal years 2011, 2010, and 2009, respectively, which related to Corporate/Other. The Company expects to incur minimal additional net restructuring charges related to the fiscal 2009 restructuring actions for the remainder of fiscal 2012 for non-cash settlement charges related to the expected payment of a SERP obligation to a former executive and for ongoing facility obligations.
Other Expenses (Income)
Six months ended September 30 |
(Unfavorable) favorable | |||||||||||||||
(Dollars in thousands) |
2011 | 2010 | $ | % | ||||||||||||
Other expenses (income): |
||||||||||||||||
Other expenses (income), net |
$ | 271 | $ | (1,958 | ) | $ | (2,229 | ) | (113.8 | )% | ||||||
Interest income |
(49 | ) | (40 | ) | 9 | 22.5 | % | |||||||||
Interest expense |
877 | 563 | (314 | ) | (55.8 | )% | ||||||||||
|
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|
|
|
|
|
|
|||||||||
Total other expenses (income), net |
$ | 1,099 | $ | (1,435 | ) | $ | (2,534 | ) | (176.6 | )% | ||||||
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|
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|
|
Other expenses (income), net. The $0.3 million of other expense in the first half of fiscal 2012 primarily consists of losses recognized as a result of movements in foreign currencies relative to the U.S. dollar.
The $2.0 million of other income in the first half of fiscal 2011 primarily represents a gain of $2.1 million recorded on the $2.2 million in proceeds received as a death benefit from certain Company-owned life insurance policies, gains recognized as a result of the movement of foreign currencies relative to the U.S. dollar of $0.3 million, and a gain of $0.1 million recorded for the proceeds received as a distribution of The Reserve Fund investment. These proceeds were partially offset by decreases in the cash surrender value of Company-owned life insurance policies of $0.6 million.
Interest income. Interest income remained flat during the six months ended September 30, 2011 compared to the same prior year period. In fiscal 2009, management changed to a more conservative investment strategy and maintained this strategy through fiscal 2012.
Interest expense. Interest expense consists of costs associated with the Companys Credit Facility, the amortization of deferred financing fees, interest expense on borrowings against certain Company-owned life insurance policies, and capital leases. Interest expense increased $0.3 million during the first half of fiscal 2012 compared to the first half of fiscal 2011. The Company terminated its Credit Facility on July 29, 2011 and immediately expensed approximately $0.4 million in unamortized deferred financing fees related to the former Credit Facility.
Income Taxes
Six Months Ended September 30 |
||||||||
2011 | 2010 | |||||||
Effective income tax rate |
34.4 | % | (35.4 | )% |
Income tax expense is based on the Companys estimate of the effective tax rate expected to be applicable for the respective full year. For the first half of fiscal 2012, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance. For the first half of fiscal 2011, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance. In addition, an increase in the valuation allowance was recorded due to the correction of an error, as more fully described in Note 1 to the Condensed Consolidated Financial Statements.
39
Discontinued Operations
On May 28, 2011, the Company entered into a definitive agreement to sell its TSG business for an aggregate purchase price of $64.0 million in cash, subject to a possible downward adjustment based on final working capital, to OnX. On July 28, 2011, the Companys shareholders approved this sale and the transaction closed on August 1, 2011, the date on which certain other contingencies specified in the agreement were satisfied. Upon the close of the transaction, the aggregate purchase price of $64.0 million was reduced by the payment of agreed-upon fees of $3.3 million for severance costs and $1.2 million for third-party services in support of the transition, resulting in net proceeds received by the Company of $59.5 million. As a result of this transaction, the gain on sale of TSG totaling $12.6 million, net of taxes of $8.1 million, as well as the results of operations of TSG, have been reported as components of discontinued operations in the Companys Condensed Consolidated Statements of Operations for the periods presented.
The income from discontinued operations for the three months ended September 30, 2011, includes TSG net sales of $26.1 million, a pre-tax loss of $3.1 million, and a net loss of $2.1 million. The income from discontinued operations for the six months ended September 30, 2011, includes TSG net sales of $123.8 million, a pre-tax loss of $1.8 million, and a net loss of $1.5 million. Included in the calculation of the gain on the sale was the write-off of $5.4 million in goodwill related to TSG that remained on the Companys balance sheet until the sale was completed.
Income from discontinued operations for the three months ended September 30, 2010 includes TSG net sales of $133.5 million, pre-tax income of $3.9 million, and net income of $2.7 million. Income from discontinued operations for the six months ended September 30, 2010 includes TSG net sales of $218.6 million, pre-tax income of $1.8 million, and net income of $0.7 million.
Recently Adopted and Recently Issued Accounting Standards
A description of recently adopted and recently issued accounting pronouncements is included in Note 2 to Condensed Consolidated Financial Statements, which is included in Item 1 of this Quarterly Report on Form 10-Q. Management continually evaluates the potential impact, if any, on its financial position, results of operations, and cash flows, of all recent accounting pronouncements and, if significant, makes the appropriate disclosures. During the six months ended September 30, 2011, no material changes resulted from the adoption of recent accounting pronouncements.
Liquidity and Capital Resources
Overview
The Companys operating cash requirements consist primarily of working capital needs, operating expenses, capital expenditures, and payments of principal and interest on indebtedness outstanding, which were comprised of lease and rental obligations at September 30, 2011. 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-term and long-term liquidity requirements.
Prior to July 29, 2011, the Company maintained a $50.0 million asset-based revolving Credit Facility with Bank of America, N.A. (the Lender), which had the ability to be increased to $75.0 million by a $25.0 million accordion feature for borrowings and letters of credit, that was due to mature on May 5, 2012. The Companys obligations under the Credit Facility were secured by significantly all of the Companys assets. The Credit Facility contained mandatory repayment provisions, representations, warranties, and covenants customary for a secured credit facility of its type. The Company terminated the Credit Facility on July 29, 2011 in conjunction with the sale of TSG. Additional information with respect to the Credit Facility is contained in the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2011.
40
As of September 30, 2011 and March 31, 2011, the Companys total debt was approximately $1.6 million and $1.9 million, respectively, comprised of capital lease obligations in both periods.
Additional information regarding the Companys financing arrangements is included in its Annual Report for the fiscal year ended March 31, 2011.
As of September 30, 2011, 100% of the Companys cash and cash equivalents were deposited in bank accounts and U.S. government 90-day treasury securities. Therefore, the Company believes that credit risk is limited with respect to its cash and cash equivalents balances.
Cash Flow
Six months ended September 30 |
Increase (decrease) | |||||||||||
(Dollars in thousands) |
2011 | 2010 | $ | |||||||||
Net cash (used for) provided by continuing operations: |
||||||||||||
Operating activities |
$ | (5,108 | ) | $ | (14,965 | ) | $ | 9,857 | ||||
Investing activities |
59,974 | (1,880 | ) | 61,854 | ||||||||
Financing activities |
(8,198 | ) | (494 | ) | (7,704 | ) | ||||||
Effect of foreign currency fluctuations on cash |
(151 | ) | 166 | (317 | ) | |||||||
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Cash flows provided by (used for) continuing operations |
46,517 | (17,173 | ) | 63,690 | ||||||||
Net operating, investing, and financing cash flows used for discontinued operations |
(23,414 | ) | (13,171 | ) | (10,243 | ) | ||||||
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Net increase (decrease) in cash and cash equivalents |
$ | 23,103 | $ | (30,344 | ) | $ | 53,447 | |||||
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Cash flow used for operating activities. The $5.1 million in cash used for operating activities during the first half of fiscal 2012 consisted of a net loss from continuing operations of $8.7 million, $13.1 million in non-cash adjustments to the net loss from continuing operations, and a negative $9.5 million of changes in operating assets and liabilities. Significant changes in operating assets and liabilities included a $2.7 million increase in inventory, a $1.9 million decrease in accounts payable, a $0.8 million decrease in income taxes payable, and a $5.8 million decrease in accrued liabilities, partially offset by a $1.7 million decrease in accounts receivable. The increase in inventory related to equipment purchased for customer orders that did not ship by September 30, 2011. The reduction in accrued liabilities primarily related to lower deferred revenues, as the Company recognized amounts for services performed during the period, partially offset by an accrual for taxes recorded due to the discontinued operations. The reduction in accounts receivable reflects an improvement in collections, as days sales outstanding improved to 52 days at September 30, 2011 compared with 62 days at March 31, 2011. The $15.0 million in cash used for operating activities during the six months ended September 30, 2010 consisted of a $13.2 million loss from continuing operations, $9.9 million in non-cash adjustments to the loss from continuing operations, and a negative $11.7 million of changes in operating assets and liabilities. Significant changes in operating assets and liabilities included a $7.0 million increase in accounts receivable, a $3.4 million increase in inventories, and a $2.0 million decrease in accrued liabilities, partially offset by a $0.5 million increase in accounts payable. The change in accounts receivable is reflective of an increase in the volume of sales that occurred in September 2010 (i.e., the last month of the fiscal quarter) compared to March 2010. The increase in accounts receivable in the prior year was also related to the transition of invoicing to the Companys new Oracle ERP platform. The increases in accounts payable and in inventories were a result of the higher sales volume in September 2010 compared to March 2010 and several large orders that did not ship as of September 30, 2010. The decrease in accrued liabilities primarily related to the payment of a SERP liability to a former Company executive during the first half of fiscal 2011.
Cash flow provided by (used for) investing activities. The $60.0 million in cash provided by investing activities during the six months ended September 30, 2011 was primarily driven by the $59.5 million in proceeds received from the sale of the TSG business and $2.0 million in proceeds from the Companys investments in marketable securities, which were used to settle employee benefit plan obligations, partially offset by $1.5 million used for the purchase of software, property, and equipment. The $1.9 million in cash used for investing activities during the six months ended September 30, 2010 resulted from the receipt of $2.2 million in proceeds
41
as a redemption of certain Company-owned life insurance policies and $0.1 million in proceeds received as a partial distribution of the Companys previously disclosed claim on its investment in the Primary Fund, partially offset by $0.7 million used for additional investments in Company-owned life insurance policies and $3.5 million used for the purchase of software, property, and equipment.
Cash flow used for financing activities. During the six months ended September 30, 2011, the Company used $8.2 million for financing activities, which was comprised of $6.6 million for repurchases of the Companys common shares, $1.0 million for repurchases of the Companys common shares to satisfy employee tax withholding on the vesting or exercise of stock based compensation awards, and $0.6 million for payments on capital lease obligations. During the six months ended September 30, 2010, the Company used $0.5 million in cash for financing activities. This amount was comprised of $0.2 million for repurchases of the Companys common shares to satisfy employee tax withholding on the vesting or exercise of stock based compensation awards and $0.3 million for payments on capital lease obligations.
Contractual Obligations
Under an agreement with a vendor, the Company was obligated to purchase a minimum of $330.0 million per year through fiscal 2012, as disclosed in the Companys Annual Report on Form 10-K for the year ended March 31, 2011. As a result of the TSG sale, the majority of this obligation, representing $310.0 million, was assumed by OnX. The remaining $20.0 million obligation was retained by the Company and the Company expects to reach its commitment during fiscal 2012.
In September 2011, the Company entered into a 74-month lease for a new corporate headquarters facility located in Alpharetta, Georgia. The lease term will commence upon the completion of certain agreed-upon improvements. In October 2011, the Company entered into an agreement to terminate the lease on its current corporate headquarters facility located in Solon, Ohio effective March 31, 2012 in consideration of a one-time termination payment of $2.0 million plus associated brokerage fees of approximately $0.1 million. The Company expects these actions to result in a net reduction of the operating lease obligations disclosed as contractual obligations in its Annual Report for the fiscal year ended March 31, 2011 of approximately $0.7 million per year in rental payments between fiscal 2013 and fiscal 2017.
As of September 30, 2011, there were no other significant changes to the Companys contractual obligations as presented in its Annual Report for the year ended March 31, 2011.
Off-Balance Sheet Arrangements
The Company has not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on the Companys financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies
A detailed description of the Companys significant accounting policies is included in the Companys Annual Report for the year ended March 31, 2011. There have been no material changes in the Companys significant accounting policies and estimates since March 31, 2011.
Forward-Looking Information
This Quarterly Report contains certain management expectations, which may constitute forward-looking information within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934, and the Private Securities Reform Act of 1995. Forward-looking information speaks only as to the date of this Quarterly Report and may be identified by use of words such as may, will, believes, anticipates, plans, expects, estimates, projects, targets, forecasts, continues, seeks, or the negative of those terms or similar expressions. Many important factors could cause actual results to be materially different from those in forward-looking information including, without limitation, competitive factors, disruption of supplies, changes in market conditions, pending or future claims or litigation, or technology advances. No assurances can be provided as to the outcome of cost reductions, expected benefits
42
and outcomes from our recent ERP implementation, business strategies, future financial results, unanticipated downturns to our relationships with customers and macroeconomic demand for IT products and services, unanticipated difficulties integrating acquisitions, new laws and government regulations, interest rate changes, consequences related to the concentrated ownership of our outstanding shares by MAK Capital, unanticipated deterioration in economic and financial conditions in the United States and around the world, consequences associated with the sale of the Companys TSG business, and uncertainties regarding restructuring actions and/or the relocation of the Companys corporate headquarters. The Company does not undertake to update or revise any forward-looking information even if events make it clear that any projected results, actions, or impact, express or implied, will not be realized.
Other potential risks and uncertainties that may cause actual results to be materially different from those in forward-looking information are described in Risk Factors, which is included in Part I, Item 1A of the Companys Annual Report for the fiscal year ended March 31, 2011.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
For quantitative and qualitative disclosures about market risk affecting the Company, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, contained in the Companys Annual Report for the fiscal year ended March 31, 2011. There have been no material changes in the Companys market risk exposures since March 31, 2011.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision of and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report. Based on that evaluation, including the assessment and input of management, the CEO and CFO concluded that, as of the end of the period covered by this Quarterly Report, the Companys disclosure controls and procedures were effective.
Change in Internal Control over Financial Reporting
There have been no changes in the Companys internal control over financial reporting during the first half of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Item 1. | Legal Proceedings |
None.
Item 1A. | Risk Factors |
There have been no material changes in the risk factors included in our Annual Report for the fiscal year ended March 31, 2011 that may materially affect the Companys business, results of operations, or financial condition.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the second quarter of fiscal 2012, the Company repurchased 800,000 of its common shares. These repurchases were pursuant to a single repurchase program, which was approved by the Companys Board of Directors and announced on August 1, 2011, authorizing the repurchase of up to 1,600,000 common shares.
43
Unless renewed, this common share repurchase authorization expires on March 31, 2012. As of September 30, 2011, 800,000 common shares remained available for repurchase under this common share repurchase authorization. The following table summarizes the common shares repurchased during the second quarter of fiscal 2012 under the Companys common share repurchase program:
(a) | (b) | (c) | (d) | |||||||||||||
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans |
Maximum Number of Shares That May Yet Be Purchased Under the Plans |
|||||||||||||
July 1-31 |
| $ | | | | |||||||||||
August 1-31 |
397,061 | $ | 7.97 | 397,061 | 1,202,939 | |||||||||||
September 1-30 |
402,939 | $ | 8.57 | 800,000 | 800,000 | |||||||||||
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Total |
800,000 | $ | 8.27 | 800,000 | 800,000 | |||||||||||
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Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | [Removed and Reserved] |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
*10(a) | Employment Agreement by and between Agilysys, Inc. and Robert R. Ellis, effective October 10, 2011. | |
*10(b) | Employment Agreement by and between Agilysys, Inc. and Kyle C. Badger, effective October 31, 2011. | |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002. | |
101 | The following materials from the Companys quarterly report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2011 and 2010, (ii) Condensed Consolidated Balance Sheets at September 30, 2011 and March 31, 2011, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements for the six months ended September 30, 2011 tagged as blocks of text. | |
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act), or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. |
* | Denotes a management contract or compensatory plan or arrangement. |
44
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
AGILYSYS, INC. | ||||
Date: November 9, 2011 | /s/ ROBERT R. ELLIS | |||
Robert R. Ellis | ||||
Senior Vice President and Chief Financial Officer | ||||
(Principal Financial Officer and Duly Authorized Officer) |
45
Exhibit 10(a)
James H. Dennedy | Agilysys, Inc. | |
President & Chief Executive Officer | 28925 Fountain Parkway | |
Solon, OH 44139 | ||
Tel 440 519 8687 | ||
Fax 440 519 8643 | ||
www.agilysys.com |
September 16, 2011
Mr. Robb Ellis
8140 High Hampton Chase
Alpharetta, GA 30022
Dear Robb:
We are pleased to extend an offer of employment for the position of Senior Vice President and Chief Financial Officer with Agilysys, Inc. You will be working in the Alpharetta, Georgia facility, reporting directly to me.
As a member of the senior management team, you will be eligible for the following compensation and benefits:
| Starting annual base salary of $275,000. |
| Annual target FY12 incentive of $165,000, paid annually upon the filing of the Agilysys Form 10-K. The terms of your annual incentive are attached as Exhibit A, however it is expressly understood that your prorata award for FY12 will be paid at the greater of actual performance or attainment of 90% of target. |
| A long-term incentive award equal to 60% of your annual base salary, awarded half in Stock Settled Stock Appreciation Rights and half in shares of Restricted Stock on your date of hire, based on the market value of Agilysys shares for Restricted Stock and on a Black Scholes value for SSARs (assuming a $9 stock price, this value is $5.66 per share). Each award will vest in one third increments beginning March 31, 2012. The forms of these grant agreements are attached as Exhibit B. The forms of these grant agreements are attached as Exhibit B. |
| An award of 5,000 shares of restricted stock made on your date of hire, vesting at the rate of 20% on March 31, 2012 and 40% each on March 31, 2013 and 2014 |
| Full participation in the Agilysys, Inc. health, life insurance, paid time off (PTO), 401(K) and profit sharing plans. In addition, you will be eligible to receive an Executive Life Insurance Policy, equal to two times your targeted base salary and annual incentive. |
Mr. Robb Ellis
September 16, 2011
Page 2
| 25 PTO days (not inclusive of designated holidays) for each full calendar year of employment. |
| Severance and change of control benefits as outlined in your Employment Agreement, which is attached as Exhibit C and will replace any severance pursuant to Agilysys severance policies. |
This offer requires that you sign an Insider Trading Policy, Non-Disclosure Agreement and Business Ethics Policy. You must also complete the Employment Application enclosed with this employment package. This offer of employment with Agilysys, Inc. is also contingent upon Agilysys receipt of negative drug screen results, to which you must consent (forms enclosed). Also, Agilysys participates in the E-Verify Internet based system operated by the Department of Homeland Security (DHS) in partnership with the Social Security Administration (SSA) to electronically determine employment eligibility of new hires and validity of Social Security Numbers. You will be required to complete a Form I-9 and furnish proof of your identity and eligibility to be employed in the United States.
Please follow the instruction sheet in this employment package to ensure the steps for your on-boarding are completed in a timely manner. All new employees are required to enroll to have pay deposited directly into accounts of their choice. All pay stubs are electronic and available to view or print via the Agilysys intranet.
We look forward to having you join the Agilysys management team. Please confirm your acceptance of this offer no later than Friday, September 23, 2011. If you have any further questions, please dont hesitate to contact me at 440.519.8687 or Kathleen Weigand at 440.519.8634.
Sincerely, |
Jim Dennedy |
President and Chief Executive Officer |
Enclosure: Agilysys Employment Documents and CD
This offer letter and the information contained herein do not in any way constitute, and should not be construed, as a contract of employment between the employer and the employee or a promise of employment for any specified length of time. No employee of the company is authorized to offer any agreement, oral or written, for employment for any specified period of time or to make any agreement contrary to the companys policies.
EMPLOYMENT AGREEMENT
Robb Ellis, as Senior Vice President and Chief Financial Officer, you are a valuable Agilysys employee, and we expect you to make a significant contribution to Agilysys success. As a result, Agilysys, Inc. (Agilysys) wishes to employ you during the following years under the terms of this Agreement.
1. Employment Period. You will be employed by Agilysys for the period beginning on October 10, 2011, and ending with the Termination Date as defined in Paragraph 5, below (the Employment Period).
2. Position. You shall initially be employed in the position set forth above, with the duties and responsibilities customarily associated with that position. From time to time, Agilysys may determine that it is in Agilysys best interest to add to, subtract from, or otherwise change your duties and responsibilities, or change or eliminate your title.
3. Best Efforts. You shall devote all of your business time and attention to your duties as an employee of Agilysys. You shall use your best efforts, energies, and skills to advance the business of Agilysys, to further and improve its relations with suppliers, customers and others, and to keep available to Agilysys the services of its employees. You shall perform your duties in compliance with all laws and Agilysys published policies, including ethical standards set forth in the Code of Business Conduct.
4. Compensation. Your compensation will be pursuant to Agilysys standard programs in effect from time to time. Agilysys reserves the right, however, in its sole discretion, to impose salary reduction, and/or other cost reduction programs, which may reduce your targeted cash compensation (provided that any such program is not discriminatory and treats you the same as other Agilysys employees holding similar positions). You shall be eligible to participate in any and all employee benefit plans made available from time to time to Agilysys employees generally.
5. Termination. Your employment may be terminated for Cause by Agilysys, voluntarily by you, or without Cause by Agilysys. The last date of your employment as a result of termination for any of these reasons is the Termination Date.
A. Termination for Cause and Voluntary Termination. If your employment terminates for any of the following reasons: (a) your death, disability, or legal incompetence; (b) the issuance by Agilysys of a notice terminating your employment for Cause (which, for these purposes, means: (i) breach of any term of this Agreement or any other duty to Agilysys; (ii) dishonesty, fraud, or failure to abide by the published ethical standards, conflict of interest, or other policies of Agilysys; (iii) your conviction for any felony crime, or for any other crime involving misappropriation of money or other property of Agilysys; (iv) misconduct, malfeasance or insubordination; or (v) gross failure to perform under this Agreement (not including simply a failure to attain quantitative targets); or (c) you voluntarily resign your employment, then your salary will end on the Termination Date.
B. Termination Without Cause. If your employment is terminated by Agilysys for any reason other than those identified in Paragraph 5.A., above, upon signing a release, you will be paid a severance (Severance Payments) equal to one (1) year regular base and target annual incentive salary (if applicable), which will be at the rate applicable to you at the time your employment terminates and will be paid during regular pay intervals during the one (1) year period (Severance Period). In case of termination without Cause, you will be eligible to continue to participate in applicable medical and dental coverage program(s) available to Agilysys employees for the duration of the Severance Period. You will not otherwise be eligible for severance under any Agilysys severance plan.
C. Change of Position. If Agilysys changes your position such that your responsibilities or compensation are substantially lessened (referred to as a Change of Position), then you may, within 30 days of such Change of Position, give Agilysys written notice that you are terminating your employment for this reason. Such termination for Change of Position will be deemed a termination by Agilysys without Cause for purposes of this Agreement and you shall be entitled to the Severance Payments described in Paragraph 5.B., above.
6. Confidential Information. During the course of your employment, you have learned, and will learn, various proprietary or confidential information of Agilysys and/or its related and affiliated companies (including the identity of customers and employees; vendor information; marketing information and strategies; sales training techniques and programs; product development and design; acquisition and divestiture opportunities and discussions; and data processing and management information systems, programs, and practices). You shall use such information only in connection with the performance of your duties to Agilysys and agree not to copy, disclose, or otherwise use such information or contest its confidential or proprietary nature. You agree to return any and all written documents containing such information to Agilysys upon termination of your employment.
7. Restrictive Covenants.
A. No Hiring. During the Employment Period and for 12 months thereafter, you agree not to employ or retain, have any other person or firm employ or retain, or otherwise participate in the employment or retention of any person who was an employee or consultant of Agilysys at any time during the 12 months preceding the end of the Employment Period.
B. Non-Competition. In the event that (i) Agilysys terminates your employment for Cause or (ii) you voluntarily terminate your employment with Agilysys for any reason other than Change of Position, you agree that for a period of 12 months after such termination you will not be employed by, own, manage, operate, or control, or participate, directly or indirectly, in the ownership, management, operation, or control of, or be connected with (whether as a director, officer, employee, partner, consultant, or otherwise), any business which competes with the business of Agilysys, including but not limited to the sale of information technology products and services, enterprise computer systems, and related consulting, integration, maintenance and professional services (the Non-compete Obligation.)
C. In the event that (i) Agilysys terminates your employment for any reason other than for Cause or (ii) you terminate your employment for reasons of Change of Position, then the above Non-Compete Obligation will not apply to you, unless Agilysys, at its option, elects to extend the Non-Compete Obligation to you for up to a twelve-month period (Non-Competition Period), in which case Agilysys will pay your regular base and target incentive salary (if applicable), in accordance with regular payroll practices (the Non-Competition Payments), during the Non-Compete Period.
Any Non-Competition Payments made to you will be in lieu of Severance Payments. To the extent the Non-Competition Period is shorter than the Severance Period applicable to you, if any, Severance Payments, if applicable to you, will be made to you for the duration of the remainder of the Severance Period after the end of the Non-Competition Period. All decisions as to (i) whether to extend to you the Non-Compete Obligation (and therefore, whether to make Non-Competition Payments to you); and (ii) the duration of any such Non-Compete Period, shall be within the sole discretion of Agilysys, and will be communicated to you at the time of termination. The Non-Competition Payments described in this subparagraph C. apply only to termination of your employment by Agilysys for reasons other than for Cause, or if you terminate your employment for reasons of Change of Position.
It is understood and acknowledged that any Non-compete Obligation arising under Paragraph 7 shall be in addition to any other obligations on your part under this Agreement, including but not limited to the confidentiality and no-hiring provisions of Paragraphs 6 and 7.A., above.
8. Assignment of Inventions. Agilysys by law is entitled to all rights, ideas, inventions and works of authorship relating to its business that are made by its employees during the scope of their work, whether or not conceived during regular business hours, for Agilysys when using Agilysys resources. You agree to promptly and fully disclose to Agilysys all ideas, inventions, discoveries, creations, designs, methods, and other technology and rights (and any related improvements or modifications thereof), whether or not protectable under any form of legal protection afforded to intellectual property (collectively, Innovations), relating to any activities or proposed activities of Agilysys and its affiliates and subsidiaries, conceived or developed by you (alone or jointly with others) during your employment, whether or not conceived during regular business hours. Such Innovations shall be the sole property of Agilysys. To the extent possible, such Innovations shall be considered a Work Made for Hire under the U.S. Copyright Act. To the extent the Innovations may not be considered such a Work Made for Hire, you agree to automatically assign to Agilysys, at the time of creation of such Innovations, any right, title, or interest that you may have in such Innovations. You further agree that you will execute such written instruments, and perform any other tasks as may be necessary in the opinion of Agilysys to obtain a patent, register a copyright, or otherwise protect or enforce Agilysys rights in such Innovations.
9. Specific Performance and Injunctive Relief. You acknowledge that Agilysys will be irreparably damaged if the provisions of this Agreement are not specifically enforced, that monetary damages will not provide an adequate remedy to Agilysys, and that Agilysys is entitled to an injunction (preliminary, temporary, or final) restraining any violation of this Agreement (without any bond or other security being required), or any other appropriate decree of specific performance. Such remedies are not exclusive and shall be in addition to any other remedy which Agilysys may have.
10. Severability and Reformation. The provisions of Paragraphs 6 through 10 of this Agreement constitute independent and separable covenants which shall survive termination or expiration of the Employment Period. Any paragraph, phrase, or other provision of this Agreement that is determined by a court of competent jurisdiction to be overly broad in scope, duration, or area of applicability or in conflict with any applicable statute or rule shall be deemed, if possible, to be omitted from this Agreement. The invalidity of any portion hereof shall not affect the validity of the remaining portions.
11. Assignment.
(a) This Agreement is personal to you, and cannot be assigned by you to any other party.
(b) This Agreement shall inure to the benefit of, and be binding upon and enforceable by Agilysys, and by its successors and assigns. This Agreement may be assigned by Agilysys, without your consent, to a third party (Assignee) in connection with the sale or transfer of all or substantially all of Agilysys business, or any division or unit thereof, whether by way of sale of stock, sale of assets, merger or other transaction. Such assignment by Agilysys will not constitute nor be deemed a termination of your employment by Agilysys, and will not give rise to any rights under Paragraph 5 of this Agreement. After such assignment, any further rights which you have under this Agreement will be the responsibility of the Assignee.
12. General. This Agreement constitutes our full understanding relating to your employment with Agilysys, and replaces and supersedes any and all agreements, contracts, representations or understandings with respect to your employment (collectively, Prior Agreements). This Agreement is governed by and is to be construed and enforced in accordance with the internal laws of the State of Ohio, without giving effect to principles of conflicts of law. In the event of a conflict between the terms hereof and the provisions of Agilysys Employee Handbook or its Policies and Procedures, the terms hereof shall control; otherwise, the provisions of the Employee Handbook shall remain applicable to your employment relationship. This Agreement may not be superseded, amended, or modified except in a writing signed by both parties.
In witness whereof the parties have executed this Agreement this 29th day of September, 2011.
AGILYSYS, INC. |
By: Jim Dennedy |
President and Chief Executive Officer |
By: Robb Ellis |
Title: Senior Vice President and Chief Financial Officer |
Exhibit 10(b)
James H. Dennedy | Agilysys, Inc. | |
President & Chief Executive Officer | 28925 Fountain Parkway | |
Solon, OH 44139 | ||
Tel 440 519 8687 | ||
Fax 440 519 8643 | ||
www.agilysys.com |
September 16, 2011
Mr. Kyle Badger
156 Kenilworth Avenue
Glen Ellyn, Illinois 60137
Dear Kyle:
We are pleased to extend an offer of employment for the position of Senior Vice President and Assistant General Counsel with Agilysys, Inc. You will be working in the Alpharetta, Georgia facility, reporting directly to me.
As a member of the senior management team, you will be eligible for the following compensation and benefits:
| Starting annual base salary of $240,000. |
| Annual target FY12 incentive of $120,000, paid annually upon the filing of the Agilysys Form 10-K. The terms of your annual incentive are attached as Exhibit A. |
| A long-term incentive award equal to 50% of your annual base salary, awarded half in Stock Settled Stock Appreciation Rights and half in shares of Restricted Stock on your date of hire, based on the market value of Agilysys shares for Restricted Stock and on a Black Scholes value for SSARs (assuming a $9 stock price, this value is $5.66 per share). Each award will vest in one third increments beginning March 31, 2012. The forms of these grant agreements are attached as Exhibit B. |
| The forms of these grant agreements are attached as Exhibit B. |
| Full participation in the Agilysys, Inc. health, life insurance, paid time off (PTO), 401(K) and profit sharing plans. In addition, you will be eligible to receive an Executive Life Insurance Policy, equal to two times your targeted base salary and annual incentive. |
| 20 PTO days (not inclusive of designated holidays) for each full calendar year of employment. |
| The relocation assistance package that is summarized on attached Exhibit C. |
Mr. Kyle Badger
September 16, 2011
Page 2
| Severance and change of control benefits as outlined in your Employment Agreement, which is attached as Exhibit D and will replace any severance pursuant to Agilysys severance policies. |
| An award of 3,000 shares of restricted stock made on your date of hire, vesting at the rate of 20% on March 31, 2012 and 40% each on March 31, 2013 and 2014. |
This offer requires that you sign an Insider Trading Policy, Non-Disclosure Agreement and Business Ethics Policy. You must also complete the Employment Application enclosed with this employment package. This offer of employment with Agilysys, Inc. is also contingent upon Agilysys receipt of negative drug screen results, to which you must consent (forms enclosed). Also, Agilysys participates in the E-Verify Internet based system operated by the Department of Homeland Security (DHS) in partnership with the Social Security Administration (SSA) to electronically determine employment eligibility of new hires and validity of Social Security Numbers. You will be required to complete a Form I-9 and furnish proof of your identity and eligibility to be employed in the United States.
Please follow the instruction sheet in this employment package to ensure the steps for your on-boarding are completed in a timely manner. All new employees are required to enroll to have pay deposited directly into accounts of their choice. All pay stubs are electronic and available to view or print via the Agilysys intranet.
We look forward to having you join the Agilysys management team. Please confirm your acceptance of this offer no later than Friday, September 23, 2011. f you have any further questions, please dont hesitate to contact me at 440.519.8687 or Kathleen Weigand at 440.519.8634.
Sincerely, |
Jim Dennedy |
President and Chief Executive Officer |
Enclosure: Agilysys Employment Documents and CD
This offer letter and the information contained herein do not in any way constitute, and should not be construed, as a contract of employment between the employer and the employee or a promise of employment for any specified length of time. No employee of the company is authorized to offer any agreement, oral or written, for employment for any specified period of time or to make any agreement contrary to the companys policies.
EMPLOYMENT AGREEMENT
Kyle Badger, as Senior Vice President and Assistant General Counsel, you are a valuable Agilysys employee, and we expect you to make a significant contribution to Agilysys success. As a result, Agilysys, Inc. (Agilysys) wishes to employ you during the following years under the terms of this Agreement.
1. Employment Period. You will be employed by Agilysys for the period beginning on October 31, 2011, and ending with the Termination Date as defined in Paragraph 5, below (the Employment Period).
2. Position. You shall initially be employed in the position set forth above, with the duties and responsibilities customarily associated with that position. From time to time, Agilysys may determine that it is in Agilysys best interest to add to, subtract from, or otherwise change your duties and responsibilities, or change or eliminate your title.
3. Best Efforts. You shall devote all of your business time and attention to your duties as an employee of Agilysys. You shall use your best efforts, energies, and skills to advance the business of Agilysys, to further and improve its relations with suppliers, customers and others, and to keep available to Agilysys the services of its employees. You shall perform your duties in compliance with all laws and Agilysys published policies, including ethical standards set forth in the Code of Business Conduct.
4. Compensation. Your compensation will be pursuant to Agilysys standard programs in effect from time to time. Agilysys reserves the right, however, in its sole discretion, to impose salary reduction, and/or other cost reduction programs, which may reduce your targeted cash compensation (provided that any such program is not discriminatory and treats you the same as other Agilysys employees holding similar positions). You shall be eligible to participate in any and all employee benefit plans made available from time to time to Agilysys employees generally.
5. Termination. Your employment may be terminated for Cause by Agilysys, voluntarily by you, or without Cause by Agilysys. The last date of your employment as a result of termination for any of these reasons is the Termination Date.
A. Termination for Cause and Voluntary Termination. If your employment terminates for any of the following reasons: (a) your death, disability, or legal incompetence; (b) the issuance by Agilysys of a notice terminating your employment for Cause (which, for these purposes, means: (i) breach of any term of this Agreement or any other duty to Agilysys; (ii) dishonesty, fraud, or failure to abide by the published ethical standards, conflict of interest, or other policies of Agilysys; (iii) your conviction for any felony crime, or for any other crime involving misappropriation of money or other property of Agilysys; (iv) misconduct, malfeasance or insubordination; or (v) gross failure to perform under this Agreement (not including simply a failure to attain quantitative targets); or (c) you voluntarily resign your employment, then your salary will end on the Termination Date.
B. Termination Without Cause. If your employment is terminated by Agilysys for any reason other than those identified in Paragraph 5.A., above, upon signing a release, you will be paid a severance (Severance Payments) equal to one (1) year regular base and target annual incentive salary (if applicable), which will be at the rate applicable to you at the time your employment terminates and will be paid during regular pay intervals during the one (1) year period (Severance Period). In case of termination without Cause, you will be eligible to continue to participate in applicable medical and dental coverage program(s) available to Agilysys employees for the duration of the Severance Period. You will not otherwise be eligible for severance under any Agilysys severance plan.
C. Position. If (i) Agilysys changes your position such that your responsibilities or compensation are substantially lessened, or (ii) if you are not promoted to Senior Vice President and General Counsel by March 31, 2012 for any reason other than for Cause as defined in this Agreement (referred to as a Change of Position), then you may, within 30 days of such Change of Position, give Agilysys written notice that you are terminating your employment for this reason. Such termination for Change of Position will be deemed a termination by Agilysys without Cause for purposes of this Agreement and you shall be entitled to the Severance Payments described in Paragraph 5.B., above.
D. Change of Control. If there is a change of control of Agilysys, as defined by Section 409(A) of the Internal Revenue Code within the first two years of your employment with Agilysys, and within the same two-year period your employment with Agilysys or its successor is terminated without cause, then you will be paid a severance equal to two (2) years regular base and target annual incentive salary (if applicable), which will be at the rate applicable to you at the time your employment terminates and will be paid during regular pay intervals during the two (2) year period, provided that all such payments shall be made in accordance with the then effective rules and regulations under Section 409(A) of the Internal Revenue Code if different from the payout described in this Paragraph 5.D. You will not otherwise be eligible for severance under any Agilysys severance plan or any other provision of this Agreement.
6. Confidential Information. During the course of your employment, you have learned, and will learn, various proprietary or confidential information of Agilysys and/or its related and affiliated companies (including the identity of customers and employees; vendor information; marketing information and strategies; sales training techniques and programs; product development and design; acquisition and divestiture opportunities and discussions; and data processing and management information systems, programs, and practices). You shall use such information only in connection with the performance of your duties to Agilysys and agree not to copy, disclose, or otherwise use such information or contest its confidential or proprietary nature. You agree to return any and all written documents containing such information to Agilysys upon termination of your employment.
7. Restrictive Covenants.
A. No Hiring. During the Employment Period and for 12 months thereafter, you agree not to employ or retain, have any other person or firm employ or retain, or otherwise participate in the employment or retention of any person who was an employee or consultant of Agilysys at any time during the 12 months preceding the end of the Employment Period.
B. Non-Competition. In the event that (i) Agilysys terminates your employment for Cause or (ii) you voluntarily terminate your employment with Agilysys for any reason other than Change of Position, you agree that for a period of 12 months after such termination you will not be employed by, own, manage, operate, or control, or participate, directly or indirectly, in the ownership, management, operation, or control of, or be connected with (whether as a director, officer, employee, partner, consultant, or otherwise), any business which competes with the business of Agilysys, including but not limited to the sale of information technology products and services, enterprise computer systems, and related consulting, integration, maintenance and professional services (the Non-compete Obligation.)
C. In the event that (i) Agilysys terminates your employment for any reason other than for Cause or (ii) you terminate your employment for reasons of Change of Position, then the above Non-Compete Obligation will not apply to you, unless Agilysys, at its option, elects to extend the Non-Compete Obligation to you for up to a twelve-month period (Non-Competition Period), in which case Agilysys will pay your regular base and target incentive salary (if applicable), in accordance with regular payroll practices (the Non-Competition Payments), during the Non-Compete Period.
Any Non-Competition Payments made to you will be in lieu of Severance Payments. To the extent the Non-Competition Period is shorter than the Severance Period applicable to you, if any, Severance Payments, if applicable to you, will be made to you for the duration of the remainder of the Severance Period after the end of the Non-Competition Period. All decisions as to (i) whether to extend to you the Non-Compete Obligation (and therefore, whether to make Non-Competition Payments to you); and (ii) the duration of any such Non-Compete Period, shall be within the sole discretion of Agilysys, and will be communicated to you at the time of termination. The Non-Competition Payments described in this subparagraph C. apply only to termination of your employment by Agilysys for reasons other than for Cause, or if you terminate your employment for reasons of Change of Position.
It is understood and acknowledged that any Non-compete Obligation arising under Paragraph 7 shall be in addition to any other obligations on your part under this Agreement, including but not limited to the confidentiality and no-hiring provisions of Paragraphs 6 and 7.A., above.
8. Assignment of Inventions. Agilysys by law is entitled to all rights, ideas, inventions and works of authorship relating to its business that are made by its employees during the scope of their work, whether or not conceived during regular business hours, for Agilysys when using Agilysys resources. You agree to promptly and fully disclose to Agilysys all ideas, inventions, discoveries, creations, designs, methods, and other technology and rights (and any related improvements or modifications thereof), whether or not protectable under any form of legal protection afforded to intellectual property (collectively, Innovations), relating to any activities or proposed activities of Agilysys and its affiliates and subsidiaries, conceived or developed by you (alone or jointly with others) during your employment, whether or not conceived during regular business hours. Such Innovations shall be the sole property of Agilysys. To the extent possible, such Innovations shall be considered a Work Made for Hire under the U.S. Copyright Act. To the extent the Innovations may not be considered such a Work Made for Hire, you agree to automatically assign to Agilysys, at the time of creation of such Innovations, any right, title, or interest that you may have in such Innovations. You further agree that you will execute such written instruments, and perform any other tasks as may be necessary in the opinion of Agilysys to obtain a patent, register a copyright, or otherwise protect or enforce Agilysys rights in such Innovations.
9. Specific Performance and Injunctive Relief. You acknowledge that Agilysys will be irreparably damaged if the provisions of this Agreement are not specifically enforced, that monetary damages will not provide an adequate remedy to Agilysys, and that Agilysys is entitled to an injunction (preliminary, temporary, or final) restraining any violation of this Agreement (without any bond or other security being required), or any other appropriate decree of specific performance. Such remedies are not exclusive and shall be in addition to any other remedy which Agilysys may have.
10. Severability and Reformation. The provisions of Paragraphs 6 through 10 of this Agreement constitute independent and separable covenants which shall survive termination or expiration of the Employment Period. Any paragraph, phrase, or other provision of this Agreement that is determined by a court of competent jurisdiction to be overly broad in scope, duration, or area of applicability or in conflict with any applicable statute or rule shall be deemed, if possible, to be omitted from this Agreement. The invalidity of any portion hereof shall not affect the validity of the remaining portions.
11. Assignment.
(a) This Agreement is personal to you, and cannot be assigned by you to any other party.
(b) This Agreement shall inure to the benefit of, and be binding upon and enforceable by Agilysys, and by its successors and assigns. This Agreement may be assigned by Agilysys, without your consent, to a third party (Assignee) in connection with the sale or transfer of all or substantially all of Agilysys business, or any division or unit thereof, whether by way of sale of stock, sale of assets, merger or other transaction. Such assignment by Agilysys will not constitute nor be deemed a termination of your employment by Agilysys, and will not give rise to any rights under Paragraph 5 of this Agreement. After such assignment, any further rights which you have under this Agreement will be the responsibility of the Assignee.
12. General. This Agreement constitutes our full understanding relating to your employment with Agilysys, and replaces and supersedes any and all agreements, contracts, representations or understandings with respect to your employment (collectively, Prior Agreements). This Agreement is governed by and is to be construed and enforced in accordance with the internal laws of the State of Ohio, without giving effect to principles of conflicts of law. In the event of a conflict between the terms hereof and the provisions of Agilysys Employee Handbook or its Policies and Procedures, the terms hereof shall control; otherwise, the provisions of the Employee Handbook shall remain applicable to your employment relationship. This Agreement may not be superseded, amended, or modified except in a writing signed by both parties.
In witness whereof the parties have executed this Agreement this 12th day of October, 2011.
AGILYSYS, INC. |
By: Jim Dennedy |
President and Chief Executive Officer |
By: Kyle Badger |
Relocation Assistance
Agilysys will pay the following out-of-pocket expenses, supported by third-party receipts, in connection with your relocation:
| The out-of-pocket costs incurred in connection with the moving of your primary residence, including the shipment of household goods, packing and limited unpacking by carrier, insurance coverage for household goods on an actual cash value basis, shipment of one automobile, and travel expenses to the new residence. |
| Reimbursement of up to $3,500/mo of your out-of-pocket costs incurred prior to June 30, 2012 for airfare to commute between Chicago and your work location, including temporary lodging and car allowance, not to exceed $24,500.00, including a tax gross-up on these expenses. |
| Reimbursement for up to two pre-move house hunting trips with your spouse, not to exceed in the aggregate 7 days and 6 nights. |
| Reimbursement of reasonable travel expenses to the new location for you and your family on the final trip, which includes driving one car at current Company mileage reimbursement and meals while en route. |
| Closing costs incurred on the sale of your current residence (including real estate commissions) and closing costs on the purchase of a new home in Alpharetta, including a tax gross-up on these closing costs. |
| All travel expenses shall be reimbursed only in accordance with Agilysys policies on How to Expense Meals and Snacks HR-17-07, Agilysys Travel Policy HR-17-01, and How to Make Airline/Hotel Reservations and Rent a Car HR-17-03, which are attached. |
| In consideration of Agilysys direct payment and/or reimbursement of expenses associated with the relocation, you agree that if you voluntarily terminate your employment (or if you are involuntarily terminated for cause) within twenty-four (24) months of your relocation, you must repay all direct payments and/or reimbursement. |
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, James H. Dennedy, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Dated: November 9, 2011
By: | /s/ James H. Dennedy | |
James H. Dennedy | ||
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Robert R. Ellis, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Dated: November 9, 2011
By: | /s/ Robert R. Ellis | |
Robert R. Ellis | ||
Senior Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
I, James H. Dennedy, President and Chief Executive Officer of Agilysys, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2011 (the Report) fully complies (1) with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 9, 2011
By: | /s/ James H. Dennedy | |
James H. Dennedy | ||
President and Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION
I, Robert R. Ellis, Senior Vice President and Chief Financial Officer of Agilysys, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1. | The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2011 (the Report) fully complies (1) with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 9, 2011
By: | /s/ Robert R. Ellis | |
Robert R. Ellis | ||
Senior Vice President and Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data | Sep. 30, 2011 | Mar. 31, 2011 |
---|---|---|
Condensed Consolidated Balance Sheets [Abstract] | ||
Accounts receivable, allowances | $ 248 | $ 661 |
Intangible assets, accumulated amortization | $ 21,601 | $ 20,069 |
Common stock, no par value | ||
Common stock, stated value | $ 0.30 | $ 0.30 |
Common stock, shares authorized | 80,000,000 | 80,000,000 |
Common stock, shares issued | 31,606,831 | 31,606,831 |
Common stock, shares outstanding | 22,575,300 | 23,022,398 |
Treasury shares | 9,031,531 | 8,584,433 |
Document And Entity Information | 6 Months Ended | |
---|---|---|
Sep. 30, 2011 | Oct. 31, 2011 | |
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2012 | |
Document Fiscal Period Focus | Q2 | |
Entity Registrant Name | AGILYSYS INC | |
Entity Central Index Key | 0000078749 | |
Current Fiscal Year End Date | --03-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 22,630,116 |
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Repurchases Of Common Shares | 6 Months Ended |
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Sep. 30, 2011 | |
Repurchases Of Common Shares [Abstract] | |
Repurchases Of Common Shares |
7. Repurchases of Common Shares On August 1, 2011, the Company announced that its Board of Directors provided authorization to repurchase up to 1.6 million of the Company's common shares. Under this authorization, the Company may purchase shares from time to time through open market purchases, including transactions pursuant to Rule 10b5-1 plans, or privately negotiated transactions. Unless renewed, the share repurchase program will expire on March 31, 2012. During the second quarter of fiscal 2012, the Company repurchased 800,000 of its common shares for an aggregate of $6.6 million, representing an average purchase price of $8.27 per common share. As of September 30, 2011, 800,000 common shares remained authorized for repurchase and 9.0 million common shares were held in treasury. |
Business Segments | 6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Business Segments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segments | 12. Business Segments Description of Business Segments The Company has two reportable business segments: HSG and RSG. The reportable segments are each managed separately and are supported by various practices as well as Company-wide functional departments. These functional support departments include general accounting, tax, and information technology. Certain costs associated with the functional support departments are contained within Corporate/Other and are not allocated back to the reportable business segments. Corporate/Other is not a reportable business segment as defined by GAAP. As a result of the sale of the Company's TSG business, which is disclosed in Note 3, Corporate/Other costs have been restated for all prior periods presented to reflect the portion of the functional support department costs that were transferred to OnX. HSG is a leading technology provider of software, hardware and services to the hospitality industry, offering industry leading enterprise solutions for property management, point of sale, inventory and procurement, document management, and mobility-enabled guest engagement. HSG solutions allow customers in the gaming, hotel and resort, cruise line, foodservice management, higher education, and sports and entertainment markets to enhance guest services, increase revenue opportunities, and reduce operational expenses. RSG is a leader in designing solutions that help make retailers more productive and provide their customers with an enhanced shopping experience. RSG solutions help improve operational efficiency, technology utilization, customer satisfaction, and in-store profitability, including mobility and wireless, customized pricing, inventory, and customer relationship management systems. The group also provides implementation plans and supplies the complete package of hardware needed to operate the systems, including servers, receipt printers, point-of-sale terminals, and wireless devices for in-store use by the retailer's store associates. Measurement of Segment Operating Results and Segment Assets The Company's President and Chief Executive Officer, who is the Chief Operating Decision Maker ("CODM"), evaluates performance and allocates resources to its reportable segments based on operating income. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies elsewhere in these Notes to Condensed Consolidated Financial Statements. Intersegment sales are recorded at pre-determined amounts to allow for inter-company profit to be included in the operating results of the individual reportable segments. Such inter-company profit is eliminated for consolidated financial reporting purposes. The CODM does not evaluate a measurement of segment assets when evaluating the performance of the Company's reportable segments. As such, financial information relating to segment assets is not provided in the table below. The following table presents segment profit and related information for each of the Company's reportable segments and Corporate/Other. Please refer to Note 5 to Condensed Consolidated Financial Statements for further information on the fiscal 2012 and fiscal 2011 restructuring charges.
Enterprise-Wide Disclosures The Company's assets are primarily located in the United States. Further, revenues attributable to customers outside the United States accounted for approximately 7% and 5% of total revenues for the three- and six-month periods ended September 30, 2011, respectively. Revenues attributable to customers outside the United States accounted for approximately 7% and 8% of total revenues for the three- and six-month periods ended September 30, 2010, respectively. Total revenues for the Company's three specific product areas are as follows:
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Discontinued Operations | 6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Discontinued Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations | 3. Discontinued Operations On May 28, 2011, the Company entered into a definitive agreement to sell its TSG business for an aggregate purchase price of $64.0 million in cash, subject to a possible downward adjustment based on final working capital, to OnX Enterprise Solutions Limited and its subsidiary OnX Acquisition LLC (together, "OnX"), a leading IT solutions provider based in Toronto, Canada. On July 28, 2011, the Company's shareholders approved the sale and the transaction closed on August 1, 2011, the date on which certain other contingencies specified in the sale agreement were satisfied. Upon the close of the transaction, the aggregate purchase price of $64.0 million was reduced by the payment of agreed-upon fees of $3.3 million for severance costs and $1.2 million for third-party services in support of the transition, resulting in net proceeds received by the Company of $59.5 million.
With the sale of TSG, the Company is focused on creating shareholder value by exploiting growth opportunities and strengthening its competitive position within the hospitality and retail markets in which it competes. The sale of TSG represented a disposal of a component of an entity. As such, the operating results of TSG, along with the gain on sale, have been reported as a component of discontinued operations in the Company's Condensed Consolidated Statements of Operations for the periods presented. In addition, the assets and liabilities of the TSG business are classified as discontinued operations in the Company's Condensed Consolidated Balance Sheets as of March 31, 2011. The income from discontinued operations for the three months ended September 30, 2011, includes TSG net sales of $26.1 million, a pre-tax loss of $3.1 million, a net loss of $2.1 million (net of a tax benefit of $1.0 million), and a gain recognized on the sale of $12.6 million (net of taxes of $8.1 million). The income from discontinued operations for the six months ended September 30, 2011, includes TSG net sales of $123.8 million, a pre-tax loss of $1.8 million, a net loss of $1.5 million (net of a tax benefit of $0.3 million), and a gain recognized on the sale of $12.6 million (net of taxes of $8.1 million). Included in the calculation of the gain on the sale was the write-off of $5.4 million in goodwill related to TSG that remained on the Company's balance sheet until the sale was completed. Income from discontinued operations for the three months ended September 30, 2010 includes TSG net sales of $133.5 million, pre-tax income of $3.9 million, and net income of $2.7 million. Income from discontinued operations for the six months ended September 30, 2010 includes TSG net sales of $218.6 million, pre-tax income of $1.8 million, and net income of $0.7 million. Components of Results of Discontinued Operations For the three and six months ended September 30, 2011 and 2010 the income from discontinued operations was comprised of the following:
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Earnings (Loss) Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) Per Share |
9. Earnings (Loss) Per Share The following data show the amounts used in computing earnings (loss) per share and the effect on income and the weighted average number of dilutive potential common shares:
Basic earnings (loss) per share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. The outstanding shares used to calculate the weighted average basic shares excludes 135,668 of restricted shares at September 30, 2011 and 223,532 of restricted shares and performance shares (including reinvested dividends) at September 30, 2010, as these shares were issued but were not vested and, therefore, not considered outstanding for purposes of computing basic earnings per share at the balance sheet dates. Diluted earnings (loss) per share is computed by sequencing each series of potential issuance of common shares from the most dilutive to the least dilutive. Diluted earnings (loss) per share is determined as the lowest earnings or highest loss per incremental share in the sequence of potential common shares. When a loss is reported, the denominator of diluted earnings per share cannot be adjusted for the dilutive impact of share-based compensation awards because doing so would be anti-dilutive to the loss per share. In addition, when a loss from continuing operations is reported, adjusting the denominator of diluted earnings per share would also be anti-dilutive to the loss per share, even if an entity has net income after adjusting for a discontinued operation. Therefore, for each of the three and six months ended September 30, 2011 and 2010, basic weighted-average shares outstanding were used in calculating the diluted net loss per share. For each of the three and six months ended September 30, 2011, stock options and SSARs on 2.6 million common shares were not included in computing diluted earnings per share because their effects were anti-dilutive. For each of the three and six months ended September 30, 2010, stock options and SSARs on 3.4 million common shares were not included in computing diluted earnings per share because their effects were anti-dilutive. |
Subsequent Events | 6 Months Ended |
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Sep. 30, 2011 | |
Subsequent Events [Abstract] | |
Subsequent Events |
14. Subsequent Events On October 13, 2011, the Company entered into an agreement to terminate the lease on its current corporate headquarters facility located in Solon, Ohio effective March 31, 2012 in consideration of a one-time termination payment of $2.0 million plus brokerage fees of approximately $0.1 million. The Company will record the termination payment and associated brokerage fees within "Restructuring charges" in its Condensed Consolidated Statements of Operations in the third quarter of fiscal 2012. Ongoing costs associated with this facility, including rent, utilities, maintenance, etc., which will be incurred through March 31, 2012, will be recorded within "Selling, general, and administrative expenses" in the Company's Condensed Consolidated Statements of Operations. On October 31, 2011, the Company announced the departure of an executive officer. As a result of this termination, the Company will record approximately $0.5 million in severance and related benefits within "Restructuring charges" in its Condensed Consolidated Statements of Operations in the third quarter of fiscal 2012. Subsequent to September 30, 2011 and through November 7, 2011, the Company made additional repurchases of approximately 344,000 of its common shares for an aggregate of approximately $2.9 million, representing an average purchase price of $8.34 per common share. Approximately 456,000 common shares remain authorized for repurchase under the current common share repurchase authorization, which is described in Note 7 to Condensed Consolidated Financial Statements.
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Commitments And Contingencies | 6 Months Ended |
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Sep. 30, 2011 | |
Commitments And Contingencies [Abstract] | |
Commitments And Contingencies |
10. Commitments and Contingencies The Company is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. The Company provides for costs related to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of certain of these matters on the Company's future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on the consolidated financial position, results of operations, or cash flows of the Company.
As of September 30, 2011, the Company is expected to reach its minimum purchase commitments from a vendor of $330.0 million per year through fiscal 2012, which were disclosed in the Company's Annual Report on Form 10-K for the year ended March 31, 2011. The majority of this obligation, representing $310.0 million, was assumed by OnX upon the completion of the TSG divestiture. The remaining $20.0 million obligation was retained by the Company and the Company expects to reach its commitment during fiscal 2012. |
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Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
8. Income Taxes The effective tax rates from continuing operations for the three and six months ended September 30, 2011 and 2010 were as follows:
Income tax expense is based on the Company's estimate of the effective tax rate expected to be applicable for the respective full year. For the second quarter and first half of fiscal 2012, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets, which were partially offset by increases in the valuation allowance. Other items effecting the rate in the current year quarter include foreign and state taxes and a discrete item related to a decrease in unrecognized tax benefits. For the second quarter and first half of fiscal 2011, the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets, which were offset by increases in the valuation allowance. In addition, an increase in the valuation allowance was recorded due to the correction of an error, as more fully described in Note 1 to Condensed Consolidated Financial Statements. Other items effecting the rate include foreign and state taxes and a discrete item related to a net increase to unrecognized tax benefits. Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next 12 months a reduction in unrecognized tax benefits may occur in the range of zero to $0.5 million based on the outcome of tax examinations and as a result of the expiration of various statutes of limitations. The Company is routinely audited and is currently under examination by the Internal Revenue Service ("IRS") for the tax year ended March 31, 2010. Due to the ongoing nature of current examinations in multiple jurisdictions, other changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time. |
Nature Of Operations And Financial Statement Presentation | 6 Months Ended |
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Sep. 30, 2011 | |
Nature Of Operations And Financial Statement Presentation [Abstract] | |
Nature Of Operations And Financial Statement Presentation |
1. Nature of Operations and Financial Statement Presentation Nature of Operations Agilysys, Inc. and its subsidiaries (the "Company") are leading developers and marketers of proprietary enterprise software, services, and solutions to the hospitality and retail industries. The Company specializes in market-leading point-of-sale, property management, inventory and procurement, and mobile and wireless solutions that are designed to streamline operations, improve efficiency, and enhance the consumer's experience. The Company operates extensively in North America with additional sales and support offices in the United Kingdom and in Asia. Until August 1, 2011, the Company operated in three reportable business segments: Hospitality Solutions Group ("HSG"), Retail Solutions Group ("RSG"), and Technology Solutions Group ("TSG"). On August 1, 2011, the Company completed the sale of TSG. The assets and liabilities, as well as the results of operations and cash flows, of TSG are classified as discontinued operations within the Company's Condensed Consolidated Financial Statements for the periods presented. See Note 3 to Condensed Consolidated Financial Statements for a discussion regarding the disposal of TSG. Additional information regarding the Company's continuing reportable business segments are described in Note 12 to Condensed Consolidated Financial Statements. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements include the Company's accounts. The Company's investments in subsidiaries are reported using the consolidation method. All inter-company accounts have been eliminated. The Company's fiscal year ends on March 31. References to a particular year refer to the fiscal year ending in March of that year. For example, fiscal 2012 refers to the fiscal year ending March 31, 2012. The unaudited interim financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information, the instructions to the Quarterly Report on Form 10-Q ("Quarterly Report") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10-01 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. The Condensed Consolidated Balance Sheet as of September 30, 2011, as well as the Condensed Consolidated Statements of Operations for the three- and six-month periods ended September 30, 2011 and 2010, and the Condensed Consolidated Statements of Cash Flows for the six-month periods ended September 30, 2011 and 2010, have been prepared by the Company without audit. However, these financial statements have been prepared on the same basis as those in the audited annual financial statements. In the opinion of management, all adjustments necessary to fairly present the results of operations, financial position, and cash flows have been made. Except as discussed below, such adjustments were of a normal recurring nature. Further, the Company has evaluated all significant events occurring subsequent to the date of the Condensed Consolidated Financial Statements and through the filing of this Quarterly Report and concluded that there are no additional significant subsequent events requiring recognition or disclosure. These unaudited interim financial statements of the Company should be read together with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended March 31, 2011, filed with the Securities and Exchange Commission ("SEC") on June 14, 2011.
The results of operations for the three and six months ended September 30, 2011 are not necessarily indicative of the operating results for the full fiscal year or any future period. Use of Estimates The Company makes certain estimates and assumptions when preparing financial statements according to GAAP that affect the reported amounts of assets and liabilities at the financial statement dates and the reported amounts of revenues and expenses during the periods presented. These estimates and assumptions involve judgments with respect to many factors that are difficult to predict and are beyond the Company's control. Actual results could be materially different from these estimates. The Company revises the estimates and assumptions as new information becomes available. Reclassifications Certain fiscal 2010 product and service revenues and costs of sales were reclassified (with no impact on total gross margin) in order to conform to current period reporting presentations. Certain fiscal 2010 amounts related to corporate-owned life insurance policies were reclassified to conform to current period reporting presentation (with no impact on loss from continuing operations or cash flows used for operations). Correction of Error During the first quarter of fiscal 2011, the Company recorded an adjustment to increase income tax expense by $3.8 million. The adjustment increased the Company's valuation allowance against its U.S. deferred tax assets and represents a correction of an error. In fiscal 2009, the Company erroneously considered the tax effect of indefinite-lived intangible assets as a source of future taxable income, when it established a significant U.S. valuation allowance against its U.S. deferred tax assets. Income (loss) before income taxes did not change. Net loss increased by $3.8 million, or $0.17 per share, due to this adjustment. Management performed an evaluation under SEC Staff Accounting Bulletin ("SAB") No. 108 and concluded the effect of this adjustment was immaterial to prior years' financial statements as well as the projected full-year fiscal 2011 financial statements. Credit Facility Until July 29, 2011, the Company maintained a $50.0 million Loan and Security Agreement among the Company, and certain of its subsidiaries, and Bank of America, N.A. (the "Lender"), dated May 5, 2009 ("Credit Facility"). Additional information with respect to the Credit Facility is contained in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2011. The Company terminated the Credit Facility on July 29, 2011 in conjunction with the sale of TSG. As a result of the proceeds the Company received from the sale of TSG, the Company determined that it no longer required the liquidity provided by the Credit Facility. As a result of the termination of the Credit Facility, the Company expensed approximately $0.4 million in unamortized deferred financing fees that related to the Credit Facility during the second quarter of fiscal 2012. |
Comprehensive Loss | 6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Comprehensive Loss [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Loss | 4. Comprehensive Loss Comprehensive loss is the total of net income (loss) as currently reported under GAAP plus other comprehensive income (loss). Other comprehensive income (loss) considers the effects of additional transactions and economic events that are not required to be recorded in determining net income, but rather are reported as a separate component of shareholders' equity. Changes in the components of accumulated other comprehensive loss for the three and six months ended September 30, 2011 and 2010 are as follows:
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Restructuring Charges | 6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Charges [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Charges |
5. Restructuring Charges The Company recognizes restructuring charges when a plan that materially changes the scope of the Company's business or the manner in which that business is conducted is adopted and communicated to the impacted parties, and the expenses have been incurred or are reasonably estimable. In addition, the Company assesses the property and equipment associated with the related facilities for impairment. The remaining useful lives of property and equipment associated with the related operations are re-evaluated based on the respective restructuring plan, resulting in the acceleration of depreciation and amortization of certain assets. Additional information regarding the Company's respective restructuring plans is included in the Company's Annual Report on Form 10-K for the year ended March 31, 2011. Fiscal 2012 Restructuring Plan In the first quarter of fiscal 2012, the Company announced restructuring actions, including the relocation of its corporate headquarters from Solon, Ohio to Alpharetta, Georgia, designed to better align corporate functions with the Company's operating units and reduce costs following the sale of TSG. In addition, the Company announced that its President and Chief Executive Officer was stepping down. These restructuring actions are expected to be mostly completed by March 31, 2012 and have impacted or will impact approximately 160 employees. The Company recorded $4.7 million in restructuring charges during the first six months of fiscal 2012, primarily comprised of severance and related benefits, with $0.8 million, $0.4 million, and $3.5 million related to HSG, RSG and Corporate/Other, respectively. The Company expects to incur between approximately $9.0 million and $11.0 million in additional restructuring charges for severance and related benefits, relocation, and facilities related to these restructuring actions during the remainder of fiscal 2012 and the first quarter of fiscal 2013. As a result of taking these restructuring actions, the Company expects to realize between approximately $14.0 million and $16.0 million in cost savings, which are expected to be primarily realized during fiscal 2013. Fiscal 2009 Restructuring Plan The Company recorded $0.4 million in additional non-cash restructuring charges during the first six months of fiscal 2011, primarily comprised of settlement costs incurred in the first quarter of fiscal 2011 related to the payment of an obligation to a former executive under the Company's Supplemental Executive Retirement Plan ("SERP") and ongoing facility lease obligations. The additional restructuring charges recorded in fiscal 2011 related to the previously disclosed restructuring actions taken in fiscal 2009. Since fiscal 2009, the Company has incurred charges totaling $18.5 million related to restructuring actions taken in fiscal 2009 and previously disclosed, comprised of $0.4 million, $0.8 million, and $17.3 million in fiscal years 2011, 2010, and 2009, respectively, which related to Corporate/Other. The Company expects to incur minimal additional net restructuring charges related to the fiscal 2009 restructuring actions for the remainder of fiscal 2012 and through fiscal 2014 for non-cash settlement charges related to the expected payment of a SERP obligation to a former executive and for ongoing facility obligations. The following table presents a reconciliation of the beginning and ending balances of the Company's restructuring liabilities:
These liabilities are recorded within "Accrued liabilities" and "Other non-current liabilities" in the accompanying Condensed Consolidated Balance Sheets. Of the remaining $4.5 million liability at September 30, 2011, $1.3 million of severance and other employment costs are expected to be paid during fiscal 2012, $2.5 million is expected to be paid during fiscal 2013 and the remaining $0.3 million is expected to be paid during fiscal 2014. Approximately $85,000 is expected to be paid during the remainder of fiscal 2012 for ongoing facility lease obligations. Facility lease obligations for the Company's former corporate headquarters in Boca Raton, Florida are expected to continue through fiscal 2014. |
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M7G.&\2()!PF57&'M')A*S,<;H[]LLR4MH#0+OTY0W^J*.XZG4@GL* 13. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value of financial assets and liabilities are measured on a recurring or non-recurring basis. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. In determining fair value of financial assets and liabilities, the Company uses various valuation techniques. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment. The availability of pricing inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. The Company estimates the fair value of financial instruments using available market information and generally accepted valuation methodologies. The Company assesses the inputs used to measure fair value using a three-tier hierarchy. The hierarchy indicates the extent to which pricing inputs used in measuring fair value are observable in the market. Level 1 inputs include unadjusted quoted prices for identical assets or liabilities and are the most observable. Level 2 inputs include unadjusted quoted prices for similar assets and liabilities that are either directly or indirectly observable, or other observable inputs such as interest rates, foreign currency exchange rates, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include the Company's own judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in the hierarchy assessment disclosed in the tables below. Additional information with respect to the Company's fair value measurements is included in the Company's Annual Report on Form 10-K for the year ended March 31, 2011. There were no transfers between Levels 1, 2, and 3 during the three- and six-month periods ended September 30, 2011 and 2010. The following tables present information about the Company's financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value: Assets: Available for sale restricted marketable securities — current Corporate-owned life insurance — non-current Liabilities: BEP — current Assets: Available for sale restricted marketable securities — current Available for sale restricted marketable securities — non-current Corporate-owned life insurance — non-current Liabilities: BEP — non-current The Company maintains an investment in available for sale marketable securities in which cost approximates fair value. The recorded value of the Company's investment in available for sale marketable securities is based on quoted prices in active markets and, therefore, is classified within Level 1 of the fair value hierarchy. As of September 30, 2011, the Company has approximately $0.3 million of unrealized losses related to this investment, which is recorded within "Accumulated other comprehensive loss" in the Condensed Consolidated Balance Sheets. The recorded value of the Corporate-owned life insurance policies is adjusted to the cash surrender value of the policies which are not observable in the market, and therefore, are classified within Level 3 of the fair value hierarchy. Changes in the cash surrender value of these policies are recorded within "Other expenses (income), net" in the Condensed Consolidated Statements of Operations. Although corporate-owned life insurance policies are exempt from such disclosure requirements, management believes the disclosures are useful to financial statement users. The recorded value of the BEP obligation is measured as employee deferral contributions and Company matching contributions less distributions made from the plan, and adjusted for the returns on the hypothetical investments selected by the participants, which are indirectly observable and therefore, classified within Level 2 of the fair value hierarchy. The following table presents a summary of changes in the fair value of the Level 3 assets and liabilities related to the Company's continuing operations for the six months ended September 30, 2011 and 2010: Corporate-owned life insurance: Balance on April 1 Realized gains Unrealized gains (losses) relating to instruments still held at the reporting date Purchases Sales Issuances Settlements Balance on September 30 Realized gains recorded during the first half of fiscal 2012 represent the amounts recognized for the increase in the cash surrender value of Corporate-owned life insurance policies and are recorded within "Other expenses (income), net" in the accompanying Condensed Consolidated Statements of Operations. Realized gains recorded during the first half of fiscal 2011 represent the amounts recognized on the redemption of certain Corporate-owned life insurance policies, net of amounts recognized for the decrease in the cash surrender value of these policies, and are recorded within "Other expenses (income), net" in the accompanying Condensed Consolidated Statements of Operations. The following tables present information about the Company's financial and nonfinancial assets and liabilities measured at fair value on a nonrecurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value: Assets: Goodwill Intangible assets Liabilities: SERP obligations — current Other employee benefit plans obligations — current Restructuring liabilties — current Restructuring liabilties — non-current Other employee benefit plans obligations — non-current Assets: Goodwill Intangible assets Liabilities: SERP obligations — current Other employee benefit plans obligations — current Restructuring liabilties — current Restructuring liabilties — non-current Other employee benefit plans obligations — non-current Goodwill of the Company's reporting units is measured for impairment on an annual basis, or in interim periods if indicators of potential impairment exist, using a combination of an income approach and a market approach. The Company's intangible assets are valued at their estimated fair value at time of acquisition. The Company evaluates the fair value of its finite-lived intangible assets when impairment indicators are present and its indefinite-lived intangible assets on an annual basis, or in interim periods if indicators of potential impairment exist. The same approach described above for the goodwill valuation is also used to value indefinite-lived intangible assets. The recorded value of the Company's SERP and other benefit plans obligations is based on estimates developed by management by evaluating actuarial information and includes assumptions such as discount rates, future compensation increases, expected retirement dates, payment forms, and mortality. The recorded value of these obligations is measured on an annual basis, or upon the occurrence of a plan curtailment or settlement. The Company's restructuring liabilities primarily consist of one-time termination benefits to former employees and ongoing costs related to long-term operating lease obligations. The recorded value of the termination benefits to employees is adjusted to the expected remaining obligation for each period based on the arrangements made with the former employees. The recorded value of the ongoing lease obligations is based on the remaining lease term and payment amount, net of sublease income plus interest, discounted to present value. Changes in subsequent periods resulting from a revision to either the timing or the amount of estimated cash flows over the future period are measured using the credit-adjusted, risk-free rate that was used to measure the restructuring liabilities initially. The inputs used to value the Company's goodwill, intangible assets, SERP obligations, other employee benefit plans obligations, and restructuring liabilities are not observable in the market and therefore, these amounts are classified within Level 3 in the fair value hierarchy. The following table presents a summary of changes in the fair value of the Level 3 assets and liabilities related to the Company's continuing operations for the six months ended September 30, 2011 and 2010: Balance at April 1, 2011 Realized losses Unrealized losses relating to instruments still held at the reporting date Purchases Sales Issuances Settlements Amortization Balance at September 30, 2011 Balance at April 1, 2010 Realized losses Unrealized gains relating to instruments still held at the reporting date Purchases Sales Issuances Settlements Amortization Balance at September 30, 2010 Realized losses on the Company's SERP obligation were primarily comprised of the actuarial losses recognized due to the settlement of a SERP obligation to a former executive and are recorded within "Restructuring charges" in the accompanying Condensed Consolidated Statements of Operations. Additional information regarding the Company's restructuring actions is included in Note 5 to Condensed Consolidated Financial Statements. Unrealized gains related to goodwill represent fluctuations due to the movement of foreign currencies relative to the U.S. dollar. Cumulative currency translation adjustments are recorded within "Accumulated other comprehensive loss" in the accompanying Condensed Consolidated Balance Sheets. Unrealized losses related to the Company's SERP obligation represent the unamortized actuarial losses, net of taxes, and are recorded within "Accumulated other comprehensive loss" in the accompanying Condensed Consolidated Balance Sheets. 6. Stock Based Compensation The Company has a shareholder-approved 2006 Stock Incentive Plan (the "2006 Plan"), as well as a 2000 Stock Option Plan for Outside Directors and a 2000 Stock Incentive Plan (collectively, the "2000 Plans"), that all have vested awards outstanding. The Company is no longer granting awards under the 2006 Plan and 2000 Plans. On July 28, 2011, the Company's shareholders approved the 2011 Stock Incentive Plan (the "2011 Plan"). Under the 2011 Plan, the Company may grant non-qualified stock options, incentive stock options, stock-settled stock appreciation rights ("SSARs"), restricted shares, and restricted share units for up to 3.0 million common shares. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2011 Plan is 1.0 million. The maximum number of shares subject to restricted shares or restricted share units that may be granted to an individual in a calendar year is 400,000 shares, and the maximum number of shares subject to stock options or SSARs that may be granted to an individual in a calendar year is 800,000 shares. For stock options and SSARs, the exercise price must be set at least equal to the closing market price of the Company's common shares on the date of grant. The maximum term of stock option and SSAR awards is seven years from the date of grant. Stock option and SSARs awards vest over a period established by the Compensation Committee of the Board of Directors. SSARs may be granted in conjunction with, or independently from, a stock option granted under the 2011 Plan. SSARs granted in connection with a stock option are exercisable only to the extent that the stock option to which it relates is exercisable and the SSARs terminate upon the termination or exercise of the related stock option. Restricted shares and restricted share units, whether time-vested or performance-based, may be issued at no cost or at a purchase price that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other transfer. Performance-based awards may be conditioned upon the attainment of specified performance objectives and other conditions, restrictions, and contingencies. Restricted shares and restricted share units have the right to receive dividends, or dividend equivalents in the case of restricted share units, if any, subject to the same forfeiture provisions that apply to the underlying awards. Subject to certain exceptions set forth in the 2011 Plan, for awards to employees, no performance-based restricted shares or restricted share units shall be based on a restriction period of less than one year, and any time-based restricted shares or restricted share units shall have a minimum restriction period of three years. The Company may distribute authorized but unissued shares or treasury shares to satisfy share option and SSARs exercises or restricted shares awarded. Stock Options The following table summarizes the activity for the six months ended September 30, 2011 for stock options awarded by the Company under the 2006 Plan and prior plans: Outstanding at April 1, 2011 Granted Exercised Forfeited Cancelled/expired Outstanding and exercisable at September 30, 2011 The aggregate intrinsic value in the table above represents the total pre-tax difference between the $7.13 closing price of the Company's common shares on September 30, 2011 over the exercise price of the stock option, multiplied by the number of stock options outstanding and exercisable. Under GAAP, the aggregate intrinsic value is not recorded for financial accounting purposes and the value changes daily based on changes in the fair market value of the Company's common shares. The following table presents additional information related to stock option activity during the six months ended September 30, 2011 and 2010: Compensation expense Total vest-date fair value of stock options vesting Total intrinsic value of stock options exercised Compensation expense for stock options was recorded within "Selling, general and administrative expenses" in the Consolidated Statements of Operations during the six months ended September 30, 2010. The compensation expense recorded in the first half of fiscal 2011 included $0.2 million for the accelerated vesting of stock option expense due to a change in control provision contained in the original award agreements that was triggered by MAK Capital and its affiliates reaching 20% ownership in the Company during the first quarter of fiscal 2011. As a result, the Company did not have any remaining unrecognized stock based compensation expense related to non-vested stock options as of June 30, 2010. A total of 176,311 shares, net of 78,956 shares withheld to cover the applicable exercise price of the award and 34,733 shares withheld to cover the employee's minimum applicable income taxes, were issued from treasury shares to settle stock options exercised during the first half of fiscal 2012. The shares withheld were returned to treasury shares. In fiscal 2012 and fiscal 2011 the Company was in a net operating loss position for U.S. federal income taxes. Therefore, the Company did not recognize and will not recognize an income tax benefit related to stock options exercised until that tax benefit can be realized. Stock-Settled Stock Appreciation Rights SSARs are rights granted to an employee to receive value equal to the difference in the price of the Company's common shares on the date of the grant and on the date of exercise. This value is settled in common shares of the Company. The Company uses a Black-Scholes-Merton option pricing model to estimate the fair value of SSARs. The following table summarizes the principal assumptions utilized in valuing SSARs granted in the half of fiscal 2012 and fiscal 2011: Dividend yield Risk-free interest rate Expected life (years) Expected volatility The dividend yield reflects the Company's historical dividend yield on the date of the award. On August 5, 2009, the Company's Board of Directors voted to eliminate the payment of cash dividends on the Company's common shares. For awards granted prior to August 5, 2009, the dividend yield reflects the Company's historical dividend yield on the date of award. Awards granted after August 5, 2009 were valued using a zero percent dividend yield, which is the yield expected during the life of the award. The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury bond whose maturity period approximates the expected life of the SSARs. The Company utilizes the simplified method as described by the SEC in SAB No. 110 to calculate the expected life of the SSARs. Under SAB No. 110, the expected life is based on the midpoint between the vesting date and the end of the contractual term of the SSARs award. The Company believes that SSARs awarded in the first half of fiscal 2012 and fiscal 2011 meet the criteria established by the SEC for the use of the simplified method. The expected stock price volatility is based on the volatility of the Company's common shares for the most recent historical period equal to the expected life of the SSARs. The Company's ownership base has been and may continue to be concentrated in a few shareholders, which has increased and could continue to increase the volatility of the Company's common share price over time. The estimated fair value of the SSARs granted, less expected forfeitures, is recognized over the vesting period of the awards utilizing the graded vesting method. Under this method, the compensation cost related to unvested amounts begins to be recognized as of the grant date. The following table summarizes the activity during the six months ended September 30, 2011 for SSARs awarded by the Company under the 2011 Plan and the 2006 Plan: Outstanding at April 1, 2011 Granted Exercised Forfeited Cancelled/expired Outstanding at September 30, 2011 Exercisable at September 30, 2011 The aggregate intrinsic value in the table above represents the total pre-tax difference between the $7.13 closing price of the Company's common shares on September 30, 2011 over the exercise price of the SSARs, multiplied by the number of SSARs outstanding or outstanding and exercisable. Under GAAP, the aggregate intrinsic value is not recorded for financial accounting purposes and the value changes daily based on changes in the fair market value of the Company's common shares. The following table presents additional information related to SSARs activity during the three and six months ended September 30, 2011 and 2010: Compensation expense Income tax benefit related to SSARs exercised: Classified in operating activities in the Consolidated Statements of Cash Flows Classified in financing activities in the Consolidated Statements of Cash Flows Total intrinsic value of SSARs exercised Total vest-date fair value of SSARs vesting Compensation expense for SSARs was recorded within "Selling, general and administrative expenses" in the Consolidated Statements of Operations during the three and six months ended September 30, 2011 and 2010. The compensation expense recorded in the first quarter of fiscal 2012 included $1.4 million for the accelerated vesting of SSARs expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As of September 30, 2011, total unrecognized stock based compensation expense related to non-vested SSARs was $1.0 million, which is expected to be recognized over a weighted-average vesting period of 2.7 years. A total of 66,186 shares, net of 12,212 shares withheld to cover the exercise price on certain incentive stock options exercised and 51,470 shares withheld to cover the employee's minimum applicable income taxes, were issued from treasury shares to settle SSARs exercised during the first half of fiscal 2012. A total of 4,935 shares, net of 2,463 shares withheld to cover the employee's minimum applicable income taxes, were issued from treasury shares to settle SSARs exercised during the first half of fiscal 2011. The shares withheld were returned to treasury shares. In fiscal 2012 and fiscal 2011 the Company was in a net operating loss position for U.S. federal income taxes. Therefore, the Company did not recognize and will not recognize an income tax benefit related to SSARs exercised until that tax benefit can be realized. Restricted Shares The Company granted shares to certain of its Directors and executives under the 2011 Plan and the 2006 Plan, the vesting of which is service-based. The following table summarizes the activity during the six months ended September 30, 2011 for restricted shares awarded by the Company: Outstanding at April 1, 2011 Granted Vested Forfeited Outstanding at September 30, 2011 The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of the Company's common shares on the grant date. During the first half of fiscal 2012, a total of 10,734 shares were withheld from the vested restricted shares to cover the employee's minimum applicable income taxes. The shares withheld were returned to treasury shares. The following table presents additional information related to restricted stock activity during the three and six months ended September 30, 2011 and 2010: Compensation expense Total vest-date fair value of restricted stock vesting Compensation expense related to restricted stock awards is recognized ratably over the restriction period based upon the closing market price of the Company's common shares on the grant date. Compensation expense for restricted stock was recorded within "Selling, general and administrative expenses" in the Consolidated Statements of Operations during the three and six months ended September 30, 2011 and 2010. The fiscal 2012 compensation expense included $0.1 million for the accelerated vesting of restricted stock expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As of September 30, 2011, total unrecognized stock based compensation expense related to non-vested restricted stock was $0.8 million, which is expected to be recognized over a weighted-average vesting period of 1.9 years. The Company will not include restricted stock in the calculation of earnings per share until the shares are vested. Performance Shares The Company granted shares to certain of its executives under the 2006 Plan, the vesting of which is contingent upon meeting various Company-wide performance goals as of March 31, 2010. The earned performance shares vest over three years. The weighted-average grant date fair value of the performance share grants was determined based on the closing market price of the Company's common shares on the grant date and assumed that performance goals would be met at target. The following table summarizes the activity during the six months ended September 30, 2011 for performance shares awarded by the Company under the 2006 Plan: Outstanding at April 1, 2011 Granted Vested Forfeited Outstanding at September 30, 2011 The weighted-average grant date fair value of the performance shares is determined based upon the closing price of the Company's common shares on the grant date. During the half of fiscal 2012, a total of 18,529 shares were withheld from the vested performance shares to cover the employee's minimum applicable income taxes. The shares withheld were returned to treasury shares. The following table presents additional information related to performance share activity during the three and six months ended September 30, 2011 and 2010: Compensation expense Total vest-date fair value of performance shares vesting Once attainment of the performance goals becomes probable, compensation expense related to performance share awards is recognized ratably over the vesting period based upon the closing market price of the Company's common shares on the grant date. The compensation expense for performance shares was recorded within "Selling, general and administrative expenses" in the Consolidated Statements of Operations during the three and six months ended September 30, 2011 and 2010. The fiscal 2012 compensation expense included $0.2 million for the accelerated vesting of performance share expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As a result, subsequent to May 31, 2011, there was no remaining unrecognized stock based compensation expense related to non-vested performance shares. 2. Summary of Significant Accounting Policies A detailed description of the Company's significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, 2011, included in the Company's Annual Report on Form 10-K. Except as described below, there have been no material changes in the Company's significant accounting policies and estimates from those disclosed therein. Change in Accounting Estimate The Company previously announced that, after completion of the TSG sale, it will relocate its corporate headquarters from Solon, Ohio to Alpharetta, Georgia to better align corporate functions with the Company's operating units and reduce costs. This relocation is expected to be completed by March 31, 2012. Therefore, the Company changed the useful life of the leasehold improvements and depreciable property and equipment related to the Solon, Ohio facility such that these assets will be fully depreciated by March 31, 2012. As a result, the Company recorded accelerated depreciation expense of $1.4 million classified within "Selling, general, and administrative expenses" in the Company's Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2011. This change also reduced the basic and diluted loss per share for each of the three and six months ended September 30, 2011 by $0.06 per share. Recently Adopted Accounting Standards In January 2010, the Financial Accounting Standards Board ("FASB") issued authoritative guidance regarding fair value measurements. This guidance requires additional disclosure within the rollforward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances, and settlements of assets and liabilities within Level 3 of the fair value hierarchy (see Note 12 to Condensed Consolidated Financial Statements for definitions of the fair value hierarchy levels). In addition, this guidance requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances, and settlements of Level 3 measurements, which are effective for fiscal years beginning after December 15, 2010. On April 1, 2010, the Company adopted the required provisions of this guidance (see Note 12 to Condensed Consolidated Financial Statements). On April 1, 2011, the Company adopted the remaining provisions of this authoritative guidance, as required (also see Note 12 to Condensed Consolidated Financial Statements). The adoption of this guidance did not have an impact on the Company's financial position, results of operations, or cash flows. In October 2009, the FASB issued authoritative guidance on revenue arrangements with multiple deliverable elements (e.g., hardware with services), which is effective for the Company on April 1, 2011 for new revenue arrangements or material modifications to existing arrangements. The guidance amends the criteria for separating consideration in arrangements with multiple deliverable elements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable based on: 1) vendor-specific objective evidence; 2) third-party evidence; or 3) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands the required disclosures related to revenue arrangements with multiple deliverable elements. Entities may elect to adopt the guidance through either prospective application for revenue arrangements entered into, or materially modified, after the effective date, or through retrospective application to all revenue arrangements for all periods presented. Early adoption is permitted. The Company adopted the provisions of this guidance on April 1, 2011, as required. The adoption of this guidance did not have an impact on the Company's financial position, results of operations, cash flows, or related disclosures. In October 2009, the FASB issued authoritative guidance on revenue arrangements that include software elements, which is effective for the Company on April 1, 2011. The guidance changes revenue recognition for tangible products containing software elements and non-software elements as follows: 1) the tangible product element is always excluded from the software revenue recognition guidance even when sold together with the software element; 2) the software element of the tangible product element is also excluded from the software revenue guidance when the software and non-software elements function together to deliver the product's essential functionality; and 3) undelivered elements in a revenue arrangement related to the non-software element are also excluded from the software revenue recognition guidance. Entities must select the same transition method and same period for the adoption of both this guidance and the guidance on revenue arrangements with multiple deliverable elements. The Company adopted the provisions of this guidance on April 1, 2011, as required. The adoption of this guidance did not have an impact on the Company's financial position, results of operations, cash flows, or related disclosures. Recently Issued Accounting Standards In September 2011, the FASB issued authoritative guidance on goodwill impairment that gives companies the option to perform a qualitative assessment that may allow them to skip the annual two-step test and reduce costs. This authoritative guidance gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step test. Otherwise, a company can skip the two-step test, which would reduce the cost and complexity of testing goodwill for impairment. The provisions of this authoritative guidance are effective for the Company beginning on April 1, 2012. The Company is currently evaluating the provisions of this guidance, but does not expect this guidance to have a significant impact on the Company's financial position, results of operations, cash flows, or related disclosures. In June 2011, the FASB issued authoritative guidance on the presentation of comprehensive income in an entity's financial statements, which is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This authoritative guidance supersedes the presentation options currently available under GAAP and facilitates convergence of GAAP and International Financial Reporting Standards ("IFRS") by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requiring that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions of this authoritative guidance are to be applied retrospectively and are effective for the Company beginning on April 1, 2012. The Company is currently evaluating the provisions of this guidance, but does not expect this guidance to have a significant impact on the Company's financial position, results of operations, cash flows, or related disclosures. In May 2011, the FASB issued amendments to its authoritative guidance on fair value measurements and disclosures, which represents the converged guidance of the FASB and the International Accounting Standards Board (collectively, the "Boards") on fair value measurements. The collective efforts of the Boards and their staffs, reflected in this authoritative guidance, resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term "fair value." The Boards concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRS. The amendments in this authoritative guidance are required to be applied prospectively, and are effective for the Company beginning April 1, 2012. The Company is currently evaluating the provisions of this guidance, but does not expect this guidance to have a significant impact on the Company's financial position, results of operations, cash flows, or related disclosures. Management continually evaluates the potential impact, if any, on its financial position, results of operations, and cash flows, of all recent accounting pronouncements and, if significant, makes the appropriate disclosures required by such new accounting pronouncements. 11. Additional Balance Sheet Information Additional information related to the Company's Condensed Consolidated Balance Sheets is as follows: Other current assets: Marketable securities restricted in Rabbi Trust Other Total Other non-current assets: Corporate-owned life insurance policies Marketable securities restricted in Rabbi Trust Other Total Accrued liabilities: Salaries, wages, and related benefits SERP obligations BEP obligations Other employee benefit obligations Restructuring liabilities Accrued income tax provision Other taxes payable Other Total Other non-current liabilities: BEP obligations Other employee benefit obligations Income taxes payable Restructuring liabilities Other Total The marketable securities included in the table above within "Other current assets" and "Other non-current assets" are maintained in a Rabbi Trust to informally fund the Company's obligations with respect to employee benefit plan obligations under the SERP and Benefits Equalization Plan ("BEP"), which are included within "Accrued liabilities" and "Other non-current liabilities." The corporate-owned life insurance policies included in the table above within "Other non-current assets" represent split-dollar endorsement life insurance policies for which the related benefit obligation is included within "Other non-current liabilities." The Company presents these contracts at their cash surrender value (which is considered fair value), net of policy loans. The Company adjusts the carrying value of these contracts to the cash surrender value at the end of each reporting period. Such periodic adjustments are included in "Other expenses (income), net" within the accompanying Condensed Consolidated Statements of Operations. Additional information with respect to the Company's marketable securities, corporate-owned life insurance policies, and employee benefit plans obligations is provided in the Company's Annual Report on Form 10-K for the year ended March 31, 2011. The accrued income tax provision in the table above reflects the tax effect on the gain on the sale of TSG, which was computed in accordance with the FASB's authoritative guidance on income tax accounting and recorded in the second quarter of fiscal 2012.
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6 Months Ended Fair Value Measurements [Abstract] Fair Value Measurements
Fair value measurement used
Recorded value
as of
September 30, 2011
Active markets
for identical assets
or liabilities
(Level 1)
Quoted prices in
similar instruments
and observable
inputs (Level 2)
Active markets
for unobservable
inputs
(Level 3)
$
11,317
$
11,317
$
—
$
—
3,437
—
—
3,437
$
3,173
$
—
$
3,173
$
—
Fair value measurement used
Recorded value
as of
March 31, 2011
Active markets
for identical assets
or liabilities
(Level 1)
Quoted prices in
similar instruments
and observable
inputs (Level 2)
Active markets
for unobservable
inputs
(Level 3)
$
5,791
$
5,791
$
—
$
—
7,950
7,950
—
—
3,323
—
—
3,323
$
5,629
$
—
$
5,629
$
—
Six months ended
September 30
2011
2010
$
3,323
$
16,095
68
1,764
—
—
46
746
—
—
—
—
—
(2,248
)
$
3,437
$
16,357
Fair value measurement used
Recorded value
as of
September 30, 2011
Active markets
for identical assets
or liabilities
(Level 1)
Quoted prices in
similar instruments
and observable
inputs (Level 2)
Active markets
for unobservable
inputs
(Level 3)
$
15,104
$
—
$
—
$
15,104
21,962
—
—
21,962
$
5,736
$
—
$
—
$
5,736
116
—
—
116
3,433
—
—
3,433
1,018
—
—
1,018
305
—
—
305
Fair value measurement used
Recorded value
as of
March 31, 2011
Active markets
for identical assets
or liabilities
(Level 1)
Quoted prices in
similar instruments
and observable
inputs (Level 2)
Active markets
for unobservable
inputs
(Level 3)
$
15,211
$
—
$
—
$
15,211
22,535
—
—
22,535
$
5,675
$
—
$
—
$
5,675
116
—
—
116
475
—
—
475
258
—
—
258
305
—
—
305
Six months ended September 30, 2011
Goodwill
Intangible
assets
SERP
obligations
Other employee
benefit plans
obligations
Restructuring
liabilities
$
15,211
$
22,535
$
5,675
$
421
$
733
—
—
—
—
—
(107
)
—
—
—
—
—
959
61
—
4,716
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(998
)
—
(1,532
)
—
—
—
$
15,104
$
21,962
$
5,736
$
421
$
4,451
Six months ended September 30, 2010
Goodwill
Intangible
assets
SERP
obligations
Other employee
benefit plans
obligations
Restructuring
liabilities
$
15,010
$
23,755
$
8,412
$
454
$
1,938
—
(59
)
383
—
—
156
—
(596
)
—
—
—
965
761
—
403
—
—
—
—
—
—
—
—
—
—
—
—
(2,504
)
(35
)
(1,240
)
—
(1,365
)
—
—
—
$
15,166
$
23,296
$
6,456
$
419
$
1,101
6 Months Ended Stock Based Compensation [Abstract] Stock Based Compensation
Number
of
Options
Weighted -Average
Exercise
Price
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(per share)
(in years)
1,867,501
$
11.74
—
—
(290,000
)
3.22
—
—
(50,000
)
14.43
1,527,501
$
13.26
3.6
$
852
Six months
ended
September 30, 2011
Six months
ended
September 30, 2010
$
—
$
206
$
—
$
532
$
1,625
$
—
Six months ended
September 30
2011
2010
0
%
0
%
2.09
%
1.94
%
4.5
4.5
80.75
%
81.92
%
Number
of
Rights
Weighted -Average
Exercise
Price
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(per right)
(in years)
1,317,684
$
6.50
266,450
7.42
(473,867
)
6.33
(5,054
)
7.42
(41,733
)
6.41
1,063,480
$
6.80
5.5
$
510
788,084
$
6.55
4.1
$
510
Three months ended
September 30
Six months ended
September 30
2011
2010
2011
2010
$
246
$
466
$
1,469
$
844
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
1,064
$
—
$
1,135
$
189
$
—
$
—
$
2,807
$
—
Number
of
shares
Weighted -Average
Grant-Date
Fair Value
35,000
$
8.18
142,835
$
7.42
(39,000
)
$
7.61
(3,167
)
$
7.42
135,668
$
7.56
Three months ended
September 30
Six months ended
September 30
2011
2010
2011
2010
$
271
$
200
$
417
$
271
$
120
$
—
$
290
$
—
Number
of
shares
Weighted -Average
Grant-Date
Fair Value
(per share)
49,438
$
6.83
—
—
(49,438
)
6.83
—
—
—
$
—
Three months ended
September 30
Six months ended
September 30
2011
2010
2011
2010
$
—
$
58
$
103
$
116
$
—
$
—
$
337
$
539
6 Months Ended Summary Of Significant Accounting Policies [Abstract] Summary Of Significant Accounting Policies
6 Months Ended Additional Balance Sheet Information [Abstract] Additional Balance Sheet Information
September 30, 2011
March 31, 2011
$
11,317
$
5,791
16
553
$
11,333
$
6,344
$
3,437
$
3,323
—
7,950
629
436
$
4,066
$
11,709
$
4,950
$
4,943
5,736
5,675
3,173
—
116
116
3,433
475
4,421
—
1,333
1,226
3,942
2,159
$
27,104
$
14,594
$
—
$
5,629
305
305
3,385
4,337
1,018
258
1,745
1,443
$
6,453
$
11,972
In Thousands, except Share data3 Months Ended 6 Months Ended Net sales: Products $ 27,094 $ 24,664 $ 55,879 $ 48,156 Services 26,494 24,662 51,595 47,957 Total net sales 53,588 49,326 107,474 96,113 Cost of goods sold: Products 20,605 19,721 43,966 36,549 Services 11,367 11,843 22,365 22,844 Total cost of goods sold 31,972 31,564 66,331 59,393 Gross margin 21,616 17,762 41,143 36,720 Operating expenses: Selling, general, and administrative expenses 24,460 24,347 48,563 47,450 Asset impairment charges 59 59 Restructuring charges 2,370 10 4,716 403 Operating loss (5,214) (6,654) (12,136) (11,192) Other expenses (income): Other expenses (income), net 308 (856) 271 (1,959) Interest income (17) (17) (49) (40) Interest expense 539 278 877 563 Loss from continuing operations before income taxes (6,044) (6,059) (13,235) (9,756) Income tax (benefit) expense (2,806) (1,143) (4,557) 3,452 Loss from continuing operations (3,238) (4,916) (8,678) (13,208) Income from discontinued operations, net of taxes (10,487) (2,702) (11,138) (742) Net income (loss) $ 7,249 $ (2,214) $ 2,460 $ (12,466) (Loss) income per share - basic and diluted: Loss from continuing operations $ (0.14) $ (0.22) $ (0.38) $ (0.58) Income from discontinued operations $ 0.46 $ 0.12 $ 0.49 $ 0.03 Net income (loss) $ 0.32 $ (0.10) $ 0.11 $ (0.55) Weighted average shares outstanding: Basic and diluted 22,853,057 22,750,474 22,902,872 22,750,254