UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

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
(Registrant’s 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark 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 o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

The number of Common Shares of the registrant outstanding as of October 29, 2010 was 23,041,111.

 

 

AGILYSYS, INC.

Index

Part I. Financial Information
Item 1 Financial Statements			3
Condensed Consolidated Statements of Operations (Unaudited) — Three and Six Months Ended September 30, 2010 and 2009			3
Condensed Consolidated Balance Sheets — September 30, 2010 (Unaudited) and March 31, 2010			4
Condensed Consolidated Statements of Cash Flows (Unaudited) — Six Months Ended September 30, 2010 and 2009			5
Notes to Condensed Consolidated Financial Statements (Unaudited) — September 30, 2010			6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3 Quantitative and Qualitative Disclosures About Market Risk			40
Item 4 Controls and Procedures			40
Part II. Other Information
Item 1 Legal Proceedings			40
Item 1A Risk Factors			40
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 3 Defaults Upon Senior Securities			40
Item 4 [Removed and Reserved]			40
Item 5 Other Information			41
Item 6 Exhibits			41
Signatures			42
EX-10.A
EX-10.B
EX-10.C
EX-31.1
EX-31.2
EX-31.3
EX-32.1
EX-32.2
EX-32.3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three months ended								Six months ended
		September 30								September 30
(In thousands, except share and per share data)		2010				2009				2010				2009
Net sales:
Products		$	151,230			$	126,811			$	255,359			$	231,234
Services			32,582				29,362				60,896				54,943
Total net sales			183,812				156,173				316,255				286,177
Cost of goods sold:
Products			128,893				99,508				215,570				184,919
Services			14,134				12,791				26,034				25,534
Total cost of goods sold			143,027				112,299				241,604				210,453
Gross margin			40,785				43,874				74,651				75,724
Operating expenses:
Selling, general, and administrative expenses			43,473				40,033				83,538				84,840
Asset impairment charges			59				—				59				—
Restructuring charges			10				54				403				68
Operating (loss) income			(2,757	)			3,787				(9,349	)			(9,184	)
Other (income) expenses:
Other income, net			(873	)			(316	)			(1,956	)			(1,071	)
Interest income			(17	)			(3	)			(40	)			(26	)
Interest expense			278				230				564				429
(Loss) income before income taxes			(2,145	)			3,876				(7,917	)			(8,516	)
Income tax expense			69				988				4,549				1,003
(Loss) income from continuing operations			(2,214	)			2,888				(12,466	)			(9,519	)
Loss from discontinued operations, net of taxes			—				(52	)			—				(41	)
Net (loss) income		$	(2,214	)		$	2,836			$	(12,466	)		$	(9,560	)
(Loss) income per share — basic:
(Loss) income from continuing operations		$	(0.10	)		$	0.13			$	(0.55	)		$	(0.42	)
Loss from discontinued operations			—				—				—				—
Net (loss) income		$	(0.10	)		$	0.13			$	(0.55	)		$	(0.42	)
(Loss) income per share — diluted:
(Loss) income from continuing operations		$	(0.10	)		$	0.12			$	(0.55	)		$	(0.42	)
Loss from discontinued operations			—				—				—				—
Net (loss) income		$	(0.10	)		$	0.12			$	(0.55	)		$	(0.42	)
Weighted average shares outstanding:
Basic			22,750,474				22,625,654				22,750,254				22,626,491
Diluted			22,750,474				22,879,030				22,750,254				22,626,491
Cash dividends per share		$	—			$	0.03			$	—			$	0.06

See accompanying notes to condensed consolidated financial statements.

AGILYSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts at September 30, 2010 are unaudited)

		September 30,				March 31,
(In thousands, except share and per share data)		2010				2010
ASSETS
Current assets:
Cash and cash equivalents		$	39,073			$	65,535
Accounts receivable, net of allowances of $2,093 and $1,716, respectively			157,627				104,808
Inventories, net			22,555				14,446
Deferred income taxes — current, net			—				144
Prepaid expenses and other current assets			3,851				5,047
Income taxes receivable			10,268				10,394
Total current assets			233,374				200,374
Goodwill			50,557				50,418
Intangible assets, net of accumulated amortization of $58,492 and $55,806, respectively			30,789				32,510
Deferred income taxes — non-current, net			—				899
Other non-current assets			17,866				18,175
Property and equipment:
Furniture and equipment			40,878				40,299
Software			49,099				41,864
Leasehold improvements			9,703				9,699
Project expenditures not yet in use			2,440				7,025
			102,120				98,887
Accumulated depreciation and amortization			74,986				70,892
Property and equipment, net			27,134				27,995
Total assets		$	359,720			$	330,371
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	103,725			$	70,171
Deferred revenue			25,907				23,810
Accrued liabilities			18,066				17,705
Deferred income taxes — current, net			303				—
Capital lease obligations — current			492				311
Total current liabilities			148,493				111,997
Deferred income taxes — non-current, net			3,530				412
Other non-current liabilities			19,576				19,038
Commitments and contingencies (see Note 10)
Shareholders’ equity
Common shares, without par value, at $0.30 stated value; 80,000,000 shares authorized; 31,606,831 shares issued; and 23,011,111 and 22,932,043 shares outstanding at September 30, 2010 and March 31, 2010, respectively			9,482				9,482
Treasury shares (8,595,720 at September 30, 2010 and 8,674,788 at March 31, 2010)			(2,578	)			(2,602	)
Capital in excess of stated value			(7,222	)			(8,770	)
Retained earnings			189,668				202,134
Accumulated other comprehensive loss			(1,229	)			(1,320	)
Total shareholders’ equity			188,121				198,924
Total liabilities and shareholders’ equity		$	359,720			$	330,371

See accompanying notes to condensed consolidated financial statements.

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Six months ended
		September 30
(In thousands)		2010				2009
Operating activities
Net loss		$	(12,466	)		$	(9,560	)
Add: Loss from discontinued operations			—				41
Loss from continuing operations			(12,466	)			(9,519	)
Adjustments to reconcile loss from continuing operations to net cash (used for) provided by operating activities:
Gain on the redemption of Company-owned life insurance policies			(2,065	)			—
Gain on the redemption of investment in The Reserve Fund’s Primary Fund			(147	)			(70	)
Asset impairment charges			59				—
Loss on the sale of securities			—				91
Depreciation			2,024				1,891
Amortization			4,949				7,827
Deferred income taxes			4,429				(38	)
Stock based compensation			1,760				1,073
Change in cash surrender value of Company-owned life insurance policies			618				(699	)
Changes in operating assets and liabilities:
Accounts receivable			(52,847	)			28,338
Inventories			(8,103	)			5,234
Accounts payable			33,619				64,821
Accrued and other liabilities			2,146				(16,468	)
Income taxes payable (receivable)			120				(798	)
Other changes, net			922				(889	)
Other non-cash adjustments, net			644				77
Total adjustments			(11,872	)			90,390
Net cash (used for) provided by operating activities			(24,338	)			80,871
Investing activities
Proceeds from The Reserve Fund’s Primary Fund			147				2,337
Proceeds from redemption of/borrowings against Company-owned life insurance policies			2,248				12,500
Additional investments in Company-owned life insurance policies			(746	)			(1,176	)
Proceeds from the sale of marketable securities			14				42
Additional investments in marketable securities			—				(45	)
Purchases of software, property, and equipment			(3,616	)			(5,923	)
Net cash (used for) provided by investing activities			(1,953	)			7,735
Financing activities
Floor plan financing agreement, net			—				(74,468	)
Proceeds from borrowings under credit facility			15,325				5,000
Principal payments under credit facility			(15,325	)			(5,000	)
Debt financing costs			—				(1,520	)
Issuance of common shares			—				33
Dividends paid			—				(1,360	)
Principal payments under long-term obligations			(308	)			(206	)
Net cash used for financing activities			(308	)			(77,521	)
Effect of exchange rate changes on cash			137				664
Cash flows (used for) provided by continuing operations			(26,462	)			11,749
Cash flows of discontinued operations:
Operating cash flows			—				204
Net (decrease) increase in cash			(26,462	)			11,953
Cash at beginning of the period			65,535				36,244
Cash at end of the period		$	39,073			$	48,197

See accompanying notes to condensed consolidated financial statements.

AGILYSYS, INC.
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”) provides innovative information technology (“IT”) solutions to corporate and public-sector customers with special expertise in select vertical markets, including retail, hospitality, and technology solutions. The Company operates extensively in North America with additional sales and support offices in the United Kingdom and in Asia.

The Company operates in three reportable business segments: Hospitality Solutions Group (“HSG”), Retail Solutions Group (“RSG”), and Technology Solutions Group (“TSG”). Additional information regarding the Company’s reportable business segments are described in Note 13 to Condensed Consolidated Financial Statements.

The significant accounting policies applied in preparing the Company’s unaudited condensed consolidated financial statements are summarized below:

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 2011 refers to the fiscal year ending March 31, 2011.

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, 2010, as well as the Condensed Consolidated Statements of Operations for the three- and six-month periods ended September 30, 2010 and 2009, and the Condensed Consolidated Statements of Cash Flows for the six-month periods ended September 30, 2010 and 2009, 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, 2010, filed with the Securities and Exchange Commission (“SEC”) on June 10, 2010.

The Company experiences a disproportionately large percentage of quarterly sales in the last month of its fiscal quarters. In addition, the Company experiences a seasonal increase in sales during its fiscal third quarter ending December 31^st. Accordingly, the results of operations for the three and six months ended September 30, 2010 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 (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 (no impact on income from continuing operations or cash flows (used for) provided by 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 Staff Accounting Bulletin 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.

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, 2010, 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.

Benefit Plans

Effective September 7, 2009, the Company suspended employer matching contributions to The Retirement Plan of Agilysys, Inc., which is the Company’s 401(k) plan, and the Agilysys, Inc. Benefits Equalization Plan (“BEP”), as part of cost reduction initiatives implemented during the second quarter of fiscal 2010. The Company announced that it intends to resume making matching contributions to these defined contribution retirement plans effective January 1, 2011.

Credit Facility

The Company maintains a $50.0 million asset based revolving credit agreement (“Credit Facility”) with Bank of America, N.A. (the “Lender”), which may be increased to $75.0 million by a $25.0 million “accordion provision” for borrowings and letters of credit and will mature on May 5, 2012. The Company had no amounts outstanding under the Credit Facility as of September 30, 2010 and $49.9 million was available for future borrowings. The Company was in compliance with all covenants under the Credit Facility in order to borrow up to the maximum $49.9 million available as of September 30, 2010. However, subsequent to September 30,

2010, the Company was and still would be limited to borrowing no more than $34.9 million under the Credit Facility in order to maintain compliance with the fixed charge coverage ratio as defined in the 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, 2010, filed with the SEC. Except as discussed in the Company’s fiscal 2010 Annual Report, there were no changes to the Credit Facility since it was executed on May 5, 2009.

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. 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 14 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.

Recently Issued Accounting Standards

In October 2009, the FASB issued authoritative guidance on revenue arrangements with multiple deliverable elements, 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 is currently evaluating the impact that this guidance will have on its 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 is currently evaluating the impact that this guidance will have on its financial position, results of operations, cash flows, or related disclosures.

Proposed Accounting Standards

In August 2010, the FASB issued proposed authoritative guidance on lease accounting. This proposal effectively eliminates off-balance sheet accounting for all leases by eliminating the concepts of capital and operating leases. This proposed guidance would require all leased assets and lease obligations to be recognized

in financial statements. In addition, expense recognition will be accelerated under the proposed guidance because straight-line rent expense will be replaced by amortization and interest expense. Comments on the proposed guidance are due by December 15, 2010 and there is currently no specified effective date for the proposal. The Company is currently in the process of identifying the anticipated impact this proposed guidance would have on its future financial position, results of operations, cash flows, and related disclosures.

In July 2010, the FASB also issued revised proposed authoritative guidance on loss contingency disclosures, with a focus on providing financial statement users with enhanced information about loss contingencies. The proposed guidance would: (1) expand the scope of loss contingencies subject to disclosure to include certain remote contingencies; (2) increase the quantitative and qualitative disclosures entities must provide to enable users to assess the “nature, potential magnitude, and potential timing (if known)” of loss contingencies; and (3) for public entities, require a tabular reconciliation for changes in amounts recognized for loss contingencies. Comments on the proposed guidance were due by September 20, 2010. On October 27, 2010, the FASB announced that the expanded disclosure requirements would not be required in 2010 (fiscal 2011 for the Company) and there is currently no specified effective date for the proposal. The Company is currently in the process of determining the anticipated impact of this proposed guidance on its future 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. Recent Acquisition

The Company allocates the cost of its acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the cost over the fair value of the identified net assets acquired is recorded as goodwill. Additional information with respect to the Company’s acquisitions is included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010.

Triangle Hospitality Solutions Limited

As previously disclosed, on April 9, 2008, the Company acquired all of the shares of Triangle Hospitality Solutions Limited (“Triangle”), the UK-based reseller and specialist for the Company’s InfoGenesis products and services, for $2.7 million, comprised of $2.4 million in cash and $0.3 million of assumed liabilities. Based on management’s preliminary allocations of the acquisition cost to the net assets acquired (accounts receivable, inventory, and accounts payable), approximately $2.7 million was originally assigned to goodwill. In the third quarter of fiscal 2009, a purchase price adjustment to increase goodwill by $0.4 million was recorded. In the first quarter of fiscal 2010, the Company completed the allocation of acquisition costs to the net assets acquired, which resulted in an increase to goodwill of $0.1 million, net of currency translation adjustments. At September 30, 2010, the goodwill attributed to the Triangle acquisition was $3.0 million. Goodwill resulting from the Triangle acquisition is deductible for income tax purposes.

4. Discontinued Operations

China and Hong Kong Operations

As previously disclosed, in July 2008, the Company decided to discontinue its TSG operations in China and Hong Kong. In January 2009, the Company sold the stock related to TSG’s China operations and certain assets of TSG’s Hong Kong operations, receiving proceeds of $1.4 million, which resulted in a pre-tax loss on the sale of discontinued operations of $0.8 million. The remaining unsold assets and liabilities related to TSG’s Hong Kong operations, which primarily consist of amounts associated with service and maintenance agreements, were substantially settled as of March 31, 2010. The discontinued operations presented on the Company’s Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2009 consisted of losses of $52,000 and $41,000, respectively, both net of taxes of zero, from the remaining operations of TSG’s Hong Kong operations. Additional information with respect to the Company’s

discontinued operations is included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010.

5. Comprehensive Loss

Comprehensive loss is the total of net (loss) income as currently reported under GAAP plus other comprehensive (loss) income. Other comprehensive (loss) income 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, 2010 and 2009 are as follows:

		Foreign				Unamortized net
		currency				actuarial losses
		translation				and prior service				Accumulated other				Comprehensive
		adjustment				costs				comprehensive loss				(loss) income
Balance at April 1, 2010		$	(664	)		$	(656	)		$	(1,320	)
Change during the three months ended June 30, 2010			(204	)			57				(147	)			(147	)
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	)

										Unamortized net
		Foreign currency								actuarial losses
		translation				Unrealized loss on				and prior service				Accumulated other				Comprehensive
		adjustment				securities				costs				comprehensive loss				income (loss)
Balance at April 1, 2009		$	(1,984	)		$	(91	)		$	(815	)		$	(2,890	)
Change during the three months ended June 30, 2009			731				—				—				731				731
Balance at June 30, 2009		$	(1,253	)		$	(91	)		$	(815	)		$	(2,159	)
Net loss for the three months ended June 30, 2009																			(12,396	)
Change during the three months ended September 30, 2009			362				104				—				466				466
Balance at September 30, 2009		$	(891	)		$	13			$	(815	)		$	(1,693	)
Net income for the three months ended September 30, 2009																			2,836
Total comprehensive loss for the six months ended September 30, 2009																		$	(8,363	)

6. 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, 2010.

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. During the first half of fiscal 2010, the Company recorded insignificant additional restructuring charges associated with ongoing facility lease obligations. The additional restructuring charges recorded in fiscal 2011 and fiscal 2010 related to the previously disclosed restructuring actions taken in fiscal 2009.

Since fiscal 2009, the Company has incurred charges totaling $42.0 million related to restructuring actions disclosed, comprised of $0.4 million, $0.8 million, and $40.8 million in fiscal years 2011, 2010, and 2009, respectively. Approximately $23.5 million of these restructuring charges related to TSG, with the remaining $18.5 million related to Corporate/Other. The Company expects to incur additional restructuring charges related to previously announced restructuring actions of approximately $0.5 million for the remainder of fiscal 2011 and through 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.

The following table presents a reconciliation of the beginning and ending balances of the Company’s restructuring liabilities:

		Severance and
		other employment
		costs				Facilities				SERP				Total
Balance at April 1, 2010		$	1,289			$	649			$	—			$	1,938
Additions			—				(5	)			383				378
Accretion of lease obligations			—				15				—				15
Settlement of benefit plan obligations			—				—				(383	)			(383	)
Payments			(368	)			(60	)			—				(428	)
Balance at June 30, 2010			921				599				—				1,520
Additions			—				(5	)			—				(5	)
Accretion of lease obligations			—				15				—				15
Payments			(370	)			(59	)			—				(429	)
Balance at September 30, 2010		$	551			$	550			$	—			$	1,101

These liabilities are recorded within “Accrued liabilities” and “Other non-current liabilities” in the accompanying Condensed Consolidated Balance Sheets. Of the remaining $1.1 million liability at September 30, 2010, $0.2 million of severance and other employment costs are expected to be paid during fiscal 2011 and $0.3 million is expected to be paid during fiscal 2012. Approximately $0.1 million is expected to be paid during the remainder of fiscal 2011 for ongoing facility lease obligations. Facility lease obligations are expected to continue through fiscal 2014.

7. Stock Based Compensation

The Company has a shareholder-approved 2006 Stock Incentive Plan (the “2006 Plan”). Under the 2006 Plan, the Company may grant stock options, stock appreciation rights, restricted shares, restricted share units, and performance shares for up to 3.2 million common shares. The maximum aggregate number of restricted shares, restricted share units, and performance shares that may be granted under the 2006 Plan is 1.6 million. The aggregate number of shares underlying all awards granted under the 2006 Plan in any two consecutive fiscal year period may not exceed 1.6 million shares plus the aggregate number of shares underlying awards previously cancelled, terminated, or forfeited. For stock option awards, 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 option awards is 10 years from the date of grant. Stock option awards vest over a period established by the Compensation Committee of the Board of Directors. Stock appreciation rights may be granted in conjunction with, or independently from, a stock option granted under the 2006 Plan. Stock appreciation rights, 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 stock appreciation rights terminate upon the termination or exercise of the related stock option. The maximum term of stock appreciation rights awards is 10 years. Restricted shares, restricted share units, and performance shares 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. Subject to individual

award agreements, restricted shares have the right to receive dividends, if any, subject to the same forfeiture provisions that apply to the underlying awards. Performance share awards may be granted, where the right to receive shares in the future is conditioned upon the attainment of specified performance objectives and such other conditions, restrictions, and contingencies. Performance shares have the right to receive dividends, if any, subject to the same forfeiture provisions that apply to the underlying awards. The Company may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards. As of September 30, 2010, there were no restricted share units awarded from the 2006 Plan.

Stock Options

The following table summarizes the activity for the six months ended September 30, 2010 and 2009 for stock options awarded by the Company under the 2006 Plan and prior plans:

		Six months ended September 30
		2010								2009
						Weighted								Weighted
						average								average
		Number of				exercise				Number of				exercise
		shares				price				shares				price
Outstanding at April 1			2,000,000			$	11.65				2,157,165			$	11.63
Granted			—				—				—				—
Exercised			—				—				(13,333	)			2.51
Cancelled/expired			(27,499	)			13.74				(113,831	)			14.29
Forfeited			—				—				—				—
Outstanding at September 30			1,972,501			$	11.62				2,030,001			$	11.54
Options exercisable at September 30			1,972,501			$	11.62				1,511,654			$	13.44

Compensation expense recorded within “Selling, general and administrative” expenses in the accompanying Condensed Consolidated Statements of Operations for stock options during the three and six months ended September 30, 2010 was zero and $0.3 million, respectively. Compensation expense recorded for stock options during the three and six months ended September 30, 2009 was $0.1 million and $0.2 million, respectively. 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 does not have any remaining unrecognized stock based compensation expense related to non-vested stock options.

The following table summarizes the status of stock options outstanding at September 30, 2010:

		Options outstanding and exercisable
										Weighted average
						Weighted				remaining
						average				contractual
Exercise price range		Number				exercise price				life (in years)
$2.19 —$8.29			491,667			$	2.57				8.16
$8.30 — $9.95			253,500				9.34				5.47
$9.96 — $11.61			30,000				11.17				0.81
$11.62 — $13.26			47,500				12.85				1.83
$13.27 — $14.92			303,000				13.79				3.88
$14.93 — $16.58			708,834				15.66				5.70
$16.59 — $22.21			138,000				22.21				6.64
			1,972,501			$	11.62				5.90

Stock-Settled Stock Appreciation Rights

Stock-Settled 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 following table summarizes the activity during the six months ended September 30, 2010 and 2009 for SSARs awarded by the Company under the 2006 Plan:

		Six months ended September 30
		2010								2009
						Weighted								Weighted
						average								average
		Number of				exercise				Number of				exercise
		rights				price				rights				price
Outstanding at April 1			505,150			$	6.92				—			$	—
Granted			902,400				6.20				496,150				6.69
Exercised			(16,499	)			6.29				—				—
Cancelled/expired			(833	)			6.83				—				—
Forfeited			(1,667	)			6.83				(4,000	)			6.83
Outstanding at September 30			1,388,551			$	6.46				492,150			$	6.69
SSARs exercisable at September 30			139,248			$	6.79				—			$	—

A total of 4,935 shares, net of 2,463 shares withheld to cover the employee’s applicable income taxes, were issued from treasury shares to settle SSARs exercised during the first half of fiscal 2011.

The following table summarizes the status of SSARs outstanding at September 30, 2010:

		Number				Number				Remaining contractual
Exercise price range		SSARs outstanding				SSARs exercisable				life (in years)
$4.62			8,000				—				5.73
$4.71			8,000				2,666				5.83
$6.20			902,400				—				6.69
$6.83			435,151				136,582				5.64
$9.35			35,000				—				9.22
			1,388,551				139,248				6.41

Compensation expense recorded within “Selling, general and administrative” expenses in the accompanying Condensed Consolidated Statements of Operations for SSARs was $0.5 million and $0.2 million for the three months ended September 30, 2010 and 2009, respectively. Compensation expense recorded for SSARs was $1.0 million and $0.5 million for the six months ended September 30, 2010 and 2009, respectively. As of September 30, 2010, total unrecognized stock based compensation expense related to non-vested SSARs was $2.3 million, which is expected to be recognized over the vesting period, which is a weighted-average period of 17 months.

The fair market value of each SSAR granted is estimated on the grant date using the Black-Scholes-Merton option pricing model. The following assumptions were made in estimating fair value of the SSARs granted during the six months ended September 30, 2010 and 2009:

		Six months ended September 30
		2010				2009
Dividend yield			0	%			1.32% — 1.57	%
Risk-free interest rate			1.94	%			1.81% — 2.09	%
Expected life (years)			4.5				4.5
Expected volatility			81.92	%			78.05% — 79.24	%
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 equals the option’s expected term. The expected term reflects employee-specific future exercise expectations and historical exercise patterns, as appropriate. The expected volatility is based on historical volatility of the Company’s common shares. 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 fair market value of SSARs granted during the six months ended September 30, 2010 was $3.92 per SSAR.
Restricted Shares
The Company granted shares to certain of its Directors and executives under the 2006 Plan, the vesting of which is service-based. The following table summarizes the activity during the six months ended September 30, 2010 and 2009 for restricted shares awarded by the Company:
		Six months ended September 30
		2010				2009
Outstanding at April 1			25,000				12,000
Granted			90,321				87,557
Vested			—				—
Forfeited			—				—
Outstanding at September 30			115,321				99,557

Compensation expense related to restricted share awards is recognized over the restriction period based upon the closing market price of the Company’s common shares on the grant date. Compensation expense recorded within “Selling, general and administrative” expenses in the accompanying Condensed Consolidated Statements of Operations for restricted share awards was $0.2 million and $0.1 million for the three months ended September 30, 2010 and 2009, respectively. Compensation expense recorded for restricted share awards was $0.3 million for each of the six months ended September 30, 2010 and 2009. As of September 30, 2010, there was $0.5 million of total unrecognized compensation cost related to restricted share awards, which is expected to be recognized over a weighted-average period of 16 months. The Company will not include restricted shares in the calculation of earnings per share until they are earned.

The fair market value of restricted shares is determined based on the closing price of the Company’s common shares on the grant date.

Performance Shares

The Company granted shares to certain of its executives under the 2006 Plan, the earning of which was contingent upon meeting various company-wide performance goals as of March 31, 2010. The earned performance shares vest over three years. The fair value of the performance share grant 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. Once attaining the performance goals becomes probable, compensation expense is recognized on a straight-line basis over the vesting period. If such goals are not met, no compensation cost will be recognized and any compensation cost previously recognized during the vesting period will be reversed. The Company will not include performance shares in the calculation of earnings per share until they are vested.

The net compensation expense was recorded within “Selling, general and administrative” expenses in the accompanying Condensed Consolidated Statements of Operations. During the three months ended September 30, 2010, compensation expense related to performance shares was $0.1 million. As a result of changes in the expected attainment in performance goals related to performance shares granted in fiscal 2010, a credit to compensation expense of $0.1 million was recorded during the three months ended September 30, 2009. Compensation expense related to performance share awards was $0.2 million and $0.1 million during the six months ended September 30, 2010 and 2009, respectively. No performance shares were granted during the first half of fiscal 2011. As of September 30, 2010, there was $0.3 million in unrecognized compensation cost related to the May 22, 2009 performance share awards, the vesting of which is solely based on service requirements. This unrecognized compensation cost is expected to be recognized over the weighted-average vesting period of 14 months.

The following table summarizes the activity during the six months ended September 30, 2010 and 2009 for performance shares awarded by the Company under the 2006 Plan:

		Six months ended
		September 30
		2010				2009
Outstanding at April 1			160,548				40,000
Granted			—				306,500
Vested			(52,980	)			—
Forfeited			—				—
Outstanding at September 30			107,568				346,500

8. Income Taxes

The effective tax rates from continuing operations for the three and six months ended September 30, 2010 and 2009 were as follows:

		Three months ended								Six months ended
		September 30								September 30
		2010				2009				2010				2009
Effective income tax rate			(3.2	)%			25.5	%			(57.5	)%			(11.8	)%

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 2011, the effective tax rate was different than the statutory rate due primarily to the 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 during the first quarter of fiscal 2011, as more fully described in Note 1 to the 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. For the second quarter and first half of fiscal 2010, the effective tax rate for continuing operations was lower than the statutory rate due primarily to the 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 prior year include state tax expense as well as a discrete item related to an increase to unrecognized tax benefits.

The Company anticipates the completion of a state income tax audit in the next 12 months which could reduce the accrual for unrecognized tax benefits by $0.5 million. The Company is routinely audited and is currently under examination by the Internal Revenue Service (“IRS”) for the tax years ended March 31, 2009, 2008, and 2007 and by the Canada Revenue Agency (“CRA”) for the tax years ended March 31, 2005 and 2004. 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.

9. (Loss) Earnings Per Share

The following data show the amounts used in computing (loss) earnings per share and the effect on income and the weighted average number of dilutive potential common shares:

		Three months ended								Six months ended
		September 30								September 30
		2010				2009				2010				2009
Numerator:
(Loss) income from continuing operations — basic and diluted		$	(2,214	)		$	2,888			$	(12,466	)		$	(9,519	)
Loss from discontinued operations — basic and diluted			—				(52	)			—				(41	)
Net (loss) income — basic and diluted		$	(2,214	)		$	2,836			$	(12,466	)		$	(9,560	)
Denominator:
Weighted average shares outstanding — basic			22,750				22,626				22,750				22,626
Effect of dilutive securities:
Share-based compensation awards			—				253				—				—
Weighted average shares outstanding — diluted			22,750				22,879				22,750				22,626
(Loss) per share — basic:
(Loss) income from continuing operations		$	(0.10	)		$	0.13			$	(0.55	)		$	(0.42	)
Loss from discontinued operations			—				—				—				—
Net (loss) income		$	(0.10	)		$	0.13			$	(0.55	)		$	(0.42	)
(Loss) income per share — diluted:
(Loss) income from continuing operations		$	(0.10	)		$	0.12			$	(0.55	)		$	(0.42	)
Loss from discontinued operations			—				—				—				—
Net (loss) income		$	(0.10	)		$	0.12			$	(0.55	)		$	(0.42	)

Basic (loss) earnings 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 223,532, and 406,498 of restricted shares and performance shares (including reinvested dividends) at September 30, 2010 and 2009, respectively, 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 (loss) earnings per share is computed by sequencing each series of potential issuance of common shares from the most dilutive to the least dilutive. Diluted (loss) earnings 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. Therefore, for the three months ended September 30, 2010 and each of the six months ended September 30, 2010 and 2009, 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, 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. For the three and six months ended September 30, 2009, stock options and SSARs on 1.8 million

common shares and 2.5 million common shares, respectively, 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 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, 2010, the Company’s expected to reach its minimum purchase commitments from a vendor of $330.0 million per year through fiscal 2012, as disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010.

11. Investment in Magirus — Sold in November 2008

In November 2008, the Company sold its 20% ownership interest in Magirus AG (“Magirus”), a privately owned European enterprise computer systems distributor headquartered in Stuttgart, Germany, for $2.3 million. In July 2008, the Company also received a dividend from Magirus of $7.3 million related to Magirus’ fiscal 2008 sale of a portion of its distribution business. As a result, the Company received total proceeds of $9.6 million from Magirus during the fiscal year ended March 31, 2009. Prior to March 31, 2008, the Company decided to sell its 20% investment in Magirus. Therefore, the Company classified its ownership interest in Magirus as an investment held for sale until it was sold.

On April 1, 2008, the Company began to account for its investment in Magirus using the cost method, rather than the equity method of accounting. The Company changed to the cost method because management did not have the ability to exercise significant influence over Magirus, which is one of the requirements contained in the FASB authoritative guidance that is necessary in order to account for an investment in common stock under the equity method of accounting.

Because of the Company’s inability to obtain and include audited financial statements of Magirus for the fiscal years ended March 31, 2008 and 2007 as required by Rule 3-09 of Regulation S-X, the SEC previously stated that it will not permit effectiveness of any new securities registration statements or post-effective amendments, if any, until such time as the Company files audited financial statements that reflect the disposition of Magirus or the Company requests, and the SEC grants, relief to the Company from the requirements of Rule 3-09 of Regulation S-X. As part of this restriction, the Company is not currently permitted to file any new securities registration statements that are intended to automatically go into effect when they are filed, nor can the Company make offerings under effective registration statements or under Rules 505 and 506 of Regulation D where any purchasers of securities are not accredited investors under Rule 501(a) of Regulation D. These restrictions do not apply to the following: offerings or sales of securities upon the conversion of outstanding convertible securities or upon the exercise of outstanding warrants or rights; dividend or interest reinvestment plans; employee benefit plans, including stock option plans; transactions involving secondary offerings; or sales of securities under Rule 144A.

12. Additional Balance Sheet Information

     Additional information related to the Company’s Condensed Consolidated Balance Sheets is as follows:

		September 30, 2010				March 31, 2010
| |
Other non-current assets:
Company-owned life insurance policies		$	16,357			$	15,904
Marketable securities			7				21
Other			1,502				2,250
Total		$	17,866			$	18,175
Accrued liabilities:
Salaries, wages, and related benefits		$	8,593			$	8,248
SERP obligations			—				2,504
Other employee benefit obligations			—				35
Restructuring liabilities			662				1,206
Other taxes payable			6,792				3,170
Other			2,019				2,542
Total		$	18,066			$	17,705
Other non-current liabilities:
BEP obligations		$	4,828			$	4,705
SERP obligations			6,456				5,908
Other employee benefit obligations			419				419
Income taxes payable			5,940				5,879
Restructuring liabilities			439				732
Capital lease obligations			505				384
Other			989				1,011
Total		$	19,576			$	19,038

Other non-current assets in the table above include the cash surrender value of certain Company-owned life insurance policies. These policies are presented net of policy loans and are maintained to informally fund the Company’s employee benefit plan obligations included within “Accrued liabilities” and “Other non-current liabilities” in the table above. The Company adjusts the carrying value of these contracts to the cash surrender value (which is considered fair value) at the end of each reporting period. Such periodic adjustments are included in “Other income, net” within the accompanying Condensed Consolidated Statements of Operations. Additional information with respect to the Company-owned life insurance policies is included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010.

13. Business Segments

Description of Business Segments

The Company has three reportable business segments: HSG, RSG, and TSG. 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.

Beginning in the first quarter of fiscal 2011, the Company allocated certain general and administrative costs related to the accounts receivable and collections, accounts payable, legal, payroll, and benefits functional departments to the reportable business segments in order to provide a better reflection of the costs needed to operate the business segments. Prior period results have been adjusted to conform to the current period presentation.

HSG is a leading technology provider to the hospitality industry, offering application software and services that streamline management of operations, property, and inventory for customers in the gaming, hotel and resort, cruise lines, food management services, and sports and entertainment markets.

RSG is a leader in designing solutions that help make retailers more productive and provide their customers with an enhanced shopping experience. RSG solutions help improve operational efficiency, technology utilization, customer satisfaction, and in-store profitability, including 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.

TSG is a leading provider of IBM, HP, Oracle, EMC², and Hitachi Data Systems enterprise IT solutions for the complex data center needs of customers in a variety of industries — including education, finance, government, healthcare, and telecommunications, among others. The solutions offered include enterprise architecture and high availability, infrastructure optimization, storage and resource management, identity management, and business continuity. In fiscal 2011, along with the implementation of a new Oracle ERP system, the Company re-configured its former IBM, HP, and Sun reporting units into IBM, East, West, and Service Providers (which is primarily comprised of sales to telecommunications and cable company service providers). This change does not have an impact on TSG’s prior period operating results. The TSG reportable business segment is an aggregation of the Company’s IBM, East, West, and Service Providers reporting units due to the similarity of their economic and operating characteristics.

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.

Verizon Communications, Inc. accounted for 32.0% and 42.5% of TSG’s total revenues, and 23.3% and 29.7% of total Company revenues for the three months ended September 30, 2010 and 2009, respectively. Verizon Communications, Inc. accounted for 30.4% and 42.3% of TSG’s total revenues, and 21.1% and 29.4% of total Company revenues for the six months ended September 30, 2010 and 2009, respectively.

The following table presents segment profit and related information for each of the Company’s reportable segments. Please refer to Note 6 to Condensed Consolidated Financial Statements for further information on the Corporate/Other restructuring charges.

		Reportable segments												Corporate/
		HSG				RSG				TSG				Other				Consolidated
Three months ended September 30, 2010
Total revenue		$	20,641			$	29,157			$	134,182			$	—			$	183,980
Elimination of intersegment revenue			(63	)			(105	)			—				—				(168	)
Revenue from external customers		$	20,578			$	29,052			$	134,182			$	—			$	183,812
Gross margin		$	12,216			$	5,547			$	23,022			$	—			$	40,785
Gross margin percentage			59.4	%			19.1	%			17.2	%							22.2	%
Operating income (loss)		$	214			$	1,079			$	4,317			$	(8,367	)		$	(2,757	)
Other income, net			—				—				—				873				873
Interest expense, net			—				—				—				(261	)			(261	)
Income (loss) from continuing operations before income taxes		$	214			$	1,079			$	4,317			$	(7,755	)		$	(2,145	)
Other information:
Capital expenditures		$	391			$	104			$	11			$	1,357			$	1,863
Non-cash charges:
Depreciation and amortization (1)		$	1,071			$	81			$	706			$	1,398			$	3,256
Asset impairment charges			59				—				—				—				59
Restructuring charges			—				—				—				10				10
Total		$	1,130			$	81			$	706			$	1,408			$	3,325
Three months ended September 30, 2009
Total revenue		$	23,473			$	23,638			$	109,251			$	—			$	156,362
Elimination of intersegment revenue			(134	)			(20	)			(35	)			—				(189	)
Revenue from external customers		$	23,339			$	23,618			$	109,216			$	—			$	156,173
Gross margin		$	14,237			$	4,694			$	24,909			$	34			$	43,874
Gross margin percentage			61.0	%			19.9	%			22.8	%							28.1	%
Operating income (loss)		$	3,753			$	917			$	5,946			$	(6,829	)		$	3,787
Other income, net			—				—				—				316				316
Interest expense, net			—				—				—				(227	)			(227	)
Income (loss) from continuing operations before income taxes		$	3,753			$	917			$	5,946			$	(6,740	)		$	3,876
Other information:
Capital expenditures		$	1,045			$	—			$	30			$	1,387			$	2,462
Non-cash charges:
Depreciation and amortization (1)		$	1,104			$	44			$	817			$	1,205			$	3,170
Restructuring charges			—				—				—				54				54
Total		$	1,104			$	44			$	817			$	1,259			$	3,224

		Reportable segments												Corporate/
		HSG				RSG				TSG				Other				Consolidated
Six months ended September 30, 2010
Total revenue		$	43,689			$	53,070			$	219,739			$	—			$	316,498
Elimination of intersegment revenue			(63	)			(180	)			—				—				(243	)
Revenue from external customers		$	43,626			$	52,890			$	219,739			$	—			$	316,255
Gross margin		$	25,503			$	11,217			$	37,931			$	—			$	74,651
Gross margin percentage			58.5	%			21.2	%			17.3	%							23.6	%
Operating income (loss)		$	2,454			$	2,847			$	2,565			$	(17,215	)		$	(9,349	)
Other income, net			—				—				—				1,956				1,956
Interest expense, net			—				—				—				(524	)			(524	)
Income (loss) from continuing operations before income taxes		$	2,454			$	2,847			$	2,565			$	(15,783	)		$	(7,917	)
Other information:
Capital expenditures		$	1,356			$	104			$	73			$	2,083			$	3,616
Non-cash charges:
Depreciation and amortization (2)		$	2,162			$	161			$	1,505			$	2,883			$	6,711
Asset impairment charges			59				—				—				—				59
Restructuring charges			—				—				—				403				403
Total		$	2,221			$	161			$	1,505			$	3,286			$	7,173
Six months ended September 30, 2009
Total revenue		$	39,517			$	48,083			$	198,766			$	—			$	286,366
Elimination of intersegment revenue			(134	)			(20	)			(35	)			—				(189	)
Revenue from external customers		$	39,383			$	48,063			$	198,731			$	—			$	286,177
Gross margin		$	23,777			$	10,070			$	42,638			$	(761	)		$	75,724
Gross margin percentage			60.4	%			21.0	%			21.5	%							26.5	%
Operating income (loss)		$	1,605			$	2,327			$	3,035			$	(16,151	)		$	(9,184	)
Other income, net			—				—				—				1,071				1,071
Interest expense, net			—				—				—				(403	)			(403	)
Income (loss) from continuing operations before income taxes		$	1,605			$	2,327			$	3,035			$	(15,483	)		$	(8,516	)
Other information:
Capital expenditures		$	2,176			$	7			$	30			$	3,710			$	5,923
Non-cash charges:
Depreciation and amortization (2)		$	2,227			$	94			$	4,768			$	2,409			$	9,498
Restructuring charges			—				—				—				68				68
Total		$	2,227			$	94			$	4,768			$	2,477			$	9,566

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 less than 5% of total revenues for each of the three- and six-month periods ended September 30, 2010 and less than 4% of total revenues for each of the three- and six-month periods ended September 30, 2009. Total revenues for the Company’s three specific product areas are as follows:

		Three months ended								Six months ended
		September 30								September 30
		2010				2009				2010				2009
Hardware		$	129,303			$	106,766			$	210,582			$	194,234
Software			21,927				20,044				44,777				37,000
Services			32,582				29,363				60,896				54,943
Total		$	183,812			$	156,173			$	316,255			$	286,177

14. 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, 2010.

There were no significant transfers between Levels 1, 2, and 3 during the three- and six month periods ended September 30, 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:

Fair value measurement used

Active markets

Quoted prices in

Active markets

Recorded value

for identical assets

similar instruments

for unobservable

as of

or liabilities

and observable

inputs

September 30, 2010

(Level 1)

inputs (Level 2)

(Level 3)

Assets:

Available for sale marketable securities

$

7

$

7

Company-owned life insurance

16,357

$

16,357

Liabilities:

BEP

$

4,828

$

4,828