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Article by DailyStocks_admin    (06-30-08 06:24 AM)

Filed with the SEC from June 19 to June 25:

Agilysys (AGYS)
Ramius LLC sent a letter to Agilysys, nominating three candidates for election to the board at the '08 annual meeting. Ramius applauded Agilysys' decision to explore strategic alternatives, including a sale. But Ramius said that it is disappointed that Agilysys didn't place a shareholder representative on the board. Ramius' three nominees are John Mutch, Steve Tepedino and James Zierick. Ramius holds 2,123,471 shares (9%).

BUSINESS OVERVIEW

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Agilysys, Inc. and its subsidiaries (the “company”). Investments in affiliated companies are accounted for by the equity and cost method, as appropriate, under U.S. generally accepted accounting principles (“GAAP”). 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, 2008 refers to the fiscal year ending March 31, 2008.
The unaudited interim financial statements of the company are prepared in accordance with GAAP for interim financial information and pursuant to the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 10 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the 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 December 31, 2007, as well as the condensed consolidated statements of operations for the three and nine month periods ended December 31, 2007 and 2006 and the condensed consolidated statements of cash flows for the nine month periods ended December 31, 2007 and 2006 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. Such adjustments were of a normal recurring nature.
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 in December. Accordingly, the results of operations for the three and nine months ended December 31, 2007 are not necessarily indicative of the operating results for the full fiscal year or any future period.
Reclassifications
Certain amounts in the prior periods condensed consolidated financial statements have been reclassified to conform to the current period’s presentation, primarily to reflect the results of the KeyLink Systems Distribution Business as discontinued operations (see note 4).

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, 2007, included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. There have been no material changes in the company’s significant accounting policies and estimates from those disclosed therein other than the company’s accounting for income tax uncertainties, as discussed below.

Recently Issued Accounting Standards.
In December 2007, the FASB issued Statement No. 141(R), Business Combinations (“Statement 141(R)”). Statement 141(R) significantly changes the accounting for and reporting of business combination transactions. Statement 141(R) is effective for fiscal years beginning after December 15, 2008, or fiscal 2010 for the company. The company is currently evaluating the impact that Statement 141(R) will have on its financial position, results of operations and cash flows.
In December 2007, the FASB issued Statement No. 160, Accounting and Reporting for Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“Statement 160”). Statement 160 clarifies the classification of noncontrolling interests in consolidated statements of financial position and the accounting for and reporting of transactions between the reporting entity and holders of such noncontrolling interests. Statement 160 is effective for the first annual reporting period beginning after December 15, 2008, or fiscal 2010 for the company. The company is currently evaluating the impact that Statement 160 will have on its financial position, results of operations and cash flows.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115 (“Statement 159”). Statement 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item will be reported in current earnings at each subsequent reporting date. Statement 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the company elects for similar types of assets and liabilities. Statement 159 is effective for fiscal years beginning after November 15, 2007, or fiscal 2009 for the company. The company is currently evaluating the impact that Statement 159 will have on its financial position, results of operations and cash flows.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“Statement 157”) . Statement 157 provides a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. Previously, different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. Statement 157 applies under those previously issued pronouncements that prescribe fair value as the relevant measure of value, except SFAS No. 123R and related interpretations and pronouncements that require or permit measurement similar to fair value but are not intended to measure fair value. Statement 157 is effective for fiscal years beginning after November 15, 2007, or fiscal 2009 for the company. The company is currently evaluating the impact that Statement 157 will have on its financial position, results of operations and cash flows.
Effective April 1, 2007, the company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. As a result of the implementation of FIN 48, the company recognized approximately $2.9 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the April 1, 2007 balance of retained earnings. At April 1, 2007 (the adoption date of FIN 48), the company had a liability for unrecognized tax benefits of $6.6 million. Approximately $6.2 million of this, if recognized, would favorably affect the company’s effective tax rate.
In connection with business acquisitions made during the current year, the company has assumed liabilities for unrecognized tax benefits of $1.6 million.
Approximately $2.9 million of unrecognized tax benefits were recognized during the nine months ended December 31, 2007, principally for effective settlement with tax authorities in certain jurisdictions.

The company recognizes interest accrued on any unrecognized tax benefits as a component of income tax expense. Penalties are recognized as a component of selling, general and administrative expenses. The company recognized $45,000 and $80,000 of interest and penalty expense related to unrecognized tax benefits during the three and nine month periods ended December 31, 2007, respectively. The company accrued approximately $1.1 million for the payment of interest and penalties at December 31, 2007.
The company anticipates the completion of various state income tax audits in the next 12 months which could reduce the accrual for unrecognized tax benefits by $0.3 million. The company believes that, other than the changes noted above, it is impractical to determine the positions for which it is reasonably possible that the total of uncertain tax benefits will significantly increase or decrease in the next twelve months.
The company is currently under audit by the Internal Revenue Service (“IRS”) for 2005 and 2006. The company is also being audited by multiple state taxing jurisdictions. In material jurisdictions, the company has tax years open back to and including 1998.

3. Recent Acquisitions
In accordance with FASB Statement No. 141, Business Combinations , 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 net assets acquired is recorded as goodwill.
2008 Acquisitions
Innovative Systems Design, Inc.
On July 2, 2007, the company acquired all of the shares of Innovative Systems Design, Inc. (“Innovativ”), the largest U.S. commercial reseller of Sun Microsystems servers and storage products. Accordingly, the results of operations for Innovativ have been included in the accompanying condensed consolidated financial statements from that date forward. Innovativ is an integrator and solution provider of servers, enterprise storage management products and professional services. The acquisition of Innovativ establishes a new and significant relationship between Sun Microsystems and the company. Innovativ was acquired for a total cost of $108.6 million. Additionally, the company will pay an earn-out of two dollars for every dollar of earnings before interest, taxes, depreciation, and amortization, or EBITDA, greater than $50.0 million in cumulative EBITDA over the first two years after consummation of the acquisition. The earn-out will be limited to a maximum payout of $90.0 million.
During the quarter ended December 31, 2007, management preliminarily assigned $57.5 million of the acquisition cost to identifiable intangible assets as follows: $12.5 million to non-compete agreements, $15.0 million to customer relationships, and $30.0 million to supplier relationships. Management expects to amortize the identified intangible assets over useful lives ranging from five to twenty years. The cumulative amortization expense of $3.1 million relating to the identified intangible assets from the acquisition date through December 31, 2007 was recognized during the third quarter of 2008. Management is still in the process of finalizing its purchase price allocation, including the completion of its evaluation of identified intangible assets. Accordingly, allocation of the acquisition cost is subject to modification in the future. Management expects to be complete with the allocation of the acquisition cost within one year of the date of acquisition. In subsequent periods, the nature and amount of any material adjustments made to the initial allocation of the purchase price will be disclosed.
Based on management’s preliminary allocation of the acquisition cost to the net assets acquired, approximately $34.6 million has been assigned to goodwill. Goodwill resulting from the Innovativ acquisition will be deductible for income tax purposes.

InfoGenesis
On June 18, 2007, the company acquired all of the shares of IG Management Company, Inc. and its wholly-owned subsidiaries, InfoGenesis and InfoGenesis Asia Limited (collectively, “InfoGenesis”), an independent software vendor and solution provider to the hospitality market. InfoGenesis offers enterprise-class point-of-sale solutions that provide end users a highly intuitive, secure and easy way to process customer transactions across multiple departments or locations, including comprehensive corporate and store reporting. InfoGenesis has a significant presence in casinos, hotels and resorts, cruise lines, stadiums and foodservice. The acquisition will provide the company a complementary offering that will extend its reach into new segments of the hospitality market, broaden its customer base and increase its software application offerings. InfoGenesis was acquired for a total acquisition cost of $90.7 million.
Based on management’s preliminary allocation of the acquisition cost to the net assets acquired, approximately $75.1 million has been assigned to goodwill. InfoGenesis had intangible assets with a net book value of $18.3 million as of the acquisition date, which were included in the acquired net assets to determine goodwill. Management is in the process of evaluating the acquired intangible assets, including an evaluation of additional intangible assets not previously recognized by InfoGenesis, and determining the appropriate fair value. Management expects to complete this analysis within one year of the date of acquisition. Accordingly, allocation of the acquisition cost is subject to modification in the future. In subsequent periods, the nature and amount of any material adjustments made to the initial allocation of the purchase price will be disclosed. Goodwill resulting from the InfoGenesis acquisition will not be deductible for income tax purposes.

CEO BACKGROUND

Keith M. Kolerus

Retired Vice President, American Division, National Semiconductor (Computer Components), from 1996 to February 1998; Chairman of the Board of Directors of ACI Electronics, LLC, since 2004; Chairman of the Board of Directors, National Semiconductor Japan Ltd., from 1995 to 1998.

Robert A. Lauer

Retired from Accenture (formerly known as Andersen Consulting) in August 2000, Mr. Lauer served in numerous managing partner, operational and service line leadership roles during his thirty-one year career, most recently serving as Managing Partner of Andersen Consulting’s eHuman Performance Global Line of Business.

Robert G. McCreary, III

Founder and currently a principal of CapitalWorks, LLC (Private Equity Group), Mr. McCreary has served in numerous managing partner positions in investment banking firms and as a partner in a large regional corporate law firm.

Thomas A. Commes

Retired President and Chief Operating Officer of The Sherwin-Williams Company (Paints and Painting Supplies Manufacturer and Distributor) from June 1986 to March 1999 and a Director of The Sherwin-Williams Company from April 1980 to March 1999; Director, Applied Industrial Technologies, Inc., Pella Corporation and U-Store-It Trust (REIT).

Curtis J. Crawford

Founder, President and Chief Executive Officer of XCEO, Inc. (Executive Counseling and Coaching Services); Dr. Crawford currently serves as a member of the Board of Directors of E.I. DuPont de Nemours and Company, ITT Industries, Inc., and ON Semiconductors.

Howard V. Knicely

Executive Vice President, Human Resources & Communications of TRW, Inc. (Aerospace, Software Systems and Automotive Components) from 1995 through 2002; from 1989 to 1995, Executive Vice President, Human Resources, Communications and Information Systems at TRW; Director of TRW from April 2001 through 2002.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Agilysys, Inc. (“Agilysys” or “company”) is a leading provider of innovative IT solutions to corporate and public-sector customers, with special expertise in select vertical markets, including retail and hospitality. The company uses technology — including hardware, software and services — to help customers resolve their most complicated IT needs. The company possesses expertise in enterprise architecture and high availability, infrastructure optimization, storage and resource management, and business continuity; and provides industry-specific software, services and expertise to the retail and hospitality markets. Headquartered in Boca Raton, Florida, Agilysys operates extensively throughout North America, with additional sales offices in the United Kingdom and China.
In March 2007, Agilysys completed the sale of the assets and operations of its KeyLink Systems Group (“KSG”) to Arrow Electronics, Inc. for $485 million in cash, subject to a working capital adjustment. Through the sale of KSG, Agilysys exited all distribution-related businesses and now exclusively sells directly to end-user customers. By monetizing the value of the KSG distribution assets, Agilysys significantly increased its financial flexibility to redeploy the proceeds to accelerate growth, both organically and through acquisition, of its IT solutions business. With the sale of KSG, the company has established the following long-term goals:

— Grow sales from approximately $500 million to $1 billion in two years and to $1.5 billion in three years. Much of this growth will come from acquisitions.
— Target gross margins in excess of 20% and earnings before interest, taxes, depreciation and amortization of 6% within three years.
— While in the near term return on invested capital will be diluted due to acquisitions and legacy costs, the company continues to target long-term return on capital of 15%.
For financial reporting purposes, the operating results of KSG have been classified as discontinued operations for all periods presented. Accordingly, the discussion and analysis presented below reflects the continuing business of Agilysys.
With respect to the remaining IT solutions business, the company continued to accelerate growth through the acquisition of Visual One Systems, Corp. (“Visual One”) in 2007. The acquisition of Visual One provides Agilysys expertise around the development, marketing and sale of Microsoft ® Windows ® -based software for the hospitality industry, including additional applications in property management, condominium, golf course, spa, point-of-sale, and sales and catering management. The company announced three additional acquisitions shortly after year-end, Stack Computer (“Stack”), Innovative Systems Design, Inc. (“Innovative”), and InfoGenesis, Inc. (“InfoGenesis”). Stack is a premier technology integrator with a strong focus in high availability storage infrastructure solutions. Stack’s customers, primarily concentrated on the West Coast, include leading corporations in the financial services, healthcare and manufacturing industries. Innovative is the largest U.S. commercial reseller of Sun Microsystems servers and storage products. InfoGenesis is an independent software vendor and solution provider to the hospitality market, offering enterprise-class point-of-sale solutions that provide end-users a highly intuitive, secure and easy way to process customer transactions. These acquisitions complement the company’s growth strategy to acquire businesses that enhance and differentiate its product and services offerings, broaden its customer base, and expand its markets.

The following discussion of the company’s results of operations and financial condition is intended to provide information that will assist in understanding the company’s financial statements, including key changes in financial statement components and the primary factors that accounted for those changes.

Results of Operations

2007 Compared with 2006

Net sales. The $5.6 million increase in net sales was driven by an increase in services revenue. Proprietary service revenue increased $3.0 million year-over-year. The increase in proprietary service revenue was principally due to higher revenues generated from the company’s hospitality solutions group. Remarketed service revenue, which is classified on a “net” basis within the statement of operations, increased $2.7 million year-over-year. The increase in remarketed service revenue was principally due to higher sales volume of HP remarketed services.
Gross Margin. The $13.7 million increase in gross margin was driven by the overall increase in sales as well as a higher mix of software and service revenue, which traditionally result in higher gross margin.
Operating Expenses. The company’s operating expenses consist of selling, general, and administrative (“SG&A”) expenses and restructuring (credits) charges. The $10.1 million increase in SG&A expenses was mainly driven by the following key factors: incremental operating expenses of $3.0 million associated with the company’s entrance into the China market, incremental operating expenses of $0.9 million related to the acquisition of Visual One, share-based compensation expense of $3.6 million; offset by a $2.5 million decline in bad debt expense. Regarding the increase in stock-based compensation expense, the company began to expense stock option awards at the beginning of 2007 upon adoption of Statement 123R. Regarding the decline in bad debt expense, the company continued to experience an overall improvement in its accounts receivable base. The remaining increase in SG&A was principally due to higher compensation and benefits costs driven by annual wage increases for the company’s employee base.
Restructuring (credits) charges decreased $7.9 million during 2007. The decline was principally due to the $4.9 million reversal of the remaining restructuring liability that was initially recognized in 2003 for an unutilized leased facility. In connection with the sale of KSG, management determined that the company would utilize the leased facility to house the majority of its remaining IT Solutions Business and corporate personnel. Accordingly, the reversal of the remaining restructuring liability was classified as a restructuring credit in the consolidated statement of operations. The restructuring credit was offset by a charge of approximately $1.7 million for the termination of a facility lease that was previously exited as part of a prior restructuring effort and a $0.5 million charge for one-time termination benefits resulting from a workforce reduction that was executed in connection with the sale of the Company’s KeyLink Systems Distribution Business Additionally, 2006 included charges of $4.2 million to consolidate a portion of the company’s operations to reduce costs and increase future operating efficiencies. As part of the 2006 restructuring effort, the company exited certain leased facilities, reduced its workforce and executed a senior management realignment and consolidation of responsibilities.

Other (expense) income, net. The $7.1 million unfavorable change in other expense (income), net was principally due to a $0.9 million decline in earnings from the company’s equity method investment and $5.9 million impairment charge for the write-down of the company’s equity method investment to its estimated realizable value. The write-down was driven by changing market conditions and the equity method investee’s recent operating losses that indicated an other-than-temporary loss condition.
Interest expense. The $3.3 million favorable change in interest expense was largely driven by the company’s lower debt level resulting from the retirement of its 9.5% Senior Notes in August 2006.
Loss on redemption of Mandatorily Redeemable Convertible Trust Preferred Securities. In connection with the company’s redemption of its 6.75% Mandatorily Redeemable Convertible Trust Preferred Securities (“Trust Preferred Securities”) in the first quarter of 2006, the company wrote off deferred financing fees of $2.7 million. The financing fees, incurred at the time of issuing the Trust Preferred Securities, were being amortized over a 30-year period ending on March 31, 2028, which was the maturity date of the Trust Preferred Securities. The write off of deferred financing fees, along with the $2.1 million premium paid for the redemption, resulted in a loss of $4.8 million in 2006.

Income Taxes
The company recorded an income tax benefit from continuing operations at an effective tax rate of 14.3% in 2007 compared with an income tax benefit at an effective rate of 26.0% in 2006. The decrease in the rate is primarily attributable to the indefinite reinvestment of all earnings (losses) generated by the company’s foreign equity method investment, including the 2007 impairment charge recognized by the company for the write-down of its investment. In 2007, the company recognized a tax benefit (reduction in valuation allowance) for $1.2 million of Canada deferred tax assets.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations — Quarter to Date

Net Sales . The $98.6 million increase in net sales was principally due to incremental sales from the company’s recent acquisitions, which accounted for $80.7 million, or 81.8%, of the increase. In particular, sales resulting from the acquisition of Innovativ accounted for $61.9 million of the $80.7 million incremental sales achieved during the quarter. The acquisition of Innovativ expanded the company’s IT solutions offerings to provide for the sale of Sun Microsystems server and storage products, which were not offered by the company prior to the Innovativ acquisition. The balance of the $80.7 million incremental sales resulted from the company’s recent acquisitions of InfoGenesis, Stack, and Visual One Systems.
Aside from the $80.7 million incremental sales from the company’s recent acquisitions, net sales from the company’s existing business increased $17.9 million, or 11.8%, compared with last year. The year-over-year increase in existing business net sales was principally due to higher volume of software sales.

Of the $69.3 million increase in hardware sales, $63.4 million was the result of incremental sales from the company’s recent acquisitions. Hardware sales of Sun Microsystems products resulting from the company’s acquisition of Innovativ accounted for approximately 89.1% of the $63.4 million incremental sales.
Aside from the $63.4 million incremental hardware sales from the company’s recent acquisitions, hardware sales from the company’s existing business increased $5.9 million, or 4.9%, compared with last year. The increase in hardware sales from the company’s existing business was mainly due to higher sales of midrange server technology.

Of the $13.9 million increase in software sales, $5.9 million was the result of incremental sales from the company’s recent acquisitions. The remaining $8.0 million increase in software sales was driven by higher sales of remarketed software offerings from the company’s existing business.
Of the $15.4 million increase in service revenue, $11.4 million was the result of incremental sales from the company’s recent acquisitions. The remaining $4.0 million was driven by higher sales of proprietary services to the hospitality and retail industries.
The company generally experiences a seasonal increase in sales during its fiscal third quarter ending in December. Accordingly, the results of operations for the quarter ended December 31, 2007 are not necessarily indicative of the operating results for the full year 2008.
Gross Margin. The $22.1 million increase in gross margin was due to the corresponding increase in net sales as gross margin percentage remained relatively consistent year-over-year. The slight decline in gross margin percentage to 23.1% compared with 23.4% in the prior year was due to a select few significant sales at lower margins. Given the current size of the business, individual orders can materially move sales and gross margin. Gross margins can vary depending on the customer, mix of products, related supplier programs and services associated with an order. Also, the increased size of the company’s software business may drive gross margin variability depending on the timing of software sales. As a result, changes in customer and product mix may cause gross margins to vary from quarter to quarter.
Selling, General and Administrative Expenses . The $22.2 million increase in SG&A expenses was principally due to incremental operating expenses from the company’s recent acquisitions, which accounted for $19.1 million, or 86.0%, of the increase.

Other expense, net. The 204.3% unfavorable change in other expense, net was principally driven by the year-over-year decline in operating results of the company’s equity method investment.
Interest income and expense. The 46.7% favorable change in interest income was due to higher average cash and cash equivalent balance in the current quarter compared with the same period last year, offset by a slight decline in the yield earned on the company’s short-term investments. The higher cash and cash equivalent balance continued to be driven by the cash generated from the sale of KSG in March 2007.
The 102.4% unfavorable change in interest expense was due to an increase in debt issuance costs associated with the company’s credit agreement. Such costs are categorized as interest expense in the condensed consolidated statement of operations.
Income Tax Expense
The effective tax rate for continuing operations for the three months ended December 31, 2007 was 66.4% compared with 20.6% for the third quarter in the prior year. The effective income tax rates for continuing operations differ from the statutory rate principally because of the effects of equity in undistributed earnings and losses of an equity investee, limitations on deductibility for meals and entertainment costs, and compensation associated with incentive stock option awards.

The income tax provision for the three months ended December 31, 2007 includes a tax benefit of $0.1 million principally for the recognition of previously unrecognized income tax benefits associated with the effective settlement with tax authorities in certain jurisdictions.

CONF CALL

Arthur Rhein

Thank you. Good morning and thanks for joining us today. Our unaudited results were issued before the market opened and are currently available on our website. With me today as usual is Martin Ellis, Executive Vice President, Treasurer, and Chief Financial Officer.

Before we discuss our financial results and the new segment reporting information we introduced with today’s earnings release, I want to make a few comments on the year we just completed. First, neither my management team nor I are happy with our bottom line. As we move through the first six months of the year, we were busy integrating acquisitions and our pre-existing or organic business was doing pretty well. At the end of Q3, when we updated guidance, we acknowledged our costs were high. Some of them were retained to execute integrations, given the number and speed of the acquisitions we made, and we again acknowledged that our legacy infrastructure costs are high and that we would grow into them as a function of our aggressive growth plans.

This infrastructure was built to support our previous distribution businesses and it’s not quickly nor easily changed or replaced with something more suited to support our new business. As a result, we’ve retained significant corporate overhead cost that would not typically be associated with an IT business of our size.

Given the current uncertain economic environment and the state of capital markets, we announced we reengaged J.P. Morgan to review our strategic growth plans while we performed a detailed review of our business in light of the economy and our financial performance. This review has resulted in a significant cost reduction plan which we are already implementing.

While not understating my disappointment with our bottom line, I want to highlight what we’ve accomplished in terms of repositioning the company. During the past year or so, we’ve acquired and developed capabilities in the hospitality market that gives us a much wider and deeper footprint, moving well beyond our leadership position in gaming and destination resorts.

In our technology sales group, we dramatically diversified the business by adding Sun to our roster and acquired new skills in storage to expand that business with EMC and all of our suppliers. We are now HP and Sun’s largest reseller in the enterprise space and among IBM’s and EMC’s top five.

During the year, we diversified our supplier mix, broadened and deepened our product portfolio, and returned $150 million to shareholders through share repurchases. In no way do I want to imply that we are satisfied. We still have a lot of work to do to macroeconomic tour goals. For now though, given the current economic environment, we’ll be concentrating on running the business more efficiently and effectively and will only entertain additional acquisitions that have important strategic fit.

Turning now to our fourth quarter and full year results, in the fourth quarter, similar to many companies in our industry, we saw increased competitiveness coupled with an unusual and frankly surprising slowdown at the end of March, which is a critical and typically very busy time for us. The end-of-quarter weakness saw a number of major customers delaying purchasing decisions. This, and the fact that we had expected to see positive returns from the investments we made by the end of fiscal 2008 contributed to disappointing EBITDA results for the fourth quarter and the fiscal year.

Revenue in the fourth quarter increased 74.8% compared with last year and full year revenue of $781 million was in line with our lowered expectations.

SG&A expenses for the fourth quarter were 29.2% of revenue, down from 31.7% of revenue in the same quarter a year ago. And SG&A expenses for the full year were 25.5% of revenue, down from 28.1% in fiscal 2007.

In the fourth quarter, we had a loss from continuing operations of $900,000, or $0.04 per share, compared with a loss of $6.6 million, or a loss of $0.21 per share for the fourth quarter last year. For the full year, income from continuing operations was $4.2 million, or $0.15 per share, compared with a loss of $11.6 million, or a loss of $0.38 per share in fiscal 2007.

On the acquisition front, we continued to expand our hospitality and food service offerings during the fourth quarter with the acquisition of Eatec. The addition of Eatec’s standalone software application further differentiates Agilysys as a leading provider of inventory and procurement management solutions. Eatec has been interfaced with Agilysys' point-of-sale offerings to create a complete end-to-end solution for customers in the food service industry.

Also during the fourth fiscal quarter, we acquired Triangle Hospitality Solutions Limited, a small, U.K. based reseller and specialist for InfoGenesis products and services. We saw this as an opportunity to acquire skillful, talented people who were already selling and supporting InfoGenesis solutions in hospitality and stadium and arena markets.

We have consolidated Triangle’s operations with our current European operations, which were acquired with our Visual One acquisition. Together they give us a base on which to continue to expand our presence in Europe and the Middle East.

Now I want to comment on our new segment reporting. As you know, following the divestitures of KeyLink’s systems distribution business in 2007, Agilysys is a substantially different company. Our business is now organized into four segments -- our hospitality solutions group, retail solutions group, technology solutions group, and corporate. Beginning with fiscal year 2008, we are reporting our results for each of these segments.

Our hospitality solutions group is a leading provide to the hospitality industry, offering application software and services to our customers. The retail solutions group is a leader in designing solutions that help make retailers more productive and that provide their customers with an enhanced shopping experience. Our solutions help improve operational efficiency, technology utilization, customer satisfaction, and in-store profitability.

The third segment, our technology solutions group, is a leading provider of HP, Sun, IBM, and EMC enterprise IT solutions for the complex needs of customers in a variety of businesses, including enterprise and high availability, infrastructure optimization, and business continuity.

Each of these three segments is managed separately and is supported by various capabilities embedded in the business, including storage and network solutions, professional services, and software services.

Our last segment, corporate, consists of executive management and the board of directors, as well as shared services of finance, IT, human resources, and legal. We have taken this step to provide clearer and more complete information regarding our operations and with that, I’ll turn it over to Martin.

Martin F. Ellis

Thank you, Art and good morning, everyone. Let me begin today by mentioning that there are a number of items that without further explanation make it difficult to compare earnings and earnings per share to the prior year.

For the quarter, we had a net loss including discontinued operations of $807,000, or $0.03 per share. Discontinued operations contributed $151,000, or $0.01 per share of income.

In the fourth quarter a year ago, net income was $200 million, or $6.46 per share, which included income of $207 million, or $6.67 per share from discontinued operations of our former KeyLink systems distribution business.

Loss from continuing operations was $958,000 in the fourth quarter, or $0.04 per share. This was a $7.5 million increase over a loss of $6.6 million, or $0.21 per share a year earlier.

Sales for the fourth quarter increased 75% to $206 million, compared with $118 million in the fourth quarter of fiscal 2007. The base business, or as we have defined it, our organic business, which was the business we owned last March and excludes the acquisitions we’ve made since the announcement of the KeyLink divestiture, declined 2.8% year over year and contributed $115 million of the sales for the quarter.

Revenue from acquisitions accounted for $92 million of the sales, or 44% of the revenue in the quarter.

Fourth quarter revenue from hardware products was $153.8 million, up 75.4% compared with $87.7 million for last fiscal year’s fourth quarter. Software revenue was $20.4 million, up 161.5% from the $7.8 million a year ago. Services revenue was $32.2 million, up 42.5% from $22.6 million a year ago.

As we discussed last quarter, gross margins can vary depending on customer, size of transaction, mix of products, related supplier programs, and services associated with an audit. Also, the increased size of our software business will drive margin variability depending on the timing of software sales. As a result, changes in [customer] and product mix will cause gross margins to vary from quarter to quarter. Gross margin was 24.2% of net sales, or 280 basis points lower than a year earlier. As expected, the margin was impacted by changes in product mix, pricing under our procurement agreement with Arrow, the acquisitions of Innovativ and Stack, which generate lower margins than the company has reported historically in its businesses. Also, weaker selling margins and lower rebates, which are primarily volume driven, contributed to the decline in the quarter.

Selling, general and administrative expenses for the fourth quarter were $60.1 million, or 29.2% of sales, compared with $37.4 million, or 31.7% of sales in the same quarter a year ago. The $22.7 million increase in SG&A was primarily due to incremental operating expenses from the company’s recent acquisitions, which contributed $21.5 million, or 95% of the increase in expenses.

Depreciation and amortization expense for the quarter was $10.4 million, compared with $2.1 million a year ago.

Adjusted EBITDA was $0.3 million for the quarter compared with a loss excluding restructuring credits of $3.4 million a year ago. [Net interest] income for the fourth quarter was essentially flat compared with $0.7 million in the same period last year.

Let me turn to full year results. For the full year, we reported net income of $7.2 million, or $0.25 per share, compared with $232.9 million, or $7.59 per share in the prior year. The full year income from continuing operations of $4.2 million, or $0.15 per share, compares with a loss of $11.6 million in the prior year. Adjusted for the impact of restructuring credits in fiscal 2007, this was an $18 million improvement over the previous year’s loss.

Consolidated sales for the year were $781 million, an increase of $306 million, or 65% from the $475 million reported for fiscal 2007. Gross margin for fiscal 2008 was 23.4% of sales, compared with 25.4 in the prior year. Changes in product mix, pricing under our procurement agreement with Arrow, and margins of our acquisitions all contributed to the lower gross margin.

SG&A expenses were $199 million, compared with $133 million in the prior year. The increase was primarily due to additional SG&A associated with acquisitions. SG&A from the acquisitions was $59 million, or 22.3% of revenue. Organic SG&A was $141 million, or 27.1% of organic revenue.

Adjusted EBITDA was $7.2 million for the fiscal year compared with a loss excluding restructuring credits of $3.8 million in the prior year.

The unexpectedly soft IT spending environment in our fiscal fourth quarter contributed to disappointing EBITDA results for the fiscal year. We also expected to see positive returns from many of the investments we’ve made through the course of fiscal 2008. Let me briefly review a number of these initiatives and the results that had a material impact on our reported results in this fiscal year.

Given the nature of our business, all our investments are effectively expensed on the income statement. Investments and losses during the fiscal year included the following: a loss of $3.9 million in our organic professional services operation of our technology solutions group; investments of $3.3 million in our technology solutions group to expand market coverage; an investment of $2.3 million in our hospitality solutions group to develop a new property management application called Guest 360; a loss of $1.2 million in our China operations of our technology solutions group; and acquisition related expenses of $2.5 million. Excluding these items, EBITDA would have been approximately $20 million.

Before we turn to the balance sheet, let me review our new inclusion of segment reporting for the fiscal year.

Following the divestiture of KeyLink, we evaluated our businesses and developed a structure to reflect the company’s strategic direction as a leading IT solution provider. As a result, the company has been organized into four business segments -- our hospitality solutions group, retail solutions group, technology solutions, and corporate. Included in our results today are segment results for the full fiscal year and going forward, we will report our segments quarterly.

Since announcing the divestiture of KeyLink, we have aggressively expanded our hospitality solutions business, or HSG, and acquired four businesses -- Visual One, InfoGenesis, Eatec, and recently Triangle. In fiscal 2008, HSG had annual revenue of $86 million compared with $38 million in fiscal 2007. Of the $48 million increase in revenue, approximately $41 million came from the acquisitions of Visual One, InfoGenesis, and Eatec. Organic growth was 17.9%.

Pro forma for the timing of acquisitions, HSG had revenue of approximately $110 million and gross margins of approximately 55%. Depreciation and amortization was $4.9 million in fiscal 2008, compared with $1.2 million in fiscal 2007.

In fiscal 2008, $4.1 million of the total depreciation and amortization figure came from acquisitions. Adjusted EBITDA was $9.5 million, or 11.1% of sales in fiscal 2008, compared with $6.7 million, or 17.7% of sales in fiscal 2007. The deterioration in adjusted EBITDA margin was largely attributable to our InfoGenesis acquisition, which did not meet our expectations for the year and was also less profitable than the existing HSG business last year.

The decrease in margin was also the result of one-time costs related to the integration of InfoGenesis and making InfoGenesis software PCI compliant, consistent with our existing software. InfoGenesis is now fully integrated into HSG.

Also, HSG expensed $2.3 million in development costs for our new property management application, Guest 360, which is planned to be launched in the fall of 2008.

In fiscal 2008, our retail solutions group, or RSG, recorded annual revenue of $138.1 million, compared with $92.8 million in fiscal 2007. All the growth for RSG was organic during fiscal 2008 and gross margins in this business are approximately 20%.

Depreciation and amortization was $0.4 million in fiscal 2008 compared with $0.5 million in the prior year. Adjusted EBITDA was $8 million, or 5.8% of sales in fiscal 2008, compared with $3.1 million, or 3.3% of sales a year ago.

Our technology solutions group, or TSG, is a leading provider of HP, IBM, Sun, and EMC solutions for the complex enterprise IT needs of our customers in a variety of industries.

In fiscal 2008, TSG recorded annual revenue of $557 million, an increase of $214 million or 62.3% compared with $344 million in fiscal 2007. A total of $222 million, or 39.7% of revenue was the result of the company’s acquisitions of Innovativ and Stack.

North American organic revenue growth was 1.4% and China revenue decreased 50% from the prior year.

Pro forma for the timing of acquisitions, TSG has revenue of approximately $620 million and has gross margins of approximately 19%. Depreciation and amortization was $14.6 million in fiscal 2008, compared with $2.1 million in the prior year. The increase in depreciation and amortization relates to amortization of acquisition related intangibles.

Adjusted EBITDA was $27.8 million, or 5% of sales in fiscal 2008, compared with $17.7 million, or 5.2% of sales in fiscal 2007. During 2008, TSG made $3.3 million of incremental investments to build out a storage networking and service solutions capacity and capabilities. In addition, TSG incurred losses of $1.2 million in its China operations and $3.9 million in its organic professional services operations.

Adjusting for the loss-making investments, TSG margin would have been 6.5% in fiscal 2008.

The company’s corporate segment consists of its executive management team, shared services of finance, IT, human resources, and legal. Depreciation and amortization was $3.9 million in fiscal 2008, down from $4.9 million in the prior year. The decrease in depreciation and amortization was attributable to the divestiture of KeyLink.

Adjusted EBITDA was a loss of $38.1 million in 2008 compared with a loss of $28.7 million in fiscal 2007. 2007 included large credits totaling $6.5 million, primarily related to reversing a prior restructuring charge, true-ups of bad debt expense, and the reversal of previously accrued open price receivers.

Corporate cost reductions of $6.1 million subsequent to the divestiture of KeyLink were more than offset by higher costs, including $2.7 million in facilities expense, $4.2 million in stock and benefits compensation, and $1.8 million in acquisition related expenses.

Let me now turn to the balance sheet at March 31st and treasury activities for the quarter. Cash flow from continuing operations in the statement of cash flows includes divestiture related charges. Excluding taxes and transaction expenses associated with the divestiture of KeyLink, the company generated approximately $9.5 million in cash flow from operations for the fiscal year.

Cash and cash equivalents were $71 million, compared with $605 million at March 31, 2007. The decrease in cash was due to acquisitions, the repurchase of common stock, and taxes payable on the gain and sale of KeyLink systems distribution business.

The company has aggressively invested the majority of the divestiture proceeds in strategic acquisitions and recapitalizing the business. To date, we have paid $236 million net of cash for acquisitions, $128 million in taxes on the gain on sale of KeyLink, and $150 million for the repurchase of common shares.

As of March 31, 2008, accounts receivable were $179 million, an increase of 61% or $68 million, compared with the $111 million at March 31, 2007. The increase in receivables was due to the overall increase in sales and the impact of acquisitions.

Accounts payable of $98.6 million increased 17% from $84 million at March 31, 2007. A portion of accounts payable, or $14.6 million, is now reflected in our floor plan financing, which we initiated in late February and is recorded under financing activities on the cash flow statement.

Our DSOs and DPO remain largely consistent with the prior year.

Inventory was $19.3 million at March 31st, compared with $10 million at March 31, 2007. Included in inventory is $4.6 million in bill and hold inventory, which we discussed in last quarter’s earnings release.

Networking capital remains in line with the company’s goal of keeping working capital at under 5% of sales.

Before we turn to business outlook and guidance, let me briefly review our recent share repurchases during the fiscal year. Including the share repurchases in the [self-tender] offer last September, we have returned $150 million to shareholders and have repurchased 9 million shares, or approximately 29% of our previously outstanding basic shares. As a result of these repurchases, we currently have approximately 22.7 million shares outstanding.

Now let me turn to guidance for the fiscal -- for fiscal 2009. As we discussed earlier, given the lower expected fiscal 2008 results and the current uncertain economic environment, we have conducted a detailed review of our business to identify opportunities to improve profitability. We have begun to take action and expect to have essentially all of the expenses identified and eliminated by June 30, 2008. As part of the company’s cost reduction effort, we plan to eliminate approximately $17 million in SG&A expenses resulting in pro forma, full-year increase in adjusted EBITDA of approximately $14 million.

Based on the timing of executing these initiatives, we expect to realize an improvement in EBITDA of approximately $10.5 million in fiscal 2009.

Fiscal 2009 revenue is expected to be $860 million to $900 million. Full year gross margin is expected to be approximately 24.5% to 25% for the year.

We expect SG&A expenses to be approximately $210 million to $213 million in fiscal 2009, excluding restructuring charges.

We expect stock compensation expense of approximately $5.4 million and depreciation and amortization of approximately $27 million.

We plan continued investments in our hospitality solutions group launch of Guest 360, which will cost approximately $4.1 million, of which 3.1 is forecast to be expensed.

Adjusted EBITDA is expected to be $27 million to $40 million for fiscal 2009.

Given the significant intangible amortization associated with recent acquisitions, and based on the estimated $23.5 million weighted average diluted shares outstanding, earnings from continuing operations is expected to be in the range of $0.05 to $0.35 per share.

Capital expenditures are estimated to be $8 million to $10 million for the year.

The wide range in our guidance reflects the current uncertainty around macroeconomic environment and we will revise our guidance as the year unfolds and corporate IT spending becomes clearer.

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