AGILYSYS INC (Form: 10-Q, Received: 11/05/2010 17:52:15)

Employee Name: Henry R. Bond

Position: Senior VP and CFO

Effective Date: October 18, 2010

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

For the quarterly period ended September 30, 2010


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

For the transition period from to .

Commission file number 0-5734

AGILYSYS, INC.

(Exact name of registrant as specified in its charter)


Ohio		34-0907152

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

28925 Fountain Parkway, Solon, Ohio		44139

(Address of principal executive offices)		(ZIP Code)

(440) 519-8700

(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, EMC ² , 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


(1)		Does not include the amortization of deferred financing fees totaling $131,000 and $132,000 for the three months ended September 30, 2010 and 2009, respectively, which related to Corporate/Other.


	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


(2)		Does not include the amortization of deferred financing fees totaling $262,000 and $220,000 for the six months ended September 30, 2010 and 2009, respectively, which related to Corporate/Other.

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

Company-owned life insurance

16,357

Liabilities:

BEP

4,828

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

March 31, 2010

(Level 1)

inputs (Level 2)

(Level 3)

Assets:

Available for sale marketable securities

Company-owned life insurance — current

191

Company-owned life insurance — non-current

15,904

Liabilities:

BEP

4,705

The Company maintains an investment in available for sale marketable securities in which cost approximates fair value. The recorded value of the Company’s investment in available for sale marketable securities is based on quoted prices in active markets and, therefore, is classified within Level 1 of the fair value hierarchy.

The recorded value of the Company-owned life insurance policies is adjusted to the cash surrender value of the policies which are not observable in the market, and therefore, are classified within Level 3 of the fair value hierarchy. Changes in the cash surrender value of these policies are recorded within “Other income, net” in the Condensed Consolidated Statements of Operations. Although company-owned life insurance policies are exempt from such disclosure requirements, management believes the disclosures are useful to financial statement users.

The recorded value of the BEP obligation is measured as employee deferral contributions and Company matching contributions less distributions made from the plan, and adjusted for the returns on the hypothetical investments selected by the participants, which are indirectly observable and therefore, classified within Level 2 of the fair value hierarchy.

The following table presents a summary of changes in the fair value of the Level 3 assets and liabilities for the six months ended September 30, 2010 and 2009:


	Six months ended September 30
	2010			2009
Company-owned life insurance:
Balance on April 1	$	16,095		$	26,172
Realized gains/(losses)		2,065			—
Unrealized (losses)/gains relating to instruments still held at the reporting date		(618	)		699
Purchases, sales, issuances, and settlements (net)		(1,185	)		(11,371	)

Balance on September 30	$	16,357		$	15,500

Realized gains represent the amounts recognized during the first quarter of fiscal 2011 on the redemption of certain Company-owned life insurance policies and are recorded within “Other income, net” in the accompanying Condensed Consolidated Statements of Operations. Unrealized losses related to the Company-owned life insurance policies are recorded within “Other income, net” in the accompanying Condensed Consolidated Statements of Operations.

The following tables present information about the Company’s financial and nonfinancial assets and liabilities measured at fair value on a nonrecurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

as of

or liabilities

and observable

inputs

September 30, 2010

(Level 1)

inputs (Level 2)

(Level 3)

Assets:

Goodwill

50,557

Intangible assets

30,789

Liabilities:

SERP obligations

6,456

Other employee benefit plans obligations

419

Restructuring liabilities — current

662

Restructuring liabilities — non-current

439


	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
	March 31, 2010		(Level 1)	inputs (Level 2)	(Level 3)
Assets:
Goodwill	$	50,418			$	50,418
Intangible assets		32,510				32,510

Liabilities:
SERP obligations — current	$	2,504			$	2,504
SERP obligations — non-current		5,908				5,908
Other employee benefit plans obligations — current		35				35
Other employee benefit plans obligations — non-current		419				419
Restructuring liabilities — current		1,206				1,206
Restructuring liabilities — non-current		732				732

Goodwill of the Company’s reporting units is measured for impairment on an annual basis, or in interim periods if indicators of potential impairment exist, using a combination of an income approach and a market approach.

The Company’s intangible assets are valued at their estimated fair value at time of acquisition. The Company evaluates the fair value of its finite-lived intangible assets when impairment indicators are present and its indefinite-lived intangible assets on an annual basis, or in interim periods if indicators of potential impairment exist. The same approach described above for the goodwill valuation is also used to value indefinite-lived intangible assets.

The recorded value of the Company’s SERP and other benefit plans obligations is based on estimates developed by management by evaluating actuarial information and includes assumptions such as discount rates, future compensation increases, expected retirement dates, payment forms, and mortality. The recorded value of these obligations is measured on an annual basis, or upon the occurrence of a plan curtailment or settlement.

The Company’s restructuring liabilities primarily consist of one-time termination benefits to former employees and ongoing costs related to long-term operating lease obligations. The recorded value of the termination benefits to employees is adjusted to the expected remaining obligation each period based on the arrangements made with the former employees. The recorded value of the ongoing lease obligations is based on the remaining lease term and payment amount, net of sublease income plus interest, discounted to present value. Changes in subsequent periods resulting from a revision to either the timing or the amount of estimated cash flows over the future period are measured using the credit-adjusted, risk-free rate that was used to measure the restructuring liabilities initially.

The inputs used to value the Company’s goodwill, intangible assets, SERP obligations, other employee benefit plans obligations, and restructuring liabilities are not observable in the market and therefore, these amounts are classified within Level 3 in the fair value hierarchy.

The following table presents a summary of changes in the fair value of the Level 3 assets and liabilities for the six months ended September 30, 2010 and 2009:

Six months ended September 30, 2010

Other

Intangible

SERP

benefit plans

Restructuring

Goodwill

assets

obligations

liabilities

Balance on April 1

50,418

32,510

8,412

454

1,938

Realized losses

—

(59

)

(383

)

—

Unrealized gains/(losses) relating to instruments still held at the reporting date

139

—

(596

)

—

Purchases, sales, issuances, and settlements (net)

—

(1,662

)

(977

)

(35

)

(837

)

Balance on September 30

50,557

30,789

6,456

419

1,101


	Six months ended September 30, 2009
										Other
				Intangible			SERP			benefit plans			Restructuring
	Goodwill			assets			obligations			obligations			liabilities
Balance on April 1	$	50,382		$	36,659		$	18,285		$	1,109		$	9,927
Realized gains/(losses)		—			—			—			—			—
Unrealized gains/(losses) relating to instruments still held at the reporting date		541			—			(815	)		—			—
Purchases, sales, issuances, and settlements (net)		(360	)		(3,930	)		(8,390	)		(130	)		(3,969	)

Balance on September 30	$	50,563		$	32,729		$	9,080		$	979		$	5,958

Realized losses on the Company’s SERP obligation were primarily comprised of the actuarial losses recognized due to the settlement of a SERP obligation to a former executive and are recorded within “Restructuring charges” in the accompanying Condensed Consolidated Statements of Operations. Additional information regarding the Company’s restructuring actions is included in Note 6 to Condensed Consolidated Financial Statements.

Unrealized gains related to goodwill represent fluctuations due to the movement of foreign currencies relative to the U.S. dollar. Cumulative currency translation adjustments are recorded within “Other comprehensive income” in the accompanying Condensed Consolidated Balance Sheets. Unrealized losses related to the Company’s SERP obligation represent the unamortized actuarial losses, net of taxes, and are recorded within “Other comprehensive income” in the accompanying Condensed Consolidated Balance Sheets.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” (“MD&A”), management explains the general financial condition and results of operations for Agilysys, Inc. and its subsidiaries (“Agilysys” or the “Company”) including:

—		what factors affect the Company’s business;

—		what the Company’s earnings and costs were;

—		why those earnings and costs were different from the year before;

—		where the earnings came from;

—		how the Company’s financial condition was affected; and

—		where the cash will come from to fund future operations.

The MD&A analyzes changes in specific line items in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and provides information that management believes is important to assessing and understanding the Company’s consolidated financial condition and results of operations. This Quarterly Report on Form 10-Q (“Quarterly Report”) updates information included in the Company’s Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended March 31, 2010, filed with the Securities and Exchange Commission (“SEC”). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes that appear in Item 1 of this Quarterly Report as well as the Company’s Annual Report for the year ended March 31, 2010. Information provided in the MD&A may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to be materially different from those contained in the forward-looking statements. Additional information concerning forward-looking statements is contained in “Forward-Looking Information” below and in “Risk Factors” included in Part I, Item 1A of the Company’s Annual Report for the fiscal year ended March 31, 2010. Management believes that this information, discussion, and disclosure is important in making decisions about investing in the Company. Table amounts are in thousands.

Introduction

Agilysys is a leading provider of innovative information technology (“IT”) solutions to corporate and public-sector customers, with special expertise in select markets, including retail and hospitality. The Company develops technology solutions — including hardware, software, and services — to help customers resolve their most complicated IT data center and point-of-sale needs. The Company possesses data center expertise in enterprise architecture and high availability, infrastructure optimization, storage and resource management, and business continuity. Agilysys’ point-of-sale solutions include: proprietary property management, inventory and procurement, point-of-sale, and document management software, proprietary services including expertise in mobility and wireless solutions for retailers, and resold hardware, software, and services. A significant portion of the point-of-sale related revenue is recurring from software support and hardware maintenance agreements. Headquartered in Solon, Ohio, Agilysys operates extensively throughout North America, with additional sales and support offices in the United Kingdom and Asia. Agilysys has three reportable segments: Hospitality Solutions Group (“HSG”), Retail Solutions Group (“RSG”), and Technology Solutions Group (“TSG”). See Note 13 to Condensed Consolidated Financial Statements titled, Business Segments , which is included in Item 1, for additional information.

The primary objective of the Company’s ongoing strategic planning process is to create shareholder value by exploiting growth opportunities and strengthening its competitive position within the specific technology solutions and in the wider markets that it competes. The plan builds on the Company’s existing strengths and targets growth driven by new technology trends and market opportunities. The Company’s strategic plan specifically focuses on:

	•		Growing sales of its proprietary offerings, both software and services.

	•		Diversifying its customer base across geographies and industries.

	•		Capitalizing on the Company’s intellectual property and emerging technology trends.

•

Leveraging the Company’s investment in Oracle Enterprise Resource Planning (“ERP”) software to further improve operating efficiencies and reduce costs.

Revenues — Defined

As required by the SEC, the Company separately presents revenues earned as either product revenues or services revenues in its Condensed Consolidated Statements of Operations. In addition to the SEC requirements, the Company may, at times also refer to revenues as defined below. The terminology, definitions, and applications of terms the Company uses to describe its revenues may be different from those used by other companies and caution should be used when comparing these financial measures to those of other companies. The Company uses the following terms to describe revenues:

	•		Revenues – The Company presents revenues net of sales returns and allowances.

	•		Product revenues – The Company defines product revenues as revenues earned from the sales of hardware equipment and proprietary and remarketed software.

	•		Services revenues – The Company defines services revenues as revenues earned from the sales of proprietary and remarketed services and support.

General Company Overview

Total net sales rose $30.1 million or 10.5% in the six months ended September 30, 2010 compared with the six months ended September 30, 2009, primarily driven by increased sales volumes across all the Company’s product and services offerings. Fiscal 2010 net sales were adversely impacted by a general decrease in IT spending activity within the markets the Company serves as a result of weak macroeconomic and financial market conditions.

While the Company’s business has shown improvement in the first half of fiscal 2011 compared to the same prior year period, market conditions still reflect uncertainty regarding the overall business environment and demand for IT products and services. The Company continues to believe that it is well-positioned to capitalize on future increases in IT spending, which will allow for the further leveraging of its business model and earnings growth.

Gross margin as a percentage of sales decreased 290 basis points to 23.6% for the first half of fiscal 2011 compared to the first half of fiscal 2010, primarily due to lower hardware and software gross margins as a result of lower vendor rebates and increased pricing pressure. These lower hardware and software margins were partially offset by services gross margins, which increased 370 basis points, due to improved pricing.

In July 2008, the Company decided to exit TSG’s portion of the China and Hong Kong businesses. HSG continues to operate throughout Asia. In January 2009, the Company sold its TSG China operations and certain assets of TSG’s Hong Kong operations, receiving proceeds of $1.4 million. For financial reporting purposes, the remaining prior period operating results of TSG’s Hong Kong business were classified within discontinued operations. Accordingly, the discussion and analysis presented below, including the comparison to prior periods, reflects the continuing business of Agilysys.

As discussed in Note 13 to Condensed Consolidated Financial Statements, in fiscal 2011, the Company began to allocate 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 business segment results have been adjusted to conform to the current period presentation. Also as discussed in Note 13 to Condensed Consolidated Financial Statements, 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, as well as, 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.

Results of Operations – Second Fiscal 2011 Quarter Compared to Second Fiscal 2010 Quarter

Net Sales and Operating Income (Loss)

The following table presents the Company’s consolidated revenues and operating results for the three months ended September 30, 2010 and 2009:


	Three months ended
	September 30						Increase (decrease)
(Dollars in thousands)	2010			2009			$			%

Net Sales:
Product	$	151,230		$	126,811		$	24,419			19.3	%
Service		32,582			29,362			3,220			11.0	%

Total		183,812			156,173			27,639			17.7	%
Cost of goods sold:
Product		128,893			99,508			29,385			29.5	%
Service		14,134			12,791			1,343			10.5	%

Total		143,027			112,299			30,728			27.4	%
Gross margin:
Product		22,337			27,303			(4,966	)		(18.2	)%
Service		18,448			16,571			1,877			11.3	%

Total		40,785			43,874			(3,089	)		(7.0	)%
*Gross margin percentage:*
Product		*14.8*	%		21.5	%
Service		*56.6*	%		56.4	%

Total		*22.2*	%		28.1	%
Operating expenses:
Selling, general, and administrative expenses		43,473			40,033			3,440			8.6	%
Asset impairment charges		59			—			59		nm
Restructuring charges		10			54			(44	)	nm

Total		43,542			40,087			3,455			8.6	%
Operating (loss) income:
Operating (loss) income	$	(2,757	)	$	3,787		$	(6,544	)		(172.8	)%
Operating (loss) income percentage		*(1.5*	)%		2.4	%


nm — not meaningful

The following table presents the Company’s operating results by business segment for the three months ended September 30, 2010 and 2009:


	Three months ended September 30						(Decrease) increase
(Dollars in thousands)	2010			2009			$			%

Hospitality

Total sales from external customers	$	20,578		$	23,339		$	(2,761	)		(11.8	)%
Gross margin	$	12,216		$	14,237		$	(2,021	)		(14.2	)%
		*59.4*	%		61.0	%
Operating income	$	214		$	3,753		$	(3,539	)		(94.3	)%


Retail

Total sales from external customers	$	29,052		$	23,618		$	5,434			23.0	%
Gross margin	$	5,547		$	4,694		$	853			18.2	%
		*19.1*	%		19.9	%
Operating income	$	1,079		$	917		$	162			17.7	%


Technology

Total sales from external customers	$	134,182		$	109,216		$	24,966			22.9	%
Gross margin	$	23,022		$	24,909		$	(1,887	)		(7.6	)%
		*17.2*	%		22.8	%
Operating income	$	4,317		$	5,946		$	(1,629	)		(27.4	)%


Corporate and Other
Gross margin	$	—		$	34		$	(34	)		(100.0	)%
Operating loss	$	(8,367	)	$	(6,829	)	$	(1,538	)		(22.5	)%


Consolidated

Total sales from external customers	$	183,812		$	156,173		$	27,639			17.7	%
Gross margin	$	40,785		$	43,874		$	(3,089	)		(7.0	)%
		*22.2*	%		28.1	%
Operating (loss) income	$	(2,757	)	$	3,787		$	(6,544	)		(172.8	)%

Net sales. The $27.6 million increase in net sales during the second quarter of fiscal 2011 compared to the second quarter of fiscal 2010 was driven by higher hardware, software, and services volumes, which increased $22.5 million, $1.9 million, and $3.2 million, respectively, in the second quarter of fiscal 2011 compared to the second quarter of the prior year period. These revenue increases reflect a general improvement in customer demand, which benefited RSG and TSG, as well as increased success in bundling more software with TSG hardware sales in the current year.

HSG’s sales decreased $2.8 million in the second quarter of fiscal 2011 compared to the same prior year period primarily as a result of decreases in hardware and software revenues of $1.9 million and $1.5 million, respectively, which were partially offset by an increase in services revenues of $0.6 million. HSG’s hardware and software revenues in the prior year quarter included a large customer order that did not repeat in the current year. RSG revenues increased $5.4 million due to growth in hardware and services revenues of $4.3 million and $1.5 million, respectively, as a result of higher volumes. This growth was partially offset by a decrease of $0.4 million in software revenues. TSG’s sales increased $25.0 million, as hardware, software, and services revenues grew $20.2 million, $3.8 million, and $1.0 million, respectively, in the second quarter of fiscal 2011 compared to the same prior year period due to higher volumes.

Gross margin. The Company’s total gross margin percentage decreased to 22.2% for the quarter ended September 30, 2010 compared to 28.1% for the same prior year quarter, primarily due to lower hardware gross margins, particularly within TSG. Services gross margins remained relatively flat in the second quarter of fiscal 2011 compared to the second quarter of fiscal 2010. The decline in product gross margins reflects a higher proportion of hardware revenues, for which the gross margins are lower, compared to proprietary software and services revenues, for which the gross margins are higher. The lower hardware gross margins also reflect lower vendor rebates and competitive pricing experienced during the current year quarter.

The decrease of 160 basis points in HSG’s gross margin percentage was primarily attributable to a greater proportion of lower margin hardware revenues during the second quarter of fiscal 2011 versus software and services revenues, for which margins were higher. RSG’s gross margin percentage for the quarter ended September 30, 2010 decreased 80 basis points compared to the same prior year quarter due to a higher proportion of hardware revenues, for which gross margins are lower, compared to proprietary services revenues, for which the gross margins are higher. TSG’s gross margin percentage decreased 560 basis points in the second quarter of fiscal 2011 compared to the second quarter of fiscal 2010. The decline in TSG’s gross margin percentage was driven by lower vendor rebates and competitive pricing on hardware in the current year quarter compared to the prior year quarter.

Operating expenses. The Company’s operating expenses consist of selling, general, and administrative (“SG&A”) expenses, asset impairment charges, and restructuring charges. SG&A expenses increased $3.4 million, or 8.6%, during the second quarter of fiscal 2011 compared to the second quarter of fiscal 2010. This increase in the Company’s operating expenses was primarily attributable to increases in compensation and benefits due to higher incentive costs resulting from the higher sales volumes in the current year quarter. In addition, during the prior year quarter the Company also capitalized certain costs related to the development of the Guest 360™ software product and implementation of the Oracle ERP system, whereas the costs related to these projects were expensed as maintenance costs during the current year quarter.

From a business segment perspective, SG&A expenses increased $1.5 million and $0.7 million in HSG and RSG, respectively, partially offset by a decrease of $0.3 million in TSG. Corporate/Other SG&A expenses increased $1.5 million in the second quarter of the current year compared with the second quarter of the prior year. The increase in HSG’s and RSG’s expenses was primarily driven by higher compensation and benefits costs in the current year second quarter compared to the same prior year quarter. In the prior year second quarter, HSG capitalized certain costs related to the development of its Guest 360™ software product, which was released for general sale in June 2010. The higher costs in RSG primarily reflect higher incentive costs due to the higher sales volume in the second quarter of fiscal 2011. The decrease in TSG’s SG&A expenses was driven by lower compensation and benefits costs and lower travel and entertainment expenses. The increase in Corporate/Other SG&A expenses was due to higher outside services costs and higher software amortization expenses related to the Company’s Oracle ERP system, which was implemented in April 2010.

Asset impairment charges. The Company tests its goodwill and long-lived assets for impairment upon identification of impairment indicators, or at least annually. The asset impairment charges recorded during the three months ended September 30, 2010 related to certain capitalized intangible software assets that management determined were no longer being sold by the business.

Restructuring charges. During the second quarter of both fiscal 2011 and fiscal 2010, the Company recorded insignificant additional restructuring charges primarily associated with ongoing lease obligations related to the previously disclosed restructuring actions taken in fiscal 2009. 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.

Other (Income) Expenses


	Three months ended
	September 30						Favorable (unfavorable)
(Dollars in thousands)	2010			2009			$			%

Other (income) expenses:
Other income, net	$	(873	)	$	(316	)	$	557			176.3	%
Interest income		(17	)		(3	)		14			466.7	%
Interest expense		278			230			(48	)		(20.9	)%

Total other (income) expenses, net	$	(612	)	$	(89	)	$	523			587.6	%

Other (income) expenses, net. The $0.9 million of other income in the second quarter of fiscal 2011 primarily represents increases in the cash surrender value of Company-owned life insurance policies of $0.2 million, gains recognized as a result of movements in foreign currencies relative to the U.S. dollar of $0.4 million, and a gain of $0.1 million recorded on the proceeds received from the Company’s investment in The Reserve Fund’s Primary Fund (the “Primary Fund”). At September 30, 2010, the Company had a remaining uncollected balance of its Primary Fund investment of $0.4 million, for which a reserve was previously recorded in fiscal 2009. The $0.3 million of other income in the prior year includes $0.4 million of increases in the cash surrender value of Company-owned life insurance policies, partially offset by losses incurred as a result of movements in foreign currencies, particularly the Canadian dollar, relative to the U.S. dollar.

Interest income. Interest income remained flat during the quarter ended September 30, 2010 compared to the same prior year quarter. In fiscal 2009, management changed to a more conservative investment strategy and maintained this strategy in fiscal 2010 and fiscal 2011.

Income Taxes


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

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 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. Other items effecting the rate include foreign and state taxes and a discrete item related to unrecognized tax benefits. For the second quarter 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, a foreign tax benefit, and a discrete item related to unrecognized tax benefits.

Results of Operations – First Half of Fiscal 2011 Compared to First Half of Fiscal 2010

Net Sales and Operating Income (Loss)

The following table presents the Company’s consolidated revenues and operating results for the six months ended September 30, 2010 and 2009:


	Six months ended
	September 30						Increase (decrease)
(Dollars in thousands)	2010			2009			$			%

Net Sales:
Product	$	255,359		$	231,234		$	24,125			10.4	%
Service		60,896			54,943			5,953			10.8	%

Total		316,255			286,177			30,078			10.5	%
Cost of goods sold:
Product		215,570			184,919			30,651			16.6	%
Service		26,034			25,534			500			2.0	%

Total		241,604			210,453			31,151			14.8	%
Gross margin:
Product		39,789			46,315			(6,526	)		(14.1	)%
Service		34,862			29,409			5,453			18.5	%

Total		74,651			75,724			(1,073	)		(1.4	)%
*Gross margin percentage:*
Product		*15.6*	%		20.0	%
Service		*57.2*	%		53.5	%

Total		*23.6*	%		26.5	%
Operating expenses:
Selling, general, and administrative expenses		83,538			84,840			(1,302	)		(1.5	)%
Asset impairment charges		59			—			59		nm
Restructuring charges		403			68			335		nm

Total		84,000			84,908			(908	)		(1.1	)%
Operating loss:
Operating loss	$	(9,349	)	$	(9,184	)	$	(165	)		(1.8	)%
Operating loss percentage		*(3.0*	)%		(3.2	)%


nm — not meaningful

The following table presents the Company’s operating results by business segment for the six months ended September 30, 2010 and 2009:


	Six months ended September 30						Increase (decrease)
(Dollars in thousands)	2010			2009			$			%

Hospitality

Total sales from external customers	$	43,626		$	39,383		$	4,243			10.8	%
Gross margin	$	25,503		$	23,777		$	1,726			7.3	%
		*58.5*	%		60.4	%
Operating income	$	2,454		$	1,605		$	849			52.9	%


Retail

Total sales from external customers	$	52,890		$	48,063		$	4,827			10.0	%
Gross margin	$	11,217		$	10,070		$	1,147			11.4	%
		*21.2*	%		21.0	%
Operating income	$	2,847		$	2,327		$	520			22.3	%


Technology

Total sales from external customers	$	219,739		$	198,731		$	21,008			10.6	%
Gross margin	$	37,931		$	42,638		$	(4,707	)		(11.0	)%
		*17.3*	%		21.5	%
Operating income	$	2,565		$	3,035		$	(470	)		(15.5	)%


Corporate and Other
Gross margin	$	—		$	(761	)	$	761			100.0	%
Operating loss	$	(17,215	)	$	(16,151	)	$	(1,064	)		(6.6	)%


Consolidated

Total sales from external customers	$	316,255		$	286,177		$	30,078			10.5	%
Gross margin	$	74,651		$	75,724		$	(1,073	)		(1.4	)%
		*23.6*	%		26.5	%
Operating loss	$	(9,349	)	$	(9,184	)	$	(165	)		(1.8	)%

Net sales. The $30.1 million increase in net sales during the first half of fiscal 2011 compared with the first half of fiscal 2010 was driven by higher volumes across all the Company’s products and services offerings, with increases of $16.3 million, $7.8 million, and $6.0 million in hardware, software, and services, respectively. These increases reflect a general improvement in customer demand and increased success in bundling more software with TSG hardware sales in the current year.

HSG’s sales increased $4.2 million in the first half of fiscal 2011 compared to the same prior year period due to increases in hardware and services revenues of $1.4 million and $4.1 million, respectively, partially offset by a decrease in software revenues of $1.3 million. The increase in HSG’s services revenues is primarily as a result of improved proprietary services demand, particularly in the food services market. RSG sales increased $4.8 million due to increases of $4.0 million and $1.6 million in hardware and services revenues, respectively, partially offset by a $0.8 million decline in services revenues. The increases in RSG’s hardware and services revenues in the first half of the current year compared to the first half of the prior year were attributable to higher volumes. TSG’s revenues grew $21.0 million, driven by increases of $10.9 million, $9.9 million, and $0.2 million in hardware, software, and services revenues, respectively, in the first half of fiscal 2011 compared to the same prior year period.

Gross margin. The Company’s total gross margin percentage declined to 23.6% for the six months ended September 30, 2010 compared to 26.5% for the same prior year period, as a result of lower hardware and software gross margins, which reflect lower vendor rebates and continued pricing pressure. The lower hardware and software gross margins were partially offset by a 370 basis point increase in services gross margins, which primarily resulted from improved pricing.

The decrease of 190 basis points in HSG’s gross margin percentage was primarily attributable to product and customer mix. RSG’s gross margin percentage for the six months ended September 30, 2010 increased slightly by 20 basis points compared to the same prior year period due to improved pricing on hardware. TSG’s gross margin percentage decreased 420 basis points from the first half of fiscal 2010 compared to the first half of fiscal 2011. The decline in TSG’s gross margin percentage was driven by lower vendor rebates and competitive pricing on hardware in the first half of fiscal 2011 compared to the first half of fiscal 2010.

Operating expenses. The Company’s operating expenses consist of selling, general, and administrative (“SG&A”) expenses, asset impairment charges, and restructuring charges. SG&A expenses decreased $1.3 million, or 1.5%, during the first half of fiscal 2011 compared with the first half of fiscal 2010. This reduction in the Company’s operating expenses was primarily attributable to lower acquisition-related intangible asset amortization expense, which more than offset a slight increase in compensation and benefits costs due to higher incentive costs and increases in outside services costs and software amortization expenses in conjunction with the Company’s Oracle EBS system implementation.

From a business segment perspective, SG&A expenses increased $0.8 million and $0.6 million in HSG and RSG, respectively, offset by a $4.2 million decrease in TSG. Corporate/Other SG&A expenses increased $1.5 million in the first half of the current year compared to the first half of the prior year. The increase in HSG’s and RSG’s SG&A expenses was primarily a result of higher compensation costs in the first half of the current year compared to the same prior year period. In the first half of the prior year, HSG capitalized certain costs related to the development of its Guest 360™ software product, which was released for general sale in June 2010. The higher costs in RSG primarily reflect higher incentive costs due to the higher sales volume in the current year. The decrease in TSG’s SG&A expenses was primarily driven by lower amortization expense for intangible assets, as customer and supplier relationship intangible assets associated with the Company’s acquisition of Innovative Systems Design, Inc. in fiscal 2008 were fully amortized as of June 30, 2009. The increase in Corporate/Other SG&A expenses was due to higher outside services costs and higher software amortization expenses related to the Company’s Oracle ERP system, which was implemented in April 2010.

Asset impairment charges. The Company tests its goodwill and long-lived assets for impairment upon identification of impairment indicators, or at least annually. The asset impairment charges recorded during the first half of fiscal 2011 related to certain capitalized intangible software assets that management determined were no longer being sold by the business.

Restructuring charges. The Company recorded a total of $0.4 million in additional restructuring charges during the first half of fiscal 2011, primarily comprised of non-cash settlement costs related to the payment of an obligation to a former executive under the Company’s Supplemental Executive Retirement Plan (“SERP”) and other ongoing lease obligations. During the first half of fiscal 2010, the Company recorded $0.1 million in additional restructuring charges primarily associated with ongoing lease obligations. The additional restructuring charges recorded in fiscal 2011 and fiscal 2010 related to the previously disclosed restructuring actions taken in fiscal 2009. 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.

Since fiscal 2009, the Company has incurred charges totaling $42.0 million related to previously disclosed restructuring actions, 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 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.

Other (Income) Expenses


	Six months ended
	September 30						Favorable (unfavorable)
(Dollars in thousands)	2010			2009			$			%

Other (income) expenses:
Other income, net	$	(1,956	)	$	(1,071	)	$	885			82.6	%
Interest income		(40	)		(26	)		14			53.8	%
Interest expense		564			429			(135	)		(31.5	)%

Total other (income) expenses, net	$	(1,432	)	$	(668	)	$	764			114.4	%

Other (income) expenses, net. The $2.0 million of other income in the first half of fiscal 2011 primarily represents a gain of $2.1 million recorded on the $2.2 million in proceeds received as a death benefit from certain Company-owned life insurance policies, gains recognized as a result of the movement of foreign currencies relative to the U.S. dollar of $0.3 million, and a gain of $0.1 million recorded for the proceeds received as a distribution of The Reserve Fund investment. These proceeds were partially offset by decreases in the cash surrender value of Company-owned life insurance policies of $0.6 million. The $1.1 million of other income in the prior year includes $0.7 million of increases in the cash surrender value of Company-owned life insurance policies and gains recognized as a result of movements in foreign currencies, particularly the Canadian dollar, relative to the U.S. dollar.

Interest income. Interest income remained flat during the six months ended September 30, 2010 compared to the same prior year period. In fiscal 2009, management changed to a more conservative investment strategy and maintained this strategy in fiscal 2010 and fiscal 2011.

Interest expense. Interest expense consists of costs associated with the Company’s credit facility, the amortization of deferred financing fees, interest expense on borrowings against certain Company-owned life insurance policies, and capital leases. Interest expense increased $0.1 million during the first half of fiscal 2010 compared to the first half of fiscal 2011. The Company executed its current credit facility on May 5, 2009. Prior to that date, the Company did not have an active credit facility in place.

Income Taxes


	Six months ended September 30
	2010			2009
Effective income tax rate		(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 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. For the 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 unrecognized tax benefits.

Business Combination

Triangle Hospitality Solutions Limited

On April 9, 2008, the Company acquired all of the shares of Triangle Hospitality Solutions Limited (“Triangle”), the UK-based reseller and specialist for the 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, management completed the allocation of acquisition costs to the net assets acquired, which resulted in an increase in 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.

Discontinued Operations

China and Hong Kong Operations

In July 2008, the Company decided to discontinue its TSG operations in China and Hong Kong. During 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, net of taxes of zero in both periods, from the remaining operations of TSG’s Hong Kong operations.

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 of $7.3 million from Magirus 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 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 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 currently 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.

Recently Adopted and Recently Issued Accounting Standards

A description of recently adopted and recently issued accounting pronouncements is included in Note 2 to Condensed Consolidated Financial Statements, which is included in Item 1 of this Quarterly Report on Form 10-Q. Management continually evaluates the potential impact, if any, on its financial position, results of operations, and cash flows, of all recent accounting pronouncements and, if significant, makes the appropriate disclosures. During the six months ended September 30, 2010, no material changes resulted from the adoption of recent accounting pronouncements.

Liquidity and Capital Resources

Overview

The Company’s operating cash requirements consist primarily of working capital needs, operating expenses, capital expenditures, and payments of principal and interest on indebtedness outstanding, which were primarily comprised of lease and rental obligations at September 30, 2010. The Company believes that cash flow from operating activities, cash on hand, availability under the credit facility as discussed below, and access to capital markets will provide adequate funds to meet its short-term and long-term liquidity requirements.

The Company maintains a $50.0 million asset-based revolving credit agreement (the “Credit Facility”) with Bank of America, N.A. (the “Lender”), which may be increased to $75.0 million by a $25.0 million “accordion feature” for borrowings and letters of credit, that matures on May 5, 2012. The Company’s obligations under the Credit Facility are secured by significantly all of the Company’s assets. The Credit Facility contains mandatory repayment provisions, representations, warranties, and covenants customary for a secured credit facility of this type. The Credit Facility replaced a prior $200.0 million unsecured credit facility and a floor plan inventory financing arrangement that were terminated in the fourth quarter of fiscal 2009 and the first quarter of fiscal 2010, respectively. 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.

At September 30, 2010, the maximum amount available for borrowing under the Credit Facility was $49.9 million. The maximum commitment limit of $50.0 million was reduced by outstanding letters of credit. The Company was in compliance with all covenants under the Credit Facility as of September 30, 2010 and through the date of the filing of this Quarterly Report. 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.

The Company had no amounts outstanding under the Credit Facility as of September 30, 2010 and through the date of the filing of this Quarterly Report. Except as discussed in the Company’s Annual Report for the fiscal year ended March 31, 2010, there have been no changes to the Credit Facility since it was executed on May 5, 2009.

As of September 30, 2010 and March 31, 2010, the Company’s total debt was approximately $1.0 million and $0.7 million, respectively, comprised of capital lease obligations in both periods.

Additional information regarding the Company’s financing arrangements is included in its Annual Report for the fiscal year ended March 31, 2010.

As of September 30, 2010, 100% of the Company’s cash and cash equivalents was deposited in bank accounts. Therefore, the Company believes that credit risk is limited with respect to its cash and cash equivalents balances.

Cash Flow


	Six months ended
	September 30						Increase (decrease)
(Dollars in thousands)	2010			2009			$

Net cash (used for) provided by continuing operations:
Operating activities	$	(24,338	)	$	80,871		$	(105,209	)
Investing activities		(1,953	)		7,735			(9,688	)
Financing activities		(308	)		(77,521	)		77,213
Effect of foreign currency fluctuations on cash		137			664			(527	)

Cash flows (used for) provided by continuing operations		(26,462	)		11,749			(38,211	)
Net operating and investing cash flows provided by discontinued operations		—			204			(204	)

Net (decrease) increase in cash and cash equivalents	$	(26,462	)	$	11,953		$	(38,415	)

Cash flow (used for) provided by operating activities. The $24.3 million in cash used by operating activities during the six months ended September 30, 2010 consisted of a $12.5 million loss from continuing operations, $12.3 million in non-cash adjustments to the loss from continuing operations, and a negative $24.1 million of changes in operating assets and liabilities. Significant changes in operating assets and liabilities included a $52.8 million increase in accounts receivable and an $8.1 million increase in inventories, partially offset by a $33.6 million increase in accounts payable, a $2.1 million increase in accrued liabilities, and $1.1 million of other changes in operating assets and liabilities. The change in accounts receivable is reflective of an increase in the volume of sales that occurred in September 2010 (i.e., the last month of the fiscal quarter) compared to March 2010. The increase in accounts receivable is also related to the transition of invoicing to the Company’s new Oracle ERP platform. The Company believes that the transition process has been mostly completed. Invoicing and collections improved in the second quarter of fiscal 2011 and are expected to continue improving in future quarters. The increases in accounts payable and in inventories were a result of the higher sales volume in September 2010 compared to March 2010 and several large orders that did not ship as of September 30, 2010. The increase in accrued liabilities primarily related to higher deferred revenues due to certain contracts for which revenues could not be recognized as of September 30, 2010. The $80.9 million in cash provided by operating activities for the first half of fiscal 2010 primarily consisted of changes in operating assets and liabilities, including a $28.3 million decrease in accounts receivable, a $5.2 million decrease in inventory, and a $64.8 million increase in accounts payable, partially offset by a $16.5 million decrease in accrued liabilities. The reduction in accrued liabilities primarily related to amounts paid during the first half of the prior year with respect to restructuring actions taken in fiscal 2009, including cash paid to settle employee benefit plan obligations. The increase in accounts payable reflected the termination of the Company’s inventory financing agreement that was previously used to finance inventory purchases in May 2009. Going forward, the Company is financing inventory purchases through accounts payable.

Cash flow (used for) provided by investing activities. The $2.0 million in cash used for investing activities during the six months ended September 30, 2010 resulted from the receipt of $2.2 million in proceeds as a redemption of certain Company-owned life insurance policies and $0.1 million in proceeds received as a partial distribution of the Company’s previously disclosed claim on its investment in the Primary Fund, partially offset by $0.7 million used for additional investments in Company-owned life insurance policies and $3.6 million used for the purchase of software, property, and equipment. The $7.7 million in cash provided by investing activities during the six months ended September 30, 2009 was primarily driven by $12.5 million in proceeds from borrowings against Company-owned life insurance policies, which were used to settle employee benefit plan obligations, and $2.3 million in proceeds received related to the claim on the Primary Fund, partially offset by $1.2 million in additional investments in Company-owned life insurance policies and $5.9 million used for the purchase of software, property, and equipment. The Company has no obligation to repay, and does not intend to repay, the amounts borrowed against Company-owned life insurance policies.

Cash flow used for financing activities. During the six months ended September 30, 2010, the Company used $0.3 million in cash for financing activities, which represented payments on capital lease obligations. The $77.5 million in cash used for financing activities during the six months ended September 30, 2009 was primarily comprised of $74.5 million repayment of the balance outstanding on the Company’s former inventory financing facility, which was terminated in May 2009. In addition, the Company paid $1.5 million in debt financing fees related to its current credit facility and paid $1.4 million in cash dividends.

Contractual Obligations

As of September 30, 2010, there were no significant changes to the Company’s contractual obligations as presented in its Annual Report for the year ended March 31, 2010.

Off-Balance Sheet Arrangements

The Company has not entered into any off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies

A detailed description of the Company’s significant accounting policies is included in the Company’s Annual Report for the year ended March 31, 2010. There have been no material changes in the Company’s significant accounting policies and estimates since March 31, 2010.

Forward-Looking Information

This Quarterly Report contains certain management expectations, which may constitute forward-looking information within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934, and the Private Securities Reform Act of 1995. Forward-looking information speaks only as to the date of this Quarterly Report and may be identified by use of words such as “may,” “will,” “believes,” “anticipates,” “plans,” “expects,” “estimates,” “projects,” “targets,” “forecasts,” “continues,” “seeks,” or the negative of those terms or similar expressions. Many important factors could cause actual results to be materially different from those in forward-looking information including, without limitation, competitive factors, disruption of supplies, changes in market conditions, pending or future claims or litigation, or technology advances. No assurances can be provided as to the outcome of cost reductions, expected benefits and outcomes from our recent ERP implementation, business strategies, future financial results, unanticipated downturns to our relationships with customers and macroeconomic demand for IT products and services, unanticipated difficulties integrating acquisitions, new laws and government regulations, interest rate changes, consequences of MAK Capital’s shareholder-approved control share acquisition proposal, and unanticipated deterioration in economic and financial conditions in the United States and around the world, or the consequences. The Company does not undertake to update or revise any forward-looking information even if events make it clear that any projected results, actions, or impact, express or implied, will not be realized.

Other potential risks and uncertainties that may cause actual results to be materially different from those in forward-looking information are described in “Risk Factors,” which is included in Part I, Item 1A of the Company’s Annual Report for the fiscal year ended March 31, 2010.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting the Company, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in the Company’s Annual Report for the fiscal year ended March 31, 2010. There have been no material changes in the Company’s market risk exposures since March 31, 2010.


Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report. Based on that evaluation, including the assessment and input of management, the CEO and CFO concluded that, as of the end of the period covered by this Quarterly Report, the Company’s disclosure controls and procedures were effective.

Change in Internal Control over Financial Reporting

The Company continues to integrate each acquired entity’s internal controls over financial reporting into the Company’s own internal controls over financial reporting, and will continue to review and, if necessary, make changes to each acquired entity’s internal controls over financial reporting until such time as integration is complete.

During the first quarter of fiscal 2011, the Company implemented a new Oracle 12i order to cash ERP system. The implementation of the system is expected to improve the management and efficiency of the Company’s data and information flow through the automation and integration of its sales order and product procurement functions. There have been no other changes in the Company’s internal control over financial reporting during the first half of fiscal 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

None.


Item 1A.	Risk Factors

There have been no material changes in the risk factors included in our Annual Report for the fiscal year ended March 31, 2010 that may materially affect the Company’s business, results of operations, or financial condition.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	[Removed and Reserved]


Item 5.	Other Information

None.


Item 6.	Exhibits


10(a)		Employment Agreement by and between Agilysys, Inc. and Henry R. Bond effective October 18, 2010.

10(b)		Separation Agreement by and between Agilysys, Inc. and Kenneth J. Kossin, Jr. dated as of September 15, 2010.

10(c)		Form of Restricted Stock Award Agreement.

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

31.3		Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.3		Certification of Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.


	AGILYSYS, INC.
Date: November 5, 2010	/s/ Kenneth J. Kossin, Jr.
	Kenneth J. Kossin, Jr.
	Chief Accounting Officer (Principal Accounting Officer and Duly Authorized Officer)

Exhibit 10(a)

September 8, 2010

Mr. Henry R. Bond

Dear Henry:

This letter will confirm our on-going conversations and serve as a revised offer of employment.
Your position of Senior Vice President and Chief Financial Officer will report directly to me and
is located in our Solon, Ohio facility. It is understood that you will work up to one day per week
out of our Alpharetta office.

As a member of the Management Committee, you will be eligible for the following compensation and benefits:

	•		Starting base salary of $12,500, paid semi-monthly, as earned upon your start date, annualized at $300,000. Your first merit increase consideration will occur April 1, 2011.

	•		Annual target cash incentive of $150,000, effective at the start of FY11 which shall be prorated for the portion of the year during which you are employed by Agilysys. Achievement will be determined based on performance against the FY11 Annual Incentive Plan (AIP) approved by the Board for Agilysys, Inc. executive officers, with MBO’s determined after you begin at Agilysys as approved by the Compensation Committee of the Board of Directors.

	•		A grant of 30,000 shares of restricted stock to be made on your hire date.

	•		A Long-Term Incentive Plan (LTIP) of 50,000 stock settled stock appreciation rights (SSAR’s) to be made on your hire date.

	•		A signing bonus of $75,000 payable on your date of hire that would be repaid to the Company in full if you voluntarily terminate your employment with the Company prior to the second anniversary of your date of hire, other than pursuant to Paragraph 5.E. of your Employment Agreement, and a retention bonus of $75,000 payable on the second anniversary of your date of hire, provided you are employed by the Company or its successor on that date.

Mr. Henry R. Bond
September 8, 2010
Page 2

	•		Twenty-five days per year of paid time off in addition to the Company’s holidays.

	•		An Employment Agreement that contains a 12-month target compensation and benefit continuation provision in the event of termination without cause and a non-competition agreement covering the salary continuation period. A copy of the agreement is attached as Exhibit A.

	•		Full participation in the Agilysys, Inc. health, life insurance, paid time off (PTO), 401(K) and profit sharing plans. In addition, you will be eligible to participate in the following executive benefit plans:

	Ø		Benefit Equalization Plan (BEP)

	Ø		Executive Life Insurance Plan

	Ø		Personal Liability Policy

	Ø		Health Management Program

	Ø		Auto Allowance — $450 per month

	•		The Relocation Assistance benefits outlined in the Exhibit B.

	•		This offer requires that you sign an Employment Agreement (non-competition), Insider Trading Policy, Non-Disclosure Agreement and Business Ethics Policy. It also requires a satisfactory background investigation and negative drug test to which you must consent. Enclosed with this letter is the application for employment and consent forms that must be completed and returned to me along with the directions and drug testing chain of custody form.

Sincerely,

Martin F. Ellis

Exhibit A

EMPLOYMENT AGREEMENT

AGILYSYS, INC.

You are a valuable Agilysys employee, and we expect you to make a significant contribution to Agilysys’ success. As a result, Agilysys, Inc. (“Agilysys”) wishes to employ you during the following years under the terms of this agreement.

1.		Employment Period. You will be employed by Agilysys for the period beginning with the Effective Date set forth above and ending with the Termination Date as defined in Paragraph 5, below (the “Employment Period”).

2.		Position. You shall initially be employed in the position set forth above, with the duties and responsibilities customarily associated with that position. From time to time, Agilysys may determine that it is in Agilysys’ best interest to add to, subtract from, or otherwise change your duties and responsibilities, or change or eliminate your title.

3.		Best Efforts. You shall devote all of your business time and attention to your duties as an employee of Agilysys. You shall use your best efforts, energies, and skills to advance the business of Agilysys, to further and improve its relations with suppliers, customers and others, and to keep available to Agilysys the services of its employees. You shall perform your duties in compliance with all laws and Agilysys’ published policies, including ethical standards set forth in the Code of Business Conduct.

4.		Compensation. Your compensation will be pursuant to Agilysys’ standard programs in effect from time to time. Agilysys reserves the right, however, in its sole discretion, to impose salary reduction, and/or other cost reduction programs, which may reduce your targeted cash compensation (provided that any such program is not discriminatory and treats you the same as other Agilysys employees holding similar positions). You shall be eligible to participate in any and all employee benefit plans made available from time to time to Agilysys employees generally.

5.		Termination. Your employment may be terminated for Cause by Agilysys, voluntarily by you, or without Cause by Agilysys. The last date of your employment as a result of termination for any of these reasons is the “Termination Date.”

Termination for Cause and Voluntary Termination. If your employment

			terminates for any of the following reasons: (a) your death, disability, or legal incompetence; (b) the issuance by Agilysys of a notice terminating your employment “for Cause” (which, for these purposes, means: (i) breach of any term of this agreement or any other duty to Agilysys; (ii) dishonesty, fraud, or failure to abide by the published ethical standards, conflict of interest, or a material breach of a policy of Agilysys; (iii) your conviction for any felony crime, or for any other crime involving misappropriation of money or other property of Agilysys; (iv) misconduct, malfeasance or insubordination; or (v) gross failure to perform under this agreement (not including simply a failure to attain quantitative targets)); or (c) you voluntarily resign your employment, then your salary will end on the Termination Date.

	B.		Termination Without Cause. If your employment is terminated by Agilysys for any reason other than those identified in Paragraph 5.A., above, then you will be paid a severance (“Severance Payments”) equal to one (1) year regular base and target incentive salary (if applicable), which will be at the rate applicable to you at the time your employment terminates and will be paid during regular pay intervals during the one (1) year period (“Severance Period”). In case of termination without Cause, you will be eligible to continue to participate in applicable medical and dental coverage program(s) available to Agilysys employees for the duration of the Severance Period. You will not otherwise be eligible for severance under any Agilysys severance plan and you will not be eligible to receive the Severance Payments outlined in this paragraph 5.B. more than once.

	C.		Change of Position. If Agilysys changes your position such that your responsibilities or compensation are substantially lessened, or if you are required to relocate to a facility more than 50 miles away from your current locations (Cleveland and Atlanta) (referred to collectively as a “Change of Position”), then you may, within 30 days of such Change of Position, give Agilysys written notice that you are terminating your employment for this reason. Such termination for Change of Position will be deemed a termination by Agilysys without Cause for purposes of this Agreement and you shall be entitled to the Severance Payments described in Paragraph 5.B., above.

	D.		Change of Control. If there is a change of control of Agilysys, as defined by Section 409(A) of the Internal Revenue Code, and your employment with Agilysys or its successor is terminated without cause, then you shall be entitled to the Severance Payments described in Paragraph 5.B. above.

	E.		Public Company Status. If there is a change of control of Agilysys and the Company is no longer publicly traded, then you shall be provided with the opportunity to terminate your employment during the thirty day period beginning on the first anniversary of delisting and receive the Severance Payment described in Paragraph 5.B. above

6.		Confidential Information. During the course of your employment, you have learned, and will learn, various proprietary or confidential information of Agilysys and/or its related and affiliated companies (including the identity of customers and employees; vendor information; marketing information and strategies; sales training techniques and programs; product development and design; acquisition and divestiture opportunities and discussions; and data processing and management information systems, programs, and practices). You shall use such information only in connection with the performance of your duties to Agilysys and agree not to copy, disclose, or otherwise use such information or contest its confidential or proprietary nature. You agree to return any and all written documents containing such information to Agilysys upon termination of your employment.

7.		Restrictive Covenants.

	A.		No Hiring. During the Employment Period and for 12 months thereafter, you agree not to employ or retain, have any other person or firm employ or retain, or otherwise participate in the employment or retention of any person who was an employee or consultant of Agilysys at any time during the 12 months preceding the end of the Employment Period.

	B.		Non-Competition. In the event that (i) Agilysys terminates your employment for Cause or (ii) you voluntarily terminate your employment with Agilysys for any reason other than Change of Position, you agree that for a period of 12 months after such termination you will not be employed by, own, manage, operate, or control, or participate, directly or indirectly, in the ownership, management, operation, or control of, or be connected with (whether as a director, officer, employee, partner, consultant, or otherwise), any business which competes with the business of Agilysys, any peer group of Agilysys identified in the three prior proxy statements of Agilysys, any Agilysys customer, any vendor with whom Agilysys does business and any companies selling enterprise computer systems, and related consulting, integration, maintenance and professional services (the “Non-compete Obligation.”)

	C.		If Agilysys terminates your employment for any reason other than for Cause (or if you terminate your employment for reasons of Change of Position), then the above Non-Compete Obligation will not apply to you, unless Agilysys, at its option, elects to extend the Non-Compete Obligation to you for up to a twelve-month period (“Extended Non-Competition Period”), in which case Agilysys will pay your regular base and target incentive salary (if applicable), in accordance with regular payroll practices (the “Non-Competition Payments”), during the Extended Non-Compete Period.

			Any Non-Competition Payments made to you will be in lieu of Severance Payments. To the extent the Non-Competition Period is shorter than the Severance Period applicable to you, if any, Severance Payments, if applicable to you, will be made to you for the duration of the remainder of the Severance

			Period after the end of the Non-Competition Period. All decisions as to (i) whether to extend to you the Non-Compete Obligation (and therefore, whether to make Non-Competition Payments to you); and (ii) the duration of any such Extended Non-Compete Period, shall be within the sole discretion of Agilysys, and will be communicated to you at the time of termination. The Non-Competition Payments described in this subparagraph apply only to termination of your employment by Agilysys for reasons other than for Cause, or if you terminate your employment for reasons of Change of Position.

			It is understood and acknowledged that any Non-compete Obligation arising under Paragraph 7 shall be in addition to any other obligations on your part under this Agreement, including but not limited to the confidentiality and no-hiring provisions of Paragraphs 7.A. and 7.B., above.

8.		Assignment of Inventions. You agree to promptly and fully disclose to Agilysys all ideas, inventions, discoveries, creations, designs, and other technology and rights (and any related improvements or modifications thereof), whether or not protectable under any form of legal protection afforded to intellectual property (collectively, “Innovations”), relating to any activities or proposed activities of the Agilysys and its affiliates, conceived or developed by you during your employment, whether or not conceived during regular business hours. Such Innovations shall be the sole property of Agilysys. To the extent possible, such Innovations shall be considered a Work Made for Hire under the U.S. Copyright Act. To the extent the Innovations may not be considered such a Work Made for Hire, you agree to automatically assign to Agilysys, at the time of creation of such Innovations, any right, title, or interest that you may have in such Innovations. You further agree that you will execute such written instruments, and perform any other tasks as may be necessary in the opinion of Agilysys to obtain a patent, register a copyright, or otherwise protect or enforce Agilysys’ rights in such Innovations.

9.		Specific Performance and Injunctive Relief. You acknowledge that Agilysys will be irreparably damaged if the provisions of this agreement are not specifically enforced, that monetary damages will not provide an adequate remedy to Agilysys, and that Agilysys is entitled to an injunction (preliminary, temporary, or final) restraining any violation of this agreement (without any bond or other security being required), or any other appropriate decree of specific performance. Such remedies are not exclusive and shall be in addition to any other remedy which Agilysys may have.

10.		Severability and Reformation. The provisions of Paragraphs 6 through 10 of this agreement constitute independent and separable covenants which shall survive termination or expiration of the Employment Period. Any paragraph, phrase, or other provision of this agreement that is determined by a court of competent jurisdiction to be overly broad in scope, duration, or area of applicability or in conflict with any applicable statute or rule shall be deemed, if possible, to be omitted from this agreement. The invalidity of any portion hereof shall not affect the validity of the remaining portions.

11.		Assignment.

	(a)		This agreement is personal to you, and cannot be assigned by you to any other party.

	(b)		This agreement shall inure to the benefit of, and be binding upon and enforceable by Agilysys, and by its successors and assigns. This agreement may be assigned by Agilysys, without your consent, to a third party (“Assignee”) in connection with the sale or transfer of all or substantially all of Agilysys’ business, or any division or unit thereof, whether by way of sale of stock, sale of assets, merger or other transaction. Such assignment by Agilysys will not constitute nor be deemed a termination of your employment by Agilysys, and will not give rise to any rights under Paragraph 5 of this Agreement. After such assignment, any further rights which you have under this Agreement will be the responsibility of the Assignee.

12.		General. This agreement constitutes our full understanding relating to your employment with Agilysys, and replaces and supersedes any and all agreements, contracts, representations or understandings with respect to your employment (collectively, “Prior Agreements”). This agreement is governed by and is to be construed and enforced in accordance with the internal laws of the State of Ohio, without giving effect to principles of conflicts of law. In the event of a conflict between the terms hereof and the provisions of Agilysys’ Employee Handbook, the terms hereof shall control; otherwise, the provisions of the Employee Handbook shall remain applicable to your employment relationship. This agreement may not be superseded, amended, or modified except in a writing signed by both parties.

		In witness whereof the parties have executed this agreement this ___ day of September, 2010.


AGILYSYS, INC.
By:
	Martin F. Ellis
Title:		President and Chief Executive Officer



By:
	Henry R. Bond
Title:		Senior Vice President and Chief Financial Officer

Exhibit B

Henry Bond

Relocation Assistance

Agilysys will pay the following out-of-pocket expenses, supported by third-party receipts, in connection with your relocation:

	•		The out-of-pocket costs incurred in connection with the moving of your primary residence, including the shipment of household goods, packing and limited unpacking by carrier, insurance coverage for household goods on an actual cash value basis, shipment of one automobile, and travel expenses to the new residence

	•		Weekly airfare for you between Cleveland and Atlanta until the later of July 15 ^, 2011 or the date that Agilysys asks you to move your residence

	•		Cost of up to three dinners per week while you are staying in Cleveland

	•		Airfare for your spouse and two children to visit Cleveland, in lieu of your traveling to Atlanta, up to five times between the your date of hire and July 15, 2011

	•		Closing costs incurred on the sale of your current residence (including real estate commissions) and closing costs on the purchase of a new home in Cleveland

	•		Cost of temporary housing in Cleveland until the later of July 15 ^th and the date that Agilysys asks you to move your residence

	•		Tax gross-up on the each of the above amounts which are compensatory to you

	•		One month’s base salary, or $25,000, to cover incidental and miscellaneous moving expenses incurred in connection with a relocation of your primary residence

Exhibit 10(b)

September 15, 2010

Dear Ken:

The purpose of this letter agreement is to detail the terms and conditions of your separation from Agilysys, Inc. As of the close of business on November 10, 2010 (the “Separation Date”), your employment with Agilysys will terminate. You will cease serving as Senior Vice President and Chief Financial Officer of the Company effective October 18, 2010, but will remain Chief Accounting Officer and an executive officer of the Company from October 18, 2010 through the Separation Date. On the Separation Date, you will resign from all positions with the Company and its subsidiaries.

Severance and Benefits . In consideration of your employment through the Separation Date, provided that you satisfy each of the obligations set forth in paragraph 2 below, execute the release attached to this Agreement as Exhibit A after your Separation Date, and do not revoke your release of claims under the Age Discrimination in Employment Act, you will receive the following payments and benefits:

Salary and Benefits. Through your Separation Date, you will continue to receive a salary at your current rate and pay intervals, and you will be eligible to participate in all employee benefits programs currently available to you.

Severance . You will be entitled to the severance benefits set forth in your Employment Agreement, dated April 1, 2007 and incorporated by reference herewith, payable in connection with a termination without Cause, as defined in the Employment Agreement. You expressly waive and relinquish any rights you may have to any severance benefits under any other program, agreement, or policy.

Annual Incentives . As you will not be employed on the last day of the 2011 fiscal year, you will not be eligible for a FY11 annual incentive.

Vacation Pay . You will continue to accrue vacation days through the Separation Date and will be paid for all accrued and unused vacation days as of your Separation Date.

Equity Awards . All vested and unvested equity awards as of the Separation Date shall be governed by the Stock Incentive Plans pursuant to which they were granted and the Grant Agreements you were awarded (all such Grant Agreements are incorporated by reference herewith). Equity-based award benefits will be treated in accordance with a termination without Cause, as defined in the relevant Grant Agreements and plan documents.

Mr. Kenneth J. Kossin
September 15, 2010
Page 2

Bonus. You will be paid an additional bonus of $25,000, as outlined in the accompanying Release attached as Exhibit A.

Outplacement. As further consideration for the execution of this Agreement, Agilysys will pay outplacement fees and expenses for outplacement services charged by Ratliff & Taylor for a period of nine months from your Separation Date, such fees and expenses to be limited to $25,000.

Severance Conditions. Receipt of the severance and other benefits outlined in Section 1 of the Agreement shall be conditioned upon your:

Performing all of the following tasks in accordance with acceptable performance standards through the Separation Date:

fully performing your current duties;

ii)

providing reasonable assistance to the Company in connection with a smooth and orderly transition of your responsibilities

iii)

performing such other duties reasonably requested of you by the Chief Executive Officer;

overseeing the preparation of and filing with the Securities and Exchange Commission the FY11 second quarter Form 10-Q of the Company and taking customary actions and executing customary representation letters, certifications and other documents in connection therewith;

overseeing and delivering customary reports with respect to the Company’s FY11 second quarter financial results to the Board of Directors of the Company and the Audit Committee and assisting in the preparation of the second quarter press release;

being reasonably available during normal business hours to work on matters as assigned by the Chief Executive Officer of the Company; and

Executing, after the Separation Date, the Release attached as Exhibit A, and not revoking your release of claims under the Age Discrimination in Employment Act in accordance with the terms therewith.

Mr. Kenneth J. Kossin
September 15, 2010
Page 3

3)		Voluntary Resignation, Death, Disability, or Permitted Revocation. Notwithstanding anything in this Agreement to the contrary, if you voluntary resign, die or become disabled prior to the Separation Date, or if you do not sign this Agreement for any reason, you will forfeit all severance payments and other benefits outlined in this Agreement and your separation will instead be governed by the terms of your Employment Agreement.

4)		Severability . If any part of this Agreement is found to be unlawful or unenforceable to any extent, every other part of this Agreement shall remain fully valid and enforceable to the maximum extent permitted by law.

5)		Cooperation. If any federal, state, or local administrative agency is required to approve any part of this Agreement, including the attached Release, before it can be effective, I agree to cooperate and perform any act necessary or requested to bring about that approval.

6)		Miscellaneous .

Executive Officer Status . After the Separation Date, as a former executive officer of Agilysys you will continue to be subject to Section 16 of the Securities Exchange Act of 1934. Please call Kathleen Weigand if you have any questions regarding Section 16.

Benefits . Notwithstanding any other provision of this Agreement, the continued availability of any employment benefits is subject to the continued existence of the applicable Agilysys benefits plans, the terms of all applicable Agilysys benefits plans, as such terms and conditions are in effect from time to time in the future, and changes in governing laws and regulations applicable to the benefit plans. Nothing in this Agreement is meant to in any way restrict the ability of Agilysys to amend or eliminate any of such plans, according to the terms thereof.

Taxes . Any payments made by Agilysys hereunder are subject to applicable federal, state and local tax withholding. It is expressly understood that the Company makes no representations or warranties regarding the tax implications of the compensation and benefits paid under this Agreement, including without limitation, under Section 409A of the Internal Revenue Code of 1986, as amended and applicable administrative guidance and regulations.

Attorney . You understand and acknowledge that you have the right to consult an attorney regarding the terms of this Agreement prior to your signing this letter, that you have been given ample time to do so and that whether or not you have done so is totally your choice.

Mr. Kenneth J. Kossin
September 15, 2010
Page 4

Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of you and your legal representatives, heirs, and beneficiaries and Agilysys and its successors and assigns.

Headings . The headings in this Agreement exist only for the sake of convenience. The headings do not constitute part of this Agreement.

Governing Law . The terms of this Agreement will be governed by the laws of the State of Ohio.

Entire Agreement . There are no other agreements, contracts, or promises between other than those set forth in this Agreement and the documents it incorporates by reference (namely, your Employment Agreement and Grant Agreements). This Agreement supersedes all other earlier agreements, contracts, understandings, and promises made between us, whether express or implied. Notwithstanding the foregoing, any prior agreements that may exist between you and Agilysys concerning your obligation to refrain from competition against Agilysys, and to preserve Agilysys’ confidential business information and trade secrets, shall remain in force according to the terms thereof. In making my decision to sign this Agreement, I am not relying on any promise that Agilysys or its employees or agents have made to me, other than the promises that are actually set forth in writing in the text of this document.

Sincerely,

Martin F. Ellis
President and Chief Executive Officer
Agilysys, Inc.


AGREED AND ACCEPTED:

Kenneth J. Kossin, Jr.

Date:_______________________________

Exhibit A

RELEASE

1. Right to Review Release and Consult a Lawyer . I have the right to review this Release and to consult a lawyer of my own choice before signing it. I acknowledge that Agilysys first gave me this Release to review on September 15, 2010. I understand that I have at least twenty-one (21) days to consider this Release before signing. I can sign sooner if I want, but I cannot sign any sooner than the day after my last day of employment with Agilysys. I agree that if I sign sooner than 21 days after receiving this Release, I am agreeing to give up my right to think about this Release for a full twenty-one (21) days.

2. Agilysys’ Payment to Me . In consideration for my signing of this Release, and provided that I have done all that is required of me in my letter Agreement with Agilysys dated September 15, 2010, Agilysys agrees to pay me a lump sum bonus payment of $25,000 twenty-one (21) calendar days after I sign this Release and return it to Agilysys. I agree that the taxes on this payment are solely my responsibility, and that Agilysys will report this payment to all applicable taxing authorities. I acknowledge that I am not presently entitled to any of this money, and that Agilysys is only offering to pay me this money in exchange for my Release.

3. General Release of Claims I release Agilysys from all claims, causes of action, and liabilities of any kind, known or unknown, regardless of their kind, arising from the dawn of time to the date that I have signed this Agreement.

I understand that this release includes, but is not limited to, the following subject matters: any claimed liability for wages, commissions, bonuses, employment benefits, attorneys’ fees or damages of any kind whatsoever; any claim arising out of any contract, express or implied; any claim arising from an alleged breach of the covenant of good faith and fair dealing, express or implied; any claim of wrongful discharge or violation of public policy; and any claim arising under any federal, state, or local statute or ordinance, including but not limited to: the National Labor Relations Act, as amended (29 U.S.C. § 141 et seq. and 29 U.S.C. §151 et seq.); Title VII of the Civil Rights Act of 1964, and the Civil Rights Act of 1991 (42 U.S.C. § 2000e et seq.); Sections 1981 through 1988 of Title 42 of the United States Code; the Employee Retirement Income Security Act of 1974, as amended (29 U.S.C. § 1001 et seq.); the Immigration Reform and Control Act of 1986 (8 U.S.C. § 1101 et seq.); the Americans with Disabilities Act of 1990 (42 U.S.C. § 12101 et seq.); the Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit Protection Act (29 U.S.C. § 621 et seq.); the Family and Medical Leave Act (29 U.S.C. § 2601 et seq.); the Worker Adjustment and Retraining Notification Act of 1988 (29 U.S.C. § 2101 et seq.); the Sarbanes-Oxley Act (18 U.S.C. § 1514A et seq.); and any statutory claim for discrimination, workplace harassment, or retaliation. However, this release does not include any claim, cause of action, or liability arising out of acts or occurrences that take place entirely after the date that I have signed this Release.

Mr. Kenneth J. Kossin
September 15, 2010
Page 6

Not only do I release Agilysys in this way, but I also release all of Agilysys’ past, present and future parents, affiliates, subsidiaries, holding companies, insurers, and all of their officers, directors, stockholders, managers, attorneys, agents, representatives, successors and assigns, and their employee benefit plans and programs and their administrators and fiduciaries (“the Released Parties”).

I already received all of the wages, payments, vacation, wage statements, leaves of absence, meal and rest breaks, and other rights and benefits to which I am entitled under federal, state, and local law, including the Fair Labor Standards Act, 29 U.S.C. § 201 et seq.; the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq.; the Uniformed Services Employment and Reemployment Act, 38 U.S.C. § 4301 et seq.; and all local laws of similar effect. I have also already been fully paid in accordance with those laws for all of the hours that I have worked for Agilysys. Neither Agilysys nor any of the other Released Parties owe me anything for any unpaid wages, overtime, or accrued and unused vacation time.

I have not filed any complaints, charges, lawsuits, or arbitration demands against Agilysys or any of the other Released Parties in any court, agency, or other forum. I agree not to initiate, solicit, assist, cooperate in, participate in or encourage any such actions in the future, unless I am specifically subpoenaed to appear in such a proceeding. I understand that this Release does not prevent me from filing a charge with or participating in proceedings before a federal, state or local administrative agency, but except where prohibited by law, I give my right to recover damages or other any other type of relief in such a proceeding that is brought on my behalf.

I understand that the release I am giving includes claims that I do not have knowledge of at this time. I also understand that by signing this Release, I am giving up my right to sue or pursue any claim or lawsuit against Agilysys or any of the other Released Parties for anything that occurred prior to the date that I have signed this Agreement.

4. I Have Not Sold or Assigned Any Claims . I am the sole legal and equitable owner of all of the rights, claims, and causes of action that I am releasing. I have not assigned, sold, transferred, encumbered any of these rights, claims, and causes of action to anyone else. I understand that Agilysys is relying on my representations in making its own decision to offer me continued employment through the Separation Date and the other benefits set forth in the attached Agreement.

5. No Admission of Wrongdoing . I understand that neither Agilysys nor I are admitting any wrongdoing by signing our Agreement, and that nobody should interpret it as an admission by either Agilysys or myself that either of us did anything wrong or illegal.

Mr. Kenneth J. Kossin
September 15, 2010
Page 7

6. I Was Not Recently Injured . I have not suffered any injury during the past thirty (30) days. Agilysys did not ask me to sign this release within thirty (30) days of any injury I had suffered. Agilysys also did not discuss with me the possibility of entering into any kind of settlement, providing Agilysys with a release of claims, or providing Agilysys with any kind of statement, within thirty (30) days of any injury I had suffered.

7. Revoking My Release under the Age Discrimination in Employment Act . I have the right to revoke my release of claims under the federal Age Discrimination in Employment Act of 1967 (the “ADEA”), as amended by the Older Workers Benefit Protection Act (29 U.S.C. § 621 et seq.). But I understand that if I want to exercise this right, I must do so no later than seven (7) calendar days after I have signed this release, and must prepare a written document that says, in effect, “ I revoke my release of claims under the ADEA ,” and I must deliver this document by hand or by U.S. mail to Agilysys. I understand that my revocation will not be effective unless it is actually delivered or postmarked no later than seven (7) calendar days after the date I have signed this release. I also understand that if I revoke my release of claims under the ADEA, then I will not receive the severance payment or any of the other benefits described in the accompanying Agreement. I agree that, if I revoke my release of claims under the ADEA as provided by this paragraph, then I will not receive the payment described in paragraph 2, but instead I will only receive $50.

I also understand that, once I sign this release, I do not have the right to revoke any other portion of my release of claims, other than my release given under the ADEA.

IF I HAVE SIGNED BELOW, IT IS ONLY BECAUSE I HAVE READ AND UNDERSTOOD EVERY WORD OF THIS RELEASE, AND BECAUSE I HAVE ALREADY CONSULTED A LAWYER IF I WANTED TO. I AM ENTERING INTO THIS RELEASE VOLUNTARILY AND WITHOUT ANY COERCION FROM ANYONE.

AGREED AND ACCEPTED:


				Witness:
Kenneth J. Kossin, Jr.


Date:

Exhibit 10(c)

RESTRICTED STOCK AWARD AGREEMENT

AGILYSYS, INC.
2006 STOCK INCENTIVE PLAN

THIS RESTRICTED STOCK AWARD AGREEMENT (the “Agreement”) is entered into as of the [ ] day of [ ] (the “Grant Date”), by and between Agilysys, Inc., an Ohio corporation (the “Company”), and [ ] (the “Participant”).

W I T N E S S E T H:

WHEREAS, the Company has previously adopted, and the Shareholders of the Company have approved, the Agilysys, Inc. 2006 Stock Incentive Plan (the “Plan”);

WHEREAS, the Plan authorizes the Compensation Committee to award Restricted Stock to certain key employees, including the Participant; and

WHEREAS, the Compensation Committee awarded Restricted Stock to the Participant, subject to the terms and conditions of Award Agreements;

NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, the Participant and the Company agree as follows:

1. The Plan . The Plan is hereby incorporated by reference and made a part of this Agreement for all purposes, and when taken together with this Agreement, shall govern the rights of the Participant and the Company with respect to the Award (as defined below). The Participant irrevocably agrees to, and accepts, the terms, conditions and restrictions of the Plan and this Agreement on his own behalf and on behalf of any beneficiaries, heirs, legatees, guardians, representatives, successors and assigns. All capitalized terms used herein, unless otherwise defined, shall have the meaning ascribed to them under the Plan. In the event of a conflict between the Plan and this Agreement, the Plan will control.

2. Award . As of the Grant Date, upon the terms and conditions set forth in this Agreement, the Company hereby grants to the Participant an award (the “Award”) of [ ] Restricted Shares (the “Restricted Stock”).

3. Terms of Award .

(a)

Entry of Shares . The Restricted Stock subject to the Award shall be entered in the name of the Participant in book-entry format (the “Book-Entry”) by the transfer agent of the Company (the “Transfer Agent”) subject to removal of the restrictions or forfeiture pursuant to the terms of this Agreement.

(b)

Restrictions . The Participant shall not have the right to sell, assign, transfer, convey, dispose, pledge, hypothecate, burden, alienate, encumber or charge any Restricted Stock (including any Shares issued as the result of the investment of cash dividends attributable to the Restricted Stock) or any interest therein in any manner whatsoever, and the Company shall not be required to transfer on its books any such Restricted Stock which shall have been sold, assigned, transferred, conveyed, disposed of, pledged, hypothecated, burdened, alienated, encumbered or charged in violation of this Agreement.

(c)

Vesting . All of the Restricted Stock will Vest as follows provided that, except as otherwise provided in Sections 3(e), 4 and 5, provided that the Participant remains employed by the Company or its Subsidiaries as of the specified dates:

[insert vesting schedule]

(d)

Vested Shares — Removal of Restrictions; Payment . Upon Restricted Stock becoming Vested, the Company shall cause the Transfer Agent to move the Book-Entry representing such Shares, together with any Shares issued as a result of the investment of cash dividends attributable to such Shares pursuant to Section 3(f), to a non-restricted account, thereby removing all restrictions hereunder, and shall cause the Transfer Agent to notify the Participant that the Shares, together with any Shares issued as a result of the investment of cash dividends attributable to such Shares pursuant to Section 3(f), are free and clear of all restrictions (but subject to any applicable securities law restrictions or other restrictions imposed upon Shares generally).

(e)

Forfeiture . If the Committee determines in its sole and exclusive discretion that the Participant’s employment with the Company terminated for any reason other than death, Disability prior to any portion of the Restricted Stock becoming Vested, then the non-Vested Restricted Stock as of the date of his termination of employment, together with any Shares issued as a result of the investment of cash dividends attributable to the Restricted Stock, shall be forfeited, and the Participant and all persons who might claim through him will have no further interests under this Agreement of any kind whatsoever.

(f)

Voting Rights and Dividends . The Participant shall have all of the voting rights attributable to the Restricted Stock issued pursuant to this Agreement. Cash dividends declared and paid by the Company with respect to the Restricted Stock shall not be paid to the Participant. Rather, those cash dividends shall be invested in Shares which shall be subject to the vesting provisions of Section 3(c). By executing this Agreement, the Participant irrevocably consents to: (i) the Company’s withholding of the payment of those dividends; and (ii) the investment of those dividends in Shares issued in the name of the Participant and held in book-entry format by the Transfer Agent subject to removal of the restrictions or forfeiture pursuant to the terms of this Agreement.

4. Death or Disability of Participant . Upon the Participant’s termination of employment with the Company and its Affiliates due to death or Disability, any Vested Shares and non-Vested Shares which has not otherwise been canceled or forfeited as of the date of death or Disability, together with any Shares issued as a result of the investment of cash dividends attributable to the Restricted Stock, shall be distributed to the Participant or the Participant’s estate, as the Committee deems appropriate, free and clear of any restrictions (but subject to any applicable securities law restrictions or other restrictions imposed on Shares generally).

5. Change in Control . Upon a Change in Control prior to the termination of this Agreement, Restricted Stock which has not otherwise been canceled or forfeited as of the date of the Change in Control [or insert alternative vesting schedule], together with any Shares issued as a result of the investment of cash dividends attributable to the Restricted Stock, shall immediately Vest and be free and clear of any restrictions (but subject to any applicable securities law restrictions or other restrictions imposed on Shares generally), and the Company shall cause the Transfer Agent to move the Shares, together with any Shares issued as a result of the investment of cash dividends attributable to the Shares, to a non-restricted account, as set forth in Section 3(d).

6. Effect of Corporate Reorganization or Other Changes Affecting Number or Kind of Shares . The provisions of this Agreement will be applicable to the Restricted Stock, Shares or other securities, if any, which may be acquired by the Participant related to the Restricted Stock as a result of a liquidation, recapitalization, reorganization, redesignation or reclassification, split-up, reverse split, merger, consolidation, dividend, combination or exchange of Restricted Stock or Shares, exchange for other securities, a sale of all or substantially all assets or the like. The Committee may appropriately adjust the number and kind of Restricted Stock, Shares or other securities described in this Agreement to reflect such a change.

7. Nontransferability of Shares . Upon the acquisition of any Shares pursuant to this Agreement, if the Shares have not been registered under the Securities Act of 1933, as amended (the “Act”), they may not be sold, transferred or otherwise disposed of unless a registration statement under the Act with respect to the Shares has become effective or unless the Participant establishes to the satisfaction of the Company that an exemption from such registration is available. The Participant will make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws or this Agreement.

8. Legend . If certificates representing the Restricted Stock subject to the Award are requested by the Participant, the certificates for Restricted Stock, and any Shares issued as a result of the investment of cash dividends attributed to the Restricted Stock, shall contain the following or a substantially similar legend:

“THE TRANSFERABILITY OF THIS CERTIFICATE AND THE COMMON SHARES REPRESENTED BY IT ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING CONDITIONS OF FORFEITURE) CONTAINED IN THE AGILYSYS, INC. 2006 STOCK INCENTIVE PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND THE COMPANY. A COPY OF THIS PLAN AND AWARD AGREEMENT ARE ON FILE IN THE OFFICE OF THE SECRETARY OF THE COMPANY.”

9. Internal Revenue Code Section 409A . This Agreement, Award and the compensation and benefits hereunder are intended to meet the requirements for exemption from coverage under Code Section 409A for restricted property set forth in Treas. Reg. Section 1.409A-1(b)(6), as well as any other such applicable exemption, and shall be construed and administered accordingly. If the Company determines that any compensation or benefits awarded or payable under this Agreement may be subject to taxation under Code Section 409A, the Company shall, after consultation with the Participant, have the authority to adopt, prospectively or retroactively, such amendments to this Agreement or to take any other actions it determines necessary or appropriate to exempt the compensation and benefits payable under this Agreement from Code Section 409A or meet the requirements of Code Section 409A. In no event, however, shall this Section or any other provisions of the Plan or this Agreement be construed to require the Company to provide any gross-up for the tax consequences of any provisions of, or awards or payments under, this Agreement and the Company shall have no responsibility for tax consequences of any kind to the Participant (or any other person or entity), whether or not such consequences are contemplated at the time of entry into this Agreement, resulting from the terms or operation of this Agreement.

10. No Right to Continued Employment . Neither the Plan nor this Agreement shall be construed to grant the Participant any right to remain an employee with the Company or its Affiliates, or to be employed in any particular position therewith. The Plan and this Agreement do not constitute a contract of employment, and the Company and each Affiliate expressly reserves the right, at any time, to terminate the Participant’s employment free from liability, or any claim, under the Plan and this Agreement, except as may be specifically provided therein.

11. Notices . All notices or other communications relating to the Plan and this Agreement as it relates to the Participant shall be in writing, shall be deemed to have been made if personally delivered in return for a receipt or, if mailed, by regular U.S. mail, postage prepaid, by the Company to the Participant at the

address of the Participant then on file with the Company. The Participant is responsible for notifying the Company of a change in his address.

12. Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective beneficiaries, heirs, successors and assigns, except as may be limited by the Plan.

13. Governing Law . Except as may otherwise be provided in the Plan, this Agreement will be governed by, construed and enforced in accordance with the internal laws of the State of Ohio without giving effect to its conflict of laws principles.

14. Tax Withholding . The Committee shall cause the Company to sell the fewest number of Shares for the proceeds of such sale to equal (or exceed by not more than the actual sale price of a single Share) the Participant’s or other recipient’s minimum withholding tax liability resulting from any distribution. The Company will deliver the proceeds of the sale to the appropriate taxing authorities in satisfaction of such tax liability.

15. Amendment . The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate this Agreement. However, no such action may be inconsistent with the terms of the Plan or materially and adversely affect the rights of the Participant without the Participant’s written consent. Notwithstanding the foregoing, the Company may, after consulting with the Participant, unilaterally amend this Agreement to comply with law, preserve favorable tax effects or avoid unfavorable tax effects for either of the parties.

16. Further Action . The Participant and the Company agree to execute such further instruments and to take such action as may reasonably be necessary to carry out the intent of this Agreement.

17. Captions . The captions of specific provisions of this Agreement are for convenience and reference only, and in no way define, describe, extend or limit the scope of this Agreement or the intent of any provision.

18. Counterparts . This Agreement may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes, but all of which taken together shall form one agreement.

19. Entire Agreement . This Agreement, together with the Plan, constitutes the entire agreement of the parties with respect to its subject matter.

20. Successors and Legal Representatives . This Agreement will bind and inure to the benefit of the Company and the Participant and their respective beneficiaries, heirs, legatees, executors, administrators, estates, successors, assigns, legal representatives, guardians and caretakers.

21. Effect of Waiver . Any waiver of any term, condition or breach thereof will not be a waiver of any other term or condition or of the same term or condition for the future, or of any subsequent breach.

22. Separability . In the event of the invalidity of any part or provision of this Agreement, such invalidity will not affect the enforceability of any other part or provision of this Agreement.

23. Incapacity . If the Committee determines that the Participant is incompetent by reason of physical or mental disability or a person incapable of handling his or her property, the Committee may deal directly with or direct any delivery of Vested Shares to the guardian, legal representative or person having the care and custody of the incompetent or incapable person. The Committee may require proof of incompetence, incapacity or guardianship, as it may deem appropriate before the delivery of Vested Shares. In the event of

such a delivery of Vested Shares, the Committee will have no obligation thereafter to monitor or follow the recipient to determine whether the Vested Shares are held or disposed of for the benefit of the Participant. The delivery of Vested Shares pursuant to this Section shall completely discharge the Company’s obligations under this Agreement.

24. No Further Liability . The liability of the Company, its Affiliates and the Committee under or in connection with this Agreement is limited to the obligations set forth herein and no terms or provisions of this Agreement shall be construed to impose any liability on the Company, its Affiliates, the Committee or their directors and employees in favor of any person or entity with respect to any loss, cost, tax or expense which the person or entity may incur in connection with or arising from any transaction related to this Agreement. No third party beneficiaries are intended.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above.


	“Company”




	“Participant”

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Martin F. Ellis, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 5, 2010


	By:	/s/ Martin F. Ellis
		Martin F. Ellis
		President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

I, Henry R. Bond, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 5, 2010


	By:	/s/ Henry R. Bond
		Henry R. Bond
		Senior Vice President and Chief Financial Officer

Exhibit 31.3

CERTIFICATION OF THE CHIEF ACCOUNTING OFFICER

I, Kenneth J. Kossin, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Agilysys, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 5, 2010


	By:	/s/ Kenneth J. Kossin, Jr.
		Kenneth J. Kossin, Jr.
		Chief Accounting Officer

Exhibit 32.1

CERTIFICATION

I, Martin F. Ellis, President and Chief Executive Officer of Agilysys, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1.		The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2010 (the “Report”) fully complies (1) with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2.		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 5, 2010


	By:	/s/ Martin F. Ellis
		Martin F. Ellis
		President and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

(1) As explained more fully in this Report, the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010 does not include, as required by the Rule 3-09 of Regulation S-X, the separate financial statements of Magirus AG, a privately owned German Company in which the Company formerly held a 20% equity interest until the Company disposed of such interest on November 18, 2008.

Exhibit 32.2

CERTIFICATION

I, Henry R. Bond, Senior Vice President and Chief Financial Officer of Agilysys, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2010 (the “Report”) fully complies (1) with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 5, 2010


	By:	/s/ Henry R. Bond
		Henry R. Bond
		Senior Vice President and Chief Financial Officer

Exhibit 32.3

CERTIFICATION

I, Kenneth J. Kossin, Jr., Chief Accounting Officer of Agilysys, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 5, 2010



	By:	/s/ Kenneth J. Kossin, Jr.
		Kenneth J. Kossin, Jr.
		Chief Accounting Officer