Lawson Software, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - EX-32.1 - Lawson Software, Inc.	a10-5723_1ex32d1.htm
EX-10.1 - EX-10.1 - Lawson Software, Inc.	a10-5723_1ex10d1.htm
EX-31.1 - EX-31.1 - Lawson Software, Inc.	a10-5723_1ex31d1.htm
EX-10.2 - EX-10.2 - Lawson Software, Inc.	a10-5723_1ex10d2.htm
EX-31.2 - EX-31.2 - Lawson Software, Inc.	a10-5723_1ex31d2.htm
EX-32.2 - EX-32.2 - Lawson Software, Inc.	a10-5723_1ex32d2.htm
EX-12.1 - EX-12.1 - Lawson Software, Inc.	a10-5723_1ex12d1.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

	FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2010

	OR

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: 000-51942

LAWSON SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		20-3469219
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

380 ST. PETER STREET
ST. PAUL, MINNESOTA 55102
(Address of principal executive offices)

(651) 767-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o

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

The number of shares of the registrant’s common stock outstanding on March 31, 2010 was 161,711,144.

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LAWSON SOFTWARE, INC.

Form 10-Q

Index

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets at February 28, 2010 and May 31, 2009	3
	Condensed Consolidated Statements of Operations for the three and nine months ended February 28, 2010 and 2009	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended February 28, 2010 and 2009	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	45

PART II.	OTHER INFORMATION	46
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	(Removed and Reserved)	47
Item 5.	Other Information	47
Item 6.	Exhibits	47
	SIGNATURES	48

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LAWSON SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	February 28, 2010			May 31, 2009 (1)
	(unaudited)			(as adjusted)
ASSETS
Current assets:
Cash and cash equivalents	$	226,346		$	414,815
Restricted cash - current	1,043			9,208
Trade accounts receivable, net	135,280			152,666
Income taxes receivable	198			4,242
Deferred income taxes - current	23,776			18,909
Prepaid expenses and other current assets	38,806			52,255
Total current assets	425,449			652,095

Restricted cash - non-current	10,011			1,786
Property and equipment, net	56,355			55,641
Goodwill	556,359			470,274
Other intangible assets, net	169,098			91,701
Deferred income taxes - non-current	44,922			39,835
Other assets	13,947			13,149
Total assets	$	1,276,141		$	1,324,481
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Long-term debt - current	$	2,537		$	4,591
Accounts payable	2,165			14,018
Accrued compensation and benefits	69,146			73,976
Income taxes payable	2,915			4,512
Deferred income taxes - current	15,236			5,652
Deferred revenue - current	199,024			279,041
Other current liabilities	45,692			56,308
Total current liabilities	336,715			438,098

Long-term debt - non-current	222,333			217,333
Deferred income taxes - non-current	43,700			16,827
Deferred revenue - non-current	9,436			13,482
Other long-term liabilities	15,268			14,781
Total liabilities	627,452			700,521
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock; $0.01 par value; 42,562 shares authorized; no shares issued or outstanding	—			—
Common stock; $0.01 par value; 750,000 shares authorized; 202,424 and 201,808 shares issued, respectively; 161,439 and 161,476 shares outstanding, at February 28, 2010 and May 31, 2009, respectively	2,024			2,018
Additional paid-in capital	882,531			870,722
Treasury stock, at cost; 40,985 and 40,332 shares at February 28, 2010 and May 31, 2009, respectively	(327,684		)	(324,651		)
Retained earnings	51,117			40,718
Accumulated other comprehensive income	40,701			35,153
Total stockholders’ equity	648,689			623,960
Total liabilities and stockholders’ equity	$	1,276,141		$	1,324,481

(1) Adjusted to reflect adoption of the FASB guidance on accounting for convertible debt securities (Note 2)

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements

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LAWSON SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended
	February 28,						February 28,
	2010			2009 (1)			2010			2009 (1)
				(as adjusted)						(as adjusted)
Revenues:
License fees	$	31,804		$	24,881		$	86,110		$	76,067
Maintenance services	89,080			85,806			259,662			264,998
Software revenues	120,884			110,687			345,772			341,065
Consulting	65,083			63,161			193,609			230,056
Total revenues	185,967			173,848			539,381			571,121

Cost of revenues:
Cost of license fees	6,595			4,872			16,929			16,852
Cost of maintenance services	17,352			14,810			49,833			49,057
Cost of software revenues	23,947			19,682			66,762			65,909
Cost of consulting	59,249			62,871			171,027			209,028
Total cost of revenues	83,196			82,553			237,789			274,937

Gross profit	102,771			91,295			301,592			296,184

Operating expenses:
Research and development	22,760			18,209			65,651			62,669
Sales and marketing	42,919			34,203			118,796			123,680
General and administrative	21,224			18,542			60,071			59,996
Restructuring (Note 3)	1,154			3,534			5,905			11,020
Amortization of acquired intangibles	2,699			1,890			6,524			6,875
Total operating expenses	90,756			76,378			256,947			264,240

Operating income	12,015			14,917			44,645			31,944

Other income (expense), net:
Interest income	128			801			691			5,836
Interest expense	(4,514		)	(3,852		)	(13,558		)	(11,752		)
Other income (expense), net	165			318			5			591
Total other income (expense), net	(4,221		)	(2,733		)	(12,862		)	(5,325		)

Income before income taxes	7,794			12,184			31,783			26,619
Provision for income taxes	6,126			5,967			21,384			21,066
Net income	$	1,668		$	6,217		$	10,399		$	5,553

Net income per share:
Basic	$	0.01		$	0.04		$	0.06		$	0.03
Diluted	$	0.01		$	0.04		$	0.06		$	0.03

Weighted average common shares outstanding:
Basic	161,412			162,675			161,308			164,508
Diluted	165,367			164,648			164,901			166,958

(1) Adjusted to reflect adoption of the FASB guidance on accounting for convertible debt securities (Note 2)

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements

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LAWSON SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	February 28,
	2010			2009 (1)
				(as adjusted)
Cash flows from operating activities:

Net income	$	10,399		$	5,553
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	33,331			29,269
Amortization of debt issuance costs	780			766
Amortization of debt discount	6,365			5,961
Deferred income taxes	5,865			3,617
Provision for doubtful accounts	989			1,078
Warranty provision	3,544			4,704
Net loss on disposal of assets	7			—
Excess tax benefits from stock transactions	(494		)	(448		)
Stock-based compensation expense	13,258			6,761
Amortization of discounts on marketable securities	—			6
Changes in operating assets and liabilities (net of acquisition):
Trade accounts receivable	34,483			31,796
Prepaid expenses and other assets	16,943			(2,283		)
Accounts payable	(13,746		)	(10,893		)
Accrued expenses and other liabilities	(27,741		)	(7,898		)
Income taxes payable/receivable	3,549			(2,800		)
Deferred revenue	(95,963		)	(107,213		)
Net cash used in operating activities	(8,431		)	(42,024		)

Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired	(160,000		)	—
Change in restricted cash	27			(8,677		)
Proceeds from maturities and sales of marketable securities and investments	4			50,664
Purchases of property and equipment	(13,949		)	(20,530		)
Net cash (used in) provided by investing activities	(173,918		)	21,457

Cash flows from financing activities:
Principal payments on long-term debt	(1,231		)	(1,223		)
Payments on capital lease obligations	(2,044		)	(887		)
Cash proceeds from exercise of stock options	2,021			1,957
Excess tax benefit from stock transactions	494			448
Cash proceeds from employee stock purchase plan	1,697			2,157
Repurchase of common stock	(7,423		)	(90,966		)
Net cash used in financing activities	(6,486		)	(88,514		)

Effect of exchange rate changes on cash and cash equivalents	366			(17,802		)

Net decrease in cash and cash equivalents	(188,469		)	(126,883		)
Cash and cash equivalents at the beginning of the period	414,815			435,121
Cash and cash equivalents at the end of the period	$	226,346		$	308,238

(1) Adjusted to reflect adoption of the FASB guidance on accounting for convertible debt securities (Note 2)

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements

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LAWSON SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of Business and Basis of Presentation

Lawson Software is a global provider of enterprise software, services and support; targeting customers in specific industries, including equipment service management & rental, fashion, food & beverage, healthcare, manufacturing & distribution, public sector (U.S.), and service industries as well as the horizontal market for our strategic human capital management product line. Lawson serves customers in three geographic regions: the Americas; Europe, Middle East, and Africa (EMEA); and Asia-Pacific, including Australia and New Zealand (APAC). We offer a broad range of software applications and industry-specific solutions that help our customers improve their business processes and reduce costs, resulting in better business or operational performance. Lawson solutions help automate and integrate business processes and promote collaboration among our customers and their partners, suppliers and employees. Through our consulting services, we help our customers implement, learn to use, upgrade and optimize their Lawson applications. Through our support services, we provide ongoing maintenance and assistance to our customers.

Basis of Presentation

Our Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the U.S. (U.S. GAAP) and include the accounts of Lawson Software, Inc., our branches and our wholly-owned and majority-owned subsidiaries operating in the Americas, EMEA, and APAC. All significant intercompany accounts and transactions have been eliminated. Our subsidiaries that are not majority-owned are accounted for under the equity method. The accompanying Condensed Consolidated Financial Statements reflect all adjustments, in the opinion of management, necessary to fairly state our consolidated financial position, results of operations and cash flows for the periods presented. These adjustments consist of normal, recurring items other than the out-of-period adjustments described below under Year-to-Date Fiscal 2010 Results of Operations and Year-to-Date Fiscal 2009 Results of Operations. The accompanying Condensed Consolidated Financial Statements for all fiscal year 2009 periods also include certain adjustments related to the adoption of a new accounting pronouncement that we were required to adopt retrospectively, as described in Note 2, Summary of Significant Accounting Policies - Adoption of New Accounting Pronouncements.

The unaudited Condensed Consolidated Financial Statements and Notes are presented as permitted by the requirements for Form 10-Q and do not contain all the information and disclosures included in our annual financial statements and notes as required by U.S. GAAP. The Condensed Consolidated Balance Sheet data as of May 31, 2009 and other amounts presented herein as of May 31, 2009 or for the year then ended were derived from our audited financial statements. The accompanying interim Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) for the fiscal year ended May 31, 2009. The results of operations for our interim periods are not necessarily indicative of results to be achieved for our full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of our financial statements, the reported amounts of revenues and expenses during the reporting periods presented, as well as our disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts and sales returns, fair value of investments, fair value of share-based compensation, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, restructuring obligations, contingencies and litigation, among others. We base our estimates and assumptions on our historical experience and on various other information available to us at the time that these estimates and assumptions are made. We believe that these estimates and assumptions are reasonable under the circumstances and form the basis for our making judgments about the carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results and outcomes could differ from our estimates.

Business Segments

During fiscal 2009 and prior years, we viewed our operations and managed our business as one reportable segment: the development and marketing of computer software and related services including consulting, maintenance and customer support. Beginning in the first quarter of fiscal 2010, we reorganized our operations to provide greater focus on and better serve our targeted vertical markets. With this strategic organizational change, including a workforce realignment, we determined that we have three reportable segments that align with our three industries groups: S3 Strategic Industries, M3 Strategic Industries and General Industries. See Note 15, Segment and Geographic Information, for applicable reportable segment disclosures.

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Fiscal Year

Our fiscal year is from June 1 through May 31. Unless otherwise stated, references to the years 2010 and 2009 relate to the fiscal years ended May 31, 2010 and 2009, respectively. References to future years also relate to our fiscal years ending May 31.

Year-to-Date Fiscal 2010 Results of Operations

Our results for the first nine months of fiscal 2010 include reductions to net income of approximately $0.8 million primarily as a result of $1.7 million of additional income tax provision recorded in the first quarter of fiscal 2010 that should have been recorded as a reduction of net income in the fourth quarter of 2009. An additional out-of-period adjustment was recorded in the first quarter of fiscal 2010 that increased pre-tax operating income by $0.9 million, related to the reversal of a services loss reserve that should have been reversed in the first quarter of fiscal 2008. We have determined that the impact of these out-of-period adjustments recorded in the first quarter of fiscal 2010 were immaterial to our results of operations in all applicable prior interim and annual periods, to our first quarter and year-to-date results of operations for fiscal 2010. We also expect the impact of the adjustments to be immaterial to our full fiscal 2010 results of operations.

Year-to-Date Fiscal 2009 Results of Operations

Our results for the nine months of fiscal 2009 included reductions to net income of approximately $2.1 million primarily as a result of $1.9 million of under accruals of sales incentive compensation recorded in the first quarter of fiscal 2009 that should have been recorded as a reduction of net income in the fourth quarter of fiscal 2008. These accruals primarily related to sales incentive compensation in EMEA. The fourth quarter fiscal 2008 under accrual was primarily due to the fact that the previous accrual methodology utilized in EMEA did not sufficiently provide for (1) overachievement of sales quotas and related higher commission rates that were achieved in EMEA in fiscal 2008 when license contracting targets were greatly exceeded by various sales personnel, and (2) sales incentives payable to sales management employees. We have taken actions, such as redesigning the sales incentive accrual process and enhancing monitoring controls, to mitigate the potential for replicating this matter. We have determined that the impact of the sales incentive compensation under accruals, as well as additional out-of-period adjustments recorded in the second quarter of fiscal 2009 that increased pre-tax operating expenses by $0.4 million, primarily related to deferred third-party costs included in costs of license fees, were immaterial to our results of operations in all applicable prior interim and annual periods.

2. Summary of Significant Accounting Policies

Except to the extent updated or described below, a detailed description of our significant accounting policies can be found in Lawson’s Annual Report on Form 10-K for the fiscal year ended May 31, 2009. The following notes should be read in conjunction with such policies and other disclosures in our Annual Report.

Adoption of New Accounting Pronouncements

On September 1, 2009, we adopted the Financial Accounting Standards Board (FASB) guidance on accounting standards codification and hierarchy of generally accepted accounting principles. This guidance was issued in June 2009 and established the FASB Accounting Standards Codification (the ASC) as the source for authoritative U.S. GAAP. The ASC supersedes all existing non-SEC accounting and reporting standards under U.S. GAAP for nongovernmental entities. It is not intended to nor does it change existing U.S. GAAP. Any additions/revisions to U.S. GAAP will be incorporated into the ASC through Accounting Standards Updates (ASU’s). Our adoption of the ASC did not have any impact on our financial position, results of operations or cash flows.

On June 1, 2009, we adopted the FASB guidance related to accounting for convertible debt instruments with conversion and other options, which impacts the accounting treatment for convertible debt instruments that allow for either mandatory or optional cash settlements. This guidance, issued in May 2008, impacts the accounting associated with our $240.0 million senior convertible notes. See Note 10, Long-Term Debt, for additional information regarding our senior convertible notes. Under this guidance we are required to recognize additional (non-cash) interest expense based on the market rate for similar debt instruments that do not contain a comparable conversion feature. Furthermore, the guidance requires a retrospective adjustment for recognition of interest expense in prior periods. Accordingly, we have made certain adjustments to the presentation of our 2009 Condensed Consolidated Financial Statements. Upon adoption of this guidance on June 1, 2009, we began recording additional non-cash interest expense which will total approximately $8.2 million to $8.8 million annually or $2.1 million to $2.4 million per fiscal quarter in fiscal 2010 through fiscal 2012.

The adoption of the guidance on accounting for convertible debt instruments that may be settled in cash upon conversion required us to allocate the $240.0 million proceeds received from the issuance of our senior convertible notes between the applicable debt and equity components. Accordingly, we have allocated $197.7 million of the proceeds to the debt component of our senior convertible notes and $25.2 million, net of deferred taxes of $15.8 million and debt issuance costs of $1.3 million, to the equity

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conversion feature. The debt component allocation was based on the estimated fair value of similar debt instruments without a conversion feature as determined by using a discount rate of 6.77% which represents our estimated borrowing rate for such debt as of the date of our senior convertible notes’ issuance. The difference between the cash proceeds associated with our senior convertible notes and the debt component was recorded as a debt discount with a corresponding offset to additional paid-in-capital, net of applicable deferred taxes and allocated debt issuance costs, representing the equity conversion feature. The debt discount that we recorded is being amortized over five years, which is the expected term of our senior convertible notes (April 23, 2007 through April 15, 2012), using the effective interest method resulting in additional non-cash interest expense. The debt issuance costs have been allocated to the respective debt component and the equity conversion feature resulting in a reclassification of $1.3 million of debt issuance costs to additional paid-in-capital. The debt issuance costs allocated to the debt component are also being amortized to interest expense over the expected term of our senior convertible notes. As of February 28, 2010, the remaining period over which the debt discount and debt issuance costs will be amortized is approximately 2.1 years.

The carrying amounts of our senior convertible notes included in our Condensed Consolidated Balance Sheets were as follows (in thousands):

	February 28,			May 31,
	2010			2009
				(as adjusted)
Principal balance	$	240,000		$	240,000
Debt discount	(19,657		)	(26,022		)
Senior convertible notes, net	$	220,343		$	213,978

We have recorded the following interest expense related to our senior convertible notes in the periods presented (in thousands):

	Three Months Ended				Nine Months Ended
	February 28,				February 28,
	2010		2009		2010		2009
			(as adjusted)				(as adjusted)
Coupon rate of interest (2.5% - cash interest)	$	1,500	$	1,500	$	4,500	$	4,500
Debt discount amortization (non-cash interest)	2,122		1,987		6,365		5,961
Debt issuance cost amortization	260		260		780		780
Net interest expense	$	3,882	$	3,747	$	11,645	$	11,241

The following tables reflect the impact that adoption of the FASB guidance on accounting for convertible debt securities had on our Condensed Consolidated Financial Statements (in thousands, except per share amounts) for the periods presented.

Condensed Consolidated Balance Sheet as of May 31, 2009:

	As Originally Reported		Convertible Debt Adjustments			As Adjusted
Deferred income taxes - non-current (asset)	$	49,565	$	(9,730	)	$	39,835
Other assets	13,903		(754		)	13,149
Income taxes payable	4,513		(1		)	4,512
Long-term debt - non-current	243,355		(26,022		)	217,333
Additional paid in capital	845,522		25,200			870,722
Retained earnings	50,379		(9,661		)	40,718

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Condensed Consolidated Statement of Operations for the three months ended February 28, 2009:

	As Originally Reported		Convertible Debt Adjustments			As Adjusted
Interest expense	$	1,931	$	1,921		$	3,852
Provision from income taxes	6,718		(751		)	5,967
Net Income	7,387		(1,170		)	6,217
Basic net income (loss) per share	$	0.05	$	(0.01	)	$	0.04
Diluted net income (loss) per share	$	0.04	$	—		$	0.04

Condensed Consolidated Statement of Operations for the nine months ended February 28, 2009:

	As Originally Reported		Convertible Debt Adjustments			As Adjusted
Interest expense	$	5,988	$	5,764		$	11,752
Provision from income taxes	23,311		(2,245		)	21,066
Net Income (loss)	9,072		(3,519		)	5,553
Basic net income (loss) per share	$	0.06	$	(0.03	)	$	0.03
Diluted net income (loss) per share	$	0.05	$	(0.02	)	$	0.03

Condensed Consolidated Statement of Cash Flows for the nine months ended February 28, 2009:

	As Originally Reported			Convertible Debt Adjustments			As Adjusted
Net income (loss)	$	9,072		$	(3,519	)	$	5,553
Amortization of debt issuance costs	963			(197		)	766
Amortization of debt discount	—			5,961			5,961
Deferred income taxes	5,913			(2,296		)	3,617
Income taxes payable/receivable	(2,851		)	51			(2,800		)
Net cash used in operating activities	(42,024		)	—			(42,024		)

Effective June 1, 2008, we adopted the FASB guidance related to fair value measurements. This guidance was issued in September 2006 and establishes a common definition for fair value to be applied to U.S. GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. In February 2008, the FASB issued additional guidance which removed certain leasing transactions from the scope of these provisions and partially deferred the effective date of this guidance for one year for certain nonfinancial assets and nonfinancial liabilities that are recognized at fair value on a nonrecurring basis (at least annually). Our June 1, 2008 adoption date for this guidance was effective for financial assets and liabilities and nonfinancial assets and liabilities that are recognized at fair value on a recurring basis. On June 1, 2009, we adopted the fair value guidance for our non-financial assets and liabilities that are recognized at fair value on a nonrecurring basis. Our adoption of this guidance did not have a significant impact on our financial position, results of operations or cash flows. See Note 9,

Fair Value Measurements.

Effective June 1, 2009, we adopted the FASB guidance related to business combinations, which significantly changed how business acquisitions are accounted for and impacts financial statements both on the acquisition date and in subsequent periods. This guidance was issued in December 2007 and establishes principles and requirements for the recognition and measurement of identifiable assets acquired, the liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. Some of the changes, such as the accounting for contingent consideration and exclusion of transaction costs from acquisition accounting, may introduce more volatility into earnings. Our accounting for business combinations changed on a prospective basis beginning with business combinations for which the acquisition date was after our adoption date of June 1, 2009, including our January 11, 2010 acquisition of Healthvision. See Note 4, Business Combinations. In addition, any restructuring liabilities established in connection with integration of an acquired entity will have a negative impact on our future operating results as they will not be accounted for as part of the business combination purchase price but will be expensed when accrued. In relation to previous acquisitions, this guidance requires any release of existing income tax valuation allowances initially established through purchase accounting to be included in our earnings rather than as an adjustment to goodwill. This would have the effect of reducing our income tax provision in future periods when such valuation allowances are reversed.

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Effective June 1, 2009, we adopted the provisions related to accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. The guidance requires that assets and liabilities of contractual and noncontractual contingencies be recognized at fair value if the fair value can be reasonably determined during the measurement period and provides guidance on how to make that determination. This guidance applies prospectively to business combinations for which the acquisition date is after our adoption date of June 1, 2009. Our adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

Effective June 1, 2009, we adopted the FASB guidance related to noncontrolling interests in consolidated financial statements. This guidance, issued in December 2007, changed the accounting and reporting for minority interests, which are to be recharacterized as noncontrolling interests and classified as a separate component of equity rather than as a liability. As of May 31, 2009 and February 28, 2010, there were no noncontrolling interests relating to any of our subsidiaries. Accordingly, our adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

Effective June 1, 2009, we adopted the FASB guidance related to interim disclosures about fair value of financial instruments. This guidance, issued in April 2009, enhances consistency in financial reporting by requiring disclosures about the fair value of financial instruments in interim reporting periods as well as in annual financial statements. Our adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows. See, Fair Value of Financial Instruments, below for applicable disclosures.

Recent Accounting Pronouncements

In June 2009, the FASB issued guidance which amends the consolidation guidance applicable to variable interest entities (VIE’s). This guidance clarifies the determination of whether a company is required to consolidate a VIE, changes the approach to determining a VIE’s primary beneficiary (the reporting entity that must consolidate the VIE), requires an ongoing reassessment of whether a company is the primary beneficiary of a VIE and requires additional disclosures about a company’s involvement in VIE’s. This guidance is effective for fiscal years beginning after November 15, 2009 (our fiscal 2011). We are currently evaluating how this may affect our accounting for VIE’s but we do not expect it to have a material impact on our financial position, results of operations or cash flows.

Derivatives

We account for derivative instruments, consisting of foreign currency forward contracts, pursuant to the FASB guidance on accounting for derivatives instruments and hedging activities. This guidance requires us to measure derivative instruments at fair value and record them in our balance sheet as either an asset or liability. We do not use derivative instruments for trading purposes. In fiscal 2010 and prior years, we have not designated these derivative contracts as hedge transactions and have not used hedge accounting. We manage foreign currency market risk using forward contracts to offset the risk associated with the effects of certain foreign currency exposures primarily related to non-functional currency intercompany loans and advances between our international subsidiaries as well as other balance sheet accounts, particularly accounts receivable, accounts payable and certain accrual accounts. Our foreign currency forward contracts are generally short term in nature, typically maturing within 90 days or less. We revalue all contracts to their current market value at the end of each reporting period and unrealized gains and losses are included in our results of operations for that period. These gains and losses largely offset gains and losses recorded from the revaluation of our non-functional currency balance sheet exposures. We expect this to mitigate some foreign currency transaction gains or losses in future periods. Our net realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature.

We record our foreign currency forward contracts on our Condensed Consolidated Balance Sheets as either prepaid expenses and other current assets or other current liabilities depending on whether the net fair value of such contracts is a net asset or net liability, respectively. All gains and losses from foreign currency forward contracts have been classified as general and administrative expense in our Condensed Consolidated Statements of Operations. See Note 9, Fair Value Measurements, for more detail. We have recorded the following net fair values of our foreign currency forward contracts and the related net realized and unrealized gains and losses as of and for the periods indicated (in thousands):

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Net Asset

Net Liability

Prepaid expenses and other
current assets

Other current liabilities

Fair values of

February 28,

May 31,

February 28,

May 31,

derivatives not designated as hedging instruments:

2010

2009

2010

2009

Foreign currency forward contracts

—

547

	Three Months Ended				Nine Months Ended
Gain (loss) recognized for	February 28,				February 28,
derivatives not designated as hedging instruments:	2010		2009		2010			2009

Foreign currency forward contracts	$	5,125	$	7,723	$	(795	)	$	20,884

Fair Value of Financial Instruments

Our financial instruments consist primarily of cash equivalents, marketable securities, trade accounts receivable and accounts payable and foreign currency forward contracts for which the current carrying amounts approximate fair values, primarily due to their short periods to maturity. Our long-term debt is carried at its face value, net of applicable debt discount recorded upon adoption of the FASB guidance on accounting for convertible debt securities, as discussed above. The estimated fair value of our 2.5% senior convertible notes, including current maturities, was $235.5 million as of February 28, 2010, based on quoted market prices. The remainder of our long-term debt has fair values that are not materially different from their aggregate carrying values of $4.5 million.

Sales Returns and Allowances

We do not generally provide a contractual right of return. However, in the course of arriving at practical business solutions to various warranty and other claims, we have allowed sales returns and allowances. We record a provision against revenue for estimated sales returns and allowances on license and consulting revenues in the same period the related revenues are recorded or when current information indicates additional allowances are required (we refer to these provisions and allowances as a warranty reserve). These estimates are based on historical experience determined by analysis of return activities, specifically identified customers and other known factors. If the historical data we utilize does not reflect expected future performance, a change in the allowances would be recorded in the period such determination is made, affecting future results of operations.

Following is a roll forward of our warranty reserve (in thousands):

Balance, May 31, 2009	$	7,905
Provision	3,544
Write-offs	(2,710		)
Curreny translation effect	(7		)
Balance, February 28, 2010	$	8,732

3. Restructuring

The following table sets forth the accrual activity for the nine months ended February 28, 2010 related to each of our restructuring plans and the remaining reserve balances (in thousands):

				Restructuring Plan
							Fiscal 2009									Fiscal 2006
				Fiscal									Fiscal						Legacy
	Total			2010			Q4			Q2			2007			Intentia			Lawson
Balance, May 31, 2009	$	15,781		$	—		$	8,651		$	3,346		$	782		$	1,475		$	1,527
Provision	4,568			4,568			—			—			—			—			—
Cash Payments	(10,949		)	(2,217		)	(5,766		)	(1,982		)	(448		)	(198		)	(338		)
Adjustments to provision	1,337			(227		)	326			(87		)	(134		)	1,459			—
Adjustments to provision-Goodwill	(352		)	—			—			—			—			(352		)	—
Currency translation effect	643			(183		)	674			79			22			51			—
Balance, February 28, 2010	$	11,028		$	1,941		$	3,885		$	1,356		$	222		$	2,435		$	1,189

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The accruals for severance and related benefits are included in accrued compensation and benefits and the accruals related to exited leased facilities are included in other current and long-term liabilities in our Condensed Consolidated Balance Sheets as of February 28, 2010 and May 31, 2009.

Fiscal 2010 Restructuring

On September 30, 2009, we approved a plan to further restructure our workforce. Under this plan, we reduced our workforce by approximately 65 employees, or 2.0% of our global workforce. The majority of the reductions occurred within our consulting practice in our EMEA region. These actions were undertaken as a further refinement of our new vertical organization, including a resizing of our services business to leverage our partner channel, and in light of current demand for our consulting and implementation services in EMEA. The majority of the actions related to this plan were completed by the end of the second quarter of fiscal 2010. The restructuring action resulted in pre-tax charges of $4.6 million for severance pay and related benefits which we recorded in the second quarter of fiscal 2010. Substantially all of this amount will result in future cash expenditures. During the second and third quarters of fiscal 2010 we made cash payments of approximately $2.2 million for severance pay and related benefits. In addition, we recorded net adjustments to the accrual of approximately $0.2 million. As of February 28, 2010, the accrual balance was approximately $1.9 million. We expect that the majority of the severance and related benefits will be paid within the next 12 months. Annualized cost and expense savings from these actions are estimated to be approximately $6.0 million.

Fiscal 2009 Restructuring

Fiscal 2009 Q2. On November 18, 2008, we announced the implementation of cost reduction measures in light of the uncertainty in global economic conditions and in light of other operating margin improvement initiatives. These cost reduction initiatives included a restructuring plan resulting in the reduction of approximately 285 employees and exiting certain leased facilities. In relation to these actions we recorded a pre-tax charge of approximately $7.9 million in the second quarter of fiscal 2009 and an additional $3.4 million in the third quarter of fiscal 2009. Actions related to severance were substantially completed by February 28, 2009, with related cash payments expected to continue through May 2010. Payments related to the exited facilities are expected to continue through November 2011.

Fiscal 2009 Q4. On May 18, 2009, we initiated a plan to restructure our workforce in preparation of the vertical realignment of our organizational. The restructuring involved the reduction of our workforce by approximately 150 employees and the consolidation of space in certain of our leased facilities. Actions related to this plan were completed by the end of our third quarter of fiscal 2010. The plan resulted in pre-tax charges of approximately $5.3 million for severance and related benefits and the consolidation of leased facilities resulted in pre-tax charges of approximately $3.8 million which we recorded in the fourth quarter of fiscal 2009. We expect the majority of the severance and related benefits to continue through September 2010 while the leased facilities costs will be paid through December 2011.

In relation to the fiscal 2009 restructuring actions, we made cash payments of $5.1 million relating to severance and related benefits and $2.6 million related to the exited facilities during the first nine months of fiscal 2010. In addition, we recorded net adjustments to the accruals of approximately $0.2 million including additional expenses accrued related to exited leased facilities net of a change to accrued severance and related benefits due to a reduction in the number of affected employees. As of February 28, 2010, we had an accrual of $5.2 million: $1.6 million for severance and related benefits and $3.7 million for the estimated fair value of our liability for the exited facilities. As of May 31, 2009, the accrual totaled $12.0 million: $6.5 million for severance and related benefits and $5.5 million for the exited facilities.

Fiscal 2007 Restructuring

On February 28, 2007, we restructured our workforce by approximately 250 employees to rebalance our resources between various locations primarily in the U.S., Europe and our global support center in the Philippines. This reduction resulted in a pre-tax charge of $11.9 million which we recorded in the third quarter of fiscal 2007. As of May 31, 2009 we had an accrual of $0.8 million for severance and related benefits. In the first nine months of fiscal 2010 we paid severance and related benefits of $0.4 million and we recorded $0.1 million in adjustments to reduce the accrual. The accrual balance at February 28, 2010 was approximately $0.2 million. Actions relating to severance were completed in the first quarter of fiscal 2009; however, we expect related cash payments to continue through May 2010.

Fiscal 2006 Restructuring

On April 26, 2006, in conjunction with the business combination with Intentia International AB (Intentia), we approved a plan designed to eliminate employee redundancies in both Intentia and Legacy Lawson.

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Fiscal 2006 Legacy Lawson. Actions related to legacy Lawson included the reduction of approximately 60 employees and the exit of or reduction in leased space. As of May 31, 2009, we had an accrual of $1.5 million for the exit or reduction of leased facilities. In the first nine months of fiscal 2010 we made cash payments of $0.3 million related to exited facilities. The remaining accrual balance at February 28, 2010 was $1.2 million for the exit or reduction of leased facilities. Actions relating to severance were completed in the first quarter of fiscal 2008. We expect cash payments related to exited facilities to continue through July 2011.

Fiscal 2006 Intentia. Actions related to Intentia included the reduction of approximately 125 employees and the exit of or reduction in leased space. As of May 31, 2009, we had an accrual of $1.5 million for the exit or reduction of leased facilities. We made cash payments of $0.2 million related to exited facilities in the first nine months of fiscal 2010. During fiscal 2010, we made net adjustments to increase the accrual related to lease exit costs by approximately $1.1 million for changes in estimates relating to the original lease restructuring plan. During the second quarter of fiscal 2010, we made adjustments to reduce lease exit costs of approximately $0.4 million for changes in estimates relating to the original lease restructuring plan. These adjustments resulted in a reduction of acquired goodwill. In addition, we recorded a $1.5 million increase in our lease accrual in the third quarter of fiscal 2010 as a result of an early exit by a subtenant. The remaining accrual as of February 28, 2010 was $2.4 million related to the accrual for the exit or reduction of leased space. Actions relating to severance were completed in the third quarter of fiscal 2008. We expect cash payments related to exited facilities or reduced space to continue through June 2012.

As a result of our restructuring plans and the realignment of our workforce, we have experienced cost savings from the lower facility expenses and reduced headcount and expect these savings to continue.

4. Business Combination

On January 11, 2010, we completed our acquisition of Healthvision through the acquisition of all the outstanding stock of privately held Quovadx Holdings, Inc., Healthvision’s parent holding company. Healthvision is a Dallas-based company providing integration and application technology and related services to hospitals and large healthcare organizations. We believe the acquisition of Healthvision is a strategic fit for our S3 Strategic Industries segment. The results of operations of Healthvision have been included in our Condensed Consolidated Statements of Operations from the date of acquisition. Healthvision contributed revenues of $4.6 million and an operating loss of $2.7 million in the current fiscal quarter related to their operations from January 11 through February 28, 2010.

The cash purchase consideration totaled approximately $160.0 million in cash, net of approximately $10.4 million of acquired cash. We funded the purchase price from our available cash. The final purchase price is subject to certain post-closing adjustments. We used the acquisition method to account for the acquisition in accordance with the FASB guidance on accounting for business combinations. Under the acquisition method, the purchase price was allocated to, and we recognized the fair values of, Healthvision’s tangible and intangible assets acquired and liabilities assumed. The excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired has been recorded as goodwill. See Note 7, Goodwill and Intangible Assets. The goodwill from this transaction arises from the benefits we expect to achieve from the additional revenue potential provided by our expanded product offerings and increased access to customers in our healthcare vertical within our S3 Strategic Industries segment.

Transaction and merger related integration costs of $0.5 million and $0.7 million, respectively, associated with Healthvision have been expensed as incurred and are reflected in our results of operations for the third quarter ended February 28, 2010 in general and administrative expenses. These integration costs include approximately $0.3 million of severance and related benefits resulting from the elimination of certain positions that became redundant in the integration of Healthvision’s operations. A majority of the affected employees will be working through the transition of their responsibilities and will be terminated during the next nine months.

We are responsible for determining the fair values of the acquired assets and liabilities. These fair values were based on our estimates as of the acquisition date of January 11, 2010 and were based on a number of factors, including valuations. Identified intangible assets acquired included existing technology, existing customer relationships and trade names. We used variations of the income approach method to value the intangible assets. Under these methods, fair value is estimated based upon the present value of cash flows that the applicable asset is expected to generate. The valuation of the existing technology and trade names were based on the relief-from-royalty method, and existing customer relationships were valued using the excess earnings method. The royalty rates used in the relief from royalty method were based on both a return-on-asset method and market comparable rates. Our estimates of fair value and resulting allocation of purchase price are preliminary as of February 28, 2010. We are in the process of finalizing certain purchase consideration adjustments and the valuation of certain deferred tax liabilities and the final allocation of the adjusted purchase consideration may differ from the information presented in these unaudited Condensed Consolidated financial statements. We do not anticipate that any changes would be materially different from the amounts presented below.

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The following table summarizes our preliminary allocation of the Healthvision purchase consideration (in thousands):

Accounts receivable, net	$	19,519
Identified intangible assets:
Existing technology	45,500
Existing customer relationships	46,000
Trade names	4,000
Goodwill	78,799
Deferred revenue	(10,028		)
Deferred tax liabilities, net	(22,126		)
All other net tangible assets (liabilities), net of cash acquired	(1,664		)
Total fair value of purchase	$	160,000

In general, goodwill is deductible for tax purposes when, in conjunction with a stock acquisition, the acquired company has previously deductible tax basis goodwill. Accordingly, $6.1 million of the goodwill we recorded in relation to our acquisition of Healthvision is amortizable for tax purposes.

The following unaudited pro forma financial information is based on historical financial information of Lawson and Healthvision giving effect to the acquisition as if it had occurred at the beginning of the fiscal year for each period presented and applying certain assumptions and pro forma adjustments. These pro forma adjustments primarily relate to the amortization of acquired intangibles, recognition of deferred revenues, interest income, interest expense and the estimated impact on our income tax provision. We believe that the assumptions used and the adjustments made are reasonable given the information available to us as of the date of this Form 10-Q. This pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the acquisition occurred at such earlier times or of the results that may be achieved in the future. In addition, these pro forma financial statements do not reflect the realization of any cost savings that we may achieve from operating efficiencies, synergies or other restructuring activities that may result from the acquisition.

The following table summarizes the pro forma financial information of the combined Lawson and Healthvision as if the acquisition closed at the beginning of the fiscal year for each period presented (in thousands except per share data):

	February 28,				February 28,
	2010		2009		2010		2009
Total revenues	$	194,780	$	190,165	$	577,674	$	613,896
Net income	$	2,610	$	7,912	$	13,984	$	8,975
Net income per share - Basic	$	0.02	$	0.05	$	0.09	$	0.05
Net income per share - Diluted	$	0.02	$	0.05	$	0.08	$	0.05

5. Share-Based Compensation

We account for share-based compensation in accordance with the FASB guidance on share based payments. This guidance requires us to estimate the fair value of our share-based payment awards on the date of grant using an option-pricing model. We use the Black-Scholes option-pricing model which requires the input of significant assumptions including an estimate of the average period of time employees will retain vested stock options before exercising them, the estimated volatility of our common stock price over the expected term and the applicable risk-free interest rate. The value of the portion of awards that are ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations.

The fair value of restricted stock and restricted stock unit awards (together restricted stock awards) is estimated based on the grant date market value of our common stock. For service-based restricted stock awards, compensation expense is recognized on a straight-line basis over the related service period. For performance-based restricted stock awards vesting is based on obtaining certain performance targets (currently based on our non-GAAP operating margin percentage), compensation expense is recognized over the related service period based on management’s assessment of the probability of meeting such targets. In general, we begin to recognize applicable compensation expense when we believe it is probable that the related performance targets will be met and no compensation expense is recorded, and any previously recognized expense reversed, when achievement of the performance target is not assessed as probable. We assess the likelihood or probability of achieving the performance target for these awards at the end of each quarterly reporting period. These performance-based awards will be cancelled and forfeited if the applicable performance targets are not met.

Compensation expense related to our Employee Stock Purchase Plan (ESPP) is estimated as the 15% discount employees receive relative to the market value of our common stock at the end of the ESPP’s quarterly offering periods and is recognized in the applicable fiscal quarter.

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The following table presents share-based compensation expense recognized in our Condensed Consolidated Statements of Operations, by category, for the periods indicated (in thousands):

	Three Months Ended						Nine Months Ended
	February 28,						February 28,
	2010			2009			2010			2009

Cost of revenues	$	1,976		$	370		$	3,776		$	662
Research and development	448			162			629			460
Sales and marketing	2,947			453			5,798			1,453
General and administrative	887			1,041			3,055			4,186
Stock-based compensation expense, before income tax	6,258			2,026			13,258			6,761
Income tax benefit	(2,409		)	(780		)	(5,105		)	(2,603		)
Stock-based compensation expense, net of tax	$	3,849		$	1,246		$	8,153		$	4,158

As of February 28, 2010, we had the following unrecognized share-based compensation which we expect to recognize over the weighted average periods indicated (in thousands):

	Outstanding Stock Options		Restricted Stock Awards
Unrecognized compensation expense	$	9,777	$	20,326
Recognition period	1.42 years		1.48 years

6. Trade Accounts Receivable

The components of our trade accounts receivable were as follows (in thousands):

	February 28,			May 31,
	2010			2009
Trade accounts receivable	$	119,840		$	141,436
Unbilled accounts receivable	19,836			14,752
Less: allowance for doubtful accounts	(4,396		)	(3,522		)
Trade accounts receivable, net	$	135,280		$	152,666

Unbilled accounts receivable represents revenue recognized on contracts for which billings have not yet been presented to our customers because the amounts were earned but not contractually billable as of the balance sheet date.

7. Goodwill and Intangible Assets

The change in the carrying amount of our goodwill by reportable segment for the nine months ended February 28, 2010 was as follows (in thousands):

	S3 Strategic Industries			M3 Strategic Industries			General Industries			Consolidated Total
Balance, May 31, 2009 (1)	$	201,885		$	85,505		$	182,884		$	470,274
Goodwill acquired	78,799			—			—			78,799
Goodwill adjustments	(368		)	(156		)	(333		)	(857		)
Currency translation effect	2,986			1,643			3,514			8,143
Balance, February 28, 2010	$	283,302		$	86,992		$	186,065		$	556,359

(1) Reflects the reporting segment structure effective beginning in the first quarter of fiscal 2010. In fiscal 2009 and prior years we operated as one reportable segment. See Note 15, Segment and Geographic Information.

Goodwill acquired during the first nine months of fiscal 2010 totaled $78.8 million related to our acquisition of Healthvision (See Note 4, Business Combinations). The Healthvision goodwill relates to our S3 Strategic Industries reportable segment.

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We recorded net adjustments of $0.9 million to reduce goodwill during the first nine months of fiscal 2010. These adjustments included approximately $0.5 million related to net adjustments to our acquired income tax assets and liabilities related to our Intentia acquisition (see Note 11, Income Taxes) and $0.4 million related to our fiscal 2006 lease restructuring plan. See Note 3, Restructuring.

In accordance with the FASB guidance related to goodwill and other intangible assets, we are required to assess the carrying amount of our goodwill for potential impairment annually or more frequently if events or a change in circumstances indicate that impairment may have occurred. We conduct our annual impairment test in the fourth quarter of each fiscal year.

Testing for goodwill impairment is a two step process. The first step screens for potential impairment and if there is an indication of possible impairment the second step must be completed to measure the amount of impairment loss, if any. The first step of the goodwill impairment test used to identify potential impairment compares the fair value of a reporting unit with the carrying value of its net assets. In fiscal 2009 and prior years, we had only one reporting unit and therefore we compared our Company’s fair value to the carrying value of our consolidated net assets to complete the first step of this test. If the fair value of the reporting unit had been less than the carrying value of the reporting unit, the second step of the goodwill impairment test would have been performed to measure the amount of impairment loss we would be required to record, if any. The second step, if required, would compare the implied fair value of Lawson’s goodwill with the current carrying amount of our goodwill. If the implied fair value of our goodwill is less than the carrying value, an impairment charge would be recorded as a charge to our operations.

The results of our most recent annual assessment performed at the end of fiscal 2009 did not indicate any impairment of our goodwill. During the first quarter of fiscal 2010, with our strategic reorganization and workforce realignment, we determined that we now operate under three reportable segments: S3 Strategic Industries, M3 Strategic Industries and General Industries. See Note 15, Segment and Geographic Information, for additional information regarding our reportable segments. For purposes of our goodwill impairment testing, we have determined that we have four reporting units: S3 Strategic Industries group, M3 Strategic Industries group, the services industries component of our General Industries group and the manufacturing & distribution component of our General Industries group. Upon this change from one reporting unit to four reporting units, effective June 1, 2009, we were required to allocate our goodwill to each reporting unit based upon their relative fair values and we were required to perform a step one goodwill impairment test.

For purposes of allocating our recorded goodwill to our new reporting units, we estimated their fair values using a combination of an income approach (discounted cash flow method) and a market approach (market comparable method). Based on the results of the first step of our impairment test, the fair value exceeded the carrying value of the net assets for all of our reporting units. The calculated fair values of our reporting units exceeded their carrying values by amounts between approximately $27.0 million and $247.0 million, or 52.0% to 158.0% of the reporting unit carrying values, as of June 1, 2009. Accordingly, there was no impairment of our goodwill. We have no accumulated impairment charges related to our goodwill.

Intangible assets subject to amortization were as follows (in thousands):

	February 28, 2010						May 31, 2009
	Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated				Estimated
	Amounts		Amortization		Net		Amounts		Amortization		Net		useful lives
Maintenance contracts	$	22,940	$	18,974	$	3,966	$	22,940	$	17,511	$	5,429	Term
Technology	141,739		54,815		86,924		96,643		45,596		51,047		3-10 years
Client lists	10,230		8,664		1,566		10,323		7,907		2,416		4-10 years
Customer relationships	99,367		26,731		72,636		53,917		21,308		32,609		12 years
Trademarks/Trade names	9,306		5,414		3,892		5,263		5,263		—		2 years
Order backlog	5,853		5,853		—		5,728		5,728		—		1 year
Non-compete agreements	3,786		3,672		114		3,568		3,368		200		5 years
	$	293,221	$	124,123	$	169,098	$	198,382	$	106,681	$	91,701

We amortize our intangible assets using underlying cash flow projections and accelerated and straight-line methods which approximate the proportion of future cash flows estimated to be generated in each period over the estimated useful life of the applicable asset. The balances reflected in the above table as of February 28, 2010 include the intangible assets acquired in our acquisition of Healthvision and applicable accumulated amortization (See Note 4, Business Combinations). For the comparable three months ended February 28, 2010 and 2009, amortization expense for intangible assets was $7.1 million and $5.5 million, respectively. Amortization expense for intangible assets was $17.0 million and $17.2 million for the comparable nine months ended February 28, 2010 and 2009, respectively. Net intangible assets increased from May 31, 2009 to February 28, 2010 by approximately $0.9 million

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due to the effect of currency translation. Amortization expense is reported as a component of cost of revenues and as amortization of acquired intangibles in our Consolidated Statements of Operations.

We review our intangible assets for potential impairment whenever events or changes in circumstances indicate that their remaining carrying value may not be recoverable pursuant to the FASB guidance on accounting for the impairment or disposal of long-lived assets. Due to the change in our reporting structure in the first quarter of fiscal 2010, we reassessed the recoverability of our intangible assets’ carrying values and determined that there was no impairment to be recognized as of June 1, 2009.

The estimated future annual amortization expense for identified intangible assets is as follows (in thousands):

2010 (remaining 3 months)	$	7,935
2011	29,912
2012	25,896
2013	22,427
2014	18,478
Thereafter	64,450
	$	169,098

8. Deferred Revenue

The components of deferred revenue were as follows (in thousands):

	February 28,			May 31,
	2010			2009
License fees	$	41,362		$	55,667
Maintenance services	152,236			224,115
Consulting	14,862			12,741
Total deferred revenue	208,460			292,523
Less current portion	(199,024		)	(279,041		)
Deferred revenue - non-current	$	9,436		$	13,482

In general, changes in the balance of our deferred revenue are cyclical and primarily driven by the timing of our maintenance services renewal cycles. Our renewal dates occur in the third and fourth quarters of our fiscal year with revenues being recognized ratably over the applicable service periods. In addition to the cyclical nature of our deferred maintenance revenue, the decrease in the February 28, 2010 balance as compared to May 31, 2009 was primarily related to the recognition of certain deferred license fees revenues in the first half of fiscal 2010 primarily relating to contracts entered into in the fourth quarter of fiscal 2009 under our targeted sales campaign offered to our existing S3 customer base. Deferred revenue balances related to our acquisition of Healthvision are included in the balances as of February 28, 2010 (See Note 4, Business Combinations).

9. Fair Value Measurements

As previously discussed, effective June 1, 2008, we adopted the FASB guidance for financial assets and liabilities and nonfinancial assets and liabilities that are recognized at fair value on a recurring basis. We adopted this guidance for non-financial asset and liabilities that are recognized at fair value on a nonrecurring basis effective June 1, 2009. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined as an “exit price” which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in valuing an asset or liability. The above mentioned guidance also requires the use of valuation techniques to measure fair values that maximize the use of observable inputs and minimize the use of unobservable inputs. As a basis for considering such assumptions and inputs, the guidance establishes a fair value hierarchy which identifies and prioritizes three levels of inputs to be used in measuring fair value.

The three levels of the fair value hierarchy are as follows:

Level 1		—	Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2		—	Inputs other than the quoted prices in active markets that are observable either directly or indirectly including: quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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Level 3

—

Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.

We measure certain financial assets and liabilities at fair value including our cash equivalents and foreign currency forward contracts. The following table summarizes the fair value of our financial assets and liabilities that were accounted for at fair value on a recurring basis as of February 28, 2010 (in thousands):

	Fair Value Measurements Using Inputs Considered as						Fair Value at
	Level 1		Level 2		Level 3		February 28, 2010
Assets
Cash equivalents	$	—	$	65,178	$	—	$	65,178
Foreign currency forward contracts	—		1,164		—		1,164
Total	$	—	$	66,342	$	—	$	66,342

Liabilities
Foreign currency forward contracts	$	—	$	1,082	$	—	$	1,082
Total	$	—	$	1,082	$	—	$	1,082

Cash equivalents, primarily funds held in U.S. treasuries and money market instruments, are reported at their current carrying value which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in our Condensed Consolidated Balance Sheets. Our investments in treasuries are valued using quoted market prices and are included in Level 1 inputs. Our money market instruments are valued primarily using observable inputs other than quoted market prices and are included in Level 2 inputs.

Foreign currency forward contracts are valued based on observable market spot and forward rates as of our reporting date and are included in Level 2 inputs in the above table. We use these derivative instruments to mitigate non-functional currency transaction exposure. All contracts are recorded at fair value and marked-to-market values at the end of each reporting period and realized and unrealized gains and losses are included in general and administrative expenses in our Condensed Consolidated Statements of Operations. The $0.1 million net asset related to the fair value of our foreign currency forward contracts was included in prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.

In addition to the financial assets and liabilities included in the above table, certain of our nonfinancial assets and liabilities are to be measured at fair value on a nonrecurring basis in accordance with applicable U.S. GAAP. This includes items such as nonfinancial assets and liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods) and nonfinancial long-lived asset groups measured at fair value for an impairment assessment. In general, nonfinancial assets including goodwill, other intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when any impairment is recognized. As of February 28, 2010 we had not recorded any impairment related to such assets and we had no other material nonfinancial assets or liabilities requiring adjustments or write-downs to their current fair value.

We did not elect to apply the FASB guidance related to the fair value option for financial assets and liabilities to any of our currently eligible financial assets or liabilities. As of February 28, 2010 our material financial assets and liabilities not carried at fair value include our trade accounts receivable and accounts payable which are reported at their current carrying values which we believe approximate their fair values.

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10. Long-Term Debt

Long-term debt consisted of the following (in thousands):

	February 28,			May 31,
	2010			2009
				(as adjusted)
Senior convertible notes, interest at 2.5%	$	240,000		$	240,000
Debt discount	(19,657		)	(26,022		)
Car loans, interest at average rate of 4.7%	3,447			4,384
Capital lease obligations, interest at 7.9%	1,080			3,562
Total long-term debt	224,870			221,924
Less current maturities	(2,537		)	(4,591		)
Total long-term debt - non-current	$	222,333		$	217,333

In April 2007, we issued $240.0 million in aggregate principal amount of 2.5% senior convertible notes with net proceeds, after expenses, of approximately $233.5 million. The notes mature on April 15, 2012. The notes bear interest at a rate of 2.5% per annum, which is payable semi-annually in arrears, on April 15 and October 15 of each year, beginning October 15, 2007. The notes do not contain any restrictive financial covenants. The notes are convertible, at the holders’ option, into cash and, if applicable, shares of our common stock based on an initial conversion rate of 83.2293 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $12.02 per share (which reflects a 35.0% conversion premium based on the closing sale price of $8.90 per share of Lawson common stock as reported by NASDAQ on April 17, 2007). In connection with the issuance of the notes, we entered into a registration rights agreement with the initial purchasers of the notes. On August 16, 2007, we filed the shelf registration statement, which became effective on that date. On October 19, 2009, all securities that remained unsold under the registration statement were deregistered as our contractual obligation to maintain the shelf registration terminated. See Note 7, Long-Term Debt and Credit Facilities, in Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for our fiscal year ended May 31, 2009 and Note 2, Summary of Significant Accounting Policies - Adoption of New Accounting Pronouncements, above for additional information regarding our accounting for these notes.

We had certain business relationships with Lehman Brothers OTC Derivatives Inc. (Lehman OTC), including a convertible note hedge transaction and a warrant transaction both entered into as part of the issuance of our senior convertible notes and an accelerated share repurchase transaction, see Note 16, Repurchase of Common Shares. The bankruptcy filing of Lehman Brothers Holdings Inc. (Lehman Holdings) on September 15, 2008, as guarantor under the convertible note hedge transaction, and the bankruptcy filing by Lehman OTC on October 3, 2008, were events of default under the hedge transaction and warrant agreements. As a result of these defaults, we exercised our rights to terminate both the convertible note hedge transaction and the warrant transaction on October 10, 2008. Accordingly, for financial reporting purposes, we recorded the estimated fair value of the related hedge transaction asset and the warrant liability during the second quarter of fiscal 2009, resulting in a decrease in our stockholders’ equity equal to the net amount of the recorded asset and liability. As of February 28, 2010, our claim against Lehman Holdings and Lehman OTC and Lehman Holdings’ and Lehman OTC’s claim against us had not been resolved.

On June 4, 2009, counsel for Lehman Holdings and Lehman OTC demanded payment from us of the termination-date fair value of the warrant, asserted that in the contracts we have waived the right to setoff against the amounts owed to us under the hedge transaction and claimed we violated the bankruptcy stay in asserting setoff rights. We have refused payment and contend that the U.S. Bankruptcy Code gives us legal rights of offset in this dispute. We continue to closely monitor the Lehman Holdings bankruptcy situation, the liquidation of Lehman Brothers Inc. (LBI), as well as the Lehman OTC bankruptcy and our legal rights under our contractual relationships with Lehman OTC and LBI.

The terms of the senior convertible notes and the rights of note holders are not affected by the status of Lehman Holdings or Lehman OTC or by the termination of the convertible note hedge or warrant transactions. We currently believe that the Lehman Holdings bankruptcy, and its potential impact on subsidiaries of Lehman Holdings, the liquidation of LBI, and the bankruptcy of Lehman OTC, will not have a material adverse effect on our financial position, results of operations or cash flows.

We have an uncommitted credit facility that consists of a guarantee line with Skandinaviska Enskilda Banken (SEB) in the amount of $4.2 million (30.0 million Swedish Krona). The facility is collateralized by a corporate letter of guarantee by Lawson Software, Inc. As of February 28, 2010, an insignificant amount was outstanding under the guarantee line and approximately $4.2 million was potentially available under the guarantee line.

11. Income Taxes

Our quarterly income tax expense is measured using an estimated annual effective tax rate for the period. For the nine months ended February 28, 2010, our estimated annual global effective tax rate was 45.8% after considering those entities for which no tax benefit from operating losses is expected to occur during the year as a result of such entities requiring a full valuation allowance

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against current year losses. We estimate our annual effective tax rate on a quarterly basis and make any necessary changes to adjust the rate for the applicable year-to-date period based upon the annual estimate. The estimated annual tax rate may fluctuate due to changes in forecasted annual operating income, changes in the jurisdictional mix of the forecasted annual operating income, positive or negative changes to the valuation allowance for net deferred tax assets, changes to actual or forecasted permanent book to tax differences, impacts from future tax settlements with state, federal or foreign tax authorities or impacts from enacted tax law changes. We identify items which are unusual and non-recurring in nature and treat these as discrete events. The tax effect of discrete items are recorded entirely in the quarter in which the discrete event occurs.

Our income tax expense and overall effective tax rates were as follows for the periods indicated (in thousands, except percentages):

	Three Months Ended						Nine Months Ended
	February 28,						February 28,
	2010			2009			2010			2009
Income tax expense	$	6,126		$	5,967		$	21,384		$	21,066
Effective tax rate	78.6		%	49.0		%	67.3		%	79.1		%

The rate for the quarter ended February 28, 2010 was unfavorably impacted by 26.8 percentage points for unbenefitted foreign losses and changes in the jurisdictional mix of the forecasted annual operating income. In addition, the rate for the current quarter was unfavorably impacted by 4.0 percentage points as a result of income tax return to income tax provision true-ups.

As of February 28, 2010, we have recorded a liability of approximately $8.6 million for unrecognized tax benefits related to uncertain tax positions, all of which would affect earnings and the effective tax rate, if recognized. We recognize interest accrued related to unrecognized tax benefits and penalties, if incurred, as a component of our income tax expense. During the three and nine months ended February 28, 2010 we recognized approximately $0.1 million and $0.3 million of interest and had $1.0 million accrued for the payment of interest as of February 28, 2010. Interest recognized for the three and nine months ended February 28, 2009 was less than $0.1 million and $0.3 million, respectively.

We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years ending before May 31, 2005. Currently, we are under audit in various domestic and foreign jurisdictions. While we believe we have adequately provided for all tax positions under examination, amounts asserted by taxing authorities could be greater or less than the accrued provision. We do not anticipate that adjustments, if any, would result in a material change to our financial position or results of operations nor do we expect the amount of unrecognized tax benefits or cash payments related to these obligations to significantly change over the next 12 months.

During fiscal 2010, we adjusted certain income tax assets and liabilities related to our Intentia acquisition resulting in a reduction to goodwill of approximately $0.5 million. See Note 7, Goodwill and Intangible Assets.

12. Per Share Data

We compute net income per share in accordance with the FASB guidance on earnings per share. Under this guidance, basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the applicable period. Diluted net income per share is computed by dividing net income by the sum of the weighted average number of common shares outstanding plus the weighted average of dilutive shares outstanding during the period. In addition, in periods of net loss, all potentially dilutive common shares are excluded from our computation of diluted weighted average shares outstanding, as their inclusion would have an anti-dilutive effect on net loss per share. We use the treasury stock method to calculate the weighted average dilutive shares related to “in-the-money” stock options and warrants, unvested restricted stock awards and shares issuable under our employee stock purchase plan. The dilutive effect of our senior convertible notes is calculated based on the average market price of our common stock during the applicable period and the senior convertible notes’ conversion price. The senior convertible notes are excluded from our computation of diluted earnings per share when the per share conversion price is greater than the average market price of our common stock during the applicable periods.

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The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	February 28,				February 28,
	2010		2009		2010		2009
			(as adjusted)				(as adjusted)
Basic net income per share computation:

Net income	$	1,668	$	6,217	$	10,399	$	5,553
Weighted average common shares - basic	161,412		162,675		161,308		164,508
Basic net income per share	$	0.01	$	0.04	$	0.06	$	0.03

Diluted net income per share computation:

Net income	$	1,668	$	6,217	$	10,399	$	5,553
Diluted weighted average shares calculation:
Weighted average common shares	161,412		162,675		161,308		164,508
Net dilutive effect of:
Stock options	1,970		1,364		1,943		1,932
Restricted stock awards	1,967		587		1,632		493
ESPP shares	18		22		18		25
Weighted average common shares - diluted	165,367		164,648		164,901		166,958
Diluted net income per share	$	0.01	$	0.04	$	0.06	$	0.03

Potentially dilutive shares of common stock related to share-based payments and warrants are excluded from the diluted net income per share computations when their exercise prices are greater than the average market price of our common stock during the applicable periods as their inclusion would be anti-dilutive.

The following table sets forth potentially dilutive weighted average shares which were excluded from our computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive (in thousands):

	Three Months Ended		Nine Months Ended
	February 28,		February 28,
	2010	2009	2010	2009
Stock options	7,051	11,637	6,964	6,533
Restricted stock units	21	59	11	39
Total potentially dilutive shares	7,072	11,696	6,975	6,572

13. Comprehensive Income (Loss)

The following table summarizes the components of other comprehensive income (loss) (in thousands):

	Three Months Ended						Nine Months Ended
	February 28,						February 28,
	2010			2009			2010		2009
				(as adjusted)					(as adjusted)
Net income	$	1,668		$	6,217		$	10,399	$	5,553
Unrealized (loss) gain on investments (1)	12			(22		)	4		(14		)
Pension unrealized gain	(141		)	—			140		—
Foreign currency translation adjustment	(30,081		)	(17,797		)	5,404		(120,152		)
Other comprehensive income (loss)	(30,210		)	(17,819		)	5,548		(120,166		)
Comprehensive income (loss)	$	(28,542	)	$	(11,602	)	$	15,947	$	(114,613	)

(1) The unrealized gain (loss) on investments in the above table are net of taxes (tax benefits) of $(4) and $12 for the comparable three months and $(3) and $7 for the comparable nine months ended February 28, 2010 and 2009, respectively.

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Total accumulated other comprehensive income and its components for the periods presented were as follows (in thousands):

	February 28,			May 31,
	2010			2009
Foreign currency translation adjustment	$	37,628		$	32,224
Pension unrealized actuarial gain	3,074			2,934
Unrealized loss on investments	(1		)	(5		)
Accumulated other comprehensive income	$	40,701		$	35,153

On April 2, 2010, our Benefits Committee approved a plan to modify our defined benefit pension plan in Norway (the Plan) such that beginning on May 31, 2010, active participants in the Plan will no longer accumulate benefits for their services. Assets equivalent to the accumulated benefits of all active participants in the Plan will be transferred to a newly-established defined contribution plan. All retired participants will continue to receive benefits under the Plan. We expect this modification of the Plan to result in a pre-tax gain of between $3.0 and $4.0 million in the fourth quarter of fiscal 2010.

14. Commitments and Contingencies

Legal

On January 21, 2010, JuxtaComm-Texas Software, LLC filed a lawsuit in the United States District Court for the Eastern District of Texas against Lawson Software, Inc., Lawson Software Americas, Inc. and 20 other defendants. One of the defendants, Seco Tools, Inc. is a Lawson customer. Under the terms of our customer license agreement, we have agreed to defend and indemnify Seco Tools in this lawsuit. The complaint alleges that Lawson and the other defendants infringe United States Patent No. 6,195,662 entitled “System for Transforming and Exchanging Data Between Distributed Heterogeneous Computer Systems.” JuxtaComm seeks damages in an undisclosed amount, enhancement of those damages, an attorneys’ fee award and an injunction against further infringement. We plan to vigorously defend this case. Because the complaint does not identify which of our products allegedly infringes this patent, and given the inherent unpredictability of litigation and jury trials, we cannot at this time estimate the possible outcome of this lawsuit. Because patent litigation is time consuming and costly to defend, we will continue to incur significant costs defending this case. In addition, in the event of an unfavorable outcome in this matter, it could have a material adverse effect on our future results of operations or cash flows.

On May 19, 2009, ePlus, Inc. filed a lawsuit in the United States District Court for the Eastern District of Virginia against Lawson Software, Inc., Perfect Commerce, Inc., SciQuest, Inc. and Verian Technologies, Inc. The other three defendants subsequently entered into separate confidential settlements and the court dismissed their parts of the lawsuit. The May 2009 complaint alleges that Lawson’s supply chain products infringe three U.S. patents owned by ePlus. In that complaint, ePlus seeks damages in an undisclosed amount, enhancement of those damages, an attorneys’ fee award and an injunction against further infringement. As part of the subsequent discovery process, ePlus has made unquantified damages allegations for royalties on some or all of our aggregate license, maintenance and services revenues in the United States since October 2003 for our purchase order, inventory control and requisition products. We are contesting the infringement claims and validity of the patents as well as the time frame and scope of products and services associated with ePlus’ damages allegations. The court has required that ePlus submit its damages expert reports in May 2010. When ePlus submits its damages expert report, we expect that report to include the dollar amount of damages claimed by ePlus and the royalty percentage and revenue base on which ePlus calculates the alleged damages royalty. We are vigorously defending this case because we believe we have meritorious defenses, including non-infringement and patent invalidity. This case is currently scheduled to go to trial in September 2010. If we are not successful in obtaining summary judgment or other resolution before or at trial, at the conclusion of the trial the jury will decide whether or not ePlus has proved that Lawson has infringed, and whether or not Lawson has proved that the patents are invalid. If the jury finds that Lawson failed to prove invalidity of the patents, and if the jury finds that ePlus has proved infringement, then the jury will determine the amount of damages payable by Lawson. Given the inherent unpredictability of litigation and jury trials, we cannot at this time estimate the possible outcome of this lawsuit. Because patent litigation is time consuming and costly to defend, we will continue to incur significant costs defending this case. In addition, in the event of an unfavorable outcome in this matter, it could have a material adverse effect on our future results of operations or cash flows.

On May 20, 2008, a putative class action lawsuit was filed against us in the United States District Court for the Southern District of New York on behalf of current and former business, systems, and technical consultants. The suit, Cruz, et. al., v. Lawson Software, Inc. et. al., alleges that we failed to pay overtime wages pursuant to the Fair Labor Standards Act (FLSA) and state law, and alleges violations of state record-keeping requirements. The suit also alleges certain violations of ERISA and unjust enrichment. Relief sought includes back wages, corresponding 401(k) plan credits, liquidated damages, penalties, interest and attorneys’ fees. Given the preliminary nature of the alleged claims and the inherent unpredictability of litigation, we cannot at this time estimate the possible outcome of any such action. We successfully moved the case from the United States District Court for the Southern District of New York to the District of Minnesota. The Minnesota Federal District Court conditionally certified the case under the FLSA as a

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collective action and granted our motion to dismiss the two ERISA counts and the state wage and hour claims. Plaintiffs moved for Rule 23 class certification but the Court denied their motion. At the present time, the size of the class is limited to the 72 consultants who elected to participate in the lawsuit by filing opt-in forms. As permitted by the present scheduling order, we plan to file a motion for summary judgment asking for dismissal of remaining class members based on their performance of exempt duties and/or making more than $100,000 per year.

We accumulated information regarding Intentia customer claims and disputes that arose before our acquisition of Intentia in April 2006. The original charge to establish the reserve for these claims and disputes recorded in fiscal 2006, and the subsequent adjustment in fiscal 2007, were recorded to goodwill as part of the purchase accounting related to our acquisition of Intentia. Adjustments to the reserve recorded in fiscal 2008 and 2009 were reflected in general and administrative expenses in our Consolidated Statements of Operations in the applicable periods as the reductions occurred outside the period in which adjustments to purchase accounting were allowed. In the first and second quarters of fiscal 2009, certain of these claims and disputes settled at amounts lower than anticipated and our estimated reserve requirements were reduced by $1.8 million and $0.4 million, respectively. In the second quarter of fiscal 2010, we recorded an adjustment to the reserve in the amount of $0.7 million. The applicable reserve is recorded at present value and is expected to be consumed through a combination of cash payments, accounts receivable write-offs and free services over the next 12 to 15 months. As of February 28, 2010 and May 31, 2009, we had remaining accruals of approximately $1.2 million and $1.9 million, respectively, related to these Intentia disputes that arose before the acquisition. We expense our defense costs during the period incurred. If the aggregate settlement costs or judgments exceed the fair value estimate established as part of the purchase price adjustment, the excess costs would be expensed in the period when the additional charge is both probable and can be reasonably estimated.

On September 29, 2008, we received a settlement offer from our insurance carrier related to certain of these pre-merger litigation claims. We accepted this offer of €1.2 million, approximately $1.6 million, and we recorded the settlement within our results of operations for the second quarter of fiscal 2009, when the funds were received.

We are subject to various other legal proceedings and the risk of litigation by employees, customers, suppliers, stockholders or others through private actions, class actions, administrative proceedings or other litigation. While the outcome of these claims cannot be predicted with certainty, we do not believe that the outcome of any of these legal matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period.

Indemnification Guarantee Agreements and Employment Agreements

In the normal course of business, we license our software products to customers under end-user license agreements and to certain resellers or other business partners under business partner agreements. We also enter into services agreements with customers for the implementation of our software. We may subcontract these services to our business partners. These agreements generally include certain provisions for indemnifying our customer or business partner against losses, expenses and liabilities from damages that may be awarded against them if our software, or the third-party-owned software we resell, is found to infringe a patent, copyright, trademark or other proprietary right of a third-party. We have also entered into various employment agreements with certain executives and other employees which provide for severance payments subject to certain conditions and events. We believe our exposure under these various indemnification and employment agreements is minimal and accordingly, we have not accrued any liabilities related to these agreements as of February 28, 2010.

We have arrangements with certain of our customers whereby we guarantee the products and services purchased will operate materially and substantially as described in the documentation that we provided. If necessary, we provide for the estimated cost of product and service warranties based on specific warranty claims and claim history.

See Note 13, Commitments and Contingencies, in Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for our fiscal year ended May 31, 2009 for additional detail regarding these various agreements.

15. Segment and Geographic Information

We are a global provider of enterprise software, services and support. We target customers in specific industries as well as the horizontal market for our strategic human capital management product line. We serve customers in the Americas, EMEA and APAC geographic regions. We determine our reportable operating segments in accordance with the provisions in the FASB guidance on segment reporting, which establishes standards for, and requires disclosure of, certain financial information related to our operating segments and geographic regions. Factors used to identify our reportable operating segment(s) include the financial information regularly utilized for evaluation by our chief operating decision-maker (CODM) in making decisions about how to allocate resources

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and in assessing our performance. We have determined that our CODM, as defined by this segment reporting guidance is our Chief Executive Officer (CEO).

Segment Information

During fiscal 2009 and prior years, we viewed our operations and managed our business as one reportable segment, the development and marketing of computer software and related services including consulting, maintenance and customer support. Beginning in the first quarter of fiscal 2010, we reorganized our operations to provide greater focus on and better serve our targeted vertical markets within each of our product lines.

In fiscal 2009 and prior years, the operations that supported our S3 products and M3 products were under one common leadership organization and the financial information utilized to evaluate our business operations for fiscal 2009 and prior years were combined for all vertical markets for our product sales, consulting services and maintenance and customer support. Following our fiscal 2010 strategic realignment, we are now operationally aligned by industry vertical and our management structure and financial reporting of our operations follow this vertical structure. Based on our new organizational structure and related internal financial reporting structure, we have determined that we now have three reportable segments relating to our three industries groups: S3 Strategic Industries, M3 Strategic Industries and General Industries. The S3 Strategic Industries and M3 Strategic Industries groups generally align with our Lawson S3 Enterprise Management System and Lawson M3 Enterprise Management System product lines, respectively. Our S3 Strategic Industries and M3 Strategic Industries groups include key vertical industry markets for each of our S3 and M3 product lines, respectively, and related services and support, which we believe offer the greatest growth potential for Lawson. The S3 Strategic Industries group targets customers in the healthcare and public sector industries. The M3 Strategic Industries group targets customers in the equipment service management & rental, food & beverage and fashion industries. Our General Industries group includes our services industries customers (S3) and manufacturing & distribution industries customers (M3) which are in industries not included in our other two industries groups.

Within our organization, multiple sets of information are available reflecting various views of our operations including vertical, geographic and/or functional information. However, the main financial information provided to and used by our CODM to assist in making operational decisions, allocating resources and assessing our performance reflects revenues, controllable costs and controllable margin by segment (which are our industries groups; S3 Strategic Industries, M3 Strategic Industries and General Industries). Segment controllable costs include costs of applicable license fees and other direct costs: costs of resources dedicated to each industries group, direct general and administrative expenses and allocations related to our professional services organization. The resulting segment controllable margin is the financial measure by which each segment and management’s performance is measured. Segment controllable margin does not include an allocation of non-dedicated resources that support our entire organization or other corporate shared-services. These unallocated expenses relate to our functional areas or competency centers: global sales operations, customer support, nearly all marketing, nearly all development and product management, and general and administrative functions: executive management, finance, human resources, legal, facilities and information technology services. Certain other costs are also excluded from segment controllable margin and are included in competency center and other unallocated expenses including share-based compensation and pre-merger claims reserve adjustments. In addition, restructuring charges and amortization of acquired intangibles are not allocated to our reportable segments. We do not have any intercompany revenue recorded between our reportable segments. The accounting policies for all of our reportable segments are the same as those used in our consolidated financial statements as detailed in Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended May 31, 2009 and updated herein.

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The following table presents financial information for our reportable segments for the periods indicated (in thousands):

	S3 Strategic		M3 Strategic		General
Three Months Ended:	Industries		Industries		Industries		Total
February 28, 2010
Segment revenues
License fees	$	12,730	$	11,744	$	7,330	$	31,804
Maintenance services	37,099		19,328		32,653		89,080
Software revenues	49,829		31,072		39,983		120,884
Consulting	21,151		28,983		14,949		65,083
Total segment revenues	70,980		60,055		54,932		185,967

Segment controllable costs	33,423		41,475		19,575		94,473
Segment controllable margin	$	37,557	$	18,580	$	35,357	91,494

Unallocated expenses
Competency center, corporate shared-services and other unallocated expenses							75,626
Restructuring							1,154
Amortization of acquired intangibles							2,699
Total unallocated expenses							79,479
Consolidated - Operating income							12,015
Other income (expense), net							(4,221		)

Consolidated - Income before income taxes							$	7,794

February 28, 2009 (1)
Segment revenues
License fees	$	9,555	$	7,895	$	7,431	$	24,881
Maintenance services	34,257		18,137		33,412		85,806
Software revenues	43,812		26,032		40,843		110,687
Consulting	17,960		25,037		20,164		63,161
Total segment revenues	61,772		51,069		61,007		173,848

Segment controllable costs	30,488		38,218		28,993		97,699
Segment controllable margin	$	31,284	$	12,851	$	32,014	76,149

Unallocated expenses
Competency center, corporate shared-services and other unallocated expenses							55,808
Restructuring							3,534
Amortization of acquired intangibles							1,890
Total unallocated expenses							61,232
Consolidated - Operating income							14,917
Other income (expense), net							(2,733		)

Consolidated - Income before income taxes							$	12,184

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	S3 Strategic		M3 Strategic		General
Nine Months Ended:	Industries		Industries		Industries		Total
February 28, 2010
Segment revenues
License fees	$	33,549	$	33,334	$	19,227	$	86,110
Maintenance services	106,636		54,612		98,414		$	259,662
Software revenues	140,185		87,946		117,641		345,772
Consulting	59,468		84,931		49,210		193,609
Total segment revenues	199,653		172,877		166,851		539,381

Segment controllable costs	87,535		121,426		62,891		271,852
Segment controllable margin	$	112,118	$	51,451	$	103,960	267,529

Unallocated expenses
Competency center, corporate shared-services and other unallocated expenses							210,455
Restructuring							5,905
Amortization of acquired intangibles							6,524
Total unallocated expenses							222,884
Consolidated - Operating income							44,645
Other income (expense), net							(12,862		)

Consolidated - Income before income taxes							$	31,783

February 28, 2009 (1)
Segment revenues
License fees	$	27,572	$	27,181	$	21,314	$	76,067
Maintenance services	99,221		58,465		107,312		264,998
Software revenues	126,793		85,646		128,626		341,065
Consulting	63,299		90,459		76,298		230,056
Total segment revenues	190,092		176,105		204,924		571,121

Segment controllable costs	93,352		135,655		99,544		328,551
Segment controllable margin	$	96,740	$	40,450	$	105,380	242,570

Unallocated expenses
Competency center, corporate shared-services and other unallocated expenses							192,731
Restructuring							11,020
Amortization of acquired intangibles							6,875
Total unallocated expenses							210,626
Consolidated - Operating income							31,944
Other income (expense), net							(5,325		)

Consolidated - Income before income taxes							$	26,619

(1) We have retrospectively adjusted our segment information for fiscal 2009 to reflect our new reportable segments and to conform to the current period presentation.

We do not assess or report our assets or capital expenditures by reportable segment. See Note 7, Goodwill and Intangible Assets, for disclosure of goodwill by reportable segment.

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Geographic Information

The following table presents our revenues summarized by geographic region, based on the location of our customers, for the periods indicated (in thousands):

	Geographic Region
Three Months Ended:	Americas		APAC		EMEA		Total
February 28, 2010
License fees	$	19,939	$	2,257	$	9,608	$	31,804
Maintenance services	60,403		3,064		25,613		89,080
Software revenues	80,342		5,321		35,221		120,884
Consulting	35,557		4,425		25,101		65,083
Total revenues	$	115,899	$	9,746	$	60,322	$	185,967

February 28, 2009
License fees	$	15,814	$	1,268	$	7,799	$	24,881
Maintenance services	57,506		2,686		25,614		85,806
Software revenues	73,320		3,954		33,413		110,687
Consulting	30,216		2,896		30,049		63,161
Total revenues	$	103,536	$	6,850	$	63,462	$	173,848

	Geographic Region
Nine Months Ended:	Americas		APAC		EMEA		Total
February 28, 2010
License fees	$	52,853	$	5,697	$	27,560	$	86,110
Maintenance services	177,095		7,853		74,714		259,662
Software revenues	229,948		13,550		102,274		345,772
Consulting	99,742		11,621		82,246		193,609
Total revenues	$	329,690	$	25,171	$	184,520	$	539,381

February 28, 2009
License fees	$	45,096	$	4,668	$	26,303	$	76,067
Maintenance services	172,693		8,647		83,658		264,998
Software revenues	217,789		13,315		109,961		341,065
Consulting	104,836		10,259		114,961		230,056
Total revenues	$	322,625	$	23,574	$	224,922	$	571,121

The following table presents our long-lived tangible assets, consisting of property and equipment net of accumulated depreciation, summarized by geographic region (in thousands):

	Geographic Region
	Americas		APAC		EMEA		Total
As of February 28, 2010	$	42,671	$	4,063	$	9,621	$	56,355
As of May 31, 2009	$	35,381	$	5,879	$	14,381	$	55,641

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The following table sets forth revenues and long-lived tangible assets by country for the periods indicated (in thousands):

	Three Months Ended				Nine Months Ended
	February 28,				February 28,
Revenues (1)	2010		2009		2010		2009
United States	$	112,077	$	101,321	$	322,203	$	315,534
Sweden	15,518		17,094		49,645		63,899
All other countries (2)	58,372		55,433		167,533		191,688
Total revenues	$	185,967	$	173,848	$	539,381	$	571,121

	As of
	February 28,		May 31,
Long-lived tangible assets	2010		2009
United States	$	42,403	$	35,339
Sweden	6,188		9,407
All other countries (2)	7,764		10,895
Total long-lived tangible assets	$	56,355	$	55,641

(1) Revenues are attributable to countries based on the location of our customers.

(2) No other country reported revenues exceeding 10% of consolidated revenues or long-lived tangible assets exceeding 10% of consolidated long-lived tangible assets. In those fiscal periods when a country’s revenues or long-lived tangible assets were less than 10% of the consolidated totals, applicable amounts are included in “All other countries.”

16. Repurchase of Common Shares

Our Board of Directors approved a share repurchase program of up to $100.0 million of common stock in November 2006 and on July 10, 2008, increased the maximum authorized for repurchase under the program to $400.0 million. The share repurchases are funded using our existing cash balances and future cash flows and may occur through transactions structured through investment banking institutions as permitted by securities laws and other legal requirements, open market purchases, privately negotiated transactions and/or other mechanisms. Our share repurchase program does not have an expiration date and allows us to repurchase shares at our discretion and market conditions influence the timing of the buybacks and the number of shares repurchased. There can be no assurance as to the amount, timing or repurchase price of future repurchases, if any, related to the share repurchase program. The program may also be modified, extended or terminated by our Board of Directors at any time.

In the third quarter of fiscal 2010, we repurchased an aggregate of 1.0 million shares of our common stock at an average price of $6.14 per share under the share repurchase program. From inception of the repurchase program through February 28, 2010, we have used $270.9 million to repurchase approximately 32.9 million shares at an average price of $8.23 per share. The repurchased shares are recorded as treasury stock and result in a reduction to our stockholders equity. The shares will be used for general corporate purposes. As of February 28, 2010, the maximum dollar value of shares that may yet be purchased under this program was $129.1 million.

During the first quarter of fiscal 2009 we purchased 11.5 million shares through an accelerated share repurchase transaction (the ASR) that we entered into with Lehman OTC on July 15, 2008. The average price per share of the shares purchased under the ASR transaction was $7.93. Pursuant to the ASR agreement, Lehman was required to post cash collateral to a segregated brokerage account in our name in an amount equal to the value of the additional shares, or net cash, due to us if the ASR were terminated as of the current date. Upon an event of default by Lehman OTC, pursuant to our rights under the ASR, we issued a notice of default to Lehman OTC on September 24, 2008 and terminated the ASR agreement and requested the distribution of all $9.1 million of funds which Lehman OTC had previously deposited into our segregated brokerage account at LBI as required under the ASR agreement. On March 25, 2009, we received a notice from the bankruptcy trustee for the LBI estate that the trustee has allowed our customer claim for that $9.1 million amount. As of the filing date of this quarterly report, we have not received payment of these funds.

The bankruptcy trustee for the LBI estate has filed certain court papers against LBI indicating that there were shortfalls in the reserves intended to cover customer claims such as Lawson’s ASR claim for $9.1 million. The trustee sought permission to use assets other than the reserves to cover these customer claims. Several creditors (non-customers) objected and a compromise was reached in early March where funds could be used to cover what appears to be a significant part of the shortfall and the trustee could seek further authority to cover additional shortfalls. The trustee is continuing to investigate the reasons for the aggregate shortfalls in the reserve for all customer claims and other possible sources of funds to make up the aggregate shortfall. We had originally anticipated that we would receive payment of our approved $9.1 million claim in 2010 and had recorded these funds as restricted cash and reflected the

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funds as a current asset in our Consolidated Balance Sheet as of May 31, 2009. However, based on these developments relating to the LBI estate, during the third quarter of fiscal 2010 we have reclassified the funds to reflect them as a long-term asset. We continue to closely monitor the LBI bankruptcy situation and its impact on our claim.

The $7.93 average price per share of the shares purchased under the ASR is inclusive of the $9.1 million discussed above. Any potential reduction in the amount we may receive related to our approved claim would be an adjustment to the average price per share of the related treasury stock and would not impact our future results of operations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements. The forward-looking statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, among others, statements about our future performance, the continuation of historical trends, the sufficiency of our sources of capital for future needs, the effects of acquisitions and the expected impact of recently issued accounting pronouncements. The forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K filed with SEC for our fiscal year ended May 31, 2009. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. Lawson undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in our Annual Report on Form 10-K and in other documents we file from time to time with the SEC including our Quarterly Reports on Form 10-Q.

Management Overview

General

Lawson Software, Inc. is a global provider of enterprise software. We provide business application software, consulting and maintenance to customers primarily in specific services, trade and manufacturing/distribution industries. We specialize in and target specific industries through our three reportable segments: S3 Strategic Industries segment which targets customers in the healthcare and public sector industries as well as the horizontal market for our Strategic Human Capital Management product line, M3 Strategic Industries segment which targets customers in the equipment service management & rental, food & beverage and fashion industries, and our General Industries segment which includes our services industries customers (S3) and manufacturing & distribution industries (M3) customers which are in industries not included in our other two industries groups.

Our software includes enterprise financial management, human capital management, business intelligence, asset management, enterprise performance management, supply chain management, service management, manufacturing operations, business project management and industry-tailored applications. Our applications help automate and integrate critical business processes, which enables our customers to collaborate with their partners, suppliers and employees. We support our customers’ use of our applications through consulting services which primarily help our customers implement their Lawson applications, and through our maintenance programs that provide on-going support and product updates for our customers’ continued use of our applications.

Our enterprise software solutions focus on providing competitive advantages and business flexibility to our customers. Lawson’s solutions fall within three main product lines and include related maintenance and consulting services. Our product lines are referred to as Lawson S3 Enterprise Management System, Lawson M3 Enterprise Management System, and Lawson Strategic Human Capital Management with many of the solutions in each product line having broad, cross-industry application. Our S3 solutions consist of business applications designed for services oriented industries. Our M3 solutions consist of applications that are geared for manufacturing, distribution and trade businesses that face resource constraints and whose processes are often complex and industry-specific. Our Strategic Human Capital Management applications provide solutions for customers in any industry to strategically manage their workforce.

During fiscal 2009 and prior years, we operated as one business segment, the development and marketing of computer software and related services including consulting, maintenance and customer support. Beginning in the first quarter of fiscal 2010, we reorganized our operations to provide greater focus on and better serve our targeted vertical markets. With this strategic organizational

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change, including a workforce realignment, we determined that we have three reportable segments that align with our three industries groups: S3 Strategic Industries, M3 Strategic Industries and General Industries. See Note 15, Segment and Geographic Information, in Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information and applicable disclosures.

In the third quarter of fiscal 2010 we acquired Healthvision, a Dallas-based company providing integration and application technology and related services to hospitals and large healthcare organizations. Healthvision’s Cloverleaf integration technology connects the disparate software applications and technologies used throughout healthcare organizations, enabling data to flow smoothly to healthcare professionals in various settings within the organization.

The acquisition of Healthvision is a strategic fit for our healthcare customers within our S3 Strategic Industries segment. Total purchase consideration related to the Healthvision acquisition was $160.0 million, net of cash acquired, and resulted in the recognition of $95.5 million of amortizable intangible assets and $78.8 million in goodwill. Operating results of Healthvision have been included in our results of operations since the acquisition date of January 11, 2010.

Our S3 Strategic Industries segment performed well in the third quarter of fiscal 2010 as we entered into significant transactions within our healthcare and public sector verticals and for our strategic human capital management products. Software spending in our healthcare and public sector verticals has proven more resilient in this weak economy than other industries in which we do business. Despite this resiliency, we believe that public sector budgetary shortfalls will continue to present challenges. The addition of Healthvision’s operations also benefitted our healthcare business within this segment. Within our M3 Strategic Industries segment, our equipment service management & rental vertical also continued to perform well in the third quarter of fiscal 2010 with increased license fees revenues as compared to the similar quarter last year. This increase was largely driven by our ability to offer a new end-to-end solution for our customers in this vertical. Our channel partners, primarily third-party resellers, also contributed to the improved licensing activity within our M3 Strategic Industries segment during the third quarter. Certain industry verticals covered by our General Industries segment, including general manufacturing & distribution, retail and financial services, have been particularly hard hit by the continued global economic downturn over the past year and a half. Third quarter licensing activity in this segment was flat compared to last year.

Fiscal Periods ended February 28, 2010

Revenues for the three months ended February 28, 2010 were $186.0 million, an increase of 7.0% compared to $173.8 million in the third quarter last year. In the nine months ended February 28, 2010 our revenues of $539.4 million decreased 5.6% compared to $571.1 million in the similar period last year.

Software revenues, consisting of license fees and maintenance services, increased $10.2 million, or 9.2%, in the third quarter and $4.7 million, or 1.4%, in the first nine months of fiscal 2010 as compared to the similar periods last year. Both our S3 Strategic Industries and M3 Strategic Industries segments experienced growth in the third quarter. These increases include approximately $2.8 million within our S3 Strategic Industries segment related to our acquisition of Healthvision. Our General Industries segment software revenues declined in the third quarter and first nine months of fiscal 2010 compared to the similar periods of 2009 by $0.9 million and $11.0 million, respectively. Consulting revenues increased $1.9 million, or 3.0%, in the third quarter as compared to the third quarter last year primarily due to the inclusion of Healthvision. For the first nine months of fiscal 2010 consulting revenues decreased $36.4 million, or 15.8%, primarily in our EMEA region as we have maintained significantly fewer billable consultants in fiscal 2010 as compared to last year and we have experienced lower bookings for our consulting and implementation services.

Geographically, the third quarter increase in revenues compared to 2009 was primarily related to our Americas region which increased $12.4 million, or 11.9%, due in part to the acquisition of Healthvision. Revenues in our APAC region increased $2.9 million or 42.3%. Partially offsetting these increases was a $3.1 million, or 4.9%, decrease in revenues in our EMEA region. The decline in our revenues over the first nine months of fiscal 2010 compared to the similar period of 2009 was primarily due to our EMEA region which declined $40.4 million or 18.0%. This decrease was somewhat offset by increases of $7.1 million and $1.6 million, or 2.2% and 6.8%, in our Americas and APAC regions, respectively. Year-to-date our Americas region accounted for approximately 61.1% of our revenues while our EMEA and APAC regions accounted for 34.2% and 4.7%, respectively. In the comparable year-to-date period last year our Americas, EMEA and APAC regions accounted for 56.5%, 39.4% and 4.1 % of our total revenues, respectively. As a majority of Healthvision’s operations are in our Americas region, we anticipate that the Americas region will continue to represent a greater proportion of our total revenues.

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Total gross margin as a percent of revenues for the three and nine months ended February 28, 2010 improved to 55.3% and 55.9%, respectively, as compared to 52.5% and 51.9% in the comparable periods last year primarily as result of improved gross margins related to our license fees and consulting revenues as well as a favorable mix of software revenues compared to consulting revenues. The improvement in our gross margin from consulting services primarily reflects the effects of our 2009 and 2010 restructuring activities. In addition, the inclusion of Healthvision’s operations favorably impacted our consulting gross margins. In the three months ended February 28, 2010 software revenues accounted for 65.0% of our total revenues as compared to 63.7% in the similar period last year. Year-to-date, software revenues accounted for 64.1% of our total revenues as compared to 59.7% in the first nine months last year. We anticipate an improved software revenue mix for full year fiscal 2010 when compared to fiscal 2009.

Operating expenses for the third quarter of fiscal 2010 increased by $14.4 million, or 18.8%, compared to the same period last year. As a percent of revenues, third quarter operating expenses were 48.8% compared to 43.9% during the third quarter last year. For the first nine months of fiscal 2010, operating expenses decreased $7.3 million, or 2.8%, compared to the similar period last year and as a percent of revenues operating expenses were 47.6% compared to 46.3% last year. Included in operating expenses for the quarter and nine months was approximately $3.1 million related to the operations of Healthvision’s operations and $1.2 million in transaction and integration costs related to our acquisition of Healthvision.

Foreign Currency

A significant portion of our business is conducted in currencies other than the U.S. Dollar, particularly the Swedish Krona (SEK) and the Euro. Our revenues and operating expenses are affected by fluctuations in applicable foreign currency exchange rates. For the three months ended February 28, 2010, the average exchange rates for the U.S. Dollar have weakened against the SEK and Euro as compared to the average exchange rates for the similar quarter last year. For the nine months ended February 28, 2010, the average exchange rates for the U.S. Dollar has weakened against the EURO as compared to the average exchange rates for the similar period last year while remaining relatively flat against the SEK. These fluctuations in the exchange rates affected our third quarter and fiscal 2010 year to date results as a decline in the U.S. Dollar to SEK and Euro exchange rates generally have the effect of increasing our revenues but also increasing our operating expenses denominated in currencies other than the U.S. Dollar. Similarly, improvements in the U.S. Dollar to SEK and Euro exchange rates generally have the effect of reducing our revenues but also reducing our operating expenses denominated in currencies other than the U.S. Dollar.

In general, for financial activities denominated in a currency other than the U.S. Dollar, we calculate constant currency comparisons by converting the prior period financial activities at the average monthly exchange rates applicable to current periods. We believe these constant currency comparisons provide additional insight into our business performance during the applicable reporting periods exclusive of the effects of foreign currency exchange rate fluctuations, and should be considered in addition to, but not as a substitute for the actual changes in revenues, expenses, income or other financial measures presented in this Quarterly Report on Form 10-Q.

The weakening of the U.S. Dollar during the three months ended February 28, 2010 had a positive impact on our revenues, accounting for an increase of approximately $6.9 million, or 4.1%, as compared to the similar period last year. This primarily affected our EMEA region resulting in a positive impact on license fees, maintenance services and consulting revenues of $1.1 million, or 5.4%, $1.6 million, or 1.8%, and $4.3 million, or 6.5%, respectively, as compared to the third quarter last year. On a constant currency basis, our total revenues for the third quarter increased approximately $5.2 million, or 2.9%, as compared to the similar period of fiscal 2009. On a constant currency basis license fees and maintenance services revenues increased $5.8 million, or 22.4%, and $1.7 million, or 2.0%, respectively, compared to the third quarter of last year while our consulting revenues decreased $2.4 million, or 3.5%. Together, the favorable currency impacts and constant currency changes resulted in a net increase in total revenues during the third quarter of fiscal 2010 of $12.1 million, or 7.0%, as compared to the similar period last year. The currency fluctuations also had the effect of increasing our total costs and operating expenses, as reported in U.S. Dollars, by approximately $9.3 million which, when combined with an increase in total expenses of $5.7 million on a constant currency basis, resulted in a $15.0 million increase in total expenses for the third quarter of fiscal 2010 as compared to the third quarter of fiscal 2009. The effect of foreign currency on basic and diluted earnings per share for the quarter ended February 28, 2010, was a reduction of approximately $0.01 per share.

For the first nine months of fiscal 2010, currency fluctuations had a minimal impact on our total revenues compared to the first nine months of fiscal 2009. Our license fees revenues and consulting revenues were positively impacted by currency fluctuations $1.6 million, or 2.3%, and $3.0 million, or 1.1%, respectively. These increases were offset by a $5.1 million, or 1.9%, negative impact on our maintenance services revenues. On a constant currency basis, our total revenues decreased approximately $31.2 million, or 5.5%, as compared to the similar nine-month period last year. This was primarily driven by a $39.5 million, or 16.9%, constant currency decrease in our consulting revenues and a $0.2 million, or 0.1%, decrease in nine-month maintenance services revenues which was only partially offset by an $8.5 million, or 10.9%, increase in our license fees revenues. Together, these constant

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currency changes and the currency impacts resulted in a net decrease in total revenues during the first nine months of fiscal 2010 of $31.7 million, or 5.6%, as compared to the similar period last year. Total expenses for the first nine months of fiscal 2010 increased by $3.3 million as a result of currency fluctuations and, on a constant currency basis, total expenses decreased $47.8 million for a net decrease of approximately $44.4 million as compared to the first nine months of last year. The effect of foreign currency on basic and diluted earnings per share for the nine months ended February 28, 2010, was a reduction of approximately $0.02 per share.

Critical Accounting Policies and Estimates

Our critical accounting policies are described in Part II — Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended May 31, 2009. These policies reflect those areas that require more significant judgments, and use of estimates and assumptions in the preparation of our financial statements and include the following:

· Revenue Recognition

· Allowance for Doubtful Accounts

· Sales Returns and Allowances

· Valuation of Long-Lived and Intangible Assets and Goodwill

· Income Taxes

· Contingencies

· Litigation Reserves

· Share-Based Compensation

There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for our fiscal year ended May 31, 2009.

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Results of Operations

The following table sets forth certain line items in our Condensed Consolidated Statements of Operations as a percentage of total revenues for the periods indicated, the period-over-period percent actual increase (decrease) and the period-over-period percent increase (decrease) on a constant currency basis:

	Percentage of Total Revenue				Quarterly Change Fiscal 2010 vs. 2009				Percentage of Total Revenue				Year-to-Date Change Fiscal 2010 vs. 2009
	Three Months Ended February 28,				Percent Change				Nine Months Ended February 28,				Percent Change
	2010		2009		Actual		Constant Currency		2010		2009		Actual		Constant Currency
			(as adjusted)								(as adjusted)
Revenues:
License fees	17.1	%	14.3	%	27.8	%	22.4	%	16.0	%	13.3	%	13.2	%	10.9	%
Maintenance services	47.9		49.4		3.8		2.0		48.1		46.4		(2.0	)	(0.1	)
Software revenues	65.0		63.7		9.2		6.6		64.1		59.7		1.4		2.4
Consulting	35.0		36.3		3.0		(3.5	)	35.9		40.3		(15.8	)	(16.9	)
Total revenues	100.0		100.0		7.0		2.9		100.0		100.0		(5.6	)	(5.5	)

Cost of revenues:
Cost of license fees	3.5		2.8		35.4		26.0		3.1		2.9		0.5		(4.2	)
Cost of maintenance services	9.3		8.5		17.2		11.2		9.3		8.6		1.6		1.3
Cost of software revenues	12.8		11.3		21.7		14.9		12.4		11.5		1.3		(0.2	)
Cost of consulting	31.9		36.2		(5.8	)	(11.9	)	31.7		36.6		(18.2	)	(18.8	)
Total cost of revenues	44.7		47.5		0.8		(5.6	)	44.1		48.1		(13.5	)	(14.3	)

Gross profit	55.3		52.5		12.6		10.9		55.9		51.9		1.8		2.9

Operating expenses:
Research and development	12.2		10.5		25.0		18.6		12.2		11.0		4.8		5.4
Sales and marketing	23.1		19.6		25.5		18.9		22.0		21.7		(3.9	)	(4.0	)
General and administrative	11.4		10.7		14.5		11.1		11.1		10.5		0.1		0.9
Restructuring	0.6		2.0		(67.3	)	(69.1	)	1.1		1.9		(46.4	)	(52.3	)
Amortization of acquired intangibles	1.5		1.1		42.8		31.5		1.2		1.2		(5.1	)	(6.4	)
Total operating expenses	48.8		43.9		18.8		13.2		47.6		46.3		(2.8	)	(3.0	)

Operating income	6.5		8.6		(19.5	)	(4.0	)	8.3		5.6		39.8		58.9
Total other income (expense), net	(2.3	)	(1.6	)	*NM		*NM		(2.4	)	(0.9	)	*NM		*NM
Income before income taxes	4.2		7.0		(36.0	)	(22.6	)	5.9		4.7		19.3		34.5
Provision for income taxes	3.3		3.4		2.7		1.6		4.0		3.7		1.5		1.4
Net income	0.9	%	3.6	%	(73.2	)%	(58.7	)%	1.9	%	1.0	%	87.3	%	309.6	%

* NM Percentage not meaningful

The discussion that follows relates to our results of operations for the comparable three and nine months ended February 28, 2010 and 2009, and should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and related notes and with the information presented in the above table. This analysis addresses the actual changes in our results of operations for the comparable fiscal quarters. For percentage changes excluding the impact of foreign currency fluctuations, see the constant currency percentages in the above table.

Revenues

	Three Months Ended				Quarterly Change				Nine Months Ended				Year-to-Date Change
	February 28,				Fiscal 2010 vs. 2009				February 28,				Fiscal 2010 vs. 2009
(in thousands)	2010		2009		Dollars		Percent		2010		2009		Dollars			Percent

Revenues:
License fees	$	31,804	$	24,881	$	6,923	27.8	%	$	86,110	$	76,067	$	10,043		13.2	%
Maintenance services	89,080		85,806		3,274		3.8		259,662		264,998		(5,336		)	(2.0	)
Software revenues	120,884		110,687		10,197		9.2		345,772		341,065		4,707			1.4
Consulting	65,083		63,161		1,922		3.0		193,609		230,056		(36,447		)	(15.8	)

Total revenues	$	185,967	$	173,848	$	12,119	7.0	%	$	539,381	$	571,121	$	(31,740	)	(5.6	)%

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The following table sets forth revenues by reportable segment:

	Three Months Ended				Quarterly Change					Nine Months Ended				Year-to-Date Change
	February 28,				Fiscal 2010 vs. 2009					February 28,				Fiscal 2010 vs. 2009
(in thousands)	2010		2009		Dollars			Percent		2010		2009		Dollars			Percent
S3 Strategic Industries:
License fees	$	12,730	$	9,555	$	3,175		33.2	%	$	33,549	$	27,572	$	5,977		21.7	%
Maintenance services	37,099		34,257		2,842			8.3		106,636		99,221		7,415			7.5
Software revenues	49,829		43,812		6,017			13.7		140,185		126,793		13,392			10.6
Consulting	21,151		17,960		3,191			17.8		59,468		63,299		(3,831		)	(6.1	)

Total S3 revenues	$	70,980	$	61,772	$	9,208		14.9	%	$	199,653	$	190,092	$	9,561		5.0	%

M3 Strategic Industries:
License fees	$	11,744	$	7,895	$	3,849		48.8	%	$	33,334	$	27,181	$	6,153		22.6	%
Maintenance services	19,328		18,137		1,191			6.6		54,612		58,465		(3,853		)	(6.6	)
Software revenues	31,072		26,032		5,040			19.4		87,946		85,646		2,300			2.7
Consulting	28,983		25,037		3,946			15.8		84,931		90,459		(5,528		)	(6.1	)

Total M3 revenues	$	60,055	$	51,069	$	8,986		17.6	%	$	172,877	$	176,105	$	(3,228	)	(1.8	)%

General Industries:
License fees	$	7,330	$	7,431	$	(101	)	(1.4	)%	$	19,227	$	21,314	$	(2,087	)	(9.8	)%
Maintenance services	32,653		33,412		(759		)	(2.3	)	98,414		107,312		(8,898		)	(8.3	)
Software revenues	39,983		40,843		(860		)	(2.1	)	117,641		128,626		(10,985		)	(8.5	)
Consulting	14,949		20,164		(5,215		)	(25.9	)	49,210		76,298		(27,088		)	(35.5	)

Total GI revenues	$	54,932	$	61,007	$	(6,075	)	(10.0	)%	$	166,851	$	204,924	$	(38,073	)	(18.6	)%

Total Revenues. We generate revenues from licensing software, providing maintenance and support on licensed products and providing consulting services. We generally utilize written contracts as the means to establish the terms and conditions by which our products, maintenance and consulting services are sold to our customers. As our maintenance and consulting services are primarily attributable to our licensed products, growth in our maintenance and consulting services is generally tied to the level of our license contracting activity.

We recognize revenues pursuant to specific and detailed guidelines applicable to the software industry. License fees revenues from end-users are generally recognized when the software product has been shipped and certain conditions are met. Revenues from customer maintenance and support contracts are deferred and recognized ratably over the term of the agreements. Revenues from consulting services (including training and implementation services) are recognized as services are provided to customers. See Part II — Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations- Critical Accounting Policies and Estimates - Revenue Recognition, in our Annual Report on Form 10-K for our fiscal year ended May 31, 2009, for a more complete description of our revenue recognition policy.

Third quarter fiscal 2010 total revenues increased $12.1 million, or 7.0%, as compared to the third quarter of fiscal 2009. We experienced an increase in each of our three revenue categories in the third quarter of fiscal 2010 when compared to the third quarter of fiscal 2009. Software revenues, consisting of license fees revenues and maintenance services, increased $10.2 million, or 9.2%, compared to the third quarter last year. The increase included a 27.8% increase in our license fees revenues and a 3.8% increase in maintenance services revenues. Consulting revenues increased $1.9 million, or 3.0%. For the year-to-date period ended February 28, 2010 total revenues decreased $31.7 million, or 5.6%, as compared to the similar period last year. The decrease was driven by a $36.4 million, or 15.8%, decrease in our consulting revenues. Software revenues in the nine-month period increased $4.7 million, or 1.4%, which included a $10.0 million, or 13.2%, increase in license fees revenues partially offset by a $5.3 million, or 2.0%, decrease in our maintenance services revenues.

License Fees. Our license fees primarily consist of fees resulting from products licensed to customers on a perpetual basis. Product license fees result from a customer’s licensing of a given software product for the first time or with a customer’s licensing of additional users for previously licensed products.

License fees revenues for the third quarter of fiscal 2010 increased $6.9 million, or 27.8%, compared to the third quarter of fiscal 2009. License fees revenues in our S3 Strategic Industries segment increased $3.2 million, or 33.2%, in the third quarter of fiscal 2010 compared to the similar quarter last year. The increase was experienced in both our healthcare and public sector verticals as well as our strategic human capital management product line. During the third quarter of fiscal 2010, Healthvision contributed $0.7 million in license fees revenues within our S3 Strategic Industries segment. Quarter-over-quarter our M3 Strategic Industries license fees revenues increased $3.8 million, or 48.8%, primarily due to contributions from our third-party reseller channel partners and increased revenues from our equipment service management & rental vertical. License fees revenues in our General Industries

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segment were relatively flat quarter-over-quarter as our services and our manufacturing & distribution industries verticals continue to be negatively impacted by the weakened global economy. License fees revenues in our Americas, EMEA and APAC geographies were up $4.1 million, $1.8 million and $1.0 million, respectively, compared to the third quarter last year.

The total number of licensing transactions in the third quarter of fiscal 2010 increased to 247 compared to 234 in the third quarter of fiscal 2009. The number of licensing transactions with new customers also increased to 26 compared to 22 in the third quarter of fiscal 2009. In the third quarter of fiscal 2010, we entered into six license transactions between $0.5 million and $1.0 million compared to nine in the comparable quarter last year. We entered into three licensing transactions greater than $1.0 million in the current quarter compared to one in the third quarter of fiscal 2009. In addition, Healthvision entered into 54 licensing transactions during the current quarter.

For the first nine months of fiscal 2010, license fees revenues increased $10.0 million, or 13.2%, compared to the first nine months of fiscal 2009. The increase in license fees revenues was due to increases in our S3 Strategic Industries and M3 Strategic Industries segments of $6.0 million and $6.2 million, or 21.7% and 22.6%, respectively compared to the similar nine-month period last year. The increase in our S3 Strategic Industries segment was primarily related to our healthcare vertical which included $0.7 million related to the operations of Healthvision and the continued benefit of the targeted sales stimulus campaign we offered our existing S3 customer base during the second half of fiscal 2009, primarily during our fourth quarter. This program favorably impacted our healthcare and services industries verticals’ revenues in the first quarter of fiscal 2010 as we recognized revenue previously deferred as all revenue recognition criteria related to these transactions were met in the first quarter of fiscal 2010. Our public sector vertical as well as our strategic human capital management product line also showed year-over-year improvements in license fees revenues during the first nine months of fiscal 2010. The M3 Strategic Industries improvement related primarily to increases in our equipment service management & rental vertical including the recognition in the first quarter of fiscal 2010 of certain deferred revenues on previous transactions, upon the completion of customer implementation project milestones in the first quarter. In addition, license fees revenues from our channel partners within the M3 Strategic Industries segment increased as compared to last year. These increases were partially offset by a decrease in General Industries’ license fees revenues of $2.1 million, or 9.8%, primarily in our manufacturing & distribution industries vertical. License fees revenues increased in all geographies with Americas, EMEA and APAC up $7.8 million, $1.3 million and $1.0 million, respectively for the first nine months of fiscal 2010 compared to the similar period last year.

The total number of licensing transactions decreased in the year-to-date period by 68 to 638 as compared to 706 in the first nine months of fiscal 2009. The number of licensing transactions with new customers was 61 compared to 70 last year. In the first nine months of fiscal 2010 we entered into 13 license transactions between $0.5 million and $1.0 million compared to 27 in the similar period last year. We entered into 11 licensing transactions greater than $1.0 million in the current nine month period compared to four in the similar period last year. Healthvision accounted for an additional 54 licensing transactions in the current nine-month period.

Maintenance Services. Our maintenance services revenues represent the ratable recognition of fees to enroll and renew licensed products in our maintenance programs. These fees are typically charged annually and are based on the license fees initially paid by our customers. Maintenance services revenues can fluctuate based on the number and timing of new license contracts, renewal rates and price increases.

Maintenance services revenue for the third quarter of fiscal 2010 increased $3.3 million, or 3.8%, compared to our fiscal 2009 third quarter. This increase was primarily due to a $2.8 million, or 8.3%, increase related to our S3 Strategic Industries segment which included $2.1 million in maintenance services revenues from the operations of Healthvision. Within our M3 Strategic Industries segment maintenance services also increased $1.2 million, or 6.6%, compared to the third quarter of fiscal 2009, including the favorable impact related to certain one-time items. These increases were partially offset by a decrease of $0.8 million, or 2.3%, in our General Industries segment. Third quarter maintenance services revenues in our Americas region increased by $2.9 million, while our EMEA and APAC regions were relatively flat compared to the third quarter last year, increasing $0.4 million in aggregate.

For the first nine months of fiscal 2010, maintenance services revenue decreased $5.3 million, or 2.0%, compared to the first nine months of fiscal 2009. This year-to-date decrease in maintenance services revenue included an $8.9 million, or 8.3%, decrease in our General Industries segment as well as a $3.9 million, or 6.6%, decrease in our M3 Strategic Industries segment. These decreases were the result of the impact of pricing pressure and lower renewal rates which have been negatively impacted by the global economic downturn. These decreases were partially offset by maintenance agreements associated with new customers in these segments. Certain customers have decided not to renew their maintenance agreements, which we believe relates primarily to cost saving measures, bankruptcies and mergers. This is particularly true for our General Industries segment customers in manufacturing, retail and financial services industries where the continued adverse economic environment has been very challenging. In addition, other customers have chosen to continue to use older versions of our software for which maintenance programs are no longer offered. These decreases were partially offset by a $7.4 million, or 7.5%, increase in our S3 Strategic Industries maintenance services revenues which included $2.1 million related to the operations of Healthvision. For the first nine months of fiscal 2010, our EMEA and APAC

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maintenance services revenues were down $8.9 million and $0.8 million, respectively, while the Americas region improved $4.4 million over the similar period last year.

Consulting. Our consulting revenues consist of services related to software installations, software implementations, customized development and training services for customers who have licensed our products.

Consulting revenues for the third quarter of fiscal 2010 increased $1.9 million, or 3.0%, compared to the third quarter of fiscal 2009. This increase was the result of a $3.2 million, or 17.8%, increase in our S3 Strategic Industries segment including Healthvision’s contribution of approximately $1.8 million during the quarter. In addition, consulting revenues in our M3 Strategic Industries segment increased $3.9 million, or 15.8%, primarily related to an increase in the Americas region. Within our General Industries segment, consulting revenues were down $5.2 million, or 25.9%, primarily due to a lower number of billable consultants in our EMEA region (as discussed below). Consulting revenues in our Americas and APAC regions were up $5.3 million and $1.5 million, respectively in the third quarter of fiscal 2010. Within our EMEA region, third quarter fiscal 2010 consulting revenues were down $4.9 million as compared to the third quarter of fiscal 2009.

For the first nine months of fiscal 2010 consulting revenues decreased $36.4 million, or 15.8%, compared to the first nine months of fiscal 2009. The decrease in nine month consulting revenues was experienced in each of our segments with General Industries down $27.1 million, or 35.5%, M3 Strategic Industries down $5.5 million, or 6.1%, and S3 Strategic Industries down $3.8 million, or 6.1%. These decreases were the result of a reduction in our number of billable consultants primarily in our EMEA region in fiscal 2010 as compared to last year as well as lower bookings for our consulting and implementation services again, primarily within the EMEA region. We have reduced the size of our consulting staff as part of our strategy to move more implementation services to our partner channel as well as in response to the lower consulting demand. Over the past year, we have reduced our number of billable service consultants by approximately 22%. Most recently, on September 30, 2009, we announced an additional reduction of approximately 65 positions, primarily consulting positions in our EMEA region. See Note 3, Restructuring, in Notes to Condensed Consolidated Financial Statements of this Form 10-Q for more information. Offsetting these decreases was a $1.8 million increase related to the operations of Healthvision. For the first nine months of fiscal 2010 our EMEA and Americas regions’ consulting revenues were down $32.7 million and $5.1 million, respectively, as compared to the similar period of fiscal 2009. APAC consulting revenues were up $1.4 million for the comparable nine month periods.

Deferred Revenue. Certain of our revenues are deferred when all conditions of revenue recognition have not been met. Deferred revenue represents revenue that is to be recognized in future periods when such conditions have been satisfied related to certain license agreements, maintenance contracts and certain consulting arrangements as discussed above. We had total deferred revenues of $208.5 million at February 28, 2010 compared to $292.5 million at May 31, 2009.

The following table sets forth the components of deferred revenue (in thousands):

	February 28,			May 31,
	2010			2009
License fees	$	41,362		$	55,667
Maintenance services	152,236			224,115
Consulting	14,862			12,741
Total deferred revenue	208,460			292,523
Less current portion	(199,024		)	(279,041		)
Deferred revenue - non-current	$	9,436		$	13,482

In general, changes in the balance of our deferred revenue are cyclical and primarily driven by the timing of our maintenance services renewal cycles. Our renewal dates occur in the third and fourth quarters of our fiscal year with revenues being recognized ratably over the applicable service periods. In addition to the cyclical nature of our deferred maintenance revenue, the decrease in the February 28, 2010 balance as compared to May 31, 2009 was related to the recognition of certain deferred license fees revenues in the first half of fiscal 2010 primarily relating to contracts entered into in the fourth quarter of fiscal 2009 under our targeted sales campaign offered to our existing S3 customer base. Offsetting these decreases was the inclusion of deferred revenue balances related to our acquisition of Healthvision (See Note 4, Business Combinations).

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Cost of Revenues

	Three Months Ended						Quarterly Change					Nine Months Ended						Year-to-Date Change
	February 28,						Fiscal 2010 vs. 2009					February 28,						Fiscal 2010 vs. 2009
(in thousands)	2010			2009			Dollars			Percent		2010			2009			Dollars			Percent
Cost of revenues:
Cost of license fees	$	6,595		$	4,872		$	1,723		35.4	%	$	16,929		$	16,852		$	77		0.5	%
Cost of maintenance services	17,352			14,810			2,542			17.2		49,833			49,057			776			1.6
Cost of software revenues	23,947			19,682			4,265			21.7		66,762			65,909			853			1.3
Cost of consulting	59,249			62,871			(3,622		)	(5.8	)	171,027			209,028			(38,001		)	(18.2	)

Total cost of revenues	$	83,196		$	82,553		$	643		0.8	%	$	237,789		$	274,937		$	(37,148	)	(13.5	)%

Gross profit:
License fees	$	25,209		$	20,009		$	5,200		26.0	%	$	69,181		$	59,215		$	9,966		16.8	%
Maintenance services	71,728			70,996			732			1.0		209,829			215,941			(6,112		)	(2.8	)
Total software gross profit	96,937			91,005			5,932			6.5		279,010			275,156			3,854			1.4
Consulting	5,834			290			5,544			1,911.7		22,582			21,028			1,554			7.4

Total gross profit	$	102,771		$	91,295		$	11,476		12.6	%	$	301,592		$	296,184		$	5,408		1.8	%

Gross margin %:
License fees	79.3		%	80.4		%						80.3		%	77.8		%
Maintenance services	80.5		%	82.7		%						80.8		%	81.5		%
Total software gross margin %	80.2		%	82.2		%						80.7		%	80.7		%
Consulting	9.0		%	0.5		%						11.7		%	9.1		%

Total gross margin %	55.3		%	52.5		%						55.9		%	51.9		%

Cost of License Fees. Cost of license fees includes royalties to third-parties, amortization of acquired software and software delivery expenses. Our software solutions may include embedded components of third-party vendors for which a fee is paid to the vendor upon the sale of our products. In addition, we resell third-party products in conjunction with the license of our software solutions, which also results in a fee. The cost of license fees are higher, as a percentage of revenues, when we resell products of third-party vendors. As a result, license fees gross margins will vary depending on the proportion of third-party product sales in our revenue mix.

During the third quarter of fiscal 2010, cost of license fees increased $1.7 million, or 35.4%, compared to the third quarter of fiscal 2009. The increase was primarily due to $1.7 million of additional costs related to the operations of Healthvision. Fiscal 2010 third quarter license fees gross margin decreased slightly to 79.3% from 80.4% in the third quarter of fiscal 2009.

Cost of License Fees remained relatively flat for the first nine months of fiscal 2010 compared to the similar period last year, up less than $0.1 million. The year-over-year change includes an increase of $1.7 million related to the operations of Healthvision. This increase was mostly offset by a decrease in third-party costs including the impact of the additional deferred third-party costs recognized in the second quarter of fiscal 2009, see Note 1, Nature of Business and Basis of Presentation for more information, and a $0.2 million decrease in professional fees. License fees gross margin for the first nine months of fiscal 2010 improved to 80.3%, as compared to 77.8% in the similar nine month period of last year as a result of higher nine-month license fees revenue in the current period without a corresponding increase in costs as well as the impact of the additional deferred third-party costs recognized in the second quarter of fiscal 2009.

Cost of Maintenance Services. Cost of maintenance includes salaries, employee benefits, related travel, third-party maintenance costs associated with embedded and non-embedded third-party products and the overhead costs of providing support.

Cost of maintenance services for the third quarter of fiscal 2010 increased $2.5 million, or 17.2%, compared to the third quarter of fiscal 2009. The increase was primarily due to a $1.6 million increase in employee related costs and $1.2 million related to the operations of Healthvision. Maintenance services gross margin for the third quarter of fiscal 2010 was 80.5%, down from 82.7% in the third quarter of fiscal 2009.

Cost of maintenance for the first nine months of fiscal 2010 increased $0.8 million, or 1.6%, compared to the first nine months of fiscal 2009. This increase was primarily due to a $1.7 million increase in net employee related costs, a $1.2 million increase related to the operation of Healthvision as well as a $1.5 million increase in information technology and other infrastructure costs. These increases were mostly offset by a $3.1 million decrease in third-party costs, a $0.5 million decrease in amortization expense as well as a $0.5 million decrease in professional fees. Maintenance gross margin for the first nine months of fiscal 2010 was 80.8%, down slightly from 81.5% in the similar nine month period of last year.

Cost of Consulting. Cost of consulting includes salaries, employee benefits, third-party consulting costs, related travel, and the overhead costs of providing implementation, installation, training and education services to customers.

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Cost of consulting decreased $3.6 million, or 5.8%, in the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009. This decrease was primarily driven by a $2.5 million decrease in employee related costs due to lower billable headcount in the third quarter of fiscal 2010 as compared to the third quarter last year, a $2.0 million decrease in third-party costs and a $0.5 million decrease in billable travel. These decreases were partially offset by a $1.4 million increase related to the operations of Healthvision. Gross margin on consulting revenues for the third quarter of fiscal 2010 was 9.0% as compared to 0.5% for the similar period last year primarily due to the management of our costs of consulting and to a lesser extent the inclusion of Healthvision’s consulting services in the current quarter.

For the comparable nine-month periods of fiscal 2010 and 2009, cost of consulting decreased $38.0 million or 18.2%. This decrease was primarily due to a $23.5 million decrease in employee related costs resulting from our significantly lower billable headcount during the first nine months of fiscal 2010 as compared to the similar period last year. In addition, third-party costs decreased $11.0 million in-line with our lower consulting revenues and billable travel decreased $5.0 million. Partially offsetting these decreases was $1.4 million increase related to the operations of Healthvision. Consulting gross margin for the first nine months of fiscal 2010 improved to 11.7% compared to 9.1% in the similar period last year primarily due to the management of our costs of consulting.

Operating Expenses

	Three Months Ended				Quarterly Change					Nine Months Ended				Year-to-Date Change
	February 28,				Fiscal 2010 vs. 2009					February 28,				Fiscal 2010 vs. 2009
(in thousands)	2010		2009		Dollars			Percent		2010		2009		Dollars			Percent

Operating expenses:
Research and development	$	22,760	$	18,209	$	4,551		25.0	%	$	65,651	$	62,669	$	2,982		4.8	%
Sales and marketing	42,919		34,203		8,716			25.5		118,796		123,680		(4,884		)	(3.9	)
General and administrative	21,224		18,542		2,682			14.5		60,071		59,996		75			0.1
Restructuring	1,154		3,534		(2,380		)	(67.3	)	5,905		11,020		(5,115		)	(46.4	)
Amortization of acquired intangibles	2,699		1,890		809			42.8		6,524		6,875		(351		)	(5.1	)

Total operating expenses	$	90,756	$	76,378	$	14,378		18.8	%	$	256,947	$	264,240	$	(7,293	)	(2.8	)%

Research and Development. Research and development expenses consist primarily of salaries, employee benefits, related overhead costs and consulting fees associated with product development, testing, quality assurance, documentation, enhancements and upgrades.

For the third quarter of fiscal 2010, research and development expenses increased $4.6 million, or 25.0%, compared to the third quarter last year primarily due to a $3.1 million increase in employee related costs as a result of increased head count, a $0.7 million increase in information technology and other infrastructure costs in the current quarter compared to the similar period of fiscal 2009 and $0.7 million related to the operations of Healthvision. These increases were partially offset by a $0.3 million decrease in third-party costs.

Research and development expenses for the first nine months of fiscal 2010 increased $3.0 million, or 4.8%, compared to the similar periods last year. This increase was primarily due to a net increase in employee related costs of $1.8 million, reflecting an increase in incentive compensation which more than offset a decrease in employee costs due to the expansions of our off shore capacity in fiscal 2010 as compared to fiscal 2009. In addition, information technology and other infrastructure costs increased $1.8 million. The inclusion of Healthvision’s operations accounted for an additional $0.7 million of the increase. These increases were partially offset by a $1.4 million decrease in third party-costs.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries and incentive compensation, employee benefits, travel and overhead costs related to our sales and marketing personnel, as well as trade show activities, advertising costs and other costs associated with our Company’s marketing activities.

Sales and marketing expenses for the third quarter of fiscal 2010 increased $8.7 million, or 25.5%, compared to the third quarter of fiscal 2009. This increase was primarily the result of an $8.3 million increase in net employee related costs primarily due to higher stock compensation costs and increased incentive compensation in-line with our higher licensing activity. In addition, the operations of Healthvision accounted for $1.0 million of the quarter-over-quarter increase. This increase was partially offset by a $0.5 million decrease in third-party costs.

For the first nine months of fiscal 2010, sales and marketing expenses decreased $4.9 million, or 3.9%, compared to the similar period in fiscal 2009. The year-to-date decrease was primarily the result of a $2.4 million decrease in employee related costs due to lower headcount and lower travel expenses. Included in this comparative decrease is the impact of the $1.9 million of fourth quarter fiscal 2008 under accrual of sales incentive compensation in EMEA recorded in the first quarter of fiscal 2009. See Note 1,

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Nature of Business and Basis of Presentation—First Quarter Fiscal 2009 Results of Operations, in Notes to Condensed Consolidated Financial Statements of this Form 10-Q for more information. In addition, year-to-date marketing program costs decreased $1.9 million compared to the similar period of fiscal 2009 and third-party costs decreased$0.9 million. Partially offsetting these decreases was $1.0 million related to the operations of Healthvision.

General and Administrative. General and administrative expenses consist primarily of salaries, employee benefits and related overhead costs for administrative employees, as well as legal and accounting expenses, consulting fees and bad debt expense. We deem certain of these items to be shared-services and accordingly allocate the related expenses to other functional line items within cost of revenues and operating expenses, primarily based on headcount. These administration allocations have no impact on our overall operating margins for any of the periods presented.

For the third quarter of fiscal 2010, general and administrative expenses increased $2.7 million, or 14.5%, compared to the third quarter of fiscal 2009. The increase was primarily due to a $1.8 million impact of foreign currency translation in the third quarter of fiscal 2010 compared to the similar quarter last year, a $1.5 million increase in employee related costs, $1.2 million of acquisition transaction and merger related integration expenses, $0.6 million increase in professional fees and $0.5 million related to the operations of Healthvision. These increases were partially offset by a $2.1 million decrease related to infrastructure and computer lease costs and a decrease in bad debt expense of $0.8 million.

General and administrative expenses increased $0.1 million or less than 1.0% in the first nine months of fiscal 2010 compared to the similar period of fiscal 2009. The year-to-date increase was primarily the result of the effect of a $3.9 million pre-merger litigation reserve reversal during the first nine months of fiscal 2009 with a corresponding reversal of only $0.7 million during the first nine months of fiscal 2010 (See Note 14, Commitments and Contingencies — Legal, in Notes to Condensed Consolidated Financial Statements of this Form 10-Q for more information). Other increases included a $2.7 million increase in professional fees, $1.2 million of acquisition transaction and merger related integration expenses, $1.0 million related to the impact of foreign currency translation and a $0.5 million increase related to the operations of Healthvision. These increases were mostly offset by a decrease of $6.8 million in infrastructure and computer lease costs and a decrease in bad debt expense of $1.2 million in the first nine months of fiscal 2010 compared to the similar period last year.

Restructuring. During the third quarter of fiscal 2010, we recorded net restructuring charges of $1.2 million as compared to $3.5 million in the third quarter of fiscal 2009. Year-to-date fiscal 2010 net restructuring charges totaled $5.9 million compared to $11.0 million in the first nine months of fiscal 2009. These restructuring charges relate to the restructuring accruals discussed below.

Fiscal 2010 Restructuring

Fiscal 2009 Restructuring

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fiscal 2010. The plan resulted in pre-tax charges of approximately $5.3 million for severance and related benefits and the consolidation of leased facilities resulted in pre-tax charges of approximately $3.8 million which we recorded in the fourth quarter of fiscal 2009. We expect the majority of the severance and related benefits to be paid within the next six months while the leased facilities costs will be paid through December 2011.

Fiscal 2007 Restructuring

On February 28, 2007, we restructured our workforce by approximately 250 employees to rebalance our resources between various locations primarily in the U.S., Europe and our global support center in the Philippines. This reduction included approximately 250 employees and resulted in a pre-tax charge of $11.9 million which we recorded in the third quarter of fiscal 2007. As of May 31, 2009 we had an accrual of $0.8 million for severance and related benefits. In the first nine months of fiscal 2010 we paid severance and related benefits of $0.4 million and we recorded $0.1 million in adjustments to reduce the accrual. The ending accrual balance at February 28, 2010 was approximately $0.2 million. Actions relating to severance were completed in the first quarter of fiscal 2009; however, we expect related cash payments to continue through May 2010.

Fiscal 2006 Restructuring

Fiscal 2006 Legacy Lawson. Actions related to Legacy Lawson included the reduction of approximately 60 employees and the exit of or reduction in leased space. As of May 31, 2009, we had an accrual of $1.5 million for the exit or reduction of leased facilities. In the first nine months of fiscal 2010 we made cash payments of $0.3 million related to exited facilities. The remaining accrual balance at February 28, 2010 was $1.2 million for the exit or reduction of leased facilities. Actions relating to severance were completed in the first quarter of fiscal 2008. We expect cash payments related to exited facilities to continue through July 2011.

Amortization of Acquired Intangibles. Amortization of acquired intangibles primarily relates to the on-going amortization of intangibles acquired in the Intentia merger as well as other acquisitions. For the third quarter of fiscal 2010, amortization increased $0.8 million, or 42.8%, as compared to the third quarter of fiscal 2009. This increase was primarily due to $0.8 million in amortization of intangible assets acquired in our acquisition of Healthvision. Year-to-date amortization of acquired intangibles decreased $0.4 million, or 5.1%, compared to the first nine months of fiscal 2009. This decrease was primarily due to the amortization of certain intangible assets on an accelerated basis as compared to a straight line basis resulting in a higher rate of amortization in fiscal 2009 as compared to fiscal 2010 as well as certain intangibles being fully amortized in fiscal 2009 with no corresponding amounts recorded in the current periods of fiscal 2010. These decreases were partially offset by the $0.8 million in amortization related to the Healthvision intangible assets acquired.

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Other Income (Expenses), net

Total other income (expense), net, consisting of interest income earned from cash, marketable securities and other investments, interest expense, and other associated costs, was net expense of $4.2 million and $2.7 million for the third quarter of fiscal 2010 and 2009, respectively. The $1.5 million increase in net expense was primarily due to a $0.7 million decrease in interest income as we had lower yields in the current quarter as compared to the same quarter last year. Interest expense also increased quarter-over-quarter by approximately $0.7 million primarily due to increased interest expense related to our capital leases. The increase in interest expense also includes the impact of our adoption of the FASB guidance on accounting for convertible debt securities in the first quarter of fiscal 2010. This required us to record net additional non-cash interest of approximately $2.1 million in the third quarter of fiscal 2010 and to retrospectively include $1.9 million in the third quarter of last year.

For the comparable nine-month periods of fiscal 2010 and 2009, we recorded other net expense of $12.9 million and $5.3 million, respectively. The $7.5 million year-to-date increase in net expense was primarily due to a $5.1 million decrease in interest income resulting from lower yields in the current nine-month period compared to the similar period last year as our investments in auction rate securities were sold in the first quarter of fiscal 2009 and a decrease in our yields on investments in marketable securities that were transitioned to U.S. treasury securities and money market funds. Interest expense also increased $1.8 million due to interest on our capital leases as well as the impact of our adoption of the FASB guidance on accounting for convertible debt securities which required us to record net additional non-cash interest of approximately $6.2 million and $5.8 million in the first nine months of fiscal 2010 and retrospectively in the similar period of fiscal 2009, respectively.

Provision for Income Taxes

Our income tax expense for the three and nine months ended February 28, 2010 was $6.1 million and $21.4 million, respectively. This resulted in an overall effective tax rate of 78.6% for the third quarter of fiscal 2010 and 67.3% for the nine months ended February 28, 2010. For the three and nine months ended February 28, 2009, our income tax expense was $6.0 million and $21.1 million, respectively, which resulted in an overall effective tax rate of 49.0% and 79.1% for the three and nine months ended February 28, 2009. The rate for the current quarter was unfavorably impacted by 26.8 percentage points for unbenefitted foreign losses and changes in the jurisdictional mix of the forecasted annual operating income. In addition, the rate for the current quarter was unfavorably impacted by 4.0 percentage points as a result of income tax return to income tax provision true-ups.

As of February 28, 2010, we have recorded a liability of approximately $8.6 million for unrecognized tax benefits related to uncertain tax positions, all of which would affect earnings and the effective tax rate, if recognized. We recognize interest accrued related to unrecognized tax benefits and penalties, if incurred, as a component of our income tax expense. During the three and nine months ended February 28, 2010 we recognized approximately $0.1 million and $0.3 million in interest and had $1.0 million accrued for the payment of interest. Interest recognized for the three and nine months ended February 28, 2009 was less than $0.1 million and $0.3 million, respectively.

Liquidity and Capital Resources

	Nine Months Ended
	February 28,
Cash Flows (in thousands)	2010			2009			% Change
				(as adjusted)
Cash provided by (used in):
Operating activities	$	(8,431	)	$	(42,024	)	(79.9	)%
Investing activities	(173,918		)	21,457			(910.5	)
Financing activities	(6,486		)	(88,514		)	(92.7	)
Effect of exchange rate changes on cash and cash equivalents	366			(17,802		)	(102.1	)
Net change in cash and cash equivalents	$	(188,469	)	$	(126,883	)	48.5	%

	As of
	February 28,		May 31,
Capital Resources (in thousands)	2010		2009		% Change

Working capital	$	88,734	$	213,997	(58.5	)%
Cash and cash equivalents, marketable securities and short-term investments	$	226,346	$	414,815	(45.4	)%

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As of February 28, 2010, we had $226.3 million in cash, cash equivalents and $88.7 million in working capital. Our most significant source of operating cash flows is derived from license fees, maintenance services and consulting fees related to services provided to our customers. Days sales outstanding (DSO), which we calculate as net receivables at period-end divided by revenue for the quarter times 90 days in the quarter, was 65 and 74 as of February 28, 2010 and May 31, 2009, respectively. The decrease in DSO was due to the reduction in our accounts receivable balance, primarily related to focused collection efforts on our global receivables in fiscal 2010, as well as collection of annual maintenance services billings. Our primary uses of cash from operating activities are for employee costs, third-party costs for licenses and services, and facilities.

On January 11, 2010, we acquired privately held Healthvision, a Dallas-based provider of integration and application technology and related services to hospitals and large healthcare organizations for $160.0 million in cash, net of cash acquired. See Note 4, Business Combination, for more information.

We believe that cash flows from operations, together with our cash and cash equivalents, will be sufficient to meet our cash requirements for working capital, capital expenditures, restructuring activities, investments and share repurchases for the foreseeable future. As part of our business strategy, we may use cash to acquire additional companies or products from time-to-time to enhance our product lines, which could have a material effect on our capital resources.

Cash Flows from Operating Activities

Net cash used in operating activities in the first nine months of fiscal 2010 was $8.4 million. Uses of cash included $82.5 million related to working capital. The cash used for working capital purposes included a $96.0 million decrease in our deferred revenue balances primarily related to the timing of recognition of maintenance revenues over the applicable term of these agreements, $27.7 million decrease in accrued expenses and other liabilities primarily related to the payment of certain foreign withholding and VAT taxes as well as payments of accrued severance and $13.7 million decrease in accounts payable. These working capital uses of cash were partially offset by working capital sources of cash including a $16.9 million decrease in prepaid expenses and other assets primarily related to receipt of certain foreign withholding tax refunds, a net $34.5 million decrease in accounts receivable as our collection of customer accounts more than offset the increase in accounts receivable acquired from Healthvision and $3.5 million related to net income taxes payable/receivable. The working capital uses of cash were also offset by our net income of $10.4 million, which included non-cash charges of $33.3 million for depreciation and amortization, $5.9 million related to deferred income taxes, $12.8 million related to stock-based compensation, a $4.5 million provision for estimated warranty costs and doubtful accounts and $7.1 million in amortization of debt discount and the debt issuance costs related to our senior convertible notes. While operating activities utilized cash during the first nine months of fiscal 2010, we expect to generate positive cash flows in the remainder of the fiscal year primarily due to the timing of our maintenance billings and collection of related receivables.

Net cash used in operating activities in the first nine months of fiscal 2009 was $42.0 million. Our main uses of cash for the first nine months of fiscal 2009 included $99.3 million in working capital. The cash uses for working capital purposes included a $107.2 million decrease in our deferred revenue primarily related to the recognition of maintenance revenues over the applicable term of these agreements, $2.3 million related to prepaid expenses and other current assets, a $2.8 million decrease related to income taxes payable/receivable, a $10.9 million decrease in accounts payable and a $7.9 million decrease related to accrued and other liabilities. These working capital uses of cash were partially offset by our net income of $5.6 million and a $31.8 million decrease in accounts receivable as we collected customer accounts and maintenance billings. The overall cash used in operating activities excludes the effects of non-cash charges of $29.3 million for depreciation and amortization, $6.7 million in amortization of debt discount and debt issuance costs related to our senior convertible notes, $6.3 million related to stock-based compensation, $3.6 million related to deferred income taxes and a $5.8 million provision for estimated warranty costs and doubtful accounts. While operating activities utilized cash during the first nine months of fiscal 2009, we expect to generate positive cash flows in the fourth quarter of fiscal 2009 primarily due to the timing of our maintenance billings.

Cash Flows from Investing Activities

Net cash used by investing activities was $173.9 million for the nine months ended February 28, 2010. The primary use of cash was the $160.0 million net cash paid in conjunction with our acquisition of Healthvision (see Note 4, Business Combination) and $13.9 million used to purchase property and equipment primarily related to continued investments in our global information technology and business system infrastructure.

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Net cash provided by investing activities was $21.5 million for the nine months ended February 28, 2009. The sources of cash included $50.7 million in proceeds from the sale of our investments in auction rate securities and the sale or maturity of marketable securities. These sources of cash were somewhat offset by the $20.5 million of cash used to purchase property and equipment primarily investments in our global information technology and business system infrastructure as well as building our off shore capacity, and an $8.7 million increase in restricted cash, primarily due to the $9.1 million held in our segregated brokerage account at Lehman OTC in connection with our accelerated share repurchase transaction. See Note16, Repurchase of Common Shares and Related Party Transactions, in Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

Cash Flows from Financing Activities

Net cash used for financing activities was $6.5 million for the first nine months of fiscal 2010. Cash used for financing activities during the period were related to $7.4 million used to repurchase shares of our common stock pursuant to our Board authorized share repurchase program and $3.3 million used to make payments on our long-term debt and capital lease obligations. These uses of cash were somewhat offset by $4.2 million in proceeds from the exercise of stock options and the issuance of shares of our common stock under our ESPP.

Net cash used for financing activities was $88.5 million for the first nine months of fiscal 2009. Financing activities for the period were primarily related to the $91.0 million used to repurchase shares of our common stock pursuant to an accelerated share repurchase transaction we entered into as part of our Board authorized share repurchase program in July 2008, $1.2 million used to make principal payments on our long term debt and $0.9 million was used to make payments on our capital lease obligations. These uses of cash were partially offset by $4.6 million in proceeds from the exercise of stock options and the issuance of shares of our common stock under our ESPP.

Effect of Exchange Rate Changes

For the nine months ended February 28, 2010, changes in foreign currency exchange rates resulted in a $0.4 million increase in our cash and cash equivalents. Exchange rate changes reduced our cash and cash equivalents by $17.8 million during the nine months ended February 28, 2009.

Repurchase of common shares

Our Board of Directors approved a share repurchase program of up to $100.0 million of common stock in November 2006, and on July 10, 2008, increased the maximum authorized for repurchase under the program to $400.0 million. The share repurchases are funded using our existing cash balances and future cash flows and may occur through transactions structured through investment banking institutions as permitted by securities laws and other legal requirements, open market purchases, privately negotiated transactions and/or other mechanisms. Our share repurchase program allows us to repurchase shares at our discretion and market conditions influence the timing of the buybacks and the number of shares repurchased. There can be no assurance as to the amount, timing or repurchase price of future repurchases, if any, related to the share repurchase program. The program may also be modified, extended or terminated by our Board of Directors at any time.

In the third quarter of fiscal 2010, we repurchased an aggregate of 1.0 million shares of our common stock at an average price of $6.14 per share under the share repurchase program. From inception of the repurchase program through February 28, 2010, we have used $270.9 million to repurchase 32.9 million shares at an average price of $8.23 per share. The repurchased shares are recorded as treasury stock and result in a reduction to our stockholders equity. The shares will be used for general corporate purposes. As of February 28, 2010, the maximum dollar value of shares that may yet be purchased under this program was $129.1 million.

Credit Facilities

We have an uncommitted credit facility that consists of a guarantee line with Skandinaviska Enskilda Banken (SEB) in the amount of $4.2 million (30.0 million SEK). The facility is collateralized by a corporate letter of guarantee by Lawson Software, Inc. As of February 28, 2010, an insignificant amount was outstanding under the guarantee line and approximately $4.2 million was potentially available under the guarantee line.

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Senior Convertible Notes

In April 2007, we issued $240.0 million of senior convertible notes with net proceeds, after expenses, of approximately $233.5 million. The notes mature on April 15, 2012. The notes bear interest at a rate of 2.5% per annum payable semi-annually in arrears, on April 15 and October 15 of each year, beginning October 15, 2007. The notes do not contain any restrictive financial covenants. The notes are convertible, at the holders’ option, into cash and, if applicable, shares of our common stock based on an initial conversion rate of 83.2293 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $12.02 per share (which reflects a 35.0% conversion premium based on the closing sale price of $8.90 per share of Lawson common stock as reported by NASDAQ on April 17, 2007). At the issuance of these notes, we simultaneously entered into separate agreements to purchase call options and sell warrants which are referred to below as “a convertible note hedge transaction and a warrant transaction.” See Note 2, Summary of Significant Accounting Policies - Recent Accounting Pronouncements, in Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information relating to our accounting for these notes.

On June 4, 2009, counsel for Lehman Holdings and Lehman OTC demanded payment from us of the termination-date fair value of the warrant, asserted that in the contracts we have waived the right to setoff against the amounts owed to us under the hedge transaction and claimed we violated the bankruptcy stay in asserting setoff rights. We have refused payment and contend that the U.S. Bankruptcy Code gives us legal rights of offset in this dispute. As of the date of this filing we are in discussions with representatives of Lehman OTC regarding the resolution of the offset issue as well as other issues surrounding the hedge transaction asset and the warrant liability including their proper valuation. We continue to closely monitor the Lehman Holdings bankruptcy situation, the liquidation of LBI, as well as the Lehman OTC bankruptcy and our legal rights under our contractual relationships with Lehman OTC and LBI.

Restricted Cash

We had approximately $11.0 million of restricted cash as of February 28, 2010, of which approximately $1.0 million and $10.0 million have been classified as current and non-current, respectively, on our Condensed Consolidated Balance Sheets. The non-current portion relates primarily to the $9.1 million held on our account at LBI. See Note 16, Repurchase of Common Shares, in Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information. The remainder of the restricted cash balance relates to various collateral arrangements related to our property leases worldwide.

Disclosures about Contractual Obligations and Commercial Commitments

As disclosed in our Annual Report on Form 10-K for our fiscal year ended May 31, 2009, total contractual obligations at May 31, 2009 were $355.8 million not including an estimated liability for uncertain tax positions. At February 28, 2010 we had recorded a liability for uncertain tax positions of $8.6 million. We do not expect the amount of unrecognized tax benefits or cash payments related to these obligations to significantly change over the next 12 months. See Note 11, Income Taxes, in Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, for further discussion.

Off-Balance-Sheet Arrangements

As of May 31, 2009, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. We do not use off-balance-sheet arrangements with unconsolidated entities, related parties or other forms of off-balance-sheet arrangements such as research and development arrangements. Accordingly, our liquidity and capital resources are not subject to off-

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balance-sheet risks from unconsolidated entities.

We have entered into operating leases for most of our U.S. and international sales and support offices and certain equipment in the normal course of business. These arrangements are sometimes referred to as a form of off-balance-sheet financing. As of February 28, 2010, we leased facilities and certain equipment under non-cancelable operating leases expiring between 2009 and 2018. Rent expense under operating leases for the third quarter of fiscal 2010 and fiscal 2009 was $6.6 million and $7.7 million, respectively. For the nine months ended February 28, 2010 and 2009, rent expense was $19.9 million and $22.5 million, respectively.

Foreign Currency

We manage foreign currency market risk, from time to time, using forward contracts to offset the risk associated with the effects of certain foreign currency exposures. Increases or decreases in our foreign currency exposures are expected to be offset by gains or losses on forward contracts. This is expected to mitigate the possibility of significant foreign currency transaction gains or losses in future periods. Our foreign currency exposures are primarily related to non-functional currency intercompany loans and advances between our international subsidiaries as well as other balance sheet accounts, particularly accounts receivable, accounts payable and certain accrual accounts.

We do not use forward contracts for trading purposes. Our foreign currency forward contracts are generally short term in nature, typically maturing within 90 days or less. We mark to market all contracts at the end of each reporting period and unrealized gains and losses are included in our results of operations for that period. Our ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature. The net fair value of our foreign currency forward contracts was a net asset of $0.1 million and a net liability of $0.5 million as of February 28, 2010 and May 31, 2009 and was included in prepaid expenses and other current assets and other current liabilities, respectively, on our Condensed Consolidated Balance Sheets. See Note 9, Fair Value Measurements, for more detail. For the three and nine month periods ended February 28, 2010, we recorded a net realized and unrealized gain of $5.1 million and a loss of $0.8 million related to foreign currency forward contracts respectively, as compared to net gains of $7.7 million and $20.9 million, for the three and nine months periods ended February 28, 2009. All gains and losses from foreign currency forward contracts have been classified as general and administrative expense in our Condensed Consolidated Statements of Operations.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, in Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding recently issued accounting pronouncements that may impact our financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As disclosed in our Annual Report on Form 10-K for our fiscal year ended May 31, 2009, our major market risk exposure relates to adverse changes in foreign currency exchange rates and adverse fluctuations in interest rates with respect to our senior convertible notes. We believe our exposure associated with these market risks has not changed materially since May 31, 2009.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established and maintained disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, we conducted an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of February 28, 2010.

Our evaluation does not include an assessment of the effectiveness of Healthvision’s disclosure controls and procedures. SEC guidance regarding the reporting of internal control over financial reporting in connection with a material acquisition allows management to omit an assessment of the acquired business’ internal control over financial reporting from management’s assessment of internal control over financial reporting for a period not to exceed one year. Accordingly, we have excluded Healthvision from the scope of our current assessment.

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All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act) during the quarter ended February 28, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As previously discussed in the quarterly reports filed on Form 10-Q for our fiscal quarters ended August 31, 2009 and November 30, 2009, on May 19, 2009, ePlus, Inc. filed a lawsuit in the United States District Court for the Eastern District of Virginia against Lawson Software, Inc., Perfect Commerce, Inc., SciQuest, Inc. and Verian Technologies, Inc. The other three defendants subsequently entered into separate confidential settlements and the court dismissed their parts of the lawsuit. The May 2009 complaint alleges that Lawson’s supply chain products infringe three U.S. patents owned by ePlus. In that complaint, ePlus seeks damages in an undisclosed amount, enhancement of those damages, an attorneys’ fee award and an injunction against further infringement. As part of the subsequent discovery process, ePlus has made unquantified damages allegations for royalties on some or all of our aggregate license, maintenance and services revenues in the United States since October 2003 for our purchase order, inventory control and requisition products. We are contesting the infringement claims and validity of the patents as well as the time frame and scope of products and services associated with ePlus’ damages allegations. The court has required that ePlus submit its damages expert reports in May 2010. When ePlus submits its damages expert report, we expect that report to include the dollar amount of damages claimed by ePlus and the royalty percentage and revenue base on which ePlus calculates the alleged damages royalty. We are vigorously defending this case because we believe we have meritorious defenses, including non-infringement and patent invalidity. This case is currently scheduled to go to trial in September 2010. If we are not successful in obtaining summary judgment or other resolution before or at trial, at the conclusion of the trial the jury will decide whether or not ePlus has proved that Lawson has infringed, and whether or not Lawson has proved that the patents are invalid. If the jury finds that Lawson failed to prove invalidity of the patents, and if the jury finds that ePlus has proved infringement, then the jury will determine the amount of damages payable by Lawson. Given the inherent unpredictability of litigation and jury trials, we cannot at this time estimate the possible outcome of this lawsuit. Because patent litigation is time consuming and costly to defend, we will continue to incur significant costs defending this case. In addition, in the event of an unfavorable outcome in this matter, it could have a material adverse effect on our future results of operations or cash flows.

As previously discussed in the quarterly reports filed on Form 10-Q for our fiscal quarters ended August 31, 2009 and November 30, 2009, on May 20, 2008, a putative class action lawsuit was filed against us in the United States District Court for the Southern District of New York on behalf of current and former business, systems, and technical consultants. The suit, Cruz, et. al., v. Lawson Software, Inc. et. al., alleges that we failed to pay overtime wages pursuant to the Fair Labor Standards Act (FLSA) and state law, and alleges violations of state record-keeping requirements. The suit also alleges certain violations of ERISA and unjust enrichment. Relief sought includes back wages, corresponding 401(k) plan credits, liquidated damages, penalties, interest and attorneys’ fees. Given the preliminary nature of the alleged claims and the inherent unpredictability of litigation, we cannot at this time estimate the possible outcome of any such action. We successfully moved the case from the United States District Court for the Southern District of New York to the District of Minnesota. The Minnesota Federal District Court conditionally certified the case under the FLSA as a collective action and granted our motion to dismiss the two ERISA counts and the state wage and hour claims.

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Plaintiffs moved for Rule 23 class certification but the Court denied their motion. At the present time, the size of the class is limited to the 72 consultants who elected to participate in the lawsuit by filing opt-in forms. As permitted by the present scheduling order, we plan to file a motion for summary judgment asking for dismissal of remaining class members based on their performance of exempt duties and/or making more than $100,000 per year.

ITEM 1A. RISK FACTORS

We documented our risk factors in Item 1A of Part I of our Annual Report on Form 10-K for our fiscal year ended May 31, 2009. There have been no material changes to our risk factors since the filing of that report. The risk factors detailed in our Annual Report on Form 10-K could materially harm our business, operating results and financial condition and/or negatively affect our stock price. Additional factors and uncertainties not currently known to us or that we currently consider immaterial could also harm our business, operating results and financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Not applicable

(b) Not applicable

The following table summarizes repurchases of our common stock for the three months ended February 28, 2010:

Period	Total Number of Shares	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)

December 1 - 31, 2009	—	$	—	—	$	135,213,279
January 1 - 31, 2010	816,100	$	6.19	816,100	$	130,160,005
February 1 - 28, 2010	184,000	$	5.90	184,000	$	129,074,195
Total third quarter fiscal 2010	1,000,100	$	6.14	1,000,100

(1) In November 2006, our Board of Directors approved a share repurchase of up to $100.0 million of common stock. The Board of Directors increased this maximum to $200.0 million in April 2007 and to $400.0 million on July 10, 2008.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

See Index to Exhibits on page 49 of this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 9, 2010

	LAWSON SOFTWARE, INC.


	By:	/s/ STEFAN B. SCHULZ
		Stefan B. Schulz
		Senior Vice President and Chief Financial Officer (principal financial and accounting officer)

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Exhibit Index

EXHIBIT NUMBER		DESCRIPTION OF DOCUMENTS
10.1		Employment Contract dated January 7, 2010 between SAS Lawson Software Consulting France and Eric Verniaut.

10.2		U.S. Parent company Supplement to Local Country Employment Agreement effective January 6, 2010, between Lawson Software, Inc. and Eric Verniaut.

12.1		Computation of Ratio of Earnings to Fixed Charges.

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act- Harry Debes.

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act- Stefan B. Schulz.

32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act- Harry Debes.

32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act- Stefan B. Schulz.

Lawson Software, Inc. - FORM 10-Q - April 9, 2010

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