SOLERA HOLDINGS, INC - FORM 10-Q

SOLERA HOLDINGS, INC - FORM 10-Q - February 7, 2011

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EXCEL - IDEA: XBRL DOCUMENT - SOLERA HOLDINGS, INC	Financial_Report.xls
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 FOR CHIEF EXECUTIVE OFFICER - SOLERA HOLDINGS, INC	dex311.htm
EX-10.1 - NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM - SOLERA HOLDINGS, INC	dex101.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFIER - SOLERA HOLDINGS, INC	dex322.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFIER - SOLERA HOLDINGS, INC	dex321.htm
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 FOR CHIEF FINANCIAL OFFICER AND TREASURER - SOLERA HOLDINGS, INC	dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2010

¨	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 001-33461

Solera Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		26-1103816
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7 Village Circle, Suite 350 Westlake, Texas 76262		(858) 724-1600
(Address of Principal Executive Offices, including Zip Code)		(Registrant’s Telephone Number, Including Area Code)

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

The number of shares outstanding of the issuer’s common stock as of January 31, 2011 was 70,451,397.

TABLE OF CONTENTS


			Page
PART I	FINANCIAL INFORMATION			3

	Item 1.	Financial Statements (Unaudited)		3
		Condensed Consolidated Balance Sheets as of December 31, 2010 and June 30, 2010		3
		Condensed Consolidated Statements of Income for the three and six month periods ended December 31, 2010 and 2009		4
		Condensed Consolidated Statements of Cash Flows for the six month periods ended December 31, 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		22

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35

	Item 4.	Controls and Procedures		36

PART II	OTHER INFORMATION			37

	Item 1.	Legal Proceedings		37

	Item 1A.	Risk Factors		37

	Item 6.	Exhibits		48

		Signatures		49

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

SOLERA HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)


	December 31, 2010			June 30, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	339,302		$	240,522
Accounts receivable, net of allowance for doubtful accounts of $2,264 and $2,071 at December 31, 2010 and June 30, 2010, respectively		99,694			99,682
Other receivables		14,600			12,989
Other current assets		20,978			20,713
Deferred income tax assets		3,164			4,059

Total current assets		477,738			377,965
Property and equipment, net		54,497			53,255
Goodwill		669,139			635,709
Intangible assets, net		267,660			275,492
Other noncurrent assets		12,427			12,065
Noncurrent deferred income tax assets		1,520			2,167

Total assets	$	1,482,981		$	1,356,653

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,772		$	25,420
Accrued expenses and other current liabilities		105,070			103,921
Income taxes payable		11,657			7,041
Deferred income tax liabilities		1,801			1,673
Current portion of long-term debt		5,718			5,442

Total current liabilities		141,018			143,497
Long-term debt		562,059			538,018
Other noncurrent liabilities		28,343			34,140
Noncurrent deferred income tax liabilities		30,991			33,752

Total liabilities		762,411			749,407
Redeemable noncontrolling interests		117,667			94,431
Stockholders’ equity:
Solera Holdings, Inc. stockholders’ equity:
Common shares, $0.01 par value: 150,000 shares authorized; 70,415 and 70,017 issued and outstanding as of December 31, 2010 and June 30, 2010, respectively		548,824			545,048
Retained earnings		67,036			22,550
Accumulated other comprehensive loss		(20,443	)		(60,583	)

Total Solera Holdings, Inc. stockholders’ equity		595,417			507,015
Noncontrolling interests		7,486			5,800

Total stockholders’ equity		602,903			512,815

Total liabilities and stockholders’ equity	$	1,482,981		$	1,356,653

See accompanying notes to condensed consolidated financial statements.

SOLERA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended December 31,					Six Months Ended December 31,
	2010			2009		2010		2009
Revenues	$	168,160		$	163,318	$	327,068	$	314,087

Cost of revenues:
Operating expenses		33,697			33,718		64,839		66,689
Systems development and programming costs		17,247			18,850		32,759		35,498

Total cost of revenues (excluding depreciation and amortization)		50,944			52,568		97,598		102,187
Selling, general and administrative expenses		44,847			43,463		86,673		81,799
Depreciation and amortization		20,354			22,685		39,906		44,320
Restructuring charges, asset impairments, and other costs associated with exit and disposal activities		(991	)		1,731		1,499		3,460
Acquisition and related costs		633			524		1,837		2,138
Interest expense		7,365			8,610		14,684		17,374
Other expense, net		3,349			150		2,673		564

		126,501			129,731		244,870		251,842

Income before provision for income taxes		41,659			33,587		82,198		62,245
Income tax provision		7,722			7,908		16,322		14,439

Net income		33,937			25,679		65,876		47,806
Less: Net income attributable to noncontrolling interests		3,018			2,401		5,833		4,545

Net income attributable to Solera Holdings, Inc.	$	30,919		$	23,278	$	60,043	$	43,261

Net income attributable to Solera Holdings, Inc. per common share:
Basic	$	0.44		$	0.33	$	0.85	$	0.62

Diluted	$	0.44		$	0.33	$	0.85	$	0.62

Dividends paid per share	$	0.08		$	0.06	$	0.15	$	0.13

Weighted-average shares used in the calculation of net income attributable to Solera Holdings, Inc. per common share:
Basic		70,245			69,469		70,115		69,380

Diluted		70,602			69,693		70,438		69,526

See accompanying notes to condensed consolidated financial statements.

SOLERA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended December 31,
	2010			2009
Cash flows from operating activities:
Net income	$	65,876		$	47,806
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		39,906			44,320
Provision for doubtful accounts		888			627
Stock-based compensation		4,754			3,433
Deferred income taxes		(3,020	)		326
Other		(742	)		(375	)
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Decrease in accounts receivable		5,334			8,657
(Increase) decrease in other assets		(908	)		807
Decrease in accounts payable		(10,386	)		(11,897	)
Decrease in accrued expenses and other liabilities		(6,197	)		(24,724	)

Net cash provided by operating activities		95,505			68,980

Cash flows from investing activities:
Capital expenditures		(7,973	)		(13,809	)
Acquisitions and capitalization of intangible assets		(1,320	)		(1,206	)
Proceeds from sale of property and equipment		1,380			—
Acquisitions of and investments in businesses, net of cash acquired		(1,437	)		(80,516	)
Proceeds from sales and maturities of short-term investments		42,826			12,339
Purchases of short-term investments		(42,826	)		—
Decrease (increase) in restricted cash		3,145			(1,611	)

Net cash used in investing activities		(6,205	)		(84,803	)

Cash flows from financing activities:
Payments of contingent purchase consideration		(66	)		—
Principal payments on financed asset acquisitions		(1,309	)		(1,516	)
Repayments of long-term debt		(2,866	)		(3,027	)
Cash dividends paid on common shares and participating securities		(10,590	)		(8,753	)
Cash dividends paid to noncontrolling interests		(2,980	)		(2,960	)
Proceeds from issuances of common shares under stock award plans		7,590			5,096

Net cash used in financing activities		(10,221	)		(11,160	)

Effect of foreign currency exchange rate changes on cash and cash equivalents		19,701			8,015

Net change in cash and cash equivalents		98,780			(18,968	)
Cash and cash equivalents, beginning of period		240,522			223,420

Cash and cash equivalents, end of period	$	339,302		$	204,452

Supplemental cash flow information:
Cash paid for interest	$	16,354		$	17,395
Cash paid for income taxes	$	17,073		$	24,351
Supplemental disclosure of non-cash investing and financing activities:
Capital assets financed	$	2,191		$	3,691
Accrued contingent purchase consideration	$	1,630		$	4,330

See accompanying notes to condensed consolidated financial statements.

SOLERA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Description of Business

Solera Holdings, Inc. and subsidiaries (the “Company”, “Solera”, “we”, “us” or “our”) is a leading global provider of software and services to the automobile insurance claims processing industry. Our software and services help our customers: estimate the costs to repair damaged vehicles; determine pre-collision fair market values for vehicles damaged beyond repair; automate steps of the claims process; outsource steps of the claims process that insurance companies have historically performed internally; and monitor and manage their businesses through data reporting and analysis. We are active in over 50 countries and derive most of our revenues from our estimating and workflow software. Through our acquisitions of HPI, Ltd. (“HPI”) in December 2008 and AUTOonline GmbH In-formationssysteme (“AUTOonline”) in October 2009, we also provide used vehicle validation services in the United Kingdom and operate an eSalvage vehicle exchange platform in several European and Latin American countries as well as India.

Financial Statement Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”), and therefore, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the fiscal year ended June 30, 2010, included in our Annual Report on Form 10-K filed with the SEC on September 2, 2010. Our operating results for the three and six month periods ended December 31, 2010 are not necessarily indicative of the results that may be expected for any future periods.

Principles of Consolidation

The unaudited condensed consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries. Our consolidated, majority-owned subsidiaries include AUTOonline, our subsidiaries located in Belgium, France, Portugal, Spain, and certain of our subsidiaries in Mexico. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the accompanying unaudited condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates. The reported amounts of assets, liabilities, revenues and expenses are affected by estimates and assumptions which are used for, but not limited to, the accounting for sales allowances, allowance for doubtful accounts, fair value of derivatives, valuation of goodwill and intangible assets, amortization of intangibles, restructurings, liabilities under defined benefit plans, stock-based compensation, redeemable noncontrolling interests and income taxes. Actual results could differ from these estimates.

Recently Adopted Accounting Pronouncements

In September 2009, the Financial Accounting Standards Board (“FASB”) reached a consensus on two new pronouncements: Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements, and ASU No. 2009-14, Software (Topic 985)—Certain Revenue Arrangements That Include Software Elements. ASU No. 2009-13 eliminates the requirement that all undelivered elements must have either (i) vendor specific objective evidence (“VSOE”) or (ii) third-party evidence (“TPE”) of stand-alone selling price before an entity can recognize the portion of the consideration that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. Overall arrangement consideration will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. The residual method of allocating arrangement consideration has been eliminated. ASU No. 2009-14 modifies the software revenue recognition guidance to exclude from its scope tangible products that contain both software and non-software components that function together to deliver a product’s essential functionality. These new pronouncements apply to revenue arrangements entered into or materially modified on or after July 1, 2010. Our adoption of these pronouncements in the first quarter of fiscal year 2011 did not have a significant impact on our consolidated financial position, results of operations or cash flows.

In June 2009, the FASB issued Accounting Standards Codification (“ASC”) Topic No. 810-10-05, Consolidation, which changes the approach to determining the primary beneficiary of a variable interest entity, and requires companies to more frequently assess whether they must consolidate variable interest entities. Our adoption of ASC No. 810-10-05 in the first quarter of fiscal year 2011 did not impact our consolidated financial position, results of operations or cash flows.

2. Net Income Attributable to Solera Holdings, Inc. Per Common Share

Our restricted common shares subject to repurchase and substantially all of our restricted stock units have the right to receive non-forfeitable dividends on an equal basis with common stock and therefore are considered participating securities that must be included in the calculation of net income per share using the two-class method. Under the two-class method, basic and diluted net income per share is determined by calculating net income per share for common stock and participating securities based on the cash dividends paid and participation rights in undistributed earnings. Diluted net income per share also considers the dilutive effect of in-the-money stock options and unvested restricted stock units that have the right to receive forfeitable dividends, calculated using the treasury stock method. Under the treasury stock method, the amount of assumed proceeds from unexercised stock options and unvested restricted stock units includes the amount of compensation cost attributable to future services not yet recognized, proceeds from the exercise of the options, and any incremental income tax benefit or liability.

The computation of basic and diluted net income attributable to Solera Holdings, Inc. per common share using the two-class method is as follows for the periods indicated (in thousands, except per share amounts):


	Three months Ended December 31,						Six months Ended December 31,
	2010			2009			2010			2009
Basic net income attributable to Solera Holdings, Inc. per common share calculation
Net income attributable to Solera Holdings, Inc.	$	30,919		$	23,278		$	60,043		$	43,261
Less: Dividends paid and undistributed earnings allocated to participating securities		(160	)		(202	)		(326	)		(390	)

Net income attributable to common shares – basic	$	30,759		$	23,076		$	59,717		$	42,871

Weighted-average number of common shares		70,311			69,692			70,197			69,634
Less: Weighted-average common shares subject to repurchase		(66	)		(223	)		(82	)		(254	)

Weighted-average number of common shares used to compute basic net income attributable to Solera Holdings, Inc. per common share		70,245			69,469			70,115			69,380

Basic net income attributable to Solera Holdings, Inc. per common share	$	0.44		$	0.33		$	0.85		$	0.62

Diluted net income attributable to Solera Holdings, Inc. per common share
Net income attributable to Solera Holdings, Inc.	$	30,919		$	23,278		$	60,043		$	43,261
Less: Dividends paid and undistributed earnings allocated to participating securities		(160	)		(202	)		(325	)		(390	)

Net income attributable to common shares – diluted	$	30,759		$	23,076		$	59,718		$	42,871

Weighted-average number of common shares used to compute basic net income attributable to Solera Holdings, Inc. per common share		70,245			69,469			70,115			69,380
Diluted effect of options to purchase common stock and restricted stock units		357			224			323			146

Weighted-average number of common shares used to compute diluted net income attributable to Solera Holdings, Inc. per common share		70,602			69,693			70,438			69,526

Diluted net income attributable to Solera Holdings, Inc. per common share	$	0.44		$	0.33		$	0.85		$	0.62

The following securities that could potentially dilute earnings per share in the future are not included in the determination of diluted net income attributable to Solera Holdings, Inc. per common share (in thousands):

Three Months Ended
December 31,

Six Months Ended
December 31,

2010

2009

2010

2009

Antidilutive options to purchase common stock and restricted stock units

3. Contingent Purchase Consideration

In connection with business combinations completed in fiscal years 2010 and 2009, we may be required to make contingent cash payments through fiscal year 2014 subject to the achievement of certain financial performance and product-related targets. At December 31, 2010, the maximum aggregate amount of remaining contingent cash payments to be paid is $20.9 million, of which $11.9 million would be recognized as additional goodwill when paid, $1.6 million was earned and accrued to goodwill in December 2010, $0.7 million was accrued to goodwill at the acquisition date, and the remaining $6.7 million is considered compensatory and is being charged against income as earned.

4. Goodwill and Intangible Assets

Intangible Assets

Intangible assets consist of the following (in thousands):


	December 31, 2010						June 30, 2010
	Gross Carrying Amount		Accumulated Amortization		Intangible Assets, net		Gross Carrying Amount		Accumulated Amortization		Intangible Assets, net
Amortized intangible assets:
Internally developed software	$	19,382	$	4,691	$	14,691	$	16,094	$	2,257	$	13,837
Purchased customer relationships		208,887		115,897		92,990		199,404		102,041		97,363
Purchased tradenames and trademarks		18,367		18,324		43		16,007		15,958		49
Purchased software and database technology		344,112		221,954		122,158		312,861		184,776		128,085
Other		5,850		826		5,024		5,269		161		5,108

	$	596,598	$	361,692	$	234,906	$	549,635	$	305,193	$	244,442

Intangible assets not subject to amortization:
Purchased tradenames and trademarks with indefinite lives		32,754		—		32,754		31,050		—		31,050

	$	629,352	$	361,692	$	267,660	$	580,685	$	305,193	$	275,492

Goodwill

The following table summarizes the activity in goodwill for the six months ended December 31, 2010 (in thousands):


	Balance at Beginning of Period		Other (2)		Foreign Currency Translation Effect		Balance at End of Period
EMEA (1)	$	465,854	$	1,630	$	24,111	$	491,595
Americas (1)		169,855		—		7,689		177,544

Total	$	635,709	$	1,630	$	31,800	$	669,139

(1)

As described further in Note 13, in the first quarter of fiscal year 2011, we transferred our Netherlands operating segment from our EMEA reportable segment to our Americas reportable segment. The balances presented above reflect the inclusion of our Netherlands operating segment in our Americas reportable segment for all periods.

(2)	Represents a £1.0 million ($1.6 million) contingent cash payment earned by the sellers of HPI in fiscal year 2011.

5. Restructuring Initiatives and Other Exit and Disposal Activities

The objectives of our restructuring initiatives and other exit and disposal activities have primarily been to eliminate waste and improve operational efficiencies. The liabilities associated with our restructuring initiatives and other exit and disposal activities are included in accrued expenses and other current liabilities and in other noncurrent liabilities in the accompanying condensed consolidated balance sheets. We report all amounts incurred in connection with our restructuring initiatives and other exit and disposal activities in restructuring charges, asset impairments and other costs associated with exit and disposal activities in the accompanying condensed consolidated statements of income.

The following table summarizes the activity in the liabilities associated with our restructuring initiatives and other exit and disposal activities for the six months ended December 31, 2010 (in thousands):


	Employee Termination Benefits			Lease-Related Charges			Other Charges			Total
Balance at beginning of period	$	1,851		$	4,717		$	1,796		$	8,364
Restructuring charges, asset impairments and other costs associated with exit and disposal activities		799			1,501			(801	)		1,499
Cash payments		(1,383	)		(1,230	)		(1,090	)		(3,703	)
Other		(376	)		426			95			145
Effect of foreign exchange		94			—			—			94

Balance at end of period	$	985		$	5,414		$	—		$	6,399

In July 2010, we announced that we are relocating our corporate headquarters and global executive team from San Diego, California to the Dallas-Fort Worth, Texas metroplex (the “Corporate Relocation Plan”). The primary objectives of the Corporate Relocation Plan are to provide us with access to a broader employee recruitment pool; improved labor arbitrage and other cost efficiencies; and improved mobility and access to our markets around the world. The relocation is expected to improve the effectiveness of our senior management team and our operations, and result in long-term cost savings. Under the Corporate Relocation Plan, we anticipate incurring expenses of approximately $2.0 million, primarily consisting of relocation benefits paid to current employees, facility relocation costs and termination benefits for corporate employees that are not relocating. The expenses anticipated to be incurred under the Corporate Relocation Plan are expected to be paid through fiscal year 2012.

In July 2010, we initiated a restructuring plan in our Americas segment (the “Americas 2011 Restructuring Plan”). The primary objective of the Americas 2011 Restructuring Plan is to create more appropriate resource levels and efficiencies for various functional groups in our North American operations. Under the Americas 2011 Restructuring Plan, we anticipate terminating approximately 47 employees and incurring expenses related to termination benefits of approximately $1.2 million. The termination benefits under the Americas 2011 Restructuring Plan are expected to be paid during fiscal year 2011.

In prior fiscal years, we initiated restructuring plans in our Americas and EMEA segments (the “Prior Restructuring Plans”). Under the Prior Restructuring Plans, as of December 31, 2010, we have a remaining lease-related restructuring liability of $5.4 million, which we will pay through July 2013, and employee termination benefits of $0.9 million, which will we will pay during fiscal year 2011. Additionally, during the three months ended December 31, 2010, we reversed $1.8 million in previously recognized restructuring charges related to a vendor contract under which, pursuant to a settlement and release agreement, we have no further obligations.

The following table summarizes restructuring charges, asset impairments and other costs associated with exit and disposal activities for the periods indicated (in thousands):


	Corporate Relocation Plan		Americas 2011 Restructuring Plan		Prior Restructuring Plans			Total
Three Months Ended December 31, 2010:
Employee termination benefits	$	107	$	201	$	—		$	308
Lease-related charges		—		—		277			277
Other charges		230		—		(1,806	)		(1,576	)

Total restructuring charges, asset impairments, and other costs associated with exit and disposal activities	$	337	$	201	$	(1,529	)	$	(991	)

Three Months Ended December 31, 2009:
Employee termination benefits	$	—	$	—	$	(1,622	)	$	(1,622	)
Lease-related charges		—		—		1,590			1,590
Other charges		—		—		1,439			1,439

Total restructuring charges		—		—		1,407			1,407
Other costs associated with exit and disposal activities		—		—		324			324

Total restructuring charges, asset impairments, and other costs associated with exit and disposal activities	$	—	$	—	$	1,731		$	1,731

Six Months Ended December 31, 2010:
Employee termination benefits	$	295	$	504	$	—		$	799
Lease-related charges		—		—		1,501			1,501
Other charges		983		—		(1,784	)		(801	)

Total restructuring charges, asset impairments, and other costs associated with exit and disposal activities	$	1,278	$	504	$	(283	)	$	1,499

Six Months Ended December 31, 2009:
Employee termination benefits	$	—	$	—	$	(583	)	$	(583	)
Lease-related charges		—		—		1,590			1,590
Other charges		—		—		2,129			2,129

Total restructuring charges		—		—		3,136			3,136
Other costs associated with exit and disposal activities		—		—		324			324

Total restructuring charges, asset impairments, and other costs associated with exit and disposal activities	$	—	$	—	$	3,460		$	3,460

6. Stockholders’ Equity and Redeemable Noncontrolling Interests

The following table sets forth a reconciliation of stockholders’ equity and redeemable noncontrolling interests for the periods indicated (in thousands):


	Stockholders’ Equity Attributable to Solera Holdings, Inc.
									Accumulated			Total Solera
	Common Shares					Retained Earnings			Other Comprehensive Loss			Holdings, Inc. Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity			Redeemable Noncontrolling Interests
	Shares		Amount			Retained Earnings			Other Comprehensive Loss			Holdings, Inc. Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity			Redeemable Noncontrolling Interests
Balance at June 30, 2010		70,017	$	545,048		$	22,550		$	(60,583	)	$	507,015		$	5,800		$	512,815		$	94,431
Components of comprehensive income:
Net income attributable to Solera Holdings, Inc. and noncontrolling interests		—		—			60,043			—			60,043			2,005			62,048			3,828
Foreign currency translation adjustments		—		—			—			34,846			34,846			406			35,252			8,128
Unrealized gain on derivative instruments, net of tax		—		—			—			5,294			5,294			—			5,294			—

Total comprehensive income													100,183			2,411			102,594			11,956

Stock-based compensation		—		4,754			—			—			4,754			—			4,754			—
Issuance of common shares under stock award plans, net		398		7,590			—			—			7,590			—			7,590			—
Dividends paid on common stock and participating securities		—		—			(10,590	)		—			(10,590	)		—			(10,590	)		—
Dividends paid to noncontrolling owners		—		—			—			—			—			(1,255	)		(1,255	)		(1,725	)
Revaluation of and additions to noncontrolling interests		—		(8,568	)		(4,967	)		—			(13,535	)		530			(13,005	)		13,005

Balance at December 31, 2010		70,415	$	548,824		$	67,036		$	(20,443	)	$	595,417		$	7,486		$	602,903		$	117,667


	Stockholders’ Equity Attributable to Solera Holdings, Inc.
					Accumulated Deficit			Accumulated Other Comprehensive Income		Total Solera Holdings, Inc. Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity			Redeemable Noncontrolling Interests
	Common Shares
	Shares		Amount
Balance at June 30, 2009		69,531	$	526,547	$	(44,335	)	$	3,674	$	485,886		$	6,929		$	492,815		$	92,012
Components of comprehensive income:
Net income attributable to Solera Holdings, Inc. and noncontrolling interests		—		—		43,261			—		43,261			1,392			44,653			3,153
Foreign currency translation adjustments		—		—		—			7,362		7,362			124			7,486			1,879
Unrealized gain on derivative instruments, net of tax		—		—		—			4,308		4,308			—			4,308			—

Total comprehensive income											54,931			1,516			56,447			5,032

Stock-based compensation		—		3,433		—			—		3,433			—			3,433			—
Issuance of common shares under employee stock award plans, net		292		5,096		—			—		5,096			—			5,096			—
Dividends paid on common stock and participating securities		—		—		(8,753	)		—		(8,753	)		—			(8,753	)		—
Dividends paid to noncontrolling owners		—		—		—			—		—			(1,994	)		(1,994	)		(966	)
Revaluation of and additions to redeemable noncontrolling interests		—		13,587		—			—		13,587			—			13,587			1,626

Balance at December 31, 2009		69,823	$	548,663	$	(9,827	)	$	15,344	$	554,180		$	6,451		$	560,631		$	97,704

7. Comprehensive Income

Comprehensive income consists of the following (in thousands):


	Three Months Ended December 31,						Six Months Ended December 31,
	2010			2009			2010		2009
Net income	$	33,937		$	25,679		$	65,876	$	47,806
Other comprehensive income:
Foreign currency translation adjustments		(16,417	)		(7,249	)		43,380		9,365
Unrealized net gain on derivative instruments		2,948			3,803			5,294		4,308

Total comprehensive income	$	20,468		$	22,233		$	114,550	$	61,479
Comprehensive income attributable to noncontrolling interests		20			822			14,367		6,548

Comprehensive income attributable to Solera Holdings, Inc.	$	20,448		$	21,411		$	100,183	$	54,931

The majority of our assets and liabilities, including goodwill, intangible assets and long-term debt, are carried in functional currencies other than the U.S. dollar, primarily the Euro, Pound Sterling, and Swiss franc. We translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period for our condensed consolidated statement of income and certain components of stockholders’ equity and the exchange rate at the end of that period for the condensed consolidated balance sheet. These translations resulted in a foreign currency translation adjustment of $34.8 million during the six months ended December 31, 2010, which was caused by a weakening in the value of the U.S. dollar versus certain foreign currencies, including the Euro. Generally, the weakening of the U.S. dollar during the six months ended December 31, 2010 resulted in increases to the U.S. dollar value of certain of our assets and liabilities from June 30, 2010 to December 31, 2010, as presented in the accompanying condensed consolidated balance sheets, although the corresponding local currency balances may have increased only slightly, decreased or remain unchanged.

8. Derivative Financial Instruments

In the normal course of business, we are exposed to interest rate changes and foreign currency fluctuations. We limit interest rate risks through the use of derivatives such as interest rate swaps. Derivatives are not used for speculative purposes. We do not hedge our exposure to foreign currency risks.

The following table summarizes the fair value of our derivative financial instruments, which are included in other noncurrent liabilities in the accompanying condensed consolidated balance sheets (in thousands):


	December 31, 2010		June 30, 2010
U.S. dollar interest rate swaps	$	4,009	$	7,672
Euro interest rate swaps		2,169		4,441

Total	$	6,178	$	12,113

We designated and documented these interest rate swaps at their inception as cash flow hedges for floating rate debt. The swaps are evaluated for effectiveness quarterly. We report the effective portion of the gain or loss on these hedges as a component of accumulated other comprehensive income (loss) in stockholders’ equity and reclassify these gains or losses into earnings when the hedged transaction affects earnings. We recognize the ineffective portion of these cash flow hedges in interest expense. We determined the estimated fair values of our derivatives using industry standard valuation techniques and standard valuation models and such estimated fair values may not be representative of actual values that could have been realized or that will be realized in the future.

The following table summarizes the outstanding derivatives designated as cash flow hedges as of December 31, 2010 (notional amounts in thousands):


Type	Fixed Rate			Start Date of Swap		End Date of Swap		Notional Amount Outstanding
U.S. dollar interest rate swap		5.4450	%		06/29/2007		6/30/2011	$	50,000
U.S. dollar interest rate swap		5.4180	%		06/29/2007		6/30/2011	$	36,415
U.S. dollar interest rate swap		5.4450	%		06/29/2007		6/30/2011	$	75,000
Euro interest rate swap		4.6790	%		06/29/2007		6/30/2011	€	34,459
Euro interest rate swap		4.6850	%		06/29/2007		6/30/2011	€	60,000

The following table summarizes the effect of the interest rate swaps on the accompanying condensed consolidated statements of income and accumulated other comprehensive income (loss) (“AOCI”) for the periods indicated (in thousands):


Derivative Financial Instruments	Gain (Loss) Recognized in AOCI on Derivatives (1)			Location of Loss Reclassified from AOCI into Income (1)		Loss Reclassified from AOCI into Income (1)			Location of Gain (Loss) Recognized in Income on Derivatives (2)		Gain (Loss) Recognized in Income on Derivatives (2)
Three Months Ended December 31, 2010:
U.S. dollar interest rate swaps	$	(114	)		Interest Expense	$	(2,178	)		Interest Expense	$	2
Euro interest rate swaps		(47	)		Interest Expense		(1,329	)		Interest Expense		3

Total	$	(161	)			$	(3,507	)			$	5

Three Months Ended December 31, 2009:
U.S. dollar interest rate swaps	$	(699	)		Interest Expense	$	(2,412	)		Interest Expense	$	(9	)
Euro interest rate swaps		173			Interest Expense		(1,939	)		Interest Expense		(8	)

Total	$	(526	)			$	(4,351	)			$	(17	)

Six Months Ended December 31, 2010:
U.S. dollar interest rate swaps	$	(694	)		Interest Expense	$	(4,325	)		Interest Expense	$	22
Euro interest rate swaps		(490	)		Interest Expense		(2,754	)		Interest Expense		(32	)

Total	$	(1,184	)			$	(7,079	)			$	(10	)

Six Months Ended December 31, 2009:
U.S. dollar interest rate swaps	$	(2,461	)		Interest Expense	$	(4,726	)		Interest Expense	$	27
Euro interest rate swaps		(1,617	)		Interest Expense		(3,683	)		Interest Expense		7

Total	$	(4,078	)			$	(8,409	)			$	34

(1)	Effective portion.

(2)	Ineffective portion and amount excluded from effectiveness testing.

9. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes our assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):


			Fair Value Measurements at December 31, 2010 Using:
	Fair Value at December 31, 2010		Quoted Market Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	339,302	$	339,302	$	—	$	—
Restricted cash (1)		2,723		2,723		—		—
Derivative financial instruments (2)		6,178		—		6,178		—
Accrued contingent purchase consideration (3)		729		—		—		729
Redeemable noncontrolling interests (4)		99,078		—		—		99,078

			Fair Value Measurements at June 30, 2010 Using:
	Fair Value at June 30, 2010		Quoted Market Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	240,522	$	240,522	$	—	$	—
Restricted cash (1)		5,409		5,409		—		—
Derivative financial instruments (2)		12,113		—		12,113		—
Accrued contingent purchase consideration (3)		732		—		—		732
Redeemable noncontrolling interests (4)		81,641		—		—		81,641

(1)	Included in other current assets and other noncurrent assets in the accompanying condensed consolidated balance sheets.

(2)	Included in other noncurrent liabilities in the accompanying condensed consolidated balance sheets.

(3)	Included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

(4)

Does not include the redeemable noncontrolling interest of AUTOonline, which is not measured at fair value on a recurring basis because it is redeemable at ten times AUTOonline’s consolidated earnings before interest expense, income tax expense, depreciation and amortization which is not necessarily indicative of fair value.

Cash and cash equivalents and restricted cash. Our cash and cash equivalents and restricted cash primarily consist of bank deposits, money market funds and bank certificates of deposit. The fair value of our cash and cash equivalents and restricted cash are determined using quoted market prices for identical assets (Level 1 inputs).

Derivative financial instruments. Our derivative financial instruments consist entirely of interest rate swaps. We estimate the fair value of our interest rate swaps using industry standard valuation techniques to extrapolate future reset rates from period-end yield curves and standard valuation models based on a discounted cash flow model. Market-based observable inputs including spot and forward rates, volatilities and interest rate curves at observable intervals are used as inputs to the models (Level 2 inputs).

Accrued contingent purchase consideration. We accrue contingent future cash payments related to acquisitions completed after June 30, 2009 at fair value as of the acquisition date and re-measure them at fair value at each reporting date. We estimate the fair value of future contingent purchase consideration based on the weighted probabilities of potential future payments that would be earned upon achievement by the acquired business of certain financial performance and product-related targets. We determined such probabilities using information as of the reporting date, including recent financial performance of the acquired business (Level 3 inputs). The change in accrued contingent purchase consideration during fiscal year 2011 resulted from cash payments to the sellers and the effect of fluctuations in foreign currency exchange rates.

Redeemable noncontrolling interests. We estimate the fair value of our redeemable noncontrolling interests through an income approach, utilizing a discounted cash flow model, and a market approach, which considers comparable companies and transactions (Level 3 inputs).

Under the income approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specific projection period and a residual value related to future cash flows beyond the projection period. Both values are discounted to reflect the degree of risk inherent in an investment in the reporting unit and achieving the projected cash flows. A weighted average cost of capital of a market participant is used as the discount rate. The residual value is generally determined by applying a constant terminal growth rate to the estimated net cash flows at the end of the projection period. Alternatively, the present value of the residual value may be determined by applying a market multiple at the end of the projection period.

Under the market approach, fair value is determined based on multiples of revenues and earnings before interest, taxes, depreciation and amortization for each reporting unit. For our calculation, we determined the multiples based on a selection of comparable companies and acquisition transactions, discounted for each reporting unit to reflect the relative size, diversification and risk of the reporting unit in comparison to the indexed companies and transactions.

The following table summarizes the activity in redeemable noncontrolling interests which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods indicated (in thousands):


	Six Months Ended December 31,
	2010			2009
Balance at beginning of period	$	81,641		$	92,012
Net income attributable to redeemable noncontrolling interests		3,100			2,889
Change in fair value		8,782			(13,453	)
Dividends paid to noncontrolling owners		(1,395	)		(966	)
Effect of foreign exchange		6,950			1,879

Balance at end of period	$	99,078		$	82,361

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

No assets or liabilities were required to be measured at fair value on a nonrecurring basis during the six months ended December 31, 2010.

Fair Value of Other Financial Instruments


	Carrying Value at December 31, 2010		Fair Value at December 31, 2010
Senior secured domestic term loan	$	213,152	$	213,152
Senior secured European term loan		337,219		337,219
Subordinated note payable		17,406		20,235

Total debt	$	567,777	$	570,606


	Carrying Value at June 30, 2010		Fair Value at June 30, 2010
Senior secured domestic term loan	$	214,260	$	214,260
Senior secured European term loan		312,245		312,245
Subordinated note payable		16,955		19,233

Total debt	$	543,460	$	545,738

The carrying value of our senior secured credit facility approximates fair value due to the facility’s variable interest rate. The estimated fair value of the subordinated note payable issued to the seller in connection with our acquisition of HPI was determined using a discounted cash flow model.

10. Share-based compensation

Share-Based Award Activity

The following table summarizes restricted stock and restricted stock unit activity during the six months ended December 31, 2010:


	Number of Shares (in thousands)			Weighted Average per Share Grant Date Fair Value
Nonvested at beginning of period		454		$	20.77
Granted		142		$	42.08
Vested		(127	)	$	16.82
Forfeited		(67	)	$	26.53

Nonvested at end of period		402		$	29.37

The following table summarizes stock option activity during the six months ended December 31, 2010:


	Number of Shares (in thousands)			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at beginning of period		1,800		$	26.65
Granted		449		$	42.86
Exercised		(322	)	$	24.02
Canceled		(191	)	$	27.90

Outstanding at end of period		1,736		$	31.20		6.5	$	34,971

Exercisable at and of period		414		$	25.43		6.4	$	10,720

Of the stock options outstanding at December 31, 2010, approximately 1.6 million are vested or expected to vest.

Cash received from the exercise of stock options was $7.7 million during the six months ended December 31, 2010. The intrinsic value of stock options exercised during the six months ended December 31, 2010 and 2009 totaled $7.0 million and $2.8 million, respectively.

Valuation of Share-Based Awards

We estimated the grant date fair value of stock options granted during the periods indicated utilizing the Black-Scholes option pricing model with the following assumptions:


	Risk-Free Interest Rate			Expected Term (in years)		Weighted Average Expected Stock Price Volatility			Expected Dividend Yield			Weighted Average Per Share Grant Date Fair Value
Six Months Ended December 31, 2010		1.3	%		4.6		33	%		0.7	%	$	11.90
Six Months Ended December 31, 2009		2.3	%		4.7		29	%		1.0	%	$	6.89

We based the risk-free interest rates on the implied yield available on U.S. Treasury constant maturities in effect at the time of the grant with remaining terms equivalent to the respective expected terms of the options. Because we have a limited history of stock option exercises, we calculated the expected award life as the average of the contractual term and the vesting period. We determined the expected volatility based on a combination of implied market volatilities, our historical stock price volatility and other factors. The dividend yield is based on our quarterly dividend of $0.075 per share declared and paid during fiscal year 2011.

We based the fair value of restricted common shares subject to repurchase and restricted stock units on the market price of our common stock on the date of grant which approximates the intrinsic value.

Share-Based Compensation Expense

Share-based compensation expense, which is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income, was $2.7 million and $4.8 million for the three and six months ended December 31, 2010, respectively, and $1.9 million and $3.4 million for the three and six months ended December 31, 2009, respectively. At December 31, 2010, the estimated total remaining unamortized compensation expense, net of forfeitures, associated with share-based awards was $21.9 million, which we expect to recognize over a weighted-average period of 2.8 years.

11. Defined Benefit Pension Plans

Our foreign subsidiaries sponsor various defined benefit pension plans and individual defined benefit arrangements covering certain eligible employees. We base the benefits under these pension plans on years of service and compensation levels. Funding is limited to statutory requirements.

The components of net pension expense were as follows for the periods indicated (in thousands):


	Three Months Ended December 31,						Six Months Ended December 31,
	2010			2009			2010			2009
Service cost — benefits earned during the period	$	803		$	682		$	1,560		$	1,355
Interest cost on projected benefits		871			989			1,751			1,961
Expected return on plan assets		(601	)		(724	)		(1,210	)		(1,450	)
Amortization of gain		—			(71	)		—			(143	)

Net pension expense	$	1,073		$	876		$	2,101		$	1,723

12. Provision For Income Taxes

We recorded an income tax provision of $7.7 million and $16.3 million for the three and six months ended December 31, 2010, respectively, and $7.9 million and $14.4 million for the three and six months ended December 31, 2009, respectively. The expected tax provision derived from applying the U.S. federal statutory rate to our income before income tax provision for the six months ended December 31, 2010 differed from our recorded income tax provision primarily due to higher earnings in jurisdictions with lower income tax rates which are indefinitely reinvested. These benefits are partially offset by certain foreign valuation allowances and withholding taxes.

On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”) was signed and enacted into law. The Act extends the research credit and certain international tax laws through December 31, 2011. There have also been several international tax laws recently enacted which could impact our effective tax rate and we are in the process of evaluating this impact. The income tax provision for the three and six months ended December 31, 2010 reflects the immediate impact, if any, of the enactment of these laws.

In February 2009, the California 2009-2010 budget legislation was signed into law. One of the major components of this legislation is our ability to elect to apply a single-sales factor apportionment beginning in fiscal year 2012. We are currently evaluating the potential impact of such an election. If we make the election, we will be required to re-measure our deferred taxes taking into account the reversal pattern and the expected California state income tax rate under the elective single-sales factor regime.

Gross unrecognized tax benefits as of December 31, 2010 and June 30, 2010 were $5.4 million and $5.6 million, respectively. No significant interest and penalties have been accrued during fiscal year 2011. Pursuant to the terms of the acquisition agreements, the sellers in our business combinations have indemnified us for all tax liabilities related to the pre-acquisition periods. We are liable for any tax assessments for the post-acquisition periods for our U.S. and foreign jurisdictions. We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next twelve months.

At June 30, 2010, we had a valuation allowance on our worldwide net deferred tax assets of $68.7 million, of which the significant majority represents the valuation allowance on our U.S. net deferred tax assets. We evaluate the positive and negative evidence in connection with our assessment for a valuation allowance on our U.S. deferred tax assets during each reporting period. The key objective negative evidence, which is generally difficult to overcome, includes a cumulative U.S. pre-tax book loss over the past three years. Based on preliminary income projections for fiscal year 2011, we believe the cumulative three-year position may shift into a sustained and supportable income position as soon as the second half of fiscal year 2011. While other factors will need to be considered during the U.S. valuation allowance evaluation process, a sustained and supportable cumulative pre-tax book income position is considered to be significant positive evidence. Based on our current forecasts of fiscal year 2011 financial results, we may begin releasing the U.S. valuation allowance during the second half of the current fiscal year. We will continue to evaluate our U.S. valuation allowance on a quarterly basis.

13. Segment and Geographic Information

We have aggregated our operating segments into two reportable segments: EMEA and Americas. In the first quarter of fiscal year 2011, we announced the formation of the Highly Established Market Initiatives Region (“HEMI Region”), which aligns our operations in the United States, Canada and the Netherlands. Each country in the HEMI Region represents a large, well-established market, and the alignment of these three markets will enable them to better leverage their collective resources and cross-pollinate products and services in order to grow the region.

As a result of the creation of the HEMI Region, we transferred our Netherlands operating segment from our EMEA reportable segment to our Americas reportable segment in the first quarter of fiscal year 2011. Accordingly, our EMEA reportable segment encompasses our operations in Europe (excluding the Netherlands), the Middle East, Africa, Asia and Australia, while our Americas reportable segment encompasses our operations in North, Central and South America as well as the Netherlands. All prior period segment information has been restated to conform to the current presentation.

Our chief operating decision maker is our Chief Executive Officer. We evaluate the performance of our reportable segments based on revenues and adjusted EBITDA, a non-GAAP financial measure that represents GAAP net income excluding interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairments and other costs associated with exit and disposal activities, acquisition and related costs, and other (income) expense, net. We do not allocate certain costs, including costs related to our financing activities, business development and oversight, and tax, audit and other professional fees, to our reportable segments. Instead, we manage these costs at the Corporate level.


(in thousands)	EMEA		Americas			Corporate			Total
Three Months Ended December 31, 2010:
Revenues	$	96,750	$	71,410		$	—		$	168,160
Income (loss) before provision for income taxes		30,850		32,211			(21,402	)		41,659
Significant items included in income (loss) before provision for income taxes:
Depreciation and amortization		12,857		7,497			—			20,354
Interest expense		365		10			6,990			7,365
Other (income) expense, net		1,621		(275	)		2,003			3,349
Three Months Ended December 31, 2009:
Revenues		94,756		68,562			—			163,318
Income (loss) before provision for income taxes		29,273		19,183			(14,869	)		33,587
Significant items included in income (loss) before provision for income taxes:
Depreciation and amortization		14,271		8,414			—			22,685
Interest expense		379		146			8,085			8,610
Other (income) expense, net		196		(212	)		166			150
Six Months Ended December 31, 2010:
Revenues		186,608		140,460			—			327,068
Income (loss) before provision for income taxes		61,371		58,028			(37,201	)		82,198
Significant items included in income (loss) before provision for income taxes:
Depreciation and amortization		25,159		14,747			—			39,906
Interest expense		722		23			13,939			14,684
Other (income) expense, net		1,358		(537	)		1,852			2,673
Six Months Ended December 31, 2009:
Revenues		179,057		135,030			—			314,087
Income (loss) before provision for income taxes		54,686		39,241			(31,682	)		62,245
Significant items included in income (loss) before provision for income taxes:
Depreciation and amortization		27,699		16,621			—			44,320
Interest expense		764		195			16,415			17,374
Other (income) expense, net		798		(444	)		210			564
Total assets as of December 31, 2010	$	1,020,338	$	414,322		$	48,321		$	1,482,981
Total assets as of June 30, 2010		931,835		384,397			40,421			1,356,653

Geographic revenue information is based on the location of the customer and was as follows for the periods presented (in thousands):


	Europe *		United States		United Kingdom		Germany		All Other		Total
Three Months Ended December 31, 2010	$	63,748	$	35,569	$	25,054	$	20,389	$	23,400	$	168,160
Three Months Ended December 31, 2009		63,461		34,766		23,728		21,092		20,271		163,318
Six Months Ended December 31, 2010		122,184		71,028		48,952		39,098		45,806		327,068
Six Months Ended December 31, 2009		120,959		69,863		47,735		35,974		39,556		314,087

*	Excludes the United Kingdom and Germany.

14. Subsequent Events

On February 2, 2011, we announced that the Audit Committee of our Board of Directors approved the payment of a cash dividend of $0.075 per share of outstanding common stock and per outstanding restricted stock unit. The Audit Committee has also approved a quarterly stock dividend equivalent of $0.075 per outstanding restricted stock unit granted to certain of our executive officers during fiscal year 2011 in lieu of the cash dividend, which dividend equivalent will be paid to the restricted stock unit holders as the restricted stock unit vests. The dividends are payable on March 1, 2011 to stockholders and restricted stock unit holders of record at the close of business on February 16, 2011. Any determination to pay dividends in future periods will be at the discretion of our Board of Directors.

CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE

SECURITIES LITIGATION REFORM ACT OF 1995

This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project” and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies and include, but are not limited to, statements about: increase in customer demand for our software and services; growth rates for the automobile insurance claims industry; growth rates for vehicle purchases; customer adoption rates for automated claims processing software and services; increases in customer spending on automated claims processing software and services; efficiencies resulting from automated claims processing; development or acquisition of claims processing products and services in areas other than automobile insurance; our relationship with insurance company customers as they continue global expansion; revenue growth resulting from the launch of new software and services; improvements in operating margins resulting from operational efficiency initiatives; increased utilization of our software and services resulting from increased severity; our expectations regarding the growth rates for vehicle insurance; changes in the amount of our existing unrecognized tax benefits; our revenue mix; our income taxes; restructuring plans, potential restructuring charges and their impact on our revenues; our operating expense growth and operating expenses as a percentage of our revenues; stability of our development and programming costs; growth of our selling, general and administrative expenses; decrease of total depreciation and amortization expense; decrease in interest expense and possible impact of future foreign currency fluctuations; growth of our acquisition and related costs; timing of the possible release for the valuation on our U.S. deferred tax assets; our use of cash and liquidity position going forward; and cash needs to service our debt.

Actual results could differ materially from those projected, implied or anticipated by our forward-looking statements. Some of the factors that could cause actual results to differ include: those set forth in the sections titled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and elsewhere as described in this Quarterly Report on Form 10-Q. These factors include, but are not limited to: our reliance on a limited number of customers for a substantial portion of our revenues; effects of competition on our software and service pricing and our business; unpredictability and volatility of our operating results, which include the volatility associated with foreign currency exchange risks, our sales cycle, seasonality, changes in the amount of our income tax provision or other factors; effects of the global economic downturn on demand for or utilization of our products and services; risks associated with and possible negative consequences of acquisitions, joint ventures, divestitures and similar transactions, including risks related to our ability to successfully integrate our acquired businesses; our ability to increase market share, successfully introduce new software and services and expand our operations to new geographic locations; time and expenses associated with customers switching from competitive software and services to our software and services; rapid technology changes in our industry; effects of changes in or violations by us or our customers of government regulations; costs and possible future losses or impairments relating to our acquisitions; use of cash to service our debt; country-specific risks associated with operating in multiple countries; damage to our business or reputation resulting from system failures, delays and other problems; and other factors that are described from time to time in our periodic filings with the Securities and Exchange Commission (“SEC”).

All forward-looking statements are qualified in their entirety by this cautionary statement, and we undertake no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.

ITEM 2.

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

The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2010 filed with the SEC on September 2, 2010. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

All percentage amounts and ratios were calculated using the underlying data in whole dollars and may reflect rounding adjustments. Operating results for the three and six months ended December 31, 2010 are not necessarily indicative of the results that may be expected for any future period. We describe the effects on our results that are attributed to the change in foreign currency exchange rates by measuring the incremental difference between translating the current and prior period results at the monthly average rates for the same period from the prior year.

Overview of the Business

We are the leading global provider of software and services to the automobile insurance claims processing industry. We also provide products and services that complement our insurance claims processing software and services, including used vehicle validation, fraud detection software and services and disposition of salvage vehicles. Our automobile insurance claims processing customers include insurance companies, collision repair facilities, independent assessors and automotive recyclers. We help our customers:

•

estimate the costs to repair damaged vehicles and determine pre-collision fair market values for damaged vehicles for which the repair costs exceed the vehicles’ value;

•

automate and outsource steps of the claims process that insurance companies have historically performed internally; and

•

improve their ability to monitor and manage their businesses through data reporting and analysis.

We serve over 75,000 customers and are active in more than 50 countries with approximately 2,200 employees. Our customers include more than 1,500 automobile insurance companies, 38,000 collision repair facilities, 7,500 independent assessors and 27,000 automotive recyclers and auto dealers. We derive revenues from many of the world’s largest automobile insurance companies, including eight of the ten largest automobile insurance companies in Europe and nine of the ten largest automobile insurance companies in North America.

Segments

We have aggregated our operating segments into two reportable segments: EMEA and Americas. In the first quarter of fiscal year 2011, we announced the creation of the Highly Established Market Initiatives Region (“HEMI Region”), which aligns our operations in the United States, Canada and the Netherlands. As a result of the creation of the HEMI Region, we transferred our Netherlands operating segment from our EMEA reportable segment to our Americas reportable segment. Accordingly, our EMEA reportable segment consists of our operations in Europe (excluding the Netherlands), the Middle East, Africa, Asia and Australia, while our Americas reportable segment consists of our operations in North, Central and South America as well as the Netherlands. All prior period segment information has been restated to conform to the current presentation.

We evaluate the performance of our reportable segments based on revenues and adjusted EBITDA, a non-GAAP financial measure that represents GAAP net income excluding interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairments and other costs associated with exit and disposal activities, acquisition and related costs, and other (income) expense. We do not allocate certain costs to reportable segments, including costs related to our financing activities, business development and oversight, and tax, audit and other professional fees, to our reportable segments. Instead, we manage these costs at the Corporate level.

The table below sets forth our revenues by reportable segment and as a percentage of our total revenues for the periods indicated (dollars in millions):


	Three Months Ended December 31,								Six Months Ended December 31,
	2010				2009				2010				2009
EMEA	$	96.8	57.5	%	$	94.8	58.0	%	$	186.6	57.1	%	$	179.1	57.0	%
Americas		71.4	42.5			68.5	42.0			140.5	42.9			135.0	43.0

Total	$	168.2	100.0	%	$	163.3	100.0	%	$	327.1	100.0	%	$	314.1	100.0	%

Set forth below is our revenues from each of our principal customer categories and as a percentage of revenues for the periods indicated (dollars in millions):


	Three Months Ended December 31,								Six Months Ended December 31,
	2010				2009				2010				2009
Insurance companies	$	68.1	40.5	%	$	64.4	39.6	%	$	132.2	40.4	%	$	124.1	39.5	%
Collision repair facilities		59.7	35.5			58.2	35.6			115.4	35.3			112.1	35.7
Independent assessors		17.8	10.6			18.3	11.2			34.4	10.5			33.3	10.6
Automotive recyclers and other		22.6	13.4			22.4	13.7			45.1	13.8			44.6	14.2

Total	$	168.2	100.0	%	$	163.3	100.0	%	$	327.1	100.0	%	$	314.1	100.0	%

During the three and six months ended December 31, 2010, the United States, the United Kingdom and Germany were the only countries that individually represented more than 10% of our total revenues.

Components of Revenues and Expenses

Revenues

We generate revenues from the sale of software and services to our customers pursuant to negotiated contracts or pricing agreements. Pricing for our software and services is set forth in these agreements and negotiated with each customer. We generally bill our customers monthly under one or more of the following bases:

•

price per transaction

•

fixed monthly amount for a prescribed number of transactions

•

fixed monthly subscription rate

•

price per set of services rendered

•

price per system delivered

Our software and services are often sold as packages, without individual pricing for each component. Our revenues are reflected net of customer sales allowances, which we estimate based on both our examination of a subset of customer accounts and historical experience.

Our core offering is our estimating and workflow software, which is used by our insurance company, collision repair facility and independent assessor customers, representing the majority of our revenues. Our salvage and recycling software, business intelligence and consulting services, vehicle data validation, salvage disposition and other offerings represent in the aggregate a smaller portion of our revenues. We believe that our estimating and workflow software will continue to represent a majority of our revenue for the foreseeable future.

Cost of revenues (excluding depreciation and amortization)

Our costs and expenses applicable to revenues represent the total of operating expenses and systems development and programming costs, which are discussed below.

Operating expenses

Our operating expenses include: compensation and benefit costs for our operations, database development and customer service personnel; other costs related to operations, database development and customer support functions; third-party data and royalty costs; and costs related to computer software and hardware used in the delivery of our software and services.

Systems development and programming costs

Systems development and programming costs include: compensation and benefit costs for our product development and product management personnel; other costs related to our product development and product management functions; and costs related to external software consultants involved in systems development and programming activities.

Selling, general and administrative expenses

Our selling, general and administrative expenses include: compensation and benefit costs for our sales, marketing, administration and corporate personnel; costs related to our facilities; and professional and legal fees.

Depreciation and amortization

Depreciation includes depreciation attributable to buildings, leasehold improvements, data processing and computer equipment, furniture and fixtures. Amortization includes amortization attributable to software purchases and software developed or obtained for internal use and our acquired intangible assets, the majority of which resulted from our business acquisitions, particularly our acquisition of the Claims Services Group from Automated Data Processing, Inc. in 2006 (the “CSG Acquisition”).

Restructuring charges, asset impairments and other costs associated with exit and disposal activities

Restructuring charges, asset impairments and other costs associated with exit and disposal activities primarily represent costs incurred in relation to our restructuring initiatives. Restructuring charges primarily include employee termination benefits charges and charges related to the lease and vendor contract liabilities that we do not expect to provide future economic benefits due to the implementation of our restructuring initiatives.

Acquisition and related costs

Acquisition and related costs include legal and other professional fees and other transaction costs associated with completed and contemplated business combinations and asset acquisitions, costs associated with integrating acquired businesses, including costs incurred to eliminate workforce redundancies and for product rebranding, and other charges incurred as a direct result of our acquisition efforts. These other charges include changes to the fair value of contingent purchase consideration, acquired assets and assumed liabilities subsequent to the completion of the purchase price allocation purchase consideration that is deemed to be compensatory in nature and gains and losses resulting from the settlement of a pre-existing contractual relationship with an acquiree as a result of the acquisition.

Interest expense

Interest expense consists primarily of payments of interest on our credit facilities and amortization of related debt issuance costs.

Other expense, net

Other expense, net consists of foreign exchange gains and losses on notes receivable and notes payable to affiliates, interest income and other miscellaneous income and expense.

Income tax provision

Income taxes have been provided for all items included in the statements of income included herein, regardless of when such items were reported for tax purposes or when the taxes were actually paid or refunded.

Net income attributable to noncontrolling interests

Several of our customers and other entities own noncontrolling interests in six of our operating subsidiaries. Net income attributable to noncontrolling interests reflect such owners’ proportionate interest in the earnings of such operating subsidiaries.

Factors Affecting Our Operating Results

Below is a summary description of several external factors that have or may have an effect on our operating results.

Foreign currency. During the three and six months ended December 31, 2010, we generated approximately 79% and 78%, respectively, of our revenues and incurred a majority of our costs in currencies other than the U.S. dollar, primarily the Euro, which was consistent with the prior year periods. We translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period for our condensed consolidated statement of income and certain components of stockholders’ equity and the exchange rate at the end of that period for the condensed consolidated balance sheet. These translations resulted in foreign currency translation adjustments of $(13.4) million and $34.8 million during the three and six months ended December 31, 2010, respectively, which are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Foreign currency transaction losses recognized in our condensed consolidated statements of income during the three and six months ended December 31, 2010 were $4.0 million and $3.8 million, respectively.

Exchange rates between most of the major foreign currencies we use to transact our business and the U.S. dollar have fluctuated significantly over the last few years and we expect that they will continue to fluctuate during the remainder of fiscal year 2011. The majority of our revenues and costs are denominated in Euros, Pound Sterling, Swiss francs, Canadian dollars and other international currencies. The following table provides the average quarterly exchange rates for the Euro and Pound Sterling since the beginning of fiscal year 2010:


Period	Average Euro-to- U.S. Dollar Exchange Rate		Average Pound Sterling-to-U.S. Dollar Exchange Rate
Quarter ended September 30, 2009	$	1.43	$	1.64
Quarter ended December 31, 2009		1.48		1.63
Quarter ended March 31, 2010		1.39		1.56
Quarter ended June 30, 2010		1.28		1.49
Quarter ended September 30, 2010		1.29		1.55
Quarter ended December 31, 2010		1.36		1.58

During the three months ended December 31, 2010 as compared to the three months ended December 31, 2009, the U.S. dollar strengthened against most major foreign currencies we use to transact our business. The average U.S. dollar strengthened versus the Euro by 7.9% and the Pound Sterling by 3.1%, which decreased our revenues and expenses for the three months ended December 31, 2010. A hypothetical 5% increase or decrease in the U.S. dollar versus other currencies in which we transact our business would have resulted in a $6.6 million decrease or increase, as the case may be, to our revenues during the three months ended December 31, 2010.

Factors that affect business volume. The following external factors have or may have an effect on the number of claims that are submitted and/or our volume of transactions, any of which can affect our revenues:

•

Automobile usage—number of miles driven. In calendar year 2009, the number of miles driven in the United States and several of our large western European markets declined due to higher gasoline prices and difficult economic conditions. In calendar year 2010, the number of miles driven in the United States increased versus calendar years 2009 and 2008. Fewer miles driven can result in fewer automobile accidents, which can reduce the transaction-based fees that we generate.

•

Number of insurance claims made. In fiscal year 2009, the number of insurance claims for vehicle damage submitted by owners to their insurance carriers declined slightly in several of our markets, including some of our large western European markets. We do not know whether the decline in the number of claims made is a result of fewer accidents, other factors, such as vehicle owners’ reluctance to pay the insurance policy deductible for vehicle repair, or a combination of factors. The number of insurance claims made in fiscal year 2010 increased slightly versus fiscal year 2009. Fewer claims made can reduce the transaction-based fees that we generate.

•

Sales of new and used vehicles. According to industry sources, global vehicle sales: declined by approximately 8.7% in calendar year 2009 to 63.9 million units; increased in calendar year 2010 by approximately 12.5% to 71.7 million units; and are expected to increase in calendar year 2011 by approximately 5.4% to 75.6 million units. Fewer new light vehicle sales can result in fewer insured vehicles on the road and fewer automobile accidents, which can reduce the transaction-based fees that we generate.

•

Used vehicle retail and wholesale values. Declines in retail and wholesale used vehicle values can impact vehicle owner and insurance carrier decisions about which damaged vehicles should be repaired and which should be declared a total loss. The lower the retail and wholesale used vehicle values, the more likely it is that a greater percentage of automobiles are declared a total loss versus a partial loss. The fewer number of vehicles that owners and insurance carriers decide to repair can reduce the transaction-based fees that we generate for partial-loss estimates, but may have a beneficial impact on the transaction-based fees that we generate for total-loss estimates.

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Damaged vehicle repair costs. The cost to repair damaged vehicles, also known as severity, includes labor, parts and other related costs. Severity has steadily risen for a number of years. According to the Insurance Resource Council, the average severity per damaged vehicle in the United States rose by 18% from 2002 to 2006. More recently, the U.S. Bureau of Labor Statistics reported that the cost of motor vehicle body work for the twelve months ended April 2010 rose by 2.0% compared to the same prior year period. Insurance companies purchase our products and services to help standardize the cost of repair. Should the cost of labor, parts and other related items continue to increase over time, insurance companies may seek to purchase and utilize an increasing number of our products and services to help improve the standardization of the cost of repair.

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Penetration Rate of Vehicle Insurance. An increasing rate of procuring vehicle insurance will result in an increase in the number of insurance claims made for damaged vehicles. An increasing number of insurance claims submitted can increase the transaction-based fees that we generate for partial-loss and total-loss estimates. The rate of vehicle insurance is increasing in many of our less mature international markets. This is due in part to both increased regulation and increased use of financing in the purchase of new and used vehicles. We expect that the rate of vehicle insurance in our less mature international markets will continue to increase during the next eighteen months.

•

Seasonality. Our business is subject to seasonal and other fluctuations. In particular, we have historically experienced higher revenues during the second quarter and third quarter versus the first quarter and fourth quarter during each fiscal year. This seasonality is caused primarily by more days of inclement weather during the second quarter and third quarter in most of our markets, which contributes to a greater number of vehicle accidents and damage during these periods. In addition, our business is subject to fluctuations caused by other factors, including the occurrence of extraordinary weather events and the timing of certain public holidays. For example, the Easter holiday occurs during the third quarter in certain fiscal years and occurs during the fourth quarter in other fiscal years, resulting in a change in the number of business days during the quarter in which the holiday occurs.

Non-cash charges. We incurred pre-tax, non-cash share-based compensation charges of $2.7 million and $4.8 million during the three and six months ended December 31, 2010, respectively, and $1.9 million and $3.4 million for the three and six months ended December 31, 2009, respectively. We expect to recognize additional pre-tax, non-cash share-based compensation charges related to share-based awards outstanding at December 31, 2010 of approximately $21.9 million ratably over the remaining weighted-average vesting period of 2.8 years.

Restructuring charges. We have incurred restructuring charges in each period presented and also expect to incur additional restructuring charges, primarily relating to severance costs, over the next several quarters as we work to improve efficiencies in our business. We do not expect reduced revenues or an increase in other expenses as a result of continued implementation of our restructuring initiatives.

Other factors. Other factors that have or may have an effect on our operating results include:

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gain and loss of customers;

•

pricing pressures;

•

acquisitions, joint ventures or similar transactions;

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expenses to develop new software or services;

•

expenses and restrictions related to indebtedness.

We do not believe inflation has had a material effect on our financial condition or results of operations in recent years.

Results of Operations

Our results of operations include the results of operations of acquired companies from the date of the respective acquisitions.

The table below sets forth statement of income data, including the amount and percentage changes for the periods indicated (dollars in millions):


	Three Months Ended December 31,											Six Months Ended December 31,
	2010			2009		Change						2010		2009		Change
	$			$		$			%			$		$		$			%
Revenues		168.2			163.3		4.9			3.0			327.1		314.1		13.0			4.1

Cost of revenues:
Operating expenses		33.7			33.7		—			—			64.8		66.7		(1.9	)		(2.8	)
Systems development and programming costs		17.2			18.9		(1.7	)		(8.5	)		32.8		35.5		(2.7	)		(7.7	)

Total cost of revenues (excluding depreciation and amortization)		50.9			52.6		(1.7	)		(3.1	)		97.6		102.2		(4.6	)		(4.5	)
Selling, general & administrative expenses		44.8			43.5		1.3			3.2			86.7		81.8		4.9			6.0
Depreciation and amortization		20.4			22.7		(2.3	)		(10.3	)		39.9		44.3		(4.4	)		(10.0	)
Restructuring charges, asset impairments and other costs associated with exit and disposal activities		(1.0	)		1.7		(2.7	)		(157.3	)		1.5		3.5		(2.0	)		(56.7	)
Acquisition and related costs		0.6			0.5		0.1			20.8			1.8		2.1		(0.3	)		(14.1	)
Interest expense		7.4			8.6		(1.2	)		(14.5	)		14.7		17.4		(2.7	)		(15.5	)
Other expense, net		3.3			0.2		3.1			2,132.7			2.7		0.6		2.1			373.9

		126.5			129.7		(3.2	)		(2.5	)		244.9		251.8		(6.9	)		(2.8	)
Income before provision for income taxes		41.7			33.6		8.1			24.0			82.2		62.2		20.0			32.1
Income tax provision		7.7			7.9		(0.2	)		(2.4	)		16.3		14.4		1.9			13.0

Net income		33.9			25.7		8.2			32.2			65.9		47.8		18.1			37.8
Less: Net income attributable to noncontrolling interests		3.0			2.4		0.6			25.7			5.8		4.5		1.3			28.3

Net income attributable to Solera Holdings, Inc.		30.9			23.3		7.6			32.8			60.0		43.3		16.7			38.8

The table below sets forth our statement of income data expressed as a percentage of revenues for the periods indicated:


	Three Months Ended December 31,						Six Months Ended December 31,
	2010			2009			2010			2009
Revenues		100.0	%		100.0	%		100.0	%		100.0	%

Cost of revenues:
Operating expenses		20.0			20.6			19.8			21.2
Systems development and programming costs		10.3			11.5			10.0			11.3

Total cost of revenues (excluding depreciation and amortization)		30.3			32.2			29.8			32.5
Selling, general & administrative expenses		26.7			26.6			26.5			26.0
Depreciation and amortization		12.1			13.9			12.2			14.1
Restructuring charges, asset impairments and other costs associated with exit and disposal activities		(0.6	)		1.1			0.5			1.1
Acquisition and related costs		0.4			0.3			0.6			0.7
Interest expense		4.4			5.3			4.5			5.5
Other expense, net		2.0			0.1			0.8			0.2

		75.2			79.4			74.9			80.2
Income before provision for income taxes		24.8			20.6			25.1			19.8
Income tax provision		4.6			4.8			5.0			4.6

Net income		20.2			15.7			20.1			15.2
Less: Net income attributable to noncontrolling interests		1.8			1.5			1.8			1.4

Net income attributable to Solera Holdings, Inc.		18.4	%		14.3	%		18.4	%		13.8	%

Revenues

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009. During the three months ended December 31, 2010, revenues increased $4.9 million, or 3.0%. After adjusting for changes in foreign currency exchange rates, revenues increased $11.0 million, or 6.8%, during the three months ended December 31, 2010 resulting from growth in transaction and subscription revenues in several countries from sales to new customers and increased transaction volume from and sales of new software and services to existing customers.

Our EMEA revenues increased $2.0 million, or 2.1%, to $96.8 million. After adjusting for changes in foreign currency exchange rates, EMEA revenues increased $7.6 million, or 8.0%, during the three months ended December 31, 2010 resulting from growth in transaction and subscription revenues in several countries from sales to new customers and increased transaction volume from and sales of new software and services to existing customers.

Our Americas revenues increased $2.9 million, or 4.2%, to $71.4 million. After adjusting for changes in foreign currency exchange rates, Americas revenues increased $3.4 million, or 5.0%, during the three months ended December 31, 2010 resulting from growth in transaction and subscription revenues in several countries from sales to new customers and increased transaction volume from and sales of new software and services to existing customers.

Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the six months ended December 31, 2010, revenues increased $13.0 million, or 4.1%. After adjusting for changes in foreign currency exchange rates, revenues increased $26.9 million, or 8.6%, during the six months ended December 31, 2010 relating to revenue contributions from AUTOonline, which we acquired in October 2009, of $9.1 million, as well as growth in transaction and subscription revenues in several countries from sales to new customers and increased transaction volume from and sales of new software and services to existing customers.

Our EMEA revenues increased $7.5 million, or 4.2%, to $186.6 million. After adjusting for changes in foreign currency exchange rates, EMEA revenues increased $20.4 million, or 11.4%, during the six months ended December 31, 2010 resulting from revenue contributions from AUTOonline of $9.1 million, as well as growth in transaction and subscription revenues in several countries from sales to new customers and increased transaction volume from and sales of new software and services to existing customers.

Our Americas revenues increased $5.5 million, or 4.0%, to $140.5 million. After adjusting for changes in foreign currency exchange rates, Americas revenues increased $6.5 million, or 4.8%, during the six months ended December 31, 2010 resulting from growth in transaction and subscription revenues in several countries from sales to new customers and increased transaction volume from and sales of new software and services to existing customers.

Revenue growth for each of our customer categories was as follows:


	Three Months Ended December 31, 2010						Six Months Ended December 31, 2010
(dollars in millions)	Revenue Growth			Percentage Change			Revenue Growth		Percentage Change
Insurance companies	$	3.7			5.6	%	$	8.1		6.4	%
Collision repair facilities		1.5			2.6			3.3		2.9
Independent assessors		(0.5	)		(2.5	)		1.1		3.4
Automotive recyclers and other		0.2			0.8			0.5		1.2

Total	$	4.9			3.0	%	$	13.0		4.1	%

Revenue growth for each of our customer categories after adjusting for changes in foreign currency exchange rates was as follows:


	Three Months Ended December 31, 2010					Six Months Ended December 31, 2010
(dollars in millions)	Revenue Growth		Percentage Change			Revenue Growth		Percentage Change
Insurance companies	$	5.5		8.6	%	$	12.3		9.9	%
Collision repair facilities		3.9		6.7			8.6		7.7
Independent assessors		0.9		4.8			4.0		12.0
Automotive recyclers and other		0.7		3.3			2.0		4.6

Total	$	11.0		6.8	%	$	26.9		8.6	%

Operating expenses

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009. During the three months ended December 31, 2010, as compared to the three months ended December 31, 2009, operating expenses were unchanged at $33.7 million. After adjusting for changes in foreign currency exchange rates, operating expenses increased $0.9 million, or 2.6%, during the three months ended December 31, 2010 due primarily to an increase in personnel costs in our EMEA segment.

Our EMEA operating expenses increased $0.3 million, or 1.6%. After adjusting for changes in foreign currency exchange rates, EMEA operating expenses increased $1.0 million, or 5.3%, during the three months ended December 31, 2010 primarily due to increased personnel costs resulting from sales growth.

Our Americas operating expenses decreased $0.3 million, or 2.3%. After adjusting for changes in foreign currency exchange rates, Americas operating expenses decreased $0.1 million, or 1.0%, during the three months ended December 31, 2010 due principally to expense reductions resulting from cost savings from the restructuring initiatives in our Americas segment.

Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the six months ended December 31, 2010, operating expenses decreased $1.9 million, or 2.8%. After adjusting for changes in foreign currency exchange rates, operating expenses increased $0.1 million, or 0.1%, during the six months ended December 31, 2010 due to an increase in costs in our EMEA segment, offset by cost reductions in our Americas segment resulting from restructuring initiatives.

Our EMEA operating expenses decreased $0.1 million, or 0.3%. After adjusting for changes in foreign currency exchange rates, EMEA operating expenses increased $1.5 million, or 4.2%, during the six months ended December 31, 2010 primarily due to expense contributions from AUTOonline of $0.9 million and an increase in personnel expenses of $1.0 million resulting from sales growth, offset by a decrease in consulting costs of $0.4 million resulting from ongoing cost saving initiatives.

Our Americas operating expenses decreased $1.8 million, or 6.2%. After adjusting for changes in foreign currency exchange rates, Americas operating expenses decreased $1.4 million, or 5.0%, during the six months ended December 31, 2010 due principally to expense reductions resulting from cost savings from the restructuring initiatives in our Americas segment.

Systems development and programming costs

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009. During the three months ended December 31, 2010, systems development and programming costs (“SD&P”) decreased $1.7 million, or 8.5%. After adjusting for changes in foreign currency exchange rates, SD&P decreased $1.2 million, or 6.3%, during the three months ended December 31, 2010 primarily due to reductions in personnel and consulting costs in our Americas segment resulting from restructuring initiatives.

Our EMEA SD&P was unchanged at $10.6 million for the three months ended December 31, 2010, as compared to the three months ended December 31, 2009. After adjusting for changes in foreign currency exchange rates, EMEA SD&P increased $0.3 million, or 2.8%, during the three months ended December 31, 2010 primarily due to an increase in personnel costs of $0.9 million resulting from sales growth, offset by a reduction in external development costs of $0.6 million resulting from ongoing cost saving initiatives.

Our Americas SD&P decreased $1.7 million, or 19.3%. After adjusting for changes in foreign currency exchange rates, Americas SD&P decreased $1.5 million, or 17.9%, during the three months ended December 31, 2010 primarily due to decreases in personnel costs of $0.4 million and consulting costs of $1.1 million pursuant to our restructuring initiatives.

Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the six months ended December 31, 2010, systems development and programming costs decreased $2.7 million, or 7.7%. After adjusting for changes in foreign currency exchange rates, SD&P decreased $1.8 million, or 4.9%, during the six months ended December 31, 2010 primarily due to reductions in personnel and consulting costs in our Americas segment.

Our EMEA SD&P was unchanged at $19.3 million for the six months ended December 31, 2010, as compared to the six months ended December 31, 2009. After adjusting for changes in foreign currency exchange rates, EMEA SD&P increased $0.7 million, or 3.9%, during the six months ended December 31, 2010 primarily due to SD&P contributions from AUTOonline of $0.9 million, and an increase in personnel costs of $0.7 million resulting from sales growth, offset by a reduction in external development costs of $0.9 million resulting from ongoing cost saving initiatives.

Our Americas SD&P decreased $2.7 million, or 16.8%, for the six months ended December 31, 2010, as compared to the six months ended December 31, 2009. After adjusting for changes in foreign currency exchange rates, Americas SD&P decreased $2.5 million, or 15.5%, during the six months ended December 31, 2010 primarily due to a decrease in personnel costs of $1.5 million and professional fees of $1.0 million pursuant to our restructuring initiatives.

Selling, general and administrative expenses

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009. During the three months ended December 31, 2010, selling, general and administrative expenses (“SG&A”) increased $1.3 million, or 3.2%. After adjusting for changes in foreign currency exchange rates, SG&A increased $2.5 million, or 5.8%, primarily due to a $2.1 million increase in personnel expenses and a $0.7 million increase in stock-based compensation expense, offset by a decrease in facilities costs of $0.3 million pursuant to our restructuring initiatives.

Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the six months ended December 31, 2010, selling, general and administrative expenses (“SG&A”) increased $4.9 million, or 6.0%. After adjusting for changes in foreign currency exchange rates, SG&A increased $7.4 million, or 9.1%, primarily due to an increase in personnel expenses of $4.6 million and advertising costs of $0.6 million resulting from sales growth in our EMEA segment, a $1.3 million increase in stock-based compensation expense, and contributions from AUTOonline of $1.7 million offset by a decrease in facilities costs of $0.8 million pursuant to our restructuring initiatives.

Notwithstanding the impact of fluctuations in the value of the U.S. dollar versus certain foreign currencies in which we transact business, we expect SG&A to continue to increase in the future in absolute dollars as we continue to expand our business into new markets, incur costs related to acquisitions and continue to incur costs associated with being a public company.

Depreciation and amortization

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009 and Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the three and six months ended December 31, 2010, depreciation and amortization decreased by $2.3 million, or 10.3%, and $4.4 million, or 10.0%, respectively. After adjusting for changes in foreign currency exchange rates, depreciation and amortization decreased $2.3 million and $4.0 million for the three and six months ended December 31, 2010, respectively, primarily due to lower amortization expense related to the intangible assets acquired in the CSG acquisition since these intangible assets are being amortized on an accelerated basis.

We generally amortize intangible assets on an accelerated basis to reflect the pattern in which the economic benefits of the intangible assets are realized. Although we expect to experience significant depreciation and amortization in the future as we amortize intangible assets acquired in the CSG Acquisition and in our subsequently completed acquisitions, we anticipate that the amount of total depreciation and amortization expense will continue to decline over the next several years, subject to the effect of any future acquisitions and notwithstanding the impact of fluctuations in the value of the U.S. dollar versus certain foreign currencies in which we transact business.

Restructuring charges, asset impairments and other costs associated with exit and disposal activities

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009 and Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the three and six months ended December 31, 2010, we incurred restructuring charges, asset impairments and other costs associated with exit and disposal activities of $(1.0) million and $1.5 million, respectively, as compared to $1.7 million and $3.5 million during the three and six months ended December 31, 2009, respectively. The restructuring charges, asset impairments and other costs associated with exit and disposal activities incurred in fiscal year 2011 consist of $1.5 million in charges resulting from vacating our office facility in San Ramon, California, $1.0 million in charges related to the relocation of our corporate headquarters and global executive team to the Dallas-Fort Worth, Texas metroplex, the reversal of $1.8 million of a previously recognized restructuring charge related to a vendor contract under which, pursuant to a settlement and release agreement, we do not have any further obligations, and $0.8 million in other restructuring charges primarily relating to employee termination benefits associated with other restructuring initiatives.

The restructuring charges, asset impairments and other costs associated with exit and disposal activities incurred in fiscal year 2010 consist of $1.6 million in charges resulting from vacating our office facility in San Ramon, California, a net reversal of $0.6 million of previously recognized employee termination benefits resulting from the completion of planned restructuring actions, a $1.1 million charge related to the above mentioned vendor contract that will not provide future economic benefit, $1.0 million of depreciation expense associated with property and equipment abandoned in connection with restructuring activities, and $0.4 million in other costs associated with exit and disposal activities.

We expect to incur additional restructuring charges in future years as we continue to undertake additional efforts to improve efficiencies in our business.

Acquisition and related costs

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009 and Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the three and six months ended December 31, 2010, we incurred acquisition and related costs of $0.6 million and $1.8 million, respectively, as compared to $0.5 million and $2.1 million during the three and six months ended December 31, 2009, respectively. Acquisition and related costs incurred in fiscal year 2011 primarily consists of contingent purchase consideration that is deemed compensatory in nature. Acquisition and related costs incurred in fiscal year 2010 primarily consists of legal and professional fees incurred in connection with our acquisition of AUTOonline.

We expect to incur additional acquisition and related costs in future years as we continue to pursue potential business combinations and asset acquisitions as part of our plan to grow our business.

Interest expense

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009 and Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the three and six months ended December 31, 2010, interest expense decreased $1.2 million and $2.7 million, respectively, primarily due to declines in the notional amounts of our interest rate swaps.

Notwithstanding the impact of fluctuations in the value of the U.S. dollar versus the Euro, we expect that our annual interest expense will continue to decrease as we repay outstanding indebtedness and as the notional amounts of our interest rate swaps continue to decline, assuming no additional borrowings, including borrowings to finance any future acquisitions.

Other expense, net

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009 and Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the three and six months ended December 31, 2010, we recognized other expense, net of $3.3 million and $2.7 million, respectively, as compared to other (income) expense, net of $0.2 million and $0.6 million during the three and six months ended December 31, 2009, respectively. The respective changes in other expense, net of $3.1 million and $2.1 million for the three and six months ended December 31, 2010 as compared to the prior year periods were primarily due to net foreign currency transaction losses on transactions denominated in a currency other than the functional currency of the local company.

Income tax provision

Three Months Ended December 31, 2010 vs. Three Months Ended December 31, 2009 and Six Months Ended December 31, 2010 vs. Six Months Ended December 31, 2009. During the three and six months ended December 31, 2010, we recorded an income tax provision of $7.7 million and $16.3 million, respectively, which resulted in an effective tax rate of 18.5% and 19.9%, respectively. During the three and six months ended December 31, 2009, we recorded an income tax provision of $7.9 million and $14.4 million, respectively, which resulted in an effective tax rate of 23.5% and 23.2%, respectively. The decrease in the effective tax rate during the three and six months ended December 31, 2010 was primarily attributable to higher earnings in jurisdictions with lower income tax rates which are indefinitely reinvested, a favorable statutory income tax rate change allowing for re-measurement of certain deferred taxes and a release of an uncertain tax position due to the lapse of a statute of limitations. Our effective tax rates for the three and six month periods ended December 31, 2010 are not necessarily indicative of the effective tax rate that may be expected for fiscal year 2011.

Factors that impact our income tax provision include, but are not limited to, the mix of jurisdictional earnings, establishment of valuation allowances in certain jurisdictions, and varying jurisdictional income tax rates. Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. There have been several U.S. domestic and international laws recently enacted which could impact our effective tax rate and we are in the process of evaluating the possible impact.

We evaluate the positive and negative evidence in connection with our assessment for a valuation allowance on our U.S. deferred tax assets during each reporting period. The key objective negative evidence, which is generally difficult to overcome, includes a cumulative U.S. pre-tax book loss over the past three years. Based on preliminary income projections for fiscal year 2011, we believe the cumulative three-year position may shift into a sustained and supportable income position as soon as the second half of fiscal year 2011. While other factors will need to be considered during the U.S. valuation allowance evaluation process, a sustained and supportable cumulative pre-tax book income position is considered to be significant positive evidence. Based on our current forecasts of fiscal year 2011 financial results, we may begin releasing the U.S. valuation allowance during the second half of the current fiscal year. We will continue to evaluate our U.S. valuation allowance on a quarterly basis.

Liquidity and Capital Resources

Our principal sources of cash have included cash generated from operations, proceeds from our May 2007 initial public offering and our November 2008 secondary public stock offering, and borrowings under our senior secured credit facilities. Our principal uses of cash have been, and we expect to continue to be, for business combinations, debt service, capital expenditures and working capital.

In May 2007, we entered into an amended and restated senior secured credit facility, which provides us with the following borrowing commitments: a $50.0 million revolving credit facility; a $230.0 million U.S. term loan; and a €280.0 million European term loan. As of December 31, 2010, we had $213.2 million and $337.2 million (€254.4 million) in outstanding loans under the U.S. term loan and European term loan, respectively, with interest rates of 2.1% and 2.8%, respectively. The U.S. term loan and European term loan mature in May 2014. No borrowings were outstanding under the revolving credit facility at December 31, 2010.

In order to mitigate the interest rate risk associated with our term loans we entered into the following interest rate swaps (notional amounts in thousands):


Type	Fixed Rate			Start Date of Swap		End Date of Swap		Original Notional Amount		Notional Amount Outstanding at December 31, 2010
U.S. dollar interest rate swap		5.4450	%		06/29/2007		6/30/2011	$	50,000	$	50,000
U.S. dollar interest rate swap		5.4180	%		06/29/2007		6/30/2011	$	80,965	$	36,415
U.S. dollar interest rate swap		5.4450	%		06/29/2007		6/30/2011	$	75,000	$	75,000
Euro interest rate swap		4.6790	%		06/29/2007		6/30/2011	€	50,000	€	34,459
Euro interest rate swap		4.6850	%		06/29/2007		6/30/2011	€	60,000	€	60,000

The amended and restated senior secured credit facility contains a leverage ratio, which is applicable only if specified minimum borrowings are outstanding during a quarter. In addition, the amended and restated senior secured credit facility contains covenants restricting us from undertaking specified corporate actions, including asset dispositions, acquisitions, payment of dividends and other specified payments, changes of control, incurrence of indebtedness, creation of liens, making loans and investments and transactions with affiliates.

Pursuant to agreements entered into prior to the CSG Acquisition, the noncontrolling stockholders of certain of our majority-owned subsidiaries have the right to require us to redeem their shares at the then fair market value. For financial statement reporting purposes, the estimated fair market value of these redeemable noncontrolling interests was $99.1 million at December 31, 2010. During the second quarter of fiscal year 2010, one of the noncontrolling stockholders exercised their right to require us to redeem their shares. In accordance with the terms of the associated shareholders agreement, we are actively negotiating with the noncontrolling stockholder on the redemption price. If we are unable to agree on a redemption price, the price will be determined by an independent third party based on the estimated fair market value of the shares, which we believe approximates the carrying value of these shares at December 31, 2010. We do not believe that we will be required to obtain a waiver under our senior secured credit facility for the purchase of these shares.

We do not have any indication that the exercise of the remaining redemption rights is probable within the next twelve months. Further, we do not believe the occurrence of conditions precedent to the exercise of certain of these redemption rights is probable within the next twelve months. If the stockholders exercised their redemption rights, we believe that we have sufficient liquidity to fund such redemptions but such redemptions may require a waiver under our senior secured credit facility. Obtaining such a waiver would be subject to conditions prevalent in the capital markets at that time, and could involve changes to the terms of our senior secured credit facility, including changes that could result in our incurring additional interest expense. If we were not able to obtain such a waiver, we could be in breach of our senior secured credit facility or in breach of our agreements with the noncontrolling stockholders.

The remaining 15% noncontrolling ownership interest in AUTOonline held by the sellers is subject to a put-call option. Of the 15% noncontrolling ownership interest, we will purchase approximately 7% in the second half of fiscal year 2011 at a redemption value equal to ten times AUTOonline’s consolidated earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) for calendar year 2010 multiplied by the percentage of shares to be purchased. The put-call option on the remaining noncontrolling ownership interest may be exercised by any party beginning in fiscal year 2013 at a redemption value equal to ten times AUTOonline’s consolidated EBITDA for the fiscal year ended prior to the exercise date, subject to adjustment under certain circumstances.

In December 2010, we acquired a minority ownership interest in Digidentity B.V., a Dutch company that is a leading provider of next-generation E-identification certificates for authentication of online identities. Pursuant to the terms of the acquisition, the majority owners of Digidentity may put their shares to us through fiscal year 2013 if Digidentity achieves certain financial performance targets. The purchase price of the shares is calculated based on a multiple of Digidentity’s actual versus target earnings before interest expense, income tax expense, depreciation and amortization for the twelve-month period ended prior to the exercise date.

As of December 31, 2010 and June 30, 2010, we had unrestricted cash and cash equivalents of $339.3 million and $240.5 million, respectively. We believe that our existing unrestricted cash and cash equivalents, cash flow from operating activities and borrowings under our amended and restated senior credit facility will be sufficient to fund currently anticipated working capital, planned capital spending and debt service requirements for at least the next twelve months. We regularly review acquisition and other strategic opportunities, which may require additional debt or equity financing. We currently do not have any material pending agreements with respect to any acquisition or strategic opportunity. If we raise additional funds by issuing equity securities, further dilution to our then-existing stockholders may result. Additional debt financing may include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any equity or debt financing may contain terms, such as liquidation and other preferences that are not favorable to us or our stockholders.

On December 3, 2010, we paid a quarterly cash dividend with a value of $0.075 per outstanding share of common stock and per outstanding restricted stock unit to our stockholders and restricted stock unit holders of record on November 17, 2010. The aggregate dividend payments for the six months ended December 31, 2010 were $10.6 million. On February 2, 2011, we announced that the Audit Committee of our Board of Directors approved the payment of a cash dividend of $0.075 per share of outstanding common stock and per outstanding restricted stock unit. The Audit Committee has also approved a quarterly stock dividend equivalent of $0.075 per outstanding restricted stock unit granted to certain of our executive officers during fiscal year 2011 in lieu of the cash dividend, which dividend equivalent will be paid to the restricted stock unit holders as the restricted stock unit vests. The dividends are payable on March 1, 2011 to stockholders and restricted stock unit holders of record at the close of business on February 16, 2011. Any determination to pay dividends in future periods will be at the discretion of our Board of Directors.

The following summarizes our primary sources and uses of cash in the periods presented (in millions):


	Six Months Ended December 31,
	2010			2009			Change
Operating activities	$	95.5		$	69.0		$	26.5
Investing activities		(6.2	)		(84.8	)		78.6
Financing activities		(10.2	)		(11.2	)		1.0

Operating activities. The $26.5 million increase in cash provided by operating activities was primarily the result of an increase in net income, after considering non-cash adjustments, of $11.5 million and by changes in working capital of $15.0 million.

Investing activities. The $78.6 million decrease in cash used in investing activities was primarily attributable to the $80.5 million paid to acquire AUTOonline in October 2009.

Financing activities. The $1.0 million decrease in cash used in financing activities was primarily attributable to a $2.5 million increase in proceeds from the issuance of common shares under stock award plans, offset by an increase in dividends paid of $1.8 million, and a $0.3 million decrease in payments on financed asset acquisitions and repayments of long-term debt.

Off-Balance Sheet Arrangements and Related Party Transactions

As of December 31, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Certain minority stockholders of our international subsidiaries are also commercial purchasers and users of our software and services. Revenue transactions with all of the minority stockholders in the aggregate were less than 10% of our consolidated revenue for the six months ended December 31, 2010 and 2009, respectively, and aggregate accounts receivable from the minority stockholders represent less than 10% of consolidated accounts receivable at December 31, 2010 and June 30, 2010, respectively.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in our consolidated financial statements. On an ongoing basis, we evaluate estimates. We base our estimates on historical experiences and assumptions which we believe to be reasonable under the circumstances. These estimates form the basis for our judgments that affect the amounts reported in the consolidated financial statements. Actual results could differ from our estimates under different assumptions or conditions. Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in Note 2 to our audited consolidated financial statements for the year ended June 30, 2010 and our critical accounting policies are more fully described in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each of which are included in our Annual Report on Form 10-K for the year ended June 30, 2010 filed with the SEC on September 2, 2010. There were no significant changes in our critical accounting policies and estimates during the six months ended December 31, 2010.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Foreign Currency Risk

We conduct operations in many countries around the world. Our results of operations are subject to both currency transaction risk and currency translation risk. We incur currency transaction risk when we enter into either a purchase or sale transaction using a currency other than our functional currency, which is the U.S. dollar. With respect to currency translation risk, our financial condition and results of operations are measured and recorded in the relevant domestic currency and then translated into U.S. dollars for inclusion in our consolidated financial statements. Exchange rates between these currencies and U.S. dollars have fluctuated significantly over the last few years and we expect that they will continue to fluctuate in the future. A substantial portion of our revenues and costs are denominated in or effectively indexed to U.S. dollars, but the majority of our revenues and costs are denominated in Euros, Pound Sterling, Swiss francs, Canadian dollars and other international currencies.

The following table provides the average quarterly exchange rates for the Euro and Pound Sterling since the beginning of fiscal year 2010:


Period	Average Euro-to- U.S. Dollar Exchange Rate		Average Pound Sterling-to-U.S. Dollar Exchange Rate
Quarter ended September 30, 2009	$	1.43	$	1.64
Quarter ended December 31, 2009		1.48		1.63
Quarter ended March 31, 2010		1.39		1.56
Quarter ended June 30, 2010		1.28		1.49
Quarter ended September 30, 2010		1.29		1.55
Quarter ended December 31, 2010		1.36		1.58

Interest Rate Risk

We are exposed to interest rate risks primarily through variable interest rate borrowings under our term loans. Our weighted-average borrowings outstanding under the term loans during the six months ended December 31, 2010 was $552.5 million.

In order to mitigate the interest rate risk associated with our term loans we entered into the following interest rate swaps (notional amounts in thousands):


Type	Fixed Rate			Start Date of Swap		End Date of Swap		Original Notional Amount		Notional Amount Outstanding at December 31, 2010
U.S. dollar interest rate swap		5.4450	%		06/29/2007		6/30/2011	$	50,000	$	50,000
U.S. dollar interest rate swap		5.4180	%		06/29/2007		6/30/2011	$	80,965	$	36,415
U.S. dollar interest rate swap		5.4450	%		06/29/2007		6/30/2011	$	75,000	$	75,000
Euro interest rate swap		4.6790	%		06/29/2007		6/30/2011	€	50,000	€	34,459
Euro interest rate swap		4.6850	%		06/29/2007		6/30/2011	€	60,000	€	60,000

We designate and document these interest rate swaps at their inception as cash flow hedges and evaluate them for effectiveness quarterly. We report the effective portion of the gain or loss on these hedges as a component of accumulated other comprehensive income in stockholders’ equity and reclassify them into earnings when the hedged transaction affects earnings. We recognize the ineffective portion of these cash flow hedges in interest expense in the accompanying condensed consolidated statement of operations.

The estimated fair values of the U.S. dollar-based swaps were liabilities of $4.0 million and $7.7 million at December 31, 2010 and June 30, 2010, respectively, which are included in other noncurrent liabilities in the accompanying condensed consolidated balance sheets. The estimated fair values of the Euro-based swaps were liabilities of €1.6 million ($2.2 million) and €3.6 million ($4.4 million) at December 31, 2010 and June 30, 2010, respectively, which are included in other noncurrent liabilities in the accompanying condensed consolidated balance sheets. The change in the fair value of the swaps, net of tax, reflects the effective portion of loss on these hedges and is reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

After giving effect to the interest rate swaps, the weighted average interest rate on our term loans during the six months ended December 31, 2010 was 3.7%. A hypothetical 1% increase or decrease in interest rates would have resulted in an approximately $2.1 million increase or decrease, as the case may be, to our interest expense for the six months ended December 31, 2010.

ITEM 4.

CONTROLS AND PROCEDURES.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures and, based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2010.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures will prevent all error or all fraud. A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Solera have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls

We did not identify any changes in our internal control over financial reporting that occurred during the second quarter of fiscal year 2011, 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

In the normal course of business, various claims, charges and litigation are asserted or commenced against us, including:

•

We have been the subject of allegations that our repair estimating and total loss software and services produced results that favored our insurance company customers, one of which is the subject of pending litigation.

•

We are subject to assertions by our customers and strategic partners that we have not complied with the terms of our agreements with them or our agreements with them are not enforceable, some of which are the subject of pending litigation.

We have and will continue to vigorously defend ourselves against these claims. We believe that final judgments, if any, which may be rendered against us in current litigation, are adequately reserved for, covered by insurance or would not have a material adverse effect on our financial position.

ITEM 1A.

RISK FACTORS

In addition to the cautionary statement regarding forward-looking statements included above in this Quarterly Report on Form 10-Q, we also provide the following cautionary discussion of risks and uncertainties relevant to our business. These risks and uncertainties, as well as other factors that we may not be aware of, could cause our actual results to differ materially from expected and historical results and could cause assumptions that underlie our business plans, expectations and statements in this Quarterly Report on Form 10-Q to be inaccurate.

We depend on a limited number of customers for a substantial portion of our revenues, and the loss of, or a significant reduction in volume from, any of these customers would harm our financial results.

We derive a substantial portion of our revenues from sales to large insurance companies and collision repair facilities that have relationships with these insurance companies. During the six months ended December 31, 2010, we derived 12.3% of our revenues from our ten largest insurance company customers. The largest three of these customers accounted for 2.3%, 1.9%, and 1.6%, respectively, of our revenues during the six months ended December 31, 2010. A loss of one or more of these customers would result in a significant decrease in our revenues, including the business generated by collision repair facilities associated with those customers. Furthermore, many of our arrangements with European customers are terminable by them on short notice or at any time. In addition, disputes with customers may lead to delays in payments to us, terminations of agreements or litigation. Additional terminations or non-renewals of customer contracts or reductions in business from our large customers would harm our business, financial condition and results of operations.

Our industry is highly competitive, and our failure to compete effectively could result in a loss of customers and market share, which could harm our revenues and operating results.

The markets for our automobile insurance claims processing software and services are highly competitive. In the U.S., our principal competitors are CCC Information Services Group Inc. and Mitchell International Inc. In Europe, our principal competitors are EurotaxGlass’s Group, DAT, GmbH and GT Motive Einsa Group. We also encounter regional or country-specific competition in the markets for automobile insurance claims processing software and services and our complementary products and services. For

example Experian^® is our principal competitor in the United Kingdom in the vehicle validation market, and car.tv is our principal competitor in Germany in the online salvage vehicle disposition market. If one or more of our competitors develop software or services that are superior to ours or are more effective in marketing their software or services, our market share could decrease, thereby reducing our revenues. In addition, if one or more of our competitors retain existing or attract new customers for which we have developed new software or services, we may not realize expected revenues from these new offerings, thereby reducing our profitability.

Some of our current or future competitors may have or develop closer customer relationships, develop stronger brands, have greater access to capital, lower cost structures and/or more attractive system design and operational capabilities than we have. Consolidation within our industry could result in the formation of competitors with substantially greater financial, management or marketing resources than we have, and such competitors could utilize their substantially greater resources and economies of scale in a manner that affects our ability to compete in the relevant market or markets. As a result of consolidation, our competitors may be able to adapt more quickly to new technologies and customer needs, devote greater resources to promoting or selling their products and services, initiate and withstand substantial price competition, expand into new markets, hire away our key employees, change or limit access to key information and systems, take advantage of acquisition or other strategic opportunities more readily and develop and expand their product and service offerings more quickly than we can. In addition, our competitors may form strategic or exclusive relationships with each other and with other companies in attempts to compete more successfully against us. These relationships may increase our competitors’ ability, relative to ours, to address customer needs with their software and service offerings, which may enable them to rapidly increase their market share.

Moreover, many insurance companies have historically entered into agreements with automobile insurance claims processing service providers like us and our competitors whereby the insurance company agrees to use that provider on an exclusive or preferred basis for particular products and services and agrees to require collision repair facilities, independent assessors and other vendors to use that provider. If our competitors are more successful than we are at negotiating these exclusive or preferential arrangements, we may lose market share even in markets where we retain other competitive advantages.

In addition, our insurance company customers have varying degrees of in-house development capabilities, and one or more of them have expanded and may seek to further expand their capabilities in the areas in which we operate. Many of our customers are larger and have greater financial and other resources than we do and could commit significant resources to product development. Our software and services have been, and may in the future be, replicated by our insurance company customers in-house, which could result in our loss of those customers and their associated repair facilities, independent assessors and other vendors, resulting in decreased revenues and net income.

The time and expense associated with switching from our competitors’ software and services to ours may limit our growth.

The costs for an insurance company to switch providers of claims processing software and services can be significant and the process can sometimes take 12 to 18 months to complete. As a result, potential customers may decide that it is not worth the time and expense to begin using our software and services, even if we offer competitive and economic advantages. If we are unable to convince these customers to switch to our software and services, our ability to increase market share will be limited and could harm our revenues and operating results.

Our operating results may be subject to volatility as a result of exposure to foreign currency exchange risks.

We derive most of our revenues, and incur most of our costs, including a portion of our debt service costs, in currencies other than the U.S. dollar, mainly the Euro. In our historical financial statements, we translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period for our condensed consolidated statement of income and certain components of stockholders’ equity or the exchange rate at the end of that period for the condensed consolidated balance sheet. These translations resulted in a net foreign currency translation adjustment of $34.8 million during the six months ended December 31, 2010. Ongoing global economic conditions have impacted currency exchange rates.


Period	Average Euro-to- U.S. Dollar Exchange Rate		Average Pound Sterling-to-U.S. Dollar Exchange Rate
Quarter ended September 30, 2009		1.43		1.64
Quarter ended December 31, 2009		1.48		1.63
Quarter ended March 31, 2010		1.39		1.56
Quarter ended June 30, 2010		1.28		1.49
Quarter ended September 30, 2010		1.29		1.55
Quarter ended December 31, 2010		1.36		1.58

We currently do not hedge our exposure to foreign currency risks. During the six months ended December 31, 2010 and 2009, we recognized net foreign currency transaction losses in our consolidated statements of operations of $3.8 million and $1.3 million, respectively.

Further fluctuations in exchange rates against the U.S. dollar could decrease our revenues and associated profits and, therefore, harm our future operating results.

Current uncertainty in global economic conditions makes it particularly difficult to predict product demand, utilization and other related matters and makes it more likely that our actual results could differ materially from expectations.

Our operations and performance depend on worldwide economic conditions, which have deteriorated significantly in many countries where our products and services are sold, and may remain depressed for the foreseeable future. These conditions make it difficult for our customers and potential customers to accurately forecast and plan future business activities, and could cause our customers and potential customers to slow, reduce or refrain from spending on our products. In addition, external factors that affect our business have been and may continue to be impacted by the global economic slowdown. Examples include:

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Automobile Usage—Number of Miles Driven: In calendar year 2009, the number of miles driven in the United States and several of our large western European markets declined due to higher gasoline prices and difficult economic conditions. In calendar year 2010, the number of miles driven in the United States increased versus calendar years 2009 and 2008. Fewer miles driven can result in fewer automobile accidents, which can reduce the transaction-based fees that we generate.

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Number of Insurance Claims Made: In fiscal year 2009, the number of insurance claims for vehicle damage submitted by owners to their insurance carriers has declined slightly in several of our markets, including some of our large western European markets. We do not know whether the decline in the number of claims made is a result of fewer accidents, other factors, such as vehicle owners’ reluctance to pay the insurance policy deductible for vehicle repair, or a combination of factors. The number of insurance claims made in fiscal year 2010 increased slightly versus fiscal year 2009. Fewer claims made can reduce the transaction-based fees that we generate.

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Sales of New and Used Vehicles: According to industry sources, global vehicle sales: declined by approximately 8.7% in calendar year 2009 to 63.9 million units; increased in calendar year 2010 by approximately 12.5% to 71.7 million units; and are expected to increase in calendar year 2011 by approximately 5.4% to 75.6 million units. Fewer new light vehicle sales can result in fewer insured vehicles on the road and fewer automobile accidents, which can reduce the transaction-based fees that we generate.

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Used Vehicle Retail and Wholesale Values: Declines in retail and wholesale used vehicle values can impact vehicle owner and insurance carrier decisions about which damaged vehicles should be repaired and which should be declared a total loss. The lower the retail and wholesale used vehicle values, the more likely it is that a greater percentage of automobiles are declared a total loss versus a partial loss. The fewer number of vehicles that owners and insurance carriers decide to repair can reduce the transaction-based fees that we generate for partial-loss estimates, but may have a beneficial impact on the transaction-based fees that we generate for total-loss estimates.

While we believe that results from operating in certain of our markets showed early signs of economic improvement towards the end of fiscal year 2010, we cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide or in particular economic markets. These and other economic factors could have a material adverse effect on demand for or utilization of our products and on our financial condition and operating results.

We may engage in acquisitions, joint ventures, dispositions or similar transactions that could disrupt our operations, cause us to incur substantial expenses, result in dilution to our stockholders and harm our business or results of operations.

Our growth is dependent upon market growth and our ability to enhance our existing products and introduce new products on a timely basis. We have addressed and are likely to continue to address the need to introduce new products both through internal development and through acquisitions of other companies and technologies that would complement our business or enhance our technological capability. In fiscal year 2009, we acquired three businesses, including HPI. In fiscal year 2010, we acquired three businesses, including our acquisition of an 85% ownership interest in AUTOonline. Acquisitions involve numerous risks, including the following:

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adverse effects on existing customer or supplier relationships, such as cancellation of orders or the loss of key customers or suppliers;

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difficulties in integrating or retaining key employees of the acquired company;

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difficulties in integrating the operations of the acquired company, such as information technology resources, and financial and operational data;

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entering geographic or product markets in which we have no or limited prior experience;

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difficulties in assimilating product lines or integrating technologies of the acquired company into our products;

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disruptions to our operations;

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diversion of our management’s attention;

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potential incompatibility of business cultures;

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potential dilution to existing stockholders if we issue shares of common stock or other securities as consideration in an acquisition or if we issue any such securities to finance acquisitions;

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limitations on the use of net operating losses;

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negative market perception, which could negatively affect our stock price;

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the assumption of debt and other liabilities, both known and unknown; and

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additional expenses associated with the amortization of intangible assets or impairment charges related to purchased intangibles and goodwill, or write-offs, if any, recorded as a result of the acquisition.

We participate in joint ventures in some countries, and we may participate in future joint ventures. Our partners in these ventures may have interests and goals that are inconsistent with or different from ours, which could result in the joint venture taking actions that negatively impact our growth in the local market and consequently harm our business or financial condition. If we are unable to find suitable partners or if suitable partners are unwilling to enter into joint ventures with us, our growth into new geographic markets may slow, which would harm our results of operations.

Additionally, we may finance future acquisitions and/or joint ventures with cash from operations, additional indebtedness and/or the issuance of additional securities, any of which may impair the operation of our business or present additional risks, such as reduced liquidity or increased interest expense. We may also seek to restructure our business in the future by disposing of certain of our assets, which may harm our future operating results, divert significant managerial attention from our operations and/or require us to accept non-cash consideration, the market value of which may fluctuate.

Our operating results may vary widely from period to period due to the sales cycle, seasonal fluctuations and other factors.

Our contracts with insurance companies generally require time-consuming authorization procedures by the customer, which can result in additional delays between when we incur development costs and when we begin generating revenues from those software or service offerings. In addition, we incur significant operating expenses while we are researching and designing new software and related services, and we typically do not receive corresponding payments in those same periods. As a result, the number of new software and service offerings that we are able to implement, successfully or otherwise, can cause significant variations in our cash flow from operations, and we may experience a decrease in our net income as we incur the expenses necessary to develop and design new software and services. Accordingly, our quarterly and annual revenues and operating results may fluctuate significantly from period to period.

Our business is subject to seasonal and other fluctuations. In particular, we have historically experienced higher revenues during the second quarter and third quarter versus the first quarter and fourth quarter during each fiscal year. This seasonality is caused primarily by more days of inclement weather during the second quarter and third quarter in most of our markets, which contributes to a greater number of vehicle accidents and damage during these periods. In addition, our business is subject to fluctuations caused by other factors, including the occurrence of extraordinary weather events and the timing of certain public holidays. For example, the Easter holiday occurs during the third quarter in certain fiscal years and occurs during the fourth quarter in other fiscal years, resulting in a change in the number of business days during the quarter in which the holiday occurs.

We anticipate that our revenues will continue to be subject to seasonality and therefore our financial results will vary from period to period. However, actual results from operations may or may not follow these normal seasonal patterns in a given year leading to performance that is not in alignment with expectations.

We also may experience variations in our earnings due to other factors beyond our control, such as:

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the introduction of new software or services by our competitors;

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customer acceptance of new software or services;

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the volume of usage of our offerings by existing customers;

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variations of vehicle accident rates due to factors such as changes in fuel prices, number of miles driven or new vehicle purchases and their impact on vehicle usage;

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competitive conditions, or changes in competitive conditions, in our industry generally; or

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prolonged system failures during which time customers cannot submit or process transactions.

We may also incur significant or unanticipated expenses when contracts expire, are terminated or are not renewed. Any of these events could harm our financial condition and results of operations and cause our stock price to decline.

Our industry is subject to rapid technological changes, and if we fail to keep pace with these changes, our market share and revenues will decline.

Our industry is characterized by rapidly changing technology, evolving industry standards and frequent introductions of, and enhancements to, existing software and services, all with an underlying pressure to reduce cost. Industry changes could render our offerings less attractive or obsolete, and we may be unable to make the necessary adjustments to our offerings at a competitive cost, or at all. We also incur substantial expenses in researching, developing, designing, purchasing, licensing and marketing new software and services. The development or adaptation of these new technologies may result in unanticipated expenditures and capital costs that would not be recovered in the event that our new software or services are unsuccessful. The research, development, production and marketing of new software and services are also subject to changing market requirements, access to and rights to use third-party data, the satisfaction of applicable regulatory requirements and customers’ approval procedures and other factors, each of which could prevent us from successfully marketing any new software and services or responding to competing technologies. The success of new software in our industry also often depends on the ability to be first to market, and our failure to be first to market with any particular software project could limit our ability to recover the development expenses associated with that project. If we cannot develop or acquire new technologies, software and services or any of our existing software or services are rendered obsolete, our revenues and income could decline and we may lose market share to our competitors, which would impact our future operations and financial results.

Changes in or violations by us or our customers of applicable government regulations could reduce demand for or limit our ability to provide our software and services in those jurisdictions.

Our insurance company customers are subject to extensive government regulations, mainly at the state level in the U.S. and at the country level in our non-U.S. markets. Some of these regulations relate directly to our software and services, including regulations governing the use of total loss and estimating software. If our insurance company customers fail to comply with new or existing insurance regulations, including those applicable to our software and services, they could lose their certifications to provide insurance and/or reduce their usage of our software and services, either of which would reduce our revenues. Also, we are subject to direct regulation in some markets, and our failure to comply with these regulations could significantly reduce our revenues or subject us to government sanctions. In addition, future regulations could force us to implement costly changes to our software and/or databases or have the effect of prohibiting or rendering less valuable one or more of our offerings. Moreover, some states in the U.S. have changed their regulations to permit insurance companies to use book valuations for total loss calculations, making our total loss software potentially less valuable to insurance companies in those states. Some states have adopted total loss regulations, that, among other things, require insurers use a methodology deemed acceptable to the respective government agency.

We submit our methodology to such agencies, and if they do not approve our methodology, we will not be able to perform total loss valuations in their respective states. Other states are considering legislation that would limit the data that our software can provide to our insurance company customers. In the event that demand for or our ability to provide our software and services decreases in particular jurisdictions due to regulatory changes, our revenues and margins may decrease.

There is momentum to create a U.S. federal government oversight mechanism for the insurance industry. There is also legislation under consideration by the U.S. legislature relating to the vehicle repair industry. Federal regulatory oversight of or legislation relating to the insurance industry in the U.S. could result in a broader impact on our business versus similar oversight or legislation at the U.S. state level.

We are active in over 50 countries, where we are subject to country-specific risks that could adversely impact our business and results of operations.

During the six months ended December 31, 2010, we generated approximately 78% of our revenues outside the U.S. and we expect revenues from non-U.S. markets to continue to represent a majority of our total revenues. Business and operations in individual countries are subject to changes in local government regulations and policies, including those related to tariffs and trade barriers, investments, taxation, currency exchange controls and repatriation of earnings. Our results are also subject to the difficulties of coordinating our activities across more than 50 different countries. Furthermore, our business strategy includes expansion of our operations into new and developing markets, which will require even greater international coordination, expose us to additional local government regulations and involve markets in which we do not have experience or established operations. In addition, our operations in each country are vulnerable to changes in socio-economic conditions and monetary and fiscal policies, intellectual property protection disputes, the settlement of legal disputes through foreign legal systems, the collection of receivables through foreign legal systems, exposure to possible expropriation or other governmental actions, unsettled political conditions, possible terrorist attacks and pandemic disease. These and other factors may harm our operations in those countries and therefore our business and results of operations.

We have a large amount of goodwill and other intangible assets as a result of acquisitions. Our earnings will be harmed if we suffer an impairment of our goodwill or other intangible assets.

We have a large amount of goodwill and other intangible assets and are required to perform an annual, or in certain situations a more frequent, assessment for possible impairment for accounting purposes. At December 31, 2010, we had goodwill and other intangible assets of $936.8 million. If we do not achieve our planned operating results or other factors impair these assets, we may be required to incur a non-cash impairment charge. Any impairment charges in the future will adversely affect our results of operations.

We may incur significant restructuring and severance charges in future periods, which would harm our operating results and cash position or increase debt.

We incurred restructuring charges of $1.5 million and $5.9 million for the six months ended December 31, 2010 and during fiscal year 2010, respectively. These charges consist primarily of termination benefits paid or to be paid to employees, lease obligations associated with vacated facilities and other costs incurred related to our restructuring initiatives. As of December 31, 2010, our remaining restructuring and severance obligations associated with these restructuring initiatives are $6.4 million.

We regularly evaluate our existing operations and capacity, and we expect to incur additional restructuring charges as a result of future personnel reductions, related restructuring, and productivity and technology enhancements, which could exceed the levels of our historical charges. In addition, we may incur certain unforeseen costs as existing or future restructuring activities are implemented. Any of these potential charges could harm our operating results and significantly reduce our cash position.

We require a significant amount of cash to service our indebtedness, which reduces the cash available to finance our organic growth, make strategic acquisitions and enter into alliances and joint ventures; our amended and restated senior credit facility contains restrictive covenants that limit our ability to engage in certain activities.

We have a significant amount of indebtedness. As of December 31, 2010, our indebtedness, including current maturities, was $567.8 million, which matures in May 2014, and we have the ability to borrow an additional $50.0 million under our amended and restated senior credit facility. During the six months ended December 31, 2010, our aggregate interest expense was $14.7 million and cash paid for interest was $16.4 million.

Our indebtedness could:

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make us more vulnerable to unfavorable economic conditions and reduce our revenues;

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make it more difficult to obtain additional financing in the future for working capital, capital expenditures or other general corporate purposes;

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require us to dedicate or reserve a large portion of our cash flow from operations for making payments on our indebtedness which would prevent us from using it for other purposes including software development;

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make us susceptible to fluctuations in market interest rates that affect the cost of our borrowings to the extent that our variable rate debt is not covered by interest rate derivative agreements; and

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make it more difficult to pursue strategic acquisitions, joint ventures, alliances and collaborations.

Our ability to service our indebtedness will depend on our future performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors. Some of these factors are beyond our control. If we cannot generate sufficient cash flow from operations to service our indebtedness and to meet our other obligations and commitments, we may be required to refinance our debt or to dispose of assets to obtain funds for such purpose. We cannot assure you that debt refinancings or asset dispositions could be completed on a timely basis or on satisfactory terms, if at all, or would be permitted by the terms of our debt instruments.

Our amended and restated senior credit facility contains covenants that restrict our and our subsidiaries’ ability to make certain distributions with respect to our capital stock, prepay other debt, encumber our assets, incur additional indebtedness, make capital expenditures above specified levels, engage in business combinations, redeem shares in our operating subsidiaries held by noncontrolling owners or undertake various other corporate activities. These covenants may also require us also to maintain certain specified financial ratios, including those relating to total leverage and interest coverage.

Our failure to comply with any of these covenants could result in the acceleration of our outstanding indebtedness under the amended and restated senior credit facility. If acceleration occurs, we would not be able to repay our debt and it is unlikely that we would be able to borrow sufficient additional funds to refinance our debt. Even if new financing is made available to us, it may not be available on acceptable or reasonable terms. An acceleration of our indebtedness would impair our ability to operate as a going concern.

If the remaining redemption rights were exercised, such redemptions may require a waiver under our amended and restated senior credit facility. Obtaining such a waiver would be subject to conditions prevalent in the capital markets at that time, and could involve changes to the terms of our amended and restated senior credit facility, including changes that could result in our incurring additional interest expense. If we were not able to obtain such a waiver, we could be in breach of our amended and restated senior credit facility or in breach of our agreements with the noncontrolling stockholders.

Our software and services rely on information generated by third parties and any interruption of our access to such information could materially harm our operating results.

We believe that our success depends significantly on our ability to provide our customers access to data from many different sources. For example, a substantial portion of the data used in our repair estimating software is derived from parts and repair data provided by, among others, original equipment manufacturers, or OEMs, aftermarket parts suppliers, data aggregators, automobile dealerships, government organizations and vehicle repair facilities. We obtain much of our data about vehicle parts and components and collision repair labor and costs through license agreements with OEMs, automobile dealers, and other providers. EurotaxGlass’s Group, one of our primary competitors in Europe, provides us with valuation and paint data for use in our European markets pursuant to a similar arrangement, and Mitchell International, one of our primary competitors in the U.S., provides us with vehicle glass data for use in our U.S. markets pursuant to a similar arrangement. In some cases, the data included in our products and services is licensed from sole-source suppliers. Many of the license agreements through which we obtain data are for terms of one year and may be terminated without cost to the provider on short notice.

If one or more of our licenses are terminated or if we are unable to renew one or more of these licenses on favorable terms or at all, we may be unable to access the information (in the case of information licensed from sole-service suppliers) or unable to access alternative data sources that would provide comparable information without incurring substantial additional costs. Some OEM sources have indicated to us that they intend to materially increase the licensing costs for their data. While we do not believe that our access to most individual sources of data is material to our operations, prolonged industry-wide price increases or reductions in data availability could make receiving certain data more difficult and could result in significant cost increases, which would materially harm our operating results.

System failures, delays and other problems could harm our reputation and business, cause us to lose customers and expose us to customer liability.

Our success depends on our ability to provide accurate, consistent and reliable services and information to our customers on a timely basis. Our operations could be interrupted by any damage to or failure of:

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our computer software or hardware or our customers’ or third-party service providers’ computer software or hardware;

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our networks, our customers’ networks or our third-party service providers’ networks; and

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our connections to and outsourced service arrangements with third parties, such as Acxiom, which hosts data and applications for us and our customers.

Our systems and operations are also vulnerable to damage or interruption from:

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power loss or other telecommunications failures;

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earthquakes, fires, floods, hurricanes and other natural disasters;

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computer viruses or software defects;

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physical or electronic break-ins, sabotage, intentional acts of vandalism and similar events; and

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errors by our employees or third-party service providers.

As part of our ongoing process improvements efforts, we have and will continue to migrate product and system platforms to next generation platforms and we may increase data and applications that we host ourselves, and the risks noted above will be exacerbated by these efforts. Because many of our services play a mission-critical role for our customers, any damage to or failure of the infrastructure we rely on (even if temporary), including those of our customers and vendors, could disrupt our ability to deliver information to and provide services for our customers in a timely manner, which could harm our reputation and result in the loss of current and/or potential customers or reduced business from current customers. In addition, we generally indemnify our customers to a limited extent for damages they sustain related to the unavailability of, or errors in, the software and services we provide; therefore, a significant interruption of, or errors in, our software and services could expose us to significant customer liability.

Security failures or breaches could result in lost revenues, litigation claims and/or harm to our reputation.

Our databases contain confidential data and information protected by law or regulation (including the European Union Privacy Directive and the U.S. Health Insurance Portability and Accountability Act) relating to our customers, policyholders, other industry participants and employees. Security failures or breaches, including those involving connectivity to the Internet, and the trend toward broad consumer and general public notification of unauthorized access to confidential data or protected information, could significantly harm our business, financial condition or results of operations. Our databases could be vulnerable to physical system or network break-ins or other inappropriate access, which could result in claims against us and/or harm our reputation. In addition, potential competitors may obtain our data illegally and use it to provide services that are competitive to ours.

Privacy concerns could require us to exclude data from our software and services, which may reduce the value of our offerings to our customers, damage our reputation and deter current and potential users from using our software and services.

In the European Union and other jurisdictions, there are significant restrictions on the use of personal data. Our violations of these laws could harm our business. In addition, these restrictions may place limits on the information that we can collect from and provide to our customers. Furthermore, concerns about our collection, use or sharing of automobile insurance claims information or other privacy-related matters, even if unfounded, could damage our reputation and operating results.

We are subject to periodic changes in the amount of our income tax provision (benefit) and these changes could adversely affect our operating results.

Our effective tax rate could be adversely affected by our mix of earnings in countries with high versus low tax rates; by changes in the valuation of our deferred tax assets and liabilities; upon the distribution of earnings from our foreign subsidiaries in the form of dividends or otherwise; by the outcomes of examinations, audits or disputes by or with relevant tax authorities, or by changes in tax laws and regulations. There have been several U.S. domestic and international laws recently enacted which could impact our current or future effective tax rate and we are in the process of evaluating this impact. Significant judgment is required to determine the recognition and measurement attributes prescribed in ASC Topic No. 740-10, Income Taxes. In addition, ASC Topic No. 740-10 applies to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes or additional paid-in capital.

We may require additional capital in the future, which may not be available on favorable terms, or at all.

Our future capital requirements depend on many factors, including our ability to develop and market new software and services and to generate revenues at levels sufficient to cover ongoing expenses or possible acquisition or similar transactions. If we need to raise additional capital, equity or debt financing may not be available at all or may be available only on terms that are not favorable to us. In the case of equity financings, dilution to our stockholders could result, and in any case such securities may have rights, preferences and privileges that are senior to our outstanding common stock. In the case of debt financings, we may have to grant additional security interests in our assets to lenders and agree to restrictive business and operating covenants. If we cannot obtain adequate capital on favorable terms or at all, we may be unable to support future growth or operating requirements and, accordingly, our business, financial condition and results of operations could be harmed.

We may not maintain profitability in the future.

While fiscal year 2010 was our third year since the CSG Acquisition for which we did not report a loss, we will need to maintain or increase revenues and maintain or reduce expenses, which include the amortization of the remaining $234.9 million of amortizable intangible assets that we had as of December 31, 2010 and interest expense associated with our indebtedness, to sustain or improve our profitability. We cannot assure you that we will achieve a significant level of profitability. Future decreases in profitability could reduce our stock price, and future net losses would reduce our stock price.

We depend on a limited number of key personnel who would be difficult to replace. If we lose the services of these individuals, or are unable to attract new talent, our business will be adversely affected.

We depend upon the ability and experience of our key personnel, who have substantial experience with our operations, the rapidly changing automobile insurance claims processing industry and the markets in which we offer our software and services. The loss of the services of one or more of our senior executives or key employees, particularly our Chairman of the Board, Chief Executive Officer and President, Tony Aquila, could harm our business and operations. On July 7, 2010, Renato Giger was appointed as our Chief Financial Officer, Treasurer and Assistant Secretary. Our failure to successfully integrate Mr. Giger into his role as our Chief Financial Officer could interrupt or harm our business and operations.

Our success depends on our ability to continue to attract, manage and retain other qualified management, sales and technical personnel as we grow. We may not be able to continue to attract or retain such personnel in the future.

Our business depends on our brands, and if we are not able to maintain and enhance our brands, our business and operating results could be harmed.

We believe that the brand identity that we have developed and acquired has significantly contributed to the success of our business. We also believe that maintaining and enhancing our brands, such as Audatex, ABZ, Hollander, Informex, Sidexa, HPI, AUTOonline, Market Scan and IMS, are critical to the expansion of our software and services to new customers in both existing and new markets. Maintaining and enhancing our brands may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain our brands or if we incur excessive expenses in this effort, our business, operating results and financial condition will be harmed. We anticipate that, as our markets become increasingly competitive, maintaining and enhancing our brands may become increasingly difficult and expensive. Maintaining and enhancing our brands will depend largely on our ability to be a technology innovator, to continue to provide high quality software and services and protect and defend our brand names and trademarks, which we may not do successfully. To date, we have not engaged in extensive direct brand promotion activities, and we may not successfully implement brand enhancement efforts in the future.

Third parties may claim that we are infringing upon their intellectual property rights, and we could be prevented from selling our software or suffer significant litigation expense even if these claims have no merit.

Our competitive position is driven in part by our intellectual property and other proprietary rights. Third parties, however, may claim that software, products or technology, including claims data or other data, which we obtain from other parties are infringing upon the intellectual property rights of others, and we may be unaware of intellectual property rights of others that may cover some of our assets, technology, software or services. Any litigation initiated against us regarding patents, trademarks, copyrights or other intellectual property rights, even litigation relating to claims without merit, could be costly and time-consuming and could divert our management and key personnel from operating our business. In addition, if any third party has a meritorious or successful claim that we are infringing upon its intellectual property rights, we may be forced to change our software or enter into licensing arrangements with third parties, which may be costly or impractical. These claims may also require us to stop selling our software and/or services as currently designed, which could harm our competitive position. We also may be subject to significant damages or injunctions that prevent the further development and sale of certain of our software or services and may result in a material loss in revenue.

We may be unable to protect our intellectual property and property rights, either without incurring significant costs or at all, which would harm our business.

We rely on a combination of trade secrets, copyrights, know-how, trademarks, patents, license agreements and contractual provisions, as well as internal procedures, to establish and protect our intellectual property rights. The steps we have taken and will take to protect our intellectual property rights may not deter infringement, duplication, misappropriation or violation of our intellectual property by third parties. In addition, any of the intellectual property we own or license from third parties may be challenged, invalidated, circumvented or rendered unenforceable. Furthermore, the laws of some of the countries in which products similar to ours may be developed may not protect our software and intellectual property to the same extent as U.S. laws or at all. We may be unable to protect our rights in trade secrets and unpatented proprietary technology in these countries. We may also be unable to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees or current employees, despite the existence of nondisclosure and confidentiality agreements and other contractual restrictions. If our trade secrets become known or we fail to otherwise protect our intellectual property, we may not receive any return on the resources expended to create the intellectual property or generate any competitive advantage based on it.

Pursuing infringers of our intellectual property could result in significant litigation costs and diversion of management resources, and any failure to pursue or successfully litigate claims against infringers could result in competitors using our technology and offering similar products and services, potentially resulting in loss of competitive advantage and decreased revenues.

Currently, we believe that one or more of our customers in our EMEA segment may be infringing our intellectual property by making and distributing unauthorized copies of our software. We have also filed a trademark revocation application with the European Union trademark authority seeking revocation of a registered trademark held by a company in the United Kingdom that is similar to one of the trademarks we use. Enforcement of our intellectual property rights may be difficult and may require considerable resources.

Current or future litigation could have a material adverse impact on us.

We have been and continue to be involved in legal proceedings, claims and other litigation that arise in the ordinary course of business. For example, we have been involved in disputes with collision repair facilities, acting individually and as a group in some situations that claim that we have colluded with our insurance company customers to depress the repair time estimates generated by our repair estimating software. In addition, we are currently one of the defendants in a putative class action lawsuit alleging that we have colluded with our insurance company customers to cause the estimates of vehicle fair market value generated by our total loss estimation software to be unfairly low. Furthermore, we are also subject to assertions by our customers and strategic partners that we have not complied with the terms of our agreements with them or that the agreements are not enforceable against them, some of which are the subject of pending litigation and any of which could in the future lead to arbitration or litigation. While we do not expect the outcome of any such pending or threatened litigation to have a material adverse effect on our financial position, litigation is unpredictable and excessive verdicts, both in the form of monetary damages and injunction, could occur. In the future, we could incur judgments or enter into settlements of claims that could harm our financial position and results of operations.

Requirements associated with being a public company increase our costs significantly, as well as divert significant company resources and management attention.

Prior to our initial public offering in May 2007, we were not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or the other rules and regulations of the SEC or any securities exchange relating to public companies. We continue to work with our legal, independent accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. In addition, we are taking steps to address new U.S. federal legislation relating to corporate governance matters and are monitoring other proposed and recently-enacted U.S. federal and state legislation relating to corporate governance and other regulatory matters and how the legislation could affect our obligations as a public company.

The expenses that are required as a result of being a public company are and will likely continue to be material. Compliance with the various reporting and other requirements applicable to public companies also require considerable time and attention of management. In addition, any changes we make may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis.

In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Our certificate of incorporation and by-laws contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.

Some provisions of our certificate of incorporation and by-laws may have the effect of delaying, discouraging or preventing a merger or acquisition that our stockholders may consider favorable, including transactions in which stockholders may receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace or remove our board of directors. These provisions include:

•

authorization of the issuance of “blank check” preferred stock without the need for action by stockholders;

•

the removal of directors only by the affirmative vote of the holders of two-thirds of the shares of our capital stock entitled to vote;

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any vacancy on the board of directors, however occurring, including a vacancy resulting from an enlargement of the board, may only be filled by vote of the directors then in office;

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inability of stockholders to call special meetings of stockholders and limited ability of stockholders to take action by written consent; and

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advance notice requirements for board nominations and proposing matters to be acted on by stockholders at stockholder meetings.

We are monitoring proposed U.S. federal and state legislation relating to stockholder rights and related regulatory matters and how the legislation could affect, among other things, the nomination and election of directors and our charter documents.

We began paying dividends in fiscal year 2010 and we may not be able to pay dividends on our common stock and restricted stock units in the future; as a result, your only opportunity to achieve a return on your investment may be if the price of our common stock appreciates.

We began paying a quarterly cash dividend of $0.0625 per share outstanding of common stock and per outstanding restricted stock unit to stockholders and restricted stock unit holders of record in the quarter ended September 30, 2009. On July 19, 2010, we announced that our Board of Directors approved an increase in our quarterly cash dividend to $0.075 per outstanding share of common stock and per outstanding restricted stock unit. On February 2, 2011, we announced that the Audit Committee of our Board of Directors approved the payment of a cash dividend of $0.075 per share of outstanding common stock and per outstanding restricted stock unit. The Audit Committee has also approved a quarterly stock dividend equivalent of $0.075 per outstanding restricted stock unit granted to certain of our executive officers during fiscal year 2011 in lieu of the cash dividend, which dividend equivalent will be paid to the restricted stock unit holders as the restricted stock unit vests. The dividends are payable on March 1, 2011 to stockholders and restricted stock unit holders of record at the close of business on February 16, 2011. Any determination to pay dividends in future periods will be at the discretion of our board of directors. Our ability to pay dividends to holders of our common stock and restricted stock units in future periods may be limited by restrictive covenants under our amended and restated senior credit facility. As a result, your only opportunity to achieve a return on your investment in us could be if the market price of our common stock appreciates and you sell your shares at a profit. We cannot assure you that the market price for our common stock will ever exceed the price that you pay.

ITEM 6.

EXHIBITS.


Exhibit No.		Description

10.1		Non-employee Director Compensation Program

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Tony Aquila, Chief Executive Officer.

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Renato Giger, Chief Financial Officer and Treasurer.

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

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

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

These exhibits are not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we incorporate them by reference.

SIGNATURES

Pursuant to the requirements 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.

SOLERA HOLDINGS, INC.

/s/ Tony Aquila

Tony Aquila

Chief Executive Officer and President

(Principal Executive Officer)

/s/ Renato Giger

Renato Giger

Chief Financial Officer

(Principal Financial Officer)

February 7, 2011

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company