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SOLERA HOLDINGS INC Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: August 29, 2012 05:00PM
SOLERA HOLDINGS INC (SLH) filed Annual Report for the period ended 2012-06-30.
Highlight of Business Operations: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 fiscal year 2012, we derived 12.7% of our revenues from our ten largest insurance company customers. The largest three of these customers accounted for 2.3%, 2.1%, and 1.7%, respectively, of our revenues during fiscal year 2012. 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 December 2011, we were notified by a U.S. insurance company customer that it will not renew its contract with us, and we expect this customer to transition to another provider during fiscal year 2013. This contract accounted for approximately 2% of our total revenues in fiscal year 2012. 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.
Foreign currency. During fiscal years 2012, 2011 and 2010, we generated approximately 70%, 79% and 78% of our revenues, respectively, and incurred a majority of our costs, in currencies other than the U.S. dollar, primarily the Euro. We translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period for our consolidated statement of income and certain components of stockholders equity and the exchange rate at the end of that period for the consolidated balance sheet. These translations resulted in foreign currency translation adjustments of $(73.5) million and $83.5 million for fiscal years 2012 and 2011, respectively, which are recorded as a component of accumulated other comprehensive income (loss) in stockholders equity. Foreign currency transaction losses recognized in our consolidated statements of income were $1.4 million, $10.0 million, $5.8 million during fiscal years 2012, 2011, and 2010, respectively.
During fiscal year 2012, as compared to fiscal year 2011, 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 1.8% and the Pound Sterling by 0.4%, which decreased our revenues and expenses during fiscal year 2012. A hypothetical 5% increase or decrease in the U.S. dollar versus other currencies in which we transact our business would have resulted in an increase or decrease, as the case may be, to our revenues of $27.7 million during fiscal year 2012.
personnel expenses and advertising expenses of $10.9 million and $0.7 million, respectively, resulting from sales growth and geographic expansion as well as the expansion of certain of our corporate and administrative functions, a $4.0 million increase in stock-based compensation expense, SG&A contributions from AUTOonline and Explore totaling $1.5 million and a $0.7 million increase in other administrative expenses, offset by a decrease in facilities costs of $1.2 million pursuant to our restructuring initiatives and professional fees of $1.1 million.
We consider the undistributed earnings of our foreign subsidiaries as of June 30, 2012 to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. At June 30, 2012, the amount of cash associated with permanently reinvested foreign earnings was approximately $207.5 million. During fiscal years 2011 and 2010, we completed non-recurring repatriations of foreign earnings to the U.S. of approximately $107.6 million (of which approximately $99.1 million was treated as return of basis for tax reporting purposes) and $24.5 million, respectively. The purpose of the repatriation in fiscal year 2011 was to fund our acquisition of Explore. The purpose of the repatriation in fiscal year 2010 was to realize significant U.S. income tax benefits in the form of foreign tax credits which would have been substantially diluted if not realized in fiscal year 2010. We have not, nor do we anticipate the need to, repatriate funds to the U.S. in order to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements. If we were to repatriate such foreign earnings in the future, we would incur incremental U.S. federal and state income taxes. However, our intent is to continue to indefinitely reinvest our foreign earnings and our current plans do not demonstrate a need to repatriate foreign earnings to fund our U.S. operations.