Edgar Filing: ModusLink Global Solutions Inc

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Form 10-Q

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 April 30, 2012

¨	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 001-35319

ModusLink Global Solutions, Inc.

(Exact name of registrant as specified in its charter)


Delaware		04-2921333
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1601 Trapelo Road Waltham, Massachusetts		02451
(Address of principal executive offices)		(Zip Code)

(781) 663-5000

(Registrant’s telephone number, including area code)

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

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 ¨ No x

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

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

As of January 4, 2013, there were 43,841,024 shares issued and outstanding of the registrant’s Common Stock, $.01 par value per share.

MODUSLINK GLOBAL SOLUTIONS, INC.

FORM 10-Q

EXPLANATORY NOTE

Overview of Restatement

In this Quarterly Report on Form 10-Q, ModusLink Global Solutions, Inc. (the “Company”):

(a)

restates its unaudited Condensed Consolidated Balance Sheet as of July 31, 2011, the unaudited Condensed Consolidated Statements of Operations for the three and nine months ended April 30, 2011, and the unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended April 30, 2011.

(b)

amends its Management’s Discussion and Analysis of Financial Condition and Results of Operations as it relates to the three and nine months ended April 30, 2011.

Background and Scope of the Investigation

On March 12, 2012, in its Form 10-Q for the quarterly period ended January 31, 2012, the Company announced the pendency of the SEC Inquiry.

Concurrent with the SEC Inquiry, the Audit Committee of the Company’s Board of Directors commenced an internal investigation of the Company’s practices with regard to rebates received from vendors to determine whether and to what extent such rebates should not have been accounted for as revenue, based on the applicable pricing model in effect with its clients. The Audit Committee engaged the law firm of Wilmer, Cutler, Pickering, Hale and Dorr LLP (“WilmerHale”) to lead the investigation as independent legal counsel to the Audit Committee. In turn, WilmerHale engaged independent forensic accountants. WilmerHale also engaged an independent accounting firm to provide accounting, financial, and process improvement consulting services in connection with a review of the Company’s internal controls with regard to rebates and the Company’s pricing practices. The scope of the investigation was determined by WilmerHale and its advisors in consultation with the Audit Committee. The investigation involved a comprehensive program of forensic analysis and inquiry directed to aspects of the Company’s rebate and pricing practices, and related accounting and financial reporting practices, throughout the Company’s global operations, and evaluated aspects of the Company’s historical accounting and financial reporting practices since fiscal year 2005.

In providing its supply chain services, the Company enters into contracts with its clients that employ various arrangements for pricing, including “fixed-price,” “cost-plus,” or “cost-pass-through” pricing models. Although the specifications and terms of the pricing model can frequently vary from client to client, and among the products or programs for a single client, under a “fixed-price” model, the Company and its client will typically negotiate a fixed unit price for the supply chain services to be provided, where the level of costs incurred by the Company does not affect the contractual, negotiated price. Under a “cost-plus” model, the client agrees to pay the costs incurred by the Company to purchase materials, together with an agreed-to percentage mark-up on those costs. Finally, with regard to a “cost-pass-through” model, materials and other costs incurred by the Company are passed through directly to the client, and the client agrees to pay a separate negotiated fee for specified services provided by the Company. Arrangements with clients can include the use of any one or more of these pricing models, depending on the client program involved and the location from which the Company services the client. In addition, continued price and cost discussions with clients through the course of the relationship can sometimes result in an accepted change in the pricing model applied. Consequently, the implication and interpretation of the cost and price terms applicable to any particular client relationship can vary across client programs and products, at different periods in time, and based on the locations from which a client may be serviced.

In the course of the Company’s contractual relationships, clients often demand lower costs over time, typically attributable to efficiency gains in service offerings. The Company accomplishes this in various ways, including for example, by shifting production to lower cost regions, redesigning clients’ packaging and supply chains, and strategically sourcing materials. As part of these services and in the normal course of its business, the Company purchases certain commodity types of materials, including, but not limited to, print, packaging, media and labels, to meet client requirements, often in quantities well in excess of those required by any one client. As a result, the Company receives improved pricing on materials. Frequently, the Company also received and retained rebates based on aggregate volumes of purchases or other criteria established by the vendor. The retention of rebates produced a positive impact on the Company’s revenue, and, therefore, also positively affected the Company’s profitability and operating income.

As a part of the investigation, the Audit Committee with the assistance of its outside advisors performed an extensive review of these relationships and determined that certain client contracts had not been aligned consistently with the Company’s practice of retaining rebates, based on the applicable pricing model in effect with its clients. In the course of this investigation, the Audit Committee also identified limited instances where costs of materials incurred were marked-up to clients in a manner not consistent with client contracts. For fixed-price contracts, the Company concluded that rebates and mark-ups were appropriately retained and that the accounting remains correct, as the clients’ prices were not a function of materials cost. However, based on additional accounting evaluations conducted in connection with the investigation and in consultation with the Audit Committee’s advisors, the Company concluded, and recommended to the Audit Committee, that revenue should not have been recognized for retained rebates and mark-ups associated with the cost-based client contracts.

The SEC Inquiry is ongoing and the Company continues to cooperate with the staff of the SEC by voluntarily producing documents and other materials identified in the course of the Audit Committee’s investigation, and as requested by the staff. The Company, however, cannot predict the outcome of the SEC Inquiry or any related legal and administrative proceedings, which could include the institution of administrative, civil injunctive, or other proceedings, as well as the imposition of fines and other penalties, remedies and sanctions.

Summary of Investigation Findings

The Audit Committee, together with its independent legal and accounting advisors, investigated the manner in which Company personnel interpreted and sought to comply with the terms of client contracts, and the processes by which costs for materials were calculated and presented to clients. The errors identified in the course of the Audit Committee’s investigation revealed deficiencies in the Company’s accounting and financial control environment, some of which were determined to be material weaknesses. These included a failure of effective controls to track and reconcile the Company’s belief that it was entitled to retain rebates and pricing mark-ups against the specific terms of the contractual pricing models and cost disclosure obligations required by client contracts. However, the investigation did not identify evidence that the need to restate its consolidated financial statements was the result of an effort to overstate revenues purposefully.

The Company has implemented a new control, whereby the Company reviews and analyzes, at the Corporate level, rebates on a global basis and pricing mark-ups by client each quarter. This improvement to the Company’s internal controls, in the short term, will allow the Company to check the accuracy of the revenue reductions attributable to rebates and mark-ups in accordance with client contractual terms. Management will adjust revenue based on its investigation of contracts, vendor invoices, rebates received, and client billings (including whether billings are in alignment with contracts related to rebates and pricing mark-ups).

On a longer term basis, management is in the process of performing a review of all process- and transaction-level controls, in addition to assessing relevant monitoring and entity-level controls, in relation to contract administration, purchasing, client invoicing, and availability of relevant information across all three areas. Management expects to enhance existing process-level controls and potentially implement new controls in each area as the processes are redesigned.

Restatement Adjustments

As a result of this investigation, the Audit Committee concluded that the Company would need to restate its financial statements from fiscal years 2009 through 2011 and the first two quarters of fiscal year 2012, and selected unaudited financial data for fiscal years 2007 and 2008, and that those previously issued financial statements should no longer be relied upon. The Company is correcting the underlying errors for those periods within its Annual Report on Form 10-K for the year ended July 31, 2012, which will be filed with the SEC immediately after the filing of this Form 10-Q. Within this Form 10-Q for the fiscal quarter ended April 30, 2012, the Company has restated its unaudited condensed consolidated balance sheet as of July 31, 2011, the unaudited condensed consolidated statements of operations for the three and nine months ended April 30, 2011, and the unaudited condensed consolidated statement of cash flows for the nine months ended April 30, 2011. Any adjustments from periods prior to the condensed consolidated balance sheet as of July 31, 2011 contained within this Form 10-Q are reflected in a $28.6 million increase to accumulated deficit from $7,170.0 million to $7,198.6 million, as compared to the previously reported amount as of July 31, 2011. For any references to the Company’s Annual Report on Form 10-K for the year ended July 31, 2011 and Quarterly Reports on Form 10-Q for the quarters ended October 31, 2011 and January 31, 2012 contained within this document, please refer to the Company’s Annual Report on Form 10-K for the year ended July 31, 2012, which contains restated financial statements and other information for these periods.

The cumulative adjustments required to correct the errors for these previously reported periods are reflected in the restated financial information presented in this report.

Several principal adjustments were made to historic financial statements as a result of the restatement as shown in Effects of Restatement below. Where the retention of a rebate or a mark-up was determined to have been inconsistent with a client contract

(collectively referred to as “pricing adjustments”), the Company concluded that these amounts were not properly recorded as revenue. Accordingly, revenue was reduced by an equivalent amount for the period that the rebate was estimated to have affected. A corresponding liability for the same amount was recorded in that period (referred to as “accrued pricing liabilities”), which decreased working capital in the period. The Company believes that it may not ultimately be required to pay the accrued pricing liabilities, due in part to the nature of the interactions with its clients. Those interactions may provide either legal or factual grounds for mitigation of such liabilities. In addition, during such interactions, clients appear to be focused principally on service levels and the cost savings delivered to them by the Company, measured by the total price charged by the Company for its services. Even where there are “cost-plus” or “cost-pass-through” contracts in effect, clients regularly request periodic price reductions, without reference to the actual costs incurred by the Company. The Company expects that its dealings with clients, which include periodic business and pricing reviews, as well as its ability to demonstrate the delivery of savings over time, may result in mitigation of the accrued pricing liabilities. When, and to the extent that, the Company is able to conclude that the liabilities have been extinguished for less than the amounts accrued, the Company will record the difference as other income. In the course of its business with certain clients, the Company has received releases of claims from such clients which have resulted in the Company concluding that the accrued pricing liabilities for those clients have been extinguished. The amounts derecognized and recorded in other income were $7.5 million during the three and nine months ended April 30, 2012 and $7.2 million and $13.5 million, respectively, during the three and nine months ended April 30, 2011. The remaining accrued pricing liabilities at April 30, 2012 will be derecognized when there is sufficient information for the Company to conclude that such liabilities have been extinguished, which may occur through payment, legal release, or other legal or factual determination.

In addition to the errors described above, the restated financial statements include a $3.7 million adjustment in the quarter ended July 31, 2011 to correct a reserve for an uncertain tax position (the “tax adjustment”). Based on the date of effective settlement of the uncertain tax position, the reserve should have been reversed in the quarter ended July 31, 2011.

The restated financial statements also include other adjustments to correct certain immaterial errors for previously unrecorded adjustments identified in audits of prior years’ financial statements (the “other adjustments”). The previously unrecorded audit adjustments are being recorded as part of the restatement process although none of these adjustments is individually material.

Effects of Restatement

The restatement adjustments had the following impact on the Company’s condensed consolidated statements of operations for the three and nine months ended April 30, 2011:

•

decreased net revenues by $0.6 million and $2.6 million, respectively,

•

increased cost of revenues by $6 thousand and $17 thousand, respectively,

•

increased interest expense by $2 thousand and $7 thousand, respectively,

•

increased other gains (losses), net, by $7.2 million and $13.5 million, respectively,

•

increased equity in losses of affiliates and impairments by $0.8 million during the nine month period ended April 30, 2011;

•

increased net income (loss) by $6.6 million and $10.1 million, respectively,

•

increased basic and diluted earnings per share by $0.15 and $0.24, respectively.

The restatement adjustments had the following impact on the Company’s condensed consolidated balance sheet as of July 31, 2011:

•

decreased inventories, net, by $0.2 million,

•

increased property and equipment, net, by $0.1 million,

•

increased current installments of obligations under capital leases by $0.1 million,

•

increased other current liabilities by $31.6 million,

•

increased obligations under capital leases, less current installments, by $0.1 million,

•

decreased other long-term liabilities by $3.2 million,

•

decreased total stockholders’ equity by $28.6 million.

The adjustments made as a result of the restatement are more fully described in Note 3, Restatement of Previously Issued Financial Statements, of the Notes to the unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. To further review the effects of the accounting errors identified and the restatement adjustments, see Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report. For a description of the control deficiencies identified by management as a result of the investigation and our internal reviews, and management’s plan to remediate those deficiencies, see Part I—Item 4—Controls and Procedures.

MODUSLINK GLOBAL SOLUTIONS, INC.

FORM 10-Q

TABLE OF CONTENTS


		Page Number
Part I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets—April 30, 2012 and July 31, 2011 (as restated) (unaudited)		7
	Condensed Consolidated Statements of Operations—Three and nine months ended April 30, 2012 and 2011 (as restated) (unaudited)		8
	Condensed Consolidated Statements of Cash Flows—Nine months ended April 30, 2012 and 2011 (as restated) (unaudited)		9
	Notes to Condensed Consolidated Financial Statements (as restated) (unaudited)		10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43

Item 4.	Controls and Procedures		44

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings		46

Item 1A.	Risk Factors		47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55

Item 6.	Exhibits		55

MODUSLINK GLOBAL SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share and share amounts)

(Unaudited)


	April 30, 2012			July 31, 2011 (As Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	78,450		$	111,225
Available-for-sale securities		132			131
Accounts receivable, trade, net of allowance for doubtful accounts of $385 and $473, at April 30, 2012 and July 31, 2011, respectively		163,824			146,411
Inventories, net		93,653			76,883
Prepaid expenses and other current assets		9,250			10,876

Total current assets		345,309			345,526

Property and equipment, net		42,648			47,403
Investments in affiliates		10,796			12,016
Goodwill		3,058			3,058
Other intangible assets, net		3,182			4,699
Other assets		10,081			9,545

Total assets	$	415,074		$	422,247

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current installments of obligations under capital leases	$	79		$	94
Accounts payable		135,775			114,588
Current portion of accrued restructuring		1,721			1,456
Accrued income taxes		—			180
Accrued expenses		40,037			36,384
Other current liabilities		31,735			38,624
Current liabilities of discontinued operations		1,485			1,817

Total current liabilities		210,832			193,143

Long-term portion of accrued restructuring		98			8
Obligations under capital leases, less current installments		87			86
Other long-term liabilities		11,107			12,585
Non-current liabilities of discontinued operations		673			1,883
Stockholders’ equity:
Preferred stock, $0.01 par value per share. Authorized 5,000,000 shares; zero issued or outstanding at April 30, 2012 and July 31, 2011		—			—
Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 44,255,430 issued and outstanding shares at April 30, 2012; 43,829,097 issued and outstanding shares at July 31, 2011		443			438
Additional paid-in capital		7,389,452			7,387,135
Accumulated deficit		(7,216,536	)		(7,198,667	)
Accumulated other comprehensive income		18,918			25,636

Total stockholders’ equity		192,277			214,542

Total liabilities and stockholders’ equity	$	415,074		$	422,247

See accompanying notes to unaudited condensed consolidated financial statements

MODUSLINK GLOBAL SOLUTIONS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended April 30,						Nine Months Ended April 30,
	2012			2011 (As Restated)			2012			2011 (As Restated)
Net revenue	$	178,565		$	206,579		$	562,797		$	675,061
Cost of revenue		163,146			186,912			506,101			611,706

Gross profit		15,419			19,667			56,696			63,355
Operating expenses:
Selling, general and administrative		23,515			20,788			70,320			63,797
Amortization of intangible assets		331			1,062			995			4,420
Impairment of goodwill and long-lived assets		2,062			—			2,062			27,166
Restructuring, net		495			—			5,847			1,201

Total operating expenses		26,403			21,850			79,224			96,584

Operating loss		(10,984	)		(2,183	)		(22,528	)		(33,229	)

Other income:
Interest income		67			62			310			191
Interest expense		(90	)		(110	)		(278	)		(357	)
Other gains, net		6,875			5,532			8,930			9,607
Equity in losses of affiliates and impairments		(3,108	)		(401	)		(3,825	)		(2,214	)

Total other income		3,744			5,083			5,137			7,227

Income (loss) from continuing operations before income taxes		(7,240	)		2,900			(17,391	)		(26,002	)
Income tax expense (benefit)		(1,202	)		1,331			1,050			3,772

Income (loss) from continuing operations		(6,038	)		1,569			(18,441	)		(29,774	)
Discontinued operations, net of income taxes:
Income (loss) from discontinued operations		(98	)		(91	)		572			(239	)

Net income (loss)	$	(6,136	)	$	1,478		$	(17,869	)	$	(30,013	)

Basic and diluted earnings (loss) per share:
Income (loss) from continuing operations	$	(0.14	)	$	0.03		$	(0.42	)	$	(0.68	)
Income (loss) from discontinued operations		—			—			0.01			(0.01	)

Net income (loss)	$	(0.14	)	$	0.03		$	(0.41	)	$	(0.69	)

Shares used in computing basic earnings per share:		43,844			43,303			43,546			43,289

Shares used in computing diluted earnings per share:		43,844			43,502			43,546			43,289

See accompanying notes to unaudited condensed consolidated financial statements

MODUSLINK GLOBAL SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended April 30,
	2012			2011 (As Restated)

Cash flows from operating activities of continuing operations:
Net loss	$	(17,869	)	$	(30,013	)
Income (loss) from discontinued operations		572			(239	)

Loss from continuing operations		(18,441	)		(29,774	)
Adjustments to reconcile loss from continuing operations to net cash (used in) provided by operating activities of continuing operations:
Depreciation		10,698			12,359
Impairment of goodwill and long-lived assets		2,062			27,166
Amortization of intangible assets		995			4,420
Share-based compensation		2,407			2,619
Non-operating gains, net		(8,930	)		(9,607	)
Equity in losses of affiliates and impairments		3,825			2,214
Changes in operating assets and liabilities:
Trade accounts receivable, net		(21,429	)		32,333
Inventories		(18,701	)		(4,336	)
Prepaid expenses and other current assets		698			790
Accounts payable, accrued restructuring and accrued expenses		29,245			(39,440	)
Refundable and accrued income taxes, net		(5,700	)		675
Other assets and liabilities		6,944			929

Net cash (used in) provided by operating activities of continuing operations		(16,327	)		348

Cash flows from investing activities of continuing operations:
Additions to property and equipment		(9,076	)		(6,523	)
Proceeds from the sale of available-for-sale securities		—			115
Proceeds from the sale of equity investments in affiliates		24			52
Investments in affiliates		(2,604	)		(2,473	)

Net cash used in investing activities of continuing operations		(11,656	)		(8,829	)

Cash flows from financing activities of continuing operations:
Payment of dividends		—			(40,001	)
Proceeds from revolving line of credit		10,000			—
Repayments of revolving line of credit		(10,000	)		—
Repayments on capital lease obligations		(92	)		(78	)
Proceeds from issuance of common stock		91			168
Repurchase of common stock		(176	)		(1,622	)

Net cash used in financing activities of continuing operations		(177	)		(41,533	)

Cash flows from discontinued operations:
Operating cash flows		(1,237	)		(1,263	)

Net cash used in discontinued operations		(1,237	)		(1,263	)

Net effect of exchange rate changes on cash and cash equivalents		(3,378	)		9,033

Net decrease in cash and cash equivalents		(32,775	)		(42,244	)
Cash and cash equivalents at beginning of period		111,225			161,364

Cash and cash equivalents at end of period	$	78,450		$	119,120

See accompanying notes to unaudited condensed consolidated financial statements

MODUSLINK GLOBAL SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) NATURE OF OPERATIONS

ModusLink Global Solutions, Inc. (together with its consolidated subsidiaries, “ModusLink Global Solutions” or the “Company”), through its wholly owned subsidiaries, ModusLink Corporation (“ModusLink”), ModusLink PTS, Inc. (“ModusLink PTS”) and Tech For Less LLC (“TFL”), is a leader in global supply chain business process management serving clients in markets such as consumer electronics, communications, computing, medical devices, software, luxury goods and retail. The Company designs and executes critical elements in its clients’ global supply chains to improve speed to market, product customization, flexibility, cost, quality and service. These benefits are delivered through a combination of industry expertise, innovative service solutions, integrated operations, proven business processes, expansive global footprint and world-class technology.

The Company has an integrated network of strategically located facilities in various countries, including numerous sites throughout North America, Europe and Asia. The Company previously operated under the names CMGI, Inc. and CMG Information Services, Inc. and was incorporated in Delaware in 1986.

(2) BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes for the year ended July 31, 2011, as restated, which will be contained in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2012, which will be filed with the Securities and Exchange Commission (“SEC”) immediately after the filing of this Form 10-Q. The Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2012 also contains restated financial information for the fiscal quarters ended October 31, 2011 and January 31, 2012, which affect the nine month period April 30, 2012 discussed in this Form 10-Q. The results for the three and nine months ended April 30, 2012 are not necessarily indicative of the results to be expected for the full fiscal year.

All significant intercompany transactions and balances have been eliminated in consolidation.

The Company considers events or transactions that occur after the balance sheet date but before the issuance of financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. For the period ended April 30, 2012, the Company evaluated subsequent events for potential recognition and disclosure through the date these financial statements were filed.

(3) RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

On February 15, 2012, the Division of Enforcement of the Securities and Exchange Commission (“SEC”) initiated with the Company an informal inquiry, and later a formal action, regarding the Company’s treatment of rebates associated with volume discounts provided by vendors (the “SEC Inquiry”). Concurrent with the SEC Inquiry, the Audit Committee of the Company’s Board of Directors commenced an internal investigation of the Company’s practices with regard to rebates received from vendors.

On March 12, 2012, in its Form 10-Q for the quarterly period ended January 31, 2012, the Company announced the pendency of the SEC Inquiry.

As previously reported in the Company’s Current Report on Form 8-K dated June 9, 2012, the Audit Committee, in consultation with management and the Board of Directors, concluded that the Company’s previously issued financial statements for the fiscal years ended July 31, 2009 through 2011 and the first two quarters of fiscal year 2012, and selected unaudited financial data for fiscal years 2007 and 2008, should no longer be relied upon. Accordingly, the Company’s consolidated financial statements for the fiscal years ended July 31, 2011, 2010 and 2009 have been restated.

Several principal adjustments were made to historic financial statements as a result of the restatement. Where the retention of a rebate or a mark-up was determined to have been inconsistent with a client contract (collectively referred to as “pricing adjustments”), the Company concluded that these amounts were not properly recorded as revenue. Accordingly, revenue was reduced by an equivalent amount for the period that the rebate was estimated to have affected. A corresponding liability for the same amount was recorded in that period (referred to as “accrued pricing liabilities”), which decreased working capital in the period. The Company believes that it may not ultimately be required to pay the accrued pricing liabilities, due in part to the nature of the interactions with its clients. When, and to the extent that, the Company is able to conclude that the accrued pricing liabilities have been extinguished for less than the amounts accrued, the Company will record the difference as other income. In the course of its business with certain clients, the Company has received releases of claims from such clients which have resulted in the Company concluding that the accrued pricing liabilities for those clients have been extinguished. The amounts derecognized and recorded in other income were $7.5 million for both the three and nine months ended April 30, 2012, and $7.2 million and $13.5 million, respectively, during the three and nine months ended April 30, 2011. The remaining accrued pricing liabilities at April 30, 2012 will be derecognized when there is sufficient information for the Company to conclude that such liabilities have been extinguished, which may occur through payment, legal release, or other legal or factual determination.

In the tables appearing below, the column labeled “Restatement Pricing Adjustments” sets forth the pricing adjustments and the column labeled “Restatement Other Adjustments” sets forth the tax adjustment (where applicable) and the other adjustments.

The restatement adjustments decreased revenues by $0.6 million and $2.6 million, increased net income by $6.6 million and $10.1 million, and increased basic and diluted earnings per share by $0.15 and $0.24 for the three and nine months ended April 30, 2011, respectively.

Certain of the adjustments described above also affected periods prior to July 31, 2011. Any adjustments from periods prior to the condensed consolidated balance sheet as of July 31, 2011 contained within this Form 10-Q are reflected in a $28.6 million increase to accumulated deficit from $7,170.0 million to $7,198.6 million, as compared to the previously reported amount as of July 31, 2011.

The effects of the restatement adjustments on the Company’s unaudited condensed consolidated balance sheet as of July 31, 2011 are as follows:


	July 31, 2011 (Unaudited)
	As Previously Reported			Restatement Pricing Adjustments			Restatement Other Adjustments			As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	111,225		$	—		$	—		$	111,225
Available-for-sale securities		131			—			—			131
Accounts receivable, trade, net of allowance for doubtful accounts of $473		146,411			—			—			146,411
Inventories, net		77,102			—			(219	)		76,883
Prepaid expenses and other current assets		10,876			—			—			10,876

Total current assets		345,745			—			(219	)		345,526
Property and equipment, net		47,299			—			104			47,403
Investments in affiliates		12,016			—			—			12,016
Goodwill		3,058			—			—			3,058
Other intangible assets, net		4,699			—			—			4,699
Other assets		9,545			—			—			9,545

Total assets	$	422,362		$	—		$	(115	)	$	422,247


LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Current installments of obligations under capital leases	$	43		$	—		$	51		$	94
Accounts payable		114,588			—			—			114,588
Current portion of accrued restructuring		1,456			—			—			1,456
Accrued income taxes		180			—			—			180
Accrued expenses		36,384			—			—			36,384
Other current liabilities		7,029			30,706			889			38,624
Current liabilities of discontinued operations		1,817			—			—			1,817

Total current liabilities		161,497			30,706			940			193,143
Long-term portion of accrued restructuring		8			—			—			8
Obligations under capital leases, less current installments		22			—			64			86
Other long-term liabilities		15,773			—			(3,188	)		12,585
Non-current liabilities of discontinued operations		1,883			—			—			1,883
Stockholders’ equity:
Preferred stock, $0.01 par value per share. Authorized 5,000,000 shares; zero issued or outstanding		—			—			—			—
Common stock, $0.01 par value per share. Authorized 1,400,000,000 shares; 43,829,097 issued and outstanding shares		438			—			—			438
Additional paid-in capital		7,387,135			—			—			7,387,135
Accumulated deficit		(7,170,030	)		(30,706	)		2,069			(7,198,667	)
Accumulated other comprehensive income		25,636			—			—			25,636

Total stockholders’ equity		243,179			(30,706	)		2,069			214,542

Total liabilities and stockholders’ equity	$	422,362		$	—		$	(115	)	$	422,247

The effects of the restatement adjustments on the Company’s unaudited condensed consolidated statements of operations for the three and nine months ended April 30, 2011 are as follows:


	Three months ended April 30, 2011 (Unaudited)
	As Previously Reported			Restatement Pricing Adjustments			Restatement Other Adjustments			As Restated

Net revenue	$	207,140		$	(426	)	$	(135	)	$	206,579
Cost of revenue		186,906			—			6			186,912

Gross profit		20,234			(426	)		(141	)		19,667

Operating expenses:
Selling, general and administrative		20,788			—			—			20,788
Amortization of intangible assets		1,062			—			—			1,062
Impairment of goodwill and long-lived assets		—			—			—			—
Restructuring, net		—			—			—			—

Total operating expenses		21,850			—			—			21,850

Operating loss		(1,616	)		(426	)		(141	)		(2,183	)


Other income (expense):
Interest income		62			—			—			62
Interest expense		(108	)		—			(2	)		(110	)
Other gains (losses), net		(1,641	)		7,173			—			5,532
Equity in losses of affiliates and impairments		(401	)		—			—			(401	)

Total other income (expense)		(2,088	)		7,173			(2	)		5,083


Income (loss) from continuing operations before income taxes		(3,704	)		6,747			(143	)		2,900
Income tax expense		1,331			—			—			1,331

Income (loss) from continuing operations		(5,035	)		6,747			(143	)		1,569
Discontinued operations, net of income taxes:
Loss from discontinued operations		(91	)		—			—			(91	)

Net income (loss)	$	(5,126	)	$	6,747		$	(143	)	$	1,478


Basic and diluted earnings (loss) per share:
Income (loss) from continuing operations	$	(0.12	)	$	0.15		$	—		$	0.03
Loss from discontinued operations		—			—			—			—

Net income (loss)	$	(0.12	)	$	0.15		$	—		$	0.03

Shares used in computing basic loss per share:		43,303			—			—			43,303


Shares used in computing diluted loss per share:		43,303			—			—			43,502


	Nine months ended April 30, 2011 (Unaudited)
	As Previously Reported			Restatement Pricing Adjustments			Restatement Other Adjustments			As Restated

Net revenue	$	677,668		$	(1,569	)	$	(1,038	)	$	675,061
Cost of revenue		611,689			—			17			611,706

Gross profit		65,979			(1,569	)		(1,055	)		63,355

Operating expenses:
Selling, general and administrative		63,797			—			—			63,797
Amortization of intangible assets		4,420			—			—			4,420
Impairment of goodwill and long-lived assets		27,166			—			—			27,166
Restructuring, net		1,201			—			—			1,201

Total operating expenses		96,584			—			—			96,584

Operating loss		(30,605	)		(1,569	)		(1,055	)		(33,229	)


Other income (expense):
Interest income		191			—			—			191
Interest expense		(350	)		—			(7	)		(357	)
Other gains (losses), net		(3,938	)		13,545			—			9,607
Equity in losses of affiliates and impairments		(1,417	)		—			(797	)		(2,214	)

Total other income (expense)		(5,514	)		13,545			(804	)		7,227


Loss from continuing operations before income taxes		(36,119	)		11,976			(1,859	)		(26,002	)
Income tax expense		3,772			—			—			3,772

Loss from continuing operations		(39,891	)		11,976			(1,859	)		(29,774	)
Discontinued operations, net of income taxes:
Loss from discontinued operations		(239	)		—			—			(239	)

Net loss	$	(40,130	)	$	11,976		$	(1,859	)	$	(30,013	)


Basic and diluted loss per share:
Loss from continuing operations	$	(0.92	)	$	0.28		$	(0.04	)	$	(0.68	)
Loss from discontinued operations		(0.01	)		—			—			(0.01	)

Net loss	$	(0.93	)	$	0.28		$	(0.04	)	$	(0.69	)

Shares used in computing basic loss per share:		43,289			—			—			43,289

Shares used in computing diluted loss per share:		43,289			—			—			43,289

The effects of the restatement adjustments on the Company’s unaudited condensed consolidated statement of cash flows for the nine months ended April 30, 2011 are as follows:


	Nine months ended April 30, 2011 (Unaudited)
	As Previously Reported			Restatement Pricing Adjustments			Restatement Other Adjustments			As Restated
Cash flows from operating activities of continuing operations:
Net loss	$	(40,130	)	$	11,976		$	(1,859	)	$	(30,013	)
Loss from discontinued operations		(239	)		—			—			(239	)

Loss from continuing operations		(39,891	)		11,976			(1,859	)		(29,774	)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) continuing operations:
Depreciation		12,321			—			38			12,359
Impairment of goodwill and long-lived assets		27,166			—			—			27,166
Amortization of intangible assets		4,420			—			—			4,420
Share-based payments		2,619			—			—			2,619
Non-operating losses (gains)		3,938			(13,545	)		—			(9,607	)
Equity in losses of affiliates and impairments		1,417			—			797			2,214
Changes in operating assets and liabilities, excluding effects from acquisition:
Trade accounts receivable, net		32,333			—			—			32,333
Inventories		(4,336	)		—			—			(4,336	)
Prepaid expenses and other current assets		790			—			—			790
Accounts payable, accrued restructuring and accrued expenses		(39,464	)		—			24			(39,440	)
Refundable and accrued income taxes, net		675			—			—			675
Other assets and liabilities		(1,678	)		1,569			1,038			929

Net cash provided by (used in) operating activities of continuing operations		310			—			38			348

Cash flows from investing activities of continuing operations:
Additions to property and equipment		(6,523	)		—			—			(6,523	)
Proceeds from the sale of available-for-sale securities		115			—			—			115
Proceeds from the sale of equity investments in affiliates		52			—			—			52
Investments in affiliates		(2,473	)		—			—			(2,473	)

Net cash used in investing activities of continuing operations		(8,829	)		—			—			(8,829	)

Cash flows from financing activities of continuing operations:
Payments of dividends		(40,001	)		—			—			(40,001	)
Repayments on capital lease obligations		(40	)		—			(38	)		(78	)
Proceeds from issuance of common stock		168			—			—			168
Repurchase of common stock		(1,622	)		—			—			(1,622	)


Net cash used in financing activities of continuing operations		(41,495	)		—			(38	)		(41,533	)

Cash flows from discontinued operations:
Operating cash flows		(1,263	)		—			—			(1,263	)

Net cash used in discontinued operations		(1,263	)		—			—			(1,263	)

Net effect of exchange rate changes on cash and cash equivalents		9,033									9,033

Net decrease in cash and cash equivalents		(42,244	)		—			—			(42,244	)
Cash and cash equivalents at beginning of year		161,364			—			—			161,364

Cash and cash equivalents at end of year	$	119,120		$	—		$	—		$	119,120

(4) RECENT ACCOUNTING PRONOUNCEMENTS

In December 2011, the Financial Accounting Standards Board (“FASB”) issued a final standard to defer the new requirement to present components of reclassifications of other comprehensive income on the face of the income statement. This update allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Accounting Standard Update (“ASU”) 2011-05, “Presentation of Comprehensive Income”. All other requirements included within ASU 2011-05 are not affected and entities must report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The effective date of this update is for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company believes adoption of this new guidance will not have a material impact on the Company’s financial statements as these updates have an impact on presentation only.

In September 2011, the FASB issued ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” which is intended to reduce the complexity and costs related to testing goodwill for impairment. ASU 2011-08 allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment in order to determine whether it is necessary to perform the two-step quantitative goodwill impairment test already included in Topic 350. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on its qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. ASU 2011-08 also expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amended guidance became effective for the Company on August 1, 2012. We do not anticipate that this new guidance will have a material impact on our financial statements.

In June 2011, the FASB issued guidance on the presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or two separate but consecutive statements. The new guidance became effective for the Company on August 1, 2012. The Company believes adoption of this new guidance will not have a material impact on the Company’s financial statements as this update has an impact on presentation only.

In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credits risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value changes in unobservable inputs. The new guidance became effective for the Company on February 1, 2012. Other than requiring additional disclosures, we do not anticipate material impacts on our financial statements upon adoption.

(5) GOODWILL AND LONG-LIVED ASSETS

The Company conducts its goodwill impairment test on July 31 of each fiscal year. In addition, if and when events or circumstances change that could reduce the fair value of any of its reporting units below its carrying value, an interim test would be performed. In making this assessment, the Company relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and marketplace data. The Company’s reporting units are the same as its operating segments: Americas, Asia, Europe, e-Business, ModusLink PTS and TFL.

The Company’s remaining goodwill of $3.1 million as of April 30, 2012 relates to the Company’s e-Business reporting unit. There were no indicators of impairment identified related to the Company’s e-Business reporting unit during the three and nine months ended April 30, 2012.

The carrying amount of goodwill allocated to the Company’s reportable segments is as follows:


	Americas			Asia			Europe			TFL			All Other			Consolidated Total
	(In thousands)

Balance as of July 31, 2011
Goodwill	$	94,477		$	73,948		$	30,108		$	16,299		$	5,857		$	220,689
Accumulated impairment charges		(94,477	)		(73,948	)		(30,108	)		(16,299	)		(2,799	)		(217,631	)

	$	—		$	—		$	—		$	—		$	3,058		$	3,058


Balance as of April 30, 2012
Goodwill	$	94,477		$	73,948		$	30,108		$	16,299		$	5,857		$	220,689
Accumulated impairment charges		(94,477	)		(73,948	)		(30,108	)		(16,299	)		(2,799	)		(217,631	)

	$	—		$	—		$	—		$	—		$	3,058		$	3,058

During the third quarter of fiscal year 2012, indicators of potential impairment caused the Company to conduct an interim impairment test for the long-lived assets of TFL, which includes amortizable intangible assets. These indicators included continued operating losses and increasingly adverse trends that resulted in further deterioration of current operating results and future prospects of the TFL reporting unit. These adverse trends included increased competition for and a decline in the supply of quality products at a reasonable cost and the emergence and growth of new competitors for TFL.

As a result of the impairment test, in connection with preparation of financial statements for the quarter ended April 30, 2012, the Company concluded that TFL’s long-lived assets were impaired and recorded a $0.9 million non-cash impairment charge. The $0.9 million impairment charge consisted of $0.5 million of intangible assets and $0.4 million of fixed assets. The intangible asset impairment charge for TFL is deductible as amortization for tax purposes over time. The impairment charge did not affect the Company’s liquidity or cash flows.

In addition, during the third quarter of fiscal year 2012, indicators of potential impairment caused the Company to conduct an interim impairment test for the fixed assets of its facility in Kildare, Ireland. These indicators included declining revenues and increasingly adverse trends that resulted in further deterioration of current operating results and future prospects of the Kildare facility. These adverse trends included declines in sales volumes resulting from the loss of certain client programs, pricing pressure from existing clients, and the emergence and growth of new competitors for the services performed in Kildare.

As a result of the impairment test, in connection with preparation of financial statements for the quarter ended April 30, 2012, the Company concluded that Kildare’s fixed assets were impaired and recorded a $1.1 million non-cash impairment charge. This charge has been recorded as a component of “impairment of goodwill and long-lived assets” in the accompanying condensed consolidated statements of operations. The impairment charge did not affect the Company’s liquidity or cash flows.

During the second quarter of fiscal year 2011, indicators of potential impairment caused the Company to conduct an interim impairment test for goodwill and other long-lived assets, which includes amortizable intangible assets for its ModusLink PTS and TFL reporting units. These indicators included continued operating losses, the departure of key personnel, and increasingly adverse trends that resulted in further deterioration of operating results and future prospects for both the ModusLink PTS and TFL reporting units.

As a result of the impairment tests, in connection with preparation of financial statements for the quarter ended January 31, 2011, the Company concluded that its goodwill was impaired and recorded a $13.2 million non-cash goodwill impairment charge, consisting of $7.1 million for ModusLink PTS and $6.1 million for TFL during the three months ended January 31, 2011. The Company also determined that its intangible assets were impaired and recorded a $14.0 million non-cash intangible asset impairment charge, consisting of $8.8 million for ModusLink PTS and $5.2 million for TFL during the three months ended January 31, 2011. The goodwill and intangible asset impairment charges for ModusLink PTS are not deductible for tax purposes. The goodwill and intangible asset impairment charges for TFL are deductible as amortization for tax purposes over time. The impairment charge did not affect the Company’s liquidity or cash flows.

(6) SHARE-BASED PAYMENTS

Stock options for the purchase of approximately 1.0 million shares of the Company’s common stock were awarded to executives during the nine months ended April 30, 2012 at a weighted average exercise price of $4.24 per share. The weighted average option fair value was $1.99 per share. The weighted average option fair value was calculated using the binominal-lattice model with the following weighted average assumptions: expected volatility of 59.59%, risk-free rate of 0.85% and expected life of 4.66 years. No stock options were awarded to executives during the quarter ended April 30, 2012.

Additionally, approximately 14,000 nonvested shares were awarded to a new director of the Company during the three months ended April 30, 2012 at a fair value of $5.43 per share. The fair value of nonvested shares is determined based on the market price of the Company’s common stock on the grant date.

The following table summarizes share-based compensation expense related to employee stock options, employee stock purchases and nonvested shares for the three and nine months ended April 30, 2012 and 2011, which was allocated as follows:


	Three Months Ended April 30,				Nine Months Ended April 30,
	2012		2011		2012		2011
	(In thousands)
Cost of revenue	$	89	$	90	$	265	$	282
Selling, general and administrative		439		632		2,142		2,337

	$	528	$	722	$	2,407	$	2,619

(7) OTHER GAINS (LOSSES), NET

The following table reflects the components of “Other gains (losses), net”:


	Three Months Ended April 30,						Nine Months Ended April 30,
	2012			2011 (As Restated)			2012			2011 (As Restated)
	(In thousands)
Derecognition of accrued pricing liabilities	$	7,540		$	7,173		$	7,540		$	13,545
Foreign currency exchange gains (losses)		(444	)		(1,523	)		1,551			(3,514	)
Gain on sale of investments		—			48			9			100
Gain (loss) on disposal of assets		(90	)		8			15			48
Other, net		(131	)		(174	)		(185	)		(572	)

	$	6,875		$	5,532		$	8,930		$	9,607

The Company recorded gains of $7.5 million during both the three and nine months ended April 30, 2012, and gains of $7.2 million and $13.5 million during the three and nine months ended April 30, 2011, respectively, from the extinguishment of accrued pricing liabilities related to the releases of claims received from certain clients.

The Company recorded foreign exchange losses of $0.4 million and foreign exchange gains of $1.6 million during the three and nine months ended April 30, 2012, respectively. For the three months ended April 30, 2012, the net losses primarily related to realized and unrealized losses from foreign currency exposures and settled transactions of approximately $0.4 million and $0.1 million in Asia and the Americas, respectively, offset by net gains of $0.1 million in Europe. For the nine months ended April 30, 2012, the net gains primarily related to realized and unrealized gains from foreign currency exposures and settled transactions of approximately $1.7 million and $0.3 million in Europe and Asia, respectively, offset by net losses of $0.4 million in the Americas.

The Company recorded foreign exchange losses of $1.5 million and $3.5 million during the three and nine months ended April 30, 2011, respectively. For the three months ended April 30, 2011, the net losses primarily related to realized and unrealized losses from foreign currency exposures and settled transactions of approximately $1.7 million and $0.8 million in Europe and Asia, respectively, offset by net gains of $1.0 million in the Americas. For the nine months ended April 30, 2011, the net losses primarily related to realized and unrealized losses from foreign currency exposures and settled transactions of approximately $3.5 million and $2.0 million in Europe and Asia, respectively, offset by net gains of $2.0 million in the Americas. During the three months ended April 30, 2011, the Company recorded a gain of approximately $0.1 million related to the sale of available-for-sale securities. During the three months ended April 30, 2011, the Company recorded a $0.1 million write-off of an investment in a private company, which had filed for bankruptcy. Additionally, during the nine months ended April 30, 2011, the Company recorded gains of approximately $0.1 million related to distribution of proceeds from the acquisition by third parties of H2Gen Innovations, Inc. and M2E Power, Inc. due to the satisfaction of conditions leading to the release of funds held in escrow.

(8) OTHER CURRENT LIABILITIES

The following table reflects the components of “Other Current Liabilities”:


	April 30, 2012		July 31, 2011 (As Restated)
	(In thousands)
Accrued pricing liabilities	$	24,480	$	30,706
Other		7,255		7,918

	$	31,735	$	38,624

As of April 30, 2012 and July 31, 2011, the Company recorded accrued pricing liabilities of approximately $24.5 million and $30.7 million, respectively. These liabilities related to the equivalent reduction of revenue where the retention of a rebate or a mark-up was determined to have been inconsistent with a client contract. The remaining accrued pricing liabilities at April 30, 2012 will be derecognized when there is sufficient information for the Company to conclude that such liabilities have been extinguished, which may occur through payment, legal release, or other legal or factual determination.

(9) RESTRUCTURING, NET

The following table summarizes the activity in the restructuring accrual for the three and nine months ended April 30, 2012:


	Employee Related Expenses			Contractual Obligations			Asset Impairments		Total
	(In thousands)
Accrued restructuring balance at July 31, 2011	$	296		$	1,168		$	—	$	1,464

Restructuring charges		633			138			—		771
Restructuring adjustments		(174	)		158			—		(16	)
Cash paid		(9	)		(271	)		—		(280	)
Non-cash adjustments		—			6			—		6

Accrued restructuring balance at October 31, 2011	$	746		$	1,199		$	—	$	1,945

Restructuring charges		4,119			487			—		4,606
Restructuring adjustments		(9	)		—			—		(9	)
Cash paid		(1,034	)		(534	)		—		(1,568	)
Non-cash adjustments		53			60			—		113

Accrued restructuring balance at January 31, 2012	$	3,875		$	1,212		$	—	$	5,087

Restructuring charges		592			2			—		594
Restructuring adjustments		(99	)		—			—		(99	)
Cash paid		(3,272	)		(492	)		—		(3,764	)
Non-cash adjustments		12			(11	)		—		1

Accrued restructuring balance at April 30, 2012	$	1,108		$	711		$	—	$	1,819

It is expected that the payments of employee-related charges will be substantially completed during the fiscal year ending July 31, 2013. The remaining contractual obligations primarily relate to facility lease obligations for vacant space resulting from the previous restructuring activities of the Company. The Company anticipates that contractual obligations will be substantially fulfilled by May 2013.

The net restructuring charges for the three and nine months ended April 30, 2012 and 2011 would have been allocated as follows had the Company recorded the expense and adjustments within the functional department of the restructured activities:


	Three Months Ended April 30,				Nine Months Ended April 30,
	2012		2011		2012		2011
	(In thousands)
Cost of revenue	$	120	$	—	$	4,321	$	1,022
Selling, general and administrative		375		—		1,526		179

	$	495	$	—	$	5,847	$	1,201

During the three and nine months ended April 30, 2012, the Company recorded a net restructuring charge of approximately $0.5 million and $5.8 million, respectively. For the three months ended April 30, 2012, approximately $0.5 million related to a workforce reduction of 87 employees within TFL and $0.1 million related to a workforce reduction of 4 employees within e-Business. These costs were partially offset by a $0.1 million reversal of restructuring costs associated with employee termination benefits within the Europe region.

In addition, for the nine months ended April 30, 2012, approximately $3.7 million related to a workforce reduction of 48 employees in Europe, $0.5 million related to a workforce reduction of 144 employees in China, $0.4 million related to a workforce reduction of 5 employees within the Company’s IT organization, and $0.4 million related to certain contractual obligations in connection with the restructuring of a facility in the ModusLink PTS business.

During the nine months ended April 30, 2011, the Company recorded a net restructuring charge of approximately $1.2 million. Of this amount, approximately $1.1 million related to the workforce reduction of 55 employees in the Americas and Asia and approximately $0.1 million of the recorded net restructuring charge related to changes in estimates for previously recorded facilities lease obligations primarily based on changes to the underlying assumptions.

The following table summarizes the restructuring accrual by reportable segment and the Corporate-level activity for the three and nine months ended April 30, 2012:


	Americas			Asia			Europe			TFL			All Other			Corporate-level Activity		Consolidated Total
	(In thousands)
Accrued restructuring balance at July 31, 2011	$	1,346		$	—		$	118		$	—		$	—		$	—	$	1,464

Restructuring charges		276			495			—			—			—			—		771
Restructuring adjustments		(16	)		—			—			—			—			—		(16	)
Cash paid		(280	)		—			—			—			—			—		(280	)
Non-cash adjustments		6			—			—			—			—			—		6

Accrued restructuring balance at October 31, 2011	$	1,332		$	495		$	118		$	—		$	—		$	—	$	1,945

Restructuring charges		488			190			3,776			133			19			—		4,606
Restructuring adjustments		—			(9	)		—			—			—			—		(9	)
Cash paid		(596	)		(567	)		(272	)		(133	)		—			—		(1,568	)
Non-cash adjustments		72			—			41			—			—			—		113

Accrued restructuring balance at January 31, 2012	$	1,296		$	109		$	3,663		$	—		$	19		$	—	$	5,087
Restructuring charges		4			4			—			517			69			—		594
Restructuring adjustments		—			—			(99	)		—			—			—		(99	)
Cash paid		(505	)		(70	)		(2,702	)		(466	)		(21	)		—		(3,764	)
Non-cash adjustments		(11	)		—			12			—			—			—		1

Accrued restructuring balance at April 30, 2012	$	784		$	43		$	874		$	51		$	67		$	—	$	1,819

(10) SEGMENT INFORMATION

The Company has six operating segments: Americas; Asia; Europe; e-Business; ModusLink PTS and TFL. Based on the information provided to the Company’s chief operating decision-maker (“CODM”) for purposes of making decisions about allocating resources and assessing performance and quantitative thresholds, the Company has determined that it has four reportable segments: Americas; Asia; Europe and TFL. The Company reports the ModusLink PTS operating segment in aggregation with the Americas operating segment as part of the Americas reportable segment. In addition to its four reportable segments, the Company reports an All other category. The All other category represents the e-Business operating segment. The Company also has Corporate-level activity, which consists primarily of costs associated with certain corporate administrative functions such as legal and finance, which are not allocated to the Company’s reportable segments and administration costs related to the Company’s venture capital activities. The Corporate-level activity balance sheet information includes cash and cash equivalents, available-for-sale securities, investments and other assets, which are not identifiable to the operations of the Company’s operating segments.

Management evaluates segment performance based on segment net revenue, operating income (loss) and “adjusted operating income (loss)”, which is defined as the operating income (loss) excluding net charges related to depreciation, goodwill and long-lived asset impairment, restructuring, amortization of intangible assets and share-based compensation. These items are excluded because they may be considered to be of a non-operational or non-cash nature. Historically, the Company has recorded significant impairment and restructuring charges and therefore management uses adjusted operating income to assist in evaluating the performance of the Company’s core operations.

Summarized financial information of the Company’s continuing operations by operating segment is as follows:


	Three Months Ended April 30,						Nine Months Ended April 30,
	2012			2011 (As Restated)			2012			2011 (As Restated)
	(In thousands)
Net revenue:
Americas	$	58,825		$	70,652		$	187,835		$	227,438
Asia		56,642			56,934			168,506			176,722
Europe		50,706			63,444			159,020			218,008
TFL		5,012			6,415			21,979			23,943
All other		7,380			9,134			25,457			28,950

	$	178,565		$	206,579		$	562,797		$	675,061


Operating income (loss):
Americas	$	(3,112	)	$	(3,318	)	$	(6,260	)	$	(25,029	)
Asia		4,671			6,741			18,216			19,272
Europe		(4,222	)		(2,425	)		(12,983	)		(2,565	)
TFL		(3,114	)		(275	)		(5,720	)		(14,847	)
All other		(498	)		483			378			1,476

Total segment operating income (loss)		(6,275	)		1,206			(6,369	)		(21,693	)

Corporate-level activity		(4,709	)		(3,389	)		(16,159	)		(11,536	)

Total operating loss	$	(10,984	)	$	(2,183	)	$	(22,528	)	$	(33,229	)


	Three Months Ended April 30,						Nine Months Ended April 30,
	2012			2011 (As Restated)			2012			2011 (As Restated)
	(In thousands)

Adjusted operating income (loss):
Americas	$	(2,004	)	$	(1,673	)	$	(1,907	)	$	(2,802	)
Asia		5,785			8,363			22,355			24,800
Europe		(1,966	)		(825	)		(4,412	)		2,201
TFL		(1,560	)		(197	)		(3,862	)		(2,814	)
All other		27			956			1,850			2,934

Total segment adjusted operating income		282			6,624			14,024			24,319
Corporate-level activity		(4,452	)		(2,883	)		(14,543	)		(9,783	)

Total adjusted operating income (loss)	$	(4,170	)	$	3,741		$	(519	)	$	14,536

Adjusted operating income (loss)	$	(4,170	)	$	3,741		$	(519	)	$	14,536
Adjustments:
Depreciation		(3,398	)		(4,140	)		(10,698	)		(12,359	)
Amortization of intangible assets		(331	)		(1,062	)		(995	)		(4,420	)
Impairment of goodwill and long-lived assets		(2,062	)		—			(2,062	)		(27,166	)
Share-based compensation		(528	)		(722	)		(2,407	)		(2,619	)
Restructuring, net		(495	)		—			(5,847	)		(1,201	)

Operating loss	$	(10,984	)	$	(2,183	)	$	(22,528	)	$	(33,229	)
Other income		3,744			5,083			5,137			7,227
Income tax benefit (expense)		1,202			(1,331	)		(1,050	)		(3,772	)
Income (loss) from discontinued operations		(98	)		(91	)		572			(239	)

Net income (loss)	$	(6,136	)	$	1,478		$	(17,869	)	$	(30,013	)


	April 30, 2012		July 31, 2011 (As Restated)
	(In thousands)
Total assets of continuing operations:
Americas	$	115,657	$	121,481
Asia		142,808		125,059
Europe		116,851		120,422
TFL		6,968		11,029
All other		17,351		24,809

Sub-total		399,635		402,800
Corporate-level activity		15,439		19,447

	$	415,074	$	422,247

As of April 30, 2012, approximately 59%, 20% and 21% of the Company’s long-lived assets were located in North America, Asia and Europe, respectively. As of July 31, 2011, approximately 60%, 18% and 22%, of the Company’s long-lived assets were located in North America, Asia and Europe, respectively. As of April 30, 2012, approximately $9.9 million, $5.2 million, $5.5 million, $5.2 million, and $3.6 million of the Company’s long-lived assets were located in Singapore, Ireland, the Netherlands, China, and the Czech Republic, respectively. As of July 31, 2011, approximately $10.7 million, $7.1 million, $5.4 million, $4.1 million and $3.7 million of the Company’s long-lived assets were located in Singapore, Ireland, the Netherlands, China and the Czech Republic, respectively.

During the three and nine months ended April 30, 2012, the Company generated revenue of approximately $35.6 million and $111.2 million, respectively, in China and approximately $24.0 million and $82.8 million, respectively, in the Netherlands, from external clients. During the three and nine months ended April 30, 2011, the Company generated revenue of approximately $34.5 million and $105.5 million, respectively, in China and approximately $27.7 million and $95.6 million, respectively, in the Netherlands, from external clients.

(11) EARNINGS PER SHARE

The Company calculates earnings per share in accordance with ASC Topic 260, “Earnings per Share.” The Company adopted ASC Topic 260-10, formerly FASB Staff Position EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” effective August 1, 2009. Under ASC Topic 260-10, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. All of the Company’s nonvested shares are considered participating securities because they contain non-forfeitable rights to dividends. However, holders of nonvested shares do not have an obligation to fund losses, and therefore, are only allocated a portion of the earnings for the earnings per share calculation when the Company reports net income.

Under the two-class method, net income is reduced by the amount of dividends declared in the period for each class of common stock and participating securities. The remaining undistributed earnings are then allocated to common stock and participating securities as if all of the net income for the period had been distributed. Basic earnings per share excludes dilution and is calculated by dividing net income allocable to common shares by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income allocable to common shares by the weighted-average number of common shares for the period, as adjusted for the potential dilutive effect of non-participating share-based awards. The following table reconciles earnings per share for the three and nine months ended April 30, 2012 and 2011.


	Three Months Ended April 30,						Nine Months Ended April 30,
	2012			2011 (As Restated)			2012			2011 (As Restated)
	(In thousands)
BASIC
Income (loss) from continuing operations	$	(6,038	)	$	1,569		$	(18,441	)	$	(29,774	)
Income (loss) from discontinued operations		(98	)		(91	)		572			(239	)

Net income (loss)	$	(6,136	)	$	1,478		$	(17,869	)	$	(30,013	)
Less net income allocable to participating restricted stock		—			(17	)		—			—

Net income (loss) available for basic common shares	$	(6,136	)	$	1,461		$	(17,869	)	$	(30,013	)

Weighted average common shares outstanding		43,844			43,303			43,546			43,289

Basic net income (loss) per common share from continuing operations	$	(0.14	)	$	0.03		$	(0.42	)	$	(0.68	)
Basic net income (loss) per common share from discontinued operations		—			—			0.01			(0.01	)

Basic net income (loss) per common share	$	(0.14	)	$	0.03		$	(0.41	)	$	(0.69	)

DILUTED
Income (loss) from continuing operations	$	(6,038	)	$	1,569		$	(18,441	)	$	(29,774	)
Income (loss) from discontinued operations		(98	)		(91	)		572			(239	)

Net income (loss)	$	(6,136	)	$	1,478		$	(17,869	)	$	(30,013	)
Less net income allocable to participating restricted stock		—			(17	)		—			—

Net income (loss) available for diluted common shares	$	(6,136	)	$	1,461		$	(17,869	)	$	(30,013	)

Weighted average common shares outstanding		43,844			43,303			43,546			43,289
Weighted average common equivalent shares arising from: dilutive stock options		—			199			—			—

Weighted-average number of common and potential common shares		43,844			43,502			43,546			43,289

Diluted net loss per common share from continuing operations	$	(0.14	)	$	0.03		$	(0.42	)	$	(0.68	)
Diluted net income (loss) per common share from discontinued operations		—			—			0.01			(0.01	)

Diluted net income (loss) per common share	$	(0.14	)	$	0.03		$	(0.41	)	$	(0.69	)

For the three and nine months ended April 30, 2012, approximately 2.6 million and 3.3 million, respectively, common stock equivalent shares were excluded from the denominator in the calculation of diluted earnings per share as their inclusion would have been antidilutive.

For the three and nine months ended April 30, 2011, approximately 2.6 million and 2.4 million, respectively, common stock equivalent shares were excluded from the denominator in the calculation of diluted earnings per share as their inclusion would have been antidilutive.

(12) COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss), net of income taxes, were as follows:


	Three Months Ended April 30,						Nine Months Ended April 30,
	2012			2011 (As Restated)			2012			2011 (As Restated)
	(In thousands)
Net income (loss)	$	(6,136	)	$	1,478		$	(17,869	)	$	(30,013	)
Net unrealized holding gain (loss) on securities		1			(24	)		1			(73	)
Foreign currency translation adjustment		642			7,605			(6,719	)		14,121

Comprehensive income (loss)	$	(5,493	)	$	9,059		$	(24,587	)	$	(15,965	)

The components of accumulated other comprehensive income were as follows:


	April 30, 2012			July 31, 2011
	(In thousands)
Net unrealized holding gains (losses) on securities	$	(25	)	$	(26	)
Cumulative foreign currency translation adjustment		16,633			23,352
Pension adjustment		2,310			2,310

Accumulated other comprehensive income	$	18,918		$	25,636

(13) INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by both the moving average and the first-in, first-out methods. Materials that the Company typically procures on behalf of its clients that are included in inventory include materials such as compact discs, printed materials, manuals, labels, hardware accessories, hard disk drives, consumer packaging, shipping boxes and labels, power cords and cables for client-owned electronic devices.

Inventories consisted of the following:


	April 30, 2012		July 31, 2011 (As Restated)
	(In thousands)
Raw materials	$	61,630	$	46,940
Work-in-process		3,348		2,101
Finished goods		28,675		27,842

	$	93,653	$	76,883

The Company values the inventory at the lower of cost or market. The Company continuously monitors inventory balances and records inventory provisions for any excess of the cost of the inventory over its estimated market value. The Company also monitors inventory balances for obsolescence and excess quantities as compared to projected demands. The Company’s inventory methodology is based on assumptions about average shelf life of inventory, forecasted volumes, forecasted selling prices, write-down history of inventory and market conditions. While such assumptions may change from period to period, in determining the net realizable value of its inventories, the Company uses the best information available as of the balance sheet date. If actual market conditions are less favorable than those projected, or the Company experiences a higher incidence of inventory obsolescence because of rapidly changing technology and client requirements, additional inventory provisions may be required. Once established, write-downs of inventory are considered permanent adjustments to the cost basis of inventory and cannot be reversed due to subsequent increases in demand forecasts.

As previously discussed, the restated financial statements also include adjustments to correct certain other immaterial errors, including previously unrecorded immaterial adjustments identified in audits of prior years’ financial statements. As of July 31, 2011, the Company recorded a $0.2 million reduction in its raw materials inventory balance which resulted from an understatement of the Company’s inventory reserve balance.

(14) CONTINGENCIES

On February 15, 2012, the staff of the Division of Enforcement of the SEC initiated with the Company an informal inquiry, and later a formal action, regarding the Company’s treatment of rebates associated with volume discounts provided by vendors. To date, the SEC has not asserted any formal claims.

Following the June 11, 2012 announcement of the pending restatement (the “June 11, 2012 Announcement”), shareholders of the Company commenced three purported class actions in the United States District Court for the District of Massachusetts arising from the circumstances described in the June 11, 2012 Announcement (the “Securities Actions”), entitled, respectively:

•

Irene Collier, Individually And On Behalf Of All Others Similarly Situated, vs. ModusLink Global Solutions, Inc., Joseph C. Lawler and Steven G. Crane, Case 1:12-CV-11044-DJC, filed June 12, 2012 (the “Collier Action”);

•

Alexander Shnerer Individually And On Behalf Of All Others Similarly Situated, vs. ModusLink Global Solutions, Inc., Joseph C. Lawler and Steven G. Crane, Case 1:12-CV-11078-DJC, filed June 18, 2012 (the “Shnerer Action”); and

•

Harold Heszkel, Individually and on Behalf of All Others Similarly Situated v. ModusLink Global Solutions, Inc., Joseph C. Lawler, and Steven G. Crane, Case 1:12-CV-11279-DJC, filed July 11, 2012 (the “Heszkel Action”).

Each of the Securities Actions purports to be brought on behalf of those persons who purchased shares of the Company between September 26, 2007 through and including June 8, 2012 (the “Class Period”) and alleges that failure to timely disclose the issues raised in the June 11, 2012 Announcement during the Class Period rendered defendants’ public statements concerning the Company’s financial condition materially false and misleading in violation of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder.

On July 13, 2012, a fourth shareholder commenced a purported derivative action in United States District Court for the District of Massachusetts against the Company (as nominal defendants), and certain of its current and former directors and officers, entitled, Samuel Montini, Derivatively On Behalf Of ModusLink Global Solutions, Inc. v. Joseph C. Lawler, Steven G. Crane, Francis J. Jules, Virginia G. Breen, Michael J. Mardy, Edward E. Lucente, Jeffrey J. Fenton, Joseph M. O’Donnell, William R. McLennan, Thomas H. Johnson, And Anthony J. Bay, Defendants, And ModusLink Global Solutions, Inc., A Delaware Corporation, Nominal Defendant, Case 1:12-CV-11296-DJC and on July 31, 2012, a fifth shareholder commenced a purported derivative action in United States District Court for the District of Massachusetts against the Company (as nominal defendants), and certain of its current and former directors and officers, entitled, Edward Tansey, Derivatively On Behalf Of ModusLink Global Solutions, Inc. v. Joseph C. Lawler, Steven G. Crane, Francis J. Jules, Virginia G. Breen, Michael J. Mardy, Edward E. Lucente, Jeffrey J. Fenton, Joseph M. O’Donnell, William R. McLennan, Thomas H. Johnson, And Anthony J. Bay, Defendants, And ModusLink Global Solutions, Inc., A Delaware Corporation, Nominal Defendant, Civil Action No. 12-CV-11399 (DJC) (collectively, the “Derivative Actions”). The Derivative Actions further assert that as a result of the individual defendants’ alleged actions and course of conduct, the Company is now the subject of the Securities Actions and will incur related expenses and a possible judgment against it. These litigation matters also arise from the issues raised in the June 11, 2012 Announcement and allege that the individual defendants breached their duty of loyalty to the Company by allowing defendants to cause, or by themselves causing, the Company to make improper statements regarding its business prospects and/or by failing to prevent the other Individual Defendants from taking such purportedly illegal actions.

Although there can be no assurance as to the ultimate outcome, the Company believes it has meritorious defenses, will deny liability, and intends to defend this litigation vigorously.

On October 10, 2012, a sixth shareholder, Donald Reith, served upon the Company’s Board of Directors a demand to institute litigation and take other purportedly necessary, but unidentified, remedial measures to redress and prevent a recurrence of purported breaches of fiduciary duties on the part of the Board and unspecified corporate officers allegedly arising from the same facts and circumstances asserted in the Derivative Actions.

(15) SHARE REPURCHASE PROGRAMS

In June 2010, the Company’s Board of Directors authorized the repurchase of up to $10.0 million of the Company’s common stock from time to time on the open market or in privately negotiated transactions over an eighteen month period, (the “June 2010

Repurchase Program”). The timing and amount of any shares repurchased was to be determined by the Company’s management based on its evaluation of market conditions and other factors. Repurchases could also be made under a Rule 10b5-1 plan, which permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The Company retired and returned repurchased shares to the Company’s authorized, but not issued or outstanding common stock. The June 2010 Repurchase Program was funded using the Company’s working capital. In total, the Company repurchased an aggregate of approximately 0.5 million shares at a cost of approximately $3.4 million under the June 2010 Repurchase Program. These share repurchases occurred primarily during the fourth quarter and first quarter of our 2010 and 2011 fiscal years, respectively. During the fiscal year ended July 31, 2011, the Company declared and paid a special cash dividend of $40.0 million in the aggregate, which was funded with available cash on hand and included amounts remaining under the June 2010 Repurchase Program. Accordingly, no further repurchases were made under the June 2010 Repurchase Program.

(16) INCOME TAXES

For the three and nine months ended April 30, 2012, the Company was profitable in certain jurisdictions where the Company operates, resulting in an income tax expense using enacted rates in those jurisdictions. The Company operates in multiple taxing jurisdictions, both within and outside of the United States. As of April 30, 2012 and July 31, 2011, the total amount of the liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $1.3 million and $2.4 million, respectively.

In accordance with the Company’s accounting policy, interest related to unrecognized tax benefits is included in the provision of income taxes line of the Consolidated Statements of Operations. For the periods ended April 30, 2012 and July 31, 2011, the Company has not recognized any material interest expense related to uncertain tax positions. As of April 30, 2012 and July 31, 2011, the Company had recorded liabilities for interest expense related to uncertain tax positions in the amount of $70 thousand and $130 thousand, respectively. The Company did not accrue for penalties related to income tax positions as there were no income tax positions that required the Company to accrue penalties. The Company expects that approximately $0.6 million of unrecognized tax benefits will reverse in the next twelve months due to expiration of statute of limitations.

The Company is subject to U.S. federal income tax and various state, local and international income taxes in numerous jurisdictions. The federal and state tax returns are generally subject to tax examinations for the tax years ended July 31, 2009 through July 31, 2011. To the extent the Company has tax attribute carryforwards, the tax year in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period. In addition, a number of tax years remain subject to examination by the appropriate government agencies for certain countries in the Europe and Asia regions. In Europe, the Company’s 2006 through 2012 tax years remain subject to examination in most locations, while the Company’s 2002 through 2012 tax years remain subject to examination in most Asia locations.

The Company has certain deferred tax benefits, including those generated by net operating losses and certain other tax attributes (collectively, the “Tax Benefits”). The Company’s ability to use these Tax Benefits could be substantially limited if it were to experience an “ownership change,” as defined under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change would occur if there is a greater than 50-percentage point change in ownership of securities by stockholders owning (or deemed to own under Section 382 of the Code) five percent or more of a corporation’s securities over a rolling three-year period.

Accordingly, on October 17, 2011, the Company’s Board of Directors adopted a Tax Benefit Preservation Plan between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (as amended from time to time, the “Tax Plan”). The Tax Plan reduces the likelihood that changes in the Company’s investor base have the unintended effect of limiting the Company’s use of its Tax Benefits. The Tax Plan is intended to require any person acquiring shares of the Company’s securities equal to or exceeding 4.99% of the Company’s outstanding shares to obtain the approval of the Board of Directors. This would protect the Tax Benefits because changes in ownership by a person owning less than 4.99% of the Company’s stock are not included in the calculation of “ownership change” for purposes of Section 382 of the Code.

(17) @VENTURES INVESTMENTS

The Company maintains interests in several privately held companies primarily through its interests in two venture capital funds which invest as “@Ventures.” The Company invests in early stage technology companies. These investments are generally made in connection with a round of financing with other third-party investors.

During the three and nine months ended April 30, 2012, approximately $1.6 million and $2.6 million, respectively, was invested by @Ventures in privately held companies. During the three and nine months ended April 30, 2011, approximately $1.5 million and $2.5 million, respectively, was invested by @Ventures in privately held companies. At April 30, 2012 and July 31, 2011, the Company’s carrying value of investments in privately held companies was approximately $10.8 million and $12.0 million, respectively. During the nine months ended April 30, 2012 and 2011, the Company recorded $2.9 million and $1.2 million (restated), respectively, of impairment charges related to certain investments in the @Ventures portfolio of companies. During the nine months ended April 30, 2012 and April 30, 2011, @Ventures did not receive any material distributions from its investments.

During the three months ended April 30, 2012, the Company became aware that there may be indicators of impairment for a certain investment in the @Ventures portfolio of companies. The Company completed its evaluation for impairment in connection with the preparation of the financial statements for the quarter ended April 30, 2012 and determined that the investment was impaired. As a result, the Company recorded an impairment charge of approximately $2.8 million, during the quarter ended April 30, 2012.

Investments in which the Company’s interest is less than 20% and which are not classified as available-for-sale securities are carried at the lower of cost or net realizable value unless it is determined that the Company exercises significant influence over the investee company, in which case the equity method of accounting is used. For those investments in which the Company’s voting interest is between 20% and 50%, the equity method of accounting is generally used. Under this method, the investment balance, originally recorded at cost, is adjusted to recognize the Company’s share of net earnings or losses of the investee company as they occur, limited to the extent of the Company’s investment in, advances to and commitments for the investee. These adjustments are reflected in “Equity in losses of affiliates and impairments” in the Company’s Consolidated Statements of Operations.

The Company assesses the need to record impairment losses on its investments and records such losses when the impairment of an investment is determined to be other than temporary in nature. The process of assessing whether a particular investment’s net realizable value is less than its carrying cost requires a significant amount of subjective judgment. In making this judgment, the Company carefully considers the investee’s cash position, projected cash flows (both short and long-term), financing needs, recent financing rounds, most recent valuation data, the current investing environment, management/ownership changes and competition. The valuation process is based primarily on information that the Company requests from these privately held companies and is not subject to the same disclosure and audit requirements as the reports required of U.S. public companies. As such, the reliability and the accuracy of the data may vary.

(18) SUBSEQUENT EVENTS

On June 13, 2012, the Company received notice from the NASDAQ Stock Market (“NASDAQ”) stating that the Company is not in compliance with Listing Rule 5250(c)(1) for continued listing due to the Company’s inability to file with the SEC the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2012 (the “Initial Delinquent Filing”) on a timely basis. The notification was issued in accordance with standard NASDAQ procedures and had no immediate effect on the listing or trading of the Company’s common stock on the NASDAQ Global Select Market. Pursuant to NASDAQ’s letter dated June 13, 2012, the receipt of which was disclosed in the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2012, the Company had until August 13, 2012 to submit a plan to regain compliance with respect to the Initial Delinquent Filing. On August 13, 2012, the Company submitted its plan to regain compliance. On August 28, 2012, the Company was informed that NASDAQ had granted an exception to its rules to enable the Company to regain compliance by December 10, 2012. On October 16, 2012, the Company received another letter from NASDAQ, as a result of its inability to file with the SEC its Annual Report on Form 10-K for the year ended July 31, 2012 by its required filing deadline (the “Second Delinquent Filing”). In that letter, the receipt of which was disclosed in the Company’s Current Report on Form 8-K filed with the SEC on October 17, 2012, NASDAQ noted that the Second Delinquent Filing was an additional instance of non-compliance which could lead to delisting from NASDAQ. On December 11, 2012, the Company received a third letter from NASDAQ, as a result of its failure to regain compliance with the NASDAQ listing requirements by December 10, 2012. In that letter, the receipt of which was disclosed in the Company’s Current Report on Form 8-K filed with the SEC on December 13, 2012, NASDAQ noted that the failure to file the Initial Delinquent Filing and the Second Delinquent Filing by December 10, 2012 led NASDAQ to determine that the Company’s common stock would be delisted, subject to the Company’s right to appeal such determination. On December 17, 2012, the Company requested a hearing to appeal such determination, which resulted in an automatic stay of the delisting for 15 days. On December 18, 2012, the Company received another letter from NASDAQ, as a result of its inability to file with the SEC its Quarterly Report on Form 10-Q for the quarter ended October 31, 2012 by its required filing deadline (the “Third Delinquent Filing”). In that letter, the receipt of which was disclosed in the Company’s Current Report on Form 8-K filed with the SEC on December 21, 2012, NASDAQ noted that the Third Delinquent Filing was an additional instance of non-compliance which could lead to delisting from NASDAQ. By letter dated December 31, 2012, the NASDAQ Hearings Panel has granted the Company’s request to extend the automatic stay of suspension of trading of the Company’s common stock pending completion of the hearing process and a final determination regarding continued listing.

On August 16, 2012, the Company and certain of its subsidiaries entered into the Third Amendment to Amended and Restated Credit Agreement and Forbearance Agreement (“Third Amendment to the Credit Facility”) with Bank of America, N.A., Silicon Valley Bank and HSBC Bank USA, National Association (the “Lenders”). Under the Third Amendment to the Credit Facility, (i) the aggregate revolving commitment of the Lenders was $15,000,000 and (ii) interest under the Credit Facility would accrue, depending on the type of borrowing, at the base rate or the Eurodollar rate, plus, in each case, an applicable rate that varied from 1.50% to 2.00% for the base rate and 2.50% to 3.00% for the Eurodollar rate, depending on the Company’s consolidated leverage ratio. The Third Amendment to the Credit Facility changed the Credit Facility termination date to October 31, 2012 and added a new financial covenant, minimum net global cash of $45,000,000. Additionally, the Third Amendment to the Credit Facility provided a forbearance from the Lenders exercising their rights and remedies related to certain events of default, including events of default resulting from failure to meet certain minimum EBITDA requirements and violations of the reporting requirements under the Credit Facility that were delayed due to the Company’s inability to file with the SEC the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2012, as previously disclosed in its Form 12b-25 filed on June 11, 2012. The Credit Facility terminated, by its terms, on October 31, 2012.

On October 31, 2012, the Company and certain of its domestic subsidiaries entered into a Credit Agreement (the “New Credit Facility”) with Wells Fargo Bank, National Association as lender and agent for the lenders party thereto. The New Credit Facility provides a senior secured revolving credit facility up to an initial aggregate principal amount of $50.0 million or the calculated borrowing base and is secured by substantially all of the domestic assets of the Company. As of October 31, 2012, the calculated borrowing base was $36.0 million. The New Credit Facility terminates on October 31, 2015. Interest on the New Credit Facility is based, at the Company’s option at LIBOR plus 2.5% or a base rate (as defined in the New Credit Facility) plus 1.5%. The New Credit Facility includes a minimum EBITDA restrictive covenant.

Item 2.

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

The matters discussed in this report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended that involve risks and uncertainties. All statements other than statements of historical information provided herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”, “anticipates”, “plans”, “expects” and similar expressions are intended to identify forward-looking statements. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, those discussed in Part II—Item 1A below and elsewhere in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Background of Restatement

On March 12, 2012, in its Form 10-Q for the quarterly period ended January 31, 2012, the Company announced the pendency of the SEC Inquiry.

Restatement Adjustments

2012, the Company has restated its unaudited condensed consolidated balance sheet as of July 31, 2011, the unaudited condensed consolidated statements of operations for the three and nine months ended April 30, 2011, and the unaudited condensed consolidated statement of cash flows for the nine months ended April 30, 2011. Any adjustments from periods prior to the condensed consolidated balance sheet as of July 31, 2011 contained within this Form 10-Q are reflected in a $28.6 million increase to accumulated deficit from $7,170.0 million to $7,198.6 million, as compared to the previously reported amount as of July 31, 2011. For any references to the Company’s Annual Report on Form 10-K for the year ended July 31, 2011 and Quarterly Reports on Form 10-Q for the quarters ended October 31, 2011 and January 31, 2012 contained within this document, please refer to the Company’s Annual Report on Form 10-K for the year ended July 31, 2012, which contains restated financial statements and other information for these periods.

The cumulative adjustments required to correct the errors for these previously reported periods are reflected in the restated financial information presented in this report.

Several principal adjustments were made to historic financial statements as a result of the restatement as shown in the tables below. Where the retention of a rebate or a mark-up was determined to have been inconsistent with a client contract (collectively referred to as “pricing adjustments”), the Company concluded that these amounts were not properly recorded as revenue. Accordingly, revenue was reduced by an equivalent amount for the period that the rebate was estimated to have affected. A corresponding liability for the same amount was recorded in that period (referred to as “accrued pricing liabilities”), which decreased working capital in the period. The Company believes that it may not ultimately be required to pay the accrued pricing liabilities, due in part to the nature of the interactions with its clients. Those interactions may provide either legal or factual grounds for mitigation of such liabilities. In addition, during such interactions, clients appear to be focused principally on service levels and the cost savings delivered to them by the Company, measured by the total price charged by the Company for its services. Even where there are “cost-plus” or “cost-pass-through” contracts in effect, clients regularly request periodic price reductions, without reference to the actual costs incurred by the Company. The Company expects that its dealings with clients, which include periodic business and pricing reviews, as well as its ability to demonstrate the delivery of savings over time, may result in mitigation of the accrued pricing liabilities. When, and to the extent that, the Company is able to conclude that the liabilities have been extinguished for less than the amounts accrued, the Company will record the difference as other income. In the course of its business with certain clients, the Company has received releases of claims from such clients which have resulted in the Company concluding that the accrued pricing liabilities for those clients have been extinguished. The amounts derecognized and recorded in other income were $7.5 million during the three and nine months ended April 30, 2012 and $7.2 million and $13.5 million, respectively, during the three and nine months ended April 30, 2011. The remaining accrued pricing liabilities at April 30, 2012 will be derecognized when there is sufficient information for the Company to conclude that such liabilities have been extinguished, which may occur through payment, legal release, or other legal or factual determination.

In addition to the errors described above, the restated financial statements include a $3.7 million adjustment in the quarter ended July 31, 2011 to correct a reserve for an uncertain tax position. Based on the date of effective settlement of the uncertain tax position, the reserve should have been reversed in the quarter ended July 31, 2011.

The restated financial statements also include other adjustments to correct certain immaterial errors for previously unrecorded adjustments identified in audits of prior years’ financial statements. The previously unrecorded audit adjustments are being recorded as part of the restatement process although none of these adjustments is individually material.

Throughout the remainder of Management’s Discussion and Analysis of Financial Condition and Results of Operations, all referenced amounts give effect to the restatement.

Overview

ModusLink Global Solutions, Inc. executes comprehensive supply chain and logistics services that improve clients’ revenue, cost, sustainability and customer experience objectives. ModusLink Global Solutions provides services to leading companies in consumer electronics, communications, computing, medical devices, software, luxury goods and retail. The Company’s operations are supported by a global footprint that includes more than 30 sites in 15 countries across North America, Europe, and the Asia regions.

Management evaluates operating performance based on net revenue, operating income (loss), and net income (loss), and, across its segments, on the basis of “adjusted operating income (loss),” which is defined as operating income (loss) excluding net charges related to depreciation, amortization of intangible assets, impairment of goodwill and long-lived assets, share-based compensation, restructuring and other charges not related to our baseline operating results. See Note 10 of the accompanying notes to the condensed consolidated financial statements included in Item 1 above for segment information, including a reconciliation of adjusted operating income (loss) to net income (loss).

We have developed a long-term set of strategic initiatives and an operating plan focused on increasing both revenue and profitability. We view the continued development of our global operational infrastructure and footprint as a primary source of differentiation in the market place. We believe that by leveraging our global footprint, we will be able to optimize our clients’ supply chains using multi-facility, multi-geographic solutions.

Our focus during fiscal year 2012 remained consistent with the continued execution against our long-term strategic plan, and the implementation of the following initiatives which are designed to achieve our long-term goals:

Drive sales growth through a combination of existing client penetration and targeting new markets. Historically, a significant portion of our revenue from our supply chain business has been generated from clients in the computing and software markets. These markets are mature and, as a result, gross margins in these markets tend to be low. To address this, in addition to the computing and software markets, we have expanded our sales focus to include additional markets within technology, such as communications and consumer electronics, and outside of technology, such as medical devices. We believe these markets are experiencing faster growth than our historical markets, and represent opportunities to realize higher gross margins on our services. Companies in these markets often have significant need for a supply chain partner who will be an extension to their business models.

Increase the value delivered to clients through service expansion. During fiscal year 2012, we have continued to focus on further developing our e-Business, repair services and certain other offerings, which we believe will increase the overall value of the supply chain solutions we deliver to our existing clients and to new clients. We expect that these services will enhance our gross margins and drive profitability. Furthermore, we believe that the addition of new services to existing clients will strengthen our relationship with clients, and further integrate us with their businesses.

Drive operational efficiencies throughout our organization. Our strategy is to operate an integrated supply chain system infrastructure that extends from front-end order management through distribution and returns management. This end-to-end solution enables clients to link supply and demand in real time, improve visibility and performance throughout the supply chain, and provide real-time access to information for greater collaboration and making informed business decisions. We believe that our clients benefit from our global integrated business solution. We also reduce our operating costs while implementing operational efficiencies throughout the Company. We expect that our lean sigma continuous improvement program will drive further operational efficiencies in the future. The lean sigma continuous improvement program is aimed at reducing our overall costs, increasing efficiencies and improving capacity utilization. The program consists of standardized training for the Company’s employees in the lean sigma fundamentals (which include six sigma and “lean” methodology approaches) including standard tools to support the identification and elimination of waste and variability and applying these methods to operational and administrative tasks. As noted, the training enables employees to identify and implement projects to improve efficiency, productivity and eliminate waste through ongoing improvement efforts. We believe this initiative will yield improved process standardization and operating efficiency gains, as well as lower our long-term operating costs.

Among the key factors that will influence our performance are successful execution and implementation of our strategic initiatives, global economic conditions, especially in the technology sector, demand for our clients’ products, the effect of product form factor changes, technology changes, revenue mix and demand for outsourcing services.

For the three months ended April 30, 2012, the Company reported net revenue of $178.6 million, operating loss of $11.0 million, loss from continuing operations before income taxes of $7.2 million, net loss of $6.1 million and a gross margin percentage of 8.6%. For the nine months ended April 30, 2012, the Company reported net revenue of $562.8 million, an operating loss of $22.5 million, a loss from continuing operations before income taxes of $17.4 million, a net loss of $17.9 million and a gross margin percentage of 10.1%. During the nine months ended April 30, 2012, the Company received approximately $3.4 million from the release by TFL Enterprises LLC, the former owner of TFL, of funds held in escrow since the date of the TFL acquisition in settlement of potential claims. The amount of $3.4 million had a favorable impact on selling, general and administrative expenses during the nine months ended April 30, 2012. We currently conduct business in many countries including the Netherlands, Hungary, France, Ireland, Czech Republic, Singapore, Taiwan, China, Malaysia, Japan, Australia, India, and Mexico, in addition to our United States operations. At April 30, 2012, we had cash and cash equivalents and available-for-sale securities of $78.6 million, and working capital of $134.5 million.

As a large portion of our revenue comes from outsourcing services provided to clients such as hardware manufacturers, software publishers, telecommunications carriers, broadband and wireless service providers and consumer electronics companies, our operating performance has been and may continue to be adversely affected by declines in the overall performance of the technology sector and the sustained economic uncertainty affecting the world economy. In addition, the drop in consumer demand for products of certain clients has had and may continue to have the effect of reducing our volumes and adversely affecting our revenue performance. The market for our services is very competitive. We also face pressure from our clients to continually realize efficiency gains in order to help our clients maintain their profitability objectives. Increased competition and client demands for efficiency improvements may result in price reductions, reduced gross margins and, in some cases, loss of market share. In addition, our profitability varies based on the types of services we provide and the regions in which we perform them. Therefore the mix of revenue derived from our various services and locations can impact our gross margin results. Also, form factor changes, which we describe as the reduction in the amount of materials and product components used in our clients’ completed packaged product, can also have the effect of reducing our revenue and gross margin opportunities. As a result of these competitive and client pressures the gross margins in our business

are low. During the three and nine months ended April 30, 2012, our gross margin percentage was 8.6% and 10.1%, respectively. Increased competition arising from industry consolidation and/or low demand for our clients’ products and services may hinder our ability to maintain or improve our gross margins, profitability and cash flows. We must continue to focus on margin improvement, through implementation of our strategic initiatives, cost reductions and asset and employee productivity gains in order to improve the profitability of our business and maintain our competitive position. We generally react to margin and pricing pressures in several ways, including efforts to target new markets, expand our service offerings, improve the efficiency of our processes and to lower our infrastructure costs. We seek to lower our cost to service clients by moving work to lower-cost venues, establishing facilities closer to our clients or to our clients’ end markets to gain efficiencies, and other actions designed to improve the productivity of our operations.

Historically, a limited number of key clients have accounted for a significant percentage of our revenue. For the nine months ended April 30, 2012, sales to Hewlett-Packard and Advanced Micro Devices accounted for approximately 31% and 10%, respectively, of our consolidated net revenue. For the nine months ended April 30, 2011, sales to Hewlett-Packard and Advanced Micro Devices accounted for approximately 27% and 9%, respectively, of our consolidated net revenue. We expect to continue to derive the vast majority of our operating revenue from sales to a small number of key clients. In general, we do not have any agreements which obligate any client to buy a minimum amount of services from us or designate us as an exclusive service provider. Consequently, our sales are subject to demand variability by our clients. The level and timing of orders placed by our clients vary for a variety of reasons, including seasonal buying by end-users, the introduction of new technologies and general economic conditions.

Basis of Presentation

The Company has six operating segments: Americas; Asia; Europe; e-Business; ModusLink PTS and TFL. The Company has four reportable segments: Americas; Asia; Europe and TFL. The Company reports the ModusLink PTS operating segment in aggregation with the Americas operating segment as part of the Americas reportable segment. In addition to its four reportable segments, the Company reports an All other category. The All other category represents the e-Business operating segment. The Company also has Corporate-level activity, which consists primarily of costs associated with certain corporate administrative functions such as legal and finance which are not allocated to the Company’s reportable segments and administration costs related to the Company’s venture capital activities.

All significant intercompany transactions and balances have been eliminated in consolidation.

Results of Operations

Three months ended April 30, 2012 compared to the three months ended April 30, 2011

Net Revenue:


	Three Months Ended April 30, 2012		As a % of Total Net Revenue			Three Months Ended April 30, 2011 (As Restated)		As a % of Total Net Revenue			$ Change			% Change
	(In thousands)
Americas	$	58,825		33.0	%	$	70,652		34.2	%	$	(11,827	)		(16.7	)%
Asia		56,642		31.7	%		56,934		27.6	%		(292	)		(0.5	)%
Europe		50,706		28.4	%		63,444		30.7	%		(12,738	)		(20.1	)%
TFL		5,012		2.8	%		6,415		3.1	%		(1,403	)		(21.9	)%
All other		7,380		4.1	%		9,134		4.4	%		(1,754	)		(19.2	)%

Total	$	178,565		100.0	%	$	206,579		100.0	%	$	(28,014	)		(13.6	)%

Net revenue decreased by approximately $28.0 million during the three months ended April 30, 2012, as compared to the same period in the prior year. This decrease was primarily a result of lower volumes from certain existing client programs as compared to the year-ago period. Approximately $105.2 million of the net revenue for the three months ended April 30, 2012 related to the procurement and re-sale of materials as compared to $123.1 million for the three months ended April 30, 2011.

During the three months ended April 30, 2012, net revenue in the Americas region decreased by approximately $11.8 million. This decrease primarily resulted from the cancellation of a certain client program due to discontinuance of one of the client’s products and decreases in order volumes for certain other client programs. Within the Europe region, the net revenue decrease of approximately $12.7 million was driven by decreases in order volumes for certain client programs, as a result of challenging economic and client-specific conditions within this region. Net revenue for TFL and e-Business decreased by approximately $1.4 million and $1.8 million, respectively, due to lower order volumes as compared to the same period in the prior year.

A significant portion of our client base operates in the technology sector, which is intensely competitive and very volatile. Our clients’ order volumes vary from quarter to quarter for a variety of reasons, including market acceptance of their new product introductions and overall demand for their products including seasonality factors. This business environment, and our mode of transacting business with our clients, does not lend itself to precise measurement of the amount and timing of future order volumes, and as a result, future consolidated and segment sales volumes and revenues could vary significantly from period to period. We sell primarily on a purchase order basis, rather than pursuant to contracts with minimum purchase requirements. These purchase orders are generally for quantities necessary to support near-term demand for our clients’ products.

Cost of Revenue:


	Three Months Ended April 30, 2012		As a % of Segment Net Revenue			Three Months Ended April 30, 2011 (As Restated)		As a % of Segment Net Revenue			$ Change			% Change
	(In thousands)
Americas	$	57,834		98.3	%	$	69,672		98.6	%	$	(11,838	)		(17.0	)%
Asia		45,147		79.7	%		44,009		77.3	%		1,138			2.6	%
Europe		48,038		94.7	%		60,145		94.8	%		(12,107	)		(20.1	)%
TFL		5,521		110.2	%		5,691		88.7	%		(170	)		(3.0	)%
All other		6,606		89.5	%		7,395		81.0	%		(789	)		(10.7	)%

Total	$	163,146		91.4	%	$	186,912		90.5	%	$	(23,766	)		(12.7	)%

Cost of revenue consists primarily of expenses related to the cost of materials purchased in connection with the provision of supply chain management services as well as costs for salaries and benefits, contract labor, consulting, fulfillment and shipping, and applicable facilities costs. Cost of revenue decreased by approximately $23.8 million for the three months ended April 30, 2012, as compared to the three months ended April 30, 2011, primarily due to lower order volumes. On a consolidated basis, gross margin for the third quarter of fiscal year 2012 was 8.6% as compared to 9.5% in the prior year quarter. For the three months ended April 30, 2012, the Company’s gross margin percentages within the Americas, Asia and Europe regions were 1.7%, 20.3% and 5.3%, as compared to 1.4%, 22.7% and 5.2%, respectively, for the same period of the prior year. The increase in gross margin within the Americas region is attributed to the favorable impact of cost reduction programs at certain facilities. The decrease in Asia and Europe is attributed to the effect of the fixed portions of indirect labor and infrastructure costs on lower volumes during the quarter, which were partially offset by a favorable impact from client mix.

As a result of the lower overall cost of delivering the Company’s services in the Asia region, particularly China, we expect gross margin levels in Asia to continue to exceed those earned in the Americas and Europe regions. However, we expect that there will continue to be pressure on gross margin levels in Asia as the market, particularly in China, matures.

Selling, General and Administrative Expenses:


	Three Months Ended April 30, 2012		As a % of Segment Net Revenue			Three Months Ended April 30, 2011		As a % of Segment Net Revenue			$ Change			% Change
	(In thousands)
Americas	$	4,111		7.0	%	$	3,898		5.5	%	$	213			5.5	%
Asia		6,870		12.1	%		5,814		10.2	%		1,056			18.2	%
Europe		5,754		11.3	%		5,727		9.0	%		27			0.5	%
TFL		1,108		22.1	%		953		14.9	%		155			16.3	%
All other		962		13.0	%		1,007		11.0	%		(45	)		(4.5	)%

Sub-total		18,805		10.5	%		17,399		8.4	%		1,406			8.1	%
Corporate-level activity		4,710		—			3,389		—			1,321			39.0	%

Total	$	23,515		13.2	%	$	20,788		10.1	%	$	2,727			13.1	%

Selling, general and administrative expenses consist primarily of compensation and employee-related costs, sales commissions and incentive plans, information technology expenses, travel expenses, facilities costs, consulting fees, fees for professional services, depreciation expense and marketing expenses. Selling, general and administrative expenses during the three months ended April 30, 2012 increased by approximately $2.7 million compared to the three-month period ended April 30, 2011, primarily as a result of a $1.9 million increase in professional fees for consultants to assist with the Company’s evaluation of strategic alternatives, the SEC Inquiry, and other consulting projects, a $0.9 million increase in salary costs within the Company’s sales organization, and a $0.6 million increase in insurance costs. These increases were partially offset by a $0.7 million decrease in costs within the Company’s IT organization resulting from cost reduction activities.

Amortization of Intangible Assets:


	Three Months Ended April 30, 2012		As a % of Segment Net Revenue			Three Months Ended April 30, 2011		As a % of Segment Net Revenue			$ Change			% Change
	(In thousands)
Americas	$	38		0.1	%	$	399		0.6	%	$	(361	)		(90.5	)%
Asia		—		—			369		0.6	%		(369	)		(100.0	)%
Europe		—		—			—		—			—			—
TFL		46		0.9	%		47		0.7	%		(1	)		(2.1	)%
All other		247		3.3	%		247		2.7	%		—			—

Total	$	331		0.2	%	$	1,062		0.5	%	$	(731	)		(68.8	)%

The intangible asset amortization relates to certain amortizable intangible assets acquired by the Company in connection with its acquisition of Modus Media, Inc., ModusLink OCS, ModusLink PTS and TFL. The $0.7 million decrease in amortization expense is due to the intangible assets related to Modus Media, Inc. becoming fully amortized during the quarter ended April 30, 2011. The remaining intangible assets are being amortized over lives ranging from 1 to 4 years.

Impairment of Goodwill and Long-lived Assets:


	Three months Ended April 30, 2012		As a % of Segment Net Revenue			Three months Ended April 30, 2011		As a % of Segment Net Revenue		$ Change		% Change
	(In thousands)
Americas	$	—		—		$	—		—	$	—		—
Asia		—		—			—		—		—		—
Europe		1,128		2.2	%		—		—		1,128		—
TFL		934		18.6	%		—		—		934		—
All other		—		—			—		—		—		—

Total	$	2,062		1.2	%	$	—		—	$	2,062		—

The Company conducts its goodwill impairment test on July 31 of each fiscal year. In addition, if and when events or circumstances change that would reduce the fair value of any of its reporting units below its carrying value, an interim test would be performed. In making this assessment, the Company relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and marketplace data. The Company’s reporting units are the same as the operating segments: Americas, Asia, Europe, e-Business, ModusLink PTS and TFL.

Restructuring, net:


	Three Months Ended April 30, 2012			As a % of Segment Net Revenue			Three Months Ended April 30, 2011		As a % of Segment Net Revenue		$ Change			% Change
	(In thousands)
Americas	$	4			0.0	%	$	—		—	$	4			—
Asia		4			0.0	%		—		—		4			—
Europe		(99	)		(0.2	)%		—		—		(99	)		—
TFL		517			10.3	%		—		—		517			—
All other		69			0.9	%		—		—		69			—

Sub-total	$	495			0.3	%	$	—		—	$	495			—
Corporate-level activity		—			—			—		—		—			—

Total	$	495			0.3	%	$	—		—	$	495			—

During the three months ended April 30, 2012, the Company recorded a net restructuring charge of $0.5 million. Of this amount, approximately $0.5 million related to a workforce reduction of 87 employees within TFL and $0.1 million related to a workforce reduction of 4 employees within e-Business. These costs were partially offset by a $0.1 million reversal of restructuring costs associated with employee termination benefits within the Europe region.

Interest Income/Expense:

During the three months ended April 30, 2012 and 2011, interest income was approximately $0.1 million for both periods.

During the three months ended April 30, 2012 and 2011, interest expense totaled approximately $0.1 million for both periods. Interest expense recorded in both periods related primarily to the Company’s stadium obligation.

Other Gains, net:

Other gains, net, were approximately $6.9 million for the three months ended April 30, 2012. During the three months ended April 30, 2012, the Company extinguished accrued pricing liabilities of approximately $7.5 million, partially offset by foreign exchange losses of approximately $0.4 million. These net losses primarily related to realized and unrealized losses from foreign currency exposures and settled transactions in Asia.

Other gains, net, as restated, were approximately $5.5 million for the three months ended April 30, 2011. During the three months ended April 30, 2011, the Company extinguished accrued pricing liabilities of approximately $7.2 million, partially offset by foreign exchange losses of approximately $1.5 million. These net losses primarily related to realized and unrealized losses from foreign currency exposures and settled transactions in Europe and Asia, partially offset by net gains in the Americas.

Equity in Losses of Affiliates and Impairments:

Equity in losses of affiliates and impairments, results from the Company’s minority ownership in certain investments that are accounted for under the equity method. Under the equity method of accounting, the Company’s proportionate share of each affiliate’s operating income or losses is included in equity in losses of affiliates. Equity in losses of affiliates was $3.1 million and $0.4 million for the three months ended April 30, 2012 and 2011, respectively.

Estimating the net realizable value of investments in privately held early-stage technology companies is inherently subjective and has contributed to volatility in our reported results of operations in the past and may negatively impact our results of operations in the future. We may incur impairment charges to our investments in privately held companies, which could have an adverse impact on our future results of operations. A decline in the carrying value of our $10.8 million of investments in affiliates at April 30, 2012 ranging from 10% to 20%, respectively, would decrease our income from continuing operations by $1.1 million to $2.2 million.

Income Tax Expense:

During the three months ended April 30, 2012, the Company recorded income tax benefit of approximately $1.2 million, as compared to income tax expense of $1.3 million for the same period in the prior fiscal year. For the three months ended April 30, 2012 and 2011, the Company was profitable in certain jurisdictions where the Company operates, resulting in an income tax expense using the enacted tax rates in those jurisdictions. The decrease in income tax expense recorded during the three months ended April 30, 2012 was primarily the result of a change in the mix of earnings in various jurisdictions as compared to the year-ago period and certain discrete tax items. These discrete tax items included a tax benefit from the reversal of liability for uncertain tax positions of approximately $1.0 million, primarily due to the favorable resolution of outstanding audits during the third quarter of fiscal 2012.

The Company provides for income tax expense related to federal, state, and foreign income taxes. The Company continues to maintain a full valuation allowance against its deferred tax assets in the U.S. and certain of its foreign subsidiaries due to the uncertainty of realizing such benefits.

Discontinued Operations:

During the three months ended April 30, 2012 and 2011, the Company recorded a loss from discontinued operations of $0.1 million for both periods. The loss from discontinued operations in both periods relates to the accretion of the liability related to a facility lease obligation.

Results of Operations

Nine months ended April 30, 2012 compared to the nine months ended April 30, 2011

Net Revenue:


	Nine months Ended April 30, 2012		As a % of Total Net Revenue			Nine months Ended April 30, 2011 (As Restated)		As a % of Total Net Revenue			$ Change			% Change
	(In thousands)
Americas	$	187,835		33.4	%	$	227,438		33.7	%	$	(39,603	)		(17.4	)%
Asia		168,506		29.9	%		176,722		26.2	%		(8,216	)		(4.6	)%
Europe		159,020		28.3	%		218,008		32.3	%		(58,988	)		(27.1	)%
TFL		21,979		3.9	%		23,943		3.5	%		(1,964	)		(8.2	)%
All other		25,457		4.5	%		28,950		4.3	%		(3,493	)		(12.1	)%

Total	$	562,797		100.0	%	$	675,061		100.0	%	$	(112,264	)		(16.6	)%

Net revenue decreased by approximately $112.3 million during the nine months ended April 30, 2012, as compared to the same period in the prior year. This decrease was primarily a result of lower volumes from certain existing client programs as well as a decline in new business as compared to the year-ago period. Approximately $329.6 million of the net revenue for the nine months ended April 30, 2012 related to the procurement and re-sale of materials as compared to $409.6 million for the nine months ended April 30, 2011.

During the nine months ended April 30, 2012, net revenue in the Americas region decreased by approximately $39.6 million. This decrease primarily resulted from the cancellation of a certain client program that was no longer profitable to the Company and decreases in order volumes for certain other client programs. Within the Asia region, the net revenue decrease of approximately $8.2 million primarily resulted from short-term supply constraints for certain client programs, as a result of the impact of the flooding in Thailand. This decrease was partially offset by a non-recurring $4.0 million price concession for a certain client program which was recorded as a reduction of revenue in the first quarter of the prior fiscal year. Within the Europe region, the net revenue decrease of approximately $59.0 million was driven by decreases in client order volumes, as a result of challenging economic and client-specific conditions within this region. At TFL, net revenue decreased by $2.0 million during the nine months ended April 30, 2012 compared to the prior year period due to increased competition in the market. Within e-Business, the net revenue decrease of approximately $3.5 million was driven by decreases in client order volumes.

Cost of Revenue:


	Nine months Ended April 30, 2012		As a % of Segment Net Revenue			Nine months Ended April 30, 2011 (As Restated)		As a % of Segment Net Revenue			$ Change			% Change
	(In thousands)
Americas	$	181,616		96.7	%	$	222,358		97.8	%	$	(40,742	)		(18.3	)%
Asia		130,146		77.2	%		138,467		78.4	%		(8,321	)		(6.0	)%
Europe		150,528		94.7	%		203,688		93.4	%		(53,160	)		(26.1	)%
TFL		22,392		101.9	%		23,231		97.0	%		(839	)		(3.6	)%
All other		21,419		84.1	%		23,962		82.8	%		(2,543	)		(10.6	)%

Total	$	506,101		89.9	%	$	611,706		90.6	%	$	(105,605	)		(17.3	)%

For the nine months ended April 30, 2012, the Company’s gross margin percentages within the Americas, Asia and Europe regions were 3.3%, 22.8% and 5.3%, as compared to 2.2%, 21.6% and 6.6%, respectively, for the same period of the prior year. The increase in gross margin within the Americas region is attributed to the favorable impact of cost reduction programs at certain facilities. Within the Asia region, the increase in gross margin is primarily attributed to the non-recurring $4.0 million price concession recorded in the prior year period, which was partially offset by unfavorable client and product mix. Within the Europe

region, the decrease in gross margin is attributed to the effect of the fixed portions of indirect labor and infrastructure costs on lower volumes and an unfavorable change in client mix. Gross margin for TFL for the nine months ended April 30, 2012 was (1.9)% compared with 3.0% in the prior year period. The decrease in gross margin is primarily attributed to higher inventory related charges during the nine months ended April 30, 2012 compared to the prior year period.

Selling, General and Administrative Expenses:


	Nine months Ended April 30, 2012		As a % of Segment Net Revenue			Nine months Ended April 30, 2011		As a % of Segment Net Revenue			$ Change			% Change
	(In thousands)
Americas	$	11,664		6.2	%	$	11,699		5.1	%	$	(35	)		(0.3	)%
Asia		19,508		11.6	%		17,290		9.8	%		2,218			12.8	%
Europe		16,567		10.4	%		16,880		7.7	%		(313	)		(1.9	)%
TFL		3,583		16.3	%		3,621		15.1	%		(38	)		(1.0	)%
All other		2,839		11.2	%		2,769		9.6	%		70			2.5	%

Sub-total		54,161		9.6	%		52,259		7.7	%		1,902			3.6	%
Corporate-level activity		16,159		—			11,538		—			4,621			40.1	%

Total	$	70,320		12.5	%	$	63,797		9.5	%	$	6,523			10.2	%

Selling, general and administrative expenses consist primarily of compensation and employee-related costs, sales commissions and incentive plans, information technology expenses, travel expenses, facilities costs, consulting fees, fees for professional services, depreciation and marketing expenses. Selling, general and administrative expenses during the nine months ended April 30, 2012 increased by approximately $6.5 million compared to the nine month period ended April 30, 2011, primarily as a result of a $10.5 million increase in professional fees for consultants to assist with the Company’s proxy contest, investments in sales and marketing and cost alignment initiatives, evaluation of strategic alternatives, the SEC Inquiry and other consulting projects within the Company’s finance and marketing organizations, and a $1.2 million increase in salary costs within the Company’s sales organization. These increases were partially offset by a non-recurring receipt of approximately $3.4 million from the release of TFL Enterprises LLC, the f

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