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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-27876
JDA SOFTWARE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0787377
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14400 NORTH 87TH STREET
SCOTTSDALE, ARIZONA 85260
(480) 308-3000
(Address and telephone number of principal executive offices)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
The number of shares outstanding of the Registrant's Common Stock, $0.01 par
value, was 24,207,428 as of April 30, 2000.
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JDA SOFTWARE GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2000 and 1999 6
Notes to Interim Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURE 25
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
--------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 72,377 $ 58,283
Marketable securities 20,579 30,423
Accounts receivable, net 36,839 32,302
Income tax receivable 1,516 2,201
Deferred tax asset 2,329 2,345
Prepaid expenses and other current assets 5,681 5,114
--------- ---------
Total current assets 139,321 130,668
PROPERTY AND EQUIPMENT, NET 23,179 23,987
GOODWILL AND OTHER INTANGIBLES, NET 30,541 31,635
DEFERRED TAX ASSET 5,933 5,933
MARKETABLE SECURITIES 2,376 4,822
--------- ---------
Total assets $ 201,350 $ 197,045
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,231 $ 2,669
Accrued expenses and other liabilities 11,614 11,929
Deferred revenue 8,115 7,584
--------- ---------
Total current liabilities 21,960 22,182
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value. Authorized 2,000,000
shares; None issued or outstanding -- --
Common stock, $.01 par value. Authorized 50,000,000
shares; Issued and outstanding 24,206,692 and 23,954,537,
respectively 242 240
Additional paid-in capital 178,596 176,101
Retained earnings (deficit) 2,125 (93)
Accumulated other comprehensive income (loss) (1,573) (1,385)
--------- ---------
Total stockholders' equity 179,390 174,863
--------- ---------
Total liabilities and stockholders' equity $ 201,350 $ 197,045
========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
-------- --------
REVENUES:
Software licenses $ 15,502 $ 7,424
Consulting, maintenance and other services 23,698 27,762
-------- --------
Total revenues 39,200 35,186
-------- --------
COST AND EXPENSES:
Cost of software licenses 891 484
Cost of consulting, maintenance and other services 17,319 18,326
Product development 6,155 5,614
Sales and marketing 6,462 6,493
General and administrative 4,009 4,075
Amortization of intangibles 1,092 1,122
Restructuring and asset disposition charge 828 2,111
-------- --------
Total costs and expenses 36,756 38,225
-------- --------
INCOME (LOSS) FROM OPERATIONS 2,444 (3,039)
Other income, net 1,192 923
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES 3,636 (2,116)
Income tax provision (benefit) 1,418 (847)
-------- --------
NET INCOME (LOSS) $ 2,218 $ (1,269)
======== ========
BASIC EARNINGS (LOSS) PER SHARE $ .09 $ (.05)
======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ .09 $ (.05)
======== ========
SHARES USED TO COMPUTE:
Basic Earnings (Loss) Per Share 24,079 23,547
======== ========
Diluted Earnings (Loss) Per Share 25,315 23,547
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, unaudited)
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
------- -------
NET INCOME (LOSS) $ 2,218 $(1,269)
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain on marketable securities available for sale, net 22 --
Foreign currency translation adjustment (210) (629)
------- -------
COMPREHENSIVE INCOME (LOSS) $ 2,030 $(1,898)
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
--------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ 2,218 $ (1,269)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,864 2,660
Provision for doubtful accounts 294 621
Net loss on disposal of property and equipment 41 --
Deferred income taxes 16 (880)
Changes in assets and liabilities:
Accounts receivable (4,831) 26
Income tax receivable 685 --
Prepaid expenses and other current assets (567) (73)
Accounts payable (438) (2,226)
Accrued and other liabilities (303) (767)
Income taxes payable -- 211
Deferred revenue 531 108
--------- ---------
Net cash provided by (used in) operating activities 510 (1,589)
INVESTING ACTIVITIES:
Purchase of marketable securities (90,898) (62,311)
Sales of marketable securities -- 9,300
Maturities of marketable securities 103,210 47,075
Purchase of property and equipment (1,303) (2,746)
Proceeds from disposal of property and equipment 300 --
--------- ---------
Net cash provided by (used in) investing activities 11,309 (8,682)
--------- ---------
FINANCING ACTIVITIES:
Issuance of common stock - stock option plans 976 126
Issuance of common stock - employee stock purchase plan 1,338 1,574
Tax benefit - stock compensation 183 --
Payments on capital lease obligations (12) (23)
--------- ---------
Net cash provided by financing activities 2,485 1,677
--------- ---------
Effect of exchange rates on cash (210) (629)
--------- ---------
Net increase (decrease) in cash and cash equivalents 14,094 (9,223)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 58,283 42,376
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 72,377 $ 33,153
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 2 $ --
========= =========
Income taxes $ 420 $ 755
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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JDA SOFTWARE GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
applicable to interim financial statements. Accordingly, they do not include all
of the information and notes required for complete financial statements. In the
opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and are of a
normal recurring nature. Operating results for the three months ended March 31,
2000, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000.
2. SUBSEQUENT EVENT
On April 6, 2000 we acquired certain assets of Intactix International,
Inc. ("Intactix") from Pricer AB for $20.5 million in cash and assumed certain
trade, leasehold and other accrued liabilities, and specific acquisition related
liabilities. Intactix is a leading provider of space management solutions for
the retail industry and consumer product goods manufacturers. The acquisition
will be accounted for as a purchase, and accordingly, the operating results of
Intactix will be included in our consolidated financial statements from the date
of closing. The purchase price will be allocated to certain intangible assets
and in-process research and development ("IPR&D") based on their fair market
values. The excess of the purchase price over the fair value of the assets
acquired will be recorded as goodwill. The estimated amount of IPR&D is $200,000
and includes the value of products in the development stage for which
technological feasibility has not been established and which we believe have no
alternative future use.
3. EARNINGS PER SHARE
Shares used in the earnings per share calculation are as follows.
Common stock equivalents have been excluded from the earnings (loss) per share
calculation for the three months ended March 31, 1999 as their effect would be
antidilutive:
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------ ------
Shares - Basic earnings (loss) per share .................................. 24,079 23,547
Dilutive common stock equivalents ......................................... 1,236 --
------ ------
Shares - Diluted earnings (loss) per share ................................ 25,315 23,547
====== ======
4. SEGMENT DISCLOSURES
We are a leading provider of software solutions designed specifically
to address the supply chain management, business process, analytical application
and e-commerce requirements of the retail industry. Our products link
point-of-sale level information with the centralized merchandising, planning and
financial functions that ultimately affect decisions with suppliers and vendors.
We conduct business in five geographic regions that have separate management
teams and reporting infrastructures: the United States, EMEA (Europe, Middle
East and Africa), Asia/Pacific, Canada and Latin America. Similar products and
services are offered in each geographic region and local management is evaluated
primarily based on total revenues and operating income. Identifiable assets are
also managed by geographic region. The geographic distribution of our revenues
and identifiable assets is as follows:
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THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
-------- --------
REVENUES:
United States $ 19,379 $ 20,350
-------- --------
EMEA 9,716 10,365
Asia/Pacific 6,926 2,228
Canada 1,127 3,081
Latin America 2,372 1,535
-------- --------
Total international 20,141 17,209
-------- --------
Sales and transfers between regions (320) (2,373)
-------- --------
Total revenues $ 39,200 $ 35,186
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MARCH 31, DECEMBER 31,
2000 1999
-------- -----------
IDENTIFIABLE ASSETS:
United States $169,861 $161,126
-------- --------
EMEA 17,889 20,443
Asia 6,029 6,979
Canada 3,851 4,396
Latin America 3,720 4,101
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Total international 31,489 35,919
-------- --------
Total identifiable assets $201,350 $197,045
======== ========
We classify our products and services into three primary product
categories: Enterprise Systems which are corporate level merchandise management
systems that gather and distribute data throughout an organization to support
the retail process and provide decision support for inventory control, cost and
price management, purchase order management, automated replenishment,
merchandise planning and allocation; In-store Systems that provide point-of-sale
and back office applications which enable a retailer to capture, analyze and
transmit customer demographic and other operational information to corporate
level merchandise management systems; and Analytic Applications that provide a
comprehensive set of tools for analyzing business results and trends, monitoring
strategic plans and enabling tactical decisions. A summary of the revenues and
operating income (loss) attributable to each of these product categories for the
three months ended March 31, 2000 and 1999 is as follows:
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
REVENUES:
Enterprise systems $ 22,235 $ 22,920
In-store systems 6,190 4,954
Analytic applications 10,775 7,312
-------- --------
$ 39,200 $ 35,186
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OPERATING INCOME (LOSS)
Enterprise systems $ 4,107 $ 1,583
In-store systems 1,452 572
Analytic applications 1,635 501
Other (4,750) (5,695)
-------- --------
$ 2,444 $ (3,039)
======== ========
The operating income shown for Enterprise Systems, In-store Systems and
Analytic Applications includes allocations for occupancy costs, depreciation
expense, and amortization of related intangibles. All other non-allocated
expenses that are not directly identified with a particular operating segment
are reported under the caption "Other" including the $828,000 and $2.1 million
restructuring and asset disposition charges that were recorded during the first
quarters of 2000 and 1999, respectively. The improvements in operating income
between periods reflect the increased gross profits resulting from a higher mix
of software sales as a percentage of total revenues.
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5. RESTRUCTURING AND ASSET DISPOSITION CHARGE
We recorded an $828,000 restructuring and asset disposition charge
during the first quarter of 2000. The restructuring initiatives involved a
workforce reduction of 65 full-time employees in certain implementation service
groups and administrative functions in the United States, Europe and Canada. All
workforce reductions associated with this charge were made on or before March
31, 2000. As of March 31, 2000, we had utilized approximately $728,000 of the
related reserve and anticipate that substantially all of the remaining reserve
will be utilized during the second quarter of 2000.
6. LEGAL PROCEEDINGS
The U.S. District Court for the District of Arizona dismissed, without
leave to amend, all pending securities class action complaints previously filed
against the Company and certain of our current and former directors and
officers. The complaint, originally filed on January 13, 1999 (Bernat v. JDA
Software Group, Inc., et al., Dist. of Arizona No. CIV'99-0065 PHX RGS), alleged
that we misled investors as to certain aspects of our business and prospects.
The Plaintiffs in the case have the right of appeal.
7. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"), which is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 will require companies to value
derivative financial instruments, including those used for hedging foreign
currency earnings, at current market value with the impact of any change in
market value being charged against earnings in each period. We have not
completed the process of evaluating the impact that will result from the
adoption of SFAS No. 133; however, on a preliminary basis, management does not
believe that the eventual adoption will have a significant impact on our
financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The adoption of SAB No. 101 did not have a material effect on our
revenues or revenue recognition policy.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
reflecting management's current forecast of certain aspects of our future. It is
based on current information which we have assessed but which by its nature is
dynamic and subject to rapid and even abrupt changes. Forward looking statements
include statements regarding future operating results, liquidity, capital
expenditures, product development and enhancements, numbers of personnel,
strategic relationships with third parties, and strategy. The forward-looking
statements are generally accompanied by words such as "plan," "estimate,"
"expect," "believe," "should," "would," "could," "anticipate" or other words
that convey uncertainty of future events or outcomes. Our actual results could
differ materially from those stated or implied by our forward looking statements
due to risks and uncertainties associated with our business. These risks are
described throughout this Quarterly Report on Form 10-Q, which you should read
carefully. We would particularly refer you to the section under the heading
"Certain Risks" for an extended discussion of the risks confronting our
business. The forward looking statements in this Quarterly Report on Form 10-Q
should be considered in the context of these risk factors.
OVERVIEW
We are a leading provider of software solutions designed specifically
to address the supply chain management, business process, analytic application
and e-commerce requirements of the retail industry. We have developed and
marketed our software solutions for over 15 years, principally for operation on
the IBM AS/400 platform, and more recently, for multiple open/client server
environments including Windows NT and UNIX. We classify our software products
into three primary categories: Enterprise Systems, In-store Systems and Analytic
Applications. Our Enterprise Systems are corporate level merchandise management
systems that gather and distribute operational information throughout an
organization to support the retail process. These systems provide decision
support to the retailer for core inventory control, cost and price management,
purchase order management, automated replenishment, merchandise planning and
allocation. These systems also contain warehouse management and logistics
functionality that provide tools to assist retailers in automating the
receiving, putaway, picking, shipping and allocation of inventory. Our In-store
Systems provide point-of-sale and back office applications that enable a
retailer to capture, analyze and transmit customer demographic and other
operational information to corporate level merchandise management systems. These
systems allow store level personnel to access enterprise-wide information, such
as stock availability, pricing and inventory replenishment to better serve the
consumer at the point of sale. Our Analytic Applications provide a comprehensive
set of tools for analyzing business results and trends, monitoring strategic
plans and enabling tactical decisions. In addition, our MMS.com product and our
announced e-commerce products under development are designed to enable retailers
to expand their distribution channels and facilitate a powerful, cost-effective
means of conducting business-to-consumer and business-to-business e-commerce on
the Internet. We also offer a wide range of retail specific professional
services that are designed to enable our clients to rapidly achieve the benefits
of our solutions, including project management, system planning, design and
implementation, custom modifications, training and support services. For a
discussion of the financial information regarding these product categories and
geographic data, please see the discussion in Note 4 of the Notes to Interim
Condensed Consolidated Financial Statements.
We have historically derived a significant portion of our revenues from
software licenses and consulting, maintenance and other services relating to our
IBM AS/400-based Merchandise Management System ("MMS"). Total revenues from MMS
are included in the Enterprise Systems product category and represented 28% of
our total revenues during the three months ended March 31, 2000 as compared with
47% in the comparable quarter of 1999. Although we expect MMS revenues to
continue to represent a significant portion of total revenues for the
foreseeable future, MMS revenues as a percentage of total revenues may continue
to decline as a result of reduced demand for MMS and/or increased revenues
attributable to our other product lines. MMS software license revenues for the
three months ended March 31, 2000 decreased sequentially from the fourth quarter
of 1999 and in comparison to the first quarter of 1999. We believe the IBM
AS/400 is a widely deployed platform among those retailers we target for our
products, particularly in North America. However, the lifecycle of the MMS
product line is difficult to estimate due largely to the potential effect of new
products, hardware platforms, applications and product enhancements, including
our own changes, on the retail industry and future competition.
Software license revenues and consulting, maintenance and other
services revenues represented 40% and 60%, respectively, of our total revenues
during the three months ended March 31, 2000, as compared with 21% and 79%,
respectively in the comparable quarter of 1999. We believe that sales of our
Enterprise Systems and In-Store Systems were affected during 1999 by deferred
purchasing decisions related to the millenium change, external and internal
marketing issues, longer sales cycles, increased competition and/or lack of
desired feature and functionality,
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and in the case of ODBMS, our open/client server solution, a limited number of
referenceable implementations. Software license revenues for the three months
ended March 31, 2000 increased 109% over the comparable quarter of 1999 and
includes increases in each of our product categories. We expect sequential
increases in software license revenues throughout 2000 due to the apparent
release of pent up demand that was caused by a slow down in spending due to Y2K
concerns. In addition, we believe our software license revenues will benefit
from the Intactix acquisition as it will enable us to leverage our combined
sales forces and create cross-selling opportunities. Finally, we believe there
may be an increased urgency from retailers to implement new software products
that enable them to expand their distribution channels and facilitate e-commerce
on the Internet.
A substantial portion of our business is international. The following
table sets forth a quarterly comparison of 1999 and 2000 domestic and
international software license revenues:
1999 2000
------------------------- -------------------------------------------------
% CHANGE % CHANGE
QUARTER ENDED DOMESTIC INTERNATIONAL DOMESTIC VS. 1999 INTERNATIONAL VS. 1999
------------- -------- ------------- -------- -------- ------------- --------
March 31, $ 3,538 $ 3,886 $ 5,471 55% $ 10,031 158%
June 30, 2,847 7,822
September 30, 4,117 4,545
December 31, 6,015 4,028
-------- --------
$ 16,517 $ 20,281
======== ========
Software license revenues in our Enterprise Systems business unit
increased 38% sequentially over the fourth quarter of 1999 and 116% over the
first quarter of 1999. These improvements are the result of increased sales of
the ODBMS and MMS.com products, partially offset by a decline in MMS software
license revenues. Software license revenues in our In-Store Systems business
unit increased 126% sequentially over the fourth quarter of 1999 and 120% over
the first quarter of 1999. To address increased competition in this business
segment, we reorganized our sales force and refocused some of our research and
development investment to new feature and functionality. Software license
revenues in our Analytic Applications business unit increased 57% sequentially
over the fourth quarter of 1999 and 96% over the first quarter of 1999 primarily
as a result of additional software license revenues from the Arthur Suite.
Our service business continues to be an important source of operating
income and an important competitive strength as we position ourselves as a total
solution provider for retailers. Consulting, maintenance and other services
revenues are derived from a range of services, the demand for which stems
primarily from sales of our software products. These services include system
design and implementation and, to a lesser extent, software maintenance, support
and training. Consulting, maintenance and other services revenues are generally
more predictable but generate significantly lower gross margins than software
revenues and are to a significant extent dependent upon new software license
sales. Consulting, maintenance and other services revenues decreased 5%
sequentially from the fourth quarter of 1999 and 15% from the first quarter of
1999. These decreases were expected and are due to lower implementation revenues
that resulted from the decline in new software license sales we experienced
throughout most of 1999. We do not expect future consulting, maintenance and
other services revenues to increase until we experience a sustained increased in
demand for our software products.
We have pursued a strategy of addressing international markets by
developing localized versions of our products and establishing international
subsidiaries with direct sales and consulting capabilities. To the extent our
international operations expand or represent an increasing percentage of our
overall business, we would expect that an increasing portion of our
international software license revenues and consulting, maintenance and other
services revenues would be denominated in foreign currencies. This increase will
subject us to additional risks related to fluctuations in foreign currency
exchange rates. Historically, our operations have not been materially adversely
affected by fluctuations in foreign currency exchange rates, and we have not
engaged in foreign currency hedging transactions. However, as our international
operations expand, exposures to gains and losses on foreign currency
transactions may increase. We may choose to limit such exposure by entering into
forward foreign exchange contracts or engaging in similar hedging strategies.
There can be no assurance that any currency exchange strategy would be
successful in avoiding or reducing exchange-related losses. In addition,
revenues earned in various countries where we do business may be subject to
taxation by more than one jurisdiction, thereby adversely affecting our
earnings.
We had net receivables of $36.8 million, or 86 days sales outstanding
("DSOs") at March 31, 2000 compared to $32.3 million, or 85 DSOs at December 31,
1999 and $39.9 million, or 102 DSOs at March 31, 1999.
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We believe the year-over-year improvement in DSOs resulted from tighter credit
policies we implemented during 1999 and from improved client satisfaction.
RECENT DEVELOPMENTS
- - We recorded an $828,000 restructuring and asset disposition charge
during the first quarter of 2000. The restructuring initiatives
involved a workforce reduction of 65 full-time employees in certain
implementation service groups and administrative functions in the
United States, Europe and Canada. We believe this reduction will help
stabilize service margins, optimize our labor resources in these
geographical regions, and free up funds for investment in staff that
support higher growth product lines, including the Arthur Suite and our
e-commerce initiatives. All workforce reductions associated with this
charge were made on or before March 31, 2000. As of March 31, 2000, we
had utilized approximately $728,000 of the related reserve and
anticipate that substantially all of the remaining reserve will be
utilized during the second quarter of 2000.
- - On April 6, 2000 we acquired certain assets of Intactix from Pricer AB
for $20.5 million in cash and assumed certain trade, leasehold and
other accrued liabilities, and specific acquisition related
liabilities. Intactix is a leading provider of space management
solutions for the retail industry and consumer product goods
manufacturers. The Intactix products provide planogramming tools that
allow users to build, analyze and distribute graphical diagrams for
space management, store layout planning and shelf assortment. The
acquisition will be accounted for as a purchase, and accordingly, the
operating results of Intactix will be included in our consolidated
financial statements from the date of closing. The purchase price will
be allocated to certain intangible assets and in-process research and
development ("IPR&D") based on their fair market values. The excess of
the purchase price over the fair value of the assets acquired will be
recorded as goodwill. The estimated amount of IPR&D is $200,000 and
includes the value of products in the development stage for which
technological feasibility has not been established and which we believe
have no alternative future use.
We plan to eliminate approximately 25% to 30% of the acquired Intactix
workforce and close ten redundant office locations during the second
quarter of 2000. We expect this transition process to cause modest
dilution to our operating results during the second quarter of 2000 due
to the gradual elimination of redundant costs and the early disruption
in the sales force resulting from the reorganization and cross-training
activities. We believe the resulting efficiencies created by the
elimination of redundant costs and the leveraging of our combined sales
forces and infrastructure will result in the acquisition being
accretive to our operating results in the second half of 2000 and
overall for year 2000.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues
Total revenues for three months ended March 31, 2000 were $39.2
million, an increase of 11% over the $35.2 million reported in the comparable
quarter of 1999. Revenues consisted of software licenses and consulting,
maintenance and other services, which represented 40% and 60%, respectively, of
total revenues during the three months ended March 31, 2000, as compared with
21% and 79%, respectively in the comparable quarter of 1999.
Software Licenses. Software license revenues for the three months ended March
31, 2000 were $15.5 million, an increase of 109% over the $7.4 million reported
in the comparable quarter of 1999. Domestic and international software license
revenues increased 55% and 158%, respectively in the first quarter of 2000
compared to the first quarter of 1999. The international results include
increases in each of the EMEA (70%), Asia/Pacific (307%) and Latin American
(591%) regions and a 48% decrease in Canada. On a product line basis, software
license revenues for the first quarter of 2000 in our Enterprise Systems
business unit increased 116% over the first quarter of 1999. The increase is due
to increased sales of ODBMS and incremental revenues from sales of the MMS.com
product that was commercially released in the third quarter of 1999. We
announced the commercial release of our next generation ODBMS open/client server
solution, version 4.1, in January 2000. MMS software license revenues for the
first quarter of 2000 decreased in comparison to the first quarter of 1999. We
believe the IBM AS/400 is a widely deployed platform among those retailers we
target for our products, particularly in North America. However, the lifecycle
of the MMS product line is difficult to estimate due largely to the potential
effect of new products, hardware platforms, applications and product
enhancements, including our own changes, on the retail industry and future
competition. Software license revenues for the first quarter of 2000 in our
In-Store Systems business unit increased 120% over the first quarter of 1999. We
have reorganized the sales force in this business
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unit and refocused some of our research and development investment to new
feature and functionality. Software license revenues for the first quarter of
2000 in our Analytic Applications business unit increased 96% over the first
quarter of 1999 primarily as a result of additional software license revenues
from the Arthur Suite. We expect sequential increases in software license
revenues throughout 2000 due to the apparent release of pent up demand that was
caused by a slow down in spending due to Y2K concerns. In addition, we believe
our software license revenues will benefit from the Intactix acquisition as it
will enable us to leverage our combined sales forces and create cross-selling
opportunities. Finally, we believe there may be an increased urgency from
retailers to implement new software products that enable them to expand their
distribution channels and facilitate e-commerce on the Internet.
Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues for the three months ended March 31, 2000 were $23.7
million, a decrease of 15% from the $27.8 million reported in the comparable
quarter of 1999. Domestic and international consulting, maintenance and other
services revenues decreased 13% and 17%, respectively in the first quarter of
2000 compared to 1999. These decreases were expected and are due to the lower
implementation revenues that resulted from the decline in new software license
sales we experienced throughout most of 1999. We do not expect future
consulting, maintenance and other services revenues to increase until we
experience a sustained increase in demand for our software products.
Cost of Revenues
Cost of software license revenues was $891,000 for the three months
ended March 31, 2000 as compared to $484,000 in the comparable quarter of 1999.
We license the Uniface client/server application development technology from
Compuware, Inc. for use in ODBMS. Our license with Compuware, Inc. has expired
and is being actively re-negotiated. The outcome of our negotiations with
Compuware Inc. cannot be predicted, but we currently believe that in order to
continue to license the Uniface technology we will be required to pay
moderately to significantly higher royalty rates to Compuware, Inc. in the
future. Cost of software licenses represented 6% and 7%,
respectively, of software license revenues in these comparable periods.
Consulting, maintenance and other services costs for the three months ended
March 31, 2000 were $17.3 million, a decrease of 5% from the $18.3 million
reported in the comparable quarter of 1999. We reduced the headcount in our
service organization by approximately 10% during the first quarter of 2000 and
as of March 31, 2000, there were 574 employees involved in these functions
worldwide. The reductions were made in the United States, Canada and EMEA to
reflect the reduced levels of demand in these geographic areas. We expect only
modest growth, if any, in the overall size of our service organization during
the remainder of 2000. We will continue to adjust the size and composition of
the workforce in our service organization to match the different geographic and
product demand cycles.
Gross Profit
Gross profit for the three months ended March 31, 2000 was $21.0
million, an increase of 28% from the $16.4 million reported in the comparable
quarter of 1999. Gross profit, as a percentage of total revenues, increased to
53.5% in the first quarter of 2000 compared with 46.5% in the first quarter of
1999. This increase resulted primarily from the higher mix of software license
revenues as a percentage of total revenues during the three months ended March
31, 2000, which was partially offset by a reduction in our service margins to
27% in the first quarter of 2000 from 34% in the comparable quarter of 1999. We
reduced the headcount in our service organization by approximately 10% during
the first quarter of 2000. The workforce reduction did not fully offset the
decrease in consulting, maintenance and other services revenues in the first
quarter of 2000 compared to 1999, and as a result, our utilization rates
decreased. We expect that our utilization rates and service margins will
gradually improve over the remainder of 2000 if we experience a sustained
increase in demand for our software products.
Operating Expenses
Product Development. Product development expenses for the three months
ended March 31, 2000 were $6.2 million, a 10% increase over the $5.6 million
reported in the comparable quarter of 1999. Product development expense as a
percentage of total revenues was 16% in each of the comparable quarters. The
increase in product development expenses results primarily from localization
activities associated with ODBMS version 4.1, the continuing development of our
e-commerce initiatives, and the addition of feature and functionality to our
In-Store Systems and Analytic Applications. Our product development staff
increased by approximately 5% in the first quarter of 2000 compared to 1999, and
as of March 31, 2000 there were 208 employees involved in the product
development function. We expect our quarterly investment in research and
development to be in the $7.4 million to $7.6 million range for the remainder of
2000. We believe our current process of developing software is essentially
completed concurrent with the establishment of technological feasibility, and
accordingly, no costs have been
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capitalized.
Sales and Marketing. Sales and marketing expenses were $6.5 million in
both the three months ended March 31, 2000 and the comparable quarter of 1999.
Sales and marketing expense as a percentage of total revenues decreased to 16%
in the first quarter of 2000 from 18% in the comparable quarter of 1999. We
incurred higher commission expense in the first quarter of 2000 as a result of
increased software license sales. These expenses were partially offset by a 12%
reduction in our worldwide sales and marketing staff in the first quarter of
2000 compared to 1999. As of March 31, 2000 there were 102 employees involved in
our sales and marketing function. During the remainder of 2000, we will continue
to upgrade and realign our sales force to match the demand for our various
products and among the geographic regions in which we operate.
General and Administrative. General and administrative expenses for the
three months ended March 31, 2000 were $4.0 million, a 2% decrease from the $4.1
million reported in the comparable quarter of 1999. General and administrative
expense, as a percentage of total revenues, decreased to 10% in the first
quarter of 2000 from 12% in the comparable quarter of 1999. We reduced our bad
debt expense by $327,000 between the comparable quarters due to the improvement
in our accounts receivable aging and days sales outstanding ("DSO"s). This
decrease was off-set in part by higher legal expenses related to international
contracts and foreign exchange losses.
Amortization of Intangibles. Amortization of intangibles consists
primarily of amortization on goodwill and other intangibles recorded in
connection with the acquisition of Arthur Retail. We expect our quarterly
amortization expense to be approximately $1.8 million following the acquisition
of Intactix.
Restructuring and Asset Disposition Charge. We recorded an $828,000
restructuring and asset disposition charge during the first quarter of 2000. The
restructuring initiatives involved a workforce reduction of 65 full-time
employees in certain implementation service groups and administrative functions
in the United States, Europe and Canada. We believe this reduction will help
stabilize service margins, optimize our labor resources in these geographical
regions, and free up funds for investment in staff that support higher growth
product lines, including the Arthur Suite and our e-commerce initiatives. All
workforce reductions associated with this charge were made on or before March
31, 2000. A similar restructuring and asset disposition charge of $2.1 million
was recorded during the first quarter of 1999 for a workforce reduction of over
50 full-time employees in the United States and Europe ($1.4 million), the
closure of three unprofitable locations in Germany, France and South Africa
($226,000), the disposal of property and equipment related to the closure of
these locations and the consolidation of our corporate operations into one
facility ($507,000), and the release of over 80 subcontractors worldwide.
Provision for Income Taxes
Our effective income tax rate reflects statutory federal, state and
foreign tax rates, partially offset by reductions for research and development
expense tax credits. From time to time, we may be subject to audit by federal,
state and/or foreign taxing authorities. The IRS has completed an audit of our
1996 and 1997 Federal Income Tax Returns. As a result of the audit, we have
received proposed adjustments from the IRS reducing our 1996 and 1997 research
and development expense tax credits. We and our tax advisors disagree with the
adjustments proposed by the IRS and intend to vigorously contest them.
Accordingly, we are unable to determine the financial impact of the audit at
this time. However, we do not believe that the IRS adjustments, even as
currently proposed, would have a material impact on our business, operating
results or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
cash generated from operations and public sales of equity securities. We had
working capital of $117.4 million at March 31, 2000 compared with $108.5 million
at December 31, 1999. Cash and cash equivalents at March 31, 2000 were $72.4
million, an increase of $14.1 million from the $58.3 million reported at
December 31, 1999. We also had $23.0 million in marketable securities at March
31, 2000, a decrease of $12.2 million from the $35.2 million reported at
December 31, 1999.
Operating activities provided cash of $510,000 in the three months
ended March 31, 2000 and utilized cash of $1.6 million in the three months ended
March 31, 1999. Cash provided by operating activities during the three months
ended March 31, 2000 resulted primarily from net income of $2.2 million,
depreciation and amortization of $2.9 million, a $685,000 decrease in income tax
receivables and a $531,000 increase in deferred revenue, offset in part by a
$4.8 million increase in accounts receivable, a $567,000 increase in prepaid
expenses and decreases in accounts payable and accrued expenses of $438,000 and
$303,000, respectively. We had net accounts receivable of
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$36.8 million at March 31, 2000, which represented 86 days of sales outstanding
("DSOs") compared to 85 days at December 31, 1999. DSOs may fluctuate
significantly on a quarterly basis due to a number of factors including
seasonality, shifts in customer buying patterns, contractual payment terms, the
underlying mix of products and services, and the geographic concentration of
revenues.
Investing activities provided cash of $11.3 million in the three months
ended March 31, 2000 and utilized cash of $8.7 million in the three months ended
March 31, 1999. The 2000 activity includes the net maturity of $12.3 million of
marketable securities and $1.3 million in capital expenditures. The 1999
activity includes $5.9 million in net purchases of marketable securities and
$2.7 million in capital expenditures primarily related to our corporate office
relocation.
Financing activities provided cash of $2.5 million and $1.7 million
during the three months ended March 31, 2000 and 1999, respectively. The
activity in both periods consists primarily of proceeds from the issuance of
common stock and related tax benefits under our stock option and employee stock
purchase plans.
Changes in the currency exchange rates of our foreign operations had
the effect of reducing cash by $210,000 and $629,000 in the three months ended
March 31, 2000 and 1999, respectively. We did not enter into any foreign
exchange contracts or engage in similar hedging strategies during either of
periods.
On April 6, 2000 we acquired certain assets of Intactix from Pricer AB for
$20.5 million in cash and assumed certain trade, leasehold and other accrued
liabilities, and specific acquisition related liabilities. The acquisition will
be accounted for as a purchase, and accordingly, the operating results of
Intactix will be included in our consolidated financial statements from the date
of closing. The purchase price will be allocated to certain intangible assets
and in-process research and development ("IPR&D") based on their fair market
values. The excess of the purchase price over the fair value of the assets
acquired will be recorded as goodwill. The estimated amount of IPR&D is $200,000
and includes the value of products in the development stage for which
technological feasibility has not been established and which we believe have no
alternative future use. We expect to incur between $5.0 million and $5.5 million
in restructuring costs over the next six months, including fees to third parties
for services related to the acquisition, to integrate our two businesses and
take advantage of the operational synergies.
We may in the future pursue additional acquisitions of businesses,
products and technologies, or enter into joint venture arrangements, that could
complement or expand our business. Any material acquisition or joint venture
could result in a decrease to our working capital depending on the amount,
timing and nature of the consideration to be paid. In addition, any material
acquisitions of complementary businesses, products or technologies could require
that we obtain additional equity or debt financing.
We maintain a $5.0 million revolving line of credit with a commercial
bank. The line of credit is collateralized by property and equipment,
receivables, and intangibles; accrues interest at the bank's reference rate
(which approximates prime) less .25 percentage points; and requires that we
maintain certain current ratios and tangible net worth. The line of credit
matures on July 1, 2000. There were no amounts outstanding on the line of credit
at March 31, 2000. We believe that our cash and cash equivalents, investments in
marketable securities, available borrowings under the bank line of credit and
funds generated from operations will provide adequate liquidity to meet our
normal operating requirements for at least the next twelve months.
YEAR 2000 COMPLIANCE
No significant Year 2000 compliance issues have been reported on our
software products since the millennium changeover. We are aware, however, that
some of our customers may have been running earlier versions of our software
products that were not Year 2000 compliant (i.e., able to distinguish 21st
century dates from 20th century dates). We contacted and encouraged such
customers to migrate to current product versions. Moreover, our products are
generally integrated into enterprise systems involving complicated software
products developed by other vendors. We may in the future be subject to claims
based on Year 2000 problems in others' products, custom modifications made by us
or third parties to our products, or issues arising from the integration of
multiple products within an overall system. We have not been a party to any
litigation or arbitration proceeding to date alleging that our products or
services are not Year 2000 compliant. However, we are from time to time involved
in payment disputes and may be subject to Year 2000 counter claims. There can be
no assurance that we will not in the future be required to defend our products
or services in such proceedings, or to negotiate resolutions of claims based
upon Year 2000 issues. The costs of defending and resolving Year 2000-related
disputes, and any liability we may incur
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for Year 2000-related damages, including consequential damages, could have a
material adverse effect on our business, operating results and financial
condition.
To date, we have not encountered any Year 2000-related problems with
our financial institutions, investment advisors or suppliers of products,
services and systems purchased by us, nor others with whom we transact business
on a worldwide basis. Further, we have not encountered any Year 2000-related
problems with our internal systems. All of our financial and operational systems
were available over the millennium changeover and the integrity of the
historical information contained within those systems has not been affected. We
incurred less than $100,000 on our Year 2000 compliance effort.
We believe there was a slowing of demand in 1999 for our Enterprise
Systems and In-store Systems due, in part, to deferred purchasing decisions
related to the millenium change. We expect sequential increases in software
license revenues throughout 2000 due to the apparent release of pent up demand
that was caused by a slow down in spending due to Y2K concerns. In addition, we
believe our software license revenues will benefit from the Intactix acquisition
as it will enable us to leverage our combined sales forces and create
cross-selling opportunities. Finally, we believe there may be an increased
urgency from retailers to implement new software products that enable them to
expand their distribution channels and facilitate e-commerce on the Internet.
EURO CURRENCY
In January 1999, a new currency called the ECU or the "Euro" was
introduced in participating European Economic and Monetary Union ("EMU")
countries. During 2002, all participating EMU countries are expected to be
operating with the Euro as their single currency. During the next two years,
business in participating EMU countries will be conducted in both the existing
national currency and the Euro. As a result, companies operating in or
conducting business in these EMU member countries will need to ensure that their
financial and other software systems are capable of processing transactions and
properly handling these currencies, including the Euro. We currently offer
software products that are designed to be Euro-currency enabled, and we believe
these products can be modified to accommodate any required Euro currency
changes. We have also provided warranties in various European contracts that
certain of our products will meet all Euro currency requirements. There can be
no assurance, however, that our products will contain all the necessary changes
or meet all the Euro currency requirements. If our software products do not meet
all the Euro currency requirements, our business, operating results, and
financial condition would be materially adversely impacted. We have not had and
do not expect a material impact on our results of operations from foreign
currency gains or losses as a result of a transition to the Euro as the
functional currency for our subsidiaries based in EMU countries.
CERTAIN RISKS
Our Operating Results May Fluctuate Significantly. Our quarterly
operating results have varied and are expected to continue to vary in the
future. Many factors may cause these fluctuations, including: demand for our
software products and services; the size and timing of individual contracts,
particularly with respect to our larger customers; the lengthening of our sales
cycle; competitive pricing pressures; customer order deferrals in anticipation
of new products; changes in the mix of software license revenues; changes in the
mix of software license revenues compared to consulting, maintenance and other
services revenues; the timing of new software product introductions and
enhancements to our software products or those of our competitors; market
acceptance of new software products; technological changes in platforms
supporting our software products; changes in our operating expenses; changes in
the mix of domestic and international revenues; our ability to complete fixed
price consulting contracts within budget; employee hiring and retention; foreign
currency exchange rate fluctuations; expansion of international operations;
integration issues association with newly acquired businesses; changes in our
strategies; and general industry and economic conditions. In addition, we
believe we experienced a decline in overall demand for our Enterprise Systems
and In-store Systems during 1999. In particular, although sales of our ODBMS
product have shown some improvement during the last six months of 1999 and the
first quarter of 2000, overall sales of the ODBMS product have historically
failed to meet our expectations. We believe that sales of ODBMS have been
affected by a significant drop-off in demand related to the millenium change,
external and internal marketing issues, increased competition, a limited number
of referenceable implementations, and certain design and stability issues in
earlier versions of the ODBMS product. Further, MMS software license revenues
for the first quarter of 2000 decreased in comparison to the first quarter of
1999. We believe the IBM AS/400 is a widely deployed platform among those
retailers we target for our products, particularly in North America. However,
the lifecycle of the MMS product line is difficult to estimate due largely to
the potential effect of new products, hardware platforms, applications and
product enhancements, including our own changes, on the retail industry and
future competition.
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We also believe that the decline in demand for our In-store Systems
products during 1999 was affected by deferred purchasing decisions related to
the millenium change, longer sales cycles, increased competition and/or lack of
desired feature and functionality. We have addressed increased competition in
this business unit by reorganizing our sales force and refocusing some of our
research and development investment into new feature and functionality. We
cannot guarantee that these actions will increase the demand for this product
line and any failure to do so could negatively impact our business, operating
results and financial condition.
We believe that the prevailing business reasons for purchasing
merchandising systems and the other software products that we offer still exist.
You should not rely on the current performance or historic growth rates for our
Enterprise Systems, In-store Systems, and Analytic Applications as an indication
of their future performance. Because the gross margin on software licenses is
significantly greater than the gross margins on consulting, maintenance and
other services, our combined gross margin has fluctuated from quarter to
quarter, and we expect that it will continue to fluctuate significantly based on
revenue mix and service utilization rates. Since our consulting, maintenance and
other service revenues are to a significant extent dependent upon new software
license sales, we expect future consulting, maintenance and other service
revenues to decrease until we begin to experience an increased demand in our
software license sales. In the event software license revenues fail to meet our
expectations or there is a decline in demand, our consulting, maintenance and
other services revenues would be adversely impacted.
We typically ship our software products when contracts are signed.
Consequently, our software license backlog at the beginning of any quarter has
represented only a small portion of that quarter's expected revenues. As a
result, software license revenues in any quarter depend substantially upon
contracts signed and the related shipment of software in that quarter. It is
therefore difficult for us to predict revenues. Because of the timing of our
sales, we typically recognize a substantial amount of our software license
revenues in the last weeks or days of the quarter, and we generally derive a
significant portion of our quarterly software license revenues from a small
number of relatively large sales. It is difficult to forecast the timing of
large individual software license sales with certainty. Accordingly, large
individual sales have sometimes occurred in quarters subsequent to when we
anticipated. We expect that the foregoing trends will continue. If we receive
any significant cancellation or deferral of customer orders, or we are unable to
conclude license negotiations by the end of a fiscal quarter, our operating
results may be lower than anticipated. In addition, any weakening or uncertainty
in international economies may make it more difficult for us to predict
quarterly results in the future, and could negatively impact our business,
operating results and financial condition for an indefinite period of time.
Our expense levels are based on our expectations of future revenues.
Since software license sales are typically accompanied by a significant amount
of consulting, implementation and support services, the size of our services
organization must be managed to meet our anticipated software license revenues.
As a result, we hire and train service personnel and incur research and
development costs in advance of anticipated software license revenues. If
software revenues fall short of our expectations, or if we are unable to fully
utilize our service personnel, our operating results are likely to decline
because a significant portion of our expenses cannot be quickly reduced to
respond to any unexpected revenue shortfall.
We believe there was a slowing in demand in 1999 for our Enterprise
Systems and In-store Systems due, in part, to deferred purchasing decisions
related to the millenium change. Although we believe the deferred purchasing
decisions that affected our 1999 results are being released and that normal
selling cycles are returning, we still remain cautious regarding the length and
predictability of selling cycles. Based on the foregoing, we believe that future
revenues, expenses and operating results are likely to vary significantly from
quarter-to-quarter. As a result, quarter-to-quarter comparisons of operating
results are not necessarily meaningful. Furthermore, it is likely that in some
future quarter our operating results may be below the expectations of public
market analysts or investors. If that happens, or if adverse conditions prevail,
or are perceived to prevail, with respect to our business or generally, the
price of our common stock may decline.
We Are Dependent Upon the Retail Industry. We have derived
substantially all of our revenues to date from the license of software products
and the performance of related services to the retail industry. Our future
growth is critically dependent on increased sales to the retail industry. The
success of our customers is directly linked to economic conditions in the retail
industry, which in turn are subject to intense competitive pressures and are
affected by overall economic conditions. In addition, we believe that the
license of our software products generally involves a large capital expenditure,
which is often accompanied by large-scale hardware purchases or commitments. As
a result, demand for our products and services could decline in the event of
instability or
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downturns in the retail industry. Such downturns may cause customers to exit the
industry or delay, cancel or reduce any planned expenditure for information
management systems and software products.
In addition, e-commerce on the Internet is dramatically impacting the
retail industry. The traditional "brick and mortar" retailers that we have
historically served now face substantial competition from Internet-based
retailers that may negatively impact their ability to purchase our products. We
announced the commercial availability of the MMS.com e-commerce product during
the third quarter of 1999 and to date there have only been limited sales of this
product. In addition, we have only recently announced our intentions to develop
a series of business-to-business e-commerce solutions. These solutions include
Internet Portals which are web-based interfaces that provide retailers with a
one-stop destination for internal users, customers and suppliers to access
multiple information sources and applications. The markets for e-commerce
products are new and quickly evolving. We expect significant growth in these
e-commerce markets over the Internet; however, we are unable to predict the full
impact this emerging form of commerce will have on the traditional "brick and
mortar" retail operations we have historically served. If the markets for our
MMS.com and Internet Portals products, or other future web-enabled products fail
to develop, develop more slowly than expected or become saturated with
competitors, or if our e-commerce products are not accepted in the marketplace,
our business, operating results and financial condition could be negatively
impacted.
We also believe that the retail industry may be consolidating and that
the industry is from time-to-time subject to increased competition and weakening
economic conditions that could negatively impact the industry, our customers'
ability to pay for our products and services and which have and could
potentially lead to an increased number of bankruptcy filings. Such
consolidation and weakening economic conditions have in the past, and may in the
future, negatively impact our revenues, reduce the demand for our products and
may negatively impact our business, operating results and financial condition.
Ability to Attract and Retain Skilled Personnel Is Important to Our Growth.
Our success is heavily dependent upon our ability to attract, hire, train,
retain and motivate skilled personnel, including sales and marketing
representatives, qualified software engineers involved in ongoing product
development, and consulting personnel who assist in the implementation of our
products and services. The market for such individuals is intensely competitive,
particularly in international markets. Given the critical roles of our sales,
product development and consulting staffs, our inability to recruit successfully
or any significant loss of key personnel in our sales, product development or
consulting staffs would hurt us. The software industry is characterized by a
high level of employee mobility and aggressive recruiting of skilled personnel.
We cannot guarantee that we will be able to retain our current personnel,
attract and retain other highly qualified technical and managerial personnel in
the future, or be able to assimilate the employees from any acquired businesses.
We will continue to adjust the size and composition of the workforce in our
services organization to match the different product and geographic demand
cycles. If we are unable to attract and retain the necessary technical and
managerial personnel, or assimilate the employees from any acquired businesses,
our business, operating results and financial condition would be adversely
affected.
A Significant Portion of Our Revenues Are Derived from the Sale of the
MMS Product. We have historically derived a significant portion of our revenues
from software licenses and consulting, maintenance and other services related to
MMS. MMS revenues are partially dependent on the continued vitality in and
support of the IBM AS/400 platform, which we believe is a favored platform in
the retail industry. Although we expect MMS revenues to continue to represent a
significant portion of total revenues for the foreseeable future, MMS revenues
as a percentage of total revenues may continue to decline as a result of reduced
demand for MMS and/or increased revenues attributable to our other product
lines. The lifecycle of the MMS product line is difficult to estimate due
largely to the potential effect of new products, hardware platforms,
applications and product enhancements, including our own changes, in the retail
industry and future competition. Any decline in MMS revenues, as a result of
competition, technological change, a decline in the market for or support of the
IBM AS/400 platform, or other factors, which are not offset by increases in
revenues from other products, will cause our business, operating results and
financial condition to decline. We cannot guarantee that prospective purchasers
of our IBM AS/400-based products will respond favorably to our future or
enhanced software products or that we will continue to be successful in selling
our software products or services in the IBM AS/400 market.
We Have Only Deployed Certain of Our Software Products On a Limited
Basis. Certain of our software products, including MMS.com, Internet Portals,
ODBMS, Win/DSS, Retail IDEAS, and the Arthur Suite have been
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commercially released within the last five years. The market for these products
is continually evolving, and we believe that retailers may be more cautious than
other businesses in adopting client/server technologies. Consequently, we cannot
predict the growth rate, if any, and size of the markets for our client/server
or e-commerce products or that these markets will continue to develop. Potential
and existing customers may find it difficult, or be unable, to successfully
implement our client/server and e-commerce products, or may not purchase our
products for a variety of reasons, including: their inability to obtain
hardware, software, networking infrastructure, or sufficient internal staff
required to implement, operate and maintain an open, client/server solution; the
generally longer time periods and greater cost required to implement such
products as compared to IBM AS/400-based products; and limited implementation
experience with such products or third-party implementation providers. In
addition, we must overcome significant obstacles to successfully market our
client/server and e-commerce products, including limited experience of our sales
and consulting personnel in the client/server market and a limited market size.
If the markets for our client/server or e-commerce products fail to develop,
develop more slowly than expected or become saturated with competitors, or if
our products are not accepted in the marketplace or are technically flawed, our
business, operating results and financial condition will decline.
Although sales of our ODBMS product have shown some improvement during
the last six months of 1999 and the first quarter of 2000, overall sales of the
ODBMS product have historically failed to meet our expectations. We believe that
sales of ODBMS have been affected by a significant drop-off in demand related to
the millenium change, external and internal marketing issues, increased
competition, a limited number of referenceable implementations, and certain
design and stability issues in earlier versions of the ODBMS product. Since
implementation of ODBMS generally involves customer-specific customization and
integration with a variety of hardware and software systems developed by third
parties, each version of the product may contain undetected errors when first
released. We have only discovered and evaluated certain of these problems after
the ODBMS product has been implemented and used by our clients with live data
over time, with different computer systems and in a variety of applications and
environments. There can be no assurance the next generation ODBMS open/client
server solution, version 4.1, that was commercially released in January 2000
does not contain undetected errors.
We announced the commercial availability of the MMS.com e-commerce
product during the third quarter of 1999 and to date there have only been
limited sales of this product. In addition, we have only recently announced our
intentions to develop a series of business-to-business e-commerce solutions.
These solutions include Internet Portals, which are web-based interfaces that
provide retailers with a one-stop destination for internal users, customers and
suppliers to access multiple information sources and applications. The markets
for e-commerce products are new and quickly evolving. We expect significant
growth in these e-commerce markets over the Internet, however, we are unable to
predict the full impact this emerging form of commerce will have on the
traditional "brick and mortar" retail operations historically served by our
other software products. If the markets for our MMS.com and Internet Portals
products, or other future web-enabled products fail to develop, develop more
slowly than expected or become saturated with competitors, or if our e-commerce
products are not accepted in the marketplace, our business, operating results
and financial condition could be negatively impacted.
There Are Many Risks Associated with International Operations. Our
international revenues represented 51% of total revenues in the first quarter of
2000 as compared 47%, 46% and 55% in the years ended December 31, 1999, 1998 and
1997, respectively. Although, we expect international revenues will continue to
account for a significant portion of our revenues for the foreseeable future, we
remain cautious about our expectations regarding international operations in the
near term. If our international operations grow, we must recruit and hire a
number of new consulting, sales and marketing and support personnel in the
countries we have or will establish offices. Our entry into new international
markets typically requires the establishment of new marketing and distribution
channels as well as the development and subsequent support of localized versions
of our software. International introductions of our products often require a
significant investment in advance of anticipated future revenues. The opening of
our new offices typically results in initial recruiting and training expenses
and reduced labor efficiencies associated with the introduction of products to a
new market. We cannot guarantee that the countries in which we operate will have
a sufficient pool of qualified personnel from which to hire or that we will be
successful at hiring, training or retaining such personnel. In addition, we
cannot assure you that we will be able to successfully expand our international
operations in a timely manner which could negatively impact our business,
operating results and financial condition.
Our international business operations are subject to risks associated
with international activities, including unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs and risks of localizing
products for foreign countries, longer accounts receivable payment cycles in
certain countries, potentially negative tax consequences, difficulties in
staffing and managing geographically disparate operations, greater difficulty in
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safeguarding intellectual property, licensing and other trade restrictions,
currency fluctuations, repatriation of earnings, the burdens of complying with a
wide variety of foreign laws, and general economic conditions in international
markets. In addition, consulting, maintenance and other services in support of
international software licenses typically have lower gross margins than those
achieved domestically due to generally lower billing rates and/or higher costs
in certain of our international markets. Accordingly, any significant growth in
our international operations may result in further declines in gross margins on
consulting, maintenance and other services. We expect that an increasing portion
of our international software license and consulting, maintenance and other
services revenues will be denominated in foreign currencies, subjecting us to
fluctuations in foreign currency exchange rates. As we continue to expand our
international operations, exposures to gains and losses on foreign currency
transactions may increase. We may choose to limit such exposure by entering into
forward foreign exchange contracts or engaging in similar hedging strategies. We
cannot guarantee that any currency exchange strategy would be successful in
avoiding exchange-related losses. In addition, revenues earned in various
countries where we do business may be subject to taxation by more than one
jurisdiction, which would reduce our earnings.
Our Markets Are Highly Competitive. The markets for our software
products are highly competitive. We believe the principal competitive factors
are price, feature and functionality, product reputation and referenceable
accounts, retail industry expertise, e-commerce capabilities and quality of
customer support. We encounter competitive products from a different set of
vendors in each of our primary product categories. Our Enterprise Systems
compete with internally developed systems and with third-party developers such
as Island Pacific (a subsidiary of SVI Holdings, Inc.), Radius PLC, Retek, Inc.,
SAP AG, and STS Systems. As we continue to develop MMS.com and other e-commerce
products, we expect to face potential competition from business-to-business
e-commerce application providers, including Ariba, Broadvision, Commerce One, i2
Technologies, Manugistics Group, Inc., Retek, Inc., and Microsoft as a result of
its recently announced investment in Radiant Systems, Inc. In addition, new
competitors may enter our markets and offer merchandise management systems that
target the retail industry.
The competition for our In-store Systems is more fragmented than the
Enterprise Systems market. We compete with major hardware equipment
manufacturers such as ICL, NCR and IBM, as well as software companies such as
CRS Business Computers, Datavantage, Inc., Riva Group PLC, RTC, and Trimax. In
the Analytic Applications markets, the Arthur Suite competes primarily with
Marketmax, Inc. and IBM's Makaro product line. The Retail IDEAS product competes
with products from vendors such as Microstrategy. In the market for consulting
services, we have pursued a strategy of forming informal working relationships
with leading retail systems integrators such as Andersen Consulting and
PriceWaterhouseCoopers. These integrators, as well as independent consulting
firms such as IBM's Global Services Division, also represent potential
competition to our consulting services group.
Some of our existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical, marketing and
other resources than we do, which could provide them with a significant
competitive advantage over us. We cannot guarantee that we will be able to
compete successfully against our current or future competitors or that
competition will not have a material adverse effect on our business, operating
results and financial condition.
There are Risks Associated with Our Strategic Relationships. We have
from time to time established, or attempted to establish, formal and informal
relationships with other companies, including IBM, Microsoft, Compuware, Inc.
and Silvon, Inc., to collaborate in areas such as product development, marketing
and distribution. The maintenance of these relationships and the development of
other similar relationships is a meaningful part of our business strategy.
Currently, our relationships with IBM and Microsoft are cooperative, and there
is no written agreement defining the parties' obligations. We cannot assure you
that our current informal relationships with IBM, Microsoft or other companies
will be beneficial to us, that such relationships can be maintained, or that we
will be able to enter into successful new strategic relationships in the future.
Implementation of Our Products Is A Lengthy Process; Our Fixed-Price
Service Contracts May Result In Losses. Our software products are complex and
perform or directly affect mission-critical functions across many different
functional and geographic areas of the enterprise. Consequently, implementation
of our software is a complex, lengthy process and commitment of resources by our
clients is subject to a number of significant risks over which we have little or
no control. We believe that the complicated nature and increased flexibility of
the client/server versions of our products may contribute to the length of the
implementation process. Delays in the implementations of any of our software
products, whether by us or our business partners, may result in client
dissatisfaction or damage to our reputation and a decline in our business,
operating results and financial condition.
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We offer a combination of software products, implementation and support
services to our customers. Typically, we enter into service agreements with our
customers that provide for consulting and implementation services on a "time and
expenses" basis. Certain clients have asked for, and we have from time to time
entered into, fixed-price service contracts. These contracts specify certain
milestones to be met regardless of our actual costs incurred in fulfilling our
obligations. We believe that fixed-price service contracts may increasingly be
offered by our competitors to differentiate their product and service offerings.
As a result, we may enter into more fixed-price contracts in the future. We
cannot guarantee we can successfully complete these contracts on budget, and our
inability to do so could negatively impact our business, operating results and
financial condition.
We Must Keep Pace With Technological Change To Remain Competitive. The
computer software industry and the business-to-business e-commerce markets for
our products are subject to rapid technological change, changing customer
requirements, frequent product introductions embodying new technologies and the
emergence of new industry standards could render our products and services
obsolete and unmarketable. As a result, our position in our existing markets, or
other markets that we may enter, could erode rapidly from technological
advancements not adopted by us, or through our failure to develop products and
services and maintain strategic relationships that are compatible with industry
standards. The lifecycles of our products are difficult to estimate. The
products must keep pace with technological developments, conform to evolving
industry standards and address increasingly sophisticated client needs. We
believe that we must continue to respond quickly to the retailers' needs for
broad functionality and multi-platform support and to advances in hardware and
operating systems. We may experience future difficulties that could delay or
prevent the successful development, introduction and marketing of new products,
or that new products and product enhancements will meet the requirements of the
marketplace and achieve market acceptance. If we are unable to develop and
introduce products in a timely manner in response to changing market conditions
or customer requirements, our business, operating results and financial
condition would be negatively impacted.
Our Success Depends Upon Our Proprietary Technology. Our success and
competitive position is dependent in part upon our ability to develop and
maintain the proprietary aspect of our technology. We rely on a combination of
trademark, trade secret, copyright law and contractual restrictions to protect
the proprietary aspects of our technology. We seek to protect the source code to
our software, documentation and other written materials under trade secret and
copyright laws. Effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. We license our software
products under signed license agreements that impose restrictions on the
licensee's ability to utilize the software and do not permit the re-sale,
sublicense or other transfer of the source code. Finally, we seek to avoid
disclosure of our intellectual property by requiring employees and independent
consultants to execute confidentiality agreements with us and by restricting
access to our source code.
We license and integrate technology from third parties in our certain
of our software products. For example, we license the Uniface client/server
application development technology from Compuware, Inc. for use in ODBMS,
certain applications from Silvon Software, Inc. for use in Retail IDEAS, IBM's
Net.commerce merchant server software for use in MMS.com, and the Syncsort
application for use in the Arthur Suite. These third party licenses generally
require us to pay royalties and fulfill confidentiality obligations. Our license
with Compuware, Inc. has expired and is being actively re-negotiated. The
outcome of our negotiations with Compuware Inc. cannot be predicted, but we
currently believe that in order to continue to license the Uniface technology
we will be required to pay moderately to significantly higher royalty rates to
Compuware, Inc. in the future. If we are unable to continue to license the
Uniface client/server application development technology or any of the other
third party software, or if the third party licensors do not adequately maintain
or update their products, we would face delays in the releases of our software
until equivalent technology can be identified, licensed or developed, and
integrated into our software products. These delays, if they occur, could have a
material adverse effect on our business, operating results and financial
condition. It is also possible that intellectual property acquired from third
parties through acquisitions, mergers, licenses or otherwise may not have been
adequately protected. The reverse engineering, unauthorized copying, or other
misappropriation of our technology could enable third parties to benefit from
our technology without paying for it.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
software solutions infringe on their intellectual property. We expect that
software product developers and providers of e-commerce products will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlap. In addition, we may find it necessary to
initiate claims or litigation against third parties for infringement of our
proprietary rights or to protect our trade secrets. Any claims, with or without
merit, could be time consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or license agreements.
Royalty
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or licensing agreements, if required, may not be available on terms acceptable
to us or at all, which could have a material adverse effect on our business,
operating results and financial condition.
There Are Risks Related To Product Defects, Product Liability, and
Integration Difficulties. Our software products are highly complex and
sophisticated. As a result, they may occasionally contain design defects or
software errors that could be difficult to detect and correct. In addition,
implementation of our products may involve customer-specific customization by us
or third parties, and may involve integration with systems developed by third
parties. In particular, it is common for complex software programs, such as our
client/server and e-commerce software products, to contain undetected errors
when first released. They are discovered only after the product has been
implemented and used over time with different computer systems and in a variety
of applications and environments. Despite extensive testing, we have in the past
discovered defects or errors in our products or custom modifications only after
our software products have been used by many clients. In addition, our clients
may occasionally experience difficulties integrating our products with other
hardware or software in their environment that are unrelated to defects in our
products. Such defects, errors or difficulties may cause future delays in
product introductions and shipments, result in increased costs and diversion of
development resources, require design modifications or impair customer
satisfaction with our products.
We believe that significant investments in research and development are
required to remain competitive and that speed to market is critical to our
success. Our future performance will depend in large part on our ability to
enhance our current products and develop new products that achieve market
acceptance. These new products must incorporate state-of-the-art technology,
enable our clients to remain competitive, and facilitate a powerful,
cost-effective means of conducting business-to-consumer and business-to-business
e-commerce on the Internet. If clients experience significant problems with
implementation of our products or are otherwise dissatisfied with their
functionality or performance or if they fail to achieve market acceptance for
any reason, our business, operating results and financial condition would be
negatively impacted.
Our products are typically used by our clients to perform
mission-critical functions. As a result, design defects, software errors, misuse
of our products, incorrect data from external sources or other potential
problems arising from the use of our products could result in financial or other
damages to our clients. Prior to 1998, we did not maintain product liability
insurance. Our license agreements with our clients typically contain provisions
designed to limit our exposure to potential claims as well as any liabilities
arising from such claims. However, such provisions may not effectively protect
us against such claims and the associated liability and costs.
We Are Dependent on Key Personnel. Our performance depends in large
part on the continued performance of our executive officers and other key
employees, particularly the performance and services of James D. Armstrong our
Chief Executive Officer. We do not have in place "key person" life insurance
policies on any of our employees. The loss of the services of Mr. Armstrong or
other key executive officers or employees could negatively affect our financial
performance.
We May Have Difficulty Integrating Acquisitions. We continually
evaluate potential acquisitions of complementary businesses, products and
technologies, including those which are significant in size and scope. On April
6, 2000 we acquired certain assets of Intactix International, Inc. ("Intactix")
from Pricer AB for $20.5 million in cash and assumed certain trade, leasehold,
and other accrued liabilities, and specific acquisition related liabilities. The
acquisition will be accounted for as a purchase, and accordingly, the operating
results of Intactix will be included in our consolidated financial statements
from the date of closing. We expect to incur between $5.0 million and $5.5
million in restructuring costs over the next six months, including fees to third
parties for services related to the acquisition, to integrate our two businesses
and take advantage of the operational synergies.
Acquisitions such as Intactix or others we may pursue involve a number
of special risks. Those risks include the inability to obtain, or meet
conditions imposed for, governmental approvals for the acquisition, diversion of
management's attention to the assimilation of the operations and personnel of
acquired businesses, costs related to the acquisition and the integration of the
acquired businesses, products, technologies and employees into our business and
product offerings. Achieving the anticipated benefits of any acquisition will
depend, in part, upon whether integration of the acquired business, products,
technology, or employees is accomplished in an efficient and effective manner,
and there can be no assurance that this will occur. The difficulties of such
integration may be increased by the necessity of coordinating geographically
disparate organizations, the complexity of the technologies being integrated,
and the necessity of integrating personnel with disparate business backgrounds
and combining different corporate cultures. The inability of management to
successfully integrate any acquisition that we may pursue, and any related
diversion of management's attention, could have a material adverse
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effect on our business, operating results and financial condition. Moreover,
there can be no assurance that any products acquired will gain acceptance in our
markets, or that we will be able to penetrate new markets successfully or that
we will obtain the anticipated or desired benefits of such acquisitions. Any
acquisition which we pursue or consummate could result in the incurrence of debt
and contingent liabilities, amortization of goodwill and other intangibles,
purchased research and development expense, other acquisition-related expenses
and the loss of key employees, any of which could have a material adverse effect
on our business, operating results and financial condition.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks in the ordinary course of our
business. These risks result primarily from changes in foreign currency exchange
rates and interest rates. In addition, our international operations are subject
to risks related to differing economic conditions, changes in political climate,
differing tax structures, and other regulations and restrictions.
Foreign currency exchange rates. Our international operations expose us
to foreign currency exchange rate changes that could impact translations of
foreign denominated assets and liabilities into U.S. dollars and future earnings
and cash flows from transactions denominated in different currencies.
International revenues represented 51% of our total revenues in the first
quarter of 2000, as compared with 46% in the first quarter of 1999. In addition,
the identifiable net assets of our foreign operations totaled 16% of
consolidated assets as of March 31, 2000, as compared with 18% at December 31,
1999. Our exposure to currency exchange rate changes is diversified due to the
number of different countries in which we conduct business. We operate outside
the United States primarily through wholly owned subsidiaries in Europe,
Asia/Pacific, Canada and Latin America. We have determined that the functional
currency of each of our foreign subsidiaries is the local currency and as such,
foreign currency translation adjustments are recorded as a separate component of
stockholders' equity. Changes in the currency exchange rates of our foreign
subsidiaries resulted in our reporting unrealized foreign currency exchange
losses of $210,000 for the three months ended March 31, 2000, as compared with
$629,000 in the comparable quarter of 1999. We have not engaged in foreign
currency hedging transactions.
Interest rates. We invest our cash in a variety of financial
instruments, including bank time deposits, and variable and fixed rate
obligations of the U.S. Government and its agencies, states, municipalities,
commercial paper and corporate bonds. These investments are denominated in U.S.
dollars. We classify all of our investments as available-for-sale in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Cash balances in foreign
currencies overseas are operating balances and are invested in short-term
deposits of the local operating bank. Interest income earned on our investments
is reflected in our financial statements under the caption "Other income, net."
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due to these factors, our future investment income may fall short of
expectations due to changes in interest rates, or we may suffer losses in
principal if forced to sell securities which have seen a decline in market value
due to a change in interest rates. We hold our investment securities for
purposes other than trading. The fair value of securities held at March 31, 2000
was $23.0 million with interest rates generally ranging between 5% and 6%.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
The U.S. District Court for the District of Arizona dismissed, without
leave to amend, all pending securities class action complaints previously filed
against the Company and certain of our current and former directors and
officers. The complaint, originally filed on January 13, 1999 (Bernat v. JDA
Software Group, Inc., et al., Dist. of Arizona No. CIV'99-0065 PHX RGS), alleged
that we misled investors as to certain aspects of our business and prospects.
The Plaintiffs in the case have the right of appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters submitted to a vote of security holders during the quarter
ended March 31, 2000.
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
A Form 8-K dated February 24, 2000 was filed with the Securities and
Exchange Commission on March 1, 2000 to announce the signing of a definitive
Asset Purchase Agreement to acquire the assets of Intactix International, Inc.
("Intactix"), from Pricer AB of Sweden for $20.5 million in cash, and the
assumption of certain trade, leasehold, and other accrued liabilities, and
specific acquisition related liabilities. Intactix is a leading provider of
space management solutions for the retail industry and consumer product goods
manufacturers. The Intactix products provide planogramming tools that allow
users to build, analyze, and distribute graphical diagrams for space management,
store layout planning and shelf assortment. The acquisition will be accounted
for as a purchase, and accordingly, the operating results of Intactix will be
included in our consolidated financial statements from the date of closing. The
acquisition was subject to the approval of certain government regulatory
agencies and other standard conditions, and was expected to close in early April
2000.
A Form 8-K dated April 6, 2000 was filed with the Securities and
Exchange Commission on April 13, 2000 to announce the completion of the
acquisition of Intactix pursuant to the Asset Purchase Agreement dated February
24, 2000. The financial statements of the business acquired and the required pro
forma financial information will be filed with the Securities and Exchange
Commission on Form 8-K/A.
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JDA SOFTWARE GROUP, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JDA SOFTWARE GROUP, INC.
Dated: May 15, 2000 By: /s/ Kristen L. Magnuson
------------------------------------------------
Kristen L. Magnuson
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1** -- Asset Purchase Agreement dated as of June 4, 1998, by and
among JDA Software Group, Inc., JDA Software, Inc. and
Comshare, Incorporated.
2.2### -- Asset Purchase Agreement dated as of February 24, 2000, by
and among JDA Software Group, Inc., Pricer AB, and Intactix
International, Inc.
3.1*** -- Second Restated Certificate of Incorporation of the Company
together with Certificate of Amendment dated June 12, 1998.
3.2*** -- First Amended and Restated Bylaws.
4.1* -- Specimen Common Stock certificate.
4.2*(1) -- Stock Redemption Agreement among the Company, James D.
Armstrong and Frederick M. Pakis dated March 30, 1995.
10.1*(1) -- Form of Indemnification Agreement.
10.2*(1) -- 1995 Stock Option Plan, as amended, and form of agreement
thereunder.
10.3#(1) -- 1996 Stock Option Plan, as amended.
10.4*(1) -- 1996 Outside Directors Stock Option Plan and forms of
agreement thereunder.
10.5***(1) -- Employment Agreement between James D. Armstrong and JDA
Software, Inc. dated January 1, 1998.
10.6***(1) -- Employment Agreement between Frederick M. Pakis and JDA
Software, Inc. dated January 1, 1998.
10.7##(1) -- Employment Agreement between Frederick M. Pakis, JDA
Software Group, Inc. and JDA Software, Inc. effective as of
July 31, 1999.
10.8#(1) -- 1998 Nonstatutory Stock Option Plan.
10.9#(1) -- 1998 Employee Stock Purchase Plan.
10.10+ -- 1999 Employee Stock Purchase Plan.
10.11*** -- Lease Agreement between Opus West Corporation and JDA
Software Group, Inc. dated April 30, 1998, together with
First Amendment dated June 30, 1998.
10.12** -- Software License Agreement dated as of June 4, 1998 by and
between Comshare, Incorporated and JDA Software, Inc.
10.13*(2) -- License Agreement between Uniface Corporation and JDA
Software, Inc. dated February 9, 199.
10.14*(2) -- Standard Value-Added Reseller Agreement between Uniface
Corporation and JDA Software, Inc. dated February 9, 1994.
10.15*(1) -- JDA Software, Inc. 401(k) Profit Sharing Plan, adopted as
amended effective January 1, 1995.
10.16# -- Business Loan Agreement between Bank of America Arizona and
JDA Software, Inc. dated September 30, 1998.
10.17***(1) -- Form of Amendment of Stock Option Agreement between JDA
Software Group, Inc and Kristen L. Magnuson, amending
certain stock options granted to Ms. Magnuson pursuant to
the JDA Software Group, Inc. 1996 Stock Option Plan on
September 11, 1997 and January 27, 1998.
10.18++(1) -- Form of Rights Agreement between the Company and
ChaseMellon Shareholder Services, as Rights Agent
(including as Exhibit A the Form of Certificate of
Designation, Preferences and Rights of the Terms of the
Series A Preferred Stock, as Exhibit B the From of Right
Certificate, and as Exhibit C the Summary of Terms and
Rights Agreement).
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10.19+++(1) -- Form of Incentive Stock Option Agreement between JDA
Software Group, Inc. and Kristen L. Magnuson to be used in
connection with stock option grants to Ms. Magnuson
pursuant to the JDA Software Group, Inc. 1996 Stock Option
Plan.
10.20-(1)(3) -- Form of Incentive Stock Option Agreement between JDA
Software Group, Inc. and certain Senior Executive Officers
to be used in connection with stock options granted
pursuant to the JDA Software Group, Inc. 1996 Stock Option
Plan.
10.21-(1)(3) -- Form of Nonstatutory Stock Option Agreement between JDA
Software Group, Inc. and certain Senior Executive Officers
to be used in connection with stock options granted
pursuant to the JDA Software Group, Inc. 1996 Stock Option
Plan.
10.22-(1)(4) -- Form of Amendment of Stock Option Agreement between JDA
Software Group, Inc and certain Senior Executive Officers,
amending certain stock options granted pursuant to the JDA
Software Group, Inc. 1995 Stock Option Plan
10.23-(1)(5) -- Form of Amendment of Stock Option Agreement between JDA
Software Group, Inc and certain Senior Executive Officers,
amending certain stock options granted pursuant to the JDA
Software Group, Inc. 1996 Stock Option Plan
10.24-(1)(6) -- Form of Incentive Stock Option Agreement between JDA
Software Group, Inc. and certain Senior Executive Officers
to be used in connection with stock options granted
pursuant to the JDA Software Group, Inc. 1996 Stock Option
Plan
27.1 -- Financial Data Schedule
- ----------
* Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-748), declared effective on March 14, 1996.
** Incorporated by reference to the Company's Current Report on Form 8-K
dated June 4, 1998, as filed on June 19, 1998.
*** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1998, as filed on August 14,
1998.
+ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1999, as filed on August 19,
1999.
++ Incorporated by reference to the Company's Current Report on Form 8-K
dated October 2, 1998, as filed on October 28, 1998.
+++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998, as filed on November
13, 1998.
# Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, as filed on March 31, 1998.
## Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1999, as filed on November
12, 1999.
### Incorporated by reference to the Company's Current Report on Form 8-K
dated February 24, 2000, as filed on March 1, 2000.
- - Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, as filed on March 16, 2000.
(1) Management contracts or compensatory plans or arrangements covering
executive officers or directors of the Company.
(2) Confidential treatment has been granted as to part of this exhibit.
(3) Applies to James D. Armstrong and Frederick M. Pakis.
(4) Applies to Hamish N. Brewer and Gregory L. Morrison.
(5) Applies to Hamish N. Brewer, Peter J. Charness, Scott D. Hines, Gregory
L. Morrison and David J. Tidmarsh.
(6) Applies to Senior Executive Officers with the exception of James D.
Armstrong, Frederick M. Pakis and Kristen L. Magnuson.
27