================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_________________
FORM 10-K/A
AMENDMENT NO. 1
---------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended April 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File Number 0-23057
_________________
LOGILITY, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-2281338
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
470 East Paces Ferry Road, N.E. 30305
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 261-9777
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, No Par Value
(Title of class)
_________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
At July 12, 2001, 13,253,503 Common Shares of the registrant were
outstanding. The aggregate market value (based upon the closing price of Common
Shares as quoted on the NASDAQ National Market System at July 12, 2001) of the
shares held by nonaffiliates was approximately $6.4 million.
DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-K/A
1. Form S-1 Registration Statement No. 333-33385 into Part IV.
2. Form S-8 Registration Statement No. 333-62531 into Part IV.
3. Form S-8 Registration Statement No. 333-66773 into Part IV.
1
===============================================================================
EXPLANATORY NOTE
----------------
This Amendment No. 1 on Form 10-K/A to the registrant's Annual Report
on Form 10-K is being filed to amend certain of the information presented under
the headings "Business Section" in Part I, Item 1; Management's Discussion and
Analysis of Financial Condition and Results of Operations in Part II, Item 7;
and Exhibits, Financial Statement Schedules, and Reports on Form 8-K in Part IV,
Item 14. This Amendment also is being filed to amend certain footnotes to the
Combined Financial Statements of the registrant included in the Annual Report on
Form 10-K.
2
PART I
Item 1. Business
In addition to the historical information contained herein, the discussion
in this Form 10-K contains certain forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties, such as
statements concerning: growth and future operating results; developments in our
markets and strategic focus; future economic, business and regulatory
conditions; strategic relationships; new products and product enhancements;
future customer benefits attributable to our products; and potential
acquisitions and the integration of acquired businesses, products and
technologies. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. Our actual results could differ materially from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
under the section captioned "Risk Factors" in Item 1 of this Form 10-K as well
as the cautionary statements and other factors set forth elsewhere herein.
Company Overview
Logility, Inc. ("Logility" or the "Company") was incorporated as a Georgia
corporation in July 1996. Logility provides e-Business solutions for
business-to-business (B2B) collaborative commerce that optimize internal and
external supply chain efficiencies of manufacturers, suppliers, distributors,
retailers and other organizations. The supply chain refers to the complex
network of relationships that organizations maintain with trading partners to
source, manufacture, and deliver products to the customer and includes demand
chain, supply chain, logistics, warehouse management and business-to-business
process management for collaborative relationships between customers, suppliers
and carriers. Logility's solutions enable enterprises to significantly improve
efficiencies, collaborate with suppliers and customers, respond to market
demands and engage in dynamic business relationships via the Internet. Logility
Voyager Solutions(TM) consists of an Internet-based, integrated software suite
that provides advanced supply chain management including collaborative planning,
strategic network design, optimized supply sourcing, warehouse management, and
collaborative logistics capabilities that are designed to increase revenues,
reduce inventory costs, improve forecast accuracy, decrease order cycle times,
optimize production scheduling, streamline logistics operations, reduce
transportation costs and improve customer service across our customers' supply
chains, corporate Internet portals and public e-Business trading exchanges.
Leveraging our supply chain management expertise, Logility has been an
innovator in developing and deploying B2B e-Business with our first
Internet-based collaborative planning solution implemented in 1996. We continue
to invest and expand our e-Business offerings and innovative solutions, which
support the Voluntary Interindustry Commerce Standards Association ("VICS"),
Collaborative Planning, Forecasting and Replenishment (CPFR(R)) standards, as
well as other emerging collaborative supply chain management standards for
transportation and distribution center management. Our Logility Voyager
Solutions suite and related services are designed to power the emerging Internet
trading exchanges and private marketplaces for collaborative planning and
procurement of direct materials and collaborative transportation management. We
believe that private and public Internet-based trading exchanges and
marketplaces will increase demand for our solutions. We will continue to focus
our efforts on the evolving market requirements for innovative B2B e-Business
solutions.
Our software solution is modular and scaleable to meet the management
requirements of complex organizations involving tens of thousands of products
across multiple sites. In addition, customers can integrate our solution with
existing software systems and a variety of Internet and client-server operating
environments and platforms. We have licensed one or more modules of Logility
Voyager Solutions to more than 400 companies worldwide, including British
Telecommunications, Canandaigua Wine, CITGO, ConAgra, Eastman Chemical Company,
Epson America, Florida Power and Light, Heineken USA, The HoneyBaked Ham
Company, Komatsu America International, L'Oreal USA, Magneti Marelli, Mercury
Marine, Pharmacia & Upjohn, Pfizer International, Porsche, Rand McNally,
Reynolds Metals, Sony Electronics, VF Corporation, and Xpedex. We sell our
products through direct and indirect channels. We derived approximately 14% of
our revenues in the fiscal year ended April 30, 2001 from international sales.
Industry Background
In response to global competitive pressures, companies are continually
seeking new ways to enhance the productivity of their enterprise business
systems and processes. Those companies that effectively communicate, collaborate
and integrate with their trading partners within the extended enterprise or
"supply chain" can realize significant competitive advantages in the form of
lower costs, greater customer responsiveness, and increased revenue. Supply
chain management refers to the process of managing the complex network of
relationships that organizations maintain with external trading partners
(suppliers, manufacturers, distributors and retailers) to source, manufacture
and deliver goods and services to the end consumer. Supply chain management
involves both the activities related to supplying products or services (source,
make, move, buy, store, and deliver) as well as the sales and marketing
activities that impact the demand for goods and services, such as promotions,
pricing and forecasting.
3
Today several market trends are driving organizations to expand
collaboration with trading partners along the supply chain. A general shift in
market power has forced manufacturers and distributors to become more responsive
to retailers and consumers, which has increased the demand for improved planning
capabilities. At the same time, competitive pressures are forcing manufacturers
to reduce costs, decrease order cycle times and improve operating efficiencies.
As a result, manufacturers are increasingly under pressure to better manage the
supply chain as they seek to improve manufacturing efficiency and logistics
operations while maintaining flexibility and responsiveness to changing market
conditions and customer demands. These pressures are compounded by the
increasing complexity and globalization of the interactions among suppliers,
manufacturers, distributors, retailers and consumers.
The growth and rapid adoption of the Internet has enhanced the ability of
organizations along the supply chain to integrate their processes through
collaborative planning to synchronize internal assets and production with
external demand and supplier capabilities. Behind this rapid adoption are
technologies and concepts that are converging more quickly than ever before
toward the enormous opportunities to reduce costs, earn fees or sell products,
and optimize operations that facilitate e-Business and the integration of supply
chains comprised of suppliers, manufacturers, distributors, retailers and
customers. These "networked" supply chains are evolving into Internet-based
trading exchanges or marketplaces, re-engineering business processes to improve
flexibility and responsiveness to changing market conditions. The result is
business-to-business e-Business, focused on planning, forecasting, procurement
of direct materials and fulfillment and delivery of customer orders.
AMR Research (AMR Research, "The Executive View," February 2001 and The
Report on e-Commerce Applications, April 2000) projects that B2B e-commerce will
reach $5.7 trillion by the end of 2004, representing 29% of the dollar value of
US-based commercial transactions. AMR states: "E-commerce does not replace the
need to improve internal Supply Chain Management (SCM) practices. On the
contrary, e-commerce is the next step in the evolution of advanced SCM concepts.
To take full advantage of B2B e-commerce's rapid adoption, companies will have
to step up the implementation of Advanced Planning and Scheduling (APS),
Available-to-Promise (ATP), Vendor-Managed Inventories (VMIs), collaboration,
and other supply chain management techniques."
To leverage the Internet for commercial benefit and facilitate enhanced
collaboration among the various trading partners in the supply chain,
organizations are increasingly deploying business-to-business e-Business
solutions to address their planning and supply chain execution requirements. The
planning function involves the proactive use of information to facilitate the
delivery of the right products on time to the correct location and at the lowest
cost. The planning process focuses on demand forecasting, inventory simulation,
event planning, distribution, transportation and manufacturing planning and
scheduling. Planning software is designed to increase revenues, improve forecast
accuracy, optimize production scheduling, reduce inventory costs, decrease order
cycle times, reduce transportation costs, and improve customer service. The
supply chain execution function addresses procuring, manufacturing, order
fulfillment and distributing products throughout the supply chain. Within the
supply chain execution function, organizations are increasing their focus on the
effective management of warehouse and transportation operations and the need for
integration with planning systems and other enterprise applications, to increase
the efficient and effective fulfillment of customer orders in both the
business-to-business and the business-to-consumer sectors.
In order to effectively manage and coordinate supply chain activities,
companies require planning and supply chain execution software that provides for
integrated communication, optimization and collaboration among the various
constituents along the supply chain. This enhanced collaboration synchronizes
production plans with demand forecasts, thereby minimizing bottlenecks that lead
to production delays and excess inventory. Companies that have implemented our
advanced collaboration processes such as Collaborative Planning, Forecasting and
Replenishment (CPFR) have seen benefits such as increased revenues, lower
operational costs and shortened cycle times. According to the Voluntary
Interindustry Commerce Standards Association, of which Logility is an advisory
board member on the CPFR subcommittee, "CPFR is a business process model for
supply chain partners to coordinate plans in order to reduce variance between
supply and demand." VICS developed this process in conjunction with major
retailers, manufacturers and suppliers to enable true collaboration. CPFR is a
business model that changes the nature of the relationship between trading
partners.
In addition, companies seek integrated planning and supply chain execution
systems that further optimize the flow of products to the customer through
enhanced transportation and warehouse management capabilities. Organizations are
also demanding solutions that are modular and scaleable to fit the changing
needs of the organization and that can be rapidly deployed.
4
Strategy
Our objective is to be the leading provider of business-to-business (B2B)
collaborative commerce solutions to power e-Business and optimize the supply
chain, enabling companies to optimize their operations associated with the
sourcing, manufacture and distribution of products in distribution-intensive
target markets such as consumer goods, retail and process manufacturing. Our
strategy includes the following key elements:
Leverage and Expand Installed Base of Customers. We currently target
businesses in the consumer goods, retail, chemicals, pharmaceuticals, food
and beverage, and aftermarket distribution supply chains consisting of
suppliers, manufacturers, distributors, and retailers. We intend to
continue to leverage our installed base of more than 400 customers to
introduce additional functionality, product upgrades, complementary
modules, and application hosting services. In addition, we intend to expand
sales to new customers in our existing vertical markets and to target
additional vertical markets over time.
Continue to Expand Sales and Marketing. We intend to continue to
pursue an increased share of the e-Business market for business-to-business
software solutions by focusing our sales and marketing activities on supply
chain collaboration and optimization initiatives in distribution-intensive
industries such as consumer products, retail, food and beverage, and
aftermarket distribution. Our competitive advantage is providing the most
rapid implementation, an easy-to-maintain configuration, and rapid
time-to-benefit across the full suite of supply chain products. We intend
to continue building a direct sales force that is focused on selected
vertical markets, such as consumer goods, retail and manufacturing supply
chains.
Expand Indirect Channels to Increase Market Penetration. We believe
that key relationships with value added resellers will increase sales and
expand market penetration of our products. In the fiscal year ended April
30, 2001, we established a strategic relationship with Microsoft Great
Plains Business Solutions (formerly Great Plains Software) to market, sell,
implement and support components of the Logility Voyager Solutions suite as
the Supply Chain Series Powered by Logility. Additionally, we established
reseller relationships with Pitney Bowes and 3Plex for marketing, sales and
implementation of the transportation collaboration, planning and management
components of the Logility Voyager Solutions suite. We also expanded our
marketing relationship with IBM to include key business partners within the
IBM distribution channel.
Maintain Technology Leadership. We believe that we are a technology
leader in the field of collaborative commerce and supply chain optimization
solutions and intend to continue to provide innovative, advanced solutions
and services to this market. We believe that we were one of the earliest
providers of supply chain planning software solutions on a client-server
platform and on Windows NT, and the first to introduce a collaborative
supply chain planning solution that operates over the Internet. We intend
to continue to develop and introduce new or enhanced products and keep pace
with technological developments and emerging industry standards. The
Logility Voyager Solutions suite is available on the Windows NT/2000, Unix
and AS/400 server platforms and supports Oracle, Microsoft SQL Server and
DB2 databases.
Extend e-Business Strategy. We continued an e-Business initiative in
fiscal year 2001 to deliver a full suite of products and services for
Internet-based collaborative supply chain planning and execution to power
business-to-business trading exchanges and marketplaces. Our collaborative
commerce strategy includes four levels of products and services designed to
enable the optimization of the customer's supply chain. These products and
services include:
. Logility Voyager Solutions--B2B collaborative commerce supply chain
management business application solution suite for end-to-end supply
chain management including network design, planning, forecasting,
supply optimization, warehouse and transportation management
. Supply Chain Collaboration--Expands the number of business processes
that can be executed via intranets, extranets and the Internet to
include both internal and external trading partners for automated,
exception-based management of collaborative initiatives inside an
organization as well as between buyer and seller trading partners
. Supply Chain Event Management--Provides advanced exception-based
management of supply chain performance by allowing trading partners to
efficiently monitor, notify, control and measure supply chain
processes to prioritize daily activities and ensure optimal
performance within an organization and across the supply chain
. i-Community(SM)--Logility's applications hosting service, enables
companies to rapidly deploy and easily maintain their collaborative
relationships with trading partners through a web-based network and/or
Logility's traditional supply chain management offerings
5
Invest Aggressively to Build Market Share. Logility will continue to
make investments to expand our sales force, research and development
efforts, and consulting infrastructure balanced with our goals for
increasing profitability. We believe investments are necessary to increase
our market share and to capitalize on the growth opportunities in the
emerging business-to-business e-Business market.
Acquire or Invest in Complementary Businesses, Products and
Technologies. We believe that select acquisitions or investments may
provide opportunities to broaden our product offering to provide more
advanced solutions for e-Business which complement or expand our solutions
and target markets.
Focus on Integrated Planning and Supply Chain Execution Solution. We
believe we are one of the few providers of integrated supply chain
management software solutions addressing demand and supply planning as well
as transportation and warehousing logistics requirements. We are focusing
on providing the most comprehensive planning and execution solution aimed
at optimizing operations along the supply chain. We intend to continue to
focus our development initiatives on enhancing our end-to-end solution and
introducing additional capabilities that complement our integrated
solution.
Focus on MidMarket. We have defined as "MidMarket" those corporations
or divisions of corporations that have annual revenues ranging from $200
million to $2 billion. Organizations of this size fit our historical
customer profile, and are prime candidates for the purchase and use of our
unique full suite of integrated products operating on Windows NT/Windows
2000, OS400, and UNIX platforms.
Increase Penetration of International Markets. In the fiscal year
ended April 30, 2001, we generated 14% of our total revenues from
international sales, resulting from marketing relationships with a number
of international distributors. We intend to expand our international
presence by creating additional relationships with distributors in Latin
America, Europe, and the Asia/Pacific region.
Expand Strategic Relationships. We intend to expand the depth and
number of strategic relationships with leading enterprise software, systems
integrators and e-Business vendors to integrate the Logility Voyager
Solutions suite into their services and products and to create joint
marketing opportunities. We have a number of marketing alliances, including
those with GERS Retail Systems, IBM, INSIGHT, Inc., Microsoft, Microsoft
Great Plains Business Solutions (formerly Great Plains Software), Pitney
Bowes, 3Plex, and Tompkins Associates. In addition, we have developed a
network of international agents who assist in the sale and support of our
products. We intend to utilize these and future relationships with software
and service organizations to enhance our sales and marketing position.
Continue to Focus on Providing High Quality Customer Service.
Providing high quality customer service is a critical element of our
strategy. We intend to continue to invest in technology and personnel to
accommodate the needs of our growing customer base. Logility will continue
to seek new ways to improve service to customers. By providing application
hosting services, our customers have an alternative deployment option to
managing their own Logility Voyager Solutions applications.
Logility Products and Services
Key Benefits
Our integrated product line, Logility Voyager Solutions, is an e-Business
suite of business-to-business collaborative commerce solutions that enables
end-to-end supply chain management within and between manufacturers, suppliers,
distributors and retailers to more effectively manage the activities along their
respective supply chains and enable collaboration among external trading
partners. Logility also provides collaborative commerce products to expand the
number of business processes that can be executed via intranets, extranets and
the Internet. Logility's services include the i-Community, which facilitates
CPFR-based collaborative commerce within a web-based network of trading
partners, including suppliers, manufacturers, retailers and customers. Logility
Voyager Solutions are also designed to power Internet-based trading exchanges,
marketplaces and private company portals. The i-Community is powered by the
Logility Voyager Solutions suite and enables companies to quickly reap the
benefits of collaboration with external trading partners.
The key benefits of our software solutions and services include the
following:
e-Business Solution for End-to-End Supply Chain Management. Our
Logility Voyager Solutions provide functionality that addresses both the
flow of information and the flow of products throughout the supply chain.
By synchronizing our comprehensive planning software products with our
transportation and warehouse management software solutions, our product
suite can more efficiently and accurately coordinate the delivery of
products to the customer. This end-to-end approach allows maximum
synchronization of activities along the supply chain including
collaboration with external trading partners.
6
Advanced Collaborative Planning and Supply Chain Execution
Functionality. Our products allow for collaboration among the various
levels within an organization and among external constituents (trading
partners) throughout the supply chain. The architecture of Logility Voyager
Solutions enables key constituents to participate in the planning process,
including marketing, sales, manufacturing, procurement, logistics and
transportation personnel, so that the requirements of all groups are
factored in to create one consensus plan. Our collaborative planning
functionality is further enhanced with collaborative commerce tools such as
Logility Voyager Collaborate(TM) (formerly Logility Voyager XPS(TM),
eXtensible Planning Solution), which leverages Internet technology to
facilitate information sharing directly with trading partners. Voyager
Collaborate supports the business processes and practices defined in the
VICS' CPFR guidelines, enabling B2B collaborative commerce via the Internet
between two or more trading partners. Complementing Voyager Collaborate for
supply chain planning is Logility Voyager Fulfill(TM) (formerly Logility
Voyager XES(TM), eXtensible Execution Solution) on the supply chain
execution side. Voyager Fulfill extends collaboration to transportation and
distribution center management trading partners. Through our
i-Community(SM) a collaborative network of trading partners, customers will
be able to exchange information and conduct collaborative planning,
forecasting and replenishment as well as streamline the order fulfillment
process through collaboration amongst warehouse, transportation and carrier
trading partners. Voyager Fulfill supports emerging industry standards for
collaborative transportation management.
Comprehensive Planning Solution. Our planning solution is comprised of
demand, inventory, event, life cycle, replenishment, supply, manufacturing,
and transportation planning modules that balance demand opportunities with
supply constraints through the synchronization of information gathered from
supply chain participants. A key benefit of our planning solution
components is its emphasis on addressing the full range of complex demand
planning requirements of our customers, including comprehensive forecasting
capabilities that take into account each user's unique perspective of the
supply chain. Additionally, the solution implements and manages key
business initiatives like profit maximization or cost minimization,
advancing traditional distribution resource planning (DRP), and advanced
planning systems (APS) by applying financial and optimization capabilities
to sourcing decisions, enabling companies with complex supply chains to
balance profits, costs, and service while simultaneously considering all
supply chain constraints.
Robust Supply Chain Execution Solution. The Supply Chain Execution
components of Logility Voyager Solutions support the needs of single or
multi-site operations by systematically balancing logistics strategies,
customer service policies, carrier effectiveness and inventory levels to
optimize warehouse and transportation operations. During fiscal year 2001,
Logility introduced the industry's first Internet-based collaborative
transportation management solution, Voyager Fulfill, that incorporates the
carrier in the buyer/seller relationship to optimize order fulfillment,
increase on-time shipments, and provide greater visiblity of the status of
customer orders.
Rapid Deployment. Our products utilize a modular design centered
around proven business processes that streamline implementation and
accelerate deployment. The comprehensive functionality of each module
generally permits customers to implement the solutions with nominal
modifications. In addition, our software combines sophisticated techniques
and tools with intuitive, Windows-and browser-based interfaces to reduce
training requirements and implementation tasks. The Logility i-Community
provides a complete solution for web-based networking of trading partners
that facilitates collaboration with suppliers, manufacturers, distributors,
retailers and customers. The i-Community allows trading partners to quickly
access and leverage the Logility Voyager Solutions suite and gain the
benefits of e-Business via a hosted deployment with a web-browser access.
Open, Scaleable, Internet and Client-Server Architecture. Logility's
software has been designed to leverage the Internet to reach remote
corporate users and incorporate external trading partners. The application
suite integrates with existing in-house and third-party software
applications and a variety of operating environments and platforms. The
software is scaleable to manage complex processes involving tens of
thousands of products across multiple sites.
7
Product Features
Logility Voyager Solutions is designed to synchronize demand opportunities
with supply constraints and logistics operations. The suite is comprised of a
series of Internet-based, integrated modules that provide a robust solution for
supply chain management resulting in both external and internal collaboration to
streamline the supply chain. These modules can be implemented individually, as
well as in combinations or as a full solution suite. Logility Voyager Solutions
supports multiple communications protocols and is designed to operate with
industry-standard open technologies, including leading web-based and
client-server environments, such as UNIX, AS/400 and Intel-based servers running
Windows NT/Windows 2000 on Oracle, Microsoft SQL Server 2000 and DB2 databases.
The following table summarizes our product line:
Module Features
------ ---------
SUPPLY CHAIN COLLABORATION
Logility Voyager Collaborate
(formerly Logility Voyager XPS) . VICS Collaborative Planning, Forecasting and Replenishment (CPFR) compliant
. Collaborative planning with trading partners (customers and suppliers)
. Configurable deployment
. Open integration architecture supports rapid integration with any forecasting scenario
. Value Chain Workflow
. Exception-based management of business conditions across the supply chain
. Deployable in both private and public trading exchanges
Logility Voyager Fulfill . Collaborative warehouse and transportation planning with trading partners
(formerly Logility Voyager XES) (suppliers, customers, and carriers)
. Configurable deployment
. Open integration architecture
. Value Chain Workflow
. Exception-based management of order fulfillment business conditions
. Deployable in both private and public trading exchanges
Logility Voyager Select(TM) . Optimizes transportation performance and pricing for total landed cost calculations
. Targets private and public trading exchanges
. Extends order sourcing, procurement and logistics offerings
SUPPLY CHAIN EVENT MANAGEMENT
Logility Voyager Navigate(TM) . Provides supply chain event management for increased visibility
. Exception-based management of the supply chain
. Efficiently monitors, notifies, controls and measures supply chain performance
. Incorporates any Open Data Base Connectivity (ODBC)-compliant data source for an
accurate view of key business conditions
VALUE CHAIN STRATEGY
Value Chain Designer(TM) . Strategic distribution network optimization
. Customer assignment
. Facility location
. Balancing customer service levels and cost
. Sourcing selection and capacity planning
DEMAND CHAIN PLANNING
Life Cycle Planning . Plans each phase of a product's life cycle from introduction, maturity, replacement,
substitution and retirement
. Flexible demand profile definition
. Self-correcting model management automatically reforecasts based on POS data
. Exception-based management alerts users of key business conditions
8
Module Features
- ------ --------
Demand Planning . Item and Group forecasting
. Self-selecting forecast models
. Personalized data views
. Item stratification
. Product life cycle management with simulation
. Drag and drop data manipulation
Inventory Planning . Time-phased view of inventory
. Graphical simulations of inventory trade-off
. Views of dependent and independent demand
. Inventory management variables
Event Planning . Promotion planning
. Self-learning capabilities using artificial intelligence
. Causal-based forecasting
. Promotion profitability simulations
Demand Chain Voyager(TM) . Forecast retrieval and modifications via the Internet and Corporate Intranets
. Tight integration with Demand Planning
. Promotion planning calendars
. Comprehensive security features
. Collaborative planning with trading partners
SUPPLY CHAIN PLANNING
Manufacturing Planning . Enterprise-wide capacity planning
. Plant-level scheduling
. Supports activity-based costing
. Optimizes sourcing decisions' actual costs
. Interactive simulation
. Real-time, in memory model
. Distributed and remote visual capacity planning
. Remote and collaborative manufacturing
Supply Planning . Comprehensive constraint-based management of sourcing process
. Supports business goals such as profit maximization or cost minimization
. Provides available-to-promise (ATP), capable to promise (CTP) and profitable to
promise (PTP) methodologies
. Exception-based management of supply chain conditions
Replenishment Planning . Supports continuous replenishment strategies
. Provides time-phased distribution requirements planning
. Proactive action messages
. EDI integration
. ATP methodologies
. Multi-site sourcing and allocation
Transportation Planning . Load Control Center
. Shipment planning and consolidation
. Freight rating and routing
. Carrier selection
9
Module Features
- ------ ---------
SUPPLY CHAIN EXECUTION
Transportation Management . Load tendering
. Shipment confirmation
. Freight audit and payment control
. Shipment documentation and tracking
WarehousePRO(R) . Customizable workflows and attributes incorporate best-of-breed warehouse practices
. Directs all pick, pack, and ship activities through hand-held radio frequency devices
. User terminals support a variety of languages
. Dynamic label an Integrated graphical user interface d report printing
LOGILITY VOYAGER SOLUTIONS FOR B2B COLLABORATIVE COMMERCE
These e-Business applications allow companies to execute and manage
strategic trading partner relationships for direct material procurement,
logistics and customer order fulfillment via the Internet, intranets and
extranets.
SUPPLY CHAIN COLLABORATION
Logility Voyager Collaborate (formerly Logility Voyager XPS) enables
companies to communicate easily and share real-time information with trading
partners by uniting suppliers, manufacturers, distributors and retailers under
the power of common goals, common business processes and VICS Collaborative
Planning, Forecasting and Replenishment (CPFR) standards that eliminates
traditional barriers among trading partners. Voyager Collaborate is a completely
CPFR-compliant application that provides configurable deployment, scaleability,
Microsoft-centric architecture, open-integration architecture, value chain
workflow and an exception-based management of business conditions both within
the enterprise and across the supply chain network.
Logility Voyager Fulfill (formerly Logility Voyager XES) extends
collaboration to transportation and distribution center management trading
partners to allow real-time information sharing and collaboration between
customers, suppliers and carriers to ensure that customer orders are efficiently
scheduled, executed and tracked for on-time delivery. Voyager Fulfill is
compliant with emerging collaborative transportation management standards and
provides configurable deployment, scaleability, Microsoft-centric architecture,
open-integration architecture, value chain workflow and an exception-based
management of business conditions.
Logility Voyager Select optimizes transportation performance and pricing
for private and public trading exchanges by enabling a total landed cost
calculation within order sourcing, procurement and logistics processes.
SUPPLY CHAIN EVENT MANAGEMENT
Logility Voyager Navigate provides the benefits of Supply Chain Event
Management (SCEM) by allowing trading partners to efficiently monitor, notify,
control and measure supply chain processes on an exception basis, both within
the company and throughout the supply chain to improve the efficiency and
effectiveness of the overall operation.
VALUE CHAIN STRATEGY
The Value Chain Designer module provides a strategic view of the Supply
Chain Network. Companies can optimize location decisions, resource allocation,
customer assignment and transportation strategies to minimize costs or maximize
profitability.
DEMAND CHAIN PLANNING
These solutions provide the visibility to increase forecast accuracy by as
much as 40%. They create a comprehensive overview of demand. With demand
patterns revealed, companies can build plans that are totally attuned to the
market.
10
Life Cycle Planning provides collaborative life cycle planning, enabling
the supply chain to effectively control each phase in a product's
sunrise-to-sunset cycle--including introduction, maturity, replacement,
substitution and retirement--to ensure that the right products are available at
the point of customer demand.
The Demand Planning module reconciles demand history, existing customer
orders, point-of-sale data, market forecasts and other information to generate a
graphical representation of demand by item, location, customer and/or group.
Demand Planning has an automatic self-correcting, self-selecting modeling
process that utilizes a number of advanced forecasting models to generate sales,
marketing, logistics and other forecasts. The system allows for user-override of
certain modeling parameters, such as quantities or percentages, to account for
promotions, supply constraints and other "what-if" scenarios.
The Inventory Planning module is designed to determine the optimal balance
between inventory and service levels. With extensive simulation capabilities,
Inventory Planning helps manufacturers and distributors reduce inventory costs
while meeting customer service requirements at the individual stock keeping unit
(SKU) level. Built around industry best practices, Inventory Planning can
enhance planning and scheduling of inventory while taking into consideration
replenishment frequency and order size, seasonal build and manufacturing plans.
Service level targets and policies can be applied individually to every product
within an enterprise or uniformly throughout the various product lines.
Event Planning is a causal-based forecasting solution designed to
facilitate product life-cycle management and promotion planning, and provide
forecasting capabilities to help determine the impact of promotions, price
changes or other events, enabling manufacturers to adjust production to match
changing demand. Event Planning utilizes advanced algorithms based on neural
network techniques that allow the system to refine forecasting by incorporating
the results of ongoing promotions and other activities.
Demand Chain Voyager. Through the use of the Internet, the Demand Chain
Voyager module extends the reach of Demand Planning by allowing remote users to
view corporate forecasts and to input demand data in real-time. Demand Chain
Voyager provides an online, updated schedule of events including promotions,
product launches and holidays. In addition, it allows for the revision of
inventory goals and objectives such as service levels and turns.
SUPPLY CHAIN PLANNING
Logility offers support for optimizing assets, synchronizing supply, and
planning order fulfillment. With multiple and simultaneous sourcing
capabilities, supply issues and alternatives are immediately visible.
The Manufacturing Planning module is designed as a constraint-based
planning solution that balances manufacturing processes and resources with
demand priorities and corporate objectives. Manufacturing Planning models the
operations of a business by capturing capacity constraints, such as equipment
capabilities, intermediate storage limitations, shop floor calendars and raw
material availability and production constraints, such as synchronization of
multi-step operations, product sequencing, production changeovers and inventory
policies. Manufacturing Planning enables collaborative decision-making by
comparing the feasibility and cost effectiveness of various scheduling
strategies through the use of simulation.
Supply Planning supports sourcing options based on business goals such as
profit maximization or cost minimization, balances manufacturing constraints,
and applies advanced financial and optimization capabilities to sourcing
decisions. Supply Planning also enables companies with complex supply chains to
balance profits, costs, and service while simultaneously considering all supply
chain constraints to satisfy business requirements.
The Replenishment Planning module addresses the planning needs of an
organization to determine the optimal balance between customer service levels
and inventory. Replenishment Planning takes into account manufacturing
constraints, inventory investment, desired service levels, and current orders
and commitments. Features of Replenishment Planning include automatic detailed
item planning to balance delivery loads and orders, filtered order review, SKU
change simulation and constrained distribution requirements planning. The
benefits of Replenishment Planning include, among others, faster inventory
turns, optimized inventory levels and the ability to allocate customer orders
based on user-defined priorities. Replenishment Planning provides support for
continuous replenishment strategies, such as Vendor Managed Inventory, Quick
Response and Efficient Consumer Response.
11
The Transportation Planning module synchronizes transportation plans with
demand, inventory, manufacturing and replenishment strategies. Transportation
Planning consolidates shipments and determines the optimal transportation mode
and carrier while providing a list of alternatives. The solution includes a Load
Control Center that reviews all inbound, outbound and inter-facility shipments
and provides an integrated view of all orders requiring shipping decisions. This
product is designed to reduce freight costs, improve customer service levels and
increase responsiveness to customer requirements.
SUPPLY CHAIN EXECUTION
Logility provides capabilities for managing both inventory and
transportation with our Supply Chain Execution Solution. With these
applications, companies can systematically balance logistics strategies,
customer service policies, carrier effectiveness and inventory management.
Transportation Management facilitates the timely execution of the optimized
shipping plan developed by the Transportation Planning module. Load tendering
and shipment tracking are included via Electronic Data Interchange (EDI), e-mail
or automatic fax. The freight audit and payment capabilities enable flexible
reporting of landed cost by shipment, customer or product group. The module is
designed to reduce freight costs, improve carrier utilization and provide
comprehensive freight management reporting.
WarehousePRO incorporates advanced workflow technology, industry-specific
practices and radio frequency data collection terminals to optimize warehouse
operations. The software's object-oriented design allows users to define the
properties of specific items, locations, or processes, thereby reducing the need
for custom programming. The solution is highly flexible and can be reconfigured
by the user to adapt to changing business requirements. WarehousePRO features an
extensive workflow library of user-selected templates incorporating
industry-specific best-practice warehousing techniques. With built-in standard
interfaces to major radio frequency data collection systems, the software
delivers more accurate inventory accountability and improved warehouse
efficiency. WarehousePRO's performance analysis tools generate graphical reports
that illustrate productivity gains, warehouse efficiency and inventory controls,
enabling users to make real-time management decisions.
12
The price for our products typically is determined based upon the number of
modules licensed and the number of servers, users and/or sites for which the
solution is designed. During fiscal year ended April 30, 2001, license fees for
new customers ranged from $123,000 to $1.2 million.
Customers
We primarily target businesses in distribution-intensive markets such as
consumer-packaged goods, retail and manufacturing supply chains, including
suppliers, manufacturers, distributors and retailers. A sample of companies that
have purchased one or more of our products follows:
Chemicals, Oil & Gas,
Consumer Goods Pharmaceuticals Manufacturing and Others
-------------- --------------- ------------------------
Ashley Furniture BOC Distribution Services Ltd. Appleton Paper
Aurora Foods CITGO Petroleum Corporation British Telecommunications
Bell Sports Eastman Chemical Company Corning Cable Systems
Canandaigua Wine Company Nordic Synthesis AB Dal-Tile Corporation
ConAgra, Inc. Pfizer, Inc. Florida Power & Light
Eagle Family Foods Pharmacia & Upjohn Koch Industries
Heineken USA Sigma-Aldrich Corporation Magneti Marelli
Haverty Furniture Company Mercury Marine
L'Oreal USA Mohawk Paper
Maybelline Inc. Peugeot International
McCormick & Company Powerware Corporation
Nestle France Rand McNally & Company
Pharmavite Corporation Raytheon Marine Company
Saks Incorporated Reynolds Metals
Sara Lee Knit Products Robert Horne Paper Company
S.C. Johnson & Sons, Inc. After Market Distribution RJ Reynolds
-------------------------
Seagram's Epson America, Inc. Sprint PCS
The Franklin Mint Komatsu America International Subaru of America, Inc.
The HoneyBaked Ham Porsche Cars of North America, Inc. Tyco Plastics and Adhesives
Company Rheem Manufacturing US Ceramic Tile Company
Tiffany & Co. Sony Electronics Xpedx
Unilever Research
VF Corporation
Wickes Furniture
No single customer accounted for 10% or more of our total revenues during
fiscal year 2001.
Sales and Marketing
We market our products through direct and indirect sales channels. We
conduct our principal sales and marketing activities from corporate headquarters
in Atlanta, Georgia, and have sales and/or support offices in Boston, Chicago,
Dallas, Pittsburgh and Raleigh. Sales channels outside of North America are
managed from Logility's international offices in the United Kingdom, France,
Spain and Australia.
We have a number of marketing alliances, including those with GERS Retail
Systems, IBM, Insight, Microsoft Great Plains Business Solutions (formerly Great
Plains Software), Pitney Bowes, 3Plex, and Tompkins Associates. Generally, these
marketing alliance agreements provide the vendors with non-exclusive rights to
market our products and access to our marketing materials and product training.
Some highlights of these agreements are as follows:
. GERS Retail Systems - Under our strategic alliance agreement with GERS
Retail Systems, dated October 27, 1999, the parties agreed to use
commercially reasonable efforts to participate in joint marketing
efforts, to educate potential customers regarding the value of the
products and services of the other party, to recommend each other's
products and services and to make mutual customer referrals.
13
. IBM - We entered into an agreement with IBM on March 17, 2000 pursuant
to which we modified our Supply Chain products, with IBM's technical
and financial assistance, to operate with IBM's AS/400 platform. Also,
we agreed to use commercially reasonable efforts to market and support
the IBM-compatible Supply Chain products that resulted from our
efforts. IBM may also market the Supply Chain products and refer
potential customers to us.
. Insight - Our agreement with Insight, dated April 24, 1998, grants us
a seven-year, worldwide, non-exclusive right and license to sublicense
and distribute certain of Insight's products, and to promote and
market those products.
. Microsoft Great Plains Business Solutions (formerly Great Plains
Software) - On June 28, 2000, we granted to Microsoft Great Plains a
worldwide non-exclusive license to name, package, promote, modify,
market, distribute and supply our Voyager series under either our
label or as the "Great Plains eEnterprise Supply Chain Series." The
agreement terminates May 31, 2003, but may be automatically renewed
for successive one-year terms. In exchange, Microsoft agreed to use
all reasonable efforts to promote and sell the software.
. Pitney Bowes - We entered into a two-year referral agreement with
Pitney Bowes on August 1, 2000 whereby its division, Transcape, will
use reasonable commercial efforts to solicit customers to become end
users of our products. On February 8, 2001, we entered into another
agreement with Pitney Bowes that grants Transcape the right to act as
a non-exclusive value added remarketer of our products within the
United States.
. 3Plex - Our agreement with 3Plex grants 3Plex a non-exclusive
worldwide right and license to install and use our Transportation
Planning and Management and Voyager XES software systems to perform
data processing services for 3Plex's customers. The term of the
license varies depending on the licensed product.
. Tompkins Associates - Our alliance agreement with Tompkins Associates,
dated November 1, 1999, provides that Tompkins Associates will promote
our Warehouse PRO system to its potential customers when a match
exists between the potential customer's business requirements and
Warehouse PRO's functionality. In exchange, we promote Tompkins
Associates as a preferred provider of pre- and post-sale information
technology consulting, computer software products implementation and
related services.
In addition to these marketing alliances, we have developed a network of
international agents who assist in selling our products in 25 countries. We
intend to utilize these and future relationships with software and service
organizations to enhance our sales and marketing position. These independent
distributors and resellers throughout Latin America, Europe and the Asia/Pacific
region distribute our product lines in foreign countries. These vendors
typically sell their own consulting and systems integration services in
conjunction with licensing our products.
To support our direct sales force, we conduct marketing programs that
include public relations, direct marketing, advertising, trade shows, product
seminars, industry speakers, user group conferences and ongoing customer
communication programs.
14
Customer Service and Support
We provide the following services and support to our customers:
Implementation Support: ExpressROI(TM). We offer our customers a
professional and proven implementation program that facilitates rapid
implementation of our software products. Logility consultants, through the
ExpressROI program, help customers define the nature of their project, and
subsequently proceed through the implementation process. We provide
training for all users and managers involved. We first establish measurable
financial and logistical performance indicators, then evaluate them for
conformance during and after implementation. Additional services beyond
implementation can include post-implementation reviews and benchmarks to
further enhance the benefits to customers.
Implementation: General Training Services. We offer our customers
post-delivery professional services consisting primarily of implementation
and training services, for which we typically charge on a daily basis.
Customers that choose to purchase implementation services receive
assistance in integrating our solution with existing software applications
and databases. Implementation of Logility Voyager Solutions typically
requires three to nine months, depending on factors such as the complexity
of a customer's existing system, the number of modules purchased, and the
number of end users.
Product Maintenance and Updates: Support Services. We provide our
customers with ongoing product support services. Support or maintenance
contracts typically are sold to customers for an initial three year term at
the time of the product license with renewal for additional periods
thereafter. Under these contracts, we provide telephone consulting, product
updates and releases of new versions of products previously purchased by
the customer, as well as error reporting and correction services. We
provide ongoing support and maintenance services on a seven-day-a-week,
24-hours-a-day basis through telephone, electronic mail and web-based
support, using a call logging and tracking system for quality assurance.
Research and Product Development
During fiscal 2001, 2000, and 1999, we expensed approximately $5.2 million,
$4.9 million, and $6.2 million, respectively, for research and development. In
addition, we capitalized $3.0 million, $3.4 million, and $3.9 million in
software development costs during fiscal years 2001, 2000, and 1999,
respectively, in accordance with the Statement of Financial Accounting Standards
No. 86. Our internal new product development and enhancements of existing
products include two categories: research and development expenditures and
additions to capitalized computer software development costs. These combined
categories totaled $8.2 million, $8.3 million, and $10.1 million in fiscal years
2001, 2000, and 1999, respectively, and represented 29%, 26%, and 37%,
respectively, of total revenues in those years.
We believe that our future success depends in part upon our ability to
continue to enhance existing products, respond to changing customer
requirements, develop and introduce new or enhanced products and keep pace with
technological developments and emerging industry standards. Our development
efforts are focused on, but are not limited to, enhancing operability of our
products across distributed and changing heterogeneous hardware platforms,
operating systems and relational databases and the addition of new functionality
to existing products. These development efforts will continue to focus on
deploying applications within a multi-tiered supply chain environment, including
the Internet.
The current release of Logility Voyager Solutions is version 6.0. This
version is based on an integrated object-oriented architecture for maximum
scaleability and messaging functionality that supports the increasingly
distributed nature of supply chain planning, supply chain execution and
collaborative commerce. Logility Voyager Solutions easily interfaces with
leading ERP vendors such as SAP, Oracle and PeopleSoft.
Competition
Our products are targeted at emerging markets within the application
software market, which is intensely competitive and characterized by rapid
technological change. Our competitors are diverse and offer a variety of
solutions directed at various aspects of the value chain, as well as the
enterprise as a whole. Our existing competitors include vendors focusing on the
supply chain application software market, such as i2 Technologies and
Manugistics. In addition, we face potential competition from (i) large
enterprise resource planning (ERP) application software vendors such as SAP,
PeopleSoft, JD Edwards, and Oracle, each of which currently offers sophisticated
ERP solutions that currently or may in the future incorporate supply chain
management modules, advanced planning and scheduling or collaboration software;
(ii) application hosting services vendors; (iii) vendors that establish
electronic marketplaces and indirect procurement capabilities; (iv) other
business application software vendors that may broaden their product offerings
by internally developing, or by acquiring or partnering with independent
developers of supply chain management software; and (v) internal development
efforts by corporate information technology departments.
15
In addition, we may face competition from other application software
vendors, including ERP vendors that from time to time jointly market our
products as a complement to their own systems. To the extent such vendors
develop or acquire systems with functionality comparable or superior to our
products, their significant installed customer base, long-standing customer
relationships and ability to offer a broad solution could provide a significant
competitive advantage over our products.
We also expect to face additional competition as other established and
emerging companies enter the market for collaborative commerce and supply chain
management software and new products and technologies are introduced. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of our
prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Increased competition could result in fewer customer
orders, reduced gross margins and loss of market share.
Many of our competitors and potential competitors have significant
worldwide presence, longer operating histories, significantly greater financial,
technical, marketing and other resources, greater name recognition and a larger
installed base of customers than ours. Some competitors have become more
aggressive with their prices, payment terms and issuance of contractual
implementation terms or guarantees. In order to be successful in the future, we
must continue to develop innovative software solutions and respond promptly and
effectively to technological change and competitors' innovations. We may also
have to lower prices or offer other favorable terms. Our competitors may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and sale
of their products. The principal competitive factors affecting the market for
our products include vendor and product reputation; product architecture,
functionality and features; costs; ease and speed of implementation; return on
investment; product quality; price and performance; and level of support.
Proprietary Rights and Licenses
Logility's success and ability to compete is dependent in part upon its
proprietary technology. To protect our proprietary technology, we rely on a
combination of copyright and trade secret laws, confidentiality procedures and
contractual provisions, which may afford only limited protection. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries. Although we rely on the limited protection afforded
by such confidential and contractual procedures and intellectual property laws,
we also believe that factors such as the knowledge, ability, and experience of
our personnel, new product developments, frequent product enhancements, reliable
maintenance and timeliness and quality of support services are essential to
establishing and maintaining a technology leadership position. We presently have
no patents or patent applications pending. The source code for our proprietary
software is protected both as a trade secret and as a copyrighted work. We
generally enter into confidentiality or license agreements with our employees,
consultants and customers, and generally control access to and distribution of
our software, documentation and other proprietary information.
We provide our software products to customers under non-exclusive license
agreements. As is customary in the software industry, in order to protect our
intellectual property rights, we do not sell or transfer title to our products
to our customers. Although the license agreements place restrictions on the use
by the customer of our products, there can be no assurance that unauthorized use
of our products will not occur. In addition, we have licensed the source code
for our software to American Software on a limited basis to enable American
Software to perform warranty, maintenance and support obligations for certain
customers, for which it is responsible under certain license agreements that
were not assigned to us in connection with the formation of Logility.
Despite the measures taken to protect our proprietary rights, unauthorized
parties may attempt to reverse engineer or copy aspects of our products or to
obtain and use information that we regard as proprietary. Policing unauthorized
use of our products is difficult. In addition, litigation may be necessary in
the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition.
In the future, we may increasingly be subject to claims of intellectual
property infringement as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Although we are not aware that any of our products infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not claim infringement by us with respect to current or future
products. In addition, we may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the validity
of our proprietary rights. Any such claims against us, with or without merit, as
well as claims initiated by us against third parties, can be time consuming and
expensive to defend, prosecute or resolve. Moreover, an adverse outcome in
litigation or similar adversarial proceedings could subject us to significant
liabilities to third parties, require the expenditure of significant resources
to develop non-infringing
16
technology, require a substantial amount of attention from management, require
disputed rights to be licensed from others, require us to enter into royalty
arrangements or require us to cease the marketing or use of certain products,
any of which would have a material adverse effect on our business, operating
results and financial condition. To the extent that we desire or are required to
obtain licenses to patents or proprietary rights of others, there can be no
assurance that any such licenses will be made available on terms acceptable to
us, if at all.
We have relicensed, and expect in the future to relicense, certain software
from third parties for use in connection with our products. There can be no
assurance that these third-party software vendors will not change their product
offerings or that these software licenses will continue to be available to us on
commercially reasonable terms, if at all. The termination of any such licenses
or product offerings, or the failure of the third-party licensors to adequately
maintain or update their products, could result in delay in our ability to ship
certain of our products while we seek to implement technology offered by
alternative sources. Any required replacement licenses could prove costly.
Further, any such delay, if it becomes extended, could result in a material
adverse effect on our results of operations.
Employees
As of April 30, 2001, Logility had 167 full-time employees, consisting of
49 in sales and marketing, 53 in product development, 59 in customer support and
implementation services and 6 in administration and finance. In addition, we
share a number of administrative and finance personnel with American Software.
None of our employees are represented by a labor union or are subject to a
collective bargaining agreement. Logility believes its employee relations are
good.
17
RISK FACTORS
Factors That May Affect Future Results and Market Price of Stock.
We have included certain forward-looking statements in the Management's
Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this Form 10-K. We may also make oral and written forward-looking
statements from time to time, in reports filed with the Securities and Exchange
Commission, and otherwise. Actual results may differ materially from those
projected in any such forward-looking statements due to a number of factors,
including those set forth below and elsewhere in this Form 10-K.
We operate in a dynamic and rapidly changing environment that involves
numerous risks and uncertainties. The following section lists some, but not all,
of the risks and uncertainties that may have a material adverse effect on our
business, financial condition or results of operations. This section should be
read in conjunction with the audited Consolidated Financial Statements and Notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the fiscal years ended April 30, 1999, 2000 and 2001
contained elsewhere in this Form 10-K.
We Could Experience Fluctuations in Quarterly Operating Results That Could
Adversely Impact Our Stock Price.
Our revenues and results of operations are difficult to predict and may
fluctuate substantially from quarter to quarter. License revenues in any quarter
depend substantially upon our ability to recognize revenues in that quarter in
accordance with our revenue recognition policies.
Our contracting activity is difficult to forecast for a variety of reasons,
including the following:
. a significant portion of our license agreements are completed within
the last few weeks of each quarter;
. our sales cycle is relatively long and variable because of the complex
and mission-critical nature of our products;
. the size of our license transactions can vary significantly;
. the possibility of economic downturns, both domestic and
international, characterized by decreased product demand, price
erosion, technological shifts, work slowdowns and layoffs, may
substantially reduce customer demand and contracting activity;
. customers may unexpectedly postpone or cancel system replacement or
new system evaluations due to changes in their strategic priorities,
project objectives, budgetary constraints or company management;
. customer evaluations and purchasing processes vary from company to
company, and a customer's internal approval and expenditure
authorization process can be difficult and time consuming, even after
selection of a vendor; and
. the number, timing and significance of software product enhancements
and new software product announcements by us and by our competitors
may affect purchase decisions.
Several factors may require us to defer recognition of license revenue for
a significant period of time after entering into a license agreement, including:
. whether the license agreement relates to then unavailable software
products;
. whether transactions include both currently deliverable software
products and software products that are under development or other
undeliverable elements;
. whether the customer demands services that include significant
modifications, customizations or complex interfaces that could delay
product delivery or acceptance;
. whether the transaction involves acceptance criteria that may preclude
revenue recognition or if there are identified product-related issues,
such as known defects; and
. whether the transaction involves payment terms or fees that depend
upon contingencies.
Because of the factors listed above and other specific requirements under
Generally Accepted Accounting Principles (GAAP) for software revenue
recognition, we must have very precise terms in our license agreements in order
to recognize revenue when we initially deliver software or perform services.
Although we have a standard form of license agreement that meets the criteria
under GAAP for current revenue recognition on delivered elements, we negotiate
and revise these terms and conditions in some transactions. Negotiation of
mutually acceptable terms and conditions can extend the sales cycle, and
sometimes we do not obtain terms and conditions that permit revenue recognition
at the time of delivery or even as work on the project is completed.
18
Variances or slowdowns in our contracting activity in prior quarters may
affect current and future consulting, training and maintenance service revenues
since these revenues typically follow license fee revenues. Our ability to
maintain or increase services revenue primarily depends on our ability to
increase the number of our licensing agreements. In addition, our expense
levels, operating costs and hiring plans are based on projections of future
revenues and are relatively fixed. If our actual revenues fall below
expectations, our net income is likely to be disproportionately adversely
affected.
There Is Intense Competition in Our Industry, Which Requires Us to Constantly
Create New Products, Improve Our Existing Products and Sell Our Products at
Competitive Prices.
We compete with a variety of software vendors, including:
. vendors focusing on the supply chain application software market
segment;
. large ERP software vendors;
. application hosting services vendors;
. vendors that establish electronic marketplaces and indirect
procurement capabilities; and
. numerous other firms that offer products and services with new or
advanced features.
We also face competition from internal development efforts by corporate
information technology departments. As a result, the market for business
application software and related services has been and continues to be intensely
competitive. Some competitors have become more aggressive with their prices and
payment terms and issuance of contractual implementation terms or guarantees. We
may be unable to continue to compete successfully with new and existing
competitors without lowering prices or offering other favorable terms.
In addition, we believe we must differentiate ourselves through different
or more subtle architectural and technological factors.
Some of our competitors may have the following advantages over us:
. significant worldwide presence;
. longer operating and product development history;
. substantially greater financial, technical and marketing resources
than ours;
. greater name recognition; and
. a larger installed customer base than ours.
Furthermore, potential customers may consider outsourcing options,
including application service providers, data center outsourcing and service
bureaus as viable alternatives to licensing our software products.
19
We May Derive a Significant Portion of Our Revenue in any Quarter from a Limited
Number of Large, Non-Recurring License Sales.
We expect to continue to experience from time to time large, individual
license sales, which may cause significant variations in quarterly license fees.
We also believe that purchasing our products is relatively discretionary and
generally involves a significant commitment of a customer's capital resources.
Therefore, a downturn in any potential customer's business could result in order
cancellations that could have a significant adverse impact on our revenue and
quarterly results. Moreover, declines in general economic conditions could
precipitate significant reductions in corporate spending for information
technology, which could result in delays or cancellations of orders for our
products.
We Are Dependent Upon Key Personnel, and Need to Hire Additional Personnel in
All Areas.
Our future operating results depend significantly upon the continued
service of a relatively small number of key senior management and technical
personnel, including our Chief Executive Officer, J. Michael Edenfield. None of
our key personnel are bound by long-term employment agreements. The loss of Mr.
Edenfield or one or more other key individuals could have an adverse effect on
us.
Our future success also depends on our continuing ability to attract and
retain other highly qualified managerial and technical personnel. Competition
for these personnel is intense, and at times we have experienced difficulty in
recruiting and retaining qualified personnel. We may be unable to retain our key
managerial and technical employees and we may not be successful in attracting,
assimilating and retaining other highly qualified managerial and technical
personnel in the future. If our competitors increase their use of non-compete
agreements, the pool of available sales and technical personnel may further
narrow in certain areas, even if the non-compete agreements ultimately prove to
be unenforceable. We may grant large numbers of stock options to attract and
retain personnel, which could be highly dilutive to our stockholders. The loss
of key management and technical personnel or the inability to attract and retain
additional qualified personnel would have an adverse effect on us.
We Rely to a Large Extent on Services Provided by American Software and Are
Subject to Effective Control by American Software.
We operated as a division of American Software, Inc. until we went public
in 1997. Today, we are approximately 85% owned by American Software. We receive
a substantial amount of financial, accounting, sales and management services
from American Software. Although the bulk of our sales are generated by our
direct sales force, we have relied, and we expect that we will continue to rely,
to a substantial extent on our sales relationship with American Software. We
also rely heavily on financial, accounting and management services provided by
American Software. With few exceptions, American Software has no obligation to
continue providing these services to us. Therefore, our business, operating
results and financial condition may be adversely affected by a reduction or
discontinuation of services from American Software.
As long as American Software owns a majority of our Common Stock, it will
be able to determine, without the consent of our other stockholders, the outcome
of any corporate action requiring stockholder approval, including the election
of our entire Board of Directors. In addition, through its ownership of a
majority of our Common Stock and control of our Board of Directors, American
Software will be able to control our management and affairs, including all
determinations with respect to acquisitions, dispositions, mergers, and other
business combinations, borrowings, issuances of our Common Stock or other equity
securities, our dividend policy, and any change in control of Logility.
The Impact of Changes in Global Economic Conditions on Our Customers May Cause
Us to Fail to Meet Expectations, Which Would Negatively Impact the Price of Our
Stock.
Our operating results can vary significantly based upon the effect of
changes in global economic conditions on our customers. In particular, the
current macro-economic environment is more uncertain than in recent periods and
has the potential to materially and adversely affect us. The revenue growth and
profitability of our business depends on the overall demand for computer
software and services, particularly in the areas in which we compete. Because we
sell primarily to major corporate customers whose businesses fluctuate with
general economic and business conditions, a softening of demand for computer
software caused by a weakening economy has resulted, and may continue to result,
in decreased revenues and lower growth rates. Because historically we have
relied upon relatively large license transactions, we may be especially prone to
this risk. Customers have, and may continue to, defer or reconsider purchasing
products if they experience a downturn in their business or if there is a
downturn in the general economy.
20
We Have Recently Expanded Our Technology into Several New Business Areas and
Cannot Be Certain that Our Expansion Will Be Successful.
Our future success depends to a large degree on the Internet being accepted
and widely used for commerce. We have recently expanded our technology into a
number of new business areas to foster long-term growth, including electronic
commerce, on-line business services and other products and services that can be
offered over the Internet. These areas are relatively new to our product
development, sales and marketing personnel and we cannot be assured that the
markets for these products will develop or that we will be able to compete
effectively or will generate significant revenues in these new areas. As a
result, our success in these areas is difficult to predict.
Future Regulation of the Internet May Slow its Growth, Resulting in Decreased
Demand for Our Products and Services and Increased Costs of Doing Business.
Due to increasing popularity of the Internet, it is possible that state,
federal and international regulators could adopt laws and regulations that
impose additional burdens on companies conducting business online. For example,
the growth and development of the market for Internet-based services may prompt
calls for more stringent consumer protection laws. Moreover, the applicability
to the Internet of existing laws in various jurisdictions governing issues such
as property ownership, sales tax, libel and personal privacy is uncertain and
may take years to resolve. Any new legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could inhibit the expansion of the Internet, causing
our costs to increase and our growth to be harmed.
The Viability of Electronic Marketplaces Is Uncertain.
Electronic marketplaces that allow collaboration over the Internet among
trading partners are relatively new and unproven. There can be no assurance that
trading partners will adopt electronic marketplaces as a method of doing
business. Trading partners may fail to participate in electronic marketplaces
for a variety of reasons, including:
. concerns about the confidentiality of information provided
electronically to electronic marketplaces;
. the inability of technological advances to keep pace with the volume
of information processed by electronic marketplaces; and
. regulatory issues, including antitrust issues that may arise when
trading partners collaborate through electronic marketplaces.
Any of these factors could limit the growth of electronic marketplaces as
an accepted means of commerce. Slower growth or the abandonment of the
electronic marketplace concept in one or more industries could have a material
adverse effect on our results of operations and financial condition.
We Depend on Third-Party Technology that Could Result in Increased Costs or
Delays in the Production and Improvement of Our Products.
We license critical third-party software products that we incorporate into
our own software products. If any of the third-party software vendors were to
change their product offerings or terminate our licenses, we might need to incur
additional development or acquisition costs to ensure continued performance of
our products. In addition, if the cost of licensing any of these third-party
software products significantly increases, our gross margin levels could
significantly decrease.
We rely on existing relationships with certain other software vendors who
are also competitors. If these vendors change their business practices in the
future, we may be compelled to find alternative vendors with complementary
software, which may not be available on attractive terms, or may not be as
widely accepted or as effective as the software provided by our existing
vendors.
21
Services Revenues Carry Lower Gross Margins Than License Revenues and an Overall
Increase in Services Revenue as a Percentage of Total Revenues Could Have an
Adverse Impact on Our Business.
Because service revenues have lower gross margins than license revenues, an
increase in the percentage of total revenue represented by service revenues
could have a detrimental impact on our overall gross margins and could adversely
affect operating results. As a result, our gross margins can be negatively
affected based on the percentage of service revenues as a percentage of total
revenue and the mix between services that are provided by our employees versus
services provided by third-party consultants.
We May Change Our Pricing Practices, Which Could Impact Operating Margins or
Customer Ordering Patterns.
In the future, we may choose to make changes to our pricing practices. For
example, we may (i) offer additional discounts to customers, (ii) increase (or
decrease) the use of pricing that involves periodic fees based on the number of
users of a product, or (iii) change maintenance pricing. Such changes could
reduce margins or inhibit our ability to sell our products.
Recent Accounting Pronouncements Could Adversely Impact Our Profitability by
Delaying Some Revenue Recognition into Future Periods.
In recent years, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition", and SOP
98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions." These standards address software revenue recognition
matters primarily from a conceptual level and do not include specific
implementation guidance. We believe that we currently comply with SOPs 97-2 and
98-9.
The American Institute of Certified Public Accountants has issued
implementation guidelines for these standards and the accounting profession is
still discussing a wide range of potential interpretations. These implementation
guidelines, once finalized, could lead to unanticipated changes in our current
revenue accounting practices that could cause us to recognize lower profits. As
a result, we may change our business practices significantly in order to
continue to recognize a substantial portion of our license revenues when we
deliver our software products and services. Such changes may adversely affect
our business.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101") and amended it in March 2000. We were required to adopt the
provisions of SAB 101 in our fourth quarter of fiscal 2001. SAB 101 does not
supercede the software industry specific revenue recognition guidance, with
which we believe we comply.
Our Continued Growth Depends Upon Our Ability to Build and Maintain Strategic
Relationships with Third Parties.
A key aspect of our sales and marketing strategy is to build and maintain
strong working relationships with businesses that we believe play an important
role in the successful marketing of our software products and services. Our
current and potential customers often rely on third-party system integrators to
implement, deploy and manage client/server and other platform-based
applications. We believe that our marketing and sales efforts are enhanced by
the worldwide presence of these companies. However, these companies, most of
which have significantly greater financial and marketing resources than us, may
start, or in some cases increase, the marketing of business application software
in competition with us, or may otherwise discontinue their relationships with or
support of us. In addition, if these strategic partners are unable to recruit
and adequately train a sufficient number of consulting personnel to support the
implementation of our software products, we may lose customers.
As we have done in the past, in the future we may enter into various
development or joint business arrangements to develop new software products or
extensions to our existing software products. Under these joint business
arrangements, we may distribute ourself or jointly sell with our business
partners an integrated software product and pay a royalty to the business
partner based on end-user license fees. While we intend to develop business
applications that are integrated with our software products, these software
products may in fact not be integrated or brought to market or the market may
not accept the integrated enterprise solution. As a result, we may not achieve
the revenues that we anticipated at the time we entered into the joint business
arrangement.
22
Our Software Products and Product Development Are Complex, Which Make It
Increasingly Difficult to Innovate, Extend Our Product Offerings, and Avoid
Costs Related to Correction of Program Errors.
The market for our software products is characterized by rapid
technological change, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements. Our future
success will depend in part upon our ability to:
. continue to enhance and expand our core applications;
. continue to sell our products;
. continue to successfully integrate third-party products;
. enter new markets; and
. develop and introduce new products that keep pace with technological
developments, including developments related to the Internet, satisfy
increasingly sophisticated customer requirements and achieve market
acceptance. We may not be able to enhance existing products or develop
and introduce new products in a timely manner.
Our software products can be licensed for use with a variety of popular
industry standard database management systems. There may be future or existing
database management system platforms that achieve popularity within the business
application marketplace and on which we may desire to offer our applications.
These future or existing database management system products may or may not be
architecturally compatible with our software product design. We may not be able
to develop software products on additional platforms with the specifications and
within the time frame necessary for market success.
Despite testing by us, our software programs, like all software programs
generally, may contain a number of undetected errors when they are first
introduced or as new releases are subsequently released. This may result in
increased costs to correct such errors and reduced acceptance of our software
products in the marketplace. The effort and expense of developing, testing,
implementing and maintaining software product lines will increase with the
increasing number of possible combinations of:
. vendor hardware platforms;
. operating systems and updated versions;
. application software products and updated versions; and
. database management system platforms and updated versions.
Developing consistent software product performance characteristics across
all of these combinations could place a significant strain on our development
resources and software product release schedules.
23
Future Acquisitions May Not Be Successful.
We may acquire or invest in complementary companies, products and
technologies, and enter into joint ventures and strategic alliances with other
companies. Risks commonly encountered in such transactions include:
. the difficulty of assimilating the operations and personnel of the
combined companies;
. the risk that we may not be able to integrate the acquired
technologies or products with our current products and technologies;
. the potential disruption of our ongoing business;
. the inability to retain key technical and managerial personnel;
. the inability of management to maximize our financial and strategic
position through the successful integration of acquired businesses;
. adverse impact on our annual effective tax rate;
. dilution of existing equity holders caused by capital stock issuances
to the stockholders of acquired companies or to retain employees of
the acquired companies;
. difficulty in maintaining controls, procedures and policies;
. potential adverse impact on our relationships with partner companies
or third-party providers of technology or products;
. the impairment of relationships with employees and customers; and
. issues with product quality, product architecture, legal
contingencies, product development issues, or other significant issues
that may not be detected through our due diligence process.
Recent changes in the law require the use of the purchase method of
accounting in all new business acquisitions. The purchase method of accounting
for business combinations may require large write-offs of any in-process
research and development costs related to companies being acquired, as well as
ongoing amortization costs for certain intangible assets and potential
impairment charges for goodwill valued in combinations of companies. Such
write-offs and ongoing amortization and other charges may have a significant
negative impact on operating margins and net income in the quarter of the
combination and for several subsequent years. We may not be successful in
overcoming these risks or any other problems encountered in connection with such
transactions.
24
Our International Operations and Sales Subject Us to Risks Associated with
Unexpected Activities Outside of the United States.
The global reach of our business could cause us to be subject to
unexpected, uncontrollable and rapidly changing events and circumstances in
addition to those experienced in locations within the United States. Changes in
the following factors, among others, could have an adverse impact on our
business and earnings:
. conducting business in currencies other than United States dollars
subjects us to factors such as currency controls and fluctuations in
currency exchange rates;
. we may be unable to hedge some transactions because of uncertainty or
the inability to reasonably estimate our foreign exchange exposure;
. we may hedge some anticipated transactions and transaction exposures,
but could experience losses if exchange rates move in the opposite
direction;
. differing foreign technical standards;
. increased cost and development time required to localize our products;
. lack of experience in a particular geographic market;
. regulatory, social, political, labor or economic conditions in a
specific country or region;
. laws, policies and other regulatory requirements affecting trade and
investment including loss or modification of exemptions for taxes and
tariffs, and import and export license requirements;
. exposure to different legal standards; and
. operating costs in many countries are higher than in the United
States.
We Have Limited Protection of Intellectual Property and Proprietary Rights and
May Potentially Infringe Third-Party Intellectual Property Rights.
We consider certain aspects of our internal operations, software and
documentation to be proprietary, and rely on a combination of contract,
copyright, trademark and trade secret laws and other measures to protect this
information. Existing copyright laws afford only limited protection. We believe
that the rapid pace of technological change in the computer software industry
has made trade secret and copyright protection less significant than factors
such as:
. knowledge, ability and experience of our employees;
. frequent software product enhancements; and
. timeliness and quality of support services.
Our competitors may independently develop technologies that are
substantially equivalent or superior to our technology. The laws of some
countries in which our software products are or may be licensed do not protect
our software products and intellectual property rights to the same extent as the
laws of the United States. Defending our rights could be costly.
Third parties may assert infringement claims against us. These assertions
could distract management, require us to enter into royalty arrangements, and
could result in costly and time consuming litigation, including damage awards.
We May Experience Liability Claims Arising Out of Licensing Our Software and
Providing Our Services.
Our agreements normally contain provisions designed to limit our exposure
to potential liability claims. However, these provisions could be invalidated by
unfavorable judicial decisions or by federal, state, local or foreign laws or
ordinances. For example, we may not be able to avoid or limit liability for
disputes relating to product performance or the provision of services. If a
claim against us were to be successful, we may be required to incur significant
expense and pay substantial damages. Even if we prevailed, the accompanying
publicity could adversely impact the demand for our software.
25
Concerns That Our Products Do Not Adequately Protect the Privacy of Consumers
Could Inhibit Sales of Our Products.
One of the features of our customer management software applications is the
ability to develop and maintain profiles of customers for use by businesses.
Typically, these products capture profile information when customers and
employees visit an Internet web-site and volunteer information in response to
survey questions concerning their backgrounds, interests and preferences. Our
products augment these profiles over time by collecting usage data. Although our
customer management products are designed to operate with applications that
protect user privacy, privacy concerns may nevertheless cause visitors to resist
providing the personal data necessary to support this profiling capability. If
we cannot adequately address customers' privacy concerns, these concerns could
seriously harm our business, financial condition and operating results.
Increased Rate of Growth in Our Operations Could Increase Demands on Our
Managerial and Operational Resources.
If the rate of growth in the scope of our operating and financial systems
and the geographic distribution of our operations and customers increases
dramatically, it may increase demands on our management and operations. Our
officers and other key employees will need to implement and improve our
operational, customer support and financial control systems and effectively
expand, train and manage our employee base. Further, we may be required to
manage an increasing number of relationships with various customers and other
third parties. We may not be able to manage future expansion successfully, and
our inability to do so could harm our business, operating results and financial
condition.
Our Stock Price Is Volatile and There Is a Risk of Litigation.
The trading price of our common stock has in the past and may in the future
be subject to wide fluctuations in response to factors such as the following:
. revenue or results of operations in any quarter failing to meet the
expectations, published or otherwise, of the investment community;
. announcements of technological innovations by us or our competitors;
. new products or the acquisition of significant customers by us or our
competitors;
. developments with respect to our patents, copyrights or other
proprietary rights or those of our competitors;
. changes in recommendations or financial estimates by securities
analysts;
. changes in management;
. conditions and trends in the software industry generally;
. the announcement of acquisitions or other significant transactions by
us or our competitors;
. adoption of new accounting standards affecting the software industry;
and
. general market conditions and other factors.
Fluctuations in the price of our common stock may expose us to the risk of
securities class action lawsuits. Although no such lawsuits are currently
pending against us and we are not aware that any such lawsuit is threatened to
be filed in the future, there is no assurance that we will not be sued based on
fluctuations in the price of our common stock.
26
PART II
- -------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion and analysis below contains forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, that involve risks and uncertainties,
such as statements of our plan, objectives, expectations and intentions. Such
forward-looking statements generally are accompanied by words such as "plan,"
"estimate," "expect," "believe," "should," "would," "could," "anticipate," "may"
or other words that convey uncertainty of future events or outcomes. The
forward-looking statements in this discussion and analysis are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The section above entitled "Risk Factors" sets forth certain factors that
could cause our actual future results to differ materially from those
statements.
We recognize revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, and SOP 98-9, Software Revenue Recognition with
Respect to Certain Transactions. License revenues in connection with license
agreements for standard proprietary and tailored software are recognized upon
delivery of the software, provided collection is considered probable, the fee is
fixed or determinable, there is evidence of an arrangement, and vendor specific
evidence exists to defer any revenue related to undelivered elements of the
arrangement. Maintenance fees are generally billed annually in advance and the
resulting revenues are recognized ratably over the term of the maintenance
agreement. Revenues derived from services primarily include consulting,
implementation, and training. Fees are billed under both time and materials and
fixed fee arrangements and are recognized as services are performed. Deferred
revenues represent advance payments or billings for software licenses, services,
and maintenance billed in advance of the time revenues are recognized.
The following table sets forth certain revenue and expense items as a
percentage of total revenues for the three years ended April 30, 2001 and the
percentage increases and decreases in those items for the years ended April 30,
2001 and 2000:
Years Ended April 30, 2001 and 2000:
2001 vs 2000 vs
Percentage of total revenues 2001 2000 1999 2000 1999
- ---------------------------- ---- ---- ---- ---- ----
Revenues:
License fees .............................................. 31% 42% 42% (36)% 19%
Maintenance ............................................... 37 29 30 11 18
Services .................................................. 32 29 28 (3) 22
---- ---- ---- ---- ----
Total revenues ....................................... 100 100 100 (13) 20
---- ---- ---- ---- ----
Cost of revenues:
License fees .............................................. 14 10 16 24 (27)
Maintenance ............................................... 6 5 8 (7) (19)
Services .................................................. 22 16 13 21 48
---- ---- ---- ---- ----
Total cost of revenues ............................... 42 31 37 17 --
---- ---- ---- ---- ----
Gross margin ................................................... 58 69 63 (26) 31
Operating expenses
Research and development, net ............................. 18 15 23 5 (20)
Sales and marketing ....................................... 48 40 54 6 (11)
General and administrative ................................ 14 10 16 29 (29)
Charge for restructuring/asset impairment ................. 2 -- 5 nm nm
---- ---- ---- ---- ----
Total operating expenses ............................. 82 65 98 11 (20)
---- ---- ---- ---- ----
Operating income (loss) ........................................ (24) 4 (35) nm nm
Other income, net .............................................. 4 3 5 7 (11)
---- ---- ---- ---- ----
Income (loss) before income taxes .............................. (20) 7 (30) nm Nm
Income tax expense ............................................. -- -- -- nm nm
---- ---- ---- ---- ----
Net income (loss) .............................................. (20)% 7% (30)% nm nm
==== ==== ==== ==== ====
____________
nm-not meaningful
27
Years Ended April 30, 2001 and 2000:
- -----------------------------------
Revenues:
Our total revenues decreased 13% to $28.2 million from $32.3 million for
the prior year. This was primarily the result of decreased license fees compared
to the prior year, partially offset by an increase in maintenance revenues.
Licenses. License fee revenues decreased 36% from a year ago, to $8.6
million. This decrease was primarily the result of the reorganization of our
sales staff and management team that occurred in the second and third quarters
of fiscal 2001. We replaced all the members of our senior sales management team
as well as some sales staff in an effort to increase overall sales
effectiveness. The transition period to new management and staff caused a
temporary decrease in sales effectiveness. We believe that the combination of
this transition period with slower general economic conditions led to the
decrease in license fee revenues. Our direct sales channel provided
approximately 70% of the license fee revenues for fiscal 2001, compared to 81%
for the prior year. Our indirect sales channel is principally through American
Software. During fiscal year 2001, our margins after commissions on direct sales
were approximately 84% and our margins after commissions on indirect sales were
approximately 60%. To date, sales of software licenses have been derived
principally from direct sales to customers. Although we believe that direct
sales will continue to account for a majority of software license revenues, our
strategy is to increase the level of indirect sales activities. We expect that
sales of our software products through sales alliances, distributors, resellers,
and other indirect channels will increase as a percentage of license fee
revenues. However, our efforts to expand indirect sales may not be successful,
or these relationships may not continue in the future.
Maintenance. Maintenance revenues increased 11% to $10.5 million from a
year ago, due to an increase in the installed base of customers, from license
sales in prior periods. Maintenance revenues are directly related to license fee
revenues, since new licenses are the potential source of new maintenance
customers.
Services. Services revenues decreased 3% to $9.1 million from a year ago as
a result of slightly lower utilization of our implementation, training, and
consulting services. Services revenues as a percentage of total revenue have
fluctuated, and are expected to continue to fluctuate, on a period-to-period
basis based upon the demand for implementation, training, and consulting
services.
Concentration of Revenues. In fiscal year 2001, no single customer
accounted for more than 10% of our total revenues. In fiscal 2000, one customer,
ConAgra Inc., accounted for approximately 13% of total revenues. We generally
derive a significant portion of our software license revenues in each quarter
from a small number of relatively large sales. While we believe that the loss of
any one of these customers would not seriously harm our business, operating
results or financial condition, our inability to consummate one or more
substantial license sales in any future period could seriously harm our
operating results for that period.
International Revenues. We recognized approximately $4.0 million of
international revenues in fiscal 2001, representing approximately 14% of total
revenues, and approximately $3.7 million in fiscal 2000, representing
approximately 11% of total revenues. The increase in revenues from international
sources as a percentage of total revenues was due primarily to lower overall
levels of total revenues. We believe that continued growth and profitability may
require further expansion in international markets. To increase the level of
international sales, we have utilized and may continue to utilize substantial
resources to expand existing international operations and establish additional
international operations. We cannot be certain that our investments in
international operations will produce desired levels of revenues or
profitability.
Gross Margin:
Total gross margin in 2001 was 58% compared to 69% a year ago, due
primarily to decreases in gross margins on license fees and service revenues.
The gross margin on license fees decreased to 54% from 76% a year ago, due to
the combination of lower license fees and relatively fixed amortization of
capitalized software expense. Maintenance gross margin increased to 84% from 81%
a year ago, primarily as a result of increased maintenance revenue. Services
gross margin decreased to 32% from 45% a year ago, due primarily to higher
staffing and infrastructure costs incurred in anticipation of higher levels of
license fees.
28
Operating Expenses:
Research and Development. Gross product development costs include all
non-capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Years Ended
-----------
April 30, Percent April 30,
2001 Change 2000
---- ------ ----
(in thousands)
Gross product development costs ................................................ $ 8,177 (2%) $ 8,322
Percentage of total revenues .............................................. 29% 26%
Less: capitalized development .................................................. $(2,966) (12%) $(3,373)
Percentage of gross product development costs ............................. 36% 41%
Product development expenses ................................................... $ 5,211 5% $ 4,949
Percentage of total revenues .............................................. 18% 15%
Gross product development costs decreased 2% in 2001 compared to a year ago
as a result of continued cost containment efforts. Fiscal 2001's expense of 29%
of total revenues is within our normal historical rate of approximately 25%-30%
of total revenues. Capitalized development decreased as well, declining 12% from
a year ago, while the rate of capitalized development also decreased to 36% from
41% a year ago. Product development expenses, as a percentage of total revenues,
increased to 18% due to lower overall revenues, while net product development
expenses increased 5% due to the lower rate of capitalized development. We
expect development expenses to increase slightly in the future, as we continue
to invest in developing new product applications, and further enhance existing
products.
Sales and Marketing. Sales and marketing expenses increased 6% from a year
ago. As a percentage of total revenues, sales and marketing expenses were 48%
for the year compared to 40% for 2000. This increase was due primarily to lower
overall levels of revenue, as well as increased sales and marketing
expenditures.
General and Administrative. General and administrative expenses increased
29% to approximately $4.0 million from a year ago. This increase was mainly due
to an increased allocation of shared intercompany expenses from American
Software, which is based on the proportion of Logility employees to total
American Software employees. This proportion increased in fiscal 2001, which
resulted in a higher intercompany allocation. Higher utility costs, insurance
expense and bad debt expense compared to the prior year period also contributed
to the increase. General and administrative expenses as a percentage of total
revenues increased to 14% from 10% during the same period. This increase was due
primarily to increased levels of general and administrative expenses, as well as
lower overall levels of revenue.
Charge for Restructuring. During the second and third quarters of fiscal
year 2001, we recorded a charge against earnings of approximately $476,000
resulting from severance expenses for approximately 58 employees in sales,
marketing, services, and research and development. Of this amount, $291,000
related to cash severance and $185,000 related to the acceleration of vesting of
stock options to terminated staff. All expenses related to this severance had
been completed by the end of fiscal year 2001. This severance was necessitated
by slow economic conditions, which adversely affected corporate spending for
information technology and resulted in delays or cancellations of orders for our
software products and services. Our level of staffing at the beginning of the
fiscal year was based on a historical level of sales and related services, which
did not materialize. The revenues achieved in fiscal 2001 did not support the
level of staffing and associated expenses in place, so to minimize resulting
financial losses and achieve future profitability staff reductions were
necessary.
We expect to save approximately $2.7 million annually due to the staff
reductions taken in fiscal 2001. While we do not believe that our ability to
effectively service our customers has been adversely affected by these staff
reductions, we believe that the turnover and reduction of our sales management
and staff did contribute to lower software sales during the second and third
quarters of fiscal 2001.
Other Income, Net:
Other income, net was $1.2 million in fiscal 2001, representing 4.3% of
total revenues, and $1.1 million in fiscal 2000, representing 3.5% of total
revenues. Other income is principally comprised of investment earnings. Our
investments are generally short term in nature. In fiscal 2001, we generated a
yield of approximately 6.1% on our investments, compared to approximately 6.0%
in fiscal 2000.
29
Income Taxes:
We are included in the consolidated federal income tax return filed by
American Software; however we provide for income taxes as if we were filing a
separate income tax return. Due to our loss in fiscal 2001 we did not record a
tax obligation. Our income for fiscal 2000 was offset by losses in fiscal 1999.
Fourth Quarter of Fiscal Year 2001:
In the fourth quarter of Fiscal Year 2001, we recorded positive operating
income of $129,000 and positive net income of $467,000. Total revenues increased
19% over the prior year period, driven primarily by a 99% increase in license
fees, from $1.3 million to $2.6 million.
Years Ended April 30, 2000 and 1999:
Revenues:
Our total revenues increased 20% to $32.3 million from $27.0 million for
the prior year. We realized increases in all revenue categories for the year,
the result of improved sales of our suite of Business-to-Business Collaborative
Commerce products, and associated maintenance and services.
Licenses. License fee revenues increased 19% from fiscal 1999, to $13.5
million. Our direct sales channel provided approximately 81% of the license fee
revenues for fiscal 2000, compared to 83% for the prior year. Our indirect sales
channel is principally through American Software.
Maintenance. Maintenance revenues increased 18% to $9.4 million from the
prior year, due to an increase in the installed base of customers. Maintenance
revenues are directly related to license fee revenues, since new licenses are
the potential source of new maintenance customers.
Services. Services revenues increased 22% to $9.4 million from the prior
year as a result of the increased utilization of our implementation, training,
and consulting services, which in turn resulted from the growth in our customer
base. Services revenues as a percentage of total revenue have fluctuated, and
are expected to continue to fluctuate, on a period-to-period basis based upon
the demand for implementation, training, and consulting services.
Concentration of Revenues. In fiscal year 2000, one customer, ConAgra Inc.,
accounted for approximately 13% of total revenues. No other customer accounted
for more than 10% of total revenues.
International Revenues. We recognized approximately $3.7 million of
international revenues in fiscal 2000, representing approximately 11% of total
revenues, and approximately $3.9 million in fiscal 1999, representing
approximately 14% of total revenues. The decrease in revenues from international
sources as a percentage of total revenues was due primarily to higher overall
levels of total revenues.
Gross Margin:
Total gross margin in 2000 was 69% compared to 63% in 1999, due primarily
to increases in gross margins on license fees and maintenance revenues. The
gross margin on license fees increased to 76% from 61% for the prior year, due
to the combination of higher license fees and lower amortization of capitalized
software expense. Maintenance gross margin increased to 81% from 72% for the
prior year, primarily as a result of increased maintenance revenue. Services
gross margin decreased to 45% from 55% in 1999, due primarily to increased
investment in staffing towards the end of the fiscal year in anticipation of
future projects.
30
Operating Expenses:
Research and Development. Gross product development costs include all
non-capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
Years Ended
-----------
April 30, Percent April 30,
2000 Change 1999
---- ------ ----
(in thousands)
Gross product development costs ................................... $ 8,322 (18%) $ 10,117
Percentage of total revenues ................................. 26% 37%
Less: capitalized development ..................................... $ (3,373) (15%) $ (3,952)
Percentage of gross product development costs ..................... 41% 39%
Product development expenses ...................................... $ 4,949 (20%) $ 6,165
Percentage of total revenues ................................. 15% 23%
Gross product development costs decreased 18% in 2000 compared to 1999 as a
result of our cost containment efforts during the Year 2000 slowdown. Fiscal
2000's expense of 26% of total revenues is within our normal historical rate of
approximately 25%-30% of total revenues. Fiscal 1999's rate of 37% of total
revenues was unusually high due to lower comparable revenue levels, as well as
the existence of several key development efforts. Capitalized development
decreased as well, declining 15% from the prior year, while the rate of
capitalized development increased slightly to 41% from 39% in 1999. Product
development expenses, as a percentage of total revenues, declined to 15%, while
net product development expenses decreased 20% due to the factors noted above.
Sales and Marketing. Sales and marketing expenses declined 11% from the
prior year period. As a percentage of total revenues, sales and marketing
expenses were 40% for the year compared to 54% for 1999. This decrease was due
to our cost containment efforts during the Year 2000 slowdown, and lower levels
of comparable revenue for 1999.
General and Administrative. General and administrative expenses decreased
29% to approximately $3.0 million from the prior year. This decrease was again
due to our cost containment efforts during the Year 2000 slowdown, and lower
levels of comparable revenue for 1999. General and administrative expenses as a
percentage of total revenues decreased to 10% from 16% during the same period.
Again this decrease was due to our cost containment efforts during the Year 2000
slowdown, and lower levels of comparable revenue for 1999.
Other Income, Net:
Other income, net was $1.1 million in fiscal 2000, representing 3.5% of
total revenues, and $1.3 million in fiscal 1999, representing 4.7% of total
revenues. Other income is principally comprised of investment earnings from the
net proceeds of our initial public offering. Our investments are generally short
term in nature. In fiscal 2000, we generated a yield of approximately 6.0% on
our investments, compared to approximately 5.1% in fiscal 1999.
Income Taxes:
We are included in the consolidated federal income tax return filed by
American Software; however we provide for income taxes as if we were filing a
separate income tax return. Our income for fiscal 2000 was offset by losses in
fiscal 1999. Income taxes in fiscal 1999 were related to state income tax
obligations.
31
Liquidity, Capital Resources and Financial Condition:
The following table shows information about our cash flows for the fiscal
years ended April 30, 2001 and April 30, 2000. This table and the discussion
that follows should be read in conjunction with our condensed consolidated
statements of cash flows contained in this report.
Years Ended
April 30,
---------
2001 2000
---- ----
Net cash (used in) provided by operating activities before changes in operating
assets and liabilities ................................................................ (1,695) 5,873
Change in operating assets and liabilities ............................................... 683 (253)
------- -------
Net cash (used in) provided by operating activities ...................................... (1,012) 5,620
Net cash provided by (used in) investing activities ...................................... 2,396 (11,451)
Net cash provided by (used in) financing activities ...................................... 468 (340)
------- -------
Net increase (decrease) in cash and cash equivalents ................................ 1,852 (6,171)
======= =======
We normally fund our operations and capital expenditures primarily with
cash generated from operating activities. The changes in net cash used for
operating activities generally reflect the changes in net income and non-cash
operating items plus the effect of changes in operating assets and liabilities,
especially trade accounts receivable, trade accounts payable, accrued expenses
and deferred revenue.
Cash (used in) provided by operating activities was approximately ($1.0)
million in the year ended April 30, 2001, compared to approximately $5.6 million
in the same period of the prior year. The cash used by operations during the
fiscal year ended April 30, 2001 was primarily attributable to a net loss of
$5.7 million, an increase in receivable from American Software of $712,000, and
a decrease in current liabilities of $500,000. This was partially offset by
non-cash depreciation and amortization expense of $3.5 million, decrease in
accounts receivable of $1.2 million, increase in deferred revenues of $673,000,
and the write-off of a minority investment in business of $300,000. Cash
provided by operations during the prior year was primarily attributable to
non-cash depreciation and amortization expense of $3.5 million, net earnings of
$2.4 million, an increase in deferred revenues of approximately $995,000, an
increase in accrued liabilities of approximately $578,000, and a decrease in
accounts receivable of approximately $245,000. This was partially offset by an
increase in receivable from American Software of $2.2 million and an increase in
prepaid expenses and other assets of $102,000.
Cash provided by (used in) investing activities was approximately $2.4
million and ($11.5) million for the years ended April 30, 2001 and 2000,
respectively. In fiscal 2001, approximately $5.8 million was provided by the net
sale of investments, while $3.0 million was used for computer software
development costs. In the prior year, approximately $7.1 million was used for
net purchases of investments, and $3.4 million was used for computer software
development costs.
Cash provided by financing activities for the year ended April 30, 2001
totaled $468,000. Approximately $559,000 was provided by deferred income taxes
resulting from the Tax Sharing Agreement, while $105,000 was used for the
repurchase of 56,000 shares of our common stock. For the prior year, cash used
in financing activities was approximately $340,000. $768,000 was used for the
repurchase of 154,000 shares of our common stock. This was partially offset by
Deferred Income Taxes resulting from the Tax Sharing Agreement of $303,000, and
$125,000 in proceeds from the exercise of stock options. Days sales outstanding
in accounts receivable were 66 days as of April 30, 2001, compared to 94 days as
of April 30, 2000. This decrease was primarily due to decreased overall revenues
for fiscal 2001, as well as improved collection efforts.
Our current ratio on April 30, 2001 was 2.3 to 1 and we have no long-term
debt. We believe that our sources of liquidity and capital resources will be
sufficient to satisfy our cash requirements for at least the next twelve months.
To the extent that such amounts are insufficient to finance our capital
requirements, we will be required to raise additional funds through equity or
debt financing. We do not currently have a bank line of credit. No assurance can
be given that bank lines of credit or other financing will be available on terms
acceptable to us. If available, such financing may result in further dilution to
our shareholders and higher interest expense.
On December 15, 1997, our Board of Directors approved a resolution
authorizing us to repurchase up to 350,000 shares of our common stock through
open market purchases at prevailing market prices. We completed this repurchase
plan in November 1998, at which time we adopted an additional repurchase plan
for up to 800,000 shares. The timing of any repurchases would depend on market
conditions, the market price of Logility's common stock and management's
assessment of our liquidity and cash flow needs. For both plans, through July
12, 2001, we had purchased a cumulative total of 636,000 shares at a total cost
of $4.5 million.
32
Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement was amended in June 2000 by Statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
These Statements were effective for us beginning May 1, 2001. These new
Statements require all derivatives to be recorded on the balance sheet at fair
value and establishes accounting treatment for three types of hedges: hedges of
changes in the fair value of assets, liabilities, or firm commitments; hedges of
the variable cash flows of forecasted transactions; and hedges of foreign
currency exposures of net investments in foreign operations. We have not
invested in derivative instruments nor participated in hedging activities and
therefore we do not anticipate a material impact on the results of operations or
financial position from Statements No. 133 or No. 138.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101") and amended it in March 2000, and again in June 2000. We adopted the
provisions of SAB 101 in our fourth quarter of fiscal 2001, and there was not a
material impact on the results of operations or financial position as a result
of the adoption.
Forward-looking Statements:
This discussion contains forward-looking statements, which are subject to
substantial risks and uncertainties. A variety of factors could cause our actual
results to differ materially from those anticipated by statements made herein.
The timing of releases of our software products can be affected by client needs,
marketplace demands and technological advances. Development plans frequently
change, and it is difficult to predict with accuracy the release dates for
products in development. Other factors include changes in general economic
conditions, the growth rate of the market for our products and services, the
timely availability and market acceptance of these products and services, the
effect of competitive products and pricing, and the irregular pattern of
revenues, as well as a number of other risk factors which could affect
Logility's future performance.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency. For the fiscal year ended April 30, 2001, we generated
14% of our revenues outside of the United States. International sales usually
are made by our foreign subsidiaries and are denominated typically in U.S.
Dollars or British Pounds Sterling. However, the expenses incurred by foreign
subsidiaries are denominated in the local currencies. There was no material
impact on our revenues or expenses from foreign currency fluctuations in fiscal
2001. In addition, a 10% movement in foreign currency rates would not have a
material impact on our financial position or results of operations.
Interest rates. We manage our interest rate risk by maintaining an
investment portfolio of held-to-maturity instruments with high credit quality
and relatively short average maturities. These instruments include, but are not
limited to, money-market instruments, bank time deposits, and taxable and
tax-advantaged variable rate and fixed rate obligations of corporations,
municipalities, and national, state, and local government agencies, in
accordance with an investment policy approved by our Senior Management. These
instruments are denominated in U.S. dollars. The fair market value of securities
held at April 30, 2001 was approximately $15.3 million.
We also hold cash balances in accounts with commercial banks in the United
States and foreign countries. These cash balances represent operating balances
only and are invested in short-term time deposits of the local bank. Such
operating cash balances held at banks outside the United States are denominated
in the local currency.
Many of our investments carry a degree of interest rate risk. When interest
rates fall, our income from investments in variable-rate securities declines.
When interest rates rise, the fair market value of our investments in fixed-rate
securities declines. We attempt to mitigate risk by holding fixed-rate
securities to maturity, but should our liquidity needs force us to sell
fixed-rate securities prior to maturity, we may experience a loss of principal.
A 10% change in average interest rates would not have a material impact on our
financial position or results of operations.
33
Item 8. Financial Statements and Supplementary Data
The following schedule represents results for each quarter in the years
ended April 30, 2001 and 2000 (in thousands, except per share amounts):
Net Earnings
(Loss)
Attributable to Diluted net
Total Operating Common earnings (loss)
Revenue Income Shareholders per share
------- ------ ------------ ---------
Quarter ended:
July 31, 2000 ................................................... $ 6,922 $(1,082) $ (759) $ (0.06)
October 31, 2000 ................................................ 6,612 (2,853) (2,694) (0.20)
January 31, 2001 ................................................ 6,485 (3,104) (2,706) (0.20)
April 30, 2001 .................................................. 8,187 129 467 0.03
-------- ------- ---------- ----------
Year ended April 30, 2001 ....................................... $ 28,206 $(6,910) $ (5,692) $ (0.43)
======== ======= ========== ==========
Quarter ended:
July 31, 1999 ................................................... $ 8,369 $ 501 $ 828 $ 0.06
October 31, 1999 ................................................ 8,554 667 959 0.07
January 31, 2000 ................................................ 8,513 944 1,247 0.09
April 30, 2000 .................................................. 6,853 (861) (646) (0.05)
-------- ------- ---------- ----------
Year ended April 30, 2000 ....................................... $ 32,289 $ 1,251 $ 2,388 $ 0.17
======== ======= ========== ==========
Total revenues increased 26% from the third quarter to the fourth quarter
in fiscal 2001. This was the result of increases in both license fees and
services revenues. License fees increased 35% in the fourth quarter ended April
30, 2001 when compared to the third quarter ended January 31, 2001, primarily as
a result of the sales management reorganization undertaken in the second and
third quarters of fiscal 2001. Services revenues increased 56% in the fourth
quarter ended April 30, 2001 when compared to the third quarter ended January
31, 2001, as a result of increased levels of software implementation services
connected with the new license fee sales and approximately $400,000 in hardware
sales. Maintenance revenues were essentially unchanged in the fourth quarter
ended April 30, 2001 when compared to the third quarter ended January 31, 2001.
Other information required by this item is included in Part IV Item 14(a)
(1) and (2).
34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K/A:
1. The following combined financial statements of Logility, Inc. are
filed as part of this Form 10-K/A on the pages indicated:
Page
----
Combined Balance Sheets as of April 30, 2001 and 2000 ........................................................... 37
Combined Statements of Operations for the Years ended April 30, 2001, 2000, and 1999 ............................ 38
Combined Statements of Shareholders' Equity for the Years ended April 30, 2001, 2000, and 1999 .................. 39
Combined Statements of Cash Flows for the Years ended April 30, 2001, 2000, and 1999 ............................ 40
Notes to the Combined Financial Statements ...................................................................... 41
Independent Auditors' Report .................................................................................... 51
2. Combined financial statement schedule included in Part IV of this Form:
Page
----
Schedule II--Valuation and Qualifying Accounts--for the three years ended April 30, 2001 ........................ 52
Independent Auditors' Report .................................................................................... 53
All other financial statements and schedules not listed above are omitted
as the required information is not applicable or the information is presented in
the financial statements or related notes.
3. Exhibits
The following exhibits are filed herewith or incorporated herein by
reference:
3.1 Logility's Amended and Restated Articles of Incorporation, and
amendments included as Exhibit 3.1 to Logility's Registration
Statement No. 333-33385 on Form S-1 (the "S-1 Registration
Statement") and incorporated herein by this reference.
3.2 Logility's Amended and Restated By-Laws, included as Exhibit 3.1 to
the S-1 Registration Statement and incorporated herein by this
reference.
10.1 1997 Stock Plan, Amended and Restated as of August 26, 1998,
included as Exhibit 4.1 to Logility's Form S-8 Registration
Statement No. 333-62531 and incorporated herein by this reference.
10.2 Subsidiary Formation Agreement among Logility, American Software,
and certain subsidiaries of American Software, as amended, included
as Exhibit 10.3 to the S-1 Registration Statement, and incorporated
herein by this reference.
10.3 Merger Agreement between Logility and Distribution Sciences, Inc.,
included as Exhibit 10.4 to the S-1 Registration Statement, and
incorporated herein by this reference.
10.4 Services Agreement between Logility and American Software, included
as Exhibit 10.5 to the S-1 Registration Statement, and incorporated
herein by this reference.
10.5 Facilities Agreement between Logility and American Software,
included as Exhibit 10.6 to the S-1 Registration Statement, and
incorporated herein by this reference.
10.6 Tax Sharing Agreement between Logility and American Software,
included as Exhibit 10.7 to the S-1 Registration Statement, and
incorporated herein by this reference.
10.7 Stock Option Agreement between Logility and American Software,
included as Exhibit 10.8 to the S-1 Registration Statement, and
incorporated herein by this reference.
10.8 Technology License Agreement between Logility and American Software,
as amended, included as Exhibit 10.9 to the S-1 Registration
Statement, and incorporated herein by this reference.
35
10.9 Marketing License Agreement between Logility and American Software,
as amended, included as Exhibit 10.10 to the S-1 Registration
Statement, and incorporated herein by this reference.
10.10 Employee Stock Purchase Plan dated September 30, 1998, included as
Exhibit 4.1 to Logility's Form S-8 Registration Statement No.
333-66773 and incorporated herein by this reference.
23.1 Independent Auditors' Consent.
(b) Reports on Form 8-K
We did not file a report on Form 8-K during the fourth quarter of the
recently completed fiscal year.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Logility, Inc.
By: /s/ J. Michael Edenfield
-------------------------------------
J. Michael Edenfield
Chief Executive Officer
Date: November 19, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- -----
/s/ J. Michael Edenfield President, Chief Executive Officer, and November 19, 2001
- ------------------------------------------------ Director
J. Michael Edenfield
/s/ James C. Edenfield Chairman of the Board of Directors November 19, 2001
- ------------------------------------------------
James C. Edenfield
/s/ Frederick E. Cooper Director November 19, 2001
- ------------------------------------------------
Frederick E. Cooper
Director
- ------------------------------------------------
Parker H. Petit
/s/ Dr. John A. White Director November 19, 2001
- ------------------------------------------------
Dr. John A. White
/s/ Vincent C. Klinges Chief Financial Officer November 19, 2001
- ------------------------------------------------
Vincent C. Klinges
/s/ Deirdre J. Lavender Controller and Principal Accounting Officer November 19, 2001
- ------------------------------------------------
Deirdre J. Lavender
37
LOGILITY, INC.
COMBINED BALANCE SHEETS
(In thousands, except share data)
April 30, 2001 and 2000
2001 2000
---- ----
Assets
------
Current assets:
Cash and cash equivalents ..................................................................... $ 5,376 3,524
Investments--current .......................................................................... 10,420 14,425
Trade accounts receivable, less allowance for doubtful accounts of $552 and $684 at
April 30, 2001 and 2000, respectively:
Billed ................................................................................... 4,353 4,599
Unbilled ................................................................................. 1,636 2,558
Due from American Software, Inc. .............................................................. 2,916 2,204
Prepaid expenses and other current assets ..................................................... 500 556
-------- --------
Total current assets ................................................................ 25,201 27,866
Investments--noncurrent ............................................................................ 4,910 6,738
Furniture and equipment, less accumulated depreciation ............................................. 1,497 1,870
Intangible assets, less accumulated amortization ................................................... 8,219 6,748
Other assets, net .................................................................................. 1,014 1,312
-------- --------
$ 40,841 $ 44,534
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable .............................................................................. $ 1,074 1,225
Accrued compensation and related costs ........................................................ 1,749 1,879
Other current liabilities ..................................................................... 1,531 1,750
Deferred revenues ............................................................................. 6,378 5,705
-------- ------
Total current liabilities ........................................................... 10,732 10,559
Deferred income taxes ......................................................................... 3,321 2,762
-------- --------
Total liabilities ................................................................... 14,053 13,321
-------- --------
Shareholders' equity:
Preferred stock; 2,000,000 shares authorized; no shares issued ................................ -- --
Common stock, no par value; 20,000,000 shares authorized; 13,878,714 and
13,873,454 shares issued as of April 30, 2001 and 2000, respectively ....................... -- --
Additional paid-in capital .................................................................... 44,684 43,312
Accumulated deficit ........................................................................... (13,480) (7,788)
Treasury stock, at cost: 621,011 and 564,811 shares as of April 30, 2001 and 2000,
respectively ............................................................................... (4,416) (4,311)
-------- --------
Total shareholders' equity .......................................................... 26,788 31,213
Commitments and contingencies (note 9)
-------- --------
$ 40,841 $ 44,534
======== ========
See accompanying notes to combined financial statements.
38
LOGILITY, INC.
COMBINED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years ended April 30, 2001, 2000, and 1999
2001 2000 1999
---- ---- ----
Revenues
License ................................................................... $ 8,587 13,501 11,384
Maintenance ............................................................... 10,491 9,418 7,967
Services .................................................................. 9,128 9,370 7,666
-------- -------- --------
Total revenues ....................................................... 28,206 32,289 27,017
-------- -------- --------
Cost of revenues:
License ................................................................... 3,985 3,218 4,433
Maintenance ............................................................... 1,645 1,775 2,194
Services .................................................................. 6,227 5,144 3,468
-------- -------- --------
Total cost of revenues ............................................... 11,857 10,137 10,095
-------- -------- --------
Gross margin ......................................................... 16,349 22,152 16,922
Operating expenses:
Research and development .................................................. 5,211 4,949 6,165
Sales and marketing ....................................................... 13,618 12,898 14,507
General and administrative ................................................ 3,954 3,054 4,302
Charge for restructuring .................................................. 476 -- --
Charge for asset impairment ............................................... -- -- 1,230
-------- -------- --------
Total operating expenses ............................................. 23,259 20,901 26,204
-------- -------- --------
Operating income (loss) .............................................. (6,910) 1,251 (9,282)
Other income, net .............................................................. 1,218 1,137 1,274
-------- -------- --------
Income (loss) before income taxes .................................... (5,692) 2,388 (8,008)
Income tax expense ............................................................. -- -- 100
-------- -------- --------
Net income (loss) .................................................... $ (5,692) 2,388 (8,108)
======== ======== ========
Earnings (loss) per common share:
Basic ..................................................................... $ (0.43) 0.18 (0.60)
======== ======== ========
Diluted ................................................................... $ (0.43) 0.17 (0.60)
======== ======== ========
Shares used in the calculation of net earnings (loss) per common share:
Basic ..................................................................... 13,289 13,333 13,486
======== ======== ========
Diluted ................................................................... 13,289 13,698 13,486
======== ======== ========
See accompanying notes to combined financial statements.
39
LOGILITY, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
Years ended April 30, 2001, 2000, and 1999
Additional Total
Common stock paid-in Accumulated Treasury stock shareholders'
------------ --------------
Shares Amount capital deficit Shares Amount equity
------ ------ ------- ------- ------ ------ ------
Balance at April 30, 1998 .................. 13,830,000 $ -- 43,187 (2,068) 205,300 $ (1,882) 39,237
Repurchase of 205,500 common shares ........ -- -- -- -- 205,500 (1,661) (1,661)
Net loss ................................... -- -- -- (8,108) -- -- (8,108)
---------- ------ ------ ------- ------- -------- ------
Balance at April 30, 1999 .................. 13,830,000 -- 43,187 (10,176) 410,800 (3,543) 29,468
Repurchase of 154,011 common shares ........ -- -- -- -- 154,011 (768) (768)
Proceeds from exercise of stock options .... 43,454 -- 125 -- -- -- 125
Net income ................................. -- -- -- 2,388 -- -- 2,388
---------- ------ ------ ------- ------- -------- ------
Balance at April 30, 2000 .................. 13,873,454 -- 43,312 (7,788) 564,811 (4,311) 31,213
Contribution of software from American
Software, Inc. ........................... -- -- 1,173 -- -- -- 1,173
Proceeds from exercise of stock options .... 5,260 -- 14 -- -- -- 14
Repurchase of 56,200 common shares ......... -- -- -- -- 56,200 (105) (105)
Compensation expense resulting from
acceleration of vesting of ASI options
held by employee ......................... -- -- 185 -- -- -- 185
Net loss ................................... -- -- -- (5,692) -- -- (5,692)
---------- ------ ------ ------- ------- -------- ------
Balance at April 30, 2001 .................. 13,878,714 $ -- 44,684 (13,480) 621,011 (4,416) 26,788
========== ====== ====== ======= ======= ======== ======
See accompanying notes to combined financial statements.
47
LOGILITY, INC.
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended April 30, 2001, 2000, and 1999
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) ................................................................... $ (5,692) 2,388 (8,108)
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
Depreciation and amortization ..................................................... 3,512 3,485 3,862
Noncash compensation expense ...................................................... 185 -- --
Charge for write-off of minority investment in business ........................... 300 -- --
Charge for asset impairment ....................................................... -- -- 1,230
(Increase) decrease in assets:
Accounts receivable ............................................................ 1,168 245 3,392
Due from American Software, Inc. ............................................... (712) (2,204) --
Prepaid expenses and other assets .............................................. 54 (102) 320
Increase (decrease) in liabilities:
Accounts payable ............................................................... (151) 235 (154)
Accrued compensation and other liabilities ..................................... (349) 578 229
Deferred revenues .............................................................. 673 995 553
Due to American Software, Inc. ................................................. -- -- (961)
--------- ------- -------
Net cash (used in) provided by operating activities .......................... (1,012) 5,620 363
--------- ------- -------
Cash flows from investing activities:
Additions to capitalized computer software development costs ...................... (2,966) (3,373) (3,952)
Additions to purchased computer software costs .................................... (171) (100) (28)
Purchases of furniture and equipment .............................................. (300) (539) (755)
Purchase of minority investment in business ....................................... -- (300) (763)
Proceeds from maturities of investments ........................................... 93,365 53,791 97,718
Purchases of investments .......................................................... (87,532) (60,930) (82,183)
--------- ------- -------
Net cash (used in) provided by investing activities .......................... 2,396 (11,451) 10,037
--------- ------- -------
Cash flows from financing activities:
Deferred income taxes resulting from Tax Sharing Agreement ........................ 559 303 (50)
Proceeds from exercise of stock options ................................................ 14 125 --
Repurchases of common stock ....................................................... (105) (768) (1,661)
--------- ------- -------
Net cash (used in) provided by financing activities .......................... 468 (340) (1,711)
--------- ------- -------
Net change in cash and cash equivalents ...................................... 1,852 (6,171) 8,689
Cash and cash equivalents at beginning of year ......................................... 3,524 9,695 1,006
Cash and cash equivalents at end of year ............................................... $ 5,376 3,524 9,695
========= ======= =======
Supplemental disclosure--cash paid for income taxes .................................... $ 26 84 102
========= ======= =======
Supplemental disclosure of noncash transactions--contribution of software from
American Software, Inc. ............................................................. $ 1,173 -- --
========= ======= =======
See accompanying notes to combined financial statements.
48
LOGILITY, INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS
Presentation and Summary of Significant Accounting Policies
(a) Business and Presentation
Logility, Inc. (the "Company") develops, markets, and supports an
integrated suite of business-to-business collaborative commerce software
products. This suite of products is designed to manage the flow of information
and products along the entire supply chain of an enterprise, from raw materials,
manufacturing, and warehousing to final consumption. The Company's products and
services are used by customers within the United States and certain
international markets.
The Company is headquartered in Atlanta, Georgia, and is an approximately
85%-owned subsidiary of American Software, Inc. ("ASI"). Prior to the
contribution of the following operations by ASI to the Company, the Company's
operations consisted of the following divisions and subsidiary of ASI which were
derived from ASI's consolidated financial statements: Supply Chain Planning and
WarehousePRO divisions of ASI; and Distribution Sciences Inc., a wholly owned
subsidiary of ASI. Effective January 23, 1997, ASI formally contributed its
Supply Chain Planning division to the Company. Effective August 1, 1997, ASI
contributed its WarehousePRO division to the Company. Distribution Sciences,
Inc. was merged into the Company on August 5, 1997.
(b) Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, Software Revenue Recognition, and SOP 98-9, Software Revenue
Recognition With Respect to Certain Transactions.
License. License revenues in connection with license agreements for
standard proprietary and tailored software are recognized upon delivery of the
software, providing collection is considered probable, the fee is fixed or
determinable, there is evidence of an arrangement, and vendor specific evidence
exists to defer any revenue related to undelivered elements of the arrangement.
Maintenance. Revenues derived from maintenance contracts primarily include
telephone consulting, product updates and releases of new versions of products
previously purchased by the customer, as well as error reporting and correction
services. Maintenance contracts are typically sold for a separate fee with
initial contractual periods ranging from one to three years with renewal for
additional periods thereafter. Maintenance fees are generally billed annually in
advance. Maintenance revenues are recognized ratably over the term of the
maintenance agreement. In situations where the maintenance fee is bundled with
the license fee, Vendor Specific Objective Evidence ("VSOE") for maintenance is
determined based on stated renewal rates in the contract, which generally
average 18% of the net license fee.
Services. Revenues derived from services primarily include consulting,
implementation, and training. Fees are billed under both time and materials and
fixed fee arrangements and are recognized as services are performed.
Deferred Revenues. Deferred revenues represent advance payments or billings
for software licenses, services, and maintenance billed in advance of the time
revenues are recognized.
Indirect Channel Revenues. Sales are made through indirect channels only
when a sale has been made by the distributor to an end-user. Revenues from
indirect channels are recognized upon delivery of the software to the end-user
assuming all other conditions of SOP 97-2 and SOP 98-9 are met.
(c) Cost of Revenues
Cost of revenues for licenses include amortization of capitalized computer
software development costs and purchased computer software costs, salaries and
benefits, and royalties paid to third-party software vendors. Costs for
maintenance and services include the cost of personnel to conduct
implementations and customer support, consulting, and other personnel-related
expenses.
42
LOGILITY INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.
(e) Investments
Investments at April 30, 2001 consist of commercial paper, corporate bonds,
and government securities. The Company accounts for its investments under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities. In accordance
with SFAS No. 115, the Company has classified its investment portfolio as
"held-to-maturity," and has accounted for these investments at amortized cost.
Accordingly, no adjustment for unrealized holding gains or losses has been
reflected in the Company's financial statements.
(f) Furniture and Equipment
Furniture and equipment are recorded at cost, less accumulated
depreciation. Depreciation of computer and communications equipment and
furniture and fixtures is calculated using the straight-line method based upon
estimated useful lives ranging from three to seven years.
(g) Intangible Assets
Capitalized Computer Software Development Costs. The Company capitalizes
certain computer software development costs in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed. Costs incurred internally to create a computer software product or to
develop an enhancement to an existing product are charged to expense when
incurred as research and development expense until technological feasibility for
the respective product is established. Thereafter, all software development
costs are capitalized and reported at the lower of unamortized cost or net
realizable value. Capitalization ceases when the product or enhancement is
available for general release to customers. The Company makes ongoing
evaluations of the recoverability of its capitalized software projects by
comparing the amount capitalized for each product to the estimated net
realizable value of the product. If such evaluations indicate that the
unamortized software development costs exceed the net realizable value, the
Company writes off the amount by which the unamortized software development
costs exceed net realizable value. Capitalized computer software development
costs are being amortized ratably based on the projected revenue associated with
the related software or on a straight-line basis over three years, whichever
method results in a higher level of amortization.
Purchased Computer Software Costs. Purchased computer software costs
represent the cost of acquiring computer software. Amortization of purchased
computer software costs is calculated using the straight-line method over
periods of three to five years.
Total Expenditures, Amortization, and Write-offs. Total expenditures for
capitalized computer software development costs, total research and development
expense, total amortization of capitalized computer software development costs,
total amortization of purchased computer software costs and write-off of
capitalized computer software costs are as follows:
Years ended April 30,
---------------------
2001 2000 1999
---- ---- ----
(in thousands)
Total capitalized computer software development costs .................................... $ 2,966 3,373 3,952
Total research and development expense ................................................... 5,211 4,949 6,165
------- ----- ------
Total research and development expense and capitalized computer software
development costs ..................................................................... $ 8,177 8,322 10,117
======= ===== ======
Total amortization of capitalized computer software development costs .................... $ 2,704 2,761 3,169
======= ===== ======
Total amortization of purchased computer software costs .................................. $ 135 106 244
======= ===== ======
Write-off of capitalized computer software costs as a result of net realizable value
analysis .............................................................................. $ -- -- 1,230
======= ===== ======
43
LOGILITY INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(h) Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company's results of operations are
included in the consolidated Federal income tax return filed by ASI.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these combined financial statements
in conformity with accounting principles generally accepted in the United States
of America. Actual results could differ from these estimates.
(j) Fair Value of Financial Instruments
The Company uses financial instruments in the normal course of its
business. The carrying values of cash equivalents, trade accounts receivable,
and accounts payable approximate fair value due to the short-term maturities of
these assets and liabilities. See note 2 for disclosures regarding the fair
value of the Company's investments.
(k) Stock Compensation Plans
The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which encourages entities to recognize as compensation expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and provide pro forma disclosures for employee stock option grants
as if the fair-value-based method as defined in SFAS No. 123 had been applied.
Under APB Opinion No. 25, compensation expense is recorded on the date of grant
if the current market price of the underlying stock exceeds the exercise price.
The Company has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosures under the provisions of SFAS No. 123.
(l) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, which requires that long-lived assets and certain identifiable
intangibles held and used by a company be reviewed for possible impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS No. 121 also requires that long-lived
assets and certain identifiable intangibles held for sale, other than those
related to discontinued operations, be reported at the lower of carrying amount
or fair value less cost to sell.
(m) Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and presentation of comprehensive income and its components in a full
set of financial statements. No statements of comprehensive income (loss) have
been included in the accompanying combined financial statements since
comprehensive income (loss) and net income (loss) presented in the accompanying
combined statements of operations would be the same.
44
LOGILITY INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(n) Net Earnings (Loss) Per Common Share
Basic earnings (loss) per common share available to common shareholders are
based on the weighted-average number of common shares outstanding. Diluted
earnings (loss) per common share available to common shareholders are based on
the weighted-average number of common shares outstanding and dilutive potential
common shares, such as dilutive stock options.
The numerator in calculating both basic and diluted earnings (loss) per
common share for each year is the same as net income (loss). The denominator is
based on the following number of common shares:
Years ended April 30,
---------------------
2001 2000 1999
---- ---- ----
(in thousands)
Weighted average common shares outstanding used for basic ............................. 13,289 13,333 13,486
Dilutive effect of outstanding stock options .......................................... -- 365 --
------ ------ ------
Total used for diluted ................................................................ 13,289 13,698 13,486
====== ====== ======
For the years ended April 30, 2001 and 1999, options to purchase 779,000
and 555,000 shares of common stock were excluded from the computation of diluted
earnings (loss) per share as the impact was antidilutive.
(o) Industry Segment
The Company operates and manages its business in one segment, that being
providing supply chain management software solutions to participants along the
supply chain.
(2) Investments
Investments, which are classified as held-to-maturity, consist of the
following at April 30, 2001 and 2000 (in thousands):
2001 2000
---- ----
Carrying Fair Unrealized Carrying Fair Unrealized
value value gain value Value gain (loss)
----- ----- ---- ----- ----- -----------
Commercial paper ............................... $ 7,175 7,175 -- 7,958 7,988 30
Corporate bonds ................................ 5,406 5,507 101 10,725 10,702 (23)
Government securities .......................... 2,749 2,778 29 2,480 2,473 (7)
------- ------ --- ------ ------ ---
$15,330 15,460 130 21,163 21,163 --
======= ====== === ====== ====== ===
The maturity of investments as of April 30, 2001 is $10,420,000 in fiscal
2002 and $4,910,000 in fiscal 2003.
(3) Furniture and Equipment
Furniture and equipment consist of the following at April 30, 2000 and 1999
(in thousands):
2001 2000
---- ----
Computer and communications equipment ............... $3,429 3,310
Furniture and fixtures .............................. 411 413
------ -----
3,840 3,723
Less accumulated depreciation ....................... 2,343 1,853
------ -----
$1,497 1,870
====== =====
45
LOGILITY INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(4) Intangible Assets
Intangible assets consist of the following at April 30, 2001 and 2000 (in
thousands):
2001 2000
---- ----
Capitalized computer software development costs ..... $ 22,144 18,005
Purchased computer software costs ................... 1,411 1,258
-------- ------
23,555 19,263
Less accumulated amortization ....................... 15,336 12,515
-------- ------
$ 8,219 6,748
======== ======
During the year ended April 30, 2001, ASI contributed to the Company $1.17
million of capitalized software costs which was recorded as an increase to
additional paid-in capital.
During the year ended April 30, 1999, a charge of $1.23 million was
recorded to write off certain capitalized software development costs, which
mainly related to legacy technology within the Company's warehouse management
product line. These costs were determined to be unrecoverable based upon an
evaluation of the net recoverable value of the related software products.
(5) Purchase of Minority Investment in Businesses
During the year ended April 30, 2000, the Company acquired 30% of the
outstanding common stock of ShipSolutions, Inc. ("SSI") for $300,000. During the
year ended April 30, 2001, it was determined that the investment in SSI had no
value and the investment was written off.
During the year ended April 30, 1999, the Company acquired 10% of the
outstanding common stock of INSIGHT, INC., a leading provider of optimization
technology for support chain modeling and logistics systems, for $763,000. The
investment in INSIGHT, INC. is accounted for on the cost basis of accounting due
to immateriality and is included in other assets.
(6) Income Taxes
The Company is included in the consolidated Federal income tax return filed
by ASI; however, the Company has provided for income taxes as if it were filing
a separate income tax return.
The Company's effective tax rate differs from the "expected" income tax
expense (benefit) calculated by applying the Federal statutory rate of 34% to
earnings (loss) before income taxes as follows:
Years ended April 30,
---------------------
2001 2000 1999
---- ---- ----
(in thousands)
Computed "expected" income tax expense (benefit) ............................ $(1,935) 812 (2,723)
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax effect ................... (231) 120 66
Change in the valuation allowance for deferred tax assets .............. 2,204 (827) 2,872
Other, net ............................................................. (38) (105) (115)
------- ---- ------
$ -- -- 100
======= ==== ======
The significant components of deferred income tax expense (benefit)
attributable to earnings (loss) before income taxes for the years ended April
30, 2001, 2000, and 1999, are as follows:
Years ended April 30,
---------------------
2001 2000 1999
---- ---- ----
(in thousands)
Deferred income tax expense (benefit) ....................................... $(2,204) 827 (2,872)
46
Increase (decrease) in the valuation allowance for deferred tax assets ........... 2,204 (827) 2,872
------ ---- -----
$ -- -- --
====== ==== =====
LOGILITY INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
computed on a separate return basis and before consideration of the Company's
Tax Sharing Agreement with ASI at April 30, 2001 and 2000 are presented as
follows:
Years ended
April 30,
---------
2001 2000
---- ----
(in thousands)
Deferred income tax assets:
Compensated absences and other expenses, due to accrual for financial
reporting purposes ...................................................... $ 243 280
Deferred revenue ........................................................... 421 421
Accounts receivable, due to allowance for doubtful accounts ................ 259 260
Prepaid maintenance ........................................................ 754 453
Net operating loss carryforwards ........................................... 7,819 5,319
------ -----
Total gross deferred income tax assets ................................ 9,496 6,733
Less valuation allowance ................................................... 6,175 3,971
------ -----
Net deferred income tax assets ........................................ 3,321 2,762
------ -----
Deferred income tax liabilities:
Capitalized computer software development costs ............................ 3,051 2,524
Prepaid royalties .......................................................... 39 --
Property and equipment, primarily due to differences in depreciation ....... 228 236
Other ...................................................................... 3 2
------ -----
Total gross deferred income tax liabilities ........................... 3,321 2,762
------ -----
Net deferred income tax asset (liability) ............................. $ -- --
====== =====
In accordance with the Company's Tax Sharing Agreement with ASI, the
Company computes a separate, stand-alone income tax provision and settles
balances due to or from ASI on this basis. All benefits derived from deferred
tax assets as defined in the Tax Sharing Agreement (which include net operating
loss and tax credit carryforwards) that arose prior to the initial public
offering (of $5,768,000) were allocated to ASI. Accordingly, the Company will
not receive any benefit from the $5,768,000 of contributed gross deferred tax
assets. In addition, certain deferred tax liabilities that arose prior to the
initial public offering were allocated to the Company (which gives rise to the
Company's net deferred tax liability of $3,321,000 at April 30, 2001 and
$2,762,000 at April 30, 2000 recorded in the accompanying combined balance
sheets). After the initial public offering, to the extent the tax computation
produces a tax benefit for the Company, ASI will be required to pay such amounts
to the Company only if and when realized by ASI by a reduction in income taxes
payable with respect to the current tax period. At April 30, 2001, ASI had net
operating loss carryforwards of approximately $43.0 million which must be
utilized by ASI before the Company would receive payment for any currently
generated tax benefits. Such net operating losses expire in varying amounts
through 2021.
(7) Stockholders' Equity
(a) Stock Compensation
Prior to August 7, 1997, the Company had not issued any stock options;
however, certain employees of the Company received stock options of ASI.
Effective August 7, 1997, the Company adopted the Logility, Inc. 1997 Stock Plan
("Stock Plan"). The Stock Plan provides for grants of incentive stock options
and nonqualified stock options to certain key employees and directors of the
Company. The Stock Plan also allows for stock appreciation rights in lieu of or
in addition to stock options. Options to purchase a maximum of 1,200,000 shares
of common stock and a maximum of 300,000 units of Stock Appreciation Rights
("SARs"), as defined, may be granted under the Stock Plan. The options and SARs
generally vest over a four-year period. The terms of the options generally are
for ten years, and the terms of the SARs generally are for five years.
The Stock Plan further limits stock option grants by providing that the
number of outstanding option shares, when added to the outstanding shares held
by shareholders other than American Software, may not exceed 20% of the issued
and outstanding
47
shares, if it were assumed that all of the stock options were exercised. As of
April 30, 2001, this limitation resulted in a maximum aggregate number of option
shares that had been exercised, were outstanding or were available for grant of
94,997 shares.
LOGILITY INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
In September 1998, the Company granted 136,280 options which were issued in
exchange for the surrender of an equal number of previously issued options which
had exercise prices ranging from $7.13 to $14.50. These repriced options, which
excluded executive management, were issued at the fair market value of the stock
at the date of grant of $2.75.
A summary of the status of the Company's Stock Plan as of April 30, 2001,
2000, and 1999 and changes during the years then ended is presented below:
Weighted-
average
Shares price
------ -----
Outstanding at April 30, 1998 ................................. 262,070 $ 12.96
Granted ....................................................... 600,130 2.93
Forfeited/canceled ............................................ (306,754) 8.78
--------
Outstanding at April 30, 1999 ................................. 555,446 4.22
Granted ....................................................... 415,400 5.04
Exercised ..................................................... (43,454) 2.88
Forfeited/canceled ............................................ (163,303) 4.28
--------
Outstanding at April 30, 2000 ................................. 764,089 4.73
Granted ....................................................... 132,000 3.17
Exercised ..................................................... (5,260) 2.75
Forfeited/canceled ............................................ (111,808) 5.53
--------
Outstanding at April 30, 2001 ................................. 779,021 $ 4.37
======== =======
Options exercisable at April 30, 2001 ......................... 326,841 $ 4.87
======== =======
Weighted-average fair value of options granted during:
2001 ................................................ $ 2.94
=======
2000 ................................................ $ 2.63
=======
1999 ................................................ $ 1.71
=======
The following table summarizes information about fixed stock options
outstanding at April 30, 2000:
Options outstanding Options exercisable
------------------- -------------------
Weighted-
Number average Weighted- Number Weighted-
outstanding remaining average exercisable average
Range of at April 30, contractual exercise at April exercise
-
exercise prices 2001 life price 30, 2001 price
--------------- ---- ---- ----- -------- -----
$1.69-- 3.25 359,706 7.0 $ 2.71 170,781 $ 2.78
3.26-- 4.87 301,225 8.0 3.97 92,498 4.10
4.88--16.25 118,090 6.8 10.43 63,562 11.58
------- --- ------ ------- ------
779,021 7.3 $ 4.37 326,841 $ 4.87
======= === ====== ======= ======
ASI and the Company apply the provisions of APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized for ASI's and the Company's stock option
plans. Had compensation cost for the Company's share of ASI's stock-based
compensation plans and its own stock option plan been determined consistent with
SFAS No. 123, the Company's net income (loss) and net income (loss) per common
share would have been changed to the pro forma amounts indicated below:
Years ended April 30,
---------------------
2001 2000 1999
---- ---- ----
(in thousands, except per
share data)
Net income (loss):
As reported ...................................... $(5,692) 2,388 (8,108)
Pro forma ........................................ (6,498) 1,063 (9,254)
Diluted net income (loss) per common share:
48
As reported .............................. $ (.43) .17 (.60)
Pro forma ................................ (.49) .08 (.69)
LOGILITY INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2001 2000 1999
---- ---- ----
Dividend yield ................................ 0% 0% 0%
Expected volatility ........................... 121.2% 150.9% 131.4%
Risk-free interest rate ....................... 5.8% 5.6% 5.6%
Expected life ................................. 8 years 8 years 8 years
(b) Employee Stock Purchase Plan
In November 1998, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan") that offers employees the right to purchase shares of the
Company's common stock at 85% of the market price, as defined, pursuant to the
Purchase Plan. Under the Purchase Plan, full-time employees, except persons
owning 5% or more of the Company's common stock, are eligible to participate
after one month of employment. Employees may contribute up to 15% of their
annual salary toward the Purchase Plan subject to a maximum of $15,000 per year.
Common stock is purchased in the open market on behalf of the participants. The
Company contributes to the purchase price by funding a 15% discount to market
price. A maximum of 200,000 shares of common stock may be purchased under the
Purchase Plan. During the years ended April 30, 2001, 2000 and 1999, 48,397,
23,361, and 12,874 shares, respectively, were purchased on the open market, at a
cost to the Company of $73,607, $147,782 and $12,615, respectively, representing
the funded discount from market price.
(8) International Revenues and Significant Customer
International revenues were $4,038,000 or 14%, $3,658,000 or 11%, and
$3,893,000 or 14% of combined revenues for the years ended April 30, 2001, 2000,
and 1999, respectively, and were derived primarily from customers in Europe.
One customer accounted for approximately 13% of combined revenues for the
year ended April 30, 2000. No individual customer accounted for more than 10% of
combined revenues for the year ended April 30, 2001 or 1999.
(9) Commitments and Contingencies
(a) 401(k) Profit Sharing Plan
The employees of the Company are offered the opportunity to participate in
the ASI 401(k) Profit Sharing Plan (the "401(k) Plan"), which is intended to be
a tax-qualified defined contribution plan under Section 401(k) of the Internal
Revenue Code. Under the 401(k) Plan, employees are eligible to participate on
the first day of the month following the date of hire. Eligible employees may
contribute up to 15% of pretax income to the 401(k) Plan. Subject to certain
limitations, the Company may make a discretionary profit sharing contribution at
an amount determined by the Board of Directors of the Company. The Company did
not make profit sharing contributions for 2001, 2000, or 1999.
Effective January 1, 1999, the Company contributes an employer match in an
amount equal to 25% of the eligible participant's compensation contributed to
the Plan subject to a maximum of 6% of compensation. The Company's matching
contributions totaled $160,000, $153,000, and $49,000 for 2001, 2000, and 1999,
respectively.
(b) Lease Commitments
The Company occupies its principal office facilities under a facilities
agreement with ASI dated August 1, 1997, that is cancelable upon 90-day notice
by either party (see note 10). Amounts allocated to the Company for rent expense
for these facilities was $763,000, $418,000, and $342,000 for the years ended
April 30, 2001, 2000, and 1999, respectively. In addition, the Company has
various other operating leases. Rent expense under these facility leases was
$702,000, $433,000, and $529,000 for the years ended April 30, 2001, 2000, and
1999, respectively.
49
LOGILITY INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under noncancelable operating leases
(excludes cancelable leases with ASI) are as follows (in thousands):
Year ending April 30,
---------------------
2002 ......................................................... $ 463
2003 ......................................................... 454
2004 ......................................................... 306
2005 ......................................................... 237
2006 ......................................................... 65
------
$1,525
======
(c) Contingencies
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
(10) Agreements with ASI
Effective August 1, 1997 (except for the Tax Sharing Agreement, which was
effective January 23, 1997), the Company entered into certain contractual
arrangements with ASI related to the following:
Tax Sharing Agreement--The terms and payments under the Tax Sharing
Agreement are described in note 6.
Services Agreement--Commencing August 1, 1997, the Company began
purchasing (or selling) various services from (to) ASI based upon various
cost methodologies as described below:
Expense for the Expense for the Expense for the year
year ended year ended ended
Service Cost methodology April 30, 2001 April 30, 2000 April 30, 1999
------- ---------------- -------------- -------------- --------------
. General corporate Apportioned based on $ 1,050,000 $ 622,000 $ 530,000
services, including formula to all ASI
accounting and insurance subsidiaries
expense
. Professional services to Cost plus billing with 452,000 345,000 472,000
customers on behalf of the the percentage of costs
Company (services are and expenses to be
available unless ASI negotiated
determines it is not
economic or otherwise
feasible)
. Employee benefits Apportioned based on 50,000 40,000 65,000
services formula to all ASI
subsidiaries
50
LOGILITY INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Expense for Expense for Expense for
the year ended the year ended the year ended
April 30, 2001 April 30, 2000 April 30, 1999
-------------- --------------
Facilities Agreement--The Company leases various properties from ASI $ 763,000 $ 418,000 $ 330,000
for specified square foot rates. The stated term of the agreement
is for two years; however, it may be terminated by either party
after a 90-day notice. In 2001 and 2000, ASI allocated utility
expenses based on the Company's percentage of occupancy. Also
included in these costs is utilities, telephone, and security
expense.
Stock Option Agreement--The Company has granted ASI an option to Not applicable Not applicable Not applicable
purchase Company common stock to enable ASI to maintain the
necessary ownership percentage required to consolidate the Company
in ASI's consolidated Federal income tax return. The purchase price
of the option is the average of the closing price on each of the
five business days immediately preceding the date of payment.
Technology License Agreement--The Company granted ASI a nonexclusive, Not applicable Not applicable Not applicable
nontransferable, worldwide perpetual right and license to use,
execute, reproduce, display, etc. its Supply Chain Planning and
Execution Solutions (which ASI had transferred to the Company) so
that ASI may maintain and support end-users of the software products.
The license is fully paid and royalty-free.
Marketing License Agreement--The Company utilizes ASI as a nonexclusive 367,000 731,000 1,108,000
marketing representative for licensing of its products and pays ASI
30% (50% for certain international licenses) of net license fees for
its services. The stated term of the agreement is for five years, but
may be terminated at either party's discretion upon 12 months' notice.
51
Independent Auditors' Report
The Board of Directors and Shareholders
Logility, Inc.:
We have audited the accompanying combined balance sheets of Logility, Inc.
as of April 30, 2001 and 2000, and the related combined statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended April 30, 2001. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Logility, Inc. as of
April 30, 2001 and 2000, and the results of its operations and its cash flows
for each of the years in the three-year period ended April 30, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
Atlanta, Georgia
June 14, 2001
52
Schedule II
LOGILITY, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended April 30, 1999, 2000, and 2001
(in thousands)
Allowance for Doubtful Accounts
Balance at Additions Balance at
beginning charged Other end of
of period to expense additions (1) Deductions (2) period
--------- ---------- --------- -------------- ------
Year ended April 30, 1999 ............................ $421 907 -- 881 447
Year ended April 30, 2000 ............................ 447 120 232 115 684
Year ended April 30, 2001 ............................ 684 483 55 670 552
______
(1) Recovery of previously written-off amounts.
(2) Write-off of uncollectible accounts.
53
Independent Auditors' Report
The Board of Directors and Shareholders
Logility, Inc.:
Under date of June 14, 2001, we reported on the combined balance sheets of
Logility, Inc. as of April 30, 2001 and 2000, and the related combined
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended April 30, 2001, which are included in the
April 30, 2001, annual report on Form 10-K. In connection with our audits of the
aforementioned combined financial statements, we also audited the related
combined financial statement schedule included in the Form 10-K. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic combined financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Atlanta, Georgia
June 14, 2001
54