e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number: 0-27876
JDA SOFTWARE GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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86-0787377 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
14400 North 87th Street
Scottsdale, Arizona 85260
(480) 308-3000
(Address and telephone number of principal executive offices)
Indicate by check mark whether registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) had been
subject to such filing requirements for the past 90 days. Yes
þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such files). Yes o
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Acts.
(Check one):
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Large accelerated filer o
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Accelerated filer
þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value, was 34,514,874
as of October 30, 2009.
FORM 10-Q
TABLE OF CONTENTS
2
Part I: FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts, unaudited)
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September 30, |
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December 31, |
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2009 |
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2008 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
85,477 |
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$ |
32,696 |
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Accounts receivable, net |
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60,236 |
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79,353 |
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Income tax receivable |
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2,298 |
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316 |
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Deferred tax asset |
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23,221 |
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22,919 |
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Prepaid expenses and other current assets |
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18,292 |
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14,223 |
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Total current assets |
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189,524 |
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149,507 |
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Non-Current Assets: |
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Property and equipment, net |
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41,608 |
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43,093 |
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Goodwill |
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135,275 |
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135,275 |
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Other intangibles, net: |
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Customer lists |
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104,848 |
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121,719 |
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Acquired software technology |
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21,206 |
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24,160 |
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Trademarks |
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326 |
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1,335 |
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Deferred tax asset |
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35,996 |
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44,815 |
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Other non-current assets |
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7,272 |
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4,872 |
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Total non-current assets |
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346,531 |
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375,269 |
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Total Assets |
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$ |
536,055 |
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$ |
524,776 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
8,574 |
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$ |
3,273 |
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Accrued expenses and other liabilities |
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39,381 |
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52,090 |
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Deferred revenue |
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71,852 |
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62,005 |
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Total current liabilities |
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119,807 |
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117,368 |
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Non-Current Liabilities: |
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Accrued exit and disposal obligations |
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7,269 |
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8,820 |
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Liability for uncertain tax positions |
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7,447 |
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7,093 |
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Total non-current liabilities |
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14,716 |
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15,913 |
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Total Liabilities |
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134,523 |
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133,281 |
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Redeemable Preferred Stock |
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— |
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50,000 |
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Stockholders’ Equity: |
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Preferred stock, $.01 par value; authorized 2,000,000 shares; none
issued or outstanding |
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— |
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— |
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Common stock, $.01 par value; authorized, 50,000,000 shares; issued
36,269,083 and 32,458,396 shares, respectively |
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363 |
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325 |
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Additional paid-in capital |
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361,740 |
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305,564 |
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Deferred compensation |
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(7,681 |
) |
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(2,915 |
) |
Retained earnings |
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65,517 |
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56,268 |
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Accumulated other comprehensive income (loss) |
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3,589 |
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(2,017 |
) |
Less treasury stock, at cost, 1,774,006 and 1,307,317 shares, respectively |
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(21,996 |
) |
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(15,730 |
) |
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Total stockholders’ equity |
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401,532 |
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341,495 |
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Total liabilities and stockholders’ equity |
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$ |
536,055 |
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$ |
524,776 |
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See notes to condensed consolidated financial statements.
3
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share data, unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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REVENUES: |
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Software licenses |
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$ |
17,250 |
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$ |
23,011 |
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$ |
60,160 |
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$ |
58,593 |
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Maintenance services |
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45,010 |
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46,388 |
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132,378 |
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138,843 |
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Product revenues |
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62,260 |
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69,399 |
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192,538 |
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197,436 |
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Consulting services |
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30,852 |
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26,437 |
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78,965 |
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78,901 |
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Reimbursed expenses |
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2,747 |
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2,610 |
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7,174 |
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7,780 |
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Service revenues |
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33,599 |
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29,047 |
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86,139 |
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86,681 |
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Total revenues |
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95,859 |
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98,446 |
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278,677 |
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284,117 |
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COST OF REVENUES: |
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Cost of software licenses |
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580 |
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613 |
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2,417 |
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2,009 |
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Amortization of acquired software technology |
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966 |
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1,309 |
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2,954 |
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4,270 |
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Cost of maintenance services |
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10,883 |
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11,513 |
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32,416 |
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34,145 |
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Cost of product revenues |
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12,429 |
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13,435 |
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37,787 |
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40,424 |
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Cost of consulting services |
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22,219 |
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20,315 |
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61,732 |
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61,084 |
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Reimbursed expenses |
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2,747 |
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2,610 |
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7,174 |
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7,780 |
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Cost of service revenues |
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24,966 |
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22,925 |
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68,906 |
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68,864 |
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Total cost of revenues |
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37,395 |
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36,360 |
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106,693 |
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109,288 |
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GROSS PROFIT |
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58,464 |
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62,086 |
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171,984 |
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174,829 |
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OPERATING EXPENSES: |
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Product development |
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12,495 |
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13,288 |
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37,732 |
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40,196 |
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Sales and marketing |
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15,888 |
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15,899 |
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46,310 |
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47,738 |
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General and administrative |
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12,305 |
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10,440 |
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35,001 |
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32,406 |
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Amortization of intangibles |
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5,753 |
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6,075 |
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17,880 |
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18,227 |
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Restructuring charges and adjustments to acquisition-related reserves |
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2,543 |
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399 |
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6,705 |
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3,954 |
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Total operating expenses |
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48,984 |
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46,101 |
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143,628 |
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142,521 |
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OPERATING INCOME |
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9,480 |
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15,985 |
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28,356 |
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32,308 |
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Interest expense and amortization of loan fees |
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(346 |
) |
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(2,353 |
) |
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(971 |
) |
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(7,313 |
) |
Interest income and other, net |
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1,006 |
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51 |
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|
886 |
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2,127 |
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INCOME BEFORE INCOME TAXES |
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10,140 |
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13,683 |
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28,271 |
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27,122 |
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Income tax provision |
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3,877 |
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5,441 |
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10,429 |
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10,451 |
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NET INCOME |
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$ |
6,263 |
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$ |
8,242 |
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$ |
17,842 |
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$ |
16,671 |
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Consideration paid in excess of carrying value on the
repurchase of redeemable preferred stock |
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(8,593 |
) |
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— |
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(8,593 |
) |
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— |
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INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS |
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$ |
(2,330 |
) |
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$ |
8,242 |
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$ |
9,249 |
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$ |
16,671 |
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EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON
SHAREHOLDERS: |
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Basic earnings (loss) per share |
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$ |
(.07 |
) |
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$ |
.24 |
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$ |
.26 |
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$ |
.49 |
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Diluted earnings (loss) per share |
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$ |
(.07 |
) |
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$ |
.23 |
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$ |
.26 |
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$ |
.47 |
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SHARES USED TO COMPUTE EARNINGS (LOSS) PER SHARE: |
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Basic earnings (loss) per share |
|
|
33,505 |
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|
34,528 |
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|
|
35,076 |
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|
34,223 |
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|
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|
Diluted earnings (loss) per share |
|
|
33,505 |
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|
|
35,432 |
|
|
|
35,329 |
|
|
|
35,261 |
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|
|
|
|
|
|
|
|
|
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|
See notes to condensed consolidated financial statements.
4
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, unaudited)
|
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|
|
|
|
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|
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|
|
|
|
|
|
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|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
NET INCOME |
|
$ |
6,263 |
|
|
$ |
8,242 |
|
|
$ |
17,842 |
|
|
$ |
16,671 |
|
|
|
|
|
|
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|
|
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|
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|
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|
OTHER COMPREHENSIVE INCOME (LOSS): |
|
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|
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|
|
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|
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|
|
|
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|
|
|
|
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|
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|
Foreign currency translation adjustment |
|
|
2,032 |
|
|
|
(3,797 |
) |
|
|
5,606 |
|
|
|
(2,901 |
) |
Change in fair value of interest rate swap |
|
|
— |
|
|
|
329 |
|
|
|
— |
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
2,032 |
|
|
|
(3,468 |
) |
|
|
5,606 |
|
|
|
(2,742 |
) |
|
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|
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|
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|
|
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|
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|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME |
|
$ |
8,295 |
|
|
$ |
4,774 |
|
|
$ |
23,448 |
|
|
$ |
13,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
5
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
17,842 |
|
|
$ |
16,671 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
28,043 |
|
|
|
29,909 |
|
Provision for doubtful accounts |
|
|
900 |
|
|
|
— |
|
Amortization of loan origination fees |
|
|
— |
|
|
|
713 |
|
Excess tax benefits from stock-based compensation |
|
|
— |
|
|
|
1,638 |
|
Share-based compensation expense |
|
|
6,412 |
|
|
|
3,135 |
|
Net gain on disposal of property and equipment |
|
|
(55 |
) |
|
|
— |
|
Deferred income taxes |
|
|
8,517 |
|
|
|
8,888 |
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
19,536 |
|
|
|
11,611 |
|
Income tax receivable |
|
|
(1,838 |
) |
|
|
482 |
|
Prepaid expenses and other assets |
|
|
(3,976 |
) |
|
|
(424 |
) |
Accounts payable |
|
|
5,685 |
|
|
|
1,877 |
|
Accrued expenses and other liabilities |
|
|
(11,478 |
) |
|
|
(4,698 |
) |
Income tax payable |
|
|
380 |
|
|
|
(628 |
) |
Deferred revenue |
|
|
10,560 |
|
|
|
1,498 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
80,528 |
|
|
|
70,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Payment of direct costs related to acquisitions |
|
|
(4,431 |
) |
|
|
(5,434 |
) |
Purchase of other property and equipment |
|
|
(5,541 |
) |
|
|
(6,065 |
) |
Proceeds from disposal of property and equipment |
|
|
62 |
|
|
|
115 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(9,910 |
) |
|
|
(11,384 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Issuance of
common stock — equity plans |
|
|
14,524 |
|
|
|
6,014 |
|
Excess tax benefits from stock-based compensation |
|
|
— |
|
|
|
(1,638 |
) |
Purchase of treasury stock |
|
|
(6,266 |
) |
|
|
(1,902 |
) |
Redemption of redeemable preferred stock |
|
|
(28,068 |
) |
|
|
— |
|
Principal payments on term loan agreement |
|
|
— |
|
|
|
(19,086 |
) |
Loan origination fees |
|
|
— |
|
|
|
(3,375 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(19,810 |
) |
|
|
(19,987 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash |
|
|
1,973 |
|
|
|
(3,786 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
52,781 |
|
|
|
35,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
32,696 |
|
|
|
95,288 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
85,477 |
|
|
$ |
130,803 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
3,262 |
|
|
$ |
3,141 |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
304 |
|
|
$ |
6,803 |
|
|
|
|
|
|
|
|
Cash received for income tax refunds |
|
$ |
723 |
|
|
$ |
502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of redeemable preferred stock to common stock |
|
$ |
30,525 |
|
|
$ |
— |
|
See notes to consolidated financial statements.
7
JDA SOFTWARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except percentages, shares, per share amounts, or as otherwise stated)
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of JDA Software Group,
Inc. (“we” or the “Company”) have been prepared in accordance with accounting principles generally
accepted in the United States of America applicable to interim financial statements. Accordingly,
they do not include all of the information and notes required for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair and comparable
presentation have been included and are of a normal recurring nature. Operating results for the
three and nine months ended September 30, 2009 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2009. These condensed consolidated financial
statements should be read in conjunction with the audited financial statements and the notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those estimates.
The Financial Accounting Standards Board (“FASB”) has established the FASB Standard Accounting
Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting
principles (“GAAP”) for nongovernmental entities. The Codification, which is effective for all
reporting periods that end after September 15, 2009, supersedes and replaces all existing non-SEC
accounting and reporting standards. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative GAAP for SEC registrants. Adoption of the
Codification did not have a material impact on our consolidated financial statement note
disclosures.
2. Subsequent Events
Subsequent events have been evaluated through November 3, 2009, which is the date these
financial statements were filed with the Securities and Exchange Commission. On this date, the
financial statements are considered issued and widely distributed to shareholders and other
financial statement users for general use and reliance in a form and format that complies with
generally accepted accounted principles. Based on our evaluation, there are no subsequent events
that need to be reported in this quarterly report on Form 10-Q for the quarterly period ended
September 30, 2009.
3. Derivative Instruments and Hedging Activities
We use derivative financial instruments, primarily forward exchange contracts, to manage a
majority of the foreign currency exchange exposure associated with net short-term foreign currency
denominated assets and liabilities that exist as part of our ongoing business operations that are
denominated in a currency other than the functional currency of the subsidiary. The exposures
relate primarily to the gain or loss recognized in earnings from the settlement of current foreign
currency denominated assets and liabilities. We do not enter into derivative financial instruments
for trading or speculative purposes. The forward exchange contracts generally have maturities of
less than 90 days and are not designated as hedging instruments. Forward exchange contracts are
marked-to-market at the end of each reporting period, using quoted prices for similar assets or
liabilities in active markets, with gains and losses recognized in other income offset by the gains
or losses resulting from the settlement of the underlying foreign currency denominated assets and
liabilities.
At September 30, 2009, we had forward exchange contracts with a notional value of $40.7
million and an associated net forward contract receivable of $577,000. At December 31, 2008, we
had forward exchange contracts with a notional value of $33.5 million and an associated net forward
contract liability of $14,000. These derivatives are not designated as hedging instruments. The
forward contract receivables or liabilities are included in the condensed consolidated balance
sheet under the captions, “Prepaid expenses and other current assets” or “Accrued expenses and
other liabilities” as appropriate. The notional value represents the amount of foreign currencies
to be purchased or sold at maturity and does not represent our exposure on these contracts. We
recorded net foreign currency exchange contract gains of $609,000 and $78,000 in the nine months
ended September 30, 2009 and
2008, respectively, which are included in the condensed consolidated statements of income
under the caption “Interest Income and other, net.”
8
4. Goodwill and Other Intangibles, Net
Goodwill and other intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Estimated |
|
|
Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Useful Lives |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Goodwill |
|
|
|
|
|
$ |
135,275 |
|
|
$ |
— |
|
|
$ |
135,275 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists |
|
|
8 to 13 years |
|
|
|
183,383 |
|
|
|
(78,535 |
) |
|
|
183,383 |
|
|
|
(61,664 |
) |
Acquired software technology |
|
|
8 to 15 years |
|
|
|
65,847 |
|
|
|
(44,641 |
) |
|
|
65,847 |
|
|
|
(41,687 |
) |
Trademarks |
|
|
3 to 5 years |
|
|
|
5,191 |
|
|
|
(4,865 |
) |
|
|
5,191 |
|
|
|
(3,856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,421 |
|
|
|
(128,041 |
) |
|
|
254,421 |
|
|
|
(107,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
389,696 |
|
|
$ |
(128,041 |
) |
|
$ |
389,696 |
|
|
$ |
(107,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We found no indication of impairment of our goodwill balances in the nine months ended
September 30, 2009 and, absent future indicators of impairment, the next annual impairment test
will be performed in fourth quarter 2009. As of September 30, 2009, the goodwill balance has been
allocated to our reporting units as follows: $87.1 million to Retail, $44.5 million to
Manufacturing and Distribution, and $3.7 million to Services Industries.
Amortization expense for the three and nine months ended September 30, 2009 was $6.7 million
and $20.8 million, respectively, compared to $7.4 million and $22.5 million, respectively in the
three and nine months ended September 30, 2008. The decrease in amortization in the nine months
ended September 30, 2009 compared to the nine months ended September 30, 2008 is due primarily to
certain software technology acquired from E3 Corporation in 2001 that has now been fully amortized.
Amortization expense is reported in the condensed consolidated statements of income within
cost of revenues under the caption “Amortization of acquired software technology” and in operating
expenses under the caption “Amortization of intangibles.” As of September 30, 2009, we expect
amortization expense for the remainder of 2009 and the next four years to be as follows:
|
|
|
|
|
Year |
|
Amortization |
2009 |
|
$ |
6,719 |
|
2010 |
|
$ |
26,277 |
|
2011 |
|
$ |
25,962 |
|
2012 |
|
$ |
25,500 |
|
2013 |
|
$ |
24,810 |
|
5. Acquisition of Equity Interest in European-based Strategix Enterprise Technology
In July 2009, we purchased 49.1% of the registered share capital of Strategix Enterprise
Technology GMBH and Strategix Enterprise Technology sp.z.o.o. (collectively, “Strategix”) for cash.
The initial investment, which is not material to our financial statements, is reflected in the
condensed consolidated balance sheet under the caption “Other non-current assets” and in the
condensed consolidated statement of cash flows as an investing activity under the caption “Payment
of direct costs related to acquisitions.” We will adjust the initial investment and record our
equity share of earnings or losses on a one-quarter lag beginning in fourth quarter 2009. The
transaction provides for additional annual purchase price earn-outs in each of 2009, 2010 and 2011
if defined performance milestones are achieved. The Company also has an option to purchase the
remaining registered share capital of
Strategix beginning on the third anniversary date of the transaction based on defined
operating metrics. Strategix has been a distributor of our supply and category management
applications in Central and Eastern Europe and Russia since 2004. As part of this transaction,
Strategix will now have access to our entire suite of products, and we believe such access will
expand our presence with retail, manufacturing and
9
wholesale-distribution customers in these
markets. We have also acquired the rights to various applications developed by Strategix that are
designed to enhance certain of our space and category management solutions, plus a suite of SAP
integration tools.
6. Acquisition Reserves
We recorded initial acquisition reserves of $47.4 million for restructuring charges and other
direct costs associated with the acquisition of Manugistics in 2006. The restructuring charges
were primarily related to facility closures, employee severance and termination benefits and other
direct costs associated with the acquisition, including investment banker fees, change-in-control
payments, and legal and accounting costs. Subsequent adjustments of $2.9 million were made to
reduce the reserves in 2007 and 2008 based on our revised estimates of the restructuring costs to
exit certain of the activities of Manugistics. The majority these adjustments were made by June 30,
2007 and included in the final purchase price allocation. All adjustments made subsequent to June
30, 2007, including the $539,000 increase recorded in the nine months ended September 30, 2009,
have been included in the consolidated statements of operations under the caption “Restructuring
charges and adjustments to acquisition-related reserves.” Adjustments made in the nine months ended
September 30, 2009 resulted primarily from our revised estimate of sublease rentals and market
adjustments on an unfavorable office facility lease in the United Kingdom. The unused portion of
the acquisition reserves was $11.8 million at September 30, 2009, of which $4.5 million is included
in the condensed consolidated balance sheet in current liabilities under the caption “Accrued
expenses and other liabilities” and $7.3 million is included in non-current liabilities under the
caption “Accrued exit and disposal obligations.” A summary of the charges and adjustments recorded
against the reserves is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
Balance |
|
|
|
|
|
|
|
|
|
Changes in |
|
Balance |
|
|
Initial |
|
Adjustments |
|
Cash |
|
Exchange |
|
December 31, |
|
Adjustments |
|
Cash |
|
Exchange |
|
Sept 30, |
Description of charge |
|
Reserve |
|
to Reserves |
|
Charges |
|
Rates |
|
2008 |
|
to Reserves |
|
Charges |
|
Rates |
|
2009 |
|
Restructuring charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office closures, lease
terminations and
sublease
costs |
|
$ |
29,212 |
|
|
$ |
(2,351 |
) |
|
$ |
(13,109 |
) |
|
$ |
(1,034 |
) |
|
$ |
12,718 |
|
|
$ |
539 |
|
|
$ |
(2,220 |
) |
|
$ |
293 |
|
|
$ |
11,330 |
|
Employee severance and
termination
benefits |
|
|
3,607 |
|
|
|
(767 |
) |
|
|
(2,465 |
) |
|
|
107 |
|
|
|
482 |
|
|
|
— |
|
|
|
(3 |
) |
|
|
26 |
|
|
|
505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT projects, contract
termination
penalties, capital
lease buyouts and
other costs to exit
activities of
Manugistics |
|
|
1,450 |
|
|
|
222 |
|
|
|
(1,672 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
34,269 |
|
|
|
(2,896 |
) |
|
|
(17,246 |
) |
|
|
(927 |
) |
|
|
13,200 |
|
|
|
539 |
|
|
|
(2,223 |
) |
|
|
319 |
|
|
|
11,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
|
13,125 |
|
|
|
6 |
|
|
|
(13,104 |
) |
|
|
— |
|
|
|
27 |
|
|
|
— |
|
|
|
(26 |
) |
|
|
— |
|
|
|
1 |
|
|
|
|
Total |
|
$ |
47,394 |
|
|
$ |
(2,890 |
) |
|
$ |
(30,350 |
) |
|
$ |
(927 |
) |
|
$ |
13,227 |
|
|
$ |
539 |
|
|
$ |
(2,249 |
) |
|
$ |
319 |
|
|
$ |
11,836 |
|
|
|
|
As of September 30, 2009, the remaining balance in the reserve for office closures, lease
termination and sublease costs is primarily related to office facility leases in Rockville,
Maryland and the United Kingdom, and the remaining balance in the reserve for employee severance
and termination benefits is related to certain foreign employees.
7. Restructuring Charges
2009 Restructuring Charges
We recorded restructuring charges of $6.4 million in the nine months ended September 30, 2009,
including $1.5 million in first quarter 2009, $2.3 million in second quarter 2009 and $2.6 million
in third quarter 2009. These charges are primarily associated with the transition of additional
on-shore activities to the Center of Excellence (“CoE”) in India and certain restructuring
activities in the EMEA sales organization. The charges include termination benefits related to a
workforce reduction of 83 full-time employees (“FTE”) in product development, service, support,
sales and marketing, information technology and other administrative positions, primarily in the
Americas region. In addition, the restructuring charges include $2.0 million in severance and
other
termination benefits under separation agreements with our former Executive Vice President and Chief
Financial Officer and our former Chief Operating Officer. As of September 30, 2009, approximately
$5.7 million of the costs associated with these restructuring charges
10
have been paid and the
remaining balance of $728,000 is included in the condensed consolidated balance sheet under the
caption “Accrued expenses and other current liabilities.” We expect substantially all of the
remaining costs to be paid in 2009.
2008
Restructuring Charges
We recorded restructuring charges of $8.0 million in 2008, including $794,000 in first quarter
2008, $3.3 million in second quarter 2008 and $435,000 in third quarter 2008. These charges are
primarily associated with our transition of certain on-shore activities to our CoE. The 2008
restructuring charges included $7.9 million for termination benefits, primarily related to a
workforce reduction of 100 FTE in product development, consulting and sales-related positions
across all of our geographic regions and $119,000 for office closure and integration costs of
redundant office facilities. Subsequent adjustments were made to these reserves in the nine months
ended September 30, 2009 based on our revised estimates to complete the restructuring activities
and are included in the consolidated statements of income under the caption “Restructuring charges
and adjustments to acquisition-related reserves.” As of September 30, 2009, approximately $7.5
million of the costs associated with these restructuring charges have been paid and the remaining
balance of $96,000 is included in the condensed consolidated balance sheet under the caption
“Accrued expenses and other current liabilities.” We expect substantially all of the remaining
termination benefits and office closure costs to be paid in 2009. A summary of the 2008
restructuring charges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
Balance |
|
|
|
|
|
|
|
|
|
Changes in |
|
Balance |
|
|
Initial |
|
Cash |
|
Exchange |
|
December 31, |
|
Adjustments |
|
Cash |
|
Exchange |
|
Sept 30, |
Description of charge |
|
Reserve |
|
Charges |
|
Rates |
|
2008 |
|
to Reserves |
|
Charges |
|
Rates |
|
2009 |
|
Termination benefits |
|
$ |
7,891 |
|
|
$ |
(5,576 |
) |
|
$ |
(164 |
) |
|
$ |
2,151 |
|
|
$ |
(212 |
) |
|
$ |
(1,839 |
) |
|
$ |
(6 |
) |
|
$ |
94 |
|
Office closures |
|
|
119 |
|
|
|
(77 |
) |
|
|
(6 |
) |
|
|
36 |
|
|
|
(16 |
) |
|
|
(18 |
) |
|
|
— |
|
|
|
2 |
|
|
|
|
Total |
|
$ |
8,010 |
|
|
$ |
(5,653 |
) |
|
$ |
(170 |
) |
|
$ |
2,187 |
|
|
$ |
(228 |
) |
|
$ |
(1,857 |
) |
|
$ |
(6 |
) |
|
$ |
96 |
|
|
|
|
8. Redeemable Preferred Stock
In connection with the Manugistics Group, Inc. (“Manugistics”) acquisition in 2006, we issued
50,000 shares of Series B preferred stock to funds affiliated with Thoma Bravo, LLC (“Thoma
Bravo”), a private equity investment firm, for $50 million in cash. The Series B preferred stock
was convertible, at any time in whole or in part, into a maximum of 3,603,603 shares of common
stock based on an agreed conversion rate of $13.875. During third quarter 2009, Thoma Bravo
exercised conversion rights on 30,525 shares of the Series B preferred stock, which resulted in the
issuance of 2,200,000 shares of common stock. We recorded a $30.5 million adjustment to reduce the
carrying value of the redeemable preferred stock ($13.875 per share for each of the 2,200,000
shares of common stock), and increased common stock for the par value of converted shares ($22,000)
and additional paid-in capital ($30.5 million).
We entered into stock purchase agreement (the “Purchase Agreement”) with Thoma Bravo on
September 8, 2009 to acquire the remaining shares of Series B preferred stock for $28.1 million in
cash (or $20 per share for each of the 1,403,603 shares of JDA common stock into which the Series B
Preferred Stock is convertible). The agreed purchase price includes $19.5 million, which represents
the conversion of 1,403,603 shares of common stock at the conversion price of $13.875, and $8.6
million, which represents consideration paid in excess of the conversion price of $13.875 ($6.125
per share). The consideration paid in excess of the conversion price has been charged to retained
earnings in the same manner as a dividend on preferred stock, and reduced the income applicable to
common shareholders in the calculation of earnings per share for the three and nine months ended
September 30, 2009 (see Note 12). As part of the Purchase Agreement, we also repurchased 100,000
shares of our common stock held by Thoma Bravo for $2.0 million, or $20 per share.
Holders of the Series B preferred stock were entitled as a class to elect a director to our
Board. Mr. Orlando Bravo, a Managing Partner with Thoma Bravo, was appointed to and has served as a
member of our Board since 2006. Mr. Bravo resigned from our Board upon the closing of the Purchase
Agreement.
9. Share-Based Compensation
Our 2005 Performance Incentive Plan, as amended (“2005 Incentive Plan”), provides for the
issuance of up to 3,847,000 shares of common stock to employees, consultants and directors under
stock purchase rights, stock bonuses, restricted stock, restricted
stock units, performance awards, performance units and deferred compensation awards. The 2005
Incentive Plan contains certain restrictions that limit the number of shares that may be issued and
the amount of cash awarded under each type of award, including a limitation that awards granted in
any given year can represent no more than two percent (2%) of the total number of shares of common
stock outstanding as of the last day of the preceding fiscal year. Awards granted under the 2005
Incentive Plan are in such form as the
11
Compensation Committee shall from time to time establish and
the awards may or may not be subject to vesting conditions based on the satisfaction of service
requirements or other conditions, restrictions or performance criteria including the Company’s
achievement of annual operating goals. Restricted stock and restricted stock units may also be
granted under the 2005 Incentive Plan as a component of an incentive package offered to new
employees or to existing employees based on performance or in connection with a promotion, and will
generally vest over a three-year period, commencing at the date of grant. We measure the fair value
of awards under the 2005 Incentive Plan based on the market price of the underlying common stock as
of the date of grant. The fair value of each award is amortized over its applicable vesting period
using graded vesting and reflected in the consolidated statements of income under the captions
“Cost of maintenance services,” “Cost of consulting services,” “Product development,” “Sales and
marketing,” and “General and administrative.”
Annual stock-based incentive programs have been approved for 2007, 2008 and 2009 (“Performance
Programs”). The Performance Programs provide for contingently issuable performance share awards or
restricted stock units under the 2005 Incentive Plan to executive officers and certain other
members of our management team upon achievement of defined performance threshold goals. The
defined performance threshold goal for each year has been an adjusted EBITDA (earnings before
interest, taxes, depreciation and amortization) targets, which excludes certain non-routine items.
The awards vest 50% upon the date the Board approves the achievement of the annual performance
threshold goal with the remaining 50% vesting ratably over the subsequent 24-month period. A
summary of the annual Performance Programs is as follows:
2009 Performance Program. The 2009 Performance Program provides for a target award of up to
604,000 contingently issuable performance share awards if we are able to achieve a defined adjusted
EBITDA performance threshold goal. Under the terms of the 2009 Performance Program, a partial
pro-rata issuance of performance share awards will be made if we achieve a minimum adjusted EBITDA
performance threshold. The performance share awards, if any, will be issued after the confirmation
of our 2009 financial results in January 2010. The Company’s performance against the defined
performance threshold goal is being evaluated on a quarterly basis throughout 2009 and share-based
compensation recognized over the requisite service periods that generally run from January 13, 2009
(the date of Board approval of the 2009 Performance Program) through January 2012. A deferred
compensation charge of $7.4 million has been recorded in the equity section of our balance sheet,
with a related increase to additional paid-in capital, for the total grant date fair value of the
current estimated awards to be issued under the 2009 Performance Program. Although all necessary
service and performance conditions have not been met through September 30, 2009, based on our
results for the nine months ended September 30, 2009 and the outlook for the remainder of the year,
we have recorded $3.7 million in stock-based compensation related to these awards in the nine
months ended September 30, 2009, including $1.4 million in third quarter 2009. We currently expect
to recognize approximately $4.9 million of this award as stock-based compensation in 2009.
2008 Performance Program. The 2008 Performance Program provided for the issuance of
contingently issuable performance share awards if we were able to achieve $95 million of adjusted
EBITDA. The Company’s actual 2008 adjusted EBITDA performance, which exceeded the defined
performance threshold goal of $95 million, qualified participants to receive approximately 106% of
their target awards. In total, 222,838 performance share awards were issued in January 2009 with a
grant date fair value of $3.9 million that is being recognized as stock-based compensation over
requisite service periods that run from the date of Board approval of the 2008 Performance Program
through January 2011. Through September 30, 2009, approximately 4,300 of performance share awards
granted under the 2008 Performance Program have been subsequently forfeited. A deferred
compensation charge of $3.9 million was recorded in the equity section of our balance sheet during
2008, with a related increase to additional paid-in capital, for the total grant date fair value of
the awards. We recognized $2.6 million in share-based compensation expense related to these
performance share awards in 2008, including $1.7 million in the nine months ended September 30,
2008, plus an additional $400,000 in the nine months ended September 30, 2009.
2007 Performance Program. The 2007 Performance Program provided for the issuance of
contingently issuable restricted stock units if we were able to successfully integrate the
Manugistics acquisition and achieve a $85 million of adjusted EBITDA. The Company’s actual 2007
adjusted EBITDA performance qualified participants for a pro-rata issuance equal to 99.25% of their
target awards. In total, 502,935 restricted stock units were issued in January 2008 with a grant
date fair value of $8.1 million. Through September 30, 2009, approximately 35,000 of the restricted
stock units granted under the 2007 Integration Program have been subsequently forfeited. We
recognized $1.1 million in share-based compensation expense related to these performance share
awards
in 2008, including $858,000 in the nine months ended September 30, 2008, and an additional
$683,000 in the nine months ended September 30, 2009.
During the nine months ended September 30, 2009 and 2008, we recorded share-based compensation
expense of $487,000 and $538,000, respectively related to other 2005 Incentive Plan awards.
12
Equity Inducement Awards. During third quarter 2009, we announced the appointment of Peter S.
Hathaway to the position of Executive Vice President and Chief Financial Officer and Jason B.
Zintak to the newly-created position of Executive Vice President, Sales and Marketing. In order to
induce Mr. Hathaway and Mr. Zintak to accept employment, the Compensation Committee granted certain
equity awards outside of the terms of the 2005 Incentive Plan and pursuant to NASDAQ Marketplace
Rule 5635(c)(4).
|
(i) |
|
100,000 shares of restricted stock with a grant date fair value of $1.8 million
were granted to Mr. Hathaway (50,000 shares) and Mr. Zintak (50,000 shares). The
restricted stock awards vest over a three-year period, with one-third vesting on the
first anniversary of their employment with the remainder vesting ratably over the
subsequent 24-month period. A deferred compensation charge of $1.8 million has been
recorded in the equity section of our balance sheet for the total grant date fair value
of the restricted stock. Stock-based compensation is being recorded on a graded vesting
basis over requisite service periods that run from their effective dates of employment
through June 2012. During third quarter 2009, we recorded $249,000 in stock-based
compensation related to these awards. |
|
|
(ii) |
|
55,000 performance share awards will be issued to Mr. Hathaway (25,000 shares up
to a maximum of 31,250 shares) and Mr. Zintak (30,000 shares up to a maximum of 37,500
shares) if we are able to achieve the adjusted EBITDA performance threshold goal defined
under the 2009 Performance Program. Under the terms of the grants, a partial pro-rata
issuance of performance share awards will be made if we achieve a minimum adjusted
EBITDA performance threshold. The performance share awards, if any, will be issued after
the confirmation of our 2009 financial results in January 2010 and will vest 50% upon
the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month
period. The Company’s performance against the defined performance threshold goal is
being evaluated on a quarterly basis throughout 2009 and share-based compensation
recognized over the requisite service periods that run from their effective dates of
employment through January 2012. A deferred compensation charge of $1.1 million has
been recorded in the equity section of our balance sheet, with a related increase to
additional paid-in capital, for the total grant date fair value of the current estimated
awards to be issued. Although all necessary service and performance conditions have not
been met through September 30, 2009, based on our results for the nine months ended
September 30, 2009 and the outlook for the remainder of the year, we have recorded
$543,000 in stock-based compensation related to these awards in third quarter 2009. We
currently expect to recognize approximately $724,000 of this award as stock-based
compensation in 2009. |
|
|
(iii) |
|
100,000 restricted stock units with a grant date fair value of $1.8 million were
granted to Mr. Hathaway (50,000 shares) and Mr. Zintak (50,000 shares) that will vest in
defined tranches if and when the Company achieves certain pre-defined performance
milestones. No deferred compensation charge has been recorded in the equity section of
our balance sheet, nor has any share-based compensation expense been recognized related
to these grants as management is unable to determine if it is probable the pre-defined
performance milestones will be attained. |
Employee Stock Purchase Plan. Our employee stock purchase plan (“2008 Purchase Plan”) has an
initial reserve of 1,500,000 shares and provides eligible employees with the ability to defer up to
10% of their earnings for the purchase of our common stock on a semi-annual basis at 85% of the
fair market value on the last day of each six-month offering period that begin on February
1st and August 1st of each year. The 2008 Purchase Plan is considered
compensatory and, as a result, stock-based compensation will be recognized on the last day of each
six-month offering period in an amount equal to the difference between the fair value of the stock
on the date of purchase and the discounted purchase price. A total of 155,888 shares of common
stock were purchased under the 2008 Purchase Plan in the nine months ended September 30, 2009 at
prices ranging from $9.52 to $17.52. We have recognized $342,000 in share-based compensation
expense in connection with these purchases, which is reflected in the consolidated statements of
income under the captions “Cost of maintenance services,” “Cost of consulting services,” “Product
development,” “Sales and marketing,” and “General and administrative.”
10. Treasury Stock Repurchases
On March 5, 2009, the Board adopted a program to repurchase up to $30 million of our common
stock in the open market or in private transactions at prevailing market prices during the 12-month
period ending March 10, 2010. During the nine months ended September 30, 2009, we repurchased
265,715 shares of our common stock under this program for $2.9 million at prices ranging from
$10.34 to $11.00 per share.
During the nine months ended September 30, 2009 and 2008, we also repurchased 97,056 and
107,472 common shares, respectively, tendered by employees for the payment of applicable statutory
withholding taxes on the issuance of restricted shares
13
under the 2005 Performance Incentive Plan.
These shares were repurchased for $1.4 million at prices ranging from $9.75 to $22.37 in the nine
months ended September 30, 2009 and for $1.9 million at prices ranging from $14.97 to $20.40 per
share in the nine months ended September 30, 2008.
As part of the Purchase Agreement with Thoma Bravo (see Note 8), we repurchased 100,000 shares
of our common stock held by Thoma Bravo for $2.0 million, or $20 per share.
11. Income Taxes
We calculate our tax provision on an interim basis using the year-to-date effective tax rate
and record discrete tax adjustments in the reporting period in which they occur. Because the
Company is subject to income taxes in numerous jurisdictions and the timing of software and
consulting income by jurisdiction can vary significantly, we are unable to reliably estimate an
overall annual effective tax rate. A summary of the income tax provision recorded in the three and
nine months ended September 30, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Income before income tax provision |
|
$ |
10,140 |
|
|
$ |
13,683 |
|
|
$ |
28,271 |
|
|
$ |
27,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision at federal statutory rate |
|
$ |
3,549 |
|
|
$ |
4,789 |
|
|
$ |
9,895 |
|
|
$ |
9,493 |
|
State income taxes |
|
|
306 |
|
|
|
446 |
|
|
|
831 |
|
|
|
789 |
|
Research and development credit |
|
|
(420 |
) |
|
|
— |
|
|
|
(809 |
) |
|
|
— |
|
Foreign tax rate differential |
|
|
(32 |
) |
|
|
(6 |
) |
|
|
(333 |
) |
|
|
(291 |
) |
Interest and penalties on uncertain tax positions |
|
|
118 |
|
|
|
108 |
|
|
|
354 |
|
|
|
323 |
|
Other, net |
|
|
356 |
|
|
|
104 |
|
|
|
491 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
3,877 |
|
|
$ |
5,441 |
|
|
$ |
10,429 |
|
|
$ |
10,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
38 |
% |
|
|
40 |
% |
|
|
37 |
% |
|
|
39 |
% |
We exercise significant judgment in determining our income tax provision due to
transactions, credits and calculations where the ultimate tax determination is uncertain.
Uncertainties arise as a consequence of the actual source of taxable income between domestic and
foreign locations, the outcome of tax audits and the ultimate utilization of tax credits. Although
we believe our estimates are reasonable, the final tax determination could differ from our recorded
income tax provision and accruals. In such case, we would adjust the income tax provision in the
period in which the facts that give rise to the revision become known. These adjustments could have
a material impact on our income tax provision and our net income for that period.
The income tax provision recorded in the three and nine months ended September 30, 2009 and
2008 takes into account the source of taxable income, domestically by state and internationally by
country, and available income tax credits, and does not include the tax benefits realized from the
employee stock options exercised during third quarter 2009 and 2008 of $1.7 million and $30,000,
respectively, and during the nine months ended September 30, 2009 and 2008 of $2.4 million and $1.4
million, respectively. These tax benefits will reduce our income tax liabilities in future periods
and result in an increase to additional paid-in capital as we are able to utilize them. During the
nine months ended September 30, 2008, we recorded an immaterial adjustment to reverse the total
windfall tax benefit previously recognized in 2007 and 2006 of approximately $1.6 million which
reduced additional paid-in capital and non-current deferred tax assets.
As of September 30, 2009 approximately $11 million of unrecognized tax benefits, substantially
all of which relates to uncertain tax positions associated with the acquisition of Manugistics,
would impact our effective tax rate if recognized. Recognition of these uncertain tax positions
will be treated as a component of income tax expense rather than as a reduction of goodwill. During
the nine months ended September 30, 2009, there were no significant changes in our unrecognized tax
benefits. It is reasonably possible that approximately $800,000 of unrecognized tax benefits will
be recognized within the next twelve months. As of December 31, 2008, we had approximately $5.5
million and $7.8 million of federal and state research and development tax credit carryforwards,
respectively, that expire at various dates through 2028. We have placed a full valuation allowance
against the Arizona research and development credit carryforward as we do not expect to be able to
utilize it prior to its expiration.
We treat interest and penalties related to uncertain tax positions as a component of income
tax expense. We have accrued interest and penalties related to uncertain tax positions of $354,000
and $323,000, net of taxes, in the nine months ended September
14
30, 2009 and 2008, respectively. As
of September 30, 2009 and December 31, 2008 there are approximately $3.1 million and $2.6 million,
respectively of interest and penalties accruals related to uncertain tax positions that are
reflected in the consolidated balance sheets under the caption “Liability for uncertain tax
positions.” To the extent interest and penalties are not assessed with respect to the uncertain
tax positions, the accrued amounts for interest and penalties will be reduced and reflected as a
reduction of the overall tax provision.
We conduct business globally and, as a result, JDA Software Group, Inc. or one or more of our
subsidiaries files income tax returns in the U.S. and various state and foreign jurisdictions. In
the normal course of business we are subjected to examination by taxing authorities throughout the
world, including significant jurisdictions in the United States, the United Kingdom, Australia and
France. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S.
income tax examinations for years before 2003. The Internal Revenue Service has completed their
examination of our 2007 tax year with no material adjustments. We also completed a tax examination
in France during third quarter 2009 with no material adjustments. We currently have on-going tax
examinations in Australia, Canada, Hong Kong, India, Malaysia and Singapore. We do not believe
there will be any material adjustments from these audits.
We have participated in the Internal Revenue Service’s Compliance Assurance Program (“CAP”)
since 2007. The CAP program was developed by the Internal Revenue Service to allow for transparency
and to remove uncertainties in tax compliance. The CAP program is offered by invitation only to
those companies with both a history of immaterial audit adjustments and a high level of tax
complexity and involves a review of each quarterly tax provision.
12. Earnings per Share
During the three and nine months ended September 30, 2009 and 2008, the Company had two
classes of outstanding capital stock, common stock and Series B preferred stock. The Series B
preferred stock was a participating security, such that in the event a dividend was declared or
paid on the common stock, the Company would be required to simultaneously declare and pay a
dividend on the Series B preferred stock as if the Series B preferred stock had been converted into
common stock. Companies that have participating securities are required to apply the two-class
method to compute basic earnings per share. Under the two-class computation method, basic earnings
per share is calculated for each class of stock and participating security considering both
dividends declared and participation rights in undistributed earnings as if all such earnings had
been distributed during the period.
During third quarter 2009, Thoma Bravo exercised conversion rights on 30,250 shares of the
Series B preferred stock, which resulted in the issuance of 2,200,000 shares of common stock. We
entered into a Purchase Agreement with Thoma Bravo on September 8, 2009 to acquire the remaining
shares of Series B preferred stock for $28.1 million in cash (or $20 per share for each of the
1,403,603 shares of JDA common stock into which the Series B Preferred Stock is convertible). The
agreed purchase price includes $19.5 million, which represents the conversion of 1,403,603 shares
of common stock at the conversion price of $13.875, and $8.6 million, which represents
consideration paid in excess of the conversion price of $13.875 ($6.125 per share). The
consideration paid in excess of the conversion price has been charged to retained earnings in the
same manner as a dividend on preferred stock, and reduced the income applicable to common
shareholders in the calculation of earnings per share for the three and nine months ended September
30, 2009 (see Note 8). The calculation of diluted earnings (loss) per share applicable to common
shareholders for the three months ended September 30, 2009 excludes the assumed conversion of the
Series B preferred stock into common stock as the effect would be anti-dilutive. The calculation
of diluted earnings (loss) per share applicable to common shareholders for the nine months ended
September 30, 2009 includes the assumed conversion of the Series B preferred stock into common
stock as of the beginning of the period, weighted for the actual days and number of shares
outstanding during the nine-month period. The calculation of diluted earnings per share applicable
to common shareholders for the three and nine months ended September 30, 2008 includes the assumed
conversion of the Series B preferred stock into common stock as of the beginning of the period.
The dilutive effect of outstanding stock options is included in the diluted earnings per share
calculations for 2009 and 2008 using the treasury stock method. Diluted earnings per share
applicable to common shareholders for the three months ended September 30, 2009 and 2008 exclude
approximately 453,000 and 575,000, respectively of vested options for the purchase of common stock
that have grant prices in excess of the average market price, or which are otherwise anti-dilutive.
Diluted earnings per share applicable to common shareholders for the nine months ended September
30, 2009 and 2008 exclude approximately 1.1 million and 629,000, respectively of vested options for
the purchase of common stock that have grant prices in excess of the average market price, or which
are otherwise anti-dilutive. In addition, diluted earnings per share calculations for 2009 and 2008
exclude approximately 759,000 and 200,000 contingently issuable performance share awards or
restricted stock units, respectively for which all necessary conditions have not been met (see Note
9). Earnings per share for the three and nine months ended September 30, 2009 and 2008 are
calculated as follows:
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
6,263 |
|
|
$ |
8,242 |
|
|
$ |
17,842 |
|
|
$ |
16,671 |
|
Consideration paid in excess of carrying value of Series B
preferred stock |
|
|
(8,593 |
) |
|
|
— |
|
|
|
(8,593 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) applicable to common shareholders |
|
$ |
(2,330 |
) |
|
$ |
8,242 |
|
|
$ |
9,249 |
|
|
$ |
16,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
$ |
(2,330 |
) |
|
$ |
7,382 |
|
|
$ |
8,463 |
|
|
$ |
14,918 |
|
Series B preferred stock |
|
|
— |
|
|
|
860 |
|
|
|
786 |
|
|
|
1,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,330 |
) |
|
$ |
8,242 |
|
|
$ |
9,249 |
|
|
$ |
16,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
33,505 |
|
|
|
30,924 |
|
|
|
32,095 |
|
|
|
30,619 |
|
Series B preferred stock |
|
|
— |
|
|
|
3,604 |
|
|
|
2,981 |
|
|
|
3,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares – Basic earnings per share |
|
|
33,505 |
|
|
|
34,528 |
|
|
|
35,076 |
|
|
|
34,223 |
|
Dilutive common stock equivalents |
|
|
— |
|
|
|
904 |
|
|
|
253 |
|
|
|
1,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares – Diluted earnings per share |
|
|
33,505 |
|
|
|
35,432 |
|
|
|
35,329 |
|
|
|
35,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
$ |
(.07 |
) |
|
$ |
.24 |
|
|
$ |
.26 |
|
|
$ |
.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B preferred stock |
|
$ |
— |
|
|
$ |
.24 |
|
|
$ |
.26 |
|
|
$ |
.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share applicable to common shareholders |
|
$ |
(.07 |
) |
|
$ |
.23 |
|
|
$ |
.26 |
|
|
$ |
.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Business Segments and Geographic Data
We are a leading provider of sophisticated software solutions designed specifically to address
the supply chain requirements of global consumer products companies, manufacturers,
wholesale/distributors and retailers, as well as government and aerospace defense contractors and
travel, transportation, hospitality and media organizations, and have licensed our software to more
than 5,900 customers worldwide. Our solutions enable customers to plan, manage and optimize the
coordination of supply, demand and flows of inventory throughout the supply chain to the consumer.
We conduct business in three geographic regions: the Americas (United States, Canada and Latin
America), EMEA (Europe, Middle East and Africa), and Asia/Pacific. Similar products and services
are offered in each geographic region. Identifiable assets are also managed by geographical
region. The geographic distribution of our revenues and identifiable assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
67,059 |
|
|
$ |
68,616 |
|
|
$ |
193,440 |
|
|
$ |
191,421 |
|
Europe |
|
|
20,601 |
|
|
|
21,168 |
|
|
|
57,440 |
|
|
|
66,553 |
|
Asia/Pacific |
|
|
8,199 |
|
|
|
8,662 |
|
|
|
27,797 |
|
|
|
26,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
95,859 |
|
|
$ |
98,446 |
|
|
$ |
278,677 |
|
|
$ |
284,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Identifiable assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
410,284 |
|
|
$ |
402,350 |
|
EMEA |
|
|
83,671 |
|
|
|
86,780 |
|
Asia/Pacific |
|
|
42,100 |
|
|
|
35,646 |
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
536,055 |
|
|
$ |
524,776 |
|
|
|
|
|
|
|
|
Revenues for the Americas include $58.2 million and $56.7 million from the United States
in third quarter 2009 and 2008, respectively and $169.0 million and $167.4 million in the nine
months ended September 30, 2009 and 2008, respectively. Identifiable assets for the Americas
include $387.8 million and $379.7 million in the United States as of September 30, 2009 and
December 31, 2008, respectively.
We organize and manage our operations by type of customer across the following reportable
business segments:
16
• |
|
Retail. This reportable business segment includes all revenues related to applications and
services sold to retail customers. |
|
• |
|
Manufacturing and Distribution. This reportable business segment includes all revenues
related to applications and services sold to manufacturing and distribution companies,
including process manufacturers, consumer goods manufacturers, life sciences companies, high
tech organizations, oil and gas companies, automotive producers and other discrete
manufacturers involved with government, aerospace and defense contracts. |
|
• |
|
Services Industries. This reportable business segment includes all revenues related to
applications and services sold to customers in service industries such as travel,
transportation, hospitality, media and telecommunications. The Services Industries segment is
centrally managed by a team that has global responsibilities for this market. |
A summary of the revenues, operating income and depreciation attributable to each of these
reportable business segments for three and nine months ended September 30, 2009 and 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
54,863 |
|
|
$ |
53,378 |
|
|
$ |
151,562 |
|
|
$ |
150,398 |
|
Manufacturing and Distribution |
|
|
33,745 |
|
|
|
39,890 |
|
|
|
103,430 |
|
|
|
118,324 |
|
Services Industries |
|
|
7,251 |
|
|
|
5,178 |
|
|
|
23,685 |
|
|
|
15,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
95,859 |
|
|
$ |
98,446 |
|
|
$ |
278,677 |
|
|
$ |
284,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
15,213 |
|
|
$ |
16,114 |
|
|
$ |
39,507 |
|
|
$ |
40,361 |
|
Manufacturing and Distribution |
|
|
13,841 |
|
|
|
16,317 |
|
|
|
40,785 |
|
|
|
44,984 |
|
Services Industries |
|
|
1,027 |
|
|
|
468 |
|
|
|
7,650 |
|
|
|
1,550 |
|
Other (see below) |
|
|
(20,601 |
) |
|
|
(16,914 |
) |
|
|
(59,586 |
) |
|
|
(54,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,480 |
|
|
$ |
15,985 |
|
|
$ |
28,356 |
|
|
$ |
32,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
1,233 |
|
|
$ |
1,096 |
|
|
$ |
3,394 |
|
|
$ |
3,363 |
|
Manufacturing and Distribution |
|
|
665 |
|
|
|
727 |
|
|
|
2,034 |
|
|
|
2,454 |
|
Services Industries |
|
|
256 |
|
|
|
184 |
|
|
|
809 |
|
|
|
524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,154 |
|
|
$ |
2,007 |
|
|
$ |
6,237 |
|
|
$ |
6,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
$ |
12,305 |
|
|
$ |
10,440 |
|
|
$ |
35,001 |
|
|
$ |
32,406 |
|
Amortization of intangible assets |
|
|
5,753 |
|
|
|
6,075 |
|
|
|
17,880 |
|
|
|
18,227 |
|
Restructuring charge |
|
|
2,543 |
|
|
|
399 |
|
|
|
6,705 |
|
|
|
3,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,601 |
|
|
$ |
16,914 |
|
|
$ |
59,586 |
|
|
$ |
54,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income in the Retail, Manufacturing and Distribution and Services Industries
reportable business segments includes direct expenses for software licenses, maintenance services,
service revenues and product development expenses, as well as allocations for sales and marketing
expenses, occupancy costs, depreciation expense and amortization of acquired software technology.
The “Other” caption includes general and administrative expenses and other charges that are not
directly identified with
a particular reportable business segment and which management does not consider in evaluating
the operating income (loss) of the reportable business segment.
|
|
|
Item 2: |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Significant Trends and Developments in Our Business
Management’s Discussion and Analysis of Financial Condition and Results of Operations contains
certain forward-looking statements that are made in reliance upon the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements
concerning, among other things, our business strategy, including anticipated trends and
developments in and management plans for our business and the markets in which we operate; future
financial results, operating results, revenues, gross margin, operating expenses, products,
projected costs and capital expenditures; research and development programs; sales and marketing
initiatives; and competition. Forward-looking statements are generally accompanied by words such as
“will” or “expect” and other words with forward-looking connotations. All forward-looking
statements included in this Form 10-Q are based upon information available to us as of the filing
date of this Form 10-Q. We undertake no obligation to update any of these forward-looking
statements for any reason. These forward-looking statements involve known and unknown risks,
uncertainties and
17
other factors that may cause our actual results, levels of activity, performance,
or achievements to differ materially from those expressed or implied by these statements. These
factors include the matters discussed in the section entitled “Risk Factors” elsewhere in this Form
10-Q. You should carefully consider the risks and uncertainties described under this section.
Outlook and Guidance for Second Half 2009. The following summarizes our guidance for second
half 2009 and includes our estimated ranges for software revenues and total revenues. This guidance
is consistent with the guidance previously provided at the end of second quarter 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guidance for Second Half 2009 |
|
Third Quarter |
|
|
Low End |
|
High End |
|
2009 Results |
Software revenues |
|
$43 million |
|
$47 million |
|
$17 million |
Total revenues |
|
$195 million |
|
$202 million |
|
$96 million |
Quarter-to-quarter software sales continue to fluctuate, and as expected, software sales in
third quarter 2009 were sequentially lower compared to second quarter 2009 due to the volume and
timing of deals in our sales pipeline. We believe the current trend in software sales is positive,
and as we enter fourth quarter 2009, our sales pipeline includes a strong representation of both
large transactions greater than $1.0 million (“large transactions”) and mid-size software sales
opportunities ranging from $300,000 to $1.0 million (“mid-size sales opportunities”), the majority
of which are in the Americas region. We believe the current sales pipeline supports our ability to
achieve the previously announced guidance for second half 2009, and, if software deals close as
expected, our fourth quarter 2009 software sales should be sequentially higher compared to third
quarter 2009 and range between $26 and $30 million.
We believe the weak economy is driving some businesses in our target markets to focus on
achieving more process and efficiency improvements in their operations and invest in solutions that
improve operating margins, rather than make large infrastructure-type technology purchases. We
believe this trend may continue for some time and that this scenario favors our solution offerings,
in particular our planning and optimization applications, which are designed to provide a quick
return on investment and focus on some of the largest profit drivers in our customer’s business.
Not only do our solutions enable companies to free up working capital by improving inventory
productivity, they can also support increased sales by improving customer service levels and
optimizing pricing decisions. Our solutions also enable cost reductions such as reduced labor and
transportation costs. While it is true that the economic crisis has stressed the weaker companies
in our target market, we believe a much larger percentage will make proactive investments to
strengthen their operations, and some will even take advantage of this situation to gain market
share. We believe these trends have helped us achieve solid performance in a very difficult
market, including record quarterly software sales in three of the past five quarters. We continue
to believe our value proposition, business model and financial health are all in excellent
condition.
Maintenance services revenues were in line with our expectations in third quarter 2009, and it
appears our maintenance renewals have stabilized. However, as a result of the current economic
environment, we expect our average annualized maintenance retention rate to range from 91% to 92%
for the full year 2009 assuming a constant currency. This range is consistent with the guidance
previously provided at the end of second quarter 2009. Volatility in foreign currency exchange
rates significantly impacts our maintenance services revenue. For example, unfavorable foreign
exchange rate variances reduced maintenance services revenues in third quarter 2009 by $2.0 million
compared to third quarter 2008, and increased maintenance services revenue by $989,000 compared to
second quarter 2009. Excluding any further impacts from currency rate fluctuations, we expect
maintenance services revenues for second half 2009 to be flat or slightly higher compared to first
half 2009. We believe maintenance services revenues from new software sales will continue to
offset the impact of attrition in our existing customer base.
Our consulting services business has begun to show signs of recovery and we believe this part
of our business has started to move in a positive direction. Consulting services is a lagging
indicator for the Company, and for the first time in over a year, quarterly results from our
consulting services business have improved in year-over-year comparisons. We believe our successful
software sales performance in recent quarters has started to drive improvements in consulting
services revenues and our service margins. Service revenues increased $4.6 million, or 16%, to
$33.6 million in third quarter 2009 compared to $29.0 million in third quarter 2008, and service
margins improved to 26% from 21%, respectively. Third quarter 2009 service revenues include $1.1
million of consulting work performed during second quarter 2009 that could not be recognized until
third quarter 2009. Excluding the non-recurring impact of this consulting work, service revenues in
third quarter 2009 increased $3.5 million or 12% compared to third
18
quarter 2008 and service margins
improved to 23% from 21%, respectively. The improvement in service margins is consistent with our
expectation that service margins would gradually increase throughout 2009. We have realized a
sharp improvement over the past two quarters in the volume of work and implementation projects
executed through our Center of Excellence (“CoE”). In third quarter 2009, approximately 8% of all
billable hours were delivered through the CoE compared to 7% in second quarter 2009 and less than
1% in third quarter 2008. We expect the normal decrease in billable hours during the fourth
quarter holiday season and a modest sequential drop in service margins compared to the adjusted
third quarter 2009 service margin that excludes the non-recurring impact of the $1.1 million in
consulting services.
We Have Announced a New Growth and Investment Strategy in China. We announced a two-year plan
in second quarter 2009 to significantly increase the number of Chinese nationals available to serve
existing and future customers in China. The new Chinese associates will primarily fill support,
consulting and sales roles. As part of this strategy, we are opening a new services and support
center in Shanghai. The center will be staffed with solution experts in both retail and supply
chain management that can offer workshops on global best practices and address the growing demand
from local manufacturers, wholesalers and retailers for best-of-breed integrated supply chain and
merchandising solutions. We do not expect this strategy to provide immediate results in 2009;
however we do believe it will drive growth in our Asia/Pacific region in 2010.
We Have Acquired an Equity Interest in Our Leading European Reseller. In July 2009, we
purchased 49.1% of the registered share capital of Strategix Enterprise Technology GMBH and
Strategix Enterprise Technology sp.z.o.o. (collectively, “Strategix”) for cash. The initial
investment, which is not material to our financial statements, is reflected in the condensed
consolidated balance sheet under the caption “Other non-current assets” and in the condensed
consolidated statement of cash flows as an investing activity under the caption “Payment of direct
costs related to acquisitions.” We will adjust the initial investment and record our equity share
of earnings or losses on a one-quarter lag beginning in fourth quarter 2009. The transaction
provides for additional annual purchase price earn-outs in each of 2009, 2010 and 2011 if defined
performance milestones are achieved. The Company also has an option to purchase the remaining
registered share capital of Strategix beginning on the third anniversary date of the transaction
based on defined operating metrics. Strategix has been a distributor of our supply and category
management applications in Central and Eastern Europe and Russia since 2004. As part of this
transaction, Strategix will now have access to our entire suite of products, and we believe such
access will expand our presence with retail, manufacturing and wholesale-distribution customers in
these markets. We have also acquired the rights to various applications developed by Strategix
that are designed to enhance certain of our space and category management solutions, plus a suite
of SAP integration tools.
We Will Continue to Focus on Fully Leveraging Our Investment in the Center of Excellence. The
CoE has significantly expanded our overall capacity and provides us with the potential to
substantially reduce our operating costs without compromising the quality of our services. Although
we have not yet fully utilized certain of the service capabilities of the CoE, we believe
significant progress has been made in the nine months ended September 30, 2009. We are beginning to
gain leverage from the CoE in our consulting services business, and we expect the overall share of
consulting services work performed by the CoE will continue to increase in fourth quarter 2009. We
also believe there are additional opportunities to further leverage the CoE in our customer support
organization. The CoE is designed to complement and enhance our existing on-shore business model,
not replace it. Our
goal is to achieve all of these benefits without sacrificing our capability to work
face-to-face with our customers, most of which are in the Americas and Europe.
We Have Repurchased All Remaining Shares of Redeemable Preferred Stock. In connection with the
Manugistics acquisition in 2006, we issued 50,000 shares of Series B preferred stock to funds
affiliated with Thoma Bravo, a private equity investment firm, for $50 million in cash. The Series
B preferred stock was convertible, at any time in whole or in part, into a maximum of 3,603,603
shares of common stock based on an agreed conversion rate of $13.875. During third quarter 2009,
Thoma Bravo exercised conversion rights on 30,525 shares of the Series B preferred stock, which
resulted in the issuance of 2,200,000 shares of common stock. We recorded a $30.5 million
adjustment to reduce the carrying value of the redeemable preferred stock ($13.875 per share for
each of the 2,200,000 shares of common stock), and increased common stock for the par value of
converted shares ($22,000) and additional paid-in capital ($30.5 million).
We entered into stock purchase agreement (the “Purchase Agreement”) with Thoma Bravo on
September 8, 2009 to acquire the remaining shares of Series B preferred stock for $28.1 million in
cash (or $20 per share for each of the 1,403,603 shares of common stock into which the Series B
preferred stock is convertible). The agreed purchase price includes $19.5 million, which represents
the conversion of 1,403,603 shares of common stock at the conversion price of $13.875, and $8.6
million, which represents consideration paid in excess of the conversion price of $13.875 ($6.125
per share). The consideration paid in excess of the conversion price has been charged to retained
earnings in the same manner as a dividend on preferred stock, and reduced the income applicable to
common shareholders in the calculation of earnings per share for the three and nine months ended
September 30, 2009 (see Note 12).
19
As part of the Purchase Agreement, we also repurchased 100,000
shares of our common stock held by Thoma Bravo for $2.0 million, or $20 per share.
Holders of the Series B Preferred Stock were entitled as a class to elect a director to our
Board. Mr. Orlando Bravo, a Managing Partner with Thoma Bravo, was appointed to and has served as a
member of our Board since 2006. Mr. Bravo resigned from our Board upon the closing of the Purchase
Agreement.
We Will Continue to Actively Look for Strategic Acquisition Opportunities. Acquisitions are
an integral part of our overall growth plan, and we believe the current environment is likely to
create acquisition opportunities. We also believe the changes that have been implemented in our
executive leadership structure (see Appointment of New Executive Officers) better position the
Company to execute its growth initiatives.
Appointment of New Executive Officers. During third quarter 2009, we announced the
appointment of Peter S. Hathaway to the position of Executive Vice President and Chief Financial
Officer and Jason B. Zintak to the newly created position of Executive Vice President, Sales and
Marketing. Mr. Hathaway is responsible for our finance, accounting, investor relations and
information technology groups and replaces Kristen L. Magnuson who resigned effective July 5, 2009.
Mr. Zintak is responsible for our worldwide sales and marketing operations, our partner and
alliances programs, and industry operations, including the Company’s Services Industries business
segment. We have entered into employment agreements with Mr. Hathaway and Mr. Zintak under which
they receive a base salary and both are eligible to participate in our executive cash incentive
plan. In order to induce Mr. Hathaway and Mr. Zintak to accept employment, the Compensation
Committee granted certain equity awards outside of the terms of the 2005 Incentive Plan and
pursuant to NASDAQ Marketplace Rule 5635(c)(4).
|
(i) |
|
100,000 shares of restricted stock with a grant date fair value of $1.8 million
were granted to Mr. Hathaway (50,000 shares) and Mr. Zintak (50,000 shares). The
restricted stock awards vest over a three-year period, with one-third vesting on the
first anniversary of their employment with the remainder vesting ratably over the
subsequent 24-month period. A deferred compensation charge of $1.8 million has been
recorded in the equity section of our balance sheet for the total grant date fair value
of the restricted stock. Stock-based compensation is being recorded on a graded vesting
basis over requisite service periods that run from their effective dates of employment
through June 2012. During third quarter 2009, we recorded $249,000 in stock-based
compensation related to these awards. |
|
|
(ii) |
|
55,000 performance share awards will be issued to Mr. Hathaway (25,000 shares up
to a maximum of 31,250 shares) and Mr. Zintak (30,000 shares up to a maximum of 37,500
shares) if we are able to achieve the adjusted EBITDA performance threshold goal defined
under the 2009 Performance Program. Under the terms of the grants, a partial pro-rata
issuance of performance share awards will be made if we achieve a minimum adjusted
EBITDA performance threshold. The performance share awards, if any, will be issued after
the confirmation of our 2009
financial results in January 2010 and will vest 50% upon the date of issuance with the
remaining 50% vesting ratably over the subsequent 24-month period. The Company’s
performance against the defined performance threshold goal is being evaluated on a
quarterly basis throughout 2009 and share-based compensation recognized over the
requisite service periods that run from their effective dates of employment through
January 2012. A deferred compensation charge of $1.1 million has been recorded in the
equity section of our balance sheet, with a related increase to additional paid-in
capital, for the total grant date fair value of the current estimated awards to be
issued. Although all necessary service and performance conditions have not been met
through September 30, 2009, based on our results for the nine months ended September
30, 2009 and the outlook for the remainder of the year, we have recorded $543,000 in
stock-based compensation related to these awards in third quarter 2009. We currently
expect to recognize approximately $724,000 of this award as stock-based compensation
in 2009. |
|
|
(iii) |
|
100,000 restricted stock units with a grant date fair value of $1.8 million were
granted to Mr. Hathaway (50,000 shares) and Mr. Zintak (50,000 shares) that will vest in
defined tranches if and when the Company achieves certain pre-defined performance
milestones. No deferred compensation charge has been recorded in the equity section of
our balance sheet, nor has any share-based compensation expense been recognized related
to these grants as management is unable to determine if it is probable the pre-defined
performance milestones will be attained. |
Separation Agreements with Former Executive Officers. We entered into separation agreements
with Kristen L. Magnuson, our former Executive Vice President and Chief Financial Officer in second
quarter 2009 and Christopher J. Koziol, our former Chief Operating Officer in third quarter 2009.
Pursuant to these agreements Ms. Magnuson and Mr. Koziol received lump sum severance payments of
approximately $825,000 and $898,000, respectively and all unvested equity awards granted under the
2005 Incentive
20
Plan vested immediately as of their date of resignation. We recorded additional
share-based compensation expense related to this accelerated vesting of $175,000 for Ms. Magnuson
and $140,000 for Mr. Koziol, which has been included in the second and third quarter 2009
restructuring charges, respectively. The following summarizes the unvested restricted stock units
and performance awards granted to Ms. Magnuson and Mr. Koziol that vested immediately as of their
date of resignation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Grant Date |
|
Kristen L. Magnuson |
|
Christopher J. Koziol |
|
|
|
|
(Resigned July 5, 2009) |
|
(Resigned August 3, 2009) |
Restricted Stock Units |
|
March 13, 2007 |
|
|
6,805 |
|
|
|
5,722 |
|
Restricted Stock Units |
|
May 14, 2007 |
|
|
903 |
|
|
|
761 |
|
Performance Shares |
|
February 7, 2008 |
|
|
9,600 |
|
|
|
7,856 |
|
Share-Based Compensation Expense. We recorded share-based compensation expense of $6.4 million
and $3.1 million in nine months ended September 30, 2009 and 2008, respectively and as of September
30, 2009, we have included $7.7 million of deferred compensation in stockholders’ equity. A summary
of total stock-based compensation by expense category for the three and nine months ended September
30, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Cost of maintenance services |
|
$ |
206 |
|
|
$ |
49 |
|
|
$ |
474 |
|
|
$ |
205 |
|
Cost of consulting services |
|
|
411 |
|
|
|
48 |
|
|
|
882 |
|
|
|
303 |
|
Product development |
|
|
234 |
|
|
|
115 |
|
|
|
594 |
|
|
|
354 |
|
Sales and marketing |
|
|
667 |
|
|
|
307 |
|
|
|
1,736 |
|
|
|
810 |
|
General and administrative |
|
|
1,327 |
|
|
|
392 |
|
|
|
2,726 |
|
|
|
1,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
2,845 |
|
|
$ |
911 |
|
|
$ |
6,412 |
|
|
$ |
3,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Results of Operations
The following table sets forth certain selected financial information expressed as a
percentage of total revenues and certain gross margin data expressed as a percentage of software
license revenue, maintenance services revenue, product revenues or services revenues, as
appropriate, for the three and nine months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
Ended Sept. 30, |
|
Ended Sept. 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
|
18 |
% |
|
|
23 |
% |
|
|
22 |
% |
|
|
20 |
% |
Maintenance services |
|
|
47 |
% |
|
|
47 |
% |
|
|
47 |
% |
|
|
49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
|
65 |
% |
|
|
70 |
% |
|
|
69 |
% |
|
|
69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting services |
|
|
32 |
% |
|
|
27 |
% |
|
|
28 |
% |
|
|
28 |
% |
Reimbursed expenses |
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues |
|
|
35 |
% |
|
|
30 |
% |
|
|
31 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
Amortization of acquired software technology |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
Cost of maintenance services |
|
|
11 |
% |
|
|
12 |
% |
|
|
11 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product revenues |
|
|
13 |
% |
|
|
14 |
% |
|
|
13 |
% |
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of consulting services |
|
|
23 |
% |
|
|
20 |
% |
|
|
22 |
% |
|
|
21 |
% |
Reimbursed expenses |
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service revenues |
|
|
26 |
% |
|
|
23 |
% |
|
|
25 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
39 |
% |
|
|
37 |
% |
|
|
38 |
% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
61 |
% |
|
|
63 |
% |
|
|
62 |
% |
|
|
62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
|
13 |
% |
|
|
14 |
% |
|
|
14 |
% |
|
|
14 |
% |
Sales and marketing |
|
|
16 |
% |
|
|
16 |
% |
|
|
17 |
% |
|
|
17 |
% |
General and administrative |
|
|
13 |
% |
|
|
11 |
% |
|
|
13 |
% |
|
|
12 |
% |
Amortization of intangibles |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
Restructuring charges and adjustments to acquisition-related reserves |
|
|
3 |
% |
|
|
— |
% |
|
|
2 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
51 |
% |
|
|
47 |
% |
|
|
52 |
% |
|
|
50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
10 |
% |
|
|
16 |
% |
|
|
10 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and amortization of loan fees |
|
|
— |
% |
|
|
(2 |
%) |
|
|
— |
% |
|
|
(3 |
%) |
Interest income and other, net |
|
|
1 |
% |
|
|
— |
% |
|
|
— |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAX PROVISION |
|
|
11 |
% |
|
|
14 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
4 |
% |
|
|
6 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
|
7 |
% |
|
|
8 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin on software licenses |
|
|
97 |
% |
|
|
97 |
% |
|
|
96 |
% |
|
|
97 |
% |
Gross margin on maintenance services |
|
|
76 |
% |
|
|
75 |
% |
|
|
76 |
% |
|
|
75 |
% |
Gross margin on product revenues |
|
|
80 |
% |
|
|
81 |
% |
|
|
80 |
% |
|
|
80 |
% |
Gross margin on service revenues |
|
|
26 |
% |
|
|
21 |
% |
|
|
20 |
% |
|
|
21 |
% |
22
The following table sets forth a comparison of selected financial information, expressed
as a percentage change between quarters for the three and nine months ended September 30, 2009 and
2008. In addition, the table sets forth cost of revenues and product development expenses
expressed as a percentage of the related revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2009 to 2008 |
|
|
2008 |
|
|
2009 |
|
|
2009 to 2008 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
$ |
17,250 |
|
|
|
(25 |
%) |
|
$ |
23,011 |
|
|
$ |
60,160 |
|
|
|
3 |
% |
|
$ |
58,593 |
|
Maintenance |
|
|
45,010 |
|
|
|
(3 |
%) |
|
|
46,388 |
|
|
|
132,378 |
|
|
|
(5 |
%) |
|
|
138,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
|
62,260 |
|
|
|
(10 |
%) |
|
|
69,399 |
|
|
|
192,538 |
|
|
|
2 |
% |
|
|
197,436 |
|
Service revenues |
|
|
33,599 |
|
|
|
16 |
% |
|
|
29,047 |
|
|
|
86,139 |
|
|
|
(1 |
%) |
|
|
86,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
95,859 |
|
|
|
(3 |
%) |
|
|
98,446 |
|
|
|
278,677 |
|
|
|
(2 |
%) |
|
|
284,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
|
580 |
|
|
|
(5 |
%) |
|
|
613 |
|
|
|
2,417 |
|
|
|
20 |
% |
|
|
2,009 |
|
Amortization of acquired software technology |
|
|
966 |
|
|
|
(26 |
%) |
|
|
1,309 |
|
|
|
2,954 |
|
|
|
(31 |
%) |
|
|
4,270 |
|
Maintenance services |
|
|
10,883 |
|
|
|
(5 |
%) |
|
|
11,513 |
|
|
|
32,416 |
|
|
|
(5 |
%) |
|
|
34,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
|
12,429 |
|
|
|
(7 |
%) |
|
|
13,435 |
|
|
|
37,787 |
|
|
|
(6 |
%) |
|
|
40,424 |
|
Service revenues |
|
|
24,966 |
|
|
|
9 |
% |
|
|
22,925 |
|
|
|
68,906 |
|
|
|
— |
% |
|
|
68,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
37,395 |
|
|
|
3 |
% |
|
|
36,360 |
|
|
|
106,693 |
|
|
|
(2 |
%) |
|
|
109,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
58,464 |
|
|
|
(6 |
%) |
|
|
62,086 |
|
|
|
171,984 |
|
|
|
(2 |
%) |
|
|
174,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
|
12,495 |
|
|
|
(6 |
%) |
|
|
13,288 |
|
|
|
37,732 |
|
|
|
(6 |
%) |
|
|
40,196 |
|
Sales and marketing |
|
|
15,888 |
|
|
|
— |
% |
|
|
15,899 |
|
|
|
46,310 |
|
|
|
(3 |
%) |
|
|
47,738 |
|
General and administrative |
|
|
12,305 |
|
|
|
18 |
% |
|
|
10,440 |
|
|
|
35,001 |
|
|
|
8 |
% |
|
|
32,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,688 |
|
|
|
3 |
% |
|
|
39,627 |
|
|
|
119,043 |
|
|
|
(1 |
%) |
|
|
120,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
5,753 |
|
|
|
(5 |
%) |
|
|
6,075 |
|
|
|
17,880 |
|
|
|
(2 |
%) |
|
|
18,227 |
|
Restructuring charge and adjustments to
acquisition-related reserves |
|
|
2,543 |
|
|
|
537 |
% |
|
|
399 |
|
|
|
6,705 |
|
|
|
70 |
% |
|
|
3,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
9,480 |
|
|
|
(41 |
%) |
|
$ |
15,985 |
|
|
$ |
28,356 |
|
|
|
(12 |
%) |
|
$ |
32,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues as a % of related revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses |
|
|
3 |
% |
|
|
|
|
|
|
3 |
% |
|
|
4 |
% |
|
|
|
|
|
|
3 |
% |
Maintenance services |
|
|
24 |
% |
|
|
|
|
|
|
25 |
% |
|
|
24 |
% |
|
|
|
|
|
|
25 |
% |
Product revenues |
|
|
20 |
% |
|
|
|
|
|
|
19 |
% |
|
|
20 |
% |
|
|
|
|
|
|
20 |
% |
Service revenues |
|
|
74 |
% |
|
|
|
|
|
|
79 |
% |
|
|
80 |
% |
|
|
|
|
|
|
79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Development as a % of product revenues |
|
|
20 |
% |
|
|
|
|
|
|
19 |
% |
|
|
20 |
% |
|
|
|
|
|
|
20 |
% |
23
The following tables set forth selected comparative financial information on revenues in
our business segments and geographical regions, expressed as a percentage change between the three
and nine months ended September 30, 2009 and 2008. In addition, the tables set forth the
contribution of each business segment and geographical region to total revenues in the three and
nine months ended September 30, 2009 and 2008, expressed as a percentage of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing & |
|
|
|
|
Retail |
|
Distribution |
|
Services Industries |
|
|
Sept. 30, 2009 vs. 2008 |
|
Sept. 30, 2009 vs. 2008 |
|
Sept. 30, 2009 vs. 2008 |
|
|
Quarter |
|
Nine Months |
|
Quarter |
|
Nine Months |
|
Quarter |
|
Nine Months |
Software licenses |
|
|
(22 |
%) |
|
|
(7 |
%) |
|
|
(34 |
%) |
|
|
(10 |
%) |
|
|
(15 |
%) |
|
|
123 |
% |
|
Maintenance services |
|
|
1 |
% |
|
|
(1 |
%) |
|
|
(9 |
%) |
|
|
(9 |
%) |
|
|
40 |
% |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
|
(8 |
%) |
|
|
(3 |
%) |
|
|
(14 |
%) |
|
|
(9 |
%) |
|
|
12 |
% |
|
|
76 |
% |
Service revenues |
|
|
26 |
% |
|
|
8 |
% |
|
|
(19 |
%) |
|
|
(22 |
%) |
|
|
62 |
% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
3 |
% |
|
|
1 |
% |
|
|
(15 |
%) |
|
|
(13 |
%) |
|
|
40 |
% |
|
|
54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
|
(3 |
%) |
|
|
2 |
% |
|
|
(5 |
%) |
|
|
(9 |
%) |
|
|
(30 |
%) |
|
|
(36 |
%) |
Sales and marketing |
|
|
8 |
% |
|
|
(1 |
%) |
|
|
(27 |
%) |
|
|
(17 |
%) |
|
|
53 |
% |
|
|
48 |
% |
Operating income |
|
|
(6 |
%) |
|
|
(2 |
%) |
|
|
(15 |
%) |
|
|
(9 |
%) |
|
|
119 |
% |
|
|
394 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to Total Revenues |
|
|
Retail |
|
Manufacturing & Distribution |
|
Services Industries |
|
|
Quarter |
|
Nine Months |
|
Quarter |
|
Nine Months |
|
Quarter |
|
Nine Months |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
57 |
% |
|
|
54 |
% |
|
|
54 |
% |
|
|
53 |
% |
|
|
35 |
% |
|
|
41 |
% |
|
|
37 |
% |
|
|
42 |
% |
|
|
8 |
% |
|
|
5 |
% |
|
|
9 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas |
|
EMEA |
|
Asia/Pacific |
|
|
Sept. 30, 2009 vs. 2008 |
|
Sept. 30, 2009 vs. 2008 |
|
Sept. 30, 2009 vs. 2008 |
|
|
Quarter |
|
Nine Months |
|
Quarter |
|
Nine Months |
|
Quarter |
|
Nine Months |
Software licenses |
|
|
(28 |
%) |
|
|
(4 |
%) |
|
|
16 |
% |
|
|
(6 |
%) |
|
|
(73 |
%) |
|
|
67 |
% |
Maintenance services |
|
|
(3 |
%) |
|
|
(2 |
%) |
|
|
(4 |
%) |
|
|
(11 |
%) |
|
|
(2 |
%) |
|
|
(6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
|
(12 |
%) |
|
|
(3 |
%) |
|
|
1 |
% |
|
|
(10 |
%) |
|
|
(27 |
%) |
|
|
19 |
% |
Service revenues |
|
|
20 |
% |
|
|
9 |
% |
|
|
(12 |
%) |
|
|
(25 |
%) |
|
|
37 |
% |
|
|
(17 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
(2 |
%) |
|
|
1 |
% |
|
|
(3 |
%) |
|
|
(14 |
%) |
|
|
(5 |
%) |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to Total Revenues |
|
|
The Americas |
|
EMEA |
|
Asia/Pacific |
|
|
Quarter |
|
Nine Months |
|
Quarter |
|
Nine Months |
|
Quarter |
|
Nine Months |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
70 |
% |
|
|
70 |
% |
|
|
69 |
% |
|
|
67 |
% |
|
|
21 |
% |
|
|
21 |
% |
|
|
21 |
% |
|
|
24 |
% |
|
|
9 |
% |
|
|
9 |
% |
|
|
10 |
% |
|
|
9 |
% |
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Software License Revenues
Software license sales decreased 25% to $17.3 million in third quarter 2009 compared to $23.0
million in third quarter 2008, and includes decreases in software license sales of 28% and 73% in
the Americas and Asia/Pacific regions, respectively, offset in part by a 16% increase in the EMEA
region. The decrease in software license sales is due primarily to the volume and timing of deals
in our sales pipeline. We closed one large transaction greater than $1.0 million (“large
transactions”) in third quarter 2009 compared to four in third quarter 2008. We believe our
competitive position remains strong, and we have maintained consistently high competitive win rates
in our markets. We continue to have significant back-selling opportunities as 81% and 72% of our
software license sales in third quarter 2009 and 2008, respectively, came from install-base
customers. Our average sale price (“ASP”) remains strong compared to historical benchmarks and was
$733,000 for the 12-month period ended September 30, 2009, compared to
24
$520,000 in the 12-month period ended September 30, 2008 and to our all-time high
of $819,000 in the 12-month period ended June 30, 2009, which was largely driven by one large
transaction.
Software License Results by Region. The following table summarizes software license
revenues by region for third quarter 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
Americas |
|
$ |
12,624 |
|
|
$ |
17,503 |
|
|
$ |
(4,879 |
) |
|
|
(28 |
%) |
EMEA |
|
|
4,084 |
|
|
|
3,516 |
|
|
|
568 |
|
|
|
16 |
% |
Asia/Pacific |
|
|
542 |
|
|
|
1,992 |
|
|
|
(1,450 |
) |
|
|
(73 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,250 |
|
|
$ |
23,011 |
|
|
$ |
(5,761 |
) |
|
|
(25 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in software sales performance in the Americas region in third quarter 2009
compared to third quarter 2008 is due primarily to a decrease in the number of large transactions.
There was one large transaction in the Americas region in third quarter 2009 compared to four in
third quarter 2008. The Americas region, and in particular North America, has performed
consistently in a difficult economic environment over the past four quarters and, as we enter
fourth quarter, the Americas sales pipeline includes a strong representation of both large
transactions and mid-size sales opportunities. The Americas region is our largest region and, as a
result, we believe the software sales performance in this region will continue to be a key driver
of our overall success.
The increase in software sales in the EMEA region in third quarter 2009 compared to third
quarter 2008 is due primarily to an increase in contractual revenues from a new customer that are
being recognized on a percentage of completion basis. Software sales in the EMEA region appear to
be improving under the direction of the new regional management team that was hired in first half
2009, and as a result of other fundamental changes to the organizational structure that have
improved the performance and business development activities in the region. While there are still
challenges, we believe the prospects and sales pipeline in the EMEA region have improved as we
enter fourth quarter 2009.
The Asia/Pacific region continues to perform below our expectations, and we expect the
underlying trend in software sales to remain relatively soft in the region in fourth quarter 2009.
The region has operated under new sales management and with a substantially new sales team during
all of 2009. We believe the changes that have been made in the sales function during 2009 can
ultimately improve the sales execution and performance in the Asia/Pacific region over the course
of 2010.
Software License Results by Reportable Business Segment.
Retail. Software license revenues in this reportable business segment decreased 22% in third
quarter 2009 compared to third quarter 2008, due primarily to a decrease in the number of large
transactions. There was one large transaction in this reportable business segment in
third quarter 2009 compared to three in third quarter 2008.
Manufacturing & Distribution. Software license revenues in this reportable business segment
decreased 34% in third quarter 2009 compared to third quarter 2008, due primarily to a decrease in
the number of large transactions and mid-size sales opportunities. There were no large transactions
in this reportable business segment in third quarter 2009 compared to one in third quarter 2008.
Services Industries. Software license revenues in this reportable business segment decreased
15% in third quarter 2009 compared to third quarter 2008, due primarily to a decrease in the amount
of contractual revenues being recognized on a percentage of completion basis. There were no large
transactions in this reportable business segment in either third quarter 2009 or 2008.
Maintenance Services
Maintenance services revenues decreased $1.4 million, or 3%, to $45.0 million in third quarter
2009 compared to $46.4 million in third quarter 2008, and represented 47% of total revenues in both
of these periods. Unfavorable foreign exchange rate variances reduced maintenance services revenues
in third quarter 2009 by $2.0 million compared to third quarter 2008 due primarily to the
strengthening of the U.S. Dollar against European currencies. Excluding the impact of the
unfavorable foreign exchange rate variance, maintenance services revenues increased approximately
$600,000 in third quarter 2009 compared to third quarter 2008 as
maintenance revenues from new software sales, rate increases on annual renewals and
reinstatements of previously suspended and cancelled maintenance agreements more than offset
decreases in recurring maintenance revenues due to attrition.
25
Service Revenues
Service revenues, which include consulting services, hosting services and training revenues,
net revenues from our hardware reseller business and reimbursed expenses, increased $4.6 million,
or 16%, to $33.6 million in third quarter 2009 compared to $29.0 million in third quarter 2008.
Third quarter 2009 service revenues include $1.1 million of consulting work performed during second
quarter 2009 that could not be recognized until third quarter 2009. Excluding the non-recurring
impact of this consulting work, service revenues in third quarter 2009 increased $3.5 million or
12% compared to third quarter 2008. The increase in service revenues is due to a 22% increase in
billable hours, primarily from large projects in the Americas region and the Services Industries
reportable business segment, offset in part by a decrease in our realized average hourly billing
rates. Our global utilization rate was 61% in third quarter 2009 compared to 52% in third quarter
2008, and our realized average hourly billing rates were $193 and $198 per hour, respectively, in
these periods. The decrease in realized average hourly billing rates reflects the increased
utilization of service resources at the CoE. Since billing rates for CoE associates are lower than
the rates typically charged for on-shore service resources, as the number of hours of work
performed at the CoE increases, it will have the effect of reducing our overall realized average
hourly billing rates. The overall service gross profit percentage for services provided through the
CoE is typically higher, however, than the service gross profit percentage for services provided by
our higher cost on-shore operations.
Fixed bid consulting services work represented 18% of total consulting services revenue in
third quarter 2009 compared to 14% in third quarter 2008.
Cost of Product Revenues
Cost of Software Licenses. Cost of software licenses decreased $33,000 in third quarter 2009
compared to third quarter 2008. The decrease is due primarily to a decrease in certain third-party
applications that we resell and royalties on embedded third-party software applications.
Amortization of Acquired Software Technology. Amortization of acquired software technology
decreased $343,000 in third quarter 2009 compared to third quarter 2008. The decrease is due
primarily to a decrease in amortization on certain software technology acquired from E3 Corporation
in 2001 that has now been fully amortized.
Cost of Maintenance Services. Cost of maintenance services decreased $630,000 in third quarter
2009 compared to third quarter 2008. The decrease is due primarily to a decrease in salaries and
related benefits, offset in part by an increase in stock-based incentive compensation. Although
the average customer support headcount increased 2% in third quarter 2009 compared to third quarter
2008, salaries and related benefits decreased approximately $581,000 as new and replacement
positions were filled with lower cost resources at the CoE. As of September 30, 2009, we had 302
employees in customer support functions compared to 304 at June 30, 2009 and 294 at September 30,
2008. The headcount totals include 55 FTE, 52 FTE and 34 FTE in customer support functions at the
CoE, respectively.
Cost of Service Revenues
Cost of service revenues increased $2.0 million in third quarter 2009 compared to third
quarter 2008. The increase is due primarily to a $1.3 million increase in incentive compensation
(bonuses and share-based compensation), a $605,000 increase in outside contractor costs and a
$482,000 decrease in cost transfers for service personnel used to support the activities in other
functional groups. In addition, although the average services headcount decreased 1% in third
quarter 2009 compared to third quarter 2008, salaries and related benefits decreased $300,000 or
approximately 2% as new and replacement positions were filled with lower cost resources at the CoE.
As of September 30, 2009 we had 448 employees in service functions compared to 443 at June 30, 2009
and 453 at September 30, 2008. The headcount totals include 53 FTE, 50 FTE and 48 FTE in service
functions at the CoE, respectively.
Gross Profit
Gross profit dollars decreased $3.6 to $58.5 million in third quarter 2009 compared to $62.1
million in third quarter 2008. The decrease in gross profit dollars is due primarily to the $5.8
million decrease in software license sales and a $2.0 million increase in cost of service revenues,
offset in part by the $4.6 million increase in service revenues. The gross margin percentage decreased to
61% in third quarter 2009 compared to 63% in third quarter 2008 due primarily to the decrease
in software license revenues, which have a higher gross margin than maintenance and service
revenues.
Maintenance services gross profit dollars decreased $748,000 to $34.1 million in third quarter
2009 compared to $34.9 million in third quarter 2008, and represented 76% and 75% of maintenance
services revenues in these periods, respectively. The decrease in
26
maintenance services gross profit
dollars is due primarily to the $1.4 million decrease in maintenance services revenues, offset in
part by the $630,000 decrease in cost of maintenance services.
Service gross profit dollars increased $2.5 million to $8.6 million in third quarter 2009
compared to $6.1 million in third quarter 2008, and represented 26% and 21% of service revenues in
these periods, respectively. The increase in service gross profit dollars is due primarily to the
$4.6 million increase in service revenues, offset in part by the $2.0 million increase in cost of
service revenues.
Operating Expenses
Operating expenses, excluding amortization of intangibles and restructuring charges, increased
$1.1 million, or 3%, to $40.7 million in third quarter 2009 compared to $39.6 million in third
quarter 2008. The increase is due primarily to a $1.4 million increase in share-based compensation,
which is largely attributable to new senior executive leadership positions, a $631,000 increase in
legal and accounting costs and a $600,000 increase in the provision for doubtful accounts, offset
in part by a $762,000 decrease in commissions due to the Company’s lower operating performance and
a decrease in salaries and related benefits as new and replacement positions were filled with lower
cost resources at the CoE.
Product Development. Product development expense decreased $793,000, or 6%, to $12.5 million
in third quarter 2009 compared to $13.3 million in third quarter 2008. The decrease is due
primarily to a $377,000 decrease in salaries and related benefits and a $474,000 decrease in cost
transfers from other functional groups for personnel used to support product development
activities. Although the average product development headcount increased nearly 10% in third
quarter 2009 compared to third quarter 2008, salaries and related benefits decreased approximately
4% as new and replacement positions were filled with lower cost resources at the CoE. As of
September 30, 2009 we had 581 employees in product development compared to 575 at June 30, 2009 and
535 at September 30, 2008. The headcount totals include 391 FTE, 377 FTE and 322 FTE in product
development functions at the CoE, respectively.
Sales and Marketing. Sales and marketing expense was $15.9 million in third quarter 2009,
which is flat compared to third quarter 2008. Sales commissions decreased $762,000 in third
quarter 2009 compared to third quarter 2008 due to the 25% decrease in software license revenues.
This decrease was substantially offset by a $360,000 increase in stock-based compensation in third
quarter 2009 compared to third quarter 2008, an increase in salaries and related benefits resulting
from a 7% increase in average sales and marketing headcount, and a $211,000 increase in outside
contractor costs. As of September 30, 2009 we had 229 employees in sales and marketing compared to
225 at June 30, 2009 and 212 at September 30, 2008, including quota carrying sales associates of
75, 72, and 63, respectively.
General and Administrative. General and administrative expense increased $1.9 million, or 18%,
to $12.3 million in third quarter 2009 compared to $10.4 million in third quarter 2008. The
increase is due primarily to a $935,000 increase in share-based compensation. Our 2009 Performance
Program provides for twice as many potential equity awards and related expense as the 2008
Performance Program. The increase in general and administrative expense in third quarter 2009
compared to third quarter 2008 also includes a $631,000 increase in legal and accounting fees and a
$600,000 increase in the provision for doubtful accounts, offset in part by a decrease in salaries
and benefits as certain new and replacement internal information technology positions were filled
with lower cost resources at the CoE. As of September 30, 2009 we had 238 employees in general and
administrative functions compared to 247 at June 30, 2009 and 245 at September 30, 2008. The
headcount totals include 55 FTE, 51 FTE and 38 FTE in general and administrative functions at the
CoE, respectively.
Restructuring Charges and Adjustments to Acquisition-Related Reserves. We recorded a
restructuring charge of $2.6 million in third quarter 2009. This charge includes termination
benefits related to a workforce reduction of 14 FTE and is primarily associated with the transition
of additional on-shore activities to the CoE and certain restructuring activities in the EMEA sales
organization. In addition, the charge includes $1.0 million in severance and other termination
benefits under a separation agreement with our former Chief Operating Officer.
We recorded a restructuring charge of $435,000 in third quarter 2008 for termination benefits
related to a workforce reduction of 7 FTE primarily in product development, consulting and
sales-related positions in the United States. This charge is primarily associated with our
transition of certain on-shore activities to the CoE. In addition, we reduced the Manugistics
acquisition reserves by $36,000 in second quarter 2008 due to our revised estimate of the reserves
for employee severance and termination benefits.
27
Operating Income
Operating income decreased $6.5 million to $9.5 million in third quarter 2009 compared to
$16.0 million in third quarter 2008. The increase is due primarily to the $2.6 million decrease in
revenues, a restructuring charge that was $2.1 million larger than one in the same period of 2008,
and increases in total cost of revenues and total operating expenses of $1.0 million and $1.1
million, respectively.
Operating income in our Retail reportable business segment decreased $901,000 to $15.2 million
in third quarter 2009 compared to $16.1 million in third quarter 2008. The increase is due
primarily to a $3.0 million decrease in product revenues and a $1.8 million increase in total cost
of revenues, offset in part by $4.5 million increase in services revenues.
Operating income in our Manufacturing and Distribution reportable business segment decreased
$2.5 million to $13.8 million in third quarter 2009 compared to $16.3 million in third quarter
2008. The decrease is due primarily to decreases in product and services revenues of $4.4 million
and $1.7 million, respectively, offset in part by decreases in total cost of revenues and total
operating costs of $2.0 million and $1.6 million, respectively.
Operating income in our Services Industries reportable business segment increased $559,000 to
$1.0 million in third quarter 2009 compared to $468,000 in third quarter 2008. The increase is due
primarily to a $1.8 million increase in services revenues, offset in part by an $1.3 million
increase in total cost of revenues.
The combined operating income reported in the reportable business segments excludes $20.6
million and $16.9 million of general and administrative expenses and other charges in third quarter
2009 and 2008, respectively, that are not directly identified with a particular reportable business
segment and which management does not consider in evaluating the operating income (loss) of the
reportable business segments.
Other Income (Expense)
Interest Expense and Amortization of Loan Fees. The decrease in interest expense and
amortization of loan fees in third quarter 2009 compared to third quarter 2008 is due primarily to
the repayment in full of outstanding borrowings on our long-term debt in 2008. During 2008 we
repaid the remaining $99.6 million balance of our long-term debt, including $80.5 million on
October 1, 2008.
Interest Income and Other, Net. The increase in interest income and other, net in third
quarter 2009 compared to third quarter 2008 is due primarily to changes in foreign currency gains
and losses and a $427,000 decrease in interest on invested funds. We recorded a net foreign
currency exchange gain of $825,000 in third quarter 2009 compared to a net foreign currency
exchange loss of $608,000 in third quarter 2008.
Income Tax Provision
We calculate our tax provision on an interim basis using the year-to-date effective tax rate
and record discrete tax adjustments in the reporting period in which they occur. Because
the Company is subject to income taxes in numerous jurisdictions and the timing of software and
consulting income by jurisdiction can vary significantly, we are unable to reliably estimate an
overall annual effective tax rate. A summary of the income tax provision recorded in third quarter
2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Income before income tax provision |
|
$ |
10,140 |
|
|
$ |
13,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision at federal statutory rate |
|
$ |
3,549 |
|
|
$ |
4,789 |
|
State income taxes |
|
|
306 |
|
|
|
446 |
|
Research and development credit |
|
|
(420 |
) |
|
|
— |
|
Foreign tax rate differential |
|
|
(32 |
) |
|
|
(6 |
) |
Interest and penalties on uncertain tax positions |
|
|
118 |
|
|
|
108 |
|
Other, net |
|
|
356 |
|
|
|
104 |
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
3,877 |
|
|
$ |
5,441 |
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
38 |
% |
|
|
40 |
% |
28
The income tax provision recorded in the three months ended September 30, 2009 and 2008
takes into account the source of taxable income, domestically by state and internationally by
country, and available income tax credits, and does not include the tax benefits realized from the
employee stock options exercised during third quarter 2009 and 2008 of $1.7 million and $30,000,
respectively. These excess tax benefits will reduce our income tax liabilities in future periods
and result in an increase to additional paid-in capital as we are able to utilize them.
The effective tax rate in third quarter 2009 is higher than the United States federal
statutory rate of 35% due primarily to the mix of income by state jurisdiction, non-deductible
permanent differences and interest and penalties on uncertain tax positions, offset in part by
utilization of research and development credits (“R&D credits”). The effective tax rate in third
quarter 2008 is higher than the United States federal statutory rate of 35% due primarily to our
inability to utilize R&D credits as Congress had not yet approved an extension of the R&D credits
for 2008.
Consideration Paid in Excess of Carrying Value on the Repurchase of Redeemable Preferred Stock
We entered into a Purchase Agreement with Thoma Bravo on September 8, 2009 to acquire the
remaining shares of Series B preferred stock for $28.1 million in cash (or $20 per share for each
of the 1,403,603 shares of JDA common stock into which the Series B Preferred Stock is
convertible). The agreed purchase price includes $19.5 million, which represents the conversion of
1,403,603 shares of common stock at the conversion price of $13.875, and $8.6 million, which
represents consideration paid in excess of the conversion price of $13.875 ($6.125 per share). The
consideration paid in excess of the conversion price has been charged to retained earnings in the
same manner as a dividend on preferred stock, and will reduce the income applicable to common
shareholders in the calculation of earnings per share for the three months ended September 30, 2009
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Software Revenues
Software License Results by Region. The following table summarizes software license
revenues by region for the nine months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
$Change |
|
|
% Change |
|
Americas |
|
$ |
38,086 |
|
|
$ |
39,685 |
|
|
$ |
(1,599 |
) |
|
|
(4 |
%) |
EMEA |
|
|
12,266 |
|
|
|
13,025 |
|
|
|
(759 |
) |
|
|
(6 |
%) |
Asia/Pacific |
|
|
9,808 |
|
|
|
5,883 |
|
|
|
3,925 |
|
|
|
67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
60,160 |
|
|
$ |
58,593 |
|
|
$ |
1,567 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in software license revenues in the Americas region in the nine months ended
September 30, 2009 compared to the nine months ended September 30, 2008 is due primarily to a
decrease in the number of large transactions, offset in part by an increase in mid-size software
sales, particularly in North America. There were six large transactions in the Americas region in
the nine months ended September 30, 2009 compared to eight in the nine months ended September 30,
2008.
The decrease in software license revenues in the EMEA region in the nine months ended
September 30, 2009 compared to the nine months ended September 30, 2008 is due primarily to a
decrease in the number of large transactions. There were two large transactions in the EMEA region
in the nine months ended September 30, 2009 compared to three in the nine months ended September
30, 2008. One of the large transactions in the nine months ended September 30, 2009 is being
recognized on a percentage of completion basis and to date we have recognized approximately 66% of
the software license fee.
The increase in software license revenues in the Asia/Pacific region in the nine months ended
September 30, 2009 compared to the nine months ended September 30, 2008 is due primarily to the
size of one large transaction. There was one large transaction in the Asia/Pacific region in both
the nine months ended September 30, 2009 and 2008.
Software License Results by Reportable Business Segment.
Retail. Software license revenues in this reportable business segment decreased 7% in the nine
months ended September 30, 2009 compared to the nine months ended September 30, 2008, due primarily
to a decrease in the number of large transactions. There
29
were six large transactions in
this reportable business segment in the nine months ended September 30, 2009 compared to nine in
the nine months ended September 30, 2008.
Manufacturing & Distribution. Software license revenues in this reportable business segment
decreased 10% in the nine months ended September 30, 2009 compared to the nine months ended
September 30, 2008, due primarily to a decrease in the size of large transactions and a decrease in
follow-on sales to existing customers for new product or to expand the scope of an existing
license. There was one large transaction in this reportable business segment in both the nine
months ended September 30, 2009 and 2008.
Services Industries. Software license revenues in this reportable business segment increased
123% in the nine months ended September 30, 2009 compared to the nine months ended September 30,
2008, due to an increase in the size of large transactions. There were two large transactions in
this reportable business segment in both the nine months ended September 30, 2009 and 2008. One
of the large transactions in the nine months ended September 30, 2009 is being recognized on a
percentage of completion basis and to date we have recognized approximately 66% of the software
license fee.
Maintenance Services
Maintenance services revenues decreased $6.5 million, or 5%, to $132.4 million in the nine
months ended September 30, 2009 compared to $138.8 million in the nine months ended September 30,
2008, and represented 47% and 49% of total revenues, respectively, in these periods. Unfavorable
foreign exchange rate variances reduced maintenance services revenues in the nine months ended
September 30, 2009 by $8.4 million compared to the nine months ended September 30, 2008 due
primarily to the strengthening of the U.S. Dollar against European currencies. Excluding the impact
of the unfavorable foreign exchange rate variance, maintenance services revenues increased
approximately $1.9 million in the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008 as maintenance revenues from new software sales, rate increases on annual
renewals and reinstatements of previously suspended and cancelled maintenance agreements more than
offset decreases in recurring maintenance revenues due to attrition.
Service Revenues
Service revenues, which include consulting services, hosting services and training revenues,
net revenues from our hardware reseller business and reimbursed expenses, decreased $542,000, or
1%, to $86.1 million in the nine months ended September 30, 2009 compared to $86.7 million in the
nine months ended September 30, 2008. The decrease is due primarily to a decrease in consulting
services revenue and lower realized average hourly billing rates in the EMEA and Asia/Pacific
regions and a $1.2 million decrease in non-consulting services (training and hosting services,
hardware sales and reimbursed expenses), offset in part by an increase in consulting services
revenue from large projects in the Americas region and the Services Industries reportable business
segment.
Fixed bid consulting services work represented 12% of total consulting services revenue in the
nine months ended September 30, 2009 compared to 16% in the nine months ended September 30, 2008.
Cost of Product Revenues
Cost of Software Licenses. Cost of software licenses increased $408,000 in the nine months
ended September 30, 2009 compared to the nine months ended September 30, 2008. The increase is due
primarily to an increase in certain third-party applications that we resell and royalties on
embedded third-party software applications. A large portion of our software revenue
growth is coming from products that have embedded third-party applications and/or require
payment of higher royalty fee obligations, in particular the applications we acquired from
Manugistics.
Amortization of Acquired Software Technology. Amortization of acquired software technology
decreased $1.3 million in the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008. The decrease is due primarily to a decrease in amortization on certain
software technology acquired from E3 Corporation in 2001 that has now been fully amortized.
Cost of Maintenance Services. Cost of maintenance services decreased $1.7 million in the nine
months ended September 30, 2009 compared to the nine months ended September 30, 2008. The decrease
is due primarily to a decrease in salaries and related benefits and a $372,000 decrease in
royalties paid to third parties who provide first level support to certain of our customers, offset
in part by an increase in stock-based compensation. Although the average customer support
headcount increased 5% in the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008, salaries and related benefits decreased approximately $1.5 million as new
and replacement positions were filled with lower cost resources at the CoE.
30
Cost of Service Revenues
Cost of service revenues was $68.9 million in the nine months ended September 30, 2009, which
is flat compared to the nine months ended September 30, 2008. Cost of service revenues were
increased in the nine months ended September 30, 2009 compared to the nine months ended September
30, 2008 as a result of a $1.8 million increase in incentive compensation (bonuses and share-based
compensation) and a $1.4 million increase in outside contractor costs. These additional costs were
substantially offset by cost savings associated with the movement of service functions to the CoE,
a $699,000 decrease in travel costs and a $619,000 decrease in reimbursed expenses. Although the
average services headcount increased less than 1% in the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008, salaries and related benefits decreased
approximately $2.0 million as new and replacement positions were filled with lower cost resources
at the CoE.
Gross Profit
Gross profit dollars decreased $2.8 million to $172.0 million in the nine months ended
September 30, 2009 compared to $174.8 million in the nine months ended September 30, 2008. The
decrease in gross profit dollars is due primarily to the $6.5 million decrease in maintenance
revenues, offset in part by $1.6 million increase in software sales and a $2.6 million decrease in
total cost of revenues. The gross margin percentage was 62% in both the nine months ended
September 30, 2009 and 2008.
Maintenance services gross profit dollars decreased $4.7 million to $100.0 million in the nine
months ended September 30, 2009 compared to $104.7 million in the nine months ended September 30,
2008, and represented 76% and 75% of maintenance services revenues in these periods, respectively.
The decrease in maintenance services gross profit dollars is due primarily to the $6.5 million
decrease in maintenance services revenues, offset in part by the $1.7 million decrease in cost of
maintenance services.
Service gross profit dollars decreased $584,000 to $17.2 million in the nine months ended
September 30, 2009 compared to $17.8 million in the nine months ended September 30, 2008, and
represented 20% and 21% of service revenues in these periods, respectively. The decrease in service
gross profit dollars is due primarily to the $542,000 decrease in service revenues.
Operating Expenses
Operating expenses, excluding amortization of intangibles and restructuring charges, decreased
$1.3 million, or 1%, to $119.0 million in the nine months ended September 30, 2009 compared to
$120.3 million in the nine months ended September 30, 2008. The decrease is due primarily to a
decrease in salaries and related benefits due to new and replacement positions being filled with
lower cost resources at the CoE, an $861,000 decrease in travel expenses, a decrease in cost
transfers from other functional groups for personnel used to support product development activities
and a $542,000 decrease in marketing-related costs, offset in part by a $2.4 million increase in
share-based compensation and a $900,000 increase in the provision for doubtful accounts.
Product Development. Product development expense decreased $2.5 million, or 6%, to $37.7
million in the nine months ended September 30, 2009 compared to $40.2 million in the nine months
ended September 30, 2008. The decrease is due primarily to a decrease in salaries and related
benefits, a decrease in cost transfers from other functional groups for personnel used to support
product development activities and a $277,000 decrease in outside contractor costs. Although the
average product development
headcount increased nearly 14% in the nine months ended September 30, 2009 compared to the
nine months ended September 30, 2008, salaries and related benefits decreased $1.0 million, or 4%,
as new and replacement positions were filled with lower cost resources at the CoE.
Sales and Marketing. Sales and marketing expense decreased $1.4 million, or 3%, to $46.3
million in the nine months ended September 30, 2009 compared to $47.7 million in the nine months
ended September 30, 2008. The decrease is due primarily to a $719,000 decrease in travel costs, a
$549,000 decrease in salaries and benefits, a $542,000 decrease in marketing-related costs and a
$396,000 decrease in commissions, offset in part by a $927,000 increase in share-based
compensation.
General and Administrative. General and administrative expense increased $2.6 million, or 8%,
to $35.0 million in the nine months ended September 30, 2009 compared to $32.4 million in the nine
months ended September 30, 2008. The increase is due primarily to a $1.3 million increase in
share-based compensation. Our 2009 Performance Program provides for twice as many potential equity
awards and related expense as the 2008 Performance Program. The increase in general and
administrative expense in the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008 also includes a $900,000 increase in the provision for doubtful accounts
and a $450,000 increase in legal and accounting fees, offset in part by a decrease in salaries and
benefits related to a 2% decrease in average general and administrative headcount. No provision
for doubtful accounts was recorded in the nine months ended September 30, 2008.
31
Restructuring Charges and Adjustments to Acquisition-Related Reserves. We recorded
restructuring charges of $6.4 million in the nine months ended September 30, 2009, including $1.5
million in first quarter 2009, $2.3 million in second quarter 2009 and $2.6 million in third
quarter 2009. These charges are primarily associated with the transition of additional on-shore
activities to the CoE and certain restructuring activities in the EMEA sales organization. The
charges include termination benefits related to a workforce reduction of 83 full-time employees
(“FTE”) in product development, service, support, sales and marketing, information technology and
other administrative positions, primarily in the Americas region. In addition, the restructuring
charges include $2.0 million in severance and other termination benefits under separation
agreements with our former Executive Vice President and Chief Financial Officer and our former
Chief Operating Officer. We also recorded adjustments of $306,000 in the nine months ended
September 30, 2009 to reduce estimated restructuring reserves established in prior years and an
adjustment of $539,000 to increase certain Manugistics acquisition reserves based on our revised
estimate of sublease rentals and market adjustments on an unfavorable office facility in the United
Kingdom.
We recorded restructuring charges of $4.6 million in the nine months ended September 30, 2008,
including $794,000 in first quarter 2008, $3.3 million in second quarter 2008 and $435,000 in third
quarter 2008. These charges are primarily associated with our transition of certain on-shore
activities to the CoE. The 2008 restructuring charges include $4.5 million for termination benefits
related to a workforce reduction of 54 FTE, primarily in product development, consulting and
sales-related positions across all of our geographic regions and $83,000 for office closure and
integration costs of redundant office facilities. We reduced the Manugistics acquisition reserves
by $604,000 in the nine months ended September 30, 2008 based on our revised estimate of the
reserves for employee severance and termination benefits.
Operating Income
Operating income decreased $4.0 million to $28.4 million in the nine months ended September
30, 2009 compared to $32.3 million in the nine months ended September 30, 2008. The decrease is
due primarily to the $5.4 million decrease in revenues and a restructuring charge that was $2.8
million larger than one in the same period of 2008, offset in part by decreases of $2.6 million and
$1.3 million in total cost of revenues and total operating expenses, respectively.
Operating income in our Retail reportable business segment decreased $854,000 to $39.5 million
in the nine months ended September 30, 2009 compared to $40.4 million in the nine months ended
September 30, 2008. The decrease is due primarily to a $2.8 million decrease in product revenues
and a $1.9 million increase in total cost of revenues, offset in part by a $4.0 million increase in
service revenues.
Operating income in our Manufacturing and Distribution reportable business segment decreased
$4.2 million to $40.8 million in the nine months ended September 30, 2009 compared to $45.0 million
in the nine months ended September 30, 2008. The decrease is due primarily to decreases in product
revenues and services revenues of $8.3 million and $6.5 million, respectively, offset in part by a
$6.5 million decrease in total cost of revenues and a 13% decrease in operating costs for product
development and sales and marketing activities.
Operating income in our Services Industries reportable business segment increased $6.1 million
to $7.7 million in the nine months ended September 30, 2009 compared to $1.6 million in the nine
months ended September 30, 2008. The increase is due primarily to increases in product revenues
and services revenues of $6.2 million and $2.0 million, respectively, offset in part by a $2.0
million increase in total cost of revenues.
The combined operating income reported in the reportable business segments excludes $59.6
million and $54.6 million of general and administrative expenses and other charges in the nine
months ended September 30, 2009 and 2008, respectively, that are not directly identified with a
particular reportable business segment and which management does not consider in evaluating the
operating income (loss) of the reportable business segments.
Other Income (Expense)
Interest Expense and Amortization of Loan Fees. The decrease in interest expense and
amortization of loan fees in the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008 is due primarily to the repayment in full of outstanding borrowings on our
long-term debt in 2008. During 2008 we repaid the remaining $99.6 million balance of our long-term
debt, including $80.5 million on October 1, 2008.
Interest Income and Other, Net. The decrease in interest income and other, net in the nine
months ended September 30, 2009 compared to the nine months ended September 30, 2008 is due
primarily to a $1.4 million decrease in interest on invested funds as we
32
utilized excess cash
balances held in interest bearing accounts during 2008 to repay the remaining balance of our
long-term debt, and a $326,000 decrease in investment gains, offset in part by a $531,000 decrease
in net foreign currency exchange gains.
Income Tax Provision
We calculate our tax provision on an interim basis using the year-to-date effective tax rate
and record discrete tax adjustments in the reporting period in which they occur. Because
the Company is subject to income taxes in numerous jurisdictions and the timing of software and
consulting income by jurisdiction can vary significantly, we are unable to reliably estimate an
overall annual effective tax rate. A summary of the income tax provision recorded in the nine
months ended September 30, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Income before income tax provision |
|
$ |
28,271 |
|
|
$ |
27,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision at federal statutory rate |
|
$ |
9,895 |
|
|
$ |
9,493 |
|
State income taxes |
|
|
831 |
|
|
|
789 |
|
Research and development credit |
|
|
(809 |
) |
|
|
— |
|
Foreign tax rate differential |
|
|
(333 |
) |
|
|
(291 |
) |
Interest and penalties on uncertain tax positions |
|
|
354 |
|
|
|
323 |
|
Other, net |
|
|
491 |
|
|
|
137 |
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
10,429 |
|
|
$ |
10,451 |
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
37 |
% |
|
|
39 |
% |
The income tax provision recorded in the nine months ended September 30, 2009 and 2008
takes into account the source of taxable income, domestically by state and internationally by
country, and available income tax credits, and does not include the tax benefits realized from the
employee stock options exercised during the nine months ended September 30, 2009 and 2008 of $2.4
million and $1.4 million, respectively. These excess tax benefits will reduce our income tax
liabilities in future periods and result in an increase to additional paid-in capital as we are
able to utilize them.
The effective tax rate in the nine months ended September 30, 2009 is higher than the United
States federal statutory rate of 35% due primarily to the mix of income by state jurisdiction,
non-deductible permanent differences and interest and penalties on uncertain tax positions, offset
in part by utilization of R&D credits. The effective tax rate in the nine months ended September
30, 2008 is higher than the United States federal statutory rate of 35% due primarily to the
inability to utilize R&D credits as Congress had not yet approved an extension of the R&D credits
for 2008.
Consideration Paid in Excess of Carrying Value on the Repurchase of Redeemable Preferred Stock
We entered into a Purchase Agreement with Thoma Bravo on September 8, 2009 to acquire the
remaining shares of Series B preferred stock for $28.1 million in cash (or $20 per share for each
of the 1,403,603 shares of JDA common stock into which the Series B Preferred Stock is
convertible). The agreed purchase price includes $19.5 million, which represents the conversion of
1,403,603 shares of common stock at the conversion price of $13.875, and $8.6 million, which
represents consideration paid in excess of the conversion price of $13.875 ($6.125 per share). The
consideration paid in excess of the conversion price has been charged to retained earnings in the
same manner as a dividend on preferred stock, and reduced the income applicable to common
shareholders in the calculation of earnings per share for the nine months ended September 30, 2009.
Liquidity and Capital Resources
We had working capital of $69.7 million at September 30, 2009 compared to $32.1 million at
December 31, 2008. The working capital balance at September 30, 2009 and December 31, 2008
includes $85.4 million and $32.7 million, respectively, in cash and cash equivalents. During the
nine months ended September 30, 2009 we generated $80.5 million in cash flow from operating
activities and utilized $30.1 million to repurchase redeemable preferred stock ($28.1 million) and
common stock ($2.0 million) held by Thoma Bravo. We received over $318 million in cash collections
on accounts receivable in the nine months ended September 30, 2009 and have no outstanding debt.
Net accounts receivable were $60.2 million, or 57 days sales outstanding (“DSO”), at September
30, 2009, which equals our historical low for the Company, compared to $79.4 million, or 67 DSO, at
December 31, 2008. Our quarterly DSO results historically
33
increase during the first quarter of each
year due to the heavy annual maintenance renewal billings that occur during this time frame and
then typically decrease slowly over the remainder of the year. DSO results can fluctuate
significantly on a quarterly basis due to a number of factors including the percentage of total
revenues that comes from software license sales, which typically have installment payment terms,
seasonality, shifts in customer buying patterns, the timing of customer payments and annual
maintenance renewals, lengthened contractual payment terms in response to competitive pressures,
the underlying mix of products and services, and the geographic concentration of revenues.
Operating activities provided cash of $80.5 million in the nine months ended September 30,
2009 compared to $70.7 million in the nine months ended September 30 2008. The principle sources
of our cash flow from operations are typically net income adjusted for depreciation and
amortization, collections on accounts receivable, and increases in deferred maintenance revenue.
The increase in cash flow from operations in the nine months ended September 30, 2009 compared to
the nine months ended September 30, 2008 is due primarily to a $9.1 million larger increase in
deferred revenue, a $7.9 million larger net decrease in accounts receivable resulting from the
higher volume of software sales in 2008 and a $3.8 million larger increase in accounts payable,
offset in part by a $6.8 million larger decrease in accrued expenses due to the payment of the
higher commissions and bonuses resulting from the Company’s improved operating performance in 2008
and a $3.6 million increase in prepaid expenses and other current assets.
Investing activities utilized cash of $9.9 million in the nine months ended September 30, 2009
and $11.4 million in the nine months ended September 30, 2008. The decrease in cash utilized in
investing activities in the nine months ended September 30, 2009 compared to the nine months ended
September 30, 2008 is due primarily to a $1.0 million decrease in payment of direct costs related
to acquisitions. Cash utilized in investing activities also includes capital expenditures of $5.5
million in the nine months ended September 30, 2009 and $6.1 million in the nine months ended
September 30, 2008.
Financing activities utilized cash of $19.8 million in the nine months ended September 30,
2009 and $20.0 million in nine months ended September 30, 2008. Cash utilized by financing
activities in the nine months ended September 30, 2009 includes $28.1 million for the purchase of
the remaining Series B preferred stock owned by Thoma Bravo, $6.3 million in purchases of treasury
stock ($2.9 million for shares of common stock repurchased pursuant to our approved stock
repurchase program, $1.4 million for the repurchase of shares tendered by employees for payment of
applicable statutory withholding taxes on the issuance of stock, and $2.0 million for the purchase
of 100,000 shares of common stock held by Thoma Bravo), offset in part by $14.5 million in proceeds
from the issuance of stock ($12.2 million from the exercise of stock options and $2.3 million from
the purchase of common shares under the employee stock purchase plan). Cash utilized in financing
activities in the nine months ended September 30, 2008 includes the repayment of $19.1 million of
long-term debt incurred in connection with the Manugistics acquisition, $3.4 million of loan
origination fees on a credit facility commitment for a previously terminated acquisition, and $1.9
million for the repurchase of shares tendered by employees for payment of applicable statutory
withholding taxes on the issuance of stock, offset in part by $6.0
million in proceeds from the exercise of stock options.
Changes in the currency exchange rates of our foreign operations had the effect of increasing
cash by $2.0 million in the nine months ended September 30, 2009 and reducing cash by $3.8 million
in the nine months ended September 30 2008. We use derivative financial instruments, primarily
forward exchange contracts, to manage a majority of the short-term foreign currency exchange
exposure associated with foreign currency denominated assets and liabilities which exist as part of
our ongoing business operations. We do not hedge the potential impact of foreign currency exposure
on our ongoing revenues and expenses from foreign operations. The exposures relate primarily to the
gain or loss recognized in earnings from the revaluation or settlement of current foreign currency
denominated assets and liabilities. We do not enter into derivative financial instruments for
trading or speculative purposes. The forward exchange contracts generally have maturities of less
than 90 days and are not designated as hedging instruments. Forward exchange contracts are
marked-to-market at the end of each reporting period, with gains and losses recognized in other
income offset by the gains or losses resulting from the settlement of the underlying foreign
currency denominated assets and liabilities.
Treasury Stock Repurchases. On March 5, 2009, the Board adopted a program to repurchase up to
$30 million of our common stock in the open market or in private transactions at prevailing market
prices during the 12-month period ending March 10, 2010. During the nine months ended September
30, 2009, we repurchased 265,715 shares of our common stock under this program for $2.9 million at
prices ranging from $10.34 to $11.00 per share.
During the nine months ended September 30, 2009 and 2008, we also repurchased 97,056 and
107,472 common shares, respectively, tendered by employees for the payment of applicable statutory
withholding taxes on the issuance of restricted shares under the 2005 Performance Incentive Plan.
These shares were repurchased for $1.4 million at prices ranging from $9.75 to $22.37 in the nine
months ended September 30, 2009 and for $1.9 million at prices ranging from $14.97 to $20.40 per
share in the nine months ended September 30, 2008.
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As part of the Purchase Agreement with Thoma Bravo, we repurchased 100,000 shares of our
common stock held by Thoma Bravo for $2.0 million, or $20 per share.
Contractual Obligations. We currently lease office space in the Americas for 11 regional
sales and support offices across the United States, Canada and Latin America, and for 12 other
international sales and support offices located in major cities throughout Europe, Asia, Australia,
Japan and our CoE in Hyderabad, India. The leases are primarily non-cancelable operating leases
with initial terms ranging from one to 20 years that expire at various dates through the year 2018.
None of the leases contain contingent rental payments; however, certain of the leases contain
scheduled rent increases and renewal options. We expect that in the normal course of business most
of these leases will be renewed or that suitable additional or alternative space will be available
on commercially reasonable terms as needed. In addition, we lease various computers, telephone
systems, automobiles, and office equipment under non-cancelable operating leases with initial terms
ranging from 12 to 48 months. Certain of the equipment leases contain renewal options and we expect
that in the normal course of business some or all of these leases will be renewed or replaced by
other leases.
There have been no material changes in our contractual obligations and other commercial
commitments other than in the ordinary course of business since the end of fiscal year 2008.
Information regarding our contractual obligations and commercial commitments is provided in our
Annual Report on Form 10-K for the year ended December 31, 2008.
We believe our existing cash balances and net cash provided from operations will provide
adequate liquidity to meet our normal operating requirements for at least the next twelve months.
A major component of our positive cash flow is the collection of accounts receivable and the
generation of cash earnings. In addition, there is a $50 million revolving credit facility and up
to $75 million of incremental term or revolving credit facilities available to the Company. There
were no amounts borrowed under these credit facilities at September 30, 2009.
Critical Accounting Policies
There were no significant changes in our critical accounting policies during nine months ended
September 30, 2009. We have identified the following policies as critical to our business
operations and the understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations is discussed throughout Management’s
Discussion and Analysis of Financial Condition and Results of Operations where such policies affect
our reported and expected
financial results. The preparation of this Quarterly Report on Form 10-Q requires us to make
estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial statements, and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
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Revenue recognition. Our revenue recognition policy is significant because our revenue
is a key component of our results of operations. In addition, our revenue recognition
determines the timing of certain expenses such as commissions and royalties. We follow
specific and detailed guidelines in measuring revenue; however, certain judgments affect
the application of our revenue policy. |
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We license software primarily under non-cancelable agreements and provide related services,
including consulting, training and customer support. Software license revenue is generally
recognized using the residual method when: |
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Persuasive evidence of an arrangement exists and a license agreement has been signed; |
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Delivery, which is typically FOB shipping point, is complete; |
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Fees are fixed and determinable and there are no uncertainties surrounding product acceptance; |
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Collection is considered probable; and |
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Vendor-specific evidence of fair value (“VSOE”) exists for all undelivered elements. |
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Our customer arrangements typically contain multiple elements that include software, options for future purchases of
software products not previously licensed to the customer, maintenance, consulting and training services. The fees from
these arrangements are allocated to the various elements based on VSOE. Under the residual method, if an arrangement
contains an undelivered element, the VSOE of the undelivered element is deferred and the revenue recognized once the
element is delivered. If we are unable to determine VSOE for any undelivered element included in an arrangement,
we will defer revenue recognition until all elements have been delivered. In addition, if a software license contains
milestones, customer acceptance criteria or a cancellation right, the software revenue is recognized upon the achievement
of the milestone or upon the earlier of customer acceptance or the expiration of the acceptance period or cancellation
right. For |
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arrangements that provide for significant services or custom development that are essential to the software’s
functionality, the software license revenue and contracted services are recognized under the percentage of completion
method. We measure progress-to-completion on arrangements involving significant services or custom development that are
essential to the software’s functionality using input measures, primarily labor hours, which relate hours incurred to
date to total estimated hours at completion. We continually update and revise our estimates of input measures. If our
estimates indicate that a loss will be incurred, the entire loss is recognized in that period. |
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Maintenance services are separately priced and stated in our arrangements. Maintenance
services typically include on-line support, access to our Solution Centers via telephone and
web interfaces, comprehensive error diagnosis and correction, and the right to receive
unspecified upgrades and enhancements, when and if we make them generally available.
Maintenance services are generally billed on a monthly basis and recorded as revenue in the
applicable month, or billed on an annual basis with the revenue initially deferred and
recognized ratably over the maintenance period. VSOE for maintenance services is the price
customers will be required to pay when it is sold separately, which is typically the renewal
rate. |
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Consulting and training services are separately priced and stated in our arrangements, are
generally available from a number of suppliers, and are generally not essential to the
functionality of our software products. Consulting services include project management,
system planning, design and implementation, customer configurations, and training. These
services are generally billed bi-weekly on an hourly basis or pursuant to the terms of a
fixed price contract. Consulting services revenue billed on an hourly basis is recognized as
the work is performed. Under fixed price service contracts and milestone-based arrangements
that include services that are not essential to the functionality of our software products,
consulting services revenue is recognized using the proportional performance method. We
measure progress-to-completion under the proportional performance method by using input
measures, primarily labor hours, which relate hours incurred to date to total estimated hours
at completion. We continually update and revise our estimates of input measures. If our
estimates indicate that a loss will be incurred, the entire loss is recognized in that
period. Training revenues are included in consulting revenues in the Company’s consolidated
statements of income and are recognized once the training services are provided. VSOE for
consulting and training services is based upon the hourly or per class rates charged when
those services are sold separately. We offer hosting services on certain of our software
products under arrangements in which the end users do not take possession of the software.
Revenues from hosting services are included in consulting revenues, billed monthly and
recognized as the services are provided. Revenues from our hardware reseller business are
also included in
consulting revenues, reported net (i.e., the amount billed to a customer less the amount paid
to the supplier) and recognized upon shipment of the hardware. |
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Customers are reviewed for creditworthiness before we enter into a new arrangement that
provides for software and/or a service element. We do not sell or ship our software, nor
recognize any license revenue, unless we believe that collection is probable. Payments for
our software licenses are typically due within twelve months from the date of delivery.
Although infrequent, where software license agreements call for payment terms of twelve
months or more from the date of delivery, revenue is recognized as payments become due and
all other conditions for revenue recognition have been satisfied. |
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Accounts Receivable. Consistent with industry practice and to be competitive in the
software marketplace, we typically provide payment terms on most software license sales.
Software licenses are generally due within twelve months from the date of delivery.
Customers are reviewed for creditworthiness before we enter into a new arrangement that
provides for software and/or a service element. We do not sell or ship our software, nor
recognize any revenue unless we believe that collection is probable. For those customers
who are not credit worthy, we require prepayment of the software license fee or a letter of
credit before we will ship our software. We have a history of collecting software payments
when they come due without providing refunds or concessions. Consulting services are
generally billed bi-weekly and maintenance services are billed annually or monthly. For
those customers who are significantly delinquent or whose credit deteriorates, we typically
put the account on hold and do not recognize any further services revenue, and may as
appropriate withdraw support and/or our implementation staff until the situation has been
resolved. |
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We do not have significant billing or collection problems. We review each past due account
and provide specific reserves based upon the information we gather from various sources
including our customers, subsequent cash receipts, consulting services project teams, members
of each region’s management, and credit rating services such as Dun and Bradstreet. Although
infrequent and unpredictable, from time to time certain of our customers have filed
bankruptcy, and we have been required to refund the pre-petition amounts collected and settle
for less than the face value of their remaining receivable pursuant to a bankruptcy court
order. In these situations, as soon as it becomes probable that the net realizable value of
the receivable is impaired, we provide reserves on the receivable. In addition, we monitor
economic conditions in the various |
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geographic regions in which we operate to determine if
general reserves or adjustments to our credit policy in a region are appropriate for
deteriorating conditions that may impact the net realizable value of our receivables. |
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Business Combinations. All business combinations during the three years ended December
31, 2008 were accounted for using the purchase method of accounting. Under the purchase
method of accounting, the purchase price of each acquired company was allocated to the
acquired assets and liabilities based on their fair values. There was no in-process
research and development (“IPR&D”) recorded on any of our business combinations during the
three years ended December 31, 2008. IPR&D consists of products or technologies in the
development stage for which technological feasibility has not been established and which we
believe have no alternative use. |
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Effective January 1, 2009, all future business combinations will be accounted for at fair
value under the acquisition method of accounting. Under the acquisition method of
accounting, (i) acquisition-related costs, except for those costs incurred to issue debt or
equity securities, will be expensed in the period incurred; (ii) non-controlling interests
will be valued at fair value at the acquisition date; (iii) IPR&D will be recorded at fair
value as an indefinite-lived intangible asset at the acquisition date; (iv) restructuring
costs associated with a business combination will be expensed subsequent to the acquisition
date; and (v) changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date will be recognized through income tax expense or
directly in contributed capital, including any adjustments made to valuation allowances on
deferred taxes and acquired tax contingencies associated with acquisitions that closed prior
January 1, 2009. There were no business combinations in the nine months ended September 30,
2009. |
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Goodwill and Intangible Assets. Our business combinations have typically resulted in
goodwill and other intangible assets, which affect the amount of future period amortization
expense and potential impairment charges we may incur. The determination of the value of
such intangible assets and the annual impairment tests that we perform require management
to make estimates of future revenues, customer retention rates and other assumptions that
affect our consolidated financial statements. |
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Goodwill is tested annually for impairment, or more frequently if events or changes in
business circumstances indicate the asset might be impaired, by comparing a weighted average
of the fair value of future cash flows under the “Discounted Cash
Flow Method of the Income Approach” and the “Guideline Company Method” to the carrying value
of the goodwill allocated to our reporting units. We found no indication of impairment of our
goodwill balances during the nine months ended September 30, 2009 with respect to the
goodwill allocated to our Retail, Manufacturing and Distribution and Services Industries
reportable business segments and, absent future indicators of impairment, the next annual
impairment test will be performed in fourth quarter 2009. |
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Customer lists are amortized on a straight-line basis over estimated useful lives ranging
from 8 years to 13 years. The values allocated to customer list intangibles are based on the
projected economic life of each acquired customer base, using historical turnover rates and
discussions with the management of the acquired companies. We estimate the economic lives of
these assets using the historical life experiences of the acquired companies as well as our
historical experience with similar customer accounts for products that we have developed
internally. We review customer attrition rates for each significant acquired customer group
on annual basis, or more frequently if events or circumstances change, to ensure the rate of
attrition is not increasing and if revisions to the estimated economic lives are required. |
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Acquired software technology is capitalized if the related software product under development
has reached technological feasibility or if there are alternative future uses for the
purchased software. Amortization of software technology is reported in the consolidated
statements of income in cost of revenues under the caption “Amortization of acquired software
technology.” Software technology is amortized on a product-by-product basis with the
amortization recorded for each product being the greater of the amount computed using (a) the
ratio that current gross revenues for a product bear to the total of current and anticipated
future revenue for that product, or (b) the straight-line method over the remaining estimated
economic life of the product including the period being reported on. The estimated economic
lives of our acquired software technology range from 8 years to 15 years. |
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Trademarks are being amortized on a straight-line basis over estimated remaining useful lives
ranging from three and five years. |
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Product Development. The costs to develop new software products and enhancements to
existing software products are expensed as incurred until technological feasibility has
been established. We consider technological feasibility to have occurred when all planning,
designing, coding and testing have been completed according to design specifications. Once |
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technological feasibility is established, any additional costs would be capitalized. We
believe our current process for developing software is essentially completed concurrent
with the establishment of technological feasibility, and accordingly, no costs have been
capitalized. |
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Income Taxes. Deferred tax assets and liabilities are recorded for the estimated future
tax effects of temporary differences between the tax basis of assets and liabilities and
amounts reported in the consolidated balance sheets, as well as operating loss and tax
credit carry-forwards. We follow specific and detailed guidelines regarding the
recoverability of any tax assets recorded on the balance sheet and provide valuation
allowances when recovery of deferred tax assets is not considered likely. |
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We exercise significant judgment in determining our income tax provision due to transactions,
credits and calculations where the ultimate tax determination is uncertain. Uncertainties
arise as a consequence of the actual source of taxable income between domestic and foreign
locations, the outcome of tax audits and the ultimate utilization of tax credits. Although
we believe our estimates are reasonable, the final tax determination could differ from our
recorded income tax provision and accruals. In such case, we would adjust the income tax
provision in the period in which the facts that give rise to the revision become known.
These adjustments could have a material impact on our income tax provision and our net income
for that period. |
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As of September 30, 2009 approximately $11 million of unrecognized tax benefits,
substantially all of which relates to uncertain tax positions associated with the acquisition
of Manugistics, would impact our effective tax rate if recognized. Recognition of these
uncertain tax positions will be treated as a component of income tax expense rather than as a
reduction of goodwill. During the nine months ended September 30, 2009, there were no
significant changes in our unrecognized tax benefits. It is reasonably possible that
approximately $800,000 of unrecognized tax benefits will be recognized within the next twelve
months. As of December 31, 2008, we had approximately $5.5 million and $7.8 million of
federal and state research and development tax credit carryforwards, respectively, that
expire at various dates through 2028. We have placed a
valuation allowance against the Arizona research and development credit as we do not expect
to be able to utilize it prior to its expiration. |
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We treat interest and penalties related to uncertain tax positions as a component of income
tax expense. We have accrued interest and penalties related to uncertain tax positions of
$354,000 and $323,000 in the nine months ended September 30, 2009, respectively. As of
September 30, 2009 and December 31, 2008 there are approximately $3.1 million and $2.6
million, respectively of interest and penalties accruals related to uncertain tax positions
that are reflected in the consolidated balance sheets under the caption “Liability for
uncertain tax positions.” To the extent interest and penalties are not assessed with
respect to the uncertain tax positions, the accrued amounts for interest and penalties will
be reduced and reflected as a reduction of the overall tax provision. |
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Stock-Based Compensation. Our 2005 Performance Incentive Plan, as amended (“2005
Incentive Plan”) provides for the issuance of up to 3,847,000 shares of common stock to
employees, consultants and directors under stock purchase rights, stock bonuses, restricted
stock, restricted stock units, performance awards, performance units and deferred
compensation awards. The 2005 Incentive Plan contains certain restrictions that limit the
number of shares that may be issued and the amount of cash awarded under each type of
award, including a limitation that awards granted in any given year can represent no more
than two percent (2%) of the total number of shares of common stock outstanding as of the
last day of the preceding fiscal year. Awards granted under the 2005 Incentive Plan are in
such form as the Compensation Committee shall from time to time establish and the awards
may or may not be subject to vesting conditions based on the satisfaction of service
requirements or other conditions, restrictions or performance criteria including the
Company’s achievement of annual operating goals. Restricted stock and restricted stock
units may also be granted under the 2005 Incentive Plan as a component of an incentive
package offered to new employees or to existing employees based on performance or in
connection with a promotion, and will generally vest over a three-year period, commencing
at the date of grant. We measure the fair value of awards under the 2005 Incentive Plan
based on the market price of the underlying common stock as of the date of grant. The fair
value of each award is amortized over its applicable vesting period using graded vesting
and reflected in the consolidated statements of income under the captions “Cost of
maintenance services,” “Cost of consulting services,” “Product development,” “Sales and
marketing,” and “General and administrative.” |
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Annual stock-based incentive programs have been approved for 2007, 2008 and 2009
(“Performance Programs”). The Performance Programs provide for contingently issuable
performance share awards or restricted stock units under the 2005 Incentive Plan to executive
officers and certain other members of our management team upon achievement of defined
performance threshold goals. The defined performance threshold goal for each year has been
an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) targets,
which excludes certain non-routine items. The awards vest 50% |
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upon the date the Board
approves the achievement of the annual performance threshold goal with the remaining 50%
vesting ratably over the subsequent 24-month period. A summary of the annual Performance
Programs is as follows: |
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Equity Inducement Awards. During third quarter 2009, we announced the appointment of Pete
Hathaway to the position of Executive Vice President and Chief Financial Officer and Jason
Zintak to the newly-created position of Executive Vice President, Sales and Marketing. In
order to induce Mr. Hathaway and Mr. Zintak to accept employment, the Compensation Committee
granted certain equity awards outside of the terms of the 2005 Incentive Plan and pursuant to
NASDAQ Marketplace Rule 5635(c)(4) (see Appointment of New Executive Officers under
Significant Trends and Developments in Our Business). |
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Stock Option Plans. We maintained various stock option plans through May 2005 (“Prior
Plans”). The Prior Plans provided for the issuance of shares of common stock to employees,
consultants and directors under incentive and non-statutory stock option grants. Stock
option grants under the Prior Plans were made at a price not less than the fair market value
of the common stock at the date of grant, generally vested over a three to four-year period
commencing at the date of grant and expire in ten years. Stock options are no longer used
for share-based compensation and no grants have been made under the Prior Plans since 2004.
With the adoption of the 2005 Incentive Plan, we terminated all Prior Plans except for those
provisions necessary to administer the outstanding options, all of which are fully vested. As
of September 30, 2009, we had approximately 1.3 million vested stock options outstanding with
exercise prices ranging from $10.33 to $27.50 per share. |
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Employee Stock Purchase Plan. Our employee stock purchase plan (“2008 Purchase Plan”) has an
initial reserve of 1,500,000 shares and provides eligible employees with the ability to defer
up to 10% of their earnings for the purchase of our common stock on a semi-annual basis at
85% of the fair market value on the last day of each six-month offering period that
begin on February 1st and August 1st of each year. The 2008 Purchase
Plan is considered compensatory and, as a result, stock-based compensation will be recognized
on the last day of each six-month offering period in an amount equal to the difference
between the fair value of the stock on the date of purchase and the discounted purchase
price. A total of 155,888 shares of common stock were purchased under the 2008 Purchase Plan
in the nine months ended September 30, 2009 at prices ranging from $9.52 to $17.52. We have
recognized $342,000 in share-based compensation expense in connection with these purchases,
which is reflected in the consolidated statements of income under the captions “Cost of
maintenance services,” “Cost of consulting services,” “Product development,” “Sales and
marketing,” and “General and administrative.” |
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Derivative Instruments and Hedging Activities. We use derivative financial
instruments, primarily forward exchange contracts, to manage a majority of the foreign
currency exchange exposure associated with net short-term foreign currency denominated
assets and liabilities that exist as part of our ongoing business operations that are
denominated in a currency other than the functional currency of the subsidiary. The
exposures relate primarily to the gain or loss recognized in earnings from the settlement
of current foreign denominated assets and liabilities. We do not enter into derivative
financial instruments for trading or speculative purposes. The forward exchange contracts
generally have maturities of less than 90 days and are not designated as hedging
instruments. Forward exchange contracts are marked-to-market at the end of each reporting
period, using quoted prices for similar assets or liabilities in active markets, with gains
and losses recognized in other income offset by the gains or losses resulting from the
settlement of the underlying foreign currency denominated assets and liabilities. |
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At September 30, 2009, we had forward exchange contracts with a notional value of $40.7
million and an associated net forward contract receivable of $577,000. At December 31, 2008,
we had forward exchange contracts with a notional value of $33.5 million and an associated
net forward contract liability of $14,000. These derivatives are not designated as hedging
instruments. The forward contract receivables or liabilities are included in the condensed
consolidated balance sheet under the captions, “Prepaid expenses and other current assets” or
“Accrued expenses and other liabilities” as appropriate. The notional value represents the
amount of foreign currencies to be purchased or sold at maturity and does not represent our
exposure on these contracts. We recorded net foreign currency exchange contract gains of
$609,000 and $78,000 in the nine months ended September 30, 2009 and 2008, respectively,
which are included in the condensed consolidated statements of income under the caption
“Interest Income and other, net.” |
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Item 3: |
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Quantitative and Qualitative Disclosures about Market Risk |
We are exposed to certain market risks in the ordinary course of our business, the most
significant of which has been changes in foreign currency exchange rates. In addition, we are
exposed to risk if interest rates change, and our international operations are subject to risks
related to differing economic conditions, changes in political climate, differing tax structures,
and other regulations and restrictions.
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Foreign currency exchange rates. Our international operations expose us to foreign currency
exchange rate changes that could impact translations of foreign currency denominated assets and
liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in
different currencies. International revenues represented 40% of our total revenues in 2008 and 39%
in the nine months ended September 30, 2009. In addition, the identifiable net assets of our
foreign operations totaled 28% of consolidated net assets at both September 30, 2009 and December
31, 2008. Our exposure to currency exchange rate changes is diversified due to the number of
different countries in which we conduct business. We operate outside the United States primarily
through wholly-owned subsidiaries in Europe, Asia/Pacific, Canada and Latin America. We have
determined that the functional currency of each of our foreign subsidiaries is the local currency
and as such, foreign currency translation adjustments are recorded as a separate component of
stockholders’ equity. Changes in the currency exchange rates of our foreign subsidiaries resulted
in our reporting an unrealized foreign currency exchange gain of $5.6 million in the nine months
ended September 30, 2009 and a $2.9 million foreign currency exchange loss in the nine months ended
September 30, 2008.
The foreign currency exchange gain in the nine months ended September 30, 2009 resulted
primarily from the weakening of the U.S. Dollar, particularly against the British Pound and the
Euro. Foreign currency gains and losses will continue to result from fluctuations in the value of
the currencies in which we conduct operations as compared to the U.S. Dollar, and future operating
results will be affected to some extent by gains and losses from foreign currency exposure. We
prepared sensitivity analyses of our exposures from foreign net working capital as of September 30,
2009 to assess the impact of hypothetical changes in foreign currency rates. Based upon the
results of these analyses, a 10% adverse change in all foreign currency rates from the September
30, 2009 rates would result in a currency translation loss of approximately $552,000 before tax.
We use derivative financial instruments, primarily forward exchange contracts, to manage a
majority of the foreign currency exchange exposure associated with net short-term foreign
denominated assets and liabilities that exist as part of our ongoing business operations. The
exposures relate primarily to the gain or loss recognized in earnings from the revaluation or
settlement of current foreign denominated assets and liabilities. We do not enter into derivative
financial instruments for trading or speculative purposes. The forward exchange contracts
generally have maturities of less than 90 days, and are not designated as hedging instruments.
Forward exchange contracts are marked-to-market at the end of each reporting period, using quoted
prices for similar assets or liabilities in active markets, with gains and losses recognized in
other income offset by the gains or losses resulting from the settlement of the underlying foreign
denominated assets and liabilities.
At September 30, 2009, we had forward exchange contracts with a notional value of $40.7
million and an associated net forward contract receivable of $577,000. At December 31, 2008, we
had forward exchange contracts with a notional value of $33.5 million and an associated net forward
contract liability of $14,000. These derivatives are not designated as hedging instruments. The
forward contract receivables or liabilities are included in the condensed consolidated balance
sheet under the captions, “Prepaid expenses and other current assets” or “Accrued expenses and
other liabilities” as appropriate. The notional value represents the amount of foreign currencies
to be purchased or sold at maturity and does not represent our exposure on these contracts. We
prepared sensitivity analyses of the impact of changes in foreign currency exchange rates on our
forward exchange contracts at September 30, 2009. Based on the results of these analyses, a 10%
adverse change in all foreign currency rates from the September 30, 2009 rates would result in a
net forward contract liability of $3.8 million that would increase the underlying currency
transaction loss on our net foreign assets. We recorded net foreign currency exchange contract
gains of $609,000 and $78,000 in the nine months ended September 30, 2009 and 2008, respectively,
which are included in the condensed consolidated statements of income under the caption “Interest
Income and other, net.”
Interest rates. Excess cash balances as of September 30, 2009 and December 31, 2008 are
included in our operating account. Cash balances in foreign currencies overseas are also operating
balances and are invested in short-term deposits of the local operating bank. Interest income
earned on investments is reflected in our financial statements under the caption “Interest income
and other, net.”
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Item 4: |
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Controls and Procedures |
Disclosure Controls and Procedures. Under the supervision and with the participation of our
management, including our principal executive officer and principal financial and accounting
officer, we conducted an evaluation of our disclosure controls and procedures that were in effect
at the end of the period covered by this report. The phrase “disclosure controls and procedures”
is defined under Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”) and refers to
those controls and other procedures of an issuer that are designed to ensure that the information
required to be disclosed by the issuer in the reports it files or submits under the Act is
recorded, processed, summarized and reported, within the time periods specified in the Securities
and Exchange Commission’s (the “Commission”) rules and forms. Disclosure controls and procedures
include, without limitation, controls and
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procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated
and communicated to the issuer’s management, including its principal executive officer and
principal financial officer, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Based on their evaluation, our principal executive
officer and principal financial and accounting officer have concluded that our disclosure controls
and procedures that were in effect on September 30, 2009 were effective to ensure that information
required to be disclosed in our reports to be filed under the Act is accumulated and communicated
to management, including the chief executive officer and chief financial officer, to allow timely
decisions regarding disclosures and is recorded, processed, summarized and reported within the time
periods specified in the Commission’s rules and forms.
Changes in Internal Control Over Financial Reporting. The term “internal control over
financial reporting” is defined under Rule 13a-15(f) of the Act and refers to the process of a
company that is designed by, or under the supervision of, the issuer’s principal executive and
principal financial officers, or persons performing similar functions, and effected by the issuer’s
board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and includes those policies
and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the issuer; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the issuer are being made only in accordance with authorizations of management and
directors of the issuer; and (iii)
provide reasonable assurance regarding the prevention or timely detection of unauthorized
acquisition, use or disposition of the issuer’s assets that could have a material effect on the
financial statements.
There were no changes in our internal controls over financial reporting during the three
months ended September 30, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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Item 1. |
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Legal Proceedings |
We are involved in legal proceedings and claims arising in the ordinary course of business.
Although there can be no assurance, management does not currently believe the disposition of these
matters will have a material adverse effect on our business, financial position, results of
operations or cash flows.
We operate in a dynamic and rapidly changing environment that involves numerous risks and
uncertainties. The following section describes material risks and uncertainties that we believe may
adversely affect our business, financial condition, results of operations or the market price of
our stock. This section should be read in conjunction with the unaudited Consolidated Financial
Statements and Notes thereto, and Management’s Discussion and Analysis of Financial Condition and
Results of Operations as of September 30, 2009 and for the three and nine months then ended
contained elsewhere in this Form 10-Q.
Risks Related To Our Business
We may misjudge when software sales will be realized
Software license revenues in any quarter depend substantially upon contracts signed and the
related shipment of software in that quarter. Because of the timing of our sales, we typically
recognize the substantial majority of our software license revenues in the last weeks or days of
the quarter. In addition, it is difficult to forecast the timing of large individual software
license sales with a high degree of certainty due to the extended length of the sales cycle and the
generally more complex contractual terms that may be associated with such licenses that could
result in the deferral of some or all of the revenue to future periods. Our customers and potential
customers, especially for large individual software license sales, are increasingly requiring that
their senior executives, board of directors and significant equity investors approve such purchases
without the benefit of the direct input from our sales representatives. As a result, we may have
less visibility into the progression of the selection and approval process throughout our sales
cycles, which in turn makes it more difficult to predict the quarter in which individual sales will
occur, especially in large sales opportunities. We are also at risk of having pending transactions
abruptly terminated if the Boards or executive management of our customers decide to withdraw
funding from IT projects as a result of a deep or prolonged global economic downturn and credit
crisis. If this type of behavior becomes commonplace among existing or potential customers then we
may face a significant reduction in new
41
software sales. We believe that an increasing number of our
prospects may indicate to us that they can sign agreements prior to the end of our quarter, when in
fact their approval process precludes them from being able to complete the transaction until after
the end of our quarter. In addition, because of the current economic downturn, we may need to
increase our use of alternate licensing models that reduce the amount of software revenue we
recognize upon shipment of our software. These circumstances add to the difficulty of accurately
forecasting the timing of deals. We expect to experience continued difficulty in accurately
forecasting the timing of deals. If we receive any significant cancellation or deferral of customer
orders, or if we are unable to conclude license negotiations by the end of a fiscal quarter, our
quarterly operating results will be lower than anticipated.
Economic, political and market conditions can adversely affect our revenue results and
profitability
Our revenue and profitability depend on the overall demand for our software and related
services. Historically, events such as terrorist attacks, natural catastrophes and contagious
diseases have created uncertainties in our markets and caused disruptions in our sales cycles. A
regional and/or global change in the economy or financial markets, such as the current severe
global economic downturn, could result in delay or cancellation of customer purchases. A downturn
in the economy, such as the current global recession, may cause an increase in customer bankruptcy
reorganizations, liquidations and consolidations, which may negatively impact our accounts
receivables and expected future revenues from such customers. Current adverse conditions in credit
markets, reductions in consumer confidence and spending and the fluctuating commodities and/or fuel
costs are examples of changes that
have delayed or terminated certain customer purchases. These adverse conditions have delayed
or terminated certain of our customer deals. A further worsening or broadening, or protracted
extension of these conditions would have a significant negative impact on our operating results. In
addition to the potential negative impact of the economic downturn on our software sales, customers
are increasingly seeking to reduce their maintenance fees or to avoid price increases. This has
resulted in elevated levels of maintenance attrition in recent periods. A prolonged economic
downturn may further increase our attrition rates, particularly if many of our larger maintenance
customers cease operations. Because maintenance is our largest source of revenue, increases in our
attrition rates can have a significant adverse impact on our operating results. Weak and uncertain
economic conditions could also impair our customers’ ability to pay for our products or services.
Any of these factors could adversely impact our quarterly or annual operating results and our
financial condition.
We may not receive significant revenues from our current research and development efforts
Developing and localizing software is expensive and the investment in product development
often involves a long payback cycle. We have and expect to continue making significant investments
in software research and development and related product opportunities. Accelerated product
introductions and short product life cycles require high levels of expenditures for research and
development that could adversely affect our operating results if not offset by corresponding
revenue increases. We believe that we must continue to dedicate a significant amount of resources
to our research and development efforts to maintain our competitive position. However, it is
difficult to estimate when, if ever, we will receive significant revenues from these investments.
We may face liability if our products are defective or if we make errors implementing our products
Our software products are highly complex and sophisticated. As a result, they could contain
design defects, software errors or security problems that are difficult to detect and correct. In
addition, implementation of our products may involve customer-specific configuration by third
parties or us, and may involve integration with systems developed by third parties. In particular,
it is common for complex software programs such as ours to contain undetected errors, particularly
in early versions of our products. Errors are discovered only after the product has been
implemented and used over time with different computer systems and in a variety of applications and
environments. Despite extensive testing, we have in the past discovered certain defects or errors
in our products or custom configurations only after our software products have been used by many
clients. In addition, our clients may occasionally experience difficulties integrating our products
with other hardware or software in their particular environment that are unrelated to defects in
our products. Such defects, errors or difficulties may cause future delays in product
introductions, result in increased costs and diversion of development resources, require design
modifications or impair customer satisfaction with our products.
We believe that significant investments in research and development are required to remain
competitive, and that speed to market is critical to our success. Our future performance will
depend in large part on our ability to enhance our existing products through internal development
and strategic partnering, internally develop new products which leverage both our existing
customers and sales force, and strategically acquire complementary solutions that add functionality
for specific business processes to an enterprise-wide system. If clients experience significant
problems with implementation of our products or are otherwise dissatisfied with their functionality
or performance, or if they fail to achieve market acceptance for any reason, our market reputation
could suffer, and we could be subject to claims for significant damages. There can be no
assurances that the contractual provisions in our customer agreements that limit our liability and
exclude consequential damages will be enforced. Any such damages claim could impair our market
reputation and could have a material adverse affect on our business, operating results and
financial condition.
42
We may have difficulty implementing our solutions
Our software products are complex and perform or directly affect mission-critical functions
across many different functional and geographic areas of the enterprise. Consequently,
implementation of our software products can be a lengthy process, and commitment of resources by
our clients is subject to a number of significant risks over which we have little or no control.
The implementation time for certain of our applications can be longer and more complicated than our
other applications as they typically (i) involve more significant integration efforts in order to
complete implementation, (ii) require the execution of implementation procedures in multiple layers
of software, (iii) offer a customer more deployment options and other configuration choices, (iv)
require more training and (v) may involve third party integrators to change business processes
concurrent with the implementation of the software. Delays in the implementations of any of our
software products, whether by our business partners or us, may result in client dissatisfaction,
disputes with our customers, or damage to our reputation.
In addition, a portion of our consulting services revenues are derived under fixed price
arrangements that require us to provide identified deliverables for a fixed fee. During the nine
months ended September 30, 2009, approximately 18% of our consulting services revenues were derived
under fixed price arrangements compared to 16% in the nine months ended September 30, 2008. If we
are unable to meet our contractual obligations under fixed price contracts within our estimated
cost structure, our operating results could suffer.
We may have difficulty developing our new Managed Services offering
We have limited experience operating our applications for our customers, either on a hosted or
remote basis. Although we have hired management personnel with significant expertise in operating a
managed services business, we may encounter difficulties developing our Managed Services into a
mature services offering, or the rate of adoption by our customers may be slower than anticipated.
We may not be able to protect our intellectual property
We rely on a combination of copyright, trade secrets, patents, trademarks, confidentiality
procedures, contractual restrictions and patents to protect our proprietary technology. Despite our
efforts, these measures only provide limited protection. Unauthorized third parties may try to copy
or reverse engineer portions of our products, circumvent our security devices or otherwise obtain
and use our intellectual property. In addition, the laws of some countries do not provide the same
level of protection of our proprietary rights as do the laws of the United States or are not
adequately enforced in a timely manner. If we cannot protect our proprietary technology against
unauthorized copying or use, we may not remain competitive.
Third parties may claim we infringe their intellectual property rights
We periodically receive notices or claims from others that we are infringing upon their
intellectual property rights, especially patent rights. We expect the number of such claims will
increase as the functionality of products overlap and the volume of issued software patents
continues to increase. Responding to any infringement claim, regardless of its validity, could:
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be time-consuming, costly and/or result in litigation; |
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divert management’s time and attention from developing our business; |
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require us to pay monetary damages or involve settlement payments, either of which
could be significant; |
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require us to enter into royalty and licensing agreements that we would not normally
find acceptable; |
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require us to stop selling or to redesign certain of our products; or |
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require us to satisfy indemnification obligations to our customers. |
If a successful claim is made against us and we fail to develop or license a substitute
technology, our business, results of operations, financial condition or cash flows could be
adversely affected.
If we lose access to critical third-party software or technology, our costs could increase and the
introduction of new products and product enhancements could be delayed, potentially hurting our
competitive position
We license and integrate technology from third parties in certain of our software products.
Examples of third party software embedded in our products include the following: the WebLogic
application from BEA Systems, Inc. (acquired by Oracle) or the IBM Websphere applications for use
in most of the JDA Enterprise Architecture platform solutions; the Data Integrator application from
43
Business Object S.A (acquired by SAP), which is used in certain of the products acquired from
Manugistics, Cognos (acquired by IBM) for use in JDA Reporting and JDA Analytics; iLog CPlex
(acquired by IBM) for use in certain of our Transportation and Network Optimization applications;
the Uniface client/server application development technology from Compuware, Inc. for use in
Portfolio Merchandise Management; certain applications from Silvon Software, Inc. for use in
Merchandise Performance Analysis and Java technologies which are owned by Sun Microsystems but are
currently subject to a proposed acquisition by Oracle. Our third party licenses generally require
us to pay royalties and fulfill confidentiality obligations. We also resell Oracle database
licenses. If we are unable to continue to license any of this third party software, or if the
third party licensors do not adequately maintain or update their products, we would face delays in
the releases of our software until equivalent technology can be identified, licensed or developed,
and integrated into our software products. These delays, if they occur, could harm our business,
operating results and financial condition. It is also possible that intellectual property acquired
from third parties through acquisitions, mergers, licenses, or otherwise obtained may not have been
adequately protected, or infringes another parties intellectual property rights.
We may face difficulties in our highly competitive markets
The supply chain software market continues to consolidate and this has resulted in larger, new
competitors with significantly greater financial, marketing resources and more numerous technical
resources than we possess. This could create a significant competitive advantage for our
competitors and negatively impact our business. It is difficult to estimate what long term effect
these acquisitions will have on our competitive environment. We have encountered competitive
situations with certain enterprise software vendors where, in order to encourage customers to
purchase licenses of their specific applications and gain market share, we suspect they have also
offered to license at no charge certain of its retail and/or supply chain software applications
that compete with our solutions. If large competitors such as Oracle, SAP AG and other large
private companies are willing to license their retail, supply chain and/or other applications at no
charge, it may result in a more difficult competitive environment for our products. We cannot
guarantee that we will be able to compete successfully for customers or acquisition targets against
our current or future competitors, or that competition will not have a material adverse effect on
our business, operating results and financial condition.
We encounter competitive products from a different set of vendors in many of our primary
product categories. We believe that while our markets are subject to intense competition, the
number of competitors in many of our application markets has decreased over the past five years. We
believe the principal competitive factors in our markets are feature and functionality, the depth
of planning and optimization provided, available deployment models, the reputation of our products,
the performance and scalability of our products, the quality of our customer base, our ability to
implement, our retail and supply chain industry expertise, our lower total cost of ownership,
technology platform and quality of customer support across multiple regions for global customers.
The competitive markets in which we compete could put pressure on us to reduce our prices. If
our competitors offer deep discounts on certain products, we may need to lower prices or offer
other favorable terms in order to compete successfully. Any such changes would likely reduce
margins and would adversely affect our operating results. Our software license updates and product
support fees are generally priced as a percentage of our new license fees. Our competitors may
offer a lower percentage pricing on product updates and support, which could put pressure on us to
further discount our new license prices. Any broadly-based changes to our prices and pricing
policies could cause new software license and services revenues to decline or be delayed as our
sales force implements and our customers adjust to the new pricing policies.
We have increased our off-shore resources through our CoE, however, our consulting services
business model is currently largely based on relatively high cost on-shore resources and, although
it has begun to increase, utilization of CoE consulting services resources has been lower than
planned. We believe the primary reason for this lower than expected utilization may be due to
slower internal adoption of our planned mix of on-shore/off-shore services. Further, we are
continuously faced with competition from low cost off-shore service providers and smaller boutique
consulting firms. This competition is expected to continue and our on-shore hourly rates are much
higher than those offered by these competitors. As these competitors gain more experience with our
products, the quality gap between our service offerings and theirs may diminish, resulting in
decreased revenues and profits from our consulting practice. In addition, we face increased
competition for services work from ex-employees of JDA who offer services directly or through lower
cost boutique consulting firms. These competitive service providers have taken business from JDA
and while some are still relatively small compared to our consulting services business, if they
grow successfully, it will be largely at our expense. We continue to attempt to improve our
competitive position by further developing and increasing the utilization of our own offshore
consulting services group at our CoE; however, we cannot guarantee these efforts will be successful
or enhance our ability to compete.
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There are many risks associated with international operations
International revenues represented 40% of our total revenues in 2008 and 39% in the nine
months ended September 30, 2009. Our international business operations are subject to risks
associated with international activities, including:
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Currency fluctuations, which could significantly increase with our continuing expansion
of the CoE in India; |
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Higher operating costs due to local laws or regulations; |
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Lower consulting margins; |
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Competing against low-cost service providers; |
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Unexpected changes in employment and other regulatory requirements; |
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Tariffs and other trade barriers; |
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Costs and risks of localizing products for foreign countries; |
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Longer accounts receivable payment cycles in certain countries; |
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Potentially negative tax consequences; |
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Difficulties in staffing and managing geographically disparate operations; |
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Greater difficulty in safeguarding intellectual property, licensing and other trade
restrictions; |
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Ability to negotiate and have enforced favorable contract provisions; |
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Repatriation of earnings; |
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The burdens of complying with a wide variety of foreign laws; |
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Anti-American sentiment due to military conflicts and other American policies that may
be unpopular in certain regions; |
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The challenges of finding qualified management for our international operations; |
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General economic conditions in international markets; and |
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Developing and deploying the skills required to service our broad set of product
offerings across the markets we serve. |
We expect that an increasing portion of our international software license, consulting
services and maintenance services revenues will be denominated in foreign currencies, subjecting us
to fluctuations in foreign currency exchange rates. If we expand our international operations,
exposures to gains and losses on foreign currency transactions may increase. We use derivative
financial instruments, primarily forward exchange contracts, to manage a majority of the foreign
currency exchange exposure associated with net short-term foreign denominated assets and
liabilities which exist as part of our ongoing business operations, but we do not hedge ongoing or
anticipated revenues, costs and expenses, including the additional costs we expect to incur with
the expansion of the CoE in India. We cannot guarantee that any currency exchange strategy would
be successful in avoiding exchange-related losses.
We may experience expansion delays or difficulties with our CoE in India
We are continuing the expansion of our CoE in Hyderabad, India. In order to take advantage of
cost efficiencies associated with India’s lower wage scale, we expanded the CoE during 2008 beyond
a research and development center to include consulting services, customer support and information
technology resources. We believe that a properly functioning CoE will be important in achieving
desired long-term operating results. Although we have not yet fully utilized certain of the service
capabilities of the CoE, we believe significant progress has been made in the nine months ended
September 30, 2009. We are satisfied with the progress of our product development, information
technology and other administrative support functions at the CoE. We are also beginning to gain
leverage from the CoE in our consulting services business, and we expect the overall share of
consulting services work performed by the CoE will continue to increase. We also believe there are
additional opportunities to further leverage the CoE in our customer support organization. If we
encounter any delays in our efforts to increase the utilization of our services resources at the
CoE it may have an overall effect of reducing our consulting services margins and negatively
impacting our operating results. Additional risks associated with our CoE strategy include, but are
not limited to:
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Unexpected increases in labor costs in India; |
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Terrorist activities in the region; |
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Inability to hire or retain sufficient personnel with the necessary skill sets to
meet our needs; |
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Economic, security and political conditions in India; |
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Inadequate facilities or communications infrastructure; and |
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Local law or regulatory issues. |
We are dependent on key personnel
While the rate of retention of our associates is high compared to industry averages, our
operations are dependent upon our ability to attract and retain highly skilled associates and the
loss of certain key individuals to any of our competitors could adversely
45
impact our business. In
addition, our performance depends in large part on the continued performance of our executive
officers and other key employees, particularly the performance and services of James D. Armstrong
our Chairman and Hamish N. J. Brewer our Chief Executive Officer. We do not have in place “key
person” life insurance policies on any of our employees. The loss of the services of Mr. Armstrong,
Mr. Brewer, or other key executive officers or employees without a successor in place, or any
difficulties associated with a successor, could negatively affect our financial performance.
We may have difficulty integrating acquisitions
We continually evaluate potential acquisitions of complementary businesses, products and
technologies, including those that are significant in size and scope. In pursuit of our strategy
to acquire complementary products, we have completed ten acquisitions over the past eleven years,
the most recent being Manugistics Group, Inc. in July 2006. The risks we commonly encounter in
acquisitions include:
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If we incur significant debt to finance an acquisition and our combined business does
not perform as expected, we may have difficulty complying with debt covenants; |
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If we use our stock to make an acquisition, it will dilute existing shareholders; |
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We may have difficulty assimilating the operations and personnel of the acquired
company; |
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The challenge to integrate new products and technologies into our sales and marketing
process; |
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We may have difficulty effectively integrating the acquired technologies or products
with our current products and technologies, particularly where such products reside on
different technology platforms, or overlap with our products; |
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Our ongoing business may be disrupted by transition and integration issues; |
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The costs and complexity of integrating the internal IT infrastructure may be greater
than expected and require capital investments; |
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We may not be able to retain key technical and managerial personnel from the acquired
business; |
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We may be unable to achieve the financial and strategic goals for the acquired and
combined businesses; |
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We may have difficulty in maintaining controls, procedures and policies during the
transition and integration; |
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Our relationships with partner companies or third-party providers of technology or
products could be adversely affected; |
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Our relationships with employees and customers could be impaired; |
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Our due diligence process may fail to identify significant issues with product
quality, product architecture, legal or tax contingencies, customer obligations and
product development, among other things; |
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As successor we may be subject to certain liabilities of our acquisition targets; |
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We and the target company may be subject to litigation challenging the adequacy of
the acquisition consideration, which may cause additional transaction delays and costs;
and |
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We may be required to sustain significant exit or impairment charges if products
acquired in business combinations are unsuccessful. |
We may have difficulty completing acquisitions due to adverse conditions in the credit markets
Until the credit markets fully stabilize and approach and maintain historically normal
conditions, it may be difficult for us to make acquisitions using debt. If we are unable to close
financing necessary to complete an acquisition, we may incur significant termination fees and
expenses similar or greater than those that occurred in our failed acquisition of i2 Technologies,
Inc. in fourth quarter 2008 when we paid a $20 million termination fee and incurred approximately
$10 million in expenses. If we are unable to use debt to make acquisitions, our ability to achieve
significant growth may be adversely impacted.
Government contracts are subject to unique costs, terms, regulations, claims and penalties
As a result of the Manugistics acquisition, we acquired a number of contracts with the
government. Government contracts entail many unique risks, including, but not limited to, the
following: (i) early termination of contracts by the government; (ii) costly and complex
competitive bidding process; (iii) required extensive use of subcontractors, whose work may be
deficient or not performed in a timely manner; (iv) significant penalties associated with employee
misconduct in the highly regulated government marketplace; (v) changes or delays in government
funding that could negatively impact contracts; and (vi) onerous contractual provisions unique to
the government such as “most favored customer” provisions.
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Risks Related To Our Industry
It may be difficult to identify, adopt and develop product architecture that is compatible with emerging industry standards
The markets for our software products are characterized by rapid technological change,
evolving industry standards, changes in customer requirements and frequent new product
introductions and enhancements. We continuously evaluate new technologies and when appropriate
implement into our products advanced technology such as our current JDA Enterprise Architecture
platform effort. However, if we fail in our product development efforts to accurately address in a
timely manner,
evolving industry standards, new technology advancements or important third-party interfaces
or product architectures, sales of our products and services may suffer.
Our software products can be licensed with a variety of popular industry standard platforms
and are authored in various development environments using different programming languages and
underlying databases and architectures. There may be future or existing platforms that achieve
popularity in the marketplace that may not be compatible with our software product design.
Developing and maintaining consistent software product performance across various technology
platforms could place a significant strain on our resources and software product release schedules,
which could adversely affect our results of operations.
We may be impacted by shifts in the consumer products supply chain
We are dependent upon and derive most of our revenue from the consumer products supply chain
vertical. If a shift in spending occurs in this vertical market that results in decreased demand
for the types of solutions we sell, it would be difficult to adjust our strategies and solution
offerings because of our dependence on this market. If the consumer products supply chain vertical
experiences a decline in business, it could have a significant adverse impact on our business
prospects, particularly if it is a prolonged decline. The current economic downturn has caused
declines in certain areas of the consumer products supply chain. Although to date the negative
effects of such declines on our business have largely been offset by customers purchasing our
products to drive efficiencies in their supply chain, if economic conditions resume their earlier
deterioration or the failure rates of customers in our target markets increase, we may experience
an overall decline in sales that would adversely impact our business.
Risks Related To Our Stock
Our quarterly operating results may fluctuate significantly, which could adversely affect the price of our stock
Historically, the Company has provided annual guidance for software revenues, total revenues
and GAAP earnings per share. The reason for doing this has always been that our business does not
typically operate on a 90-day sales cycle, and if the period of time covered by a projection is
shortened (i.e., quarterly vs. annual), we believe it increases the risk of error, particularly
with respect to the estimated timing of software deals. However, in light of the global recession,
we believed it was better at the outset of 2009 to give quarterly rather than annual guidance and
assume the inherent risk of error, rather than speculate about the economy and how it might change
over the course of the year. As a result, we limited our guidance for first and second quarter 2009
to quarterly software revenues and total revenues, using fairly wide ranges in an attempt to
mitigate the risks associated with the shortened forecast window. Based on our results for first
half 2009, we lengthened our forecast window and provided guidance for second half 2009 rather than
quarterly guidance for third quarter 2009 or fourth quarter 2009. Our actual quarterly operating
results have varied in the past and are expected to continue to vary in the future. Fluctuating
quarterly results can affect our annual guidance. If our quarterly or annual operating results,
particularly our software revenues, fail to meet management’s or analysts’ expectations, the price
of our stock could decline. Many factors may cause these fluctuations, including:
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The difficulty of predicting demand for our software products and services, including
the size and timing of individual contracts and our ability to recognize revenue with
respect to contracts signed in a given quarter, particularly with respect to our larger
customers; |
|
|
• |
|
Changes in the length and complexity of our sales cycle, including changes in the
contract approval process at our customers and potential customers that now require a
formal proposal process, a longer decision making period and additional layers of
customer approval, often including authorization of the transaction by senior
executives, boards of directors and significant equity investors; |
|
|
• |
|
Competitive pricing pressures and competitive success or failure on significant
transactions; |
|
|
• |
|
Customer order deferrals resulting from the anticipation of new products, economic
uncertainty, disappointing operating results by the customer, management changes,
corporate reorganizations or otherwise; |
|
|
• |
|
The timing of new software product and technology introductions and enhancements to
our software products or those of our competitors, and market acceptance of our new
software products and technology; |
|
|
• |
|
Lack of desired features and functionality in our individual products or our suite of
products; |
|
|
• |
|
Changes in the number, size or timing of new and renewal maintenance contracts or
cancellations; |
|
|
• |
|
Unplanned changes in our operating expenses; |
47
|
• |
|
Changes in the mix of domestic and international revenues, or expansion or
contraction of international operations; |
|
|
• |
|
Our ability to complete fixed price consulting contracts within budget; |
|
|
• |
|
Foreign currency exchange rate fluctuations; |
|
|
• |
|
Lower-than-anticipated utilization in our consulting services group as a result of
increased competition, reduced levels of software sales, reduced implementation times
for our products, changes in the mix of demand for our software products, mergers and
consolidations within our customer base, or other reasons; and |
|
|
• |
|
Our limited ability to reduce costs in the short term to compensate for any
unanticipated shortfall in product or services revenue. |
Charges to earnings resulting from past or future acquisitions or internal reorganizations may
also adversely affect our operating results. Under purchase accounting, we allocate the total
purchase price to an acquired company’s net tangible assets, amortizable intangible assets and
in-process research and development based on their fair values as of the date of the acquisition
and record the excess of the purchase price over those fair values as goodwill. Management’s
estimates of fair value are based upon assumptions believed to be reasonable but which are
inherently uncertain. As a result, any of the following or other factors could result in material
charges that would adversely affect our results:
|
• |
|
Loss on impairment of goodwill and/or other intangible assets due to economic
conditions or an extended decline in the market price of our stock below book value; |
|
|
• |
|
Changes in the useful lives or the amortization of identifiable intangible assets; |
|
|
• |
|
Accrual of newly identified pre-merger contingent liabilities, in which case the
related charges could be required to be included in earnings in the period in which the
accrual is determined to the extent it is identified subsequent to the finalization of
the purchase price allocation; |
|
|
• |
|
Charges to income to eliminate certain JDA pre-merger activities that duplicate those
of the acquired company or to reduce our cost structure; and |
|
|
• |
|
Changes in deferred tax assets and valuation allowances. |
In addition, fluctuations in the price of our common stock may expose us to the risk of
securities class action lawsuits. Defending against such lawsuits could result in substantial
costs and divert management’s attention and resources. Furthermore, any settlement or adverse
determination of these lawsuits could subject us to significant liabilities.
Anti-takeover provisions in our organizational documents and Delaware law could prevent or delay a change in control
Our certificate of incorporation, which authorizes the issuance of “blank check preferred”
stock and Delaware state corporate laws which restrict business combinations between a corporation
and 15% or more owners of outstanding voting stock of the corporation for a three-year period,
individually or in combination, may discourage, delay or prevent a merger or acquisition that a JDA
stockholder may consider favorable.
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities:
The following table summarizes our purchases of our own equity securities during the three months
ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Value of Shares |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
That May Yet Be |
|
|
|
|
|
|
|
|
|
|
as Part of Publicly |
|
Purchased Under |
|
|
Total Number of |
|
Average Price |
|
Announced Plans |
|
the Plans or |
Period (1) |
|
Shares Purchased |
|
Paid per Share |
|
or Programs |
|
Programs |
July 1-31, 2009 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
27,126,842 |
|
August 1-31, 2009 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
27,126,842 |
|
September 1-30, 2009 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
27,126,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On March 5, 2009, the Board adopted a program to repurchase up to $30 million of our common
stock in the open market or in
private transactions at prevailing market prices during the 12-month period ending March 10, 2010. |
48
As part of the Purchase Agreement with Thoma Bravo pursuant to which we repurchased all of the
outstanding shares of our Series B preferred stock held by Thoma Bravo for $28.1 million in cash,
we also repurchased 100,000 shares of our common stock held by Thoma Bravo for $2.0 million, or $20
per share. See Note 8 to the unaudited condensed consolidated financial statements for further
information.
|
|
|
Item 3. |
|
Defaults Upon Senior Securities – Not applicable |
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders – Not applicable |
|
|
|
Item 5. |
|
Other Information – Not applicable |
|
|
|
Item 6. |
|
Exhibits – See Exhibits Index |
49
JDA SOFTWARE GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
JDA SOFTWARE GROUP, INC.
|
|
Dated: November 3, 2009 |
By: |
/s/ Hamish N. Brewer
|
|
|
Hamish N. Brewer |
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
By: |
/s/ Peter S. Hathaway
|
|
|
Peter S. Hathaway |
|
|
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
|
50
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit # |
|
|
|
Description of Document |
|
|
|
|
|
|
|
|
3.1*** |
|
|
—
|
|
Third Restated Certificate of Incorporation of the Company
together with Certificate of Amendment dated July 23, 2002. |
|
|
|
|
|
|
|
|
3.2**
|
|
|
—
|
|
First Amended and Restated Bylaws of JDA Software Group, Inc. |
|
|
|
|
|
|
|
|
3.3**** |
|
|
—
|
|
Certificate of Designation of rights, preferences,
privileges and restrictions of Series B Convertible
Preferred Stock of JDA Software Group, Inc filed with the
Secretary of State of the State of Delaware on July 5,
2006. |
|
|
|
|
|
|
|
|
3.4***** |
|
|
—
|
|
Certificate of Correction filed to correct a certain error
in the Certificate of Designation of rights,
preferences, privileges and restrictions of Series B
Convertible Preferred Stock of JDA Software Group, Inc. filed
with the Secretary of State of the State of Delaware on July
5, 2006. |
|
|
|
|
|
|
|
|
10.1
(1)(2) |
|
|
—
|
|
Executive Employment Agreement between Pete Hathaway and JDA
Software Group, Inc. dated July 20, 2009. |
|
|
|
|
|
|
|
|
10.2
(1)(2) |
|
|
—
|
|
Executive Employment Agreement between Jason B. Zintak and
JDA Software Group, Inc. dated August 18, 2009. |
|
|
|
|
|
|
|
|
10.3****** |
|
|
—
|
|
Stock Purchase Agreement between JDA Software Group, Inc.
and Thoma Bravo Inc. dated September 8, 2009. |
|
|
|
|
|
|
|
|
10.4 |
|
|
—
|
|
Separation Agreement between JDA Software Group, Inc. and
Kristen L. Magnuson dated April 6, 2009. |
|
|
|
|
|
|
|
|
10.5 |
|
|
—
|
|
Separation Agreement between JDA Software Group, Inc. and
Christopher J. Koziol dated August 3, 2009. |
|
|
|
|
|
|
|
|
4.1* |
|
|
—
|
|
Specimen Common Stock Certificate of JDA Software Group, Inc. |
|
|
|
|
|
|
|
|
31.1 |
|
|
—
|
|
Rule 13a-14(a) Certification of Chief Executive Officer. |
|
|
|
|
|
|
|
|
31.2 |
|
|
—
|
|
Rule 13a-14(a) Certification of Chief Financial Officer. |
|
|
|
|
|
|
|
|
32.1 |
|
|
—
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
(1) |
|
Management contracts or compensatory plans or arrangements covering executive officers
or directors of the Company. |
|
(2) |
|
Certain confidential information contained in this exhibit was omitted by means of
redacting a portion of the text and replacing it with an
asterisk. This exhibit has been filed separately with the Secretary of the Securities and
Exchange Commission without the redaction pursuant to a Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of
1934. |
|
* |
|
Incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-748),
declared effective on March 14, 1996. |
|
** |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998, as filed on August 14, 1998. |
|
*** |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2002, as filed on November 12, 2002. |
|
**** |
|
Incorporated by reference to the Company’s Current Report on Form 8-K dated July 5, 2006,
as filed on July 7, 2006. |
|
***** |
|
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2006, as filed on November 9, 2006. |
|
****** |
|
Incorporated by reference to the Company’s Current Report on Form 8-K dated and filed on
September 9, 2009. |
51