Back to GetFilings.com
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 10-K
---------------------
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 000-23999
MANHATTAN ASSOCIATES, INC.
(Exact Name of Registrant As Specified in Its Charter)
GEORGIA 58-2373424
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2300 WINDY RIDGE PARKWAY, SUITE 700 30339
ATLANTA, GEORGIA (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (770) 955-7070
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
- ------------------- ------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sales price of the Common Stock on March
30, 2001 as reported by the Nasdaq Stock Market, was approximately $170,035,766.
The shares of Common Stock held by each officer and director and by each person
known to the Registrant who owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes. As of March 30, 2001, the Registrant had outstanding
26,658,191 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held May 19, 2001 is incorporated by reference in Part III of
this Form 10-K to the extent stated herein.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report may contain
"forward-looking statements" relating to Manhattan Associates, Inc. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. Among the important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are delays in product development, undetected software errors,
competitive pressures, technical difficulties, market acceptance, availability
of technical personnel, changes in customer requirements and general economic
conditions. Additional factors are set forth in "Safe Harbor Compliance
Statement for Forward-Looking Statements" included as Exhibit 99.1 to this
Annual Report on Form 10-K. We undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes in future operating results.
PART I
ITEM 1. BUSINESS
We are a leading provider of technology-based solutions to improve supply
chain effectiveness and efficiencies. Our solutions enhance distribution
efficiencies through the integration of supply chain constituents, including
manufacturers, distributors, retailers, suppliers, transportation providers and
consumers. Our solutions focus on supply chain execution, which begins with the
execution of an order and ends with the fulfillment of the order to the end
customer. Our solutions consist of software, including products to enable the
execution, fulfillment and delivery of customer orders, the optimization of
distribution center operations and the collaboration between and among trading
partners; services, including design, configuration, implementation, and
training services, plus customer support services and software enhancement
subscriptions; and hardware.
Our software products allow organizations to manage the receiving, stock
locating, stock picking, order verification, assembly, order packing and
shipment of products in complex distribution centers and to provide better
visibility between our customers and their trading partners. Our software
products are designed to optimize the operation of a distribution center and to
facilitate supply chain collaboration by:
- reducing inventory levels and increasing inventory turnover;
- improving inventory and order accuracy;
- reducing response times;
- complying with industry shipping standards;
- improving communication with other participants in the supply chain;
- enabling and facilitating distribution through multiple delivery
channels;
- increasing the productivity of labor, facilities and materials-handling
equipment; and
- lowering transportation costs.
We currently provide our solutions to manufacturers, distributors,
retailers and transportation providers primarily in the following markets:
retail, apparel/footwear, consumer goods manufacturing, direct-to-consumer,
third-party logistics, food and grocery, healthcare, and industrial/automotive
parts distribution. As of December 31, 2000, our software was licensed for use
by approximately 800 customers including Abbott Laboratories, Agrilink Foods,
Calvin Klein, ClientLogic Corporation, Exel Logistics, Guess?, Jockey
International, Mikasa, Newell Rubbermaid, Nordstrom, Patagonia, Playtex Apparel,
SEIKO Corporation of America, Sainsbury's Supermarkets Ltd., Siemens Energy and
Automations, Staples, The Sports Authority, Tibbett & Britten Group Plc, Tiffany
& Co., Timberland, Warnaco, and Venator Group.
2
3
We are a Georgia corporation formed in March 1998 to acquire all of the
assets and liabilities of Manhattan Associates Software, LLC. References in this
prospectus to the "Company," "Manhattan," "Manhattan Associates," "we," "our,"
and "us" refer to Manhattan Associates, Inc., our predecessors, and our
wholly-owned and consolidated subsidiaries. Our principal executive offices are
located at 2300 Windy Ridge Parkway, Suite 700, Atlanta, Georgia 30339, and our
telephone number is 770-955-7070.
INDUSTRY BACKGROUND
In recent years, many businesses have employed technologies to improve the
flow of information among supply chain participants, which include
manufacturers, suppliers, distributors, retailers and transportation providers.
These technologies have helped businesses to reduce inventory levels, improve
inventory turnover and, most importantly, to compete more successfully.
Competitive influences have forced many manufacturers and distributors to ship
larger volumes of small orders. Consequently, distribution centers have
increased in size, complexity and cost. The efficient management of a
distribution center now requires collecting and processing increasing amounts of
key information. This information includes customer orders, inbound shipments of
products, products available on-site, product storage locations, weights and
sizes, customer- or store-specific shipping requirements, routing data, carrier
requirements, and order status. Manufacturers, distributors, retailers, and
transportation providers must continuously exchange this information with other
participants in the supply chain in order to effectively integrate the operation
of their distribution centers with the entire supply chain.
Supply chain participants have historically utilized technology solutions
to gain efficiencies that increase competitive advantage. Practices to improve
inventory management, which is the process of managing the receipt, storage and
shipment of inventory, have been at the forefront of these supply chain
re-engineering efforts. Such practices enable retailers to advise manufacturers
and distributors of their inventory replenishment needs more rapidly and allow
manufacturers and distributors to restock retailers more efficiently. More
recently, the advent of the Internet and the rapid growth of e-commerce have
altered the relative value propositions of many supply chain participants. In
this increasingly competitive environment, effective supply chain execution
technology solutions have become critical to success in order to handle the very
sophisticated distribution services required today, including:
- more frequent store-specific inventory replenishments;
- more customized packing of goods within each delivery to reduce in-store
unpacking times;
- more sophisticated packaging and labeling of goods to meet merchandising
strategies;
- compliance with unique, customer-specific and industry-specific shipping
standards; and
- the exchange of trading information electronically.
The Internet and the rapid growth of e-commerce have increased the demands
on participants in the supply chain. For example, many retailers, suppliers and
manufacturers are selling their products through a broader range of distribution
channels, including directly to consumers, either through the Internet or
through catalog sales operations. These new multi-channel distribution models
present significant challenges to traditional distribution centers that were
primarily designed to replenish "bricks and mortar" establishments, such as
retail stores and distributors, where orders are typically large and
undifferentiated. Selling products in direct-to-consumer environments requires
these participants to provide additional services, such as individual packaging,
labeling and shipping of orders directly to the consumer, as well as other
value-added services such as apparel monogramming.
3
4
As a result of these additional demands, distribution centers have
increased in size, complexity and cost. Distribution centers today can comprise
one million square feet or more with thousands of stock keeping units, or
"SKUs," multi-million dollar investments in automated materials-handling
equipment, and software solutions that can manage and provide access to huge
amounts of real-time data. The efficient management of a distribution center
operation now requires collecting information regarding:
- customer orders;
- inbound shipments of products;
- products available on-site;
- product storage locations;
- weights and sizes;
- outbound shipping data including customer- or store-specific shipping
requirements, routing data and carrier requirements;
- electronic communication with other supply chain participants; and
- personalization for direct-to-consumer shipping.
Distribution center management systems must be able to analyze dynamically
the information to determine the most efficient use of the distribution center's
labor, materials handling equipment, packaging equipment and shipping and
receiving areas. These systems must interface directly with Enterprise Resource
Planning ("ERP") and other host systems to exchange business information. Their
mission critical function within a distribution center requires that these
systems operate with high reliability and efficiency, while supporting very high
transaction volumes and multiple users. Manufacturers, distributors and
retailers must exchange information in real time with other participants in the
supply chain in order to effectively integrate the operation of their
distribution centers with the entire supply chain. Additionally, front-office
Internet business software applications require real-time access to data
provided by these distribution center management systems to provide a dynamic
view of a company's supply chain.
Traditionally, distribution center management systems have been highly
customized, difficult to upgrade and have required costly and lengthy
implementations. Furthermore, these systems have not readily supported the
increased volumes and complexities associated with recent advances in supply
chain re-engineering initiatives. Specifically, they have failed to quickly
incorporate changing industry- and customer-specific shipping standards. Most
legacy distribution center management systems are unable to effectively manage
operations in an increasingly multi-channel distribution environment. In
addition, legacy distribution center management systems are unable to provide
the real-time access to supply chain data to interact with Internet-based supply
chain optimization, procurement and commerce applications.
THE MANHATTAN ASSOCIATES SOLUTION
Our solution features a modular software system that employs leading
database technology to address a full range of requirements of modern, complex
distribution centers, including the receiving, stock locating, stock picking,
order verification, order packing and shipment of products. Our software
products, together with our professional services capabilities, enable our
customers to optimize their supply chain effectiveness and efficiencies by:
- reducing inventory levels and increasing inventory turnover;
- improving inventory and order accuracy;
- reducing response times;
- complying with industry shipping standards;
- improving communication with other participants in the supply chain;
4
5
- enabling and facilitating distribution through multiple delivery
channels;
- increasing the productivity of labor, facilities and materials-handling
equipment; and
- lowering transportation costs.
Our featured product is PkMS, which provides our customers with:
- Comprehensive Functionality -- PkMS addresses a full range of
requirements of modern, complex distribution centers with an existing
product rather than custom-designed and developed applications. PkMS
provides comprehensive functionality for specific vertical markets,
incorporating industry-wide initiatives.
- Ease of Implementation -- PkMS' modular design, along with our knowledge
of specific vertical markets and expertise in planning and installation,
allows our solutions to be implemented more rapidly than
highly-customized distribution center management systems. Typical
implementations can be completed within four to six months. Our PRISM
methodology can result in full implementation within two months.
- Timely Response to Industry Initiatives -- PkMS features a comprehensive
program to provide our customers with timely software upgrades offering
increased functionality and technological advances that address emerging
supply chain and other industry initiatives.
- Flexibility and Configurability -- PkMS is designed to be easily
configured to meet a distribution center's specific requirements and
reconfigured to meet changing customer and industry requirements. Because
of its modular design, PkMS can be implemented in phases to meet specific
customer demands.
- Scaleability -- PkMS is designed to facilitate the management of evolving
distribution center systems to accommodate increases in the number of
system users, complexity and distribution volume.
- Multi-Channel Distribution -- PkMS allows for distribution through
multiple channels, including traditional means, the Internet and mail
order, with its robust design and superior functionality over competitive
offerings. Moves to additional channels can be done with speed and ease
of implementation.
To further optimize the complex operations within distribution centers and
to bring about supply chain efficiencies through collaboration, we have recently
developed our Optimize Suite of products and infolink. Our Optimize Suite
includes SlotInfo, WorkInfo and SmartInfo. SlotInfo enables the optimal
configuration of distribution facilities to maximize existing space, achieve
greater throughput and reduce replenishment costs. WorkInfo is a comprehensive
productivity tracking and labor-planning tool to help maximize the utilization
and productivity of human resources within the distribution center. SmartInfo
provides real-time monitoring of distribution center activities and determines
trends based on historical data contained within PkMS. infolink is an
Internet-based application that enables real-time collaboration between
suppliers and their customers regarding customer order entry and order/inventory
status. The value proposition of infolink resides in the ability to provide
real-time information to customers to enable better purchasing and inventory
allocation decisions to meet end-customer demands.
With the purchase of Intrepa, L.L.C. in October 2000, we acquired Logistics
PRO WMS and Logistics PRO TMS. Logistics PRO WMS is an integrated warehouse
management system with a modular design, but less functionality than PkMS. It
can be a lower priced alternative to PkMS and is targeted at certain vertical
markets. Logistics PRO TMS is a stand-alone transportation management system
exceeding the transportation functionality of PkMS. It enables load planning and
optimization, shipment consolidation, vendor and carrier compliance and
documentation for domestic as well as international shipping.
STRATEGY
Our objective is to be the leading provider of technology-based solutions
to improve supply chain effectiveness and efficiencies. We will continue to
provide solutions to targeted vertical markets by offering
5
6
advanced, highly functional, highly scaleable applications that allow customers
to leverage their investment in distribution centers and meet frequently
changing customer requirements. Our strategy to achieve this objective includes
the following key elements:
Develop and Enhance Software Solutions. We intend to continue to focus our
product development resources on the development and enhancement of our software
solutions. In addition to our featured product, PkMS, we offer complementary
software products, as described herein, in order to provide additional
functionality and value to our solutions. We plan to continue to provide
enhancements to existing products and to introduce new products to address
evolving industry standards and market needs. We identify further enhancements
to our solutions and opportunities for new products through our customer support
organization as well as ongoing customer consulting engagements and
implementations, interactions with our user groups and participation in industry
standards and research committees.
Expand International Sales. We believe that our solutions offer
significant benefits for customers in international markets. We have over 60
employees outside the United States, primarily in the United Kingdom and the
Netherlands, focused on international sales and servicing our international
clients. In addition to our sales in Europe, our product has recently been
installed in Asia. We intend to continue to invest in our infrastructure and
increase our sales and marketing efforts in Europe, Australia, Asia and the
Pacific Rim, and Latin America. Our international strategy includes leveraging
the strength of our relationships with current customers that also have overseas
operations and the pursuit of strategic marketing partnerships with
international systems integrators and third-party software application
providers.
Develop Indirect Sales Channel. We currently sell our products primarily
through our direct sales personnel. In addition to expanding our direct sales
organization, we plan to invest in the expansion and development of our indirect
sales channels through reseller agreements, marketing agreements and agreements
with third-party logistics providers.
Expand Our Strategic Alliances. We have established strategic alliances
with industry-leading consultants and software systems implementers, including
IBM Global Services and Accenture, to supplement our direct sales force and
professional services organization. These alliances help extend our market
coverage and provide us with new business leads and access to trained
implementation personnel. We have strategic alliances with complementary
software vendors including Microsoft and Intentia.
Promote Adoption of Our infolink Product. In September 2000, we released
infolink, an Internet-based application that enables real-time communication and
collaboration between suppliers and their customers. By using infolink,
customers can automatically track their purchases through the distribution
centers of their suppliers and immediately request or respond to modifications
in their order. By allowing trading partners to make intelligent business
decisions in real time, we believe infolink will improve the ability of
suppliers to fulfill the purchasing demands of customers while decreasing the
resources that both customers and suppliers currently spend manually tracking
and managing orders. We believe that infolink will play a key role for customers
by bringing greater visibility and collaboration within their respective trading
communities, which will in turn improve merchandise flow and customer support.
Acquire or Invest in Complementary Businesses. We intend to pursue
strategic acquisitions of technologies, products and businesses that enable us
to enhance and expand our software products and service offerings. Specifically,
we intend to make acquisitions that will provide us with additional
complementary products and expand our geographic presence and distribution
channels.
PRODUCTS AND SERVICES
Products. Our software products are designed to enable our customers to
manage the operations of their distribution centers and improve collaboration
between supply chain partners to achieve greater effectiveness and efficiency.
Our software products operate across the iSeries (AS/400), Unix and Windows NT
computing platforms. Our products operate on multiple hardware platforms
utilizing various hardware systems and inter-operate with many third-party
software applications and legacy systems. This interfacing and open system
capability enables customers to continue using their existing computer resources
and to choose among
6
7
a wide variety of existing and emerging computer hardware and peripheral
technologies. We provide interface toolkits for most ERP systems to enhance
communication and reduce implementation costs between our core products and our
clients' host systems. We currently offer interface toolkits to systems
developed by Oracle, Essentus/Richter, Intentia, J.D. Edwards and Lawson.
We categorize our software products according to their focus and value
proposition within supply chain execution. We offer the Fulfill Suite,
consisting of PkMS, Logistics PRO WMS and complementary products; the Deliver
Suite, consisting of Logistics PRO TMS; the Optimize Suite, consisting of
SlotInfo, WorkInfo and SmartInfo; and the Collaborate Suite, consisting of
infolink and complementary products. The following table lists and provides
descriptions of our products categorized by offering suite:
FULFILL SUITE
PKMS -- ISERIES(AS/400), UNIX AND WINDOWS NT
MODULE DESCRIPTION
- ------ -----------
INVENTORY MANAGEMENT SYSTEM ("IMS")....... Manages the receipt, put-away and movement of all inventory throughout the
distribution center
Receiving............................... - Verifies the accuracy of incoming shipments against the advanced shipping
notice
- Designates incoming inventory for quality audit and immediate out-going
shipment (cross-docking)
- Manages receiving yard by scheduling time, dock location and priority of
shipments
Stock Locator........................... - Enhances inventory movement efficiency by directing put-away, minimizing
travel distances and optimizing storage capacity
- Tracks movement of inventory by allowing real-time inquiries by location, SKU
and other criteria
Cycle Count............................. - Enables more efficient inventory counts by permitting specific zones of a
distribution center to be "frozen" without interrupting ongoing operations
- Automatically generates cycle count tasks for specific SKUs, locations or
other user-designated criteria
Work Order Management................... - Directs the assembly of finished goods within a distribution center to match
customer demands
Radio Frequency Functions for the IMS... - Allows the real-time collection of inventory product information and location
with remote, hand-held mobile devices for integration with the IMS
- Communicates real-time task assignments to workers in remote locations of the
distribution center
Task Management System for the IMS...... - Coordinates the sequence of distribution center tasks to optimize labor
efficiency
7
8
MODULE DESCRIPTION
- ------ -----------
OUTBOUND DISTRIBUTION SYSTEM ("ODS")...... Manages the picking, packing and shipping of orders in efficient release waves
Wave Management......................... - Selects, prioritizes and groups outgoing orders in manageable increments based
upon user-defined criteria
- Routes picktickets based upon retailer requirements and pre-determines carton
contents to minimize the number of outgoing cartons
- Facilitates stock replenishment for active picking and packing locations
Verification............................ - Provides automatic verification of orders and identifies order shortages and
overages to maximize shipping accuracy at several different points within the
order fulfillment process
Radio Frequency Functions for the ODS... - Allows the real-time collection of shipment information and location with
remote, hand-held mobile devices
- Communicates real-time task assignments to workers in remote locations of the
distribution center
Freight Management System............... - Sorts orders by specific freight carriers, calculates shipping charges and
controls load sequencing based upon truck routes
- Generates all documentation required for shipping such as bills of lading and
retailer compliant required manifests
Parcel Shipping System.................. - Calculates all shipping charges for parcel shipments, generates tracking
numbers and provides appropriate documentation for parcel carriers
ADDITIONAL FULFILL SUITE PRODUCTS
PRODUCT DESCRIPTION
- ------- -----------
Logistics PRO WMS......................... - Integrates full warehouse and transportation management functions into one
flexible system
Platforms: - Streamlines procedures
AS/400 - Facilitates management of inventory
Windows NT - Eliminates process redundancy
PkAllocate.............................. - Prioritizes and allocates orders based on current aggregate inventory levels
for customers whose host system is unable to perform this function
PkCost.................................. - Tracks effort and cost for activities in the distribution center
- Provides critical billing information for third party logistics companies
PkView.................................. - Provides online graphs and e-mail notification for PkMS on the iSeries
(AS/400) and Unix platforms
8
9
DELIVER SUITE
LOGISTICS PRO TMS
MODULE DESCRIPTION
- ------ -----------
Outbound Planning......................... - Determines the most efficient carrier
- Generates the most effective shipping plan
- Facilitates load planning and optimization
International Compliance.................. - Translates document headings into local languages to meet requirements of
destination countries
Audits.................................... - Verifies each freight bill for accuracy to prevent duplicate payments and
incorrect charges
OPTIMIZE SUITE
PRODUCT DESCRIPTION
- ------- -----------
SmartInfo................................. - Enables the optimization and analysis of a distribution center via the
real-time monitoring of warehouse activities and determines trends based on
historical data contained within PkMS
WorkInfo.................................. - Provides employee performance tracking information to warehouse managers,
while supplying the warehouse employee estimated task durations prior to
starting the task and their individual employee performance throughout the day
SlotInfo.................................. - Optimizes inventory physical location within a distribution center based on
volume, seasonal demands, location of products and size
- May be used with PkMS or as a stand-alone product
COLLABORATE SUITE
PRODUCT DESCRIPTION
- ------- -----------
infolink.................................. - An Internet-based application that enables real-time communication and
collaboration between retailers and their suppliers
- Provides immediate visibility into production status, shipment information and
labels for streamlined receiving
- Provides real-time status of product availability
- May be integrated with PkMS, other warehouse management systems and ERP
Systems
Professional Services. Our professional services provide our customers
with expertise and assistance in planning and implementing our solutions. To
ensure a successful product implementation, consultants assist customers with
the initial installation of a system, the conversion and transfer of the
customer's historical data onto our system, and ongoing training, education and
system upgrades. We believe that our professional services enable the customer
to implement our software rapidly, ensure the customer's success with our
solution, strengthen the relationship with the customer, and add to our
industry-specific knowledge base for use in future implementations and product
development efforts.
Although our professional services are optional, substantially all of our
customers use these services for the implementation and ongoing support of our
software products. Professional services are typically billed on an hourly
basis, except for support contracts and training, which are based on established
fees. We will
9
10
sometimes perform implementations for a fixed fee when the scope of the project
is reasonably quantifiable. We believe that increased sales of our software
products will drive higher demand for our consulting services. Accordingly, we
plan to continue to increase the number of consultants to support anticipated
growth in product implementations and software upgrades. We anticipate that our
internal growth will be balanced with our success in achieving our strategy of
alliances expansion.
Our professional services group consists of business consultants, systems
analysts and technical personnel devoted to assisting customers in all phases of
systems implementation including planning and design, customer-specific
configuring of modules, and on-site implementation or conversion from existing
systems. Our consulting personnel undergo extensive training on distribution
center operations and our products. We believe that this training, together with
the ease of implementation of our products, enables us to productively use
newly-hired consulting personnel. At times, we use third-party consultants, such
as those from major systems integrators, to assist our customers in certain
implementations.
We have developed a proprietary, standardized implementation methodology,
called PRISM, which leverages our products' architecture with the knowledge and
expertise gained from completing more than 1,100 installations worldwide. The
modular design of our products significantly reduces the complexities associated
with integrating to existing ERP, e-business and complex material handling
systems. As a result, we have been able to deploy a fully automated inbound and
outbound system in less than two months.
Customer Support Services and Software Enhancements. We offer a
comprehensive program that provides our customers with timely software upgrades
offering increased functionality and technological advances incorporating
emerging supply chain and other industry initiatives. As of December 31, 2000,
approximately 80% of our customers since our formation subscribe to our
comprehensive support and enhancements program. We have the ability to remotely
access the customer's system in order to perform diagnostics, on-line assistance
and assist in software upgrades. We offer 24-hour support plus upgrades for
16%-20% of the software license fee.
Training. We offer training in a structured environment for new and
existing users. Training programs are provided on a per-person, per-class basis
at fixed fees. We currently have six courses available to provide training on
product use, configuration, implementation and system administration. We have
also developed several computer-based training programs that can be purchased
for a fixed fee for use at client sites.
Hardware. In conjunction with the licensing of our software, we resell a
variety of hardware products developed and manufactured by third parties in
order to provide our customers with an integrated distribution center management
solution. These products include computer hardware, radio frequency terminal
networks, bar code printers and scanners, and other peripherals. We resell all
third-party hardware products pursuant to agreements with manufacturers or
through distributor-authorized reseller agreements pursuant to which we are
entitled to purchase hardware products at discount prices and to receive
technical support in connection with product installations and any subsequent
product malfunctions. We generally purchase hardware from our vendors only after
receiving an order from a customer. As a result, we do not maintain significant
hardware inventory.
SALES AND MARKETING
We employ multiple discipline sales teams that consist of professionals
with industry experience in sales and technical and sales support. To date, we
have generated substantially all of our revenue through our direct sales force.
We plan to continue to invest significantly to expand our sales, services and
marketing organizations within the United States, Europe and other international
locations and to pursue strategic marketing partnerships. We conduct
comprehensive marketing programs that include advertising, public relations,
trade shows, joint programs with vendors and consultants and ongoing customer
communication programs. The sales cycle typically begins with the generation of
a sales lead, through in-house telemarketing efforts or other means of referral,
or the receipt of a request for proposal from a prospective customer. The sales
lead or request for proposal is followed by the qualification of the lead or
prospect, an assessment of the customer's requirements, a formal response to the
request for proposal, presentations and product demonstrations, site visits to
an existing customer using our distribution center management system and
contract
10
11
negotiation. The sales cycle can vary substantially from customer to customer,
but typically requires three to six months.
We currently sell our products primarily through our direct sales
personnel. We plan to expand our direct sales organization. In addition to sales
to new customers, we intend to continue to leverage our existing customer base
to provide for system upgrades, sales of additional licenses of purchased
products and sales of new or add-on products. We also plan to further develop
and expand our indirect sales channels, including sales through reseller
agreements, marketing agreements and agreements with third-party logistics
providers. To extend our market coverage and provide us with new business leads
and access to trained implementation personnel, we further intend to develop and
expand our strategic alliances with systems integrators capable of performing
implementations of our solutions. In the fourth quarter of 2000, we entered into
an agreement with IBM Global Services in which we are the preferred provider of
supply chain execution software for eight mid-market verticals of IBM. As
business dictates, we will train approximately 20 to 25 IBM personnel on the
implementation of our solutions.
CUSTOMERS
To date, our customers have been manufacturers, distributors, retailers and
transportation providers in a variety of industries. The following table sets
forth a representative list of our customers and the industries as of December
31, 2000, that have purchased products and services from us.
11
12
Apparel/Footwear Food and Grocery Retail
ASICS Tiger Abbott Foods American Eagle Outfitters
Birkenstock Agrilink Foods, Inc. Belk, Inc.
Calvin Klein Alliant Atlantic Foodservice Brown Group Retail
Duck Head Apparel Arrow Industries Casual Corner Group
Hugo Boss Ben E. Keith Company Cost Plus
Jockey International Burns Philp Food/Tones Brothers Debenhams Retail
Jones Apparel DeLuca Liquor Mars Music
London Fog Reser's Fine Foods Nordstrom
Nike Team Sports Southern Wine & Spirits The Children's Place
Oxford Industries Sainsbury's Supermarkets Ltd. The Limited
Playtex Apparel Tanimura & Antle The Sports Authority
Timberland Tree of Life, Inc.
Tropical Sportswear Industrial/Automotive Products
Warnaco Direct-to-Consumer AGFA/Bayer
Cabelas Delta International Machinery
Consumer Goods Coldwater Creek Liberty Hardware
Manufacturing Columbia Sportswear Loctite
Advanced Marketing Cornerstone Brands Motors & Armatures, Inc.
Services J. Jill Group Nissan
Alliance Entertainment Nordstrom.com O'Reilly Automotive
Bulova Patagonia PPG Architectural Finishes
Conair Group ValuVision Rain Bird Sales
Fossil Watch Siemens Energy and
Hunter Fan Third Party Logistics Automation
Mikasa ClientLogic Corporation Straus Discount Tire
Newell Rubbermaid Exel Logistics Toyota Australia
Remington Products SubmitOrder.com
SEIKO Corp. of America Tibbett and Britten Ltd. Healthcare
Staples Abbott Laboratories, Inc.
The Diamond Trading Company Amerisource Health
Tiffany & Co. Corporation
Bristol-Myers Squibb
DuPont Merck Pharmaceuticals
Stryker Endoscopy
Our top five customers in aggregate accounted for 22%, 10% and 14% of total
revenue for each of the years ended December 31, 2000, 1999, and 1998,
respectively. No single customer accounted for 10% or more of our total revenue
during any of the three years ended December 31, 2000.
PRODUCT DEVELOPMENT
Our development efforts are focused on adding new functionality to existing
products, enhancing the operability of our products across distributed and
changing hardware platforms, operating systems and database systems, and
developing new products. We believe that our future success depends in part upon
our ability to continue to enhance existing products, respond to changing
customer requirements and develop and introduce new or enhanced products that
incorporate new technological developments and emerging industry standards. To
that end, our development efforts frequently focus on base system enhancements
incorporating new user requirements and potential features identified through
customer interaction and systems implementations. As a result, we are able to
continue to offer our customers a packaged, highly configurable product with
increasing functionality rather than a custom-developed software program. We
have also developed interface toolkits for most major ERP systems to enhance
communication and reduce implementation costs between our core products and our
clients' host systems. We plan to principally conduct our development
12
13
efforts internally in order to retain development knowledge and promote the
continuity of programming standards; however, some projects may be outsourced.
We will continue to spend a portion of our research and development efforts
on the development and enhancement of our infolink product. infolink is an
Internet-based application that enables real-time collaboration between
suppliers and their customers regarding customer order entry and order/inventory
status. Real-time communication will be facilitated via infolink through
Internet-based XML technology. Microsoft Corporation, through its representation
on the infolink advisory board, is collaborating with us to provide expertise in
the XML document definition, which will be based on the BizTalk(TM) Framework.
We released the first version of infolink, called Orderinfo, in September 2000.
Orderinfo provides information allowing for real-time business decisions between
retailers and their suppliers. Our development plans call for another version of
infolink to be released in the second half of 2001, called Sourceinfo, which
provides for similar types of communication between suppliers and their
factories.
We continue to devote a significant portion of our research and development
efforts to the enhancement of the N-Tier version of PkMS. Our N-Tier version of
PkMS incorporates a distributed client/server architecture to allow different
software applications and systems and hardware platforms to operate together
more efficiently. N-Tier currently operates with desktops running Windows
95/98/NT, standard radio frequency device clients and servers running both the
Windows NT and the UNIX server operating environments. Much of our development
efforts in the second half of 2000 included the re-architecture of the N-Tier
version of PkMS to improve the product's responsiveness and overall efficiency.
The re-architected version of N-Tier was released in the first quarter of 2001.
We are also spending a portion of our research and development efforts on
the development of Logistics PRO for Windows. We continue to develop new and
enhanced functionality for PkMS. We also plan to integrate the functionality of
Logistics PRO TMS into future releases of PkMS. The integration of Logistics PRO
TMS into PkMS is anticipated to be completed in the second half of 2001.
Additionally, we will continue to enhance the functionality of our featured
product, PkMS, and our Optimize Suite, consisting of SlotInfo, WorkInfo and
SmartInfo.
Our research and development expenses for the years ended December 31,
2000, 1999 and 1998 were $16.1 million, $10.2 million, and $7.4 million,
respectively. We intend to continue to invest heavily in product development.
COMPETITION
Our products are targeted at the supply chain execution market, which is
highly fragmented, intensely competitive, and characterized by rapid
technological change. The principal competitive factors affecting the market for
our products include:
- vendor and product reputation;
- compliance with industry standards;
- product architecture, functionality and features;
- ease and speed of implementation;
- return on investment;
- product quality, price and performance; and
- level of support.
We believe that we compete favorably with respect to each of these factors.
Our competitors are diverse and offer a variety of solutions directed at various
aspects of the supply chain, as well as the enterprise as a whole. Our existing
competitors include:
- supply chain execution vendors, including Catalyst International, Inc.,
EXE Technologies, Inc., LIS, McHugh Software International, Inc., Optum,
Inc. and Provia among others;
13
14
- ERP or Supply Chain Management ("SCM") application vendors with products
or modules of their product suite offering varying degrees of warehouse
management functionality, such as ReTek, JD Edwards or SAP;
- the corporate information technology departments of current or potential
customers capable of internally developing solutions; and
- smaller independent companies that have developed or are attempting to
develop distribution center management software that competes with our
software solution.
We may face competition in the future from ERP and SCM applications vendors
and business application software vendors that may broaden their product
offerings by internally developing, or by acquiring or partnering with
independent developers of distribution center management software. To the extent
such ERP and SCM vendors develop or acquire systems with functionality
comparable or superior to our products, their significant installed customer
bases, long-standing customer relationships and ability to offer a broad
solution could provide a significant competitive advantage over our products. In
addition, it is possible that new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share.
Many of our competitors and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater name recognition and a larger installed base of customers
than we do. In order to be successful in the future, we must continue to respond
promptly and effectively to technological change and competitors' innovations.
We cannot assure you that our current or potential competitors will not develop
products comparable or superior in terms of price and performance features to
those developed by us. In addition, we cannot assure you that we will not be
required to make substantial additional investments in connection with our
research, development, marketing, sales and customer service efforts in order to
meet any competitive threat, or that we will be able to compete successfully in
the future. Increased competition may result in reductions in market share,
pressure for price reductions and related reductions in gross margins, any of
which could materially and adversely affect our ability to achieve our financial
and business goals. We cannot give assurance that in the future we will be able
to successfully compete against current and future competitors.
INTERNATIONAL OPERATIONS
For the years ended December 31, 2000 and 1999, we had international
revenues of approximately $10.7 million, or 8% of total revenues, and $5.6
million, or 7% of total revenues, respectively. International revenues include
all revenues derived from sales to customers outside the United States. We now
have over 60 employees outside the United States, most of whom are located in
the United Kingdom and the Netherlands. We recently installed our product in
Asia and also began distributing our solutions in Australia. We expect to begin
offering our products in Latin America and the Pacific Rim.
During 1998, we commenced operations in Europe. Total revenues for Europe
were approximately $10.3 million, $3.8 million and $130,000 for the years ended
December 31, 2000, 1999 and 1998, respectively, which represents approximately
8%, 5% and less than 1%, respectively, of our total revenues.
PROPRIETARY RIGHTS
We rely on a combination of copyright, trade secret, trademark, service
mark and trade dress laws, confidentiality procedures and contractual provisions
to protect our proprietary rights in our products and technology. We have a
registered trademark in "PkMS" and "Logistics PRO". We have trademarks in
SlotInfo, SmartInfo, WorkInfo, infolink and the Manhattan logo. We have no
registered copyrights. We generally enter into confidentiality agreements with
our employees, consultants, clients and potential clients and limit access to,
and distribution of, our proprietary information. We license PkMS to our
customers in source code format and restrict the customer's use for internal
purposes without the right to sublicense the PkMS, SlotInfo, SmartInfo,
WorkInfo, infolink or Logistics PRO products. However, we believe that this
14
15
provides us only limited protection. Despite our efforts to safeguard and
maintain our proprietary rights both in the United States and abroad, we cannot
assure you that we will successfully deter misappropriation or independent
third-party development of our technology or prevent an unauthorized third party
from copying or obtaining and using our products or technology. In addition,
policing unauthorized use of our products is difficult, and while we are unable
to determine the extent to which piracy of our software products exist, software
piracy could become a problem.
As the number of supply chain management applications in the industry
increases and the functionality of these products further overlaps, companies
that develop software may increasingly become subject to claims of infringement
or misappropriation of intellectual property rights. Third parties may assert
infringement or misappropriation claims against us in the future for current or
future products. Any claims or litigation, with or without merit, could be
time-consuming, result in costly litigation, divert management's attention and
cause product shipment delays or require us to enter into royalty or licensing
arrangements. Any royalty or licensing arrangements, if required, may not be
available on terms acceptable to us, if at all, which could have a material
adverse effect on our business, financial condition and results of operations.
Adverse determinations in such claims or litigation could also have a material
adverse effect on our business, financial condition and results of operations.
We may be subject to additional risks as we enter into transactions in
countries where intellectual property laws are not well developed or are poorly
enforced. Legal protections of our rights may be ineffective in such countries.
Litigation to defend and enforce our intellectual property rights could result
in substantial costs and diversion of resources and could have a material
adverse effect on our business, financial condition and results of operations,
regardless of the final outcome of such litigation. Despite our efforts to
safeguard and maintain our proprietary rights both in the United States and
abroad, we cannot assure that we will be successful in doing so, or that the
steps taken by us in this regard will be adequate to deter misappropriation or
independent third party development of our technology or to prevent an
unauthorized third party from copying or otherwise obtaining and using our
products or technology. Any of these events could have a material adverse effect
on our business, financial condition and results of operations.
EMPLOYEES
As of December 31, 2000, we had 802 full-time employees. None of our
employees are covered by a collective bargaining agreement. We consider our
relations with our employees to be good. As of December 31, 2000, certain of our
employees were employed pursuant to the H-1(B), non-immigrant work-permitted
visa classification.
15
16
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and certain information about them are
as follows:
NAME AGE POSITION
- ---- --- --------
Alan J. Dabbiere.............. 39 Chairman of the Board of Directors(1)
Richard M. Haddrill........... 47 President, Chief Executive Officer and Director
Neil Thall.................... 54 Executive Vice President -- Professional Services
Deepak Raghavan............... 34 Senior Vice President, Product Strategy and Director(1)
Jeffry W. Baum................ 38 Senior Vice President -- International Operations
Thomas W. Williams, Jr. ...... 44 Senior Vice President, Chief Financial Officer and Treasurer
Jeffrey S. Mitchell........... 33 Senior Vice President -- North American Sales
Brian J. Cassidy.............. 55 Director
John J. Huntz, Jr............. 50 Director(2)(3)
Thomas E. Noonan.............. 40 Director(2)(3)
John R. Hardesty.............. 61 Director(2)(3)
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The Board is currently comprised of two
Class I directors (Messrs. Dabbiere and Cassidy), two Class II directors
(Messrs. Raghavan and Haddrill) and three Class III directors (Messrs. Huntz,
Noonan and Hardesty). At each annual meeting of shareholders, a class of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the Class I directors,
Class II directors and Class III directors will expire upon the election and
qualification of successor directors at the 2002, 2003 and 2001 annual meetings
of shareholders, respectively.
Alan J. Dabbiere, a founder of Manhattan, has served as Chairman of the
Board since February 1998 and served as Chief Executive Officer and President of
Manhattan from October 1990 until October 1999. From 1986 until 1990, Mr.
Dabbiere was employed by Kurt Salmon Associates, a management consulting firm
specializing in consumer products manufacturing and retailing, where he
specialized in consulting for the retail and consumer products manufacturing
industries. At Kurt Salmon Associates, Mr. Dabbiere participated in Quick
Response pilot projects focused on the value of an integrated supply-chain
initiative. Mr. Dabbiere serves on the American Apparel Manufacturer
Association's Management Systems Committee.
Richard M. Haddrill has served as President and Chief Executive Officer of
Manhattan since October 1999 and has served on the Board of Directors since
October 1999. Prior to joining Manhattan, Mr. Haddrill served as a consultant
and board member for Anchor Gaming from June 1999 through October 1999 and as
President, CEO and a board member for Powerhouse Technologies, a successful
technology, services and gaming company. He served Powerhouse as its Executive
Vice President from December 1994 through September 1996 and served as President
and Chief Executive Officer from September 1996 through June 1999. From 1992
until 1994, Mr. Haddrill was President of computer software company
Knowledgeware's international subsidiaries. During his employment at Ernst &
Young, from 1975 until 1991, Mr. Haddrill held various positions within the
company, including Managing Partner and Partner.
Neil Thall has served as Executive Vice President -- Professional Services
of Manhattan since January 2000. From August 1998 to January 2000, Mr. Thall
served as Senior Vice President -- Supply Chain Strategy, and from January 1998
to August 1998, he served as Vice President -- Supply Chain Strategy of
Manhattan. From February 1997 through January 1998, Mr. Thall served as the
Principal of Neil Thall Consulting. From January 1992 to July 1997, Mr. Thall
served as President of Neil Thall Associates, a software development and
management consulting subsidiary of HNC Software that specialized in inventory
16
17
management, Quick Response and vendor managed inventory initiatives. Prior to
1992, Mr. Thall was employed by Kurt Salmon Associates as National Service
Director -- Retail Consulting, where he specialized in the development and
implementation of information systems for major department stores and specialty
and mass merchant chains.
Deepak Raghavan, a founder of Manhattan, has served as Senior Vice
President of Manhattan since August 1998 and as a Director since February 1998.
He served as our Chief Technology Officer from 1990 until 2001. He currently
services as Senior Vice President, Product Strategy. From 1987 until 1990, Mr.
Raghavan was a Senior Software Engineer for Infosys Technologies Limited, a
software development company, where he specialized in the design and
implementation of information systems for the apparel manufacturing industry.
Jeffry W. Baum has served as Senior Vice President -- International
Operations of Manhattan since January 2000. From January 1998 to January 2000,
Mr. Baum served as Vice President, International Business Development. From
January 1997 until February 1998, Mr. Baum served as Vice President, Sales and
Marketing of Haushahn Systems & Engineers, a warehouse management systems and
material handling automation provider. From March 1992 until December 1996, Mr.
Baum served as Senior Account Manager at Haushahn. Prior to that, Mr. Baum
served in a variety of business development, account management and marketing
positions with Logisticon and Hewlett-Packard.
Thomas W. Williams, Jr. has served as Senior Vice President of Manhattan
since January 2001 and Chief Financial Officer and Treasurer of Manhattan since
February 2000. Mr. Williams served as a Vice President of Manhattan from
February 2000 through January 2001. From February 1996 to February 2000, Mr.
Williams served as Group Vice President, Finance and Administration for Sterling
Commerce, a worldwide leader in providing e-business solutions for the Global
5000 companies. From December 1994 to January 1996, Mr. Williams served as
Division Vice President, Finance and Administration for Sterling Software, one
of the 20 largest independent software companies in the world. From June 1989 to
November 1994, Mr. Williams held various senior management finance and
accounting positions with Knowledgeware. Mr. Williams joined Knowledgeware from
Ernst & Young.
Jeffrey S. Mitchell has served as Senior Vice President, North American
Sales of Manhattan since February 2001. Prior to that, Mr. Mitchell served in
various sales management roles at Manhattan since April 1997, including Vice
President, North American Sales from May 1999 through February 2001. From April
1995 until April 1997, Mr. Mitchell was a sales representative for Intrepa
(formerly The Summit Group), a provider of warehouse and transportation
management packages. From May 1991 until April 1995, Mr. Mitchell served in
various aspects of account management in the employer services division of ADP
providing outsource payroll and human resources solutions.
Brian J. Cassidy has served as a Director of Manhattan since April 1998.
Mr. Cassidy has served as the Vice-Chairman and Co-Founder of Webforia, formally
known as LiveContent, a developer and supplier of computer software
applications, since April 1996. Prior to joining Webforia, Mr. Cassidy served as
Vice President of Business Development of Saros Corporation, a developer of
document management software, from January 1993 to March 1996. Prior to joining
Saros Corporation, Mr. Cassidy was employed by Oracle Corporation, as Joint
Management Director of European Operations and a member of the Executive
Management Board from 1983 to 1988 and as Worldwide Vice President of Business
Development from 1988 to 1990.
John J. Huntz, Jr. has served as a Director of Manhattan since January
1999. Mr. Huntz serves as Managing Director of Fuqua Ventures, LLC, a private
equity investment firm. Mr. Huntz served as Executive Vice President and Chief
Operating Officer of Fuqua Enterprises, a company that manufactures health-care
products, from August 1995 to March 1998 and as its Senior Vice President since
March 1994. From September 1989 to January 1994, Mr. Huntz served as the
Managing Partner of Noble Ventures International, a private international
investment company. From 1984 to 1989, Mr. Huntz held the position of Director
of Capital Resources for Arthur Young & Company and from 1979 to 1984, Mr. Huntz
was with Harrison Capital, a venture capital investment subsidiary of Texaco.
Mr. Huntz founded and serves as President of the Atlanta Venture Forum, a risk
capital network and is a member of the National Association
17
18
of Small Business Investment Companies and the Southern Regional Association of
Small Business Investment Companies. Mr. Huntz serves as a director and chairman
of the compensation committee of GMP Companies, a developer of medical
technologies.
Thomas E. Noonan has served as a Director of Manhattan since January 1999.
Mr. Noonan has served as the President and as a Director of ISS Group, a
provider of network security monitoring, detection and response software, since
August 1995, and as its Chief Executive Officer and Chairman of the Board of
Directors since November 1996. Prior to joining ISS Group, Mr. Noonan served as
Vice President, Sales and Business Development with TSI International, an
electronic commerce company, from October 1994 until August 1995. From November
1989 until October 1994, Mr. Noonan held high-level sales and marketing position
at Dun & Bradstreet Software, a developer of enterprise business software.
John R. Hardesty has served as a Director of Manhattan since July 2000. Mr.
Hardesty has been self-employed as an investor since March 1995. From 1988 until
1995, Mr. Hardesty was the owner and chairman of Dixson, a manufacturer of
electronic instruments for the heavy-duty truck market and process control
market. Mr. Hardesty also serves as a director of La Teko Resources Ltd., a gold
exploration company.
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing, support and research and
development facility is located in approximately 112,600 square feet of modern
office space in Atlanta, Georgia. Substantially all of this space is leased to
us through December 31, 2002. At this time, our office space is adequate to meet
our immediate needs; however, we may expand into additional facilities in the
future.
ITEM 3. LEGAL PROCEEDINGS
Many of our installations involve products that are critical to the
operations of our clients' businesses. Any failure in our products could result
in a claim for substantial damages against us, regardless of our responsibility
for such failure. Although we attempt to limit contractually our liability for
damages arising from product failures or negligent acts or omissions, there can
be no assurance the limitations of liability set forth in our contracts will be
enforceable in all instances. We are not currently a party to any material legal
proceeding that would require disclosure under this Item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock commenced trading on the Nasdaq National Market on April
23, 1998 and is traded under the symbol "MANH". The following table sets forth
the high and low closing sales prices of the common stock as reported by the
Nasdaq National Market:
FISCAL PERIOD HIGH PRICE LOW PRICE
- ------------- ---------- ---------
1998
Second Quarter (from April 23, 1998)...................... $24.56 $17.88
Third Quarter............................................. 27.00 10.00
Fourth Quarter............................................ 27.25 8.00
18
19
FISCAL PERIOD HIGH PRICE LOW PRICE
- ------------- ---------- ---------
1999
First Quarter............................................. $26.25 $ 7.66
Second Quarter............................................ 15.38 7.56
Third Quarter............................................. 10.56 5.50
Fourth Quarter............................................ 9.44 3.53
2000
First Quarter............................................. $34.25 $ 7.38
Second Quarter............................................ 31.75 18.69
Third Quarter............................................. 61.25 24.50
Fourth Quarter............................................ 71.31 32.63
The closing sale price of our common stock as reported by the Nasdaq
National Market on March 30, 2001 was $15.56. The number of shareholders of our
common stock as of March 30, 2001 was approximately 60.
Prior to our initial public offering in April 1998, our predecessors
historically made distributions to shareholders related to their limited
liability company status and the resulting tax payment obligations imposed on
its shareholders. We do not intend to declare or pay cash dividends in the
foreseeable future. Our management anticipates that all earnings and other cash
resources, if any, will be retained by us for investment in our business.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our Financial Statements and related Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K. The statement of income data
for the years ended December 31, 1998, 1999 and 2000, and the balance sheet data
as of December 31, 1999 and 2000, are derived from, and are qualified by
reference to, the audited financial statements included elsewhere in this Form
10-K. The statement of income data for the year ended December 31, 1996 and
1997, and the balance sheet data as of December 31, 1996, 1997 and 1998, are
derived from the audited financial statements not included herein. Historical
and pro forma results are not necessarily indicative of results to be expected
in the future.
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenue:
Software fees.............................. $ 3,354 $ 7,160 $13,816 $14,578 $ 26,190
Services................................... 6,236 14,411 32,358 52,889 81,085
Hardware................................... 4,810 10,886 15,891 13,825 25,821
------- ------- ------- ------- --------
Total revenue......................... 14,400 32,457 62,065 81,292 133,096
Cost of revenue:
Software fees.............................. 177 461 920 1,471 1,489
Services................................... 2,026 6,147 15,286 30,643 34,299
Hardware................................... 3,734 8,001 11,791 10,526 20,822
------- ------- ------- ------- --------
Total cost of revenue................. 5,937 14,609 27,997 42,640 56,610
------- ------- ------- ------- --------
Gross margin.................................. 8,463 17,848 34,068 38,652 76,486
19
20
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating expenses:
Research and development................... 1,236 3,025 7,429 10,201 16,106
Sales and marketing........................ 1,900 3,570 9,045 14,344 18,051
General and administrative................. 1,321 2,842 6,577 12,849 15,123
In-process research and development and
acquisition-related charges.............. -- -- 1,602 -- 3,001
Amortization of goodwill................... 133 133 154 821 915
------- ------- ------- ------- --------
Total operating expenses.............. 4,590 9,570 24,807 38,215 53,196
------- ------- ------- ------- --------
Income from operations........................ 3,873 8,278 9,261 437 23,290
Other income, net............................. 103 56 1,070 1,218 2,718
------- ------- ------- ------- --------
Income before income taxes.................... 3,976 8,334 10,331 1,655 26,008
Income tax expense (benefit):
Tax provision as a "C" corporation......... -- -- 3,329 554 9,740
Deferred tax adjustment.................... -- -- (316) -- --
------- ------- ------- ------- --------
Net income.................................... $ 3,976 $ 8,334 $ 7,318 $ 1,101 $ 16,268
======= ======= ======= ======= ========
Diluted net income per share.................. $ 0.20 $ 0.40 $ 0.29 $ 0.04 $ 0.53
======= ======= ======= ======= ========
Shares used in computing diluted net income
per share.................................. 20,308 20,761 25,651 26,553 30,453
======= ======= ======= ======= ========
Income before pro forma income taxes............ $ 3,976 $ 8,334 $10,331
Pro forma income taxes(1)....................... 1,486 3,023 4,244
------- ------- -------
Pro forma net income(1)......................... $ 2,490 $ 5,311 $ 6,087
======= ======= =======
Pro forma diluted net income per share(2)....... $ 0.24
=======
Shares used in computing pro forma diluted net
income per share(2)........................... 25,686
=======
DECEMBER 31,
-----------------------------------------------
1996 1997 1998 1999 2000
------ ------- ------- ------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................. $3,199 $ 3,194 $32,763 $39,915 $ 67,667
Working capital................................ 4,116 6,268 44,561 46,948 70,192
Total assets................................... 7,276 15,006 67,775 80,923 152,375
Total shareholders' equity..................... 4,882 8,454 55,635 58,606 110,001
- ---------------
(1) In connection with the conversion from limited liability company status on
April 23, 1998, we became subject to federal and state corporate income
taxes. Pro forma net income is presented as if we had been subject to
corporate income taxes for all periods presented.
(2) See Note 1 of Notes to Consolidated Financial Statements.
20
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements, trend analyses and other information contained in the
following discussion relative to markets for our products and trends in revenue,
gross margins and anticipated expense levels, as well as other statements
including words such as "anticipate," "believe," "plan," "estimate," "expect,"
and "intend" and other similar expressions constitute forward-looking
statements. These forward-looking statements are subject to business and
economic risks and uncertainties, and our actual results of operations may
differ materially from those contained in the forward-looking statements.
OVERVIEW
We are a leading provider of technology-based solutions to improve supply
chain effectiveness and efficiencies. Our solutions enhance distribution
efficiencies through the integration of supply chain constituents, including
manufacturers, distributors, retailers, suppliers, transportation providers and
end consumers. Our solutions are designed to optimize the receipt, storage,
assembly and distribution of inventory and the management of equipment and
personnel within a distribution center, and to enhance communications between
the distribution center and its trading partners. Our solutions consist of
software, including products to enable the execution, fulfillment and delivery
of customer orders, the optimization of distribution center operations and the
collaboration between and among trading partners; services, including design,
configuration, implementation, and training services, plus customer support and
software enhancement subscriptions; and hardware. We currently provide solutions
to manufacturers, distributors, retailers and transportation providers primarily
in the following markets: retail, apparel/footwear, consumer goods
manufacturing, direct-to-consumer, third-party logistics, food and grocery,
healthcare, and industrial/automotive parts distribution.
Revenues
Our revenues consist of fees from the licensing of software; fees from
consulting, implementation and training services (collectively, "professional
services"), plus customer support and software upgrades; and sales of
complementary radio frequency and computer equipment.
We recognize license revenue in accordance with Statement of Position No.
97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of
Position No. 98-9, "Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"). Under SOP 97-2, we recognize software license
revenue when the following criteria are met: (1) a signed contract is obtained;
(2) shipment of the product has occurred; (3) the license fee is fixed and
determinable; (4) collectibility is probable; and (5) remaining obligations
under the license agreement are insignificant. SOP 98-9 requires recognition of
revenue using the "residual method" when (1) there is vendor-specific objective
evidence of the fair values of all undelivered elements in a multiple-element
arrangement that is not accounted for using long-term contract accounting; (2)
vendor-specific objective evidence of fair value does not exist for one or more
of the delivered elements in the arrangement; and (3) all revenue-recognition
criteria in SOP 97-2 other than the requirement for vendor-specific objective
evidence of the fair value of each delivered element of the arrangement are
satisfied. SOP 98-9 was effective for transactions entered into after March 15,
1999, and we adopted the residual method for such arrangements at that time. For
those contracts that contain significant future obligations, license revenue is
recognized under the percentage of completion method.
Our services revenue consists of fees generated from professional services,
customer support and software upgrades related to our software products. Revenue
related to professional services performed by us are generally billed on an
hourly basis and revenue is recognized as the services are performed. Revenue
related to customer support and software upgrades are generally paid in advance
and recognized ratably over the term of the agreement, typically 12 months.
Hardware revenue is generated from the resale of a variety of hardware
products, developed and manufactured by third parties, that are integrated with
and complementary to our warehouse system solutions. These products include
computer hardware, radio frequency terminal networks, bar code printers and
scanners, and other peripherals. We generally purchase hardware from our vendors
only after receiving an order from a customer and revenue is recognized upon
shipment by the vendor to the customer.
21
22
Organization and Income Taxes
Prior to April 23, 1998, we elected to report as a limited liability
company that was treated as a partnership for income tax purposes, and, as a
result, we were not subject to federal and state income taxes. Pro forma net
income amounts discussed below include additional provisions for income taxes on
a pro forma basis as if we were liable for federal and state income taxes as a
taxable corporate entity throughout the periods presented. The pro forma tax
provision is calculated by applying our statutory tax rate to pretax income,
adjusted for permanent tax differences. Our status as a limited liability
company terminated immediately prior to the effectiveness of our initial public
offering in April 1998, and we have been taxed as a business corporation since
that time.
Acquisitions
On February 16, 1998, we purchased all of the outstanding stock of
Performance Analysis Corporation, or PAC, for approximately $2.2 million in cash
and 106,666 shares of our common stock valued at $10.00 per share. PAC is a
developer of distribution center slotting software. The acquisition was
accounted for as a purchase. The purchase price of approximately $3.3 million
was allocated to the assets acquired and liabilities assumed, including acquired
research and development of approximately $1.6 million, purchased software of
$500,000, and other intangible assets of $765,000. Purchased software is being
amortized over an estimated two-year useful life and other intangible assets are
being amortized over a seven-year period. In connection with the PAC
acquisition, we recorded a charge to income of $1.6 million in the first quarter
of 1998 for acquired research and development. We have focused development
efforts on integrating the SLOT-IT application into future products.
In October 1998, we purchased certain assets of Kurt Salmon Associates,
Inc., or KSA. The total purchase price for these assets was approximately $2.0
million consisting of $1.75 million in cash and assumed liabilities of
approximately $250,000. The purchase price was allocated to the intangible
assets acquired, including a customer list, assembled workforce, purchased
software, trade names and goodwill. The assets are being amortized over periods
ranging from three to ten years.
On October 24, 2000, we acquired substantially all of the assets of
Intrepa, L.L.C. ("Intrepa") for a purchase price of approximately $31.0 million.
The purchase price consists of a cash payment of $13.0 million, the issuance of
approximately $10.0 million of our $.01 par value per share common stock
(approximately 174,000 shares), and the issuance by us of a promissory note for
$7.0 million. We also incurred approximately $0.9 million of transaction costs
related to the acquisition. The purchase price includes the assumption of
substantially all of the liabilities of Intrepa, including immediate payment by
us of the remaining $2.0 million of principal and up to $15,000 of interest on a
promissory note previously issued by Intrepa. The acquisition has been accounted
for under the purchase method of accounting. Based on an independent appraisal,
the purchase price has been allocated to net liabilities assumed of $2.6
million, acquired research and development of $2.4 million, acquired developed
technology of $7.5 million, and other intangible assets of $23.3 million.
Acquired developed technology is being amortized over an estimated five-year
useful life and other intangible assets are being amortized over a seven-year
useful life. In connection with this acquisition, we realigned our resources,
which resulted in severance-related expenses of $576,000 during the quarter
ended December 31, 2000.
22
23
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
of total revenues represented by certain items reflected in our consolidated
statements of income:
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
----- ----- -----
STATEMENT OF INCOME DATA:
Revenue:
Software fees.......................................... 22.3% 17.9% 19.7%
Services............................................... 52.1 65.1 60.9
Hardware............................................... 25.6 17.0 19.4
----- ----- -----
Total revenue..................................... 100.0 100.0 100.0
----- ----- -----
Cost of revenue:
Software fees.......................................... 1.5 1.8 1.1
Services............................................... 24.6 37.7 25.8
Hardware............................................... 19.0 12.9 15.6
----- ----- -----
Total cost of revenue............................. 45.1 52.4 42.5
----- ----- -----
Gross margin.............................................. 54.9 47.6 57.5
Operating expenses:
Research and development............................... 12.0 12.6 12.1
Sales and marketing.................................... 14.6 17.6 13.6
General and administrative............................. 10.6 15.8 11.3
In-process research and development and
acquisition-related charges........................... 2.6 -- 2.3
Amortization of goodwill............................... 0.2 1.0 0.7
----- ----- -----
Total operating expenses.......................... 40.0 47.0 40.0
----- ----- -----
Income from operations...................................... 14.9 0.6 17.5
Other income, net........................................... 1.7 1.5 2.0
----- ----- -----
Income before income taxes.................................. 16.6 2.1 19.5
Income tax expense (benefit):
Tax provision as a "C" corporation........................ 5.3 0.7 7.3
Deferred tax adjustment................................... (0.5) -- --
----- ----- -----
Net income.................................................. 11.8% 1.4% 12.2%
===== ===== =====
Income before pro forma income taxes........................ 16.6
Pro forma income taxes................................. 6.8
-----
Pro forma net income........................................ 9.8%
=====
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
REVENUE
Our revenue consists of fees from the licensing of software; performance of
professional services; sales of customer support services and software
enhancement subscriptions; and sales of complementary radio frequency and
computer equipment. Total revenue increased 31.0% from $62.1 million in 1998 to
$81.3 million in 1999. Total revenue increased 63.7% from $81.3 million in 1999
to $133.1 million in 2000. The increases in total revenue were primarily
attributable to increases in sales of software licenses and services to new and
existing customers.
Software Fees. Revenue from sales of software increased from $13.8 million
in 1998 to $14.6 million in 1999, an increase of $.8 million or 6.0%. Revenue
from sales of software increased from $14.6 million in 1999 to $26.2 million in
2000, an increase of $11.6 million or 79.7%. The increases in software fees were
principally due to increases in the number of PkMS licenses sold. Additionally,
sales of new, internally-developed
23
24
products, including WorkInfo and SmartInfo, and acquired products, including
SlotInfo and Logistics PRO WMS, contributed to the increase in software sales in
2000, particularly in the fourth quarter of 2000. During 1999 and 2000, we
experienced an increase in the average size and sales price of PkMS due to
increased product functionality through our ongoing product development efforts
and growing market acceptance of PkMS.
Services. Services revenue increased from $32.4 million in 1998 to $52.9
million in 1999, an increase of $20.5 million or 63.4%. Services revenue
increased from $52.9 million in 1999 to $81.1 million in 2000, an increase of
$28.2 million or 53.3%. The increases in services revenue were principally due
to (i) increases in the amount of professional services purchased by customers
as part of purchases of PkMS and in conjunction with upgrades by existing
customers to more current versions of PkMS; and (ii) the renewal by customers of
customer support services and software enhancement subscriptions on a growing
installed base.
Hardware. Hardware revenue decreased from $15.9 million in 1998 to $13.8
million in 1999, a decrease of $2.1 million or 13.0%. Hardware revenue increased
from $13.8 million in 1999 to $25.8 million in 2000, an increase of $12.0
million or 86.8%. Sales of hardware are largely dependent upon the number of
PkMS licenses sold, the scope of such implementations and the technological
sophistication and purchasing power of customers. Hardware revenue decreased in
1999 from 1998 due to a decline in the number of PkMS licenses sold and an
increase in such sales to customers with technological sophistication and
purchasing power. The increase in 2000 is attributable to PkMS implementations
of larger scope, prompting customers seeking a unified solution to purchase more
hardware from us.
COST OF REVENUE
Cost of Software Fees. Cost of software fees consists of the costs
associated with software reproduction and delivery; media, packaging,
documentation and other related costs; and the amortization of purchased
software and capitalized research and development costs. Cost of software fees
increased from $920,000 in 1998, or 6.7% of software fees, to $1.5 million in
1999, or 10.1% of software fees. Cost of software fees remained at $1.5 million
in 2000, and decreased to 5.7% of software fees. The increase in cost of
software fees as a percentage of software fees in 1999 was primarily due to
approximately $472,000 of purchased software and capitalized research and
development costs expensed in conjunction with discontinued products. Cost of
software fees decreased as a percentage of software fees in 2000 due to the
79.7% increase in sales of software over 1999 without a corresponding increase
in cost of software fees. The decrease in amortization expense from products
discontinued in 1999 was partially offset by $250,000 of amortization expense
recorded in the fourth quarter of 2000 associated with acquired software from
Intrepa.
Cost of Services. Cost of services revenue consists primarily of salaries
and other personnel-related expenses of employees dedicated to the
implementation of and consulting on our software, software support services and
training and educational services. Cost of services revenue increased from $15.3
million in 1998, or 47.2% of services revenue, to $30.6 million in 1999, or
57.9% of services revenue. Cost of services revenue increased to $34.3 million
in 2000, or 42.3% of services revenue. The increases in cost of services revenue
were directly related to increases in the number of employees and contracted
personnel dedicated to services activities. The increase in cost of services as
a percentage of services revenue in 1999 was principally due to over-staffing as
a result of a 35% increase in services personnel combined with a lower level of
software license sales and service revenues than anticipated. The decrease in
cost of services revenue as a percentage of services revenue in 2000 is due to
increased efficiencies in the delivery of professional services, principally an
increase in the utilization of services personnel and planned efficiency
initiatives associated with implementations of our software.
Cost of Hardware. Cost of hardware revenue decreased from $11.8 million in
1998, or 74.2% of hardware revenue, to $10.5 million in 1999, or 76.1% of
hardware revenue. Cost of hardware revenue increased to $20.8 million in 2000,
or 80.6% of hardware revenue. The increases in the cost of hardware as a
percentage of hardware revenue are principally due to increases in the
percentage of hardware products sold with relatively lower gross margins.
24
25
OPERATING EXPENSES
Research and Development. Research and development expenses principally
consist of salaries and other personnel-related costs of personnel involved in
our product development efforts. Our research and development expenses increased
by 37.3% from $7.4 million in 1998, or 12.0% of total revenue, to $10.2 million
in 1999, or 12.6% of total revenue. Our research and development expenses
increased by 57.9% from $10.2 million in 1999, or 12.6% of total revenue, to
$16.1 million in 2000, or 12.1% of total revenue. The increases in research and
development expenses were principally due to the addition of development
personnel devoted to the enhancement of existing products and new product
development. The increase in 1999 over 1998 reflects the costs and expenses of
additional personnel devoted to the enhancement of the AS400 and UNIX versions
of PkMS and the development of the N-Tier version of PkMS and SlotInfo. The
increase in 2000 over 1999 reflects the costs and expenses of personnel devoted
to the enhancement of all versions of PkMS and SlotInfo, as well as additional
personnel devoted to the development of WorkInfo, SmartInfo and infolink.
Research and development expenses for 2000 also reflect approximately two months
of personnel related costs and expenses associated with products acquired from
Intrepa, including Logistics PRO WMS and Logistics PRO TMS. We capitalized
$909,000 of research and development costs in 1999, of which approximately
$300,000 of such capitalized costs were subsequently expensed during 1999 in
conjunction with discontinued projects and classified as cost of software fees.
No research and development costs were capitalized in 2000.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions, travel and other personnel-related costs of sales and marketing
personnel and the costs of our marketing programs and related activities. Sales
and marketing expenses increased by 58.6% from $9.0 million in 1998, or 14.6% of
total revenue, to $14.3 million in 1999, or 17.6% of total revenue. Sales and
marketing expenses increased by 25.8% from $14.3 million in 1999, or 17.6% of
total revenue, to $18.1 million in 2000, or 13.6% of total revenue. The
increases in sales and marketing expenses were principally attributable to (i)
increases in the number of sales and marketing personnel in both domestic and
international operations; (ii) increased incentive compensation for sales and
marketing personnel arising from increases in software fees and overall revenue
performance; and (iii) continued expansion of our marketing programs and related
activities.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs of executive, financial,
human resources and administrative personnel, as well as facilities,
depreciation of tangible assets, legal, insurance, accounting and other
administrative expenses. General and administrative expenses increased from $6.6
million in 1998, or 10.6% of total revenue, to $12.8 million in 1999, or 15.8%
of total revenue. General and administrative expenses increased from $12.8
million in 1999, or 15.8% of total revenue, to $15.1 million in 2000, or 11.4%
of total revenue. The increase in general and administrative expenses in 1999
was principally attributable to increased personnel, expenses associated with
the recruitment of new members of our executive management team, expenses
associated with the abandonment of excess leased facilities, increased
depreciation expense from capital purchases to support our infrastructure and
other administrative costs related to our growth. The increase in general and
administrative expenses in 2000 was principally attributable to increased
depreciation expense from capital purchases to support our growth and
infrastructure and increased executive management bonuses tied to our record
financial performance. Depreciation expense included in general and
administrative expenses was $1.3 million, $3.2 million and $4.3 million during
1998, 1999 and 2000, respectively.
In-Process Research and Development and Acquisition-Related Charges. In
February 1998, we purchased all of the outstanding stock of PAC for
approximately $2.2 million in cash and 106,666 shares of our common stock valued
at $10.00 per share. The acquisition has been accounted for as a purchase. In
connection with this acquisition, approximately $1.6 million of the purchase
price was allocated to acquired research and development and expensed during the
first quarter of 1998.
On October 24, 2000, we purchased substantially all of the assets of
Intrepa, L.L.C. for approximately $31.0 million. The purchase price consists of
a cash payment of $13.0 million, the issuance of approximately $10.2 million of
our $.01 par value per share common stock (approximately 174,000 shares), and
the issuance by us of a promissory note for $7.0 million. We also incurred
approximately $0.9 million of transaction costs
25
26
related to the acquisition. In connection with this acquisition, approximately
$2.4 million of the purchase price was allocated to in-process research and
development and expensed during the fourth quarter of 2000. In connection with
this acquisition, we realigned our resources to reap expense synergies and
eliminate redundant positions. Such realignment resulted in severance related
payments of $576,000, which were also expensed in the fourth quarter of 2000.
Amortization of Goodwill. We have recorded goodwill as part of the
purchase accounting associated with three acquisitions: (i) the acquisition of
PAC in February 1998; (ii) the acquisition of certain assets of KSA in October
1998; and (iii) the acquisition of Intrepa in October 2000. Amortization of
goodwill increased from $154,000 in 1998, or 0.2% of total revenue, to $821,000
in 1999, or 1.0% of total revenue, to $915,000 in 2000, or 0.7% of total
revenue, as a direct result of these acquisitions. The increase in 1999 reflects
a charge of $194,000 associated with an impairment review of the assets acquired
from KSA. The increase in 2000 reflects goodwill amortization expense of
$540,000 associated with the acquisition of Intrepa.
Operating Income. Operating income decreased from $9.3 million in 1998, or
14.9% of total revenue, to $437,000 in 1999, or 0.6% of total revenue. Operating
income increased from $437,000 in 1999, or 0.6% of total revenue, to $23.3
million in 2000, or 17.5% of total revenue. The decrease in operating income in
1999 was primarily due to increased payroll and related costs across all areas
of our business. Additionally, operating income for 1999 was affected by amounts
expensed for the recruitment of new members of our executive management team,
impaired intangible assets, the abandonment of excess leased facilities, as
described above, and severance-related costs to terminate approximately 10% of
our workforce as part of a plan to realign our resources with anticipated
revenue growth. The increase in operating income in 2000 represents a
combination of significant revenue growth, totaling 63.7% over 1999, and
improved efficiencies across all areas of our business. Operating income for
2000 reflects non-recurring charges totaling $3.0 million associated with the
acquisition of Intrepa and non-cash expenses associated with acquisitions
totaling $1.2 million, all as discussed above. Excluding one-time non-recurring
charges and the acquisition amortization expense, operating income for 2000
would be $27.5 million or 20.6% of total revenues.
OTHER INCOME, NET
Other income, net, principally includes interest earnings on short-term
investments. Other income, net, increased from $1.0 million in 1998, or 1.7% of
total revenue, to $1.2 million in 1999, or 1.5% of total revenue, to $2.7
million in 2000, or 2.0% of total revenue. The increases in other income, net,
was primarily due to the increases in cash available for investment during the
year. The increases in other income, net, in 1999 and 2000 were partially offset
by interest expense incurred for obligations under capital lease obligations
and, in 2000, for the note payable issued in connection with the acquisition of
Intrepa, which was outstanding for approximately two months.
INCOME TAXES
Provision for Income Taxes. Prior to the initial public offering in April
1998, our predecessor, Manhattan Associates Software, LLC, was treated as a
partnership and was not subject to federal income taxes. The income or loss of
Manhattan Associates Software, LLC was included in the owners' individual
federal and state tax returns, and as such, no provision for income taxes was
recorded in the accompanying statements of income prior to April 23, 1998.
In connection with the conversion of Manhattan Associates Software, LLC to
Manhattan Associates, Inc., we recognized a one-time benefit of $316,000 in 1998
by recording the asset related to the future reduction of income tax payments
due to temporary differences between the recognition of income for financial
statements and income tax regulations. The provision for income taxes in 1998
was $3.0 million, representing the approximate 9-month period that we operated
as Manhattan Associates, Inc.
The pro forma provision for income taxes was $4.2 million in 1998 as
compared to an income tax provision of $554,000 in 1999. The decrease in the
provision for income taxes for 1999 as compared to the pro forma provision for
income taxes in 1998 is attributable to the substantial decrease in income
before income taxes in 1999. The provision for income taxes in 2000 is $9.7
million and reflects the substantial increase in
26
27
income before income taxes in 2000. Our effective income tax rates, assuming pro
forma rates for 1998, were 41.1%, 33.5% and 37.5% in 1998, 1999 and 2000,
respectively. The effective pro forma income tax rate for 1998 reflects the
non-deductibility of the in-process research and development charge associated
with the acquisition of PAC. Excluding the effect of the in-process research and
development charge, our effective pro forma tax rate was 35.6% in 1998. Our
effective income tax rate takes into account the source of taxable income,
domestically by state and internationally by country, and available income tax
credits.
EARNINGS PER SHARE
Net Income per Share. Pro forma net income was $6.1 million, or 9.8% of
total revenue and $0.24 per diluted share, for the year ended December 31, 1998.
Excluding the effect of the non-recurring acquired research and development
charge of $1.6 million, pro forma net income for the year ended December 31,
1998 was $7.7 million, or 12.4% of total revenue and $0.30 per diluted share.
Net income was $1.1 million, or 1.4 % of total revenue and $0.04 per diluted
share for the year ended December 31, 1999. The decrease in net income in 1999
from 1998 is principally attributable to higher payroll and related costs
arising from over-staffing in anticipation of higher revenues, plus other costs
and expenses associated with a 10% reduction in workforce, recruitment of
executive management personnel, impaired intangible assets and abandonment of
leased facilities. Net income was $16.3 million, or 12.2% of total revenue and
$0.53 per diluted share for the year ended December 31, 2000. Excluding the
effect of the non-recurring in-process research and development and
acquisition-related charges of $3.0 million and acquisition amortization related
to Intrepa of $790,000, net income for the year ended December 31, 2000 was
$18.6 million, or 14.0% of total revenue and $0.61 per diluted share. The
increase in net income in 2000 over 1999 is principally attributable to 63.7%
growth in revenue combined with improved efficiencies across all areas of our
business.
PRO FORMA RESULTS OF OPERATIONS
The following summary of unaudited pro forma consolidated selected
statement of income data presents our results of operations for the three years
ended December 31, 2000, excluding: amortization of intangibles associated with
the acquisition of Intrepa and the write-off of in-process research and
development and other acquisition related charges associated with the
acquisition of Intrepa. We believe the exclusion of these items provides a more
relevant summary of the results of our operations as they relate to our core
business and we use these measures internally to evaluate our operating
performance. This information is not to be construed as a measurement of
profitability under generally accepted accounting principles and is not to be
accepted or used as an alternative to net income. Additionally, the pro forma
results of operations, as presented, may not be consistent with measures used by
other companies. As discussed in the Notes to Consolidated Financial Statements,
the acquisition of Intrepa was completed in the fourth quarter of 2000 and,
accordingly, the operating results of Intrepa are included with our results of
operations since the date of acquisition, October 24, 2000.
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1999 2000
---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenues.................................................. $62,065 $81,292 $133,096
Costs and expenses........................................ 52,804 80,855 106,015
------- ------- --------
Income from operations...................................... 9,261 437 27,081
Other income, net........................................... 1,070 1,218 2,718
------- ------- --------
Income before income taxes.................................. 10,331 1,655 29,799
Income tax expense:
Tax provisions and pro forma income taxes................. 4,244 554 11,180
------- ------- --------
Net income and pro forma net income......................... $ 6,087 $ 1,101 $ 18,619
======= ======= ========
27
28
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1999 2000
---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Diluted net income or pro forma net income per share........ $ 0.24 $ 0.04 $ 0.61
======= ======= ========
Shares used in computing diluted net income or pro forma net
income per share.......................................... 25,686 26,553 30,453
======= ======= ========
THE ABOVE PRO FORMA AMOUNTS HAVE BEEN ADJUSTED TO EXCLUDE THE FOLLOWING ITEMS:
Amortization of acquired software for Intrepa............... $ -- $ -- $ 250
Amortization of goodwill for Intrepa........................ -- -- 540
In-process research and development and other acquisition
related charges........................................... -- -- 3,001
Income tax effect of excluded items......................... -- -- (1,440)
------- ------- --------
Net effect of pro forma adjustments......................... $ -- $ -- $ 3,791
======= ======= ========
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly statements of
income data for each of our last eight quarters for the period ended December
31, 2000, as well as the percentage of our total revenue represented by each
item. The information has been derived from our audited Financial Statements.
The unaudited quarterly Financial Statements have been prepared on substantially
the same basis as the audited Financial Statements contained herein. In the
opinion of our management, the unaudited quarterly Financial Statements include
all adjustments, consisting only of normal recurring adjustments, that we
consider to be necessary to present fairly this information when read in
conjunction with our Financial Statements and notes thereto appearing elsewhere
herein. The results of operations for any quarter are not necessarily indicative
of the results to be expected for any future period.
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999 2000 2000 2000 2000
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenue:
Software fees.................. $ 4,437 $ 3,095 $ 2,753 $ 4,293 $ 5,036 $ 5,686 $ 6,529 $ 8,939
Services....................... 10,958 12,811 14,488 14,632 17,544 19,228 21,207 23,106
Hardware....................... 2,755 3,933 2,814 4,322 5,763 9,714 5,968 4,376
------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 18,150 19,839 20,055 23,247 28,343 34,628 33,704 36,421
Cost of revenue:
Software fees.................. 190 386 599 296 277 539 192 481
Services....................... 6,042 7,542 8,778 8,281 8,162 8,029 8,753 9,355
Hardware....................... 2,044 3,000 2,174 3,307 4,701 7,988 4,759 3,374
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue... 8,276 10,928 11,551 11,884 13,140 16,556 13,704 13,210
------- ------- ------- ------- ------- ------- ------- -------
Gross margin..................... 9,874 8,911 8,504 11,363 15,203 18,072 20,000 23,211
Operating expenses:
Research and development....... 2,719 3,082 2,265 2,135 3,046 3,042 4,213 5,805
Sales and marketing............ 4,044 4,043 3,235 3,022 3,977 4,631 4,298 5,145
General and administrative..... 2,884 3,139 3,098 3,728 3,773 3,589 3,743 4,018
In-process research and
development and acquisition-
related charges.............. -- -- -- -- -- -- -- 3,001
Amortization of goodwill....... 124 127 127 443 94 94 93 634
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 9,771 10,391 8,725 9,328 10,890 11,356 12,347 18,603
------- ------- ------- ------- ------- ------- ------- -------
28
29
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999 2000 2000 2000 2000
-------- -------- --------- -------- -------- -------- --------- --------