Attached files
file | filename |
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EX-32.1 - EX-32.1 - JDA SOFTWARE GROUP INC | p18843exv32w1.htm |
EX-10.1 - EX-10.1 - JDA SOFTWARE GROUP INC | p18843exv10w1.htm |
EX-31.2 - EX-31.2 - JDA SOFTWARE GROUP INC | p18843exv31w2.htm |
EX-10.2 - EX-10.2 - JDA SOFTWARE GROUP INC | p18843exv10w2.htm |
EX-31.1 - EX-31.1 - JDA SOFTWARE GROUP INC | p18843exv31w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - JDA SOFTWARE GROUP INC | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number: 0-27876
JDA SOFTWARE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 86-0787377 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
14400 North 87th Street
Scottsdale, Arizona 85260
(480) 308-3000
(Address and telephone number of principal executive offices)
Scottsdale, Arizona 85260
(480) 308-3000
(Address and telephone number of principal executive offices)
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) had been subject to
such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Acts.
(Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the Registrants Common Stock, $0.01 par value, was 42,309,303
as of May 3, 2011.
FORM 10-Q
TABLE OF CONTENTS
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EX-10.1 | ||||||||
EX-10.2 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
2
Table of Contents
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 226,131 | $ | 171,618 | ||||
Restricted cash |
34,397 | 34,855 | ||||||
Accounts receivable, net |
138,680 | 102,118 | ||||||
Deferred tax assetscurrent portion |
42,389 | 43,753 | ||||||
Prepaid expenses and other current assets |
38,644 | 27,723 | ||||||
Total current assets |
480,241 | 380,067 | ||||||
Non-Current Assets: |
||||||||
Property and equipment, net |
47,399 | 47,447 | ||||||
Goodwill |
226,863 | 226,863 | ||||||
Other intangibles, net |
175,846 | 187,398 | ||||||
Deferred tax assetslong-term portion |
253,523 | 255,386 | ||||||
Other non-current assets |
18,908 | 16,367 | ||||||
Total non-current assets |
722,539 | 733,461 | ||||||
Total Assets |
$ | 1,202,780 | $ | 1,113,528 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 12,093 | $ | 21,092 | ||||
Accrued expenses and other liabilities |
91,360 | 83,938 | ||||||
Income taxes payable |
| 318 | ||||||
Deferred revenuecurrent portion |
130,379 | 88,055 | ||||||
Total current liabilities |
233,832 | 193,403 | ||||||
Non-Current Liabilities: |
||||||||
Long-term debt |
272,818 | 272,695 | ||||||
Accrued exit and disposal obligations |
6,296 | 7,360 | ||||||
Liability for uncertain tax positions |
6,052 | 6,873 | ||||||
Deferred revenuelong-term portion |
7,668 | 9,090 | ||||||
Total non-current liabilities |
292,834 | 296,018 | ||||||
Total Liabilities |
526,666 | 489,421 | ||||||
Stockholders Equity: |
||||||||
Common stock |
444 | 439 | ||||||
Additional paid-in capital |
558,423 | 550,177 | ||||||
Retained earnings |
137,260 | 91,732 | ||||||
Accumulated other comprehensive income |
10,430 | 8,980 | ||||||
Treasury stock |
(30,443 | ) | (27,221 | ) | ||||
Total stockholders equity |
676,114 | 624,107 | ||||||
Total liabilities and stockholders equity |
$ | 1,202,780 | $ | 1,113,528 | ||||
See notes to condensed consolidated financial statements.
3
Table of Contents
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share data, unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
REVENUES: |
||||||||
Software licenses |
$ | 31,480 | $ | 24,437 | ||||
Subscriptions and other recurring revenues |
4,994 | 4,287 | ||||||
Maintenance services |
64,768 | 57,060 | ||||||
Product revenues |
101,242 | 85,784 | ||||||
Consulting services |
57,644 | 43,002 | ||||||
Reimbursed expenses |
4,720 | 2,845 | ||||||
Service revenues |
62,364 | 45,847 | ||||||
Total revenues |
163,606 | 131,631 | ||||||
COST OF REVENUES: |
||||||||
Cost of software licenses |
949 | 1,008 | ||||||
Amortization of acquired software technology |
1,834 | 1,576 | ||||||
Cost of maintenance services |
13,986 | 12,033 | ||||||
Cost of product revenues |
16,769 | 14,617 | ||||||
Cost of consulting services |
46,602 | 35,269 | ||||||
Reimbursed expenses |
4,720 | 2,845 | ||||||
Cost of service revenues |
51,322 | 38,114 | ||||||
Total cost of revenues |
68,091 | 52,731 | ||||||
GROSS PROFIT |
95,515 | 78,900 | ||||||
OPERATING EXPENSES: |
||||||||
Product development |
20,136 | 17,277 | ||||||
Sales and marketing |
26,240 | 21,112 | ||||||
General and administrative |
22,088 | 17,697 | ||||||
Amortization of intangibles |
9,718 | 8,566 | ||||||
Restructuring charges |
542 | 7,758 | ||||||
Acquisition-related costs |
| 6,743 | ||||||
Litigation settlement |
(37,500 | ) | | |||||
Total operating expenses |
41,224 | 79,153 | ||||||
OPERATING INCOME (LOSS) |
54,291 | (253 | ) | |||||
Interest expense and amortization of loan fees |
6,211 | 6,086 | ||||||
Interest income and other, net |
(1,270 | ) | (1,123 | ) | ||||
INCOME (LOSS) BEFORE INCOME TAXES |
49,350 | (5,216 | ) | |||||
Income tax provision (benefit) |
3,822 | (948 | ) | |||||
NET INCOME (LOSS) |
$ | 45,528 | $ | (4,268 | ) | |||
Basic net income (loss) per common share |
$ | 1.08 | $ | (0.11 | ) | |||
Diluted net income (loss) per common share |
$ | 1.07 | $ | (0.11 | ) | |||
Shares used in computing basic net income
(loss) per common share |
42,133 | 39,343 | ||||||
Shares used in computing diluted net income
(loss) per common share |
42,607 | 39,343 | ||||||
See notes to condensed consolidated financial statements.
4
Table of Contents
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, unaudited)
Three Months | ||||||||
Ended March 31, | ||||||||
2011 | 2010 | |||||||
Net income (loss) |
$ | 45,528 | $ | (4,268 | ) | |||
Other comprehensive income (loss): |
||||||||
Foreign currency translation adjustment, net of tax |
1,260 | (561 | ) | |||||
Unrealized gains (losses) on cash flow hedges, net
of tax |
190 | | ||||||
Net change in other comprehensive income (loss) |
1,450 | (561 | ) | |||||
Comprehensive (loss) income |
$ | 46,978 | $ | (4,829 | ) | |||
See notes to condensed consolidated financial statements.
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Table of Contents
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three Months | ||||||||
Ended March 31, | ||||||||
2011 | 2010 | |||||||
Operating Activities: |
||||||||
Net income (loss) |
$ | 45,528 | $ | (4,268 | ) | |||
Adjustments to reconcile net income to net cash provided by operating
activities: |
||||||||
Depreciation and amortization |
14,916 | 13,148 | ||||||
Amortization of loan fees |
501 | 427 | ||||||
Net gain on disposal of property and equipment |
(5 | ) | (5 | ) | ||||
Stock-based compensation |
5,573 | 3,277 | ||||||
Deferred income taxes |
3,226 | (2,546 | ) | |||||
Changes in assets and liabilities, net of effects from business acquisition: |
||||||||
Accounts receivable |
(36,417 | ) | (7,211 | ) | ||||
Income tax receivable |
(856 | ) | 1,076 | |||||
Prepaid expenses and other assets |
(11,282 | ) | (7,889 | ) | ||||
Accounts payable |
(8,963 | ) | 550 | |||||
Accrued expenses and other liabilities |
6,532 | (11,101 | ) | |||||
Income tax payable |
(1,134 | ) | (2,127 | ) | ||||
Deferred revenue |
41,064 | 28,864 | ||||||
Net cash provided by operating activities |
58,683 | 12,195 | ||||||
Investing Activities: |
||||||||
Change in restricted cash |
458 | 276,177 | ||||||
Purchase of i2 Technologies, Inc. |
| (213,427 | ) | |||||
Payment of direct costs related to acquisitions |
(840 | ) | (850 | ) | ||||
Purchase of property and equipment |
(2,997 | ) | (533 | ) | ||||
Proceeds from disposal of property and equipment |
26 | 17 | ||||||
Net cash (used in) provided by investing activities |
(3,353 | ) | 61,384 | |||||
Financing Activities: |
||||||||
Issuance of common stockequity plans |
3,002 | 10,904 | ||||||
Purchase of treasury stock and other, net |
(3,222 | ) | (3,392 | ) | ||||
Debt Issuance Costs |
(1,656 | ) | | |||||
Net cash (used in) provided by financing activities |
(1,876 | ) | 7,512 | |||||
Effect of exchange rates on cash and cash equivalents |
1,059 | (1,248 | ) | |||||
Net increase in cash and cash equivalents |
54,513 | 79,843 | ||||||
Cash and Cash Equivalents, Beginning of Period |
171,618 | 75,974 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 226,131 | $ | 155,817 | ||||
Supplemental Disclosures of Cash Flow Information: |
||||||||
Cash paid for income taxes |
$ | 3,634 | $ | 4,745 | ||||
Cash paid for interest |
$ | | $ | 427 | ||||
Cash received for income tax refunds |
$ | 743 | $ | 928 | ||||
See notes to condensed consolidated financial statements.
6
Table of Contents
JDA SOFTWARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except percentages, shares, per share amounts, or as otherwise stated)
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of JDA Software Group,
Inc. (JDA, we or the Company) have been prepared in accordance with the FASB Standard Accounting
Codification (Codification), which is the authoritative source of generally accepted accounting
principles (GAAP) for nongovernmental entities in the United States. The interim financial
statements do not include all of the information and notes required for complete financial
statements. In the opinion of management, all adjustments considered necessary for a fair and
comparable presentation have been included and are of a normal recurring nature. Operating results
for the three months ended March 31, 2011 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2011. These condensed consolidated financial statements
should be read in conjunction with the audited financial statements and the notes thereto included
in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
The preparation of financial statements in conformity with the Codification requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the reporting periods. Actual
results could differ from those estimates.
2. Derivative Instruments and Hedging Activities
The Company uses derivative financial instruments, primarily forward exchange contracts, to
manage a majority of the foreign currency exchange exposure associated with net short-term foreign
currency denominated assets and liabilities that exist as part of its ongoing business operations
that are denominated in a currency other than the functional currency of the subsidiary. The
exposures relate primarily to the gain or loss recognized in earnings from the settlement of
current foreign denominated assets and liabilities.
The Company does not enter into derivative financial instruments for trading or speculative
purposes. The forward exchange contracts generally have maturities of 90 days or less and are not
designated as hedging instruments. Forward exchange contracts are marked-to-market at the end of
each reporting period, using quoted prices for similar assets or liabilities in active markets
(Level 2 inputs), with gains and losses recognized in other income offset by the gains or losses
resulting from the settlement of the underlying foreign currency denominated assets and
liabilities.
At March 31, 2011, the Company had forward exchange contracts with a notional value of $79.0
million and an associated net forward contract receivable of $0.7 million determined on the basis
of Level 2 inputs. At December 31, 2010, the Company had forward exchange contracts with a notional
value of $68.8 million and an associated net forward contract receivable of $0.7 million determined
on the basis of Level 2 inputs. These derivatives are not designated as hedging instruments.
In the fourth quarter of 2010, the Company also began a cash flow hedging program under which
it hedges a portion of anticipated operating expenses denominated in the Indian Rupee. The forward
exchange contracts have maturities of twelve months or less and are designated as hedging
instruments. Forward exchange contracts are marked-to-market at the end of each reporting period,
using quoted prices for similar assets or liabilities in active markets. The effective portion of
the derivatives gain or loss is initially reported as a component of cumulative other
comprehensive income (loss) and subsequently reclassified into earnings when the hedged exposure
affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately.
At March 31, 2011 the Company had forward exchange contracts with a notional value of $34.4 million
and an associated net forward contract receivable of $1.0 million. At December 31, 2010, the
Company had forward exchange contracts with a notional value of $30.7 million and an associated net
forward contract receivable of $0.4 million.
The forward contract receivables (payables) are included in the consolidated balance sheets
under the captions Prepaid expenses and other current assets and Accrued expenses and other
liabilities, respectively. The notional values represent the amount of foreign currencies to be
purchased or sold at maturity and does not represent our exposure on these contracts.
The Company recorded a net foreign currency exchange gain of $0.2 million in the three months
ended March 31, 2011 and a net foreign currency exchange gain of $1.0 million in the three months
ended March 31, 2010. Net foreign currency exchange gains (losses) are included in the condensed
consolidated statements of operations under the caption Interest Income and other, net.
7
Table of Contents
3. Goodwill and Other Intangibles, net
Goodwill and other identifiable intangibles consist of the following:
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||||||||||
Amount | Amortization | Net Amount | Amount | Amortization | Net Amount | |||||||||||||||||||
Goodwill: |
||||||||||||||||||||||||
Gross goodwill |
$ | 236,576 | $ | | $ | 236,576 | $ | 236,576 | $ | | $ | 236,576 | ||||||||||||
Accumulated impairment losses |
(9,713 | ) | | (9,713 | ) | (9,713 | ) | | (9,713 | ) | ||||||||||||||
Goodwill, net |
226,863 | | 226,863 | 226,863 | | 226,863 | ||||||||||||||||||
Other amortized intangible assets: |
||||||||||||||||||||||||
Customer-based |
257,983 | (128,819 | ) | 129,164 | 257,983 | (119,835 | ) | 138,148 | ||||||||||||||||
Technology-based |
90,147 | (54,487 | ) | 35,660 | 90,147 | (52,654 | ) | 37,493 | ||||||||||||||||
Marketing-based |
19,491 | (8,469 | ) | 11,022 | 19,491 | (7,734 | ) | 11,757 | ||||||||||||||||
Other amortized intangible assets, net |
367,621 | (191,775 | ) | 175,846 | 367,621 | (180,223 | ) | 187,398 | ||||||||||||||||
Total goodwill and other intangible assets |
$ | 594,484 | $ | (191,775 | ) | $ | 402,709 | $ | 594,484 | $ | (180,223 | ) | $ | 414,261 | ||||||||||
Goodwill. We found no indication of impairment of our goodwill balances during the three
months ended March 31, 2011 and, absent future indicators of impairment, the next annual impairment
test will be performed in fourth quarter 2011. As of March 31, 2011, the goodwill balance has been
allocated to our reporting units as follows: $223.3 million to Supply Chain and $3.7 million to
Pricing and Revenue Management.
Customer-based intangible assets include customer lists, maintenance relationships and future
technological enhancements, service relationships and covenants not-to-compete; technology-based
intangible assets include acquired software technology; and marketing-based intangible assets
include trademarks and trade names. Customer-based and marketing-based intangible assets are being
amortized on a straight-line basis. Technology-based intangible assets are being amortized on a
product-by-product basis with the amortization recorded for each product being the greater of the
amount computed using (a) the ratio that current gross revenues for a product bear to the total of
current and anticipated future revenue for that product, or (b) the straight-line method over the
remaining estimated economic life of the product including the period being reported on.
Amortization expense is reported in the consolidated statements of operations within cost of
revenues under the caption Amortization of acquired software technology and in operating expenses
under the caption Amortization of intangibles. As of March 31, 2011 we expect amortization
expense for the remainder of 2011 and thereafter to be as follows:
Amortization | ||||
For the Year Ending December 31, | Expense | |||
2011, remainder thereof |
$ | 33,965 | ||
2012 |
44,929 | |||
2013 |
44,240 | |||
2014 |
27,352 | |||
2015 |
13,006 | |||
Thereafter |
12,354 | |||
Total |
$ | 175,846 | ||
4. Restructuring Reserves
2010 Restructuring Plan
We recorded restructuring charges of $21.0 million in 2010 primarily for termination benefits,
office closures and contract terminations associated with the
acquisition of i2 Technologies, Inc. (i2) and the continued
transition of additional on-shore activities to our Center of Excellence (CoE) facilities. The
charges include $14.1 million for termination benefits related to a workforce reduction of
approximately 200 associates primarily in general and administrative, sales and marketing and
product development positions primarily in the Americas. In addition, the charges include $6.9
million for estimated costs to close and integrate redundant office facilities and for the
integration of information technology and termination of certain i2 contracts that have no future
economic benefit to the Company and are incremental to the other costs that will be incurred by the
combined Company. We recorded restructuring charges of $0.5 million in the three months ended
March 31, 2011. As of March 31, 2011, approximately $16.3 million of the costs associated with
these restructuring charges have been paid and $1.8 million is included under the caption Accrued
expenses and other current liabilities and $1.2 million is included under the caption Accrued exit
and disposal obligations.
8
Table of Contents
A summary of the restructuring charges is as follows:
Impact of | Impact of | |||||||||||||||||||||||||||||||||||||||
Changes in | Balance | Changes in | Balance | |||||||||||||||||||||||||||||||||||||
Initial | Cash | Non-Cash | Exchange | December 31, | Adjustments | Cash | Non-Cash | Exchange | March 31, | |||||||||||||||||||||||||||||||
Description of charge | Reserve | Charges | Settlements | Rates | 2010 | to Reserves | Charges | Settlements | Rates | 2011 | ||||||||||||||||||||||||||||||
Termination benefits |
$ | 14,098 | $ | (13,246 | ) | $ | | $ | 89 | $ | 941 | 343 | (1,096 | ) | | (5 | ) | 183 | ||||||||||||||||||||||
Office closures and other restructuring |
5,380 | (1,760 | ) | (376 | ) | 65 | 3,309 | 199 | (191 | ) | (475 | ) | 17 | 2,859 | ||||||||||||||||||||||||||
Total |
$ | 19,478 | $ | (15,006 | ) | $ | (376 | ) | $ | 154 | $ | 4,250 | $ | 542 | $ | (1,287 | ) | $ | (475 | ) | $ | 12 | $ | 3,042 | ||||||||||||||||
The balance in the reserve for office closures is primarily related to redundant office facility
leases in Dallas, Texas and the United Kingdom and will be reduced as payments are made over the
related lease terms that extend through 2014.
5. Acquisition Reserves
We recorded initial acquisition reserves of $47.4 million for restructuring charges and other
direct costs associated with the acquisition of Manugistics in 2006. The restructuring charges were
primarily related to facility closures, employee severance and termination benefits and other
direct costs associated with the acquisition, including investment banker fees, change-in-control
payments, and legal and accounting costs. Subsequent adjustments of $2.9 million were made to
reduce the reserves in 2007 and 2008 based on our revised estimates of the restructuring costs to
exit certain of the activities of Manugistics. The majority these adjustments were made by March
31, 2007 and included in the final purchase price allocation. All adjustments made subsequent to
March 31, 2007, including a $1.4 million increase recorded in 2009, have been included in the
consolidated statements of income under the caption Restructuring charges. Adjustments made in
2009 resulted primarily from our revised estimate of sublease rentals and market adjustments on an
unfavorable office facility lease in the United Kingdom. The unused portion of the acquisition
reserves at March 31, 2011 includes $4.4 million of current liabilities under the caption Accrued
expenses and other liabilities and $4.4 million of non-current liabilities under the caption
Accrued exit and disposal obligations. A summary of the charges and adjustments recorded against
the reserves is as follows:
Impact of | Impact of | |||||||||||||||||||||||||||||||||||
Changes in | Balance | Changes in | Balance | |||||||||||||||||||||||||||||||||
Initial | Adjustments | Cash | Exchange | December 31, | Adjustments | Cash | Exchange | March 31, | ||||||||||||||||||||||||||||
Description of charge | Reserve | to Reserves | Charges | Rates | 2010 | to Reserves | Charges | Rates | 2011 | |||||||||||||||||||||||||||
Acquisition reserves: |
||||||||||||||||||||||||||||||||||||
Office closures, lease termination and sublease costs |
$ | 29,212 | $ | 567 | $ | (19,361 | ) | $ | (844 | ) | $ | 9,574 | $ | | $ | (840 | ) | $ | 104 | $ | 8,838 | |||||||||||||||
Employee severance and termination benefits |
3,607 | (840 | ) | (2,842 | ) | 75 | | | | | | |||||||||||||||||||||||||
IT projects, contract termination penalties, capital lease buyouts and other costs to exits activities of Manugistics |
1,450 | 222 | (1,672 | ) | | | | | | | ||||||||||||||||||||||||||
34,269 | (51 | ) | (23,875 | ) | (769 | ) | 9,574 | | (840 | ) | 104 | 8,838 | ||||||||||||||||||||||||
Direct costs: |
13,125 | 6 | (13,131 | ) | | | | |||||||||||||||||||||||||||||
Total |
$ | 47,394 | $ | (45 | ) | $ | (37,006 | ) | $ | (769 | ) | $ | 9,574 | $ | | $ | (840 | ) | $ | 104 | $ | 8,838 | ||||||||||||||
The balance in the reserve for office closures, lease termination and sublease costs is
primarily related to office facility leases in Rockville, Maryland and the United Kingdom and will
be reduced as payments are made over the related lease terms that extend through 2018.
In 2010 in connection with our acquisition of i2, we assumed an unfavorable lease of $1.2
million for the Dallas, Texas office which was recorded in the purchase price allocation of which
$0.6 million is included in current liabilities under the caption of Accrued expenses and other
liabilities and $0.6 million is included in non-current liabilities under the caption Accrued
exit and disposal obligations.
6. Long-term Debt
Line of Credit
On
March 18, 2011, we entered into a credit agreement
with Wells Fargo Capital Finance, LLC and certain other lenders party thereto (the Credit
Agreement). The Credit Agreement provides for cash borrowings and letters of credit under a $100
million senior secured revolving credit facility, the proceeds of which the Company may use for
working capital and other general corporate purposes. Loans under the Credit Agreement will mature
on September 15, 2014, subject to extension to March 18, 2016 under certain circumstances. In
connection with the execution of the line of credit, the Company incurred approximately $1.7
million in debt issuance costs which will be amortized to interest expense over the length of the
agreement. To date, the Company has not borrowed any amount under the Credit Agreement.
Interest on the outstanding balance will accrue on outstanding loans under the Credit
Agreement at a floating rate based on, at the Companys election, (i) LIBOR (subject to reserve
requirements) or (ii) the greatest of (a) the Federal Funds Rate plus 1/2%, (b) three-month LIBOR
plus 1% and (c) Wells Fargo Bank, National Associations prime rate (such greatest rate, the Base
Rate), in each case, plus
9
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an applicable margin. The initial applicable margins with respect to
LIBOR-based loans and Base Rate loans are 2.25% and 1.25%, respectively, and may increase or
decrease based on the Companys total leverage ratio.
The Companys obligations under the Credit Agreement are secured by a first priority lien on
substantially all of the assets of the Company and the guarantors, which include the Companys
material domestic subsidiaries. The Credit Agreement includes customary limitations on the
Companys ability to, among other things, incur debt, grant liens, make acquisitions and other
investments, make certain restricted payments such as dividend payments, dispose of assets or
undergo a change of control. The Credit Agreement also requires the
Company to maintain a minimum fixed charge ratio, a maximum total leverage ratio and, under
certain circumstances, a minimum liquidity requirement.
7. Legal Proceedings
Dillards, Inc. vs. i2 Technologies, Inc.
In September 2007, Dillards, Inc. filed a lawsuit against i2 in the 191st Judicial
District Court of Dallas County, Texas, (the trial court) Cause No. 07-10924-J, which alleges
that i2 committed fraud and failed to meet certain obligations to Dillards regarding the purchase
of two i2 products in the year 2000 under a software license agreement and related services
agreement. Dillards paid i2 approximately $8.1 million under these two agreements.
As previously reported, on June 15, 2010, a jury in the District Court of the State
of Texas, County of Dallas, returned an adverse verdict in the litigation between Dillards, Inc.
and i2. On September 30, 2010, the trial court signed a judgment awarding Dillards $237 million,
plus post-judgment interest of 5% per annum. On October 4, 2010, i2 posted a $25 million
supersedeas bond. By posting the bond, under Texas law, the execution of the judgment was suspended,
which means the judgment will not have to be paid during the appeals process. On December 2, 2010,
we met with Dillards for a mediation session. During that mediation session, settlement offers
were exchanged, but no agreement was reached. Therefore, on December 23, 2010 i2 filed a Notice of
Appeal with the Dallas Court of Appeals. The appeals process is not expected to be resolved prior
to the end of 2011. There can be no assurance that it will be successful or that the litigation
will be settled on terms acceptable to JDA.
The Company will accrue an estimated loss from this matter if it is probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. In evaluating
the probability of an unfavorable outcome in this litigation we have considered (a) the nature of
the litigation and claim, (b) the progress in the case, (c) the opinions of legal counsel and other
advisors, (d) the experience of the Company and others in similar cases, (e) how management intends
to respond in the event an unfavorable final judgment is returned by the trial court and (f)
settlement discussions. We currently estimate the potential loss for this matter to range between
$19 million (the highest settlement offer exchanged) and $237 million (representing a maximum award
for lost profits, punitive damages and pre-judgment interest), plus post-judgment interest. The
final trial court judgment or any revised result that may be achieved through an appeals process
(which could take more than a year to complete) could result in multiple potential outcomes within
this range. Management has determined that the best estimate of the potential outcome of this
matter is $19.0 million, of which $5.0 million was recorded on the opening balance sheet of i2
following JDAs acquisition of i2 in January 2010 and $14.0 million was recorded in December 2010
in the Consolidated Statements of Income under the caption Litigation provision and in the
Consolidated Balance Sheets under the caption Accrued expenses and other liabilities.
i2 Technologies, Inc. vs. Oracle Corporation
On April 29, 2009, i2 filed a lawsuit for patent infringement against Oracle Corporation
(NASDAQ: ORCL). The lawsuit, filed in the United States District Court for the Eastern District of
Texas, Tyler Division (No. 6:09-cv-194-LED) alleges infringement of 11 patents related to supply
chain management, available to promise software and other enterprise software applications. On
April 22, 2010, Oracle filed counterclaims against i2 and JDA Software Group, Inc. (of which i2 is
now a wholly-owned subsidiary) alleging the infringement by i2 of four Oracle patents. In response
to i2s motion to sever the Oracle counterclaim, on June 11, 2010, the trial court split the
initial case into two cases, staying the second case (No. 6:10-cv-00284-LED) pending the outcome of
the first case. The trial court instructed i2 to select five patents for the first case
(subsequently reduced by i2 to four patents) and Oracle to select one patent for the first case.
On February 25, 2011, the Company, i2 and Oracle Corporation entered into a settlement
agreement (the Agreement). Under the Agreement, the parties entered into a cross-license
arrangement and dismissed their respective litigation claims related to the patent
infringement dispute with prejudice. In addition, the Company received a one-time cash payment of
$35.0 million from Oracle Corporation, as well as a $2.5 million license and technical support
credit from Oracle Corporation that must be used by the Company within two years.
10
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Shareholder Class Action Litigation
In December, 2009, the Company was sued in a putative shareholder class action against i2
and its board of directors, in the County Court of Law No. 2 of Dallas County (No. CC-09-08476-B).
The plaintiffs allege in this lawsuit that the directors of i2 breached their fiduciary duties to
shareholders of i2 by selling i2 to the Company via an allegedly unfair process and at an unfair
price, and that the Company aided and abetted this alleged breach. On January 26, 2010, the Court
denied the plaintiffs request for a preliminary injunction that sought to enjoin the merger
between JDA and i2. The plaintiffs subsequently filed an amended complaint, alleging unspecified
monetary damages in addition to declaratory and injunctive relief and attorneys fees. The Company,
i2 and i2s directors have denied all allegations. The parties agreed upon a settlement agreement,
dated February 1, 2011 (Settlement Agreement). The Court preliminarily approved the Settlement
Agreement on March 3, 2011. Final Court approval of the Settlement Agreement is scheduled for May
20, 2011. The Settlement Agreement, if it receives final approval by the Court, will provide that
(i) the pendency and prosecution of the lawsuit and the efforts of plaintiffs counsel were a
reason and cause for the decision by i2s then board of directors to provide additional disclosures
in the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on or
about November 19, 2009, in connection with the Companys acquisition of i2 and (ii) plaintiffs
counsel may apply to the court for an award of attorneys fees and costs of $0.5 million to be paid
by i2, which will be funded by its directors and officers liability insurer.
We are involved in other legal proceedings and claims arising in the ordinary course
of business. Although there can be no assurance, management does not currently believe the
disposition of these matters will have a material adverse effect on our business, financial
position, results of operations or cash flows.
8. Share-Based Compensation
The Company has a stock-based compensation program that provides the Board of Directors broad
discretion in creating equity incentives for employees, officers, directors and consultants. This
program includes stock purchase rights, stock bonuses, restricted stock, restricted stock units,
performance awards, performance units and deferred compensation awards.
Annual stock-based incentive programs (Performance Programs) have been approved for
executive officers and certain other members of our management team for years 2007 through 2011
that provide for contingently issuable performance share awards or restricted stock units upon
achievement of defined performance threshold goals.
In February 2011, the Board approved a stock-based incentive program for 2011 (2011
Performance Program). The 2011 Performance Program provides for the issuance of contingently
issuable performance share awards under the 2005 Incentive Plan to executive officers and certain
other members of our management team if we are able to achieve a defined adjusted EBITDA
performance threshold goal in 2011. A partial pro-rata issuance of performance share awards will be
made if we achieve a minimum adjusted EBITDA performance threshold. The 2011 Performance Program
initially provides for the issuance of up to approximately 0.7 million of targeted contingently
issuable performance share awards. The performance share awards, if any, will be issued after the
approval of our 2011 financial results in January 2012 and will vest 50% upon the date of issuance
with one-half of the remaining 50% vesting on each of the next two anniversaries of the initial
vest date. Our performance against the defined performance threshold goal will be evaluated on a
quarterly basis throughout 2011 and share-based compensation will be recognized over the requisite
service period that runs from January 28, 2011 (the date of board approval) through January 2014.
Although all necessary service and performance conditions have not been met through March 31, 2011,
based on the three months ended March 31, 2011 results and the outlook for the remainder of 2011,
management has determined that it is probable the Company will achieve its minimum adjusted EBITDA
performance threshold. We have recorded $5.6 million in stock-based compensation expense related to
these awards in the three months ended March 31, 2011.
The Company has recognized stock-based compensation as follows (in thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Cost of maintenance services |
$ | 167 | $ | 114 | ||||
Cost of consulting services |
664 | 448 | ||||||
Product development |
692 | 333 | ||||||
Sales and marketing |
1,441 | 866 | ||||||
General and administrative |
2,609 | 1,516 | ||||||
Total stock-based compensation expense |
$ | 5,573 | $ | 3,277 | ||||
9. Income Taxes
For the three months ended March 31, 2011, income taxes were calculated using the liability
method. The provision for income taxes reflects the Companys estimate of the effective rate
expected to be applicable for the full fiscal year, adjusted by any discrete events, which are
reported in the period in which they occur. This estimate is re-evaluated each quarter based on our
estimated tax expense for the year.
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We recorded an income tax provision and benefit of approximately $3.8 million and ($0.9)
million for the three months ended March 31, 2011 and 2010, respectively, representing effective
income tax rates of 7.7% and 18.21%, for the corresponding periods. Our effective income tax rate
during the three months ended March 31, 2010 differs from our statutory rate of 35% primarily due
to the mix of revenue by jurisdiction, changes in our liability for uncertain tax positions, state
income taxes (net of federal benefit), and items not deductible for tax, including those related to
certain costs the Company incurred in the acquisition of i2 during the first
quarter of 2010. Our effective income tax rate during the three months ended March 31, 2011
differs from our statutory rate of 35% primarily due to the mix of revenue by jurisdiction, state
income taxes (net of federal benefit) and the tax benefits related to a specified tax deduction
that offsets a substantial portion of our litigation settlements.
As of March 31, 2011 approximately $14.5 million of unrecognized tax benefits would impact our
effective tax rate if recognized. It is reasonably possible that approximately $6.7 million of
unrecognized tax benefits will be recognized within the next twelve months. We have placed a
valuation allowance against the Arizona research and development credit as we do not expect to be
able to utilize it prior to its expiration.
We treat interest and penalties related to uncertain tax positions as a component of income
tax expense. We have accrued interest and penalties related to uncertain tax positions of $0.3
million and $0.4 million in the three months ended March 31, 2011 and 2010, respectively. As of
March 31, 2011 and December 31, 2010 there are approximately $3.4 million and $3.0 million,
respectively, of interest and penalty accruals related to uncertain tax positions which are
reflected in the consolidated balance sheet under the caption Liability for uncertain tax
positions. To the extent interest and penalties are not assessed with respect to the uncertain tax
positions, the accrued amounts for interest and penalties will be reduced and reflected as a
reduction of the overall tax provision.
We conduct business globally and, as a result, JDA Software Group, Inc. or one or more of our
subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. In the normal course of business we are subjected to examination by taxing
authorities throughout the world, including the United States, the United Kingdom, and India. With
few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax
examinations for years before 2004 due to the expiration of the statute of limitations. We are
currently under audit by the Internal Revenue Service for the 2010 tax year, the UK for the 2009
tax year and various other years in India. The examination phase of these audits has not yet been
completed; however, we do not anticipate any material adjustments.
We have participated in the Internal Revenue Services Compliance Assurance Program (CAP)
since 2007. The CAP program was developed by the Internal Revenue Service to allow for transparency
and to remove uncertainties in tax compliance. The Internal Revenue Service has completed their
audit of our tax returns prior to 2009 and no adjustments have been made as a result of this
examination.
10. Earnings per Share
The dilutive effect of all outstanding stock options is included in the diluted earnings per
share calculations for 2011 using the treasury stock method as there were no stock options that had
grant prices in excess of the average stock price for the three months ended March 31, 2011.
Diluted earnings per share for the three months ended March 31, 2010 exclude approximately 0.7
million of vested options for the purchase of common stock as their inclusion would be
anti-dilutive due to the net loss incurred in first quarter 2010.
Earnings per share for three months ended March 31, 2011 and 2010 are calculated as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Numerator: |
||||||||
Net income (loss) |
$ | 45,528 | $ | (4,268 | ) | |||
Denominator: |
||||||||
Shares used in computing basic earnings per share |
42,133 | 39,343 | ||||||
Dilutive common stock equivalents |
474 | | ||||||
Shares used in computing diluted earnings per
share |
42,607 | 39,343 | ||||||
Basic earnings per share |
$ | 1.08 | $ | (0.11 | ) | |||
Diluted earnings per share |
$ | 1.07 | $ | (0.11 | ) | |||
12
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11. Segment Information
JDA is a leading global provider of sophisticated enterprise software solutions designed
specifically to address the supply chain, merchandising and pricing requirements of manufacturers,
wholesale/distributors and retailers, as well as government and aerospace defense contractors and
travel, transportation, hospitality and media organizations. The Company has licensed its software
to more than 6,000 customers worldwide. The Company reports operations within the following
segments, which is how our chief operating decision maker views, evaluates and makes decisions
about resource allocations within our business:
| Supply Chain. This reportable business segment includes all revenues related to applications and services sold to customers in the supply chain management market. The majority of our products are specifically designed to provide customers with one synchronized view of product demand while managing the flow and allocation of materials, information, finances and other resources across global supply chains, from manufacturers to distribution centers and transportation networks to the retail store and consumer (collectively, the Supply Chain) . | |
| Pricing and Revenue Management. This reportable business segment includes all revenues related to applications and services sold to customers in service industries such as travel, transportation, hospitality, media and telecommunications. The Pricing and Revenue Management segment is centrally managed by a team that has global responsibilities for this market. |
A summary of the revenues, operating income and depreciation attributable to each of these
reportable business segments for the three months ended March 31, 2011 and 2010 is as follows:
Three Months | ||||||||
Ended March 31, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Supply Chain |
$ | 159,326 | $ | 125,233 | ||||
Pricing and Revenue Management |
4,280 | 6,398 | ||||||
$ | 163,606 | $ | 131,631 | |||||
Operating Income (Loss): |
||||||||
Supply Chain |
$ | 49,559 | $ | 39,904 | ||||
Pricing and Revenue Management |
(420 | ) | 607 | |||||
Other (see below) |
5,152 | (40,764 | ) | |||||
$ | 54,291 | $ | (253 | ) | ||||
Depreciation: |
||||||||
Supply Chain |
$ | 2,819 | $ | 2,429 | ||||
Pricing and Revenue Management |
167 | 216 | ||||||
$ | 2,986 | $ | 2,645 | |||||
Other: |
||||||||
General and administrative |
$ | 22,088 | $ | 17,697 | ||||
Amortization of intangible assets |
9,718 | 8,566 | ||||||
Restructuring charge and adjustments to
acquisition-related reserves |
542 | 7,758 | ||||||
Acquisition-related costs |
| 6,743 | ||||||
Litigation settlement |
(37,500 | ) | | |||||
$ | (5,152 | ) | $ | 40,764 | ||||
Operating income in the Supply Chain and Pricing and Revenue Management reportable business
segments includes direct expenses for software licenses, maintenance services, service revenues,
and product development expenses, as well as allocations for sales and marketing expenses,
occupancy costs, depreciation expense and amortization of acquired software technology. The Other
caption includes general and administrative expenses and other charges that are not directly
identified with a particular reportable business segment and which management does not consider in
evaluating the operating income (loss) of the reportable business segment.
Table of Contents
12. Condensed Consolidating Financial Information
Pursuant to the indenture governing the Senior Notes detailed in Note 9. to the consolidated financial statements in the Companys
Annual Report on Form 10-K for the year ended December 31, 2010, the Companys obligations under
the Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis
by substantially all of its existing and future domestic subsidiaries. Pursuant to Regulation S-X,
Section 210.3-10(f), the Company is required to present condensed consolidating financial
information for subsidiaries that have guaranteed the debt of a registrant issued in a public
offering, where the guarantee is full and unconditional, joint and several, and where the voting
interest of the subsidiary is 100% owned by the registrant.
The following tables present condensed consolidating balance sheets as of March 31, 2011 and
December 31, 2010, and condensed consolidating statements of income for the three months ended
March 31, 2011 and 2010, and condensed consolidating statements of cash flow for the three months
ended March 31, 2011 and 2010 for (i) JDA Software Group, Inc. the parent company and issuer of
the Senior Notes, (ii) the guarantor subsidiaries on a combined basis, (iii) the non-guarantor
subsidiaries on a combined basis, (iv) elimination adjustments, and (v) total consolidating
amounts. The condensed consolidating financial information should be read in conjunction with the
consolidated financial statements herein as well as in conjuction with the audited financial
statements and notes thereto included in the Companys Annual Report on form 10-K for the year
ended December 31, 2010.
14
Table of Contents
Unaudited Condensed Consolidating Balance Sheets
March 31, 2011
(in thousands)
March 31, 2011
(in thousands)
JDA Software | Guarantor | Non-Guarantor | ||||||||||||||||||
Group, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 183,091 | $ | 43,040 | $ | | $ | 226,131 | ||||||||||
Restricted cash |
| 33,552 | 845 | | 34,397 | |||||||||||||||
Account receivable, net |
| 109,208 | 29,472 | | 138,680 | |||||||||||||||
Income tax receivable |
2,145 | (2,703 | ) | 1,416 | | 858 | ||||||||||||||
Deferred tax assetscurrent portion |
| 40,081 | 2,308 | | 42,389 | |||||||||||||||
Prepaid expenses and other current assets |
985 | 26,195 | 10,606 | | 37,786 | |||||||||||||||
Total current assets |
3,130 | 389,424 | 87,687 | | 480,241 | |||||||||||||||
Non-Current Assets: |
||||||||||||||||||||
Property and equipment, net |
| 40,608 | 6,791 | | 47,399 | |||||||||||||||
Goodwill |
| 226,863 | | | 226,863 | |||||||||||||||
Other intangibles, net |
| 175,846 | | 175,846 | ||||||||||||||||
Deferred tax assetslong-term portion |
| 242,276 | 11,247 | | 253,523 | |||||||||||||||
Other non-current assets |
6,922 | 132 | 11,854 | 18,908 | ||||||||||||||||
Investment in subsidiaries |
234,562 | 37,486 | 7,181 | (279,229 | ) | | ||||||||||||||
Intercompany accounts |
710,987 | (739,291 | ) | 28,304 | | | ||||||||||||||
Total non-current assets |
952,471 | (16,080 | ) | 65,377 | (279,229 | ) | 722,539 | |||||||||||||
Total Assets |
$ | 955,601 | $ | 373,344 | $ | 153,064 | $ | (279,229 | ) | $ | 1,202,780 | |||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 9,430 | $ | 2,663 | $ | | $ | 12,093 | ||||||||||
Accrued expenses and other liabilities |
6,669 | 56,711 | 27,980 | | 91,360 | |||||||||||||||
Income taxes payable |
| (1,898 | ) | 1,898 | | | ||||||||||||||
Deferred revenuecurrent portion |
| 94,203 | 36,176 | | 130,379 | |||||||||||||||
Total current liabilities |
6,669 | 158,446 | 68,717 | | 233,832 | |||||||||||||||
Non-Current Liabilities: |
||||||||||||||||||||
Long-term debt |
272,818 | | | | 272,818 | |||||||||||||||
Accrued exit and disposal obligations |
| 3,034 | 3,262 | | 6,296 | |||||||||||||||
Liability for uncertain tax positions |
| 4,186 | 1,866 | | 6,052 | |||||||||||||||
Deferred revenuelong-term portion |
| 7,668 | | | 7,668 | |||||||||||||||
Total non-current liabilities |
272,818 | 14,888 | 5,128 | | 292,834 | |||||||||||||||
Total Liabilities |
279,487 | 173,334 | 73,845 | | 526,666 | |||||||||||||||
Stockholders Equity |
676,114 | 200,010 | 79,219 | (279,229 | ) | 676,114 | ||||||||||||||
Total Liabilities and Stockholders Equity |
$ | 955,601 | $ | 373,344 | $ | 153,064 | $ | (279,229 | ) | $ | 1,202,780 | |||||||||
15
Table of Contents
Condensed Consolidating Balance Sheets
December 31, 2010
(in thousands)
December 31, 2010
(in thousands)
JDA Software | Guarantor | Non-Guarantor | ||||||||||||||||||
Group, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 133,631 | $ | 37,987 | $ | | $ | 171,618 | ||||||||||
Restricted cash |
| 34,021 | 834 | | 34,855 | |||||||||||||||
Account receivable, net |
| 79,886 | 22,232 | | 102,118 | |||||||||||||||
Income tax receivable |
9,098 | (8,685 | ) | (413 | ) | | | |||||||||||||
Deferred tax assetscurrent portion |
| 41,512 | 2,241 | | 43,753 | |||||||||||||||
Prepaid expenses and other current assets |
440 | 18,914 | 8,369 | | 27,723 | |||||||||||||||
Total current assets |
9,538 | 299,279 | 71,250 | | 380,067 | |||||||||||||||
Non-Current Assets: |
||||||||||||||||||||
Property and equipment, net |
| 40,147 | 7,300 | | 47,447 | |||||||||||||||
Goodwill |
| 226,863 | | | 226,863 | |||||||||||||||
Other intangibles, net |
| 187,398 | | | 187,398 | |||||||||||||||
Deferred tax assetslong-term portion |
| 243,837 | 11,549 | | 255,386 | |||||||||||||||
Other non-current assets |
5,636 | 135 | 10,596 | | 16,367 | |||||||||||||||
Investment in subsidiaries |
185,168 | 49,547 | (7,111 | ) | (227,604 | ) | | |||||||||||||
Intercompany accounts |
697,438 | (724,996 | ) | 27,558 | | | ||||||||||||||
Total non-current assets |
888,242 | 22,931 | 49,892 | (227,604 | ) | 733,461 | ||||||||||||||
Total Assets |
$ | 897,780 | $ | 322,210 | $ | 121,142 | $ | (227,604 | ) | $ | 1,113,528 | |||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 18,892 | $ | 2,200 | $ | | $ | 21,092 | ||||||||||
Accrued expenses and other liabilities |
978 | 54,931 | 28,029 | | 83,938 | |||||||||||||||
Income taxes payable |
| (379 | ) | 697 | | 318 | ||||||||||||||
Deferred revenuecurrent portion |
| 64,265 | 23,790 | | 88,055 | |||||||||||||||
Total current liabilities |
978 | 137,709 | 54,716 | | 193,403 | |||||||||||||||
Non-Current Liabilities: |
||||||||||||||||||||
Long-term debt |
272,695 | | | | 272,695 | |||||||||||||||
Accrued exit and disposal obligations |
| 3,997 | 3,363 | | 7,360 | |||||||||||||||
Liability for uncertain tax positions |
| 4,071 | 2,802 | | 6,873 | |||||||||||||||
Deferred revenuelong-term portion |
| 9,090 | | | 9,090 | |||||||||||||||
Total non-current liabilities |
272,695 | 17,158 | 6,165 | | 296,018 | |||||||||||||||
Total Liabilities |
273,673 | 154,867 | 60,881 | | 489,421 | |||||||||||||||
Stockholders Equity |
624,107 | 167,343 | 60,261 | (227,604 | ) | 624,107 | ||||||||||||||
Total Liabilities and Stockholders Equity |
$ | 897,780 | $ | 322,210 | $ | 121,142 | $ | (227,604 | ) | $ | 1,113,528 | |||||||||
16
Table of Contents
Unaudited Condensed Consolidating Statements of Income
Three Months Ended March 31, 2011
(in thousands)
Three Months Ended March 31, 2011
(in thousands)
JDA Software | Guarantor | Non-Guarantor | ||||||||||||||||||
Group, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
REVENUES: |
||||||||||||||||||||
Software licenses |
$ | | $ | 31,480 | $ | | $ | | $ | 31,480 | ||||||||||
Subscriptions and other recurring revenues |
| 4,994 | | | 4,994 | |||||||||||||||
Maintenance services |
| 45,472 | 19,296 | | 64,768 | |||||||||||||||
Product revenues |
| 81,946 | 19,296 | | 101,242 | |||||||||||||||
Consulting services |
| 40,866 | 16,778 | | 57,644 | |||||||||||||||
Reimbursed expenses |
| 2,903 | 1,817 | | 4,720 | |||||||||||||||
Service revenues |
| 43,769 | 18,595 | | 62,364 | |||||||||||||||
Total revenues |
| 125,715 | 37,891 | | 163,606 | |||||||||||||||
COST OF REVENUES: |
||||||||||||||||||||
Cost of software licenses |
| 949 | | | 949 | |||||||||||||||
Amortization of acquired software technology |
| 1,834 | | | 1,834 | |||||||||||||||
Cost of maintenance services |
| 9,001 | 4,985 | | 13,986 | |||||||||||||||
Cost of product revenues |
| 11,784 | 4,985 | | 16,769 | |||||||||||||||
Cost of consulting services |
| 30,534 | 16,068 | | 46,602 | |||||||||||||||
Reimbursed expenses |
| 2,903 | 1,817 | | 4,720 | |||||||||||||||
Cost of service revenues |
| 33,437 | 17,885 | | 51,322 | |||||||||||||||
Total cost of revenues |
| 45,221 | 22,870 | | 68,091 | |||||||||||||||
GROSS PROFIT |
| 80,494 | 15,021 | | 95,515 | |||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||||
Product development |
| 12,725 | 7,411 | | 20,136 | |||||||||||||||
Sales and marketing |
| 16,284 | 9,956 | | 26,240 | |||||||||||||||
General and administrative |
| 18,637 | 3,451 | | 22,088 | |||||||||||||||
Amortization of intangibles |
| 9,718 | | | 9,718 | |||||||||||||||
Restructuring charges |
| 283 | 259 | | 542 | |||||||||||||||
Acquisition-related costs |
| | | | | |||||||||||||||
Litigation settlement |
| (37,500 | ) | | | (37,500 | ) | |||||||||||||
Total operating expenses |
| 20,147 | 21,077 | | 41,224 | |||||||||||||||
OPERATING INCOME |
| 60,347 | (6,056 | ) | | 54,291 | ||||||||||||||
Interest expense and amortization of loan fees |
(5,642 | ) | (498 | ) | (71 | ) | | (6,211 | ) | |||||||||||
Interest income and other, net |
| (9,491 | ) | 10,761 | | 1,270 | ||||||||||||||
Income tax provision |
2,145 | (4,437 | ) | (1,530 | ) | | (3,822 | ) | ||||||||||||
Equity in earnings of subsidiaries, net |
49,025 | (13,477 | ) | | (35,548 | ) | | |||||||||||||
NET INCOME (LOSS) |
$ | 45,528 | $ | 32,444 | $ | 3,104 | $ | (35,548 | ) | $ | 45,528 | |||||||||
17
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Unaudited Condensed Consolidating Statements of Income
Three Months Ended March 31, 2010
(in thousands)
Three Months Ended March 31, 2010
(in thousands)
JDA Software | Guarantor | Non-Guarantor | ||||||||||||||||||
Group, Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
REVENUES: |
||||||||||||||||||||
Software licenses |
$ | | $ | 24,437 | $ | | $ | | $ | 24,437 | ||||||||||
Subscriptions and other recurring revenues |
| 4,287 | | | 4,287 | |||||||||||||||
Maintenance services |
| 38,287 | 18,773 | | 57,060 | |||||||||||||||
Product revenues |
| 67,011 | 18,773 | | 85,784 | |||||||||||||||
Consulting services |
| 30,685 | 12,317 | | 43,002 | |||||||||||||||
Reimbursed expenses |
| 2,136 | 709 | | 2,845 | |||||||||||||||
Service revenues |
| 32,821 | 13,026 | | 45,847 | |||||||||||||||
Total revenues |
| 99,832 | 31,799 | | 131,631 | |||||||||||||||
COST OF REVENUES: |
||||||||||||||||||||
Cost of software licenses |
| 1,008 | | | 1,008 | |||||||||||||||
Amortization of acquired software technology |
| 1,576 | | | 1,576 | |||||||||||||||
Cost of maintenance services |
| 8,349 | 3,684 | | 12,033 | |||||||||||||||
Cost of product revenues |
| 10,933 | 3,684 | | 14,617 | |||||||||||||||
Cost of consulting services |
| 25,096 | 10,173 | | 35,269 | |||||||||||||||
Reimbursed expenses |
| 2,136 | 709 | | 2,845 | |||||||||||||||
Cost of service revenues |
| 27,232 | 10,882 | | 38,114 | |||||||||||||||
Total cost of revenues |
| 38,165 | 14,566 | | 52,731 | |||||||||||||||
GROSS PROFIT |
| 61,667 | 17,233 | | 78,900 | |||||||||||||||
OPERATING EXPENSES: |
||||||||||||||||||||
Product development |
| 11,973 | 5,304 | | 17,277 | |||||||||||||||
Sales and marketing |
| 13,458 | 7,654 | | 21,112 | |||||||||||||||
General and administrative |
| 14,585 | 3,112 | | 17,697 | |||||||||||||||
Amortization of intangibles |
| 8,566 | | | 8,566 | |||||||||||||||
Restructuring charges |
| 5,143 | 2,615 | | 7,758 | |||||||||||||||
Acquisition-related costs |
| 6,743 | | | 6,743 | |||||||||||||||
Litigation settlement |
| | | |||||||||||||||||
Total operating expenses |
| 60,468 | 18,685 | | 79,153 | |||||||||||||||
OPERATING INCOME |
| 1,199 | (1,452 | ) | | (253 | ) | |||||||||||||
Interest expense and amortization of loan fees |
(5,927 | ) | (120 | ) | (39 | ) | | (6,086 | ) | |||||||||||
Interest income and other, net |
| (3,591 | ) | 4,714 | | 1,123 | ||||||||||||||
Income tax provision |
2,252 | (474 | ) | (830 | ) | | 948 | |||||||||||||
Equity in earnings of subsidiaries, net |
(593 | ) | 1,142 | (549 | ) | | ||||||||||||||
NET (LOSS) INCOME |
$ | (4,268 | ) | $ | (1,844 | ) | $ | 2,393 | $ | (549 | ) | $ | (4,268 | ) | ||||||
18
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Unaudited Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2011
(in thousands)
Three Months Ended March 31, 2011
(in thousands)
JDA Software | Guarantor | Non-Guarantor | ||||||||||||||||||
Group, Inc. | Subsidiaries | Subsidiaries | Elminations | Consolidated | ||||||||||||||||
Net Cash Provided by Operating Activities |
$ | (238 | ) | $ | 52,737 | $ | 6,184 | $ | | $ | 58,683 | |||||||||
Investing Activities: |
||||||||||||||||||||
Change in restricted cash |
458 | | | 458 | ||||||||||||||||
Purchase of i2 Technologies, Inc. |
| | | | | |||||||||||||||
Payment of direct costs related to acquisitions |
| (840 | ) | | | (840 | ) | |||||||||||||
Purchase of property and equipment |
| (2,580 | ) | (417 | ) | | (2,997 | ) | ||||||||||||
Proceeds from dipsosal of property and equipment |
| 26 | | | 26 | |||||||||||||||
Net cash (used in) provided by investing activities |
458 | (3,394 | ) | (417 | ) | | (3,353 | ) | ||||||||||||
Financing Activities: |
||||||||||||||||||||
Issuance of common stockequity plans |
3,002 | | 3,002 | |||||||||||||||||
Purchase of treasury stock and other, net |
(3,222 | ) | | (3,222 | ) | |||||||||||||||
Debt Issuance Costs |
(1,656 | ) | (1,656 | ) | ||||||||||||||||
Change in intercompany receivable/payable |
6 | (6 | ) | | | |||||||||||||||
Net cash (used in) provided by financing activities |
(220 | ) | 6 | (1,662 | ) | | (1,876 | ) | ||||||||||||
Effect of exchange rates on cash and cash equivalents |
| 112 | 947 | | 1,059 | |||||||||||||||
Net (decrease) increase in cash and cash equivalents |
| 49,461 | 5,052 | | 54,513 | |||||||||||||||
Cash and Cash Equivalents, Beginning of Period |
| 133,631 | 37,987 | | 171,618 | |||||||||||||||
Cash and Cash Equivalents, End of Period |
$ | | $ | 183,092 | $ | 43,039 | $ | | $ | 226,131 | ||||||||||
Unaudited Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2010
(in thousands)
Three Months Ended March 31, 2010
(in thousands)
JDA Software | Guarantor | Non-Guarantor | ||||||||||||||||||
Group, Inc. | Subsidiaries | Subsidiaries | Elminations | Consolidated | ||||||||||||||||
Net Cash Provided by Operating Activities |
$ | 137,215 | $ | (138,053 | ) | $ | 13,033 | $ | | $ | 12,195 | |||||||||
Investing Activities: |
||||||||||||||||||||
Change in restricted cash |
287,048 | (10,871 | ) | | | 276,177 | ||||||||||||||
Purchase of i2 Technologies, Inc. |
(431,775 | ) | 218,348 | | | (213,427 | ) | |||||||||||||
Payment of direct costs related to acquisitions |
| (850 | ) | | | (850 | ) | |||||||||||||
Purchase of property and equipment |
| (271 | ) | (262 | ) | | (533 | ) | ||||||||||||
Proceeds from dipsosal of property and equipment |
| 12 | 5 | | 17 | |||||||||||||||
Net cash (used in) provided by investing activities |
(144,727 | ) | 206,368 | (257 | ) | | 61,384 | |||||||||||||
Financing Activities: |
||||||||||||||||||||
Issuance of common stockequity plans |
10,904 | | | | 10,904 | |||||||||||||||
Purchase of treasury stock and other, net |
(3,392 | ) | | | | (3,392 | ) | |||||||||||||
Debt Issuance Costs |
| | ||||||||||||||||||
Change in intercompany receivable/payable |
| 19,559 | (19,559 | ) | | | ||||||||||||||
Net cash (used in) provided by financing activities |
7,512 | 19,559 | (19,559 | ) | | 7,512 | ||||||||||||||
Effect of exchange rates on cash and cash equivalents |
| (8,022 | ) | 6,774 | | (1,248 | ) | |||||||||||||
Net (decrease) increase in cash and cash equivalents |
| 79,852 | (9 | ) | | 79,843 | ||||||||||||||
Cash and Cash Equivalents, Beginning of Period |
| 47,170 | 28,804 | | 75,974 | |||||||||||||||
Cash and Cash Equivalents, End of Period |
$ | | $ | 127,022 | $ | 28,795 | $ | | $ | 155,817 | ||||||||||
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Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations contains
certain forward-looking statements that are made in reliance upon the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The forward-looking statements include
statements, among other things, concerning our business strategy, including anticipated trends and
developments in and management plans for our business and the markets in which we operate; future
financial results, operating results, revenues, gross margin, operating expenses, products,
projected costs and capital expenditures; research and development programs; sales and marketing
initiatives; and competition. Forward-looking statements are generally accompanied by words such as
will or expect and other words with forward-looking connotations. All forward-looking
statements included in this Form 10-Q are based upon information available to us as of the filing
date of this Form 10-Q. We undertake no obligation to update any of these forward-looking
statements for any reason. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity, performance,
or achievements to differ materially from those expressed or implied by these statements. These
factors include the matters discussed in the section entitled Risk Factors
in our Annual Report on Form 10-K for the year ended December 31, 2010.
You should carefully consider the risks and uncertainties described under this section.
Results of Operations
The results of operations for the three months ended March 31, 2010 include the impact of our
acquisition of i2 from the date of acquisition (January 28, 2010).
Revenues
The following table summarizes revenues and the components of total revenue as a
percentage of total revenue (in thousands, except percentages):
Dollar | ||||||||||||||||||||
Three Months Ended March 31, | change from | |||||||||||||||||||
2011 | 2010 | 2010 | ||||||||||||||||||
Software licenses |
$ | 31,480 | 19 | % | $ | 24,437 | 19 | % | $ | 7,043 | ||||||||||
Subscriptions and other recurring revenues |
4,994 | 3 | % | 4,287 | 3 | % | 707 | |||||||||||||
Maintenance services |
64,768 | 40 | % | 57,060 | 43 | % | 7,708 | |||||||||||||
Product revenues |
101,242 | 62 | % | 85,784 | 65 | % | 15,458 | |||||||||||||
Service revenues |
62,364 | 38 | % | 45,847 | 35 | % | 16,517 | |||||||||||||
Total revenues |
$ | 163,606 | 100 | % | $ | 131,631 | 100 | % | $ | 31,975 | ||||||||||
Software and Subscription Revenues
The following table summarizes software and subscription revenues by region (in
thousands):
Three Months Ended | Dollar | |||||||||||
March 31, | change from | |||||||||||
2011 | 2010 | 2010 | ||||||||||
Americas |
$ | 21,104 | $ | 18,917 | $ | 2,187 | ||||||
Europe |
12,612 | 5,403 | 7,209 | |||||||||
Asia/Pacific |
2,758 | 4,404 | (1,646 | ) | ||||||||
Total software & subscription revenues |
$ | 36,474 | $ | 28,724 | $ | 7,750 | ||||||
The increase in software and subscription revenues is primarily due to the recognition of
higher dollar contracts for the three months ended March 31, 2011 compared to the three months
ended March 31, 2010. There were six large transactions (greater than $1.0 million), in the three
months ended March 31, 2011 as compared to eight
large transactions in same period of 2010. Our
trailing twelve month average selling price increased to approximately $0.7 million at March 31,
2011 as compared to $0.6 million for the same period ending March 31, 2010.
Maintenance Services
Maintenance services revenues increased for the three months ended March 31, 2011
compared to the three months ended March 31, 2010 primarily due to the incremental maintenance
revenues from the i2 products. The year to date retention rate at March 31, 2011 remained high at
98.5 percent compared to 98.3 percent at March 31, 2010. In addition, net favorable foreign
exchange rate variances increased maintenance services revenues for the first three months ended
March 31, 2011 by $075 million compared to the same period in 2010.
20
Table of Contents
Service Revenues
Service revenues, which include consulting services, managed services, training services,
net revenues from our hardware reseller business and reimbursed expenses, increased for the three
months ended March 31, 2011 compared to the three months ended March 31, 2010 primarily due to
implementation services and other consulting revenue on various projects started as a result of
large software sales in prior periods offset by the completion of projects initiated in 2010 as
well as additional services from the i2 acquisition.
Gross Profits (in thousands, except percentage amounts):
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Total gross profit on product revenues |
$ | 84,473 | $ | 71,167 | ||||
Total gross profit on service revenues |
11,042 | 7,733 | ||||||
Product gross profit as a percentage of
products sales |
83 | % | 83 | % | ||||
Service gross profit as a percentage of services |
18 | % | 17 | % |
Gross Profit on Product Revenues. The increase in gross profits for the three months ended
March 31, 2011 as compared to the same period of 2010 is primarily as a result of increased product
revenues. The product gross profits as a percentage of product revenues remained comparable as
product costs of sales grew in proportion to the increases in product revenues.
Gross Profit on Service Revenues. The increase in gross profits for the three months ended
March 31, 2011 as compared to the same period of 2010 is primarily as a result of increased
services revenues. The services gross profits as a percentage of services revenues improved as
revenues grew at a higher rate than the cost of services by approximately 100 basis points.
Operating Expenses
Product Development
The following table summarizes product development expenses in dollars and as a
percentage of total revenues (in thousands, except percentage amounts):
Dollar | ||||||||||||||||||||
Three Months Ended March 31, | change from | |||||||||||||||||||
2011 | 2010 | 2010 | ||||||||||||||||||
Product development |
$ | 20,136 | 12 | % | $ | 17,277 | 13 | % | $ | 2,859 |
Product development expense dollars increased in the three months ended March 31, 2011
compared to the same period in 2010 primarily due to an increase of $2.8 million in salaries,
incentive compensation and related benefits resulting from the associates added in the i2
acquisition; however, decreased as a percentage of revenue as a result of operating leverage
achieved.
Sales and Marketing
The following table summarizes sales and marketing expenses in dollars and as a
percentage of total revenues (in thousands, except percentage amounts):
Dollar | ||||||||||||||||||||
Three Months Ended March 31, | change from | |||||||||||||||||||
2011 | 2010 | 2010 | ||||||||||||||||||
Sales and marketing |
$ | 26,240 | 16 | % | $ | 21,112 | 16 | % | $ | 5,128 |
Sales and marketing expenses in the three months ended March 31, 2011 increased compared to
the same period in 2010 primarily due to an increase of $3.9 million in salaries, incentive
compensation and related benefits resulting from the associates added in the i2 acquisition and was
comparable as a percentage of total revenues with the prior year. We are investing in sales and
marketing in 2011 given the opportunities we see in our markets.
21
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General and Administrative
The following table summarizes general and administrative expenses in dollars and as a
percentage of total revenues (in thousands, except percentage amounts):
Dollar | ||||||||||||||||||||
Three Months Ended March 31, | change from | |||||||||||||||||||
2011 | 2010 | 2010 | ||||||||||||||||||
General and
administrative |
$ | 22,088 | 14 | % | $ | 17,697 | 13 | % | $ | 4,391 |
General and administrative expenses were greater in the three months ended March 31, 2011
compared to the same period in 2010 primarily due to an increase of approximately $2.8 million of
litigation expenses and $2.0 million of severance costs incurred.
Amortization of Intangibles (in thousands):
Three Months Ended | Dollar | |||||||||||
March 31, | change from | |||||||||||
2011 | 2010 | 2010 | ||||||||||
Amortization of intangibles |
$ | 9,718 | $ | 8,566 | $ | 1,152 |
The increase in amortization of intangibles for three months ended March 31, 2011 compared to
the same period in 2010 included the full three months of amortization related to the i2
intangibles acquired in the first quarter 2010.
Restructuring Charges (in thousands):
Three Months Ended | Dollar | |||||||||||
March 31, | change from | |||||||||||
2011 | 2010 | 2010 | ||||||||||
Restructuring charges |
$ | 542 | $ | 7,758 | $ | (7,216 | ) |
The decrease in restructuring charges for the three months
ended March 31, 2011 compared to the same period in 2010 was
primarily due to newer ongoing restructuring costs incurred related to the acquisition of i2, which was
completed in January 2010. The restructuring charges for the three months ended March 31, 2011 included severance costs for former i2 associates who were
terminated in this period
Other Operating Expenses (in thousands):
Three Months Ended | Dollar | |||||||||||
March 31, | change from | |||||||||||
2011 | 2010 | 2010 | ||||||||||
Acquisition-related costs |
$ | | $ | 6,743 | $ | (6,743 | ) | |||||
Litigation settlement |
$ | (37,500 | ) | $ | | $ | (37,500 | ) |
Acquisition-Related Costs. During first quarter 2010 we expensed approximately $6.7 million
of costs related to the acquisition of i2, which was completed on January 28, 2010. These costs consisted primarily of
investment banking fees, commitment fees on unused bank financing, legal and accounting fees.
Litigation Settlement. We received $35.0 million in cash and a $2.5 million license and
technical support credit related to a favorable litigation settlement of a patent infringement
claim against Oracle Corporation. See Note 7 to our condensed
consolidated financial statements for further information.
22
Table of Contents
Interest Expense and Other Income (in thousands):
Three Months Ended | Dollar | |||||||||||
March 31, | change from | |||||||||||
2011 | 2010 | 2010 | ||||||||||
Interest expense and
amortization of loan fees |
$ | 6,211 | $ | 6,086 | $ | 125 | ||||||
Interest income and other, net |
$ | (1,270 | ) | $ | (1,123 | ) | $ | (147 | ) |
Interest Expense and Other Income The interest expense and other income remained comparable
for the periods presented above.
Income Tax Provision (in thousands):
Three Months Ended | Dollar | |||||||||||
March 31, | change from | |||||||||||
2011 | 2010 | 2010 | ||||||||||
Income tax
provision (benefit) |
$ | 3,822 | $ | (948 | ) | $ | 4,770 |
We recorded an income tax provision of $3.8 million for the three months ended March 31, 2011
and a benefit of $0.9 million for the three months ended March 31, 2010, representing effective
income tax rates of 7.7% and 18.2%, respectively. Our effective income tax rate during the three
months ended March 31, 2010 differs from our statutory rate of 35% primarily due to the mix of
revenue by jurisdiction, changes in our liability for uncertain tax positions, state income taxes
(net of federal benefit), and items not deductible for tax, including those related to certain
costs the Company incurred in the acquisition of i2 Technologies, Inc. during the first quarter of
2010. Our effective income tax rate during the three months ended March 31, 2011 differs from our
statutory rate of 35% primarily due to the mix of revenue by jurisdiction, state income taxes (net
of federal benefit) and the tax benefits related to a specified tax deduction that offsets a
substantial portion of our litigation settlements.
Segment Information
JDA is a leading global provider of sophisticated enterprise software solutions designed
specifically to address the supply chain, merchandising and pricing requirements of manufacturers,
wholesale/distributors and retailers, as well as government and aerospace defense contractors and
travel, transportation, hospitality and media organizations. The Company has licensed its software
to more than 6,000 customers worldwide. The Company reports operations within the following
segments, which is how our chief operating decision maker views, evaluates and makes decisions
about resource allocations within our business:
| Supply Chain. This reportable business segment includes all revenues related to applications and services sold to customers in the supply chain management market. The majority of our products are specifically designed to provide customers with one synchronized view of product demand while managing the flow and allocation of materials, information, finances and other resources across global supply chains, from manufacturers to distribution centers and transportation networks to the retail store and consumer (collectively, the Supply Chain) . | |
| Pricing and Revenue Management. This reportable business segment includes all revenues related to applications and services sold to customers in service industries such as travel, transportation, hospitality, media and telecommunications. The Pricing and Revenue Management segment is centrally managed by a team that has global responsibilities for this market. |
A summary of the revenues, operating income and depreciation attributable to each of these
reportable business segments for the three months ended March 31, 2011 and 2010 is as follows:
Three Months | ||||||||
Ended March 31, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Supply Chain |
$ | 159,326 | $ | 125,233 | ||||
Pricing and Revenue Management |
4,280 | 6,398 | ||||||
$ | 163,606 | $ | 131,631 | |||||
Operating Income (Loss): |
||||||||
Supply Chain |
$ | 49,559 | $ | 39,904 | ||||
Pricing and Revenue Management |
(420 | ) | 607 | |||||
Other (see below) |
5,152 | (40,764 | ) | |||||
$ | 54,291 | $ | (253 | ) | ||||
Depreciation: |
||||||||
Supply Chain |
$ | 2,819 | $ | 2,429 | ||||
Pricing and Revenue Management |
167 | 216 | ||||||
$ | 2,986 | $ | 2,645 | |||||
Other: |
||||||||
General and administrative |
$ | 22,088 | $ | 17,697 | ||||
Amortization of intangible assets |
9,718 | 8,566 | ||||||
Restructuring charge and adjustments to
acquisition-related reserves |
542 | 7,758 | ||||||
Acquisition-related costs |
| 6,743 | ||||||
Litigation settlement |
(37,500 | ) | | |||||
$ | (5,152 | ) | $ | 40,764 | ||||
Operating income in the Supply Chain and Pricing and Revenue Management reportable business
segments includes direct expenses for software licenses, maintenance services, service revenues,
and product development expenses, as well as allocations for sales and marketing expenses,
occupancy costs, depreciation expense and amortization of acquired software technology. The Other
caption includes general and administrative expenses and other charges that are not directly
identified with a particular reportable business segment and which management does not consider in
evaluating the operating income (loss) of the reportable business segment.
Critical Accounting Policies
Managements Discussion and Analysis of Financial Condition and Results of Operations is based
upon our condensed consolidated financial statements, which we have prepared in accordance with
U.S. generally accepted accounting principles (GAAP). The preparation of these financial
statements requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and
liabilities. Management bases its estimates on historical experience and on various other
assumptions that it believes to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Management has discussed the development, selection and
disclosure of significant estimates with the Audit Committee of our Board of Directors. Actual
results may differ from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made
based on assumptions about matters that are highly uncertain at the time the estimate is made, if
different estimates reasonably could have been used, or if changes in the estimate that are
reasonably likely to occur could materially impact the financial statements. During the three
months ended March 31, 2011, there were no significant changes in our critical accounting
policies and estimates compared to those set forth in Item 7 of our Annual Report on Form 10-K for
the year ended December 31, 2010.
Liquidity and Capital Resources
Liquidity
Historically, we have financed our operations primarily through product and services sales and
debt securities. Our cash outflows have generally been as follows: cash used in operating
activities such as product development programs, sales and marketing activities, compensation and
benefits of our employees and other working capital needs; cash paid for acquisitions; cash paid
for litigation activities and settlements; and cash used for interest payments on our debt
obligations.
As of March 31, 2011, we had cash, cash equivalents, and restricted cash of approximately
$260.5 million. Additionally, in March 2011, we secured a $100.0 million line of credit that we
have not drawn upon to date. See Note 6 to our condensed consolidated financial statements for further information. We anticipate that our existing capital resources, along with the
cash to be generated from operations and our existing line of credit will enable us to maintain
currently planned operations, acquisitions, debt repayments and capital expenditures for the
foreseeable future. However, this expectation is based on our current operating and financing
plans, which are subject to change, and therefore we could require additional funding. Factors that
may cause us to require additional funding may include, but are not limited to future acquisitions,
litigation matters and other factors.
23
Table of Contents
Cash Flows
Operating activities provided cash of $58.7 million and $12.2 million during the three
months ended March 31, 2011 and 2010, respectively. The increase in cash flow is due primarily to a
$49.8 million increase in the current period net income of which $37.5 million was due to a
favorable litigation settlement (see Note 7, to our condensed consolidated financial statements). Changes in working capital
utilized approximately $11.1 million of cash in the three months ended March 31, 2011 and provided
approximately $2.2 million of cash in the three months ended March 31, 2010, due primarily to the
timing and payment of accounts receivable and accounts payable as well as decreases in deferred
revenue. Net accounts receivable were $138.7 million, or 76 days sales outstanding (DSO), at March
31, 2011 compared to $102.1 million, or 54 days DSO, at December 31, 2010. DSO results can fluctuate
significantly on a quarterly basis due to a number of factors including the timing of annual
maintenance renewals, seasonality, the percentage of total revenues that comes from software
license sales which may have installment payment terms, shifts in customer buying patterns, the
timing of customer payments, lengthened contractual payment terms in response to competitive
pressures, the underlying mix of products and services, and the geographic concentration of
revenues.
Investing activities used $3.4 million and provided $61.4 million of cash during the
three months ended March 31, 2011 and 2010, respectively. Investing activities in 2011 primarily
related to the purchase of property and equipment while 2010 included activities associated with
the acquisition of i2.
Financing activities used $1.9 million and provided $7.5 million of cash during the three
months ended March 31, 2011 and 2010, respectively. Financing activities include proceeds from the
issuance of common stock under our stock plans and the repurchase of shares tendered by employees
for payment of applicable statutory withholding taxes on the issuance of restricted stock.
Additionally, in 2011, we used $1.7 million in cash associated with our debt issuance costs on our new
$100.0 million line of credit.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
There have been no significant changes in our off-balance sheet arrangements and aggregate
contractual obligations as compared to those described in Item 7 of our Annual Report on Form 10-K
for the year ended December 31, 2010, other than the $100.0 million line of credit as discussed in
Note 6 to our condensed consolidated financial statements.
Other Recent Accounting Pronouncements
In September 2009, FASB issued an amendment to its accounting guidance on certain revenue
arrangements with multiple deliverables in sections 605 and 985 of the Codification that enables a
vendor to account for products and services (deliverables) separately rather than as a combined
unit. The revised guidance establishes a selling price hierarchy for determining the selling price
of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party
evidence; or (c) managements best estimate of selling price. This guidance also eliminates the
residual method of allocation and requires that the arrangement consideration be allocated at the
inception of the arrangement to all deliverables. In addition, this guidance significantly expands
required disclosures related to such revenue arrangements that have multiple
deliverables. The revised guidance is effective for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010 with early adoption
permitted. We adopted the new guidance as of January 1, 2011 and it did not have a material impact
on our results of operations for the three months ended March 31, 2011.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks
result primarily from changes in foreign currency exchange rates and interest rates. In addition,
our international operations are subject to risks related to differing economic conditions, changes
in political climate, differing tax structures, and other regulations and restrictions.
There have been no significant changes in our market risk as compared to that disclosed in
Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 4: Controls and Procedures
Disclosure Controls and Procedures. Under the supervision and with the participation of our
management, including our principal executive officer and principal financial and accounting
officer, we conducted an evaluation of our disclosure controls and procedures that were in effect
at the end of the period covered by this report. The phrase disclosure controls and procedures is
defined under Rule 13a-15(e) of the Securities Exchange Act of 1934 (the Act) and refers to those
controls and other procedures of an issuer that are designed to ensure that the information
required to be disclosed by the issuer in the reports it files or submits under the Act is
recorded, processed, summarized and reported, within the time periods specified in the Securities
and Exchange Commissions (the Commission) rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated
and communicated to the issuers management, including its principal executive officer and
principal financial officer, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Based on their evaluation, our principal executive
officer and principal financial and accounting officer have concluded that our disclosure controls
and procedures that were in effect on March 31, 2011 were effective to ensure that information
required to be disclosed in our reports to be filed under the Act is accumulated and communicated
to management, including the chief executive officer and
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chief financial officer, to allow timely
decisions regarding disclosures and is recorded, processed, summarized and reported within the time
periods specified in the Commissions rules and forms.
Changes in Internal Control Over Financial Reporting. The term internal control over
financial reporting is defined under Rule 13a-15(f) of the Act and refers to the process of a
company that is designed by, or under the supervision of, the issuers principal executive and
principal financial officers, or persons performing similar functions, and effected by the issuers
board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and includes those policies
and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the issuer; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the issuer are being made only in accordance with authorizations of management and
directors of the issuer; and (iii) provide reasonable assurance regarding the prevention or timely
detection of unauthorized acquisition, use or disposition of the issuers assets that could have a
material effect on the financial statements.
There were no changes in our internal controls over financial reporting during the three
months ended March 31, 2011 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information pertaining to legal proceedings can be found in Note 7 to our
condensed consolidated financial statements elsewhere in this Quarterly Report on Form 10-Q, and is
incorporated by reference herein.
Item 1A. Risk Factors
There have been no significant changes in our risk factors as compared to those set forth in
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 except as follows:
We may misjudge when software sales will be realized, which may materially reduce our revenue and
cash flow and adversely affect our business.
Software license revenues in any quarter depend substantially upon contracts signed and the
related delivery of software in that quarter. Because of the timing of our sales, we typically
recognize the substantial majority of our software license revenues in the last weeks or days of
the quarter. In addition, it is difficult to forecast the timing of large individual software
license sales with a high degree of certainty due to the extended length of the sales cycle and the
generally more complex contractual terms that may be associated with such licenses that could
result in the deferral of some or all of the revenue to future periods. Our customers and potential
customers, especially for large individual software license sales, typically require that their
senior executives, board of directors or significant equity investors approve such purchases
without the benefit of the direct input from our sales representatives. As a result, we may have
less visibility into the progression of the selection and approval process throughout our sales
cycles, which in turn makes it more difficult to predict the quarter in which individual sales will
occur, especially in large sales opportunities.
We are also at risk of having pending transactions abruptly terminated if the boards of
directors or executive management of our customers decide to decrease their information technology
budgets. When this type of behavior occurs among existing or potential customers, then we may face
a significant reduction in new software sales. We may be advised by our prospects that they can
sign agreements prior to the end of our quarter, when in fact their approval process precludes them
from being able to complete the transaction until after the end of our quarter. In addition,
because of the current economic and market conditions, we may need to increase our use of alternate
licensing models that reduce the amount of software revenue we recognize upon shipment of our
software.
In addition to the above, we may be unable to recognize revenues associated with certain
projects in accordance with our expectations. We occasionally enter into projects which require the
percentage of completion method of contract accounting or milestone based projects. Failure to
complete project phases in accordance with the overall project plan can create variability in our
expected revenue streams if we are not able to recognize revenues related to particular projects
because of delays in development and delivery.
We increasingly intend to sell our solutions linked with managed services, which under certain
circumstances, may result in changes to the timing of revenue recognition and potentially the
related costs.
If we experience expansion delays or difficulties with our Center of Excellence in India, our costs
may increase and our margins may decrease.
We operate sizable offshore centers in Hyderabad and Bangalore, collectively referred to as
our Center of Excellence (CoE). Our CoE contains over one third of our entire associate base
undertaking a broad range of activities including product development, customer support and
implementation consulting services. We may encounter certain difficulties operating our CoE, such
as:
| difficulty providing the onshore/offshore mix of services required to achieve our consulting gross margin objectives; | ||
| face quality or customer satisfaction issues; | ||
| lose competitive advantage due to elevated wage inflation or unfavorable taxation policies; | ||
| experience elevated unplanned associate attrition; | ||
| experience disruptions in operations due to local political instability, terrorist activities or unreliable local infrastructure and; | ||
| experience negative impacts on our business due to local laws and regulatory changes |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable
Item 3. Defaults Upon Senior Securities Not applicable
Item 4. Reserved
Item 5. Other Information Not applicable
Item 6. Exhibits See Exhibits Index
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JDA SOFTWARE GROUP, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JDA SOFTWARE GROUP, INC . |
||||
Dated: May 10, 2011 | By: | /s/ Hamish N. Brewer | ||
Hamish N. Brewer | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
By: | /s/ Peter S. Hathaway | |||
Peter S. Hathaway | ||||
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | ||||
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EXHIBIT INDEX
Exhibit # | Description of Document | |||
3.1
|
| Third Restated Certificate of Incorporation of the Company, as amended through July 14, 2010. (Incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010, as filed on August 9, 2010). | ||
3.2
|
| Amended and Restated Bylaws of JDA Software Group, Inc. (as amended through April 22, 2010) (Incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K dated April 22, 2010, as filed on April 28, 2010). | ||
3.3
|
| Certificate of Designation of rights, preferences, privileges and restrictions of Series B Convertible Preferred Stock of JDA Software Group, Inc filed with the Secretary of State of the State of Delaware on July 5, 2006. (Incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K dated July 5, 2006, as filed on July 6, 2006). | ||
3.4
|
| Certificate of Correction filed to correct a certain error in the Certificate of Designation of rights, preferences, privileges and restrictions of Series B Convertible Preferred Stock of JDA Software Group, Inc. filed with the Secretary of State of the State of Delaware on July 5, 2006. (Incorporated by reference to Exhibit 3.4 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as filed on November 9, 2006). | ||
4.1
|
| Specimen Common Stock Certificate of JDA Software Group, Inc. (Incorporated by reference the Companys Registration Statement on Form S-1 (File No. 333-748), declared effective on March 14, 1996). | ||
4.2
|
| 8.0% Senior Notes Due 2014 Indenture dated as of December 10, 2009 among JDA Software Group, Inc., the Guarantors, and U.S. Bank National Association, as trustee. (Incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated December 10, 2009, as filed on December 11, 2009). | ||
4.3
|
| Supplemental Indenture dated as of January 28, 2010 among JDA Software Group, Inc., i2 Technologies, Inc., i2 Technologies US, Inc., the Guarantors and U.S. Bank National Association, as trustee (Incorporation by reference to Exhibit 4.3 to the Companys Registration Statement on Form S-4 (File No. 333-167429), as filed on September 9, 2010). | ||
10.1(1)
|
| Credit Agreement by and among JDA Software Group, Inc., as Borrower, the Lenders that are signatories thereto and Wells Fargo Capital Finance, LLC, as Agent, dated March 18, 2011 (Filed herewith). | ||
10.2(2)
|
| Separation and Release Agreement between Jason B. Zintak and JDA Software Group, Inc. dated March 30, 2011. (Filed herewith). | ||
31.1
|
| Rule 13a-14(a) Certification of Chief Executive Officer. (Filed herewith). | ||
31.2
|
| Rule 13a-14(a) Certification of Chief Financial Officer. (Filed herewith). | ||
32.1
|
| Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith). |
(1) | Confidential treatment has been requested with respect to certain portions of this exhibit. | |
(2) | Management contracts or compensatory plans or arrangements covering executive officers or directors of the Company. |
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