JDA SOFTWARE GROUP INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002


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 (State or other jurisdiction of incorporation or organization)		86-0787377 (I.R.S. Employer Identification No.)

14400 North 87th Street
Scottsdale, Arizona 85260
(480) 308-3000
(Address and telephone number of principal executive offices)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) had been subject to such filing requirements for the past 90 days.

YES x NO o

The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value, was 28,414,746 as of November 8, 2002.

TABLE OF CONTENTS


PART I: FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3: Quantitative and Qualitative Disclosures About Market Risk
	Item 4: Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K:
SIGNATURE
FORM 10-Q CERTIFICATIONS
EXHIBIT INDEX
EX-3.1
EX-10.5
EX-10.7
EX-99.1
EX-99.2

JDA SOFTWARE GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS


		Page No.

PART I: INTERIM FINANCIAL INFORMATION




Item 1. Financial Statements




	Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001		3




	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2002 and September 30, 2001		4




	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2002 and September 30, 2001		5




	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and September 30, 2001		6




	Notes to Condensed Consolidated Financial Statements		8




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16




Item 3. Quantitative and Qualitative Disclosures About Market Risk			41




Item 4. Controls and Procedures			42




PART II: OTHER INFORMATION




Item 1. Legal Proceedings			43




Item 2. Changes in Securities and Use of Proceeds			43




Item 3. Defaults Upon Senior Securities			43




Item 4. Submission of Matters to a Vote of Security Holders			43




Item 5. Other Information			43




Item 6. Exhibits and Reports on Form 8-K			43




Signature			44




Certifications			45

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)


				September 30,			December 31,
				2002			2001

				(Unaudited)
ASSETS




Current Assets:




	Cash and cash equivalents			$	65,485		$	51,865




	Marketable securities				24,341			12,140




	Accounts receivable, net				52,095			60,943




	Income tax receivable				727			3,798




	Deferred tax asset				7,570			6,980




	Prepaid expenses and other current assets				14,801			10,750

		Total current assets			165,019			146,476




Property and Equipment, net					20,330			21,950




Goodwill					59,801			55,192




Other Intangibles, net					58,415			61,670




Promissory Note Receivable					3,036			3,354




Marketable Securities					2,061			—

			Total assets	$	308,662		$	288,642

LIABILITIES AND STOCKHOLDERS’ EQUITY




Current Liabilities:




	Accounts payable			$	5,644		$	2,857




	Accrued expenses and other liabilities				17,301			32,963




	Deferred revenue				26,196			17,562

			Total current liabilities		49,141			53,382




Deferred Tax Liability					3,222			10,810




Stockholders’ Equity:




	Preferred stock, $.01 par value; authorized 2,000,000 shares; none issued or outstanding				—			—




	Common stock, $.01 par value; authorized, 50,000,000 shares; issued 28,654,053 and 27,035,935 shares, respectively				287			270




	Additional paid-in capital				237,759			214,589




	Retained earnings				26,403			18,423




	Accumulated other comprehensive loss				(5,434	)		(6,138	)

					259,015			227,144




	Less treasury stock, at cost, 239,702 and 239,000 shares, respectively				(2,716	)		(2,694	)

		Total stockholders’ equity			256,299			224,450

			Total liabilities and stockholders’ equity	$	308,662		$	288,642

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share data)
(unaudited)


			Three Months Ended				Nine Months Ended
			September 30,				September 30,

			2002		2001		2002		2001

REVENUES:




	Software licenses		$	10,801	$	15,581	$	48,620	$	47,858




	Maintenance services			14,851		9,996		41,875		28,080

		Product revenues		25,652		25,577		90,495		75,938




	Consulting services			21,825		24,341		69,568		70,507




	Reimbursed expenses			1,935		1,855		6,083		4,572

		Service revenues		23,760		26,196		75,651		75,079




		Total revenues		49,412		51,773		166,146		151,017

COST OF REVENUES:




	Cost of software licenses			140		411		1,264		1,816




	Amortization of acquired software technology			1,069		776		3,178		1,922




	Cost of maintenance services			3,605		2,829		10,453		7,650

		Cost of product revenues		4,814		4,016		14,895		11,388




	Cost of consulting services			15,158		17,382		47,757		51,640




	Reimbursed expenses			1,935		1,855		6,083		4,572

		Cost of service revenues		17,093		19,237		53,840		56,212




		Total cost of revenues		21,907		23,253		68,735		67,600

GROSS PROFIT				27,505		28,520		97,411		83,417




OPERATING EXPENSES:




	Product development			10,370		8,716		31,175		24,374




	Sales and marketing			9,196		8,444		29,851		26,030




	General and administrative			6,395		6,475		21,130		18,202




	Amortization of intangibles			711		1,358		2,137		3,858




	Purchased in-process research and development			—		2,200		800		2,361




	Restructuring, asset disposition and other charges			—		—		1,295		749

		Total operating expenses		26,672		27,193		86,388		75,574

OPERATING INCOME				833		1,327		11,023		7,843




	Other income, net			342		537		1,344		2,223

INCOME BEFORE INCOME TAXES				1,175		1,864		12,367		10,066




	Income tax provision			417		690		4,387		3,716

NET INCOME			$	758	$	1,174	$	7,980	$	6,350

BASIC EARNINGS PER SHARE			$	.03	$	.05	$	.29	$	.26

DILUTED EARNINGS PER SHARE			$	.03	$	.05	$	.27	$	.25

SHARES USED TO COMPUTE:




	Basic earnings per share			28,316		25,334		27,927		24,857

	Diluted earnings per share			28,677		25,967		29,273		25,236

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2002			2001			2002			2001

NET INCOME		$	758		$	1,174		$	7,980		$	6,350




OTHER COMPREHENSIVE INCOME (LOSS):




	Unrealized holding gain (loss) on marketable securities available for sale, net		18			8			(1	)		30




	Foreign currency translation income (loss)		(1,616	)		(1,874	)		705			(3,147	)

COMPREHENSIVE INCOME (LOSS)		$	(840	)	$	(692	)	$	8,684		$	3,233

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)


				Nine Months
				Ended September 30,

				2002			2001

OPERATING ACTIVITIES:




	Net income			$	7,980		$	6,350




	Adjustments to reconcile net income to net cash provided by operating activities:




		Depreciation and amortization			11,584			11,754




		Provision for doubtful accounts			2,900			2,891




		Tax benefit – stock options and employee stock purchase plan			6,762			513




		Net loss on disposal of property and equipment			30			114




		Write-off of purchased in-process research and development			800			2,361




		Deferred income taxes			(9,011	)		342




	Changes in assets and liabilities:




		Accounts receivable			5,938			(3,752	)




		Income tax receivable			3,066			(453	)




		Prepaid expenses and other current assets			(4,803	)		900




		Accounts payable			2,782			(1,673	)




		Accrued expenses and other liabilities			(8,901	)		1,814




		Deferred revenue			8,620			281

			Net cash provided by operating activities		27,747			21,442

INVESTING ACTIVITIES:




	Purchase of marketable securities				(31,256	)		—




	Sales of marketable securities				7,641			2,500




	Maturities of marketable securities				9,352			11,809




	Purchase of J•Commerce, Inc.				(4,170	)		—




	Purchase of Zapotec Software, Inc.				—			(1,250	)




	Purchase of Neo Vista Decision Series				—			(4,938	)




	Purchase of E3 Corporation, net of cash acquired				—			(18,348	)




	Payment of direct costs related to the acquisition of E3 Corporation				(8,261	)		(4,175	)




	Issuance of promissory note receivable				—			(3,500	)




	Payments received on promissory note receivable				318			99




	Purchase of property and equipment				(4,998	)		(4,943	)




	Proceeds from disposal of property and equipment				290			552

			Net cash (used in) provided by investing activities		(31,084	)		(22,194	)

FINANCING ACTIVITIES:




	Issuance of common stock — stock option plan				12,275			2,495




	Issuance of common stock — employee stock purchase plan				4,150			3,400




	Purchase of treasury stock				(22	)		(875	)




	Retirement of E3 line of credit, notes payable, and long-term debt				—			(8,166	)




	Payments on capital lease obligations				(239	)		(82	)

			Net cash provided by financing activities		16,164			(3,228	)

Effect of exchange rates on cash					793			(900	)

Net increase (decrease) in cash and cash equivalents					13,620			(4,880	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					51,865			60,794

CASH AND CASH EQUIVALENTS, END OF PERIOD				$	65,485		$	55,914

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)


				Nine Months
				Ended September 30,

				2002			2001

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:




	Cash paid for:




		Interest		$	39		$	48

		Income taxes		$	3,617		$	2,306

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:




	Acquisition of J•Commerce, Inc.:




		Software technology		$	(2,060	)




		In-process research and development			(800	)




		Goodwill			(1,325	)

			Total acquisition cost of J•Commerce, Inc.		(4,185	)




		Accruals for direct costs related to the transaction			15

			Total cash expended to acquire J•Commerce, Inc.	$	(4,170	)

	Acquisition of Zapotec Software, Inc.:




		Fair value of current assets acquired					$	(14	)




		Software technology and other intangibles						(1,293	)




		In-process research and development						(161	)




		Fair value of current liabilities assumed						218

			Cash used to purchase Zapotec Software, Inc.				$	(1,250	)

	Acquisition of Neo Vista Decision Series:




		Fair value of fixed assets acquired					$	(5	)




		Software technology and other intangibles						(2,956	)




		Goodwill						(2,727	)




		Fair value of current liabilities assumed						750

			Cash used to purchase Neo Vista Decision Series				$	(4,938	)

	Acquisition of E3 Corporation:




		Fair value of current assets acquired					$	(14,036	)




		Fair value of fixed assets acquired						(2,402	)




		Goodwill						(35,350	)




		Software technology and other intangibles						(38,000	)




		In-process research and development						(2,200	)




		Fair value of current liabilities assumed						12,868




		Deferred revenue						2,205




		Fair value of long-term debt assumed						1,627




		Deferred tax liability, net						15,164

			Total acquisition cost of E3 Corporation					(60,124	)




		Reserves for direct costs related to the transaction						15,909




		Issuance of common stock						24,215




		Cash acquired						1,652

			Cash used to purchase E3 Corporation				$	(18,348	)

See notes to condensed consolidated financial statements.

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. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States applicable to interim financial statements. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

The preparation of financial statements in conformity with generally accepted accounting principles 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.

Certain reclassifications have been made to the September 30, 2001 interim financial statements in order to conform to the September 30, 2002 presentation.

2. New Accounting Standards

Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS No. 141”). In addition to requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, SFAS No. 141 also provides guidance on the types of acquired intangible assets that are to be recognized and reported separately from goodwill. We reclassified the unamortized balance of assembled workforce of approximately $905,000 to goodwill on January 1, 2002 pursuant to certain transitional provisions of SFAS No. 141 that apply to the business combinations we completed and accounted for under the purchase method prior to July 1, 2001.

We also adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) effective January 1, 2002. SFAS No. 142 addresses how intangible assets should be accounted for after they have been initially recognized in the financial statements. SFAS No. 142 also requires that goodwill and certain other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Upon adoption, we ceased amortization of goodwill and certain other intangible assets we recorded in business combinations prior to June 30, 2001.

The following table reconciles net income and earnings per share as reported for the three and nine month periods ended September 30, 2002 and 2001 to net income and earnings per share as adjusted to exclude amortization expense, net of taxes, related to goodwill and other intangible assets that are no longer being amortized


			Three Months				Nine Months
			Ended September 30,				Ended September 30,

			2002		2001		2002		2001

Reconciliation of reported net income:




	Reported net income		$	758	$	1,174	$	7,980	$	6,350




	Pro forma amortization adjustments:




		Goodwill		—		495		—		1,405




		Assembled workforce		—		98		—		397




		Trademarks		—		8		—		23

	Adjusted net income		$	758	$	1,775	$	7,980	$	8,175

Basic earnings per share:




	Reported net income		$	.03	$	.05	$	.29	$	.26




	Pro forma amortization adjustments:




		Goodwill		—		.02		—		.06




		Assembled workforce		—		—		—		.01




		Trademarks		—		—		—		—

		Adjusted net income	$	.03	$	.07	$	.29	$	.33

Diluted earnings per share:




	Reported net income		$	.03	$	.05	$	.27	$	.25




	Pro forma amortization adjustments:




		Goodwill		—		.02		—		.06




		Assembled workforce		—		—		—		.01




		Trademarks		—		—		—		—

		Adjusted net income	$	.03	$	.07	$	.27	$	.32

Shares used to compute:




	Basic earnings per share			28,316		25,334		27,927		24,857




	Diluted earnings per share			28,677		25,967		29,273		25,236

During the three months ended September 30, 2002 we recorded an additional $903,000 in goodwill as a result of certain final adjustments made to the estimated fair values of assets acquired and liabilities assumed in the acquisition of E3 Corporation (“E3”) in September 2001. The increase results primarily from a reduction in the amount of deferred tax asset recorded on this transaction to reflect our revised estimate of the anticipated future tax benefits from acquisition costs incurred and research and development credits. No goodwill was impaired or written-off during the three months ended September 30, 2002. As of September 30, 2002, goodwill, which includes the unamortized balance of assembled workforce that was reclassified to goodwill effective January 1, 2002, has been allocated to our reporting units as follows: $42.1 million to Retail Enterprise Systems, $1.3 million to In-Store Systems, and $16.4 million to Collaborative Solutions.

SFAS No. 142 requires that we test goodwill for impairment as of January 1, 2002 and any resulting impairment charge be reflected as a cumulative effect of a change in accounting principle. We completed the initial screening for goodwill impairment during the three-month period ended March 31, 2002 and found no impairment of the goodwill allocated to the individual reporting units. Accordingly, absent future indicators of impairment, the second testing phase described in SFAS No. 142 is not necessary during the remainder of 2002.

Beginning January 1, 2002, we assigned indefinite useful lives to our E3 trademarks, and ceased amortization, as we believe that there are no legal, regulatory, contractual, competitive, economic, or other factors that would limit the useful life of our trademarks and we expect the trademarks to contribute to our cash flows indefinitely. In accordance with SFAS 142, we test our trademarks for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We completed an initial impairment test on trademarks during the three-month period ended March 31, 2002 and found no indication of impairment.

Intangible assets other than goodwill consist of the following:


		September 30, 2002					December 31, 2001

		Gross Carrying		Accumulated			Gross Carrying		Accumulated
		Amount		Amortization			Amount		Amortization

Amortized intangible assets:




	Customer Lists	$	36,348	$	(5,186	)	$	36,348	$	(3,048	)




	Software technology		31,721		(8,168	)		30,496		(5,826	)




Unamortized intangible assets:




	Trademarks		3,700		—			3,784		(84	)

		$	71,769	$	(13,354	)	$	70,628	$	(8,958	)

Amortization of customer lists is computed on a straight-line basis over estimated useful lives ranging from 10 to 13 years. These intangible assets were all acquired in business combinations over the last four years. Our valuation process during the acquisitions, and the third party appraisals we obtained to support our allocation of the purchase price to these assets, were based upon the projected economic life of the customer base which were based on the historical turnover of the customer base. The historical life experiences of the acquired companies that were utilized in the valuations support the economic lives used, as does the Company’s historical experience with similar customer accounts for products that have been developed internally. The Company has reviewed the customer attrition rates for each significant acquired customer group to ensure that the rate of attrition is not increasing and that revisions to our estimates of life expectancy are not required.

Amortization of software technology is reported as a cost of product revenues in accordance with Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (“SFAS No. 86”). We use the amortization amount for each product that is 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 revenues 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 for the nine-month period ended September 30, 2002 was $5.3 million. We expect amortization expense for the remainder of 2002 and for the next four years to be as follows:


2002 (3 months)			1,781




2003			7,122




2004			7,122




2005			6,872




2006			6,694

We have adopted the guidance of Financial Accounting Standards Board Emerging Issues Task Force Issue No. 01-14 (“EITF No. 01-14”), Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred. EITF No. 01-14 requires the reclassification of reimbursed expenses in both service revenues and cost of service revenues in our consolidated statements of income beginning January 1, 2002. We previously classified reimbursed expenses as a reduction in the cost of consulting services. The adoption of EITF No. 01-14 does not impact our total gross profit or operating income, but it does increase total revenues, and as a result, slightly reduces our gross profit and operating margin percentages. Reimbursed expenses were $1.9 million and $6.1 million in the three and nine-month periods ended September 30, 2002, respectively. In addition, we have reclassified $1.9

million and $4.6 million in reimbursed expenses to service revenues and cost of service revenues in the consolidated statements of income for the three and nine-month periods ended September 30, 2001, respectively.

We adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”) effective January 1, 2002. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement of Financial Accounting Standards No. 121, Accounting of the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 requires that we evaluate long-lived assets based on the net future cash flow expected to be generated from the asset on an undiscounted basis whenever significant events or changes in circumstances occur that indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 144 did not have a significant impact on our operating results or financial position.

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 (“EITF No. 94-3”), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Under SFAS No. 146, the liability for costs associated with exit or disposal activities is recognized and measured at fair value when the liability is incurred, rather than at the date of a company’s commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with earlier adoption encouraged. We intend to adopt SFAS No. 146 effective January 1, 2003.

In January 2002 the Securities and Exchange Commission adopted new rules for the disclosure of equity compensation plans. The purpose of the new rules is to summarize the potential dilution that could occur from past and future equity grants under all equity compensation plans. The new rules require tabular disclosure of the number of shares issuable under outstanding grants, the weighted average exercise price of outstanding grants, and the number of shares available for future grants aggregated into two categories – plans that have been approved by stockholders and plans that have not. A narrative summary of the material features of equity compensation plans that have not been approved by stockholders must be provided. The new disclosure rules are effective for annual reports filed on Form 10-K for fiscal years ending on or after March 15, 2002 and proxy and information statements for meetings of, or action by, stockholders occurring on or after June 15, 2002.

3. Acquisition of J•Commerce Inc.

On April 12, 2002 we acquired certain intellectual property of J•Commerce Inc. (“J•Commerce”), a privately held Canadian corporation, for $4 million in cash. J•Commerce develops and markets point-of-sale software solutions that are based on Java™ technology. We intend to combine the J•Commerce point-of-sale software technology, which requires further development and is not ready for commercial release, with our Internet-based Store Portals application to provide a complementary product strategy with Win/DSS for “Tier 1” retail customers that have annual sales in excess of $5 billion and/or a large number of stores and/or registers per store. The acquisition was accounted for as a purchase and accordingly, the operating results of J•Commerce have been included in our consolidated financial statements from the date of acquisition. Pro forma operating results have not been presented as the effect of the acquisition is not material to our consolidated financial statements.

The total acquisition cost of $4.2 million, which includes the purchase price of $4 million plus $185,000 in direct costs related to the transaction, was allocated to the acquired assets and liabilities based on their estimated fair values and in accordance with SFAS No. 141 and SFAS No. 142. The following summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.


Software technology		$	2,060




In-process research and development			800




Goodwill			1,325

	Total acquisition cost of J•Commerce		4,185




Accruals for direct costs related to the acquisition			(15	)

	Total cash expended to acquire J•Commerce	$	4,170

The allocated value for in-process research and development of $800,000 was expensed at the date of acquisition.

4. Earnings per Share

Earnings per share for the three and nine-month periods ended September 30, 2002 and 2001 is calculated as follows:


	Three Months				Nine Months
	Ended September 30,				Ended September 30,

	2002		2001		2002		2001

Net income	$	758	$	1,174	$	7,980	$	6,350




Shares – Basic earnings per share		28,316		25,334		27,927		24,857




Dilutive common stock equivalents		361		633		1,346		379

		28,677		25,967		29,273		25,236

Basic earnings per share	$	.03	$	.05	$	.29	$	.26

Diluted earnings per share	$	.03	$	.05	$	.27	$	.25

5. Restructuring, Asset Disposition and Other Merger Related Charges

We expect to record a restructuring charge of approximately $4.5 million in fourth quarter 2002 related to the reorganization of the Company to increase its focus on bringing value to its customers, that will result in a net workforce reduction of approximately 170 full-time employees (“FTE”) and certain office closures. The workforce reduction will include certain employees involved in product development (59 FTE), consulting and client support services (57 FTE), sales and marketing (30 FTE), and administrative functions (24 FTE). As part of this reorganization, we also expect to incur approximately $2.6 million in costs to relocate certain product development and customer support employees based in offices around the United States and the United Kingdom to our corporate headquarters during first half 2003. We will recognize these relocation costs in income from continuing operations as they are incurred. We do expect, however, that certain product development and customer support employees will choose not to relocate to our corporate headquarters and as a result, these employees will also receive termination benefits in fourth quarter 2002. The reorganization and workforce reduction will allow us to reallocate our resources in response to a fundamental shift in the way we develop product and bring it to market, as well as to changes in the demand for the various types of products we sell, the length of implementation efforts required and associated skill requirements. In addition, the workforce reduction will enable us to better align our cost structure during the current economic downturn, which has adversely impacted our revenues, elongated our selling cycles, and delayed, suspended or reduced the demand for certain of our products. We expect to reduce our annual operating costs by approximately $10 million to $12 million through this reorganization and restructuring effort. All employees impacted by the reduction in force for this initiative will be notified of their termination and the related benefits during the quarter ending December 31, 2002.

During second quarter 2002, we recorded a $1.3 million restructuring charge related to a workforce reduction of 53 full-time employees (“FTE”). The workforce reduction included certain employees involved in implementation and maintenance services (32 FTE), product development activities (2 FTE), sales and marketing (16 FTE), and administrative functions (3 FTE). All workforce reductions associated with these charges were made on or before June 30, 2002. We expect all remaining amounts to be paid out on or before June 30, 2003.


Description of the	Initial		Cash			Loss on		Non-cash		Adjustments to		Balance at
charge	Reserve		Charges			disposal of assets		Charges		Expense		September 30, 2002

Severance, benefits and related legal costs	$	1,295	$	(1,062	)	$	—	$	—	$	—	$	233

During 2001, we recorded restructuring, asset disposition and other merger related charges of $749,000 in first quarter 2001 and an additional $236,000 in fourth quarter 2001. The restructuring initiatives involved a workforce reduction of 41 FTE that included certain employees involved in implementation and maintenance services (17 FTE), product development activities (7 FTE), sales and marketing (10 FTE), and administrative

functions (7 FTE), related in part to the acquisition of E3. All workforce reductions associated with these charges were made on or before March 31, 2001 or December 31, 2001, as appropriate. Office closure costs pertain to certain European offices that became redundant after the E3 acquisition in September 2001. Other charges consist of the write-off of certain merger and acquisition costs related to a potential acquisition that was abandoned in March 2001.


		Initial		Cash			Loss on		Non-cash			Adjustments to		Balance at
Description of the charge		Reserve		Charges			disposal of assets		Charges			Expense		September 30, 2002

Severance, benefits and related legal costs		$	727	$	(727	)	$	—	$	—		$	—	$	—




Office closure costs			50		(42	)		—		(4	)		—		4




Other Charges			208		(208	)		—		—			—		—

	Total	$	985	$	(977	)	$	—	$	(4	)	$	—	$	4

6. Stock Repurchase Program

In July 2002, our Board of Directors authorized the repurchase of up to two million shares of our outstanding common stock. Under this repurchase program, we may periodically repurchase common shares during a one-year period ending July 22, 2003 on the open market at prevailing market prices. As of September 30, 2002, we have not repurchased any shares of our common stock under this program.

7. E3 Acquisition Reserves

In conjunction with the E3 acquisition in September 2001, we recorded initial acquisition reserves of approximately $14.5 million for restructuring charges and other direct costs associated with the acquisition. These costs relate primarily to facility closures, employee severance, investment banker fees, and legal and accounting costs. We subsequently increased the purchase price and the E3 acquisition reserves by $1.4 million during 2002 based on our revised estimates of the restructuring costs to exit the activities of E3 and the other direct costs of the acquisition. The remaining acquisition reserves, which are included in accrued expenses and other liabilities on the balance sheet, were approximately $1.6 million and $8.5 million at September 30, 2002 and December 31, 2001, respectively.

Cash charges and adjustments recorded against the reserves are as follows:


							Balance at								Balance at
		Initial		Cash			December 31,		Cash			Adjustments			September 30,
Description of charge		Reserve		Charges			2001		Charges			to Reserve			2002

Restructuring charges under EITF 95-3:




Facility termination and sublease costs		$	4,689	$	(305	)	$	4,384	$	(4,562	)	$	1,129		$	951




Employee severance and termination benefits			4,351		(997	)		3,354		(3,065	)		184			473




Termination payments to distributors			500		(95	)		405		—			(305	)		100




E3 user group and trade show cancellation fees			84		(72	)		12		—			(12	)		—




Direct costs under SFAS 141:




Legal and accounting costs			2,344		(2,024	)		320		(594	)		350			76




Investment banker fees			2,119		(2,119	)		—		—			—			—




Due diligence fees and expenses			350		(336	)		14		(40	)		26			—




Filing fees, appraisal services and transfer taxes			110		(100	)		10		—			(10	)		—

	Total	$	14,547	$	(6,048	)	$	8,499	$	(8,261	)	$	1,362		$	1,600

The facility termination and sublease costs are costs of a plan to exit an activity of an acquired company as described in Financial Accounting Standards Board Emerging Issues Task Force Issue No. 95-3 (“EITF No. 95-3”), Recognition of Liabilities in Connection with a Purchase Business Combination, and include the estimated costs of management’s plan to shut down nine offices of E3 shortly after the acquisition date. These costs have no future economic benefit to the Company and are incremental to the other costs incurred by the Company or E3. Immediately following the consummation of the E3 acquisition, the Company engaged real estate advisers and began the necessary activities to shut down the offices and sublet the locations or negotiate early termination agreements with the various landlords. The most significant E3 facility (the former Corporate Headquarters) was difficult to sublet and in July 2002 we settled with the landlord by paying a $3.4 million lease termination fee. This resulted in a $950,000 adjustment to the facility termination and sublease costs acquisition reserve. The remaining amounts in this reserve are being paid out as the leases and related subleases run through their remaining terms, ranging from 10 to 13 months.

Employee severance and termination benefits are costs resulting from a plan to involuntarily terminate employees from an acquired company as described in EITF No. 95-3. As of the consummation date of the acquisition, executive management approved a plan to involuntarily terminate approximately 31% of the 338 full time employees of E3. In the first three months following the consummation of the E3 acquisition, management completed the assessment of which employees would be involuntarily terminated and communicated the termination arrangements to the affected employees in accordance with statutory requirements of the local jurisdictions in which the employees were located. We expect all amounts for these exit costs to be paid out before June 30, 2003.

8. Business Segments and Geographic Data

We are a leading provider of sophisticated software solutions designed specifically to address the demand and supply chain management, business process, decision support, e-commerce, inventory optimization and collaborative planning and forecasting requirements of the retail industry and its suppliers. Our solutions enable our customers to collect, manage, organize and analyze information throughout their retail enterprise, and to interact with suppliers and customers over the Internet at multiple levels within their organizations. We conduct business in five geographic regions that have separate management teams and reporting structures: the United States, Europe (includes the Middle East and Africa), Asia/Pacific, Canada and Latin America. Similar products and services are offered in each geographic region and local management is evaluated primarily based on total revenues and operating income. Identifiable assets are also managed by geographical region. The geographic distribution of our revenues and identifiable assets is as follows:


				Three Months						Nine Months
				Ended September 30,						Ended September 30,

				2002			2001			2002			2001

Revenues:




	United States			$	29,019		$	27,882		$	95,933		$	84,385

	Europe				12,989			11,725			44,013			32,604




	Asia/Pacific				4,858			8,357			15,494			19,533




	Canada				1,934			1,937			8,226			7,708




	Latin America				1,226			2,685			4,290			8,285

		Total international			21,007			24,704			72,023			68,130

	Sales and transfers among regions				(614	)		(813	)		(1,810	)		(1,498	)

			Total revenues	$	49,412		$	51,773		$	166,146		$	151,017


				September 30,		December 31,
				2002		2001

Identifiable assets:




	United States			$	237,086	$	217,980

	Europe				50,807		48,336




	Asia/Pacific				10,144		9,961




	Canada				6,182		6,093




	Latin America				4,443		6,272

		Total international			71,576		70,662

			Total identifiable assets	$	308,662	$	288,642

We have organized our business segments around the distinct requirements of retail enterprises, retail stores, and suppliers to the retail industry:

• Retail Enterprise Systems include corporate level merchandise management, planning and forecasting systems that enable retailers to optimize their inventory control, product mix, pricing and promotional strategies, automate demand forecasting and replenishment, and enhance the productivity and accuracy of warehouse processes. In addition, Retail Enterprise Systems include a comprehensive set of tools for analyzing business results and trends, tracking customer shopping patterns, space management, trade allowance and promotional program management, monitoring strategic plans and tactical decisions.

• In-Store Systems include point-of-sale, e-commerce and back office applications that enable retailers to capture, analyze and transmit certain sales, store inventory and other operational information to corporate level merchandise management systems using hand-held, radio frequency devices, point-of-sale workstations or via the Internet. In-Store Systems also include Store Portals that provide retailers with the ability to access enterprise information on their merchandise management systems, via the Internet, and execute associated processes to support their store operations.

• Collaborative Solutions include applications that enable business-to-business collaborative planning, forecasting and replenishment between retailers and their suppliers. Collaborative Solutions, which currently include some of our Retail Enterprise Systems applications, when used by suppliers, as well as collaboration specific applications, optimize the sharing of plans and information between trading partners and supply chain decisions in such areas as inventory replenishment, marketing/promotions, sales planning/execution and category management.

A summary of the revenues, operating income (loss), and depreciation attributable to each of these business segments for the three and nine-month periods ended September 30, 2002 and 2001 is as follows:


		Three Months						Nine Months
		Ended September 30,						Ended September 30,

		2002			2001			2002			2001

Revenues:




	Retail Enterprise Systems	$	32,063		$	41,303		$	112,907		$	116,532




	In-Store Systems		6,237			5,547			20,473			19,107




	Collaborative Solutions		11,112			4,923			32,766			15,378

		$	49,412		$	51,773		$	166,146		$	151,017

Operating income (loss):




	Retail Enterprise Systems	$	5,437		$	9,381		$	24,331		$	25,123




	In-Store Systems		802			410			5,009			2,939




	Collaborative Solutions		1,700			1,569			7,045			4,951




	Other (see below)		(7,106	)		(10,033	)		(25,362	)		(25,170	)

		$	833		$	1,327		$	11,023		$	7,843

Depreciation:




	Retail Enterprise systems	$	1,432		$	1,628		$	4,394		$	4,695




	In-Store systems		312			314			879			1,045




	Collaborative Solutions		383			117			996			234

		$	2,127		$	2,059		$	6,269		$	5,974

Other:




	Amortization of intangible assets	$	711		$	1,358		$	2,137		$	3,858




	In-process research and development charge		—			2,200			800			2,361




	Restructuring, asset disposition and other charges		—			—			1,295			749




	General and administrative expenses		6,395			6,475			21,130			18,202

		$	7,106		$	10,033		$	25,362		$	25,170

Operating income in the Retail Enterprise Systems, In-Store Systems and Collaborative Solutions business segments includes direct expenses for software licenses, maintenance services, consulting services, sales and marketing expenses, product development expenses, as well as allocations for occupancy costs and depreciation expense. The “Other” caption includes general and administrative expenses and other charges that are not directly identified with a particular business segment and which management does not consider in evaluating the operating income of the business segment.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains forward-looking statements reflecting management’s current forecast of certain aspects of our future. It is based on current information that we have assessed but which by its nature is dynamic and subject to rapid and even abrupt changes. Forward-looking statements include statements regarding future operating results, liquidity, capital expenditures, product development and enhancements, numbers of personnel, strategic relationships with third parties, acquisitions and strategy. The forward-looking statements are generally accompanied by words such as “plan,” “estimate,” “expect,” “intend,” “believe,” “should,” “would,” “could,” “anticipate” or other words that convey uncertainty of future events or outcomes. In particular, we provide our belief that consulting services revenue will decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns or until economic conditions improve, that we expect to record a restructuring charge of approximately $4.5 million in fourth quarter 2002 and to incur $2.6 million in relocation costs in the first half of 2003, our belief that the reorganization and restructuring efforts announced in fourth quarter 2002 will result in a $10 million to $12 million reduction in our operating costs, our belief that sales activity with “Tier 1” retail customers will continue to contribute to revenues in future periods, our estimated effective tax rate for 2002,our belief that the current audits of our 1998 and 1999 Federal Income Tax Returns will not result in any material adjustments, the estimated effect the application of the non-amortization provisions of SFAS No. 142 will have on amortization expense, our intentions to combine the J•Commerce point-of-sale software technology with our Internet-based Store Portal applications to provide a complementary product strategy with Win/DSS, and our belief that our consolidation of development activities to our Corporate Headquarters will enhance development timeframes and reduce costs in 2003. Our actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with our business. These risks are described throughout this Quarterly Report on Form 10-Q, which you should read carefully. We would particularly refer you to the section under the heading “Certain Risks” for an extended discussion of the risks confronting our business. The forward-looking statements in this Quarterly Report on Form 10-Q should be considered in the context of these risk factors.

Overview

We provide sophisticated software solutions to the retail industry and its suppliers. Our solutions enable our customers to collect, manage, organize and analyze information throughout their retail enterprise, and to interact with suppliers and customers over the Internet at multiple levels within their organizations. We also offer maintenance services to our software customers and enhance and support our software business by offering retail specific services that are designed to enable our clients to rapidly achieve the benefits of our solutions. These services include project management, system planning, system design and implementation, custom configurations, and training services. Demand for our implementation services is driven by, and often trails, sales of our software products. Consulting services revenues are generally more predictable but generate lower gross margins than software license revenues.

Significant Trends and Developments in Our Business

Economic Conditions. We believe that negative economic conditions, threat of a US war with Iraq and the disruption caused by the September 11 attack have affected the demand for our products and the length of our sales cycles. We continue to be concerned about weak and uncertain economic conditions, consolidations and the disappointing results of retailers in certain of our geographic regions. The retail industry will be adversely impacted if negative economic conditions or fear of a war with Iraq or additional terrorists’ attacks persist for an extended period of time. Weak and uncertain economic conditions have in the past, and may in the future, negatively impact our revenues, elongate our selling cycles, and delay, suspend or reduce the demand for our products. As a result, it is difficult in the current economic environment to predict exactly when specific software licenses will close within a six to nine month time frame. For example, in third quarter 2002 we experienced delays in the execution of nearly all large software license contracts valued at $1 million or higher which caused our reported revenues for the three months ended September 30, 2002 to be below our previously published guidance. We are unable to predict if or when these contracts may be executed. In addition, we believe that pricing pressure has increased in response to the economic downturn, which could cause us to offer more significant discounts, or in some cases to lose potential business to competitors willing to offer what we believe to be overly aggressive discounts. Further, weak and uncertain economic conditions could cause a deterioration of our customers’ creditworthiness in the future and impair our customers’ ability to pay for our products or services or cause an increase in bankruptcy filings in our

customer base. Any of these factors could adversely impact our business, quarterly or annual operating results and financial condition.

Impact of the E3 Corporation Acquisition. In September 2001 we completed the acquisition of E3 Corporation (“E3”) for a total cost of $60.1 million, which includes $20 million in cash and the exchange of 1,600,080 shares of our unregistered common stock for all of the outstanding stock of E3 held by the former shareholders of E3, as well as $15.9 million in restructuring costs to exit certain activities of E3, fees and direct costs associated with the acquisition. The E3 product suite consists of inventory optimization systems, including E3Trim, a warehouse and distribution center forecasting and replenishment solution, and E3Slim, a store level forecasting and replenishment solution; advanced analytic solutions such as Consumer Outlook!, a data mining application for consumer behavior patterns, and Pin Point!, an application that refines seasonal profile assignments; and certain collaborative planning, forecasting and replenishment (“CPFR”) solutions, which today include 107 live trading partners and enable manufacturers, distributors and retailers to work from a single, shared demand forecast. By acquiring E3, we believe we immediately gained market share in the inventory replenishment space. Importantly, approximately 80% of E3’s client base is non-retail and we have accelerated our CPFR initiatives by gaining an immediate presence in the wholesale and distribution industries. Total revenues in our Collaborative Solutions business segment have increased 113% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, primarily because of the new products that E3 had developed for this evolving market.

E3 represented 20% of our total revenues for the nine months ended September 30, 2002 compared to 2% in the nine months ended September 30, 2001. During the nine months ended September 30, 2002, E3 contributed $14.1 million, $24.9 million, $9.2 million and $34 million to our software license revenues, product revenues, service revenues and total revenues, respectively. Excluding E3, software license revenues, product revenues, consulting services revenues, and total revenues decreased 24%, 10%, 11% and 10%, respectively in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001.

New Products and Expanded Markets. We invested $35.4 million in the nine months ended September 30, 2002 and approximately $246 million from 1998 to 2001 in new product development and the acquisition of complementary products while remaining profitable and cash flow positive from operations. We released enhanced versions of our core software products during the past two years and introduced new value-added web-based applications such as Store Portals, Affinity and AdPlan. In addition, the acquisitions of Arthur, Intactix, Zapotec, NeoVista Decision Series and E3 have expanded our product offerings and provided us with collaborative applications that address new vertical market opportunities with the manufacturers and wholesalers who supply our traditional retail customers. The Collaborative Solutions business segment, which includes sales of software license and services to customers outside our historical retail market, provided 20% of our total revenues in the nine months ended September 30, 2002 compared to 10% in the nine months ended September 30, 2001. Although we continue to focus on the “Tier 2” retail market we have experienced increased sales activity with “Tier 1” retail customers with annual sales in excess of $5 billion in the last two years that we expect to continue to contribute to revenue in future periods. We believe our strategy of expanding our product portfolio and increasing the scalability of our products has been the key element in attracting “Tier 1” retail customers and we believe that it has resulted in a steady pattern of new customers licensing multiple products, as well as enhanced back-selling opportunities in our install base.

On April 12, 2002 we acquired certain intellectual property of J•Commerce Inc. (“J•Commerce”), a privately held Canadian corporation, for $4 million in cash. J•Commerce develops and markets point-of-sale software solutions that are based on Java™ technology. We intend to combine the J•Commerce point-of-sale software technology, which requires further development and is not ready for commercial release, with our Internet-based Store Portals application to provide a complementary product strategy with Win/DSS for “Tier 1” retail customers that have annual sales in excess of $5 billion and/or a large number of stores and/or registers per store. The acquisition, which is not material to our financial statements, was accounted for as a purchase and accordingly, the operating results of J•Commerce have been included in our consolidated financial statements from the date of acquisition. In connection with the J•Commerce acquisition, we expensed $800,000 of purchased in-process research and development in second quarter 2002 and recorded approximately $1.3 million of goodwill, and $2.1 million of developed software technology.

We Have Lowered Our Consulting Services Revenue Outlook. Consulting services revenue, including the reclassification of reimbursed expenses, was flat in the nine months ended September 30, 2002 compared to the nine

months ended September 30, 2001. An $8.6 million increase in consulting services revenue from the E3 product line between the comparable nine-month periods was substantially offset by a decrease in consulting services revenue from implementation of host merchandising systems. Consulting services revenue typically lags the recognition of software revenues by as much as one year. We believe the average implementation times for our software products have declined due to increased training and expertise in our consulting organization, and as a direct result of the investments we have made over the past three years to increase the functionality, stability, scalability, integration and ease of implementation of the products in the JDA Portfolio. Furthermore, much of the demand for our products is associated with our analytic and optimization products that require lower levels of services to implement. As a result of these changes in our business and product revenue mix, our consulting services revenue has declined sequentially in each of the last four quarters and we expect that our consulting services revenue will continue to decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns, or until economic conditions improve.

Consulting services margins, including the reclassification of reimbursed expenses in both service revenues and cost of service revenues, increased to 29% in the nine months ended September 30, 2002 compared to 25% in the nine months ended September 30, 2001. This increase results primarily from lower incentive compensation payments and higher average billing rates in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by lower utilization rates. The lower utilization rates are a result of deteriorating economic conditions which have decreased the overall demand for our services, the shift in demand away from host merchandising systems towards our analytic and optimization products, and improved integration and shorter implementation timeframes of the products in the JDA Portfolio. During second quarter 2002 we reduced our consulting services headcount by approximately 10% in order to preserve our utilization rates, consulting margins and overall profitability with the lower consulting services revenue outlook for 2002. During the fourth quarter of 2002, we will reduce our consulting services headcount by approximately 13% in connection with our reorganization and restructuring of the company (See “We Have and Will Record Restructuring Charges to Reorganize our Company and to Re-align Our Cost Structure”).

Strong Financial Position. We generated $27.7 million in positive cash flow from operations during the nine months ended September 30, 2002 and we continue to maintain a strong financial position with $92 million in cash, cash equivalents and marketable securities, and no debt.

We Have and Will Record Restructuring Charges to Reorganize our Company and to Re-Align Our Cost Structure. We recorded a $1.3 million restructuring charge in second quarter 2002. The restructuring initiatives involved a workforce reduction of 53 full-time employees, primarily in the consulting services function in the United States, Europe, Canada and Latin America. All workforce reductions associated with this charge were made on or before June 30, 2002.

Critical Accounting Policies

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The preparation of this Quarterly Report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

• Revenue recognition. Our revenue recognition policy is significant because our revenue is a key component of our results of operations. In addition, our revenue recognition determines the timing of certain expenses such as commissions and royalties. We follow specific and detailed guidelines in measuring revenue; however, certain judgments affect the application of our revenue policy.

We license software under non-cancelable agreements and provide related services, including consulting, training and customer support. We recognize revenue in accordance with Statement of Position 97-2 (“SOP 97-2”), Software Revenue Recognition, as amended and interpreted by Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, with respect to certain transactions, as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants. We adopted Staff Accounting Bulletin No. 101 (“SAB 101”), Revenue Recognition in Financial Statements, during first quarter 2000. SAB 101 provides further interpretive guidance for public companies on the recognition, presentation, and disclosure of revenue in financial statements. The adoption of SAB 101 did not have a material impact on our licensing or revenue recognition practices.

Software license revenue is recognized when a license agreement has been signed, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. If a software license contains an undelivered element, the vendor-specific objective evidence (“VSOE”) of fair value of the undelivered element is deferred and the revenue recognized once the element is delivered. The undelivered elements are primarily training, consulting and maintenance services. VSOE of fair value for training and consulting services is based upon standard hourly rates charged when those services are sold separately. VSOE of fair value for maintenance is the price the customer will be required to pay when it is sold separately (that is, the renewal rate). In addition, if a software license contains customer acceptance criteria or a cancellation right, the software revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period or cancellation right. Payments for our software licenses are typically due in installments within twelve months from the date of delivery. Although infrequent, where software license agreements call for payment terms of twelve months or more from the date of delivery, revenue is recognized as payments become due and all other conditions for revenue recognition have been satisfied.

Consulting and training services are separately priced, are generally available from a number of suppliers, and are not essential to the functionality of our software products. Consulting services, which include project management, system planning, design and implementation, customer configurations, and training are billed on both an hourly basis and under fixed price contracts. Consulting services revenue billed on an hourly basis is recognized as the work is performed. Training revenues are recognized when the training is provided and is included in consulting revenues in the Company’s consolidated statements of income. Under fixed price contracts, consulting services revenue is recognized using the percentage of completion method of accounting by relating hours incurred to date to total estimated hours at completion.

We have from time to time provided software and consulting services under fixed price contracts that require the achievement of certain milestones and payment terms in these contracts are generally tied to customer acceptance of the milestones. The revenue under such arrangements is recognized as the milestones are achieved or upon customer acceptance. We believe that milestones are a proper measure of

progress under these contracts, as the milestones approximate the percentage of completion method of accounting.

Customer support services include post contract support and the rights to unspecified upgrades and enhancements. Maintenance revenues from ongoing customer support services are billed on a monthly basis and recorded as revenue in the applicable month, or on an annual basis with the revenue being deferred and recognized ratably over the maintenance period.

If an arrangement includes multiple elements, the fees are allocated to the various elements based upon VSOE of fair value, as described above.

• Accounts Receivable. Consistent with industry practice and to be competitive in the retail software marketplace, we typically provide installment payment terms on most software license sales. Software licenses are generally due in installments within twelve months from the date of delivery. All significant customers are reviewed for creditworthiness before the Company licenses its software and we do not sell our software or recognize any license revenue unless we believe that collectibility is probable in accordance with the requirements of paragraph 8 in SOP 97-2. The Company has a history of collecting software payments when they come due without providing refunds or concessions. Consulting services are billed bi-weekly and maintenance services are billed annually or monthly. If a customer becomes significantly delinquent or its credit deteriorates, we put the accounts on hold and do not recognize any further services revenue (and in most cases we withdraw support and/or our implementation staff) until the situation has been resolved

We do not have significant billing or collection problems. Although infrequent and unpredictable, from time to time certain of our customers have filed bankruptcy and the Company has had to refund the pre-petition amounts collected and settle for less than the face value of its remaining receivable pursuant to a bankruptcy court order. In these situations, as soon as it becomes probable that the net realizable value of the receivable is impaired, the Company provides reserves on the receivable. In addition, the Company monitors economic conditions in the various geographic regions in which it operates to determine if general reserves or adjustments to its credit policy in a region are appropriate for deteriorating conditions that may impact the net realizable value of our receivables.

• Intangible Assets. Our business combinations typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that we will incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements.

• Stock-Based Compensation. We do not record compensation expense for options granted to our employees as all options granted under our stock option plans have an exercise price equal to the market value of the underlying common stock on the date of grant. As permitted under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), we have elected to continue to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and provide pro forma disclosure on an annual basis of net income (loss) and net income (loss) per common share for employee stock option grants made as if the fair-value method defined in SFAS No. 123 had been applied.

• Income Taxes. Our income tax policy records the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We follow specific and detailed guidelines regarding the recoverability of any tax assets recorded on the balance sheet and provide any necessary allowances as required.

Recent Accounting Pronouncements

During the three months ended September 30, 2002 we recorded an additional $903,000 in goodwill as a result of certain final adjustments made to the estimated fair values of assets acquired and liabilities assumed in the acquisition of E3 in September 2001. The increase results primarily from a reduction in the amount of deferred tax asset recorded on this transaction to reflect our revised estimate of the anticipated future tax benefits from acquisition costs incurred and research and development credits. No goodwill was impaired or written-off during the three months ended September 30, 2002. As of September 30, 2002, goodwill, which includes the unamortized balance of assembled workforce that was reclassified to goodwill effective January 1, 2002, has been allocated to our reporting units as follows: $42.1 million to Retail Enterprise Systems, $1.3 million to In-Store Systems, and $16.4 million to Collaborative Solutions.

SFAS No. 142 requires that we test goodwill for impairment as of January 1, 2002 and any resulting impairment charge be reflected as a cumulative effect of a change in accounting principle. We completed the initial screening for goodwill impairment during the three month period ended March 31, 2002 and found no impairment of the goodwill allocated to the individual reporting units; accordingly, absent future indicators of impairment, the second testing phase described in SFAS No. 142 is not necessary during the remainder of 2002.

We reassessed the useful lives of intangible assets other than goodwill during the three-month period ended March 31, 2002. Except for trademarks, no adjustments have been made to the useful lives of our intangible assets. Substantially all of our capitalized trademarks were acquired in connection with the acquisition of E3. We do not believe the expected useful life of the E3 trademarks is directly tied to another asset or group of assets; however, we did acquire software technology and customer lists in connection with the E3 acquisition. Although the underlying software technology and customer install-base may change and evolve over time, we intend to indefinitely develop next generation products under the E3 trademark. Beginning January 1, 2002, we assigned indefinite useful lives to our E3 trademarks, and ceased amortization, as we believe that there are no legal, regulatory, contractual, competitive, economic, or other factors that would limit the useful life of our trademarks and we expect the trademarks to contribute to our cash flows indefinitely. In accordance with SFAS 142, we test our trademarks for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We completed an initial impairment test on trademarks during the three-month period ended March 31, 2002 and found no indication of impairment.

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 (“EITF No. 94-3”), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Under SFAS No. 146, the liability for costs associated with exit or disposal activities is recognized and measured initially at fair value only when the liability is incurred, rather than at the date the Company committed to the exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with earlier adoption encouraged. We intend to adopt SFAS No. 146 effective January 1, 2003.

Three months ended September 30, 2002 Compared to Three months ended September 30, 2001

Revenues consist of product revenues and consulting services revenue, including reimbursed expenses, which represented 52% and 48%, respectively, of total revenues in the three months ended September 30, 2002 compared to 49% and 51%, respectively in the three months ended September 30, 2001. Total revenues for the three months ended September 30, 2002 were $49.4 million, a decrease of $2.4 million, or 5%, from the $51.8 million reported in the three months ended September 30, 2001. Total revenues for the three months ended September 30, 2002 include $9.6 million in revenues from the E3 product line, which was acquired in September 2001, compared to $3.4 million in the three months ended September 30, 2001. Excluding E3, product revenues, consulting services revenue including reimbursed expenses, and total revenues decreased 19%, 17%, and 18%, respectively in the three months ended September 30, 2002 compared to the three months ended September 30, 2001.

Product Revenues

Software Licenses. Software license revenues for the three months ended September 30, 2002 decreased 31% to $10.8 million from $15.6 million in the three months ended September 30, 2001. E3 software license revenues for the three months ended September 30, 2002 increased 37% to $3 million from $2.2 million in the three months ended September 30, 2001. Excluding E3, software license revenues decreased 42% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, primarily as a result of a softening demand for substantially all of the applications in our Retail Enterprise Systems business segment. The retail industry appears to remain cautious with their level of investment in information technology during the current difficult economic cycle, due perhaps to poor macroeconomic conditions and uncertainty related to potential terrorist activities and the threat of a US war with Iraq. In addition, subsequent to the September 11 attack, we believe retailers have changed their buying behavior and that this has resulted in a fundamental shift in the mix of demand for the various types of products we sell. Software license sales in the Retail Enterprise Systems business segment, excluding E3, decreased 70% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Demand for our In-store Systems and Collaborative Solutions software products has remained strong with increases of 37% and 167%, respectively in the three months ended September 30 2002 compared to the three months ended September 30, 2001.

Domestic software license revenues decreased 25% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, primarily as result of a softening demand for substantially all of the applications in our Retail Enterprise Systems business segment. Domestic E3 software license revenues in the three months ended September 30, 2002 were flat with the three months ended September 30, 2001. International software license revenues decreased 36% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. E3 international software license revenues for the three months ended

September 30, 2002 increased to $1.8 million from $1.1 million in the three months ended September 30, 2001. Excluding E3, international software license revenues for the three months ended September 30, 2002 decreased 54% compared to the three months ended September 30, 2001, primarily due to decreases in software license sales in Asia/Pacific and Latin America.

Maintenance Services. Maintenance services revenue for the three months ended September 30, 2002 increased 49% to $14.9 million from $10 million in the three months ended September 30, 2001. E3 maintenance services revenues for the three months ended September 30, 2002 increased to $4.2 million from $672,000 in the three months ended September 30, 2001. Excluding E3, maintenance services revenue increased 14% due to increases in the install base for our other product lines.

Consulting Services

Consulting services revenue, including the reclassification of reimbursed expenses, for the three months ended September 30, 2002 decreased 9% to $23.8 million from $26.2 million in the three months ended September 30, 2001. E3 consulting services revenues for the three months ended September 30, 2002 increased to $2.3 million from $541,000 in the three months ended September 30, 2001. Excluding E3, consulting services revenue decreased 17% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, primarily as a result of a decrease in consulting services revenue from implementation of host merchandising systems. Consulting services revenue typically lags the recognition of software revenues by as much as one year. We believe the average implementation times for our software products have declined due to increased training and expertise in our consulting organization, and as a direct result of the investments we have made over the past three years to increase the functionality, stability, scalability, integration and ease of implementation of the products in the JDA Portfolio. Furthermore, much of the demand for our products is associated with our analytic and optimization products that require lower levels of services to implement. As a result of these changes in our business and product revenue mix, our consulting services revenue has declined sequentially in each of the last four quarters and we expect that our consulting services revenue will continue to decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns, or until economic conditions improve.

Business Segment Revenues

Total revenues in our Retail Enterprise Systems business segment decreased 22% to $32.1 million in the three months ended September 30, 2002 from $41.3 million in the three months ended September 30, 2001. E3 revenues in this business segment increased 96% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Excluding E3, total revenues in this business segment decreased 31% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, primarily due to a softening demand for substantially all applications in our Retail Enterprise Systems business segment. Sales of host merchandising and merchandise planning systems tend to be more heavily impacted during slow economic periods, as retailers are often reluctant to make substantial investments due to the slower expected return on investment. In addition, these products typically have longer implementation time frames and our services group often performs the implementation services. Thus, the decline in software sales for these products is also having a negative impact on our consulting services revenue. The Retail Enterprise Systems business segment represented 65% of our total revenues in the three months ended September 30, 2002 compared to 80% in the three months ended September 30, 2001.

Total revenues in our In-Store Systems business segment increased 12% to $6.2 million in the three months ended September 30, 2002 from $5.5 million in the three months ended September 30, 2001, due to increases in software license sales, maintenance services, and consulting services revenues. The In-Store Systems business segment represented 13% of total revenues in the three months ended September 30, 2002 compared to 11% in the three months ended September 30, 2001.

Total revenues in our Collaborative Solutions business segment increased 126% to $11.1 million in the three months ended September 30, 2002 from $4.9 million in the three months ended September 30, 2001. Revenues from E3 accounted for 57% of the dollar increase in this business segment. Excluding E3, total revenues in this business segment increased 63% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. The Collaborative Solutions business segment represented 22% of total revenues in the three months ended September 30, 2002 compared to 10% in the three months ended September 30, 2001.

Geographic Revenues

Total revenues in the United States increased 4% to $29 million in the three months ended September 30, 2002 from $27.9 million in the three months ended September 30, 2001. The increase includes the favorable impact of an increase in E3 revenues in this region in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Excluding E3, total revenues in this region decreased 10% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, due to a 31% decrease in software license revenues and a 10% decrease in consulting services revenues, offset in part by a 17% increase in maintenance services revenues.

Total revenues in Europe increased 11% to $13 million in the three months ended September 30, 2002 from $11.7 million in the three months ended September 30, 2001. The increase includes the favorable impact of an increase in E3 revenues in this region in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Excluding E3, total revenues in this region decreased 12% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, due to a 14% decrease in software license revenue and a 21% decrease in consulting services revenue, offset in part by an 11% increase in maintenance services revenue.

Total revenues in Asia/Pacific decreased 42% to $4.9 million in the three months ended September 30, 2002 from $8.4 million in the three months ended September 30, 2001 due to a 69% decrease in software license revenues and a 30% decrease in consulting services revenue primarily due to decreases in revenue from ongoing implementations in Australia and Japan.

Total revenues in Canada were $1.9 million in the three months ended September 30, 2002 compared to $1.9 million in the three months ended September 30, 2001. Total revenues include the favorable impact of an increase in E3 revenues in this region in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Excluding E3, total revenues in this region decreased 10% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, due to a 27% decrease in software license revenue and a 13% decrease in consulting services revenue, offset in part by a 7% increase in maintenance services revenue.

Total revenues in Latin America decreased 54% to $1.2 million in the three months ended September 30, 2002 from $2.7 million in the three months ended September 30, 2001 due to an 84% decrease in software license revenues and a 24% decrease in consulting services revenues.

Cost of Product Revenues

Cost of Software Licenses. Cost of software licenses was $140,000, or 1% of software license revenues in the three months ended September 30, 2002 compared to $411,000, or 3% of software license revenues in the three months ended September 30, 2001. The decrease results from fewer software products sold in the three months ended September 30, 2002 that incorporate functionality from third party software providers and require the payment of royalties.

Amortization of Acquired Software Technology. Amortization of acquired software technology was $1.1 million in the three months ended September 30, 2002 compared to $776,000 in the three months ended September 30, 2001. The increase results primarily from an increase in amortization on software technology acquired from E3 in September 2001.

Cost of Maintenance Services. Cost of maintenance services increased 27% to $3.6 million, or 24% of maintenance services revenue, in the three months ended September 30, 2002 from $2.8 million, or 28% of maintenance services revenue, in the three months ended September 30, 2001. The increase results primarily from the acquisition of E3 in September 2001 and the addition of headcount in the customer support function to support our growing installed client base, offset in part by lower incentive compensation costs.

Cost of Consulting Services

Cost of consulting services, including the reclassification of reimbursed expenses, decreased 11% to $17.1 million in the three months ended September 30, 2002 from $19.2 million in the three months ended September 30, 2001. This decrease results from an 8% decrease in average consulting services headcount and lower incentive compensation costs in the three months ended September 30 2002 compared to the three months ended September 30, 2001. As of September 30, 2002 there were 516 individuals involved in our consulting services function.

Gross Profit

Gross profit for the three months ended September 30, 2002 decreased 4% to $27.5 million, or 56% of total revenues, from $28.5 million, or 55% of total revenues, in the three months ended September 30, 2001. The decrease in gross profit dollars results from the 5% decrease in total revenues. The improvement in the gross margin percentage results primarily from higher product revenues as a percentage of total revenues in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Software licenses and maintenance services revenue have higher margins than service revenues. In addition, consulting services margins, which include the reclassification of reimbursed expenses in both service revenues and cost of service revenues, improved to 28% in the three months ended September 30, 2002 compared to 27% in the three months ended September 30, 2001. This increase results primarily from lower incentive compensation costs and higher average billing rates in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, offset in part by lower utilization rates. The lower utilization rates are a result of deteriorating economic conditions that have decreased the demand for our services, the shift in demand away from host merchandising systems towards analytic and optimization products that have lower implementation requirements, together with improved integration and shorter implementation timeframes of the products in the JDA Portfolio.

Operating Expenses

Operating expenses, excluding amortization of intangibles, purchased in-process research and development and restructuring, asset disposition, and other merger related charges, increased 10% to $26 million, or 53% of total revenues, in the three months ended September 30, 2002 from $23.6 million, or 46% of total revenues, in the three months ended September 30, 2001. The primary reason for this increase is a 14% increase in average headcount due to the acquisitions of E3 and J• Commerce.

Product Development. Product development expenses for the three months ended September 30, 2002 increased 19% to $10.4 million from $8.7 million in the three months ended September 30, 2001. Product development expense as a percentage of product revenues was 40% in the three months ended September 30, 2002 compared to 34% in the three months ended September 30, 2001. The increase in product development expense results primarily from the cost of full-time employees added in connection with the acquisitions E3 in September 2001, and J• Commerce in April 2002, and the addition of full-time employees involved in the ongoing enhancement of the JDA Portfolio and the development of further CPFR applications, offset in part by lower incentive compensation costs. Our average product development headcount increased 43% in third quarter 2002 compared to third quarter 2001 and as of September 30, 2002 there were 383 individuals involved in this function. In November 2002, we announced our intent to relocate substantially all product development activities to our Corporate headquarters in order to take advantage of certain synergies and efficiencies available as we migrate our suite of products to Microsoft’s .Net architecture. While this consolidation will result in some near term disruption, we believe that we will experience enhanced development timeframes and reduced costs in 2003 as a result of this change. We also believe development of our software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no costs have been capitalized.

Sales and Marketing. Sales and marketing expenses for the three months ended September 30, 2002 increased 9% to $9.2 million from $8.4 million in the three months ended September 30, 2001. Sales and marketing expense as a percentage of total revenues was 19% in the three months ended September 30, 2002 compared to 16% in the three months ended September 30, 2001. The increase in sales and marketing expenses results from an increase in quota carrying sales representatives, due primarily to the acquisition of E3 in September 2001. This increase was offset in part by lower commissions and related benefits due to lower software sales, and lower marketing costs. Our average sales and marketing headcount increased 20% in third quarter 2002 compared to third

quarter 2001, and as of September 30, 2002 there were 173 individuals involved in this function, including 108 quota carrying sales personnel and related sales management.

General and Administrative. General and administrative expenses for the three months ended September 30, 2002 were $6.4 million, or 13% of total revenues, which is flat with $6.5 million, or 12% of total revenues, in the three months ended September 30, 2001. During the three months ended September 30, 2002 compared to 2001, increases in legal, insurance and travel costs, due to prevailing economic conditions, were offset by a $741,000 decrease in our bad debt provision and lower incentive compensation costs. The provision for bad debts in the three months ended September 30, 2002 decreased to $500,000, or 1% of total revenues, compared to $1.2 million, or 2% of total revenues in the three months ended September 30, 2001, due to the decreases in total revenues, receivable balances, and days sales outstanding, which resulted from strong cash collections during third quarter 2002. There have been no significant changes in our credit policies or any significant new billing or collection problems with our customers. As of September 30, 2002 there were 153 individuals involved in the general and administrative function.

Amortization of Intangibles. Amortization of intangibles for the three months ended September 30, 2002 was $711,000 compared to $1.4 million the three months ended September 30, 2001. The non-amortization provisions of SFAS No. 142 for goodwill and trademarks with indefinite useful lives reduced amortization expense by approximately $950,000 in the three months ended September 30, 2002, however, this was offset by new amortization related to the acquisitions of NeoVista in June 2001 and E3 in September 2001.

Operating Income

Operating income decreased 37% to $833,000 in the three months ended September 30, 2002 from $1.3 million in the three months ended September 30, 2001. The decrease in operating income results primarily from an increase in average headcount and decreases in software licenses and consulting services revenue of 31% and 9%, respectively, in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, which were offset in part by the 49% increase in maintenance services revenue and lower cost of consulting services revenue.

Operating income in our Retail Enterprise Systems business segment decreased 42% to $5.4 million in the three months ended September 30, 2002 from $9.4 million in the three months ended September 30, 2001. The decrease results primarily from the softening demand for software license sales and consulting services, and reduced consulting service margins, offset in part by increases in maintenance services, and lower sales and marketing costs.

Operating income in our In-Store Systems business segment increased 96% to $802,000 in the three months ended September 30, 2002 from $410,000 in the three months ended September 30, 2001. The increase results primarily from the increases in software license sales, maintenance services and consulting services revenues and increased consulting service margins in this business segment in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, offset in part by an increases in product development and sales and marketing costs.

Operating income in our Collaborative Solutions business segment increased 8% to $1.7 million in the three months ended September 30, 2002 from $1.6 million in the three months ended September 30, 2001. The increase results primarily from increases in software license sales, maintenance and consulting services revenues, offset in part by increases in sales and marketing and research and development costs to support our new CPFR initiatives.

Provision for Income Taxes

Our effective income tax rate reflects statutory federal, state and foreign tax rates, partially offset by reductions for research and development expense tax credits. We currently expect an effective tax rate of 35.5% for 2002. From time to time, we may be subjected to audit by federal, state and/or foreign taxing authorities. The IRS is currently conducting an audit of our 1998 and 1999 Federal Income Tax Returns. We do not expect any material adjustments as a result of these audits.

Nine months ended September 30, 2002 Compared to Nine months ended September 30, 2001

Revenues consist of product revenues and consulting services revenue, including reimbursed expenses, which represented 54% and 46%, respectively, of total revenues in the nine months ended September 30, 2002 compared to 50% and 50%, respectively in the nine months ended September 30, 2001. Total revenues for the nine months ended September 30, 2002 were $166.1 million, an increase of $15.1 million, or 10%, over the $151 million reported in the nine months ended September 30, 2001. Total revenues for the nine months ended September 30, 2002 include $34 million in revenues from the E3 product line compared to $3.4 million in the nine months ended September 30, 2001. We owned E3 for the full nine months ended September 30, 2002 as compared to three weeks during the nine months ended September 30, 2001. Excluding E3, product revenues, consulting services revenue, and total revenues, decreased 10%, 11% and 10%, respectively in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001.

Product Revenues

Software Licenses. Software license revenues for the nine months ended September 30, 2002 increased 2% to $48.6 million from $47.9 million in the nine months ended September 30, 2001. E3 software license revenues for the nine months ended September 30, 2002 increased 531% to $14.1 million from $2.2 million in the nine months ended September 30, 2001 due primarily to the ownership of E3 for nine months versus three weeks. Excluding E3, software license revenues decreased 24% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, primarily as a result of a decrease in demand for certain applications in our Retail Enterprise Systems business segment. The retail industry appears to remain cautious with their level of investment in information technology during the current difficult economic cycle, perhaps due to poor macroeconomic conditions, and uncertainty related to potential future terrorist attacks and the threat of a US war with Iraq. In addition, subsequent to the September 11 attack, we believe retailers have changed their buying behavior and that this has resulted in a fundamental shift in the mix of demand for the various types of products we sell. Software license revenues in the Retail Enterprise Systems business segment, excluding E3, decreased 38% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001 due primarily to a decrease in demand for our host merchandising and merchandise planning systems. Demand for our In-store Systems and Collaborative Solutions software products has remained strong with increases of 8% and 125%, respectively in the nine months ended September 30 2002 compared to the nine months ended September 30, 2001.

Domestic software license revenues decreased 9% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Excluding E3, domestic software license revenues for the nine months ended September 30, 2002 decreased 38% compared to the nine months ended September 30, 2001. This decrease results primarily from a decrease in software license revenues related to certain other Retail Enterprise Systems and In-Store Systems applications. International software license revenues increased 16% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. E3 international software license revenues for the nine months ended September 30, 2002 increased to $5.6 million from $1.1 million in the nine months ended September 30, 2001. Excluding E3, international software license revenues for the nine months ended September 30, 2002 decreased 6% compared to the nine months ended September 30, 2001, primarily due to decreases in software license sales in Asia/Pacific and Latin America, offset in part by increases in software license sales in Europe and Canada.

Maintenance Services. Maintenance services revenue for the nine months ended September 30, 2002 increased 49% to $41.9 million from $28.1 million in the nine months ended September 30, 2001. E3 maintenance services revenues for the nine months ended September 30, 2002 increased to $10.8 million from $672,000 in the three months ended September 30, 2001. Excluding E3, maintenance services revenue increased 13% due to increases in the install base for our other product lines.

Consulting Services

Consulting services revenue, including the reclassification of reimbursed expenses, for the nine months ended September 30, 2002 were $75.7 million which is flat compared with $75.1 million in the nine months ended September 30, 2001. E3 consulting services revenues for the nine months ended September 30, 2002 increased to $9.2 million from $541,000 in the nine months ended September 30, 2001 primarily due to the longer period of ownership. Excluding E3, consulting services revenue decreased 11% in the nine months ended September 30, 2002

compared to the nine months ended September 30, 2001, primarily as a result of a decrease in consulting services revenue from implementation of host merchandising systems. Consulting services revenue typically lags the recognition of software revenues by as much as one year. We believe the average implementation times for our software products have declined due to increased training and expertise in our consulting organization, and as a direct result of the investments we have made over the past three years to increase the functionality, stability, scalability, integration and ease of implementation of the products in the JDA Portfolio. Furthermore, much of the growth in demand for our products is associated with our analytic and optimization products that require lower levels of services to implement. As a result of these changes in our business and product revenue mix, our consulting services revenue has declined sequentially in each of the last four quarters and we expect that our consulting services revenue will continue to decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns, or until economic conditions improve.

Business Segment Revenues

Total revenues in our Retail Enterprise Systems business segment decreased 3% to $112.9 million for the nine months ended September 30, 2002 from $116.5 million in the nine months ended September 30, 2001. E3 revenues in this business segment increased 586% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Excluding E3, total revenues in this business segment decreased 17% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, primarily due to a decline in demand for host merchandising and merchandise planning systems. Sales of host merchandising and merchandise planning systems tend to be more heavily impacted during slow economic periods, as retailers are often reluctant to make substantial investments due to the slower expected return on investment. In addition, these products typically have longer implementation time frames and our services group often performs the implementation services. Thus, the decline in software sales for these products is also having a negative impact on our consulting services revenue. The Retail Enterprise Systems business segment represented 68% of our total revenues in the nine months ended September 30, 2002 compared to 77% in the nine months ended September 30, 2001.

Total revenues in our In-Store Systems business segment increased 7% to $20.5 million in the nine months ended September 30, 2002 from $19.1 million in the nine months ended September 30, 2001. Increased demand for our Internet-based Store Portal applications was partially offset by a decrease in sales of Win/DSS. In-Store Systems such as Win/DSS tend to be heavily impacted during slow economic periods as the implementation of a new point-of-sale system usually requires a substantial hardware investment. The In-Store Systems business segment represented 12% of total revenues in the nine months ended September 30, 2002 compared to 13% in the nine months ended September 30, 2001.

Total revenues in our Collaborative Solutions business segment increased 113% to $32.8 million in the nine months ended September 30, 2002 from $15.4 million in the nine months ended September 30, 2001. Revenues from E3 accounted for 83% of the dollar increase in this business segment. Excluding E3, total revenues in this business segment increased 20% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001 primarily due to an increase in revenues from the Intactix product line to non-retail customers. The Collaborative Solutions business segment represented 20% of total revenues in the nine months ended September 30, 2002 compared to 10% in the nine months ended September 30, 2001.

Geographic Revenues

Total revenues in the United States increased 14% to $95.9 million in the nine months ended September 30, 2002 from $84.4 million in the nine months ended September 30, 2001. The increase includes the favorable impact of an increase in E3 revenues in this region in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Excluding E3, total revenues in this region decreased 11% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, due to a 38% decrease in software license revenues and a 3% decrease in consulting services revenues, offset in part by an 14% increase in maintenance services revenue.

Total revenues in Europe increased 35% to $44 million in the nine months ended September 30, 2002 from $32.6 million in the nine months ended September 30, 2001. The increase includes the favorable impact of an increase in E3 revenues in this region in the nine months ended September 30, 2002 compared to the nine months

ended September 30, 2001. Excluding E3, total revenues in this region increased 5% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, due to a 24% increase in software license revenues and a 7% increase in maintenance services revenue, offset in part by a 7% decrease in consulting services revenue.

Total revenues in Asia/Pacific decreased 21% to $15.5 million in the nine months ended September 30, 2002 from $19.5 million in the nine months ended September 30, 2001 due to a 34% decrease in software license revenues and a 24% decrease in consulting services revenue primarily due to decreases in revenues from ongoing implementations in Australia and Japan.

Total revenues in Canada increased 7% to $8.2 million in the nine months ended September 30, 2002 from $7.7 million in the nine months ended September 30, 2001. Total revenues include the favorable impact of an increase in E3 revenues in this region in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Excluding E3, total revenues in this region increased 2% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, due to a 64% increase in software license revenues and a 4% increase in maintenance services revenue, offset in part by a 22% decrease in consulting services revenue.

Total revenues in Latin America decreased 48% to $4.3 million in the nine months ended September 30, 2002 from $8.3 million in the nine months ended September 30, 2001, due to a 69% decrease in software license revenues and a 44 % decrease in consulting services revenue.

Cost of Product Revenues

Cost of Software Licenses. Cost of software licenses was $1.3 million, or 3% of software license revenues in the nine months ended September 30, 2002 compared to $1.8 million, or 4% of software license revenues in the nine months ended September 30, 2001. The decrease results from fewer software products sold in the nine months ended September 30, 2002 that incorporate functionality from third party software providers and require the payment of royalties.

Amortization of Acquired Software Technology. Amortization of acquired software technology was $3.2 million in the nine months ended September 30, 2002 compared to $1.9 million in the nine months ended September 30, 2001. The increase results primarily from an increase in amortization on software technology acquired from E3 in September 2001.

Cost of Maintenance Services. Cost of maintenance services increased 37% to $10.5 million, or 25% of maintenance services revenue, in the nine months ended September 30, 2002 from $7.6 million, or 27% of maintenance services revenue, in the nine months ended September 30, 2001. The increase results primarily from the acquisition of E3 in September 2001 and the addition of headcount in the customer support function to support our growing installed client base, offset in part by lower incentive compensation costs.

Cost of Consulting Services

Cost of consulting services, including the reclassification of reimbursed expenses, decreased 4% to $53.8 million in the nine months ended September 30, 2002 from $56.2 million in the nine months ended September 30, 2001. This decrease results from a decrease in average consulting services headcount and lower incentive compensation costs in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001.

Gross Profit

Gross profit for the nine months ended September 30, 2002 increased 17% to $97.4 million, or 59% of total revenues, from $83.4 million, or 55% of total revenues, in the nine months ended September 30, 2001. The increase in gross profit dollars results primarily from the 10% increase in total revenues. The improvement in the gross margin percentage results primarily from higher product revenues as a percentage of total revenues in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Software licenses and maintenance services revenue have higher margins than service revenues. In addition, consulting services margins,

which include the reclassification of reimbursed expenses in both service revenues and cost of service revenues, improved to 29% in the nine months ended September 30, 2002 compared to 25% in the nine months ended September 30, 2001. This increase results primarily from lower incentive compensation costs and higher average billing rates in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by lower utilization rates. The lower utilization rates are a result of deteriorating economic conditions that have decreased the demand for our services, the shift in demand away from host merchandising systems towards analytic and optimization products that have lower implementation requirements, together with improved integration and shorter implementation timeframes of the products in the JDA Portfolio. During second quarter 2002 we reduced our consulting services headcount by approximately 10% in order to preserve our utilization rates, consulting margins and overall profitability with the lower consulting services revenue outlook for 2002. During the fourth quarter 2002 we will reduce our consulting services headcount by another 13% (See “We Have and Will Record Restructuring Charges to Reorganize our Company and to Re-align Our Cost Structure”).

Operating Expenses

Operating expenses, excluding amortization of intangibles, purchased in-process research and development and restructuring, asset disposition, and other merger related charges, increased 20% to $82.2 million, or 49% of total revenues, in the nine months ended September 30, 2002 from $68.6 million, or 45% of total revenues, in the nine months ended September 30, 2001. The increase in operating expenses results primarily from the cost of full-time employees added in connection with the acquisitions of Zapotec in February 2001, NeoVista in June 2001, E3 in September 2001, and J• Commerce in April 2002.

Product Development. Product development expenses for the nine months ended September 30, 2002 increased 28% to $31.2 million from $24.4 million in the nine months ended September 30, 2001. Product development expense as a percentage of product revenues was 34% in the nine months ended September 30, 2002 compared to 32% in the nine months ended September 30, 2001. The increase in product development expense results primarily from the cost of full-time employees added in connection with the acquisitions of Zapotec in February 2001, NeoVista in June 2001, E3 in September 2001, and J• Commerce in April 2002, and the addition of full-time employees involved in the ongoing enhancement of the JDA Portfolio and the development of further CPFR applications, offset in part by lower incentive compensation costs.

Sales and Marketing. Sales and marketing expenses for the nine months ended September 30, 2002 increased 15% to $29.9 million from $26 million in the nine months ended September 30, 2001. Sales and marketing expense as a percentage of total revenues was 18% in the nine months ended September 30, 2002 compared to 17% in the nine months ended September 30, 2001. The increase in sales and marketing expenses results from an increase in quota carrying sales representatives, due primarily to the acquisition of E3 in September 2001, and higher marketing costs, offset in part by lower commissions and related benefits.

General and Administrative. General and administrative expenses for the nine months ended September 30, 2002 increased 16% to $21.1 million from $18.2 million in the nine months ended September 30, 2001. General and administrative expense, as a percentage of total revenues, was 13% in the nine months ended September 30, 2002 compared to 12% in the nine months ended September 30, 2001. The increase in general and administrative expense results from the acquisition of E3 in September 2001, additional full-time employees and outside contractors involved in the development and maintenance of our internal information systems, and higher legal, accounting, insurance and travel costs due to prevailing economic conditions, offset in part by lower incentive compensation costs. The provision for bad debts was $2.9 million, or 2% of total revenues, in each of the comparable nine-month periods.

Amortization of Intangibles. Amortization of intangibles was $2.1 million in the nine months ended September 30, 2002 compared to $3.9 million in the nine months ended September 30, 2001. The non-amortization provisions of SFAS No. 142 for goodwill and trademarks with indefinite useful lives reduced amortization expense by approximately $2.9 million in the nine months ended September 30, 2002, however, this was offset by new amortization related to the acquisitions of NeoVista in June 2001 and E3 in September 2001.

Purchased In-process Research and Development. We expensed $800,000 of purchased in-process research and development in the nine months ended September 30, 2002 in connection with the acquisition of

J•Commerce in April 2002. We expensed $2.4 million of purchased in-process research and development in the nine months ended September 30, 2001 in connection with the acquisitions of Zapotec in February 2001 ($161,000) and E3 in September 2001 ($2.2 million).

Restructuring, Asset Disposition and Other Merger Related Charges. We recorded a $1.3 million restructuring charge in second quarter 2002. The restructuring initiatives involved a workforce reduction of 53 full-time employees, primarily in the consulting services function in the United States, Europe, Canada and Latin America. All workforce reductions associated with this charge were made on or before June 30, 2002. We recorded restructuring, asset disposition and other merger related charges of $749,000 in first quarter 2001. The restructuring initiatives involved a workforce reduction of 32 full-time employees certain implementation service groups, product development activities, sales and marketing, and administrative functions in the United States, Europe, Canada and Latin America. All workforce reductions associated with these charges were made on or before June 30, 2001. The first quarter 2001 charges also include other merger related charges of $208,000 for the write-off of certain merger and acquisition costs related to a potential acquisition that was abandoned.

Operating Income

Operating income increased 41% to $11 million in the nine months ended September 30, 2002 from $7.8 million in the nine months ended September 30, 2001. The increase in operating income results from increases in software licenses and maintenance services revenues of 2% and 49%, respectively in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by the $13.6 million, or 20% increase in operating expenses, excluding amortization of intangibles, purchased in-process research and development and restructuring charges.

Operating income in our Retail Enterprise Systems business segment decreased 3% to $24.3 million for the nine months ended September 30, 2002 from $25.1 million in the nine months ended September 30, 2001. The decrease results from lower total revenues and increases in product development costs and costs of maintenance services in this business segment in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by decreases in sales and marketing costs and costs of consulting services due to reduced headcounts and lower incentive compensation.

Operating income in our In-Store Systems business segment increased 70% to $5 million in the nine months ended September 30, 2002 from $2.9 million in the nine months ended September 30, 2001. The increase results primarily from increases in software license sales, maintenance services and consulting services revenues and increased consulting service margins in this business segment in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by an increases in product development costs.

Operating income in our Collaborative Solutions business segment increased 42% to $7 million in the nine months ended September 30, 2002 from $5 million in the nine months ended September 30, 2001. The increase results primarily from increases in software license sales, maintenance services and consulting services revenues related to the E3 and Intactix product lines, offset in part by increases in sales and marketing and research and development costs to support our new CPFR initiatives.

Provision for Income Taxes

Liquidity and Capital Resources

We continue to finance our operations through cash generated from operations and the issuance of common stock under our employee stock option and employee stock ownership plans as noted below. We had working capital of $115.9 million at September 30, 2002 compared with $93.1 million at December 31, 2001. Cash and marketable securities at September 30, 2002 were $91.9 million, an increase of $27.9 million from the $64.0 million reported at December 31, 2001. Working capital and our cash and marketable securities balances increased in the nine months ended September 30, 2002 primarily as a result of cash provided by operating activities and the cash received from the issuance of common stock under our stock option and employee stock purchase plans.

Operating activities provided cash of $27.7 million and $21.4 million in the nine months ended September 30, 2002 and 2001, respectively. Cash provided from operating activities in the nine months ended September 30, 2002 results primarily from net income of $8 million, $11.6 million of depreciation and amortization, a $2.9 million provision for doubtful accounts, a $6.8 million tax benefit from the exercise of stock options and shares purchased under the employee stock purchase plan, an $8.6 million increase in deferred revenues, and decreases in accounts receivable and income tax receivable, offset in part by a $9 million decrease in deferred income taxes, an increase in prepaid expenses and other current assets related to escrow amounts due from the E3 acquisition, refundable deposits for tenant improvements and normal seasonal fluctuations for payments, and an $8.9 million decrease in accrued expenses and other liabilities due primarily to lower sales commissions and incentive compensation payments. The $9 million decrease in deferred income taxes results from the reclassification of $6.6 million in foreign tax and research and development credit carry-forwards out of the income tax receivable accounts and into the deferred tax accounts as we do not expect them to be realized this year as a result of the downturn in demand for our software products in the second half of 2002 and the related reduced expectations for taxable income in 2002. In addition, we reclassified $2.3 million from the income tax receivable accounts to current deferred tax assets as we expect our anticipated tax losses for 2002 to be carried forward to 2003 due to reduced expectations for taxable income in 2002. Cash provided from operating activities in the nine months ended September 30, 2001 results primarily from net income of $6.3 million, $11.8 million of depreciation and amortization, a $2.9 million provision for doubtful accounts, and the $2.4 million write-off of purchased in-process research and development, offset in part by a $3.8 increase in accounts receivable. We had net receivables of $52.1 million, or 95 days sales outstanding (“DSOs”) at September 30, 2002 compared to $60.9 million, or 91 DSOs at December 31, 2001. The four-day increase in DSOs since year-end results primarily from the increase in deferred revenue during the nine months ended September 30, 2002 related to annual maintenance billings on the E3, Arthur and Intactix products. DSOs may fluctuate significantly on a quarterly basis due to a number of factors including seasonality, shifts in customer buying patterns, lengthened contractual payment terms in response to competitive pressures, the underlying mix of products and services, and the geographic concentration of revenues.

Investing activities utilized cash of $31.1 million in the nine months ended September 30, 2002 and $22.2 million in the nine months ended September 30, 2001. Cash utilized by investing activities in the nine months ended September 30, 2002 results primarily from the net purchase of $14.3 million of marketable securities, the payment of $8.3 million in direct costs related to the acquisition of E3, a $4.2 million cash payment for the acquisition of J•Commerce, and $5 million in capital expenditures. Cash utilized by investing activities during the nine months ended September 30, 2001 results primarily from cash payments of $18.3 million, $4.9 million and $1.3 million for the acquisitions of E3, NeoVista and Zapotec, respectively, the payment of $4.2 million in direct costs related to the acquisition of E3, the issuance of a $3.5 million promissory note receivable, and $4.9 million in capital expenditures, offset in part by $14.3 million in sales and maturities of marketable securities.

Financing activities provided cash of $16.2 million in the nine months ended September 30, 2002 and utilized cash of $3.2 million in the nine months ended September 30, 2001. Cash provided by financing activities in the nine months ended September 30, 2002 results primarily from the proceeds from the issuance of common stock under our stock option and employee stock purchase plans. Cash utilized by financing activities in the nine months ended September 30, 2001 results primarily from the re-payment of the acquired E3 line of credit, notes payable and long-term debt and the repurchase of 76,500 shares of our outstanding stock under our stock repurchase program, offset in part by proceeds from the issuance of common stock under our stock option and employee stock purchase plans.

Changes in the currency exchange rates of our foreign operations had the effect of increasing cash by $793,000 million in the nine months ended September 30, 2002 and reducing cash by $900,000 in the nine months

ended September 30, 2001. We did not enter into any foreign exchange contracts or engage in similar hedging strategies during the nine months ended September 30, 2002 or 2001.

We believe there are opportunities to grow our business through the acquisition of complementary and synergistic companies, products and technologies. We look for acquisitions that can be readily integrated and accretive to earnings, although we may pursue smaller non-accretive acquisitions that will shorten our time to market with new technologies. We believe the general size of cash acquisitions we would currently consider to be in the $5 million to $30 million range. Any material acquisition could result in a decrease to our working capital depending on the amount, timing and nature of the consideration to be paid. In addition, any material acquisitions of complementary or synergistic companies, products or technologies could require that we obtain additional equity financing. There can be no assurance that such additional financing will be available or that, if available, such financing will be obtained on terms favorable to us and would not result in additional dilution to our stockholders.

We believe that our cash and cash equivalents, investments in marketable securities, and funds generated from operations will provide adequate liquidity to meet our normal operating requirements for at least the next twelve months.

Certain Risks

Our Operating Results May Fluctuate Significantly, Which Could Adversely Affect the Price of Our Stock. Our quarterly operating results have varied and are expected to continue to vary in the future. If our quarterly operating results fail to meet management’s projections or analysts’ expectations, the price of our stock could decline. Many factors may cause these fluctuations, including:

• demand for our software products and services, including the size and timing of individual contracts and our ability to recognize revenue with respect to contracts signed in the quarter, particularly with respect to our significant customers;

• changes in the length of our sales cycle;

• competitive pricing pressures;

• customer order deferrals resulting from the anticipation of new products, economic uncertainty, disappointing operating results by the customer, or otherwise;

• the timing of new software product introductions and enhancements to our software products or those of our competitors, and market acceptance of our new software products;

• changes in our operating expenses;

• changes in the mix of domestic and international revenues, or expansion or contraction of international operations;

• our ability to complete fixed price consulting contracts within budget;

• foreign currency exchange rate fluctuations;

• integration issues associated with newly acquired businesses;

• Operational issues resulting from corporate reorganizations (see “We May Encounter Difficulties Successfully Implementing the Corporate Reorganization We Announced in Fourth Quarter 2002”);

• lower-than-anticipated utilization in our consulting services group as a result of reduced levels of software sales, reduced implementation times for our products, changes in the mix of demand for our software products, or other reasons; and

• general industry and economic conditions, the September 11 terrorist attack, and the uncertainty related to potential future terrorist attacks or the threat of a US war with Iraq, which could negatively impact the industry, our customers’ ability to pay for our products and services, and which could potentially lead to an increased number of bankruptcy filings and/or bad debt charges.

We believe it is likely that in some future quarter our operating results will vary from the expectations of public market analysts or investors. If this happens, or if adverse conditions prevail, or are perceived to prevail, with respect to our business, or generally, the price of our common stock may decline. Significant fluctuations have included, or may include in the future, the following:

• A Decline in Overall Demand for Our Products or Services. We have in the past experienced a decline in overall demand for our products we believe as a result of:

» cancelled or delayed purchasing decisions related to the September 11 terrorist attack and the uncertainty related to potential future terrorist attacks or the threat of a US war with Iraq;

» the millennium change;

» conversion to the Euro currency;

» external and internal marketing issues;

» increased competition;

» elongated sales cycles;

» a limited number of referenceable implementations in the early years of product release;

» certain design and stability issues we may experience in earlier versions of our products; and/or

» lack of desired features and functionality.

The retail industry appears to remain cautious with their level of investment in information technology during the current difficult economic cycle, perhaps due to poor macroeconomic conditions. We continue to be concerned about weak and uncertain economic conditions, consolidations and the disappointing results of retailers in certain of our geographic regions. The retail industry will be negatively impacted if negative economic conditions or fear of additional terrorists’ attacks or the threat of a US war with Iraq persists for an extended period of time. Weak and uncertain economic conditions have in the past, and may in the future, negatively impact our revenues, elongate our selling cycles, and delay, suspend or reduce the demand for our products. As a result, it is difficult in the current economic environment to predict exactly when specific software licenses will close within a six to nine month time frame. In addition, weak and uncertain economic conditions could impair our customers’ ability to pay for our products or services and we may experience an increased number of bankruptcy filings in our customer base. Any of these factors could adversely impact our business, quarterly or annual operating results and financial condition.

• Our Gross Margins May Vary Significantly or Decline. Because the gross margins on product revenues (software licenses and maintenance services) are significantly greater than the gross margins on consulting services, our combined gross margin has fluctuated from quarter to quarter, and it may continue to fluctuate significantly based on revenue mix. Subsequent to the September 11 attack, we believe retailers have changed their buying behavior and that this has resulted in a fundamental shift in the mix of demand for the various types of products we sell. Demand for our host merchandising systems has declined and customers

now appear to be more interested in buying analytic and optimization solutions that require lower levels of services to implement, enable lower inventory levels without reducing sales, and provide a quicker return on investment. The decline in software sales of host merchandising systems is having a corollary negative impact on our service revenues as consulting services revenue typically lags the performance of software revenues by as much as one year. As a result of this change in revenue mix, we expect that our consulting services revenue will continue to decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns, or until underlying economic conditions improve. In addition, our gross margins on consulting services revenue vary significantly with the rates at which we utilize our consulting personnel, and as a result, our overall gross margins will be adversely affected when there is not enough work to keep our consultants busy.

• We May Misjudge When Software Sales Will Be Realized. Software license revenues in any quarter depend substantially upon contracts signed and the related shipment of software in that quarter. It is therefore difficult for us to accurately predict software license revenues. 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, and we may derive a significant portion of our quarterly software license revenues from a small number of relatively large sales. 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. Accordingly, large individual sales have sometimes occurred in quarters subsequent to when we anticipated. For example, in third quarter 2002 we experienced delays in the execution of nearly all large software license contracts valued at $1 million or higher which caused our reported revenues for the three months ended September 30, 2002 to be below our previously published guidance. We are unable to predict if or when these contracts may be executed. We expect these aspects of our business to continue. If we receive any significant cancellation or deferral of customer orders, or we are unable to conclude license negotiations by the end of a fiscal quarter, our operating results may be lower than anticipated. In addition, any weakening or uncertainty in the economy may make it more difficult for us to predict quarterly results in the future, and could negatively impact our business, operating results and financial condition for an indefinite period of time.

• We May Not Be Able to Reduce Expense Levels If Our Revenues Decline. Our expense levels are based on our expectations of future revenues. Since software license sales are typically accompanied by a significant amount of consulting and maintenance services, and in addition to our sales and marketing staff, the size of our services organization must be managed to meet our anticipated software license revenues. As a result, we hire and train service personnel and incur research and development costs in advance of anticipated software license revenues. If software license revenues fall short of our expectations, or if we are unable to fully utilize our service personnel, our operating results are likely to decline because a significant portion of our expenses cannot be quickly reduced to respond to any unexpected revenue shortfall.

• We May Encounter Difficulties Successfully Implementing the Corporate Reorganization We Announced in Fourth Quarter 2002. The reorganization to enable JDA become a more customer-focused company and to reduce our cost structure to better fit the current economic environment involves terminating a significant number of personnel both domestically and internationally, reassigning certain existing personnel and adding a number of new personnel. Because of the magnitude and complexity of this reorganization, we will likely encounter difficulties implementing the reorganization. Potential risks include, but are not limited to: (i) the possibility that we may not be able to successfully persuade enough key E3 and Arthur product development and support personnel to relocate to our corporate headquarters in Scottsdale, Arizona; (ii) the possible disruption in our operations caused by such a large and complex reorganization; (iii) the difficulty of accurately forecasting the timing, amount, and the nature of costs that we will incur in implementing the reorganization; and (iv) the possibility that we will not be able to successfully recruit appropriately skilled and experienced personnel to fill new positions.

We Are Dependent Upon the Retail Industry. Historically, we have derived 80% or more of our revenues from the license of software products and the performance of related services to retail customers. Although the acquisitions of Arthur, Intactix, Zapotec, NeoVista Decision Series and E3 have expanded our product offerings to provide collaborative applications that address new vertical market opportunities with the manufacturers and

wholesalers who supply our traditional retail customers, our future growth is critically dependent on increased sales to retail customers. The success of our customers is directly linked to economic conditions in the retail industry, which in turn are subject to intense competitive pressures and are affected by overall economic conditions. In addition, we believe that the licensing of certain of our software products involves a large capital expenditure, which is often accompanied by large-scale hardware purchases or other capital commitments. As a result, demand for our products and services could decline in the event of instability or potential downturns such as that currently being experienced by certain sectors in the retail industry. Such downturns may cause customers to delay, cancel or reduce any planned expenditure for information management systems and software products.

We also believe that the retail industry may be consolidating, and that the industry is currently experiencing increased competition and weakening economic conditions in certain geographical regions that could negatively impact the industry and our customers’ ability to pay for our products and services. Such consolidation and weakening economic conditions have in the past, and may in the future, negatively impact our revenues, reduce the demand for our products and may negatively impact our business, operating results and financial condition.

There May Be An Increase in Customer Bankruptcies Due to Weak Economic Conditions. While we do perform credit checks before we enter into software license agreements, we have in the past and may in the future be impacted by customer bankruptcies that occur in periods subsequent to the software license sale. During weak economic conditions, such as those currently being experienced in many geographic regions around the world, there is an increased risk that certain of our customers will file bankruptcy. When our customers file bankruptcy, we may be required to forego collection of pre-petition amounts owed and to repay amounts remitted to us during the 90-day preference period preceding the filing. Accounts receivable balances related to pre-petition amounts may in certain of these instances be large due to extended payment terms for software license fees, and significant billings for consulting and implementation services on large projects. The bankruptcy laws, as well as the specific circumstances of each bankruptcy, may severely limit our ability to collect pre-petition amounts, and may force us to disgorge payments made during the 90-day preference period. We also face risk from international customers which file for bankruptcy protection in foreign jurisdictions, in that the application of foreign bankruptcy laws may be less certain or harder to predict. Although we believe that we have sufficient reserves to cover anticipated customer bankruptcies, there can be no assurance that such reserves will be adequate, and if they are not adequate, our business, operating results and financial condition would be adversely affected.

We May Have Difficulty Attracting and Retaining Skilled Personnel. Our success is heavily dependent upon our ability to attract, hire, train, retain and motivate skilled personnel, including sales and marketing representatives, qualified software engineers involved in ongoing product development, and consulting personnel who assist in the implementation of our products and services. The market for such individuals is competitive. For example, it may be particularly difficult to attract and retain product development personnel experienced in the Microsoft.Net platform since the .Net platform is a new and evolving technology. Given the critical roles of our sales, product development and consulting staffs, our inability to recruit successfully or any significant loss of key personnel would hurt us. The software industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. We cannot guarantee that we will be able to retain our current personnel, attract and retain other highly qualified technical and managerial personnel in the future, or be able to assimilate the employees from any acquired businesses. We will continue to adjust the size and composition of the workforce in our services organization to match the different product and geographic demand cycles. If we are unable to attract and retain the necessary technical and managerial personnel, or assimilate the employees from any acquired businesses, our business, operating results and financial condition would be adversely affected.

We Have Only Deployed Certain of Our Software Products On a Limited Basis, and Have Not Yet Deployed Some Software Products that are Important to our Future Growth. Certain of our software products, including MMS.com, Internet Portals, the UNIX/Oracle version of E3Trim, and certain modules of Affinity and Intellect, have been commercially released within the last two years. Other modules of our Affinity and Intellect products, as well as the UNIX/Oracle version of the E3Slim product and the point-of-sale product that we purchased from J•Commerce, are still in beta or under development. In addition, we have only recently announced our intentions to develop or acquire a series of business-to-business e-commerce solutions, including products in furtherance of our pursuit of the market for Collaborative Solutions. The markets for these products are new and evolving, and we believe that retailers and their suppliers may be cautious in adopting web-based and other new technologies. Consequently, we cannot predict the growth rate, if any, and size of the markets for our e-commerce products or that these markets will continue to develop. Potential and existing customers may find it difficult, or be

unable, to successfully implement our e-commerce products, or may not purchase our products for a variety of reasons, including their inability or unwillingness to deploy sufficient internal personnel and computing resources for a successful implementation. In addition, we must overcome significant obstacles to successfully market our newer products, including limited experience of our sales and consulting personnel. If the markets for our newer products fail to develop, develop more slowly or differently than expected or become saturated with competitors, or if our products are not accepted in the marketplace or are technically flawed, our business, operating results and financial condition will decline.

We Are Re-Writing Many of Our Products Onto The Microsoft .Net Platform, Which Has a Number of Significant Risks Given The Substantial Effort and Investment Involved in This Re-Write. We currently plan to migrate Portfolio Merchandise Management and Store Portals, as well as re-write E3Trim, E3Slim and our Arthur products using the Microsoft .Net development platform (“.Net Platform”). The first .Net products are not scheduled for commercial release until the end of 2003. We also plan to develop new products as well as shared code components using the .Net Platform. The risks of our commitment to the .Net Platform include, but are not limited to, the following: (i) the possibility that prospective customers will refrain from purchasing the current versions of products to be re-written because they are waiting for the .Net Platform versions; (ii) the possibility that our .Net Platform beta customers will not become favorable reference sites; (iii) adequate scalability of the .Net Platform for our largest customers; (iv) the ability of our development staff to learn how to efficiently and effectively develop products using the ..Net Platform; (v) successfully transitioning our installed base onto the .Net Platform when it is available; (vi) Microsoft’s ability to achieve market acceptance of the .Net platform; and (vii) Microsoft’s continued commitment to enhancing and marketing the .Net platform. We are attempting to mitigate some of the foregoing risks with the following strategies: (a) customers who are current on maintenance will receive .Net version of products as part of maintenance; (b) use of large beta customers to test and to demonstrate scalability; (c) use of the inherent component-based architecture that will enable us to manage changes to the code more efficiently; (d) business process programmers will focus on only certain components, which will isolate them from the overall complexity of the technology; and (e) use of a development methodology whereby we conduct a series of performance benchmarks throughout the development effort so that performance enhancements are made continuously throughout the project. Despite these efforts to mitigate the risks of the .Net Platform project, there can be no assurances that our efforts to re-write many of our current products and to develop new products using the .Net Platform will be successful. If the .Net Platform project is not successful, it likely will have a material adverse effect on our business, operating results and financial condition.

There Are Risks Associated With Introducing New Lines of Business. We may introduce new lines of business that are outside our traditional focus on software licenses and related maintenance and implementation services. Introducing new lines of business involves a number of uncertainties, including a lack of internal resources and expertise to operate and grow such new lines of business, immature internal processes and controls, inexperience predicting revenues and expenses for the new lines of business, and the possibility that such new lines of business will divert management attention and resources from our traditional business. The inability of management to effectively develop and operate these new lines of business could have a material adverse effect on our business, operating results and financial condition. Moreover, we may not be able gain acceptance of any new lines of business in our markets, penetrate new markets successfully, or obtain the anticipated or desired benefits of such new lines of business.

There Are Many Risks Associated with International Operations. Our international revenues represented 43% of total revenues in the nine months ended September 30, 2002 as compared to 44% and 48% in 2001 and 2000, respectively. If our international operations grow, we must recruit and hire a number of new consulting, sales and marketing and support personnel in the countries we have or will establish offices. Our entry into new international markets typically requires the establishment of new marketing and distribution channels as well as the development and subsequent support of localized versions of our software. International introductions of our products often require a significant investment in advance of anticipated future revenues. The opening of our new offices typically results in initial recruiting and training expenses and reduced labor efficiencies associated with the introduction of products to a new market. If we are less successful in a new market than we expect, we may not be able to realize an adequate return on our initial investment and our operating results could suffer. We cannot guarantee that the countries in which we operate will have a sufficient pool of qualified personnel from which to hire, that we will be successful at hiring, training or retaining such personnel, or that we can expand our international operations in a timely manner.

Our international business operations are subject to risks associated with international activities, including:

» currency fluctuations;

» unexpected changes in employment and other regulatory requirements;

» tariffs and other trade barriers;

» costs and risks of localizing products for foreign countries;

» longer accounts receivable payment cycles in certain countries;

» potentially negative tax consequences;

» difficulties in staffing and managing geographically disparate operations;

» greater difficulty in safeguarding intellectual property, licensing and other trade restrictions;

» repatriation of earnings;

» the burdens of complying with a wide variety of foreign laws; and

» general economic conditions in international markets.

Consulting services in support of certain international software licenses typically have lower gross margins than those achieved domestically due to generally lower billing rates and/or higher costs in certain of our international markets. Accordingly, any significant growth in our international operations may result in declines in gross margins on consulting services. We expect that an increasing portion of our international software license, consulting services and maintenance services revenues will be denominated in foreign currencies, subjecting us to fluctuations in foreign currency exchange rates. As we continue to expand our international operations, exposures to gains and losses on foreign currency transactions may increase. We may choose to limit such exposure by entering into forward foreign currency exchange contracts or engaging in similar hedging strategies. We cannot guarantee that any currency exchange strategy would be successful in avoiding exchange-related losses. In addition, revenues earned in various countries where we do business may be subject to taxation by more than one jurisdiction, which would reduce our earnings.

We May Face Difficulties In Our Highly Competitive Markets, Particularly if the Current Weak Economic Conditions Persist. The markets for our software products are highly competitive. We believe the principal competitive factors are feature and functionality, product reputation and referenceable accounts, retail industry expertise, total solution cost, e-commerce capabilities and quality of customer support. We believe that pricing pressure has increased in response to the economic downturn, which could cause us to offer more significant discounts, or in some cases to lose potential business to competitors willing to offer what we believe to be overly aggressive discounts. We encounter competitive products from a different set of vendors in each of our primary product categories. Our Retail Enterprise Systems compete with internally developed systems, and with third-party developers such as Essentus, Inc., GERS, Inc., Marketmax, Inc., Micro Strategies Incorporated, NONSTOP Solutions, nsb Retail Systems PLC, Radius PLC, Retek, Inc., SAP AG, SVI Holdings, Inc., and others. In addition, new competitors may enter our markets and offer merchandise management systems or analytic and optimization applications that target the retail industry.

The competition for our In-Store Systems is more fragmented than the competition for our Retail Enterprise Systems. We compete with major hardware equipment manufacturers such as ICL, NCR and IBM, as well as software companies such as 360 Commerce, CRS Business Computers, Datavantage, Inc., nsb Retail Systems PLC, Triversity, and others.

Our current Collaborative Solutions compete with products from Marketmax, Inc., NONSTOP Solutions, AC Nielsen Corporation, i2 Technologies, Manugistics Group, Inc., Information Resources, Inc., Synchra Systems, and others.

In the market for consulting services, we have pursued a strategy of forming informal working relationships with leading retail systems integrators such as Accenture, Cap Gemini Ernst & Young, Kurt Salmon Associates and PriceWaterhouseCoopers. These integrators, as well as independent consulting firms such as IBM Global Services, AIG Netplex, CFT Consulting, Lakewest Consulting, SPL and ID Applications, also represent competition to our consulting services group. Moreover, because many of these consulting firms are involved in advising our prospective customers in the software selection process, they may successfully encourage a prospective customer to select software from a software company with whom they have a relationship. Examples of such relationships between consulting firms and software companies include the relationships between Retek, Inc. and Accenture, and between Retek, Inc. and IBM Global Services.

As we continue to develop or acquire e-commerce products and expand our business in the Collaborative Solutions area, we expect to face potential competition from business-to-business e-commerce application providers, including Ariba, Commerce One, Commercialware, i2 Technologies, Manugistics Group, Inc., Microsoft, Inc., Retek, Inc., SAP AG, Synchra Systems, Ecometry Corporation, and others. Some of our existing competitors, as well as a number of potential new competitors, have significantly greater financial, technical, marketing and other resources than we do, which could provide them with a significant competitive advantage over us. We cannot guarantee that we will be able to compete successfully against our current or future competitors, or that competition will not have a material adverse effect on our business, operating results and financial condition.

It May Be Difficult to Identify, Adopt and Develop Product Architecture That is Compatible With Emerging Industry Standards. The markets for our software products are characterized by rapid technological change, evolving industry standards, changes in customer requirements and frequent new product introductions and enhancements. If we fail in our product development efforts to accurately address evolving industry standards or important third-party interfaces or product architectures, sales of our products and services will suffer.

Our software products can be licensed with a variety of popular industry standard platforms, and are authored in various development environments using different programming languages and underlying databases and architectures. There may be future or existing platforms that achieve popularity in the marketplace that may not be compatible with our software product design. Developing and maintaining consistent software product performance across various technology platforms could place a significant strain on our resources and software product release schedules, which could adversely affect our results of operations.

We May Have Difficulty Implementing Our Products. Our software products are complex and perform or directly affect mission-critical functions across many different functional and geographic areas of the enterprise. Consequently, implementation of our software products can be a lengthy process, and commitment of resources by our clients is subject to a number of significant risks over which we have little or no control. Although average implementation times have recently declined, we believe the implementation of the UNIX/Oracle versions of our products can be longer and more complicated than our other applications as they typically (i) appeal to larger retailers who have multiple divisions requiring multiple implementation projects, (ii) require the execution of implementation procedures in multiple layers of software, (iii) offer a retailer more deployment options and other configuration choices, and (iv) may involve third party integrators to change business processes concurrent with the implementation of the software. Delays in the implementations of any of our software products, whether by us or our business partners, may result in client dissatisfaction, disputes with our customers, or damage to our reputation. Significant problems implementing our software therefore, can cause delays or prevent us from collecting license fees for our software and can damage our ability to get new business.

Our Fixed-Price Service Contracts May Result In Losses. We offer a combination of software products, consulting and maintenance services to our customers. Typically, we enter into service agreements with our customers that provide for consulting services on a “time and expenses” basis. Certain clients have asked for, and we have from time to time entered into, fixed-price service contracts, which link services payments, and occasionally software payments, to implementation milestones. We believe fixed-price service contracts may increasingly be offered by our competitors to differentiate their product and service offerings. As a result, we may need to enter into

more fixed-price contracts in the future. If we are unable to meet our contractual obligations under fixed-price contracts within our estimated cost structure, our operating results could suffer.

Our Success Depends Upon Our Proprietary Technology. Our success and competitive position is dependent in part upon our ability to develop and maintain the proprietary aspect of our technology. The reverse engineering, unauthorized copying, or other misappropriation of our technology could enable third parties to benefit from our technology without paying for it.

We rely on a combination of trademark, trade secret, copyright law and contractual restrictions to protect the proprietary aspects of our technology. We seek to protect the source code to our software, documentation and other written materials under trade secret and copyright laws. To date, we have not protected our technology with patents. Effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. We license our software products under signed license agreements that impose restrictions on the licensee’s ability to utilize the software and do not permit the re-sale, sublicense or other transfer of the source code. Finally, we seek to avoid disclosure of our intellectual property by requiring employees and independent consultants to execute confidentiality agreements with us and by restricting access to our source code.

We license and integrate technology from third parties in certain of our software products. For example, we license the Uniface client/server application development technology from Compuware, Inc. for use in ODBMS, certain applications from Silvon Software, Inc. for use in Retail IDEAS, IBM’s Net.commerce merchant server software for use in MMS.com, and the Syncsort application for use in the Arthur Suite. These third party licenses generally require us to pay royalties and fulfill confidentiality obligations. If we are unable to continue to license any of this third party software, or if the third party licensors do not adequately maintain or update their products, we would face delays in the releases of our software until equivalent technology can be identified, licensed or developed, and integrated into our software products. These delays, if they occur, could harm our business, operating results and financial condition. It is also possible that intellectual property acquired from third parties through acquisitions, mergers, licenses or otherwise may not have been adequately protected.

There has been a substantial amount of litigation in the software and Internet industries regarding intellectual property rights. It is possible that in the future third parties may claim that we or our current or potential future software solutions infringe on their intellectual property. We expect that software product developers and providers of e-commerce products will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlap. Moreover, as software patents become more common, the likelihood increases that a patent holder will bring an infringement action against us, or against our customers, to whom we have indemnification obligations. In addition, we may find it necessary to initiate claims or litigation against third parties for infringement of our proprietary rights or to protect our trade secrets. Since we now plan to resell hardware we may also become subject to claims from third parties that the hardware, or the combination of hardware and software, infringe their intellectual property. Although we may disclaim certain intellectual property representations to our customers, these disclaimers may not be sufficient to fully protect us against such claims. Any claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or license agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could have a material adverse effect on our business, operating results and financial condition.

We May Face Liability If Our Products Are Defective Or If We Make Errors Implementing Our Products. Our software products are highly complex and sophisticated. As a result, they may occasionally contain design defects or software errors that could be difficult to detect and correct. In addition, implementation of our products may involve customer-specific configuration by us or third parties, and may involve integration with systems developed by third parties. In particular, it is common for complex software programs, such as our UNIX/Oracle and e-commerce software products, to contain undetected errors when first released. They are discovered only after the product has been implemented and used over time with different computer systems and in a variety of applications and environments. Despite extensive testing, we have in the past discovered defects or errors in our products or custom configurations only after our software products have been used by many clients. In addition, our clients may occasionally experience difficulties integrating our products with other hardware or software in their environment that are unrelated to defects in our products. Such defects, errors or difficulties may cause future delays in product introductions and shipments, result in increased costs and diversion of development resources, require design modifications or impair customer satisfaction with our products.

We believe that significant investments in research and development are required to remain competitive, and that speed to market is critical to our success. Our future performance will depend in large part on our ability to enhance our existing products through internal development and strategic partnering, internally develop new products which leverage both our existing customers and sales force, and strategically acquire complementary retail point solutions that add functionality for specific business processes to an enterprise-wide system. If clients experience significant problems with implementation of our products or are otherwise dissatisfied with their functionality or performance or if they fail to achieve market acceptance for any reason, our business, operating results and financial condition would suffer.

We Are Dependent on Key Personnel. Our performance depends in large part on the continued performance of our executive officers and other key employees, particularly the performance and services of James D. Armstrong our Chief Executive Officer and Hamish N. Brewer our President. We do not have in place “key person” life insurance policies on any of our employees. The loss of the services of Mr. Armstrong, Mr. Brewer, or other key executive officers or employees could negatively affect our financial performance.

We May Have Difficulty Integrating Acquisitions. We continually evaluate potential acquisitions of complementary businesses, products and technologies, including those that are significant in size and scope. In pursuit of our strategy to acquire complementary products, we completed the acquisition of the assets of Zapotec Software, Inc. in February 2001, and the NeoVista Decision Series from Accrue Software, Inc. in June 2001, and the acquisition of all the common stock of E3 in September 2001. The E3 acquisition was our largest to date, and involves the integration of E3’s products and operations in 12 countries. In addition we acquired certain intellectual property from J•Commerce on April 12, 2002. Acquisitions involve a number of special risks, including the inability to obtain, or meet conditions imposed for governmental approvals for the acquisition, diversion of management’s attention to the assimilation of the operations and personnel of acquired businesses, the predictability of costs related to the acquisition and the integration of acquired businesses, products, technologies and employees into our business and product offerings. Achieving the anticipated benefits of any acquisition will depend, in part, upon whether integration of the acquired business, products, technology, or employees is accomplished in an efficient and effective manner, and there can be no assurance that this will occur. The difficulties of such integration may be increased by the necessity of coordinating geographically disparate organizations, the complexity of the technologies being integrated, and the necessity of integrating personnel with disparate business backgrounds and combining different corporate cultures. The inability of management to successfully integrate any acquisition that we may pursue, and any related diversion of management’s attention, could have a material adverse effect on our business, operating results and financial condition. Moreover, there can be no assurance that any products acquired will gain acceptance in our markets, that we will be able to penetrate new markets successfully or that we will obtain the anticipated or desired benefits of such acquisitions. Also, acquired products may contain defects of which we are unaware. Any acquisition that we pursue or consummate could result in the incurrence of debt and contingent liabilities, purchased research and development expense, other acquisition-related expenses and the loss of key employees, any of which could have a material adverse effect on our business, operating results and financial condition.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in foreign currency exchange rates and interest rates. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.

Foreign currency exchange rates. Our international operations expose us to foreign currency exchange rate changes that could impact translations of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. International revenues represented 43% of our total revenues in the nine months ended September 30, 2002, as compared with 44% in 2001. In addition, the identifiable net assets of our foreign operations totaled 23% of consolidated assets at September 30, 2002 as compared to 24% at December 31, 2001. Our exposure to currency exchange rate changes is diversified due to the number of different countries in which we conduct business. We operate outside the United States primarily through wholly owned subsidiaries in Europe, Asia/Pacific, Canada and Latin America. We have determined that the functional currency of each of our foreign subsidiaries is the local currency and as such, foreign currency

translation adjustments are recorded as a separate component of stockholders’ equity. Changes in the currency exchange rates of our foreign subsidiaries resulted in our reporting unrealized foreign currency exchange gain of $705,000 in the nine months ended September 30, 2002, as compared with unrealized foreign currency exchange loss of $3.1 million in the nine months ended September 30, 2001. To date, we have not engaged in foreign currency hedging transactions. Foreign currency gains and losses will continue to result from fluctuations in the value of the currencies in which we conduct operations as compared to the U.S. Dollar, and future operating results will be affected to some extent by gains and losses from foreign currency exposure. We prepared sensitivity analyses of our exposures from foreign net assets as of September 30, 2002, to assess the impact of hypothetical changes in foreign currency rates. Based upon the results of these analyses, a 10% adverse change in all foreign currency rates from the September 30, 2002 rates would result in a currency translation loss of $2.4 million before tax.

Interest rates. We invest our cash in a variety of financial instruments, including bank time deposits, and variable and fixed rate obligations of the U.S. Government and its agencies, states, municipalities, commercial paper and corporate bonds. These investments are denominated in U.S. dollars. We classify all of our investments as available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Cash balances in foreign currencies overseas are operating balances and are invested in short-term deposits of the local operating bank. Interest income earned on our investments is reflected in our financial statements under the caption “Other income, net.” Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities which have seen a decline in market value due to a change in interest rates. We hold our investment securities for purposes other than trading. The fair value of securities held at September 30, 2002 was $26.4 million, which is approximately the same as amortized cost, with interest rates generally ranging between 2% and 4%.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of a date (the “Evaluation Date”) within 90 days of the filing date of this report. Based on their evaluation, our principal executive officer and principal accounting officer have concluded that our disclosure controls and procedures are effective, but also concluded that there are certain weaknesses in our Information Technology area (“IT”), including access security and change control. We have dedicated resources to correcting these issues, and the corrections are expected to be completed by the end of next quarter. These weaknesses did not have a material impact on the accuracy of our financial statements.

Changes in Internal Controls. There have been no significant changes in our internal controls, as such term is defined under Section 13(b) of the Exchange Act, or to our knowledge, in other factors that could significantly affect these controls subsequent to the Evaluation Date, including corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in legal proceedings and claims arising in the ordinary course of business. Although there can be no assurance, management does not believe that the disposition of these matters will have a material adverse effect on our business, financial positions, results of operations or cash flows.

Item 2. Changes in Securities and Use of Proceeds

Not applicable

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable

Item 5. Other Information

Not applicable

Item 6. Exhibits and Reports on Form 8-K:

(a) Exhibits: See Exhibit Index

(b) Reports on Form 8-K

Not applicable

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: November 11, 2002	By:	/s/ Kristen L. Magnuson

	Kristen L. Magnuson Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

FORM 10-Q CERTIFICATIONS

I, James D. Armstrong, certify that:

1. I have reviewed this quarterly report on Form 10-Q of JDA Software Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: November 11, 2002		By:		/s/ James D. Armstrong James D. Armstrong Chairman and Chief Executive Officer

I, Kristen L. Magnuson, certify that:


Date: November 11, 2002	By:	/s/ Kristen L. Magnuson

		Kristen L. Magnuson Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit #				Description of Document

2.1**				— Asset Purchase Agreement dated as of June 4, 1998, by and among JDA Software Group, Inc., JDA Software, Inc. and Comshare, Incorporated.









2.2##				— Asset Purchase Agreement dated as of February 24, 2000, by and among JDA Software Group, Inc., Pricer AB, and Intactix International, Inc.









2.3###				— Agreement and Plan of Reorganization dated as of September 7, 2001, by and among JDA Software Group, Inc., E3 Acquisition Corp., E3 Corporation and certain shareholders of E3 Corporation.









3.1				— Third Restated Certificate of Incorporation of the Company together with Certificate of Amendment dated July 23, 2002.









3.2***				— First Amended and Restated Bylaws.









4.1*				— Specimen Common Stock certificate.









4.2*(1)				— Stock Redemption Agreement among the Company, James D. Armstrong and Frederick M. Pakis dated March 30, 1995.









10.1*(1)				— Form of Indemnification Agreement.









10.2*(1)				— 1995 Stock Option Plan, as amended, and form of agreement thereunder.









10.3••(1)				— 1996 Stock Option Plan, as amended.









10.4*(1)				— 1996 Outside Directors Stock Option Plan and forms of agreement thereunder.









10.5 (1)				— Executive Employment Agreement between James D. Armstrong and JDA Software Group, Inc. dated July 23, 2002.









10.7 (1)				— Employment Agreement between Kristen L. Magnuson and JDA Software Group, Inc. dated July 23, 2002.









10.8#(1)				— 1998 Nonstatutory Stock Option Plan.









10.9#(1)				— 1998 Employee Stock Purchase Plan.









10.10†				— 1999 Employee Stock Purchase Plan.









10.11***				— Lease Agreement between Opus West Corporation and JDA Software Group, Inc. dated April 30, 1998, together with First Amendment dated June 30, 1998.









10.12**				— Software License Agreement dated as of June 4, 1998 by and between Comshare, Incorporated and JDA Software, Inc.









10.14••••(2)				— Value-Added Reseller License Agreement for Uniface Software between Compuware Corporation and JDA Software Group, Inc. dated April 1, 2000, together with Product Schedule No. Two dated September 28, 2001.









10.15*(1)				— JDA Software, Inc. 401(k) Profit Sharing Plan, adopted as amended effective January 1, 1995.









10.17***(1)				— Form of Amendment of Stock Option Agreement between JDA Software Group, Inc and Kristen L. Magnuson, amending certain stock options granted to Ms. Magnuson pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan on September 11, 1997 and January 27, 1998.









10.18††(1)				— Form of Rights Agreement between the Company and ChaseMellon Shareholder Services, as Rights Agent (including as Exhibit A the Form of Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as Exhibit B the From of Right Certificate, and as Exhibit C the Summary of Terms and Rights Agreement).









10.19†††(1)				— Form of Incentive Stock Option Agreement between JDA Software Group, Inc. and Kristen L. Magnuson to be used in connection with stock option grants to Ms Magnuson pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.


Exhibit #				Description of Document





10.20•(1)(3)				— Form of Incentive Stock Option Agreement between JDA Software Group, Inc. and certain Senior Executive Officers to be used in connection with stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.









10.21•(1)(3)				— Form of Nonstatutory Stock Option Agreement between JDA Software Group, Inc. and certain Senior Executive Officers to be used in connection with stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.









10.22•(1)(4)				— Form of Amendment of Stock Option Agreement between JDA Software Group, Inc and certain Senior Executive Officers, amending certain stock options granted pursuant to the JDA Software Group, Inc. 1995 Stock Option Plan.









10.23•(1)(5)				— Form of Amendment of Stock Option Agreement between JDA Software Group, Inc and certain Senior Executive Officers, amending certain stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.









10.24•(1)(6)				— Form of Incentive Stock Option Agreement between JDA Software Group, Inc. and certain Senior Executive Officers to be used in connection with stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.









10.25••••				— Secured Loan Agreement between JDA Software Group, Inc. and Silvon Software, Inc. dated May 8, 2001, together with Secured Promissory Note and Security Agreement.









99.1				— Certification of Chief Executive Officer









99.2				— Certification of Chief Financial Officer

*		Incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-748), declared effective on March 14, 1996.




**		Incorporated by reference to the Company’s Current Report on Form 8-K dated June 4, 1998, as filed on June 19, 1998.




***		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998, as filed on August 14, 1998.




†		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999, as filed on August 19, 1999.




††		Incorporated by reference to the Company’s Current Report on Form 8-K dated October 2, 1998, as filed on October 28, 1998.




†††		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, as filed on November 13, 1998.




#		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, as filed on March 31, 1998.




##		Incorporated by reference to the Company’s Current Report on Form 8-K dated February 24, 2000, as filed on March 1, 2000.




###		Incorporated by reference to the Company’s Current Report on Form 8-K dated September 7, 2001, as filed on September 21, 2001.




•		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, as filed on March 16, 2000.




••		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, as filed on April 2, 2001.




•••		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001, as filed on August 14, 2001.




••••		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed on March 29, 2002.




(1)		Management contracts or compensatory plans or arrangements covering executive officers or directors of the Company.




(2)		Confidential treatment has been granted as to part of this exhibit.




(3)		Applies to James D. Armstrong.




(4)		Applies to Hamish N. Brewer and Gregory L. Morrison.




(5)		Applies to Hamish N. Brewer, Peter J. Charness, Scott D. Hines, Gregory L. Morrison and David J. Tidmarsh.




(6)		Applies to Senior Executive Officers with the exception of James D. Armstrong and Kristen L. Magnuson.

•		Retail Enterprise Systems include corporate level merchandise management, planning and forecasting systems that enable retailers to optimize their inventory control, product mix, pricing and promotional strategies, automate demand forecasting and replenishment, and enhance the productivity and accuracy of warehouse processes. In addition, Retail Enterprise Systems include a comprehensive set of tools for analyzing business results and trends, tracking customer shopping patterns, space management, trade allowance and promotional program management, monitoring strategic plans and tactical decisions.

•		In-Store Systems include point-of-sale, e-commerce and back office applications that enable retailers to capture, analyze and transmit certain sales, store inventory and other operational information to corporate level merchandise management systems using hand-held, radio frequency devices, point-of-sale workstations or via the Internet. In-Store Systems also include Store Portals that provide retailers with the ability to access enterprise information on their merchandise management systems, via the Internet, and execute associated processes to support their store operations.

•		Collaborative Solutions include applications that enable business-to-business collaborative planning, forecasting and replenishment between retailers and their suppliers. Collaborative Solutions, which currently include some of our Retail Enterprise Systems applications, when used by suppliers, as well as collaboration specific applications, optimize the sharing of plans and information between trading partners and supply chain decisions in such areas as inventory replenishment, marketing/promotions, sales planning/execution and category management.

	•		Revenue recognition. Our revenue recognition policy is significant because our revenue is a key component of our results of operations. In addition, our revenue recognition determines the timing of certain expenses such as commissions and royalties. We follow specific and detailed guidelines in measuring revenue; however, certain judgments affect the application of our revenue policy.

			We license software under non-cancelable agreements and provide related services, including consulting, training and customer support. We recognize revenue in accordance with Statement of Position 97-2 (“SOP 97-2”), Software Revenue Recognition, as amended and interpreted by Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, with respect to certain transactions, as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants. We adopted Staff Accounting Bulletin No. 101 (“SAB 101”), Revenue Recognition in Financial Statements, during first quarter 2000. SAB 101 provides further interpretive guidance for public companies on the recognition, presentation, and disclosure of revenue in financial statements. The adoption of SAB 101 did not have a material impact on our licensing or revenue recognition practices.

			Software license revenue is recognized when a license agreement has been signed, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. If a software license contains an undelivered element, the vendor-specific objective evidence (“VSOE”) of fair value of the undelivered element is deferred and the revenue recognized once the element is delivered. The undelivered elements are primarily training, consulting and maintenance services. VSOE of fair value for training and consulting services is based upon standard hourly rates charged when those services are sold separately. VSOE of fair value for maintenance is the price the customer will be required to pay when it is sold separately (that is, the renewal rate). In addition, if a software license contains customer acceptance criteria or a cancellation right, the software revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period or cancellation right. Payments for our software licenses are typically due in installments within twelve months from the date of delivery. Although infrequent, where software license agreements call for payment terms of twelve months or more from the date of delivery, revenue is recognized as payments become due and all other conditions for revenue recognition have been satisfied.

			Consulting and training services are separately priced, are generally available from a number of suppliers, and are not essential to the functionality of our software products. Consulting services, which include project management, system planning, design and implementation, customer configurations, and training are billed on both an hourly basis and under fixed price contracts. Consulting services revenue billed on an hourly basis is recognized as the work is performed. Training revenues are recognized when the training is provided and is included in consulting revenues in the Company’s consolidated statements of income. Under fixed price contracts, consulting services revenue is recognized using the percentage of completion method of accounting by relating hours incurred to date to total estimated hours at completion.

			We have from time to time provided software and consulting services under fixed price contracts that require the achievement of certain milestones and payment terms in these contracts are generally tied to customer acceptance of the milestones. The revenue under such arrangements is recognized as the milestones are achieved or upon customer acceptance. We believe that milestones are a proper measure of

			progress under these contracts, as the milestones approximate the percentage of completion method of accounting.

			Customer support services include post contract support and the rights to unspecified upgrades and enhancements. Maintenance revenues from ongoing customer support services are billed on a monthly basis and recorded as revenue in the applicable month, or on an annual basis with the revenue being deferred and recognized ratably over the maintenance period.

			If an arrangement includes multiple elements, the fees are allocated to the various elements based upon VSOE of fair value, as described above.

	•		Accounts Receivable. Consistent with industry practice and to be competitive in the retail software marketplace, we typically provide installment payment terms on most software license sales. Software licenses are generally due in installments within twelve months from the date of delivery. All significant customers are reviewed for creditworthiness before the Company licenses its software and we do not sell our software or recognize any license revenue unless we believe that collectibility is probable in accordance with the requirements of paragraph 8 in SOP 97-2. The Company has a history of collecting software payments when they come due without providing refunds or concessions. Consulting services are billed bi-weekly and maintenance services are billed annually or monthly. If a customer becomes significantly delinquent or its credit deteriorates, we put the accounts on hold and do not recognize any further services revenue (and in most cases we withdraw support and/or our implementation staff) until the situation has been resolved

			We do not have significant billing or collection problems. Although infrequent and unpredictable, from time to time certain of our customers have filed bankruptcy and the Company has had to refund the pre-petition amounts collected and settle for less than the face value of its remaining receivable pursuant to a bankruptcy court order. In these situations, as soon as it becomes probable that the net realizable value of the receivable is impaired, the Company provides reserves on the receivable. In addition, the Company monitors economic conditions in the various geographic regions in which it operates to determine if general reserves or adjustments to its credit policy in a region are appropriate for deteriorating conditions that may impact the net realizable value of our receivables.

	•		Intangible Assets. Our business combinations typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that we will incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements.

	•		Stock-Based Compensation. We do not record compensation expense for options granted to our employees as all options granted under our stock option plans have an exercise price equal to the market value of the underlying common stock on the date of grant. As permitted under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), we have elected to continue to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and provide pro forma disclosure on an annual basis of net income (loss) and net income (loss) per common share for employee stock option grants made as if the fair-value method defined in SFAS No. 123 had been applied.

	•		Income Taxes. Our income tax policy records the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We follow specific and detailed guidelines regarding the recoverability of any tax assets recorded on the balance sheet and provide any necessary allowances as required.

•		demand for our software products and services, including the size and timing of individual contracts and our ability to recognize revenue with respect to contracts signed in the quarter, particularly with respect to our significant customers;

•		changes in the length of our sales cycle;

•		competitive pricing pressures;

•		customer order deferrals resulting from the anticipation of new products, economic uncertainty, disappointing operating results by the customer, or otherwise;

•		the timing of new software product introductions and enhancements to our software products or those of our competitors, and market acceptance of our new software products;

•		changes in our operating expenses;

•		changes in the mix of domestic and international revenues, or expansion or contraction of international operations;

•		our ability to complete fixed price consulting contracts within budget;

•		foreign currency exchange rate fluctuations;

•		integration issues associated with newly acquired businesses;

•		Operational issues resulting from corporate reorganizations (see “We May Encounter Difficulties Successfully Implementing the Corporate Reorganization We Announced in Fourth Quarter 2002”);

•		lower-than-anticipated utilization in our consulting services group as a result of reduced levels of software sales, reduced implementation times for our products, changes in the mix of demand for our software products, or other reasons; and

•		general industry and economic conditions, the September 11 terrorist attack, and the uncertainty related to potential future terrorist attacks or the threat of a US war with Iraq, which could negatively impact the industry, our customers’ ability to pay for our products and services, and which could potentially lead to an increased number of bankruptcy filings and/or bad debt charges.

	»		cancelled or delayed purchasing decisions related to the September 11 terrorist attack and the uncertainty related to potential future terrorist attacks or the threat of a US war with Iraq;

	»		the millennium change;

	»		conversion to the Euro currency;

	»		external and internal marketing issues;

	»		increased competition;

	»		elongated sales cycles;

	»		a limited number of referenceable implementations in the early years of product release;

	»		certain design and stability issues we may experience in earlier versions of our products; and/or

	»		lack of desired features and functionality.

			now appear to be more interested in buying analytic and optimization solutions that require lower levels of services to implement, enable lower inventory levels without reducing sales, and provide a quicker return on investment. The decline in software sales of host merchandising systems is having a corollary negative impact on our service revenues as consulting services revenue typically lags the performance of software revenues by as much as one year. As a result of this change in revenue mix, we expect that our consulting services revenue will continue to decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns, or until underlying economic conditions improve. In addition, our gross margins on consulting services revenue vary significantly with the rates at which we utilize our consulting personnel, and as a result, our overall gross margins will be adversely affected when there is not enough work to keep our consultants busy.

	•		We May Misjudge When Software Sales Will Be Realized. Software license revenues in any quarter depend substantially upon contracts signed and the related shipment of software in that quarter. It is therefore difficult for us to accurately predict software license revenues. 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, and we may derive a significant portion of our quarterly software license revenues from a small number of relatively large sales. 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. Accordingly, large individual sales have sometimes occurred in quarters subsequent to when we anticipated. For example, in third quarter 2002 we experienced delays in the execution of nearly all large software license contracts valued at $1 million or higher which caused our reported revenues for the three months ended September 30, 2002 to be below our previously published guidance. We are unable to predict if or when these contracts may be executed. We expect these aspects of our business to continue. If we receive any significant cancellation or deferral of customer orders, or we are unable to conclude license negotiations by the end of a fiscal quarter, our operating results may be lower than anticipated. In addition, any weakening or uncertainty in the economy may make it more difficult for us to predict quarterly results in the future, and could negatively impact our business, operating results and financial condition for an indefinite period of time.

	•		We May Not Be Able to Reduce Expense Levels If Our Revenues Decline. Our expense levels are based on our expectations of future revenues. Since software license sales are typically accompanied by a significant amount of consulting and maintenance services, and in addition to our sales and marketing staff, the size of our services organization must be managed to meet our anticipated software license revenues. As a result, we hire and train service personnel and incur research and development costs in advance of anticipated software license revenues. If software license revenues fall short of our expectations, or if we are unable to fully utilize our service personnel, our operating results are likely to decline because a significant portion of our expenses cannot be quickly reduced to respond to any unexpected revenue shortfall.

	•		We May Encounter Difficulties Successfully Implementing the Corporate Reorganization We Announced in Fourth Quarter 2002. The reorganization to enable JDA become a more customer-focused company and to reduce our cost structure to better fit the current economic environment involves terminating a significant number of personnel both domestically and internationally, reassigning certain existing personnel and adding a number of new personnel. Because of the magnitude and complexity of this reorganization, we will likely encounter difficulties implementing the reorganization. Potential risks include, but are not limited to: (i) the possibility that we may not be able to successfully persuade enough key E3 and Arthur product development and support personnel to relocate to our corporate headquarters in Scottsdale, Arizona; (ii) the possible disruption in our operations caused by such a large and complex reorganization; (iii) the difficulty of accurately forecasting the timing, amount, and the nature of costs that we will incur in implementing the reorganization; and (iv) the possibility that we will not be able to successfully recruit appropriately skilled and experienced personnel to fill new positions.

	»		currency fluctuations;

	»		unexpected changes in employment and other regulatory requirements;

	»		tariffs and other trade barriers;

	»		costs and risks of localizing products for foreign countries;

	»		longer accounts receivable payment cycles in certain countries;

	»		potentially negative tax consequences;

	»		difficulties in staffing and managing geographically disparate operations;

	»		greater difficulty in safeguarding intellectual property, licensing and other trade restrictions;

	»		repatriation of earnings;

	»		the burdens of complying with a wide variety of foreign laws; and

	»		general economic conditions in international markets.

	(a)		Exhibits: See Exhibit Index

	(b)		Reports on Form 8-K

			Not applicable

1.		I have reviewed this quarterly report on Form 10-Q of JDA Software Group, Inc.;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and