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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2003

OR

For the Transition Period from                      to

Commission File Number: 0-27876

JDA SOFTWARE GROUP, INC.

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x     No o

     The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value, was 28,502,750 as of May 9, 2003.

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JDA SOFTWARE GROUP, INC.

FORM 10-Q

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PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

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

See notes to condensed consolidated financial statements.

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

See notes to condensed consolidated financial statements.

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JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands, unaudited)

See notes to condensed consolidated financial statements.

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

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

See notes to condensed consolidated financial statements.

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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 of America applicable to interim financial statements. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments 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 months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002.

     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 March 31, 2002 interim financial statements in order to conform to the March 31, 2003 presentation.

2. New Accounting Standards

     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”). The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. SFAS No. 146 was adopted effective January 1, 2003. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF No. 94-3. 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. No exit or disposal activities have occurred since the adoption of SFAS No. 146.

     In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS No. 148”) which is effective for fiscal years ending after December 15, 2002. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation if a company elects to account for its equity awards under this method. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in both annual and interim financial statements. We are currently evaluating which method of transition to fair value accounting we will elect.

     The following table presents pro forma disclosures required by SFAS No. 148 of net income and basic and diluted earnings per share as if stock-based employee compensation had been recognized during the three months ended March 31, 2003 and 2002, as determined under the fair value method using the Black-Scholes pricing model.

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     In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accountings and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Others,” which clarifies the requirement of SFAS No. 5, “Accounting for Contingencies,” relating to a guarantor’s accounting for and disclosures of certain guarantee issues. We do not provide direct or indirect guarantees of the indebtedness of others.

     In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” Variable interest entities are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit it to operate on a stand alone basis. We do not participate in variable interest entities.

3. Subsequent Event — Acquisition of Vista Software Solutions

     On April 30, 2003 we acquired substantially all the intellectual property of Vista Software Solutions (“Vista”), and Vista’s active customer agreements for $4.3 million in cash. We expect to incur additional direct costs and costs to exit the activities of Vista of $300,000 to $800,000. Vista is a provider of collaborative business-to-business software solutions that enable retailers and consumer goods manufacturers to more efficiently synchronize and integrate data, including product descriptions, product images, pricing and promotion information throughout their supply and demand chains. Vista’s solutions also enable consumer goods manufacturers to manage trade promotions, minimize trade deductions costs and more accurately forecast product demand. With this acquisition, we have expanded the JDA Portfolio with complementary software products that leverage the Microsoft .NET platform and address the critical need for server-to-server data synchronization in Internet-based collaborative commerce. The acquisition will be accounted for as a purchase, and accordingly, the operating results of Vista will be included in our consolidated financial statements from the date of acquisition. Pro forma operating results will not be presented as the acquisition is not material to our consolidated financial statements.

4. Earnings per Share

     Earnings per share for the three months ended March 31, 2003 and 2002 is calculated as follows:

     No common stock equivalents were included in the calculation of diluted loss per share for the three months ended March 31, 2003 as such common stock equivalents would be anti-dilutive.

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5. Restructuring, Asset Disposition and Other Merger Related Charges

     In second quarter 2002 we recorded a $1.3 million restructuring charge for a workforce reduction of 53 full-time employees, primarily in the consulting services function in the Americas and Europe. All workforce reductions associated with this charge were made on or before June 30, 2002. All employees potentially impacted by this restructuring were notified of the plan of termination and the related benefits on or before June 30, 2002.

     In fourth quarter 2002, we recorded a restructuring charge of $5.0 million for the workforce reduction and office closure costs to reorganize the Company in connection with the implementation of the Customer Value Program (“CVP”), a worldwide initiative designed to (i) refocus the organization on delivering value to our existing customer base, (ii) strengthen our competitive position, (iii) improve the quality, satisfaction and efficiency of our customers’ experience with JDA, and (iv) increase revenue and improve our operating results.

     Implementation of the CVP includes adjustments to our workforce and a reallocation of 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. The workforce reductions enabled 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. The reorganization will result in the consolidation of nearly all product development and client support activities at our corporate headquarters, a workforce reduction of approximately 230 full-time employees (“FTE”) and certain office closures. The workforce reduction includes certain employees involved in product development (73 FTE) and client support services (28 FTE) who choose not to relocate, and reductions in consulting services personnel (66 FTE), sales and marketing personnel (37 FTE), and administrative functions (26 FTE). We have hired or expect to hire approximately 35 FTE in product development and client support services to replace those individuals who choose not to relocate to our corporate headquarters. All employees potentially impacted by this reorganization were notified of the plan of termination and the related benefits on or before December 31, 2002. Office closure costs pertain to certain US, Latin American, and European offices that were either under-performing or became redundant with the reorganization. We expect to reduce our annual fixed operating costs by approximately $10 million to $12 million through this reorganization and restructuring effort

     Approximately 150 people were offered the opportunity to relocate as part of the initiative to consolidate our development and client support activities. As of March 31, 2003, a total of 31 employees have relocated and we currently anticipate that an additional 25 to 30 employees will relocate in the next three to six months. We have negotiated temporary retention arrangements ranging from nine months to two years with certain employees who have chosen not to relocate in order to facilitate a smooth transition. We have incurred $1.1 million in relocation costs through March 31, 2003, including $682,000 during the three months ended March 31, 2003, and expect to incur an additional $900,000 to $1.1 million in relocation costs during the next six months to complete this consolidation. The relocation costs will be reported in income from continuing operations as they are incurred. Accordingly, there was no accrued liability associated with these charges at March 31, 2003 or December 31, 2002.

     A summary of the 2002 restructuring and asset disposition charges is as follows:

     The unpaid balance of severance and termination benefits pertains primarily to termination agreements with foreign employees that are either being disputed or are required to be paid out over a period of time under local law. We expect these amounts to be paid out during the remainder of 2003. The remaining amounts in the reserve for office closure costs are being paid out as the leases and related subleases run through their remaining terms.

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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 on the open market at prevailing market prices during a one-year period ending July 22, 2003. As of March 31, 2003, we have repurchased a total of 175,000 shares of our common stock for $1.8 million under this program, including 75,000 shares that were purchased during the three months ended March 31, 2003 for $757,000.

7. E3 Acquisition Reserves

In conjunction with the acquisition of E3 Corporation (“E3”) in September 2001, we recorded initial acquisition reserves of approximately $14.6 million for restructuring charges and other direct costs associated with the acquisition. These costs related 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 $1.3 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 unused portion of the acquisition reserves, which are included in accrued expenses and other liabilities on the balance sheet, was $1.2 million at December 31, 2002 and $987,000 at March 31, 2003. A summary of the charges and adjustments recorded against the reserves are as follows:

     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 any related subleases run through their remaining terms.

     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

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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 collaborate with suppliers and customers over the Internet at multiple levels within their organizations. We conduct business in three geographic regions that have separate management teams and reporting structures: the Americas (includes the United States, Canada and Latin America), Europe (includes the Middle East and Africa), and Asia/Pacific. 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:

     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 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, and for 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.
•		Collaborative Solutions include applications that enable business-to-business collaborative planning, forecasting and replenishment between retailers and their suppliers. Collaborative Solutions, which currently include portions of Retail Enterprise Systems applications that can be used by suppliers as well as collaboration specific solutions, enable retailers and their suppliers to optimize the sharing of plans, information and supply chain

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decisions between trading partners 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 months ended March 31, 2003 and 2002 is as follows:

     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.

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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 delays in the decision-making process of our customers may continue to be the most significant issue affecting our software license revenue results, our belief that certain of the conditions that impacted our results in first quarter 2003, including the timing of the outbreak of the US war with Iraq, should not have the same impact on our results in second quarter 2003, our expectation that software license revenue results will improve in second quarter 2003 compared to first quarter 2003, our belief that the Customer Value Program (“CVP”) may continue to adversely affect our operating results during the next three to six months, our belief that consulting services revenue and service margins will not significantly improve until the demand for Portfolio Merchandise Management Systems and the related implementation services return or until economic conditions improve, our concern that the impact of the Severe Acute Respiratory Syndrome may adversely effect our revenues in Asia/Pacific in second quarter 2003 and potentially in future quarters, our expectation of relocating an additional 25 to 30 employees in connection with CVP over the next three to six months at a cost ranging from $900,000 to $1.1 million, our belief that the reorganization of the Company in connection with the CVP will result in a $10 million to $12 million reduction in our operating costs and allow us to achieve acceptable levels of profitability during this difficult economic period, our belief that sales activity with larger retail customers with annual sales in excess of $5 billion will continue to contribute to revenue in future periods, our belief that the series of enhancements being developed for the JDA Portfolio products on the Microsoft .NET platform will provide us a competitive advantage in the retail and collaborative solutions markets, our belief that quarterly product development expenditures for the remainder of 2003 will be consistent with first quarter 2003 levels, our belief that the pending audits of our 2000 and 2001 Federal Income Tax Returns will not result in any material adjustments, and our belief that our cash and cash equivalent, 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. 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 “Factors That May Affect Our Future Results or The Market Price of Our Stock” 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 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 collaborate with suppliers and customers over the Internet at multiple levels within their organization. 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 Continue to Impact our Operating Results. Our operating results continue to be impacted by weak economic conditions and the disappointing results of the retail industry. In addition, we believe our operating results have been negatively impacted by the disruption from the early phases of implementation of the

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Customer Value Program (see “The Reorganization of the Company and the Implementation of the Customer Value Program have Impacted our Operating Results”), the timing of the outbreak of the US war with Iraq during the last two weeks of first quarter 2003, and the economic uncertainty related to the threat of future terrorist attacks and wars. The impact of these factors was consistent across substantially all of our product lines as well as nearly all of our geographic regions during the three months ended March 31, 2003. We also believe the retail industry has increased its due diligence on large capital outlays and that the decision-making process for investments in information technology has been highly susceptible to deferrals in the current economic environment. For example, no large software licenses ($1.0 million or greater) were signed during first quarter 2003, as compared to four in fourth quarter 2002 and three in first quarter 2002. Delays in the decision-making process have been, and may continue to be, the most significant issue affecting our software license revenue results. Our sales pipeline remains large, and we believe that certain of the factors that impacted our results in first quarter 2003, including the economy, the implementation of the Customer Value Program, and the timing of the outbreak of the US war with Iraq, should not have the same impact on our results in second quarter 2003. We currently anticipate that our software license revenue results will improve in second quarter 2003 compared to first quarter 2003.

     The retail industry will be adversely impacted if negative economic conditions or fear of additional wars or 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. 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.

     The Reorganization of the Company and the Implementation of the Customer Value Program have Impacted our Operating Results. We announced the reorganization of the Company in fourth quarter 2002 in connection with the announcement of the Customer Value Program (“CVP”), a worldwide initiative designed to (i) refocus the organization on delivering value to our existing customer base, (ii) strengthen our competitive position, (iii) improve the quality, satisfaction and efficiency of our customers’ experience with JDA, and (iv) increase revenue and improve our operating results. Implementation of the CVP includes adjustments to our workforce, and a reallocation of 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. The workforce reductions enabled 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.

     As anticipated, our decision to reorganize the Company and implement the CVP has caused initial disruptions in our sales, services and training functions that negatively impacted our revenues and operating results in first quarter 2003. Although we believe the most significant negative impact of the CVP implementation is now behind us, the costs and risks associated with the widespread changes contemplated in the CVP may continue to adversely affect our operating results during the next three to six months.

     The CVP has resulted in the following fundamental changes to our organizational structure:

	•		Consolidation of our operations into three geographic regions: The Americas (United States, Canada, and Latin America); Europe (Europe, Middle East and Africa); and Asia/Pacific.
	•		Implementation of a Customer Engagement Model that provides a single point of contact for our customers for all aspects of our business (software sales, services and support). This role is designed to foster long-term strategic partnerships with our customer base.
	•		Combination of our sales and services personnel into a single Customer Solutions Group. This new organization is intended to ensure a smooth transition from the sales cycle to implementation and

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			allow for broader product coverage.
	•		Elimination of certain management positions, and the introduction of a professional career structure for all associates within the Customer Solutions Group.
	•		Increased focus and investment in associate education in order to develop a higher degree of expertise in our associates, and to enhance the long-term value to our customers.
	•		Consolidation of nearly all product development and client support activities at our corporate headquarters.
	•		A workforce reduction of approximately 230 full-time employees (“FTE”) and certain office closures. The workforce reduction includes certain employees involved in product development (73 FTE) and client support services (28 FTE) who choose not to relocate, and reductions in consulting services personnel (66 FTE), sales and marketing personnel (37 FTE), and administrative functions (26 FTE). We have hired or expect to hire approximately 35 FTE in product development and client support services to replace those individuals who choose not to relocate to our corporate headquarters.
	•		Closure of certain US, Latin American, and European offices that were either under-performing or became redundant with the reorganization.

     We expect to reduce our annual fixed operating costs by approximately $10 million to $12 million through this reorganization and restructuring effort. We believe this effort has been effective, and will allow us to achieve acceptable levels of profitability during this difficult economic period. Cost of services and operating expenses, excluding the $5.0 million restructuring charge taken in fourth quarter 2002 in connection with this initiative and the relocation costs to consolidate our development and client support activities, decreased $2.0 million and $3.5 million, respectively from fourth quarter 2002 to first quarter 2003 due primarily to the workforce reductions and reduced incentive compensation.

     Approximately 150 people were offered the opportunity to relocate as part of the initiative to consolidate our development and client support activities. As of March 31, 2003, a total of 31 employees have relocated and we currently anticipate that an additional 25 to 30 employees will relocate in the next three to six months. We have negotiated temporary retention arrangements ranging from nine months to two years with certain employees who have chosen not to relocate in order to facilitate a smooth transition. We have incurred $1.1 million in relocation costs through March 31, 2003, including $682,000 during the three months ended March 31, 2003, and expect to incur an additional $900,000 to $1.1 million in relocation costs during the next six months to complete this consolidation. The relocation costs will be reported in income from continuing operations as they are incurred. Accordingly, there was no accrued liability associated with these charges at March 31, 2003 or December 31, 2002.

     Our Service Revenues Continue to Decline. Service revenues decreased 36% in the three months ended March 31, 2003 compared to the three months ended March 31, 2002, primarily due to a decrease in demand for the implementation of Portfolio Merchandise Management Systems and other large projects. We believe retailers have changed their buying behavior since the September 11 attack, and as a result of the ensuing deterioration in economic conditions, causing a fundamental shift in the mix of demand for the various types of products we sell from high dollar projects to lower cost point solutions. Consulting services revenue typically lags the sale of software licenses by as much as one year. We also 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 few years to increase the functionality, stability, scalability, integration and ease of implementation of the products in the JDA Portfolio. Furthermore, most of our product demand in 2002 and during the three months ended March 31, 2003 was associated with our Strategic Merchandise Management Solutions that require lower levels of services to implement. As a result of these changes in our business and product revenue mix, our service revenues have declined sequentially in each of the last five quarters and we do not expect service revenues or service margins to significantly improve until the demand for Portfolio Merchandise Management Systems and the related implementation services returns, and economic conditions improve.

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     Service revenue margins were 9% in the three months ended March 31, 2003, compared to 25% in the three months ended March 31, 2002. Despite significant headcount reductions in 2002 to counteract the decline in demand for services, our gross utilization rate decreased to 38% in the three months ended March 31, 2003 compared to 52% in the three months ended March 31, 2002, the effect of which was offset in part by lower incentive compensation payments and higher average billing rates. The lower utilization rates in three months ended March 31, 2003 resulted from the disruption caused by the early phases of implementation of the CVP, which required significant training time for the affected service employees, as well as the deteriorating economic conditions that have decreased the overall demand for our services the demand for Portfolio Merchandise Management Systems and other high dollar projects, and the improved integration and reduced implementation timeframes for products in the JDA Portfolio.

     We Continue to Invest in New Product Development and Have Expanded Our Markets. We invested $10.2 million in the three months ended March 31, 2003. In addition, we invested approximately $292 million from 1998 to 2002 in new product development and the acquisition of complimentary 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 Portal, Affinity and Marketing Expense Management. In addition, the acquisitions of Intactix, Zapotec, NeoVista Decision Series and E3 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 the retail market, provided 26% of our total revenues in the three months ended March 31, 2003 compared to 18% in the three months ended March 31, 2002. Our collaborative specific solutions enable retailers and their suppliers to optimize the sharing of plans, information and supply chain decisions between trading partners in such areas of inventory replenishment, marketing/promotions, sales planning/execution and category management. As of March 31, 2003, there are nearly 150 trading partners worldwide that are live and operational on our Marketplace Replenishment application that enables manufacturers, distributors and retailers to work from a single, shared demand forecast. Although no large software licenses ($1.0 million or greater) were signed during the three months ended March 31, 2003, we have experienced increased sales activity in the last two years from larger retail customers with annual sales in excess of $5 billion that we expect will continue to contribute to our 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 larger 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.

     We are developing a series of enhancements to the JDA Portfolio products, based upon the Microsoft .Net technology platform (“.Net Platform”), that we believe will position us uniquely in the retail and collaborative solutions markets. Our goals are to ensure that our solutions offer: (i) increased ease of use, (ii) increased integration of business processes, (iii) reduced cost of ownership, (iv) faster implementation, and (v) faster return on investment. We believe our next generation technology will enhance our competitive position since we will be able to offer significant features and functionality using an advanced technology platform. Our goal is to eliminate lower value services associated with the implementation of our products, and as a result, we may experience a reduction in the revenue associated with certain of our consulting services offerings. We believe that this reduced revenue will be more than offset by increased software and maintenance revenues, and increased revenue from strategic consulting and education services. The first step in the execution of this strategy began in June 2002 with the delivery of JDA Portfolio 2003 – the first ever fully synchronized, integrated release of all of our products.

     Our Financial Position is Strong and We Have Operating Cash Flow. We continue to maintain a strong financial position during the current difficult economic cycle with $105.7 million in cash, cash equivalents and marketable securities, and no debt. In addition, during the three months ended March 31, 2003 we generated $5.1 million in positive cash flow from operations.

     We Have Acquired Vista Software Solutions. On April 30, 2003 we acquired substantially all the intellectual property of Vista Software Solutions (“Vista”), and Vista’s active customer agreements for $4.3 million in cash. We expect to incur additional direct costs and costs to exit the activities of Vista of $300,000 to $800,000. Vista is a provider of collaborative business-to-business software solutions that enable retailers and consumer goods manufacturers to more efficiently synchronize and integrate data, including product descriptions, product images, pricing and promotion information throughout their supply and demand chains. Vista’s solutions also enable

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consumer goods manufacturers to manage trade promotions, minimize trade deductions costs and more accurately forecast product demand. With this acquisition, we have expanded the JDA Portfolio with complementary software products that leverage the Microsoft .NET platform and address the critical need for server-to-server data synchronization in Internet-based collaborative commerce. The acquisition will be accounted for as a purchase, and accordingly, the operating results of Vista will be included in our consolidated financial statements from the date of acquisition. Pro forma operating results will not be presented as the acquisition is not material to our consolidated financial statements.

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 Annual Report on Form 10-K 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

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			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 collection is probable in accordance with the requirements of paragraph 8 in SOP 97-2. We have 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 we have been required 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, we provide reserves on the receivable. In addition, we monitor 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 affects the amount of future period amortization expense and possible impairment expense that we will incur. The determination of the value of such intangible assets and the annual impairment tests require management to make estimates of future revenues, customer retention rates and other assumptions that affect our consolidated financial statements.
	•		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.
	•		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 a quarterly and 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

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defined in SFAS No. 123 had been applied.

Recent Accounting Pronouncements

     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”). The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. SFAS No. 146 was adopted effective January 1, 2003. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF No. 94-3. 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. No exist or disposal activities have occurred since the adoption of SFAS No. 146.

     In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS No. 148”) which is effective for fiscal years ending after December 15, 2002. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation if a company elects to account for its equity awards under this method. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in both annual and interim financial statements. We are currently evaluating which method of transition to fair value accounting we will elect.

     The following table presents pro forma disclosures required by SFAS No. 148 of net income and basic and diluted earnings per share as if compensation expense had been recognized for stock options granted in the three year period ended December 31, 2002, as determined under the fair value method using the Black-Scholes pricing model, and includes the effect of shares issued under the employee stock purchase plan.