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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
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Commission File Number 0-27876
JDA SOFTWARE GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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86-0787377 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
14400 North 87th Street
Scottsdale, Arizona 85260
(Address of principal executive offices, including zip
code)
Registrant’s telephone number, including area code:
(480) 308-3000
Securities registered pursuant to Section 12(b) of the
Act:
NONE
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.01 par value
Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate
by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate
by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2). Yes þ No o
The
approximate aggregate market value of the registrant’s
common stock held by non-affiliates of the registrant (based on
the closing sales price of such stock as reported by the NASDAQ
Stock Market) on June 30, 2004 was $363,962,854. The number
of shares of common stock, $0.01 par value per share,
outstanding as of March 11, 2005 was 29,050,862.
DOCUMENTS INCORPORATED BY REFERENCE
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Form 10-K Reference |
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Portions of the Proxy Statement for the registrant’s 2005 |
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Items 10, 11, 12, 13 and 14 of Part III |
Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K |
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This Annual Report on Form 10-K 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, 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. 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 Annual Report on Form 10-K, 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 Annual Report on
Form 10-K should be considered in the context of
these risk factors. We disclaim any obligation to update
information contained in any forward-looking statement.
PART I
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, collaborative planning and forecasting
and store operations requirements of the retail industry and its
suppliers. Our solutions enable customers to manage and optimize
their inventory flows throughout the demand chain to the
consumer, and provide optimized labor scheduling for retail
store operations. Our customers include over 4,700 of the
world’s leading retail, consumer package goods
(“CPG”) manufacturers and wholesalers. We believe we
have the largest retail customer installed base among our direct
competitors for retail-specific systems, with approximately
1,300 retail customers in over 60 countries and more than 3,400
CPG manufacturers and wholesalers. Our customers include many of
the world’s leading retail, CPG manufacturing and wholesale
organizations including AEON Company Ltd., Anheuser-Busch
Companies, Carrefour, Colgate-Palmolive, CVS Pharmacy, Inc.,
Dollar General Corporation, Energizer Holdings, Inc., The Estee
Lauder Companies, Inc., H. E. Butt Grocery Company, The Kroger
Company, The Limited, Meijer Stores, Michaels Stores, Sodimac,
Tesco and Wal-Mart. Our software solutions business is enhanced
and supported by our retail and supplier specific professional
services and education offerings.
We market our JDA Portfolio software solutions to
approximately 3,200 retailers worldwide with annual sales of
$100 million or more. Approximately 1,300 of these
potential retail customers own at least one of our products. Our
acquisitions of the Arthur Retail Business Unit
(“Arthur”), Intactix International, Inc.
(“Intactix”), E3 Corporation (“E3”) and
Vista Software Solutions, Inc. (“Vista”), expanded our
client base to include more than 3,400 suppliers to the retail
industry and added software applications that enable
business-to-business collaborative planning, forecasting and
replenishment (“CPFR”) and collaborative category
management between retailers and their suppliers. These
acquisitions, together with the investments we have made over
the past few years to increase the scalability of our products,
have enabled us to pursue emerging growth opportunities in the
demand chain and further expand our target markets to include
larger multi-national retail organizations and approximately
26,000 suppliers to the retail industry worldwide with annual
sales of $100 million or more.
Market Background
Retail organizations and their suppliers are facing intensifying
competition, fluctuating demand, evolving retail channels and
increasing globalization. Sales are pressured, margins are
compressed through intensified competition and almost all
companies are trying to achieve improved results with fewer
people. As a result, retail organizations seek technology
solutions to better manage their increasingly complex
businesses, improve their operating efficiencies and financial
performance, and strengthen their relationships with customers
and suppliers.
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Companies in the retail market we serve have specific technology
requirements to support and optimize their operations. General
enterprise resource planning (“ERP”) solution
providers have been unable to fully meet the demands of these
organizations. Although our retail and wholesale customers have
typically invested a low proportion of their total revenues in
technology, as the leaders in this industry begin to demonstrate
an ability to achieve market advantage through effective use of
specialized applications, the requirement for all retailers to
increase their investment in technology and adopt best practices
has grown. Many of these companies have not yet replaced their
customized legacy systems with packaged software solutions, and
as result, there is substantial opportunity in our targeted
retail market. In addition, many of the companies in our
targeted retail market do not utilize sophisticated optimization
solutions.
The CPG manufacturing customers we serve employ solutions from
JDA to optimize their ability to sell to consumers through the
retail channel. While most of these companies have historically
invested heavily in manufacturing systems from other providers,
the technology support for their sales operations is generally
limited. JDA is developing a new solutions market with these
companies, focused on optimizing sales of consumer products to
end consumers through collaborative solutions that allow the CPG
manufacturer and the retailer to improve inventory assortment,
merchandising and availability at the point of sale.
JDA Solutions
We are the leading provider of comprehensive, integrated
software solutions specifically designed for the retail industry
and its suppliers. We have developed and marketed our Retail
Enterprise Systems and In-Store Systems to retailers
for over 20 and 10 years, respectively and our installed
base of approximately 1,300 retail customers is comprised of
many of the world’s leading retail organizations. In
addition, our Collaborative Solutions have been installed
at more than 3,400 suppliers to the retail industry, enabling
them to collaborate with their retailer customers to improve
their supply chain management and business processes. We offer a
wide range of retail specific professional services to help
clients rapidly achieve the benefits of our solutions, including
project management, system planning, design and implementation,
custom configurations, training and support services.
We organize our solutions into three business application
domains supported by several shared technology components:
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Strategic Merchandise Management Solutions. These
solutions provide the tools for retailers and suppliers to
manage and optimize the planning, buying, supply and promotion
of their products to consumers. |
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Merchandise Operations Systems. These systems are
typically utilized by retailers and provide solutions for
enterprise management of inventory throughout the retail demand
chain. |
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In-Store Systems. These systems are specific to retailers
and provide point-of-sale tilling functions, and in-store
inventory management functions such as receiving, transfers,
price management and physical inventory. Our In-Store Systems
offerings also include customer relationship management and
workforce management solutions. |
Over the past two years we have invested heavily in the next
generation of our solutions, called Portfolio Enabled.
These products will eventually replace our existing
offerings and provide a series of new capabilities to our
customers. JDA has acquired nine companies since 1998 and
Portfolio Enabled is designed to bring certain of the
applications obtained in these acquisitions, originally designed
in isolation, together into a powerful integrated solution
offering that delivers many compelling advantages (See
“Our Product Strategy”). For a listing and
description of our products, see “Products.”
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JDA Business Segments
We organize our business segments around the distinct
requirements of retail enterprises, retail stores, and suppliers
to the retail industry:
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Retail Enterprise Systems. The modern retail enterprise
is required to rapidly collect, organize, distribute, analyze
and optimize information throughout its organization. Retail
Enterprise Systems include corporate level merchandise
management systems (“Merchandise Operations Systems”)
that enable retailers to manage their inventory, product mix,
pricing and promotional execution, and enhance the productivity
and accuracy of warehouse processes. In addition, Retail
Enterprise Systems include a comprehensive set of tools for
planning, buying, supplying, promoting and analyzing inventory
decisions throughout the demand chain (“Strategic
Merchandise Management Solutions”). |
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In-Store Systems. Store-level personnel require systems
that enhance and facilitate the retailer’s direct
interaction with the customer, and integrate the store-level
operations into the overall business processes of the
organization. In-Store Systems include point-of-sale,
labor scheduling 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 and payroll systems using hand-held,
radio frequency devices, point-of-sale workstations or dedicated
workstations. In addition, In-Store Systems include a
workforce management solution to optimize the scheduling of
in-store labor which typically represents the next largest
operational cost for a retailer after inventory. |
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Collaborative Solutions. Industry practices developed by
retailers such as Wal*Mart, increasingly require CPG
manufacturers and distributors to collaborate with other
participants in the demand chain. While these companies have
historically focused on technology to support their ability to
manufacture and supply products, this new era of collaboration
with retailers has created a requirement for new technology
solutions that are designed to optimize sales of products to end
consumers through the retail channel. Collaborative Solutions
provide applications that enable business-to-business
collaborative activities such as collaborative planning,
forecasting and replenishment (“CPFR”), collaborative
category management including collaborative space and assortment
planning, and collaborative revenue management through trade
funds management programs. Our Collaborative Solutions
offerings leverage existing solutions deployed to retailers
within our Retail Enterprise Systems business segment. |
Our software products and services are designed to provide the
following benefits:
A Broad Set of Solutions for the Retail Demand Chain. We
believe the JDA Portfolio is the broadest, most
functional set of industry leading retail demand chain software
solutions available to retailers and their suppliers.
Integration costs often represent a significant expenditure for
large enterprise systems. JDA offers integration tools and
services that reduce the overall effort required to deploy our
solutions compared with our competitors. We also believe our
broad solution suite encourages customers to adopt JDA
Portfolio solutions as an internal standard for business
applications, allowing them to simplify their technology partner
relationships while reducing the overhead of managing multiple
versions of products from disparate providers.
Enhanced Decision Making and Responsiveness to Consumer
Demands. JDA Portfolio solutions help customers
better understand and fulfill consumer demands while improving
operational efficiency. Our products enable vast amounts of
consumer, sales and inventory data to be rapidly collected,
organized, distributed and analyzed. Retailers and their
suppliers can explore “what if” merchandising plans,
track and analyze performance, business results and trends,
monitor strategic plans, quickly implement operational
strategies based upon sophisticated fact-based optimization
techniques and adjust to changes in consumer purchasing
patterns. The JDA Portfolio solutions also allow
customers to reduce their inventory exposure while offering the
consumer a more compelling assortment at optimized prices.
Improved Inventory Management. JDA Portfolio solutions
enable customers to continuously monitor and reduce inventory
levels, achieve higher gross margins, improve their inventory
turnover rates and more effectively manage their order and
distribution processes. We provide retailers with tools for
vendor analysis,
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stock status monitoring, sales capture and analysis, merchandise
allocation and replenishment, purchase order management and
distribution center management.
Enhanced Collaboration Between Retailers and Their
Suppliers. As consumer markets become more competitive,
retailers realize they must do more than simply achieve
increased efficiencies within their own organizations. A
retailer’s competitive advantage is now being defined by
the efficiencies of their entire demand chain. As retailers and
their suppliers cooperate to improve all aspects of the demand
chain, a new breed of collaborative technology solutions
continues to evolve. We have established a leading position in
this new but rapidly growing market for software solutions. Our
Collaborative Solutions allow retailers and their
suppliers to plan and fulfill consumer demand through a complete
suite of collaboration solutions that also enable trading
partners to collaborate in planning, forecasting, replenishment,
category management, assortment management and space planning
decisions. In addition, we are developing additional
functionality that will enable retailers and their suppliers to
make collaborative decisions for marketing and promotion
activities. As of December 31, 2004, there were more than
250 trading partners worldwide with an estimated annual trading
volume of over $4.0 billion who are live and fully
operational on our Marketplace Replenishment CPFR
solution.
Disclosure of certain financial information regarding our
business segments and geographic regions is included in our
Consolidated Financial Statements as of December 31, 2004
and 2003, and for each of the years in the three-year period
ended December 31, 2004, which are included elsewhere
herein.
Our Product Strategy
JDA is positioning itself to offer a unique solution offering to
the retail industry and its suppliers. Since 1998, JDA has
acquired several of the world’s leading point solution
providers including Arthur, Intactix and E3. These acquisitions
have complemented the core transaction management capabilities
of our original solutions. Our ability to offer point solutions
that focus on a customer’s return on investment by meeting
specific business objectives with low overall cost and effort to
deploy, has been a successful strategy for JDA during the
difficult market conditions of the past several years.
During the past two years, JDA has been focused on developing
the next generation of our solutions while at the same time
continuing to enhance our existing solutions in order to
maintain our competitive leadership in the marketplace. This
strategy has been costly and has resulted in a substantially
increased investment in product development going into our
existing and future product offerings even though software
license revenues have not grown.
At the close of 2004, we were able to begin the process of
transition to our new product offering, and as a result, we can
now start to reduce the “double investment” in
products that we have endured over the past two years.
JDA Portfolio version 2005.1, the fourth
synchronized release of our products, will be released in first
quarter 2005 and will include enhancements to virtually all of
our existing products that will enable them to maintain their
competitive edge. In first quarter 2005, we will also begin
releasing the first versions of the new Portfolio Enabled
solutions that will eventually replace most of our existing
products. The new Portfolio Enabled solutions will offer
customers new and compelling advantages, although it will take
multiple years to complete this offering.
Benefits of the new Portfolio Enabled solutions include:
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The ability to install Portfolio Enabled solutions
together or separately over time. Either way, the Portfolio
Enabled solutions will be able to interact and work together
in a fundamentally integrated manner through the use of open web
services-based architectures. |
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The continued ability to deploy our solutions as point
solutions. This will help ensure that our total cost of delivery
of Portfolio Enabled solutions remains a competitive edge
for JDA. |
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The fundamental integration of our Portfolio Enabled
solutions that will enable us to offer new functional
capabilities to our customers that support advanced business
practices and processes thereby increasing the attractiveness of
our solutions relative to existing competitors. |
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The ability to generate operational efficiencies at JDA through
rationalization of our supported technologies as we migrate
Portfolio Enabled solutions to open web services-based
platforms built with either Microsoft .Net or J2EE Java. |
During this transition phase JDA has developed a strategy to
maximize revenues:
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We believe the majority of our existing JDA Portfolio
products provide broad and deep functionality, and as a
result, they compete effectively in the marketplace. These
solutions will be further enhanced with the release of
JDA Portfolio version 2005.1 in first quarter 2005. |
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The Portfolio Enabled products will be delivered as
individual solutions that can be integrated with our existing
JDA Portfolio products. This will allow our
customers to migrate to the Portfolio Enabled solutions
in phases over time. |
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The initial versions of Portfolio Enabled solutions may
not offer all the capabilities of the existing
JDA Portfolio products, however, they will offer the
advantages of an advanced technology platform and as a result,
we believe they will be able to compete effectively against most
of our competitors. We will continue selling the legacy versions
of these products until the functionality of the Portfolio
Enabled solutions is at least equivalent. |
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Through our JDA Portfolio Investment Protection
Program, customers that purchase existing
JDA Portfolio products will be entitled to upgrade
to our new Portfolio Enabled solutions without additional
license fees, subject to certain conditions that include the
requirement that the new solution has no more than minimal
differences in price, features, and functionality from the
existing products. Additionally, we expect to be able to offer
migration tools to our customers over time in order to minimize
the effort required to upgrade to the Portfolio Enabled
solutions. |
Customer Directed Development. We have established a new
Customer Directed Development (“CDD”) organization
structure within our Customer Support Solutions group. Certain
of our JDA Portfolio products, such as
Merchandise Operations Systems, require significant
effort to upgrade. While we believe we have historically managed
to keep the cost of upgrades below that of most of our
competitors, it may take years before our existing customers are
prepared to upgrade to the Portfolio Enabled solutions.
CDD is designed to provide an innovative way to ensure that our
existing customers continue to receive value from their
JDA Portfolio products and maintenance agreements
until they are ready to upgrade to the Portfolio Enabled
solutions. CDD will take minor enhancement requests from our
customer Special Interest Groups and provide packaged
enhancements that can be used with multiple previous versions of
the JDA Portfolio products.
JDA Web Services Strategy. We entered into an agreement
with Microsoft during 2004 that includes commitments from both
companies to support the development and marketing of certain of
our Portfolio Enabled solutions developed using the .Net
platform. We expect to be able to offer new lower cost of
ownership models to our customers over time as we develop
applications that support the Microsoft platform (Windows, .Net,
SQL Server, etc). We also expect to be able to substantially
differentiate our Company from most existing competitors through
this enhanced offering of advanced functionality on web services
architecture and reduced cost of ownership.
The vision for Portfolio Enabled solutions includes a
rationalization of our products in order to reduce the volume of
systems we maintain and the number of skill sets required by our
associates. This evolution will take place gradually over the
next few years and we expect this initiative to deliver steadily
improving benefits to the productivity of the Company. A key
aspect of our strategy is the creation of the Portfolio
Framework on which Portfolio Enabled solutions will
reside. This technology is shared by all Portfolio Enabled
solutions. The services the Portfolio Framework
provides will be required by all Portfolio Enabled
solutions, e.g. user password and user session management.
By developing this capability once, we believe the Portfolio
Enabled solutions will be fully integrated and provide a
consistent look and feel, simplified management and reduced
implementation costs once the Portfolio Framework has
been installed at a customer.
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We believe enterprise solution providers will increasingly be
expected to provide component-based and web services-based
solution suites. We further believe that our ability to provide
fully integrated solutions within a common technical framework
will provide the Company with a significant advantage as many
existing competitive offerings become outdated. We hope to gain
market share through our Portfolio Enabled initiative as
we believe many of our competitors may find it difficult to fund
a similar fundamental transition.
Further, we are in the process of updating our In-Store
Systems offering with new solutions based on the Java J2EE
technology platform. This platform provides customers the
flexibility to run our In-Store Systems across the wide
variety of hardware devices (i.e., cash registers, hand-held
scanners, etc.) typically used in an in-store environment. We
believe this initiative will enable us to better leverage our
existing assets and over time will increasingly differentiate
the Company from most or our competitors in this market and
position our In-Store Systems offering as a comprehensive
enterprise solution. The total In-Store Systems solution
provider strategy being developed in our Americas region
includes:
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JDA application software |
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JDA software implementation services |
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Education services |
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Software support services |
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Hardware, resold from original equipment manufacturers
(“OEM”) and third party system software |
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Hardware installation and support services |
As of December 31, 2004, we had 356 employees on our
product development staff. Our product development expenditures
in 2004, 2003, and 2002 were $52.8 million,
$48.5 million and $41.8 million, respectively, which
represented 24%, 23%, and 19%, of total revenues, respectively.
We have also invested over $160 million in acquisitions of
complementary products since 1998. In order to take advantage of
certain efficiencies that the migration to the .Net and Java
J2EE platforms offer, we consolidated the majority of our
development operations at our corporate headquarters in
Scottsdale, Arizona during 2003.
Delivery Plans. We plan to release Portfolio Enabled
solutions for forecasting and replenishment during first
quarter 2005. In second quarter 2005, we plan to release a
Portfolio Enabled solution for enterprise planning that
will ultimately replace certain of the Portfolio Planning
Solutions by Arthur, including Merchandise Planning by
Arthur and Assortment Planning by Arthur. Along with
these new applications, we have released supporting technologies
such as Portfolio Knowledge Base, Portfolio Registry and
certain Intellect modules.
Our Business Strategy
Despite relatively flat revenue performance over the past three
years, we believe our business strategy will deliver growth as
the level of economic activity in our markets improves, and as
our Portfolio Enabled solutions gain market acceptance.
This strategy includes the following major elements for growth:
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We will continue to invest in our next generation of products
based on open web services-based technology. We believe this
will differentiate us from many of our competitors and increase
our market share as we bring these products to market. |
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During the development of our next generation of Portfolio
Enabled products, we plan to continue to offer support and
enhancements to our existing products, and we plan to add
complementary functionality to the JDA Portfolio through
acquisitions. |
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We will continue to focus on providing strategic value to our
customers through our Customer Value Program. We believe we have
the largest retail customer base, and that we have an
opportunity to grow by achieving increasingly strategic
relationships with our customers. Although 69% of our software
license sales in 2004 were from our existing customer base, we
still see a significant growth opportunity as approximately 60%
of our retail customer base, and substantially all of our CPG
manufacturers and wholesale customers, still only own
applications from one of our product families. |
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We intend to maintain the functional leadership that we have
established in the industry. Our solutions, the people who
develop them, and our sales, consulting and support associates
are highly specialized. We believe this specialization makes it
difficult for competitors to penetrate our market. Although we
sometimes compete with much larger enterprise solution providers
who have more resources at their disposal, we generally believe
the enhanced capabilities of our solutions and our track record
of highly successful installations of our products provides a
competitive barrier that protects our market leadership. |
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We will continue to develop our Collaborative Solutions
business segment. The collaborative solutions market is
still emerging. JDA has established an early leadership position
in the collaborative solutions market and we believe this market
could grow to become a substantial portion of our business.
There is significant opportunity as we market our JDA
Portfolio software solutions to approximately 3,200
retailers and 26,000 suppliers to the retail industry worldwide
with annual sales of $100 million or more. The
Collaborative Solutions business segment remains a
particular source of focus within our acquisition strategy. |
Products
The following table provides a listing and description of our
products. Portfolio Synchronized products constitute the
current JDA product suite. A synchronized version of these
products has been released annually since 2002. JDA Portfolio
version 2005.1, the fourth synchronized release of our
products, will be released in first quarter 2005 and will
include enhancements to virtually all of our existing products
that will enable them to maintain their competitive edge.
Portfolio Enabled products represent those solutions that
have been developed and released through March 14, 2005 on
new platforms that utilize a common shared technology framework.
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Strategic Merchandise Management Solutions |
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Portfolio Enabled Product(s) |
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Description |
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• Advanced Warehouse Replenishment by E3
• Advanced Store Replenishment by E3
• Vendor Managed Inventory by E3
• Network Optimization by E3 |
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• Portfolio Replenishment
Optimization by E3
(released Q1-2005) |
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These products provide sophisticated forecasting and
replenishment capabilities for both retailers and suppliers.
They optimize the buying and distribution decisions of our
customers and typically provide substantial return on investment. |
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• Merchandise Planning by Arthur
• Assortment Planning by Arthur
• Performance Analysis by Arthur |
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These products provide merchandise, assortment, allocation and
analysis planning capabilities for a business that enable the
integration of strategic and operational planning processes
throughout the enterprise. |
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• Space Management Solutions by Intactix |
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These solutions provide collaborative category and space
management capabilities used by both retailers and their
suppliers. They optimize the assortment selection of products
across the retail channels and provide visual tools for managing
the allocation of retail floor and shelf space. |
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• Trade Events Management
• Marketing Expense Management
• Advertising and Promotion Management
• Portfolio Merchandise Management Pricing Module
• Vista CPG |
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• Trade Events
Management for Retail
(released Q4-2004) |
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These revenue management solutions provide the tools necessary
for the retailer, wholesalers and manufacturers to manage
prices, advertising, deal management and promotions throughout
the various markets served by their businesses. |
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Merchandise Operations Systems |
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| Portfolio Synchronized Product(s) |
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Portfolio Enabled Product(s) |
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Description |
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• Portfolio Merchandise Management
• Merchandise Management System |
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These products provide the tool necessary for a retailer to
manage inventory throughout the retail supply chain. |
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| Portfolio Synchronized Product(s) |
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Portfolio Enabled Product(s) |
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Description |
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• Win/ DSS
• Portfolio Point of Sale
• Portfolio Back of Store |
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These products provide the essential tools necessary to operate
a modern efficient retail store. They provide front office
tilling functions as well as back office operations support for
ordering, receiving, price execution & physical
inventory. |
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• Customer Relationship Management
• Customer Order Management |
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These solutions provide an enterprise wide capability for a
retailer to manage customer data and execute customer loyalty
programs |
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• Portfolio Workforce Management |
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This solution provides and enterprise wide capability for a
retailer or manufacturer to optimize the scheduling of staff
within each location and across locations. |
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• Store Portal |
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This solution is a web-based extension of the corporate
merchandising system providing back office operations support
for retail stores. |
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Shared Technology Components |
| |
|
|
|
|
| |
| Portfolio Synchronized Product(s) |
|
Portfolio Enabled Product(s) |
|
Description |
| |
| |
|
• Portfolio Knowledge Base
(released Q1-2005) |
|
This component provides a corporate level multi- dimensional
data repository that allows all Portfolio Enabled
applications to leverage large volumes of historical
performance and forecast data. |
| |
| |
|
• Portfolio Registry
(released Q1-2004) |
|
This component provides the product information management
capabilities required to support all Portfolio Enabled
products. Registry also acts as the central repository for
other data such as locations, suppliers, etc |
| |
|
• Vista Retail |
|
|
|
This component provides the capabilities for a retailer to
subscribe to a data pool and receive product information from
suppliers. The solution also manages the workflow of completing
these data elements such that they can be authorized for
addition to the Portfolio Registry. |
| |
|
• Performance Analysis by IDEAS |
|
|
|
These components provide enterprise analysis of historical
performance information through advanced multi-dimensional
presentation formats. |
| |
• Seasonal Profiling by Intellect
• Channel Clustering by Intellect
• Demand Planning by Intellect
• Event Lift Forecasting by Intellect
• Size Scaling |
|
• Size Scaling by Intellect
(released Q3-2003) |
|
These modular components provide the capability to optimize
decisions through advanced scientific analysis of large volumes
of data to produce statistically driven insights into customer,
inventory and sales patterns. |
| |
9
|
|
|
Collaborative Specific Solutions |
| |
|
|
|
|
| |
| Portfolio Synchronized Product(s) |
|
Portfolio Enabled Product(s) |
|
Description |
| |
|
• JDA Marketplace.com |
|
|
|
This solution is a portal that enables trading partners to
easily navigate to collaborative solutions and partners via the
Internet. In addition, JDAMarketplace.com provides educational
insights and recent news for those interested in the
collaborative space. |
| |
|
• Marketplace Replenishment |
|
|
|
This solution is a web-based solution designed to deliver
collaborative planning, forecasting and replenishment between
retailers and their suppliers. |
| |
Portfolio Customer Support
We offer Portfolio Customer Support services that include
product maintenance, on-line support, and access to our Solution
Centers via telephone and web interfaces. Our standard
maintenance services agreement entitles customers to receive
unspecified new product releases (exclusive of those which
introduce significant new functionality), access to our Solution
Centers, and comprehensive error diagnosis and correction.
Customers have the option of choosing maintenance service
programs that extend hours of coverage, incorporate support for
custom configurations, or provide special attention through
periods of high activity or upgrade processing. We also offer
enhanced support services that provide customers with difficult
to find technical skills, such as database administration or
with an outsource alternative to help desk and other information
technology services. The vast majority of our customers have
participated in one or more of our Portfolio Customer
Support programs.
Portfolio Customer Services
|
|
|
| |
• |
Consulting. Our consulting services group consists of
business consultants, systems analysts and technical personnel
with extensive retail, manufacturing, and wholesale industry
experience. The consulting services group assists our customers
in all phases of systems implementation, including systems
planning and design, customer-specific configuration of
application modules, and on-site implementation or conversion
from existing systems. We also offer a variety of
post-implementation services designed to maximize our
customers’ return on software investment, which include
enhanced utilization reviews, business process optimization and
executive “how to” sessions. The “how to”
sessions empower executives to access key management reports
online instead of referring to spreadsheets. Consulting services
are generally billed bi-weekly on an hourly basis or pursuant to
the terms of a fixed price contract. In addition, we augment our
services on large-scale implementations and extensive business
process re-engineering projects with third-party alliances,
consulting firms and systems integrators. Our consulting
engagements have typically taken between one month and one year
for Retail Enterprise Systems, between four and eight
months for In-Store Systems, and between one month and
three months for Collaborative Solutions. |
| |
| |
• |
Training. We offer a comprehensive education and training
program for our customers, associates and business partners
through our Business Management Institute (“BMI”).
BMI features a curriculum for each of our software
solutions, prepaid training packages, and a full-time staff
consisting of professional instructors and course developers.
The BMI curriculum includes more than 120 courses
that range from basic overviews, implementation and
technical/developer classes to business process education and
key topics and techniques for the supply chain. Courses are
offered primarily at our in-house classroom facilities in
Scottsdale, Atlanta, Dallas, Chicago, London and Singapore, and
through customized on-site classes. We also offer
JDALearn, a web-based education alternative, which
provides online learning in areas such as category management,
space planning, replenishment, data mining, analysis tools and
store systems. In 2004, over 2,500 individuals attended BMI
instructor-lead classes and nearly 4,000 students
logged on to JDALearn web-based courses. |
10
Customers
Our customers include over 4,700 of the world’s leading
retail, CPG manufacturers and wholesalers. We believe we
have the largest retail customer installed base among our direct
competitors for retail-specific systems, with approximately
1,300 retail customers in over 60 countries that own at
least one of our products. JDA serves a diverse client base from
specialty powerhouse chains with more than 5,000 retail
stores and multi format food chains, to global consumer packaged
goods manufacturers and hard goods distributors. Our software is
capable of supporting our clients’ multi-channel
operations, which may include brick-and-mortar stores, Internet,
e-commerce, catalog and wholesale distribution. We market our
software solutions to approximately 3,200 retailers worldwide
with annual sales of $100 million or more. Our acquisitions
of Arthur, Intactix, E3 and Vista expanded our client base to
include more than 3,400 suppliers to the retail industry
and added software applications that enable business-to-business
CPFR and promotion management between retailers and their
suppliers. These acquisitions, together with the investments
we’ve made over the past five years to increase the
scalability of our products, have enabled us to pursue emerging
growth opportunities in the demand chain and further expand our
target markets to include larger multi-national retail
organizations and approximately 26,000 suppliers to the retail
industry worldwide with annual sales of $100 million or
more.
Sales and Marketing
We market our products and services primarily through our direct
sales force. The direct sales force for the Americas region is
based in Scottsdale, Arizona with 12 additional regional sales
and support offices across the United States, Canada and Latin
America. Our international direct sales force is located in
12 sales and support offices in major cities throughout
Europe, Asia, Australia, and Japan.
Sales to new customers have historically required between three
and nine months from generation of the sales lead to the
execution of a software license agreement. Sales cycles are
typically longer for larger dollar projects, large
multi-national retail organizations and retailers in certain
geographic regions. During the past two years, we have noted an
increase in CEO and board-level approval requirements for larger
dollar contracts that have lengthened the traditional time from
lead generation to the execution of a software agreement. In
addition, our ability to offer a comprehensive portfolio of
integrated software applications that can be installed
independently or as a complete solution, has created increased
back-selling opportunities to existing customers. As of
December 31, 2004, our sales and marketing organization
consisted of 91 employees in the Americas, 39 in Europe and 13
in Asia/ Pacific. These totals include 42, 17 and 9 quota
carrying sales representatives, respectively.
Competition
We encounter competitive products from a different set of
vendors in each of our primary product categories. We believe
that while our markets are still subject to intense competition,
the number of significant competitors in many of our application
markets has diminished over the past five years. We believe the
principal competitive factors in our markets are feature and
functionality, product reputation and quality of reference
accounts, vendor viability, retail and demand chain industry
expertise, total solution cost, technology platform and quality
of customer support.
Our Retail Enterprise Systems compete primarily with
internally developed systems and other third-party developers
such as AC Nielsen Corporation, Aldata Solutions, Alphameric
PLC, Connect3 Systems, Inc., Evant, Inc., Island Pacific, Inc.,
Manugistics Group, Inc., Micro Strategies Incorporated, NSB
Retail Systems PLC, Retek, Inc., SAP AG and SAS/ Marketmax. In
addition, new competitors may enter our markets and offer
merchandise management systems 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 primarily with smaller point-of-sale
focused companies such as CRS Business Computers, Kronos
Incorporated, MICRO Systems, Inc., Radiant Systems, Inc.,
Retalix, Ltd., 360 Commerce, Tomax Technologies,
Triversity, Inc., Workbrain, Inc., and Workplace Systems
International. We also compete with other broad solution set
providers such as NSB Retail Systems PLC, Retek, Inc., and
SAP AG (Campbell Software Division).
11
Our current Collaborative Solutions compete primarily
with products from AC Nielsen Corporation, Evant Inc.,
i2 Technologies, Information Resources, Inc., Manugistics
Group, Inc. and SAS/ Marketmax.
In the market for consulting services, we have pursued a
strategy of forming informal working relationships with leading
retail systems integrators such as IBM Global Services, Cap
Gemini Ernst & Young, Kurt Salmon Associates and
Lakewest Consulting. These integrators, as well as independent
consulting firms such as Accenture, AIG Netplex,
CFT 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 relationship between
Retek, Inc. and Accenture.
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, Commercialware, Demantra, Inc., Ecometry Corporation,
i2 Technologies, Manugistics Group, Inc., Microsoft, Inc.,
Retek, Inc. and SAP AG.
A few 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.
For example, we have recently encountered competitive situations
with SAP AG where, in order to expedite their entrance into
our markets and to encourage customers to purchase licenses of
its non-retail applications, SAP AG has offered to license at no
charge certain of its retail software applications that compete
with the JDA Portfolio products. In addition, we
could face competition from large, multi-industry technology
companies that have historically not offered an enterprise
solution set to the retail supply chain market. Further the
enterprise software market is consolidating and this may result
in larger, new competitors with greater financial, technical and
marketing resources than we possess. Such a consolidation trend
could negatively impact our business. This consolidation trend
is evidenced by SAP AG’s announcement on February 28,
2005 of a cash tender offer to purchase all of Retek,
Inc.’s outstanding shares, which was followed on
March 8, 2005 by a competing cash tender offer from Oracle
Corporation to purchase all of Retek, Inc.’s outstanding
shares. Oracle Corporation does not currently compete with our
retail specific products. It is difficult to estimate what
effect either of these proposed acquisitions, if finalized,
would have on our competitive environment. 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.
Proprietary Rights
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 issued patents, although we do have several
patent applications pending. 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
software. 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 Portfolio Merchandise
Management, certain applications from Silvon Software, Inc.
for use in Performance Analysis by IDEAS, IBM’s
Net.commerce merchant server software for use in Customer
Order Manage-
12
ment, and the Syncsort application for use in certain of
the Portfolio Planning by Arthur products. Our 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, or
infringes another parties intellectual property rights.
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 our current or potential future software solutions
infringe 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 also 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. We may be more vulnerable to patent claims since we
do not have any issued patents that we can assert defensively
against a patent infringement claim. 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.
Our standard software license agreements contain an infringement
indemnity clause under which we agree to indemnify and hold
harmless our customers and business partners against liability
and damages arising from claims of various copyright or other
intellectual property infringement by our products. These terms
constitute a form of guarantee that is subject to the disclosure
requirements, but not the initial recognition or measurement
provisions of Financial Accounting Standards Board issued FASB
Interpretation No. 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of the Indebtedness of Others.” We have
never lost an infringement claim and our costs to defend such
lawsuits have been insignificant. Although it is possible that
in the future third parties may claim that our current or
potential future software solutions or we infringe on their
intellectual property, we do not currently expect a significant
impact on our business, operating results, or financial
condition.
Employees
As of December 31, 2004, we had 1,156 employees: 900 were
based in the Americas region, 169 were based in Europe, and 87
were based in the Asia/ Pacific region. Of the total, 143 were
engaged in sales and marketing, 346 were in consulting services,
164 were engaged in client support services, 356 were in product
development, and 147 were in administrative functions. We
believe that our relations with our employees are good. We have
never had a work stoppage and none of our employees are subject
to a collective bargaining agreement.
Our future operating results depend significantly upon the
continued service of our key technical and senior management
personnel, and our continuing ability to attract and retain
highly qualified technical and managerial personnel. Competition
for such personnel is intense, and there can be no assurance
that we will retain our key managerial or technical personnel or
that we can attract, assimilate and retain such personnel in the
future. We have at times experienced difficulty recruiting
qualified personnel, and there can be no assurance that we will
not experience such difficulties in the future. If we are unable
to hire and retain qualified personnel in the future, or if we
are unable to assimilate the employees from any acquired
businesses, such inability could have a material adverse effect
on our business, operating results and financial condition.
13
Available Information
Our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments
to those filed or furnished pursuant to Sections 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, are
available free of charge from our website at www.jda.com,
as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and
Exchange Commission.
On February 5, 2004 we purchased our 136,000 square
foot corporate office facility in Scottsdale, Arizona for
approximately $23.8 million in cash. The purchase included
the corporate office building, a new two-story parking garage,
and approximately 8.8 acres of land upon which these
structures are located. We currently occupy approximately
121,000 square feet of the facility. In addition, we lease
approximately 2,900 square feet of the facility and the
remaining excess space is available for lease. The corporate
office is also used for certain of our sales, marketing,
consulting, customer support, training, and product development
functions. Prior to the purchase, we leased approximately
121,000 square feet in the corporate office facility under
an operating lease with an initial term of ten years and a
scheduled monthly lease payment of approximately $135,000 from
April 1999 through March 2004. This lease was amended in June
2003 to include the remaining 15,000 square feet and extend
the term of lease through December 2014. The purchase of our
corporate office facility resulted in a $1.5 million
decrease in our annual operating costs. We also own
approximately 15,000 square feet of office space in the
United Kingdom. In April 2003, we sold a freestanding
5,000 square foot office facility in the United Kingdom for
approximately $1.6 million and realized a gain of $639,000.
We lease office space in the Americas for 12 regional sales and
support offices across the United States, Canada and Latin
America, and for 11 international sales and support offices
located in major cities throughout Europe, Asia, Australia, and
Japan. The leases are primarily non-cancelable operating leases
with initial terms ranging from 12 months to
120 months that expire at various dates through the year
2012. None of the leases contain contingent rental payments;
however, certain of the leases contain insignificant scheduled
rent increases and renewal options. We expect that in the normal
course of business some or all of these leases will be renewed
or that suitable additional or alternative space will be
available on commercially reasonable terms as needed. We believe
our existing facilities are adequate for our current needs and
for the foreseeable future.
In addition to the excess space in our corporate office facility
that is available for lease, we have approximately
40,000 square feet of excess office space under operating
leases that extend through November 2006 which is available for
sub-lease. We estimate that the operating costs associated with
all excess office space are approximately $800,000.
|
|
| Item 3. |
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 position, results of operations or cash flows.
|
|
| Item 4. |
Submission of Matters to a Vote of Security
Holders — None during fourth quarter 2004. |
14
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity and Related
Stockholder Matters |
Our common stock trades on the NASDAQ Stock Market
(“NASDAQ”) under the symbol “JDAS.” The
following table sets forth, for the periods indicated, the high
and low sales prices per share of our common stock for the two
most recent fiscal years as reported on NASDAQ.
| |
|
|
|
|
|
|
|
|
| Year Ended 2004 |
|
High |
|
Low |
| |
|
|
|
|
|
1st Quarter
|
|
$ |
18.25 |
|
|
$ |
13.01 |
|
|
2nd Quarter
|
|
|
15.86 |
|
|
|
11.03 |
|
|
3rd Quarter
|
|
|
13.35 |
|
|
|
9.53 |
|
|
4th Quarter
|
|
|
14.76 |
|
|
|
10.62 |
|
| |
|
|
|
|
|
|
|
|
| Year Ended 2003 |
|
High |
|
Low |
| |
|
|
|
|
|
1st Quarter
|
|
$ |
12.90 |
|
|
$ |
8.77 |
|
|
2nd Quarter
|
|
|
15.10 |
|
|
|
8.35 |
|
|
3rd Quarter
|
|
|
18.17 |
|
|
|
10.78 |
|
|
4th Quarter
|
|
|
22.36 |
|
|
|
14.81 |
|
On March 11, 2005, the closing sale price for our common
stock was $13.97 per share. On this date, there were
approximately 250 holders of record of our common stock. This
figure does not reflect what we believe are approximately 3,200
beneficial stockholders whose shares are held in nominee names
by brokers and other institutions. We have never declared or
paid any cash dividend on our common stock. Since we presently
intend to retain future earnings to finance the growth and
development of our business, we do not anticipate paying cash
dividends on our common stock in the foreseeable future.
The market price of our common stock has experienced large
fluctuations and may continue to be volatile in the future.
Factors such as future announcements concerning us or our
competitors, quarterly variations in operating results,
announcements of technological innovations, the introduction of
new products or changes in product pricing policies by us or our
competitors, proprietary rights or other litigation, changes in
our growth prospects, changes in earnings estimates by analysts
or other factors could cause the market price of our common
stock to fluctuate substantially. Further, the stock market has
from time to time experienced extreme price and volume
fluctuations that have affected the market price for many high
technology companies and which, on occasion, have been unrelated
to the operating performance of those companies. These
fluctuations, as well as the general economic, market and
political conditions both domestically and internationally,
including recessions, terrorist attacks on United States’
interests and military conflicts including the US war and
continued violence in Iraq, may materially and adversely affect
the market price of our common stock.
See Item 12 for information regarding securities authorized
for issuance under equity compensation plans.
|
|
| Item 6. |
Selected Financial Data |
The following selected financial data should be read in
conjunction with our consolidated financial statements and
related notes and with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
included elsewhere herein. The selected consolidated financial
data presented below under the captions “Consolidated
Statement of Income Data” and “Consolidated Balance
Sheet Data” for, and as of the end of, each of the years in
the five-year period ended December 31, 2004, are derived
from the consolidated financial statements of JDA Software
Group, Inc. The consolidated financial statements as of
December 31, 2004 and 2003, and for each of the years in
the three-year period ended December 31, 2004, together
with the report of the independent registered public accounting
firm, are included elsewhere herein.
15
Consolidated Statement of Income Data:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands except per share data) |
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Software licenses
|
|
$ |
59,211 |
|
|
$ |
59,283 |
|
|
$ |
66,625 |
|
|
$ |
71,220 |
|
|
$ |
62,640 |
|
| |
Maintenance services
|
|
|
80,240 |
|
|
|
71,111 |
|
|
|
57,570 |
|
|
|
40,568 |
|
|
|
30,380 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Product revenues
|
|
|
139,451 |
|
|
|
130,394 |
|
|
|
124,195 |
|
|
|
111,788 |
|
|
|
93,020 |
|
| |
Consulting services
|
|
|
71,251 |
|
|
|
70,167 |
|
|
|
87,608 |
|
|
|
95,124 |
|
|
|
78,709 |
|
| |
Reimbursed expenses
|
|
|
6,172 |
|
|
|
6,858 |
|
|
|
7,652 |
|
|
|
6,904 |
|
|
|
6,970 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Service revenues
|
|
|
77,423 |
|
|
|
77,025 |
|
|
|
95,260 |
|
|
|
102,028 |
|
|
|
85,679 |
|
| |
|
Total revenues
|
|
|
216,874 |
|
|
|
207,419 |
|
|
|
219,455 |
|
|
|
213,816 |
|
|
|
178,699 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of software licenses
|
|
|
2,191 |
|
|
|
1,315 |
|
|
|
2,035 |
|
|
|
2,376 |
|
|
|
2,947 |
|
| |
Amortization of acquired software technology
|
|
|
5,158 |
|
|
|
4,518 |
|
|
|
4,247 |
|
|
|
2,971 |
|
|
|
1,834 |
|
| |
Cost of maintenance services
|
|
|
19,975 |
|
|
|
17,373 |
|
|
|
14,292 |
|
|
|
11,159 |
|
|
|
7,655 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost of product revenues
|
|
|
27,324 |
|
|
|
23,206 |
|
|
|
20,574 |
|
|
|
16,506 |
|
|
|
12,436 |
|
| |
Cost of consulting services
|
|
|
53,229 |
|
|
|
58,233 |
|
|
|
63,837 |
|
|
|
69,953 |
|
|
|
64,965 |
|
| |
Reimbursed expenses
|
|
|
6,172 |
|
|
|
6,858 |
|
|
|
7,652 |
|
|
|
6,904 |
|
|
|
6,970 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost of service revenues
|
|
|
59,401 |
|
|
|
65,091 |
|
|
|
71,489 |
|
|
|
76,857 |
|
|
|
71,935 |
|
| |
|
Total cost of revenues
|
|
|
86,725 |
|
|
|
88,297 |
|
|
|
92,063 |
|
|
|
93,363 |
|
|
|
84,371 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
130,149 |
|
|
|
119,122 |
|
|
|
127,392 |
|
|
|
120,453 |
|
|
|
94,328 |
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product development
|
|
|
52,800 |
|
|
|
48,529 |
|
|
|
41,819 |
|
|
|
34,406 |
|
|
|
28,840 |
|
| |
Sales and marketing
|
|
|
45,608 |
|
|
|
41,612 |
|
|
|
39,941 |
|
|
|
37,998 |
|
|
|
28,770 |
|
| |
General and administrative
|
|
|
24,922 |
|
|
|
23,473 |
|
|
|
26,978 |
|
|
|
27,099 |
|
|
|
20,761 |
|
| |
Amortization of intangibles
|
|
|
3,388 |
|
|
|
3,067 |
|
|
|
2,849 |
|
|
|
5,526 |
|
|
|
4,708 |
|
| |
Restructuring charges and adjustments to acquisition-related
reserves
|
|
|
6,105 |
|
|
|
— |
|
|
|
6,287 |
|
|
|
985 |
|
|
|
828 |
|
| |
Loss on impairment of trademark
|
|
|
1,100 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Relocation costs to consolidate development and support
activities
|
|
|
— |
|
|
|
1,794 |
|
|
|
452 |
|
|
|
— |
|
|
|
— |
|
| |
Purchased in-process research and development
|
|
|
— |
|
|
|
— |
|
|
|
800 |
|
|
|
2,361 |
|
|
|
200 |
|
| |
Gain on sale of office facility
|
|
|
— |
|
|
|
(639 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
133,923 |
|
|
|
117,836 |
|
|
|
119,126 |
|
|
|
108,375 |
|
|
|
84,107 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
$ |
(3,774 |
) |
|
$ |
1,286 |
|
|
$ |
8,266 |
|
|
$ |
12,078 |
|
|
$ |
10,221 |
|
| |
Net gain on acquisition breakup fee
|
|
|
1,200 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Other income
|
|
|
2,130 |
|
|
|
1,347 |
|
|
|
1,700 |
|
|
|
2,671 |
|
|
|
4,246 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(444 |
) |
|
|
2,633 |
|
|
|
9,966 |
|
|
|
14,749 |
|
|
|
14,467 |
|
| |
Income tax (benefit) provision
|
|
|
(2,453 |
) |
|
|
(17 |
) |
|
|
1,036 |
|
|
|
5,101 |
|
|
|
5,599 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
2,009 |
|
|
$ |
2,650 |
|
|
$ |
8,930 |
|
|
$ |
9,648 |
|
|
$ |
8,868 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.32 |
|
|
$ |
.38 |
|
|
$ |
.36 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.31 |
|
|
$ |
.37 |
|
|
$ |
.35 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES USED TO COMPUTE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings per share
|
|
|
29,072 |
|
|
|
28,645 |
|
|
|
28,047 |
|
|
|
25,316 |
|
|
|
24,315 |
|
| |
Diluted earnings per share
|
|
|
29,494 |
|
|
|
29,104 |
|
|
|
29,074 |
|
|
|
25,757 |
|
|
|
25,431 |
|
16
Consolidated Balance Sheet Data:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
Cash and cash equivalents
|
|
$ |
76,994 |
|
|
$ |
77,464 |
|
|
$ |
71,065 |
|
|
$ |
51,865 |
|
|
$ |
60,794 |
|
|
Marketable securities
|
|
|
20,128 |
|
|
|
37,266 |
|
|
|
30,790 |
|
|
|
12,140 |
|
|
|
15,800 |
|
|
Working capital
|
|
|
94,820 |
|
|
|
126,045 |
|
|
|
120,956 |
|
|
|
93,094 |
|
|
|
112,752 |
|
|
Total assets
|
|
|
332,567 |
|
|
|
320,625 |
|
|
|
315,054 |
|
|
|
288,642 |
|
|
|
218,472 |
|
|
Long-term liabilities(1)
|
|
|
— |
|
|
|
— |
|
|
|
4,980 |
|
|
|
10,810 |
|
|
|
— |
|
|
Stockholders’ equity(2)
|
|
|
276,185 |
|
|
|
269,789 |
|
|
|
256,766 |
|
|
|
224,450 |
|
|
|
186,265 |
|
|
|
| (1) |
Deferred tax liability. |
| |
| (2) |
We have never declared or paid a cash dividend on our common
stock. |
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
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, collaborative planning and forecasting
and store operations requirements of the retail industry and its
suppliers. Our solutions enable customers to manage and optimize
their inventory flows throughout the demand chain to the
consumer, and provide optimized labor scheduling for retail
store operations. Our customers include over 4,700 of the
world’s leading retail, consumer package goods
(“CPG”) manufacturers and wholesalers. We also offer
maintenance services to our software customers, and enhance and
support our software business by offering implementation and
other 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 somewhat more predictable but generate
significantly lower gross margins than software license revenues.
Significant Trends and Developments in Our Business
Outlook for 2005. Although fourth quarter of 2004
provided us with our second largest quarterly software revenue
result ever, our software revenues for the full year 2004 were
flat compared to 2003. Our confidence in the level of activity
in the market is generally better than it was a year ago;
however, we do expect a sequential decline in software license
revenue in first quarter 2005 due to normal seasonality. The
Americas region (United States, Canada and Latin America)
continues to outperform both the Europe (Europe, Middle East and
Africa) and Asia/ Pacific regions. The Americas region provided
a strong $15.3 million license performance in fourth
quarter 2004 but only a modest year-over-year software license
growth in 2004 compared to 2003. Results in the Europe region
remain weak, and we replaced our Regional Vice President in
January of 2005 with an internal promotion. The pipeline for new
business in the Europe region is better than it was a year ago,
although we may still encounter internal operational issues as a
result of the extensive changes made to our personnel and
organizational structure in the Europe region during 2004 and
early 2005. The Asia/ Pacific region remains weak in terms of
overall performance. Our competitive position in Asia/ Pacific
remains good, and we are winning a high percentage of the
opportunities we encounter; however, the overall volume of
business in this region has not shown any signs of growth
similar to that seen in the Americas region.
We are confident that our solutions remain highly competitive,
and we regularly defeat most of our competitors in head-to-head
sales situations. We believe that our leadership in the market
is likely to continue in 2005.
17
We do not expect total revenues to increase in 2005 unless
global spending levels for information technology
(“IT”) significantly improve over 2004. Our 2005
operating model is designed to deliver higher profitability
through a reduced cost structure, even if the overall market
environment does not improve. We currently expect our overall
profitability to improve substantially due to the restructuring
and cost reductions we made in fourth quarter 2004 in connection
with the announcement of our strategic operational plan for
2005. We expect to realize an annualized cost reduction in the
range of $15 million to $17 million in 2005 as a
result of the restructuring. An additional restructuring charge
will be required in the first half of 2005 to complete the plan,
although all impacted associates were notified in the fourth
quarter of 2004.
An important component of our strategic operational plan for
2005 is to improve the profitability of our services
organization, primarily be taking steps to increase utilization
of our services personnel through headcount reductions
undertaken in the fourth quarter of 2004. As a result, we
currently expect overall service revenues to decline, however,
service margins will gradually improve and as a result, the
impact on total profits will be moderate. As we aggressively
manage this aspect of our business, we face the risk of
constraints in our services offerings in the event of greater
than anticipated licensing activity or more complex
implementation projects.
Changes in Buying Patterns Continue to Impact our Operating
Results. We continue to generate sales opportunities with
larger companies, particularly in the Americas region. These
companies typically have longer and more complex buying cycles
that often involve extended due diligence processes in order to
minimize the customers’ risk. The retail and demand chain
industry continues to exercise significant due diligence prior
to making large capital outlays, and the decision-making process
for investments in information technology remains highly
susceptible to deferral. As a result, our sales cycles remain
elongated, and we continue to experience uncertainty predicting
the size and timing of individual contracts. For example,
although we signed eight large software licenses
($1.0 million or greater) in both 2004 and 2003, the
distribution of the licenses remains uneven from
quarter-to-quarter. Sales to new customers have historically
required between three and nine months from generation of the
sales lead to the execution of a software license agreement.
Sales cycles are typically longer for larger dollar projects,
large multi-national retail organizations and retailers in
certain geographic regions. Orders for certain of our products
can be taken over the telephone. We believe that delays in the
decision-making process have been, and may continue to be, the
most significant issue affecting our software license revenue
results. Delays in the customer decision-making processes have
resulted from a number of factors including extended due
diligence procedures, corporate reorganizations, and the
appointment of new senior management. Our competitive losses
remain low, and we continue to experience a steady pattern of
multi-product deals, including 33 in 2004 and 19 in 2003.
Economic conditions have negatively impacted the demand for our
Merchandise Operations Systems and In-Store Systems
in recent years. Although we believe that significant growth
in the transaction systems market will require sustained
macroeconomic improvement, we have seen signs that companies are
beginning to address long-standing issues in their enterprise
systems environments which could potentially signal a general
improvement in demand for our Merchandise Operations
Systems.
Our Competitive Environment is Changing. Our industry has
been going through a transition over the past few years that has
resulted in fewer significant competitors in every significant
product market we supply. Currently, we believe there are only
two primary global competitors left for our Merchandise
Operations Systems, Retek, Inc. and SAP AG. On
February 28, 2005, SAP AG announced a cash tender
offer to purchase all of Retek, Inc.’s outstanding shares,
which was followed on March 8, 2005 by a competing cash
tender offer from Oracle Corporation to purchase all of Retek,
Inc.’s outstanding shares. Oracle Corporation does not
currently compete with our retail specific products. It is
difficult to estimate what effect either of these proposed
acquisitions, if finalized, would have on our competitive
environment. Similarly, we believe the number of significant
competitors for our In-Store Systems has declined and
that there are no significant solution providers left for
Strategic Merchandise Management Solutions that have not
been acquired by larger companies who have the competitive
advantages of a broad product offering. The result of these
consolidations is that we will face larger competitors in the
future who could have sizable resources at their disposal.
18
Software license revenues from existing customers represented
69% of software license revenues in 2004 compared to 70% 2003.
We believe that sales to existing customers will continue to
comprise a majority of our software revenues and that this
metric is a direct result of our large customer base,
principally amassed through our acquisition activities in 2000
and 2001, and the focus we have and will continue to place on
back-selling opportunities for JDA Portfolio products to
existing customers through our Customer Value Program
(“CVP”). Over the past four years, the addition of
Strategic Merchandise Management Solutions such as
Portfolio Space Management by Intactix and Portfolio
Replenishment by E3 to the JDA Portfolio has provided
significant back-selling and growth opportunities in our
customer base as approximately 60% of our retail customer base,
and substantially all of our CPG manufacturers and wholesale
customers, still only own applications from one of our product
families.
Business Opportunities and Growth Strategies. We believe
there are three distinct growth opportunities in the current
economic environment:
|
|
|
| |
• |
Offer value propositions in our products and pricing that
make the purchase of our solutions easier and reduce the
customers’ risk of investment. Many of our prospective
customers have had poor experiences with other IT vendors. These
customers are often reluctant to incur the “upfront”
license fees we have requested in our traditional pricing model
because it places much of the risk of a difficult implementation
on the customer. To address our customers’ concerns and
overcome their caution, we have begun to offer a new “proof
of concept” sales model for our larger transactions that
allows customers to try a solution before they purchase it. In
addition, we have increased our willingness to offer a
milestone-based payment model on larger transactions. We do not
plan to offer these kinds of contractual terms for smaller
transactions, which we believe will continue to close as they
have historically. We anticipate these new sales models will
result in extended software license revenue streams that will be
advantageous in the longer run; however they may reduce revenues
in the near term. We further expect to realize greater average
selling prices in larger transactions under the “proof of
concept” sales model than have been realized historically
under our “upfront” license fee model. We have just
begun to offer our products under these new sales models so it
is still too early to determine the timing and magnitude of the
impact of this new approach on our operating results. |
| |
| |
• |
Generate new business opportunities with existing and
prospective customers with next generation JDA Portfolio
products. We believe our next generation of JDA
Portfolio products, Portfolio Enabled, will create
opportunities with prospective customers who seek a single,
integrated solution that combines the retail disciplines of
planning, assortment, purchasing, allocations and replenishment.
However, we do not currently expect to be able to estimate the
rate of acceptance of these new products until late 2005. We
have met our previously stated goal of beginning delivery of
these solutions in early 2005 as described in Product Strategy.
The initial Portfolio Enabled solutions may not offer all
the capabilities of their predecessor products but will offer
the advantages of the Portfolio Enabled platform such as
the ability to operate Portfolio Replenishment Optimization
by E3 on the Unix Oracle platform utilizing Microsoft .Net
componentry with subsequent releases to include Microsoft SQL
2005. Demand for Portfolio Enabled solutions is difficult
to estimate at this time; however, we believe there will be
opportunities to sell new add-on solutions to those customers
that do choose to move to the Portfolio Enabled versions
of the JDA Portfolio applications. |
| |
| |
• |
Expansion of our business into areas that are complementary
to our traditional retail base. We have begun to develop and
deploy broader and more sophisticated solutions to the
non-retail market. Our new Optimize on Demand solution
has taken the basic Space Planning by Intactix application and
expanded it into a strategic category management offering,
including additional JDA applications. In addition, we are
developing new solutions around business practices such as sales
and operations planning that will add to our growing complement
of non-retail solutions. Finally, we continue to grow our
collaborative planning, forecasting and replenishment
(“CPFR”) business and now have over 250 trading
partners worldwide with an estimated annual trading value of
over $4.0 billion who are live and fully operational on our
Marketplace Replenishment CPFR solution. We will continue
to search for acquisition opportunities to further develop our
Collaborative Solutions business. |
19
Long-Term Prospects For The In-Store Systems Business Segment
Are Promising, But Recent Results Are Below Expectations.
The In-Store Systems business segment provided 9% of our
total revenues in 2004 compared to 7% in 2003. Total revenues in
this business segment increased $4.7 million, or 34% in
2004 compared to 2003 primarily due to the acquisition of Timera
Texas, Inc. (“Timera”) on January 29, 2004, which
provided $4.0 million of this increase (see “We
Continue to Grow Our Business Through Acquisitions”).
Excluding the incremental impact of Timera, total revenues in
this business segment increased only $704,000, or 5% in 2004
compared to 2003. This business segment has been negatively
impacted in recent years by what we believe is a major platform
transition as market demand moves from Window-based
point-of-sale applications to Java-based point-of-sale
applications, as well as poor economic conditions that have
caused retailers to delay major capital appropriations.
Portfolio Point of Sale (“PPOS”), our
Java-based In-Store System, was commercially released in second
quarter 2003. We have only sold the PPOS application to a
limited number of customers since its initial release. We do not
believe the In-Store Systems business segment will
experience any significant organic growth until the PPOS
application becomes more mature and early adopters complete
their implementations and become reference-able. Industry
surveys indicate that point-of-sales systems are becoming an
increased priority for retailers, and we believe potential
customers may look to partner with broad solutions providers
such as JDA that can bring all aspects of store operations into
one integrated suite, rather than software vendors that only
offer in-store systems. Accordingly, we believe the long-term
prospects for our new PPOS product and In-Store
Systems sales are promising, in part because we believe we
are positioned to take advantage of this anticipated replacement
cycle for point-of-sales systems that is driven by a shift to
new technology platforms. However, the timing and full impact of
the replacement cycle is unclear.
We Continue to Invest in New Product Development. We
invested $66.4 million in 2004 and approximately
$348 million from 1998 to 2003 in new product development
and the acquisition of complementary products. The acquisitions
of Arthur and Timera (see “We Continue to Grow Our
Business Through Acquisitions”) extended our product
offerings in the Retail Enterprise Systems and
In-Store Systems segments of our business. The
acquisitions of Intactix, NeoVista Decision Series, E3, Vista,
and Engage not only have expanded our product offerings, but
have also provided us with collaborative applications that
address new vertical market opportunities with the manufacturers
and wholesalers who supply our traditional retail customers. 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 customer base.
We are developing a series of enhancements and the next
generation of JDA Portfolio products, Portfolio
Enabled, based primarily upon the .Net Platform that we
believe will position us uniquely in the retail and
collaborative solutions markets. We will continue to offer
Portfolio Enabled applications that operate with other
market accepted platforms such as Oracle and the IBM iSeries
and, where appropriate, Java-based technology. 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. The
initial versions of Portfolio Enabled solutions may not
offer all the capabilities of the existing JDA Portfolio
products, however, they will offer the advantages of an
advanced technology platform and as a result, we believe they
will be able to compete effectively against most of our
competitors. We will continue selling the legacy versions of
these products until the functionality of the Portfolio
Enabled solutions is at least equivalent.
Consistent with our strategic operational plan for 2005, we
intend to leverage our past investment in product development by
reducing somewhat our level of product development expenditures,
both in absolute dollars and as a percentage of revenues. At the
close of 2004, we were able to begin the process of transition
to our new Portfolio Enabled solutions, and as a result,
we can now start to reduce the “double investment” in
products that we have endured over the past two years. JDA
Portfolio version 2005.1, the fourth synchronized release of
our products, will be released in first quarter 2005 and will
include enhancements to virtually all of our existing products
that will enable them to maintain their competitive edge. In
first quarter 2005, we plan to
20
begin releasing the first versions of the new Portfolio
Enabled solutions that will eventually replace most of our
existing products. This has been a significant investment by the
Company as we have been building this next generation of
products while developing JDA Portfolio version 2005.1.
With the realignment of our resources at the end of 2004 we have
now increased our focus on the development of the Portfolio
Enabled solutions and will reduce our investment in existing
JDA Portfolio products and leverage the most current
release of these applications.
The JDA Portfolio Investment Protection Program provides
existing customers with a platform transfer right to the new
..Net Platform, if and when available, at no additional license
fee under the following conditions: (i) licensee is a
current maintenance paying customer on their existing JDA
applications, (ii) licensee is not in breach of any terms
of their agreements, (iii) the version of the product that
will run on the .Net Platform has no more than minimal
differences in price, features, and functionality from the
licensee’s existing JDA applications, and (iv) the
licensee relinquishes all rights to use previously licensed
software under the terms of the platform transfer right
following a reasonable transition period. If, however, the
version of the product that will run on the .Net Platform has
more than minimal differences in price, features, and
functionality, licensee may still exercise this right provided
they agree to pay an additional fee equal to the price that
would be charged to other existing users of licensee’s
current products to migrate to the new .Net Platform. Customers
will pay any required third party charges associated with the
new platform. We will encourage our customers to move to the
..Net Platform; however, at this time we are unable to estimate
how many of our existing customers will take advantage of this
program. A similar investment protection program for In-Store
Systems customers was announced in 2004 that provides a
platform transfer right from Win/ DSS to PPOS. As
of December 31, 2004, approximately one-third of our
domestic Win/ DSS customers have indicated they intend to
participate in the In-Store Systems investment protection
program.
We Intend to Continue to Grow Our Business Through
Acquisitions. We believe there are opportunities to grow our
business through the acquisition of complementary and
synergistic companies, products and technologies. We have
historically looked at cash acquisitions in the $5 million
to $25 million range that could be readily integrated,
accretive to earnings, or that could shorten our time to market
with new technologies. We completed the purchase of Timera in
January 2004 for $13.6 million. We are now focusing our
acquisition strategy on larger companies, particular those that
will increase the breadth of our JDA Portfolio offerings
in the Collaborative Solutions business segment.
We Recorded Two Restructuring Charges in 2004. We
recorded a $2.7 million restructuring charge in first
quarter 2004 for $1.8 million in one-time termination
benefits related to a workforce reduction of 47 full-time
employees (“FTE”), primarily in sales (15 FTE)
and consulting services (18 FTE) functions in the Americas,
Europe and Asia/ Pacific, and $900,000 for closure costs of
certain offices in the Americas and Europe that were either
under-performing or under-utilized and used primarily by
consulting services personnel. All workforce reductions and
office closures associated with this charge were made on or
before March 31, 2004.
We recorded a $3.1 million restructuring charge in fourth
quarter 2004 in connection with our announcement of our
strategic operational plan for 2005 that includes a
consolidation of product lines, a net workforce reduction of
approximately 12% or 157 FTE worldwide, and a reduction of
certain office space. The charge includes $2.8 million in
one-time termination benefits related to the net workforce
reduction that includes certain employees involved in the
product development (82 FTE), consulting services and
training (55 FTE), sales and marketing (18 FTE), and
administrative (16 FTE) functions in the Americas, Europe
and Asia Pacific, offset by a net gain of 14 FTE in the customer
support function resulting from the transfer of 20 developers
and functional experts into the new Customer Directed
Development (“CDD”) organization structure within our
Customer Support Solutions group. The CDD group is responsible
for improving the speed and efficiency of the Company’s
issue resolution, support and enhancements for maintenance
customers. Through December 31, 2004, 110 FTE have been
terminated or open positions eliminated under this plan. The
remaining employees affected by this workforce reduction have
been notified and are on various forms of stay put agreements
that expire gradually over the first and second quarters of
2005. The fourth quarter 2004 charge also includes $340,000 for
reduction of office space related primarily to the negotiated
buyout or net
21
rentals remaining under existing operating leases on certain
facilities in Northern Europe that were vacated by
December 31, 2004. JDA anticipates that it will take an
additional restructuring charge of approximately
$1.8 million to $2.0 million in the first half of 2005
to complete the plan.
Management believes the changes contemplated in our strategic
operational plan for 2005 will allow the Company to generate
substantially higher profits at the 2004 revenue levels.
Specifically, management believes the restructuring plan will
enable JDA to (i) streamline operations and reduce
duplicate investments in product development by consolidating
significant portions of the existing product suite on the .Net
and Java platforms used in the Portfolio Enabled
products, (ii) maximize the return from the
Company’s ongoing investments in advanced technology for
the delivery of highly specialized services via the Internet and
internal administrative systems, and (iii) better align the
Company’s operating strategies to identified growth areas
in the market. JDA expects to realize an annualized cost
reduction in the range of $15 million to $17 million.
We Recorded a Loss on Impairment of Our E3 Trademarks. We
recorded a $1.1 million impairment loss during fourth
quarter 2004 on trademarks that were acquired from E3
Corporation. At December 31, 2004 the E3 Trademarks had an
estimated fair value of $2.2 million. The E3 Trademarks are
tested annually for impairment pursuant to
SFAS No. 142 and valued using the “Relief from
Royalty Method of the Income Approach.” The premise of this
valuation method is that the value of an asset can be measured
by the present worth of the net economic benefit (cash receipts
less cash outlays) to be received over the life of the asset and
assumes that in lieu of ownership, a firm would be willing to
pay a royalty in order to exploit the related benefits of this
asset class. The impairment loss results primarily from the
lower software revenue forecast in the 2004 valuation compared
to 2003, and a more conservative annual growth rate. The
impairment loss does not impact our assessment that the E3
Trademarks have indefinite lives as (i) our expected use of
the E3 Trademarks has not changed, (ii) there are no legal,
regulatory, or contractual provisions that limit their useful
lives, (iii) there continues to be consistent demand for
our Strategic Merchandise Management Solution application
suite that includes the E3 products, and (iv) we intend to
indefinitely develop next generation products under the E3
Trademarks. The impairment loss has been included in the
Consolidated Statement of Income for 2004 as a separate
component of operating expenses under the caption “Loss on
impairment of trademark.” In addition, for purposes of
business segment disclosures, the impairment loss has been
allocated to the Retail Enterprise Systems ($850,000) and
Collaborative Solutions ($250,000) business segments
based on the initial allocation percentage used for this
intangible asset at the date of acquisition.
Termination of Our Agreement to Acquire
QRS Corporation. On September 2, 2004,
QRS Corporation (“QRS”) exercised its right to
terminate our Agreement and Plan of Merger dated June 17,
2004 (“Merger Agreement”) in order to accept a
superior proposal from an unrelated third party. Pursuant to the
terms of the Merger Agreement, we received a $3.8 million
termination fee from QRS on September 3, 2004. The
termination fee is reported net of $2.6 million of direct
costs incurred by the Company related to the terminated
acquisition and has been included in the Consolidated Statements
of Income for 2004 under the caption “Net gain on
acquisition breakup fee.”
We Purchased Our Corporate Office Facility. We purchased
our corporate office facility in Scottsdale, Arizona on
February 5, 2004 for $23.8 million in cash. The
purchase includes the corporate office building, a new two-story
parking garage, and approximately 8.8 acres of land upon
which these structures are located. This purchase resulted in a
$1.5 million decrease in our annual operating costs.
Our Financial Position is Strong and We Have Positive
Operating Cash Flow. We continue to maintain a strong
financial position during the difficult economic cycle of the
last few years. As of December 31, 2004, we had
$97.1 million in cash, cash equivalents and marketable
securities, compared to $114.7 million at December 31,
2003. In addition, we generated $24.8 million in positive
cash flow from operations during 2004 compared to
$19.8 million in 2003. The purchase of our corporate office
facility, together with the acquisition of Timera, utilized
$37.4 million, or approximately 33% of our
December 31, 2003 cash, cash equivalents, and marketable
securities balances. We believe our cash position is sufficient
to meet our operating needs for the foreseeable future.
22
Management Changes. Arnaud Decarsin was promoted to
Regional Vice President of the Europe region in January 2005
having served as Sales Director for Southern Europe since
January 2004. G. Michael Bridge was promoted to Senior Vice
President and General Counsel in August 2004 having served as
our Vice President and General Counsel since July 1999. Scott
Hines, our Senior Vice President, Chief Technology Officer
terminated his employment with the Company in October 2004 to
pursue other opportunities. Mr. Hines’
responsibilities have been divided among the senior management
group and we are not actively seeking a replacement.
23
Results of Operations
The following table sets forth certain selected financial
information expressed as a percentage of total revenues for the
periods indicated and certain gross margin data expressed as a
percentage of software license revenue, maintenance services
revenue, product revenues or services revenues, as appropriate:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Software licenses
|
|
|
27 |
% |
|
|
29 |
% |
|
|
31 |
% |
| |
Maintenance services
|
|
|
37 |
|
|
|
34 |
|
|
|
26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Product revenues
|
|
|
64 |
|
|
|
63 |
|
|
|
57 |
|
| |
Consulting services
|
|
|
33 |
|
|
|
34 |
|
|
|
40 |
|
| |
Reimbursed expenses
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Service revenues
|
|
|
36 |
|
|
|
37 |
|
|
|
43 |
|
| |
|
Total revenues
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of software licenses
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
| |
Amortization of acquired software technology
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
| |
Cost of maintenance services
|
|
|
9 |
|
|
|
8 |
|
|
|
7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost of product revenues
|
|
|
13 |
|
|
|
11 |
|
|
|
10 |
|
| |
Cost of consulting services
|
|
|
24 |
|
|
|
28 |
|
|
|
29 |
|
| |
Reimbursed expenses
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost of service revenues
|
|
|
27 |
|
|
|
31 |
|
|
|
32 |
|
| |
|
Total cost of revenues
|
|
|
40 |
|
|
|
42 |
|
|
|
42 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
60 |
|
|
|
58 |
|
|
|
58 |
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product development
|
|
|
24 |
|
|
|
25 |
|
|
|
19 |
|
| |
Sales and marketing
|
|
|
21 |
|
|
|
20 |
|
|
|
18 |
|
| |
General and administrative
|
|
|
11 |
|
|
|
11 |
|
|
|
12 |
|
| |
Amortization of intangibles
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
| |
Restructuring charges and adjustments to acquisition-related
reserves
|
|
|
3 |
|
|
|
— |
|
|
|
3 |
|
| |
Loss on impairment of trademark
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
| |
Relocation costs to consolidate development and support
activities
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
| |
Purchased in-process research and development
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Gain on sale of office facility
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
62 |
|
|
|
58 |
|
|
|
54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(2 |
) |
|
|
— |
|
|
|
4 |
|
| |
Net gain on acquisition breakup fee
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
| |
Other income, net
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
— |
|
|
|
1 |
|
|
|
5 |
|
| |
Income tax (benefit) provision
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
1 |
% |
|
|
1 |
% |
|
|
4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin on software licenses
|
|
|
96 |
% |
|
|
98 |
% |
|
|
97 |
% |
|
Gross margin on maintenance services
|
|
|
75 |
% |
|
|
76 |
% |
|
|
75 |
% |
|
Gross margin on product revenues
|
|
|
80 |
% |
|
|
82 |
% |
|
|
83 |
% |
|
Gross margin on service revenues
|
|
|
23 |
% |
|
|
15 |
% |
|
|
25 |
% |
24
The following table sets forth a comparison of selected
financial information, expressed as a percentage change between
2004 and 2003, and between 2003 and 2002. In addition, the table
sets forth cost of revenues and product development expenses
expressed as a percentage of the related revenues:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
% Change |
|
|
|
% Change |
|
|
| |
|
2004 |
|
2003 to 2004 |
|
2003 |
|
2002 vs 2003 |
|
2002 |
| |
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$ |
59,211 |
|
|
|
— |
% |
|
$ |
59,283 |
|
|
|
(11 |
)% |
|
$ |
66,625 |
|
| |
Maintenance
|
|
|
80,240 |
|
|
|
13 |
% |
|
|
71,111 |
|
|
|
24 |
% |
|
|
57,570 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product revenues
|
|
|
139,451 |
|
|
|
7 |
% |
|
|
130,394 |
|
|
|
5 |
% |
|
|
124,195 |
|
|
Service revenues
|
|
|
77,423 |
|
|
|
1 |
% |
|
|
77,025 |
|
|
|
(19 |
)% |
|
|
95,260 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenues
|
|
|
216,874 |
|
|
|
5 |
% |
|
|
207,419 |
|
|
|
(5 |
)% |
|
|
219,455 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
|
2,191 |
|
|
|
67 |
% |
|
|
1,315 |
|
|
|
(35 |
)% |
|
|
2,035 |
|
|
Amortization of acquired software technology
|
|
|
5,158 |
|
|
|
14 |
% |
|
|
4,518 |
|
|
|
6 |
% |
|
|
4,247 |
|
|
Maintenance services
|
|
|
19,975 |
|
|
|
15 |
% |
|
|
17,373 |
|
|
|
22 |
% |
|
|
14,292 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product revenues
|
|
|
27,324 |
|
|
|
18 |
% |
|
|
23,206 |
|
|
|
13 |
% |
|
|
20,574 |
|
|
Service revenues
|
|
|
59,401 |
|
|
|
(9 |
)% |
|
|
65,091 |
|
|
|
(9 |
)% |
|
|
71,489 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cost of revenues
|
|
|
86,725 |
|
|
|
(2 |
)% |
|
|
88,297 |
|
|
|
(4 |
)% |
|
|
92,063 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
130,149 |
|
|
|
9 |
% |
|
|
119,122 |
|
|
|
(6 |
)% |
|
|
127,392 |
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
|
52,800 |
|
|
|
9 |
% |
|
|
48,529 |
|
|
|
16 |
% |
|
|
41,819 |
|
|
Sales and marketing
|
|
|
45,608 |
|
|
|
10 |
% |
|
|
41,612 |
|
|
|
4 |
% |
|
|
39,941 |
|
|
General and administrative
|
|
|
24,922 |
|
|
|
6 |
% |
|
|
23,473 |
|
|
|
(13 |
)% |
|
|
26,978 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
123,330 |
|
|
|
9 |
% |
|
|
113,614 |
|
|
|
4 |
% |
|
|
108,738 |
|
|
Amortization of intangibles
|
|
|
3,388 |
|
|
|
10 |
% |
|
|
3,067 |
|
|
|
8 |
% |
|
|
2,849 |
|
|
Operating income (loss)
|
|
$ |
(3,774 |
) |
|
|
(393 |
)% |
|
$ |
1,286 |
|
|
|
(84 |
)% |
|
$ |
8,266 |
|
|
Cost of Revenues as a % of related revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
|
4% |
|
|
|
|
|
|
|
2% |
|
|
|
|
|
|
|
3% |
|
|
Maintenance services
|
|
|
25% |
|
|
|
|
|
|
|
24% |
|
|
|
|
|
|
|
25% |
|
| |
Product revenues
|
|
|
20% |
|
|
|
|
|
|
|
18% |
|
|
|
|
|
|
|
17% |
|
|
Service revenues
|
|
|
77% |
|
|
|
|
|
|
|
85% |
|
|
|
|
|
|
|
75% |
|
|
Product Development as a % of product revenues
|
|
|
38% |
|
|
|
|
|
|
|
37% |
|
|
|
|
|
|
|
34% |
|
25
The following tables set forth selected comparative financial
information on revenues in our business segments and
geographical regions, expressed as a percentage change between
2004 and 2003, and between 2003 and 2002. In addition, the
tables set forth the contribution of each business segment and
geographical region to total revenues in 2004, 2003 and 2002,
expressed as a percentage of total revenues:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Retail Enterprise Systems |
|
In-Store Systems |
|
Collaborative Solutions |
| |
|
|
|
|
|
|
| |
|
2004 vs 2003 |
|
2003 vs 2002 |
|
2004 vs 2003 |
|
2003 vs 2002 |
|
2004 vs 2003 |
|
2003 vs 2002 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
|
1 |
% |
|
|
(3 |
)% |
|
|
130 |
% |
|
|
(68 |
)% |
|
|
(17 |
)% |
|
|
(13 |
)% |
|
Maintenance services
|
|
|
13 |
% |
|
|
16 |
% |
|
|
46 |
% |
|
|
(5 |
)% |
|
|
6 |
% |
|
|
48 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product revenues
|
|
|
7 |
% |
|
|
6 |
% |
|
|
72 |
% |
|
|
(41 |
)% |
|
|
(3 |
)% |
|
|
16 |
% |
|
Service revenues
|
|
|
(4 |
)% |
|
|
(14 |
)% |
|
|
9 |
% |
|
|
(50 |
)% |
|
|
21 |
% |
|
|
(5 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenues
|
|
|
3 |
% |
|
|
(3 |
)% |
|
|
34 |
% |
|
|
(47 |
)% |
|
|
1 |
% |
|
|
11 |
% |
|
Product development
|
|
|
2 |
% |
|
|
16 |
% |
|
|
66 |
% |
|
|
(25 |
)% |
|
|
7 |
% |
|
|
44 |
% |
|
Sales and marketing
|
|
|
13 |
% |
|
|
15 |
% |
|
|
94 |
% |
|
|
(12 |
)% |
|
|
(12 |
)% |
|
|
(14 |
)% |
|
Operating income (loss)
|
|
|
13 |
% |
|
|
(39 |
)% |
|
|
(176 |
)% |
|
|
(108 |
)% |
|
|
(1 |
)% |
|
|
7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Retail Enterprise Systems |
|
In-Store Systems |
|
Collaborative Solutions |
| |
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to total revenues
|
|
|
69% |
|
|
|
70% |
|
|
|
69% |
|
|
|
9% |
|
|
|
7% |
|
|
|
12% |
|
|
|
22% |
|
|
|
23% |
|
|
|
19% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
The Americas |
|
Europe |
|
Asia/Pacific |
| |
|
|
|
|
|
|
| |
|
2004 vs 2003 |
|
2003 vs 2002 |
|
2004 vs 2003 |
|
2003 vs 2002 |
|
2004 vs 2003 |
|
2003 vs 2002 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
|
3 |
% |
|
|
4 |
% |
|
|
(4 |
)% |
|
|
(43 |
)% |
|
|
(17 |
)% |
|
|
(7 |
)% |
|
Maintenance services
|
|
|
28 |
% |
|
|
29 |
% |
|
|
1 |
% |
|
|
47 |
% |
|
|
18 |
% |
|
|
30 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product revenues
|
|
|
17 |
% |
|
|
16 |
% |
|
|
— |
% |
|
|
(2 |
)% |
|
|
(2 |
)% |
|
|
6 |
% |
|
Service revenues
|
|
|
21 |
% |
|
|
(32 |
)% |
|
|
(31 |
)% |
|
|
(7 |
)% |
|
|
(15 |
)% |
|
|
8 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total revenues
|
|
|
18 |
% |
|
|
(5 |
)% |
|
|
(12 |
)% |
|
|
(4 |
)% |
|
|
(9 |
)% |
|
|
7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
The Americas |
|
Europe |
|
Asia/Pacific |
| |
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to total revenues
|
|
|
67% |
|
|
|
63% |
|
|
|
64% |
|
|
|
23% |
|
|
|
26% |
|
|
|
26% |
|
|
|
10% |
|
|
|
11% |
|
|
|
10% |
|
Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003
Product revenues increased in 2004 compared to 2003 due to an
increase in maintenance services revenue. Software license
revenues were flat in 2004 compared to 2003 as increases in
In-Store Systems software license revenues were offset by
decreases in sales of Strategic Merchandise Management
Solutions and Merchandise Operations Systems.
Retail Enterprise Systems. The increase in software
license revenues in this business segment in 2004 compared to
2003 resulted primarily from a 3% increase in sales of
Strategic Merchandise Management Solutions, offset in
part by a 5% decrease in sales of Merchandise Operations
Systems. The Retail Enterprise Systems business
segment includes eight new software license deals of
$1.0 million or more in 2004 compared to seven in 2003. In
addition, 2004 includes software revenues from two particularly
large milestone-based transactions involving Merchandise
Operations Systems applications.
In-Store Systems. The increase in software license
revenues in this business segment in 2004 includes incremental
software license revenues from the Timera acquisition in January
2004. Excluding the impact of the incremental Timera revenues,
software license revenues in this business segment increased 45%
in 2004 compared to 2003.
26
Collaborative Solutions. Software license revenues in
this business segment decreased in 2004 compared to 2003 due to
an unusually large Strategic Merchandise Management
Solutions software license sale in 2003. Licenses revenues
for Marketplace Replenishment, our collaborative specific
CPFR solution which is sold on a subscription basis and enables
manufacturers, distributors and retailers to work from a single,
shared demand forecast, increased 46% in 2004 compared to 2003.
Excluding Marketplace Replenishment, software license
revenues in this business segment decreased 24% in 2004 compared
to 2003.
Regional Results. Software license revenues in the
Americas increased in 2004 compared to 2003 due to increases in
software license revenues from Retail Enterprise Systems
and In-Store Systems applications of 8% and 223%,
respectively, offset in part by a 29% decrease in software
license revenues from Collaborative Solutions
applications. The Retail Enterprise Systems software
license revenues in the Americas include eight new software
license deals of $1.0 million or more in 2004 compared to
five in 2003. In addition, the 2004 Retail Enterprise
Systems results in this region include software revenues
from two particularly large milestone-based transactions
involving Merchandise Operations Systems applications.
The increase in In-Store Systems in this region resulted
primarily from incremental software license revenues from the
Timera acquisition in January 2004. Collaborative
Solutions software license revenues in the Americas region
decreased in 2004 compared to 2003 as the results for 2003
included an unusually large Strategic Merchandise Management
Solutions software license sale. Software license revenues
in Europe decreased in 2004 compared to 2003 due to decreases in
software license revenues related to Retail Enterprise
Systems and In-Store Systems of 12% and 84%,
respectively, offset in part by a 16% increase in software
license revenues related to Collaborative Solutions.
Results in the Europe region were impacted by operational issues
and management changes throughout 2004. We appointed a new
Regional Vice President of the Europe region in January 2005.
Software license revenues in Asia/ Pacific decreased in 2004
compared to 2003 primarily due to a 20% decrease software
license revenues related to Retail Enterprise Systems.
In-Store Systems and Collaborative Solutions software
license revenues in this region decreased 6% and 4%,
respectively in 2004 compared to 2003.
Maintenance Services. The increase in maintenance
services revenue includes $2.9 million in incremental
maintenance services revenue, primarily from the Timera, Engage
and Vista acquisitions. Excluding the impact of these
incremental revenues, maintenance services revenues increased 9%
in 2004 compared to 2003, due primarily to increases in the
installed customer base for Strategic Merchandise Management
Solutions.
Service revenues include consulting services, hosting services,
training revenues, net revenues from our hardware reseller
business and reimbursed expenses. Increases in service revenues
for Strategic Merchandise Management Solutions and
In-Store Systems in 2004 compared to 2003 were
substantially offset by a 24% decrease in service revenues for
Merchandise Operations Systems. Demand continues to
remain depressed for implementation services associated with
Merchandise Operations Systems, which typically have
higher implementation requirements, as well as the continued
softness in our software sales performance, particularly in our
international regions. Utilization rates for consulting services
were 43% in 2004 compared to 48% in 2003; however this impact
was mitigated by a 15% increase in average billing rates and an
increase in net revenues from our hardware reseller business.
Net revenues from our hardware reseller business were
$2.6 million in 2004 compared to $1.3 million in 2003.
Fixed bid consulting services work represented 16% of total
consulting services revenue in 2004 compared to 15% in 2003.
Cost of Software Licenses. The increase in cost of
software licenses in 2004 compared to 2003 resulted from the
higher volume of software products sold in 2004 compared to 2003
which incorporate functionality from third party software
providers and require the payment of royalties. In addition,
2004 included a larger number of transactions that involved the
resale of third party software applications.
27
Amortization of Acquired Software Technology. The
increase in amortization of acquired software technology in 2004
compared to 2003 resulted primarily from the amortization of
software technology acquired in the acquisition of Timera.
Cost of Maintenance Services. The increase in cost of
maintenance services in 2004 compared to 2003 resulted primarily
from a 9% increase in average maintenance services headcount,
primarily due to the acquisitions of Vista, Engage and Timera,
annual salary increases and higher travel costs related to
training and customer on-site visits.
The decrease in cost of service revenues in 2004 compared to
2003 resulted primarily from a 10% decrease in average
consulting services headcount, lower incentive compensation
costs and lower travel and training costs, offset in part by
annual salary increases.
The increase in gross profit dollars and gross profit percentage
in 2004 compared to 2003 resulted primarily from the increase in
maintenance services revenue and higher services revenue
margins, offset in part by an increase in the cost of product
revenues that includes higher costs for software licenses and
amortization of acquired software technology.
The increase in service revenue margins in 2004 compared to 2003
resulted primarily from a 15% increase in average billing rates,
lower incentive compensation, and a $1.3 million, or 105%
increase in net revenues from our hardware reseller business,
offset in part by lower utilization rates for consulting
services. Excluding the net revenues from the hardware reseller
business, service margins were 21% in 2004 compared to 14% in
2003.
Operating expenses, excluding amortization of intangibles,
restructuring charges and adjustments to acquisition-related
reserves, loss on impairment of trademark, relocation costs to
consolidate development and client support activities, and gain
on sale of office facility increased 9% in 2004 compared to
2003, and represented 57% and 55% of total revenues in each of
these years, respectively. Operating expenses increased
primarily as a result of the costs to develop, manage, and
integrate the products acquired from Timera, Engage and Vista,
and the migration of the JDA Portfolio to the
Portfolio Enabled solutions based on the .Net platform.
In addition, operating expenses increased due to annual salary
increases, lower funded development activity, and higher
Sarbanes-Oxley compliance costs, offset in part by lower
incentive compensation, a decrease in the use of outside
contractors in our product development activities, lower
occupancy costs and higher capitalized costs associated with our
internal IT efforts. In addition, 2003 operating expenses
included a $509,000 benefit for the favorable resolution of
certain customer and other disputes.
Product Development. The increase in product development
expense in 2004 compared to 2003 includes $4.5 million in
incremental costs added through the acquisitions of Timera,
Engage and Vista which resulted in a 6% increase in average
product development headcount. In addition, product development
costs increased during 2004 due to lower funded development
activity and annual salary increases, offset in part by a
$621,000 decrease in the use of consulting services employees to
supplement the new product development and quality assurance
activities of our internal developers, a $592,000 decrease in
the use of outside contractors and a $548,000 decrease in
incentive compensation.
Sales and Marketing. The increase in sales and marketing
expense in 2004 compared to 2003 includes $708,000 in sales and
marketing costs added through the acquisitions of Timera and
Engage which resulted in a 5% increase in average sales and
marketing headcount, annual salary increases, a $651,000
increase in incentive compensation, and a $465,000 increase in
marketing costs.
General and Administrative. The increase in general and
administrative expenses in 2004 compared to 2003 resulted from a
$1.6 million increase in accounting fees related to
Sarbanes-Oxley compliance costs, a
28
7% increase in average headcount, primarily to support our
internal information technology initiatives and replace outside
contractors, and annual salary increases. These increases were
offset in part by a $1.9 million decrease in occupancy
costs, primarily due a reduction in lease payments resulting
from the purchase of our corporate office facility in February
2004 and lower telephone costs, a decrease in outside
contractors and a $1.1 million increase in capitalized
costs associated with the development of our internal systems,
and a $590,000 decrease in incentive compensation costs. In
addition, 2003 operating expenses included a $509,000 benefit
for the favorable resolution of certain customer and other
disputes.
Amortization of Intangibles. The increase in amortization
of intangibles in 2004 compared to 2003 resulted from the
amortization of customer list intangibles acquired in the
acquisitions of Timera, Engage and Vista.
Restructuring Charge and Adjustments to Acquisition-Related
Reserves. We recorded a $2.7 million restructuring
charge in first quarter 2004 for $1.8 million in one-time
termination benefits related to a workforce reduction of
47 full-time employees (“FTE”), primarily in
sales (15 FTE) and consulting services (18 FTE) functions in the
Americas, Europe and Asia/ Pacific, and $900,000 for closure
costs of certain offices in the Americas and Europe that were
either under-performing or under-utilized and used primarily by
consulting services personnel. All workforce reductions and
office closures associated with this charge were made on or
before March 31, 2004. Subsequent to the initial
restructuring charge, we increased our estimate of employee
severance and termination benefits by $50,000, primarily as a
result of a contested termination in the Americas, and reduced
our estimate of office closure reserve requirements by $58,000
primarily as a result of a favorable settlement of outstanding
lease obligations on a vacated facility in Germany.
We recorded a $3.1 million restructuring charge in fourth
quarter 2004 in connection with our announcement of our
strategic operational plan for 2005 that includes a
consolidation of product lines, a net workforce reduction of
approximately 12% or 157 FTE worldwide, and a reduction of
certain office space. The charge includes $2.8 million in
one-time termination benefits related to the net workforce
reduction that includes certain employees involved in the
product development (82 FTE), consulting services and
training (55 FTE), sales and marketing (18 FTE), and
administrative (16 FTE) functions in the Americas, Europe
and Asia Pacific, offset by a net gain of 14 FTE in the
customer support function resulting from the transfer of 20
developers and functional experts into the new Customer Directed
Development (“CDD”) organization structure within our
Customer Support Solutions group. The CDD group is
responsible for improving the speed and efficiency of the
Company’s issue resolution, support and enhancements for
maintenance customers. Through December 31, 2004,
110 FTE have been terminated or open positions eliminated
under this plan. The remaining employees affected by this
workforce reduction have been notified and are on various forms
of stay put agreements that expire gradually over the first and
second quarters of 2005. The fourth quarter 2004 charge also
includes $340,000 for reduction of office space related
primarily to the negotiated buyout or net rentals remaining
under existing operating leases on certain facilities in
Northern Europe that were vacated by December 31, 2004. JDA
anticipates that it will take an additional restructuring charge
of approximately $1.8 million to $2.0 million in the
first half of 2005 to complete the plan.
During 2004, we increased the reserves recorded in connection
with the acquisition of E3 Corporation by $341,000 to fully
reserve the remaining lease payments on vacated office space.
The real estate market in which this facility is located
continues to be depressed, and it appears unlikely that a tenant
will be found to sublease the available space during the
remaining term of the lease which extends through February 2006.
Loss on Impairment of Trademarks. We recorded a
$1.1 million impairment loss during fourth quarter 2004 on
trademarks acquired from E3. The impairment loss resulted
primarily from the lower software revenue forecast used by the
Company in the 2004 valuation compared to 2003, and a more
conservative annual growth rate. The impairment loss has been
allocated to the Retail Enterprise Systems ($850,000) and
Collaborative Solutions ($250,000) reporting units based
on the initial allocation percentage used for these trademarks
at the date of acquisition.
Relocation Costs to Consolidate Development and Client
Support Activities. Approximately 150 people were
offered the opportunity to relocate to Scottsdale, Arizona as
part of the 2002 CVP initiative to consolidate development and
client support activities at our corporate headquarters. We
relocated 50 employ-
29
ees as part of this initiative and have recorded over
$2.2 million in related relocation costs in income from
continuing operations as incurred, including $1.8 million
during 2003.
Gain on Sale of Office Facility. We recorded a $639,000
gain in second quarter 2003 on the sale of an excess office
facility in the United Kingdom.
Operating Income
(Loss)
We incurred an operating loss of $3.8 million in 2004
compared to operating income of $1.3 million in 2003. The
operating loss in 2004 resulted primarily from the 9% increase
in operating expenses, $6.1 million in restructuring
charges and adjustments to acquisition-related reserves, and the
$1.1 million loss on impairment of trademark, offset in
part by a $10.7 million increase in gross profit which
resulted primarily from the 5% increase in total revenues which
included $4.0 million in incremental revenues from the
Timera acquisition.
Operating income in our Retail Enterprise Systems
business segment increased $2.3 million to
$20.4 million in 2004 compared to $18.1 million in
2003. The increase in operating income in this business segment
resulted from a $4.1 million increase in total revenues and
an increase in service margins, offset in part by a 16% increase
in the cost of maintenance services, a 13% increase in allocated
sales and marketing costs, and a 2% increase in product
development costs.
The operating loss in our In-Store Systems business
segment increased $595,000 to $933,000 in 2004 compared to
$338,000 in 2003. The increase in the operating loss in this
business segment results from a 66% increase in product
development costs, due primarily to the acquisition of Timera,
and a higher allocation of sales and marketing costs based upon
the pro rata share of software sales that came from this
business segment, offset in part by a $4.7 million increase
in total revenues.
Operating income in our Collaborative Solutions business
segment was $11.1 million in 2004 which is flat compared to
2003. A $607,000 increase in total revenues, together with a 12%
decrease in allocated sales and marketing costs, were
substantially offset by an 8% increase in the cost of service
revenues, and a 7% increase in product development costs to
support acquired products and migrate our current products to
the Portfolio Enabled solutions based on the .Net
platform.
Net Gain on Acquisition
Breakup Fee
On September 2, 2004, QRS Corporation
(“QRS”) exercised their right to terminate our
Agreement and Plan of Merger dated June 17, 2004
(“Merger Agreement”) in order to accept a superior
proposal from an unrelated third party. Pursuant to the terms of
the Merger Agreement, we received a $3.8 million
termination fee from QRS on September 3, 2004. The
termination fee is reported net of $2.6 million of direct
costs incurred by the Company related to the terminated
acquisition.
Income Tax Provision
(Benefit)
We recorded an income tax benefit of $2.5 million in 2004
compared to an income tax benefit of $17,000 in 2003. The income
tax benefit in 2004 includes $2.2 million in one-time tax
benefits. We revised certain estimates upon the filing of our
2003 federal income tax return primarily due to our decision to
capitalize certain research and development costs for tax
purposes in the 2003 return. These revisions increased our
foreign source income which allowed us to utilize foreign tax
credits that we were previously unable to take as a credit. We
also settled an Internal Revenue Service audit of our 2000 and
2001 federal income tax returns which allowed us to take
additional foreign tax credits for the 2000 and 2001 tax years.
The revision of estimates upon filing our 2003 federal income
tax return and the settlement of the 2000 and 2001 IRS audit
allowed us to reduce our valuation allowance on our foreign tax
credit carryover to zero resulting in a one-time tax benefit of
$1.5 million. We also realized a one-time benefit of
$329,000 from the settlement of an Internal Revenue Service
audit of our 1998 and 1999 federal income tax returns that
included an agreement with the IRS to allow the Company to take
a research and development expense tax credit for most of the
qualifying expenses originally reported in these returns. In
addition, we reached a favorable agreement with Inland Revenue
in the United Kingdom on an income tax issue that resulted in a
one-time tax benefit of $200,000,
30
and recorded a one-time income tax benefit of $200,000 which
resulted primarily from differences between the prior year tax
provision and the filing of the 2003 federal income tax return.
The effective income tax benefit rate for 2004, excluding the
effect of the $2.2 million in one-time tax benefits, is a
benefit of $296,000, or 67% of the reported loss before income
taxes.
The income tax benefit for 2003 includes a one-time tax benefit
of $938,000. In 2002, we established a valuation allowance of
$3.5 million for foreign tax credit carryovers due to our
excess credit position, $1.1 million of which was recorded
to additional paid-in capital. We subsequently elected in third
quarter 2003 to capitalize a significant portion of our research
and development costs in the 2002 federal income tax return,
which allowed us to more fully utilize certain tax credits that
could not previously be realized. With this election, we
reversed $2.3 million of the previously recorded valuation
allowance, which resulted in the one-time tax benefit of
$938,000, an increase to additional paid-in capital of
$1.1 million, and an increase in income taxes payable of
$262,000. The effective income tax rate for 2003, excluding the
effect of the $938,000 one-time tax benefit, is 35% of the
reported income before taxes.
The income tax benefits recorded during 2004 and 2003 take into
account the source of taxable income, domestically by state and
internationally by country, and available income tax credits,
and do not include the tax benefits realized from the employee
stock options exercised during these years of $126,000 and
$777,000, respectively. These tax benefits reduce our income tax
liabilities and are included as an increase to additional
paid-in capital.
Year Ended December 31, 2003 Compared to Year Ended
December 31, 2002
Product Revenues
Product revenues increased in 2003 compared to 2002 due to an
increase in maintenance services revenues, offset in part by
decreases in software license revenues from sales of In-Store
Systems, Merchandise Operations Systems and Strategic
Merchandise Management Solutions.
Retail Enterprise Systems. The decrease in software
license revenues in this business segment in 2003 compared to
2002 results primarily from a decrease in sales of
Merchandise Operations Systems, offset in part by an
increase in sales of Strategic Merchandise Management
Solutions. We believe this business segment was negatively
impacted in the first half of 2003 by the disruption caused by
our reorganization under the CVP, the elongation of sales cycles
due to heightened risk aversion by retailers for larger IT
expenditures, and worldwide concerns about the economy and the
war in Iraq which disrupted IT spending patterns.
In-Store Systems. Software license revenues in this
business segment decreased in 2003 compared to 2002. We believe
this business segment was negatively impacted by a major
platform transition, as market demand moved from Window-based
point-of-sale applications to Java-based point-of-sale
applications. We commercially released our PPOS
Java-based point-of-sale application in second quarter 2003
and as a result this new platform was in the early adopter phase
throughout 2003. We supplemented this business segment with the
acquisition of Timera in January 2004.
Collaborative Solutions. Software license revenues in
this business segment decreased in 2003 compared to 2002.
Although we experienced a decline in initial license fees in
this business segment in 2003, we began selling subscriptions on
certain of our CPFR solutions and our subscription customer base
increased to approximately 200 trading partners at
December 31, 2003 compared to 136 at December 31, 2002.
Regional Results. Software license revenues in the
Americas increased in 2003 compared to 2002 due to a 20%
increase in Retail Enterprise Systems software license
revenues, which was offset in part by decreases in software
license revenues related to In-Store Systems and
Collaborative Solutions applications of 58% and 15%,
respectively. Software license revenues in Europe decreased in
2003 compared to 2002 due to decreases in software license
revenues related to Retail Enterprise Systems, In-Store
Systems, and Collaborative Solutions applications of
48%, 89%, and 6%, respectively. Results in the Europe region
were impacted by weak economic conditions, operational issues
and the departure of the regional vice president in fourth
quarter 2003.
31
Software license revenues in Asia/ Pacific decreased in 2003
compared to 2002 due to decreases in software license revenues
related to In-Store Systems and Collaborative
Solutions applications of 57% and 6%, respectively, offset
in part by a 4% increase in Retail Enterprise Systems
software license revenues. The Asia/ Pacific region was impacted
by a slow economic recovery and the SARS outbreak in early 2003.
Maintenance Services. The increase in maintenance
services revenue in 2003 compared to 2002 is primarily due to
increases in the customer base for Strategic Merchandise
Management Solutions in our Retail Enterprise Systems
and Collaborative Solutions business segments. The
increase also includes $752,000 and $908,000 in incremental
maintenance services revenue from the Vista and Engage
acquisitions, respectively. Maintenance services revenue
decreased in our In-Store Systems business segment due to
attrition that we believe results from the transitional period
surrounding the introduction and acceptance of PPOS, our
Java-based point-of-sale application. Many of our In-Store
Systems customers have developed their own internal support
teams. We believe a portion of these customers opted to
discontinue maintenance and remain on their existing systems in
the near term, rather than incur potentially large system
upgrade, training and hardware costs at this time.
Service Revenues
Service revenues include consulting services, hosting services,
training revenues, net revenues from our hardware reseller
business, and reimbursed expenses. The decrease in 2003 compared
to 2002 resulted primarily from a decrease in demand for the
implementation of Merchandise Operations Systems and
In-Store Systems which typically have higher
implementation requirements than our Strategic Merchandise
Management Solutions. Net revenues from our hardware reseller
business were $1.3 million in 2003 compared to
$1.2 million in 2002.
Fixed bid consulting services work represented 15% of total
consulting services revenue in 2003, compared to 13% in 2002.
Cost of Software Licenses. The decrease in cost of
software licenses in 2003 compared to 2002 resulted from the
lower volume of software products sold in 2003 that incorporate
functionality from third party software providers and require
the payment of royalties.
Amortization of Acquired Software Technology. The
increase in amortization of acquired software technology in 2003
compared to 2002 resulted from the amortization of software
technology acquired in the acquisitions of Vista and Engage
during 2003.
Cost of Maintenance Services. The increase in cost of
maintenance services in 2003 compared to 2002 resulted primarily
from a 7% increase in average maintenance services headcount to
support our growing customer base, and increased salaries,
benefits and incentive compensation, travel and training costs
per employee.
The decrease in cost of service revenues in 2003 compared to
2002 resulted primarily from a 17% decrease in average
consulting services headcount, a $3.2 million decrease in
employee costs in 2003 compared 2002 related to consulting
services employees who were used to supplement new product
development and quality assurance activities, and to assist with
business development and client support activities under the
CVP, and a $1.3 million decrease in occupancy costs. These
decreases were offset in part by salary increases, and higher
benefits and incentive compensation.
The decrease in gross profit dollars in 2003 compared to 2002
resulted primarily from decreases in software license and
service revenues of 11% and 19%, respectively, offset in part by
a 24% increase in
32
maintenance services revenue. Software licenses and maintenance
services revenue have substantially higher margins than service
revenues.
The decrease in service revenue margins in 2003 compared to 2002
resulted from decreased utilization and the resulting lower
service revenues, as well as a change in our incentive
compensation programs for services personnel that related
incentive compensation in part to software license revenue
sales. The effect of lower service revenues and higher incentive
compensation on our service margins was offset in part by a 17%
decrease in average consulting services headcount, a
$3.2 million decrease in employee costs in 2003 compared
2002 related to consulting services employees who were used to
supplement new product development and quality assurance
activities, and to assist with business development and client
support activities under the CVP, and a $1.3 million
decrease in occupancy costs. We implemented programs to improve
our service revenue margins in 2004, including revisions to the
incentive compensation programs, increased billing rates on new
consulting engagements, and restructuring the way we deliver our
consulting services in order to leverage web-based technology
and enhance productivity.
Operating expenses, excluding amortization of intangibles,
relocation costs to consolidate development and support
activities, restructuring charges and adjustments to
acquisition-related reserves, purchased in-process research and
development, and gain on sale of office facility, increased 4%
in 2003 compared to 2002, and represented 55% and 50% of total
revenues in each of these years, respectively. Operating
expenses increased primarily as a result of our investment in
product development related to the acquisitions of Vista and
Engage and to migrate the JDA Portfolio to the
Portfolio Enabled solutions based on the .Net platform
and to introduce our PPOS Java-based point-of-sale
application. In addition, we incurred increases in salaries,
health insurance benefit costs and incentive compensation per
employee in 2003, and $1.1 million higher D&O insurance
premiums. These increases were offset in part by a
$2.4 million lower provision for doubtful accounts, a
$1.1 million favorable swing in customer dispute activity
and decreases in occupancy, marketing, legal, accounting and
investor relation costs.
Product Development. The increase in product development
expense in 2003 compared to 2002 resulted primarily from
increases in average headcount, annual salary increases, and
higher incentive compensation costs for full-time employees
involved in the ongoing development of a series of enhancements
to the JDA Portfolio products based upon the .Net
Platform, higher outside contractor costs, and product
development employees added through the acquisitions of Vista
and Engage. The migration of the JDA Portfolio to the
Portfolio Enabled solutions based on the .Net platform is
a significant investment by the Company as we are building our
next generation of products, while at the same time, we continue
development efforts on our existing products and complete the
integration of acquired products. In addition, product
development expenses increased $1.3 million in 2003
compared to 2002 due to the use of consulting services employees
to supplement the new product development and quality assurance
activities of our internal developers.
Sales and Marketing. The increase in sales and marketing
expense in 2003 compared to 2002 resulted primarily from higher
commissions and a $1.6 million increase in costs for
consulting services employees who assisted with business
development activities under the CVP, offset in part by a
decrease in marketing costs.
General and Administrative. The decrease in general and
administrative expenses in 2003 compared to 2002 resulted
primarily from a $2.4 million lower provision for doubtful
accounts, decreases in legal, accounting and investor relation
costs, and a $1.1 million favorable swing in customer
dispute activity, offset in part by higher D&O insurance
premiums, and increases in annual salaries, benefits and
incentive compensation.
Amortization of Intangibles. The increase in amortization
of intangibles in 2003 compared to 2002 resulted from the
amortization of customer list intangibles acquired in the
acquisitions of Vista and Engage during 2003.
Restructuring Charge and Adjustments to Acquisition-Related
Reserves. We recorded a $1.3 million restructuring
charge in second quarter 2002 for one-time termination benefits
related to a workforce reduction
33
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. In fourth quarter
2002, we recorded another restructuring charge of
$5.0 million for $3.9 million in one-time termination
benefits and $1.1 million for office closure costs
associated with the reorganization of the Company to implement
the CVP initiative. All employees potentially impacted by this
reorganization initiative 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 America, and European offices that were either
under-performing or became redundant with the relocation
initiatives.
Relocation Costs to Consolidate Development and Client
Support Activities. Approximately 150 people were offered
the opportunity to relocate to Scottsdale, Arizona as part of
the 2002 CVP initiative to consolidate development and client
support activities at our corporate headquarters. We have
relocated 50 employees as part of this initiative and have
recorded over $2.2 million in related relocation costs in
income from continuing operation as incurred, including
$1.8 million and $452,000 in 2003 and 2002, respectively.
Purchased In-process Research and Development. We
expensed $800,000 of purchased in-process research and
development in 2002 in connection with the acquisition of
J•Commerce in April 2002.
Gain on Sale of Office Facility. We realized a $639,000
gain in second quarter 2003 on the sale of an excess office
facility in the United Kingdom.
Operating income was $1.3 million in 2003 compared to
operating income of $8.3 million in 2002. The decrease in
operating income resulted primarily from decreases in software
licenses and service revenues of 11% and 19%, respectively in
2003 compared to 2002, a $6.7 million increase in product
development costs, and higher incentive compensation, offset in
part by a 24% increase in maintenance services revenue, a
$2.4 million lower bad debt provision, 115 or 8% fewer
average full-time employees, $4.9 million lower
restructuring and relocation costs, and a $639,000 gain on the
sale of an excess office facility.
Operating income in our Retail Enterprise Systems
business segment decreased $11.7 million to
$18.1 million in 2003 from $29.8 million in 2002. The
decrease resulted primarily from a decrease in software license
revenues, lower service revenues and margins, an increase in
product development costs due to development activities on the
Portfolio Enabled solutions based on the .Net platform
and new releases of our Strategic Merchandise Management
Solutions, and an increase in sales and marketing costs,
primarily as a result of higher commissions, offset in part by
an increase in maintenance services revenue.
We incurred an operating loss of $338,000 in our In-Store
Systems business segment in 2003 compared to operating
income of $5.3 million in 2002. The decrease resulted from
lower product and services revenues in this business segment in
2003 compared to 2002, offset in part by headcount reductions in
consulting services, a reduced investment in product
development, and lower sales commissions.
Operating income in our Collaborative Solutions business
segment increased $724,000 to $11.2 million in 2003 from
$10.5 million in 2002. The increase resulted primarily from
an increase in maintenance services revenue due to an increased
customer base, and a decrease in sales and marketing costs,
offset in part by lower software license and services revenue,
and an increase in product development headcount to support the
development activities on the .Net platform and new product
initiatives for the future growth of this business segment.
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Income Tax Provision (Benefit) |
We recorded an income tax benefit of $17,000 million in
2003 compared to a provision for income taxes of
$1.0 million in 2002. The income tax benefit for 2003
included a one-time tax benefit of $938,000. In 2002, we
established a valuation allowance of $3.5 million for
foreign tax credit carryovers due to our excess credit position,
$1.1 million of which was recorded to additional paid-in
capital. We subsequently elected in third quarter 2003 to
capitalize a significant portion of our research and development
costs in the 2002 federal income tax return, which allowed us to
more fully utilize certain tax credits that could not previously
be
34
realized. With this election, we reversed $2.3 million of
the previously recorded valuation allowance, which resulted in
the one-time tax benefit of $938,000, an increase to additional
paid-in capital of $1.1 million, and an increase in income
taxes payable of $262,000. The effective income tax rate for
2003, excluding the effect of the $938,000 one-time tax benefit,
is $921,000 or 35% or the reported income before taxes.
The provision for income taxes in 2002 includes
$1.9 million in one-time tax benefits related primarily to
the resolution of an audit by the Inland Revenue of our United
Kingdom subsidiaries for the years 1997 through 2000, and the
settlement in the United States of an income tax examination by
the Internal Revenue Service of our 1998 and 1999 federal income
tax returns. Under the settlement, the Internal Revenue Service
agreed to allow the Company to take a research and development
expense tax credit for most of the qualifying expenses
originally reported in the 1998 and 1999 federal income tax
returns. However, the Internal Revenue Service advised that they
would not issue a refund check until they completed a subsequent
audit of our 2000 and 2001 federal income tax returns. The audit
of the 2000 and 2001 federal income tax returns was completed in
the second quarter of 2004 and a refund check for $511,000 was
received. The effective income tax rate for 2002, excluding the
effect of the $1.9 million one-time tax benefits, is 35.5%
of the reported income before taxes.
The provisions for 2003 and 2002 take into account the source of
taxable income, domestically by state and internationally by
country, and available income tax credits. The provisions for
2003 and 2002 do not include the tax benefits realized from the
employee stock options exercised during these years of $777,000
and $5.8 million (net of a $1.0 million valuation
allowance), respectively. These tax benefits reduce our income
tax liabilities and are included as an increase to additional
paid-in capital.
Liquidity and Capital Resources
We had working capital of $94.8 million at
December 31, 2004 compared to $126.0 million at
December 31, 2003. Cash and marketable securities at
December 31, 2004 were $97.1 million, a decrease of
$17.6 million from the $114.7 million reported at
December 31, 2003. The decrease in working capital, and our
cash and marketable securities balances during 2004 resulted
primarily from the purchase of our corporate office facility for
$23.8 million and the acquisition of Timera for
$13.6 million. These two purchases utilized approximately
33% of our December 31, 2003 cash and marketable securities
balances.
Net accounts receivable were $39.5 million, or 62 days
sales outstanding (“DSOs”) at December 31, 2004
compared to $40.2 million, or 65 days sales
outstanding (“DSOs”) at December 31, 2003. DSOs
may fluctuate significantly on a quarterly basis due to a number
of factors including seasonality, shifts in customer buying
patterns, the timing of annual maintenance renewals, lengthened
contractual payment terms in response to competitive pressures,
the underlying mix of products and services, and the geographic
concentration of revenues. The collection of accounts receivable
continues to be an area of focus and we consistently apply our
credit authorization procedures.
Operating activities provided cash of $24.8 million
in 2004 and $19.8 million in 2003. The principle sources of
our cash flow from operations are net income adjusted for
depreciation and amortization, collections on accounts
receivable, and increases in deferred maintenance revenue which
result from support services billings to a larger install base.
In addition, cash flow from operations increased in 2004 due to
a $2.1 million increase in accrued expenses and other
current liabilities which resulted primarily from the
restructuring charges taken during 2004. Conversely, cash flow
from operations decreased in 2003 due to a $3.8 million
decrease in accrued expenses and other current liabilities that
resulted from the payment of restructuring charges accrued in
2002 in connection with the CVP restructuring initiative. Cash
flow from operations in 2004 was also positively impacted by the
$1.1 million loss on the impairment of the trademarks we
acquired from E3 and reduced by the $1.2 million net gain
on the QRS acquisition breakup fee. Although there was
considerable activity in our tax accounts, including one-time
benefits in 2004 and 2003 of $2.2 million and $938,000,
respectively, the overall impact of changes in these accounts
only had the effect of decreasing cash flow from operations by
an additional $323,000 in 2004 compared to 2003.
Investing activities utilized cash of $28.5 million
in 2004 and $22.8 million in 2003. Cash utilized by
investing activities in 2004 included $23.8 million in cash
expended to purchase our corporate office facility,
35
$13.6 million in cash expended to acquire Timera, and
$12.1 million in other capital expenditures including
approximately $5.3 million in costs related to the
implementation of a new enterprise-wide financial management
system and other internal IT initiatives. Cash utilized by
investing activities in 2003 included $10.4 million in
capital expenditures, including approximately $2.2 million
in costs related to the implementation of a new enterprise-wide
customer support system, $4.0 million in cash expended to
acquire Vista and $3.3 million in cash expended to acquire
Engage, offset in part by $2.0 million in proceeds from the
disposal of property and equipment, primarily from the sale of
an excess office facility in the United Kingdom. All other
variances between 2004 and 2003 are due to normal maturing and
reinvesting of marketable securities.
Financing activities provided cash of $1.7 million
in 2004 and $6.8 million in 2003. The activity in both
periods includes proceeds from the issuance of common stock
under our stock option plans. Proceeds from the issuance of
common stock under our stock option plans decreased
$1.9 million in 2004 compared to 2003 as approximately 52%
fewer options were exercised and the average market price of our
stock trended down in 2004. In addition, we received
$4.1 million in proceeds from the issuance of stock under
our 1999 Employee Stock Purchase Plan (“1999 Purchase
Plan”) in 2003. This source of cash did not recur in 2004
as we terminated the 1999 Purchase Plan in August 2003.
Financing activities in 2003 also include the repurchase of
75,000 shares of our common stock for $757,000 under a
stock repurchase program authorized by our Board of Directors
that expired in July 2003.
Changes in the currency exchange rates of our foreign
operations had the effect of increasing cash by
$1.4 million in 2004 and $2.6 million in 2003 due to
the continued weakness of the US Dollar against major foreign
currencies including the Euro and the British Pound. We use
derivative financial instruments, primarily forward exchange
contracts, to manage a majority of the short-term foreign
currency exchange exposure associated with foreign currency
denominated assets and liabilities which exist as part of our
ongoing business operations. The exposures relate primarily to
the gain or loss recognized in earnings from the revaluation or
settlement of current foreign denominated assets and
liabilities. We do not enter into derivative financial
instruments for trading or speculative purposes. The forward
exchange contracts generally have maturities of less than
90 days, and are not designated as hedging instruments
under Financial Accounting Standard No. 133, Accounting
for Derivative Instruments and Hedging Activities
(“SFAS No. 133”). Forward exchange
contracts are marked-to-market at the end of each reporting
period, with gains and losses recognized in other income, net,
offset by the gains or losses resulting from the settlement of
the underlying foreign currency denominated assets and
liabilities.
We Intend to Continue to Grow Our Business Through
Acquisitions. We believe there are opportunities to grow our
business through the acquisition of complementary and
synergistic companies, products and technologies. We have
historically looked at cash acquisitions in the $5 million
to $25 million range that could be readily integrated,
accretive to earnings, or which could shorten our time to market
with new technologies. We completed the purchase of Timera in
January 2004 for $13.6 million. We are now focusing our
acquisition strategy on larger companies, particular those that
will increase the breadth of our JDA Portfolio offerings
in the Collaborative Solutions business segment.
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.
Treasury Stock Repurchase Program. On February 15,
2005, our Board of Directors approved a program to repurchase
from time to time at management’s discretion up to one
million shares of the Company’s common stock on the open
market or in private transactions until January 26, 2006 at
prevailing market prices. The program was adopted as part of our
revised approach to equity compensation, which will emphasize
performance-based awards to employees and open market stock
repurchases by the Company designed to mitigate or eliminate
dilution from future employee and director equity-based
incentives. The repurchase of shares under this program will
result in a decrease to our working capital. Through
March 14,
36
2005, we have purchased a total of 157,000 shares of our
common stock for approximately $2.2 million under this
program.
Accelerated Vesting of Options. On February 15,
2005, the Compensation Committee of our Board of Directors (the
“Committee”) approved the immediate vesting of all
unvested stock options previously awarded to employees, officers
and directors. The accelerated options were issued under our
1995 Stock Option Plan, 1996 Stock Option Plan, 1996 Outside
Director Stock Option Plan and 1998 Non-statutory Stock Option
Plan. The closing market price per share of our common stock on
February 15, 2005 was $11.85 and the exercise prices of the
approximately 1.4 million in unvested options on that date
ranged from $8.50 to $28.20. The exercise of vested stock
options would increase our working capital. See Critical
Accounting Policies for additional discussion.
Contractual Obligations. The following summarizes known
contractual obligations under capital and operating leases as of
December 31, 2004:
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Payments Due By Period |
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| Contractual Obligations |
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Total |
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<1 Year |
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1 to 3 Years |
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3 to 5 Years |
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>5 Years |
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(In thousands) |
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Capital lease obligations
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$ |
14 |
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$ |
14 |
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$ |
— |
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$ |
— |
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$ |
— |
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Operating lease obligations
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17,639 |
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5,772 |
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5,590 |
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3,106 |
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3,171 |
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$ |
17,653 |
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$ |
5,786 |
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$ |
5,590 |
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$ |
3,106 |
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$ |
3,171 |
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Capital lease obligations are included in accrued expenses and
other liabilities. Operating lease obligations represent future
minimum lease payments under non-cancelable operating leases
with minimum or remaining lease terms at December 31, 2004.
We lease office space in the Americas for 12 regional sales
and support offices across the United States, Canada and Latin
America, and for 11 international sales and support offices
located in major cities throughout Europe, Asia, Australia, and
Japan. The leases are primarily non-cancelable operating leases
with initial terms ranging from 12 months to
120 months that expire at various dates through the year
2012. None of the leases contain contingent rental payments;
however, certain of the leases contain insignificant scheduled
rent increases and renewal options. We expect that in the normal
course of business some or all of these leases will be renewed
or that suitable additional or alternative space will be
available on commercially reasonable terms as needed. In
addition, we lease various computers, telephone systems,
automobiles, and office equipment under non-cancelable operating
leases with initial terms generally ranging from 24 to
60 months. Certain of the equipment leases contain renewal
options and we expect that in the normal course of business some
or all of these leases will be renewed or replaced by other
leases.
We believe our cash and cash equivalents, investments in
marketable securities, and net cash provided from operations
will provide adequate liquidity to meet our normal operating
requirements for the foreseeable future. A major component of
our positive cash flow is the collection of accounts receivable.
We invest our excess cash in short-term, interest-bearing
instruments that have a low risk of capital loss, such as
U.S. government securities, commercial paper and corporate
bonds, and money market securities. Commercial paper must be
rated “1” by 2 of the 5 nationally recognized
statistical rating organizations. Corporate bonds must be rated
Aa2 or AA or better by Moody’s and S&P, respectively.
Critical Accounting Policies
We have identified the policies below as critical to our
business operations and the understanding of our results of
operations. There have been no changes in our critical
accounting policies during 2004. 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. Actual results could differ from those
estimates.
37
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Revenue recognition. Our revenue recognition policy is
significant because our revenue is a key component of our
results of operations. In addition, our revenue recognition
determines the timing of certain expenses such as commissions
and royalties. We follow specific and detailed guidelines in
measuring revenue; however, certain judgments affect the
application of our revenue policy. |
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We license software primarily under non-cancelable agreements
and provide related services, including consulting, training and
customer support. 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, and Staff Accounting Bulletin No. 104,
Revenue Recognition, that provides further interpretive
guidance for public companies on the recognition, presentation
and disclosure of revenue in financial statements. |
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Software license revenue is generally recognized using the
residual method when: |
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Persuasive evidence of an arrangement exists and a license
agreement has been signed; |
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Delivery, which is typically FOB shipping point, is complete; |
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Fees are fixed and determinable and there are no uncertainties
surrounding product acceptance; |
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Collection is considered probable; and |
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Vendor-specific evidence of fair value (“VSOE”) exists
for all undelivered elements. |
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Our customer arrangements typically contain multiple elements
that include software, options for future purchases of software
products not previously licensed to the customer, maintenance,
consulting and training services. The fees from these
arrangements are allocated to the various elements based on
VSOE. Under the residual method, if an arrangement contains an
undelivered element, the VSOE of the undelivered element is
deferred and the revenue recognized once the element is
delivered. If we are unable to determine VSOE for any
undelivered element included in an arrangement, we will defer
revenue recognition until all elements have been delivered. In
addition, if a software license contains milestones, customer
acceptance criteria or a cancellation right, the software
revenue is recognized upon the achievement of the milestone or
upon the earlier of customer acceptance or the expiration of the
acceptance period or cancellation right. |
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Maintenance services are separately priced and stated in our
arrangements. Maintenance services typically include on-line
support, access to our Solution Centers via telephone and web
interfaces, comprehensive error diagnosis and correction, and
the right to receive unspecified upgrades and enhancements, when
and if we make them generally available. Maintenance services
are generally billed on a monthly basis and recorded as revenue
in the applicable month, or billed on an annual basis with the
revenue initially deferred and recognized ratably over the
maintenance period. VSOE for maintenance services is the price
customers will be required to pay when it is sold separately,
typically the renewal rate. |
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Consulting and training services are separately priced and
stated in our arrangements, are generally available from a
number of suppliers, and are not essential to the functionality
of our software products. Consulting services include project
management, system planning, design and implementation, customer
configurations, and training. These services are generally
billed bi-weekly on an hourly basis or pursuant to the terms of
a fixed price contract. Consulting services revenue billed on an
hourly basis is recognized as the work is performed. Under fixed
price contracts, including milestone-based arrangements,
consulting services revenue is recognized using the percentage
of completion method of accounting described in Statement of
Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, by
relating hours incurred to date to total estimated hours at
completion. Training revenues are included in consulting
revenues in the Company’s consolidated statements of income
and are recognized once the training services are provided. VSOE
for consulting and training services is based upon the hourly or
per class rates charged when those services are sold |
38
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separately. Revenues from our hardware reseller business are
also included in consulting revenues, reported net (i.e., the
amount billed to a customer less the amount paid to the
supplier) pursuant to EITF 99-19, Reporting Revenue Gross as
a Principal versus Net as an Agent, and recognized upon
shipment of the hardware. |
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Customers are reviewed for creditworthiness before we enter into
a new arrangement that provides for software and/or a service
element. We do not sell or ship our software, nor recognize any
license revenue unless we believe that collection is probable.
Payments for our software licenses are typically due 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. |
|
|
|
| |
• |
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.
Customers are reviewed for creditworthiness before we enter into
a new arrangement that provides for software and/or a service
element. We do not sell or ship our software, nor recognize any
license revenue unless we believe that collection is probable in
accordance with the requirements of paragraph 8 in
Statement of Position 97-2, Software Revenue Recognition,
as amended. For those customers who are not credit worthy, we
require prepayment of the software license fee or a letter of
credit before we will ship our software. We have a history of
collecting software payments when they come due without
providing refunds or concessions. Consulting services are
generally billed bi-weekly and maintenance services are billed
annually or monthly. If a customer becomes significantly
delinquent or their credit deteriorates, we put the account 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. We
review each past due account and provide specific reserves based
upon the information we gather from various sources including
our customers, subsequent cash receipts, consulting services
project teams, members of each region’s management, and
credit rating services such as Dun and Bradstreet. Although
infrequent and unpredictable, from time to time certain of our
customers have filed bankruptcy, and we have been required to
refund the pre-petition amounts collected and settle for less
than the face value of their remaining receivable pursuant to a
bankruptcy court order. In these situations, as soon as it
becomes probable that the net realizable value of the receivable
is impaired, we provide reserves on the receivable. In addition,
we monitor economic conditions in the various geographic regions
in which we operate to determine if general reserves or
adjustments to our credit policy in a region are appropriate for
deteriorating conditions that may impact the net realizable
value of our receivables. |
|
|
|
| |
• |
Goodwill and 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 and the
annual impairment tests required by Statement of Financial
Accounting Standard No. 142, Goodwill and Other
Intangible Assets, requires management to make estimates of
future revenues, customer retention rates and other assumptions
that affect our consolidated financial statements. |
|
|
| |
Goodwill is tested annually for impairment by comparing the fair
value of future cash flows under the “Discounted Cash Flow
Method of the Income Approach” to the carrying value of
goodwill allocated to our reporting units. We found no
indication of goodwill impairment in our reporting units in
2004, 2003 or 2002. |
| |
| |
Substantially all of our trademarks were acquired in connection
with the acquisition of E3. Beginning January 1, 2002, we
assigned indefinite useful lives to our trademarks, and ceased
amortization, as we believe there are no legal, regulatory,
contractual, competitive, economic, or other factors that would
limit their useful lives. In addition, we intend to indefinitely
develop next generation products under our trademarks and expect
them to contribute to our cash flows indefinitely. A
$1.1 million impairment loss |
39
|
|
| |
was recorded in fourth quarter 2004 on trademarks that were
acquired from E3. Trademarks are tested annually for impairment
using the “Relief from Royalty Method of the Income
Approach.” The premise of this valuation method is that the
value of an asset can be measured by the present worth of the
net economic benefit (cash receipts less cash outlays) to be
received over the life of the asset and assumes that in lieu of
ownership, a firm would be willing to pay a royalty in order to
exploit the related benefits of this asset class. The impairment
loss resulted primarily from the lower software revenue forecast
used by the Company in the 2004 valuation compared to 2003, and
a more conservative annual growth rate. |
|
|
|
| |
• |
Product Development. The costs to develop new software
products and enhancements to existing software products are
expensed as incurred until technological feasibility has been
established. We consider technological feasibility to have
occurred when all planning, designing, coding and testing have
been completed according to design specifications. Once
technological feasibility is established, any additional costs
would be capitalized. We believe our current process for
developing software is essentially completed concurrent with the
establishment of technological feasibility, and accordingly, no
costs have been capitalized. |
| |
| |
• |
Income Taxes. Deferred tax assets and liabilities are
recorded for the estimated future tax effects of temporary
differences between the tax basis of assets and liabilities and
amounts reported in the consolidated balance sheets, as well as
operating loss and tax credit carry-forwards. We follow specific
and detailed guidelines regarding the recoverability of any tax
assets recorded on the balance sheet and provide 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. In addition, we have not recorded compensation
expense for shares issued under our employee stock purchase
plan. 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 (“APB No. 25”) and
account for stock-based compensation using the intrinsic-value
method, 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, and shares
issued under our employee stock purchase plan, as if the
fair-value method defined in SFAS No. 123 had been
applied. We terminated our 1999 Employee Stock Purchase Plan in
August 2003. |
|
|
| |
Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation —
Transition and Disclosure
(“SFAS No. 148”), which became effective
in 2003, amended SFAS No. 123 to provide alternative
methods of transition to the 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 amended 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. |
| |
| |
The following table presents pro forma disclosures required by
SFAS No. 123 and SFAS No. 148 of net income
(loss) and basic and diluted earnings (loss) per share as if
stock-based compensation expense had been recognized during the
three-year period ended December 31, 2004. The compensation
expense for these periods has been determined under the fair
value method using the Black-Scholes pricing model, and assumes
graded vesting. Stock-based compensation expense for 2003 and
2002 has been adjusted to reflect the revised tax benefit
available for incentive stock options generated |
40
|
|
| |
at the time of exercise. The weighted average Black-Scholes
value per option granted in 2004, 2003 and 2002 was $6.39, $8.83
and $9.10, respectively. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Net income as reported
|
|
$ |
2,009 |
|
|
$ |
2,650 |
|
|
$ |
8,930 |
|
|
Less: stock-based compensation expense, net of related tax
effects
|
|
|
(4,722) |
|
|
|
(7,305 |
) |
|
|
(9,272 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(2,713) |
|
|
$ |
(4,655 |
) |
|
$ |
(342 |
) |
|
Basic earnings per share — as reported
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.32 |
|
|
Diluted earnings per share — as reported
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.31 |
|
|
Basic loss per share — pro forma
|
|
$ |
(.09) |
|
|
$ |
(.16 |
) |
|
$ |
(.01 |
) |
|
Diluted loss per share — pro forma
|
|
$ |
(.09) |
|
|
$ |
(.16 |
) |
|
$ |
(.01 |
) |
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield
|
|
|
0% |
|
|
|
0 |
% |
|
|
0 |
% |
|
Expected stock price volatility
|
|
|
78% to 85% |
|
|
|
90 |
% |
|
|
93 |
% |
|
Risk-free interest rate
|
|
|
2.25% |
|
|
|
2.25 |
% |
|
|
2.25 |
% |
|
Expected life of option
|
|
|
1.29 to 3.49 years |
|
|
|
2.63 to 3.17 years |
|
|
|
2.96 years |
|
|
|
| |
On December 16, 2004, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard
No. 123(R), Share Based Payment
(“SFAS No. 123(R)”) which is a revision of
SFAS No. 123, supersedes APB No. 25 and
SFAS No. 148, and amends Statement of Financial
Accounting Standard No. 95, Statement of Cash Flows
(“SFAS No. 95”). Generally, the approach
in SFAS No. 123(R) is similar to the approach
described in SFAS No. 123; however,
SFAS No. 123(R) requires all share-based payments to
employees, including grants of stock options, to be recognized
in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative.
SFAS No. 123(R) must be adopted no later than
July 1, 2005. |
| |
| |
SFAS No. 123(R) permits public companies to adopt its
requirements using one of two methods: |
|
|
| |
1. A “modified prospective” method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of
SFAS No. 123(R) for all share-based payments granted
after the effective date and (b) based on the requirements
of SFAS No. 123 for all awards granted to employees
prior to the effective date of SFAS No. 123(R) that
remain unvested on the effective date. |
| |
| |
2. A “modified retrospective” method which
includes the requirements of the modified prospective method
described above, but also permits entities to restate based on
the amounts previously recognized under SFAS No. 123
for purposes of pro-forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year
of adoption. |
|
|
| |
We plan to adopt SFAS No. 123(R) on July 1, 2005
using the modified prospective method. |
| |
| |
As permitted by SFAS No. 123, the company currently
accounts for share-based payments to employees using APB
No. 25’s intrinsic value method and, as such,
recognizes no compensation cost for employee stock options.
Accordingly, the adoption of SFAS No. 123(R)’s
fair value method could potentially have a significant impact on
our results of operations, although it will have no impact on
our overall financial position. The impact of adoption of
SFAS No. 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted
in the future. However, had we adopted SFAS No. 123(R)
in prior periods, the impact of that standard would have
approximated the impact of SFAS No. 123 as described
in the disclosure of pro forma net income (loss) and earnings
per share above and in Notes 1 to our consolidated
financial statements. SFAS No. 123(R) also requires
the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow,
rather than as an operating cash flow as required under current
authoritative literature. This requirement will reduce net cash
flows from operating activities in periods after adoption. While
we cannot estimate what those amounts will be in the future
(because this would depend on, among other things, when
employees exercise stock options), the amount of operating cash
flows recognized in prior |
41
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|
| |
periods for such excess tax deductions were $126,000, $777,000
and $5.8 million in 2004, 2003 and 2002, respectively. |
| |
| |
On February 15, 2005, the Compensation Committee of our
Board of Directors (the “Committee”) approved the
immediate vesting of all unvested stock options previously
awarded to employees, officers and directors. The accelerated
options were issued under our 1995 Stock Option Plan, 1996 Stock
Option Plan, 1996 Outside Director Stock Option Plan and 1998
Non-statutory Stock Option Plan. The Committee made the decision
to immediately vest these options based in part on the issuance
of SFAS No. 123(R). The Committee also considered the
reduced level of cash bonuses paid to employees and officers in
2004, the fact that there are no equity awards planned in 2005,
other than for certain new hires, and recognized that the
exercise of any accelerated options would bring cash into the
Company. Absent the acceleration of these options, upon adoption
of SFAS No. 123(R) on July 1, 2005, we would have
been required to recognize approximately $3.7 million in
pre-tax compensation expense from these options over their
remaining vesting terms. By vesting all previously unvested
options, the stock-based compensation expense under
SFAS No. 123 will only be reflected in our footnote
disclosures. Further, we believe the future stock-based
compensation expense to be recorded under
SFAS No. 123(R) related to these options is
significantly reduced and would be immaterial to our financial
results. However, there can be no assurance that these actions
will avoid the recognition of future compensation expense in
connection with these options. |
| |
| |
Employees, officers and directors will benefit from the
accelerated vesting of their stock options in the event they
terminate their employment with or service to the Company prior
to the completion of the original vesting terms as they would
have the ability to exercise certain options that would have
otherwise been forfeited. No stock-based compensation expense
will be recorded with respect to these options unless an
employee, officer or director actually benefits from this
modification. For those employees, officers and directors who do
benefit from the accelerated vesting, we are required to record
additional stock-based compensation expense equal to the
intrinsic value of the option on the date of modification (i.e.,
February 15, 2005). The closing market price per share of
our common stock on February 15, 2005 was $11.85 and the
exercise prices of the approximately 1.4 million in
unvested options on that date ranged from $8.50 to $28.20. Based
on our historical employee turnover rates during the past three
years, we currently estimate the potential additional
stock-based compensation expense we may be required to record
with respect to these options is approximately $45,000. |
|
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|
| |
• |
Derivative Instruments and Hedging Activities. We use
derivative financial instruments, primarily forward exchange
contracts, to manage a majority of the foreign currency exchange
exposure associated with net short-term foreign denominated
assets and liabilities which exist as part of our ongoing
business operations. The exposures relate primarily to the gain
or loss recognized in earnings from the revaluation or
settlement of current foreign denominated assets and
liabilities. We do not enter into derivative financial
instruments for trading or speculative purposes. The forward
exchange contracts generally have maturities of less than
90 days, and are not designated as hedging instruments
under SFAS No. 133. Forward exchange contracts are
marked-to-market at the end of each reporting period, with gains
and losses recognized in other income offset by the gains or
losses resulting from the settlement of the underlying foreign
denominated assets and liabilities. We recorded foreign currency
exchange gains in 2004, 2003 and 2002 of $190,000, $350,000 and
$407,000, respectively. |
Other Recent Accounting Pronouncements
In March 2004, the Financial Accounting Standards Board
(“FASB”) issued Emerging Issues Task Force Issue
No. 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments
(“EITF 03-1”). EITF 03-1 includes new
guidance for evaluating and recording impairment losses on debt
and equity investments, as well as new disclosure requirements
for investments that are deemed to be temporarily impaired. In
September 2004, the FASB issued Staff Position EITF 03-1-1,
which delays the effective date until additional guidance is
issued for the application of the recognition and measurement
provisions of EITF 03-1 to investments in securities that
are impaired. We do not believe the adoption of EITF 03-1
will have a material impact on our financial condition or
results of operations.
42
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 153, Exchanges of Nonmonetary
Assets, an amendment of Accounting Principles Board Opinion
No. 29, Accounting for Nonmonetary Transactions
(“SFAS No. 153”). SFAS No. 153
requires that exchanges of nonmonetary assets are to be measured
based on fair value and eliminates the exception for exchanges
of nonmonetary, similar productive assets, and adds an exemption
for nonmonetary exchanges that do not have commercial substance.
We do not participate in the exchange of nonmonetary assets.
Factors That May Affect Our Future Results or the Market
Price of Our Stock
We operate in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The following section
describes some, but not all, of these risks and uncertainties
that we believe may adversely affect our business, financial
condition or results of operations. This section should be read
in conjunction with the Audited Consolidated Financial
Statements and Notes thereto, and Management’s Discussion
and Analysis of Financial Condition and Results of Operations as
of December 31, 2004 and for the year then ended contained
elsewhere in this Form 10-K.
|
|
|
Regional And/ Or Global Changes in Economic, Political And
Market Conditions Could Cause Decreases in Demand For Our
Software And Related Services Which Could Negatively Affect Our
Revenue And Operating Results And The Market Price of Our
Stock. |
Our revenue and profitability depend on the overall demand for
our software and related services. A regional and/or global
change in the economy and financial markets could result in
delay or cancellation of customer purchases. Historically,
developments associated with terrorist attacks on United
States’ interests, the US war and continued violence in
Iraq, natural catastrophes or contagious diseases such as the
Severe Acute Respiratory Syndrome (“SARS”) have
resulted in economic, political and other uncertainties, and
factors such as these could further adversely affect our revenue
growth and operating results. If demand for our software and
related services decrease, our revenues would decrease and our
operating results would be adversely affected which, in turn,
may cause our stock price to fall.
|
|
|
Our Quarterly 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 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 larger customers; |
| |
| |
• |
Changes in the length and complexity of our sales cycle; |
| |
| |
• |
Competitive pricing pressures and the competitive success or
failure on significant transactions; |
| |
| |
• |
Customer order deferrals resulting from the anticipation of new
products, economic uncertainty, disappointing operating results
by the customer, or otherwise; |
| |
| |
• |
The timing of new software product and technology introductions
and enhancements to our software products or those of our
competitors, and market acceptance of our new software products
and technology; |
| |
| |
• |
Changes in the number, size or timing of new and renewal
maintenance contracts or cancellations; |
| |
| |
• |
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; |
43
|
|
|
| |
• |
Foreign currency exchange rate fluctuations; |
| |
| |
• |
Operational issues resulting from corporate
reorganizations; and |
| |
| |
• |
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. |
We made certain decisions in fourth quarter 2004 regarding our
cost structure and the rate of investment in new product
development for certain purchased software. These decisions
caused us to reduce our analysis of projected cash flows from
certain affected products and required that we record a
$1.1 million impairment loss on the trademarks we acquired
from E3 Corporation. There can be no assurance that any
future decisions we make regarding our cost structure and rate
of investment in new product development will not result in
additional write downs or impairment charges that will adversely
affect our quarterly operating results.
|
|
|
Our Stock Price Has Been And May Remain Volatile. |
The trading price of our common stock has in the past and may in
the future be subject to wide fluctuations. Examples of factors
that we believe have caused fluctuations in our stock price in
the past include the following:
|
|
|
| |
• |
Cancelled or delayed purchasing decisions; |
| |
| |
• |
The millennium change; |
| |
| |
• |
Conversion to the Euro currency; |
| |
| |
• |
External and internal marketing issues; |
| |
| |
• |
Announcements of reduced visibility and increased uncertainty
concerning future demand for our products; |
| |
| |
• |
Increased competition; |
| |
| |
• |
Elongated sales cycles; |
| |
| |
• |
A limited number of reference accounts with implementations in
the early years of product release; |
| |
| |
• |
Certain design and stability issues in early versions of our
products; and |
| |
| |
• |
Lack of desired features and functionality. |
In addition, fluctuations in the price of our common stock may
expose us to the risk of securities class action lawsuits.
Defending against such lawsuits could result in substantial
costs and divert management’s attention and resources.
Furthermore, any settlement or adverse determination of these
lawsuits could subject us to significant liabilities.
|
|
|
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 revenue, our combined gross
margin has fluctuated from quarter to quarter and it may
continue to fluctuate significantly based on revenue mix. Demand
for the implementation of products with longer implementation
timeframes, specifically Merchandise Operations Systems
and In-Store Systems, remains depressed. We believe
that demand continues to be greater for products that have a
higher short term ROI and lower total costs ownership with less
disruption to the underlying business of our customers. As a
result, most of our current implementations are for our
Strategic Merchandise Management Solutions that have
shorter implementation timeframes. The decline in software sales
of Merchandise Operations Systems and In-Store
Systemscontinues to have 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. 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
44
margins will be adversely affected when there is not enough work
to keep our consultants busy. We may face some constraints on
our ability to adjust consulting service headcount and expense
to meet demand, due in part to our need to retain consulting
personnel with sufficient skill sets to implement and maintain
our full set of products.
|
|
|
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. Although our new
“proof of concept” sales model may improve our ability
to predict the timing of certain deals, we expect to experience
continued difficulty in accurately forecasting the timing of
deals. If we receive any significant cancellation or deferral of
customer orders, or 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,
the size of our services organization must be managed to meet
our anticipated software license revenues. We have also made a
strategic decision to make a significant investment in new
product development. 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 Are Dependent Upon the Retail Industry. |
Historically, we have derived over 75% of our revenues from the
license of software products and the performance of related
services to retail customers, and our future growth is
critically dependent on increased sales to retail customers. The
acquisitions of Arthur and Timera extended our product offerings
in the Retail Enterprise Systems and In-Store Systems
segments of our business. The acquisitions of Intactix,
NeoVista Decision Series, E3, Vista, and Engage not only have
expanded our product offerings, but have also provided us with
collaborative applications that address new vertical market
opportunities with the manufacturers and wholesalers who supply
our traditional 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.
We believe the retail industry remains cautious with their level
of investment in information technology during the difficult
economic cycle of the last few years, and the uncertainty
related to the threat of future terrorist attacks and any
continued violence in Iraq. We remain 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 weak
economic conditions or fear of additional terrorists’
attacks and wars persist for an extended period of time. Weak
and uncertain economic conditions
45
have in the past, and may in the future, negatively impact our
revenues, including a potential deterioration of our maintenance
revenue base as customers look to reduce their costs, 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.
Any of these factors could adversely impact our business,
quarterly or annual operating results and financial condition.
We also believe that the retail industry may be consolidating,
and that the industry is currently experiencing increased
competition in certain geographical regions that could
negatively impact the industry and our customers’ ability
to pay for our products and services. Such consolidation has 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.
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There May Be An Increase in Customer Bankruptcies Due to
Weak Economic Conditions. |
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 our international regions,
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 that file for bankruptcy protection in foreign
jurisdictions, in that the application of foreign bankruptcy
laws may be more difficult 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.
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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. A high level of employee mobility and aggressive
recruiting of skilled personnel characterize the software
industry. 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 were 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.
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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 Portfolio Point
of Sale, Portfolio Workforce Management, Portfolio Registry,
Trade Events Management, Portfolio Replenishment Optimization by
E3 and certain modules of Portfolio CRM and
Intellect, have been commercially released within the
last two years. In addition, we have only recently announced our
intentions to develop or acquire a series of business-to-business
46
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.
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We Are Investing Heavily in Re-Writing Many of Our
Products for the Microsoft .Net Platform. |
We are developing a series of enhancements and the next
generation of JDA Portfolio products, Portfolio
Enabled, based upon the .Net Platform that we believe will
position us uniquely in the retail and collaborative solutions
markets. We will continue to offer Portfolio Enabled
applications that operate with other market accepted
platforms such as Oracle and the IBM iSeries and, where
appropriate, Java-based technology. 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. The initial versions of Portfolio Enabled
solutions may not offer all the capabilities of the existing
JDA Portfolio products, however, they will offer the
advantages of an advanced technology platform and as a result,
we believe they will be able to compete effectively against most
of our competitors. We will continue selling the legacy versions
of these products until the functionality of the Portfolio
Enabled solutions is at least equivalent.
At the close of 2004, we were able to begin the process of
transition to our new Portfolio Enabled solutions, and as
a result, we can now start to reduce the “double
investment” in products that we have endured over the past
two years. JDA Portfolio version 2005.1, the fourth
synchronized release of our products, will be released in first
quarter 2005 and will include enhancements to virtually all of
our existing products that will enable them to maintain their
competitive edge. In first quarter 2005, we also plan to begin
releasing the first versions of the new Portfolio Enabled
solutions that will eventually replace most of our existing
products. This has been a significant investment by the Company
as we have been building our next generation of products while
developing JDA Portfolio version 2005.1. 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:
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The possibility that it may be more difficult than we currently
anticipate to develop our products for the .Net Platform,
and we could incur costs in excess of our projections to
complete the planned transition of our product suite; |
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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; |
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The possibility that our .Net Platform beta customers will
not become favorable reference sites; |
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Adequate scalability of the .Net Platform for our largest
customers; |
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The possibility we may not complete the transition to
the .Net Platform in the time frame we currently expect; |
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The ability of our development staff to learn how to efficiently
and effectively develop products using the .Net Platform; |
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Our ability to transition our customer base onto the .Net
Platform when it is available; |
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The possibility that it may take several quarters for our
consulting and support organizations to be fully trained and
proficient on this new technology and as a result, we may
encounter difficulties implementing and supporting new products
or versions of existing products based on the .Net Platform; |
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We may be required to supplement our consulting and support
organizations with .Net proficient resources from our product
development teams to support early .Net implementations which
could impact our development schedule for the release of
additional .Net products; |
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Microsoft’s ability to achieve market acceptance of the
.Net platform; |
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Delays in Microsoft’s ability to commercially release
necessary components for deployment of our applications; and |
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Microsoft’s continued commitment to enhancing and marketing
the .Net platform. |
The risk associated with developing products that utilize new
technologies remains high. Despite our increasing confidence in
this investment and our 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 Portfolio Enabled solutions 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. Moreover,
we cannot assure you that, even if we successfully re-write our
Portfolio Enabled solutions products on the .Net
Platform, that these re-written products will achieve market
acceptance.
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We May Introduce New Lines of Business Where We Are Less
Experienced. |
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.
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There Are Many Risks Associated with International
Operations. |
Our international revenues represented 40% of total revenues in
2004 as compared to 44% and 43% in 2003 and 2002, respectively.
If our international operations grow, we would need to recruit
and hire a number of new consulting, sales and marketing and
support personnel in the countries in which we have or will
establish offices. 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. In
addition, the opening of a new office 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. If we
have to downsize certain international operations, the costs to
do so are typically much higher than downsizing costs in the
United States, particularly in Europe. 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 or contract our international operations in a
timely, cost effective manner.
Our international business operations are subject to risks
associated with international activities, including:
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Currency fluctuations; |
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Higher operating costs due to local laws or regulations; |
48
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Unexpected changes in employment and other regulatory
requirements; |
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Tariffs and other trade barriers; |
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Costs and risks of localizing products for foreign countries; |
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Longer accounts receivable payment cycles in certain countries; |
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Potentially negative tax consequences; |
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Difficulties in staffing and managing geographically disparate
operations; |
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Greater difficulty in safeguarding intellectual property,
licensing and other trade restrictions; |
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Ability to negotiate and have enforced favorable contract
provisions; |
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Repatriation of earnings; |
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The burdens of complying with a wide variety of foreign laws; |
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Anti-American sentiment due to the war with Iraq, and other
American policies that may be unpopular in certain regions; |
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The effects of regional and global infectious diseases such as
SARS; |
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The challenges of finding qualified management for our
international operations; and |
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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. If we expand our
international operations, exposures to gains and losses on
foreign currency transactions may increase. We use derivative
financial instruments, primarily forward exchange contracts, to
manage a majority of the foreign currency exchange exposure
associated with net short-term foreign denominated assets and
liabilities which exist as part of our ongoing business
operations. 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.
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We May Face Difficulties in Our Highly Competitive
Markets. |
We encounter competitive products from a different set of
vendors in each of our primary product categories. We believe
that while our markets are still subject to intense competition,
the number of significant competitors in many of our application
markets has diminished over the past five years. We believe the
principal competitive factors in our markets are feature and
functionality, product reputation and quality of reference
accounts, vendor viability, retail and demand chain industry
expertise, total solution cost, technology platform and quality
of customer support.
Our Retail Enterprise Systems compete primarily with
internally developed systems and other third-party developers
such as AC Nielsen Corporation, Aldata Solutions,
Alphameric PLC, Connect3 Systems, Inc., Evant, Inc., Island
Pacific, Inc., Manugistics Group, Inc., Micro Strategies
Incorporated, NSB Retail Systems PLC, Retek, Inc., SAP AG
and SAS/ Marketmax. In addition, new competitors may enter our
markets and offer merchandise management systems 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 primarily with smaller point-of-sale
focused companies such as CRS Business Computers, Kronos
Incorporated, MICRO Systems, Inc., Radiant Systems, Inc.,
Retalix, Ltd., 360 Commerce, Tomax Technologies,
Triversity, Inc., Workbrain, Inc., and Workplace Systems Interna-
49
tional. We also compete with other broad solution set providers
such as NSB Retail Systems PLC, Retek, Inc., and SAP AG
(Campbell Software Division).
Our current Collaborative Solutions compete primarily
with products from AC Nielsen Corporation, Evant Inc.,
i2 Technologies, Information Resources, Inc., Manugistics
Group, Inc. and SAS/ Marketmax.
In the market for consulting services, we have pursued a
strategy of forming informal working relationships with leading
retail systems integrators such as IBM Global Services, Cap
Gemini Ernst & Young, Kurt Salmon Associates and
Lakewest Consulting. These integrators, as well as independent
consulting firms such as Accenture, AIG Netplex, CFT 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 relationship between Retek, Inc.
and Accenture.
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, Commercialware, Demantra, Inc., Ecometry Corporation,
i2 Technologies, Manugistics Group, Inc., Microsoft, Inc.,
Retek, Inc. and SAP AG.
A few 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.
For example, we have recently encountered competitive situations
with SAP AG where, in order to expedite their entrance into our
markets and to encourage customers to purchase licenses of its
non-retail applications, SAP AG has offered to license at no
charge certain of its retail software applications that compete
with the JDA Portfolio products. In addition, we
could face competition from large, multi-industry technology
companies that have historically not offered an enterprise
solution set to the retail supply chain market. Further, the
enterprise software market is consolidating and this may result
in larger, new competitors with greater financial, technical and
marketing resources than we possess. Such a consolidation could
negatively impact our business. This consolidation trend is
evidenced by SAP AG’s announcement on February 28,
2005 of a cash tender offer to purchase all of Retek,
Inc.’s outstanding shares, which was followed on
March 8, 2005 by a competing cash tender offer from Oracle
Corporation to purchase all of Retek, Inc.’s outstanding
shares. Oracle Corporation does not currently compete with our
retail specific products. It is difficult to estimate what
effect either of these proposed acquisitions, if finalized,
would have on our competitive environment. 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.
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It May Be Difficult to Identify, Adopt and Develop Product
Architecture that is Compatible with Emerging Industry
Standards. |
The markets for our software products are characterized by rapid
technological change, evolving industry standards, changes in
customer requirements and frequent new product introductions and
enhancements. We continuously evaluate new technologies and
implement into our products advanced technology such as our
current .Net Platform effort. However, if we fail in our product
development efforts to accurately address in a timely manner,
evolving industry standards, new technology advancements or
important third-party interfaces or product architectures, sales
of our products and services 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.
50
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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 our business partners
or us, may result in client dissatisfaction, disputes with our
customers, or damage to our reputation.
There is also a risk that it may take several quarters for our
consulting and support organizations to be fully trained and
proficient on the new .Net technology platform and as a result,
we may encounter difficulties implementing and supporting new
products or versions of existing products based on the .Net
Platform. In addition, we may be required to supplement our
consulting and support organizations with .Net proficient
resources from our product development teams to support early
..Net implementations which could impact our development schedule
for the release of additional .Net products. 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. As a result of our
aggressive management of the utilization of our consulting and
support personnel, including recent headcount reductions
undertaken in the fourth quarter of 2004, we face the risk of
constraints in our services offerings in the event of greater
than anticipated licensing activity or more complex
implementation projects.
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We May Not Achieve the Desired Results From Our ePathways
Implementation Methodology. |
We have invested in the development of an ePathways
methodology with the objective of optimizing the delivery of
services related to shorter implementation cycle projects
typically associated with our Portfolio Space Management,
Portfolio Planning and Portfolio Replenishment
applications, and improving our utilization rates. A key
facet of this methodology involves the delivery of services
through the Internet using industry standard technology. There
can be no assurance that the ePathways methodology can be
successfully implemented within our service organization, that
customers will readily accept this method of delivery of our
services, or that our utilization rates will improve. If we are
unsuccessful implementing the ePathways methodology, or
the timeframe for its full roll-out is extended, and our
utilization rates do not improve, our business, operating
results and financial condition would be adversely affected.
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Our Fixed-Price Service Contracts May Result In
Losses. |
We offer a combination of software products, consulting and
maintenance services to our customers. Historically, we have
entered into service agreements with our customers that provide
for consulting services on a “time and expenses”
basis. We believe our competitors may be offering customers
fixed-price service contracts in order to differentiate their
product and service offerings. As a result, we are increasingly
required during negotiations with customers to enter into
fixed-price service contracts which link services payments, and
occasionally software payments, to implementation milestones.
Fixed bid consulting services work represented 16% of total
consulting services revenue in 2004 compared to 15% in 2003. If
we are unable to meet our contractual obligations under
fixed-price contracts within our estimated cost structure, our
operating results could suffer.
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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.
51
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 issued patents, although we do have several
patent applications pending. 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.
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 our current or potential future software solutions or
we 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 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. We may be more vulnerable to patent claims since we
do not have any issued patents that we can assert defensively
against a patent infringement claim. 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.
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If We Lose Access to Critical Third-Party Software or
Technology, Our Costs Could Increase And The Introduction of New
Products And Product Enhancements Could be Delayed, Potentially
Hurting Our Competitive Position. |
We license and integrate technology from third parties in
certain of our software products. For example, we license the
Uniface client/server application development technology from
Compuware, Inc. for use in Portfolio Merchandise
Management, certain applications from Silvon Software, Inc.
for use in Performance Analysis by IDEAS, IBM’s
Net.commerce merchant server software for use in Customer
Order Management, and the Syncsort application for use in
certain of the Portfolio Planning by Arthur products. Our
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, or infringes another parties intellectual
property rights.
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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 third parties or us, and may
involve integration with systems developed by third parties. In
particular, it is common for complex software programs, such as
our UNIX/ Oracle and e-commerce software products, to contain
undetected errors when first released. They
52
are discovered only after the product has been implemented and
used over time with different computer systems and in a variety
of applications and environments. Despite extensive testing, we
have in the past discovered certain defects or errors in our
products or custom configurations only after our software
products have been used by many clients. For example, we will
likely experience undetected errors in our .Net applications as
we begin to implement them for the first time at customer sites.
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 and collaborative solutions that add
functionality for specific business processes to an
enterprise-wide system. If clients experience significant
problems with implementation of our products or are otherwise
dissatisfied with their functionality or performance or if they
fail to achieve market acceptance for any reason, our market
reputation could suffer, and we could be subject to claims for
significant damages. Although our customer agreements contain
limitation of liability clauses and exclude consequential
damages, there can be no assurances that such contract
provisions will be enforced. Any such damages claim could impair
our market reputation and could have a material adverse affect
on our business, operating results and financial condition.
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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 Chairman and Hamish N. J. Brewer our Chief Executive
Officer. We do not have in place “key person” life
insurance policies on any of our employees. The loss of the
services of Mr. Armstrong, Mr. Brewer, or other key
executive officers or employees without a successor in place, or
any difficulties associated with our succession, could
negatively affect our financial performance.
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We May Have Difficulty Integrating Acquisitions. |
We continually evaluate potential acquisitions of complementary
businesses, products and technologies, including those that are
significant in size and scope. In pursuit of our strategy to
acquire complementary products, we have completed nine
acquisitions over the past seven years including the Arthur
Retail Business Unit in June 1998, Intactix International, Inc.
in April 2000, E3 Corporation in September 2001, and
substantially all the assets of Timera Texas, Inc. in January
2004. The E3 acquisition was our largest to date, and involved
the integration of E3’s products and operations in 12
countries. The risks we commonly encounter in acquisitions
include:
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We may have difficulty assimilating the operations and personnel
of the acquired company; |
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• |
The challenge to integrate new products and technologies into
our sales and marketing process, particularly in the case of
smaller acquisitions; |
| |
| |
• |
We may have difficulty effectively integrating the acquired
technologies or products with our current products and
technologies; |
| |
| |
• |
Our ongoing business may be disrupted by transition and
integration issues; |
| |
| |
• |
We may not be able to retain key technical and managerial
personnel from the acquired business; |
| |
| |
• |
We may be unable to achieve the financial and strategic goals
for the acquired and combined businesses; |
53
|
|
|
| |
• |
We may have difficulty in maintaining controls, procedures and
policies during the transition and integration; |
| |
| |
• |
Our relationships with partner companies or third-party
providers of technology or products could be adversely affected; |
| |
| |
• |
Our relationships with employees and customers could be impaired; |
| |
| |
• |
Our due diligence process may fail to identify significant
issues with product quality, product architecture, legal
contingencies, and product development, among other things; |
| |
| |
• |
We may be subject to as a successor, certain liabilities of our
acquisition targets; and |
| |
| |
• |
We may be required to sustain significant exit or impairment
charges if products acquired in business combinations are
unsuccessful. |
|
|
|
Anti-takeover Provisions in Our Organizational Documents
and Stockholders’ Rights Plan and Delaware Law Could
Prevent or Delay a Change in Control. |
Our certificate of incorporation, which authorizes the issuance
of “blank check preferred” stock, our
stockholders’ rights plan which permits our stockholders to
counter takeover attempts, and Delaware state corporate laws
which restrict business combinations between a corporation and
15% or more owners of outstanding voting stock of the
corporation for a three-year period, individually or in
combination, may discourage, delay or prevent a merger or
acquisition that a JDA stockholder may consider favorable.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risks |
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 40% of our total revenues in
2004, as compared to 44% and 43% in 2003 and 2002, respectively.
In addition, the identifiable net assets of our foreign
operations totaled 19% of consolidated net assets at
December 30, 2004, as compared to 20% at December 31,
2003. 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 gains of $2.5 million in 2004 and
$1.5 million in 2003.
Foreign currency gains and losses will continue to result from
fluctuations in the value of the currencies in which we conduct
operations as compared to the U.S. Dollar, and future
operating results will be affected to some extent by gains and
losses from foreign currency exposure. We prepared sensitivity
analyses of our exposures from foreign net working capital as of
December 31, 2004 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 December 31, 2004 rates would result in a
currency translation loss of $1.7 million before tax. We
use derivative financial instruments to manage this risk.
We use derivative financial instruments, primarily forward
exchange contracts, to manage a majority of the foreign currency
exchange exposure associated with net short-term foreign
denominated assets and liabilities which exist as part of our
ongoing business operations. The exposures relate primarily to
the gain or loss recognized in earnings from the revaluation or
settlement of current foreign denominated assets and
liabilities. We do not enter into derivative financial
instruments for trading or speculative purposes. The
54
forward exchange contracts generally have maturities of less
than 90 days, and are not designated as hedging instruments
under SFAS No. 133. Forward exchange contracts are
marked-to-market at the end of each reporting period, with gains
and losses recognized in other income offset by the gains or
losses resulting from the settlement of the underlying foreign
denominated assets and liabilities.
At December 31, 2004, we had forward exchange contracts
with a notional value of $5.8 million and an associated net
forward contract liability of $219,000. At December 31,
2003, we had forward exchange contracts with a notional value of
$10.3 million and an associated net forward contract
liability of $147,000. The net forward contract liabilities are
included in accrued expenses and other liabilities. The notional
value represents the amount of foreign currencies to be
purchased or sold at maturity and does not represent our
exposure on these contracts. We prepared sensitivity analyses of
the impact of changes in foreign currency exchange rates on our
forward exchange contracts at December 31, 2004. Based on
the results of these analyses, a 10% adverse change in all
foreign currency rates from the December 31, 2004 rates
would result in a net forward contract liability of $804,000
that would offset the underlying currency translation loss on
our net foreign assets. We recorded foreign currency exchange
gains in 2004, 2003 and 2002 of $190,000, $350,000 and $407,000,
respectively.
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 that have suffered 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 December 31, 2004 was $20.1 million, which is
approximately the same as amortized cost, with interest rates
generally ranging between 1% and 3%.
|
|
| Item 8. |
Financial Statements and Supplementary Data |
Our consolidated financial statements as of December 31,
2004 and 2003, and for each of the three years in the period
ended December 31, 2004, together with the report of the
independent registered public accounting firm of
Deloitte & Touche LLP, are included in this
Form 10-K as required by Rule 14a-3(b).
|
|
| Item 9. |
Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure — None |
|
|
| Item 9A. |
Controls and Procedures |
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures. Under the supervision and with the
participation of our management, including our principle
executive officer and principle financial officer, we conducted
an evaluation of our disclosure controls and procedures, as such
term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Based on this evaluation, our principle executive
officer and our principle financial officer concluded that our
disclosure controls and procedures were effective as of the end
of the period covered by this annual report to ensure that
information required to be disclosed by us in the reports
submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.
Changes in Internal Controls Over Financial Reporting.
There have been no significant changes in our internal controls
over financial reporting during the period covered by this
annual report, or to our knowledge,
55
in other factors which could materially affect, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Management’s Report on Internal Control Over Financial
Reporting. JDA Software Group, Inc. and subsidiaries is
responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f). Under the supervision and with
the participation of our management, including our principle
executive officer and principle financial officer, we conducted
an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the Internal
Control — Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2004.
Management’s assessment of the effectiveness of our
internal control over financial reporting as of
December 31, 2004 has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their report which is included herein.
|
|
| Item 9B. |
Other Information — None |
56
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of
JDA Software Group, Inc.
Scottsdale, Arizona
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control Over
Financial Reporting, that JDA Software Group, Inc. and
subsidiaries (the “Company”) maintained effective
internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the
effectiveness of the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, management’s assessment that the Company
maintained effective internal control over financial reporting
as of December 31, 2004, is fairly stated, in all material
respects, based on the criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2004, based on the criteria
established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 31, 2004 of the Company and our report dated
March 14, 2005, expressed an unqualified opinion on those
financial statements.
Deloitte & Touche
LLP
Phoenix, Arizona
March 14, 2005
57
PART III
Certain information required by Part III is omitted from
this Form 10-K, as we intend to file our Proxy Statement
pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this Form 10-K,
and certain information included therein is incorporated herein
by reference.
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
Our directors and executive officers, and their ages as of
March 15, 2005, are as follows:
| |
|
|
|
|
|
|
| Name |
|
Age |
|
Title |
| |
|
|
|
|
|
James D. Armstrong
|
|
|
54 |
|
|
Chairman |
|
J. Michael Gullard(1),(3)
|
|
|
60 |
|
|
Director |
|
William C. Keiper(1)
|
|
|
54 |
|
|
Director |
|
Douglas G. Marlin(1),(2),(3)
|
|
|
57 |
|
|
Director |
|
Jock Patton(1),(2),(3)
|
|
|
59 |
|
|
Director |
|
Hamish N. J. Brewer
|
|
|
42 |
|
|
President and Chief Executive Officer |
|
Kristen L. Magnuson
|
|
|
48 |
|
|
Executive Vice President and Chief Financial Officer |
|
G. Michael Bridge
|
|
|
41 |
|
|
Senior Vice President and General Counsel |
|
Peter J. Charness
|
|
|
50 |
|
|
Senior Vice President, Global Marketing and Chief Product Officer |
|
David R. King
|
|
|
60 |
|
|
Senior Vice President, Product Development |
|
Christopher J. Moore
|
|
|
42 |
|
|
Senior Vice President, Customer Support Solutions |
|
David J. Tidmarsh
|
|
|
53 |
|
|
Senior Vice President, Customer Success |
|
Wayne J. Usie
|
|
|
38 |
|
|
Senior Vice President of the Americas |
|
|
| (1) |
Member of the Audit Committee |
| |
| (2) |
Member of the Compensation Committee |
| |
| (3) |
Member of the Nominating and Governance Committee |
Directors:
James D. Armstrong has been a Director since co-founding
our Company in 1985 and currently serves as Chairman of the
Board. Mr. Armstrong also served as Co-Chairman of the
Board from January 1999 to August 2000. Mr. Armstrong
served as our Chief Executive Officer from July 1999 to July
2003, as Co-Chief Executive Officer from January 1999 to July
1999, and as Chief Executive Officer from 1985 to October 1997.
Mr. Armstrong founded JDA Software Services, Ltd., a
Canadian software development company, in 1978 and served as its
President until 1987. Mr. Armstrong studied engineering at
Ryerson Polytechnic Institute in Toronto, Ontario.
J. Michael Gullard has been a Director since January
1999. Mr. Gullard has been the General Partner of
Cornerstone Management, a venture capital and consulting firm
specializing in software and data communications companies since
1984. Mr. Gullard has also served since 1996 as Chairman of
Merant PLC (formerly Micro Focus Group Ltd.), a publicly-held
corporation headquartered in England with extensive operations
in the United States that specializes in change management
software tools, and as Chairman of NetSolve, Incorporated, a
publicly-held corporation which provides IT infrastructure
management services on an out-sourced basis since 1992.
Mr. Gullard is also a director of Celeritek Inc., a
publicly-held company which designs and manufactures gallium
arsenide (GaAs) semiconductor components. Mr. Gullard has
previously served as Chief Executive Officer and Chief Financial
Officer of Telecommunications Technology, Inc. from 1979 to
1984, and held a variety of financial and operational management
positions at Intel Corporation from 1972 to 1979.
Mr. Gullard currently serves as Chairman of Mainsoft Corp.,
a private company and has formerly served as a Director of other
technology companies. Mr. Gullard attended Stanford
University where he received a Bachelor of Arts Degree in
Economics and a Masters Degree from the Graduate School of
Business.
58
William C. Keiper has been a Director since April 1998.
Since 2002, Mr. Keiper has served as Chairman and Chief
Executive Officer of Arrange Technology LLC, a software
development services outsourcing company. Mr. Keiper also
currently serves on the Board of Directors of several technology
companies, including Hypercom Corporation, a NYSE company that
provides point-of-sale card payment systems; Zones, Inc., a
direct catalog marketer of PC-related products and software; and
Smith Micro Software, Inc., a developer of application software
and wireless solutions. Mr. Keiper was an officer and
member of the Board of Directors of Artisoft, Inc., a
publicly-held software company that develops and markets
computer telephony and communications software from 1993 to
1997, serving as Chief Executive Officer from 1993 to 1997, and
as Chairman of the Board from 1995 to 1997. From 1986 to 1993,
Mr. Keiper held a variety of executive positions with
MicroAge, Inc., a publicly-held distributor and integrator
of information technology products and services, including
President and Chief Operating Officer. MicroAge, Inc. was a
Fortune Services 500 company. Mr. Keiper received a
Bachelor of Science Degree in Business (finance major) from
Eastern Illinois University, a Juris Doctorate Degree from
Arizona State University and a Masters Degree in International
Management from the Thunderbird American Graduate School of
International Management.
Douglas G. Marlin has been a Director since May 31,
2001. Mr. Marlin served as President and principal owner of
Marlin Ventures, Inc., a Canadian-based consulting firm, from
1997 to 2000. From 1987 to 1996, Mr. Marlin served as
President of JDA Software Services, Ltd., and from 1981 to 1987
as its Vice President. Prior to that, Mr. Marlin served in
a variety of technical and development positions with IBM from
1973 to 1981. Mr. Marlin currently serves on the Board of
Directors of Zed I Solutions, a Canadian technology company that
develops hardware and software for real time industrial process
monitoring, and Aero-Mechanical Services Ltd, a Canadian
technology company providing Internet-based aircraft monitoring
services. Mr. Marlin also serves as a Director for various
privately-held companies including Firetrace USA, LLP, a fire
suppression technology company. Mr. Marlin attended the
University of Calgary where he received a Bachelor of Science
Degree in Mathematics.
Jock Patton has been a Director since January 26,
1999. Mr. Patton is a private investor and serves as
Chairman of the ING Funds Unified Board, a $40 billion
mutual fund complex. Mr. Patton previously served as Chief
Executive Officer of Rainbow Multimedia Group, Inc., a producer
of digital entertainment, from 1999 to 2001. From 1992 to 1997,
Mr. Patton served as a Director and President of StockVal,
Inc., an SEC registered investment advisor providing securities
analysis software and proprietary data to mutual funds, major
money managers and brokerage firms worldwide. Prior to 1992,
Mr. Patton was a Partner and Director in the law firm of
Streich Land where he founded and headed the Corporate/
Securities Practice Group. Mr. Patton currently serves as
the Lead Director of Swift Transportation Co., the leading full
truckload carrier in the U.S. Mr. Patton has
previously served on the Board of Directors of various public
and private companies, including America West Airlines, Inc.
Mr. Patton holds an A.B. Degree in Political Science and
Juris Doctorate, both from the University of California.
Other Executive Officers:
Hamish N. J. Brewer has served as our President and Chief
Executive Officer since August 2003. Mr. Brewer previously
served as President from March 2001 to July 2003, as Senior Vice
President, Sales from 2000 to March 2001, as Senior Vice
President, Enterprise Systems, from 1999 to 2000, as Senior Vice
President, International during 1998 to 1999, as Director of our
Europe, Middle East and African operations from 1996 to 1998,
and as a Marketing Representative from 1994 to 1996. Prior to
that, Mr. Brewer served as a Retail Marketing Specialist
with IBM from 1986 to 1990, and in various operational positions
with a privately-held retail sales organization located in
England. Mr. Brewer received a Bachelor of Science and a
Bachelor of Commerce Degree from the University of Birmingham in
England.
Kristen L. Magnuson has served as our Executive Vice
President and Chief Financial Officer since March 2001.
Ms. Magnuson previously served as Senior Vice President and
Chief Financial Officer from September 1997 to March 2001. Prior
to that, Ms. Magnuson served as Vice President of Finance
and Planning for Michaels Stores, Inc., a publicly-held arts and
craft retailer from 1990 to 1997, as Senior Vice President and
Controller of MeraBank FSB, an $8 billion financial
institution, from 1987 to 1990, and various positions including
Audit Principal in the audit department of Ernst &
Young from 1978 to 1987. Ms. Magnuson is a
59
Certified Public Accountant and received a Bachelor of Business
Administration Degree in Accounting from the University of
Washington.
G. Michael Bridge has served as our Senior Vice
President and General Counsel since August 2004. Mr. Bridge
previously served as Vice President and General Counsel from
July 1999 to July 2004. Prior to that, Mr. Bridge served as
Corporate Counsel of Vivid Semiconductor, Inc., a privately-held
semiconductor company from 1998 to 1999, as Corporate Counsel of
PictureVision, Inc, a privately-held Internet company from 1997
to 1998, and as Vice President and General Counsel of USAGroup
TRG, a privately-held software company from 1991 to 1997. From
1989 to 1991 Mr. Bridge served as an associate in the
corporate and securities department of Piper & Marbury.
Mr. Bridge’s education includes a Bachelor of Arts
Degree from the University of Southern California, and a Juris
Doctor degree from Cornell University.
Peter J. Charness has served as our Senior Vice
President, Global Marketing and Chief Product Officer since
March 1999. Mr. Charness previously served as our Vice
President of Marketing and Strategy for the JDA Arthur Division
from 1998 to 1999. Prior to that, Mr. Charness served as
Vice President and General Manager of the Retail Division of
Comshare, Inc, a publicly-held software company, from 1996 to
1998, as Vice President, Professional Services of Mitech
Computer Systems, Inc., a publicly-held software company, from
1995 to 1996, and in various management positions including Vice
President Logistics and Technology of Dylex Ltd., a
publicly-held Canadian retail sales company, from 1984 to 1995.
Mr. Charness’ education includes a CEGEP Diploma from
McGill University in Montreal, Quebec, a Bachelor of Arts Degree
from York University in Toronto, Ontario, and a Master of
Business Administration Degree from the University of Western
Ontario.
David R. King has served as our Senior Vice President,
Product Development since January 2004. Mr. King served as
Vice President Product Planning of Geac Computer Corp. Ltd, a
publicly-held Canadian software company, from August 2003 to
December 2003, as Sr. Vice President of Product Development and
Chief Technology Officer of Comshare, Inc., a publicly-held
software company, from 1997 to 2003, and as its Director of
Applied Technology and Research from 1991 to 1997, and in
various management positions including Director, Advanced
Product Design and Development of Execucom Systems Corporation,
a privately-held provider of decision and executive support
systems, from 1983 to 1991. Prior to that, Mr. King was a
full-time faculty member responsible for teaching undergraduate
and graduate courses in statistics, research methods,
mathematical and computer modeling at Old Dominion University,
the University of Maryland, and the University of South
Carolina, from 1969 to 1982. Mr. King currently serves on
the advisory boards for MIS at the University of Georgia and the
International Academy of Advanced Decision Support at the Peter
Kiewit Institute of Technology. In addition, Mr. King has
written over 50 articles and books in the areas of decision
support and business intelligence. Mr. King’s
education includes a Bachelor of Sociology Degree, a Master of
Sociology Degree, and a Ph.D. in Sociology with a minor in
Mathematical Statistics from the University of North Carolina.
Christopher J. Moore has served as our Senior Vice
President, Customer Support Solutions since January 2004.
Mr. Moore previously served as our Vice President, US
Consulting Services from 1999 to 2003, as Vice President, CSG
Operations in 1999, as a Regional Director, CSG from 1997 to
1998, as Associate Consulting Director from 1995 to 1997, as
Senior Implementation Manager from 1994 to 1995, and in various
other programmer, analyst and consulting positions from 1991 to
1993. Prior to that, Mr. Moore served in various management
positions with Vormittag Associates, Inc. a privately-held
software and consulting services distributor, from 1990 to 1991,
Sunrise Software Systems, a privately-held POS hardware and
software distributor, from 1989 to 1990, and Computer Generated
Solutions, a privately-held consulting company, from 1987 to
1989. Mr. Moore attended Polytechnic University and
received a Bachelor of Science degree in Computer Science.
David J. Tidmarsh has served as our Senior Vice
President, Customer Success since January 2004.
Mr. Tidmarsh previously served as our Senior Vice
President, Client Services from January 1999 to December 2003.
Prior to that, Mr. Tidmarsh served as Vice President of
Business Development with HNC Retek, a business unit of HNC
Software Inc., a publicly-held software solutions provider, from
1997 to 1998, as Chief Information Officer and Vice President of
Logistics with Wilsons The Leather Experts, a retail sales
company, from 1993 to 1997, as Chief Operating Officer of
Page-Com, a publicly-held direct mail marketer of
60
communication equipment, and as Vice President of Merchandise
Planning, Allocation and Logistics with Pier One Imports, a
specialty retail company, from 1987 to 1992. Mr. Tidmarsh
attended Marquette University and received a Bachelor of Arts
Degree in Philosophy.
Wayne J. Usie has served as our Senior Vice President of
the Americas since January 2003. Mr. Usie previously served
as our Senior Vice President, Product Development from January
2001 to December 2002. Prior to that, Mr. Usie served as
Vice President — Information Technology for Family
Dollar Stores, Inc., a publicly-held mass merchant discount
retailer from 1997 to 2000, as Vice President — Chief
Financial Officer and Chief Information Officer of Campo
Electronics, Appliances, and Computers, Inc., a publicly-held
consumer electronics retailer, from 1996 to 1997, as President
and Chief Executive Officer of International
Networking & Computer Consultants, Inc., a
privately-held software integration consulting firm, from 1992
to 1996, and in various management positions in the regional
accounting firm of Broussard, Poche, Lewis & Breaux
from 1988 to 1992. Mr. Usie attended Louisiana State
University and received a Bachelor of Science Degree in Business
Administration – Accounting.
Information relating to the designation of our Audit Committee
Financial Expert, beneficial ownership reporting compliance
under Section 16(a) of the Exchange Act, and the adoption
of a Code of Ethics, is incorporated by reference to the proxy
statement under the captions “Corporate
Governance — Committees of our Board of
Directors,” “Section 16(a) Beneficial Ownership
Reporting Compliance,” “Report of the Audit
Committee,” and “Corporate Governance — Code
of Business Conduct and Ethics.”
|
|
| Item 11. |
Executive Compensation |
The information relating to executive compensation is
incorporated by reference to the Proxy Statement under the
captions “Compensation of Directors,” “Executive
Compensation — Summary Compensation Table,”
“Employment and Change of Control Arrangements,”
“Option Grants in Last Fiscal Year,” “Aggregate
Option Exercises During Fiscal 2004 and 2004 Year End
Option Values,” “Ten-Year Option Repricing,”
“Compensation Committee Interlocks and Insider
Participation,” “Report of The Compensation Committee
on Executive Compensation,” and “Stock Performance
Graph.”
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information relating to security ownership of certain
beneficial owners and management and related stockholder matters
is incorporated by reference to the Proxy Statement under the
captions “Security Ownership of Certain Beneficial Owners
and Management,” and “Securities Authorized for
Issuance Under Equity Compensation Plans.”
|
|
| Item 13. |
Certain Relationships and Related Transactions |
The information relating to certain relationships and related
transactions is incorporated by reference to the Proxy Statement
under the caption “Certain Transactions.”
|
|
| Item 14. |
Principal Accountant Fees and Services |
The information relating to principal accountant fees and
services is incorporated by reference to the Proxy Statement
under the captions “Report of the Audit Committee,”
“Policy for Approving Audit and Permitted Non-Audit
Services of the Independent Auditor,” and “Principal
Accounting Firm Fees.”
61
PART IV
|
|
| Item 15. |
Exhibits, Financial Statement Schedules |
a. The following documents are filed as part of this
Report:
|
|
| |
Report of Independent Registered Public Accounting Firm |
Consolidated Balance Sheets — December 31, 2004
and 2003
Consolidated Statements of Income — Three Years Ended
December 31, 2004
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income — Three Years Ended
December 31, 2004
Consolidated Statements of Cash Flows — Three Years
Ended December 31, 2004
Notes to Consolidated Financial Statements — Three
Years Ended December 31, 2004
|
|
| |
2. Financial Statement Schedules — None |
| |
| |
3. Exhibits — See Exhibit Index |
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
JDA Software Group, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of
JDA Software Group, Inc. and subsidiaries (the
“Company”) as of December 31, 2004 and 2003, and
the related consolidated statements of income,
stockholders’ equity and comprehensive income, and cash
flows for each of the three years in the period ended
December 31, 2004. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of JDA
Software Group, Inc. and subsidiaries as of December 31,
2004 and 2003, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2004, based on the
criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
March 14, 2005 expressed an unqualified opinion on
management’s assessment of the effectiveness of the
Company’s internal control over financial reporting and an
unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Deloitte & Touche
LLP
Phoenix, Arizona
March 14, 2005
63
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
| |
|
(In thousands, except |
| |
|
share amounts) |
|
ASSETS |
|
Current Assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
76,994 |
|
|
$ |
77,464 |
|
| |
Marketable securities
|
|
|
20,128 |
|
|
|
37,266 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
97,122 |
|
|
|
114,730 |
|
| |
Accounts receivable, net
|
|
|
39,524 |
|
|
|
40,162 |
|
| |
Income tax receivable
|
|
|
— |
|
|
|
2,447 |
|
| |
Deferred tax asset
|
|
|
3,578 |
|
|
|
4,863 |
|
| |
Prepaid expenses and other current assets
|
|
|
8,242 |
|
|
|
11,768 |
|
| |
Promissory note receivable
|
|
|
2,736 |
|
|
|
2,911 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
151,202 |
|
|
|
176,881 |
|
|
Property and Equipment, net
|
|
|
48,324 |
|
|
|
21,944 |
|
|
Goodwill
|
|
|
69,901 |
|
|
|
62,397 |
|
|
Other Intangibles, net:
|
|
|
|
|
|
|
|
|
| |
Customer lists
|
|
|
28,347 |
|
|
|
30,634 |
|
| |
Acquired software technology
|
|
|
20,749 |
|
|
|
21,306 |
|
| |
Trademarks
|
|
|
2,591 |
|
|
|
3,700 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total other intangibles, net
|
|
|
51,687 |
|
|
|
55,640 |
|
|
Deferred Tax Asset
|
|
|
11,453 |
|
|
|
3,763 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
Total assets
|
|
$ |
332,567 |
|
|
$ |
320,625 |
|
| |
|
|
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
3,104 |
|
|
$ |
2,568 |
|
| |
Accrued expenses and other liabilities
|
|
|
24,645 |
|
|
|
23,034 |
|
| |
Income tax payable
|
|
|
215 |
|
|
|
— |
|
| |
Deferred revenue
|
|
|
28,418 |
|
|
|
25,234 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
Total current liabilities
|
|
|
56,382 |
|
|
|
50,836 |
|
|
Commitments and Contingencies (Notes 13 and 14)
|
|
|
|
|
|
|
|
|
|
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 29,596,697 and
29,429,747 shares, respectively
|
|
|
296 |
|
|
|
294 |
|
| |
Additional paid-in capital
|
|
|
248,633 |
|
|
|
246,716 |
|
| |
Retained earnings
|
|
|
32,012 |
|
|
|
30,003 |
|
| |
Accumulated other comprehensive loss
|
|
|
(204 |
) |
|
|
(2,672 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
|
280,737 |
|
|
|
274,341 |
|
| |
Less treasury stock, 414,702 shares at cost
|
|
|
(4,552 |
) |
|
|
(4,552 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
276,185 |
|
|
|
269,789 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
Total liabilities and stockholders’ equity
|
|
$ |
332,567 |
|
|
$ |
320,625 |
|
| |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
64
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands, except per share data) |
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Software licenses
|
|
$ |
59,211 |
|
|
$ |
59,283 |
|
|
$ |
66,625 |
|
| |
Maintenance services
|
|
|
80,240 |
|
|
|
71,111 |
|
|
|
57,570 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Product revenues
|
|
|
139,451 |
|
|
|
130,394 |
|
|
|
124,195 |
|
| |
Consulting services
|
|
|
71,251 |
|
|
|
70,167 |
|
|
|
87,608 |
|
| |
Reimbursed expenses
|
|
|
6,172 |
|
|
|
6,858 |
|
|
|
7,652 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Service revenues
|
|
|
77,423 |
|
|
|
77,025 |
|
|
|
95,260 |
|
| |
|
Total revenues
|
|
|
216,874 |
|
|
|
207,419 |
|
|
|
219,455 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of software licenses
|
|
|
2,191 |
|
|
|
1,315 |
|
|
|
2,035 |
|
| |
Amortization of acquired software technology
|
|
|
5,158 |
|
|
|
4,518 |
|
|
|
4,247 |
|
| |
Cost of maintenance services
|
|
|
19,975 |
|
|
|
17,373 |
|
|
|
14,292 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost of product revenues
|
|
|
27,324 |
|
|
|
23,206 |
|
|
|
20,574 |
|
| |
Cost of consulting services
|
|
|
53,229 |
|
|
|
58,233 |
|
|
|
63,837 |
|
| |
Reimbursed expenses
|
|
|
6,172 |
|
|
|
6,858 |
|
|
|
7,652 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost of service revenues
|
|
|
59,401 |
|
|
|
65,091 |
|
|
|
71,489 |
|
| |
|
Total cost of revenues
|
|
|
86,725 |
|
|
|
88,297 |
|
|
|
92,063 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
130,149 |
|
|
|
119,122 |
|
|
|
127,392 |
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product development
|
|
|
52,800 |
|
|
|
48,529 |
|
|
|
41,819 |
|
| |
Sales and marketing
|
|
|
45,608 |
|
|
|
41,612 |
|
|
|
39,941 |
|
| |
General and administrative
|
|
|
24,922 |
|
|
|
23,473 |
|
|
|
26,978 |
|
| |
Amortization of intangibles
|
|
|
3,388 |
|
|
|
3,067 |
|
|
|
2,849 |
|
| |
Restructuring charges and adjustments to acquisition-related
reserves
|
|
|
6,105 |
|
|
|
— |
|
|
|
6,287 |
|
| |
Loss on impairment of trademark
|
|
|
1,100 |
|
|
|
— |
|
|
|
— |
|
| |
Relocation costs to consolidate development and support
activities
|
|
|
— |
|
|
|
1,794 |
|
|
|
452 |
|
| |
Purchased in-process research and development
|
|
|
— |
|
|
|
— |
|
|
|
800 |
|
| |
Gain on sale of office facility
|
|
|
— |
|
|
|
(639 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
133,923 |
|
|
|
117,836 |
|
|
|
119,126 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(3,774 |
) |
|
|
1,286 |
|
|
|
8,266 |
|
| |
Net gain on acquisition breakup fee
|
|
|
1,200 |
|
|
|
— |
|
|
|
— |
|
| |
Other income
|
|
|
2,130 |
|
|
|
1,347 |
|
|
|
1,700 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
(444 |
) |
|
|
2,633 |
|
|
|
9,966 |
|
| |
Income tax (benefit) provision
|
|
|
(2,453 |
) |
|
|
(17 |
) |
|
|
1,036 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
2,009 |
|
|
$ |
2,650 |
|
|
$ |
8,930 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.32 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.31 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES USED TO COMPUTE:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings per share
|
|
|
29,072 |
|
|
|
28,645 |
|
|
|
28,047 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted earnings per share
|
|
|
29,494 |
|
|
|
29,104 |
|
|
|
29,074 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
65
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
Common Stock |
|
Additional |
|
|
|
Other |
|
|
|
|
| |
|
|
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
|
| |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Loss |
|
Stock |
|
Total |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands, except share amounts) |
|
Balance, January 1, 2002
|
|
|
27,035,935 |
|
|
$ |
270 |
|
|
$ |
214,589 |
|
|
$ |
18,423 |
|
|
$ |
(6,138 |
) |
|
$ |
(2,694 |
) |
|
$ |
224,450 |
|
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock options exercised
|
|
|
1,324,768 |
|
|
|
13 |
|
|
|
12,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,628 |
|
| |
Employee stock purchase plan
|
|
|
335,985 |
|
|
|
4 |
|
|
|
4,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,150 |
|
| |
Tax benefit — stock compensation
|
|
|
|
|
|
|
|
|
|
|
5,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,770 |
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,101 |
) |
|
|
(1,101 |
) |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,930 |
|
|
|
|
|
|
|
|
|
|
|
8,930 |
|
| |
Unrealized gain on marketable securities available-for-sale, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
26 |
|
| |
Foreign translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,913 |
|
|
|
|
|
|
|
1,913 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,869 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
28,696,688 |
|
|
|
287 |
|
|
|
237,120 |
|
|
|
27,353 |
|
|
|
(4,199 |
) |
|
|
(3,795 |
) |
|
|
256,766 |
|
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock options exercised
|
|
|
348,056 |
|
|
|
3 |
|
|
|
3,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,731 |
|
| |
Employee stock purchase plan
|
|
|
385,003 |
|
|
|
4 |
|
|
|
4,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,071 |
|
| |
Tax benefit — stock compensation
|
|
|
|
|
|
|
|
|
|
|
777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777 |
|
| |
Reversal of tax valuation allowance
|
|
|
|
|
|
|
|
|
|
|
1,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,024 |
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(757 |
) |
|
|
(757 |
) |
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,650 |
|
|
|
|
|
|
|
|
|
|
|
2,650 |
|
| |
Unrealized loss on marketable securities available-for-sale, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
| |
Foreign translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,530 |
|
|
|
|
|
|
|
1,530 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,177 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
29,429,747 |
|
|
|
294 |
|
|
|
246,716 |
|
|
|
30,003 |
|
|
|
(2,672 |
) |
|
|
(4,552 |
) |
|
|
269,789 |
|
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock options exercised
|
|
|
166,950 |
|
|
|
2 |
|
|
|
1,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,793 |
|
| |
Tax benefit — stock compensation
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,009 |
|
|
|
|
|
|
|
|
|
|
|
2,009 |
|
| |
Unrealized loss on marketable securities available-for-sale, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
(13 |
) |
| |
Foreign translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,481 |
|
|
|
|
|
|
|
2,481 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,477 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
29,596,697 |
|
|
$ |
296 |
|
|
$ |
248,633 |
|
|
$ |
32,012 |
|
|
$ |
(204 |
) |
|
$ |
(4,552 |
) |
|
$ |
276,185 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
66
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
2,009 |
|
|
$ |
2,650 |
|
|
$ |
8,930 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization
|
|
|
17,752 |
|
|
|
16,285 |
|
|
|
15,448 |
|
| |
Provision for doubtful accounts
|
|
|
— |
|
|
|
500 |
|
|
|
2,900 |
|
| |
Tax benefit — stock options and employee stock
purchase plan and other
|
|
|
135 |
|
|
|
777 |
|
|
|
5,770 |
|
| |
Net gain on disposal of property and equipment
|
|
|
(5 |
) |
|
|
(595 |
) |
|
|
15 |
|
| |
Net gain on acquisition breakup fee
|
|
|
(1,200 |
) |
|
|
— |
|
|
|
— |
|
| |
Loss on impairment of trademark
|
|
|
1,100 |
|
|
|
— |
|
|
|
— |
|
| |
Write-off of purchased in-process research and development
|
|
|
— |
|
|
|
— |
|
|
|
800 |
|
| |
Deferred income taxes
|
|
|
(5,713 |
) |
|
|
(7,018 |
) |
|
|
(6,271 |
) |
|
Changes in assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accounts receivable
|
|
|
1,561 |
|
|
|
6,161 |
|
|
|
11,334 |
|
| |
Income tax receivable
|
|
|
2,716 |
|
|
|
4,714 |
|
|
|
(2,537 |
) |
| |
Prepaid expenses and other current assets
|
|
|
1,569 |
|
|
|
956 |
|
|
|
(2,211 |
) |
| |
Accounts payable
|
|
|
595 |
|
|
|
(481 |
) |
|
|
171 |
|
| |
Accrued expenses and other liabilities
|
|
|
2,072 |
|
|
|
(3,847 |
) |
|
|
1,207 |
|
| |
Income tax payable
|
|
|
370 |
|
|
|
— |
|
|
|
— |
|
| |
Deferred revenue
|
|
|
1,884 |
|
|
|
(283 |
) |
|
|
5,961 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net cash provided by operating activities
|
|
|
24,845 |
|
|
|
19,819 |
|
|
|
41,517 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of marketable securities
|
|
|
(38,078 |
) |
|
|
(58,363 |
) |
|
|
(46,767 |
) |
|
Sales of marketable securities
|
|
|
12,473 |
|
|
|
100 |
|
|
|
9,701 |
|
|
Maturities of marketable securities
|
|
|
42,730 |
|
|
|
51,784 |
|
|
|
18,443 |
|
|
Acquisition breakup fee
|
|
|
3,750 |
|
|
|
— |
|
|
|
— |
|
|
Purchase of Timera Texas, Inc.
|
|
|
(13,574 |
) |
|
|
— |
|
|
|
— |
|
|
Purchase of Vista Software Solutions, Inc.
|
|
|
— |
|
|
|
(4,006 |
) |
|
|
— |
|
|
Purchase of Engage, Inc.
|
|
|
— |
|
|
|
(3,349 |
) |
|
|
— |
|
|
Purchase of J • Commerce, Inc.
|
|
|
— |
|
|
|
— |
|
|
|
(4,170 |
) |
|
Payment of direct costs related to acquisitions
|
|
|
(596 |
) |
|
|
(708 |
) |
|
|
(8,583 |
) |
|
Payments received on promissory note receivable
|
|
|
175 |
|
|
|
106 |
|
|
|
337 |
|
|
Purchase of corporate office facility
|
|
|
(23,767 |
) |
|
|
— |
|
|
|
— |
|
|
Purchase of property and equipment
|
|
|
(12,067 |
) |
|
|
(10,395 |
) |
|
|
(8,262 |
) |
|
Proceeds from disposal of property and equipment
|
|
|
491 |
|
|
|
2,022 |
|
|
|
448 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net cash used in investing activities
|
|
|
(28,463 |
) |
|
|
(22,809 |
) |
|
|
(38,853 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock — stock option plans
|
|
|
1,793 |
|
|
|
3,731 |
|
|
|
12,628 |
|
|
Issuance of common stock — employee stock purchase plan
|
|
|
— |
|
|
|
4,071 |
|
|
|
4,150 |
|
|
Purchase of treasury stock
|
|
|
— |
|
|
|
(757 |
) |
|
|
(1,101 |
) |
|
Payments on capital lease obligations
|
|
|
(70 |
) |
|
|
(255 |
) |
|
|
(320 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net cash provided by financing activities
|
|
|
1,723 |
|
|
|
6,790 |
|
|
|
15,357 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
1,425 |
|
|
|
2,599 |
|
|
|
1,179 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(470 |
) |
|
|
6,399 |
|
|
|
19,200 |
|
|
Cash and Cash Equivalents, Beginning of Year
|
|
|
77,464 |
|
|
|
71,065 |
|
|
|
51,865 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year
|
|
$ |
76,994 |
|
|
$ |
77,464 |
|
|
$ |
71,065 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
67
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for income taxes
|
|
$ |
3,757 |
|
|
$ |
4,419 |
|
|
$ |
5,456 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for interest
|
|
$ |
317 |
|
|
$ |
34 |
|
|
$ |
54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash received for income tax refunds
|
|
$ |
3,296 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non-cash Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of goodwill recorded in acquisitions of E3 Corporation
and Engage, Inc.
|
|
$ |
884 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Timera Texas, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fair value of current assets acquired
|
|
$ |
(1,205 |
) |
|
|
|
|
|
|
|
|
| |
Fair value of fixed assets acquired
|
|
|
(250 |
) |
|
|
|
|
|
|
|
|
| |
Goodwill
|
|
|
(8,388 |
) |
|
|
|
|
|
|
|
|
| |
Software technology
|
|
|
(4,600 |
) |
|
|
|
|
|
|
|
|
| |
Customer lists
|
|
|
(1,100 |
) |
|
|
|
|
|
|
|
|
| |
Fair value of deferred revenue acquired
|
|
|
1,487 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total acquisition cost of Timera Texas, Inc.
|
|
|
(14,056 |
) |
|
|
|
|
|
|
|
|
| |
Reserves for direct costs related to the transaction
|
|
|
482 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total cash expended to acquire Timera Texas, Inc.
|
|
$ |
(13,574 |
) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Vista Software Solutions, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fair value of current assets acquired
|
|
|
|
|
|
$ |
(662 |
) |
|
|
|
|
| |
Software technology
|
|
|
|
|
|
|
(1,100 |
) |
|
|
|
|
| |
Customer lists
|
|
|
|
|
|
|
(1,110 |
) |
|
|
|
|
| |
Other intangible assets
|
|
|
|
|
|
|
(80 |
) |
|
|
|
|
| |
Goodwill
|
|
|
|
|
|
|
(2,290 |
) |
|
|
|
|
| |
Fair value of deferred revenue acquired
|
|
|
|
|
|
|
681 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total acquisition cost of Vista Software Solutions, Inc.
|
|
|
|
|
|
|
(4,561 |
) |
|
|
|
|
| |
Reserves for direct costs related to the transaction
|
|
|
|
|
|
|
555 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total cash expended to acquire Vista Software Solutions,
Inc.
|
|
|
|
|
|
$ |
(4,006 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Engage, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fair value of fixed assets acquired
|
|
|
|
|
|
$ |
(350 |
) |
|
|
|
|
| |
Software technology
|
|
|
|
|
|
|
(2,200 |
) |
|
|
|
|
| |
Customer lists
|
|
|
|
|
|
|
(2,100 |
) |
|
|
|
|
| |
Goodwill
|
|
|
|
|
|
|
(306 |
) |
|
|
|
|
| |
Fair value of deferred revenue acquired
|
|
|
|
|
|
|
1,488 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total acquisition cost of Engage, Inc.
|
|
|
|
|
|
|
(3,468 |
) |
|
|
|
|
| |
Reserves for direct costs related to the transaction
|
|
|
|
|
|
|
119 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total cash expended to acquire Engage, Inc.
|
|
|
|
|
|
$ |
(3,349 |
) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of J•Commerce, Inc.:
|
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Software technology
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$ |
(2,060 |
) |
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In-process research and development
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(800 |
) |
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Goodwill
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(1,325 |
) |
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Total acquisition cost of J•Commerce, Inc.
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(4,185 |
) |
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Reserves for direct costs related to the transaction
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15 |
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Total cash expended to acquire J•Commerce, Inc.
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$ |
(4,170 |
) |
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See notes to consolidated financial statements.
68
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2004
(In thousands, except percentages, shares, per share amounts
or as otherwise stated)
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|
| 1. |
Summary of Significant Accounting Policies |
Nature of Business. 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,
collaborative planning and forecasting and store operations
requirements of the retail industry and its suppliers. Our
solutions enable customers to manage and optimize their
inventory flows throughout the demand chain to the consumer, and
provide optimized labor scheduling for retail store operations.
Our customers include over 4,700 of the world’s leading
retail, consumer package goods (“CPG”) manufacturers
and wholesalers. We have organized our business segments around
the distinct requirements of retail enterprises, retail stores,
and suppliers to the retail industry. We employ nearly 1,200
associates and conduct business from 25 offices in three
geographic regions: the Americas (includes the United States,
Canada, and Latin America), Europe (includes the Middle East and
South Africa), and Asia/ Pacific. Our corporate offices are
located in Scottsdale, Arizona.
Principles of Consolidation and Basis of Presentation.
The consolidated financial statements include the accounts of
JDA Software Group, Inc. and our subsidiaries, all of which
are wholly owned. All significant intercompany balances and
transactions have been eliminated in consolidation. The
consolidated financial statements are stated in
U.S. dollars and are prepared under accounting principles
generally accepted in the United States.
Certain reclassifications have been made to prior year cash flow
statements and certain footnote disclosures to conform to the
current presentation.
Use of Estimates. The preparation of financial statements
in conformity with accounting principles generally accepted in
the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Significant
estimates include the allowance for doubtful accounts, which is
based upon an evaluation of our customers’ ability to pay
and general economic conditions; the useful lives of property
and equipment, the useful lives of intangible assets, which are
based upon valuation reports prepared by independent third party
valuation specialists; the recoverability or impairment of
intangible asset values, which are based upon valuation reports
prepared by independent third party valuation specialists;
deferred revenue; reserves for the direct costs of acquisitions,
and our effective income tax rate and deferred tax assets which
are based upon our expectations of future taxable income,
allowable deductions, and projected tax credits. Actual results
could differ from these estimates.
Foreign Currency Translation. The financial statements of
our international subsidiaries are translated into
U.S. dollars using the exchange rate at each balance sheet
date for assets and liabilities and at an average exchange rate
for the revenues and expenses reported in each fiscal period. We
have determined that the functional currency of each foreign
subsidiary is the local currency and as such, foreign currency
translation adjustments are recorded as a separate component of
stockholders’ equity. Transaction gains and losses, and
unrealized gains and losses on short-term intercompany
receivables and payables and foreign denominated receivables,
are included in results of operations as incurred.
Cash and Cash Equivalents and Marketable Securities. Cash
and cash equivalents consist of cash held in bank demand
deposits, money market securities, and highly liquid investments
with remaining maturities of three months or less at the date of
purchase. Marketable securities include U.S. Government
securities, commercial paper and corporate bonds. Management
determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such
designation as of each balance sheet date. All marketable
securities are recorded at market value and have been classified
as available-for-sale at December 31, 2004 and 2003.
Unrealized holding gains and losses, net of the related income
tax effect, are
69
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
excluded from earnings and are reported as a separate component
of stockholders’ equity until realized. Dividend and
interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale are
determined using the specific identification method.
Accounts Receivable. 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. Customers are reviewed for creditworthiness
before we enter into a new arrangement that provides for
software and/or a service element. We do not sell or ship our
software, nor recognize any license revenue unless we believe
that collection is probable in accordance with the requirements
of paragraph 8 in Statement of Position 97-2, Software
Revenue Recognition, as amended. For those customers who are
not credit worthy, we require prepayment of the software license
fee or a letter of credit before we will ship our software. We
have a history of collecting software payments when they come
due without providing refunds or concessions. Consulting
services are generally billed bi-weekly and maintenance services
are billed annually or monthly. If a customer becomes
significantly delinquent or their credit deteriorates, we put
the account 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. We
review each past due account and provide specific reserves based
upon the information we gather from various sources including
our customers, subsequent cash receipts, consulting services
project teams, members of each region’s management, and
credit rating services such as Dun and Bradstreet. Although
infrequent and unpredictable, from time to time certain of our
customers have filed bankruptcy, and we have been required to
refund the pre-petition amounts collected and settle for less
than the face value of 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 we operate to determine if general reserves or
adjustments to our credit policy in a region are appropriate for
deteriorating conditions that may impact the net realizable
value of our receivables.
Property and Equipment and Long-Lived Assets. Property
and equipment are stated at cost less accumulated depreciation
and amortization. Property and equipment are depreciated on a
straight-line basis over the following estimated useful lives:
computers, internal use software, furniture and
fixtures — two to seven years; buildings —
twenty-five to forty years; automobiles — three years;
leasehold improvements — the shorter of the initial
lease term or the estimated useful life of the asset.
Business Combinations. We have applied Statement of
Financial Accounting Standards No. 141, Business
Combinations (“SFAS No. 141”) to all of
our business combinations during the three years ended
December 31, 2004. SFAS No. 141 requires that the
purchase method of accounting be followed on all business
combinations and prohibits the use of the pooling-of-interest
method. In addition, SFAS No. 141 provides guidance on
the initial recognition and measurement of goodwill arising from
business combinations and identifies the types of acquired
intangible assets that are to be recognized and reported
separate from goodwill. The total purchase price of each
acquired company has been allocated to the acquired assets and
liabilities based on their fair values (see Note 2).
Goodwill. Goodwill represents the excess of the purchase
price over the net assets acquired in our business combinations.
We follow the guidance in Statement of Financial Accounting
Standard No. 142, Goodwill and Other Intangible Assets
(“SFAS No. 142”). SFAS No. 142
addresses how intangible assets should be accounted for after
they have been initially recognized in the financial statements.
Pursuant to SFAS No. 142, goodwill and intangible
assets with indefinite useful lives are not subject to
amortization, but are required to be tested for impairment
annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired (see
Note 7).
Intangible Assets. Intangible assets consist of software
technology, customer lists and trademarks acquired in our
various business combinations.
70
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Acquired software technology is capitalized if the related
software product under development has reached technological
feasibility or if there are alternative future uses for the
purchased software. Amortization of software technology is
reported 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”). Software
technology is amortized on a product-by-product basis with the
amortization recorded for each product being the greater of the
amount computed using (a) the ratio that current gross
revenues for a product bear to the total of current and
anticipated future revenue for that product, or (b) the
straight-line method over the remaining estimated economic life
of the product including the period being reported on. The
estimated economic lives of our software technology products
range from 5 years to 15 years.
Customer lists are amortized on a straight-line basis over
estimated useful lives ranging from 5 years to
13 years. All of our customer list intangible assets have
been acquired in business combinations over the last six 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, using historical turnover
rates and discussions with the management of the acquired
companies. 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 reviews the customer
attrition rates for each significant acquired customer group on
a quarterly basis to ensure the rate of attrition is not
increasing and that revisions to our estimates of life
expectancy are not required.
Substantially all of our trademarks were acquired in connection
with the acquisition of E3 Corporation (“E3”) in
September 2001. We have assigned indefinite useful lives to our
trademarks, and ceased amortization, as we believe there are no
legal, regulatory, contractual, competitive, economic, or other
factors that would limit their useful lives. In addition, we
intend to indefinitely develop next generation products under
our trademarks and expect them to contribute to our cash flows
indefinitely. Pursuant to SFAS No. 142, we test
trademarks for impairment annually or more frequently if events
or changes in circumstances indicate that the asset might be
impaired. A $1.1 million impairment loss was recorded in
fourth quarter 2004 on trademarks that were acquired from E3
(see Note 7).
Revenue Recognition. We license software primarily 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, and
Staff Accounting Bulletin No. 104, Revenue
Recognition, that provides further interpretive guidance for
public companies on the recognition, presentation and disclosure
of revenue in financial statements.
Software license revenue is generally recognized using the
residual method when:
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• |
Persuasive evidence of an arrangement exists and a license
agreement has been signed; |
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| |
• |
Delivery, which is typically FOB shipping point, is complete; |
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• |
Fees are fixed and determinable and there are no uncertainties
surrounding product acceptance; |
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• |
Collection is considered probable; and |
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| |
• |
Vendor-specific evidence of fair value (“VSOE”) exists
for all undelivered elements. |
Our customer arrangements typically contain multiple elements
that include software, options for future purchases of software
products not previously licensed to the customer, maintenance,
consulting and training services. The fees from these
arrangements are allocated to the various elements based on
VSOE. Under the residual method, if an arrangement contains an
undelivered element, the VSOE of the undelivered element is
deferred and the revenue recognized once the element is
delivered. If we are unable to determine VSOE for
71
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
any undelivered element included in an arrangement, we will
defer revenue recognition until all elements have been
delivered. In addition, if a software license contains
milestones, customer acceptance criteria or a cancellation
right, the software revenue is recognized upon the achievement
of the milestone or upon the earlier of customer acceptance or
the expiration of the acceptance period or cancellation right.
Maintenance services are separately priced and stated in our
arrangements. Maintenance services typically include on-line
support, access to our Solution Centers via telephone and web
interfaces, comprehensive error diagnosis and correction, and
the right to receive unspecified upgrades and enhancements, when
and if we make them generally available. Maintenance services
are generally billed on a monthly basis and recorded as revenue
in the applicable month, or billed on an annual basis with the
revenue initially deferred and recognized ratably over the
maintenance period. VSOE for maintenance services is the price
customers will be required to pay when it is sold separately,
typically the renewal rate.
Consulting and training services are separately priced and
stated in our arrangements, are generally available from a
number of suppliers, and are not essential to the functionality
of our software products. Consulting services include project
management, system planning, design and implementation, customer
configurations, and training. These services are generally
billed bi-weekly on an hourly basis or pursuant to the terms of
a fixed price contract. Consulting services revenue billed on an
hourly basis is recognized as the work is performed. Under fixed
price contracts, including milestone-based arrangements,
consulting services revenue is recognized using the percentage
of completion method of accounting described in Statement of
Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, by
relating hours incurred to date to total estimated hours at
completion. Training revenues are included in consulting
revenues in the Company’s consolidated statements of income
and are recognized once the training services are provided. VSOE
for consulting and training services is based upon the hourly or
per class rates charged when those services are sold separately.
Revenues from our hardware reseller business are also included
in consulting revenues, reported net (i.e., the amount billed to
a customer less the amount paid to the supplier) pursuant to
EITF 99-19, Reporting Revenue Gross as a Principal versus Net
as an Agent, and recognized upon shipment of the hardware.
Customers are reviewed for creditworthiness before we enter into
a new arrangement that provides for software and/or a service
element. We do not sell or ship our software, nor recognize any
license revenue unless we believe that collection is probable.
Payments for our software licenses are typically due 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.
Software License Indemnification. Our standard software
license agreements contain an infringement indemnity clause
under which we agree to indemnify and hold harmless our
customers and business partners against liability and damages
arising from claims of various copyright or other intellectual
property infringement by our products. These terms constitute a
form of guarantee that is subject to the disclosure
requirements, but not the initial recognition or measurement
provisions of Financial Accounting Standards Board issued FASB
Interpretation No. 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of the Indebtedness of Others.” We have
never lost an infringement claim and our costs to defend such
lawsuits have been insignificant. Although it is possible that
in the future third parties may claim that our current or
potential future software solutions or we infringe on their
intellectual property, we do not currently expect a significant
impact on our business, operating results, or financial
condition.
Reimbursed Expenses. We adopted 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 effective January 1, 2002. EITF
No. 01-14 requires the
72
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
reclassification of reimbursed expenses in both service revenues
and cost of service revenues in our consolidated statements of
income.
Product Development. The costs to develop new software
products and enhancements to existing software products are
expensed as incurred until technological feasibility has been
established. We consider technological feasibility to have
occurred when all planning, designing, coding and testing have
been completed according to design specifications. Once
technological feasibility is established, any additional costs
would be capitalized. We believe our current process for
developing software is essentially completed concurrent with the
establishment of technological feasibility, and accordingly, no
costs have been capitalized.
Restructuring Charges. We recorded restructuring charges
during 2002 using the authoritative guidance in 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). Effective
January 1, 2003, we adopted Statement of Financial
Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities
(“SFAS No. 146”). SFAS No. 146
nullifies EITF No. 94-3 and has been applied to all exit or
disposal activities initiated by the Company since
December 31, 2002, including the restructuring charges
recorded during the first and fourth quarters of 2004 (see
Note 9). 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. Restructuring charges are not directly identified
with a particular business segment and as a result, management
does not consider these charges in the evaluation of the
operating income (loss) from the business segments.
In-Process Research and Development. In business
combinations accounted for using the purchase method of
accounting, the amount of purchase price allocated to in-process
research and development (“IPR&D”) is expensed at
the date of acquisition in accordance with FASB Interpretation
No. 4, Applicability of FASB Statement No. 2 to
Business Combinations Accounted for by the Purchase Method, an
Interpretation of SFAS No. 2 (See Note 2).
IPR&D consists of products or technologies in the
development stage for which technological feasibility has not
been established and which we believe have no alternative use.
Amounts allocated to IPR&D are reported as a separate
component of operating expenses under the caption
“Purchased in-process research and development.”
Derivative Instruments and Hedging Activities. We use
derivative financial instruments, primarily forward exchange
contracts to manage a majority of the foreign currency exchange
exposure associated with net short-term foreign denominated
assets and liabilities which exist as part of our ongoing
business operations. The exposures relate primarily to the gain
or loss recognized in earnings from the revaluation or
settlement of current foreign denominated assets and
liabilities. We do not enter into derivative financial
instruments for trading or speculative purposes. The forward
exchange contracts generally have maturities of less than
90 days, and are not designated as hedging instruments
under Financial Accounting Standard No. 133, Accounting
for Derivative Instruments and Hedging Activities
(“SFAS No. 133”). Forward exchange
contracts are marked-to-market at the end of each reporting
period, with gains and losses recognized in other income offset
by the gains or losses resulting from the settlement of the
underlying foreign denominated assets and liabilities.
At December 31, 2004, we had forward exchange contracts
with a notional value of $5.8 million and an associated net
forward contract liability of $219,000. At December 31,
2003, we had forward exchange contracts with a notional value of
$10.3 million and an associated net forward contract
liability of $147,000. The net forward contract liabilities are
included in accrued expenses and other liabilities. The notional
value represents the amount of foreign currencies to be
purchased or sold at maturity and does not represent our
exposure on these contracts. We recorded foreign currency
exchange gains in 2004, 2003 and 2002 of $190,000, $350,000 and
$407,000, respectively.
73
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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. In addition, we have not recorded compensation
expense for shares issued under our employee stock purchase
plan. 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 (“APB No. 25”) and
account for stock-based compensation using the intrinsic-value
method, 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, and shares issued under our
employee stock purchase plan, as if the fair-value method
defined in SFAS No. 123 had been applied. We
terminated our 1999 Employee Stock Purchase Plan (“1999
Purchase Plan”) in August 2003 (See Note 15).
Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation —
Transition and Disclosure (“SFAS No. 148),
which became effective in 2003, amended SFAS No. 123
to provide alternative methods of transition to the 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 amended 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.
The following table presents pro forma disclosures required by
SFAS No. 123 and SFAS No. 148 of net income
(loss) and basic and diluted earnings (loss) per share as if
stock-based compensation expense had been recognized during the
three-year period ended December 31, 2004. The compensation
expense for these periods has been determined under the fair
value method using the Black-Scholes pricing model, and assumes
graded vesting. Stock-based compensation expense for 2003 and
2002 has been adjusted to reflect the revised tax benefit
available for incentive stock options generated at the time of
exercise. The weighted average Black-Scholes value per option
granted in 2004, 2003 and 2002 was $6.39, $8.83 and $9.10,
respectively.
| |
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|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Net income as reported
|
|
$ |
2,009 |
|
|
$ |
2,650 |
|
|
$ |
8,930 |
|
|
Less: stock-based compensation expense, net of related tax
effects
|
|
|
(4,722 |
) |
|
|
(7,305 |
) |
|
|
(9,272 |
) |
| |
|
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|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(2,713 |
) |
|
$ |
(4,655 |
) |
|
$ |
(342 |
) |
|
Basic earnings per share — as reported
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.32 |
|
|
Diluted earnings per share — as reported
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.31 |
|
|
Basic loss per share — pro forma
|
|
$ |
(.09 |
) |
|
$ |
(.16 |
) |
|
$ |
(.01 |
) |
|
Diluted loss per share — pro forma
|
|
$ |
(.09 |
) |
|
$ |
(.16 |
) |
|
$ |
(.01 |
) |
| |
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|
Assumptions:
|
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|
Expected dividend yield
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
|
Expected stock price volatility
|
|
|
78% to 85% |
|
|
|
90% |
|
|
|
93% |
|
|
Risk-free interest rate
|
|
|
2.25% |
|
|
|
2.25% |
|
|
|
2.25% |
|
|
Expected life of option
|
|
|
1.29 to 3.49 years |
|
|
|
2.63 to 3.17 years |
|
|
|
2.96 years |
|
On December 16, 2004, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard
No. 123(R), Share Based Payment
(“SFAS No. 123(R)”) which is a revision of
SFAS No. 123, supersedes APB No. 25 and
SFAS No. 148, and amends Statement of Financial
Accounting Standard No. 95, Statement of Cash Flows
(“SFAS No. 95”). Generally, the approach in
SFAS No. 123(R) is similar to the approach described
in SFAS No. 123; however, SFAS No. 123(R)
requires all share-based payments to employees, including grants
of stock options, to be recognized in the income statement based
on
74
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
their fair values. Pro forma disclosure is no longer an
alternative. SFAS No. 123(R) must be adopted no later
than July 1, 2005.
SFAS No. 123(R) permits public companies to adopt its
requirements using one of two methods:
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|
| |
1. A “modified prospective” method in which
compensation cost is recognized beginning with the effective
date (a) based on the requirements of
SFAS No. 123(R) for all share-based payments granted
after the effective date and (b) based on the requirements
of SFAS No. 123 for all awards granted to employees
prior to the effective date of SFAS No. 123(R) that
remain unvested on the effective date. |
| |
| |
2. A “modified retrospective” method which
includes the requirements of the modified prospective method
described above, but also permits entities to restate based on
the amounts previously recognized under SFAS No. 123
for purposes of pro-forma disclosures either (a) all prior
periods presented or (b) prior interim periods of the year
of adoption. |
We plan to adopt SFAS No. 123(R) on July 1, 2005
using the modified prospective method.
As permitted by SFAS No. 123, the company currently
accounts for share-based payments to employees using APB
No. 25’s intrinsic value method and, as such,
recognizes no compensation cost for employee stock options.
Accordingly, the adoption of SFAS No. 123(R)’s
fair value method could potentially have a significant impact on
our results of operations, although it will have no impact on
our overall financial position. The impact of adoption of
SFAS No. 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted
in the future. However, had we adopted SFAS No. 123(R)
in prior periods, the impact of that standard would have
approximated the impact of SFAS No. 123 as described
in the disclosure of pro forma net income (loss) and earnings
per share above. SFAS No. 123(R) also requires the
benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This
requirement will reduce net cash flows from operating activities
in periods after adoption. While we cannot estimate what those
amounts will be in the future (because this would depend on,
among other things, when employees exercise stock options), the
amount of operating cash flows recognized in prior periods for
such excess tax deductions were $126,000, $777,000 and
$5.8 million in 2004, 2003 and 2002, respectively.
On February 15, 2005, the Compensation Committee of our
Board of Directors (the “Committee”) approved the
immediate vesting of all unvested stock options previously
awarded to employees, officers and directors. The accelerated
options were issued under our 1995 Stock Option Plan, 1996 Stock
Option Plan, 1996 Outside Director Stock Option Plan and 1998
Non-statutory Stock Option Plan. The Committee made the decision
to immediately vest these options based in part on the issuance
of SFAS No. 123(R). The Committee also considered the
reduced level of cash bonuses paid to employees and officers in
2004, the fact that there are no equity awards planned in 2005,
other than for certain new hires, and recognized that the
exercise of any accelerated options would bring cash into the
Company. Absent the acceleration of these options, upon adoption
of SFAS No. 123(R) on July 1, 2005, we would have
been required to recognize approximately $3.7 million in
pre-tax compensation expense from these options over their
remaining vesting terms. By vesting all previously unvested
options, the stock-based compensation expense under
SFAS No. 123 will only be reflected in our footnote
disclosures. Further, we believe the future stock-based
compensation expense to be recorded under
SFAS No. 123(R) related to these options is
significantly reduced and would be immaterial to our financial
results. However, there can be no assurance that these actions
will avoid the recognition of future compensation expense in
connection with these options.
Employees, officers and directors will benefit from the
accelerated vesting of their stock options in the event they
terminate their employment with or service to the Company prior
to the completion of the original vesting terms as they would
have the ability to exercise certain options that would have
otherwise been forfeited. No stock-based compensation expense
will be recorded with respect to these options unless an
employee, officer or director actually benefits from this
modification. For those employees, officers and directors who do
benefit from the accelerated vesting, we are required to record
additional stock-based
75
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
compensation expense equal to the intrinsic value of the option
on the date of modification (i.e., February 15, 2005). The
closing market price per share of our common stock on
February 15, 2005 was $11.85 and the exercise prices of the
approximately 1.4 million in unvested options on that date
ranged from $8.50 to $28.20. Based on our historical employee
turnover rates during the past three years, we currently
estimate the potential additional stock-based compensation
expense we may be required to record with respect to these
options is approximately $45,000.
Income taxes. Deferred tax assets and liabilities are
recorded for the estimated future tax effects of temporary
differences between the tax basis of assets and liabilities and
amounts reported in the consolidated balance sheets, as well as
operating loss and tax credit carry-forwards. We follow specific
and detailed guidelines regarding the recoverability of any tax
assets recorded on the balance sheet and provide any necessary
allowances as required (see Note 17).
Earnings per Share. Basic earnings per share
(“EPS”) excludes the dilutive effect of common stock
equivalents and is computed by dividing net income or loss by
the weighted-average number of shares outstanding during the
period. Diluted EPS includes the effect of common stock
equivalents, which consist of stock options, and is computed
using the weighted-average number of common and common
equivalent shares outstanding during the period. The weighted
average shares for 2004, 2003, and 2002 are reflected net of
treasury shares (See Notes 15 and 18).
Other New Accounting Pronouncements. In March 2004, the
Financial Accounting Standards Board (“FASB”) issued
Emerging Issues Task Force Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments (“EITF 03-1”). EITF 03-1
includes new guidance for evaluating and recording impairment
losses on debt and equity investments, as well as new disclosure
requirements for investments that are deemed to be temporarily
impaired. In September 2004, the FASB issued Staff Position
EITF 03-1-1, which delays the effective date until
additional guidance is issued for the application of the
recognition and measurement provisions of EITF 03-1 to
investments in securities that are impaired. We do not believe
the adoption of EITF 03-1 will have a material impact on
our financial condition or results of operations.
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 153, Exchanges of Nonmonetary
Assets, an amendment of Accounting Principles Board Opinion
No. 29, Accounting for Nonmonetary Transactions
(“SFAS No. 153”). SFAS No. 153
requires that exchanges of nonmonetary assets are to be measured
based on fair value and eliminates the exception for exchanges
of nonmonetary, similar productive assets, and adds an exemption
for nonmonetary exchanges that do not have commercial substance.
We do not participate in the exchange of nonmonetary assets.
Timera Texas, Inc. On January 29, 2004, we acquired
the intellectual property and certain other assets of Timera
Texas, Inc. (“Timera”) for a total cost of
$14.1 million, which includes the purchase price of
$13.1 million plus $1.0 million in direct costs of the
acquisition. Timera is a provider of integrated workforce
management solutions for the retail industry. The Timera
Enterprise Workforce Management product suite expands our JDA
Portfolio and complements our existing In-Store Systems
with web-based functionality for labor scheduling and
budgeting, time and attendance, demand forecasting, labor
tracking, and other key processes for proactive store level
labor management. The acquisition was accounted for as a
purchase, and accordingly, the operating results of Timera have
been included in our consolidated financial statements from the
date of acquisition. In connection with the Timera acquisition,
we extended employment offers to 51 former Timera employees,
approximately two-thirds of which are in product development,
and recorded $8.4 million of goodwill in our In-Store
Systems reporting unit (see Note 7), $4.6 million
in software technology, and $1.1 million for customer
lists. Pro forma operating results have not been presented as
the acquisition is not material to our consolidated financial
statements. The weighted average amortization period
76
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
for all intangible assets acquired in this transaction that are
subject to amortization is 10.39 years. The following
summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted Average |
|
|
| |
|
Useful Life |
|
Amortization Period |
|
|
| |
|
|
|
|
|
|
|
Fair value of current assets acquired
|
|
|
|
|
|
|
|
|
|
$ |
1,205 |
|
|
Fair value of fixed assets acquired
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
8,388 |
|
|
Software technology
|
|
|
10 years |
|
|
|
10 years |
|
|
|
4,600 |
|
|
Customer lists
|
|
|
12 years |
|
|
|
12 years |
|
|
|
1,100 |
|
|
Fair value of deferred revenue acquired
|
|
|
|
|
|
|
|
|
|
|
(1,487 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total acquisition cost of Timera Texas, Inc.
|
|
|
|
|
|
|
|
|
|
|
14,056 |
|
|
Reserves for direct costs related to the acquisition
|
|
|
|
|
|
|
|
|
|
|
(482 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cash expended to acquire Timera Texas, Inc.
|
|
|
|
|
|
|
|
|
|
$ |
13,574 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Engage, Inc. In August 2003, we acquired substantially
all the remaining assets of Engage, Inc. (“Engage”)
for a total cost of $3.5 million, which includes the cash
purchase price of $3.0 million plus $468,000 in direct
costs of the acquisition. Engage is a provider of enterprise
advertising, marketing and promotion software solutions that
improve a retailer’s promotion planning process and their
delivery of marketing and advertising content. We are merging
the advanced digital asset, content management and ad layout
capabilities of the Engage products with our existing
Portfolio Revenue Management application to further
expand our JDA Portfolio with functionality that
streamlines the communication and collaboration among a
retailer’s merchandising, promotions, production and store
operation teams. The acquisition was accounted for as a
purchase, and accordingly, the operating results of Engage have
been included in our consolidated financial statements from the
date of acquisition. Pro forma operating results have not been
presented as the acquisition is not material to our consolidated
financial statements. In connection with the Engage acquisition,
we recorded $306,000 of goodwill in our Retail Enterprise
Systems reporting unit. The weighted average amortization
period for all intangible assets acquired in this transaction
that are subject to amortization is 7.37 years. The
following summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted Average |
|
|
| |
|
Useful Life |
|
Amortization Period |
|
|
| |
|
|
|
|
|
|
|
Fair value of fixed assets acquired
|
|
|
|
|
|
|
|
|
|
$ |
350 |
|
|
Software technology
|
|
|
8 years |
|
|
|
8 years |
|
|
|
2,200 |
|
|
Customer lists
|
|
|
5 to 8 years |
|
|
|
6.7 years |
|
|
|
2,100 |
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
306 |
|
|
Fair value of deferred revenue acquired
|
|
|
|
|
|
|
|
|
|
|
(1,488 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total acquisition cost of Engage, Inc.
|
|
|
|
|
|
|
|
|
|
|
3,468 |
|
|
Reserves for direct costs related to the acquisition
|
|
|
|
|
|
|
|
|
|
|
(119 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cash expended to acquire Engage, Inc.
|
|
|
|
|
|
|
|
|
|
$ |
3,349 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Vista Software Solutions, Inc. In April 2003, we acquired
substantially all the intellectual property of Vista Software
Solutions, Inc. (“Vista”), and Vista’s active
customer agreements for a total cost of $4.6 million, which
includes the cash purchase price of $3.8 million plus
$780,000 in direct costs of the acquisition. 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.
77
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 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 was
accounted for as a purchase, and accordingly, the operating
results of Vista have been included in our consolidated
financial statements from the date of acquisition. Pro forma
operating results have not been presented as the acquisition is
not material to our consolidated financial statements. In
connection with the Vista acquisition, we recorded $229,000 of
goodwill in our Retail Enterprise Systems reporting unit
and $2.1 million of goodwill in our Collaborative
Solutions reporting unit. The weighted average amortization
period for all intangible assets acquired in this transaction
that are subject to amortization is 7.87 years. The
following summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted Average |
|
|
| |
|
Useful Life |
|
Amortization Period |
|
|
| |
|
|
|
|
|
|
|
Fair value of current assets acquired
|
|
|
|
|
|
|
|
|
|
$ |
662 |
|
|
Software technology
|
|
|
6 years |
|
|
|
6 years |
|
|
|
1,100 |
|
|
Customer lists
|
|
|
10 years |
|
|
|
10 years |
|
|
|
1,110 |
|
|
Other intangible assets
|
|
|
3 to 5 years |
|
|
|
4 years |
|
|
|
80 |
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,290 |
|
|
Fair value of deferred revenue acquired
|
|
|
|
|
|
|
|
|
|
|
(681 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total acquisition cost of Vista Software Solutions, Inc.
|
|
|
|
|
|
|
|
|
|
|
4,561 |
|
|
Reserves for direct costs related to the acquisition
|
|
|
|
|
|
|
|
|
|
|
(555 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cash expended to acquire Vista Software Solutions,
Inc.
|
|
|
|
|
|
|
|
|
|
$ |
4,006 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
J•Commerce Inc. In April 2002, we acquired certain
intellectual property of J•Commerce Inc.
(“J•Commerce”), a privately held Canadian
corporation, for a total cost of $4.2 million, which
includes the purchase price of $4.0 million plus $185,000
in direct costs of the acquisition. J•Commerce developed
point-of-sale software solutions based on
Javatm
technology. We have subsequently developed a Portfolio Point
of Sales application that combines the J•Commerce
point-of-sale software technology with our Internet-based
Store Portal application to provide a complementary
product strategy with Win/ DSS for larger 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
acquisition is not material to our consolidated financial
statements. In connection with the J•Commerce acquisition,
we expensed $800,000 of purchased in-process research and
development at the date of acquisition, and recorded
$1.3 million of goodwill in our In-Store Systems
reporting unit. The weighted average amortization period for
all intangible assets acquired in this
78
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
transaction that are subject to amortization is
14.71 years. The following summarizes the fair values of
the assets acquired and liabilities assumed at the date of
acquisition.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted Average |
|
|
| |
|
Useful Life |
|
Amortization Period |
|
|
| |
|
|
|
|
|
|
|
Software technology
|
|
|
5 to 15 years |
|
|
|
14.7 years |
|
|
$ |
2,060 |
|
|
In-process research and development
|
|
|
|
|
|
|
|
|
|
|
800 |
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,325 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total acquisition cost of J•Commerce, Inc.
|
|
|
|
|
|
|
|
|
|
|
4,185 |
|
|
Reserves for direct costs related to the acquisition
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cash expended to acquire J•Commerce, Inc.
|
|
|
|
|
|
|
|
|
|
$ |
4,170 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Termination of Our Agreement to Acquire
QRS Corporation. On September 2, 2004,
QRS Corporation (“QRS”) exercised its right to
terminate our Agreement and Plan of Merger dated June 17,
2004 (“Merger Agreement”) in order to accept a
superior proposal from an unrelated third party. Pursuant to the
terms of the Merger Agreement, we received a $3.8 million
termination fee from QRS on September 3, 2004. The
termination fee is reported net of $2.6 million of direct
costs incurred by the Company related to the terminated
acquisition and has been included in the Consolidated Statements
of Income for 2004 under the caption “Net gain on
acquisition breakup fee.”
We invest our excess cash in short-term, interest-bearing
instruments that have a low risk of capital loss, such as
U.S. government securities, commercial paper and corporate
bonds, and money market securities. Commercial paper must be
rated “1” by 2 of the 5 nationally recognized
statistical rating organizations. Corporate bonds must be rated
Aa2 or AA or better by Moody’s and S&P, respectively.
All marketable securities held at December 31, 2004 have
contractual maturities of one year or less. Expected maturities
could differ from contractual maturities as borrowers may have
the right to call or prepay obligations with or without call or
prepayment penalties. The amortized cost, gross unrealized gains
and losses and fair value of marketable securities at
December 31, 2004 and 2003 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross |
|
Gross |
|
|
| |
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
| |
|
Cost |
|
Gains |
|
Losses |
|
Value |
| |
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$ |
15,093 |
|
|
$ |
42 |
|
|
$ |
10 |
|
|
$ |
15,125 |
|
|
Corporate
|
|
|
5,010 |
|
|
|
— |
|
|
|
7 |
|
|
|
5,003 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Marketable securities
|
|
$ |
20,103 |
|
|
$ |
42 |
|
|
$ |
17 |
|
|
$ |
20,128 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies
|
|
$ |
30,676 |
|
|
$ |
48 |
|
|
$ |
— |
|
|
$ |
30,724 |
|
|
Corporate
|
|
|
6,544 |
|
|
|
1 |
|
|
|
3 |
|
|
|
6,542 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Marketable securities
|
|
$ |
37,220 |
|
|
$ |
49 |
|
|
$ |
3 |
|
|
$ |
37,266 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| 4. |
Accounts Receivable, Net |
At December 31, 2004 and 2003 accounts receivable consist
of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Trade receivables
|
|
$ |
41,924 |
|
|
$ |
43,154 |
|
|
Less allowance for doubtful accounts
|
|
|
(2,400 |
) |
|
|
(2,992 |
) |
| |
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
39,524 |
|
|
$ |
40,162 |
|
| |
|
|
|
|
|
|
|
|
A summary of changes in the allowance for doubtful accounts for
the three-year period ended December 31, 2004 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$ |
2,992 |
|
|
$ |
6,000 |
|
|
$ |
4,971 |
|
|
Provision for doubtful accounts
|
|
|
— |
|
|
|
500 |
|
|
|
2,900 |
|
|
Deductions, net
|
|
|
(592 |
) |
|
|
(3,508 |
) |
|
|
(1,871 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$ |
2,400 |
|
|
$ |
2,992 |
|
|
$ |
6,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The provision for doubtful accounts recorded in 2002 includes
amounts related to large bankruptcy filings. Delays typically
occur between the periods in which we record a provision for
doubtful accounts related to a large bankruptcy filing, and the
period in which the actual uncollectible receivable balances are
written-off.
|
|
| 5. |
Promissory Note Receivable |
In May 2001, we entered into a secured promissory note agreement
under which we agreed to loan Silvon Software, Inc.
(“Silvon”) $3.5 million. We license certain
applications from Silvon for use in the IDEAS product. The loan
was collateralized by a first priority security interest in all
of Silvon’s intellectual property, accounts receivable and
all other assets. The promissory note provided for interest at
prime + 1.5, payable monthly, and for periodic payments towards
the principal balance through the retention of a portion of the
royalties we owe Silvon from sales of the IDEAS product, with
any remaining accrued and unpaid interest and principal due and
payable on May 8, 2004.
On May 7, 2004, Silvon notified the Company that it would
not make the final May 8, 2004 payment due under the note
and advised that an arbitration claim had been filed against the
Company. We subsequently filed a counterclaim for the remaining
balance on the note plus interest and attorney fees. On
November 30, 2004, the Company entered into a Settlement
Agreement and Release with Silvon that includes the following:
(i) an Amended and Restated Secured Promissory Note that
provides for repayment of the outstanding principal and interest
due on the note (at the default rate of 18%) on or before
March 30, 2005, (ii) an Amended Distribution License
Agreement that provides for the retention and application of
100% of the royalty and maintenance fees due Silvon against the
outstanding principal and interest due on the note until the
note is fully repaid, (iii) the automatic release of the
source code from escrow if Silvon has not paid the full amount
of the outstanding principal and interest due on the note by
March 30, 2005, or if Silvon files for bankruptcy or
similar protection before the outstanding principal has been
paid, and (iv) Silvon’s waiver of any and all rights
including limitation defenses to our remedies as a secured
creditor, and their dismissal with prejudice of all claims made
against the Company in their arbitration claim. No adjustments
have been made
80
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
to the carrying amount of the note as we believe the value of
the underlying collateral is sufficient to recover the remaining
balance on the note if we are required to exercise our legal
remedies.
|
|
| 6. |
Property and Equipment, Net |
At December 31, 2004 and 2003 property and equipment
consist of the following:
| |
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Computers, internal use software, furniture & fixtures
|
|
$ |
68,215 |
|
|
$ |
59,136 |
|
|
Land and buildings
|
|
|
27,556 |
|
|
|
2,294 |
|
|
Automobiles
|
|
|
139 |
|
|
|
131 |
|
|
Leasehold improvements
|
|
|
5,514 |
|
|
|
5,979 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
101,424 |
|
|
|
67,540 |
|
|
Less accumulated depreciation and amortization
|
|
|
(53,100 |
) |
|
|
(45,596 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
$ |
48,324 |
|
|
$ |
21,944 |
|
| |
|
|
|
|
|
|
|
|
In February 2004, we purchased our corporate office facility for
$23.8 million in cash. The purchase included the corporate
office building, a new two-story parking garage, and
approximately 8.8 acres of land upon which these structures
are located. In April 2003, we sold a freestanding
5,000 square foot office facility in the United Kingdom for
approximately $1.6 million and recognized a gain of
$639,000.
Depreciation expense for 2004, 2003 and 2002 was
$9.2 million, $8.7 million, and $8.3 million,
respectively.
|
|
| 7. |
Goodwill and Other Intangibles, Net |
At December 31, 2004 and 2003, goodwill and other
intangible assets consist of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 |
|
December 31, 2003 |
| |
|
|
|
|
| |
|
Gross Carrying |
|
Accumulated |
|
Gross Carrying |
|
Accumulated |
| |
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
| |
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
69,901 |
|
|
$ |
— |
|
|
$ |
62,397 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Customer Lists
|
|
|
40,698 |
|
|
|
(12,351 |
) |
|
|
39,598 |
|
|
|
(8,964 |
) |
| |
Acquired software technology
|
|
|
39,661 |
|
|
|
(18,912 |
) |
|
|
35,060 |
|
|
|
(13,754 |
) |
|
Unamortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Trademarks
|
|
|
2,591 |
|
|
|
— |
|
|
|
3,700 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
82,950 |
|
|
|
(31,263 |
) |
|
|
78,358 |
|
|
|
(22,718 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
152,851 |
|
|
$ |
(31,263 |
) |
|
$ |
140,755 |
|
|
$ |
(22,718 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2004, we recorded $8.4 million of goodwill in
connection with our acquisition of Timera (see Note 2). The
goodwill recorded in the initial purchase accounting entry was
reduced by $369,000 in second quarter 2004 based on our revised
estimate of fair value for the deferred revenue acquired in the
transaction, and increased by $425,000 in third quarter 2004 to
record additional reserves to exit the leased property assumed
in the acquisition. In addition, we reduced goodwill in the
second and fourth quarters of 2004 by $692,000 and $118,000,
respectively for the settlement of certain tax positions taken
by the Company in connection with our acquisition of E3. We also
reduced goodwill by $74,000 in third quarter 2004 based on our
revised estimates of the direct costs related to the acquisition
of Engage.
During 2003, we recorded $2.3 million of goodwill in
connection with our acquisition of Vista and $306,000 of
goodwill in connection with the acquisition of Engage (see
Note 2).
81
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
During 2002, we recorded $1.3 million of goodwill in
connection with our acquisition of J•Commerce (see
Note 2). We also recorded an additional $3.3 million
in goodwill during 2002 as a result of certain adjustments made
to the estimated fair values of assets and liabilities assumed
in the acquisition of E3 and 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.
We performed our annual tests for goodwill and trademark
impairment during the fourth quarters of 2004, 2003 and 2002. We
found no indication of goodwill impairment in our reporting
units during these years and no indication of trademark
impairment in 2003 or 2002. A $1.1 million impairment loss
was recorded in fourth quarter 2004 on trademarks acquired from
E3. Trademarks are tested annually for impairment using the
“Relief from Royalty Method of the Income Approach.”
The premise of this valuation method is that the value of an
asset can be measured by the present worth of the net economic
benefit (cash receipts less cash outlays) to be received over
the life of the asset and assumes that in lieu of ownership, a
firm would be willing to pay a royalty in order to exploit the
related benefits of this asset class. The impairment loss
resulted primarily from the lower software revenue forecast used
by the Company in the 2004 valuation compared to 2003, and a
more conservative annual growth rate, rather than a change in
legal, regulatory, contractual, competitive, economic, or other
factors that would limit the useful lives of the E3 trademarks.
The impairment loss has been reported as a separate component of
operating expenses under the caption “Loss on impairment of
trademark,” and allocated to the Retail Enterprise
Systems ($850,000) and Collaborative Solutions
($250,000) reporting units based on the initial allocation
percentage used for these trademarks at the date of acquisition.
Absent future indications of impairment, the next annual
impairment tests will be performed in fourth quarter 2005. As of
December 31, 2004, goodwill has been allocated to our
reporting units as follows: $42.0 million to Retail
Enterprise Systems,$9.7 million to In-Store
Systems, and $18.2 million to Collaborative
Solutions.
We reviewed the customer attrition rates for each significant
acquired customer group in fourth quarter 2004 to ensure that
the rate of attrition is not increasing and our estimates of
life expectancy for our customer lists are appropriate. There
were no adjustments required.
Amortization expense for 2004, 2003 and 2002 was
$8.5 million, $7.6 million and $7.1 million,
respectively, and is shown as separate line items in the
consolidated statements of income within cost of revenues and
operating expenses. We expect amortization expense for the next
five years to be as follows:
| |
|
|
|
|
|
2005
|
|
$ |
8,340 |
|
|
2006
|
|
$ |
8,153 |
|
|
2007
|
|
$ |
7,031 |
|
|
2008
|
|
$ |
5,854 |
|
|
2009
|
|
$ |
4,210 |
|
|
|
| 8. |
Accrued Expenses and Other Liabilities |
At December 31, 2004 and 2003, accrued expenses and other
liabilities consist of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Accrued compensation and benefits
|
|
$ |
14,667 |
|
|
$ |
13,138 |
|
|
Restructuring reserves
|
|
|
2,109 |
|
|
|
718 |
|
|
Acquisition related reserves
|
|
|
760 |
|
|
|
1,133 |
|
|
Other accrued expenses
|
|
|
7,109 |
|
|
|
8,045 |
|
| |
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
24,645 |
|
|
$ |
23,034 |
|
| |
|
|
|
|
|
|
|
|
82
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
2004 Restructuring Charges |
We recorded a $2.7 million restructuring charge in first
quarter 2004 for $1.8 million in one-time termination
benefits related to a workforce reduction of 47 full-time
employees (“FTE”), primarily in sales (15 FTE) and
consulting services (18 FTE) functions in the Americas, Europe
and Asia/ Pacific, and $900,000 for closure costs of certain
offices in the Americas and Europe that were either
under-performing or under-utilized and used primarily by
consulting services personnel. All workforce reductions and
office closures associated with this charge were made on or
before March 31, 2004. Subsequent to the initial
restructuring charge, we increased our estimate of employee
severance and termination benefits by $50,000, primarily as a
result of a contested termination in the Americas, and reduced
our estimate of office closure reserve requirements by $58,000
primarily as a result of a favorable settlement of outstanding
lease obligations on a vacated facility in Germany.
We recorded a $3.1 million restructuring charge in fourth
quarter 2004 in connection with our announcement of our
strategic operational plan for 2005 that includes a
consolidation of product lines, a net workforce reduction of
approximately 12% or 157 FTE worldwide, and a reduction of
certain office space. The charge includes $2.8 million in
one-time termination benefits related to the net workforce
reduction that includes certain employees involve in the product
development (82 FTE), consulting services and training (55 FTE),
sales and marketing (18 FTE), and administrative (16 FTE)
functions in the Americas, Europe and Asia Pacific, offset by a
net gain of 14 FTE in the customer support function resulting
from the transfer of 20 developers and functional experts into
the new Customer Directed Development (“CDD”)
organization structure within our Customer Support Solutions
group. The CDD group is responsible for improving the speed and
efficiency of the Company’s issue resolution, support and
enhancements for maintenance customers. Through
December 31, 2004, 110 FTE have been terminated or open
positions eliminated under this plan. The remaining employees
affected by this workforce reduction have been notified and are
on various forms of stay put agreements that expire gradually
over the first and second quarters of 2005. The fourth quarter
2004 charge also includes $340,000 for reduction of office space
related primarily to the negotiated buyout or net rentals
remaining under existing operating leases on certain facilities
in Northern Europe that were vacated by December 31, 2004.
JDA anticipates that it will take an additional restructuring
charge of approximately $1.8 million to $2.0 million
in the first half of 2005 to complete the plan.
Management believes the changes contemplated in the strategic
operational plan will allow the Company to generate higher
profits at the current revenue levels. Specifically, management
believes the restructuring plan will enable JDA to
(i) streamline operations and reduce duplicate investments
in product development by consolidating significant portions of
the existing product suite on the .Net platform used in the
Portfolio Enabled products, (ii) maximize the return
from the Company’s ongoing investments in advanced
technology for the delivery of highly specialized services via
the Internet and internal administrative systems, and
(iii) better align the Company’s operating strategies
to identified growth areas in the market.
A summary of the 2004 restructuring and office closure charges
included in accrued expenses and other liabilities is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Loss on |
|
|
|
Impact of |
|
Balance at |
| |
|
Initial |
|
Cash |
|
Disposal |
|
Adjustments |
|
Changes in |
|
Dec. 31, |
| Description of the charge |
|
Reserve |
|
Charges |
|
of Assets |
|
to Reserve |
|
Exchange Rates |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance, benefits, and legal costs
|
|
$ |
4,599 |
|
|
$ |
(3,259 |
) |
|
$ |
— |
|
|
$ |
50 |
|
|
$ |
42 |
|
|
$ |
1,432 |
|
|
Office closure costs
|
|
|
1,240 |
|
|
|
(655 |
) |
|
|
(95 |
) |
|
|
(58 |
) |
|
|
36 |
|
|
|
468 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
5,839 |
|
|
$ |
(3,914 |
) |
|
$ |
(95 |
) |
|
$ |
(8 |
) |
|
$ |
78 |
|
|
$ |
1,900 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The remaining balance for severance, benefits and legal costs
relates to terminated employees that we expect to be paid out by
March 31, 2005. The remaining balance for office closure
costs is being paid out as the leases and related subleases run
through their remaining terms.
|
|
|
2002 Restructuring Charges |
We recorded a $1.3 million restructuring charge in second
quarter 2002 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.
We recorded a restructuring charge of $5.0 million in
fourth quarter 2002 for the workforce reduction and office
closure costs to reorganize the Company in connection with the
implementation of the Customer Value Program (“CVP”).
CVP was 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, (iv) increase
revenue, (v) better align our cost structure, and
(vi) improve our operating results. The reorganization
resulted in the consolidation of nearly all product development
and client support activities at our corporate headquarters, a
workforce reduction of approximately 204 full-time
employees and certain office closures. Office closure costs
pertain to certain US, Latin American, and European offices that
were either under-performing or became redundant with the
reorganization.
A summary of the 2002 restructuring and office closure charges
included in accrued expenses and other liabilities is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Loss on |
|
|
|
Balance at |
|
|
|
Loss on |
|
Balance at |
| Description of the |
|
Initial |
|
Cash |
|
disposal |
|
Adjustments |
|
Dec 31, |
|
Cash |
|
disposal |
|
Dec 31, |
| charge |
|
Reserve |
|
Charges |
|
of assets |
|
to Reserve |
|
2003 |
|
Charges |
|
of assets |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance, benefits and legal costs
|
|
$ |
5,204 |
|
|
$ |
(4,846 |
) |
|
$ |
— |
|
|
$ |
(197 |
) |
|
$ |
161 |
|
|
$ |
(161 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
Office closure costs
|
|
|
1,083 |
|
|
|
(598 |
) |
|
|
(124 |
) |
|
|
196 |
|
|
|
557 |
|
|
|
(334 |
) |
|
|
(14 |
) |
|
|
209 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
6,287 |
|
|
$ |
(5,444 |
) |
|
$ |
(124 |
) |
|
$ |
(1 |
) |
|
$ |
718 |
|
|
$ |
(495 |
) |
|
$ |
(14 |
) |
|
$ |
209 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2003, we reduced our estimate of severance, benefits and
legal costs by $197,000, primarily as a result of our decision
to offer indefinite full-time employment to certain employees
previously subject to temporary retention arrangements, and
accrued an additional $196,000 for office closure costs based on
our revised estimate of the time required to sublease the
vacated office space in the current economic environment. Both
adjustments were made through the income statement. The
remaining balance for office closure costs is being paid out as
the leases and any related subleases run through their remaining
terms.
|
|
| 10. |
Relocation Costs to Consolidate Development and Client
Support Activities |
In connection with our fourth quarter 2002 CVP initiative,
approximately 150 people were offered the opportunity to
relocate as part of a plan to consolidate our development and
client support activities at our corporate headquarters. We
relocated 50 employees as part of this initiative and have
recorded over $2.2. million in related relocation costs in
income from continuing operations as incurred, including
$1.8 million and $452,000 in 2003 and 2002, respectively.
Accordingly, there were no accrued liabilities associated with
these charges at December 31, 2003.
|
|
| 11. |
E3 Acquisition Reserves |
In conjunction with the acquisition of E3, we recorded
acquisition reserves of approximately $14.6 million for
restructuring costs to exit the activities of E3 and other
direct costs associated with the acquisition. These costs
related primarily to facility closures, employee severance,
investment banker fees, and legal and
84
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
accounting costs. We subsequently increased the purchase price
and E3 acquisition reserves by $1.3 million during 2002
based on revised estimates of the restructuring costs to exit
the activities of E3 and other direct costs of the acquisition.
During 2003, we reduced our estimate of employee severance and
termination benefits by $172,000, and accrued $190,000 for
facility termination and sublease costs based on our revised
estimate of the time required to sublease the vacated office
space in the current economic environment. During 2004, we
accrued an additional $341,000 to fully reserve the remaining
lease payments on this vacated office space. The real estate
market in which this facility is located continues to be
depressed, and it appears unlikely that a tenant will be found
to sublease the available space during the remaining term of the
lease which extends through February 2006. All adjustments
during 2003 and 2004 have been made through the income
statement. The 2004 adjustment is included in operating expenses
under the caption “Restructuring charges and adjustments to
acquisition-related reserves.”
All employee severance and termination benefits as well as
investment banker fees and legal and accounting costs were fully
paid by December 31, 2003, and the only remaining reserves
at December 31, 2004 are for facility termination and
sublease costs which are being paid out over the remaining term
of the lease. A summary of the charges and adjustments recorded
against the E3 acquisition reserves, which are included in
accrued expenses and other liabilities, is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
Balance |
| |
|
Initial |
|
Cash |
|
Adj to |
|
Non-Cash |
|
December 31, |
|
Cash |
|
Adj to |
|
December 31, |
| Description of charge |
|
Reserve |
|
Charges |
|
Reserves |
|
Charges |
|
2003 |
|
Charges |
|
Reserves |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges under EITF 95-3: |
|
Facility termination and sublease costs
|
|
$ |
4,689 |
|
|
$ |
(5,458 |
) |
|
$ |
1,319 |
|
|
$ |
(25 |
) |
|
$ |
525 |
|
|
$ |
(393 |
) |
|
$ |
341 |
|
|
$ |
473 |
|
|
Employee severance and termination benefits
|
|
|
4,351 |
|
|
|
(4,363 |
) |
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Termination payments to distributors
|
|
|
500 |
|
|
|
(100 |
) |
|
|
(400 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
E3 user group and trade show cancellation fees
|
|
|
84 |
|
|
|
(72 |
) |
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Direct costs under SFAS No. 141 |
|
Legal and accounting costs
|
|
|
2,344 |
|
|
|
(2,751 |
) |
|
|
407 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Investment banker fees
|
|
|
2,119 |
|
|
|
(2,119 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Due diligence fees and expenses
|
|
|
350 |
|
|
|
(376 |
) |
|
|
26 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Filing fees, appraisal services and transfer taxes
|
|
|
110 |
|
|
|
(100 |
) |
|
|
(10 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
14,547 |
|
|
$ |
(15,339 |
) |
|
$ |
1,342 |
|
|
$ |
(25 |
) |
|
$ |
525 |
|
|
$ |
(393 |
) |
|
$ |
341 |
|
|
$ |
473 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The facility termination and sublease costs represent the 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.
Employee severance and termination benefits were 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 communi-
85
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
cated the termination arrangements to the affected employees in
accordance with statutory requirements of the local
jurisdictions in which the employees were located.
At December 31, 2004 and 2003, deferred revenue consists of
deferrals for software license fees, maintenance, consulting and
training and other services as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Software
|
|
$ |
891 |
|
|
$ |
1,141 |
|
|
Maintenance
|
|
|
24,411 |
|
|
|
21,658 |
|
|
Consulting
|
|
|
2,443 |
|
|
|
1,842 |
|
|
Training and other
|
|
|
673 |
|
|
|
593 |
|
| |
|
|
|
|
|
|
|
|
| |
|
$ |
28,418 |
|
|
$ |
25,234 |
|
| |
|
|
|
|
|
|
|
|
On February 5, 2004 we purchased our 136,000 square
foot corporate office facility in Scottsdale, Arizona for
approximately $23.8 million in cash. The purchase included
the corporate office building, a new two-story parking garage,
and approximately 8.8 acres of land upon which these
structures are located. We currently occupy approximately
121,000 square feet of the facility. In addition, we lease
approximately 2,900 square feet of the facility and the
remaining excess space is available for lease. The corporate
office is also used for certain of our sales, marketing,
consulting, customer support, training, and product development
functions. Prior to the purchase, we leased approximately
121,000 square feet in the corporate office facility under
an operating lease with an initial term of ten years and a
scheduled monthly lease payment of approximately $135,000 from
April 1999 through March 2004. This lease was amended in June
2003 to include the remaining 15,000 square feet and extend
the term of lease through December 2014.
We lease office space in the Americas for 12 regional sales and
support offices across the United States, Canada and Latin
America, and for 11 international sales and support offices
located in major cities throughout Europe, Asia, Australia, and
Japan. The leases are primarily non-cancelable operating leases
with initial terms ranging from 12 months to
120 months that expire at various dates through the year
2012. None of the leases contain contingent rental payments;
however, certain of the leases contain insignificant scheduled
rent increases and renewal options. We expect that in the normal
course of business some or all of these leases will be renewed
or that suitable additional or alternative space will be
available on commercially reasonable terms as needed. In
addition, we lease various computers, telephone systems,
automobiles, and office equipment under non-cancelable operating
leases with initial terms generally ranging from 24 to
60 months. Certain of the equipment leases contain renewal
options and we expect that in the normal course of business some
or all of these leases will be renewed or replaced by other
leases.
In addition to the excess space in our corporate office facility
that is available for lease, we have approximately
40,000 square feet of excess office space under operating
leases that extend through November 2006 which is available for
sub-lease.
86
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Rental expense under operating leases in 2004, 2003 and 2002 was
$5.1 million, 6.8 million, and $7.7 million,
respectively. The following summarizes future minimum lease
payments under non-cancelable operating leases with minimum or
remaining lease terms at December 31, 2004.
| |
|
|
|
|
|
|
2005
|
|
$ |
5,772 |
|
|
2006
|
|
|
3,670 |
|
|
2007
|
|
|
1,920 |
|
|
2008
|
|
|
1,599 |
|
|
2009
|
|
|
1,507 |
|
|
Thereafter
|
|
|
3,171 |
|
| |
|
|
|
|
| |
Total future minimum lease payments
|
|
$ |
17,639 |
|
| |
|
|
|
|
In connection with the acquisition of E3 we provided reserves
for direct costs related to certain sublease obligations on
redundant facilities. At of December 31, 2004, these
reserves represent $473,000 of the total minimum lease payments
shown above (See Note 11).
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 position, results of operations or cash flows.
Preferred Stock Purchase Rights Plan. We adopted a
Preferred Stock Purchase Rights Plan (the “Rights
Plan”) in October 1998 designed to deter coercive or unfair
takeover tactics and to prevent a person or a group from gaining
control of our Company without offering a fair price to all
stockholders.
Under the terms of the Rights Plan, a dividend distribution of
one Preferred Stock Purchase Right (“Right”) for each
outstanding share of our common stock was made to holders of
record on October 20, 1998. These Rights entitle the holder
to purchase one one-hundredth of a share of our Series A
Preferred Stock (“Preferred Stock”) at an exercise
price of $100. The Rights become exercisable
(a) 10 days after a public announcement that a person
or group has acquired shares representing 15% or more of the
outstanding shares of common stock, or (b) 10 business days
following commencement of a tender or exchange offer for 15% or
more of such outstanding shares of common stock.
We can redeem the Rights for $0.001 per Right at any time
prior to their becoming exercisable. The Rights expire on
October 1, 2008, unless we redeem them earlier or they are
exchanged for common stock. Under certain circumstances, if a
person or group acquires 15% or more of our common stock, the
Rights permit stockholders other than the acquirer to purchase
common stock having a market value of twice the exercise price
of the Rights, in lieu of the Preferred Stock. In addition, in
the event of certain business combinations, the Rights permit
stockholders to purchase the common stock of an acquirer at a
50% discount. Rights held by the acquirer will become null and
void in both cases.
Treasury Stock Repurchase Program. In July 2002, our
Board of Directors authorized a repurchase of up to two million
shares of our outstanding common stock on the open market at
prevailing market prices during a one-year period ended
July 22, 2003. We repurchased a total of
175,000 shares of our common stock for $1.8 million
under this program, including 75,000 shares for $757,000 in
2003 and 100,000 shares for $1.1 million in 2002.
On February 15, 2005, our Board of Directors approved a
program to repurchase from time to time at management’s
discretion up to one million shares of the Company’s common
stock on the open market or in private transactions until
January 26, 2006 at prevailing market prices. The program
was adopted as part of our revised approach to equity
compensation, which will emphasize performance-based awards to
employees and
87
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
open market stock repurchases by the Company designed to
mitigate or eliminate dilution from future employee and director
equity-based incentives. Through March 14, 2005, we have
purchased a total of 157,000 shares of our common stock for
approximately $2.2 million under this program.
Our 1995 Stock Option Plan (the “1995 Option Plan”)
was approved by stockholders and provided for the issuance of up
to 2,025,000 shares of common stock to employees under
incentive and non-statutory stock option grants. Incentive and
non-statutory stock options were granted under the 1995 Option
Plan at prices not less than the fair market value of the common
stock at the date of grant. The options generally become
exercisable over periods ranging from 18 to 48 months,
commencing at the date of grant, and expire in ten years. The
1995 Option Plan was terminated effective April 24, 2001
except for those provisions necessary to the administration of
any outstanding options at the time of termination. No further
grants will be made under the 1995 Option Plan.
Our 1996 Stock Option Plan (the “1996 Option Plan”)
was approved by stockholders and currently provides for the
issuance of up to 8,200,000 shares of common stock to
employees, consultants and directors under incentive and
non-statutory stock option grants. The 1996 Option Plan contains
certain grant restrictions and limitations that prohibit us from
(i) granting more than 1,200,000 shares common stock
subject to new options in any 12-month period (commencing
May 25, 2000), subject to any stock split,
re-capitalization, dividend or related events,
(ii) re-pricing any options granted under the 1996 Option
Plan, and (iii) granting any options under the 1996 Option
Plan with an exercise price below fair market value of the
common stock at the date of grant. The options granted under the
1996 Option Plan generally vest over a three or four-year
period, commencing at the date of grant, and expire in ten
years. Certain options granted to executive officers during 2002
have shorter vesting periods and provide for accelerated vesting
upon a change of control in the Company’s ownership.
Beginning in January 2003, the standard form of option agreement
was modified to provide for a contractual term on new grants
equal to the vesting period of the option plus three years. The
1996 Option Plan has no scheduled termination date.
Our 1996 Outside Director Stock Option Plan (the
“1996 Directors Plan”) was approved by
stockholders and currently provides for the issuance of up to
225,000 shares of common stock to eligible participants
under non-statutory stock option grants. Under the
1996 Directors Plan, outside directors receive a one-time
grant to purchase 18,750 shares upon appointment to
the Board of Directors, and an annual option grant to
purchase 6,000 shares for each year of service
thereafter. The non-statutory stock options may be granted at a
price not less than the fair market value of the common stock at
the date of grant. The options generally vest over a three-year
period commencing at the date of grant, and expire in ten years.
The 1996 Directors Plan has no scheduled termination date.
Our 1998 Non-statutory Stock Option Plan (the “1998 Option
Plan”) has not been approved by stockholders and has no
scheduled termination date. The 1998 Option Plan currently
provides for the issuance of up to 762,500 shares of common
stock to employees under non-statutory stock option grants and
permits option grants to executive officers under certain
conditions. Options granted under the 1998 Option Plan may be
granted at a price not less than the fair market of our common
stock on the date of grant, generally vest over a three to
four-year period commencing at the date of grant and expire over
periods ranging from five years to ten years. Certain options
granted to executive officers during 2002 have shorter vesting
periods and provide for accelerated vesting upon a change of
control in the Company’s ownership. Beginning in January
2003, the standard form of option agreement was modified to
provide for a contractual term on new grants equal to the
vesting period of the option plus three years. There were no
options granted under the 1998 Option Plan during 2003 or 2004.
88
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following summarizes the combined stock option activity
during the three-year period ended December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Options Outstanding |
| |
|
|
|
|
| |
|
Options Available |
|
|
|
Exercise Price |
| |
|
for Grant |
|
Shares |
|
per Share |
| |
|
|
|
|
|
|
|
Balance, January 1, 2002
|
|
|
1,961,524 |
|
|
|
4,988,893 |
|
|
$ |
2.33 to $37.25 |
|
| |
Granted
|
|
|
(2,116,200 |
) |
|
|
2,116,200 |
|
|
$ |
8.50 to $28.20 |
|
| |
Cancelled
|
|
|
501,268 |
|
|
|
(501,268 |
) |
|
$ |
8.56 to $21.01 |
|
| |
Exercised
|
|
|
— |
|
|
|
(1,324,768 |
) |
|
$ |
2.83 to $26.96 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
346,592 |
|
|
|
5,279,057 |
|
|
$ |
2.33 to $37.25 |
|
| |
Increase in reserved shares
|
|
|
1,200,000 |
|
|
|
— |
|
|
|
— |
|
| |
Granted
|
|
|
(451,350 |
) |
|
|
451,350 |
|
|
$ |
10.33 to $17.00 |
|
| |
Cancelled
|
|
|
268,085 |
|
|
|
(268,085 |
) |
|
$ |
8.56 to $26.96 |
|
| |
Exercised
|
|
|
— |
|
|
|
(348,056 |
) |
|
$ |
6.44 to $16.89 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
1,363,327 |
|
|
|
5,114,266 |
|
|
$ |
2.33 to $37.25 |
|
| |
Granted
|
|
|
(921,500 |
) |
|
|
921,500 |
|
|
$ |
9.88 to $16.51 |
|
| |
Cancelled
|
|
|
406,123 |
|
|
|
(406,123 |
) |
|
$ |
2.33 to $28.10 |
|
| |
Exercised
|
|
|
— |
|
|
|
(166,950 |
) |
|
$ |
8.50 to $15.75 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
847,950 |
|
|
|
5,462,693 |
|
|
$ |
2.83 to $37.25 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes certain weighted average information on
options outstanding at December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding |
|
Options Exercisable |
| |
|
|
|
|
| |
|
|
|
Weighted |
|
|
|
|
| |
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
| |
|
|
|
Remaining |
|
Average |
|
|
|
Average |
| |
|
Number |
|
Contractual |
|
Exercise |
|
Number |
|
Exercise |
| Range of Exercise Prices |
|
Outstanding |
|
Life (years) |
|
Price |
|
Exercisable |
|
Price |
| |
|
|
|
|
|
|
|
|
|
|
|
$2.83
|
|
|
7,500 |
|
|
|
0.75 |
|
|
$ |
2.83 |
|
|
|
7,500 |
|
|
$ |
2.83 |
|
|
$6.44 to $9.88
|
|
|
723,940 |
|
|
|
4.44 |
|
|
$ |
8.62 |
|
|
|
714,300 |
|
|
$ |
8.61 |
|
|
$10.00 to $11.94
|
|
|
1,946,185 |
|
|
|
6.61 |
|
|
$ |
10.94 |
|
|
|
1,265,703 |
|
|
$ |
11.10 |
|
|
$12.00 to $15.75
|
|
|
1,420,304 |
|
|
|
6.79 |
|
|
$ |
14.42 |
|
|
|
842,592 |
|
|
$ |
14.29 |
|
|
$16.00 to $23.85
|
|
|
1,203,045 |
|
|
|
5.76 |
|
|
$ |
19.72 |
|
|
|
933,041 |
|
|
$ |
20.49 |
|
|
$24.47 to $37.25
|
|
|
161,719 |
|
|
|
4.70 |
|
|
$ |
28.16 |
|
|
|
142,609 |
|
|
$ |
28.32 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
5,462,693 |
|
|
|
|
|
|
|
|
|
|
|
3,905,745 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 15, 2005, the Compensation Committee of our
Board of Directors (the “Committee”) approved an
immediate acceleration of the vesting for all unvested stock
options previously awarded to employees, officers and directors.
The accelerated options were issued under our 1995 Stock Option
Plan, 1996 Stock Option Plan, 1996 Outside Director Stock Option
Plan and 1998 Non-statutory Stock Option Plan. The closing
market price per share of our common stock on February 15,
2005 was $11.85 and the exercise prices of the approximately
1.4 million in unvested options on that date ranged from
$8.50 to $28.20 (see Note 1).
|
|
|
Employee Stock Purchase Plan. |
Our 1999 Employee Stock Purchase Plan (“1999 Purchase
Plan”) was terminated in August 2003. The 1999 Purchase
Plan provided eligible employees the ability to purchase our
common stock semi-annually at 85% of the lesser of (1) the
fair market value on the first day of the 24-month offering
period, or (2) the fair
89
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
market value on the last day of each semi-annual purchase
period. During 2002, 335,985 shares were purchased at
prices ranging from $10.64 to $17.40. During 2003,
385,003 shares were purchased at prices ranging from $10.57
to $10.58.
The following provides tabular disclosure of the number of
securities to be issued upon the exercise of outstanding
options, the weighted average exercise price of outstanding
options, and the number of securities remaining available for
future issuance under equity compensation plans, aggregated into
two categories — plans that have been approved by
stockholders and plans that have not:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities |
| |
|
Number of Securities |
|
|
|
Remaining Available |
| |
|
to be Issued upon |
|
Weighted-Average |
|
for Future Issuance |
| |
|
Exercise of |
|
Exercise Price of |
|
under Equity |
| Equity Compensation Plans |
|
Outstanding Options |
|
Outstanding Options |
|
Compensation Plans |
| |
|
|
|
|
|
|
|
Approved by stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1995 Option Plan
|
|
|
7,500 |
|
|
$ |
2.83 |
|
|
|
— |
|
|
1996 Option Plan
|
|
|
4,879,823 |
|
|
$ |
13.85 |
|
|
|
705,980 |
|
|
1996 Directors Plan
|
|
|
163,480 |
|
|
$ |
17.68 |
|
|
|
21,417 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
5,050,803 |
|
|
$ |
13.96 |
|
|
|
727,397 |
|
|
Not approved by stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Option Plan
|
|
|
411,890 |
|
|
$ |
14.09 |
|
|
|
120,553 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
5,462,693 |
|
|
$ |
13.97 |
|
|
|
847,950 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
During the three years ended December 31, 2004, certain
employees exercised options or sold stock acquired under the
stock purchase plan in disqualifying dispositions that resulted
in deductions for income tax purposes. Our tax liability for
2004, 2003 and 2002 was reduced by $126,000, $777,000 and
$5.8 million, respectively, to give effect to these
dispositions with an offsetting credit to additional paid-in
capital.
|
|
| 16. |
Employee Benefit Plans |
We maintain a defined 401(k) contribution plan (“401(k)
Plan”) for the benefit of our employees. Participant
contributions vest immediately and are subject to the limits
established from time-to-time by the Internal Revenue Service.
We provide discretionary matching contributions to the 401(k)
Plan on an annual basis. Our matching contributions were 25% in
2004, 12% in 2003 and 12% 2002. Beginning January 1, 2004,
the vesting schedule in the matching contributions switched from
a five-year graded vesting schedule to a 100% vesting after
2 years of service Our matching contributions to the 401(k)
Plan were $1.4 million, $486,000, and $489,000 in 2004,
2003 and 2002, respectively.
The provision for income taxes includes income taxes currently
payable and those deferred due to temporary differences between
the financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future.
The components of the provision for income taxes in the three
years ended December 31, 2004 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal and state
|
|
$ |
254 |
|
|
$ |
4,550 |
|
|
$ |
5,534 |
|
| |
Foreign
|
|
|
3,006 |
|
|
|
2,451 |
|
|
|
1,773 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current taxes
|
|
|
3,260 |
|
|
|
7,001 |
|
|
|
7,307 |
|
|
Deferred taxes
|
|
|
(5,713 |
) |
|
|
(7,018 |
) |
|
|
(6,271 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Income tax provision (benefit)
|
|
$ |
(2,453 |
) |
|
$ |
(17 |
) |
|
$ |
1,036 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
90
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The deferred tax benefit in 2004 and 2003 results primarily from
the capitalization, for income tax purposes, of certain research
and development costs. The deferred tax benefit in 2002 results
from the transfer of our research and development credit
carryforwards from current income tax receivables to a long-term
deferred tax asset.
The provision for income taxes differed from the amounts
computed by applying the statutory U.S. federal income tax
rate of 34% in 2004 and 2003, and 35% in 2002 to income before
income taxes as a result of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Federal statutory rate
|
|
$ |
(151 |
) |
|
$ |
896 |
|
|
$ |
3,489 |
|
|
Research and development credit
|
|
|
(537 |
) |
|
|
(712 |
) |
|
|
(1,104 |
) |
|
Meals, entertainment and other non-deductible expenses
|
|
|
147 |
|
|
|
147 |
|
|
|
129 |
|
|
State income taxes
|
|
|
58 |
|
|
|
86 |
|
|
|
194 |
|
|
Foreign rate differential
|
|
|
(46 |
) |
|
|
464 |
|
|
|
(2,023 |
) |
|
Income tax audit resolution
|
|
|
(329 |
) |
|
|
— |
|
|
|
(1,919 |
) |
|
Change in deferred tax valuation allowance
|
|
|
(1,481 |
) |
|
|
(976 |
) |
|
|
2,456 |
|
|
Other
|
|
|
(114 |
) |
|
|
78 |
|
|
|
(186 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income tax provision (benefit)
|
|
$ |
(2,453 |
) |
|
$ |
(17 |
) |
|
$ |
1,036 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The income tax effects of temporary differences that give rise
to our deferred income tax assets and liabilities are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
| |
|
Current |
|
Non-Current |
|
Current |
|
Non-Current |
| |
|
|
|
|
|
|
|
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accruals and reserves
|
|
$ |
2,481 |
|
|
$ |
— |
|
|
$ |
3,043 |
|
|
$ |
— |
|
| |
Deferred revenue
|
|
|
528 |
|
|
|
— |
|
|
|
826 |
|
|
|
— |
|
| |
Foreign deferred and NOL
|
|
|
578 |
|
|
|
1,043 |
|
|
|
1,010 |
|
|
|
920 |
|
| |
Tax credit carryforwards
|
|
|
— |
|
|
|
5,169 |
|
|
|
— |
|
|
|
4,215 |
|
| |
R&D Expenses Capitalized
|
|
|
— |
|
|
|
8,802 |
|
|
|
— |
|
|
|
7,931 |
|
| |
AMT Credit carryforward
|
|
|
— |
|
|
|
356 |
|
|
|
— |
|
|
|
223 |
|
| |
Property and equipment
|
|
|
— |
|
|
|
2,098 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Deferred tax asset
|
|
|
3,587 |
|
|
|
17,468 |
|
|
|
4,879 |
|
|
|
13,289 |
|
|
Valuation allowance on deferred tax asset
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,481 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Property and equipment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(144 |
) |
| |
Goodwill and other intangibles
|
|
|
— |
|
|
|
(6,015 |
) |
|
|
— |
|
|
|
(7,901 |
) |
| |
Other
|
|
|
(9 |
) |
|
|
— |
|
|
|
(16 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Deferred tax liability
|
|
|
(9 |
) |
|
|
(6,015 |
) |
|
|
(16 |
) |
|
|
(8,045 |
) |
| |
|
|
Total
|
|
$ |
3,578 |
|
|
$ |
11,453 |
|
|
$ |
4,863 |
|
|
$ |
3,763 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residual United States income taxes have not been provided on
undistributed earnings of our foreign subsidiaries. These
earnings are considered to be indefinitely reinvested and,
accordingly, no provision for United States federal and state
income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the
Company would be subject to both United States income taxes and
withholding taxes payable to various foreign countries less an
adjustment for foreign tax credits. It is not practicable to
estimate the amount of additional tax that might be payable on
the foreign earnings. The
91
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company has incurred net operating losses in certain foreign
jurisdictions that will be carried forward to future years.
On October 22, 2004, the American Jobs Creation Act (the
“AJCA”) was signed into law. The AJCA includes a
deduction of 85% of certain foreign earnings that are
repatriated, as defined in the AJCA. The Company may elect to
apply this provision to qualifying earnings. The Company is
evaluating the effects of the repatriation provision and we
expect to complete this evaluation within a reasonable period of
time. The range of possible amounts that the Company is
considering for repatriation under this provision is between
zero and $8.6 million. The related potential range of
income tax is between zero and $1.9 million.
From time to time, we may be subject to audit by federal, state
and/or foreign taxing authorities. During 2004, we recognized a
benefit from the resolution of a tax matter with the Inland
Revenue and our United Kingdom subsidiary of $200,000 and from
the settlement in the United States of an income tax examination
by the Internal Revenue Service of our 1998 and 1999 federal
income tax returns of $329,000. Under the settlement, the
Internal Revenue Service agreed to allow the Company to take a
research and development expense tax credit for most of the
qualifying expenses originally reported in the Company’s
federal income tax returns for those years.
At December 31, 2004, we have approximately
$3.5 million of federal research and development tax credit
carryforwards that expire at various dates through 2024. We also
have approximately $1.7 million of foreign tax credit
carryforwards that expire in 2014. In 2002, we established a
valuation allowance of $3.5 million for foreign tax credit
carryovers due to our excess credit position, $1.1 million
of which was recorded to additional paid-in capital. We
subsequently elected in third quarter 2003 to capitalize a
significant portion of our research and development costs in the
2002 federal income tax return, which allowed us to more fully
utilize certain tax credits that could not previously be
realized. With this election, we reversed $2.3 million of
the previously recorded valuation allowance, which resulted in a
one-time tax benefit of $938,000, and an increase to additional
paid in capital of $1.1 million, and an increase in income
taxes payable of $262,000. In 2004 we settled the 2000 and 2001
federal income tax audits and capitalized additional research
and development costs in the 2003 federal income tax return that
enabled us to utilize the remainder of the valuation allowance.
We have recorded a contingent tax liability of approximately
$1.1 million at December 31, 2004 as required by FASB
Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies. This contingent tax
liability is comprised primarily of tax refund claims filed in
certain foreign jurisdictions that we feel may not be
collectible.
Earnings per share for the three years ended December 31,
2004 is calculated as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Net income
|
|
$ |
2,009 |
|
|
$ |
2,650 |
|
|
$ |
8,930 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares — Basic earnings per share
|
|
|
29,072 |
|
|
|
28,645 |
|
|
|
28,047 |
|
|
Common stock equivalents
|
|
|
422 |
|
|
|
459 |
|
|
|
1,027 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares — Diluted earnings per share
|
|
|
29,494 |
|
|
|
29,104 |
|
|
|
29,074 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.32 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$ |
.07 |
|
|
$ |
.09 |
|
|
$ |
.31 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 19. |
Business Segments, Geographic Data and Major Customers |
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,
92
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
collaborative planning and forecasting and store operations
requirements of the retail industry and its suppliers. Our
solutions enable customers to manage and optimize their
inventory flows throughout the demand chain to the consumer, and
provide optimized labor scheduling for retail store operations.
Our customers include over 4,700 of the world’s leading
retail, consumer package goods (“CPG”) manufacturers
and wholesalers. We conduct business in three geographic regions
that have separate management teams and reporting structures:
the Americas (United States, Canada and Latin America), Europe
(Europe, 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 accounting policies of each region are
the same as those described in Note 1 of the Notes to
Consolidated Financial Statements. The geographic distribution
of our revenues and identifiable assets as of, or for the
three-year period ended December 31, 2004 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Americas
|
|
$ |
159,074 |
|
|
$ |
134,974 |
|
|
$ |
142,247 |
|
| |
Europe
|
|
|
50,431 |
|
|
|
57,291 |
|
|
|
59,577 |
|
| |
Asia/ Pacific
|
|
|
20,793 |
|
|
|
22,916 |
|
|
|
21,424 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
230,298 |
|
|
|
215,181 |
|
|
|
223,248 |
|
| |
Sales and transfers among regions
|
|
|
(13,424 |
) |
|
|
(7,762 |
) |
|
|
(3,793 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total revenues
|
|
$ |
216,874 |
|
|
$ |
207,419 |
|
|
$ |
219,455 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Americas
|
|
$ |
279,282 |
|
|
$ |
267,834 |
|
|
$ |
260,502 |
|
| |
Europe
|
|
|
38,464 |
|
|
|
40,023 |
|
|
|
43,446 |
|
| |
Asia/ Pacific
|
|
|
14,821 |
|
|
|
12,768 |
|
|
|
11,106 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total identifiable assets
|
|
$ |
332,567 |
|
|
$ |
320,625 |
|
|
$ |
315,054 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues for the Americas include $16.2 million,
$13.7 million and $15.3 million from Latin America and
Canada in 2004, 2003 and 2002, respectively. Identifiable assets
for the Americas include $10.9 million, $10.6 million
and $9.8 million for Latin America and Canada as of
December 31, 2004, 2003 and 2002, respectively. No customer
accounted for more than 10% of our revenues during the three
years ended December 31, 2004.
We organize our business segments around the distinct
requirements of retail enterprises, retail stores, and suppliers
to the retail industry:
|
|
|
| |
• |
Retail Enterprise Systems. The modern retail enterprise
is required to rapidly collect, organize, distribute and
analyze, and optimize information throughout its organization.
Retail Enterprise Systems include corporate level
merchandise management systems (“Merchandise Operations
Systems”) that enable retailers to manage their inventory,
product mix, pricing and promotional execution, and enhance the
productivity and accuracy of warehouse processes. In addition,
Retail Enterprise Systems include a comprehensive set of
tools for planning, buying, supplying, promoting and analyzing
inventory decisions throughout the demand chain (“Strategic
Merchandise Management Solutions”). |
| |
| |
• |
In-Store Systems. Store-level personnel require systems
that enhance and facilitate the retailer’s direct
interaction with the customer, and integrate the store-level
operations into the overall business processes of the
organization. In-Store Systems include point-of-sale,
labor scheduling 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 and payroll systems using hand-held,
radio frequency devices, point-of-sale workstations or dedicated
workstations. In addition, |
93
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
| |
|
In-Store Systems include a workforce management solution
to optimize the scheduling of in-store labor which typically
represents the next largest operational cost for a retailer
after inventory. |
| |
| |
• |
Collaborative Solutions. Industry practices developed by
retailers such as Wal*Mart, increasingly require CPG
manufacturers and distributors to collaborate with other
participants in the demand chain. While these companies have
historically focused on technology to support their ability to
manufacture and supply products, this new era of collaboration
with retailers has created a requirement for new technology
solutions that are designed to optimize sales of products to end
consumers through the retail channel. Collaborative
Solutions provide applications that enable
business-to-business collaborative activities such as
collaborative planning, forecasting and replenishment
(“CPFR”), collaborative category management including
collaborative space and assortment planning, and collaborative
revenue management through trade funds management programs. Our
Collaborative Solutions offerings leverage existing
solutions deployed to retailers within our Retail Enterprise
Systems business segment. |
A summary of the revenues, operating income (loss), and
depreciation attributable to each of these business segments for
the three years ended December 31, 2004 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Retail Enterprise Systems
|
|
$ |
150,322 |
|
|
$ |
146,177 |
|
|
$ |
151,113 |
|
| |
In-Store Systems
|
|
|
18,360 |
|
|
|
13,657 |
|
|
|
25,475 |
|
| |
Collaborative Solutions
|
|
|
48,192 |
|
|
|
47,585 |
|
|
|
42,867 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
216,874 |
|
|
$ |
207,419 |
|
|
$ |
219,455 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Retail Enterprise Systems
|
|
$ |
20,444 |
|
|
$ |
18,125 |
|
|
$ |
29,825 |
|
| |
In-Store Systems
|
|
|
(933 |
) |
|
|
(338 |
) |
|
|
5,337 |
|
| |
Collaborative Solutions
|
|
|
11,130 |
|
|
|
11,194 |
|
|
|
10,470 |
|
| |
Other (see below)
|
|
|
(34,415 |
) |
|
|
(27,695 |
) |
|
|
(37,366 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
(3,774 |
) |
|
$ |
1,286 |
|
|
$ |
8,266 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Retail Enterprise systems
|
|
$ |
5,582 |
|
|
$ |
5,551 |
|
|
$ |
5,186 |
|
| |
In-Store systems
|
|
|
979 |
|
|
|
747 |
|
|
|
1,005 |
|
| |
Collaborative Solutions
|
|
|
1,527 |
|
|
|
1,416 |
|
|
|
1,137 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
8,088 |
|
|
$ |
7,714 |
|
|
$ |
7,328 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
General and administrative expenses
|
|
$ |
24,922 |
|
|
$ |
23,473 |
|
|
$ |
26,978 |
|
| |
Amortization of intangible assets
|
|
|
3,388 |
|
|
|
3,067 |
|
|
|
2,849 |
|
| |
Restructuring charge and adjustments to acquisition-related
reserves (see Notes 9 and 11)
|
|
|
6,105 |
|
|
|
— |
|
|
|
6,287 |
|
| |
Relocation costs to consolidate development and customer support
activities (see Note 10)
|
|
|
— |
|
|
|
1,794 |
|
|
|
452 |
|
| |
Gain of sale of office facility
|
|
|
— |
|
|
|
(639 |
) |
|
|
— |
|
| |
In-process research and development charge (see Note 2)
|
|
|
— |
|
|
|
— |
|
|
|
800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
34,415 |
|
|
$ |
27,695 |
|
|
$ |
37,366 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
94
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Operating income in the Retail Enterprise Systems,
In-Store Systems and Collaborative Solutions
business segments includes direct expenses for software
licenses, maintenance services, service revenues, amortization
of acquired software technology, sales and marketing expenses,
product development expenses, as well as allocations for the
loss on impairment of trademark (see Note 7), 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 (loss) of the business segment.
|
|
| 20. |
Quarterly Data (Unaudited) |
The following table presents selected unaudited quarterly
operating results for the two-year period ended
December 31, 2004. We believe that all necessary
adjustments have been included in the amounts shown below to
present fairly the related quarterly results.
Consolidated Statement of Income Data:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
| |
|
|
| |
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
| |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Total |
| |
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
55,179 |
|
|
$ |
54,083 |
|
|
$ |
50,313 |
|
|
$ |
57,299 |
|
|
$ |
216,874 |
|
|
Loss from operations
|
|
|
(1,926 |
) |
|
|
(447 |
) |
|
|
(582 |
) |
|
|
(819 |
) |
|
|
(3,774 |
) |
|
Net income (loss)
|
|
|
(437 |
) |
|
|
604 |
|
|
|
1,649 |
|
|
|
193 |
|
|
|
2,009 |
|
|
Basic earnings (loss) per share
|
|
$ |
(.02 |
) |
|
$ |
.02 |
|
|
$ |
.06 |
|
|
$ |
.01 |
|
|
$ |
.07 |
|
|
Diluted earnings (loss) per share
|
|
$ |
(.02 |
) |
|
$ |
.02 |
|
|
$ |
.06 |
|
|
$ |
.01 |
|
|
$ |
.07 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2003 |
| |
|
|
| |
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
| |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Total |
| |
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
41,255 |
|
|
$ |
52,965 |
|
|
$ |
57,951 |
|
|
$ |
55,248 |
|
|
$ |
207,419 |
|
|
Income (loss) from operations
|
|
|
(3,988 |
) |
|
|
1,607 |
|
|
|
3,531 |
|
|
|
136 |
|
|
|
1,286 |
|
|
Net income (loss)
|
|
|
(2,238 |
) |
|
|
1,291 |
|
|
|
3,374 |
|
|
|
223 |
|
|
|
2,650 |
|
|
Basic earnings (loss) per share
|
|
$ |
(.08 |
) |
|
$ |
.05 |
|
|
$ |
.12 |
|
|
$ |
.01 |
|
|
$ |
.09 |
|
|
Diluted earnings (loss) per share
|
|
$ |
(.08 |
) |
|
$ |
.05 |
|
|
$ |
.11 |
|
|
$ |
.01 |
|
|
$ |
.09 |
|
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
| |
By: |
/s/ Hamish N. J. Brewer |
|
|
| |
|
| |
Hamish N. J. Brewer |
| |
President and Chief Executive Officer |
| |
(Principal Executive Officer) |
Date: March 14, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below on March 14, 2005
by the following persons in the capacities indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
| |
|
|
| |
/s/ James D. Armstrong
James
D. Armstrong |
|
Chairman of the Board |
| |
/s/ Hamish N. J. Brewer
Hamish
N. J. Brewer |
|
President and Chief Executive Officer
(Principal Executive Officer) |
| |
/s/ Kristen L. Magnuson
Kristen
L. Magnuson |
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
| |
/s/ J. Michael Gullard
J.
Michael Gullard |
|
Director |
| |
/s/ William C. Keiper
William
C. Keiper |
|
Director |
| |
/s/ Douglas G. Marlin
Douglas
G. Marlin |
|
Director |
| |
/s/ Jock Patton
Jock
Patton |
|
Director |
96
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 of JDA Software Group, Inc. |
| |
| |
4.1* |
|
|
— |
|
Specimen Common Stock Certificate of JDA Software Group, Inc. |
| |
| |
10.1*(1) |
|
|
— |
|
Form of Indemnification Agreement. |
| |
| |
10.2*(1) |
|
|
— |
|
1995 Stock Option Plan, as amended, and form of agreement
thereunder. |
| |
| |
10.3ǔǔǔ(1) |
|
|
— |
|
1996 Stock Option Plan, as amended on March 28, 2003. |
| |
| |
10.4*(1) |
|
|
— |
|
1996 Outside Directors Stock Option Plan and forms of agreement
thereunder. |
| |
| |
10.5ǔǔǔ(1) |
|
|
— |
|
Executive Employment Agreement between James D. Armstrong and
JDA Software Group, Inc. dated July 23, 2002, together with
Amendment No. 1 effective August 1, 2003. |
| |
| |
10.6ǔǔǔ(1) |
|
|
— |
|
Executive Employment Agreement between Hamish N. Brewer and JDA
Software Group, Inc. dated January 22, 2003, together with
Amendment No. 1 effective August 1, 2003. |
| |
| |
10.7(1)#### |
|
|
— |
|
Executive Employment Agreement between Kristen L. Magnuson and
JDA Software Group, Inc. dated July 23, 2002. |
| |
| |
10.8ǔǔǔ(1) |
|
|
— |
|
1998 Nonstatutory Stock Option Plan, as amended on
March 28, 2003. |
| |
| |
10.10† |
|
|
— |
|
1999 Employee Stock Purchase Plan. |
| |
| |
10.12** |
|
|
— |
|
Software License Agreement dated as of June 4, 1998 by and
between Comshare, Incorporated and JDA Software, Inc. |
| |
| |
10.13ǔǔǔ |
|
|
— |
|
Purchase Agreement between Opus Real Estate Arizona II,
L.L.C. and JDA Software Group, Inc. dated February 5, 2004. |
| |
| |
10.14ǔǔǔ(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. One dated
June 23, 2000, Product Schedule No. Two dated
September 28, 2001, and Amendment to Product Schedule No.
Two dated December 23, 2003. |
| |
| |
10.15ǔǔǔ(1) |
|
|
— |
|
JDA Software, Inc. 401(k) Profit Sharing Plan, adopted as
amended effective January 1, 2004. |
| |
| |
10.16ǔǔǔ(1) |
|
|
— |
|
Non-Plan Stock Option Agreement between JDA Software Group, Inc.
and William C. Keiper, dated March 4, 1999. |
| |
| |
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. |
97
| |
|
|
|
|
|
|
| Exhibit # |
|
|
|
Description of Document |
| |
|
|
|
|
| |
| |
10.20ǔ(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. |
| |
| |
10.21ǔ(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. |
| |
| |
10.22ǔ(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. |
| |
| |
10.23ǔ(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. |
| |
| |
10.24ǔ(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. |
| |
| |
10.25ǔǔ |
|
|
— |
|
Secured Loan Agreement between JDA Software Group, Inc. and
Silvon Software, Inc. dated May 8, 2001, together with
Secured Promissory Note and Security Agreement. |
| |
| |
10.26 |
|
|
— |
|
Settlement Agreement and Release between JDA Software Group,
Inc. and Silvon Software, Inc. dated November 30, 2004,
together with Amended and Restated Secured Promissory Note and
Amended and Restated Security Agreement. |
| |
| |
14.1ǔǔǔ |
|
|
— |
|
Code of Business Conduct and Ethics. |
| |
| |
21.1 |
|
|
— |
|
Subsidiaries of Registrant. |
| |
| |
23.1 |
|
|
— |
|
Consent of Independent Registered Public Accounting Firm. |
| |
| |
31.1 |
|
|
— |
|
Rule 13a-14(a) Certification of Chief Executive Officer. |
| |
| |
31.2 |
|
|
— |
|
Rule 13a-14(a) Certification of Chief Financial Officer. |
| |
| |
32.1 |
|
|
— |
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
|
|
| |
|
*
|
|
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 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 Quarterly Report
on Form 10-Q for the quarterly period ended
September 30, 2002, as filed on November 12, 2002. |
| |
|
ǔ
|
|
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. |
| |
|
ǔǔ
|
|
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. |
98
| |
|
|
| |
|
ǔǔǔ
|
|
Incorporated by reference to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2003, as
filed on March 12, 2004. |
| |
|
ǔǔǔǔ
|
|
Incorporated by reference to the Company’s Quarterly Report
on Form 10-Q for the quarterly period ended March 31,
2004, as filed on May 10, 2004. |
| |
|
(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, Gregory L.
Morrison and David J. Tidmarsh. |
| |
|
(6)
|
|
Applies to Senior Executive Officers with the exception of James
D. Armstrong and Kristen L. Magnuson. |
99