UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

OR

JDA SOFTWARE GROUP, INC.

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

     Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) had been subject to such filing requirements for the past 90 days. Yes þ No o

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

     The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value, was 29,070,733 as of April 30, 2005.

JDA SOFTWARE GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS

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PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

JDA SOFTWARE GROUP, INC.

See notes to consolidated financial statements.

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JDA SOFTWARE GROUP, INC.

See notes to consolidated financial statements.

4

JDA SOFTWARE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands, unaudited)

See notes to consolidated financial statements.

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JDA SOFTWARE GROUP, INC.

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

See notes to consolidated financial statements.

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JDA SOFTWARE GROUP, INC.

1. Basis of Presentation

          The accompanying unaudited consolidated financial statements of JDA Software Group, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to interim financial statements. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

          Certain reclassifications have been made to the March 31, 2004 interim financial statements and the December 31, 2004 consolidated balance sheet in order to conform to the March 31, 2005 presentation. Auction rate securities, historically classified as cash and cash equivalents, have been reclassified as marketable securities. As a result, cash and cash equivalents at December 31, 2004 decreased by $15.6 million while marketable securities increased by the same amount.

2. 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, net, offset by the gains or losses resulting from the settlement of the underlying foreign denominated assets and liabilities.

          At March 31, 2005, we had forward exchange contracts with a notional value of $7.3 million and an associated net forward contract receivable of $43,500. 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. 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 of $5,000 and $213,000 in the three months ended March 31, 2005 and 2004, respectively.

3. 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, plus 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.

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          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 included: (i) an Amended and Restated Secured Promissory Note that provided 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 provided 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 had 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.

          On March 30, 2005, Silvon remitted $1.0 million of the outstanding principal balance and entered into a Second Amended and Restated Secured Promissory Note with the Company that provides for (i) repayment of the remaining principal balance and interest due on the note (at the default rate of 18%) on or before March 30, 2006 and (ii) prohibits Silvon from entering into any indebtedness for borrowed money, other than the incurrence of up to $1.0 million of indebtedness under certain subordinated note agreements executed concurrent with this amendment. All other terms and conditions from the November 30, 2004 Settlement Agreement and Release remain in effect.

          No adjustments have been made to the restated 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.

4. Goodwill and Other Intangibles, net

          Goodwill and other intangible assets consist of the following:

          We found no indication of impairment of our goodwill balances during the three months ended March 31, 2005 and, absent future indicators of impairment, the next annual impairment test will be performed in fourth quarter 2005. As of March 31, 2005, 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.

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          The estimated useful lives of our customer list intangibles range from 5 to 13 years. The estimated economic lives of our software technology range from 5 to 15 years. Amortization expense for the three months ended March 31, 2005 and 2004 was $2.1 million and $2.1 million, respectively. These figures are 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:

5. Earnings per Share

          Earnings per share for the three months ended March 31, 2005 and 2004 is calculated as follows:

6. Restructuring Charges

          Restructuring Charges Related to Our 2005 Operating Plan

          We recorded a $1.6 million restructuring charge in first quarter 2005 related to the restructuring initiatives contemplated in our 2005 Operating Plan. This charge, which is primarily for one-time termination benefits, is in addition to the $3.1 million restructuring charge recorded in fourth quarter 2004. The fourth quarter 2004 charge included $2.8 million in one-time termination benefits and $341,000 for the negotiated buyout or net rentals remaining under existing operating leases on certain facilities that were vacated by December 31, 2004. The restructuring initiatives include a consolidation of product lines, a net workforce reduction of approximately 12% or 159 FTE worldwide, and a reduction of certain office space in Northern Europe. The net workforce reduction includes certain employees involved in the product development (82 FTE), consulting services and training (54 FTE), sales and marketing (21 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. A total of 110 FTE were terminated or open positions eliminated through December 31, 2004 with an additional 36 FTE terminated during first quarter 2005. We anticipate taking an additional charge of approximately $200,000 to $300,000 in second quarter 2005 to complete these restructuring initiatives and to sublet excess space.

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          A summary of the restructuring and office closure charges associated with these initiatives are included in accrued expenses and other liabilities as follows:

          The remaining balance for severance, benefits and legal costs relates to terminated employees that we expect to be substantially paid out by June 30, 2005, pending labor court confirmation in certain European countries.

          Other 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 $899,000 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.

          A summary of the first quarter 2004 restructuring and office closure charges included in accrued expenses and other liabilities is as follows:

          The remaining balance for severance, benefits and legal costs relates to terminated employees that we expect to be paid out by June 30, 2005, pending labor court confirmation in certain European countries. 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.

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          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:

          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.

7. E3 Acquisition Reserves

          In conjunction with the acquisition of E3 Corporation (“E3”) in 2001, 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 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, including $150,000 in the first quarter of 2004. The real estate market in which this facility is located continues to be depressed, and to date we have received no offers to sublease the available space during the remaining term of the lease which extends through February 2006. All adjustments during 2003 and 2004 were 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 March 31, 2005 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:

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          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 communicated the termination arrangements to the affected employees in accordance with statutory requirements of the local jurisdictions in which the employees were located.

8. 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. Through March 31, 2005, we have purchased a total of 157,000 shares of our common stock for $2.2 million under this program.

9. Stock-Based Compensation

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

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          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 months ended March 31, 2005 and 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 first quarter 2004 has been adjusted to reflect the revised tax benefit available for incentive stock options generated at the time of exercise.

          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) was initially required to be adopted in the next reporting period beginning after June 15, 2005. On April 14, 2005, the Securities and Exchange Commission (the “SEC”) adopted a rule that amends this compliance date to allow companies to implement SFAS No. 123(R) at the beginning of the first fiscal year beginning after June 15, 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.

          On March 29, 2005, the SEC issued Staff Accounting Bulletin Topic 14, “Share-Based Payment” (“SAB 107”). SAB 107, which becomes effective for public companies upon their adoption of SFAS No. 123(R), describes the SEC Staff’s views in determining the assumptions that underlie the fair value estimates and interaction of SFAS No. 123(R) with certain existing SEC guidance. We plan to adopt SFAS No. 123(R) on January 1, 2006 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

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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 Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2004. 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), we have recognized $61,000 in first quarter 2005 and $48,000 in first quarter 2004 in operating cash flows for such excess tax deductions.

          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), 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. No additional stock-based compensation expense was recorded in first quarter 2005 with respect to these options.

10. Income Taxes

          We recorded an income tax benefit of $453,000 in first quarter 2005 that includes a tax provision of $92,000 and a net one-time income tax benefit of $545,000 resulting from revisions of certain tax estimates in prior years. The net one-time income benefit includes an $850,000 adjustment to our estimate of the foreign tax credit carry forward for taxes withheld in Mexico and Taiwan from 2000 to 2002. We have reduced our FAS 5 income tax contingency to reflect this change in the foreign tax credit carry forward as we had previously believed that these taxes would not be recoverable. We also recorded a $292,000 adjustment in our German subsidiary for our revised estimate of the net operating loss deferred tax asset and the current income tax liability, and a $241,000 adjustment in our Japanese subsidiary to reflect a revision of the income taxes payable upon the filing of the 2004 tax return in first quarter 2005. These benefits have been reduced by a $654,000 adjustment for additional income tax expense related to our revised estimate of the amount realizable at the beginning of 2005 for the depreciation deferred tax asset and a $184,000 adjustment for additional income tax expense related to our revised estimate of the amounts realizable for certain other deferred tax assets related to our UK and Singapore subsidiaries. The effective income tax rate for first quarter 2005, excluding the effect of the net one-time tax benefit, is 37%.

          We recorded an income tax benefit of $741,000 in first quarter 2004 that includes a $329,000 tax refund from the settlement of an Internal Revenue Service (“IRS”) audit of our 1998 and 1999 federal income tax returns and 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. The effective income tax rate for the first quarter of 2004, excluding the effect of the $329,000 one-time tax benefit, is 35%.

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          The income tax benefits recorded in first quarter 2005 and 2004 take into account the source of taxable income, domestically by state and internationally by country, and available income tax credits, and does not include the tax benefits realized from the employee stock options exercised during first quarter 2005 and 2004 of $61,000 and $48,000, respectively. These tax benefits reduce our income tax liabilities and are included as an increase to additional paid-in capital.

11. Business Segments and Geographic Data

          We are a leading provider of sophisticated software solutions designed specifically to address the demand and supply chain management, business process, decision support, e-commerce, inventory optimization and collaborative planning and forecasting 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 geographic distribution of our revenues and identifiable assets is as follows:

          Revenues for the Americas include $4.2 million and $3.4 million from Canada and Latin America in the three months ended March 31, 2005 and 2004, respectively. Identifiable assets for the Americas include $12.7 million $10.9 million in Canada and Latin America as of March 31, 2005 and December 31, 2004, respectively.

          We have organized 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, In-Store Systems include a

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	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 months ended March 31, 2005 and 2004 is as follows:

          Operating income in the Retail Enterprise Systems, In-Store Systems and Collaborative Solutions business segments includes direct expenses for software licenses, maintenance services, service revenues, amortization of acquired software technology, and certain sales, marketing and product development expenses, as well as allocations for other sales, marketing and product development expenses, 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.

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Item 2: 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 Second Quarter 2005. Software license sales may continue to vary significantly from quarter-to-quarter for the remainder of 2005. We currently expect a sequential increase in software license sales in second quarter 2005, particularly in the Americas region (United States, Canada and Latin America) and in the Europe region (Europe, Middle East and Africa), due to a substantially larger sales pipeline at the start of second quarter 2005 than we had going into first quarter 2005. The Asia/Pacific region remains weak in terms of overall performance. We believe our competitive position in Asia/Pacific remains good, and we are winning a high percentage of the opportunities we encounter; however, the region has not shown any broad signs of economic recovery or growth in the overall volume of business.

          An important component of our strategic operational plan for 2005 (“2005 Operating Plan”) is to improve the profitability of our services organization, primarily as a result of the actions undertaken in fourth quarter 2004 to increase the utilization of our services personnel through headcount reductions. We currently expect our services revenues to remain flat to down slightly in second quarter 2005 compared to first quarter 2005. In addition, service margins may experience downward pressure in second quarter 2005 depending upon the level of use of our consultants in pre-sales and product development activities and our overall software performance, which impacts incentive compensation.

          Our 2005 Operating Plan is designed to deliver higher profitability through a reduced cost structure, even if global spending levels for information technology or the overall market environment does not improve over 2004. We reduced our operating costs and improved our overall profitability in first quarter 2005 as a result of the restructuring activities and cost reductions taken in fourth quarter 2004 in connection with the implementation of our 2005 Operating Plan. An additional restructuring charge was taken in first quarter 2005 to substantially complete this plan. We expect our total costs and expenses to remain flat in second quarter 2005 compared to first quarter 2005. In addition, we expect a modest sequential decline in product development expenses in second quarter 2005 as we begin to realize the full impact of the staged headcount reductions that we set in motion in November 2004. Quarterly sales and marketing expense will vary during 2005 primarily as a result of incentive compensation, which is directly associated with the volume of software sales and the timing of marketing events. Therefore, even with the anticipated sequential increase in software license sales in second quarter 2005, we believe sales and marketing expense will remain flat with first quarter 2005. General and administrative expenses are expected to increase modestly in second quarter 2005 compared to first quarter 2005 as we “go live” on our new internal financial system, and as a result of the outside costs associated with the startup of Sarbanes-Oxley compliance procedures for 2005.

          Changes in Buying Patterns Continue to Impact our Operating Results. The retail industry and its suppliers continue 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. 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 uncertain economic conditions, extended due diligence procedures designed to minimize risk, corporate reorganizations, consolidations within the industry, the appointment of new senior management, and the increasing trend by companies to seek board-level approval for all significant investments in information technology. As a result, our sales cycles remain elongated and we continue to experience uncertainty predicting the size and timing of individual contracts, particularly the closure of large software licenses ($1.0 million or greater), which continues to remain uneven from quarter-to-quarter. For example, we signed no large

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software license in first quarter 2005 compared to five in fourth quarter 2004 and two in first quarter 2004. 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 and more complex for larger dollar projects, large multi-national retail organizations and retailers in certain geographic regions.

          We have historically recognized a substantial portion of our software license revenues under an Initial License Fee model. Under this license model, software license contracts are structured to enable the Company to recognize 100% of the software license revenue upon execution of the contract provided all of the revenue recognition criteria set forth in Statement of Position 97-2, Software Revenue Recognition have been met. However, due to the elongated sales cycles we are experiencing and the absence of a predictable base demand, we have begun to increasingly offer larger customers in the Americas region the option to purchase software licenses under Proof of Concept and Milestone-Based licensing models in order to mitigate their risk aversion. Under the Proof of Concept license model, customers are allowed to try one or more of our solutions before they purchase them, either in a proof of concept, pilot, or prototype environment, or during the performance of business process analyses or benchmarking activities. Under the Milestone-Based license model, payment of the software license fees are aligned with the achievement of defined milestones or deliverable objectives within an agreed timeframe. Although the purchase of software licenses under the Proof of Concept and Milestone-Based licensing models will delay the recognition of revenue, we believe these licensing models may improve our ability to predict the timing of software license revenues and over time, decrease our dependence on Initial License Fee model transactions, which have historically been the least predictable element of our revenue stream. It is still too early to determine the timing and magnitude of the impact these new licensing models will have on our operating results

          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. We continue to believe there are a substantial number of retailers worldwide who will ultimately be faced with the need to update their 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 competitors in every significant product market we supply. Currently, we believe there are only two primary global competitors left for our Merchandise Operations Systems, Oracle Corporation (which acquired Retek, Inc. on April 12, 2005) and SAP AG. Similarly, we believe the number of significant competitors for our In-Store Systems and Strategic Merchandise Management Systems have declined.

          We do not believe Oracle’s acquisition of Retek, Inc. will have any significant impact on our near-term strategy. We will continue to consolidate our products onto a common technological platform and drive growth not only in the retail marketplace but also with the suppliers to the retail industry in the collaborative solutions marketplace. Although, the acquisition has the potential to create some additional delays around decisions made by larger Tier 1 customers to purchase Merchandise Operations Systems, we believe there are only a small number of these decisions made each year. In addition, we believe our Strategic Merchandise Management Solutions, which bring together forecasting and replenishment, planning and category management solutions, provide a unique offering and a strong competitive advantage as neither Oracle Corporation or SAP AG currently offer comprehensive analytic and optimization solutions. We also believe that potential customers are far more likely to drive their software application decision processes based on the suite of analytic and optimization solutions a vendor is able to provide rather than on the financial or human resource systems that may be offered. The majority of our current software license transactions are for Strategic Merchandise Management Solutions. Product revenues from Strategic Merchandise Management Solutions transactions can be as high as the revenues realized on sales of Merchandise Operations Systems.

          Software license revenues from existing customers represented 83% of software license revenues in first quarter 2005 compared to 74% in first quarter 2004. We believe that sales of add-on products 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 both our existing JDA Portfolio synchronized products and our next generation PortfolioEnabled products. Over the past five years, the acquisition of Strategic Merchandise Management Solutions such as Portfolio Space Management by Intactix and Portfolio Replenishment by E3 have 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

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of our product families. We believe that once a customer has purchased multiple products from us, we are more likely to be viewed as a strategic partner in terms of their information systems strategy rather than simply a “point solution provider.”

          Business Opportunities and Growth Strategies. We continue to believe there are three distinct growth opportunities in the current economic environment:

	•	Offer value propositions in our products and licensing models 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 information technology vendors. These customers are often reluctant to incur the “upfront” license fees in our traditional Initial License Fee 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 increasingly offer larger customers in the Americas region the option to purchase software licenses under Proof of Concept and Milestone-Based licensing models in order to mitigate their risk aversion. 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 licensing 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 and Milestone-Based licensing models than have been realized historically under our Initial License Fee model.
	•	Generate new business opportunities with existing and prospective customers with next generation JDA Portfolio products. We believe our next generation of JDA Portfolio products, PortfolioEnabled, will create opportunities with prospective customers who seek a single, integrated solution that combines the retail disciplines of planning, assortment, purchasing, allocations and replenishment. We do not currently expect to be able to estimate the rate of acceptance of these new products until late 2005 or early 2006; however, during first quarter 2005, our sales organization did encounter some difficultly in determining whether to propose the existing JDA Portfolio synchronized products or the next generation PortfolioEnabled products to prospective customers. As with all new product adoption curves, we expect progress to be slow initially and then accelerate once early adopters of the PortfolioEnabled applications begin to “go live.” We began delivery of these solutions in early 2005 beginning with Portfolio Replenishment Optimization by E3 (“PRO”) and Portfolio Knowledge Base. In second quarter 2005 we plan to release a PortfolioEnabled 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. The initial PortfolioEnabled solutions may not offer every capability of their predecessor products but will offer other advantages such as an advanced technology platform, the ability of PRO to install on Unix/Oracle environments utilizing Microsoft .Net componentry with subsequent releases to include Microsoft SQL 2005, or other significant functional advantages such as “planning by attribute” capabilities in the enterprise planning solution. Further, the PortfolioEnabled products do offer some significant capabilities that go beyond the current generation products they are replacing, and as a result, we believe they are in and of themselves competitive in the marketplace. On this basis, the PortfolioEnabled products may initially be more attractive to new customers during competitive bids, as opposed to existing customers for upgrade cycles. Sales cycles to new customers tend to be more elongated than those to existing customers who already have contracts in place with us and prior experience with our products. We also believe there will be opportunities to sell new add-on solutions to those customers that do choose to move to the PortfolioEnabled 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 260 trading partners worldwide with an estimated annual trading value of over $4.3 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.

          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 first quarter 2005 compared to 8% in first quarter 2004. Total revenues in this business segment were $4.4 million in first quarter 2005 which is flat with fourth quarter 2004 and first quarter 2004. The In-Store Systems business segment has been negatively impacted in recent years by poor economic conditions

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that have caused retailers to delay major capital appropriations and by what we believe is a major platform transition as market demand moves from Window-based to Java-based point-of-sale applications. Portfolio Point of Sale (“PPOS”), our Java-based point-of-sale application, 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 referenceable. 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, including point-of-sale tilling functions, in-store inventory management functions, customer relationship management, space planning and workforce management solutions, rather than software vendors that only offer in-store systems. Accordingly, we believe the long-term prospects for the PPOS application and the In-Store Systems business segment 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 being driven by a shift to new technology platforms. However, the timing and full impact of the replacement cycle is unclear.

          We Continue to Invest Heavily in New Product Development. We invested $11.7 million in first quarter 2005 and approximately $433 million from 1996 to 2004 in new product development and the acquisition of complementary products. 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. 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 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, PortfolioEnabled, 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 PortfolioEnabled applications that operate with other market accepted platforms such as Oracle, the IBM iSeries platform where feasible, 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 PortfolioEnabled solutions may not offer every capability of their predecessor products but will offer other advantages such as an advanced technology platform, the ability of PRO to install on Unix/Oracle environments utilizing Microsoft .Net componentry with subsequent releases to include Microsoft SQL 2005, or other significant functional advantages such as “planning by attribute” capabilities in the enterprise planning solution. Further, the PortfolioEnabled products do offer some significant capabilities that go beyond the current generation products they are replacing, and as a result, we believe they are in and of themselves competitive in the marketplace. On this basis, the PortfolioEnabled products may initially be more attractive to new customers during competitive bids, as opposed to existing customers for upgrade cycles. Sales cycles to new customers tend to be more elongated than those to existing customers who already have contracts in place with us and prior experience with our products. We will continue selling the equivalent Portfolio Synchronized versions of these products until the new PortfolioEnabled solutions have achieved critical mass in the marketplace.

          Consistent with our 2005 Operating Plan, we have begun to leverage our past investment in product development by reducing our level of product development expenditures, in absolute dollars and as a percentage of revenues. We have begun the process of transition to our new PortfolioEnabled solutions, and as a result, we are now reducing 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, was released in first quarter 2005 and included enhancements to virtually all of our existing products that will enable them to maintain their competitive edge. In first quarter 2005 we released the first versions of the PortfolioEnabled solutions beginning with Portfolio Replenishment Optimization by E3 and Portfolio Knowledge Base. In second quarter 2005 we plan to release a PortfolioEnabled 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. 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 PortfolioEnabled solutions, reduced our investment in existing JDA Portfolio products going forward, and will 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 certain conditions. 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

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unable to estimate how many of our existing customers will take advantage of this program. A similar investment protection program is available for In-Store Systems customers, which provides a platform transfer right from Win/DSS to PPOS. 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 are now focusing our acquisition strategy on larger companies, particularly those that have significant recurring revenues or that will increase the breadth of our JDA Portfolio offerings in the Collaborative Solutions business segment.

          We Recorded an Additional Charge for the Restructuring Initiatives Contemplated in Our 2005 Operating Plan. We recorded a $1.6 million charge in first quarter 2005 related to the restructuring initiatives contemplated in our 2005 Operating Plan. This charge, which is primarily for one-time termination benefits, is in addition to the $3.1 million restructuring charge recorded in fourth quarter 2004. The fourth quarter 2004 charge included $2.8 million in one-time termination benefits and $341,000 for the negotiated buyout or net rentals remaining under existing operating leases on certain facilities that were vacated by December 31, 2004. The restructuring initiatives include a consolidation of product lines, a net workforce reduction of approximately 12% or 159 FTE worldwide, and a reduction of certain office space in Northern Europe. The net workforce reduction includes certain employees involved in the product development (82 FTE), consulting services and training (54 FTE), sales and marketing (21 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. A total of 110 FTE were terminated or open positions eliminated through December 31, 2004 with an additional 36 FTE terminated during first quarter 2005. We anticipate taking an additional charge of approximately $200,000 to $300,000 in second quarter 2005 to complete these restructuring initiatives and to sublet excess space.

          Management believes the restructuring initiatives in the 2005 Operating Plan will allow the Company to generate substantially higher profits if the revenue levels for 2005 are comparable to 2004. Specifically, management believes the restructuring initiatives 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 PortfolioEnabled 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 once the 2005 Operating Plan is fully implemented.

          Our Financial Position is Strong and We Have Positive Operating Cash Flow. Our financial position remains strong and as of March 31, 2005 we had $100.2 million in cash, cash equivalents and marketable securities, as compared to $97.1 million at December 31, 2004. We generated $5.8 million in positive cash flow from operations during first quarter 2005 compared to $6.8 million in first quarter 2004. We believe our cash position is sufficient to meet our operating needs for the foreseeable future.

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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:

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          The following table sets forth a comparison of selected financial information, expressed as a percentage change between quarters for the three months ended March 31, 2005 and 2004. In addition, the table sets forth cost of revenues and product development expenses expressed as a percentage of the related revenues:

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          The following tables set forth selected comparative financial information on revenues in our business segments and geographical regions, expressed as a percentage change between quarters for the three months ended March 31, 2005 and 2004. In addition, the tables set forth the contribution of each business segment and geographical region to total revenues in the three months ended March 31, 2005 and 2004, expressed as a percentage of total revenues: