SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

 

 

 

 

 

Commission File Number 0-27876

JDA SOFTWARE GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o     No þ

 

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. o     

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act  Yes o     No þ

 

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, 2010 was approximately $883 million. The number of shares of common stock, $0.01 par value per share, outstanding as of February 22, 2011 was 42,218,776.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

 

 

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 Item 1A. “Risk Factors” 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.

 

 

Recent Developments

 

Legal Proceedings (see Note 12“Legal Proceedings” to our Condensed Consolidated Financial Statements elsewhere in this Annual Report on Form 10-K, and is incorporated by reference herein).  On December 2, 2010, we met with Dillard’s for a mediation session. During that mediation session, settlement offers were exchanged, but no agreement was reached. Therefore, on December 23, 2010 i2 Technologies, Inc. (“i2”), which was acquired by JDA Software Group, Inc. (the “Company”) on January 28, 2010, filed a Notice of Appeal to the Dallas Court of Appeals. We currently estimate the potential loss for this matter to range between $19 million (the highest settlement offer exchanged) and $237 million (representing a maximum award for lost profits, punitive damages and pre-judgment interest), plus post-judgment interest. The appeals process is not expected to be resolved prior to the end of 2011. There can be no assurance that it will be successful or that the litigation will be settled on terms acceptable to JDA. Management has determined that the best estimate of the potential outcome of this matter is $19.0 million, of which $5.0 million was recorded on the opening balance sheet of i2 following JDA’s acquisition of i2 in January 2010 and $14.0 million was recorded in December 2010 in the Consolidated Statements of Income under the capital “Litigation provision” and in Consolidated Balance Sheets under the caption “Accrued expenses and other liabilities.”

 

As previously reported, on April 29, 2009, i2 filed a lawsuit against Oracle Corporation in the United States District Court for the Eastern District of Texas, alleging infringement of i2 patents related to supply chain management, available to promise software and other enterprise applications. On April 22, 2010, Oracle Corporation filed counterclaims against i2 and the Company (of which i2 is now a wholly-owned subsidiary), alleging infringement of certain Oracle Corporation patents. On February 25, 2011, the Company, i2 and Oracle Corporation entered into a settlement agreement (the “Agreement”). Under the Agreement, the parties entered into a cross-license arrangement and dismissed their respective litigation claims related to the patent infringement dispute with prejudice. In addition, the Company is entitled to receive a one-time cash payment of $35.0 million from Oracle Corporation, payable within seven days of the Agreement date, as well as a $2.5 million license and technical support credit from Oracle Corporation that must be used by the Company within two years. The Company intends to account for this settlement as a reduction of operating expenses in the first quarter of 2011 under the caption “Litigation Settlement” in the consolidated statement of income.

 

We May Make Additional Strategic Acquisitions.  Acquisitions have been, and we expect they will continue to be, an integral part of our overall growth plan. We believe strategic acquisition opportunities will allow JDA to continue to strengthen its position as a leading supply chain management software and services provider. Our intent is to seek acquisition opportunities that complement our current software and services offerings. We may make future acquisitions that are significant in relation to the current size of JDA or smaller acquisitions that add specific functionality to enhance our existing product suite. If the Dillard’s litigation continues for an extended period of time it may delay us in making acquisitions, though we do not currently expect any delay to be significant.

Overview

 

We are a leading provider of sophisticated enterprise software solutions designed to enable planning, optimization and execution of merchandising and supply chain processes for manufacturers, wholesalers and distributors, and retailers, as well as government and aerospace defense contractors. Additionally, we provide pricing, yield management and demand management software solutions for travel, transportation, hospitality and media organizations. We believe we have the broadest and deepest suite of software products and services for supply chain management. Our software offerings are highly tailored to industry-specific needs and are integrated to provide a complete set of solutions for our customers. These attributes, we believe, position us well against both broad enterprise resource planning (“ERP”) competitors and point solution providers, and promote customer loyalty.

 

Industry Overview

 

Organizations rely on various types of enterprise software solutions to optimize their business processes in order to enhance revenue growth and control expenses. The enterprise software market includes both vertically-specialized solutions such as supply chain management (“SCM”) solutions, as well as horizontal business applications such as ERP suites, business intelligence applications, customer relationship management (“CRM”) solutions, analytical applications and other financial and operational software.

 

SCM solutions represent a distinct subset of the broader enterprise software applications market. SCM software manages the utilization of assets and labor, the flow and allocation of materials and products and the management of information, finances and other resources across global supply chains, from manufacturers to distribution centers and transportation networks to the retail store and consumer. SCM software is used to reduce costs by improving the efficiency of supply chain flows and increase revenue by matching the supply of goods with actual customer demand more accurately. For example, SCM software enables companies to offer differentiated products targeted to specific end markets while, at the same time, ensuring the availability of appropriate sales personnel and programs to help consumers make their purchases.

 

The SCM market is expected to grow by approximately 7% annually, from approximately $6.2 billion of revenues in 2009 to approximately $8.8 billion in 2014, according to Gartner’s December 2010 publication entitled “Forecast: Enterprise Software Markets, Worldwide, 2009-2014, 4Q10 Update.” The SCM software market is segmented into the following categories (sub-segment size in 2009 is noted in parentheses):

 

 

Key growth drivers for the SCM market include:

 

 

 

Product Overview

 

We market our software products as modular yet integrated suites that are designed to give our customers one synchronized view of product demand across their enterprise and extended supply chain. Our integrated suites of software products combine the functionality of planning, optimization, execution and analysis applications to enable our customers to develop an integrated enterprise plan to track and optimize the flow of inventory through the supply chain while optimizing their resources, operating efficiencies and financial results. Our customers can select individual products from our suites and implement them on a stand-alone basis or they can implement various combinations of our products to create an integrated solution. This flexibility provides speed to value which is highly desirable in the current economic environment.

 

Our product suites include the following:

 

Planning and Optimization Solutions

 

 

 

Transaction Systems

 

 

Our software solutions also include a comprehensive set of tools for advanced decision support and analysis covering strategic business planning, forecasting, promotional planning, distribution planning, manufacturing planning and scheduling, price and revenue optimization, inventory optimization, collaborative synchronization of inventory, distribution, production and material plans, category management and workforce management. Many of our products can be and are sold to multiple customer types and most of our products are sold across each of our geographic regions.

 

Business Segments

 

In connection with the acquisition of i2, management approved a realignment of our reportable business segments to better reflect the core business in which we operate, the supply chain management market, and how our chief operating decision maker views, evaluates and makes decisions about resource allocations within our business. As a result of this realignment, we eliminated Retail and Manufacturing and Distribution as reportable

business segments and beginning with first quarter 2010 have reported our operations within the following segments:

 

 

Disclosures of certain financial information regarding our business segments and geographic regions are included in our consolidated financial statements as of December 31, 2010 and 2009, and for each of the years in the three-year period ended December 31, 2010, which are included elsewhere herein.

 

Business Opportunities and Growth Strategies

 

Since our founding in 1985, JDA has expanded from a provider of inventory management software solutions for the retail industry to a global leader in supply chain management software solutions serving multiple end-markets such as retail, consumer, manufacturing and wholesale/distribution. The company has grown through a combination of organic growth and acquisitions.

 

JDA plans to continue to expand through a combination of organic growth and acquisition, and intends to implement the following strategies:

 

Focus on Core Competency:  Supply chain products and services help customers cut costs by improving efficiency and growing revenues by better matching demand with supply. Even in the recent recession our customers continued to license and purchase JDA’s products because of their high return on investment, creating a business opportunity for the company. We plan to continue to focus on the supply chain management space, utilizing our deep expertise and expanding our product offerings and end-markets.

 

Increase Add-On Sales to Existing Customers:  A significant portion of our sales are from existing customers. We plan to pursue additional sales opportunities with these customers by both cross-selling JDA and i2 products and offerings and up-selling additional products and services.

 

Invest in New Business Opportunities:  We will continue to invest in growth initiatives that fit into our strategy of focusing on our core SCM competency, expanding our presence globally, and broadening our product and service offerings. For example,

 

 

Maintain Competitiveness Through Low-Cost Delivery Models:  In 2008, we outlined a strategy to expand our operations in India and create a Center of Excellence (“CoE”) in Hyderabad, India. We continue to execute plans to grow the size and capabilities of this CoE facility. The CoE is designed to complement and enhance our existing on-shore business model across multiple activities including research and development, customer support, services and internal administration, supporting our growth with high quality services at a lower cost structure. As a result of our acquisition of i2, our CoE capabilities and capacity have been significantly expanded with the addition of a second location in Bangalore, India.

 

Expand Marketing and Indirect Sales Alliances:  We will continue to develop and expand our marketing and indirect sales alliances, which help promote JDA solutions globally. We will also utilize, to a greater extent, our JDA Alliance Connection program, first launched in 2007. This program is designed to provide increased value to our sales agents and distributors and to maximize their ability to generate additional revenues for both themselves and JDA.

 

Product Strategy

 

In April of 2010 we launched a multi-year product roadmap that will result in the merging of the acquired i2 suite of products and underlying technologies with the existing JDA product suite. This merging process is well underway and as of the end of 2010 we are on track with our plans. When completed, the resulting suite of SCM, merchandising and pricing solutions will be one of the most comprehensive offerings ever made available to our target market. We expect the unique capabilities of this broad suite of products to drive large multi-product suite purchases, enhance cross-selling opportunities and enable JDA to maintain its competitive leadership.

 

In 2011 our product strategy is starting the transition from a product orientation to a solution orientation. This process allows customers to implement suites of JDA products to obtain enhanced business benefit by connecting business processes across the enterprise and with trading partners.

 

As we continue to develop our Managed Services offerings, we are increasingly capable of delivering our advanced solutions as a service. We expect this trend to form a growing part of JDA’s go-to-market offering in the coming years. We believe the early success achieved by our Managed Services business indicates customer readiness to purchase solutions in this paradigm.

 

Investment Protection Program

 

We have established an Investment Protection Program to protect our customers’ investment in JDA products as we migrate to new technology platforms and merge the i2 Technologies solutions in accordance with our published product roadmap. Under the Investment Protection Program, existing maintenance paying customers are provided with the right to like-for-like functionality in a new technology platform without the need to pay an additional license fee subject to certain conditions, including a requirement that the new solution has no more than minimal differences in price, features and functionality from the existing products. Customers will pay any required third-party charges associated with the new technology platform.

 

Services

 

The key components of our services are as follows:

 

Maintenance Services

 

 

Consulting Services

 

 

Sales and Marketing

 

We market our products and services primarily through our direct sales force, and have created dedicated sales organizations in each of our geographic regions. We continue to develop a network of value-added resellers, or VARs, and other marketing and indirect sales alliances that support and help us attain our goals. We use VARs extensively in our European and Asian regions and we believe this model helps us to achieve a stronger presence in those geographies within these diverse markets where we do not have direct operations. Our partners enable us to operate with broader international coverage than would be possible if we undertook all of our sales activities directly. JDA has also been expanding relationships with systems integrators to assist with delivery of services on many of our larger projects involving larger Tier One customers.

 

Sales to new customers have historically required between three and twelve months. Sales cycles are typically longer for larger dollar projects, large multi-national organizations and companies in certain geographic regions. During the past several years, we have noted an increased requirement for senior executive, board of directors or significant equity investor approval for larger dollar contracts that have lengthened the traditional time from selection to the execution of a software agreement. We believe our ability to offer a comprehensive portfolio of integrated software applications that customers can install independently or as a complete solution, has created increased cross-selling opportunities to existing customers.

 

Competition

 

We believe that although our markets are subject to intense competition, the number of competitors in many of our application markets has decreased over the past five years. We believe the principal competitive factors in our markets are (i) reputation for delivering successful projects, (ii) feature and functionality, (iii) available deployment models that accelerate the time to value, (iv) product and services reputation, (v) performance and scalability, (vi) the quality of customer base, (vii) the perception of vendor viability, (viii) retail and supply chain industry expertise, (ix) total cost of ownership, (x) technology platform and (xi) quality of customer support across multiple regions for global customers.

 

We have two types of competitors: the first type being composed of Oracle Corporation (“Oracle”) and SAP AG, two large horizontal software companies that have each increased their presence in the retail and manufacturing marketplace over the past few years, and the second type being the smaller point solution providers who typically focus on limited solution areas. We believe that Oracle and SAP AG represent our more important long-term competitors as we expand our product offerings and compete head-to-head with them on broader system selection opportunities. We also expect Oracle and SAP AG to provide more aggressive competition for us due to the strength of their brands, financial resources and their position in the enterprise software market.

 

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 copyrights, trade secrets, trademarks, confidentiality procedures, contractual restrictions and patents to protect our proprietary technology. We seek to protect the source code to our software, documentation and other written materials under trade secret and copyright laws. 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. Examples of third-party software imbedded in our products include the following: the WebLogic application from BEA Systems, Inc. (acquired by Oracle) or the IBM Websphere applications for use in most of the JDA Enterprise Architecture and ABPP platform solutions; the IBM InfoSphere DataStage Application Server for use in our Enterprise Planning and merchandising systems, Cognos (acquired by IBM) for use in JDA Reporting and JDA Analytics; iLog CPlex (acquired by IBM) for use in certain of our transportation, scheduling, supply chain planning and network optimization applications; 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 Merchandise Performance Analysis and Java technologies from Sun Microsystems (acquired by Oracle) for use in certain of our Demand Management, Allocation, Replenishment and Fulfillment, Transportation and Logistics Management and Store Systems applications. Our third party licenses generally require us to pay royalties and fulfill confidentiality obligations. We also resell Oracle database licenses.

 

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 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 Accounting Standard Codification (“ASC”) 460 — Guarantees. 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 infringe on their intellectual property rights, we do not currently expect a significant impact on our business, operating results, or financial condition.

 

Employees

 

As of February 22, 2011, we had approximately 3,000 employees. Our employees in Germany are represented by a Works Council. Although there are no formal employee representative bodies in other countries, the employees of certain of our foreign subsidiaries are covered by national, regional or sectoral collective agreements as required by statute or standard local practice. We believe that our relations with our employees are good and we have never had a work stoppage.

 

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.

 

 

We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. The following section describes material risks and uncertainties that we believe may adversely affect our business, financial condition, results of operations or the market price of our stock. 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 contained elsewhere in this Form 10-K.

 

Risks Related To Our Business

 

We may not be able to sustain profitability in the future.

 

Our ability to sustain profitability will depend, in part, on our ability to:

 

 

 

We may not be able to do any of these successfully, and our failure to do so is likely to have a negative impact on our operating results and cash flows, which could affect our ability to make payments on the $275 million principle 8.0% Senior Notes issued in December 2009.

 

We have a substantial amount of debt, which could impact our ability to obtain future financing or pursue our growth strategy.

 

In order to complete the acquisition of i2 in January 2010, we incurred $275 million of long-term debt through the issuance of Senior Notes. Cash flow from operations was $65.2 million, $96.5 million and $47.1 million for the years ended December 31, 2010, 2009 and 2008, respectively. Our indebtedness could have significant adverse effects on our business, including the following:

 

 

The instruments governing the Senior Notes contain, and the instruments governing any indebtedness we may incur in the future may contain, restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all or a portion of our outstanding indebtedness.

 

Payments on our indebtedness will require a significant amount of cash.

 

As a result of financial, business, economic and other factors, many of which we cannot control, our business may not generate sufficient cash flow from operations in the future and our currently anticipated growth in revenue and cash flow may not be realized, either or both of which could result in our being unable to repay indebtedness, including our outstanding notes, or to fund other liquidity needs. If we do not have sufficient cash resources in the future, we may be required to refinance all or part of our then existing debt, sell assets, issue stock or borrow more money. There can be no assurance that we will be able to accomplish any of these alternatives on terms acceptable to us or at all. In addition, the terms of existing or future debt agreements may restrict us from adopting any of these alternatives.

 

We may incur substantial additional indebtedness that could further exacerbate the risks associated with our indebtedness.

 

We may incur substantial additional indebtedness in the future. Although the indenture governing our outstanding notes contains restrictions on our incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions, and we could incur substantial additional secured or unsecured indebtedness, which may include a credit facility that may include financial ratio requirements and covenants. If we incur additional debt, the risks related to our leverage and debt service requirements would increase.

We may not receive significant revenues from our current research and development efforts, which may limit our business from developing in ways that we currently anticipate.

 

Developing and localizing software is expensive and the investment in product development often involves a long payback cycle. We have made and expect to continue making significant investments in software research and development and related product opportunities. If product life cycles shorten or key technologies upon which we depend change rapidly, we may need to make high levels of expenditures for research and development that could adversely affect our operating results if not offset by corresponding revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, it is difficult to estimate when, if ever, we will receive significant revenues from these investments.

 

We may misjudge when software sales will be realized, which may materially reduce our revenue and cash flow and adversely affect our business.

 

Software license revenues in any quarter depend substantially upon contracts signed and the related delivery of software in that quarter. Because of the timing of our sales, we typically recognize the substantial majority of our software license revenues in the last weeks or days of the quarter. In addition, it is difficult to forecast the timing of large individual software license sales with a high degree of certainty due to the extended length of the sales cycle and the generally more complex contractual terms that may be associated with such licenses that could result in the deferral of some or all of the revenue to future periods. Our customers and potential customers, especially for large individual software license sales, are increasingly requiring that their senior executives, board of directors and significant equity investors approve such purchases without the benefit of the direct input from our sales representatives. As a result, we may have less visibility into the progression of the selection and approval process throughout our sales cycles, which in turn makes it more difficult to predict the quarter in which individual sales will occur, especially in large sales opportunities.

 

We are also at risk of having pending transactions abruptly terminated if the boards of directors or executive management of our customers decide to decrease their information technology budgets. When this type of behavior occurs among existing or potential customers, then we may face a significant reduction in new software sales. We have seen an increasing number of our prospects indicate to us that they can sign agreements prior to the end of our quarter, when in fact their approval process precludes them from being able to complete the transaction until after the end of our quarter. In addition, because of the current economic condition, we may need to increase our use of alternate licensing models that reduce the amount of software revenue we recognize upon shipment of our software.

 

Each of these circumstances adds to the difficulty of accurately forecasting the timing of 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 if we are unable to conclude license negotiations by the end of a fiscal quarter, our quarterly operating results will be lower than anticipated.

 

In addition to the above, we may be unable to recognize revenues associated with certain projects assumed in the acquisition of i2 in accordance with our expectations. i2 historically recognized a significant portion of revenues from sales of software solutions and development projects over time using the percentage of completion method of contract accounting. Failure to complete project phases in accordance with the overall project plan can create variability in our expected revenue streams if we are not able to recognize revenues related to particular projects because of delays in development and delivery.

 

We 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 could contain design defects, software errors or security problems that are difficult to detect and correct. In particular, it is common for complex software programs such as ours to contain undetected errors, particularly in early versions of our products. Errors 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.

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. Our clients may occasionally experience difficulties integrating our products with other hardware or software in their particular environment that are unrelated to defects in our products. Such defects, errors or difficulties may cause future delays in product introductions, result in increased costs and diversion of development resources, require design modifications or impair customer satisfaction with our products. If clients experience significant problems with implementation of our products or are otherwise dissatisfied with their functionality or performance, or if our products fail to achieve market acceptance for any reason, our market reputation could suffer, and we could be subject to claims for significant damages. There can be no assurances that the contractual provisions in our customer agreements that limit our liability and exclude consequential damages 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.

 

We may have difficulty implementing our software products, which would harm our business and relations with customers.

 

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. The implementation time for certain of our applications can be longer and more complicated than our other applications as they typically:

 

 

Delays in the implementations of any of our software products, whether by our business partners or by us, may result in client dissatisfaction, disputes with our customers, damage to our reputation or cancellation of large projects. With the i2 acquisition, we have increased the number of large, complex projects with global tier one customers. Cancellation of a large, global implementation project could have a material adverse affect on our operating results.

 

Our operating results may be adversely affected as a result of our failure to meet contractual obligations under fixed-price contracts within our estimated cost structure.

 

A portion of our consulting services revenues are derived under fixed price arrangements that require us to provide identified deliverables for a fixed fee. Our failure to meet our contractual obligations under fixed price contracts within our estimated cost structure may result in our having to record the cost related to the performance of services in the period that the services were rendered, but delay the timing of revenue recognition to a future period in which the obligations are met, which may cause our operating results to suffer.

 

Litigation could harm our business.

 

We may be subject to legal proceedings and claims involving customer, stockholder, consumer, competition and other issues on a global basis. As described in “Item 15, Note 12 — Legal Proceedings” in Part IV of this Form 10-K, we are currently engaged in a number of legal proceedings, including litigation with Dillard’s and a group of former i2’s shareholders. These legal proceedings are subject to inherent uncertainties, and unfavorable rulings could occur and could have a material adverse effect on our business, financial position, results of operations or cash flows.

We may have difficulty developing our new managed services offering, which could reduce future revenue growth opportunities.

 

We have limited experience operating our applications for our customers under our Managed Services offering, either on a hosted or remote basis. We began these services in late 2009 and through December 31, 2010 they represented a very small part of our revenues. We have hired management personnel with significant expertise in operating a managed services business, and we have begun to make capital expenditures for this business. We may encounter difficulties developing our Managed Services into a mature services offering, or the rate of adoption by our customers may be slower than anticipated. If our Managed Services business does not grow or operate as expected, it could divert management resources, harm our strategy and reduce opportunities for future revenue growth.

 

The enforcement and protection of our intellectual property rights may be expensive and could divert our valuable resources.

 

We rely primarily on patent, copyright and trademark laws, as well as nondisclosure and confidentiality agreements and other methods, to protect our proprietary information, technologies and processes. Policing unauthorized use of our products and technologies is difficult and time-consuming. Unauthorized parties may try to copy or reverse engineer portions of our products, circumvent our security devices or otherwise obtain and use our intellectual property. We cannot be certain that the steps we have taken will prevent the misappropriation or unauthorized use of our proprietary information and technologies, particularly in foreign countries where the laws may not protect our proprietary intellectual property rights as fully or as readily as United States laws. We cannot be certain that the laws and policies of any country, including the United States, or the practices of any of the standards bodies, foreign or domestic, with respect to intellectual property enforcement or licensing will not be changed in a way detrimental to our licensing program or to the sale or use of our products or technology.

 

We may need to litigate to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights of others. As a result of any such litigation, we could lose our ability to enforce one or more patents or incur substantial unexpected operating costs. Any action we take to enforce our intellectual property rights could be costly and could absorb significant management time and attention and could result in counterclaims, which, in turn, could negatively impact our operating results. In addition, failure to protect our trademark rights could impair our brand identity.

 

Third parties may claim we infringe their intellectual property rights, which would result in an increase in litigation and other related costs.

 

We periodically receive notices or claims from others that we are infringing upon their intellectual property rights, especially patent rights. We expect the number of such claims will increase as the functionality of products overlap and the volume of issued software patents continues to increase. Responding to any infringement claim, regardless of its validity, could:

 

 

If a successful claim is made against us and we fail to develop or license a substitute technology, our business, results of operations, financial condition or cash flows could be adversely affected.

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. 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 likely 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 obtained may not have been adequately protected, or infringes another parties intellectual property rights.

 

We may face difficulties in our highly competitive markets, which may make it difficult to attract and retain clients and grow revenues.

 

The supply chain software market continues to consolidate and this has resulted in larger, new competitors with significantly greater financial and marketing resources and more numerous technical resources than we possess. This could create a significant competitive advantage for our competitors and negatively impact our business. It is difficult to estimate what long term effect these acquisitions will have on our competitive environment. We have encountered competitive situations with certain enterprise software vendors where, in order to encourage customers to purchase licenses of their specific applications and gain market share, we suspect they have also offered to license at no charge certain of their retail and/or supply chain software applications that compete with our solutions. If large competitors such as Oracle and SAP AG are willing to license their retail, supply chain and/or other applications at no charge, it may result in a more difficult competitive environment for our products. We cannot guarantee that we will be able to compete successfully for customers or acquisition targets against our current or future competitors, or that competition will not have a material adverse effect on our business, operating results and financial condition.

 

We encounter competitive products from a different set of vendors in many of our primary product categories. We believe that while our markets are subject to intense competition, the number of competitors in many of our application markets has decreased over the past five years. We believe the principal competitive factors in our markets are feature and functionality, the depth of planning and optimization provided and available deployment models. We compete on the basis of our reputation for delivering successful projects that deliver valuable results, our product features and functionality, available deployment models that accelerate the time to value, the reputation of our products and services, the performance and scalability of our products, the quality of our customer base, the perception of vendor viability, our retail and supply chain industry expertise, our lower total cost of ownership, and quality of customer support across multiple regions for global customers.

 

The competitive markets in which we compete could put pressure on us to reduce our prices. If our competitors offer deep discounts on certain products, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes would likely reduce margins and would adversely affect our operating results. Our software license updates and product support fees are generally priced as a percentage of our new license fees. Our competitors may offer a lower percentage pricing on product updates and support, which could put pressure on us to further discount our new license prices. Any broadly-based changes to our prices and pricing policies could cause new software license and services revenues to decline or be delayed as our sales force implements and our customers adjust to the new pricing policies.

 

We face competition from low-cost off-shore service providers and smaller boutique consulting firms. This competition is expected to continue and our on-shore hourly rates are much higher than those offered by these competitors. As these competitors gain more experience with our products, the quality gap between our service offerings and theirs may diminish, resulting in decreased revenues and profits from our consulting practice. In addition, we face increased competition for services work from ex-employees of JDA who offer services directly or through lower cost boutique consulting firms. These competitive service providers have taken business from JDA and while some are still relatively small compared to our consulting services business, if they grow successfully, it

will be largely at our expense. We continue to attempt to improve our competitive position by further developing and increasing the utilization of our offshore consulting services at our CoE facilities in Hyderabad and Bangalore; however, we cannot guarantee these efforts will be successful or enhance our ability to compete.

 

There are many risks associated with international operations, which may negatively impact our overall business and profitability.

 

International revenues represented approximately 44% of our total revenues for the year ended December 31, 2010 and approximately 40% of our total revenues in the two years ended December 31, 2009 and, 2008 on both an actual and pro forma basis, after giving effect to the acquisition of i2, and we expect to generate a significant portion of our revenues from international sales in the future.

 

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

 

 

Ø our continuing expansion of the CoE in India; and

 

Ø the acquisition of i2, as the majority of i2’s international expenses, including the compensation expense of over 65% of its employees, is denominated in currencies other than the U.S. Dollar;

 

 

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 and the anticipated costs and expenses associated with our CoE facilities in India. We cannot guarantee that any currency exchange strategy would be successful in avoiding exchange-related losses.

If we experience expansion delays or difficulties with our Center of Excellence in India, our costs may increase and our margins may decrease.

 

We are continuing the expansion of our CoE facilities located in Hyderabad and Bangalore, India. In order to take advantage of cost efficiencies associated with India’s lower wage scale, we expanded the CoE during 2008 beyond a research and development center to include consulting services, customer support and information technology resources. We believe that a properly functioning CoE will be important in achieving desired long-term operating results. Although we have not yet fully utilized certain of the service capabilities of the CoE, we believe progress is being made. We are satisfied with the progress of our product development, information technology and other administrative support functions at the CoE. We are also beginning to gain leverage from the CoE in our consulting services business, and we expect the overall share of consulting services work performed by the CoE will continue to increase. We have also started to leverage the CoE in our customer support organization although we believe there remain further opportunities to increase this leverage. If we encounter any delays in our efforts to increase the utilization of our services resources at the CoE, it may have an overall effect of reducing our consulting services margins and negatively impacting our operating results. If our costs increase or our margins significantly negatively impact our operating results, we may decide to move these activities to new locations around the globe.

 

Additional risks associated with our CoE strategy include, but are not limited to:

 

 

Economic, political and market conditions can adversely affect our revenue and profitability.

 

Our revenue and profitability depend on the overall demand for our software and related services. Historically, events such as terrorist attacks, natural catastrophes and contagious diseases have created uncertainties in our markets and caused disruptions in our sales cycles. A regional and/or global change in the economy or financial markets, such as the current protracted global economic downturn, could result in delay or cancellation of customer purchases. A downturn in the economy may cause an increase in customer bankruptcy reorganizations, liquidations and consolidations, which may negatively impact our accounts receivables and expected future revenues from such customers. Adverse conditions in credit markets, reductions in consumer confidence and spending and the fluctuating commodities and/or fuel costs are examples of changes that have delayed or terminated certain customer purchases. These adverse conditions have delayed or terminated certain of our customer deals. A further worsening or broadening or protracted extension of these conditions would have a significant negative impact on our operating results. In addition to the potential negative impact of the economic downturn on our software sales, customers are increasingly seeking to reduce their maintenance fees or to avoid price increases. A prolonged economic downturn may increase our attrition rates, particularly if many of our larger maintenance customers cease operations. Because maintenance is our largest source of revenue, increases in our attrition rates can have a significant adverse impact on our operating results. Weak and uncertain economic conditions could also impair our customers’ ability to pay for our products or services. Any of these factors could adversely impact our quarterly or annual operating results and our financial condition.

We may be unable to retain key personnel, which could materially impact our ability to further develop our business.

 

While the rate of retention of our associates is high compared to industry averages, our operations are dependent upon our ability to attract and retain highly skilled associates and the loss of certain key individuals to any of our competitors could adversely impact our business. Our performance depends in large part on the continued performance of our executive officers and other key employees.

 

In addition, we do not have in place “key person” life insurance policies on any of our employees. The loss of the services of key executive officers or employees without a successor in place, or any difficulties associated with a successor, could negatively affect our financial performance.

 

We may have difficulty integrating future acquisitions, which would reduce the anticipated benefits of those transactions.

 

We intend to 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 eleven acquisitions over the past thirteen years, including our acquisitions of i2 in January 2010 and of Manugistics in July 2006. The risks we have encountered in acquisitions include:

 

 

 

Our failure to effectively integrate any future acquisition would adversely affect the benefit of such transaction, including potential synergies or sales growth opportunities, to the extent in or the time frame anticipated.

 

Government contracts are subject to unique costs, terms, regulations, claims and penalties that could reduce their profitability to us.

 

As a result of the acquisition of Manugistics, we acquired a number of contracts with the U.S. government. Government contracts entail many unique risks, including, but not limited to, the following:

 

 

These risks may make the contracts less profitable or cause them to be terminated, which would adversely affect the business.

 

If we do not identify, adopt and develop product architecture that is compatible with emerging industry standards, our products will be less attractive to customers.

 

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 when appropriate implement into our products advanced technology such as our current JDA Enterprise Architecture 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 may suffer.

 

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

 

We may be impacted by shifts in consumer preferences affecting the supply chain that could reduce our revenues.

 

We are dependent upon and derive most of our revenue from the supply chain linking manufacturers, distributors and retailers to consumers, or the consumer products supply chain vertical. If a shift in spending occurs in this vertical market that results in decreased demand for the types of solutions we sell, it would be difficult to adjust our strategies and solution offerings because of our dependence on these markets. If the consumer products supply chain vertical experiences a decline in business, it could have a significant adverse impact on our business prospects, particularly if it is a prolonged decline. The recent economic downturn caused declines in certain areas of the consumer products supply chain. If economic conditions deteriorate further or the failure rates of customers in our target markets increase, we may experience an overall decline in sales that would adversely impact our business.

 

Risks Related To Our Stock

 

Our quarterly operating results may fluctuate significantly, which could adversely affect the price of our stock.

 

Our quarterly operating results have varied in the past and are expected to continue to vary in the future. If our quarterly or annual operating results, particularly our software revenues, fail to meet management’s or analysts’ expectations, the price of our stock could decline. Many factors may cause these fluctuations, including:

 

 

Charges to earnings resulting from past or future acquisitions or internal reorganizations may also adversely affect our operating results. Under the acquisition method of accounting, we allocate the total purchase price to an acquired company’s net tangible assets, amortizable intangible assets and in-process research and development, if any, based on their fair values as of the date of the acquisition and record the excess of the purchase price over those fair values as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. As a result, any of the following or other factors could result in material charges that would adversely affect our results:

 

 

 

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 ability to use U.S. net operating loss carryforwards and credit carryforwards might be limited

 

Our ability to utilize net operating losses (“NOLs”), built-in losses (“BILs”), and tax credit carryforwards to offset our future taxable income and/or to recover previously paid taxes would be limited if we were to undergo an “ownership change” within the meaning of Section 382 of the Internal Revenue Code (the “IRC”). In general, an “ownership change” occurs whenever the percentage of the stock of a corporation owned by “5-percent shareholders” (within the meaning of Section 382 of the IRC) increases by more than 50 percentage points over the lowest percentage of the stock of such corporation owned by such “5-percent shareholders” at any time over the testing period.

 

An ownership change under Section 382 of the IRC would establish an annual limitation to the amount of NOLs, BILs, and tax credit carryforwards we could utilize to offset our taxable income in any single year. The application of these limitations might prevent full utilization of the deferred tax assets attributable to our NOLs, BILs, and tax credit carryforwards.

 

Anti-takeover provisions in our organizational documents and Delaware law could prevent or delay a change in control.

 

Our certificate of incorporation, which authorizes the issuance of “blank check preferred” stock 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.

 

 

 

We own our corporate office facility in Scottsdale, Arizona. The corporate office facility includes a 136,000 square foot, three-story office building, a two-story parking garage, and approximately 8.8 acres of land upon which these structures are located. The corporate office is used for certain of our sales, marketing, consulting, customer support, training, and product development functions, as well as executive and administrative functions. As of December 31, 2010, we have leased approximately 24,000 square feet of excess office space in our corporate office facility, and have identified an additional 13,000 square feet that is available for lease.

 

We currently lease office space in the Americas for 15 regional sales and support offices across the United States and Latin America, and for 23 other international sales and support offices located in major cities throughout Europe, Asia, Australia, Japan and the CoE facilities in Bangalore and Hyderabad, India. The leases are primarily non-cancelable operating leases with initial terms ranging from one to 20 years that expire at various dates through the year 2018. None of the leases contain contingent rental payments; however, certain of the leases contain scheduled rent increases and renewal options. We expect that in the normal course of business most 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. As of December 31, 2010, we have sublet approximately 204,000 square feet of excess office space through 2014, and have identified an additional 70,000 square feet that we are trying to sublet.

 

 

Information pertaining to legal proceedings can be found in Note 12. “Legal Proceedings” to our Condensed Consolidated Financial Statements elsewhere in this Annual Report on Form 10-K, and is incorporated by reference herein.

 

 

 

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.

 

 

On February 22, 2011, the closing sale price for our common stock was $29.60 per share. On this date, there were approximately 315 holders of record of our common stock, one of which is Cede & Co., a nominee for the Depository Trust Company (“DTC”). All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and therefore are considered to be held of record by Cede & Co. as one shareholder. 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.

 

See Item 1A for a discussion of factors which have and may continue to impact our operating results and adversely affect the market price of our common stock. See Item 12 for information regarding securities authorized for issuance under equity compensation plans.

Stock Performance Graph

 

The graph below compares the cumulative total return on our Common Stock with the NASDAQ Stock Market index (U.S. companies) and the cumulative total return of NASDAQ Computer and Data Processing Stocks (Peer Group) for the period from December 31, 2005 to December 31, 2010. The comparison assumes that $100 was invested on December 31, 2005 in our Common Stock and in each of the comparison indices, and assumes reinvestment of dividends.

 

Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2010

 

 

 

 

The information contained in the Stock Performance Graph shall not be deemed to be soliciting material or to be filed with the SEC nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.

 

 

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 Operations 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, 2010, are derived from the audited consolidated financial statements of JDA Software Group, Inc. The consolidated financial statements as of December 31, 2010 and 2009, and for each of the years in the three-year period ended December 31, 2010, together with the report of the independent registered public accounting firm, are included elsewhere herein.

 

 

 

 

 

Management’s discussion and analysis of financial condition and results of operations contain certain forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements concerning, among other things, our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, products, projected costs and capital expenditures; research and development programs; sales and marketing initiatives; and competition. Forward-looking statements are generally accompanied by words such as “will” or “expect” and other words with forward-looking connotations. All forward-looking statements included in this Form 10-K are based upon information available to us as of the filing date of this Form 10-K. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in the section entitled “Risk Factors” elsewhere in this Form 10-K. You should carefully consider the risks and uncertainties described under this section.

 

Significant Trends and Developments in Our Business

 

Legal Proceedings (see Note 12“Legal Proceedings” to our Condensed Consolidated Financial Statements elsewhere in this Annual Report on Form 10-K, and is incorporated by reference herein).  On December 2, 2010, we met with Dillard’s for a mediation session. During that mediation session, settlement offers were exchanged, but no agreement was reached. Therefore, on December 23, 2010 i2 Technologies, Inc. (“i2”), which was acquired by JDA Software Group, Inc. (the “Company”) on January 28, 2010, filed a Notice of Appeal to the Dallas Court of Appeals. We currently estimate the potential loss for this matter to range between $19 million (the highest settlement offer exchanged) and $237 million (representing a maximum award for lost profits, punitive damages and pre-judgment interest), plus post-judgment interest. The appeals process is not expected to be resolved prior to the end of 2011. There can be no assurance that it will be successful or that the litigation will be settled on terms acceptable to JDA. Management has determined that the best estimate of the potential outcome of this matter is $19.0 million, of which $5.0 million was recorded on the opening balance sheet of i2 following JDA’s acquisition of i2 in January 2010 and $14.0 million was recorded in December 2010 in the Consolidated Statements of Income under the capital “Litigation provision” and in Consolidated Balance Sheets under the caption “Accrued expenses and other liabilities.”

 

As previously reported, on April 29, 2009, i2 filed a lawsuit against Oracle Corporation in the United States District Court for the Eastern District of Texas, alleging infringement of i2 patents related to supply chain management, available to promise software and other enterprise applications. On April 22, 2010, Oracle Corporation filed counterclaims against i2 and the Company (of which i2 is now a wholly-owned subsidiary), alleging infringement of certain Oracle Corporation patents. On February 25, 2011, the Company, i2 and Oracle Corporation entered into a settlement agreement (the “Agreement”). Under the Agreement, the parties entered into a cross-license arrangement and dismissed their respective litigation claims related to the patent infringement dispute with prejudice. In addition, the Company is entitled to receive a one-time cash payment of $35.0 million from Oracle Corporation, payable within seven days of the Agreement date, as well as a $2.5 million license and technical support credit from Oracle Corporation that must be used by the Company within two years. The Company intends to account for this settlement as a reduction of operating expenses in the first quarter of 2011 under the caption “Litigation Settlement” in the consolidated statement of income.

 

We Have Incurred Significant Unplanned Legal Expenses.  Legal expenses incurred for the year ended December 31, 2010 from inherited i2 litigation were $9.4 million, in addition to the $14.0 million pre-tax non- cash charge associated with an i2 litigation matter. We expect our legal expenses to be higher than normal until we resolve these matters.

 

Acquisition of i2 Technologies, Inc.  On January 28, 2010, we completed the acquisition of i2 Technologies, Inc. (“i2”) for approximately $600.0 million, which includes cash consideration of approximately $432.0 million and the issuance of approximately 6.2 million shares of our common stock (see Note 2). Additionally, in December 2009, we issued $275 million of five-year, 8.0% Senior Notes (the “Senior Notes”, see Note 9). During 2010, we successfully consolidated the operations of i2 into those of JDA and achieved approximately $22.9 million or 115% of our total targeted net cost synergies.

For the years ended December 31, 2010 and 2009, we expensed approximately $8.1 million and $4.8 million, respectively, of costs related to the acquisition of i2. These costs, which consist primarily of investment banking fees, commitment fees on unused bank financing, legal and accounting fees, are included in the consolidated statements of income under the caption “Acquisition-related costs.”

 

Financial Position and Cash Flow Provided by Operations.  We had working capital of $186.7 million at December 31, 2010 compared to $345.7 million at December 31, 2009. The working capital balances include cash of $206.5 million and $363.8 million, respectively, which includes restricted cash of $34.9 million and $287.9 million, respectively. The restricted cash balance at December 31, 2009 consisted primarily of net proceeds from the issuance of the Senior Notes (see Contractual Obligations ) of approximately $265 million, which together with cash on hand at JDA and i2, was used to fund the cash portion of the merger consideration in the acquisition of i2 on January 28, 2010.

 

Net accounts receivable were $102.1 million or 54 days sales outstanding (“DSO”) at December 31, 2010 compared to $68.9 million or 58 days DSO at December 31, 2009. DSO results can fluctuate significantly on a quarterly basis due to a number of factors including the percentage of total revenues that comes from software license sales which may have installment payment terms, seasonality, shifts in customer buying patterns, the timing of customer payments, 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.

 

We generated $65.2 million in cash from operating activities for the year ended December 31, 2010 compared to $96.5 million for the year ended December 31, 2009. The decrease in cash flow is due primarily to a $8.6 million decrease in the current period net income, which includes $8.1 million of acquisition-related costs, $20.9 million of restructuring charges, $23.4 million in inherited i2 litigation expenses (including the $14.0 million labeled as “Litigation provision”) and $1.6 million of non-recurring, transition-related costs for salaries and retention bonuses for i2 employees. In addition, changes in working capital utilized approximately $23.3 million of cash in 2010 and provided approximately $18.6 million of cash in 2009, due primarily to the timing and payment of accounts receivable and decreases in deferred revenue and income taxes payable. Operating cash flows in 2010 were negatively impacted by decreases in deferred revenue balances from maintenance and other recurring revenue contracts assumed in the i2 acquisition that were renewed prior to the acquisition and for which the related cash was collected by i2 prior to the acquisition close date.

 

Future Tax Benefits From the i2 Acquisition.  We acquired net operating loss carry forwards and other favorable tax attributes such as amortization of intangibles and capitalized research and development costs and expect future cash tax benefits of approximately $210 million of which we expect $110 million to be realized over the next five years (2010 through 2014). As a result, we do not expect to pay significant federal income taxes through 2014.

 

Results of Operations

 

Revenues

 

The following table summarizes revenues and the components of total revenue as a percentage of total revenue (in thousands, except percentages):

 

The following tables summarize the impact of the i2 acquisition on our product and service revenues for the year ended December 31, 2010:

 

 

Software and Subscription Revenues

 

The following table summarizes software and subscription revenues by region (in thousands):

 

 

The increase in software and subscription revenues in 2010 compared to 2009 is primarily due to the acquisition of i2 and the increase in large transactions (transactions greater than $1.0 million). There were 25 large transactions in 2010 as compared to 19 large transactions in 2009.

 

The decrease in software and subscription revenues in the Americas region in 2009 compared to 2008 is due primarily to a decrease in license revenues recognized from large transactions. Notably, in 2008 we recognized a license sale in fourth quarter for $11.5 million which was the largest license transaction in our history. The increase in software license revenues in the Asia/Pacific region in 2009 compared to 2008 is due primarily to an increase in license revenues recognized from large transactions, including one large transaction in second quarter 2009 which was the largest license transaction ever recognized in the Asia/Pacific region.

 

Maintenance Services

 

Maintenance services revenues increased in 2010 compared to 2009 primarily due to $60.5 million of new incremental maintenance revenues from the i2 products and the year-over-year improvement in retention rates. The annualized retention rate in 2010 increased to 95.6 percent from 92.4 percent in 2009. In addition, net favorable foreign exchange rate variances increased maintenance services revenues in 2010 by $3.0 million compared to 2009 due primarily to the strengthening of the U.S. Dollar against European currencies.

 

Maintenance services revenues decreased in 2009 compared to 2008 primarily due to unfavorable foreign exchange rate variances of approximately $7.4 million due primarily to the strengthening of the U.S. Dollar against European currencies. Excluding the impact of the unfavorable foreign exchange rate variance, maintenance services revenues increased approximately $3.9 million in 2009 compared to 2008 as maintenance revenues from new software sales, rate increases on annual renewals and reinstatements of previously suspended and cancelled maintenance agreements more than offset decreases in maintenance revenues due to attrition.

 

Service Revenues

 

Service revenues, which include consulting services, managed services, training revenues, net revenues from our hardware reseller business and reimbursed expenses, increased in 2010 compared to 2009 primarily due to $96.9 million of new incremental service revenues from i2. Excluding these incremental revenues, our core consulting services business increased approximately $25.7 million in 2010 compared to 2009 primarily as a result

of our improved software sales performance over the past three years and an increase in billable hours from certain large ongoing projects in each of our regions.

 

Service revenues increased in 2009 compared to 2008 primarily due to increases in consulting services revenue, utilization and realized average hourly billing rates in the Americas region and the Pricing and Revenue Management reportable business segment, offset in part by decreases in consulting services revenue and lower realized average hourly billing rates in the EMEA and Asia/Pacific regions and a $0.7 million decrease in non-consulting services (training and hosting services, hardware sales and reimbursed expenses).

 

Gross Profits (in thousands, except percentage amounts):

 

 

Gross Profit on Product Revenues.  The increase in gross profits of $95.3 million on product revenues in 2010 as compared to 2009 primarily relates to: the increase in product revenues of $108.8 million, offset in part by $1.0 million of higher costs of software licenses related to increases in royalties on embedded third-party software applications, $3.1 million of higher amortization of software technology acquired in the i2 acquisition and $9.4 million of an increase in the cost of maintenance services related to increased salaries, incentive compensation and related benefits resulting from the associates added in the i2 acquisition and an increase in maintenance royalties and fees paid to third parties who provide first level support to certain of our customers.

 

The decrease in gross profits on product revenues of $3.4 million in 2009 as compared to 2008 primarily relates to the decrease in product revenue of $7.6 million. This decrease in revenue was partially offset by: a decrease in the cost of software licenses primarily related to a decrease in royalties on embedded third-party software applications, offset in part by an increase in royalties on certain third party applications that we resell; a decrease in amortization of acquired software technology primarily related to the cessation of amortization on certain acquired technology that became fully amortized; and a decrease in cost of maintenance services primarily related to a decrease in salaries and related benefits and a $0.4 million decrease in maintenance royalties and fees paid to third parties who provide first level support to certain of our customers. Although the average customer support headcount increased 4% in 2009 compared to 2008, salaries and related benefits decreased approximately $2.1 million as new and replacement positions were filled with lower cost resources at the CoE.

 

Gross Profit on Service Revenues.  The increase in gross profits of $28.3 million on services revenues in 2010 as compared to 2009 primarily relates to an increase in service revenue of $122.6 million, offset in part by an increase in salaries, incentive compensation and related benefits resulting from the associates added in the i2 acquisition, a $16.3 million increase in outside contractor costs, and a $3.9 million increase in travel costs.

 

There was no significant change in the gross profit on services revenues in 2009 as compared to 2008 as both service revenues and service costs were not materially different in either period.

 

Operating Expenses

 

Product Development

 

The following table summarizes product development expenses in dollars and as a percentage of total revenues (in thousands, except percentage amounts):

 

 

Product development expense dollars increased in 2010 compared to 2009 primarily due to an increase in salaries, incentive compensation and related benefits resulting from the associates added in the i2 acquisition; however, decreased as a percentage of revenue as a result operating leverage achieved in 2010.

 

Product development expense decreased in 2009 compared to 2008 primarily due to a decrease in salaries and related benefits. Although the average product development headcount increased over 13% in 2009 compared to 2008, salaries and related benefits decreased as new and replacement positions were filled with lower cost resources at the CoE.

 

Sales and Marketing

 

The following table summarizes sales and marketing expenses in dollars and as a percentage of total revenues (in thousands, except percentage amounts):

 

 

Sales and marketing expense dollars increased in 2010 compared to 2009 primarily due to an increase in salaries, incentive compensation, travel expenses and related benefits resulting from the associates added in the i2 acquisition; however, decreased as a percentage of revenue as a result of operating leverage achieved in 2010.

 

There was no significant change in sales and marketing expense in 2009 as compared to 2008.

 

General and Administrative

 

The following table summarizes general and administrative expenses in dollars and as a percentage of total revenues (in thousands, except percentage amounts):

 

 

General and administrative expense dollars increased in 2010 compared to 2009 primarily due to an increase in legal costs of which $9.4 million were related to the ongoing litigation between Dillard’s and i2 and the patent infringement litigation i2 filed against Oracle Corporation and an increase in salaries, incentive compensation and related benefits resulting from the associates added in the i2 acquisition. These increases in costs were partially offset by as a result of the operating leverage achieved in 2010 and resulted in comparable percentage of revenue as compared to 2009.

 

General and administrative expense increased in 2009 compared to 2008. The increase is due primarily to a $1.4 million increase in share-based compensation resulting from an increase in the value of equity awards issued under the 2009 Performance Plan compared to the 2008 Performance Plan and the costs associated with certain equity inducement awards granted to new executive officers. The increase in general and administrative expense in 2009 compared to 2008 also includes a $1.2 million increase in the provision for doubtful accounts associated primarily with two specific accounts and a $0.3 million increase in legal and accounting fees, offset in part by a decrease in salaries and benefits. Although the average general and administrative headcount increased approximately 1% in 2009 compared to 2008, salaries and related benefits decreased $0.6 million as new and replacement positions were filled with lower cost resources at the CoE.

 

Amortization of Intangibles (in thousands):

 

 

The increase in amortization of intangibles in 2010 compared to 2009 is due primarily to the amortization on customer list and trademark intangible assets acquired in the i2 acquisition, offset in part to the cessation of amortization on certain trademark intangibles from prior acquisitions that are now fully amortized.

The decrease in amortization of intangibles in 2009 compared to 2008 is due primarily to the cessation of amortization on certain trademark and customer list intangibles that are now fully amortized.

 

Restructuring Charges (in thousands):

 

 

The 2010 restructuring charges are primarily for termination benefits, office closures and contract terminations associated with the acquisition of i2 and the continued transition of additional on-shore activities to our CoE facilities. The charges include $14.1 million for termination benefits related to a workforce reduction of approximately 200 associates primarily in product development, sales, information technology and other administrative positions primarily in the Americas. In addition, the charges include $6.9 million for estimated costs to close and integrate redundant office facilities and for the integration of information technology and termination of certain i2 contracts that have no future economic benefit to the Company and are incremental to the other costs that will be incurred by the combined Company. The remaining $2.2 million is expected to be paid during fiscal 2011.

 

Restructuring charges in 2009 include (i) a $6.5 million charge for 2009 restructuring activities, (ii) a $0.4 million adjustment to reduce estimated restructuring reserves established in prior years, (iii) an adjustment of $1.4 million to increase certain Manugistics acquisition reserves based on our revised estimate of sublease rentals and market adjustments on an unfavorable office facility in the United Kingdom, (iv) the reversal of $0.8 million in contingency reserves established in the initial purchase accounting on the Manugistics acquisition and (v) $0.1 million in adjustments to other acquisition-related reserves. The charge for 2009 restructuring activities is primarily associated with the transition of additional on-shore activities to the CoE and certain restructuring activities in the EMEA sales organization. The charges include termination benefits related to a workforce reduction of 86 full-time employees (“FTE”) in product development, service, support, sales and marketing, information technology and other administrative positions, primarily in the Americas region. In addition, the restructuring charges include approximately $2.0 million in severance and other termination benefits under separation agreements with two former executives.

 

Restructuring charges in 2008 include a $8.0 million charge for 2008 restructuring activities and $0.4 million in net adjustments to increase certain Manugistics acquisition reserves based on our revised estimates of the restructuring costs to exit certain activities of Manugistics primarily related to facility closures and employee severance and termination benefits. The charge for 2008 restructuring activities was primarily associated with our transition of certain on-shore activities to the CoE and included $7.9 million for termination benefits, primarily related to a workforce reduction of 100 FTE in product development, consulting and sales-related positions across all of our geographic regions and $0.1 million for office closure and integration costs of redundant office facilities.

 

Other Operating Expenses (in thousands):

 

 

Acquisition-Related Costs.  During 2010 we expensed approximately $8.1 million of costs related to the acquisition of i2. These costs consist primarily of investment banking fees, commitment fees on unused bank financing, legal, accounting and other outside professional fees. During 2009 we expensed approximately $4.8 million of costs related to the acquisition of i2. These costs consisted primarily of investment banking fees, commitment fees on unused bank financing, legal and accounting fees.

 

Costs of Abandoned Acquisition.  We expensed $25.1 million in costs associated with an abandoned acquisition in the fourth quarter 2008, including a $20 million non-refundable reverse termination fee and $5.1 million of legal, accounting and other acquisition-related fees.

Litigation Provision.  We expensed $14.0 million in 2010 related to our litigation with Dillard’s. See Note 12 for further information.

 

Interest Expense and Other Income (in thousands):

 

 

Interest Expense and Amortization of Loan Fees.  The increase in interest expense and amortization of loan fees in 2010 compared to 2009 is due primarily to $23.4 million of interest on the Senior Notes issued and amortization of $1.4 million on the original issue discount on the Senior Notes and related loan origination fees. The decrease in 2009 compared to 2008 is due primarily to the repayment in full during 2008 of all remaining borrowings on term loans used to finance the acquisition of Manugistics, the accelerated amortization of related loan origination fees and an $0.9 million payment in consideration for early termination of a related interest rate swap.

 

Finance Costs on Abandoned Acquisition.  During 2008, we accrued $5.3 million in finance costs related to loan origination ($3.4 million) and “ticking” fees ($1.9 million) on debt financing related to an abandoned acquisition. During 2009, approximately $0.8 million of the “ticking” fees were waived pursuant to a mutual release agreement and the related expense was reversed.

 

Interest Income and Other, Net.  There was no significant change in interest income and other, net in 2010 as compared to 2009. The decrease in 2009 compared to 2008 is due primarily to a $1.5 million decrease in interest on invested funds as the excess cash balances that were held in interest bearing accounts during 2008 were used to repay the remaining balance of the term loans used to finance the acquisition of Manugistics.

 

Income Tax Provision (in thousands):

 

 

Our effective income tax rates were 24.1% and 32.8% in 2010 and 2009, respectively. Our effective income tax rate takes into account the source of taxable income, domestically by state and internationally by country, and available income tax credits. The effective tax rate in 2010 is lower than the United States federal statutory rate of 35% due to the release of income tax reserves resulting from expiring tax statutes for U.S. state income tax returns and recording the benefit of research and development (“R&D”) credits. The effective tax rate in 2009 is lower than the United States federal statutory rate of 35% due primarily to recording the benefit of R&D credits, Section 199 deduction and the benefit of previously unrecorded net operating losses.

 

Our effective income tax rates were 32.8% and 58.1% in 2009 and 2008, respectively. Our effective income tax rate takes into account the source of taxable income, domestically by state and internationally by country, and available income tax credits. The effective tax rate in 2009 is lower than the United States federal statutory rate of 35% due primarily to recording the benefit of R&D credits, Section 199 deduction and the benefit of previously unrecorded net operating losses. The effective tax rate in 2008 is higher than the federal statutory rate of 35% due to increases in the liability for unrecognized tax benefits and other adjustments including those related to income tax examinations.

 

Consideration Paid in Excess of Carrying Value on the Repurchase of Redeemable Preferred Stock

 

We entered into a purchase agreement in September 2009 to acquire the remaining shares of Series B preferred stock for $28.1 million in cash (or $20 per share for each of the 1.4 million shares of JDA common stock into which the Series B Preferred Stock is convertible). The agreed purchase price included $19.5 million, which represents the conversion of 1.4 million shares of common stock at the conversion price of $13.875, and $8.6 million, which represents consideration paid in excess of the conversion price of $13.875 ($6.125 per share). The consideration paid in excess of the conversion price was charged to retained earnings in the same manner as a dividend on preferred stock, and reduced the income applicable to common shareholders in the calculation of earnings per share for 2009.

Segments Data

 

In connection with the acquisition of i2, management approved a realignment of our reportable business segments to better reflect the core business in which we operate, the supply chain management market, and how our chief operating decision maker views, evaluates and makes decisions about resource allocations within our business. As a result of this realignment, we eliminated Retail and Manufacturing and Distribution as reportable business segments and beginning with first quarter 2010 have reported our operations within the following segments:

 

 

A summary of the revenues, operating income and depreciation attributable to each of these reportable business segments for the three years ended December 31, 2010 is as follows (in thousands):

 

 

The combined operating income reported in the reportable business segments excludes $153.8 million, $82.9 million and $102.7 million of general and administrative expenses and other charges in 2010, 2009 and 2008, respectively, that are not directly identified with a particular reportable business segment and which management does not consider in evaluating the operating income (loss) of the reportable business segments.

 

Liquidity and Capital Resources

 

We had working capital of $186.7 million at December 31, 2010 compared to $345.7 million at December 31, 2009. The working capital balance at December 31, 2010 and 2009 includes $171.6 million and $76.0 million, respectively, in cash and cash equivalents. In addition, working capital at December 31, 2009 includes $287.9 million of restricted cash, consisting primarily of net proceeds from the issuance of the Senior Notes (see Contractual Obligations), which together with cash on hand at JDA and i2, was used to fund the cash portion of the merger consideration in the acquisition of i2 on January 28, 2010. During 2010, we generated $65.2 million in cash flow from operating activities.

 

Net accounts receivable were $102.1 million, or 54 days sales outstanding (“DSO”), at December 31, 2010 compared to $68.9 million, or 58 DSO, at December 31, 2009. Our quarterly DSO results historically increase during the first quarter of each year due to the heavy annual maintenance renewal billings that occur during this time frame and then typically decrease slowly over the remainder of the year. DSO results can fluctuate significantly on a quarterly basis due to a number of factors including the percentage of total revenues that comes from software license sales, which typically have installment payment terms, seasonality, shifts in customer buying patterns, the timing of customer payments and 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.

 

Cash Flow (in thousands)

 

 

Operating activities provided cash of $65.2 million, $96.5 million and $47.1 million in 2010, 2009 and 2008, respectively. The principle sources of our cash flow from operations are typically net income adjusted for depreciation and amortization and bad debt provisions, collections on accounts receivable and increases in deferred maintenance revenue. The decrease in cash flow is due primarily to a $8.6 million decrease in the current period net income, which includes $8.1 million of acquisition-related costs, $20.9 million of restructuring charges, $23.4 million in inherited i2 litigation expenses (including the $14.0 million labeled as “Litigation provision”) and $1.6 million of non-recurring, transition-related costs for salaries and retention bonuses for i2 employees. In addition, changes in working capital utilized approximately $23.3 million of cash in 2010 and provided approximately $18.6 million of cash in 2009, due primarily to the timing and payment of accounts receivable and decreases in deferred revenue and income taxes payable. Operating cash flows in 2010 were negatively impacted by decreases in deferred revenue balances from maintenance and other recurring revenue contracts assumed in the i2 acquisition that were renewed prior to the acquisition and for which the related cash was collected by i2 prior to the acquisition close date.

 

The increase in cash flow from operations in 2009 compared to 2008 is due primarily to a $23.2 million increase in net income, a $9.9 million net decrease in accounts receivable resulting from the higher volume of software sales over the second half of 2008 that were collected in 2009 (compared to an increase of $6.6 million in 2008), and a $4.2 million increase in deferred revenue (compared to decrease of $6.7 million in 2008) due primarily

to favorable foreign exchange rate variances, offset in part by a $4.6 million decrease in accrued expenses (compared to a $3.9 million increase in 2008) due to primarily to the payment of the higher commissions and bonuses resulting from the Company’s improved operating performance in 2008. Cash flow from operating activities in 2008 was impacted by $30.4 million in costs paid and/or accrued in connection with the abandoned acquisition of i2, including a $20 million non-refundable reverse termination fee, $5.3 million in finance costs and $5.1 million of legal, accounting and other acquisition-related costs.

 

Investing activities provided $19.7 million of cash in 2010 and utilized cash of $300.0 million and $12.7 million 2009 and 2008, respectively. Investing activities in 2009 include a $287.9 million increase in restricted cash balances, the majority of which represents the net proceeds from the issuance of the Senior Notes. The net proceeds from the sale of the Senior Notes, which exclude the original issue discount ($2.8 million) and other debt issuance costs ($7.2 million) were placed in escrow and together with cash on hand at JDA and i2, were used to fund the cash portion of the merger consideration in the acquisition of i2 on January 28, 2010. The restricted cash balances also include the transfer of an additional $17.1 million in funds from our available cash balances into escrow in order to effect the transaction and $4.1 million in cash balances that are being used to collateralize a standby letter of credit. Investing activities in 2010, 2009 and 2008 include capital expenditures of $16.9 million, $7.1 million and $8.6 million, respectively, and payment of direct costs related to acquisitions of $3.6 million, $5.1 million and $4.2 million, respectively. Direct costs related to acquisitions in 2009 include the purchase of a 49.1% equity interest in the registered share capital of Strategix.

 

Financing activities provided cash of $10.2 million and $246.0 million in 2010 and 2009 and utilized cash of $95.5 million in 2008, respectively. Financing activities in 2010 include proceeds from the issuance of common stock under our stock plans and the repurchase of shares tendered by employees for payment of applicable statutory withholding taxes on the issuance of restricted stock. Financing activities in 2009 include proceeds from the issuance of the Senior Notes, net of $2.8 million of original issue discount, and $14.8 million in proceeds from the issuance of stock ($12.6 million from the exercise of stock options and $2.3 million from the purchase of common shares under the Employee Stock Purchase Plan), offset in part by the $28.1 million redemption of the remaining Series B Convertible Preferred Stock, $6.5 million in purchases of treasury stock ($2.9 million for 265,715 shares of common stock repurchased pursuant to our approved stock repurchase program, $1.6 million for the repurchase of shares tendered by employees for payment of applicable statutory withholding taxes on the issuance of restricted stock, and $2.0 million for the purchase of 100,000 shares of converted common stock), and $6.5 million of debt issuance costs related to the issuance of the Senior Notes. Financing activities in 2008 included the repayment of $99.6 million of term loans and other long-term debt assumed in the acquisition of Manugistics and proceeds from the issuance of common stock under our stock plans and the repurchase of shares tendered by employees for payment of applicable statutory withholding taxes on the issuance of restricted stock.

 

Treasury Stock Repurchases.  On March 5, 2009, the Board adopted a program to repurchase up to $30 million of our common stock in the open market or in private transactions at prevailing market prices during the 12-month period ended March 10, 2010. During 2009, we repurchased 265,715 shares of our common stock under this program for $2.9 million at prices ranging from $10.34 to $11.00 per share. There were no shares of common stock repurchased under this program in 2010.

 

Contractual Obligations.  The following summarizes scheduled principal maturities and interest on long-term debt and our operating lease obligations as of December 31, 2010 (in thousands):

 

 

Long-term debt consists of the Senior Notes issued on December 10, 2009 at an initial offering price of 98.988%. The net proceeds from the sale of the Senior Notes, which exclude the original issue discount ($2.8 million) and other debt issuance costs ($7.2 million) were placed in escrow and subsequently used,

together with cash on hand at JDA and i2, to fund the cash portion of the merger consideration in the acquisition of i2 (see Note 2 to consolidated financial statements).

 

The Senior Notes have a five-year term and mature on December 15, 2014. Interest is computed on the basis of a 360-day year composed of twelve 30-day months, and is payable semi-annually on June 15 and December 15 of each year, beginning on June 15, 2010. The obligations under the Senior Notes are fully and unconditionally guaranteed on a senior basis by substantially all of our existing and future domestic subsidiaries (including, following the Merger, i2 and its domestic subsidiaries).

 

Operating lease obligations represent future minimum lease payments under non-cancelable operating leases at December 31, 2010. We currently lease office space in the Americas for 15 regional sales and support offices across the United States and Latin America, and for 23 other international sales and support offices located in major cities throughout Europe, Asia, Australia, Japan and the CoE facilities in Bangalore and Hyderabad, India. The leases are primarily non-cancelable operating leases with initial terms ranging from one to 20 years that expire at various dates through the year 2018. None of the leases contain contingent rental payments; however, certain of the leases contain scheduled rent increases and renewal options. We expect that in the normal course of business most 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 ranging from 12 to 48 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.

 

The contractual obligations shown in the table above exclude $6.9 million in non-current liabilities for uncertain tax positions as we are unable to make reasonably reliable estimates of the period of expected cash settlement with the respective taxing authorities.

 

We believe our cash and cash equivalents and net cash provided from operations will provide adequate liquidity to meet our normal operating requirements and that our existing facilities are adequate for at least the next twelve months. Although we do not anticipate the appeals process for the Dillard’s matter to be resolved prior to the end of 2011, we believe that we have sufficient cash available to fund an adverse resolution within the estimated potential outcomes in this matter based on our December 31, 2010 ending cash balances and our 2011 projected cash flow from operations.

 

Critical Accounting Policies

 

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

 

We license software primarily under non-cancelable agreements and provide related services, including consulting, training and customer support. Software license revenue is generally recognized using the residual method when:

 

Ø Persuasive evidence of an arrangement exists and a license agreement has been signed;

 

Ø Delivery, which is typically FOB shipping point, is complete;

 

Ø Fees are fixed and determinable and there are no uncertainties surrounding product acceptance;

 

Ø Collection is considered probable; and

 

Ø Vendor-specific objective evidence of fair value (“VSOE”) exists for all undelivered elements.

 

Our customer arrangements typically contain multiple elements that include software, maintenance, managed services, consulting and training services and from time-to-time, options for future purchases of software products not previously licensed to the customer. The fees from these arrangements are allocated to the various elements based on VSOE. Under the residual method, if an arrangement contains undelivered elements, the VSOE of the undelivered elements is deferred and the revenue recognized as the elements are delivered. If we are unable to determine VSOE for any undelivered element included in an arrangement, we will defer revenue recognition until evidence of VSOE exists or the element without VSOE is delivered. If VSOE does not exist for an undelivered element that is delivered ratably (i.e., maintenance services or managed services), all revenue in the arrangement including the software license will be recognized ratably until evidence of VSOE exists. 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. For arrangements that provide for significant services or custom development that are essential to the software’s functionality, the software license revenue and contracted services are recognized under the percentage of completion method. We measure progress-to-completion on arrangements involving significant services or custom development that are essential to the software’s functionality using input measures, primarily labor hours, which relate hours incurred to date to total estimated hours at completion. We regularly update and revise our estimates of input measures. If our estimates indicate that a loss will be incurred, the entire loss is recognized in that period.

 

Subscription and other recurring revenues include fees for access rights to software solutions that are offered under a subscription-based delivery model where the users do not take possession of the software. Under this model, the software applications are hosted by the Company or by a third party and the customer accesses and uses the software on an as-needed basis over the internet or via a dedicated line. The underlying arrangements typically (i) include a single fee for the service that is billed monthly, quarterly or annually, (ii) cover a period from 36 to 60 months and (iii) do not provide the customer with an option to take delivery of the software at any time during or after the subscription term. In addition, subscription and other recurring revenues include subscription-based software license revenues where the customer has taken physical possession of the software for a defined period of time. Subscription revenues are recognized ratably over the subscription term beginning on the commencement dates of each contract.

 

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, which is typically the renewal rate.

 

Consulting and training services are separately priced and stated in our arrangements, are available from a number of suppliers, and are generally 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 service contracts and milestone-based arrangements that include services that are not essential to the functionality of our software products, consulting services revenue is recognized using the proportional performance method. We measure progress-to-completion under the proportional performance method by using input measures, primarily labor hours, which relate hours incurred to date to total estimated hours at completion. We continually update and revise our estimates of input measures. If our estimates indicate that a loss will be incurred, the entire loss is recognized in that period. 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.

 

Consulting and training services, when sold with subscription offerings, are accounted for separately if they have standalone value to the customer and there is VSOE for the undelivered elements. In these situations, the consulting and training revenues are recognized as the services are rendered for time and material contracts or when milestones are achieved and accepted by the customer under fixed price service contracts. If the consulting and training services sold with the subscription offerings do not quality for separate accounting, all fees from the arrangement are treated as a single unit of accounting and recognized ratably over the subscription term.

 

Managed service offerings are separately priced and stated in our arrangements with the related revenues included in service revenues. Managed services typically include implementation lab services, advance customer support and software and hardware administration services, and are billed monthly, quarterly or annually with the revenue recognized ratably over the term of the contract.

 

The timing of revenue recognition on software licenses and other revenues could be significantly impacted if we are unable to maintain VSOE on one or more undelivered elements during any quarterly period. Loss of VSOE could result in (i) the complete deferral of all revenues or (ii) ratable recognition of all revenues under a customer arrangement until such time as VSOE is re-established. If we are unable to re-establish VSOE on one or more undelivered elements for an extended period of time it would impact our ability to accurately forecast the timing of quarterly revenues, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

 

 

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 is tested annually for impairment, or more frequently if events or changes in business circumstances indicate the asset might be impaired, by comparing a weighted average of the fair value of future cash flows under the “Discounted Cash Flow Method of the Income Approach” and the “Guideline Company Method” to the carrying value of the goodwill allocated to our reporting units. We found no indication of impairment of our goodwill balances during 2010, 2009 or 2008 with respect to the goodwill allocated to our Supply Chain and Pricing and Revenue Management reportable business segments, noting that our reportable business segments fair value were approximately 120% and 40% greater than their book values, respectively. Absent future indications of impairment, the next annual impairment test will be performed in fourth quarter 2011.

 

Customer lists are amortized on a straight-line basis over estimated useful lives ranging from 8 years to 13 years. The values allocated to customer list intangibles are based on the projected economic life of each acquired customer base, using historical turnover rates and discussions with the management of the acquired companies. We estimate the economic lives of these assets using the historical life experiences of the acquired companies as well as our historical experience with similar customer accounts for products that we have developed internally. We review customer attrition rates for each significant acquired customer group on annual basis, or more frequently if events or circumstances change, to ensure the rate of attrition is not increasing and if revisions to the estimated economic lives are required.

 

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 in the consolidated statements of income in cost of revenues under the caption “Amortization of acquired software technology.” 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 acquired software technology range from 8 years to 15 years.

 

Trademarks are being amortized on a straight-line basis over their estimated remaining useful life of five years.

 

 

We exercise significant judgment in determining our income tax provision due to transactions, credits and calculations where the ultimate tax determination is uncertain. Uncertainties arise as a consequence of the actual source of taxable income between domestic and foreign locations, the outcome of tax audits and the ultimate utilization of tax credits. Although we believe our estimates are reasonable, the final tax determination could differ from our recorded income tax provision and accruals. In such case, we would adjust the income tax provision in the period in which the facts that give rise to the revision become known. These adjustments could have a material impact on our income tax provision and our net income for that period. Management must make significant assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset. Valuation allowances are established to reduce deferred tax assets to the amount that will more likely than not be realized. To the extent that a determination is made to establish or adjust a valuation allowance, the expense or benefit is recorded in the period in which the determination is made.

 

 

 

Recent Accounting Pronouncements

 

In September 2009, FASB issued an amendment to its accounting guidance on certain revenue arrangements with multiple deliverables that enables a vendor to account for products and services (deliverables) separately rather than as a combined unit. The revised guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) management’s best estimate of selling price. This guidance also eliminates the residual method of allocation and requires that the arrangement consideration be allocated at the inception of the arrangement to all deliverables. In addition, this guidance significantly expands required disclosures related to such revenue arrangements that have multiple deliverables. The revised guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 with early adoption permitted. We adopted the new guidance effective January 1, 2011 and based on our initial assessment, the new guidance would not have had a material impact on our 2010 financial statements or the new revenue arrangements entered into during 2010, specifically those involving the delivery of software-as-a-service and certain other managed service offerings with software access rights. The ultimate impact on our consolidated financial statements will depend on the nature and terms of the revenue arrangements entered into or materially modified after the adoption date. The new guidance does not significantly change the accounting for the majority of our existing and future revenue arrangements that are subject to specific guidance in sections 605 and 985 of the Codification (see Revenue Recognition discussion above).

 

In December 2009, FASB issued new guidance for improvements to financial reporting by enterprises involved with variable interest entities. The new guidance provides an amendment to its consolidation guidance for variable interest entities and the definition of a variable interest entity and requires enhanced disclosures to provide more information about an enterprise’s involvement in a variable interest entity. This amendment also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity and is effective for reporting periods beginning after December 15, 2009. The implementation of this guidance did not have a significant impact on our consolidated financial position or results of operations.

 

In January 2010, FASB issued an amendment to its accounting guidance for fair value measurements which adds new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements. The revised guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The amendment is effective for the first reporting period beginning after December 15, 2009, except for the requirements to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. The implementation of this guidance did not have a significant impact on our consolidated financial position or results of operations.

 

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 approximately 40% of our total revenues in 2010, 2009 and 2008. In addition, the identifiable net assets of our foreign operations represented 20% and 19% of consolidated net assets at December 31, 2010 and 2009, respectively. 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 a net unrealized foreign currency exchange gain of $5.4 million and $5.3 million in 2010 and 2009, respectively. We recorded net foreign currency exchange losses of $0.7 million in 2010 and net gains of $0.7 million and $0.5 million in 2009 and 2008, respectively, which are included in the condensed consolidated statements of income under the caption “Interest Income and other, net.”

 

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, 2010 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, 2010 rates would result in a currency translation loss of approximately $1.9 million before tax.

 

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 currency denominated assets and liabilities that exist as part of our ongoing business operations that are denominated in a currency other than the functional currency of the subsidiary. The exposures relate primarily to the gain or loss recognized in earnings from the settlement of current foreign denominated assets and liabilities. We do not enter into derivative financial instruments for trading or speculative purposes. The forward exchange contracts generally have maturities of 90 days or less and are not designated as hedging instruments. Forward exchange contracts are marked-to-market at the end of each reporting period, using quoted prices for similar assets or liabilities in active markets (Level 2 inputs), with gains and losses recognized in other income offset by the gains or losses resulting from the settlement of the underlying foreign currency denominated assets and liabilities. At December 31, 2010, we had forward exchange contracts with a notional value of $68.8 million and an associated net forward contract receivable of $0.7 million. At December 31, 2009, we had forward exchange contracts with a notional value of $37.9 million and an associated net forward contract liability of $0.4 million. These derivatives are not designated as hedging instruments. We prepared sensitivity analyses of the impact of changes in foreign currency exchange rates on our forward exchange contracts at December 31, 2010. Based on the results of these analyses, a 10% adverse change in all foreign currency rates from the December 31, 2010 rates would result in a net forward contract liability of $5.8 million that would increase the underlying currency translation loss on our net foreign assets.

 

In the fourth quarter of 2010, we also began a cash flow hedging program under which we hedge a portion of anticipated operating expenses denominated in the Indian Rupee. The forward exchange contracts have maturities of twelve months or less and are designated as hedging instruments. Forward exchange contracts are marked-to-market at the end of each reporting period, using quoted prices for similar assets or liabilities in active markets. The effective portion of the derivative’s gain or loss is initially reported as a component of cumulative other comprehensive income (loss) and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. At December 31, 2010, we had forward exchange contracts with a notional value of $30.7 million and an associated net

forward contract receivable of $0.4 million. We prepared sensitivity analyses of the impact of changes in foreign currency exchange rates on our forward exchange contracts at December 31, 2010. Based on the results of these analyses, a 10% adverse change in all foreign currency rates from the December 31, 2010 rates would result in a net forward contract liability of $2.2 million.

 

The forward contract receivables (payables) are included in the consolidated balance sheets under the caption captions “Prepaid expenses and other current assets” and “Accrued expenses and other liabilities,” respectively. The notional values represent the amount of foreign currencies to be purchased or sold at maturity and does not represent our exposure on these contracts.

 

Interest rates.  At December 31, 2010 and 2009, our excess cash balances are included in our operating account. 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 investments is reflected in our financial statements under the caption “Interest income and other, 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.

 

We issued $275 million of Senior Notes in December 2009 at an initial offering price of 98.988%. The net proceeds from the sale of the Senior Notes, which exclude the original issue discount ($2.8 million) and other debt issuance costs ($7.2 million) were placed in escrow and subsequently used, together with cash on hand at JDA and i2, to fund the cash portion of the merger consideration in the acquisition of i2 on January 28, 2010. The Senior Notes mature in 2014. Interest accrues on the Senior Notes at a fixed rate of 8% per annum, payable semi-annually in cash on June 15 and December 15 of each year, commencing on June 15, 2010.

 

 

Our consolidated financial statements as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010, 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).

 

 

None

 

 

Disclosure Controls and Procedures.  During and subsequent to the reporting period, and under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of our disclosure controls and procedures that were in effect at the end of the period covered by this report. Disclosure controls and procedures is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”) as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our principal executive officer and principal financial and accounting officer have concluded that our disclosure controls and procedures that were in effect on December 31, 2010 were effective to ensure that information required to be disclosed in our reports to be filed under the Act is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding disclosures and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Management’s Report on Internal Control Over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Act. Management 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 its evaluation under the Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2010. The effectiveness of our internal control over financial reporting as of December 31, 2010 has been audited by Deloitte & Touche LLP, an independent registered accounting firm, as stated in their attestation report, which is included herein.

 

Changes in Internal Control Over Financial Reporting.  The term “internal control over financial reporting” is defined under Rule 13a-15(f) under the Act and refers to the process of a company that is designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’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 and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

 

There were no changes in our internal controls over financial reporting during the three months ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

To the Board of Directors and Stockholders of

JDA Software Group, Inc.

Scottsdale, Arizona

 

We have audited the internal control over financial reporting of JDA Software Group, Inc. and subsidiaries (the “Company”) as of December 31, 2010, 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, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

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, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, 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, 2010 of the Company and our report dated March 1, 2011 expressed an unqualified opinion on those financial statements.

 

 

Phoenix, Arizona

March 1, 2011

 

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.

 

 

The information relating to our board of directors and executive officers is incorporated by reference to the Proxy Statement under the captions “Proposal 1 — Election of Directors,” “Corporate Governance,” and “Executive Officers of the Company.” Information relating to our Audit Committee Members and 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.”

 

 

The information relating to executive compensation is incorporated by reference to the Proxy Statement under the captions “Executive Compensation,” “Potential Payments upon Termination or Change in Control,” “Compensation of Directors,” and “Compensation Committee Interlocks and Insider Participation.”

 

 

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.”

 

 

The information relating to certain relationships and related transactions is incorporated by reference to the Proxy Statement under the caption “Transactions with Related Persons.”

 

 

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 — Principal Accounting Firm Fees” and “Report of the Audit Committee — Policy for Approving Audit and Permitted Non-Audit Services of the Independent Auditor.”

 

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.

 

 

a. The following documents are filed as part of this Report:

 

1. Financial Statements

 

 

2. Financial Statement Schedules — None

 

3. Exhibits — See Exhibit Index.

 

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, 2010 and 2009, and the related consolidated statements of income, stockholders’ equity, comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2010. 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, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, 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 Company’s internal control over financial reporting as of December 31, 2010, 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 1, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

 

Phoenix, Arizona

March 1, 2011

JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

See notes to consolidated financial statements.

JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME