UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission File Number: 0-27876

JDA SOFTWARE GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Acts. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value, was 42,309,303 as of May 3, 2011.

 

 

FORM 10-Q

TABLE OF CONTENTS

		Page No.
PART I: INTERIM FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010			3
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2011 and March 31, 2010			4
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2011 and March 31, 2010			5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and March 31, 2010			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			24
Item 4. Controls and Procedures			24
PART II: OTHER INFORMATION
Item 1. Legal Proceedings			26
Item 1A. Risk Factors			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 3. Defaults Upon Senior Securities			26
Item 4. Reserved			26
Item 5. Other Information			26
Item 6. Exhibits			26
Signature			27
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

JDA SOFTWARE GROUP, INC.

		March 31,				December 31,
		2011				2010
ASSETS
Current Assets:
Cash and cash equivalents		$	226,131			$	171,618
Restricted cash			34,397				34,855
Accounts receivable, net			138,680				102,118
Deferred tax assets—current portion			42,389				43,753
Prepaid expenses and other current assets			38,644				27,723
Total current assets			480,241				380,067
Non-Current Assets:
Property and equipment, net			47,399				47,447
Goodwill			226,863				226,863
Other intangibles, net			175,846				187,398
Deferred tax assets—long-term portion			253,523				255,386
Other non-current assets			18,908				16,367
Total non-current assets			722,539				733,461
Total Assets		$	1,202,780			$	1,113,528
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	12,093			$	21,092
Accrued expenses and other liabilities			91,360				83,938
Income taxes payable			—				318
Deferred revenue—current portion			130,379				88,055
Total current liabilities			233,832				193,403
Non-Current Liabilities:
Long-term debt			272,818				272,695
Accrued exit and disposal obligations			6,296				7,360
Liability for uncertain tax positions			6,052				6,873
Deferred revenue—long-term portion			7,668				9,090
Total non-current liabilities			292,834				296,018
Total Liabilities			526,666				489,421
Stockholders’ Equity:
Common stock			444				439
Additional paid-in capital			558,423				550,177
Retained earnings			137,260				91,732
Accumulated other comprehensive income			10,430				8,980
Treasury stock			(30,443	)			(27,221	)
Total stockholders’ equity			676,114				624,107
Total liabilities and stockholders’ equity		$	1,202,780			$	1,113,528

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.

		Three Months Ended
		March 31,
		2011				2010
REVENUES:
Software licenses		$	31,480			$	24,437
Subscriptions and other recurring revenues			4,994				4,287
Maintenance services			64,768				57,060
Product revenues			101,242				85,784
Consulting services			57,644				43,002
Reimbursed expenses			4,720				2,845
Service revenues			62,364				45,847
Total revenues			163,606				131,631
COST OF REVENUES:
Cost of software licenses			949				1,008
Amortization of acquired software technology			1,834				1,576
Cost of maintenance services			13,986				12,033
Cost of product revenues			16,769				14,617
Cost of consulting services			46,602				35,269
Reimbursed expenses			4,720				2,845
Cost of service revenues			51,322				38,114
Total cost of revenues			68,091				52,731
GROSS PROFIT			95,515				78,900
OPERATING EXPENSES:
Product development			20,136				17,277
Sales and marketing			26,240				21,112
General and administrative			22,088				17,697
Amortization of intangibles			9,718				8,566
Restructuring charges			542				7,758
Acquisition-related costs			—				6,743
Litigation settlement			(37,500	)			—
Total operating expenses			41,224				79,153
OPERATING INCOME (LOSS)			54,291				(253	)
Interest expense and amortization of loan fees			6,211				6,086
Interest income and other, net			(1,270	)			(1,123	)
INCOME (LOSS) BEFORE INCOME TAXES			49,350				(5,216	)
Income tax provision (benefit)			3,822				(948	)
NET INCOME (LOSS)		$	45,528			$	(4,268	)
Basic net income (loss) per common share		$	1.08			$	(0.11	)
Diluted net income (loss) per common share		$	1.07			$	(0.11	)
Shares used in computing basic net income (loss) per common share			42,133				39,343
Shares used in computing diluted net income (loss) per common share			42,607				39,343

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.

		Three Months
		Ended March 31,
		2011				2010
Net income (loss)		$	45,528			$	(4,268	)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax			1,260				(561	)
Unrealized gains (losses) on cash flow hedges, net of tax			190				—
Net change in other comprehensive income (loss)			1,450				(561	)
Comprehensive (loss) income		$	46,978			$	(4,829	)

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.

		Three Months
		Ended March 31,
		2011				2010
Operating Activities:
Net income (loss)		$	45,528			$	(4,268	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			14,916				13,148
Amortization of loan fees			501				427
Net gain on disposal of property and equipment			(5	)			(5	)
Stock-based compensation			5,573				3,277
Deferred income taxes			3,226				(2,546	)
Changes in assets and liabilities, net of effects from business acquisition:
Accounts receivable			(36,417	)			(7,211	)
Income tax receivable			(856	)			1,076
Prepaid expenses and other assets			(11,282	)			(7,889	)
Accounts payable			(8,963	)			550
Accrued expenses and other liabilities			6,532				(11,101	)
Income tax payable			(1,134	)			(2,127	)
Deferred revenue			41,064				28,864
Net cash provided by operating activities			58,683				12,195
Investing Activities:
Change in restricted cash			458				276,177
Purchase of i2 Technologies, Inc.			—				(213,427	)
Payment of direct costs related to acquisitions			(840	)			(850	)
Purchase of property and equipment			(2,997	)			(533	)
Proceeds from disposal of property and equipment			26				17
Net cash (used in) provided by investing activities			(3,353	)			61,384
Financing Activities:
Issuance of common stock—equity plans			3,002				10,904
Purchase of treasury stock and other, net			(3,222	)			(3,392	)
Debt Issuance Costs			(1,656	)			—
Net cash (used in) provided by financing activities			(1,876	)			7,512
Effect of exchange rates on cash and cash equivalents			1,059				(1,248	)
Net increase in cash and cash equivalents			54,513				79,843
Cash and Cash Equivalents, Beginning of Period			171,618				75,974
Cash and Cash Equivalents, End of Period		$	226,131			$	155,817
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes		$	3,634			$	4,745
Cash paid for interest		$	—			$	427
Cash received for income tax refunds		$	743			$	928

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.

1. Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements of JDA Software Group, Inc. (“JDA”, “we” or the “Company”) have been prepared in accordance with the FASB Standard Accounting Codification (“Codification”), which is the authoritative source of generally accepted accounting principles (“GAAP”) for nongovernmental entities in the United States. The interim financial statements do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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

2. Derivative Instruments and Hedging Activities

     The Company uses 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 its 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.

     The Company does 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 March 31, 2011, the Company had forward exchange contracts with a notional value of $79.0 million and an associated net forward contract receivable of $0.7 million determined on the basis of Level 2 inputs. At December 31, 2010, the Company had forward exchange contracts with a notional value of $68.8 million and an associated net forward contract receivable of $0.7 million determined on the basis of Level 2 inputs. These derivatives are not designated as hedging instruments.

     In the fourth quarter of 2010, the Company also began a cash flow hedging program under which it hedges 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 March 31, 2011 the Company had forward exchange contracts with a notional value of $34.4 million and an associated net forward contract receivable of $1.0 million. At December 31, 2010, the Company had forward exchange contracts with a notional value of $30.7 million and an associated net forward contract receivable of $0.4 million.

     The forward contract receivables (payables) are included in the consolidated balance sheets under the 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.

     The Company recorded a net foreign currency exchange gain of $0.2 million in the three months ended March 31, 2011 and a net foreign currency exchange gain of $1.0 million in the three months ended March 31, 2010. Net foreign currency exchange gains (losses) are included in the condensed consolidated statements of operations under the caption “Interest Income and other, net.”

3. Goodwill and Other Intangibles, net

     Goodwill and other identifiable intangibles consist of the following:

		March 31, 2011												December 31, 2010
		Gross Carrying				Accumulated								Gross Carrying				Accumulated
		Amount				Amortization				Net Amount				Amount				Amortization				Net Amount
Goodwill:
Gross goodwill		$	236,576			$	—			$	236,576			$	236,576			$	—			$	236,576
Accumulated impairment losses			(9,713	)			—				(9,713	)			(9,713	)			—				(9,713	)
Goodwill, net			226,863				—				226,863				226,863				—				226,863
Other amortized intangible assets:
Customer-based			257,983				(128,819	)			129,164				257,983				(119,835	)			138,148
Technology-based			90,147				(54,487	)			35,660				90,147				(52,654	)			37,493
Marketing-based			19,491				(8,469	)			11,022				19,491				(7,734	)			11,757
Other amortized intangible assets, net			367,621				(191,775	)			175,846				367,621				(180,223	)			187,398
Total goodwill and other intangible assets		$	594,484			$	(191,775	)		$	402,709			$	594,484			$	(180,223	)		$	414,261

     Goodwill. We found no indication of impairment of our goodwill balances during the three months ended March 31, 2011 and, absent future indicators of impairment, the next annual impairment test will be performed in fourth quarter 2011. As of March 31, 2011, the goodwill balance has been allocated to our reporting units as follows: $223.3 million to Supply Chain and $3.7 million to Pricing and Revenue Management.

     Customer-based intangible assets include customer lists, maintenance relationships and future technological enhancements, service relationships and covenants not-to-compete; technology-based intangible assets include acquired software technology; and marketing-based intangible assets include trademarks and trade names. Customer-based and marketing-based intangible assets are being amortized on a straight-line basis. Technology-based intangible assets are being 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.

     Amortization expense is reported in the consolidated statements of operations within cost of revenues under the caption “Amortization of acquired software technology” and in operating expenses under the caption “Amortization of intangibles.” As of March 31, 2011 we expect amortization expense for the remainder of 2011 and thereafter to be as follows:

		Amortization
For the Year Ending December 31,		Expense
2011, remainder thereof		$	33,965
2012			44,929
2013			44,240
2014			27,352
2015			13,006
Thereafter			12,354
Total		$	175,846

4. Restructuring Reserves

2010 Restructuring Plan

     We recorded restructuring charges of $21.0 million in 2010 primarily for termination benefits, office closures and contract terminations associated with the acquisition of i2 Technologies, Inc. (“i2”) and the continued transition of additional on-shore activities to our Center of Excellence (“CoE”) facilities. The charges include $14.1 million for termination benefits related to a workforce reduction of approximately 200 associates primarily in general and administrative, sales and marketing and product development 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. We recorded restructuring charges of $0.5 million in the three months ended March 31, 2011. As of March 31, 2011, approximately $16.3 million of the costs associated with these restructuring charges have been paid and $1.8 million is included under the caption “Accrued expenses and other current liabilities and $1.2 million is included under the caption “Accrued exit and disposal obligations.”

     A summary of the restructuring charges is as follows:

														Impact of																				Impact of
														Changes in				Balance																Changes in				Balance
		Initial				Cash				Non-Cash				Exchange				December 31,				Adjustments				Cash				Non-Cash				Exchange				March 31,
Description of charge		Reserve				Charges				Settlements				Rates				2010				to Reserves				Charges				Settlements				Rates				2011
Termination benefits		$	14,098			$	(13,246	)		$	—			$	89			$	941				343				(1,096	)			—				(5	)			183
Office closures and other restructuring			5,380				(1,760	)			(376	)			65				3,309				199				(191	)			(475	)			17				2,859
Total		$	19,478			$	(15,006	)		$	(376	)		$	154			$	4,250			$	542			$	(1,287	)		$	(475	)		$	12			$	3,042

The balance in the reserve for office closures is primarily related to redundant office facility leases in Dallas, Texas and the United Kingdom and will be reduced as payments are made over the related lease terms that extend through 2014.

5. Acquisition Reserves

     We recorded initial acquisition reserves of $47.4 million for restructuring charges and other direct costs associated with the acquisition of Manugistics in 2006. The restructuring charges were primarily related to facility closures, employee severance and termination benefits and other direct costs associated with the acquisition, including investment banker fees, change-in-control payments, and legal and accounting costs. Subsequent adjustments of $2.9 million were made to reduce the reserves in 2007 and 2008 based on our revised estimates of the restructuring costs to exit certain of the activities of Manugistics. The majority these adjustments were made by March 31, 2007 and included in the final purchase price allocation. All adjustments made subsequent to March 31, 2007, including a $1.4 million increase recorded in 2009, have been included in the consolidated statements of income under the caption “Restructuring charges.” Adjustments made in 2009 resulted primarily from our revised estimate of sublease rentals and market adjustments on an unfavorable office facility lease in the United Kingdom. The unused portion of the acquisition reserves at March 31, 2011 includes $4.4 million of current liabilities under the caption “Accrued expenses and other liabilities” and $4.4 million of non-current liabilities under the caption “Accrued exit and disposal obligations.” A summary of the charges and adjustments recorded against the reserves is as follows:

														Impact of																Impact of
														Changes in				Balance												Changes in				Balance
		Initial				Adjustments				Cash				Exchange				December 31,				Adjustments				Cash				Exchange				March 31,
Description of charge		Reserve				to Reserves				Charges				Rates				2010				to Reserves				Charges				Rates				2011
Acquisition reserves:
Office closures, lease termination and sublease costs		$	29,212			$	567			$	(19,361	)		$	(844	)		$	9,574			$	—			$	(840	)		$	104			$	8,838
Employee severance and termination benefits			3,607				(840	)			(2,842	)			75				—				—				—				—				—
IT projects, contract termination penalties, capital lease buyouts and other costs to exits activities of Manugistics			1,450				222				(1,672	)			—				—				—				—				—				—
			34,269				(51	)			(23,875	)			(769	)			9,574				—				(840	)			104				8,838
Direct costs:			13,125				6				(13,131	)			—				—																—
Total		$	47,394			$	(45	)		$	(37,006	)		$	(769	)		$	9,574			$	—			$	(840	)		$	104			$	8,838

     The balance in the reserve for office closures, lease termination and sublease costs is primarily related to office facility leases in Rockville, Maryland and the United Kingdom and will be reduced as payments are made over the related lease terms that extend through 2018.

     In 2010 in connection with our acquisition of i2, we assumed an unfavorable lease of $1.2 million for the Dallas, Texas office which was recorded in the purchase price allocation of which $0.6 million is included in current liabilities under the caption of “Accrued expenses and other liabilities” and $0.6 million is included in non-current liabilities under the caption “Accrued exit and disposal obligations.”

6. Long-term Debt

Line of Credit

     On March 18, 2011, we entered into a credit agreement with Wells Fargo Capital Finance, LLC and certain other lenders party thereto (the “Credit Agreement”). The Credit Agreement provides for cash borrowings and letters of credit under a $100 million senior secured revolving credit facility, the proceeds of which the Company may use for working capital and other general corporate purposes. Loans under the Credit Agreement will mature on September 15, 2014, subject to extension to March 18, 2016 under certain circumstances. In connection with the execution of the line of credit, the Company incurred approximately $1.7 million in debt issuance costs which will be amortized to interest expense over the length of the agreement. To date, the Company has not borrowed any amount under the Credit Agreement.

     Interest on the outstanding balance will accrue on outstanding loans under the Credit Agreement at a floating rate based on, at the Company’s election, (i) LIBOR (subject to reserve requirements) or (ii) the greatest of (a) the Federal Funds Rate plus 1/2%, (b) three-month LIBOR plus 1% and (c) Wells Fargo Bank, National Association’s prime rate (such greatest rate, the “Base Rate”), in each case, plus

an applicable margin. The initial applicable margins with respect to LIBOR-based loans and Base Rate loans are 2.25% and 1.25%, respectively, and may increase or decrease based on the Company’s total leverage ratio.

     The Company’s obligations under the Credit Agreement are secured by a first priority lien on substantially all of the assets of the Company and the guarantors, which include the Company’s material domestic subsidiaries. The Credit Agreement includes customary limitations on the Company’s ability to, among other things, incur debt, grant liens, make acquisitions and other investments, make certain restricted payments such as dividend payments, dispose of assets or undergo a change of control. The Credit Agreement also requires the Company to maintain a minimum fixed charge ratio, a maximum total leverage ratio and, under certain circumstances, a minimum liquidity requirement.

7. Legal Proceedings

Dillard’s, Inc. vs. i2 Technologies, Inc.

     In September 2007, Dillard’s, Inc. filed a lawsuit against i2 in the 191st Judicial District Court of Dallas County, Texas, (the “trial court”) Cause No. 07-10924-J, which alleges that i2 committed fraud and failed to meet certain obligations to Dillard’s regarding the purchase of two i2 products in the year 2000 under a software license agreement and related services agreement. Dillard’s paid i2 approximately $8.1 million under these two agreements.

     As previously reported, on June 15, 2010, a jury in the District Court of the State of Texas, County of Dallas, returned an adverse verdict in the litigation between Dillard’s, Inc. and i2. On September 30, 2010, the trial court signed a judgment awarding Dillard’s $237 million, plus post-judgment interest of 5% per annum. On October 4, 2010, i2 posted a $25 million supersedeas bond. By posting the bond, under Texas law, the execution of the judgment was suspended, which means the judgment will not have to be paid during the appeals process. 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 filed a Notice of Appeal with the Dallas Court of Appeals. 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.

     The Company will accrue an estimated loss from this matter if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In evaluating the probability of an unfavorable outcome in this litigation we have considered (a) the nature of the litigation and claim, (b) the progress in the case, (c) the opinions of legal counsel and other advisors, (d) the experience of the Company and others in similar cases, (e) how management intends to respond in the event an unfavorable final judgment is returned by the trial court and (f) settlement discussions. 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 final trial court judgment or any revised result that may be achieved through an appeals process (which could take more than a year to complete) could result in multiple potential outcomes within this range. 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 caption “Litigation provision” and in the Consolidated Balance Sheets under the caption “Accrued expenses and other liabilities.”

i2 Technologies, Inc. vs. Oracle Corporation

     On April 29, 2009, i2 filed a lawsuit for patent infringement against Oracle Corporation (NASDAQ: ORCL). The lawsuit, filed in the United States District Court for the Eastern District of Texas, Tyler Division (No. 6:09-cv-194-LED) alleges infringement of 11 patents related to supply chain management, available to promise software and other enterprise software applications. On April 22, 2010, Oracle filed counterclaims against i2 and JDA Software Group, Inc. (of which i2 is now a wholly-owned subsidiary) alleging the infringement by i2 of four Oracle patents. In response to i2’s motion to sever the Oracle counterclaim, on June 11, 2010, the trial court split the initial case into two cases, staying the second case (No. 6:10-cv-00284-LED) pending the outcome of the first case. The trial court instructed i2 to select five patents for the first case (subsequently reduced by i2 to four patents) and Oracle to select one patent for the first case.

     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 received a one-time cash payment of $35.0 million from Oracle Corporation, 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.

Shareholder Class Action Litigation

     In December, 2009, the Company was sued in a putative shareholder class action against i2 and its board of directors, in the County Court of Law No. 2 of Dallas County (No. CC-09-08476-B). The plaintiffs allege in this lawsuit that the directors of i2 breached their fiduciary duties to shareholders of i2 by selling i2 to the Company via an allegedly unfair process and at an unfair price, and that the Company aided and abetted this alleged breach. On January 26, 2010, the Court denied the plaintiffs’ request for a preliminary injunction that sought to enjoin the merger between JDA and i2. The plaintiffs subsequently filed an amended complaint, alleging unspecified monetary damages in addition to declaratory and injunctive relief and attorneys’ fees. The Company, i2 and i2’s directors have denied all allegations. The parties agreed upon a settlement agreement, dated February 1, 2011 (“Settlement Agreement”). The Court preliminarily approved the Settlement Agreement on March 3, 2011. Final Court approval of the Settlement Agreement is scheduled for May 20, 2011. The Settlement Agreement, if it receives final approval by the Court, will provide that (i) the pendency and prosecution of the lawsuit and the efforts of plaintiffs’ counsel were a reason and cause for the decision by i2’s then board of directors to provide additional disclosures in the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on or about November 19, 2009, in connection with the Company’s acquisition of i2 and (ii) plaintiffs’ counsel may apply to the court for an award of attorneys’ fees and costs of $0.5 million to be paid by i2, which will be funded by its director’s and officers’ liability insurer.

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

8. Share-Based Compensation

     The Company has a stock-based compensation program that provides the Board of Directors broad discretion in creating equity incentives for employees, officers, directors and consultants. This program includes stock purchase rights, stock bonuses, restricted stock, restricted stock units, performance awards, performance units and deferred compensation awards.

     Annual stock-based incentive programs (“Performance Programs”) have been approved for executive officers and certain other members of our management team for years 2007 through 2011 that provide for contingently issuable performance share awards or restricted stock units upon achievement of defined performance threshold goals.

     In February 2011, the Board approved a stock-based incentive program for 2011 (“2011 Performance Program”). The 2011 Performance Program provides for the issuance of contingently issuable performance share awards under the 2005 Incentive Plan to executive officers and certain other members of our management team if we are able to achieve a defined adjusted EBITDA performance threshold goal in 2011. A partial pro-rata issuance of performance share awards will be made if we achieve a minimum adjusted EBITDA performance threshold. The 2011 Performance Program initially provides for the issuance of up to approximately 0.7 million of targeted contingently issuable performance share awards. The performance share awards, if any, will be issued after the approval of our 2011 financial results in January 2012 and will vest 50% upon the date of issuance with one-half of the remaining 50% vesting on each of the next two anniversaries of the initial vest date. Our performance against the defined performance threshold goal will be evaluated on a quarterly basis throughout 2011 and share-based compensation will be recognized over the requisite service period that runs from January 28, 2011 (the date of board approval) through January 2014. Although all necessary service and performance conditions have not been met through March 31, 2011, based on the three months ended March 31, 2011 results and the outlook for the remainder of 2011, management has determined that it is probable the Company will achieve its minimum adjusted EBITDA performance threshold. We have recorded $5.6 million in stock-based compensation expense related to these awards in the three months ended March 31, 2011.

     The Company has recognized stock-based compensation as follows (in thousands):

		Three Months Ended
		March 31,
		2011				2010
Cost of maintenance services		$	167			$	114
Cost of consulting services			664				448
Product development			692				333
Sales and marketing			1,441				866
General and administrative			2,609				1,516
Total stock-based compensation expense		$	5,573			$	3,277

9. Income Taxes

     For the three months ended March 31, 2011, income taxes were calculated using the liability method. The provision for income taxes reflects the Company’s estimate of the effective rate expected to be applicable for the full fiscal year, adjusted by any discrete events, which are reported in the period in which they occur. This estimate is re-evaluated each quarter based on our estimated tax expense for the year.

     We recorded an income tax provision and benefit of approximately $3.8 million and ($0.9) million for the three months ended March 31, 2011 and 2010, respectively, representing effective income tax rates of 7.7% and 18.21%, for the corresponding periods. Our effective income tax rate during the three months ended March 31, 2010 differs from our statutory rate of 35% primarily due to the mix of revenue by jurisdiction, changes in our liability for uncertain tax positions, state income taxes (net of federal benefit), and items not deductible for tax, including those related to certain costs the Company incurred in the acquisition of i2 during the first quarter of 2010. Our effective income tax rate during the three months ended March 31, 2011 differs from our statutory rate of 35% primarily due to the mix of revenue by jurisdiction, state income taxes (net of federal benefit) and the tax benefits related to a specified tax deduction that offsets a substantial portion of our litigation settlements.

     As of March 31, 2011 approximately $14.5 million of unrecognized tax benefits would impact our effective tax rate if recognized. It is reasonably possible that approximately $6.7 million of unrecognized tax benefits will be recognized within the next twelve months. We have placed a valuation allowance against the Arizona research and development credit as we do not expect to be able to utilize it prior to its expiration.

     We treat interest and penalties related to uncertain tax positions as a component of income tax expense. We have accrued interest and penalties related to uncertain tax positions of $0.3 million and $0.4 million in the three months ended March 31, 2011 and 2010, respectively. As of March 31, 2011 and December 31, 2010 there are approximately $3.4 million and $3.0 million, respectively, of interest and penalty accruals related to uncertain tax positions which are reflected in the consolidated balance sheet under the caption “Liability for uncertain tax positions.” To the extent interest and penalties are not assessed with respect to the uncertain tax positions, the accrued amounts for interest and penalties will be reduced and reflected as a reduction of the overall tax provision.

     We conduct business globally and, as a result, JDA Software Group, Inc. or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subjected to examination by taxing authorities throughout the world, including the United States, the United Kingdom, and India. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2004 due to the expiration of the statute of limitations. We are currently under audit by the Internal Revenue Service for the 2010 tax year, the UK for the 2009 tax year and various other years in India. The examination phase of these audits has not yet been completed; however, we do not anticipate any material adjustments.

     We have participated in the Internal Revenue Service’s Compliance Assurance Program (“CAP”) since 2007. The CAP program was developed by the Internal Revenue Service to allow for transparency and to remove uncertainties in tax compliance. The Internal Revenue Service has completed their audit of our tax returns prior to 2009 and no adjustments have been made as a result of this examination.

10. Earnings per Share

     The dilutive effect of all outstanding stock options is included in the diluted earnings per share calculations for 2011 using the treasury stock method as there were no stock options that had grant prices in excess of the average stock price for the three months ended March 31, 2011. Diluted earnings per share for the three months ended March 31, 2010 exclude approximately 0.7 million of vested options for the purchase of common stock as their inclusion would be anti-dilutive due to the net loss incurred in first quarter 2010.

     Earnings per share for three months ended March 31, 2011 and 2010 are calculated as follows:

		Three Months Ended
		March 31,
		2011				2010
Numerator:
Net income (loss)		$	45,528			$	(4,268	)
Denominator:
Shares used in computing basic earnings per share			42,133				39,343
Dilutive common stock equivalents			474				—
Shares used in computing diluted earnings per share			42,607				39,343
Basic earnings per share		$	1.08			$	(0.11	)
Diluted earnings per share		$	1.07			$	(0.11	)

11. Segment Information

     JDA is a leading global provider of sophisticated enterprise software solutions designed specifically to address the supply chain, merchandising and pricing requirements of manufacturers, wholesale/distributors and retailers, as well as government and aerospace defense contractors and travel, transportation, hospitality and media organizations. The Company has licensed its software to more than 6,000 customers worldwide. The Company reports operations within the following segments, which is how our chief operating decision maker views, evaluates and makes decisions about resource allocations within our business:

•		Supply Chain. This reportable business segment includes all revenues related to applications and services sold to customers in the supply chain management market. The majority of our products are specifically designed to provide customers with one synchronized view of product demand while managing the flow and allocation of materials, information, finances and other resources across global supply chains, from manufacturers to distribution centers and transportation networks to the retail store and consumer (collectively, the “Supply Chain”) .
•		Pricing and Revenue Management. This reportable business segment includes all revenues related to applications and services sold to customers in service industries such as travel, transportation, hospitality, media and telecommunications. The Pricing and Revenue Management segment is centrally managed by a team that has global responsibilities for this market.

     A summary of the revenues, operating income and depreciation attributable to each of these reportable business segments for the three months ended March 31, 2011 and 2010 is as follows:

		Three Months
		Ended March 31,
		2011				2010
Revenues:
Supply Chain		$	159,326			$	125,233
Pricing and Revenue Management			4,280				6,398
		$	163,606			$	131,631
Operating Income (Loss):
Supply Chain		$	49,559			$	39,904
Pricing and Revenue Management			(420	)			607
Other (see below)			5,152				(40,764	)
		$	54,291			$	(253	)
Depreciation:
Supply Chain		$	2,819			$	2,429
Pricing and Revenue Management			167				216
		$	2,986			$	2,645
Other:
General and administrative		$	22,088			$	17,697
Amortization of intangible assets			9,718				8,566
Restructuring charge and adjustments to acquisition-related reserves			542				7,758
Acquisition-related costs			—				6,743
Litigation settlement			(37,500	)			—
		$	(5,152	)		$	40,764

     Operating income in the Supply Chain and Pricing and Revenue Management reportable business segments includes direct expenses for software licenses, maintenance services, service revenues, and product development expenses, as well as allocations for sales and marketing expenses, occupancy costs, depreciation expense and amortization of acquired software technology. The “Other” caption includes general and administrative expenses and other charges 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 segment.

12. Condensed Consolidating Financial Information

     Pursuant to the indenture governing the Senior Notes detailed in Note 9. to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, the Company’s obligations under the Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by substantially all of its existing and future domestic subsidiaries. Pursuant to Regulation S-X, Section 210.3-10(f), the Company is required to present condensed consolidating financial information for subsidiaries that have guaranteed the debt of a registrant issued in a public offering, where the guarantee is full and unconditional, joint and several, and where the voting interest of the subsidiary is 100% owned by the registrant.

     The following tables present condensed consolidating balance sheets as of March 31, 2011 and December 31, 2010, and condensed consolidating statements of income for the three months ended March 31, 2011 and 2010, and condensed consolidating statements of cash flow for the three months ended March 31, 2011 and 2010 for (i) JDA Software Group, Inc. — the parent company and issuer of the Senior Notes, (ii) the guarantor subsidiaries on a combined basis, (iii) the non-guarantor subsidiaries on a combined basis, (iv) elimination adjustments, and (v) total consolidating amounts. The condensed consolidating financial information should be read in conjunction with the consolidated financial statements herein as well as in conjuction with the audited financial statements and notes thereto included in the Company’s Annual Report on form 10-K for the year ended December 31, 2010.

Unaudited Condensed Consolidating Balance Sheets
March 31, 2011
(in thousands)

		JDA Software				Guarantor				Non-Guarantor
		Group, Inc.				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents		$	—			$	183,091			$	43,040			$	—			$	226,131
Restricted cash			—				33,552				845				—				34,397
Account receivable, net			—				109,208				29,472				—				138,680
Income tax receivable			2,145				(2,703	)			1,416				—				858
Deferred tax assets—current portion			—				40,081				2,308				—				42,389
Prepaid expenses and other current assets			985				26,195				10,606				—				37,786
Total current assets			3,130				389,424				87,687				—				480,241
Non-Current Assets:
Property and equipment, net			—				40,608				6,791				—				47,399
Goodwill			—				226,863				—				—				226,863
Other intangibles, net			—				175,846				—								175,846
Deferred tax assets—long-term portion			—				242,276				11,247				—				253,523
Other non-current assets			6,922				132				11,854								18,908
Investment in subsidiaries			234,562				37,486				7,181				(279,229	)			—
Intercompany accounts			710,987				(739,291	)			28,304				—				—
Total non-current assets			952,471				(16,080	)			65,377				(279,229	)			722,539
Total Assets		$	955,601			$	373,344			$	153,064			$	(279,229	)		$	1,202,780
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	—			$	9,430			$	2,663			$	—			$	12,093
Accrued expenses and other liabilities			6,669				56,711				27,980				—				91,360
Income taxes payable			—				(1,898	)			1,898				—				—
Deferred revenue—current portion			—				94,203				36,176				—				130,379
Total current liabilities			6,669				158,446				68,717				—				233,832
Non-Current Liabilities:
Long-term debt			272,818				—				—				—				272,818
Accrued exit and disposal obligations			—				3,034				3,262				—				6,296
Liability for uncertain tax positions			—				4,186				1,866				—				6,052
Deferred revenue—long-term portion			—				7,668				—				—				7,668
Total non-current liabilities			272,818				14,888				5,128				—				292,834
Total Liabilities			279,487				173,334				73,845				—				526,666
Stockholders’ Equity			676,114				200,010				79,219				(279,229	)			676,114
Total Liabilities and Stockholders’ Equity		$	955,601			$	373,344			$	153,064			$	(279,229	)		$	1,202,780

Condensed Consolidating Balance Sheets
December 31, 2010
(in thousands)

		JDA Software				Guarantor				Non-Guarantor
		Group, Inc.				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current Assets:
Cash and cash equivalents		$	—			$	133,631			$	37,987			$	—			$	171,618
Restricted cash			—				34,021				834				—				34,855
Account receivable, net			—				79,886				22,232				—				102,118
Income tax receivable			9,098				(8,685	)			(413	)			—				—
Deferred tax assets—current portion			—				41,512				2,241				—				43,753
Prepaid expenses and other current assets			440				18,914				8,369				—				27,723
Total current assets			9,538				299,279				71,250				—				380,067
Non-Current Assets:
Property and equipment, net			—				40,147				7,300				—				47,447
Goodwill			—				226,863				—				—				226,863
Other intangibles, net			—				187,398				—				—				187,398
Deferred tax assets—long-term portion			—				243,837				11,549				—				255,386
Other non-current assets			5,636				135				10,596				—				16,367
Investment in subsidiaries			185,168				49,547				(7,111	)			(227,604	)			—
Intercompany accounts			697,438				(724,996	)			27,558				—				—
Total non-current assets			888,242				22,931				49,892				(227,604	)			733,461
Total Assets		$	897,780			$	322,210			$	121,142			$	(227,604	)		$	1,113,528
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	—			$	18,892			$	2,200			$	—			$	21,092
Accrued expenses and other liabilities			978				54,931				28,029				—				83,938
Income taxes payable			—				(379	)			697				—				318
Deferred revenue—current portion			—				64,265				23,790				—				88,055
Total current liabilities			978				137,709				54,716				—				193,403
Non-Current Liabilities:
Long-term debt			272,695				—				—				—				272,695
Accrued exit and disposal obligations			—				3,997				3,363				—				7,360
Liability for uncertain tax positions			—				4,071				2,802				—				6,873
Deferred revenue—long-term portion			—				9,090				—				—				9,090
Total non-current liabilities			272,695				17,158				6,165				—				296,018
Total Liabilities			273,673				154,867				60,881				—				489,421
Stockholders’ Equity			624,107				167,343				60,261				(227,604	)			624,107
Total Liabilities and Stockholders’ Equity		$	897,780			$	322,210			$	121,142			$	(227,604	)		$	1,113,528

Unaudited Condensed Consolidating Statements of Income
Three Months Ended March 31, 2011
(in thousands)

		JDA Software				Guarantor				Non-Guarantor
		Group, Inc.				Subsidiaries				Subsidiaries				Eliminations				Consolidated
REVENUES:
Software licenses		$	—			$	31,480			$	—			$	—			$	31,480
Subscriptions and other recurring revenues			—				4,994				—				—				4,994
Maintenance services			—				45,472				19,296				—				64,768
Product revenues			—				81,946				19,296				—				101,242
Consulting services			—				40,866				16,778				—				57,644
Reimbursed expenses			—				2,903				1,817				—				4,720
Service revenues			—				43,769				18,595				—				62,364
Total revenues			—				125,715				37,891				—				163,606
COST OF REVENUES:
Cost of software licenses			—				949				—				—				949
Amortization of acquired software technology			—				1,834				—				—				1,834
Cost of maintenance services			—				9,001				4,985				—				13,986
Cost of product revenues			—				11,784				4,985				—				16,769
Cost of consulting services			—				30,534				16,068				—				46,602
Reimbursed expenses			—				2,903				1,817				—				4,720
Cost of service revenues			—				33,437				17,885				—				51,322
Total cost of revenues			—				45,221				22,870				—				68,091
GROSS PROFIT			—				80,494				15,021				—				95,515
OPERATING EXPENSES:
Product development			—				12,725				7,411				—				20,136
Sales and marketing			—				16,284				9,956				—				26,240
General and administrative			—				18,637				3,451				—				22,088
Amortization of intangibles			—				9,718				—				—				9,718
Restructuring charges			—				283				259				—				542
Acquisition-related costs			—				—				—				—				—
Litigation settlement			—				(37,500	)			—				—				(37,500	)
Total operating expenses			—				20,147				21,077				—				41,224
OPERATING INCOME			—				60,347				(6,056	)			—				54,291
Interest expense and amortization of loan fees			(5,642	)			(498	)			(71	)			—				(6,211	)
Interest income and other, net			—				(9,491	)			10,761				—				1,270
Income tax provision			2,145				(4,437	)			(1,530	)			—				(3,822	)
Equity in earnings of subsidiaries, net			49,025				(13,477	)			—				(35,548	)			—
NET INCOME (LOSS)		$	45,528			$	32,444			$	3,104			$	(35,548	)		$	45,528