-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PtKzYeheynx+jtUP6lc/k6JRZlV/ldcUJzrYJxhTS8Ny+2ksXVzF938XwPAVn0My 2R/37C+mTB64Fw0ogYM2CA== 0000950123-10-056677.txt : 20100608 0000950123-10-056677.hdr.sgml : 20100608 20100608171423 ACCESSION NUMBER: 0000950123-10-056677 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20100608 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20100608 DATE AS OF CHANGE: 20100608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JDA SOFTWARE GROUP INC CENTRAL INDEX KEY: 0001006892 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 860787377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27876 FILM NUMBER: 10885160 BUSINESS ADDRESS: STREET 1: 14400 N 87TH ST CITY: SCOTTSDALE STATE: AZ ZIP: 85260 BUSINESS PHONE: 4083083000 MAIL ADDRESS: STREET 1: 14400 N 87TH ST CITY: SCOTTSDALE STATE: AZ ZIP: 85260 8-K 1 p17827e8vk.htm FORM 8-K e8vk
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 8, 2010
JDA Software Group, Inc.
(Exact name of registrant as specified in its charter)
         
Delaware   0-27876   86-0787377
         
(State of other jurisdiction of incorporation)   (Commission File Number)   (I.R.S. Employer Identification Number)
14400 North 87th Street
Scottsdale, Arizona 85260-3649

(Address of principal executive offices including zip code)
(480) 308-3000
(Registrant’s telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


 

Item 8.01 Other Events.
     As previously disclosed, on December 10, 2009, JDA Software Group, Inc. (the “Company”) issued $275 million aggregate principal amount of 8.0% Senior Notes due 2014 (the “Notes”). The Notes were issued at an initial offering price of 98.988% of the principal amount pursuant to an indenture, dated as of December 10, 2009, among the Company, certain of the Company’s subsidiaries and U.S. Bank National Association, as trustee. The net proceeds from the sale of the Notes, which exclude the original issue discount ($2.8 million) and other debt issuance costs ($6.5 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 Company’s acquisition of i2 Technologies, Inc. (“i2”). The Notes have a five-year term and mature on December 15, 2014, and the obligations under the Notes are fully and unconditionally guaranteed on a senior basis by substantially all of the Company’s existing and future domestic subsidiaries, including i2 and its domestic subsidiaries (the “Subsidiary Guarantors”).
     Also as previously disclosed, in connection with the issuance of the Notes, the Company entered into an exchange and registration rights agreement with certain purchasers of the Notes represented by Goldman, Sachs & Co. and Wells Fargo Securities, LLC dated December 10, 2009 (the “Registration Rights Agreement”). Under the terms of the Registration Rights Agreement, the Company is required to, among other things, (i) file an exchange offer registration statement (the “Exchange Offer Registration Statement”) within 180 days following the issuance of the Notes enabling holders to exchange the Notes for registered notes with terms substantially identical to the terms of the Senior Notes, (ii) use commercially reasonable efforts to have the Exchange Offer Registration Statement declared effective by the Securities and Exchange Commission (the “SEC”) on or prior to 270 days after the closing of the note offering (the “Registration Deadline”), and (iii) unless the exchange offer would not be permitted by applicable law or SEC policy, to complete the exchange offer within 30 business days after the Registration Deadline. Under specified circumstances, including if the exchange offer would not be permitted by applicable law or SEC policy, the registration rights agreement provides that the Company must file a shelf registration statement for the resale of the Notes. If we default on these registration obligations, additional interest (referred to as special interest), up to a maximum amount of 1.0% per annum, will be payable on the Notes until all such registration defaults are cured.
     We currently plan to file the Exchange Offer Registration Statement on or about June 8, 2010. This Current Report on Form 8-K is being filed to:
    Present audited consolidated balance sheets of the Company and its subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive income (loss), and cash flows for each of three years in the period ended December 31, 2009 that include, in accordance with Regulation S-X, Section 210.3-10(f), condensed consolidated financial information for the Subsidiary Guarantors (the “Updated Annual Financial Statements”) (see Footnote 21 — Condensed Consolidating Financial Information), and to revise the prior period segment disclosures in Footnote 19 — Segment Information, in accordance with the realignment of the Company’s reportable business segments upon completion of the acquisition of i2 Technologies;
 
    Present a revised Management’s Discussion and Analysis of Financial Condition and Results of Operations for our fiscal years ended December 31, 2009, 2008 and 2007 to provide such prior period information in accordance with the realignment of the Company’s reportable business segments that resulted from the acquisition of i2 Technologies on January 28, 2010, consistent with the revised segment disclosures presented in the Updated Annual Financial Statements, and as previously disclosed by the Company in its Quarterly Report on Form 10-Q filed with respect to the quarter ended March 31, 2010;
 
    Present consolidated balance sheets of the Company and its subsidiaries as of March 31, 2010 and December 31, 2009 and the related consolidated statements of income, stockholders’ equity and comprehensive income (loss), and cash flows for the three months ended March 31, 2010 and 2009 that include, in accordance with Regulation S-X, Section 210.3-10(f), condensed consolidated financial information for the Subsidiary Guarantors (the “Updated Interim Financial Statements”) (see Footnote 14 — Condensed Consolidating Financial Information);
 
    Present the audited consolidated balance sheets of i2 Technologies, Inc. and its subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2009, in accordance with Regulation S-X, Sections 210.3-05 and 210.3-10(g) (the “i2 Financial Statements” which are attached hereto as Exhibit 99.4); and

2


 

    Present updated pro forma financial information related to the Company’s acquisition of i2, in accordance with Article 11 of Regulation S-X (the “Pro Forma Information” which are attached hereto as Exhibit 99.5).
     The Company intends to incorporate the Updated Annual Financial Statements, the Updated Interim Financial Statements, the i2 Financial Statements and the Pro Forma Information in future SEC filings, including the Exchange Offer Registration Statement.
     The Updated Annual Financial Statements do not otherwise reflect events or developments that have occurred after March 16, 2010. More current information is contained in the Company’s quarterly report on Form 10-Q for the period ended March 31, 2010 and other filings made with the SEC. These and other filings contain important information regarding events or developments that have occurred since the filing of the 2009 Form 10-K. This Current Report on Form 8-K should be read in conjunction with the portions of the Form 10-K that have not been updated herein.
     In addition, the Company had disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in its Quarterly Report on Form 10-Q filed with respect to the quarter ended March 31, 2010 that, among other things, it expected to increase its cash balance during 2010 through the generation of between $100 million to $110 million of operating cash flow, offset in part by approximately $22 million in interest payable on the Notes, $20 million of capital expenditures, $10 million related to the payment of transaction-related costs, and $10 million of cash taxes primarily related to state, local and foreign taxes. This Current Report on Form 8-K is also being filed to clarify, with respect to such disclosure, that (i) the 2010 operating cash flow amounts are more accurately reflected as being net of approximately $22 million in interest on the Notes, a $15 million use by the Company of working capital, $10 million related to the payment of transaction-related costs, and $10 million of cash taxes primarily related to state, local and foreign taxes and (ii) the Company also separately expects to incur approximately $20 million of capital expenditures in 2010.
Item 9.01 Financial Statements and Exhibits.
     
Exhibit No.   Description
23.1
  — Consent of Deloitte & Touche LLP (relating to JDA Software Group, Inc.).
23.2
  — Consent of Grant Thornton LLP (relating to i2 Technologies, Inc.).
99.1
  — Updated Annual Financial Statements.
99.2
  — Updated Management Discussion and Analysis of Financial Condition and Results of Operations.
99.3
  — Updated Interim Financial Statements.
99.4
  — i2 Financial Statements.
99.5
  — Updated Pro Forma Information.

3


 

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
JDA Software Group, Inc.
 
 
Date: June 8, 2010 
  By:   /s/ Peter S. Hathaway    
    Peter S. Hathaway   
    Executive Vice President and Chief Financial Officer   

4

EX-23.1 2 p17827exv23w1.htm EX-23.1 exv23w1
         
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-05951, 333-45729, 333-60231, 333-60233, 333-30154, 333-59644, 333-72228, 333-86902, 333-101920, 333-111130, 333-128255, 333-152024, 333-160690, 333-160691, and 333-161412 on Form S-8 of our reports dated March 16, 2010 (June 8, 2010 as to Note 19 and Note 21), relating to the financial statements of JDA Software Group, Inc., appearing in this Current Report on Form 8-K of JDA Software Group, Inc.
/s/ DELOITTE & TOUCHE LLP
Phoenix, AZ
June 8, 2010

EX-23.2 3 p17827exv23w2.htm EX-23.2 exv23w2
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated May 24, 2010, with respect to the i2 Technologies, Inc. consolidated financial statements included in the Current Report on Form 8-K of JDA Software Group, Inc. We hereby consent to the incorporation by reference of said report in the Registration Statements of JDA Software Group, Inc. on Form S-8 (Nos. 333-05951, 333-45729, 333-60231, 333-60233, 333-30154, 333-59644, 333-72228, 333-86902, 333-101920, 333-111130, 333-128255, 333-152024, 333-160690, 333-160691, and 333-161412).
GRANT THORNTON LLP
Dallas, Texas
June 8, 2010

EX-99.1 4 p17827exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
JDA Software Group, Inc.
Scottsdale, Arizona
     We have audited the accompanying consolidated balance sheets of JDA Software Group, Inc. and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2009. 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, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, 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, 2009, 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 16, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 16, 2010
(June 8, 2010 as to Note 19 and Note 21)

1


 

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
                 
    December 31,     December 31,  
    2009     2008  
ASSETS
               
Current Assets:
               
Cash and cash equivalents
  $ 75,974     $ 32,696  
Restricted cash
    287,875        
Accounts receivable, net
    68,883       79,353  
Income tax receivable
          316  
Deferred tax asset
    19,142       22,919  
Prepaid expenses and other current assets
    15,667       14,223  
 
           
Total current assets
    467,541       149,507  
 
           
 
               
Non-Current Assets:
               
Property and equipment, net
    40,842       43,093  
Goodwill
    135,275       135,275  
Other Intangibles, net:
               
Customer lists
    99,264       121,719  
Acquired software technology
    20,240       24,160  
Trademarks
    157       1,335  
Deferred tax asset
    44,350       44,815  
Other non-current assets
    13,997       4,872  
 
           
Total non-current assets
    354,125       375,269  
 
           
 
               
Total Assets
  $ 821,666     $ 524,776  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts payable
  $ 7,192     $ 3,273  
Accrued expenses and other liabilities
    45,523       52,090  
Income taxes payable
    3,489        
Deferred revenue
    65,665       62,005  
 
           
Total current liabilities
    121,869       117,368  
 
           
 
               
Non-Current Liabilities:
               
Long-term debt
    272,250        
Accrued exit and disposal obligations
    7,341       8,820  
Liability for uncertain tax positions
    8,770       7,093  
 
           
Total non-current liabilities
    288,361       15,913  
 
           
 
               
Total Liabilities
    410,230       133,281  
 
           
 
               
Commitments and Contingencies (Notes 11 and 12)
               
 
               
Redeemable Preferred Stock
          50,000  
 
               
Stockholders’ Equity:
               
Preferred stock, $.01 par value; authorized 2,000,000 shares; none issued or outstanding
           
Common stock, $.01 par value; authorized, 50,000,000 shares; issued 36,323,245 and 32,458,397 shares, respectively
    363       325  
Additional paid-in capital
    361,362       305,564  
Deferred compensation
    (5,297 )     (2,915 )
Retained earnings
    74,014       56,268  
Accumulated other comprehensive income (loss)
    3,267       (2,017 )
Less treasury stock, at cost, 1,785,715 and 1,307,317 shares, respectively
    (22,273 )     (15,730 )
 
           
Total stockholders’ equity
    411,436       341,495  
 
           
Total liabilities and stockholders’ equity
  $ 821,666     $ 524,776  
 
           
See notes to consolidated financial statements.

2


 

JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
                         
    Years Ended December 31,  
    2009     2008     2007  
Revenues:
                       
 
                       
Software licenses
  $ 88,786     $ 92,898     $ 73,599  
Maintenance services
    179,336       182,844       178,198  
 
                 
Product revenues
    268,122       275,742       251,797  
 
                 
 
                       
Consulting services
    107,618       104,072       110,893  
Reimbursed expenses
    10,060       10,518       10,885  
 
                 
Service revenues
    117,678       114,590       121,778  
 
                 
Total revenues
    385,800       390,332       373,575  
 
                 
 
                       
Cost of Revenues:
                       
 
                       
Cost of software licenses
    3,241       3,499       2,499  
Amortization of acquired software technology
    3,920       5,277       6,377  
Cost of maintenance services
    43,165       45,734       45,242  
 
                 
Cost of product revenues
    50,326       54,510       54,118  
 
                 
 
                       
Cost of consulting services
    85,285       81,954       83,131  
Reimbursed expenses
    10,060       10,518       10,885  
 
                 
Cost of service revenues
    95,345       92,472       94,016  
 
                 
Total cost of revenues
    145,671       146,982       148,134  
 
                 
 
                       
Gross Profit
    240,129       243,350       225,441  
 
                       
Operating Expenses:
                       
 
                       
Product development
    51,318       53,866       51,173  
Sales and marketing
    66,001       66,468       63,154  
General and administrative
    47,664       44,963       44,405  
Amortization of intangibles
    23,633       24,303       15,852  
Restructuring charges
    6,865       8,382       6,208  
Acquisition-related costs
    4,768              
Costs of abandoned acquisition
          25,060        
Gain on sale of office facility
                (4,128 )
 
                 
Total operating expenses
    200,249       223,042       176,664  
 
                 
 
                       
Operating Income
    39,880       20,308       48,777  
 
                       
Interest expense and amortization of loan fees
    (2,712 )     (10,349 )     (11,836 )
Finance costs on abandoned acquisition
    767       (5,292 )      
Interest income and other, net
    1,253       2,791       3,476  
 
                 
 
                       
Income Before Income Taxes
    39,188       7,458       40,417  
 
                       
Income tax provision
    (12,849 )     (4,334 )     (13,895 )
 
                 
 
                       
Net Income
    26,339       3,124       26,522  
 
                       
Consideration paid in excess of carrying value on the repurchase of redeemable preferred stock
    (8,593 )            
 
                 
 
                       
Income Applicable to Common Shareholders
  $ 17,746     $ 3,124     $ 26,522  
 
                 
 
                       
Basic Earnings Per Share Applicable to Common Shareholders
  $ .51     $ .09     $ .79  
 
                 
 
                       
Diluted Earnings Per Share Applicable to Common Shareholders
  $ .50     $ .09     $ .76  
 
                 
 
                       
Shares Used To Compute:
                       
Basic earnings per share applicable to common shareholders
    34,936       34,339       33,393  
 
                 
Diluted earnings per share applicable to common shareholders
    35,258       35,185       34,740  
 
                 
See notes to consolidated financial statements.

3


 

JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share amounts)
                                                                 
                                            Accumulated              
                    Additional     Deferred             Other              
    Common Stock     Paid-In     Stock     Retained     Comprehensive     Treasury        
    Shares     Amount     Capital     Compensation     Earnings     Gain (Loss)     Stock     Total  
Balance, January 1, 2007
    30,569,447     $ 305     $ 275,705     $ (904 )   $ 27,628     $ 1,018     $ (13,400 )   $ 290,352  
 
                                                               
Issuance of common stock:
                                                               
Issuance of common stock – Options
    757,513       8       9,869                                       9,877  
Issuance of restricted stock
    30,981       1       628       (412 )                             217  
Vesting of restricted stock units
    24,186                                                          
Issuance of unvested equity awards
                    8,242       (8,242 )                                
Forfeiture of unvested equity awards
    (3,359 )             (58 )     58                                  
Amortization of deferred compensation
                            5,974                               5,974  
Tax benefit — stock compensation
                    1,308                                       1,308  
Accrual for uncertain tax positions
                                    (1,006 )                     (1,006 )
Purchase of treasury stock
                                                    (244 )     (244 )
 
                                                               
Comprehensive income:
                                                               
Net income
                                    26,522                       26,522  
Change in fair value of interest rate swap
                                            (525 )             (525 )
Foreign translation adjustment
                                            3,321               3,321  
 
                                                             
Comprehensive income
                                                            29,318  
 
                                               
Balance, December 31, 2007
    31,378,768       314       295,694       (3,526 )     53,144       3,814       (13,644 )     335,796  
 
                                                               
Issuance of common stock:
                                                               
Issuance of common stock – Options
    697,072       7       7,799                                       7,806  
Issuance of restricted stock
    10,000               199                                       199  
Vesting of restricted stock units
    372,561       4       (4 )                                        
Issuance of unvested equity awards
                    3,971       (3,971 )                                
Forfeiture of unvested equity awards
    (4 )             (457 )     457                                  
Amortization of deferred compensation
                            4,125                               4,125  
Tax benefit — stock compensation
                    (1,638 )                                     (1,638 )
Purchase of treasury stock
                                                    (2,086 )     (2,086 )
 
                                                               
Comprehensive income:
                                                               
Net income
                                    3,124                       3,124  
Change in fair value of interest rate swap
                                            289               289  
Foreign translation adjustment
                                            (6,120 )             (6,120 )
 
                                                             
Comprehensive loss
                                                            (2,707 )
 
                                               
Balance, December 31, 2008
    32,458,397       325       305,564       (2,915 )     56,268       (2,017 )     (15,730 )     341,495  
 
                                                               
Issuance of common stock:
                                                               
Issuance of common stock – Options
    1,053,251       10       12,570                                       12,580  
Issuance of common stock – ESPP
    155,888       1       2,268                                       2,269  
Issuance of restricted stock
    180,000       2       3,011       (2,867 )                             146  
Vesting of restricted stock units
    285,301       3       (3 )                                        
Issuance of unvested equity awards
                    7,845       (7,845 )                                
Forfeiture of unvested equity awards
    (9,592 )             (396 )     396                                  
Amortization of deferred compensation
                            7,934                               7,934  
Conversion of redeemable preferred stock
    2,200,000       22       30,503                                       30,525  
Purchase of treasury stock
                                                    (6,543 )     (6,543 )
 
                                                               
Comprehensive income:
                                                               
Net income
                                    26,339                       26,339  
Cash consideration paid for Series B preferred stock in excess of carrying value
                                    (8,593 )                     (8,593 )
Foreign translation adjustment
                                            5,284               5,284  
 
                                                             
Comprehensive income
                                                            23,030  
 
                                               
Balance, December 31, 2009
    36,323,245     $ 363     $ 361,362     $ (5,297 )   $ 74,014     $ 3,267     $ (22,273 )   $ 411,436  
 
                                               
See notes to consolidated financial statements.

4


 

JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                         
    Years Ended December 31,  
    2009     2008     2007  
Operating Activities:
                       
 
                       
Net income
  $ 26,339     $ 3,124     $ 26,522  
 
                       
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    37,239       39,280       31,646  
Provision for doubtful accounts
    1,900       750       2,890  
Amortization of loan origination fees, debt issuance costs and original issue discount
    110       3,672       1,808  
Excess tax benefits from share-based compensation
    ¾       1,638       (1,308 )
Net gain on sale of office facility
    ¾       ¾       (4,128 )
Net (gain) loss on disposal of property and equipment
    (42 )     9       (20 )
Stock-based compensation expense
    8,095       4,324       6,191  
Deferred income taxes
    4,242       1,784       9,991  
 
                       
Changes in assets and liabilities:
                       
Accounts receivable
    9,894       (6,590 )     5,597  
Income tax receivable
    365       116       (284 )
Prepaid expenses and other assets
    (1,768 )     2,055       (212 )
Accounts payable
    4,525       (346 )     (1,256 )
Accrued expenses and other liabilities
    (4,608 )     3,938       110  
Income tax payable
    5,964       27       ¾  
Deferred revenue
    4,226       (6,689 )     2,160  
 
                 
Net cash provided by operating activities
    96,481       47,092       79,707  
 
                 
 
                       
Investing Activities:
                       
 
                       
Change in restricted cash
    (287,875 )     ¾       ¾  
Payment of direct costs related to acquisitions
    (5,110 )     (4,242 )     (7,606 )
Purchase of property and equipment
    (7,136 )     (8,594 )     (7,408 )
Proceeds from disposal of property and equipment
    84       132       6,856  
 
                 
Net cash used in investing activities
    (300,037 )     (12,704 )     (8,158 )
 
                 
 
                       
Financing Activities:
                       
 
                       
Issuance of common stock — equity plans
    14,849       7,806       9,877  
Excess tax benefits from share-based compensation
    ¾       (1,638 )     1,308  
Purchase of treasury stock
    (6,543 )     (2,086 )     (244 )
Redemption of redeemable preferred stock
    (28,068 )     ¾       ¾  
Proceeds from issuance of long-term, debt, net of discount
    272,217       ¾       ¾  
Debt issuance costs
    (6,487 )     ¾       ¾  
Principal payments on term loan agreement
    ¾       (99,563 )     (40,000 )
Repayment of 5% convertible subordinated notes
    ¾       ¾       (1,531 )
 
                 
Net cash provided by (used in) financing activities
    245,968       (95,481 )     (30,590 )
 
                 
 
                       
Effect of exchange rates on cash and cash equivalents
    866       (1,499 )     770  
 
                 
 
                       
Net increase (decrease) in cash and cash equivalents
    43,278       (65,592 )     41,729  
 
                       
Cash and Cash Equivalents, Beginning of Year
    32,696       95,288       53,559  
 
                 
 
                       
Cash and Cash Equivalents, End of Year
  $ 75,974     $ 32,696     $ 95,288  
 
                 
See notes to consolidated financial statements.

5


 

JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
                         
    Years Ended December 31,  
    2009     2008     2007  
Supplemental Disclosures of Cash Flow Information:
                       
 
                       
Cash paid for income taxes
  $ 3,854     $ 3,378     $ 5,599  
 
                 
 
                       
Cash paid for interest
  $ 1,149     $ 7,312     $ 11,589  
 
                 
 
                       
Cash received for income tax refunds
  $ 856     $ 852     $ 976  
 
                 
 
                       
Supplemental Disclosure of Non-cash activities:
                       
 
                       
Decrease in retained earnings from an accrual for uncertain tax positions
                  $ 1,006  
 
                     
 
                       
Supplemental Disclosures of Non-cash Investing Activities:
                       
 
                       
Increase (reduction) of goodwill recorded in acquisitions
          $ 714     $ (11,415 )
 
                   
 
                       
Supplemental Disclosures of Non-cash Financing Activities:
                       
 
                       
Conversion of redeemable preferred stock to common stock
  $ 30,525                  
 
                     
 
                       
See notes to consolidated financial statements.

6


 

JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2009
(in thousands, except percentages, shares, per share amounts or as otherwise stated)
1. Summary of Significant Accounting Policies
          Nature of Business. We are a leading provider of sophisticated enterprise software solutions designed specifically to address the supply chain requirements of global consumer products companies, manufacturers, wholesale/distributors and retailers, as well as government and aerospace defense contractors and travel, transportation, hospitality and media organizations, and with the acquisition of i2 Technologies (see Note 2) we have licensed our software to over 6,000 customers worldwide. Our solutions enable customers to plan, manage and optimize the coordination of supply, demand and flows of inventory throughout the supply chain to the consumer. We conduct business in three geographic regions that have separate management teams and reporting structures: the Americas (United States, Canada, and Latin America), Europe (Europe, Middle East and Africa), and Asia/Pacific. Our corporate offices are located in Scottsdale, Arizona.
          Principles of Consolidation and Basis of Presentation. The consolidated financial statements are stated in U.S. dollars and include the accounts of JDA Software Group, Inc. and our subsidiaries, all of which are wholly owned. All intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with the FASB Standard Accounting Codification (“Codification”), which is the authoritative source of authoritative generally accepted accounting principles (“GAAP”) for nongovernmental entities in the United States. The Codification, which is effective for all reporting periods that end after September 15, 2009, superseded and replaced all existing non-SEC accounting and reporting standards. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Adoption of the Codification did not have a material impact on our consolidated financial statement note disclosures.
          Certain reclassifications have been made to the Consolidated Statements of Income for the years ended December 31, 2008 and 2007 to conform to the current presentation. In the Consolidated Statements of Income we have combined the provision for doubtful accounts in operating expenses under the caption “General and administrative.” The provision for doubtful accounts was previously reported under a separate caption, “Provision for doubtful accounts.”
          Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include the allowance for doubtful accounts, which is based upon an evaluation of our customers’ ability to pay and general economic conditions; the useful lives of intangible assets and the recoverability or impairment of tangible and intangible asset values; deferred revenues; purchase accounting allocations and related reserves; and our effective income tax rate and the valuation allowance applied against deferred tax assets which are based upon our expectations of future taxable income, allowable deductions, and projected tax credits. Actual results may differ from these estimates.
          Foreign Currency Translation. The financial statements of our international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and at an average exchange rate for the revenues and expenses reported in each fiscal period. We have determined that the functional currency of each foreign subsidiary is the local currency and as such, foreign currency translation adjustments are recorded as a separate component of stockholders’ equity. Transaction gains and losses, and unrealized gains and losses on short-term intercompany receivables and payables and foreign denominated receivables, are included in results of operations as incurred.
          Cash and Cash Equivalents. Cash and cash equivalents consist of cash held in bank demand deposits. The restricted cash balance at December 31, 2009 consists primarily of proceeds from the issuance of long-term debt (see Note 9), which were subsequently used to fund a portion of the cash merger consideration in the acquisition of i2 Technologies, Inc. (see Note 2).
          Accounts Receivable. Consistent with industry practice and to be competitive in the software marketplace, we typically provide payment terms on most software license sales. Software licenses are generally due within twelve months from the date of delivery. Customers are reviewed for creditworthiness before we enter into a new arrangement that provides for software and/or a service element. We do not sell or ship our software, nor recognize any revenue unless we believe that collection is probable. For those customers who are not credit worthy, we require prepayment of the software license fee or a letter of credit before we will ship

7


 

our software. We have a history of collecting software payments when they come due without providing refunds or concessions. Consulting services are generally billed bi-weekly and maintenance services are billed annually or monthly. For those customers who are significantly delinquent or whose credit deteriorates, we typically put the account on hold and do not recognize any further services revenue, and may as appropriate withdraw support and/or our implementation staff until the situation has been resolved.
          We do not have significant billing or collection problems. We review each past due account and provide specific reserves based upon the information we gather from various sources including our customers, subsequent cash receipts, consulting services project teams, members of each region’s management, and credit rating services such as Dun and Bradstreet. Although infrequent and unpredictable, from time to time certain of our customers have filed bankruptcy, and we have been required to refund the pre-petition amounts collected and settle for less than the face value of their remaining receivable pursuant to a bankruptcy court order. In these situations, as soon as it becomes probable that the net realizable value of the receivable is impaired, we provide reserves on the receivable. In addition, we monitor economic conditions in the various geographic regions in which we operate to determine if general reserves or adjustments to our credit policy in a region are appropriate for deteriorating conditions that may impact the net realizable value of our receivables.
          Property and Equipment and Long-Lived Assets. Property and equipment are stated at cost less accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the following estimated useful lives: computers, internal use software, furniture and fixtures — two to seven years; buildings and improvements — fifteen to forty years; automobiles — three years; leasehold improvements — the shorter of the initial lease term or the estimated useful life of the asset.
          Business Combinations. All business combinations through December 31, 2008 were accounted for using the purchase method of accounting. Under the purchase method of accounting, the purchase price of each acquired company was allocated to the acquired assets and liabilities based on their fair values. There was no in-process research and development (“IPR&D”) recorded on any of our business combinations during the three years ended December 31, 2008. IPR&D consists of products or technologies in the development stage for which technological feasibility has not been established and which we believe have no alternative use.
          Effective January 1, 2009, all future business combinations will be accounted for at fair value under the acquisition method of accounting. Under the acquisition method of accounting, (i) acquisition-related costs, except for those costs incurred to issue debt or equity securities, will be expensed in the period incurred; (ii) non-controlling interests will be valued at fair value at the acquisition date; (iii) IPR&D will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; (iv) restructuring costs associated with a business combination will be expensed subsequent to the acquisition date; and (v) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date will be recognized through income tax expense or directly in contributed capital, including any adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior January 1, 2009. There were no business combinations in 2009. We did however acquire i2 Technologies, Inc. on January 28, 2010 in a business combination that will be accounted for under the acquisition method of accounting (see Note 2).
          Goodwill and Intangible Assets. Goodwill represents the excess of the purchase price over the net assets acquired in our business combinations. 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 2009, 2008 or 2007 with respect to the goodwill allocated to our Supply Chain and Services Industries reportable business segments (see Note 5). Absent future indications of impairment, the next annual impairment test will be performed in fourth quarter 2010.
          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. In first quarter 2008, we changed the estimated useful life of certain customer lists to reflect current trends in attrition. With this change, the quarterly amortization expense on customer lists increased approximately $2.1 million per quarter, beginning first quarter 2008 and continuing over the remaining useful life of the related customer lists which extend through June 2014.

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          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 estimated remaining useful life of five years.
          Revenue recognition. Our revenue recognition policy is significant because our revenue is a key component of our results of operations. In addition, our revenue recognition determines the timing of certain expenses such as commissions and royalties. We follow specific and detailed guidelines in measuring revenue; however, certain judgments affect the application of our revenue policy.
          We license software 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 evidence of fair value (“VSOE”) exists for all undelivered elements.
          Our customer arrangements typically contain multiple elements that include software, options for future purchases of software products not previously licensed to the customer, maintenance, consulting and training services. The fees from these arrangements are allocated to the various elements based on VSOE. Under the residual method, if an arrangement contains an undelivered element, the VSOE of the undelivered element is deferred and the revenue recognized once the element is delivered. If we are unable to determine VSOE for any undelivered element included in an arrangement, we will defer revenue recognition until all elements have been delivered. In addition, if a software license contains milestones, customer acceptance criteria or a cancellation right, the software revenue is recognized upon the achievement of the milestone or upon the earlier of customer acceptance or the expiration of the acceptance period or cancellation right. 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 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.
          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 generally 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

9


 

those services are sold separately. We offer hosting and other managed services on certain of our software products under arrangements in which the end users do not take possession of the software. Revenues from hosting services are included in consulting revenues, billed monthly and recognized as the services are provided. Revenues from our hardware reseller business are also included in consulting revenues, reported net (i.e., the amount billed to a customer less the amount paid to the supplier) and recognized upon shipment of the hardware.
          Customers are reviewed for creditworthiness before we enter into a new arrangement that provides for software and/or a service element. We do not sell or ship our software, nor recognize any license revenue, unless we believe that collection is probable. Payments for our software licenses are typically due within twelve months from the date of delivery. Although infrequent, where software license agreements call for payment terms of twelve months or more from the date of delivery, revenue is recognized as payments become due and all other conditions for revenue recognition have been satisfied.
          Software License Indemnification. Our standard software license agreements contain an infringement indemnity clause under which we agree to indemnify and hold harmless our customers and business partners against liability and damages arising from claims of various copyright or other intellectual property infringement by our products. 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, we do not currently expect a significant impact on our business, operating results, or financial condition.
          Reimbursed Expenses. We classify reimbursed expenses in both service revenues and cost of service revenues in our consolidated statements of income.
          Product Development. The costs to develop new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. We consider technological feasibility to have occurred when all planning, designing, coding and testing have been completed according to design specifications. Once technological feasibility is established, any additional costs would be capitalized. We believe our current process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no costs have been capitalized.
          Restructuring Charges. Restructuring charges include charges for the costs of exit or disposal activities and adjustments to acquisition-related reserves and other liabilities recorded in connection with business combinations. The liability for costs associated with exit or disposal activities is measured initially at fair value and only recognized when the liability is incurred, rather than at the date the Company committed to the exit plan. Restructuring charges are not directly identified with a particular business segment and as a result, management does not consider these charges in the evaluation of the operating income (loss) from the business segments. We recorded restructuring charges of $6.9 million, $8.4 million and $6.2 million in 2009, 2008 and 2007, respectively. These charges include net adjustments to acquisition-related reserves and other liabilities of $755,000, $426,000 and $8,000, respectively (see Notes 6, 7 and 8).
          Derivative Instruments and Hedging Activities. We use derivative financial instruments, primarily forward exchange contracts, to manage a majority of the foreign currency exchange exposure associated with net short-term foreign 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, 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, 2009, we had forward exchange contracts with a notional value of $37.9 million and an associated net forward contract payable of $354,000. At December 31, 2008, we had forward exchange contracts with a notional value of $33.5 million and an associated net forward contract liability of $14,000. These derivatives are not designated as hedging instruments. The forward contract liabilities are included in the consolidated balance sheets under the caption “Accrued expenses and other liabilities.” The notional value represents the amount of foreign currencies to be purchased or sold at maturity and does not represent our exposure on these contracts. We recorded net foreign currency exchange contract gains of $677,000, $483,000 and $147,000 in 2009, 2008 and 2007, respectively, which are included in the condensed consolidated statements of income under the caption “Interest Income and other, net.”

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          We were exposed to interest rate risk on term loans used to finance the acquisition of Manugistics, which provided for quarterly interest payments at LIBOR + 2.25%. To manage this risk, we entered into an interest rate swap agreement to fix LIBOR at 5.365% on $140 million, or 80% of the aggregate term loans. The interest rate swap was structured with decreasing notional amounts to match our expected pay down of the debt. The interest rate swap agreement was designated a cash flow hedge derivative. The effectiveness of the cash flow hedge derivative was evaluated on a quarterly basis with changes in the fair value of the interest rate swap deferred and recorded as a component of “Accumulated other comprehensive income (loss).” We repaid the remaining balance on the term loans on October 1, 2008 (see Note 9) and terminated the interest rate swap on October 5, 2008. We made an $899,000 payment on October 5, 2008 in consideration for early termination of the interest rate swap. This payment is included in the consolidated statements of operations under the caption “Interest expense and amortization of loan fees.”
          Stock-Based Compensation. Compensation expense for awards of restricted stock, restricted stock units, performance share awards and other forms of equity based compensation are based on the market price of the underlying common stock as of the date of grant, amortized over the applicable vesting period of the awards (generally 3 years) using graded vesting (see Note 14).
          As of December 31, 2009, we had approximately 1.3 million stock options outstanding with exercise prices ranging from $10.33 to $27.50 per share. Stock options are no longer used for share-based compensation (see Note 14).
          Income Taxes. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We follow specific and detailed guidelines regarding the recoverability of any tax assets recorded on the balance sheet and provide valuation allowances when recovery of deferred tax assets is not considered likely.
          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.
          As of December 31, 2009 we have approximately $10.8 million of unrecognized tax benefits, substantially all of which relates to uncertain tax positions associated with the acquisition of Manugistics that would impact our effective tax rate if recognized. Recognition of these uncertain tax positions will be treated as a component of income tax expense rather than as a reduction of goodwill. During 2009 there were no significant changes in our unrecognized tax benefits. It is reasonably possible that approximately $8.8 million of unrecognized tax benefits will be recognized within the next twelve months, primarily related to lapses in the statute of limitations. At December 31, 2009, we have approximately $5.5 million and $7.8 million of federal and state research and development tax credit carryforwards, respectively, that expire at various dates through 2024. 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 the accrual of interest and penalties related to uncertain tax positions as a component of income tax expense, including accruals (benefits) made during 2009, 2008 and 2007 of $(515,000), $600,000 and $630,000, respectively. As of December 31, 2009, 2008 and 2007, there are approximately $2.3 million, $2.6 million and $1.9 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.
          Earnings per Share. From July 2006 through September 8, 2009, the Company had two classes of outstanding capital stock, common stock and Series B preferred stock. The Series B preferred stock, which was issued in connection with acquisition of Manugistics (see Note 13), was a participating security such that in the event a dividend was declared or paid on the common stock, the Company would have been required to simultaneously declare and pay a dividend on the Series B preferred stock as if the Series B preferred stock had been converted into common stock. Companies that have participating securities are required to apply the two-class method to compute basic earnings per share. Under the two-class computation method, basic earnings per share is calculated for each class of stock and participating security considering both dividends declared and participation rights in undistributed earnings as if all such earnings had been distributed during the period.
          During third quarter 2009, all shares of the Series B preferred stock were either converted into shares of common stock or repurchased for cash, including $8.6 million paid in excess of the conversion price (see Note 13). The excess consideration was

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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. The calculation of diluted earnings per share applicable to common shareholders for 2009 includes the assumed conversion of the Series B preferred stock into common stock as of the beginning of the period, weighted for the actual days and number of shares outstanding during the period. The calculation of diluted earnings per share applicable to common shareholders for 2008 and 2007 includes the assumed conversion of the Series B preferred stock into common stock as of the beginning of the period.
          The dilutive effect of outstanding stock options and unvested restricted stock units and performance share awards is included in the diluted earnings per share calculations for 2009, 2008 and 2007 using the treasury stock method (see Note 18).
Other 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 using the relative selling price method. 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 are currently assessing the impact the new guidance will have on certain of our revenue arrangements, specifically those involving the delivery of software-as-a-service and certain other managed service offerings as i2 derived a significant portion of their revenues from these form of contracts. 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 a 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. We do not currently anticipate any significant impact from adoption of this guidance 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. We are currently assessing what impact this guidance will have on our consolidated financial statements.
2. Acquisitions
Acquisition of i2 Technologies, Inc. (2010)
          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 with an acquisition date fair value of approximately $168.0 million, or $26.88 per share, determined on the basis of the closing market price of our common stock on the date of acquisition (the “Merger”). The combination of JDA and i2 creates a market leader in the supply chain management market. We believe this combination provides JDA with (i) a strong, complementary presence in new markets such as discrete manufacturing and transportation; (ii) enhanced scale; (iii) a more diversified, global customer base of over 6,000 customers; (iv) a comprehensive product suite that provides end-to-end supply chain management (“SCM”) solutions; (v) incremental revenue opportunities associated with cross-selling of products and services among our existing customer base; and (vi) an ability to increase profitability through net cost synergies in the first six to nine months after the Merger.

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          Under the terms of the Merger Agreement, each issued and outstanding share of i2 common stock was converted into the right to receive $12.70 in cash and 0.2562 of a share of JDA common stock (the “Merger Consideration”). Holders of i2 common stock did not receive any fractional JDA shares in the Merger. Instead, the total number of shares that each holder of i2 common stock received in the Merger was rounded down to the nearest whole number, and JDA paid cash for any resulting fractional share determined by multiplying the fraction by $26.65, which represents the average closing price of JDA common stock on Nasdaq for the five consecutive trading days ending three days prior to the effective date of the Merger.
          Each outstanding option to acquire i2 common stock was canceled and terminated at the effective time of the Merger and converted into the right to receive the Merger Consideration with respect to the number of shares of i2 common stock that would have been issuable upon a net exercise of such option, assuming the market value of the i2 common stock at the time of such exercise was equal to the value of the Merger Consideration as of the close of trading on the day immediately prior to the effective date of the Merger. Any outstanding option with a per share exercise price that was greater than or equal to such amount was cancelled and terminated and no payment was made with respect thereto. In addition, each i2 restricted stock unit award outstanding immediately prior to the effective time of the Merger was fully vested and cancelled, and each holder of such awards became entitled to receive the Merger Consideration for each share of i2 common stock into which the vested portion of the awards would otherwise have been convertible. Each i2 restricted stock award was vested immediately prior to the effective time of the Merger and was entitled to receive the Merger Consideration.
          Each outstanding share of i2’s Series B Preferred Stock was converted into the right to receive $1,100 per share in cash, which is equal to the stated change of control liquidation value of each such share plus all accrued and unpaid dividends thereon through the effective date of the Merger.
          At the effective time of the Merger, each outstanding warrant to purchase shares of i2’s common stock ceased to represent a right to acquire i2’s common stock and was assumed by JDA and converted into a warrant with the right to receive upon exercise, the Merger Consideration that would have been received as a holder of i2 common stock if such i2 warrant had been exercised prior to the. In total, 420,237 warrants to purchase i2 common stock at an exercise price of $15.4675 were assumed and converted into the right to receive the Merger Consideration upon exercise, including 107,663 shares of JDA common stock.
          The Merger will be accounted for using the acquisition method of accounting with JDA identified as the acquirer. Under the acquisition method of accounting, we will record all assets acquired and liabilities assumed at their respective acquisition-date fair values. We have not completed the valuation analysis and calculations necessary to finalize the required purchase price allocations. In addition to goodwill, the final purchase price allocation may include allocations to intangible assets such as trademarks and trade names, in-process research and development, developed technology and customer-related assets.
          On December 10, 2009, we issued $275 million of five-year, 8.0% Senior Notes (the “Senior Notes”) 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 ($6.5 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 9).
          Through December 31, 2009, we expensed approximately $4.8 million 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.”
Acquisition of Equity Interest in European-based Strategix Enterprise Technology (2009)
          In July 2009, we purchased 49.1% of the registered share capital of Strategix Enterprise Technology GMBH and Strategix Enterprise Technology sp.z.o.o. (collectively, “Strategix”) for cash. The initial investment, which is not material to our financial statements, is reflected in the consolidated balance sheet under the caption “Other non-current assets,” and in the consolidated statement of cash flows as an investing activity under the caption “Payment of direct costs related to acquisitions.” The adjustments to record our equity share of Strategix’s earnings from the date of purchase through December 31, 2009 are reflected in the consolidated statements of income, net of tax, under the caption “Interest income and other, net,” The transaction provides for additional annual purchase price earn-outs in each of 2009, 2010 and 2011 if defined performance milestones are achieved. No additional purchase price earn-out was earned in 2009. We have an option to purchase the remaining registered share capital of Strategix beginning on the third anniversary date of the transaction based on defined operating metrics. Strategix has been a distributor of our supply and category management applications in Central and Eastern Europe and Russia since 2004. As part of this transaction, Strategix now

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has access to our entire suite of products, and we believe such access can expand our presence with retail, manufacturing and wholesale-distribution customers in these markets. We have also acquired the rights to various applications developed by Strategix that are designed to enhance certain of our space and category management solutions, plus a suite of SAP integration tools.
Abandoned Acquisition of i2 Technologies, Inc (2008)
          In August 2008, we entered into an agreement and plan of merger to acquire all of the outstanding common and preferred equity of i2. This transaction was subsequently abandoned in December 2008 and we paid i2 a $20 million non-refundable reverse termination fee. The acquisition was abandoned due primarily to the adverse effect of the continuing credit crisis and the credit terms available under proposed credit facilities that would have resulted in unacceptable risks and costs to the combined company.
          We expensed $30.4 million in costs associated with the termination acquisition of i2 in fourth quarter 2008, including the $20 million non-refundable reverse termination fee and $5.1 million of legal, accounting and other acquisition-related fees that are included in operating expenses under the caption “Costs of abandoned acquisition” and $5.3 million in finance costs related to loan origination and “ticking” fees on certain debt financing commitments that are included in other income (expense) under the caption “Finance costs on abandoned acquisition.” During 2009, approximately $767,000 of the “ticking” fees were waived pursuant to a mutual release agreement and the related expense was reversed. As of December 31, 2009 and 2008, $1.2 million and $3.6 million of these costs, respectively, had not been paid and are included in the consolidated balance sheet under the caption “Accrued Expenses and other current liabilities.”
3. Accounts Receivable, Net
          At December 31, 2009 and 2008 accounts receivable consist of the following:
                 
    2009     2008  
Trade receivables
  $ 75,661     $ 84,492  
Less allowance for doubtful accounts
    (6,778 )     (5,139 )
 
           
Total
  $ 68,883     $ 79,353  
 
           
          A summary of changes in the allowance for doubtful accounts for the three-year period ended December 31, 2009 is as follows:
                         
    2009     2008     2007  
Balance at beginning of period
  $ 5,139     $ 7,030     $ 9,596  
Reserves recorded in the Manugistics acquisition
                (4,195 )
Provision for doubtful accounts
    1,900       750       2,890  
Deductions, net
    (261 )     (2,641 )     (1,261 )
 
                 
Balance at end of period
  $ 6,778     $ 5,139     $ 7,030  
 
                 
4. Property and Equipment, Net
          At December 31, 2009 and 2008 property and equipment consist of the following:
                 
    2009     2008  
Computers, internal use software, furniture & fixtures and automobiles
  $ 83,520     $ 78,610  
Land and buildings
    26,652       25,883  
Leasehold improvements
    7,400       5,874  
 
           
 
    117,572       110,367  
Less accumulated depreciation
    (76,730 )     (67,274 )
 
           
 
  $ 40,842     $ 43,093  
 
           
          During 2007, we sold a 15,000 square foot office facility in the United Kingdom for approximately $6.3 million and recognized a gain of approximately $4.1 million.
          Depreciation expense for 2009, 2008 and 2007 was $9.7 million, $9.7 million and $9.4 million, respectively.

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5. Goodwill and Other Intangibles, Net
          At December 31, 2009 and 2008 goodwill and other intangible assets consist of the following:
                                 
    December 31, 2009     December 31, 2008  
    Gross Carrying     Accumulated     Gross Carrying     Accumulated  
    Amount     Amortization     Amount     Amortization  
Goodwill:
                               
Gross goodwill
  $ 144,988     $     $ 144,988     $  
Accumulated impairment losses
    (9,713 )           (9,713 )      
 
                       
Goodwill, net of impairment losses
  $ 135,275     $     $ 135,275     $  
 
                       
 
                               
Other Amortized intangible assets:
                               
 
                               
Customer Lists
    183,383       (84,119 )     183,383       (61,664 )
Acquired software technology
    65,847       (45,607 )     65,847       (41,687 )
Trademarks
    5,191       (5,034 )     5,191       (3,856 )
 
                       
 
    254,421       (134,760 )     254,421       (107,207 )
 
                       
 
                               
 
  $ 389,696     $ (134,760 )   $ 389,696     $ (107,207 )
 
                       
          We recorded a $714,000 net increase to goodwill in 2008 due to adjustments of tax NOLs, accruals for uncertain tax positions and certain temporary timing differences recorded in the acquisition of Manugistics (see Note 17). We found no indication of impairment of our goodwill balances during 2009, 2008 or 2007 with respect to the goodwill allocated to our Supply Chain and Services Industries reportable business segments. As of December 31, 2009 and 2008, goodwill has been allocated to our reporting units as follows: $131.6 million to Supply Chain and $3.7 million to Services Industries.
          Amortization expense for 2009, 2008 and 2007 was $27.6 million, $29.6 million and $22.2 million, respectively, and is shown as separate line items in the consolidated statements of operations within cost of revenues and operating expenses. We expect amortization expense for the next five years, excluding the impact of amortization that will result from the final purchase price allocation on the acquisition of i2 (see Note 2), to be as follows:
         
Year   Expected Amortization
2010
  $ 26,277  
2011
    25,962  
2012
    25,500  
2013
    24,810  
2014
    13,607  
6. Accrued Expenses and Other Liabilities
          At December 31, 2009 and 2008, accrued expenses and other liabilities consist of the following:
                 
    2009     2008  
Accrued compensation and benefits
  $ 28,292     $ 27,787  
Acquisition reserves (Note 7)
    4,585       4,407  
Accrued costs on terminated acquisition of i2 Technologies (Note 2)
    1,150       3,413  
Accrued royalties
    2,982       3,446  
Accrued interest
    1,344       84  
Disputes and other customer liabilities
    577       1,331  
Accrued hardware purchases for the hardware reseller business
    1,450       997  
Customer deposits
    1,104       1,508  
Restructuring charges (Note 8)
    378       2,518  
Other accrued expenses and liabilities
    3,661       6,599  
 
           
Total
  $ 45,523     $ 52,090  
 
           
          During 2009 we successfully settled a customer dispute assumed in the acquisition of Manugistics and reversed $758,000 of related contingency reserves that had been established in the initial purchase accounting. This adjustment is included in the consolidated statement of income under the caption “Restructuring charges.”

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7. 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 June 30, 2007 and included in the final purchase price allocation. All adjustments made subsequent to June 30, 2007, including the $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 December 31, 2009 includes $4.6 million of current liabilities under the caption “Accrued expenses and other liabilities” and $7.3 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   December 31,
Description of charge   Reserve   to Reserves   Charges   Rates   2008   to Reserves   Charges   Rates   2009
 
Restructuring charges:
                                                                       
Office closures, lease terminations and sublease costs
  $ 29,212     $ (2,351 )   $ (13,109 )   $ (1,034 )   $ 12,718     $ 1,402     $ (3,001 )   $ 310     $ 11,429  
Employee severance and termination benefits
    3,607       (767 )     (2,465 )     107       482             (3 )     18       497  
 
                                                                       
IT projects, contract termination penalties, capital lease buyouts and other costs to exit activities of Manugistics
    1,450       222       (1,672 )                                    
     
 
    34,269       (2,896 )     (17,246 )     (927 )     13,200     $ 1,402       (3,004 )     328       11,926  
 
                                                                       
Direct costs
    13,125       6       (13,104 )           27             (27 )            
     
Total
  $ 47,394     $ (2,890 )   $ (30,350 )   $ (927 )   $ 13,227     $ 1,402     $ (3,031 )   $ 328     $ 11,926  
     
          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 is being amortized over the related lease terms that extend through 2018. The balance in the reserve for employee severance and termination benefits is related to certain foreign employees that we expect to pay in 2010.
8. Restructuring Charges
2009 Restructuring Charges
          We recorded restructuring charges of $6.5 million in 2009 primarily associated with the transition of additional on-shore activities to the Center of Excellence (“CoE”) in India 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 our former Executive Vice President and Chief Financial Officer and our former Chief Operating Officer. As of December 31, 2009, approximately $6.2 million of the costs associated with these restructuring charges have been paid and the remaining balance of $291,000 is included in the condensed consolidated balance sheet under the caption “Accrued expenses and other current liabilities.” We expect substantially all of the remaining costs to be paid in 2010.

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2008 Restructuring Charges
          We recorded restructuring charges of $8.0 million in 2008 primarily associated with our transition of certain on-shore activities to the CoE. The 2008 restructuring charges 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 $119,000 for office closure and integration costs of redundant office facilities. Subsequent adjustments were made to these reserves in 2009 based on our revised estimates to complete the restructuring activities and are included in the consolidated statements of income under the caption “Restructuring charges.” As of December 31, 2009 all costs associated with these restructuring charges have been paid. A summary of the 2008 restructuring charges is as follows:
                                                                 
                    Impact of                           Impact of    
                    Changes in   Balance                   Changes in   Balance
    Initial   Cash   Exchange   December 31,   Adjustments   Cash   Exchange   December 31,
Description of charge   Reserve   Charges   Rates   2008   to Reserves   Charges   Rates   2009
 
Termination benefits
  $ 7,891     $ (5,576 )   $ (164 )   $ 2,151     $ (281 )   $ (1,866 )   $ (4 )   $  
Office closures
    119       (77 )     (6 )     36       (18 )     (18 )            
     
Total
  $ 8,010     $ (5,653 )   $ (170 )   $ 2,187     $ (299 )   $ (1,884 )   $ (4 )   $  
     
2007 Restructuring Charges
          We recorded restructuring charges of $6.2 million in 2007 that included $5.9 million for termination benefits and $292,000 for office closures. The termination benefits are primarily related to a workforce reduction of approximately 120 full-time employees (“FTE”) in our Scottsdale, Arizona product development group as a direct result of our decision to standardize future product offerings on the JDA Enterprise Architecture platform and reduction of approximately 40 FTE in our worldwide consulting services group. The office closure charge is for the closure and integration costs of redundant office facilities. As of December 31, 2009, all costs associated with the 2007 restructuring charges have been paid with the exception of a $34,000 reserve for office closures which is included in the caption “Accrued expenses and other current liabilities.” We expect the remaining office closure costs to be paid in 2010. A summary of the 2007 restructuring and office closure charges is as follows:
                                                                 
                    Impact of                           Impact of    
                    Changes in   Balance                   Changes in   Balance
            Cash   Exchange   December 31,   Adjustments   Cash   Exchange   December 31,
Description of charge   Initial Reserve   Charges   Rates   2008   to Reserves   Charges   Rates   2009
 
Termination benefits
  $ 5,908     $ (5,775 )   $ 5     $ 138     $ (61 )   $ (74 )   $ (3 )   $  
Office closures
    292       (253 )           39             (2 )     (3 )     34  
     
Total
  $ 6,200     $ (6,028 )   $ 5     $ 177     $ (61 )   $ (76 )   $ (6 )   $ 34  
     
9. Long-term Debt and Revolving Credit Facilities:
Senior Notes
          On December 10, 2009, we issued $275 million of 8.0% Senior Notes 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 ($6.5 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).
          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 our substantially all of existing and future domestic subsidiaries (including, following the Merger, i2 and its domestic subsidiaries).
          At any time prior to December 15, 2012, we may redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 108%, plus accrued and unpaid interest, with the cash proceeds of an equity offering of our common stock. At any time prior to December 15, 2012, we may also redeem all or a part of the Senior Notes at a redemption price equal to 100%, plus accrued and unpaid interest and a ‘make whole” premium calculated as the greater of (i) 1% of the principal amount of the Senior Notes redeemed or (ii) the excess of the present value of the redemption price of the Senior Notes redeemed at December 15, 2012 over the principal amount the Senior Notes redeemed. In addition, we may redeem the Senior Notes on or after December 15, 2012 at a redemption price of 104%, and on or after December 15, 2013 at a redemption price of 100%, plus accrued and unpaid

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interest. The Senior Notes rank equally in right of payment with all existing and future senior debt and is senior in right of payment to all subordinated debt.
          The Senior Notes contain certain restrictive covenants including (i) a requirement to repurchase the Senior Notes at price equal to 101% of the principal in the event of a change in control and (ii) restrictions that limit our ability to pay dividends, make investments, incur additional indebtedness, create liens, issue preferred stock or consolidate, merge, sell or otherwise dispose of all or substantially all of our or their assets. The Senior Notes also provide for customary events of default and in the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable immediately without further action or notice. If any other event of default occurs or is continuing, the trustee or holders of at least 25% in aggregate principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately.
     The Senior Notes and the related guarantees have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and may not be offered or sold in the United States without registration or an applicable exemption from registration requirements. In connection with the issuance of the Senior Notes, we entered into an exchange and registration rights agreement. Under the terms of the exchange and registration rights agreement, we are required to file an exchange offer registration statement within 180 days following the issuance of the Senior Notes enabling holders to exchange the Senior Notes for registered notes with terms substantially identical to the terms of the Senior Notes; to use commercially reasonable efforts to have the exchange offer registration statement declared effective by the Securities and Exchange Commission (the “SEC”) on or prior to 270 days after the closing of the note offering (the “Registration Deadline”); and, unless the exchange offer would not be permitted by applicable law or SEC policy, to complete the exchange offer within 30 business days after the Registration Deadline. Under specified circumstances, including if the exchange offer would not be permitted by applicable law or SEC policy, the registration rights agreement provides that we shall file a shelf registration statement for the resale of the Senior Notes. If we default on these registration obligations, additional interest (referred to as special interest), up to a maximum amount of 1.0% per annum, will be payable on the Senior Notes until all such registration defaults are cured.
          The $2.8 million original issue discount on the Senior Notes and other debt issuance costs of approximately $6.5 million are being amortized on a straight-line basis over the five-year term and are reflected in the consolidated statements of income under the caption, “Interest expense and amortization of loan fees.” Through December 31, 2009, we have amortized approximately $110,000 of the original issue discount and related loan origination fees and accrued $1.3 million of interest on the Senior Notes.
Bank Borrowings
          To finance the acquisition of Manugistics and the repayment of their debt obligations, we entered into a credit agreement (the “Credit Agreement”) with a consortium of lenders that provided $175 million in aggregate term loans, $50 million in revolving credit facilities and up to $75 million of incremental term or revolving credit facilities as requested, subject to certain terms and conditions. Proceeds from the term loans of approximately $168.4 million, which is net of nearly $6.6 million of loan origination and other administrative fees, together with the JDA and Manugistics combined cash balances at acquisition closing of approximately $281 million and the $50 million investment from Thoma Bravo, LLC in the form of Series B Preferred Stock (see Note 13), were used to fund the cash obligations under the merger agreement and related transaction expenses, and to retire approximately $174 million of Manugistics’ existing debt consisting of Convertible Subordinated Notes that were scheduled to mature in 2007. The remaining $1.5 million of assumed Convertible Subordinated Notes were retired in 2007. Additionally, we utilized the revolving credit facilities to replace approximately $9.6 million of Manugistics’ standby letters of credit.
          Term Loans. The term loans were scheduled to be repaid in 27 quarterly installments of $437,500 beginning in September 2006, with the remaining balance due at maturity in July 2013. In addition to the scheduled maturities, the Credit Agreement also required additional mandatory repayments on the term loans based on a percentage of our annual excess cash flow, as defined, beginning with the fiscal year that commenced January 1, 2007. As of December 31, 2008, all term loans had been repaid including payments of $99.6 million in 2008 and $40.0 million in 2007.
          Interest on the term loans was paid quarterly during 2008 and 2007 at the London Interbank Offered Rate (“LIBOR”) + 2.25%. We entered into an interest rate swap agreement on July 28, 2006 to fix LIBOR at 5.365% on $140 million, or 80% of the aggregate term loans. We structured the interest rate swap with decreasing notional amounts to match the expected pay down of the debt. The interest rate swap, which was designated a cash flow hedge derivative (see Note 1), was terminated on October 5, 2008 in connection with the repayment of the remaining balance of the term loans.

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          Loan origination and other administrative fees were amortized on a 3-year straight-line schedule based upon an accelerated repayment of the term loan obligations with the remaining balance fully amortized in fourth quarter 2008 in connection with the repayment of the remaining term loans. Amortization expense related to the loan origination and other administrative fees was $3.7 million and $1.8 million in 2008 and 2007, respectively and is included under the caption “Interest expense and amortization of loan fees.”
          Revolving Credit Facilities. The revolving credit facilities were scheduled to mature on July 5, 2012 with interest payable quarterly at LIBOR + 2.25%. The facilities were terminated in December 2009 prior to issuance of the Senior Notes.
10. Deferred Revenue
          At December 31, 2009 and 2008, deferred revenue consists of deferrals for software license fees, maintenance, consulting and training and other services as follows:
                 
    2009     2008  
Software
  $ 1,185     $ 977  
Maintenance
    61,046       57,955  
Consulting
    2,165       1,869  
Training and other
    1,269       1,204  
 
           
 
  $ 65,665     $ 62,005  
 
           
11. Lease Commitments
          We currently lease office space in the Americas for 12 regional sales and support offices across the United States and Latin America, and for 15 other international sales and support offices located in major cities throughout Europe, Asia, Australia, Japan and the CoE facility in 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, 2009, we have sublet approximately 191,000 square feet of excess office space through 2012, and have identified an additional 24,000 square feet that we are trying to sublet. In addition, we lease various computers, telephone systems, automobiles, and office equipment under non-cancelable operating leases with initial terms generally 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.
          Net rental expense under operating leases in 2009, 2008 and 2007 was $10.7 million, $11.0 million and $13.1 million, respectively. The following summarizes future minimum lease obligations under non-cancelable operating leases at December 31, 2009.
         
2010
  $ 13,673  
2011
    12,662  
2012
    7,523  
2013
    2,004  
2014
    1,872  
Thereafter
    6,587  
 
     
Total future minimum lease payments
  $ 44,321  
 
     
          We have entered into sublease agreements on excess space in certain of our leased facilities that will provide sublease rentals of approximately $4.6 million, $4.8 million, $2.3 million, $485,000 and $496,000 in 2010 through 2014, respectively. We currently have no sublease agreements in place that provide for sublease rentals beyond 2014.
12. Legal Proceedings
          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.

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          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, alleges infringement of 11 patents related to supply chain management, available to promise software and other enterprise software applications. As a result of our acquisition of i2 on January 28, 2010, i2 is now a wholly-owned subsidiary of the Company. i2 incurred expenses related to this matter of approximately $1.0 million for the twelve months ended December 31, 2009.
13. Redeemable Preferred Stock
          In connection with the Manugistics Group, Inc. (“Manugistics”) acquisition in 2006, we issued 50,000 shares of Series B preferred stock to funds affiliated with Thoma Bravo, LLC (“Thoma Bravo”), a private equity investment firm, for $50 million in cash. The Series B preferred stock was convertible, at any time in whole or in part, into a maximum of 3,603,603 shares of common stock based on an agreed conversion rate of $13.875. During third quarter 2009, Thoma Bravo exercised conversion rights on 30,525 shares of the Series B preferred stock, which resulted in the issuance of 2,200,000 shares of common stock. We recorded a $30.5 million adjustment to reduce the carrying value of the redeemable preferred stock ($13.875 per share for each of the 2,200,000 shares of common stock), and increased common stock for the par value of converted shares ($22,000) and additional paid-in capital ($30.5 million).
          We entered into stock purchase agreement (the “Purchase Agreement”) with Thoma Bravo on September 8, 2009 to acquire the remaining shares of Series B preferred stock for $28.1 million in cash ($20 per share for each of the 1,403,603 shares of JDA common stock into which the Series B Preferred Stock was convertible). The agreed purchase price included $19.5 million, which represents the conversion of 1,403,603 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 (see Note 18). As part of the Purchase Agreement, we also repurchased 100,000 shares of our common stock held by Thoma Bravo for $2.0 million, or $20 per share (see Note 15).
          Holders of the Series B preferred stock were entitled as a class to elect a director to our Board. Mr. Orlando Bravo, a Managing Partner with Thoma Bravo, was appointed to our Board in 2006. Mr. Bravo resigned from the Board upon closing of the Purchase Agreement.
14. Share-Based Compensation
          Our 2005 Performance Incentive Plan, as amended (“2005 Incentive Plan”), provides for the issuance of up to 3,847,000 shares of common stock to employees, consultants and directors under stock purchase rights, stock bonuses, restricted stock, restricted stock units, performance awards, performance units and deferred compensation awards. The 2005 Incentive Plan contains certain restrictions that limit the number of shares that may be issued and the amount of cash awarded under each type of award, including a limitation that awards granted in any given year can represent no more than two percent (2%) of the total number of shares of common stock outstanding as of the last day of the preceding fiscal year. Awards granted under the 2005 Incentive Plan are in such form as the Compensation Committee shall from time to time establish and the awards may or may not be subject to vesting conditions based on the satisfaction of service requirements or other conditions, restrictions or performance criteria including the Company’s achievement of annual operating goals. Restricted stock and restricted stock units may also be granted under the 2005 Incentive Plan as a component of an incentive package offered to new employees or to existing employees based on performance or in connection with a promotion, and will generally vest over a three-year period, commencing at the date of grant. We measure the fair value of awards under the 2005 Incentive Plan based on the market price of the underlying common stock as of the date of grant. The fair value of each award is amortized over the applicable vesting period of the awards using graded vesting and reflected in the consolidated statements of income under the captions “Cost of maintenance services,” “Cost of consulting services,” “Product development,” “Sales and marketing,” and “General and administrative.”
          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 2010 that provide for contingently issuable performance share awards or restricted stock units upon achievement of defined performance threshold goals. A summary of the annual Performance Programs is as follows:
          2010 Performance Program. In February 2010, the Board approved a stock-based incentive program for 2010 (“2010 Performance Program”). The 2010 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

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defined adjusted EBITDA performance threshold goal in 2010. A partial pro-rata issuance of performance share awards will be made if we achieve a minimum adjusted EBITDA performance threshold. The 2010 Performance Program initially provides for approximately 555,000 of targeted contingently issuable performance share awards with a fair value of approximately $15.1 million. The performance share awards, if any, will be issued after the approval of our 2010 financial results in January 2011 and will vest 50% upon the date of issuance with the remaining 50% vesting ratably over a 24-month period. Our performance against the defined performance threshold goal will be evaluated on a quarterly basis throughout 2010 and share-based compensation will be recognized over the requisite service period that runs from February 3, 2010 (the date of board approval) through January 2013. If we achieve the defined performance threshold goal we would expect to recognize approximately $10.1 million of the award as share-based compensation in 2010.
          2009 Performance Program. The 2009 Performance Program provided for the issuance of contingently issuable performance share awards if we were able to achieve $91.5 million of adjusted EBITDA. The Company’s actual 2009 adjusted EBITDA performance qualified participants to receive 100% of their target awards. In total, 506,450 contingently issuable performance share awards were issued in January 2010 with a grant date fair value of $6.8 million that is being recognized as share-based compensation over requisite service periods that run from the date of Board approval of the 2009 Performance Program through January 2012. The performance share awards vested 50% upon the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month period. A deferred compensation charge of $6.8 million was recorded in the equity section of our balance sheet during 2009, with a related increase to additional paid-in capital, for the total grant date fair value of the awards. We recognized $4.5 million in share-based compensation expense related to these performance share awards in 2009, which is reflected in the consolidated statements of income under the captions “Cost of maintenance services,” “Cost of consulting services,” “Product development,” “Sales and marketing,” and “General and administrative.”
          2008 Performance Program. The 2008 Performance Program provided for the issuance of contingently issuable performance share awards if we were able to achieve $95 million of adjusted EBITDA. The Company’s actual 2008 adjusted EBITDA performance, which exceeded the defined performance threshold goal of $95 million, qualified participants to receive approximately 106% of their target awards. In total, 222,838 performance share awards were issued in January 2009 with a grant date fair value of $3.9 million that is being recognized as stock-based compensation over requisite service periods that run from the date of Board approval of the 2008 Performance Program through January 2011. Through December 31, 2009, approximately 4,300 of performance share awards granted under the 2008 Performance Program have been subsequently forfeited. A deferred compensation charge of $3.9 million was recorded in the equity section of our balance sheet during 2008, with a related increase to additional paid-in capital, for the total grant date fair value of the awards. We recognized $522,000 and $2.6 million in share-based compensation expense related to these performance share awards in 2009 and 2008, respectively.
          2007 Performance Program. The 2007 Performance Program provided for the issuance of contingently issuable restricted stock units if we were able to successfully integrate the Manugistics acquisition and achieve $85 million of adjusted EBITDA. The Company’s actual 2007 adjusted EBITDA performance qualified participants for a pro-rata issuance equal to 99.25% of their target awards. In total, 502,935 restricted stock units were issued in January 2008 with a grant date fair value of $8.1 million. Through December 31, 2009, approximately 35,000 of the restricted stock units granted under the 2007 Integration Program have been subsequently forfeited. We recognized $883,000, $1.1 million and $5.4 million in share-based compensation expense related to these performance share awards in 2009, 2008 and 2007, respectively.
          During 2009, 2008 and 2007, we recorded share-based compensation expense of $648,000, $644,000 and $820,000, respectively related to other 2005 Incentive Plan awards.
          We recorded total share-based compensation expense of $6.6 million, $4.3 million and $6.2 million related to 2005 Incentive Plan awards in 2009, 2008 and 2007, respectively and as of December 31, 2009 we have included $3.7 million of deferred compensation in stockholders’ equity related to 2005 Incentive Plan awards. This compensation is expected to be recognized over a weighted average period of 1.8 years. The total fair value of restricted shares and restricted share units vested during 2009, 2008, and 2007 was $5.0 million, $6.4 million and $783,000, respectively.

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          The following table summarizes activity under the 2005 Incentive Plan:
                                 
    Restricted Stock Units & Performance    
    Share Awards   Restricted Stock Awards
            Weighted Average           Weighted Average
    Units   Fair Value   Shares   Fair Value
     
Non-vested Balance, January 1, 2007
    29,069     $ 12.26       39,140     $ 15.43  
Granted
    9,000       20.59       30,981       20.30  
Vested
    (24,186 )     13.79       (26,154 )     17.18  
Forfeited
    (363 )     11.19       (3,417 )     15.96  
     
Non-vested Balance, December 31, 2007
    13,520     $ 15.08       40,550     $ 17.98  
Granted
    510,935       15.92       10,000       19.86  
Vested
    (372,561 )     15.92       (25,751 )     18.56  
Forfeited
    (27,749 )     16.97       (4 )     14.90  
     
Non-Vested Balance, December 31, 2008
    124,145     $ 15.60       24,795     $ 18.14  
Granted
    226,786       17.23       80,000       15.13  
Vested
    (285,070 )     16.59       (20,828 )     16.75  
Forfeited
    (12,332 )     16.51       (9,592 )     20.59  
     
Non-Vested Balance, December 31, 2009
    53,529     $ 17.01       74,375     $ 15.15  
     
          Equity Inducement Awards. During third quarter 2009, we announced the appointment of Peter S. Hathaway to the position of Executive Vice President and Chief Financial Officer and Jason B. Zintak to the newly-created position of Executive Vice President, Sales and Marketing. In order to induce Mr. Hathaway and Mr. Zintak to accept employment, the Compensation Committee granted certain equity awards outside of the terms of the 2005 Incentive Plan and pursuant to NASDAQ Marketplace Rule 5635(c)(4).
  (i)   100,000 shares of restricted stock with a grant date fair value of $1.8 million were granted to Mr. Hathaway (50,000 shares) and Mr. Zintak (50,000 shares). The restricted stock awards vest over a three-year period, with one-third vesting on the first anniversary of their employment with the remainder vesting ratably over the subsequent 24-month period. A deferred compensation charge of $1.8 million has been recorded in the equity section of our balance sheet for the total grant date fair value of the restricted stock. Stock-based compensation is being recorded on a graded vesting basis over requisite service periods that run from their effective dates of employment through June 2012. We recognized $497,000 in share-based compensation related to these awards in 2009 which is reflected in the consolidated statements of income under the caption “General and administrative.”
 
  (ii)   55,000 contingently issuable performance share awards were granted to Mr. Hathaway (25,000 shares) and Mr. Zintak (30,000 shares) if the Company was able to achieve the $91.5 million adjusted EBITDA performance threshold goal defined under the 2009 Performance Program. The Company’s actual 2009 adjusted EBITDA performance qualified Mr. Hathaway and Mr. Zintak to receive 100% of their target awards. A total of 55,000 performance share awards were issued in January 2010 with a grant date fair value of $996,000 that is being recognized as share-based compensation over requisite service periods that run from their effective dates of employment through January 2012. The performance share awards vested 50% upon the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month period. A deferred compensation charge of $996,000 has been recorded in the equity section of our balance sheet, with a related increase to additional paid-in capital, for the total grant date fair value of the awards. We recognized $664,000 in share-based compensation related to these awards in 2009 which is reflected in the consolidated statements of income under the caption “General and administrative.”
 
  (iii)   100,000 contingently issuable restricted stock units were granted to Mr. Hathaway (50,000 shares) and Mr. Zintak (50,000 shares) that will vest in defined tranches if and when we achieve certain pre-defined performance milestones. As of December 31, 2009, none of these awards had been issued, no deferred compensation charge has been recorded in the equity section of our balance sheet, nor has any share-based compensation expense been recognized related to these grants as management is unable to determine if it is probable the pre-defined performance milestones will be attained.
          We recorded total share-based compensation expense of $1.2 million related to the Equity Inducement Awards and as of December 31, 2009 we have included $1.6 million of deferred compensation in stockholders’ equity. This compensation is expected to be recognized over a weighted average period of 2.4 years. None of the Equity Inducement Awards vested during 2009.

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          The following table summarizes Equity Inducement Awards activity:
                                 
    Restricted Stock Units & Performance    
    Share Awards   Restricted Stock Awards
            Weighted Average           Weighted Average
    Units   Fair Value   Shares   Fair Value
     
Non-vested Balance, January 1, 2009
                       
Granted
                100,000     $ 17.98  
Vested
                       
Forfeited
                       
     
Non-Vested Balance, December 31, 2009
                100,000     $ 17.98  
     
Stock Option Plans
          We maintained various stock option plans through May 2005 (“Prior Plans”). The Prior Plans provided for the issuance of shares of common stock to employees, consultants and directors under incentive and non-statutory stock option grants. Stock option grants under the Prior Plans were made at a price not less than the fair market value of the common stock at the date of grant, generally vested over a three to four-year period commencing at the date of grant and expire in ten years. Stock options are no longer used for share-based compensation and no grants have been made under the Prior Plans since 2004. With the adoption of the 2005 Incentive Plan, we terminated all Prior Plans except for those provisions necessary to administer the outstanding options, all of which are fully vested.
          The following summarizes the combined stock option activity during the three-year period ended December 31, 2009:
                         
            Options Outstanding
    Options available           Exercise price
    for grant   Shares   per share
     
Balance, January 1, 2007
          4,157,084     $ 6.44 to $27.50  
Plan shares expired
    (168,680 )            
Cancelled
    168,680       (168,680 )   $ 8.56 to $26.23  
Exercised
          (757,513 )   $ 6.43 to $21.33  
             
Balance, December 31, 2007
          3,230,891     $ 6.44 to $27.50  
Plan shares expired
    (159,233 )            
Cancelled
    159,233       (159,233 )   $ 8.56 to $26.96  
Exercised
          (697,072 )   $ 6.44 to $16.80  
             
Balance, December 31, 2008
          2,374,586     $ 6.44 to $27.50  
Plan shares expired
    (25,555 )            
Cancelled
    25,555       (25,555 )   $ 6.44 to $16.80  
Exercised
          (1,053,251 )   $6.44 to $21.01
             
Balance, December 31, 2009
          1,295,780     $ 10.33 to $27.50  
             
          The weighted average exercise price of outstanding options at December 31, 2008, options cancelled during 2009, options exercised during 2009 and outstanding options at December 31, 2009 were $14.29, $13.77, $11.94 and $16.20, respectively.
          The following summarizes certain weighted average information on options outstanding at December 31, 2009:
                                         
    Options Outstanding     Options Exercisable  
            Weighted                      
            Average     Weighted             Weighted  
            Remaining     Average             Average  
Range of Exercise   Number     Contractual     Exercise     Number     Exercise  
         Prices   Outstanding     Life (years)     Price     Exercisable     Price  
$10.33 to $14.88
    576,555       1.80     $ 12.14       576,555     $ 12.14  
$15.15 to $21.17
    691,225       2.10     $ 19.15       691,225     $ 19.15  
$25.33 to $27.50
    28,000       2.40     $ 26.98       28,000     $ 26.98  
 
                                   
 
    1,295,780       1.97     $ 16.20       1,295,780     $ 16.20  
 
                                   
          The total intrinsic value of options exercised during 2009, 2008 and 2007 was $7.1 million, $4.3 million and $5.4 million, respectively and as of December 31, 2009, the aggregate intrinsic value of outstanding and exercisable options was $12.1 million.

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          Employee Stock Purchase Plan. Our employee stock purchase plan (“2008 Purchase Plan”) has an initial reserve of 1,500,000 shares and provides eligible employees with the ability to defer up to 10% of their earnings for the purchase of our common stock on a semi-annual basis at 85% of the fair market value on the last day of each six-month offering period that begin on February 1st and August 1st of each year. The 2008 Purchase Plan is considered compensatory and, as a result, stock-based compensation is recognized on the last day of each six-month offering period in an amount equal to the difference between the fair value of the stock on the date of purchase and the discounted purchase price. A total of 155,888 shares of common stock were purchased under the 2008 Purchase Plan in 2009 at prices ranging from $9.52 to $17.52. We have recognized $342,000 of share-based compensation expense in connection with these purchases, which is reflected in the consolidated statements of income under the captions “Cost of maintenance services,” “Cost of consulting services,” “Product development,” “Sales and marketing,” and “General and administrative.” A total of 44,393 shares of common stock were subsequently purchased on January 31, 2010 at a price of $22.28 and we recorded $175,000 of related share-based compensation expense.
          The following provides tabular disclosure as of December 31, 2009 of the number of securities to be issued upon the exercise of outstanding options or vesting of restricted stock units, the weighted average exercise price of outstanding options, and the number of securities remaining available for future issuance under equity compensation plans, aggregated into two categories – plans that have been approved by stockholders and plans that have not:
                         
    Number of securities to be     Weighted-average     Number of securities remaining  
    issued upon exercise of     exercise price of     available for future issuance  
    outstanding options or vesting     outstanding     under equity compensation  
            Equity Compensation Plans   of restricted stock units     options     plans  
Approved by stockholders:
                       
 
                       
1996 Option Plan
    1,101,530     $ 16.72        
1996 Directors Plan
    90,750     $ 16.18        
2005 Performance Incentive Plan
    127,904     $       2,957,778  
Employee Stock Purchase Plan
    1,344,112     $       1,344,112  
 
                 
 
    2,664,296     $ 16.68       4,301,890  
 
Not approved by stockholders:
                       
 
1998 Option Plan
    103,500     $ 10.64        
Non-Plan Equity Inducement Awards
    255,000     $        
 
                 
 
                       
 
    3,022,796     $ 16.20       4,301,890  
 
                 
15. Treasury Stock Purchases
          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.
          During 2009 and 2008, we also repurchased 108,765 and 118,048 common shares, respectively, tendered by employees for the payment of applicable statutory withholding taxes on the issuance of restricted shares under the 2005 Performance Incentive Plan. These shares were repurchased in 2009 for $1.6 million at prices ranging from $9.75 to $26.05 and in 2008 for $2.1 million at prices ranging from $11.50 to $20.40 per share.
          As part of the Purchase Agreement with Thoma Bravo (see Note 13), we repurchased 100,000 shares of our common stock held by Thoma Bravo for $2.0 million, or $20 per share.
16. Employee Benefit Plans
          We maintain a defined 401(k) contribution plan (“401(k) Plan”) for the benefit of our employees. Participant contributions vest immediately and are subject to the limits established from time-to-time by the Internal Revenue Service. We provide discretionary matching contributions to the 401(k) Plan on an annual basis. Our matching contributions were 25% in 2009, 2008 and 2007 and vest 100% after 2 years of service. Our matching contributions to the 401(k) Plan were $2.1 million, $2.1 million and $1.9

24


 

million in 2009, 2008 and 2007, respectively.
17. Income Taxes
          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.
          The income tax provision includes income taxes currently payable and those deferred due to temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The components of the income tax provision for the three years ended December 31, 2009 are as follows:
                         
    2009     2008     2007  
Current taxes:
                       
Federal and state
  $ (2,252 )   $ (4,099 )   $ (356 )
Foreign
    (4,746 )     268       (3,548 )
 
                 
Total current taxes
    (6,998 )     (3,831 )     (3,904 )
Deferred taxes
    (5,851 )     (503 )     (9,991 )
 
                 
Income tax provision
  $ (12,849 )   $ (4,334 )   $ (13,895 )
 
                 
          The effective tax rate used to record the income tax provision in 2009, 2008 and 2007 takes into account the source of taxable income, domestically by state and internationally by country, and available income tax credits.
          The income tax provision recorded in the three years ended December 31, 2009 differed from the amounts computed by applying the federal statutory income tax rate of 35% to income before income taxes as a result of the following:
                         
    2009     2008     2007  
Income before income taxes
  $ 39,188     $ 7,458     $ 40,417  
 
                 
 
                       
Income tax provision at federal statutory rate
  $ (13,716 )   $ (2,610 )   $ (14,146 )
Research and development credit
    773       930       432  
Meals, entertainment and other non-deductible expenses
    (425 )     (332 )     (322 )
State income taxes
    (1,294 )     (59 )     (983 )
Section 199 deduction
    554              
Foreign tax rate differential
    451       804       796  
Other, net
    (255 )     (120 )     161  
Changes in estimate and foreign statutory rates
    677       (2,582 )     556  
Interest and penalties on uncertain tax positions
    386       (365 )     (389 )
 
                 
Income tax provision
  $ (12,849 )   $ (4,334 )   $ (13,895 )
 
                 
Effective tax rate
    32.8 %     58.1 %     34.4 %
          Income before income taxes for 2009, 2008 and 2007 includes $7.6 million, $6.3 million, and $8.2 million of foreign pretax income, respectively. The increase in the changes in estimate and foreign statutory rates from 2007 to 2008 is due primarily to additional liabilities related to uncertain tax positions, settlement of IRS examinations and the true-up of previously estimated deferred tax assets.

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          The income tax effects of temporary differences that give rise to our deferred income tax assets and liabilities are as follows:
                                 
    2009     2008  
    Current     Non-Current     Current     Non-Current  
Deferred tax asset:
                               
Accruals and reserves
  $ 7,266     $ 3,895     $ 3,381     $ 4,116  
Deferred revenue
    271             712        
Excess Space Reserve
    76       2,803       110       3,643  
Net Operating Loss
    9,479       50,301       9,420       58,964  
Foreign deferred and NOL
    1,322             1,491        
Tax credit carryforwards
          11,484       7,141       10,101  
R&D Expenses Capitalized
    1,679       3,417       1,672       5,074  
AMT Credit carryforward
          341             341  
Property and equipment
          3,946             2,831  
Foreign deferred
          3,054              
Other
                       
 
                       
Deferred tax asset
    20,093       79,241       23,927       85,070  
 
                               
Deferred tax liability:
                               
Goodwill and other intangibles
          (30,746 )           (35,307 )
Foreign deferred
                      (885 )
 
                       
Deferred tax liability
          (30,746 )           (36,192 )
 
                               
Valuation Allowance
    (951 )     (4,145 )     (1,008 )     (4,063 )
 
                       
Total
  $ 19,142     $ 44,350     $ 22,919     $ 44,815  
 
                       
          The valuation allowances at December 31, 2009 and 2008 are for state research and development tax credit carryforwards that we may not be able to fully utilize before they expire.
          Residual United States income taxes have not been provided on undistributed earnings of our foreign subsidiaries. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for United States federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both United States income taxes and withholding taxes payable to various foreign countries less an adjustment for foreign tax credits. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings. The Company has incurred net operating losses in certain foreign jurisdictions that will be carried forward to future years.
          A reconciliation of the liability for unrecognized income tax benefits is as follows:
                         
    December 31,  
    2009     2008     2007  
Unrecognized tax benefits, beginning of year
  $ 11,721     $ 9,436     $ 3,487  
 
                       
Increase (decrease) related to prior year tax positions
    471       5,006       5,949  
Increase related to current year tax positions
    317       539        
Expirations
    (722 )            
Settlements
    (393 )     (3,260 )      
 
                 
Unrecognized tax benefits, end of year
  $ 11,394     $ 11,721     $ 9,436  
 
                 
          As of December 31, 2009 approximately $10.8 million of unrecognized tax benefits would impact our effective tax rate if recognized, substantially all of which relates to uncertain tax positions associated with the acquisition of Manugistics. Deferred tax assets have been reduced by $4.4 million related to liabilities for uncertain tax positions. Future recognition of uncertain tax positions resulting from the acquisition of Manugistics will be treated as a component of income tax expense rather than as a reduction of goodwill. It is reasonably possible that approximately $8.8 million of unrecognized tax benefits will be recognized within the next 12 months, primarily related to lapses in the statute of limitations.
          We treat the accrual of interest and penalties related to uncertain tax positions as a component of income tax expense, including accruals (benefits) made during 2009, 2008 and 2007 of $(515,000), $600,000 and $630,000, respectively. As of December 31, 2009, 2008 and 2007, there are approximately $2.3 million, $2.6 million and $1.9 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.

26


 

          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 significant jurisdictions in the United States, the United Kingdom, Australia and France. The change in the liability for unrecognized tax benefits related to prior year tax positions during 2009 and 2008 relate to uncertainty regarding our ability to utilize certain foreign net operating loss carryforwards acquired in the acquisition of Manugistics and uncertainties regarding the validity of the income tax holiday in India. Our business operations in India have been granted a tax holiday from income taxes through the tax year ending March 31, 2011. This tax holiday did not have a significant impact on our 2009 or 2008 operating results; however, our overall effective tax rate will be negatively impacted as the tax holiday period expires. The decrease in liability for unrecognized tax benefits in 2009 results primarily from the expiration of a statute of limitations and the settlement of a Taiwan income tax examination. The decrease in liability for unrecognized tax benefits in 2008 results primarily from the settlement of an Internal Revenue Service audit of our 2006 tax year and the settlement of a tax audit in Germany in the amount of approximately $800,000. We are currently under audit by the Internal Revenue Service for the 2009 tax year. The examination phase of these audits has not yet been completed; however, we do not anticipate any material adjustments. The following table sets forth significant jurisdictions that have open tax years that are subject to examination:
     
       Country   Open Tax Years Subject to Examination
United States
  2008, 2009
United Kingdom
  2005, 2006, 2007, 2008, 2009
Australia
  2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009
France
  2005, 2006, 2007, 2008, 2009
          JDA Software Group, Inc. accepted an invitation to participate in the Compliance Assurance Program (“CAP”) beginning in 2007. The CAP program was developed by the Internal Revenue Service to allow for transparency and to remove uncertainties in tax compliance. The CAP program is offered by invitation only to those companies with both a history of immaterial audit adjustments and a high level of tax complexity and will involve a review of each quarterly tax provision. The Internal Revenue Service has completed their review of our 2007 and 2008 tax returns and no material adjustments have been made as a result of these examinations.
          At December 31, 2009, we have approximately $5.5 million and $7.8 million of federal and state research and development tax credit carryforwards, respectively, that expire at various dates through 2024. We also have approximately $8.4 million of foreign tax credit carryforwards that expire between 2016 and 2018. We have approximately $163.0 million of federal net operating loss carryforwards, which are subject to annual limitations prescribed in section 382 of the Internal Revenue Code, that expire beginning in 2019. We also have $58.6 million and $22.5 million of state and foreign net operating loss carryforwards that expire beginning in 2014.
          As a result of certain realization requirements of ASC Topic 718, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2009 and 2009 that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $6.3 million and if and when such deferred tax assets are ultimately realized. The Company uses ASC 740 ordering for purposes of determining when excess tax benefits have been realized.
18. Earnings per Share
          From July 2006 through September 2008, the Company had two classes of outstanding capital stock, common stock and Series B preferred stock. The Series B preferred stock, which was issued in connection with the acquisition of Manugistics (see Note 13), was a participating security such that in the event a dividend was declared or paid on the common stock, the Company would be required to simultaneously declare and pay a dividend on the Series B preferred stock as if the Series B preferred stock had been converted into common stock. Companies that have participating securities are required to apply the two-class method to compute basic earnings per share. Under the two-class computation method, basic earnings per share is calculated for each class of stock and participating security considering both dividends declared and participation rights in undistributed earnings as if all such earnings had been distributed during the period.
          During third quarter 2009, all shares of the Series B preferred stock were either converted into shares of common stock or repurchased for cash, including $8.6 million paid in excess of the conversion price (see Note 13). The excess consideration 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. The calculation of diluted earnings per share applicable to common

27


 

shareholders for 2009 includes the assumed conversion of the Series B preferred stock into common stock as of the beginning of the period, weighted for the actual days and number of shares outstanding during the period. The calculation of diluted earnings per share applicable to common shareholders for 2008 and 2007 includes the assumed conversion of the Series B preferred stock into common stock as of the beginning of the period.
          The dilutive effect of outstanding stock options and unvested restricted stock units and performance share awards is included in the diluted earnings per share calculations for 2009, 2008 and 2007 using the treasury stock method. Diluted earnings per share applicable to common shareholders for 2009, 2008 and 2007 exclude approximately 795,000, 775,000 and 762,000, respectively of vested options for the purchase of common stock that have grant prices in excess of the average market price, or which are otherwise anti-dilutive. In addition, diluted earnings per share calculations for 2009, 2008 and 2007 exclude approximately 561,000, 223,000 and 503,000 contingently issuable restricted stock units or performance share awards, respectively for which all necessary conditions had not been met (see Note 14).
          Earnings per share for the three years ended December 31, 2009 is calculated as follows:
                         
    Year  
    Ended December 31,  
    2009     2008     2007  
Net income
  $ 26,339     $ 3,124     $ 26,522  
Consideration paid in excess of carrying value on the repurchase of redeemable preferred stock
    (8,593 )            
 
                 
Income applicable to common shareholders
    17,746       3,124       26,522  
 
                       
Undistributed earnings:
                       
Common Stock
    16,613       2,796       23,664  
Series B Preferred Stock
    1,133       328       2,858  
 
                 
Total undistributed earnings
  $ 17,746     $ 3,124     $ 26,522  
 
                 
 
                       
Weighted Average Shares:
                       
Common Stock
    32,706       30,735       29,789  
Series B Preferred Stock
    2,230       3,604       3,604  
 
                 
Shares – Basic earnings per share
    34,936       34,339       33,393  
Dilutive common stock equivalents
    322       846       1,347  
 
                 
Shares – Diluted earnings per share
    35,258       35,185       34,740  
 
                 
 
                       
Basic earnings per share applicable to common shareholders:
                       
Common Stock
  $ .51     $ .09     $ .79  
 
                 
Series B Preferred Stock
  $ .51     $ .09     $ .79  
 
                 
Diluted earnings per share applicable to common shareholders
  $ .50     $ .09     $ .76  
 
                 
19. Segment Information
          We are a leading provider of sophisticated enterprise software solutions designed specifically to address the supply chain requirements of global consumer products companies, manufacturers, wholesale/distributors and retailers, as well as government and aerospace defense contractors and travel, transportation, hospitality and media organizations, and have licensed our software to nearly 6,000 customers worldwide. Our solutions enable customers to plan, manage and optimize the coordination of supply, demand and flows of inventory throughout the supply chain to the consumer. We conduct business in three geographic regions that have separate management teams and reporting structures: the Americas (United States, Canada, and Latin America), Europe (Europe, Middle East and Africa), and Asia/Pacific. Similar products and services are offered in each geographic region. Identifiable assets are also managed by geographical region. The accounting policies of each region are the same as those described in Note 1 of the Notes to Consolidated Financial Statements. The geographic distribution of our revenues and identifiable assets as of, or for the three-year period ended December 31, 2009 is as follows:

28


 

                         
    2009     2008     2007  
Revenues:
                       
 
                       
Americas
  $ 264,681     $ 269,269     $ 247,907  
Europe
    82,011       87,656       89,486  
Asia/Pacific
    39,108       33,407       36,182  
 
                 
Total revenues
  $ 385,800     $ 390,332     $ 373,575  
 
                 
 
                       
Identifiable assets:
                       
 
                       
Americas
  $ 695,539     $ 402,350     $ 470,205  
Europe
    85,817       86,780       108,390  
Asia/Pacific
    40,310       35,646       43,630  
 
                 
Total identifiable assets
  $ 821,666     $ 524,776     $ 622,225  
 
                 
          Revenues for the Americas include $231.3 million, $236.7 million and $224.5 million from the United States in 2009, 2008 and 2007, respectively. Identifiable assets for the Americas include $666.0 million, $379.7 million and $446.3 million in the United States as of December 31, 2009, 2008 and 2007, respectively. The increase in identifiable assets at December 31, 2009 compared to December 31, 2008 resulted primarily from the issuance of the Senior Notes, the net proceeds of which were used to fund a portion of the cash merger consideration for the acquisition of i2 Technologies on January 28, 2010 (see Notes 2 and 9). The decrease in identifiable assets at December 31, 2008 compared to December 31, 2007 resulted primarily from the utilization of cash to repay $99.6 million of term loans used to finance the acquisition of Manugistics and the costs associated with the abandoned acquisition of i2 Technologies in fourth quarter 2008 (see Notes 2 and 9).
          No customer accounted for more than 10% of our revenues during any of the three years ended December 31, 2009.
          We have historically organized and managed our operations by type of customer across the following reportable business segments:
  o   Retail. This reportable business segment includes all revenues related to applications and services sold to retail customers.
 
  o   Manufacturing and Distribution. This reportable business segment includes all revenues related to applications and services sold to manufacturing and distribution companies, including process manufacturers, consumer goods manufacturers, life sciences companies, high tech organizations, oil and gas companies, automotive producers and other discrete manufacturers involved with government, aerospace and defense contracts.
 
  o   Services Industries. 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 Services Industries segment is centrally managed by a team that has global responsibilities for this market.
          In connection with the acquisition of i2, we have realigned 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. Prior to the acquisition, i2 operated in one reportable business segment, supply chain management solutions. As a result of this realignment, we have combined the Retail and Manufacturing and Distribution reportable business segments and will now report our operations within the following segments:
    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”). This segment combines all revenues previously reported by the Company under the Retail and Manufacturing and Distribution reportable business segments and includes all revenues related to i2 applications and services.

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    Services Industries. 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 Services Industries 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 years ended December 31, 2009 is as follows:
                         
    2009     2008     2007  
Revenues:
                       
Supply Chain
  $ 354,402     $ 369,947     $ 357,057  
Services Industries
    31,398       20,385       16,518  
 
                 
 
  $ 385,800     $ 390,332     $ 373,575  
 
                 
 
                       
Operating income:
                       
Supply Chain
  $ 114,174     $ 121,015     $ 110,750  
Services Industries
    8,636       2,001       364  
Other (see below)
    (82,930 )     (102,708 )     (62,337 )
 
                 
 
  $ 39,880     $ 20,308     $ 48,777  
 
                 
 
                       
Depreciation:
                       
Supply Chain
  $ 7,336     $ 7,610     $ 7,797  
Services Industries
    1,049       699       360  
 
                 
 
  $ 8,385     $ 8,309     $ 8,157  
 
                 
 
                       
Other:
                       
General and administrative
  $ 47,664     $ 44,963     $ 44,405  
Amortization of intangible assets
    23,633       24,303       15,852  
Restructuring charge and adjustments to acquisition-related reserves
    6,865       8,382       6,208  
Acquisition-related costs
    4,768              
Costs of abandoned acquisition
          25,060        
Gain on sale of office facility
                (4,128 )
 
                 
 
  $ 82,930     $ 102,708     $ 62,337  
 
                 
          Operating income in the Supply Chain and Services Industry 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.
20. Quarterly Data (Unaudited)
          The following table presents selected unaudited quarterly operating results for the two-year period ended December 31, 2009. We believe that all necessary adjustments have been included in the amounts shown below to present fairly the related quarterly results.
Consolidated Statement of Income Data:
                                         
    2009
    First   Second   Third   Fourth    
    Quarter   Quarter   Quarter   Quarter   Total
Revenues
  $ 83,333     $ 99,485     $ 95,859     $ 107,123     $ 385,800  
Gross profit
    49,815       63,705       58,464       68,145       240,129  
Amortization of intangibles (see Note 1)
    6,076       6,051       5,753       5,753       23,633  
Restructuring charges (see Note 8)
    1,430       2,732       2,543       160       6,865  
Acquisition-related costs (see Note 2)
                      4,768       4,768  
Operating income
    4,458       14,418       9,480       11,524       39,880  
Finance costs on abandoned acquisition (see Note 2)
                      767       767  
Net income
    2,644       8,935       6,263       8,497       26,339  
Consideration paid in excess of carrying value on the repurchase of redeemable preferred stock
                (8,593 )           (8,593 )
Income (loss) applicable to common shareholders
    2,644       8,935       (2,330 )     8,497       17,746  
 
                                       
Basic earnings (loss) per share applicable to common shareholders
  $ .08     $ .26     $ (.07 )   $ .25     $ .51  
Diluted earnings (loss) per share applicable to common shareholders
  $ .08     $ .25     $ (.07 )   $ .24     $ .50  

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    2008
    First   Second   Third   Fourth    
    Quarter   Quarter   Quarter   Quarter   Total
Revenues
  $ 93,875     $ 91,796     $ 98,446     $ 106,215     $ 390,332  
Gross profit
    58,062       54,681       62,086       68,521       243,350  
Amortization of intangibles (see Note 1)
    6,076       6,076       6,075       6,076       24,303  
Restructuring charges (see Note 8)
    756       2,799       399       4,428       8,382  
Costs of abandoned acquisition (see Note 2)
                      25,060       25,060  
Operating income (loss)
    9,857       6,466       15,985       (12,000 )     20,308  
Finance costs on abandoned (see Note 2)
                637       4,655       5,292  
Net income (loss)
    5,356       3,073       8,242       (13,547 )     3,124  
Income (loss) applicable to common shareholders
    5,356       3,073       8,242       (13,547 )     3,124  
 
                                       
Basic earnings (loss) per share applicable to common shareholders
  $ .16     $ .09     $ .24     $ (.44 )   $ .09  
Diluted earnings (loss) per share applicable to common shareholders
  $ .15     $ .09     $ .23     $ (.44 )   $ .09  
21. Condensed Consolidating Financial Information
          We currently plan to file an exchange offer registration statement on or about June 8, 2010 for the Senior Notes issued on December 10, 2009 (see Note 9). Our obligations under the Senior Notes are fully and unconditionally guaranteed, joint and severally, on a senior basis by substantially all of our existing and future domestic subsidiaries (including, following the Merger, i2 and its domestic subsidiaries). Pursuant to Regulation S-X, Section 210.3-10(f), we are 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 December 31, 2009 and 2008, and condensed consolidating statements of income and cash flows for the three years ended December 31, 2009, 2008 and 2007 for (i) JDA Software Group, Inc. — the parent company, (ii) guarantor subsidiaries on a combined basis, (iii) 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.

31


 

Condensed Consolidating Balance Sheets
December 31, 2009
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
 
                                       
Current Assets:
                                       
Cash and cash equivalents
  $     $ 47,170     $ 28,804     $     $ 75,974  
Restricted cash
    287,875                         287,875  
Accounts receivable
          53,535       15,348             68,883  
Income tax receivable
    469       5,941       (6,410 )            
Deferred tax asset
          17,973       1,169             19,142  
Prepaid expenses and other current assets
          11,273       4,394             15,667  
 
                             
Total current assets
    288,344       135,892       43,305             467,541  
 
                             
 
                                       
Non-Current Assets:
                                       
Property and equipment, net
          35,343       5,499             40,842  
Goodwill
          135,275                   135,275  
Other intangibles, net:
                                       
Customer-based intangibles
          99,264                   99,264  
Technology-based intangibles
          20,240                   20,240  
Marketing-based intangibles
          157                   157  
Deferred tax asset
          37,781       6,569             44,350  
Other non-current assets
    6,697       124       7,176             13,997  
Investment in subsidiaries
    154,166       27,575             (181,741 )      
Intercompany accounts
    234,479       (253,131 )     18,652              
 
                             
Total non-current assets
    395,342       102,628       37,896       (181,741 )     354,125  
 
                             
 
                                       
Total Assets
  $ 683,686     $ 238,520     $ 81,201     $ (181,741 )   $ 821,666  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
 
                                       
Current Liabilities:
                                       
Accounts Payable
  $     $ 6,140     $ 1,052     $     $ 7,192  
Accrued expenses and other liabilities
          28,809       16,714             45,523  
Income taxes payable
          1,255       2,234             3,489  
Deferred revenue
          44,145       21,520             65,665  
 
                             
Total current liabilities
          80,349       41,520             121,869  
 
                             
 
                                       
Non-Current Liabilities:
                                       
Long-term debt
    272,250                         272,250  
Accrued exit and disposal obligations
          4,723       2,618             7,341  
Liability for uncertain tax positions
          8,770                   8,770  
 
                             
Total non-current liabilities
    272,250       13,493       2,618             288,361  
 
                             
 
                                       
Total Liabilities
    272,250       93,842       44,138             410,230  
 
                                       
Stockholders’ Equity
    411,436       144,678       37,063       (181,741 )     411,436  
 
                             
 
                                       
Total Liabilities and Stockholders’ Equity
  $ 683,686     $ 238,520     $ 81,201     $ (181,741 )   $ 821,666  
 
                             

32


 

Condensed Consolidating Balance Sheets
December 31, 2008
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
 
                                       
Current Assets:
                                       
Cash and cash equivalents
  $     $ 10,841     $ 21,855     $     $ 32,696  
Accounts receivable
          67,578       11,775             79,353  
Income tax receivable
    5,708       (5,508 )     116             316  
Deferred tax asset
          21,663       1,256             22,919  
Prepaid expenses and other current assets
          8,854       5,369             14,223  
 
                             
Total current assets
    5,708       103,428       40,371             149,507  
 
                             
 
                                       
Non-Current Assets:
                                       
Property and equipment, net
          38,024       5,069             43,093  
Goodwill
          135,275                   135,275  
Other intangibles, net:
                                       
Customer-based intangibles
          121,719                   121,719  
Technology-based intangibles
          24,160                   24,160  
Marketing-based intangibles
          1,335                   1,335  
Deferred tax asset
          43,782       1,033             44,815  
Other non-current assets
          47       4,825             4,872  
Investment in subsidiaries
    119,619       21,821             (141,440 )        
Intercompany accounts
    266,168       (289,629 )     23,461              
 
                             
Total non-current assets
    385,787       96,534       34,388       (141,440 )     375,269  
 
                             
 
                                       
Total Assets
  $ 391,495     $ 199,962     $ 74,759     $ (141,440 )   $ 524,776  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
 
                                       
Current Liabilities:
                                       
Accounts Payable
  $     $ 2,483     $ 790     $     $ 3,273  
Accrued expenses and other liabilities
          33,389       18,701             52,090  
Income taxes payable
          682       (682 )            
Deferred revenue
          43,119       18,886             62,005  
 
                             
Total current liabilities
          79,673       37,695             117,368  
 
                             
 
                                       
Non-Current Liabilities:
                                       
Accrued exit and disposal obligations
          7,170       1,650             8,820  
Liability for uncertain tax positions
          7,093                   7,093  
Deferred revenue
                             
 
                             
Total non-current liabilities
          14,263       1,650             15,913  
 
                             
 
                                       
Total Liabilities
          93,936       39,345             133,281  
 
                             
 
                                       
Redeemable Preferred Stock
    50,000                         50,000  
 
                                       
Stockholders’ Equity
    341,495       106,026       35,414       (141,440 )     341,495  
 
                             
 
                                       
Total Liabilities and Stockholders’ Equity
  $ 391,495     $ 199,962     $ 74,759     $ (141,440 )   $ 524,776  
 
                             

33


 

Condensed Consolidating Statements of Income
Year Ended December 31, 2009
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                       
Software licenses
  $     $ 88,786     $     $     $ 88,786  
Maintenance services
          112,829       66,507             179,336  
 
                             
Product revenues
          201,615       66,507             268,122  
 
                             
 
                                       
Consulting services
          66,799       40,819             107,618  
Reimbursed expenses
          6,872       3,188             10,060  
 
                             
Service revenues
          73,671       44,007             117,678  
 
                             
 
                                       
Total revenues
          275,286       110,514             385,800  
 
                             
 
                                       
Cost of Revenues:
                                       
Cost of software licenses
          3,241                   3,241  
Amortization of acquired software technology
          3,920                   3,920  
Cost of maintenance services
          31,546       11,619             43,165  
 
                             
Cost of product revenues
          38,707       11,619             50,326  
 
                             
 
                                       
Cost of consulting services
          55,292       29,993             85,285  
Reimbursed expenses
          6,872       3,188             10,060  
 
                             
Cost of service revenues
          62,164       33,181             95,345  
 
                             
 
                                       
Total cost of revenues
          100,871       44,800             145,671  
 
                             
 
                                       
Gross Profit
          174,415       65,714             240,129  
 
Operating Expenses:
                                       
Product development
          40,541       10,777             51,318  
Sales and marketing
          40,937       25,064             66,001  
General and administrative
          38,584       9,080             47,664  
Amortization of intangibles
          23,633                   23,633  
Restructuring charges
          3,723       3,142             6,865  
Acquisition-related costs
          4,768                   4,768  
 
                             
Total operating expenses
          152,186       48,063             200,249  
 
                             
 
                                       
Operating Income
          22,229       17,651             39,880  
 
                                       
Interest expense and amortization of loan fees
    (2,000 )     (538 )     (174 )           (2,712 )
Finance costs on abandoned acquisition
    767                         767  
Interest income and other, net
          10,965       (9,712 )           1,253  
Equity in earnings (loss) of subsidiaries
    27,103       2,399             (29,502 )      
 
                             
 
                                       
Income (Loss) Before Income Taxes
    25,870       35,055       7,765       (29,502 )     39,188  
 
                                       
Income tax (provision) benefit
    469       (11,051 )     (2,267 )           (12,849 )
 
                             
 
                                       
Net Income (Loss)
    26,339       24,004       5,498       (29,502 )     26,339  
 
                                       
Consideration paid in excess of carrying value on the purchase of redeemable preferred stock
    (8,593 )                       (8,593 )
 
                             
 
                                       
Income (Loss) Applicable to Common Shareholders
  $ 17,746     $ 24,004     $ 5,498     $ (29,502 )   $ 17,746  
 
                             

34


 

Condensed Consolidating Statements of Income
Year Ended December 31, 2008
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                       
Software licenses
  $     $ 92,898     $     $     $ 92,898  
Maintenance services
          114,688       68,156             182,844  
 
                             
Product revenues
          207,586       68,156             275,742  
 
                             
 
                                       
Consulting services
          64,939       39,133             104,072  
Reimbursed expenses
          7,198       3,320             10,518  
 
                             
Service revenues
          72,137       42,453             114,590  
 
                             
 
                                       
Total revenues
          279,723       110,609             390,332  
 
                             
 
                                       
Cost of Revenues:
                                       
Cost of software licenses
          3,499                   3,499  
Amortization of acquired software technology
          5,277                   5,277  
Cost of maintenance services
          32,397       13,337             45,734  
 
                             
Cost of product revenues
          41,173       13,337             54,510  
 
                             
 
                                       
Cost of consulting services
          50,096       31,858             81,954  
Reimbursed expenses
          7,198       3,320             10,518  
 
                             
Cost of service revenues
          57,294       35,178             92,472  
 
                             
 
                                       
Total cost of revenues
          98,467       48,515             146,982  
 
                             
 
                                       
Gross Profit
          181,256       62,094             243,350  
 
                                       
Operating Expenses:
                                       
Product development
          44,592       9,274             53,866  
Sales and marketing
          40,750       25,718             66,468  
General and administrative
          35,612       9,351             44,963  
Amortization of intangibles
          24,303                   24,303  
Restructuring charges
          2,872       5,510             8,382  
Costs of abandoned acquisition
    25,060                         25,060  
 
                             
Total operating expenses
    25,060       148,129       49,853             223,042  
 
                             
 
                                       
Operating Income
    (25,060 )     33,127       12,241             20,308  
 
                                       
Interest expense and amortization of loan fees
    (9,837 )     (337 )     (175 )           (10,349 )
Finance costs on abandoned acquisition
    (5,292 )                       (5,292 )
Interest income and other, net
    107       8,353       (5,669 )           2,791  
Equity in earnings (loss) of subsidiaries
    37,498       3,235             (40,733 )      
 
                             
 
                                       
Income (Loss) Before Income Taxes
    (2,584 )     44,378       6,397       (40,733 )     7,458  
 
                                       
Income tax (provision) benefit
    5,708       (8,607 )     (1,435 )           (4,334 )
 
                             
 
                                       
Net Income (Loss)
  $ 3,124     $ 35,771     $ 4,962     $ (40,733 )   $ 3,124  
 
                             

35


 

Condensed Consolidating Statements of Income
Year Ended December 31, 2007
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                       
Software licenses
  $     $ 73,599     $     $     $ 73,599  
Maintenance services
          112,971       65,227             178,198  
 
                             
Product revenues
          186,570       65,227             251,797  
 
                             
 
                                       
Consulting services
          72,052       38,841             110,893  
Reimbursed expenses
          7,496       3,389             10,885  
 
                             
Service revenues
          79,548       42,230             121,778  
 
                             
 
                                       
Total revenues
          266,118       107,457             373,575  
 
                             
 
                                       
Cost of Revenues:
                                       
Cost of software licenses
          2,499                   2,499  
Amortization of acquired software technology
          6,377                   6,377  
Cost of maintenance services
          31,892       13,350             45,242  
 
                             
Cost of product revenues
          40,768       13,350             54,118  
 
                             
 
                                       
Cost of consulting services
          52,595       30,536             83,131  
Reimbursed expenses
          7,496       3,389             10,885  
 
                             
Cost of service revenues
          60,091       33,925             94,016  
 
                             
 
                                       
Total cost of revenues
          100,859       47,275             148,134  
 
                             
 
                                       
Gross Profit
          165,259       60,182             225,441  
 
                                       
Operating Expenses:
                                       
Product development
          44,207       6,966             51,173  
Sales and marketing
          34,682       28,472             63,154  
General and administrative
          36,476       7,929             44,405  
Amortization of intangibles
          15,852                   15,852  
Restructuring charges
          4,327       1,881             6,208  
Gain on sale of office facility
                (4,128 )           (4,128 )
 
                             
Total operating expenses
          135,544       41,120             176,664  
 
                             
 
                                       
Operating Income
          29,715       19,062             48,777  
 
                                       
Interest expense and amortization of loan fees
    (11,314 )     (380 )     (142 )           (11,836 )
Interest income and other, net
    264       13,907       (10,695 )           3,476  
Equity in earnings (loss) of subsidiaries
    33,373       14,342             (47,715 )      
 
                             
 
                                       
Income (Loss) Before Income Taxes
    22,323       57,584       8,225       (47,715 )     40,417  
 
                                       
Income tax (provision) benefit
    4,199       (16,011 )     (2,083 )           (13,895 )
 
                             
 
                                       
Net Income (Loss)
  $ 26,522     $ 41,573     $ 6,142     $ (47,715 )   $ 26,522  
 
                             

36


 

Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2009
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net Cash Provided by Operating Activities
  $ 41,907     $ 50,952     $ 3,622     $     $ 96,481  
 
                             
 
                                       
Investing Activities:
                                       
Change in restricted cash
    (287,875 )                       (287,875 )
Payment of direct costs related to prior acquisitions
          (3,031 )     (2,079 )           (5,110 )
Purchase of property and equipment
          (4,670 )     (2,466 )           (7,136 )
Proceeds from disposal of property and equipment
          35       49             84  
 
                             
Net cash used in investing activities
    (287,875 )     (7,666 )     (4,496 )           (300,037 )
 
                             
 
                                       
Financing Activities:
                                       
Issuance of common stock – equity plans
    14,849                         14,849  
Purchase of treasury stock
    (6,543 )                       (6,543 )
Redemption of redeemable preferred stock
    (28,068 )                       (28,068 )
Proceeds from issuance of long-term debt, net
    272,217                         272,217  
Debt issuance costs
    (6,487 )                       (6,487 )
Change in intercompany receivable/payable
          (6,703 )     6,703              
 
                             
Net cash provided by (used in) financing activities
    245,968       (6,703 )     6,703             245,968  
 
                             
 
                                       
Effect of Exchange Rates on Cash and Cash Equivalents
          (254 )     1,120             866  
 
                             
 
                                       
Net increase (decrease) in cash and equivalents
          36,329       6,949             43,278  
 
                                       
Cash and Cash Equivalents, Beginning of Year
          10,841       21,855             32,696  
 
                             
 
                                       
Cash and Cash Equivalents, End of Year
  $     $ 47,170     $ 28,804     $     $ 75,974  
 
                             

37


 

Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2008
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net Cash Provided by (Used in) Operating Activities
  $ 95,481     $ (51,561 )   $ 3,172     $     $ 47,092  
 
                             
 
                                       
Investing Activities:
                                       
Payment of direct costs related to prior acquisitions
          (4,242 )                 (4,242 )
Purchase of property and equipment
          (5,502 )     (3,092 )           (8,594 )
Proceeds from disposal of property and equipment
          132                   132  
 
                             
Net cash used in investing activities
          (9,612 )     (3,092 )           (12,704 )
 
                             
 
                                       
Financing Activities:
                                       
Issuance of common stock – equity plans
    7,806                         7,806  
Excess tax benefits – share-based compensation
    (1,638 )                       (1,638 )
Purchase of treasury stock
    (2,086 )                       (2,086 )
Change in intercompany receivable/payable
          10,991       (10,991 )            
Principal payments on term loan agreement
    (99,563 )                         (99,563 )
Repayment of 5% convertible subordinated notes
                             
 
                             
Net cash provided by (used in) financing activities
    (95,481 )     10,991       (10,991 )           (95,481 )
 
                             
 
                                       
Effect of Exchange Rates on Cash and Cash Equivalents.
          286       (1,785 )           (1,499 )
 
                             
 
                                       
Net increase (decrease) in cash and equivalents
          (49,896 )     (12,696 )           (65,592 )
 
                                       
Cash and Cash Equivalents, Beginning of Year
          60,737       34,551             95,288  
 
                             
 
                                       
Cash and Cash Equivalents, End of Year
  $     $ 10,841     $ 21,855     $     $ 32,696  
 
                             

38


 

Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2007
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net Cash Provided by (Used in) Operating Activities
  $ 30,590     $ 49,786     $ (669 )   $     $ 79,707  
 
                             
 
                                       
Investing Activities:
                                       
Payment of direct costs related to prior acquisitions
          (7,606 )                 (7,606 )
Purchase of property and equipment
          (6,191 )     (1,217 )           (7,408 )
Proceeds from disposal of property and equipment
          1,272       5,584             6,856  
 
                             
Net cash provided by (used in) investing activities
          (12,525 )     4,367             (8,158 )
 
                             
 
                                       
Financing Activities:
                                       
Issuance of common stock – equity plans
    9,877                         9,877  
Excess tax benefits – share-based compensation
    1,308                         1,308  
Purchase of treasury stock
    (244 )                       (244 )
Change in intercompany receivable/payable
          1,838       (1,838 )            
Principal payments on term loan agreement
    (40,000 )                       (40,000 )
Repayment of 5% convertible subordinated notes
    (1,531 )                       (1,531 )
 
                             
Net cash provided by (used in) financing activities
    (30,590 )     1,838       (1,838 )           (30,590 )
 
                             
 
                                       
Effect of Exchange Rates on Cash and Cash Equivalents
          (523 )     1,293             770  
 
                             
 
                                       
Net increase (decrease) in cash and equivalents
          38,576       3,153             41,729  
 
                                       
Cash and Cash Equivalents, Beginning of Year
          22,161       31,398             53,559  
 
                             
 
                                       
Cash and Cash Equivalents, End of Year
  $     $ 60,737     $ 34,551     $     $ 95,288  
 
                             

39

EX-99.2 5 p17827exv99w2.htm EX-99.2 exv99w2
Exhibit 99.2
Part II
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
          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
          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 with an acquisition date fair value of approximately $168.0 million, or $26.88 per share, determined on the basis of the closing market price of our common stock on the date of acquisition (the “Merger”). The combination of JDA and i2 creates a market leader in the supply chain management market. We believe this combination provides JDA with (i) a strong, complementary presence in new markets such as discrete manufacturing and transportation; (ii) enhanced scale; (iii) a more diversified, global customer base of over 6,000 customers; (iv) a comprehensive product suite that provides end-to-end SCM solutions; (v) incremental revenue opportunities associated with cross-selling of products and services among our existing customer base; and (vi) an ability to increase profitability through net cost synergies within twelve months after the Merger.
          The Merger will be accounted for using the acquisition method of accounting with JDA identified as the acquirer. Under the acquisition method of accounting, we will record all assets acquired and liabilities assumed at their respective acquisition-date fair values. We have not completed the valuation analysis and calculations necessary to finalize the required purchase price allocations. In addition to goodwill, the final purchase price allocation may include allocations to intangible assets such as trademarks and trade names, in-process research and development, developed technology and customer-related assets.
          On December 10, 2009, we issued $275 million of five-year, 8.0% Senior Notes (the “Senior Notes”) 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 ($6.5 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.
          Through December 31, 2009, we expensed approximately $4.8 million 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.”
          Outlook for 2010. The following summarizes our outlook for 2010 This information considers a full year of JDA revenues and operating results and eleven months of i2 revenues and operating results as the acquisition of i2 was completed on January, 28, 2010. Our business model contemplates running the combined companies as an integrated business from the completion of the acquisition and as such, we do not intend to provide separate reporting of the results of operations of i2.

1


 

         
    Outlook for 2010
    Low End   High End
Software and subscription revenues
  $125 million   $135 million
Total revenues
  $590 million   $625 million
Adjusted EBITDA
  $160 million   $170 million
Adjusted earnings per share
  $1.85   $2.00
Cash flow from operations
  $100 million   $110 million
          We define “EBITDA” as GAAP net income (loss) before interest expense, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is defined as EBITDA for the relevant period as adjusted by adding back additional amounts consisting of (i) restructuring charges, (ii) share-based compensation, (iii) acquisition-related costs, (iv) interest income and other non-operating income (expense), and (v) other significant non-routine operating income and expense items that may be incurred from time-to-time.
          Earnings per share is defined as net income divided by the weighted average shares outstanding during the period. Adjusted earnings per share excludes (i) amortization, (ii) restructuring charges, (iii) share-based compensation, (iv) acquisition-related costs and (v) other significant non-routine operating and non-operating income (expense) items that may be incurred from time-to-time.
          We have not provided an outlook for 2010 GAAP net income or GAAP earnings per share, nor a reconciliation between the non-GAAP measurements presented herein (i.e., Adjusted EBITDA and Adjusted earnings per share) and the most directly comparable GAAP measurements. We are still in the process of establishing the fair value of, and allocated purchase price to, the acquired assets and assumed liabilities in the acquisition of i2. This allocation is likely to result in increased depreciation and amortization which could affect GAAP earnings per share. However, because Adjusted EBITDA is essentially determined without regard to depreciation or amortization, among other factors, we do not anticipate material changes to our outlook of Adjusted EBITDA based on the valuation and allocation of the i2 transaction. Of course, any estimate is subject to the limitation described herein, including the safe harbor statement above.
          We believe the weak economy will continue to drive an increased awareness in our target markets of the need to focus on achieving more process and operating efficiencies, including decisions to invest in solutions that improve operating margins, rather than make large infrastructure-type technology purchases. This scenario favors our supply chain solution offerings, in particular our planning and optimization applications, which can provide a quick return on investment and are focused on some of the largest profit drivers in our customers’ businesses. Not only do our solutions enable companies to free up working capital by improving inventory productivity, they can also support increased sales by improving customer service levels and optimizing pricing decisions. Our solutions also enable cost reductions such as reduced labor and transportation costs. We think the buying characteristics in the market are shifting to an increased willingness to commit capital expenditures to projects that will improve business results quickly. We believe these trends have helped us achieve solid performance in a very difficult market, and that our value proposition and singular focus on the SCM market, competitive position, business model and financial health are all in excellent condition.
          Quarter-to-quarter software sales will fluctuate due to the timing of large transactions greater than $1.0 million (“large transactions”), which can significantly impact the dollar volume of software sales in any given quarter. We believe the current trend in software sales is positive, and as we enter the first half of 2010, our sales pipeline includes a strong representation of both large transactions and mid-size software sales opportunities ranging from $300,000 to $1.0 million (“mid-size sales opportunities”). The overall volume of i2 opportunities in the pipeline is relatively low compared to JDA. This is in line with i2’s historical business model which emphasized growth through a services model that relied heavily on a small number of large transactions combined with subscription license revenues and significant post-sale customization of the software. We intend to change this business model and transition the i2 business toward the more traditional software industry model that emphasizes the sale of software that can be implemented with little or no post-sale customization, together with a sustainable recurring maintenance stream. We believe our service functions should focus on customer delivery, customer satisfaction and reference-able customers rather than large customization projects. We also expect to focus on business development activities that will compliment the larger i2 sales opportunities and expand the pipeline of mid-size sales opportunities for the i2 solutions.
          We believe it may take several years to fully implement a convergence strategy in our product suite. We currently expect to announce a multi-year product roadmap for the combined product suites during the first half of 2010; however, we do not expect to make any significant changes to our existing or acquired product offerings during the coming year as a result of this process. We also anticipate that we can begin to issue new product releases in 2011 that bring together and combine the two product suites, and over

2


 

time, we will create convergent offerings that include the broad functionality of both the JDA and i2 offerings while eliminating areas of overlap. During this time we will also focus on building relationships with the traditional i2 discrete manufacturing customer base, the majority of which have had little or no historical exposure to JDA, and develop a combined business development and sales execution strategy.
          We have identified several key areas for potential cross-selling and up-selling opportunities; however, we do not expect to see material synergistic revenue growth from the i2 acquisition during 2010. We believe there will be opportunities for future revenue synergies in our retail customer base. i2 has developed various supply chain and planning products for the retail marketplace that offer certain distinct capabilities compared to the existing JDA applications that are also targeted at this market. We believe there are both cross-selling and up-selling opportunities for these applications with the more than 1,500 customers in our retail customer base. We also believe there will be opportunities to merge certain of the JDA and i2 solutions and build new product offerings for i2’s discrete manufacturing customers. There appears to be an increasing interest among discrete manufacturers, especially those in areas such as high tech, to obtain greater visibility and increased information regarding how their products are being marketed and sold at retail outlets.
          There is also a difference between the way i2 classified certain consulting implementation services in its financial results, and the way we will classify the revenue of these services going forward. Historically, i2 has reported a “software solutions” total in its consolidated statements of operation that included software license revenue as well as service revenues for the installation and implementation work necessary to modify and customize the software prior to its intended use. Most of the on-going projects assumed in the acquisition, as well as certain of the i2 software products that will be marketed post-acquisition, require the contractual delivery of significant customization services. In these situations, JDA will follow its classification policy and report all implementation services required to complete the on-going projects and any agreed customization on new software sales as consulting services.
          Volatility in foreign currency exchange rates continues to significantly impact our maintenance services revenue. For example, unfavorable foreign exchange rate variances reduced maintenance services revenues in 2009 by $7.4 million compared to 2008. 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 recurring maintenance revenues due to attrition. The 2010 outlook assumes a conservative view of maintenance revenues. We believe foreign exchange rate volatility may continue, and that we could also experience higher than normal maintenance attrition from the effects of the economy and the effects of the merger. Our average annualized maintenance retention rate was approximately 92% in 2009 and i2’s annualized maintenance retention rate was in the low 80% range during 2009. Our 2010 outlook contemplates an average annualized maintenance retention for the combined companies to be about 90% in 2010 assuming a constant currency.
          Consulting services revenue is a lagging indicator for the Company, and for the first time in several years, revenues from our consulting services business improved in year-over-year comparisons. We believe this improvement is due primarily to our improved software sales performance over the past three years. Our consulting margin results were 19% in both 2009 and 2008. A key factor for improving our consulting margins in 2010 and beyond will be our ability to more fully leverage the service capabilities of the CoE and increase the volume of work and implementation projects performed through this operation. We realized an improvement in the volume of work and implementation projects executed through the CoE in 2009 as approximately 7% of all billable hours were delivered through the CoE compared to less than 2% in 2008. With the i2 acquisition, we have added an additional CoE facility in Bangalore, India. i2 has historically provided a significant portion of its consulting work through their CoE facility. Our 2010 outlook contemplates an overall increase in the volume of work and billable hours through the CoE facilities in 2010 in comparison to our historical results.
          One of our primary initiatives in 2009 was the development of a Managed Services offering which expands our existing hosted services and includes: (i) outsourced operations for information technology, data and application management and hosting; (ii) workforce augmentation; (iii) management of process and user information; (iv) business process execution services including analysis and recommendations; and (v) business optimization services such as network design, demand classification, inventory policy and channel clustering. We believe our Managed Services offering provides customers with attractive and effective alternatives, to reduce their costs of operation, operate effectively with constrained resources, leverage outside domain expertise to augment their personnel and to improve the value they derive from their JDA products. We began signing new customer agreements for these services in fourth quarter 2009, and we believe our Managed Services business has the potential to improve organic growth for us in 2010 and beyond. We believe the acquisition of i2 will accelerate our business plan for Managed Services through its existing

3


 

managed services business. We currently expect approximately $8.0 million in capital expenditures in 2010 related to our Managed Services business.
          We Will Continue to More Fully Leverage Our Centers of Excellence. With the acquisition of i2, we now have two CoE facilities, and over 1,100, or nearly 40%, of our associates are based in India. The CoE facilities are designed to complement and enhance our existing on-shore business model, not replace it. Our goal is to achieve all of these benefits without sacrificing our capability to work face-to-face with our customers. We expect the overall share of consulting services work performed through the CoE facilities will increase in 2010. We also believe there are additional opportunities to further leverage the CoE in our customer support organization.
          We Expect to Realize Significant Cost Synergies as We Integrate and Combine the Two Companies. We expect to realize approximately $20 million in net cost savings during 2010. This figure excludes about $6 to $7 million of gross margin compressions from the effects of revenue attrition, especially maintenance, during the integration of i2. We are actively working on the integration of the two companies and we believe we are on track to achieve these synergies. We currently expect to be able to achieve approximately 15% of the synergies in first quarter 2010, 25% in both second and third quarter 2010, and the remaining 35% in fourth quarter 2010.
          Our 2010 outlook contemplates certain cost increases including a $6.0 million year-over-year increase in merit compensation, reflecting the fact that neither JDA nor i2 provided merit increases in 2009. In addition, we have increased our bad debt estimate by about $2.0 million which considers the potential impact of a continued recession and the possible effects that may arise as a result of the merger.
          We Expect to 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 the company’s current supply chain 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. We also believe the changes that were implemented in our executive leadership structure during 2009 better position us to execute our growth initiatives.
          Share-Based Compensation Expense. We recorded total share-based compensation expense of $8.1 million, $4.3 million and $6.2 million related to equity awards in 2009, 2008 and 2007, respectively and as of December 31, 2009 we have included $5.3 million of deferred compensation in stockholders’ equity. A summary of total share-based compensation by expense category for the years ended December 31, 2009, 2008 and 2007 is as follows:
                         
    2009     2008     2007  
Cost of maintenance services
  $ 590     $ 319     $ 445  
Cost of consulting services
    1,107       307       678  
Product development
    721       550       483  
Sales and marketing
    2,188       1,058       1,848  
General and administrative
    3,489       2,090       2,737  
 
                 
Total share-based compensation
  $ 8,095     $ 4,324     $ 6,191  
 
                 
          In February 2010, the Board approved a stock-based incentive program for 2010 (“2010 Performance Program”). The 2010 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, including new JDA associates joining the Company through the acquisition of i2, if we are able to achieve a defined adjusted EBITDA performance threshold goal in 2010. A partial pro-rata issuance of performance share awards will be made if we achieve a minimum adjusted EBITDA performance threshold. The 2010 Performance Program initially provides for approximately 555,000 of targeted contingently issuable performance share awards with a fair value of approximately $15.1 million. The performance share awards, if any, will be issued after the approval of our 2010 financial results in January 2011 and will vest 50% upon the date of issuance with the remaining 50% vesting ratably over a 24-month period. Our performance against the defined performance threshold goal will be evaluated on a quarterly basis throughout 2010 and share-based compensation will be recognized over the requisite service period that runs from February 3, 2010 (the date of board approval) through January 2013. If we achieve the defined performance threshold goal we would expect to recognize approximately $10.1 million of the award as share-based compensation in 2010.

4


 

          In February 2010, the Board also approved a 2010 cash incentive bonus plan (“Incentive Plan”) for our executive officers, including those new executives joining the Company through the acquisition of i2. The Incentive Plan provides for approximately $4.1 million in targeted cash bonuses if we are able to achieve a defined adjusted EBITDA performance threshold goal in 2010. Amounts are payable quarterly under the plan on the basis of the actual EBITDA achieved by the Company for the applicable quarter of 2010. A partial pro-rata cash bonus will be paid if we achieve a minimum adjusted EBITDA performance threshold. There is no cap on the maximum amount the executives can receive if the Company exceeds the defined annualized operational and software performance goals.
          Our Financial Position is Strong and We Expect to Continue Generating Positive Cash Flow from Operations. We had working capital of $345.7 million at 2009 compared to $32.1 million at December 31, 2008. The working capital balance at December 31, 2009 and 2008 includes $76.0 million and $32.7 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. Net accounts receivable were $68.9 million, or 58 days sales outstanding (“DSO”), at December 31, 2009 compared to $79.4 million, or 67 DSO, at December 31, 2008. During 2009 we generated $96.5 million in cash flow from operating activities and utilized $30.1 million to repurchase redeemable preferred stock ($28.1 million) and common stock ($2.0 million) held by Thoma Bravo.
          We expect to increase our cash balance during 2010 through the generation of between $100 million to $110 million of operating cash flow, offset in part by approximately $22 million of interest on the Senior Notes, $20 million of capital expenditures, $10 million related to the payment of transaction-related costs, and $10 million of cash taxes primarily related to state, local and foreign taxes. The increase in capital expenditures in 2010 is driven by the expansion of our Managed Services offering (approximately $8 million) as well as the addition of i2. While our Managed Services business requires more capital than our other offerings, we expect this business to produce a strong return on investment and form a major component of our organic growth in coming years. Our weighted average shares are expected to be between 41 and 42 million for 2010.

5


 

Results of Operations
          The following table sets forth certain selected financial information expressed as a percentage of total revenues for the periods indicated and certain gross margin data expressed as a percentage of software license revenue, maintenance services revenue, product revenues or services revenues, as appropriate:
                         
    Year Ended
    December 31,
    2009   2008   2007
Revenues:
                       
 
                       
Software licenses
    23 %     24 %     19 %
Maintenance services
    46       47       48  
 
                       
Product revenues
    69       71       67  
 
                       
 
                       
Consulting services
    28       26       30  
Reimbursed expenses
    3       3       3  
 
                       
Service revenues
    31       29       33  
 
                       
 
                       
Total revenues
    100       100       100  
 
                       
 
                       
Cost of Revenues:
                       
 
                       
Cost of software licenses
    1       1       1  
Amortization of acquired software technology
    1       1       2  
Cost of maintenance services
    11       12       12  
 
                       
Cost of product revenues
    13       14       15  
 
                       
Cost of consulting services
    22       21       22  
Reimbursed expenses
    3       3       3  
 
                       
Cost of service revenues
    25       24       25  
 
                       
Total cost of revenues
    38       38       40  
 
                       
 
                       
Gross Profit
    62       62       60  
 
                       
Operating Expenses:
                       
 
                       
Product development
    14       14       14  
Sales and marketing
    17       17       17  
General and administrative
    12       12       12  
Amortization of intangibles
    6       6       3  
Restructuring charges
    2       2       2  
Acquisition-related costs
    1              
Costs of abandoned acquisition
          6        
Gain on sale of office facility
                (1 )
 
                       
Total operating expenses
    52       57       47  
 
                       
 
                       
Operating Income
    10       5       13  
 
                       
Interest expense and amortization of loan fees
    (1 )     (3 )     (3 )
Finance costs on abandoned acquisition
          (1 )        
Interest income and other, net
    1       1       1  
 
                       
 
                       
Income Before Income Taxes
    10       2       11  
 
                       
Income tax provision
    (3 )     (1 )     (4 )
 
                       
 
                       
Net Income
    7 %     1 %     7 %
 
                       
 
                       
Gross margin on software licenses
    96 %     96 %     97 %
Gross margin on maintenance services
    76 %     75 %     75 %
Gross margin on product revenues
    81 %     80 %     79 %
Gross margin on service revenues
    19 %     19 %     23 %

6


 

          The following table sets forth a comparison of selected financial information, expressed as a percentage change between 2009 and 2008, and between 2008 and 2007. In addition, the table sets forth cost of revenues and product development expenses expressed as a percentage of the related revenues:
                                         
            % Change             % Change        
    2009     2009 vs 2008     2008     2008 vs 2007     2007  
Revenues:
                                       
 
                                       
Software licenses
  $ 88,786       (4 %)   $ 92,898       26 %   $ 73,599  
Maintenance
    179,336       (2 %)     182,844       3 %     178,198  
 
                                 
Product revenues
    268,122       (3 %)     275,742       9 %     251,797  
Service revenues
    117,678       3 %     114,590       (6 %)     121,778  
 
                                 
Total revenues
    385,800       (1 %)     390,332       4 %     373,575  
 
                                 
 
                                       
Cost of Revenues:
                                       
 
                                       
Software licenses
    3,241       (7 %)     3,499       40 %     2,499  
Amortization of acquired software technology
    3,920       (26 %)     5,277       (17 %)     6,377  
Maintenance services
    43,165       (6 %)     45,734       1 %     45,242  
 
                                 
Product revenues
    50,326       (8 %)     54,510       1 %     54,118  
Service revenues
    95,345       3 %     92,472       (2 %)     94,016  
 
                                 
Total cost of revenues
    145,671       (1 %)     146,982       (1 %)     148,134  
 
                                 
 
                                       
Gross Profit
    240,129       (1 %)     243,350       8 %     225,441  
 
                                       
Operating Expenses:
                                       
 
                                       
Product development
    51,318       (5 %)     53,866       5 %     51,173  
Sales and marketing
    66,001       (1 %)     66,468       5 %     63,154  
General and administrative
    47,664       6 %     44,963       1 %     44,405  
 
                                 
 
    164,983       %     165,297       4 %     158,732  
 
                                       
Amortization of intangibles
    23,633       (3 %)     24,303       53 %     15,852  
Restructuring charges
    6,865       (18 %)     8,382       35 %     6,208  
Acquisition-related costs
    4,768       100 %                  
Costs of abandoned acquisition
          (100 %)     25,060       100 %      
Gain on sale of office facility
                      (100 %)     (4,128 )
 
                                       
Operating income
  $ 39,880       96 %   $ 20,308       (58 %)   $ 48,777  
 
                                       
Cost of Revenues as a % of related revenues:
                                       
Software licenses
    4 %             4 %             3 %
Maintenance services
    24 %             25 %             25 %
Product revenues
    19 %             20 %             21 %
Service revenues
    81 %             81 %             77 %
 
                                       
Product Development as a % of product revenues
    19 %             20 %             20 %

7


 

          The following tables set forth selected comparative financial information on revenues, operating expenses and operating income in our business segments and geographical regions, expressed as a percentage change between 2009 and 2008, and between 2008 and 2007. In addition, the tables set forth the contribution of each business segment and geographical region to total revenues in 2009, 2008 and 2007, expressed as a percentage of total revenues, as well as the number of large transactions greater than or equal to $1.0 million. In connection with the acquisition of i2, we have realigned 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. Prior to the acquisition, i2 operated in one reportable business segment, supply chain management solutions. As a result of this realignment, we have combined the Retail and Manufacturing and Distribution reportable business segments and will now report our operations within the following segments:
    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”). This segment combines all revenues previously reported by the Company under the Retail and Manufacturing and Distribution reportable business segments and includes all revenues related to i2 applications and services.
 
    Services Industries. 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 Services Industries segment is centrally managed by a team that has global responsibilities for this market.
                                 
    Supply Chain   Services Industries
    2009 vs 2008   2008 vs 2007   2009 vs 2008   2008 vs 2007
Software licenses
    (11 %)     26 %     96 %     23 %
Maintenance services
    (3 %)     2 %     23 %     9 %
 
                               
Product revenues
    (5 %)     9 %     64 %     17 %
Service revenues
    (1 %)     (8 %)     43 %     31 %
 
                               
Total revenues
    (4 %)     4 %     54 %     23 %
 
                               
Product development
    (3 %)     3 %     (25 %)     46 %
Sales and marketing
    (5 %)     4 %     58 %     22 %
Operating income
    (6 %)     9 %     332 %     450 %
                                                 
    Supply Chain   Services Industries
    2009   2008   2007   2009   2008   2007
Contribution to total revenues
    92 %     95 %     95 %     8 %     5 %     5 %
# of Large Transactions
    16       16       9       3       3       1  
                                                 
    The Americas   Europe   Asia/Pacific
    2009 vs 2008   2008 vs 2007   2009 vs 2008   2008 vs 2007   2009 vs 2008   2008 vs 2007
Software licenses
    (15 %)     59 %     %     (15 %)     79 %     (24 %)
Maintenance services
    (1 %)     2 %     (6 %)     2 %     1 %     11 %
 
                                               
Product revenues
    (6 %)     17 %     (4 %)     (3 %)     28 %     (4 %)
Service revenues
    (8 %)     (7 %)     (14 %)     2 %     (2 %)     (14 %)
 
                                               
Total revenues
    (2 %)     9 %     (6 %)     (2 %)     17 %     (8 %)
                                                                         
    The Americas   Europe   Asia/Pacific
    2009   2008   2007   2009   2008   2007   2009   2008   2007
Contribution to total revenues
    69 %     69 %     66 %     21 %     22 %     24 %     10 %     9 %     10 %
# of Large Transactions
    13       14       5       3       4       3       3       1       2  

8


 

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Software Revenues
Software License Results by Region.
          The following table summarizes software license revenues by region for 2009 and 2008:
                                 
    Year Ended December 31,  
Region   2009     2008     $Change     % Change  
Americas
  $ 57,169     $ 67,046     $ (9,877 )     (15 %)
EMEA
    18,684       18,646       38       %
Asia/Pacific
    12,933       7,206       5,727       79 %
 
                         
 
                               
Total
  $ 88,786     $ 92,898     $ (4,112 )     (4 %)
 
                         
          The decrease in software license 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.
Software License Results by Reportable Business Segment.
          Supply Chain. Software license revenues in this reportable business segment decreased 11% in 2009 compared to 2008, due primarily to a decrease in the average sales price of large transactions and a decrease in follow-on sales to existing customers for new product or to expand the scope of an existing license. There were 16 large transactions in this reportable business segment in both 2009 and 2008. The 2008 software results include a large $11.5 million license that represents the largest transaction in our history.
          Services Industries. Software license revenues in this reportable business segment increased 96% in 2009 compared to 2008, due to an increase in the size of large transactions. There were three large transactions in this reportable business segment in both 2009 and 2008. Two of the large transactions in 2009 are being recognized on a percentage of completion basis and through December 31, 2009 we have recognized approximately 72% of the related software license fees.
Maintenance Services
          Maintenance services revenues decreased $3.5 million, or 2%, to $179.3 million in 2009 compared to $182.8 million in 2008, and represented 46% and 47% of total revenues, respectively, in these periods. Unfavorable foreign exchange rate variances reduced maintenance services revenues in 2009 by approximately $7.4 million compared to 2008 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 recurring maintenance revenues due to attrition.
Service Revenues
          Service revenues, which include consulting services, hosting services and training revenues, net revenues from our hardware reseller business and reimbursed expenses, increased $3.1 million, or 3%, to $117.7 million in 2009 compared to $114.6 million in 2008. The increase in 2009 compared to 2008 reflects increases in consulting services revenue, utilization and realized average hourly billing rates in the Americas region and the Services Industries reportable business segment, offset in part by decreases in consulting services revenue and lower realized

9


 

average hourly billing rates in the EMEA and Asia/Pacific regions and a $741,000 decrease in non-consulting services (training and hosting services, hardware sales and reimbursed expenses).
          Fixed bid consulting services work represented 15% of total consulting services revenue in both 2009 and 2008.
Cost of Product Revenues
          Cost of Software Licenses. The decrease in cost of software licenses in 2009 compared to 2008 is due primarily 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 large portion of our software revenue mix comes from products that have embedded third-party applications and/or require payment of higher royalty fee obligations, in particular the applications we acquired from Manugistics.
          Amortization of Acquired Software Technology. The decrease in amortization of acquired software technology in 2009 compared to 2008 is due primarily to the cessation of amortization on certain acquired technology that is now fully amortized.
          Cost of Maintenance Services. Cost of maintenance services decreased $2.5 million, or 6%, to $43.2 million in 2009 compared to $45.7 million in 2008. The decrease in cost of maintenance services in 2009 compared to 2008 is due primarily to a decrease in salaries and related benefits and a $416,000 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.
Cost of Service Revenues
          Cost of service revenues increased $2.8 million, or 3%, to $95.3 million in 2009 compared to $92.5 million in 2008. The increase in cost of service revenues in 2009 compared to 2008 is due primarily to a $1.8 million increase in incentive compensation and a $1.6 million increase in outside contractor costs. These additional costs were offset in part by cost savings associated with the movement of service functions to the CoE and a $607,000 decrease in travel costs. Although the average services headcount was flat in 2009 compared to 2008, salaries and related benefits decreased as we continue to successfully implement our lower cost delivery model through the expansion of the CoE.
Operating Expenses
          Operating expenses, excluding amortization of intangibles, restructuring charges and acquisition-related costs were $165.0 million in 2009, which is flat compared to 2008. During 2009, operating expenses were impacted by a $2.0 million decrease in sales commissions resulting from the decrease in software license revenues and a decrease in salaries and related benefits due to new and replacement positions being filled with lower cost resources at the CoE. These decreases were substantially offset by a $2.7 million increase in share-based compensation due primarily to 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, a $1.2 million increase in the provision for doubtful accounts and a $360,000 increase in marketing-related costs.
          Product Development. Product development expense decreased $2.5 million, or 5%, to $51.3 million in 2009 compared to $53.9 million in 2008. The decrease is due primarily 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. Sales and marketing expense decreased $467,000, or less than 1%, to $66.0 million in 2009 compared to $66.5 million in 2008. The decrease is due primarily to a $2.0 million decrease in sales commissions resulting from the decrease in software license revenues and a $454,000 decrease in travel costs, substantially offset by a $1.1 million increase in share-based compensation, a $360,000 increase in marketing-related costs and an increase in outside contractor costs.

10


 

          General and Administrative. General and administrative expense increased $2.7 million, or 6%, to $47.7 million in 2009 compared to $45.0 million in 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 $327,000 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 $579,000 as new and replacement positions were filled with lower cost resources at the CoE.
          Amortization of Intangibles. 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. Restructuring charges in 2009 include (i) a $6.5 million charge for 2009 restructuring activities, (ii) a $376,000 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 $758,000 in contingency reserves established in the initial purchase accounting on the Manugistics acquisition and (v) $111,000 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 our former Executive Vice President and Chief Financial Officer and our former Chief Operating Officer.
          Restructuring charges in 2008 include (i) an $8.0 million charge for 2008 restructuring activities, (ii) $426,000 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 and (iii) and $38,000 of net adjustments to reduce estimated restructuring reserves established in prior years and to reverse certain contingency reserves established in the initial purchase accounting of Manugistics acquisition. 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 $119,000 for office closure and integration costs of redundant office facilities.
          Acquisition-Related Costs. During 2009 we expensed approximately $4.8 million of costs related to the acquisition of i2 on January 28, 2010. These costs consist primarily of investment banking fees, commitment fees on unused bank financing, legal and accounting fees.
Operating Income
          Operating income increased $19.6 million to $39.9 million in 2009 compared to $20.3 million in 2008. Operating income in 2008 was reduced by $25.1 million in costs associated with the abandoned acquisition of i2 Technologies, which are included in operating expenses under the caption “Costs of abandoned acquisition.” Excluding the impact of these non-recurring costs, operating income decreased $5.5 million in 2009 compared to 2008, due primarily to the $4.5 million decrease in total revenues.
          The combined operating income reported in the reportable business segments excludes $82.9 million and $102.7 million of general and administrative expenses and other charges in 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.

11


 

Other Income (Expense)
          Interest Expense and Amortization of Loan Fees. The decrease in interest expense and amortization of loan fees 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 $899,000 payment in consideration for early termination of a related interest rate swap. We issued $275 million of Senior Notes 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 ($6.5 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. Through December 31, 2009, we have amortized approximately $110,000 of the original issue discount and related loan origination fees and accrued $1.3 million of interest in on the Senior Notes.
          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 the debt financing commitments from Credit Suisse, Credit Suisse Securities (USA) LLC, Wachovia Bank, National Association and Wachovia Capital Markets, LLC related to the abandoned acquisition of i2. During 2009, approximately $767,000 of the “ticking” fees were waived pursuant to a mutual release agreement and the related expense was reversed.
          Interest Income and Other, Net. The decrease in interest income and other, net 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
          A summary of the income tax provision recorded in 2009 and 2008 is as follows:
                 
    2009     2008  
Income before income taxes
  $ 39,188     $ 7,458  
 
           
 
               
Income tax provision at federal statutory rate
  $ (13,716 )   $ (2,610 )
Research and development credit
    773       930  
Meals, entertainment and other non-deductible expenses
    (425 )     (332 )
State income taxes
    (1,294 )     (59 )
Section 199 deduction
    554        
Foreign tax rate differential
    451       804  
Other, net
    (255 )     (120 )
Changes in estimate and foreign statutory rates
    677       (2,582 )
Interest and penalties on uncertain tax positions
    386       (365 )
 
           
Income tax provision
  $ (12,849 )   $ (4,334 )
 
           
Effective tax rate
    32.8 %     58.1 %
          The effective tax rate used to record the income tax provision in 2009 and 2008 takes into account the source of taxable income, domestically by state and internationally by country, and available income tax credits. The effective tax rates do not include excess tax benefits from the employee stock options exercised during 2009 and 2008 of $2.7 million and $1.4 million, respectively. These excess tax benefits will reduce our income tax liabilities in future periods and result in an increase to additional paid-in capital as we are able to utilize them. During 2008 we recorded an immaterial adjustment to reverse the total excess tax benefit previously recognized in 2007 and 2006 of approximately $1.6 million which reduced additional paid-in capital and non-current deferred tax assets. The effective tax rate in 2009 is lower than the United States federal statutory rate of 35% due primarily to utilization of research and development (“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 primarily to increases in the liability for unrecognized tax benefits related to prior year tax positions related to uncertainty regarding our ability to utilize certain foreign net operating loss carryforwards acquired in the acquisition of Manugistics and uncertainties regarding the validity of the income tax holiday in India.

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Consideration Paid in Excess of Carrying Value on the Repurchase of Redeemable Preferred Stock
          We entered into a Purchase Agreement with Thoma Bravo on September 8, 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 1,403,603 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 1,403,603 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.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Software Revenues
Software License Results by Region.
          The following table summarizes software license revenues by region for 2008 and 2007:
                                 
    Year Ended December 31,  
Region   2008     2007     $Change     % Change  
Americas
  $ 67,046     $ 42,268     $ 24,778       59 %
EMEA
    18,646       21,911       (3,265 )     (15 %)
Asia/Pacific
    7,206       9,420       (2,214 )     (24 %)
 
                         
Total
  $ 92,898     $ 73,599     $ 19,299       26 %
 
                         
          The increase in software license revenues in the Americas region in 2008 compared to 2007 was due primarily to an increase in the number of large transactions to both new and install-base customers. There were 14 large transactions in the Americas region in 2008, which included an $11.5 million license software license that represents the largest transaction in our history, compared to five in 2007.
          The decrease in software license revenues in the European region in 2008 compared to 2007 was due primarily to a decrease in the volume of small to mid-size software license sales with new customers, offset in part by an increase in follow-on sales to existing customers for new products or to expand the scope of an existing license. There were four large transactions in the European region in 2008 compared to three in 2007.
          The decrease in software license revenues in the Asia/Pacific region in 2008 compared to 2007 was due primarily to a decrease in the number of large transactions and follow-on sales to existing customers for new products or to expand the scope of an existing license, offset in part by an increase in the volume of small to mid-size software license sales to new customers. There was one large transaction in the Asia/Pacific region in 2008 compared to two in 2007.
Software License Results by Reportable Business Segment.
          Supply Chain. Software license revenues in this reportable business segment increased 26% in 2008 compared to 2007, due primarily to an increase in the number and average sales price of large transactions. There were 16 large transactions in this reportable business segment in 2008 compared to nine in 2007.
          Services Industries. Software license revenues in this reportable business segment increased 23% in 2008 compared to 2007, due primarily to an increase in the number and average sales price of large transactions. There were three large transactions in this reportable business segment in 2008 compared to one in 2007.

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Maintenance Services
          Maintenance services revenues increased 3% to $182.8 million in 2008 compared to 2007 and represented 47% and 48% of total revenues, respectively in these periods. Unfavorable foreign exchange rate variances decreased 2008 maintenance services revenues by $2.0 million compared to 2007 primarily due to the strengthening of the US Dollar against European currencies. Excluding the impact of the favorable foreign exchange rate variance, maintenance services revenues increased 4% in 2008 compared to 2007 as maintenance revenues related to new software sales, rate increases on annual renewals and reinstatements of previously cancelled maintenance agreements exceeded decreases in recurring maintenance revenues due to attrition.
Service Revenues
          Service revenues, which include consulting services, hosting services and training revenues, net revenues from our hardware reseller business and reimbursed expenses, decreased $7.2 million or 6% to $114.6 million in 2008 compared to $121.8 million in 2007. The decrease in 2008 compared to 2007 reflects a decrease in utilization and billable hours in the Europe and Asia/Pacific regions and lower average billing rates per hour in the Americas and Asia/Pacific regions as well as a $737,000 decrease in hosting services and our hardware reseller business, offset in part by a $518,000 increase in training services. Service revenues in 2007 also included the non-recurring favorable impact from the release of $3.4 million of previously deferred consulting revenue upon completion and final acceptance of a fixed bid project inherited from Manugistics. Fixed bid consulting services work represented 15% of total consulting services revenue in 2008 compared to 20% in 2007.
Cost of Product Revenues
          Cost of Software Licenses. The increase in cost of software licenses in 2008 compared to 2007 was due primarily to royalties on embedded 3rd party applications. A large portion of our software revenue mix comes from products that have embedded 3rd party applications and/or require payments of higher royalty fee obligations, particularly the infrastructure and other products we acquired from Manugistics.
          Amortization of Acquired Software Technology. The decrease in amortization of acquired software technology in 2008 compared to 2007 was due to the cessation of amortization on certain acquired software technology that is now fully amortized.
          Cost of Maintenance Services. Cost of maintenance services increased $492,000, or 1%, to $45.7 million in 2008 compared to $45.2 million in 2007. The increase in cost of maintenance services in 2008 compared to 2007 was due primarily to the costs associated with an 8% increase in average headcount and a higher bonus payout due to the Company’s improved operating performance.
Cost of Service Revenues
          Cost of service revenues decreased $1.5 million, or 2%, to $97.5 million in 2008 compared to $94.0 million in 2007. The decrease in cost of service revenues in 2008 compared to 2007 was due primarily to a decrease in costs resulting from a 5% decrease in average headcount, offset in part by a higher bonus payout due to the Company’s improved operating performance and a $521,000 increase in outside contractor costs. Cost of service revenues in 2007 also included the release of $1.4 million in deferred costs upon completion and acceptance of a fixed bid project inherited from Manugistics.
Operating Expenses
          Product Development. Product development expense increased $2.7 million, or 5%, to $53.9 million in 2008 compared to $51.2 million in 2007. The increase in product development expense in 2008 compared to 2007 was due primarily to a $2.5 million reduction in deferred costs resulting from the completion of certain on-going customer funded product development efforts and a higher bonus payout due to the Company’s improved operating performance, offset in part by an $884,000 decrease in outside contractor costs. Additionally, although the average product development headcount increased 15% in 2008 compared to 2007, salaries and related benefits only

14


 

increased 1% as new and replacement positions were filled with lower cost resources, including those added at the CoE.
          Sales and Marketing. Sales and marketing expense increased $3.3 million, or 5%, to $66.5 million in 2008 compared to $63.2 million in 2007. The increase in sales and marketing expense in 2008 compared to 2007 was due primarily to a $3.4 million increase in commissions due to the 26% increase in software sales and an $851,000 increase in marketing-related costs, offset in part by a $790,000 decrease in share-based compensation.
          General and Administrative. General and administrative expense increased $558,000, or 1%, to $45.0 million in 2008 compared to $44.4 million in 2007. The increase in general and administrative expense in 2008 compared to 2007 was due primarily to a 14% increase in average headcount that was substantially offset by a $482,000 decrease in outside contractor costs for assistance with internal system initiatives, a higher bonus payout due to the Company’s improved operating performance and a $267,000 increase in legal and accounting fees, offset in part by a $2.2 million decrease in the provision for doubtful accounts and a $647,000 decrease in share-based compensation. The provision for doubtful accounts in 2007 related primarily to certain foreign receivables for which collection was doubtful.
          Amortization of Intangibles. The increase in amortization of intangibles in 2008 compared to 2007 was due primarily to a change in the estimated useful life of certain customer lists to reflect current trends in attrition. With this change, the quarterly amortization expense on customer lists increased approximately $2.1 million per quarter, beginning first quarter 2008 and continuing over the remaining useful life of the related customer lists which extend through June 2014. This change had a $0.16 per share impact (reduction) on basic and diluted earnings per share calculations for 2008.
          Restructuring Charges. Restructuring charges in 2008 included (i) an $8.0 million charge for 2008 restructuring activities, (ii) $426,000 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 and (iii) and $38,000 of net adjustments to reduce estimated restructuring reserves established in prior years and to reverse certain contingency reserves established in the initial purchase accounting of Manugistics acquisition. 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 $119,000 for office closure and integration costs of redundant office facilities.
          Restructuring charges in 2007 included a $6.2 million charge for 2007 restructuring activities that included $5.9 million for termination benefits and $292,000 for office closures. The termination benefits were primarily related to a workforce reduction of approximately 120 full-time employees (“FTE”) in our Scottsdale, Arizona product development group as a direct result of our decision to standardize future product offerings on the JDA Enterprise Architecture platform and a reduction of approximately 40 FTE in our worldwide consulting services group. The office closure charge was for the closure and integration costs of redundant office facilities.
          Costs of Abandoned Acquisition. We expensed $30.4 million in costs associated with the abandoned acquisition of i2 Technologies in fourth quarter 2008, including a $20 million non-refundable reverse termination fee, $5.1 million of legal, accounting and other acquisition-related fees that are included in operating expenses under the caption “Costs of abandoned acquisition” and $5.3 million in finance costs related to loan origination and “ticking” fees on certain debt financing commitments that are included in other income (expense) under the caption “Finance costs on abandoned acquisition.”
          Gain on Sale of Office Facility. During 2007 we sold a 15,000 square foot facility in the United Kingdom for approximately $6.3 million and recognized a gain of $4.1 million.

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Operating Income
          Operating income decreased $28.5 million to $20.3 million in 2008 compared to $48.8 million in 2007. The decrease in operating income resulted primarily from $25.1 million in costs associated with the abandoned acquisition of i2 Technologies that are included in operating expenses under the caption “Costs of abandoned acquisition,” an $8.4 million increase in amortization due to a change in the estimated useful life of certain customer list intangibles and a $2.2 million higher restructuring charge, together with increases in product development, sales and marketing and general and administrative expenses, offset in part by the 4% increase in total revenues and a $2.1 million lower bad debt provision. In addition, operating income in 2007 included a $4.1 million gain on the sale of an office facility in the United Kingdom that did not recur in 2008.
          The combined operating income reported in the reportable business segments excludes $102.7 million and $62.3 million of general and administrative expenses and other charges in 2008 and 2007, 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.
Other Income (Expense)
          Interest Expense and Amortization of Loan Fees. We incurred interest expense of $6.8 million and recorded $3.5 million in amortization of loan origination fees in 2008 compared to $10.0 million and $1.8 million, respectively in 2007. The decrease in interest expense is due primarily to lower outstanding borrowings on the term loans used to finance the acquisition of Manugistics in 2008 compared to 2007. During 2008 we repaid the remaining $99.6 million balance on the term loans, including $80.5 million on October 1, 2008. In addition, we made an $899,000 payment on October 5, 2008 in consideration for early termination of a related interest rate swap which is also included in interest expense. The increase in amortization of loan origination fees was due to the accelerated repayment of the term loans in 2008. All loan origination fees related to the term loans have been fully amortized.
          Interest Income and Other, Net. We recorded interest income and other, net of $2.8 million in 2008 compared to $3.5 million in 2007. The decrease in interest income was due primarily to lower interest rates.
Income Tax Provision
          A summary of the income tax provision recorded in 2008 and 2007 is as follows:
                 
    2008     2007  
Income before income taxes
  $ 7,458     $ 40,417  
 
           
 
               
Income tax provision at federal statutory rate
  $ (2,610 )   $ (14,146 )
Research and development credit
    930       432  
Meals, entertainment and other non-deductible expenses
    (332 )     (322 )
State income taxes
    (59 )     (983 )
Foreign tax rate differential
    804       796  
Other, net
    (120 )     161  
Changes in estimate and foreign statutory rates
    (2,582 )     556  
Interest and penalties on uncertain tax positions
    (365 )     (389 )
 
           
Income tax provision
  $ (4,334 )   $ (13,895 )
 
           
Effective tax rate
    58.1 %     34.4 %
          The effective tax rate used to record the income tax provision in 2008 and 2007 takes into account the source of taxable income, domestically by state and internationally by country, and available income tax credits. The effective tax rates do not include excess tax benefits from the employee stock options exercised during 2008 and 2007 of $1.4 million and $1.3 million, respectively. These excess tax benefits will reduce our income tax liabilities in future periods and result in an increase to additional paid-in capital as we are able to utilize them. During 2008 we recorded an immaterial adjustment to reverse the total excess tax benefit previously recognized in 2007 and 2006 of approximately $1.6 million which reduced additional paid-in capital and non-current deferred tax assets. The effective tax rate in 2008 is higher than the federal statutory rate of 35% due primarily to increases in the liability for unrecognized tax benefits related to prior year tax positions related to uncertainty regarding our

16


 

ability to utilize certain foreign net operating loss carryforwards acquired in the acquisition of Manugistics and uncertainties regarding the validity of the income tax holiday in India. The effective tax rate in 2007 is lower than the federal statutory rate of 35% due to the impact of foreign tax rate differentials.
Liquidity and Capital Resources
          We had working capital of $345.7 million at December 31, 2009 compared to $32.1 million at December 31, 2008. The working capital balance at December 31, 2009 and 2008 includes $76.0 million and $32.7 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 2009, we generated $96.5 million in cash flow from operating activities and utilized $30.1 million to repurchase redeemable preferred stock ($28.1 million) and common stock ($2.0 million) held by Thoma Bravo.
          Net accounts receivable were $68.9 million, or 58 days sales outstanding (“DSO”), at December 31, 2009 compared to $79.4 million, or 67 DSO, at December 31, 2008. 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.
          The following table compares year-to-year changes in the key components of our Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007:
                                         
            % Change           % Change    
    2009   2009 to 2008   2008   2008 vs 2007   2007
Net cash provided from operating activities
  $ 96,481       105 %   $ 47,092       (41 %)   $ 79,707  
Net cash used in investing activities
    (300,037 )   NM%     (12,704 )     (56 %)     (8,158 )
Net cash provided by (used in) financing activities
    245,968       358 %     (95,481 )     (212 %)     (30,590 )
Cash and cash equivalents (end of period)
    75,974       132 %     32,696       (66 %)     95,288  
          Operating activities provided cash of $96.5 million, $47.1 million and $79.7 million in 2009, 2008 and 2007, 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 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. Excluding the impact of the $30.4 million in costs related to the terminated acquisition, less approximately $3.6 million of which were accrued but not paid as of December 31, 2008, cash flow from operating activities decreased $5.8 million to $73.9 million in 2008 compared to 2007. The decrease in cash flow from operating activities in 2008 compared to 2007 resulted primarily from an $8.2 million smaller decrease in deferred taxes, a $6.7 million decrease in deferred

17


 

revenue balances due primarily to unfavorable foreign exchange rate variances (compared to an increase of $2.2 million in 2007), a $6.6 million net increase in accounts receivable due to the higher volume of software sales in 2008 (compared to a $5.6 million decrease in 2007) and a $2.1 million smaller bad debt provision, offset in part a $7.6 million increase in depreciation and amortization resulting primarily from a change in the estimated useful life of certain customer lists to reflect current trends in attrition, a $3.8 million larger increase in accrued expenses due to higher commissions and bonuses resulting from the Company’s improved operating performance in 2008, a $2.1 million decrease in prepaid expenses (compared to $212,000 increase in 2007) and a $1.9 million increase in amortization of loan origination fees due to the repayment of the remaining long-term debt borrowings in 2008. In addition, cash flow from operating activities in 2007 was reduced by a $4.1 million gain on the sale of an office facility in the United Kingdom that did not recur in 2008.
          Investing activities utilized cash of $300.0 million, $12.7 million and $8.2 million in 2009, 2008 and 2007, 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 ($6.5 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 2009, 2008 and 2007 include capital expenditures of $7.1 million, $8.6 million and $7.4 million, respectively, and payment of direct costs related to acquisitions of $5.1 million, $4.2 million and $7.6 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. Investing activities in 2007 include $6.9 million in proceeds from the disposal of property and equipment, including $6.3 million from the sale of the office facility in the United Kingdom.
          Financing activities provided cash of $246.0 million in 2009 and utilized cash of $95.5 million and $30.6 million in 2008 and 2007, respectively. 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 owned by Thoma Bravo, $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 held by Thoma Bravo), and $6.5 million of debt issuance costs related to the issuance of the Senior Notes. Financing activities in 2008 and 2007 included the repayment of $99.6 million and $41.5 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.
          Changes in foreign currency exchange rates had the effect of increasing cash by $866,000 in 2009, reducing cash by $1.5 million in 2008 and increasing cash by $770,000 in 2007. The increases in 2009 and 2007 are due primarily to the weakening of the US Dollar against European currencies and the Japanese Yen, and conversely the decrease in 2008 was due primarily to the strengthening of the US Dollar against European currencies, particularly during the last three months of the year. We use derivative financial instruments, primarily forward exchange contracts, to manage a majority of the short-term foreign currency exchange exposure associated with foreign currency denominated assets and liabilities which exist as part of our ongoing business operations. We do not hedge the potential impact of foreign currency exposure on our ongoing revenues and expenses from foreign operations. 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, with gains and losses recognized in other income, net, offset by the gains or losses resulting from the settlement of the underlying foreign currency denominated assets and liabilities.
          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-

18


 

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.
          During 2009 and 2008, we also repurchased 108,765 and 118,048 common shares, respectively, tendered by employees for the payment of applicable statutory withholding taxes on the issuance of restricted shares under the 2005 Performance Incentive Plan. These shares were repurchased in 2009 for $1.6 million at prices ranging from $9.75 to $26.05 and in 2008 for $2.1 million at prices ranging from $11.50 to $20.40 per share.
          As part of the Purchase Agreement with Thoma Bravo, we repurchased 100,000 shares of our common stock held by Thoma Bravo for $2.0 million, or $20 per share.
          Separation Agreements with Former Executive Officers. We entered into separation agreements with Kristen L. Magnuson, our former Executive Vice President and Chief Financial Officer in second quarter 2009 and Christopher J. Koziol, our former Chief Operating Officer, in third quarter 2009. Pursuant to these agreements, Ms. Magnuson and Mr. Koziol received lump sum severance payments of approximately $825,000 and $898,000, respectively, and all unvested equity awards granted under the 2005 Incentive Plan vested immediately as of their date of resignation. We recorded additional share-based compensation expense related to this accelerated vesting of $175,000 for Ms. Magnuson and $140,000 for Mr. Koziol, which has been included in the 2009 restructuring charges.
          Contractual Obligations. The following summarizes scheduled principal maturities and interest on long-term debt and our operating lease obligations as of December 31, 2009:
                                         
    Payments Due By Period (in thousands)
Contractual Obligations   Total   < 1 year   1 to 3 years   3 to 5 years   > 5 years
Scheduled principal maturities and interest on long-term debt
  $ 385,000     $ 22,000     $ 44,000     $ 319,000     $  
Operating lease obligations
  $ 44,321     $ 13,673     $ 20,185     $ 3,876     $ 6,587  
Contracted sublease rentals
  $ (12,730 )   $ (4,631 )   $ (7,118 )   $ (981 )   $  
          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 ($6.5 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, 2009. We currently lease office space in the Americas for 12 regional sales and support offices across the United States and Latin America, and for 15 other international sales and support offices located in major cities throughout Europe, Asia, Australia, Japan and the CoE facility in 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.

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          The contractual obligations shown in the table above exclude $8.8 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 also assumed certain operating lease obligations in connection with our acquisition of i2 on January 28, 2010. These leases include office space in the Americas for 5 regional sales and support offices across the United States, Canada and Latin America, and for 14 other international sales and support office located in major cities through Europe, Asia, Australia, Japan and Center of Excellence facilities in Bangalore and Mumbai, India. The leases are primarily non-cancelable operating leases with initial terms generally ranging from one to seven years that expire at various dates through the year 2014. 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 a portion of these leases will be renewed or that suitable additional or alternative space will be available on commercially reasonable terms as needed, and others will be cancelled as we consolidate JDA and i2 offices. In addition, we lease various computers, 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 following summarizes future minimum lease payments under non-cancelable operating leases assumed in the acquisition of i2:
                                         
    Payments Due By Period (in thousands)
Contractual Obligations   Total   < 1 year   1 to 3 years   3 to 5 years   > 5 years
Operating lease obligations
  $ 20,800     $ 7,257     $ 9,799     $ 3,744     $  
Contracted sublease rentals
  $ (917 )   $ (432 )   $ (485 )   $     $  
          We believe our existing facilities and those assumed in the acquisition of i2 are adequate for our current needs and for the foreseeable future.
          We believe our cash and cash equivalents and net cash provided from operations will provide adequate liquidity to meet our normal operating requirements for the foreseeable future. A major component of our positive cash flow is the collection of accounts receivable and the generation of cash earnings.
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.
    Revenue recognition. Our revenue recognition policy is significant because our revenue is a key component of our results of operations. In addition, our revenue recognition determines the timing of certain expenses such as commissions and royalties. We follow specific and detailed guidelines in measuring revenue; however, certain judgments affect the application of our revenue policy.
 
      We license software 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

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  Ø   Vendor-specific evidence of fair value (“VSOE”) exists for all undelivered elements.
      Our customer arrangements typically contain multiple elements that include software, options for future purchases of software products not previously licensed to the customer, maintenance, consulting and training services. The fees from these arrangements are allocated to the various elements based on VSOE. Under the residual method, if an arrangement contains an undelivered element, the VSOE of the undelivered element is deferred and the revenue recognized once the element is delivered. If we are unable to determine VSOE for any undelivered element included in an arrangement, we will defer revenue recognition until all elements have been delivered. In addition, if a software license contains milestones, customer acceptance criteria or a cancellation right, the software revenue is recognized upon the achievement of the milestone or upon the earlier of customer acceptance or the expiration of the acceptance period or cancellation right. 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 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.
 
      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 generally 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. We offer hosting and other managed services on certain of our software products under arrangements in which the end users do not take possession of the software. Revenues from hosting services are included in consulting revenues, billed monthly and recognized as the services are provided. Revenues from our hardware reseller business are also included in consulting revenues, reported net (i.e., the amount billed to a customer less the amount paid to the supplier) and recognized upon shipment of the hardware.
 
      Customers are reviewed for creditworthiness before we enter into a new arrangement that provides for software and/or a service element. We do not sell or ship our software, nor recognize any license revenue, unless we believe that collection is probable. Payments for our software licenses are typically due within twelve months from the date of delivery. Although infrequent, where software license agreements call for payment terms of twelve months or more from the date of delivery, revenue is recognized as payments become due and all other conditions for revenue recognition have been satisfied.
 
    Accounts Receivable. Consistent with industry practice and to be competitive in the software marketplace,

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      we typically provide payment terms on most software license sales. Software licenses are generally due within twelve months from the date of delivery. Customers are reviewed for creditworthiness before we enter into a new arrangement that provides for software and/or a service element. We do not sell or ship our software, nor recognize any revenue unless we believe that collection is probable. For those customers who are not credit worthy, we require prepayment of the software license fee or a letter of credit before we will ship our software. We have a history of collecting software payments when they come due without providing refunds or concessions. Consulting services are generally billed bi-weekly and maintenance services are billed annually or monthly. For those customers who are significantly delinquent or whose credit deteriorates, we typically put the account on hold and do not recognize any further services revenue, and may as appropriate withdraw support and/or our implementation staff until the situation has been resolved.
 
      We do not have significant billing or collection problems. We review each past due account and provide specific reserves based upon the information we gather from various sources including our customers, subsequent cash receipts, consulting services project teams, members of each region’s management, and credit rating services such as Dun and Bradstreet. Although infrequent and unpredictable, from time to time certain of our customers have filed bankruptcy, and we have been required to refund the pre-petition amounts collected and settle for less than the face value of their remaining receivable pursuant to a bankruptcy court order. In these situations, as soon as it becomes probable that the net realizable value of the receivable is impaired, we provide reserves on the receivable. In addition, we monitor economic conditions in the various geographic regions in which we operate to determine if general reserves or adjustments to our credit policy in a region are appropriate for deteriorating conditions that may impact the net realizable value of our receivables.
 
    Business Combinations. All business combinations through December 31, 2008 were accounted for using the purchase method of accounting. Under the purchase method of accounting, the purchase price of each acquired company was allocated to the acquired assets and liabilities based on their fair values. There was no in-process research and development (“IPR&D”) recorded on any of our business combinations during the three years ended December 31, 2008. IPR&D consists of products or technologies in the development stage for which technological feasibility has not been established and which we believe have no alternative use.
 
      Effective January 1, 2009, all future business combinations will be accounted for at fair value under the acquisition method of accounting. Under the acquisition method of accounting, (i) acquisition-related costs, except for those costs incurred to issue debt or equity securities, will be expensed in the period incurred; (ii) non-controlling interests will be valued at fair value at the acquisition date; (iii) IPR&D will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; (iv) restructuring costs associated with a business combination will be expensed subsequent to the acquisition date; and (v) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date will be recognized through income tax expense or directly in contributed capital, including any adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior January 1, 2009. There were no business combinations in 2009. We did however acquire i2 Technologies, Inc. on January 28, 2010 in a business combination that will be accounted for under the acquisition method of accounting.
 
    Goodwill and Intangible Assets. Our business combinations have typically resulted in goodwill and other intangible assets. These intangible assets affect the amount of future period amortization expense and potential impairment charges we may incur. The determination of the value of such intangible assets and the annual impairment tests that we perform require management to make estimates of future revenues, customer retention rates and other assumptions that affect our consolidated financial statements.
 
      Goodwill is tested annually for impairment, 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 2009, 2008 or 2007 with respect to the goodwill

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      allocated to our Supply Chain and Services Industries reportable business segments. Absent future indications of impairment, the next annual impairment test will be performed in fourth quarter 2010.
 
      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. In first quarter 2008, we changed the estimated useful life of certain customer lists to reflect current trends in attrition. With this change, the quarterly amortization expense on customer lists increased approximately $2.1 million per quarter, beginning first quarter 2008 and continuing over the remaining useful life of the related customer lists which extend through June 2014.
 
      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 estimated remaining useful life of five years.
 
    Product Development. The costs to develop new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. We consider technological feasibility to have occurred when all planning, designing, coding and testing have been completed according to design specifications. Once technological feasibility is established, any additional costs would be capitalized. We believe our current process for developing software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no costs have been capitalized.
 
    Income Taxes. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We follow specific and detailed guidelines regarding the recoverability of any tax assets recorded on the balance sheet and provide valuation allowances when recovery of deferred tax assets is not considered likely.
 
      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.
 
      As of December 31, 2009 we have approximately $10.8 million of unrecognized tax benefits, substantially all of which relates to uncertain tax positions associated with the acquisition of Manugistics that would impact our effective tax rate if recognized. Recognition of these uncertain tax positions will be treated as a component of income tax expense rather than as a reduction of goodwill. During 2009, there were no significant changes in our unrecognized tax benefits. It is reasonably possible that approximately $8.8

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      million of unrecognized tax benefits will be recognized within the next twelve months, primarily related to lapses in the statute of limitations. At December 31, 2009, we have approximately $5.5 million and $7.8 million of federal and state research and development tax credit carryforwards, respectively, that expire at various dates through 2024. 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 the accrual of interest and penalties related to uncertain tax positions as a component of income tax expense, including accruals (benefits) made during 2009, 2008 and 2007 of $(515,000), $600,000 and $630,000, respectively. As of December 31, 2009, 2008 and 2007, there are approximately $2.3 million, $2.6 million and $1.9 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.
 
    Share-Based Compensation. Our 2005 Performance Incentive Plan, as amended (“2005 Incentive Plan”) provides for the issuance of up to 3,847,000 shares of common stock to employees, consultants and directors under stock purchase rights, stock bonuses, restricted stock, restricted stock units, performance awards, performance units and deferred compensation awards. The 2005 Incentive Plan contains certain restrictions that limit the number of shares that may be issued and the amount of cash awarded under each type of award, including a limitation that awards granted in any given year can represent no more than two percent (2%) of the total number of shares of common stock outstanding as of the last day of the preceding fiscal year. Awards granted under the 2005 Incentive Plan are in such form as the Compensation Committee shall from time to time establish and the awards may or may not be subject to vesting conditions based on the satisfaction of service requirements or other conditions, restrictions or performance criteria including the Company’s achievement of annual operating goals. Restricted stock and restricted stock units may also be granted under the 2005 Incentive Plan as a component of an incentive package offered to new employees or to existing employees based on performance or in connection with a promotion, and will generally vest over a three-year period, commencing at the date of grant. We measure the fair value of awards under the 2005 Incentive Plan based on the market price of the underlying common stock as of the date of grant. The fair value of each award is amortized over the applicable vesting period of the awards using graded vesting and reflected in the consolidated statements of income under the captions “Cost of maintenance services,” “Cost of consulting services,” “Product development,” “Sales and marketing,” and “General and administrative.”
 
      Annual stock-based incentive programs have been approved for executive officers and certain other members of our management team for years 2007 through 2010 that provide for contingently issuable performance share awards or restricted stock units upon achievement of defined performance threshold goals. The defined performance threshold goal for each year has been an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) targets, which excludes certain non-routine items. The awards vest 50% upon the date the Board approves the achievement of the annual performance threshold goal with the remaining 50% vesting ratably over the subsequent 24-month period.
 
      Equity Inducement Awards. During third quarter 2009, we announced the appointment of Peter S. Hathaway to the position of Executive Vice President and Chief Financial Officer and Jason Zintak to the newly-created position of Executive Vice President, Sales and Marketing. In order to induce Mr. Hathaway and Mr. Zintak to accept employment, the Compensation Committee granted certain equity awards outside of the terms of the 2005 Incentive Plan and pursuant to NASDAQ Marketplace Rule 5635(c)(4).
 
      Stock Option Plans. We maintained various stock option plans through May 2005 (“Prior Plans”). The Prior Plans provided for the issuance of shares of common stock to employees, consultants and directors under incentive and non-statutory stock option grants. Stock option grants under the Prior Plans were made at a price not less than the fair market value of the common stock at the date of grant, generally vested over a three to four-year period commencing at the date of grant and expire in ten years. Stock options are no longer used for share-based compensation and no grants have been made under the Prior Plans since 2004. With the adoption of the 2005 Incentive Plan, we terminated all Prior Plans except for those provisions necessary to administer the outstanding options, all of which are fully vested. As of December 31, 2009, we

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      had approximately 1.3 million vested stock options outstanding with exercise prices ranging from $10.33 to $27.50 per share.
 
      Employee Stock Purchase Plan. Our employee stock purchase plan (“2008 Purchase Plan”) has an initial reserve of 1,500,000 shares and provides eligible employees with the ability to defer up to 10% of their earnings for the purchase of our common stock on a semi-annual basis at 85% of the fair market value on the last day of each six-month offering period that begin on February 1st and August 1st of each year. The 2008 Purchase Plan is considered compensatory and, as a result, stock-based compensation is recognized on the last day of each six-month offering period in an amount equal to the difference between the fair value of the stock on the date of purchase and the discounted purchase price. A total of 155,888 shares of common stock were purchased under the 2008 Purchase Plan in 2009 at prices ranging from $9.52 to $17.52. We have recognized $342,000 of share-based compensation expense in connection with these purchases, which is reflected in the consolidated statements of income under the captions “Cost of maintenance services,” “Cost of consulting services,” “Product development,” “Sales and marketing,” and “General and administrative.”
 
      Derivative Instruments and Hedging Activities. We use derivative financial instruments, primarily forward exchange contracts, to manage a majority of the foreign currency exchange exposure associated with net short-term foreign 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, 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, 2009, we had forward exchange contracts with a notional value of $37.9 million and an associated net forward contract payable of $354,000. At December 31, 2008, we had forward exchange contracts with a notional value of $33.5 million and an associated net forward contract liability of $14,000. These derivatives are not designated as hedging instruments. The forward contract liabilities are included in the consolidated balance sheets under the caption “Accrued expenses and other liabilities.” The notional value represents the amount of foreign currencies to be purchased or sold at maturity and does not represent our exposure on these contracts. We recorded net foreign currency exchange contract gains of $677,000, $483,000 and $147,000 in 2009, 2008 and 2007, respectively, which are included in the condensed consolidated statements of income under the caption “Interest Income and other, net.”
Other 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 using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a 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 are currently assessing the impact the new guidance will have on certain of our revenue arrangements, specifically those involving the delivery of software-as-a-service and certain other managed service offerings as i2 derived a significant portion of their revenues from these form of contracts. 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 a 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

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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. We do not currently anticipate any significant impact from adoption of this guidance 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. We are currently assessing what impact this guidance will have on our consolidated financial statements.

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EX-99.3 6 p17827exv99w3.htm EX-99.3 exv99w3
Exhibit 99.3
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts, unaudited)
                 
    March 31,     December 31,  
    2010     2009  
ASSETS
               
Current Assets:
               
Cash and cash equivalents
  $ 155,817     $ 75,974  
Restricted cash
    11,698       287,875  
Accounts receivable, net
    107,881       68,883  
Income tax receivable
    1,050        
Deferred tax asset
    57,828       19,142  
Prepaid expenses and other current assets
    29,705       15,667  
 
           
Total current assets
    363,979       467,541  
 
           
Non-Current Assets:
               
Property and equipment, net
    43,296       40,842  
Goodwill
    201,316       135,275  
Other Intangibles, net:
               
Customer-based intangibles
    167,395       99,264  
Technology-based intangibles
    44,264       20,240  
Marketing-based intangibles
    13,960       157  
Deferred tax asset
    268,821       44,350  
Other non-current assets
    17,154       13,997  
 
           
Total non-current assets
    756,206       354,125  
 
           
 
               
Total Assets
  $ 1,120,185     $ 821,666  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts payable
  $ 11,063     $ 7,192  
Accrued expenses and other liabilities
    74,068       45,523  
Income taxes payable
          3,489  
Deferred revenue
    127,905       65,665  
 
           
Total current liabilities
    213,036       121,869  
 
           
Non-Current Liabilities:
               
Long-term debt
    272,333       272,250  
Accrued exit and disposal obligations
    6,458       7,341  
Liability for uncertain tax positions
    14,215       8,770  
Deferred revenue
    28,942        
 
           
Total non-current liabilities
    321,948       288,361  
 
           
 
               
Total Liabilities
    534,984       410,230  
 
           
 
               
Commitments and Contingencies (Note 8)
               
 
               
Stockholders’ Equity:
               
Preferred stock, $.01 par value; authorized 2,000,000 shares; none issued or outstanding
           
Common stock, $.01 par value; authorized 50,000,000 shares; issued 43,528,992 and 36,323,245 shares, respectively
    435       363  
Additional paid-in capital
    553,705       361,362  
Deferred compensation
    (15,906 )     (5,297 )
Retained earnings
    69,746       74,014  
Accumulated other comprehensive income
    2,706       3,267  
Less treasury stock, at cost, 1,901,490 and 1,785,715 shares, respectively
    (25,485 )     (22,273 )
 
           
Total stockholders’ equity
    585,201       411,436  
 
           
Total liabilities and stockholders’ equity
  $ 1,120,185     $ 821,666  
 
           
See notes to condensed consolidated financial statements.

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JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data, unaudited)
                 
    Three Months Ended  
    March 31,  
    2010     2009  
REVENUES:
               
Software licenses
  $ 24,437     $ 14,357  
Subscriptions and other recurring revenues
    4,287       968  
Maintenance services
    57,060       42,997  
 
           
Product revenues
    85,784       58,322  
 
           
 
               
Consulting services
    43,002       23,034  
Reimbursed expenses
    2,845       1,977  
 
           
Service revenues
    45,847       25,011  
 
           
Total revenues
    131,631       83,333  
 
           
 
               
COST OF REVENUES:
               
Cost of software licenses
    1,008       602  
Amortization of acquired software technology
    1,576       1,008  
Cost of maintenance services
    12,033       10,549  
 
           
Cost of product revenues
    14,617       12,159  
 
           
 
               
Cost of consulting services
    35,269       19,382  
Reimbursed expenses
    2,845       1,977  
 
           
Cost of service revenues
    38,114       21,359  
 
           
Total cost of revenues
    52,731       33,518  
 
           
 
               
GROSS PROFIT
    78,900       49,815  
 
               
OPERATING EXPENSES:
               
Product development
    17,277       12,573  
Sales and marketing
    21,112       14,252  
General and administrative
    17,697       11,026  
Amortization of intangibles
    8,566       6,076  
Restructuring charges
    7,758       1,430  
Acquisition-related costs
    6,743        
 
           
Total operating expenses
    79,153       45,357  
 
           
 
               
OPERATING INCOME (LOSS)
    (253 )     4,458  
 
               
Interest expense and amortization of loan fees
    (6,086 )     (239 )
Interest income and other, net
    1,123       (243 )
 
           
 
               
INCOME (LOSS) BEFORE INCOME TAXES
    (5,216 )     3,976  
Income tax (provision) benefit
    948       (1,332 )
 
           
 
               
NET INCOME (LOSS)
  $ (4,268 )   $ 2,644  
 
           
 
               
BASIC EARNINGS (LOSS) PER SHARE
  $ (.11 )   $ .08  
 
           
DILUTED EARNINGS (LOSS) PER SHARE
  $ (.11 )   $ .08  
 
           
 
               
SHARES USED TO COMPUTE:
               
Basic earnings (loss) per share
    39,343       34,961  
 
           
Diluted earnings (loss) per share
    39,343       35,075  
 
           
See notes to condensed consolidated financial statements.

2


 

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)
                 
    Three Months Ended  
    March 31,  
    2010     2009  
NET INCOME (LOSS)
  $ (4,268 )   $ 2,644  
 
               
OTHER COMPREHENSIVE LOSS:
               
Foreign currency translation loss
    (561 )     (614 )
 
           
Total other comprehensive loss
    (561 )     (614 )
 
           
 
               
COMPREHENSIVE INCOME (LOSS)
  $ (4,829 )   $ 2,030  
 
           
See notes to condensed consolidated financial statements.

3


 

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
                 
    Three Months  
    Ended March 31,  
    2010     2009  
OPERATING ACTIVITIES:
               
Net income (loss)
  $ (4,268 )   $ 2,644  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation and amortization
    13,148       9,411  
Amortization of loan origination fees, debt issuance costs and original issue discount
    427        
Share-based compensation expense
    3,277       1,410  
Net gain on disposal of property and equipment
    (5 )     (16 )
Deferred income taxes
    (2,546 )     1,007  
Changes in assets and liabilities, net of effects from business acquisition:
               
Accounts receivable
    (7,211 )     13,594  
Income tax receivable
    1,076       (848 )
Prepaid expenses and other current assets
    (7,889 )     (2,964 )
Accounts payable
    550       4,474  
Accrued expenses and other liabilities
    (11,101 )     (15,422 )
Income tax payable
    (2,127 )     117  
Deferred revenue
    28,864       19,648  
 
           
Net cash provided by operating activities
    12,195       33,055  
 
           
 
               
INVESTING ACTIVITIES:
               
Change in restricted cash
    276,177        
Purchase of i2 Technologies, Inc
    (213,427 )      
Payment of direct costs related to prior acquisitions
    (850 )     (817 )
Purchase of other property and equipment
    (533 )     (1,003 )
Proceeds from disposal of property and equipment
    17       16  
 
           
Net cash provided by (used in) investing activities
    61,384       (1,804 )
 
           
 
               
FINANCING ACTIVITIES:
               
Issuance of common stock — equity plans
    10,904       2,506  
Purchase of treasury stock and other, net
    (3,392 )     (3,219 )
 
           
Net cash provided by (used in) financing activities
    7,512       (713 )
 
           
 
               
Effect of exchange rates on cash
    (1,248 )     (219 )
 
           
Net increase in cash and cash equivalents
    79,843       30,319  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    75,974       32,696  
 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 155,817     $ 63,015  
 
           
See notes to condensed consolidated financial statements.

4


 

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
                 
    Three Months  
    Ended March 31,  
    2010     2009  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
 
               
Cash paid for income taxes
  $ 4,745     $ 1,096  
 
           
Cash paid for interest
  $ 427     $ 43  
 
           
Cash received for income tax refunds
  $ 928     $ 415  
 
           
 
               
Acquisition of i2 Technologies, Inc.
               
 
               
Identifiable assets acquired:
               
Current assets acquired
  $ 300,097          
Property and equipment acquired
    3,116          
Customer-based intangibles
    76,200          
Technology-based intangibles
    25,600          
Marketing-based intangibles
    14,300          
Long-term deferred tax assets acquired
    218,322          
Other non-current assets acquired
    3,925          
 
             
Total identifiable assets acquired
    641,560          
Goodwill
    66,041          
 
             
Total assets acquired
    707,601          
 
             
 
               
Liabilities assumed:
               
Deferred revenue assumed
    (62,614 )        
Other current liabilities assumed
    (41,128 )        
Non-current liabilities assumed
    (4,105 )        
 
             
Total liabilities assumed
    (107,847 )        
 
             
 
               
Net assets acquired from i2 Technologies, Inc.
  $ 599,754          
 
             
 
               
Merger consideration to acquire i2 Technologies, Inc.
               
 
               
Fair value of JDA common stock issued as merger consideration
  $ 167,979          
Cash merger consideration
    431,775          
 
             
Total merger consideration to acquire i2 Technologies, Inc.
  $ 599,754          
 
             
 
               
Cash merger consideration
  $ 431,775          
Less cash acquired from i2 Technologies
    218,348          
 
             
Cash expended to acquire i2 Technologies, Inc.
  $ 213,427          
 
             
See notes to condensed consolidated financial statements.

5


 

JDA SOFTWARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except percentages, shares, per share amounts, or as otherwise stated)
(unaudited)
1. Basis of Presentation
     The accompanying unaudited condensed consolidated financial statements of JDA Software Group, Inc. (“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, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. 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, 2009.
     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.
     Certain reclassifications have been made to the consolidated statements of operations for the three months ended March 31, 2009 to conform to the current presentation. In the consolidated statement of income, we have reported subscription revenues under the caption “Subscriptions and other recurring revenues.” Subscription revenues were previously reported in revenues under the caption “Software licenses” and were not material.
2. Acquisition of i2 Technologies, Inc.
     On January 28, 2010, we completed the acquisition of i2 Technologies, Inc. (“i2”) for approximately $599.8 million, which includes cash consideration of approximately $431.8 million and the issuance of approximately 6.2 million shares of our common stock with an acquisition date fair value of approximately $168.0 million, or $26.88 per share, determined on the basis of the closing market price of our common stock on the date of acquisition (the “Merger”). The combination of JDA and i2 creates a market leader in the supply chain management market. We believe this combination provides JDA with (i) a strong, complementary presence in new markets such as discrete manufacturing; (ii) enhanced scale; (iii) a more diversified, global customer base of over 6,000 customers; (iv) a comprehensive product suite that provides end-to-end supply chain management (“SCM”) solutions; (v) incremental revenue opportunities associated with cross-selling of products and services among our existing customer base; and (vi) an ability to increase profitability through net cost synergies within twelve months after the Merger.
     Under the terms of the Merger Agreement, each issued and outstanding share of i2 common stock was converted into the right to receive $12.70 in cash and 0.2562 of a share of JDA common stock (the “Merger Consideration”). Holders of i2 common stock did not receive any fractional JDA shares in the Merger. Instead, the total number of shares that each holder of i2 common stock received in the Merger was rounded down to the nearest whole number, and JDA paid cash for any resulting fractional share determined by multiplying the fraction by $26.65, which represents the average closing price of JDA common stock on Nasdaq for the five consecutive trading days ending three days prior to the effective date of the Merger.
     Each outstanding option to acquire i2 common stock was canceled and terminated at the effective time of the Merger and converted into the right to receive the Merger Consideration with respect to the number of shares of i2 common stock that would have been issuable upon a net exercise of such option, assuming the market value of the i2 common stock at the time of such exercise was equal to the value of the Merger Consideration as of the close of trading on the day immediately prior to the effective date of the Merger. Any outstanding option with a per share exercise price that was greater than or equal to such amount was cancelled and terminated and no payment was

6


 

made with respect thereto. In addition, each i2 restricted stock unit award outstanding immediately prior to the effective time of the Merger was fully vested and cancelled, and each holder of such awards became entitled to receive the Merger Consideration for each share of i2 common stock into which the vested portion of the awards would otherwise have been convertible. Each i2 restricted stock award was vested immediately prior to the effective time of the Merger and was entitled to receive the Merger Consideration.
     Each outstanding share of i2’s Series B Preferred Stock was converted into the right to receive $1,100 per share in cash, which is equal to the stated change of control liquidation value of each such share plus all accrued and unpaid dividends thereon through the effective date of the Merger.
     At the effective time of the Merger, each outstanding warrant to purchase shares of i2’s common stock ceased to represent a right to acquire i2’s common stock and was assumed by JDA and converted into a warrant with the right to receive upon exercise, the Merger Consideration that would have been received as a holder of i2 common stock if such i2 warrant had been exercised prior to the effective time of the Merger. In total, 420,237 warrants to purchase i2 common stock at an exercise price of $15.4675 were assumed and converted into the right to receive the Merger Consideration upon exercise, including 107,663 shares of JDA common stock.
     The Merger is being accounted for using the acquisition method of accounting, with JDA identified as the acquirer, and the operating results of i2 have been included in our consolidated financial statements from the date of acquisition. Under the acquisition method of accounting, all assets acquired and liabilities assumed will be recorded at their respective acquisition-date fair values. We have allocated all goodwill recorded in the i2 acquisition ($66.0 million) to our Supply Chain reportable business segmenting unit (see Note 13). None of the goodwill recorded in the i2 acquisition is deductible for tax purposes. In addition, we have initially recorded $116.1 million in other intangible assets, including $76.2 million for customer-based intangibles (maintenance relationships and future technological enhancements, service relationships and a covenant not-to-compete), $25.6 million for technology-based intangibles consisting of developed technology and $14.3 million for marketing-based intangibles consisting of trademark and trade names. However, the purchase price allocation has not been finalized. We are still in the process of obtaining all information necessary to determine the fair values of the acquired assets and we have retained an independent third-party appraiser for the intangible assets to assist management in its valuation. This could result in adjustments to the carrying value of the assets and liabilities acquired, the useful lives of intangible assets and the residual amount allocated to goodwill. The preliminary allocation of the purchase price is based on the best estimates of management and is subject to revision based on the final valuations and estimates of useful lives. The initial estimated weighted average amortization period for all intangible assets acquired in this transaction that are subject to amortization is 6.7 years.
     The following table summarizes our initial estimate of the fair values of the assets acquired and liabilities assumed at the date of acquisition.
                         
                    Weighted Average  
            Useful Life     Amortization Period  
Cash
  $ 218,348                  
Trade accounts receivable acquired
    31,711                  
Other current assets acquired
    50,038                  
Property and equipment acquired
    3,116                  
Customer-based intangibles
    76,200       1 to 7 years     6 years
Technology-based intangibles
    25,600       7 years     7 years
Marketing-based intangibles
    14,300       5 years     5 years
Long-term deferred tax assets acquired
    218,322                  
Other non-current assets
    3,925                  
 
                     
Total assets acquired
    641,560                  
Goodwill
    66,041                  
 
                     
Total assets acquired
    707,601                  
 
                     
 
                       
Deferred revenue assumed .
    (62,614 )                
Other current liabilities assumed
    (41,128 )                
Other non-current liabilities assumed
    (4,105 )                
 
                     
Total liabilities assumed
    (107,847 )                
 
                     
Net assets acquired from i2 Technologies, Inc.
  $ 599,754                  
 
                     

7


 

     As of the date of the acquisition, the gross contractual amount of trade accounts receivable acquired were $35.4 million, of which approximately $3.7 million is expected to be uncollectable.
     Liabilities have been recognized for certain assumed customer and labor disputes of $7.7 million and $268,000, respectively. The potential undiscounted amount of all future payments that we could be required to make to settle the customer and labor disputes is estimated to range between $5.2 million and $9.4 million and $73,000 and $1.2 million, respectively.
     The following unaudited pro-forma consolidated results of operations for the three months ended March 31, 2010 and 2009 assume the i2 acquisition occurred as of January 1 of each year. The pro-forma results are not necessarily indicative of the actual results that would have occurred had the acquisition been completed as of the beginning of each of the periods presented, nor are they necessarily indicative of future consolidated results.
                 
    Three Months Ended   Three Months Ended
    March 31, 2010   March 31, 2009
Total revenues
  $ 146,657     $ 139,709  
Net loss
  $ (18,703 )   $ (3,527 )
Basic loss per share
  $ (0.45 )   $ (0.09 )
Diluted loss per share
  $ (0.45 )   $ (0.09 )
     The amounts of i2 revenues and earnings (loss) included in our consolidated statements of operations for the three months ended March 31, 2010, and the revenues and earnings (loss) of the combined entity had the acquisition date been January 1, 2009 or January 1, 2010 are as follows:
                 
    Revenues   Earnings (Loss)
i2 operating results from January 28, 2010 to March 31, 2010
  $ 37,261     $ *  
i2 operating results from January 1, 2010 to March 31, 2010
  $ 52,287     $ *  
i2 operating results from January 1, 2009 to March 31, 2009
  $ 56,376     $ 1,871  
 
*   We are unable to provide separate disclosure of the earnings (loss) of i2 from January 28, 2010 (date of acquisition) to March 31, 2010 and the pro-forma results from January 1, 2010 to March 31, 2010 as the operating expenses of the combined company were co-mingled at the date of acquisition.
     Through March 31, 2010, we have expensed approximately $11.5 million of costs related to the acquisition of i2, including $6.7 million in first quarter 2010. 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.”
     On December 10, 2009, we issued $275 million of five-year, 8.0% Senior Notes (the “Senior Notes”) at an initial offering price of 98.988% of the principal amount. The net proceeds from the sale of the Senior Notes, which exclude the original issue discount ($2.8 million) and other debt issuance costs ($6.7 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 7).
3. Derivative Instruments and Hedging Activities
     We use derivative financial instruments, primarily forward exchange contracts, to manage a majority of the foreign currency exchange exposure associated with net short-term foreign 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 currency denominated assets and liabilities. We do not enter into derivative financial instruments for trading or speculative purposes. The forward exchange contracts generally have maturities of less than 90 days and are not designated as hedging instruments. 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, 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.

8


 

     At March 31, 2010, we had forward exchange contracts with a notional value of $83.3 million and an associated net forward contract receivable of $337,000 determined on the basis of Level 2 inputs. 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 $354,000 determined on the basis of Level 2 inputs. These derivatives are not designated as hedging instruments. The forward contract receivables or liabilities are included in the condensed consolidated balance sheet under the captions, “Prepaid expenses and other current assets” or “Accrued expenses and other liabilities” as appropriate. The notional value represents the amount of foreign currencies to be purchased or sold at maturity and does not represent our exposure on these contracts. We recorded net foreign currency exchange contract gain of $961,000 in first quarter 2010 and a net foreign currency exchange contract loss of $318,000 in first quarter 2009, which are included in the condensed consolidated statements of operations under the caption “Interest Income and other, net.”
4. Goodwill and Other Intangibles, net
     Goodwill and other intangible assets consist of the following:
                                         
            March 31, 2010     December 31, 2009  
            Gross             Gross        
    Estimated Useful     Carrying     Accumulated     Carrying     Accumulated  
    Lives     Amount     Amortization     Amount     Amortization  
Goodwill:
                                       
Gross goodwill
          $ 211,029     $     $ 144,988     $  
Accumulated impairment losses
            (9,713 )             (9,713 )        
 
                                   
Goodwill, net of impairment losses
          $ 201,316             $ 135,275          
 
                                   
 
                                       
Identifiable intangible assets:
                                       
 
                                       
Customer-based intangible assets
    1 to 13 years       259,583       (92,188 )     183,383       (84,119 )
Technology-based intangible assets
    5 to 15 years       91,446       (47,182 )     65,847       (45,607 )
Marketing-based intangible assets
    5 years       19,491       (5,531 )     5,191       (5,034 )
                 
 
            370,520       (144,901 )     254,421       (134,760 )
                 
 
                                       
 
          $ 571,836     $ (144,901 )   $ 389,696     $ (134,760 )
                 
     Goodwill. We have initially recorded $66.0 million of goodwill in connection with our acquisition of i2 (see Note 2), all of which has been allocated to our Supply Chain reportable business segment (see Note 13). However, the purchase price allocation has not been finalized and adjustments may still be made to the carrying value of the assets and liabilities acquired, the useful lives of intangible assets and the residual amount allocated to goodwill. We are still in the process of obtaining all information necessary to determine the fair values of the acquired assets and we have retained an independent third party appraiser for the intangible assets to assist management in its valuation. We found no indication of impairment of our goodwill balances during the three months ended March 31, 2010 and, absent future indicators of impairment, the next annual impairment test will be performed in fourth quarter 2010. As of March 31, 2010, the goodwill balance has been allocated to our reporting units as follows: $197.6 million to Supply Chain and $3.7 million to Services Industries.
     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. We have initially recorded $76.2 million, $25.6 million and $14.3 million of customer-based, technology-based and marketing-based intangible assets, respectively, in connection with our acquisition of i2 (see Note 2).
     Amortization expense for first quarter 2010 and 2009 was $10.1 million and $7.1 million, respectively. The increase in amortization in first quarter 2010 compared to first quarter 2009 is due to amortization on the identifiable

9


 

intangible assets recorded in the acquisition of i2.
     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, 2010, we expect amortization expense for the remainder of 2010 and the next four years to be as follows:
         
Year   Expected Amortization
2010
  $ 35,781  
2011
    46,018  
2012
    45,431  
2013
    44,431  
2014
    27,672  
5. Restructuring Reserves
2010 Restructuring Charges
     We recorded restructuring charges of $7.8 million in first quarter 2010 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 Center of Excellence (“CoE”) in India. The charges include $5.2 million for termination benefits related to a workforce reduction of 86 full-time employees (“FTE”) primarily in product development, sales, information technology and other administrative positions in each of our geographic regions. In addition, the charges include $2.5 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. As of March 31, 2010, approximately $5.6 million of the costs associated with these restructuring charges have been paid and the remaining balance of $2.3 million in included in the condensed consolidated balance sheet under the caption “Accrued expenses and other current liabilities.” A summary of the first quarter 2010 restructuring charge is as follows:
                                 
                    Impact of    
                    Changes in   Balance
    Initial   Cash   Exchange   March 31,
Description of charge   Reserve   Charges   Rates   2010
Termination benefits
  $ 5,233     $ (5,089 )   $ (1 )   $ 143  
Office closures
    2,512       (431 )     47       2,128  
     
Total
  $ 7,745     $ (5,520 )   $ 46     $ 2,271  
     
     The balance in the reserve for office closures is primarily related to redundant office facility leases in Dallas, Texas and the United Kingdom that are being amortized over the related lease terms that extend through 2014. The balance in the reserve for termination benefits is related to certain foreign employees that we expect to pay in 2010.
2009 Restructuring Charges
     We recorded restructuring charges of $6.5 million in 2009, including $1.5 million in first quarter 2009, primarily associated with the transition of additional on-shore activities to the Center of Excellence (“CoE”) in India 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 our former Executive Vice President and Chief Financial Officer and our former Chief Operating Officer. As of March 31, 2010, approximately $6.3 million of the costs associated with these restructuring charges have been paid and the remaining balance of $204,000 is included in the condensed

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consolidated balance sheet under the caption “Accrued expenses and other current liabilities.” We expect substantially all of the remaining costs will be paid in 2010.
6. Manugistics 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 June 30, 2007 and included in the final purchase price allocation. All adjustments made subsequent to June 30, 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, 2010 includes $4.4 million of current liabilities under the caption “Accrued expenses and other liabilities” and $6.5 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   2009   to Reserves   Charges   Rates   2010
Restructuring charges:
                                                                       
Office closures, lease terminations and sublease costs
  $ 29,212     $ (949 )   $ (16,110 )   $ (724 )   $ 11,429     $     $ (783 )   $ (216 )   $ 10,430  
Employee severance and termination benefits
    3,607       (767 )     (2,468 )     125       497             (67 )     (28 )     402  
 
                                                                       
IT projects, contract termination penalties, capital lease buyouts and other costs to exit activities of Manugistics
    1,450       222       (1,672 )                                    
     
 
    34,269       (1,494 )     (20,250 )     (599 )     11,926     $       (850 )     (244 )     10,832  
 
                                                                       
Direct costs
    13,125       6       (13,131 )                                    
     
Total
  $ 47,394     $ (1,488 )   $ (33,381 )   $ (599 )   $ 11,926     $     $ (850 )   $ (244 )   $ 10,832  
     
     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 is being amortized over the related lease terms that extend through 2018. The balance in the reserve for employee severance and termination benefits is related to certain foreign employees that we expect to pay in 2010.
7. Long-term Debt
     On December 10, 2009, we issued $275 million of 8.0% Senior Notes at an initial offering price of 98.988% of the principal amount. The net proceeds from the sale of the Senior Notes, which exclude the original issue discount ($2.8 million) and other debt issuance costs ($6.7 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).
     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

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guaranteed on a senior basis by our substantially all of existing and future domestic subsidiaries (including, following the Merger, i2 and its domestic subsidiaries).
     At any time prior to December 15, 2012, we may redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 108% of the principal amount, plus accrued and unpaid interest, with the cash proceeds of an equity offering of our common stock. At any time prior to December 15, 2012, we may also redeem all or a part of the Senior Notes at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest and a ‘make whole” premium calculated as the greater of (i) 1% of the principal amount of the Senior Notes redeemed or (ii) the excess of the present value of the redemption price of the Senior Notes redeemed at December 15, 2012 over the principal amount the Senior Notes redeemed. In addition, we may redeem the Senior Notes on or after December 15, 2012 at a redemption price of 104% of the principal amount, and on or after December 15, 2013 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest. The Senior Notes rank equally in right of payment with all existing and future senior debt and are senior in right of payment to all subordinated debt.
     The Senior Notes contain certain restrictive covenants including (i) a requirement to repurchase the Senior Notes at price equal to 101% of the principal amount, plus accrued and unpaid interest, in the event of a change in control and (ii) restrictions that limit our ability to pay dividends, make investments, incur additional indebtedness, create liens, issue preferred stock or consolidate, merge, sell or otherwise dispose of all or substantially all of our or their assets. The Senior Notes also provide for customary events of default and in the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Senior Notes will become due and payable immediately without further action or notice. If any other event of default occurs or is continuing, the trustee or holders of at least 25% in aggregate principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately.
     The Senior Notes and the related guarantees have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and may not be offered or sold in the United States without registration or an applicable exemption from registration requirements. In connection with the issuance of the Senior Notes, we entered into an exchange and registration rights agreement. Under the terms of the exchange and registration rights agreement, we are required to file an exchange offer registration statement within 180 days following the issuance of the Senior Notes enabling holders to exchange the Senior Notes for registered notes with terms substantially identical to the terms of the Senior Notes; to use commercially reasonable efforts to have the exchange offer registration statement declared effective by the Securities and Exchange Commission (the “SEC”) on or prior to 270 days after the closing of the note offering (the “Registration Deadline”); and, unless the exchange offer would not be permitted by applicable law or SEC policy, to complete the exchange offer within 30 business days after the Registration Deadline. Under specified circumstances, including if the exchange offer would not be permitted by applicable law or SEC policy, the registration rights agreement provides that we shall file a shelf registration statement for the resale of the Senior Notes. If we default on these registration obligations, additional interest (referred to as special interest), up to a maximum amount of 1.0% per annum, will be payable on the Senior Notes until all such registration defaults are cured.
     The fair value and carrying amount of the Senior Notes were $271.1 million and $272.3 million, respectively at March 31, 2010 and $269.4 million and $272.3 million, respectively at December 31, 2009.
     The $2.8 million original issue discount on the Senior Notes and other debt issuance costs of approximately $6.7 million are being amortized using the effective interest and straight-line methods, respectively over the five-year term and are reflected in the consolidated statements of income under the caption, “Interest expense and amortization of loan fees.” We accrued $5.5 million of interest on the Senior Notes in first quarter 2010 and amortized approximately $427,000 of the original issue discount and related loan origination fees.
8. Legal Proceedings
     We are involved in legal proceedings and claims arising in the ordinary course of business. Although there can be no assurance, management does not currently believe the disposition of these matters will have a material adverse effect on our business, financial position, results of operations or cash flows.

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          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, alleges infringement of 11 patents related to supply chain management, available to promise software and other enterprise software applications. As a result of our acquisition of i2 on January 28, 2010, i2 is now a wholly-owned subsidiary of the Company. On April 22, 2010, Oracle filed counterclaims against i2 and JDA Software Group, Inc. alleging the infringement by i2 of five Oracle patents.
9. Share-Based Compensation
          Our 2005 Performance Incentive Plan, as amended (“2005 Incentive Plan”), provides for the issuance of up to 3,847,000 shares of common stock to employees, consultants and directors under stock purchase rights, stock bonuses, restricted stock, restricted stock units, performance awards, performance units and deferred compensation awards. The 2005 Incentive Plan contains certain restrictions that limit the number of shares that may be issued and the amount of cash awarded under each type of award, including a limitation that awards granted in any given year can represent no more than two percent (2%) of the total number of shares of common stock outstanding as of the last day of the preceding fiscal year. Awards granted under the 2005 Incentive Plan are in such form as the Compensation Committee shall from time to time establish and the awards may or may not be subject to vesting conditions based on the satisfaction of service requirements or other conditions, restrictions or performance criteria including the Company’s achievement of annual operating goals. Restricted stock and restricted stock units may also be granted under the 2005 Incentive Plan as a component of an incentive package offered to new employees or to existing employees based on performance or in connection with a promotion, and will generally vest over a three-year period, commencing at the date of grant. We measure the fair value of awards under the 2005 Incentive Plan based on the market price of the underlying common stock as of the date of grant. The fair value of each award is amortized over the applicable vesting period of the awards using graded vesting and reflected in the consolidated statements of operations under the captions “Cost of maintenance services,” “Cost of consulting services,” “Product development,” “Sales and marketing,” and “General and administrative.”
          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 2010 that provide for contingently issuable performance share awards or restricted stock units upon achievement of defined performance threshold goals. A summary of the annual Performance Programs is as follows:
          2010 Performance Program. In February 2010, the Board approved a stock-based incentive program for 2010 (“2010 Performance Program”). The 2010 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 2010. A partial pro-rata issuance of performance share awards will be made if we achieve a minimum adjusted EBITDA performance threshold. The 2010 Performance Program initially provides for the issuance of up to approximately 555,000 of targeted contingently issuable performance share awards. The performance share awards, if any, will be issued after the approval of our 2010 financial results in January 2011 and will vest 50% upon the date of issuance with the remaining 50% vesting ratably over a 24-month period. Our performance against the defined performance threshold goal will be evaluated on a quarterly basis throughout 2010 and share-based compensation will be recognized over the requisite service period that runs from February 3, 2010 (the date of board approval) through January 2013. A deferred compensation charge of $13.7 million was recorded in the equity section our balance sheet in first quarter 2010, with a related increase to additional paid-in capital, for the total grant date fair value of the current estimated awards to be issued under the 2010 Performance Program. Although all necessary service and performance conditions have not been met through March 31, 2010, based on first quarter 2010 results and the outlook for the remainder of 2010, management has determined that it is probable the Company will achieve its minimum adjusted EBITDA performance threshold. As a result, we recorded $2.3 million in stock-based compensation expense related to these awards in first quarter 2010 on a graded vesting basis. If we achieve the defined performance threshold goal we would expect to recognize approximately $9.2 million of the award as share-based compensation in 2010.
          2009 Performance Program. The 2009 Performance Program provided for the issuance of contingently issuable performance share awards if we were able to achieve $91.5 million of adjusted EBITDA. The Company’s actual 2009 adjusted EBITDA performance qualified participants to receive 100% of their target awards. In total,

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506,450 contingently issuable performance share awards were issued in January 2010 with a grant date fair value of $6.8 million that is being recognized as share-based compensation over requisite service periods that run from the date of Board approval of the 2009 Performance Program through January 2012. The performance share awards vested 50% upon the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month period. Through March 31, 2010, approximately 1,900 of the performance share awards granted under the 2009 Performance Program have been subsequently forfeited. A deferred compensation charge of $6.8 million was recorded in the equity section of our balance sheet during 2009, with a related increase to additional paid-in capital, for the total grant date fair value of the awards. We recognized $4.5 million in share-based compensation expense related to these performance share awards in 2009, including $755,000 in first quarter 2009, plus an additional $266,000 in first quarter 2010.
          2008 Performance Program. The 2008 Performance Program provided for the issuance of contingently issuable performance share awards if we were able to achieve $95 million of adjusted EBITDA. The Company’s actual 2008 adjusted EBITDA performance, which exceeded the defined performance threshold goal of $95 million, qualified participants to receive approximately 106% of their target awards. In total, 222,838 performance share awards were issued in January 2009 with a grant date fair value of $3.9 million that is being recognized as stock-based compensation over requisite service periods that run from the date of Board approval of the 2008 Performance Program through January 2011. Through March 31, 2010, approximately 4,900 of performance share awards granted under the 2008 Performance Program have been subsequently forfeited. A deferred compensation charge of $3.9 million was recorded in the equity section of our balance sheet during 2008, with a related increase to additional paid-in capital, for the total grant date fair value of the awards. We recognized $117,000 and $147,000 in share-based compensation expense related to these performance share awards in first quarter 2010 and 2009, respectively.
          2007 Performance Program. The 2007 Performance Program provided for the issuance of contingently issuable restricted stock units if we were able to successfully integrate the Manugistics acquisition and achieve $85 million of adjusted EBITDA. The Company’s actual 2007 adjusted EBITDA performance qualified participants for a pro-rata issuance equal to 99.25% of their target awards. In total, 502,935 restricted stock units were issued in January 2008 with a grant date fair value of $8.1 million. Approximately 35,000 of the restricted stock units granted under the 2007 Integration Program have been subsequently forfeited. We recognized $883,000 in share-based compensation expense related to these performance share awards in 2009, including $237,000 in first quarter 2009 and as of December 31, 2009, all share-based compensation expense had been recognized.
          During first quarter 2010 and 2009, we recorded share-based compensation expense of $138,000 and $101,000, respectively related to other 2005 Incentive Plan awards.
          Equity Inducement Awards. During third quarter 2009, we announced the appointment of Peter S. Hathaway to the position of Executive Vice President and Chief Financial Officer and Jason B. Zintak to the newly-created position of Executive Vice President, Sales and Marketing. In order to induce Mr. Hathaway and Mr. Zintak to accept employment, the Compensation Committee granted certain equity awards outside of the terms of the 2005 Incentive Plan and pursuant to NASDAQ Marketplace Rule 5635(c)(4).
  (iv)   100,000 shares of restricted stock with a grant date fair value of $1.8 million were granted to Mr. Hathaway (50,000 shares) and Mr. Zintak (50,000 shares). The restricted stock awards vest over a three-year period, with one-third vesting on the first anniversary of their employment with the remainder vesting ratably over the subsequent 24-month period. A deferred compensation charge of $1.8 million has been recorded in the equity section of our balance sheet for the total grant date fair value of the restricted stock. Stock-based compensation is being recorded on a graded vesting basis over requisite service periods that run from their effective dates of employment through June 2012. We recognized $497,000 in share-based compensation related to these awards in 2009, plus an additional $248,000 in first quarter 2010 which is reflected in the consolidated statements of income under the caption “General and administrative.”
 
  (v)   55,000 contingently issuable performance share awards were granted to Mr. Hathaway (25,000 shares) and Mr. Zintak (30,000 shares) if the Company was able to achieve the $91.5 million adjusted EBITDA performance threshold goal defined under the 2009 Performance Program. The Company’s actual 2009 adjusted EBITDA performance qualified Mr. Hathaway and Mr. Zintak to

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      receive 100% of their target awards. A total of 55,000 performance share awards were issued in January 2010 with a grant date fair value of $996,000 that is being recognized as share-based compensation over requisite service periods that run from their effective dates of employment through January 2012. The performance share awards vested 50% upon the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month period. A deferred compensation charge of $996,000 has been recorded in the equity section of our balance sheet, with a related increase to additional paid-in capital, for the total grant date fair value of the awards. We recognized $664,000 in share-based compensation related to these awards in 2009, plus an additional $42,000 in first quarter 2010 which is reflected in the consolidated statements of income under the caption “General and administrative.”
 
  (vi)   100,000 contingently issuable restricted stock units were granted to Mr. Hathaway (50,000 shares) and Mr. Zintak (50,000 shares) that will vest in defined tranches if and when we achieve certain pre-defined performance milestones. As of March 31, 2010, none of these awards had been issued, no deferred compensation charge has been recorded in the equity section of our balance sheet, and no share-based compensation expense has been recognized related to these grants as management is unable to determine if it is probable the pre-defined performance milestones will be attained.
          Employee Stock Purchase Plan. Our employee stock purchase plan (“2008 Purchase Plan”) has an initial reserve of 1,500,000 shares and provides eligible employees with the ability to defer up to 10% of their earnings for the purchase of our common stock on a semi-annual basis at 85% of the fair market value on the last day of each six-month offering period that begin on February 1st and August 1st of each year. The 2008 Purchase Plan is considered compensatory and, as a result, stock-based compensation is recognized on the last day of each six-month offering period in an amount equal to the difference between the fair value of the stock on the date of purchase and the discounted purchase price. A total of 44,393 shares of common stock were purchased on January 31, 2010 at a price of $22.28 and we recorded $175,000 of related share-based compensation expense. A total of 100,290 shares of common stock were purchased on February 1, 2009 at a price of $9.52 and we recognized $169,000 in share-based compensation expense in connection with such purchases. The share-based compensation expense in connection with these purchases is reflected in the consolidated statements of income under the captions “Cost of maintenance services,” “Cost of consulting services,” “Product development,” “Sales and marketing,” and “General and administrative.”
10. 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.
          During first quarter 2010 and 2009, we also repurchased 115,775 and 58,161 shares, respectively, tendered by employees for the payment of applicable statutory withholding taxes on the issuance of restricted shares under the 2005 Performance Incentive Plan. These shares were repurchased for $3.2 million at prices ranging from $25.47 to $28.27 in first quarter 2010 and for $701,000 at prices ranging from $9.92 to $13.43 in first quarter 2009.
          During 2009 and 2008, we also repurchased 108,765 and 118,048 common shares, respectively, tendered by employees for the payment of applicable statutory withholding taxes on the issuance of restricted shares under the 2005 Performance Incentive Plan. These shares were repurchased in 2009 for $1.6 million at prices ranging from $9.75 to $26.05 and in 2008 for $2.1 million at prices ranging from $11.50 to $20.40 per share.
11. Income Taxes
          Income taxes are provided 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

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estimated tax expense for the year. The method used to calculate the Company’s effective rate for the three months ended March 31, 2010 is different from the method used to calculate the effective rate for the three months ended March 31, 2009. The change in the method used is due to the Company’s ability to forecast income by jurisdiction and reliably estimate an overall annual effective tax rate.
          We recorded an income tax benefit of $948,000 for the three months ended March 31, 2010 and an income tax provision of $1.3 million for the three months ended March 31, 2009, representing effective income tax rates of 18% and 34%, respectively. Our effective income tax rate during the three months ended March 31, 2010 and 2009 differed from the 35% U.S. statutory rate 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 Technologies, Inc. during the first quarter of 2010.
          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.
          As of March 31, 2010 we had approximately $14.7 million of unrecognized tax benefits that would impact our effective tax rate if recognized, some of which relate to uncertain tax positions associated with the acquisition of Manugistics and i2. Future recognition of uncertain tax positions resulting from the acquisition of Manugistics will be treated as a component of income tax expense rather than as a reduction of goodwill. During first quarter 2010, there were no significant changes in the unrecognized tax benefits recorded, other than the recording of i2’s unrecognized tax benefits. It is reasonably possible that approximately $8.5 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 including accruals of $429,000 in first quarter 2010 and $118,000 in first quarter 2009. As of March 31, 2010 and December 31, 2009 there are approximately $5.0 million and $2.3 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 to tax expense.
          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 significant jurisdictions in the United States, the United Kingdom, Australia, India and France. 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 2003. We are currently under audit by the Internal Revenue Service for the 2009 tax year. 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 CAP program is offered by invitation only to those companies with both a history of immaterial audit adjustments and a high level of tax complexity and will involve a review of each quarterly tax provision. The Internal Revenue Service has completed their review of our 2007 and 2008 tax returns and no material adjustments have been made as a result of these examinations.

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12. Earnings (Loss) per Share
          From July 2006 through September 2009, the Company had two classes of outstanding capital stock, common stock and Series B preferred stock. The Series B preferred stock, which was issued in connection with the acquisition of Manugistics, was a participating security such that in the event a dividend was declared or paid on the common stock, the Company would be required to simultaneously declare and pay a dividend on the Series B preferred stock as if the Series B preferred stock had been converted into common stock. Companies that have participating securities are required to apply the two-class method to compute basic earnings per share. Under the two-class computation method, basic earnings per share is calculated for each class of stock and participating security considering both dividends declared and participation rights in undistributed earnings as if all such earnings had been distributed during the period.
          During third quarter 2009, all shares of the Series B preferred stock were either converted into shares of common stock or repurchased for cash. The calculation of diluted earnings per share applicable to common shareholders for first quarter 2009 includes the assumed conversion of the Series B preferred stock into common stock as of the beginning of the period.
          The diluted earnings (loss) per share calculation for first quarter 2010 excludes approximately 719,000 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. The dilutive effect of outstanding stock options is included in the diluted earnings (loss) per share calculations for first quarter 2009 using the treasury stock method. The diluted earnings (loss) per share calculations for first quarter 2010 and 2009 also exclude approximately 555,000 and 507,000 of contingently issuable performance share awards, respectively for which all necessary conditions had not been met (see Note 8) and approximately 292,000 and 190,000 unvested performance share awards, respectively, as their affect would be anti-dilutive. In addition, the diluted earnings (loss) per share calculation for first quarter 2010 also excludes 91,000 warrants for the purchase of common stock as their effect would also be anti-dilutive. Earnings (loss) per share for first quarter 2010 and 2009 are calculated as follows:
                 
    Three Months  
    Ended March 31,  
    2010     2009  
Net income (loss)
  $ (4,268 )   $ 2,644  
 
               
Allocation of undistributed earnings:
               
Common Stock
    (4,268 )     2,371  
Series B Preferred Stock
          273  
 
           
 
  $ (4,268 )   $ 2,644  
 
           
 
               
Weighted Average Shares:
               
Common Stock
    39,343       31,357  
Series B Preferred Stock
          3,604  
 
           
Shares – Basic earnings per share
    39,343       34,961  
Dilutive common stock equivalents
          114  
 
           
Shares – Diluted earnings per share
    39,343       35,075  
 
           
 
               
Basic earnings (loss) per share applicable to common shareholders:
               
Common Stock
  $ (.11 )   $ .08  
 
           
Series B Preferred Stock
  $     $ .08  
 
           
Diluted earnings (loss) per share applicable to common shareholders
  $ (.11 )   $ .08  
 
           
13. Business Segments and Geographic Data
          We are 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. We have licensed our software to more than 6,000 customers worldwide. We generate sales in three

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geographic regions that have separate management teams and reporting structures: the Americas (United States, Canada, and Latin America), Europe (Europe, Middle East and Africa), and Asia/Pacific. Similar products and services are offered in each geographic region. Identifiable assets are also attributed to a geographical region. The geographic distribution of our revenues and identifiable assets is as follows:
                 
    Three Months  
    Ended March 31,  
    2010     2009  
Revenues:
               
 
               
Americas
  $ 87,700     $ 60,578  
Europe
    25,314       16,653  
Asia/Pacific
    18,617       6,102  
 
           
Total revenues
  $ 131,631     $ 83,333  
 
           
                 
    March 31,     December 31,  
    2010     2009  
Identifiable assets:
               
 
               
Americas
  $ 903,719     $ 695,539  
Europe
    125,417       85,817  
Asia/Pacific
    91,049       40,310  
 
           
Total identifiable assets
  $ 1,120,185     $ 821,666  
 
           
          Revenues in the Americas for first quarter 2010 and 2009 include $75.0 million and $53.6 million from the United States, respectively. Identifiable assets for the Americas include $866.2 million and $666.0 million in the United States as of March 31, 2010 and December 31, 2009, respectively. The increase in identifiable assets at March 31, 2010 compared to December 31, 2009 resulted primarily from net assets recorded in the acquisition of i2 (see Note 2).
          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 have eliminated Retail and Manufacturing and Distribution as reportable business segments and beginning with first quarter 2010 will report our operations within the following segments:
    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”). This segment combines all revenues previously reported by the Company under the Retail and Manufacturing and Distribution reportable business segments and includes all revenues related to i2 applications and services.
    Services Industries. 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 Services Industries segment is centrally managed by a team that has global responsibilities for this market.

18


 

          A summary of the revenues, operating income and depreciation attributable to each of these reportable business segments for first quarter 2010 and 2009 is as follows:
                 
    Three Months  
    Ended March 31,  
    2010     2009  
Revenues:
               
Supply Chain
  $ 125,233     $ 78,223  
Services Industries
    6,398       5,110  
 
           
 
  $ 131,631     $ 83,333  
 
           
Operating income (loss):
               
Supply Chain
  $ 39,904     $ 22,111  
Services Industries
    607       879  
Other (see below)
    (40,764 )     (18,532 )
 
           
 
  $ (253 )   $ 4,458  
 
           
Depreciation:
               
Supply Chain
  $ 2,429     $ 1,787  
Services Industries
    216       226  
 
           
 
  $ 2,645     $ 2,013  
 
           
Other:
               
General and administrative expenses
  $ 17,697     $ 11,026  
Amortization of intangible assets
    8,566       6,076  
Restructuring charges
    7,758       1,430  
Acquisition-related costs
    6,743        
 
           
 
  $ 40,764     $ 18,532  
 
           
          Operating income in the Supply Chain and Services Industry 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.
14. Condensed Consolidating Financial Information
          We currently plan to file an exchange offer registration statement on or about June 8, 2010 for the Senior Notes issued on December 10, 2009 (see Note 7). Our obligations under the Senior Notes are fully and unconditionally guaranteed, joint and severally, on a senior basis by substantially all of our existing and future domestic subsidiaries (including, following the Merger, i2 and its domestic subsidiaries). Pursuant to Regulation S-X, Section 210.3-10(f), we are 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, 2010 and December 31, 2009, and condensed consolidating statements of income and cash flows for the three months ended March 31, 2010 and 2009 for (i) JDA Software Group, Inc. — the parent company, (ii) guarantor subsidiaries on a combined basis, (iii) 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.

19


 

Unaudited Condensed Consolidating Balance Sheets
March 31, 2010
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
 
                                       
Current Assets:
                                       
Cash and cash equivalents
  $     $ 127,022     $ 28,795     $     $ 155,817  
Restricted cash
          10,871       827             11,698  
Accounts receivable
          87,783       20,098             107,881  
Income tax receivable
    2,252       (2,660 )     1,458             1,050  
Deferred tax asset
          55,682       2,146             57,828  
Prepaid expenses and other current assets
          18,964       10,741             29,705  
 
                             
Total current assets
    2,252       297,662       64,065             363,979  
 
                             
 
                                       
Non-Current Assets:
                                       
Property and equipment, net
          37,298       5,998             43,296  
Goodwill
          201,316                   201,316  
Other intangibles, net:
                                       
Customer-based intangibles
          167,395                   167,395  
Technology-based intangibles
          44,264                   44,264  
Marketing-based intangibles
          13,960                   13,960  
Deferred tax asset
          256,305       12,516             268,821  
Other non-current assets
    5,160       1,315       10,679             17,154  
Investment in subsidiaries
    153,473       74,596             (228,069 )      
Intercompany accounts
    696,649       (735,067 )     38,418              
 
                             
Total non-current assets
    855,282       61,382       67,611       (228,069 )     756,206  
 
                             
 
                                       
Total Assets
  $ 857,534     $ 359,044     $ 131,676     $ (228,069 )   $ 1,120,185  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
 
                                       
Current Liabilities:
                                       
Accounts Payable
  $     $ 9,294     $ 1,769     $     $ 11,063  
Accrued expenses and other liabilities
          49,477       24,591             74,068  
Income taxes payable
          (2,784 )     2,784              
Deferred revenue
          93,527       34,378             127,905  
 
                               
Total current liabilities
          149,514       63,522             213,036  
 
                             
 
                                       
Non-Current Liabilities:
                                       
Long-term debt
    272,333                         272,333  
Accrued exit and disposal obligations
          4,044       2,414             6,458  
Liability for uncertain tax positions
          13,579       636             14,215  
Deferred revenues
          28,746       196             28,942  
 
                             
Total non-current liabilities
    272,333       46,369       3,246             321,948  
 
                             
 
                                       
Total Liabilities
    272,333       195,883       66,768             534,984  
 
                                       
Stockholders’ Equity
    585,201       163,161       64,908       (228,069 )     585,201  
 
                             
 
                                       
Total Liabilities and Stockholders’ Equity
  $ 857,534     $ 359,044     $ 131,676     $ (228,069 )   $ 1,120,185  
 
                             

20


 

Condensed Consolidating Balance Sheets
December 31, 2009
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
 
                                       
Current Assets:
                                       
Cash and cash equivalents
  $     $ 47,170     $ 28,804     $     $ 75,974  
Restricted cash
    287,875                         287,875  
Accounts receivable
          53,535       15,348             68,883  
Income tax receivable
    469       5,941       (6,410 )            
Deferred tax asset
          17,973       1,169             19,142  
Prepaid expenses and other current assets
          11,273       4,394             15,667  
 
                             
Total current assets
    288,344       135,892       43,305             467,541  
 
                             
 
                                       
Non-Current Assets:
                                       
Property and equipment, net
          35,343       5,499             40,842  
Goodwill
          135,275                   135,275  
Other intangibles, net:
                                       
Customer-based intangibles
          99,264                   99,264  
Technology-based intangibles
          20,240                   20,240  
Marketing-based intangibles
          157                   157  
Deferred tax asset
          37,781       6,569             44,350  
Other non-current assets
    6,697       124       7,176             13,997  
Investment in subsidiaries
    154,166       27,575             (181,741 )      
Intercompany accounts
    234,479       (253,131 )     18,652              
 
                             
Total non-current assets
    395,342       102,628       37,896       (181,741 )     354,125  
 
                             
 
                                       
Total Assets
  $ 683,686     $ 238,520     $ 81,201     $ (181,741 )   $ 821,666  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
 
                                       
Current Liabilities:
                                       
Accounts Payable
  $     $ 6,140     $ 1,052     $     $ 7,192  
Accrued expenses and other liabilities
          28,809       16,714             45,523  
Income taxes payable
          1,255       2,234             3,489  
Deferred revenue
          44,145       21,520             65,665  
 
                             
Total current liabilities
          80,349       41,520             121,869  
 
                             
 
                                       
Non-Current Liabilities:
                                       
Long-term debt
    272,250                         272,250  
Accrued exit and disposal obligations
          4,723       2,618             7,341  
Liability for uncertain tax positions
          8,770                   8,770  
 
                             
Total non-current liabilities
    272,250       13,493       2,618             288,361  
 
                             
 
                                       
Total Liabilities
    272,250       93,842       44,138             410,230  
 
                                       
Stockholders’ Equity
    411,436       144,678       37,063       (181,741 )     411,436  
 
                             
 
                                       
Total Liabilities and Stockholders’ Equity
  $ 683,686     $ 238,520     $ 81,201     $ (181,741 )   $ 821,666  
 
                             

21


 

Unaudited Condensed Consolidating Statements of Income
Three Months Ended March 31, 2010
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                       
Software licenses
  $     $ 24,437     $     $     $ 24,437  
Subscriptions and other recurring revenues
          4,287                   4,287  
Maintenance services
          38,287       18,773             57,060  
 
                             
Product revenues
          67,011       18,773             85,784  
 
                             
 
                                       
Consulting services
          30,685       12,317             43,002  
Reimbursed expenses
          2,136       709             2,845  
 
                             
Service revenues
          32,821       13,026             45,847  
 
                             
 
                                       
Total revenues
          99,832       31,799             131,631  
 
                             
 
                                       
Cost of Revenues:
                                       
Cost of software licenses
          1,008                   1,008  
Amortization of acquired software technology
          1,576                   1,576  
Cost of maintenance services
          8,349       3,684             12,033  
 
                             
Cost of product revenues
          10,933       3,684             14,617  
 
                             
 
                                       
Cost of consulting services
          25,096       10,173             35,269  
Reimbursed expenses
          2,136       709             2,845  
 
                             
Cost of service revenues
          27,232       10,882             38,114  
 
                             
 
                                       
Total cost of revenues
          38,165       14,566             52,731  
 
                             
 
                                       
Gross Profit
          61,667       17,233             78,900  
 
                                       
Operating Expenses:
                                       
Product development
          11,973       5,304             17,277  
Sales and marketing
          13,458       7,654             21,112  
General and administrative
          14,585       3,112             17,697  
Amortization of intangibles
          8,566                   8,566  
Restructuring charges
          5,143       2,615             7,758  
Acquisition-related costs
          6,743                   6,743  
 
                             
Total operating expenses
          60,468       18,685             79,153  
 
                             
 
                                       
Operating Income (Loss)
          1,199       (1,452 )           (253 )
 
                                       
Interest expense and amortization of loan fees
    (5,927 )     (120 )     (39 )           (6,086 )
Interest income and other, net
          (3,591 )     4,714             1,123  
Equity in earnings (loss) of subsidiaries
    (593 )     1,142             549        
 
                             
 
                                       
Income (Loss) Before Income Taxes
    (6,520 )     (1,370 )     3,223       549       (5,216 )
 
                                       
Income tax (provision) benefit
    2,252       (474 )     (830 )           948  
 
                             
 
                                       
Net Income (Loss)
  $ (4,268 )   $ (1,844 )   $ 2,393     $ 549     $ (4,268 )
 
                             

22


 

Unaudited Condensed Consolidating Statements of Income
Three Months Ended March 31, 2009
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Revenues:
                                       
Software licenses
  $     $ 14,357     $     $     $ 14,357  
Subscriptions and other recurring revenues
          968                   968  
Maintenance services
          27,933       15,064             42,997  
 
                             
Product revenues
          43,258       15,064             58,322  
 
                             
 
                                       
Consulting services
          15,312       7,722             23,034  
Reimbursed expenses
          1,335       642             1,977  
 
                             
Service revenues
          16,647       8,364             25,011  
 
                             
 
                                       
Total revenues
          59,905       23,428             83,333  
 
                             
 
                                       
Cost of Revenues:
                                       
Cost of software licenses
          602                   602  
Amortization of acquired software technology
          1,008                   1,008  
Cost of maintenance services
          7,934       2,615             10,549  
 
                             
Cost of product revenues
          9,544       2,615             12,159  
 
                             
 
                                       
Cost of consulting services
          12,397       6,985             19,382  
Reimbursed expenses
          1,335       642             1,977  
 
                             
Cost of service revenues
          13,732       7,627             21,359  
 
                             
 
                                       
Total cost of revenues
          23,276       10,242             33,518  
 
                             
 
                                       
Gross Profit
          36,629       13,186             49,815  
 
                                       
Operating Expenses:
                                       
Product development
          10,387       2,186             12,573  
Sales and marketing
          9,528       4,724             14,252  
General and administrative
          9,219       1,807             11,026  
Amortization of intangibles
          6,076                   6,076  
Restructuring charges
          1,206       224             1,430  
 
                             
Total operating expenses
          36,416       8,941             45,357  
 
                             
 
                                       
Operating Income
          213       4,245             4,458  
 
                                       
Interest expense and amortization of loan fees
    (83 )     (116 )     (40 )           (239 )
Interest income and other, net
          2,878       (3,121 )           (243 )
Equity in earnings (loss) of subsidiaries
    2,695       78             (2,773 )      
 
                             
 
                                       
Income (Loss) Before Income Taxes
    2,612       3,053       1,084       (2,773 )     3,976  
 
                                       
Income tax (provision) benefit
    32       (1,148 )     (216 )           (1,332 )
 
                             
 
                                       
Net Income (Loss)
  $ 2,644     $ 1,905     $ 868     $ (2,773 )   $ 2,644  
 
                             

23


 

Unaudited Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2010
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
                                       
Net Cash Provided by (Used in) Operating Activities
  $ 137,215     $ (138,053 )   $ 13,033     $     $ 12,195  
 
                             
 
                                       
Investing Activities:
                                       
Change in restricted cash
    287,048       (10,871 )                 276,177  
Purchase of i2 Technologies, Inc.
    (431,775 )     218,348                   (213,427 )
Payment of direct costs related to prior acquisitions
          (850 )                 (850 )
Purchase of property and equipment
          (271 )     (262 )           (533 )
Proceeds from disposal of property and equipment
          12       5             17  
 
                             
Net cash used in investing activities
    (144,727 )     206,368       (257 )           61,384  
 
                             
 
                                       
Financing Activities:
                                       
Issuance of common stock – equity plans
    10,904                         10,904  
Purchase of treasury stock and other ,net
    (3,392 )                       (3,392 )
Change in intercompany receivable/payable
          19,559       (19,559 )            
 
                             
Net cash provided by (used in) financing activities
    7,512       19,559       (19,559 )           7,512  
 
                             
 
                                       
Effect of Exchange Rates on Cash and Cash Equivalents
          (8,022 )     6,774             (1,248 )
 
                             
 
                                       
Net increase (decrease) in cash and equivalents
          79,852       (9 )           79,843  
 
                                       
Cash and Cash Equivalents, Beginning of Year
          47,170       28,804             75,974  
 
                             
 
                                       
Cash and Cash Equivalents, End of Year
  $     $ 127,022     $ 28,795     $     $ 155,817  
 
                             

24


 

Unaudited Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 2009
(in thousands)
                                         
    JDA Software     Guarantor     Non-Guarantor              
    Group, Inc.     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
 
                                       
Net Cash Provided by (Used in) Operating Activities
  $ 713     $ 33,110     $ (768 )   $     $ 33,055  
 
                             
 
                                       
Investing Activities:
                                       
Change in restricted cash
                             
Payment of direct costs related to prior acquisitions
          (817 )                 (817 )
Purchase of property and equipment
          (719 )     (284 )           (1,003 )
Proceeds from disposal of property and equipment
                16             16  
 
                             
Net cash used in investing activities
          (1,536 )     (268 )           (1,804 )
 
                             
 
                                       
Financing Activities:
                                       
Issuance of common stock – equity plans
    2,506                         2,506  
Purchase of treasury stock and other, net
    (3,219 )                       (3,219 )
Change in intercompany receivable/payable
          (752 )     752              
 
                             
Net cash provided by (used in) financing activities
    (713 )     (752 )     752             (713 )
 
                             
 
                                       
Effect of Exchange Rates on Cash and Cash Equivalents
          3       (222 )           (219 )
 
                             
 
                                       
Net increase (decrease) in cash and equivalents
          30,825       (506 )           30,319  
 
                                       
Cash and Cash Equivalents, Beginning of Year
          10,841       21,855             32,696  
 
                             
 
                                       
Cash and Cash Equivalents, End of Year
  $     $ 41,666     $ 21,349     $     $ 63,015  
 
                             

 

EX-99.4 7 p17827exv99w4.htm EX-99.4 exv99w4
Exhibit 99.4
Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm
i2 Technologies, Inc.
December 31, 2009 and 2008

1


 

i2 Technologies, Inc.
INDEX
         
    Page
Report of Independent Registered Public Accounting Firm
    3  
 
       
Consolidated Balance Sheets
    4  
 
       
Consolidated Statements of Operations and Comprehensive Income
    5  
 
       
Consolidated Statements of Changes in Stockholders’ Equity/(Deficit)
    6  
 
       
Consolidated Statements of Cash Flows
    7  
 
       
Notes to Consolidated Financial Statements
    8  

2


 

Report of Independent Registered Public Accounting Firm
The Audit Committee of the Board of Directors
JDA Software Group, Inc.
We have audited the accompanying consolidated balance sheets of i2 Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2009. 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), as of January 1, 2009, and accordingly, adjusted the previously issued consolidated balance sheet as of December 31, 2008 and related statements of operations, stockholders’ equity and comprehensive income (loss) and cash flows for each of the years in the two-year period ended December 31, 2008.
As discussed in Note 16, on January 28, 2010 the Company became a wholly owned subsidiary of JDA Software Group, Inc.
Dallas, Texas
May 24, 2010

3


 

i2 TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
                 
    December 31,     December 31,  
    2009     2008  
            (as adjusted)  
ASSETS
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 203,358     $ 238,013  
Restricted cash
    6,759       5,777  
Accounts receivable, net
    21,753       25,846  
Other current assets
    7,762       9,477  
 
           
Total current assets
    239,632       279,113  
 
               
Premises and equipment, net
    3,274       4,915  
Goodwill
    16,684       16,684  
Non-current deferred tax asset
    10,174       7,289  
Other non-current assets
    3,889       5,024  
 
           
Total assets
  $ 273,653     $ 313,025  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Accounts payable
  $ 3,710     $ 4,855  
Accrued liabilities
    12,661       12,937  
Accrued legal litigation
    7,746       2,179  
Accrued compensation and related expenses
    18,269       18,679  
Deferred revenue
    44,366       53,028  
 
           
Total current liabilities
    86,752       91,678  
 
               
Total long-term debt, net
          64,520  
Taxes payable
    6,195       6,948  
 
           
Total liabilities
    92,947       163,146  
 
               
Commitments and contingencies
               
 
               
Stockholders’ equity:
               
Preferred Stock, $0.001 par value, 5,000 shares authorized, none issued and outstanding
           
Series A junior participating preferred stock, $0.001 par value, 2,000 shares authorized, none issued and outstanding
           
Series B 2.5% convertible preferred stock, $1,000 par value, 150 shares authorized 111 issued and outstanding at December 31, 2009 and 109 issued and outstanding at December 31, 2008
    108,411       106,591  
Common stock, $0.00025 par value, 2,000,000 shares authorized, 23,180 and 21,895 shares issued and outstanding at December 31, 2009 and December 31, 2008, respectively
    6       5  
Additional paid-in capital
    10,496,783       10,498,453  
Accumulated other comprehensive income
    3,798       1,509  
Accumulated deficit
    (10,428,292 )     (10,456,679 )
 
           
Net stockholders’ equity
    180,706       149,879  
 
           
Total liabilities and stockholders’ equity
  $ 273,653     $ 313,025  
 
           
See accompanying notes to consolidated financial statements.

4


 

i2 TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share data)
                         
    Years Ended December 31,  
    2009     2008     2007  
            (as adjusted)     (as adjusted)  
Revenues:
                       
 
                       
Software solutions
  $ 55,093     $ 46,852     $ 47,721  
Services
    94,583       123,564       122,682  
Maintenance
    73,134       85,397       87,457  
Contract
                2,450  
 
                 
Total revenues
    222,810       255,813       260,310  
 
                 
 
                       
Costs and expenses:
                       
Cost of revenues:
                       
Software solutions
    9,564       9,316       8,567  
Services
    59,973       89,928       97,397  
Maintenance
    8,929       10,139       11,074  
Amortization of acquired technology
          4       25  
Sales and marketing
    36,962       45,135       41,872  
Research and development
    26,629       29,241       33,513  
General and administrative
    41,000       42,062       37,770  
Amortization of intangibles
    25       100       78  
Restructuring charges and adjustments
    2,975       (95 )     3,955  
 
                 
Costs and expenses, subtotal
    186,057       225,830       234,251  
Intellectual property settlement, net
    935       (79,860 )     921  
 
                 
Total costs and expenses
    186,992       145,970       235,172  
 
                 
Operating income
    35,818       109,843       25,138  
 
                       
Non-operating (expense) income, net:
                       
Interest income
    325       3,876       5,488  
Interest expense
    (899 )     (7,473 )     (7,372 )
Foreign currency hedge and transaction losses, net
    (1,755 )     (1,700 )     (678 )
Loss on extinguishment of debt
    (892 )            
Other income (expense), net
    (1,142 )     11,510       (776 )
 
                 
Total non-operating (expense) income, net
    (4,363 )     6,213       (3,338 )
 
                 
 
                       
Income before income taxes
    31,455       116,056       21,800  
Income tax (benefit) expense
    (147 )     8,382       6,133  
 
                       
 
                 
Net income
    31,602       107,674       15,667  
 
                 
 
                       
Preferred stock dividend and accretion of discount
    3,215       3,140       3,071  
 
                       
 
                 
Net income applicable to common stockholders
  $ 28,387     $ 104,534     $ 12,596  
 
                 
 
                       
Net income per common share applicable to common stockholders:
                       
Basic
  $ 1.05     $ 3.97     $ 0.49  
Diluted
  $ 1.03     $ 3.91     $ 0.47  
 
                       
Weighted-average common shares outstanding:
                       
Basic
    27,128       26,333       25,816  
Diluted
    27,526       26,711       26,748  
 
                       
Comprehensive income:
                       
Net income applicable to common stockholders
  $ 28,387     $ 104,534     $ 12,596  
 
                 
Other comprehensive income (loss):
                       
Foreign currency translation adjustments
    2,289       (8,454 )     7,565  
 
                 
Total other comprehensive income (loss)
    2,289       (8,454 )     7,565  
 
                 
Total comprehensive income
  $ 30,676     $ 96,080     $ 20,161  
 
                 
See accompanying notes to consolidated financial statements.

5


 

I2 TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)
Years Ended December 31, 2009, 2008 and 2007
(In thousands)
                                                                 
                                            Accumulated                
                                    Warrants and     Other             Total  
    Preferred Stock     Common Stock     Additional     Comprehensive     Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Paid in Capital     Income (Loss)     Deficit     Equity/(Deficit)  
                                    (as adjusted)             (as adjusted)     (as adjusted)  
Balance as of December 31, 2006
    105     $ 101,686       21,005     $ 5     $ 10,468,391     $ 2,398     $ (10,573,809 )   $ (1,329 )
 
                                               
 
                                                               
Preferred stock dividend and accretion of discount
    2       1,764                               (3,071 )     (1,307 )
Common stock issuance from options and employee stock plans
                443             3,399                   3,399  
Stock based compensation
                              12,441                   12,441  
Foreign currency translation
                                  7,565             7,565  
Net income
                                        15,667       15,667  
 
                                               
Balance as of December 31, 2007
    107     $ 103,450       21,448     $ 5     $ 10,484,231     $ 9,963     $ (10,561,213 )   $ 36,436  
 
                                               
 
                                                               
Preferred stock dividend and accretion of discount
    2       3,141                                       (3,140 )     1  
Common stock issuance from options and employee stock plans
                    447               526                       526  
Stock based compensation
                                    13,696                       13,696  
Foreign currency translation
                                            (8,454 )             (8,454 )
Net income
                                                    107,674       107,674  
 
                                               
Balance as of December 31, 2008
    109     $ 106,591       21,895     $ 5     $ 10,498,453     $ 1,509     $ (10,456,679 )   $ 149,879  
 
                                               
 
                                                               
Preferred stock dividend and accretion of discount
    2       1,820                                       (3,215 )     (1,395 )
Common stock issuance from options and employee stock plans
                    1,285       1       9,157                       9,158  
Repurchase of debt, equity conversion FSP 14-1
                                    (20,251 )                     (20,251 )
Stock based compensation
                                    9,424                       9,424  
Foreign currency translation
                                            2,289               2,289  
Net income
                                                    31,602       31,602  
 
                                               
Balance as of December 31, 2009
    111     $ 108,411       23,180     $ 6     $ 10,496,783     $ 3,798     $ (10,428,292 )   $ 180,706  
 
                                               
See accompanying notes to consolidated financial statements.

6


 

i2 TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                         
    Twelve Months Ended December 31,  
    2009     2008     2007  
            (as adjusted)     (as adjusted)  
Cash flows from operating activities:
                       
Net income
  $ 31,602     $ 107,674     $ 15,667  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Amortization of debt issuance expense
    84       690       684  
Debt discount accretion
    389       3,157       3,055  
Loss on extinguishment of debt
    892              
Depreciation and amortization
    2,777       3,574       4,726  
Stock based compensation
    9,424       13,685       12,388  
Loss on disposal of premises and equipment
    230       141       256  
Provision for bad debts charged to costs and expenses
    (19 )     368       6  
Deferred income taxes
    (3,138 )     1,145       816  
Changes in operating assets and liabilities, excluding the effects of acquisitions:
                       
Accounts receivable
    4,137       (995 )     910  
Other assets
    4,036       (12,659 )     8,123  
Accounts payable
    (1,539 )     1,547       (2,852 )
Taxes payable
    (195 )     2,088        
Accrued liabilities
    5,130       992       (7,948 )
Accrued compensation and related expenses
    (723 )     2,286       (6,842 )
Deferred revenue
    (8,593 )     (9,150 )     (12,549 )
 
                 
Net cash provided by operating activities
    44,494       114,543       16,440  
 
                 
 
                       
Cash flows (used in) provided by investing activities:
                       
Restrictions (placed) released on cash
    (982 )     2,679       (3,830 )
Purchases of premises and equipment
    (1,380 )     (1,253 )     (1,341 )
Proceeds from sale of premises and equipment
    72       26       24  
Business acquisitions
                    (2,124 )
 
                 
Net cash (used in) provided by investing activities
    (2,290 )     1,452       (7,271 )
 
                 
 
                       
Cash flows (used in) provided by financing activities:
                       
Repurchase of debt and equity conversion feature
    (84,814 )            
Cash dividend — preferred stock
    (1,395 )           (1,307 )
Net proceeds from common stock issuance from options and employee stock purchase plans
    9,158       538       3,399  
 
                 
Net cash (used in) provided by financing activities
    (77,051 )     538       2,092  
 
                 
Effect of exchange rates on cash
    192       502       298  
 
                 
Net change in cash and cash equivalents
    (34,655 )     117,035       11,559  
Cash and cash equivalents at beginning of period
    238,013       120,978       109,419  
 
                 
Cash and cash equivalents at end of period
  $ 203,358     $ 238,013     $ 120,978  
 
                 
 
                       
Supplemental cash flow information
                       
Interest paid
  $ 1,053     $ 4,312     $ 4,312  
Income taxes paid (net of refunds received)
  $ 4,415     $ 4,760     $ 5,093  
Schedule of non-cash financing activities
                       
Preferred stock dividend and accretion of discount
  $ 3,215     $ 3,140     $ 1,764  
See accompanying notes to consolidated financial statements.

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i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
     Nature of Operations. We operate our business in one segment, supply chain management solutions, which are designed to help enterprises optimize business processes both internally and among trading partners. We are a provider of supply chain management solutions, consisting of various software and service offerings. Our service offerings include business optimization and technical consulting, managed services, training, solution maintenance, software upgrades and software development. Supply chain management is the set of processes, technology and expertise involved in managing supply, demand and fulfillment throughout divisions within a company and with its customers, suppliers and partners. The business goals of our solutions include increasing supply chain efficiency and enhancing customer and supplier relationships by managing variability, reducing complexity, and improving operational visibility. Our offerings are designed to help customers better achieve the following critical business objectives:
    Visibility – a clear and unobstructed view up and down the supply chain
 
    Planning – supply chain optimization to match supply and demand while considering system-wide constraints
 
    Collaboration – interoperability with supply chain partners and elimination of functional silos
 
    Control – management of data and business processes across the extended supply chain
     Principles of Consolidation. The consolidated financial statements include the accounts of i2 Technologies, Inc. and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.
     Use of Estimates. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, provision for doubtful accounts and sales returns, fair value of investments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, restructuring obligations, fair value of stock options, warrants and derivatives, and contingencies and litigation, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from the estimates made by management with respect to these items and other items that require management’s estimates.
     Cash and cash equivalents. Cash and cash equivalents include cash on hand, demand deposits with financial institutions, short-term time deposits and other liquid investments in debt securities with initial maturities of less than three months when acquired by us.
     Restricted Cash. At December 31, 2009 restricted cash included $6.8 million pledged as collateral for outstanding letters of credit and bank guarantees. At December 31, 2008, restricted cash included $5.8 million pledged as collateral for outstanding letters of credit and bank guarantees. We attempt to limit our restricted cash and cash balances held in foreign locations. (See Note 6 — Borrowings and Debt Issuance Costs)

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     Allowance for Doubtful Accounts. The allowance for doubtful accounts is a reserve established through a provision for bad debts charged to expense and represents our best estimate of probable losses resulting from non-payment of amounts recorded in the existing accounts receivable portfolio. The allowance, in our judgment, is necessary to reserve for known and inherent collection risks in the accounts receivable portfolio. In estimating the allowance for doubtful accounts, we consider our historical write-off experience, accounts receivable aging reports, the credit-worthiness of individual customers, economic conditions affecting specific customer industries and general economic conditions, among other factors. Should any of these factors change, our estimate of probable losses due to bad debts could also change, which could affect the level of our future provisions for bad debts.
     Financial Instruments. Financial assets that potentially subject us to a concentration of credit risk consist principally of investments and accounts receivable. Cash on deposit is held with financial institutions with high credit standings. Debt security investments are generally in highly rated corporations and municipalities as well as agencies of the U.S. government. Our customer base consists of large numbers of geographically diverse customers dispersed across many industries. As a result, concentration of credit risk with respect to accounts receivable is not significant. However, we periodically perform credit evaluations for most of our customers and maintain reserves for potential losses. In certain situations we may require letters of credit to be issued on behalf of some customers to mitigate our exposure to credit risk. We may also use foreign exchange contracts to hedge the risk in receivables denominated in non-functional currencies. Risk of non-performance by counterparties to such contracts is minimal due to the size and credit standings of the financial institutions used. Additionally, the potential risk of loss with any one party resulting from this type of credit risk is monitored and risks are also mitigated by utilizing multiple counterparties.
     Premises and Equipment. Premises and equipment are recorded at cost and are depreciated over their useful lives ranging from three to seven years using the straight-line method. Leasehold improvements are amortized over the shorter of the expected term of the lease or estimated useful life.
     Goodwill. We test goodwill for impairment once annually at December 31 or more frequently if an event occurs or circumstances change that may indicate that the fair value of our reporting unit is below its carrying value. Goodwill is tested for impairment using a two-step approach. The first step is to compare the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired and the second step is not required. If the fair value of the reporting unit is less than its carrying amount, the second step of the impairment test measures the amount of the impairment loss, if any. The second step of the impairment test is to compare the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The implied fair value of goodwill is calculated in the same manner that goodwill is calculated in a business combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price. The excess “purchase price” over the amounts assigned to assets and liabilities would be the implied fair value of goodwill.
     As stated above, we currently operate as a single segment and reporting unit and all of our goodwill is associated with the entire company. Accordingly, we generally assume that the minimum fair value of our single reporting unit is our market capitalization, which is the product of (i) the number of shares of common stock issued and outstanding and (ii) the market price of our common stock.
     Goodwill totaled $16.7 million at December 31, 2009 and 2008. We performed impairment tests on goodwill at December 31, 2009 and 2008, and determined there was no evidence of impairment based on step one as described above.
     Capitalized Research and Development Costs. Software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. To date, the establishment of technological feasibility of our products has coincided with the general release of such software. As a result, we have not capitalized any such costs other than those recorded in connection with our acquisitions.

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     Revenue Recognition. We derive revenues from licenses of our software and related services, which include assistance in implementation, integration, customization, maintenance, training and consulting. We recognize revenue for software and related services in accordance with Accounting Standards Codification (“ASC”) 605 – Revenue Recognition, Accounting for Certain Construction Type and Certain Production Type Contracts, and ASC 965 — Software, Software Revenue Recognition,with Respect to Certain Transactions.
     Software Solutions Revenue. Recognition of software solutions revenue occurs under ASC 605 and under ASC 965.
     Software solutions revenue recognized under ASC 605 includes both fees associated with licensing of our products, as well as any fees received to deliver the licensed functionality (for example, the provision of essential services). Essential services involve customizing or enhancing the software so that the software performs in accordance with specific customer requirements. Arrangements accounted for under ASC 605 follow either the percentage-of-completion method or the completed contract method. The percentage-of-completion method is used when the required services are quantifiable, based on the estimated number of labor hours necessary to complete the project, and under that method revenues are recognized using labor hours incurred as the measure of progress towards completion but is limited to revenue that has been earned by the attainment of any milestones included in the contract. We do not capitalize costs associated with services performed where milestones have not been attained. The completed contract method is used when the required services are not quantifiable, and under that method, revenues are recognized only when we have satisfied all of our product and/or service delivery obligations to the customer. Similar to the treatment of milestones, we do not capitalize or defer costs associated with services performed on contracts recognized under the completed contract method that have not been completed.
     Under ASC 965, software license revenues are generally recognized upon delivery provided persuasive evidence of an arrangement exists, fees are fixed or determinable and collection is deemed probable. We evaluate each of these criteria as follows:
    Evidence of an arrangement: We consider a non-cancelable agreement signed by the customer to be evidence of an arrangement.
 
    Delivery: Delivery is considered to occur when media containing the licensed programs is provided to a common carrier or, in the case of electronic delivery, the customer is given access to the licensed programs. Our typical end user license agreement does not include customer acceptance provisions.
 
    Fixed or determinable fee: We consider the fee to be fixed or determinable if the fee is not subject to refund or adjustment and the payment terms are within our normal established practices. If the fee is not fixed or determinable, we recognize the revenue as amounts become due and payable.
 
    Collection is deemed probable: We conduct a credit review for significant transactions at the time of the arrangement to determine the credit-worthiness of the customer. Collection is deemed probable if we expect that the customer will pay amounts under the arrangement as payments become due. If we determine that collection is not probable, we defer the revenue and recognize the revenue upon receipt of cash. Based on our collections history in certain countries, we apply a cash-basis recognition requirement for software solutions agreements in those countries.
     Revenue for software solution arrangements that include one or more additional elements (i.e., services and maintenance) to be delivered at a future date is generally recognized using the residual method as set forth in ASC 965. Under the residual method, the fair value of the undelivered element(s) is deferred, and the remaining portion of the arrangement fee is recognized as license revenue. If fair values have not been established for the undelivered

10


 

element(s), all revenue associated with the arrangement is deferred until the earlier of the point at which all element(s) have been delivered or the fair value of the undelivered elements has been determined. Fair value for an individual element within an arrangement may be established when that element, when contracted for separately, is priced in a consistent manner. Fair value for our maintenance and consulting services has been established based on our maintenance renewal rates and consulting billing rates, respectively. Arrangements that include a right to unspecified future products are accounted for as subscriptions and recognized ratably over the term of the arrangement. Software solution license fees from reseller arrangements are generally based on the sublicenses granted by the reseller and recognized when the license is sold to the end customer.
          Services Revenue. Services revenue is primarily derived from fees for services that are not essential to the software, including implementation, integration, training and consulting, and is generally recognized when services are performed. In addition, services revenue may include fees received from arrangements to customize or enhance previously purchased licensed software, when such services are not essential to the previously licensed software. Services revenue also includes reimbursable expense revenue, with the related costs of reimbursable expenses included in cost of services. Contractual terms may include the following payment arrangements: fixed fee, full-time equivalent, milestone, and time and material. In order to recognize service revenue, the following criteria must be met:
    Signed agreement: The agreement must be signed by the customer.
 
    Fee is determinable: The signed agreement must specify the fees to be received for the services.
 
    Delivery has occurred: Delivery is substantiated by time cards and, where applicable, supplemented by an acceptance from the customer that milestones as agreed in the statement of work have been met.
 
    Collectability is probable: We conduct a credit review for significant transactions at the time of the engagement to determine the credit-worthiness of the customer. We monitor collections over the term of each project, and if a customer becomes delinquent, the revenue may be deferred.
          Maintenance Revenue. Maintenance revenue consists of fees generated by providing support services, such as telephone support, and unspecified upgrades/enhancements on a when-and-if available basis. A customer typically prepays maintenance and support fees for an initial period, and the related revenue is deferred and generally recognized over the term of such initial period. Maintenance is renewable by the customer on an annual basis thereafter. Rates for maintenance, including subsequent renewal rates, are typically established based upon a specified percentage of net license fees as set forth in the contract.
          Contract Revenue. Contract revenue is the result of the recognition of certain revenue that was carried on our balance sheet as a portion of deferred revenue and was a result of our 2003 financial restatement. Inclusion of contract revenue in the evaluation of our performance would skew comparisons of our periodic results since recognition of that revenue was based on fulfillment of contractual obligations, which often required only minimal cash outlays and generally did not involve any significant activity in the period of recognition. Additionally, the cash associated with contract revenue had been collected in prior periods. All remaining contract revenue was recognized by March 31, 2007, and it is not relevant to our on-going operations.
          Royalties and Affiliate Commissions. Royalties paid for third-party software products integrated with our technology are expensed when the products are shipped. Commissions payable to affiliates in connection with sales assistance are generally expensed when the commission becomes payable. Accrued royalties payable totaled $0.4 and $0.6 million at December 31, 2009 and 2008, respectively, while accrued affiliate commissions payable totaled $0.6 million at December 31, 2009 and 2008.

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          Concurrent Transactions. We occasionally enter into transactions which are concluded at or about the same time as other arrangements with the same customer. These concurrent transactions are accounted for under ASC 845 — Nonmonetary Transaction. Generally, the recognition of a gain or loss on the exchange is measured based on the fair value of the assets involved to the extent that the fair value can be reasonably determined. A transaction that is not a culmination of the earnings process is recorded based on the net book value of the asset relinquished.
          Deferred Taxes. Deferred tax assets and liabilities represent estimated future tax amounts attributable to the differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their respective tax bases. These estimates are computed using the tax rates in effect for the applicable period. Realization of our deferred tax assets is, for the most part, dependent upon our U.S. consolidated tax group of companies having sufficient federal taxable income in future years to utilize our domestic net operating loss carry-forwards before they expire. We adjust our deferred tax valuation allowance on a quarterly basis in light of certain factors, including our financial performance.
          Loss Contingencies. There are times when non-recurring events occur that require management to consider whether an accrual for a loss contingency is appropriate. Accruals for loss contingencies typically relate to certain legal proceedings, customer and other claims and litigation. Accruals for loss contingencies are included in accrued legal litigation on our consolidated balance sheet. As required by ASC 450 — Contingencies, we determine whether an accrual for a loss contingency is appropriate by assessing whether a loss is deemed probable and can be reasonably estimated. We analyze our legal proceedings, warranty and other claims and litigation based on available information to assess potential liability. We develop our views on estimated losses in consultation with outside counsel handling our defense in these matters, which involves an analysis of potential results assuming a combination of litigation and settlement strategies. The adverse resolution of any one or more of these matters over and above the amounts that have been estimated and accrued in the current consolidated financial statements could have a material adverse effect on our business, results of operations, cash flow and financial condition.
          Restructuring Charges. We recognize restructuring charges consistent with applicable accounting standards. We reduce charges for obligations on leased properties with estimated sublease income. Furthermore, we analyze current market conditions, including current lease rates in the respective geographic regions, vacancy rates and costs associated with subleasing, when evaluating the reasonableness of future sublease income. The accrual for office closure and consolidation, recognized at the time a facility is vacated, is an estimate that assumes certain facilities will be subleased or the underlying leases will otherwise be favorably terminated prior to the contracted lease expiration date. Subjective judgments and estimates must be made and used in calculating future sublease income.
          Net Income Per Common Share. We calculate net income per common share in accordance with ASC 260 — Earnings per Share. ASC 260 provides guidance on how to determine whether a security should be considered a participating security for purposes of computing earnings per share and how earnings should be allocated to a participating security when using the two-class method for computing earnings per share. We have determined that our redeemable preferred stock represents a participating security because it has voting rights and, therefore, we have calculated basic net income per common share consistent with the provisions of ASC 260 for all periods presented. Diluted net income per common share includes (i) the dilutive effect of stock options, stock rights and warrants granted using the treasury stock method, (ii) the effect of contingently issuable shares earned during the period and (iii) shares issuable under the conversion feature of our convertible notes and preferred stock using the if-converted method. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for 2009 and 2008 is provided in Note 9 — Stockholders’ Equity and Income Per Common Share.
          Foreign Currency Translation. The functional currency for the majority of our foreign subsidiaries is the local currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date while income and expense amounts are translated at average exchange rates during the period. The resulting foreign currency translation adjustments are disclosed as a separate component of stockholders’ equity (deficit) and other comprehensive income. The functional currency of one significant foreign subsidiary is the US dollar; therefore, there is no translation adjustment required for this subsidiary. Transaction gains and losses arising from transactions denominated in a non-functional currency and due to changes in exchange rates are recorded in foreign currency hedge and transaction losses, net in our consolidated statements of operations.

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          Fair Values of Financial Instruments. Fair values of financial instruments are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The estimated fair value approximates carrying value for all financial instruments except investment securities. Fair values of securities are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar instruments.
     Comprehensive Income. Comprehensive income includes all changes in equity during a period, except those resulting from investments by and distributions to owners.
          Recent Accounting Pronouncements. In May 2008, the Financial Accounting Standards Board (“FASB”) issued a statement regarding “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” contained in ASC 470 — Debt. ASC 470 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. ASC 470 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and shall be applied retrospectively to all periods presented. Early adoption of ASC 470 was not permitted.
          Our 5% Senior Convertible Notes (“Notes”) were within the scope of ASC 470. In the accompanying condensed financial statements, we reported the debt component of the Notes at fair value as of the date of issuance and amortized the discount as an increase to interest expense over the expected life of the debt. The implementation of this standard resulted in a decrease to net income and earnings per share for all prior periods presented; however, there is no effect on our cash interest payments. The incremental non-cash expense associated with adoption for the twelve months ended December 31, 2009, 2008 and 2007 was $0.3 million, $2.1 million and $2.1 million, respectively, see Note 6, Borrowings and Debt Issuance Cost.
     In March 2008, FASB issued a statement regarding, “Disclosures about Derivative Instruments and Hedging Activities” contained in ASC 815 — Derivatives and Hedging. ASC 815 applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges ASC 815 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of this statement in the first quarter of 2009 did not have a material impact on the Company’s financial statements, see Note 7, Commitments and Contingencies.
     In January 2009, the FASB issued a Staff Position regarding “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” contained in ASC 260 — Earnings Per Share. Under ASC 260, unvested share-based payment awards which receive non-forfeitable dividend rights, or dividend equivalents, are considered participating securities and are required to be included in computing EPS under the two-class method. The adoption of this provision in the twelve months ended 2009 had no effect on the Company’s financial statements.
     In April 2009, the FASB issued a statement concerning, “Interim Disclosures about Fair Value of Financial Instruments” contained in ASC 270 — Interim Reporting, which requires public entities to disclose in their interim financial statements the fair value of all financial instruments, as well as the method(s) and significant assumptions used to estimate the fair value of those financial instruments. The Company has adopted the provisions of ASC 270. The adoption of ASC 270 had no impact on the Company’s financial position or results of operations.
     In May 2009, the FASB issued a statement regarding “Subsequent Eventscontained in ASC 855 — Subsequent Events. ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. ASC 855 requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. Accordingly, the Company adopted ASC 855 as of June 30, 2009 and for the period ended December 31, 2009 evaluated its financial statements for subsequent events through May 24, 2010, date the financial statements were available to be issued, see Note 16, Subsequent Events.

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          In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, “Measuring Liabilities at Fair Value”, to clarify how entities should estimate the fair values of liabilities contained in ASC 820- Fair Value Measurements and Disclosures. This update provides clarifying guidance for circumstances in which a quoted price in an active market is not available, the effect of the existence of liability transfer restrictions and the effect of quoted prices for the identical liability, including when the identical liability is traded as an asset. The amended guidance in ASC 820 on measuring liabilities at fair value is effective for the first interim or annual reporting period beginning after August 28, 2009, with earlier application permitted. The Company is in the process of evaluating the impact ASU 2009-05 will have on its financial statements and does not believe the amended guidance will have a significant effect on its financial statements.
          In October 2009, the FASB issued ASU 2009-13, Revenue Recognition — Multiple Deliverable Revenue Arrangementscontained in ASC 605 — Revenue Recognition. This update removes the objective-and-reliable-evidence-of-fair-value criterion from the separation criteria used to determine whether certain arrangements involving multiple deliverables contains more than one unit of accounting and replaces references to “fair value” with “selling price” to distinguish from the fair value measurements required under the “ Fair Value Measurements and Disclosures” guidance. The update also provides a hierarchy that entities must use to estimate the selling price, eliminates the use of the residual method for allocation, and expands the ongoing disclosure requirements for certain arrangements. This update is effective for the Company beginning January 1, 2011 and can be applied prospectively or retrospectively. Management is currently evaluating the effect that adoption of ASU 2009-13 will have on the Company.
          From time to time, new accounting pronouncements applicable to the Company are issued by the FASB or other standards setting bodies, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.
2. Other Non-Current Assets
          Other non-current assets includes unamortized debt issuance costs, long-term lease deposits, and acquired intangibles such as, software, information databases and installed customer base/relationships.
          We were required to adopt a FASB staff position contained in ASC 470 — Debt regarding the method to account for convertible debt instruments that may be settled in cash upon conversion including partial cash settlement on January 1, 2009. ASC 470 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. We also were required to reallocate our capitalized debt issuance costs between cost of debt and cost of equity based on the relative values of the debt and the conversion feature. The result of this change is to reduce the original balance of capitalized debt issuance costs, as well as to reduce the amortization of such costs in each historical period in which our Notes were outstanding. As of December 31, 2009, all Notes have been repurchased, the majority of which occurred in the first quarter of 2009.
          Other non-current assets include intangible assets that are evaluated for impairment in accordance with ASC 360 — Property, Plant, and Equipment. ASC 360 requires that we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Details of other non-current assets are below:
                 
    December 31,  
    2009     2008  
            (as adjusted)  
Unamortized debt issuance costs
  $     $ 1,325  
Lease deposits
    3,889       3,674  
Acquired intangibles
          25  
 
           
Total
  $ 3,889     $ 5,024  
 
           

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3. Investment Securities
          Short-term time deposits and other liquid investments in debt securities with original maturities of less than three months when acquired are reported as cash and cash equivalents on our condensed consolidated balance sheet. Based on their maturities, interest rate movements do not affect the balance sheet valuation of these investments.
          Historically, we have invested our cash in a variety of interest-earning financial instruments, including bank time deposits, money market funds, taxable and tax-exempt variable-rate, fixed-rate obligations of corporations, federal, state and local government entities, and agencies. These investments are primarily denominated in U.S. Dollars.
          Due to current economic volatility, we have elected to keep our cash balances in overnight funds comprised of a combination of US Treasury and US government agency money market mutual funds (“MMMF”). These MMMF have the stated goal of maintaining a net asset value of $1 per share and their interest rate resets daily to achieve this goal. These MMMF are considered Level 1 securities because they are actively traded and they are valued on our consolidated balance sheets at quoted market prices. The balances held as MMMF reported as cash and cash equivalents were $195.0 million and $230.0 million as of December 31, 2009 and 2008, respectively. The balances held as time deposits reported as cash and cash equivalents were $1.3 million and $1.8 million as of December 31, 2009 and December 31, 2008, respectively. The remaining balances in cash and cash equivalents were held in operating cash accounts.
4. Accounts Receivable and Allowance for Doubtful Accounts
          Accounts receivable at December 31, 2009 and 2008 include billed receivables of approximately $20.8 million and $24.7 million, respectively and unbilled receivables of approximately $0.9 million and $1.2 million, respectively. Unbilled receivables relate to revenues that have been recognized, but not invoiced. Such receivables are generally invoiced in the month following recognition as revenue.
          Activity in the allowance for doubtful accounts was as follows:
                 
    2009     2008  
Balance at beginning of period
  $ 391     $ 218  
Provision (credit) for bad debts charged to costs and expenses
    (19 )     368  
Write-offs, net of recoveries and other adjustments
    76       (195 )
 
           
Balance at end of period
  $ 448     $ 391  
 
           
5. Premises and Equipment and Lease Commitments
          Premises and equipment as of December 31, 2009 and 2008 consisted of the following:
                 
    2009     2008  
Computer equipment and software
  $ 26,457     $ 26,098  
Furniture and fixtures
    21,215       21,474  
Leasehold improvements
    15,995       18,391  
 
           
 
    63,667       65,963  
Less: Accumulated depreciation
    (60,393 )     (61,048 )
 
           
 
  $ 3,274     $ 4,915  
 
           

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          Depreciation of premises and equipment totaled $2.8 million in 2009, $3.4 million in 2008 and $4.5 million in 2007. Depreciation is calculated using the straight-line method. We disposed of net premises and equipment totaling $0.3 million in 2009, $0.2 million in 2008 and $0.3 million in 2007.
          We lease our office facilities and certain office equipment under operating leases that expire at various dates through 2011. We have renewal options for most of our operating leases. We incurred total rent expense of $6.5 million in 2009, $9.2 million in 2008 and $9.1 million in 2007.
          Future minimum lease payments under all non-cancellable operating leases, including estimated sublease income of $0.9 million, as of December 31, 2009 are as follows:
         
2010
    7,805  
2011
    5,620  
2012
    5,008  
2013
    4,102  
2014
    1,123  
Thereafter
    37  
 
     
Total
  $ 23,695  
 
     
6. Borrowings and Debt Issuance Costs
     5% Senior Convertible Notes
          The following table summarizes the outstanding debt and related capitalized debt issuance costs recorded on our condensed consolidated balance sheet at December 31, 2009 and December 31, 2008.
                 
    December 31,     December 31,  
    2009     2008  
            (as adjusted)  
Senior convertible notes, 5% annual rate payable semi-annually, due November 15, 2015
          86,250  
Unamortized discount on 5% notes
          (21,730 )
 
           
Total debt, net
  $     $ 64,520  
 
           
Capitalized debt issuance costs, net
  $     $ 1,325  
 
           
          We recorded capitalized debt issuance costs, net of accumulated amortization, in other non-current assets and were amortizing these costs over a five-year period, beginning in November 2005.
          We were required to adopt a FASB staff position contained in ASC 470 — Debt regarding the method to account for convertible debt instruments that may be settled in cash upon conversion including partial cash settlement on January 1, 2009. ASC 470 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. Based on our analysis of comparable nonconvertible debt issuances by similar-sized technology companies at or near the time of our debt issuance, we determined our borrowing rate would have been 9.5% for nonconvertible debt versus the stated 5% coupon rate of the Notes.
          Upon adoption, we allocated the original debt proceeds between debt and the debt’s conversion feature based on the fair value of the liability component at issuance. This results in the debt being recorded at a discount to its face value. This discount is amortized as additional interest expense using the effective interest method over the 10-

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year life of the debt, which is the estimated life of a similar debt instrument without a related equity conversion feature. We determined that absent the equity component, there were no other terms of the debt at the time of its issuance that would have caused us to consider the life of the debt to be shorter than the stated maturity of the debt. The effect on our financial statements is to record additional non-cash interest expense in each historical period in which our Notes were outstanding. We also were required to reallocate our capitalized debt issuance costs between cost of debt and cost of equity based on the relative values of the debt and the conversion feature. The result of this change is to reduce the original balance of capitalized debt issuance costs, as well as to reduce the amortization of such costs in each historical period in which our Notes were outstanding. The accompanying consolidated financial statements have been adjusted to reflect the net increase to non-cash expense and balance sheet reclassifications.
          Following is a summary of the effects of the adjustment described above (in thousands, except per share data).
Condensed Consolidated Balance Sheet
                         
    As of December 31, 2008
    As Previously        
    Reported   Adjustment   As Adjusted
Other non-current assets
    5,775       (751 )     5,024  
Total assets
    313,776       (751 )     313,025  
 
                       
Total long-term debt, net
    85,084       (20,564 )     64,520  
Total liabilities
    183,710       (20,564 )     163,146  
 
                       
Additional paid-in capital
    10,472,323       26,130       10,498,453  
Accumulated deficit
    (10,450,362 )     (6,317 )     (10,456,679 )
Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income
                                                 
    Twelve Months Ended
    2008   2007
    As Previously                   As Previously        
    Reported   Adjustment   As Adjusted   Reported   Adjustment   As Adjusted
Non-operating income (expense), net:
                                               
Interest expense
    (4,947 )     (2,526 )     (7,473 )     (4,948 )     (2,424 )     (7,372 )
Other (expense) income, net
    11,114       396       11,510       (1,134 )     358       (776 )
Total non-operating income (expense), net
    8,343       (2,130 )     6,213       (1,272 )     (2,066 )     (3,338 )
 
                                               
Income before income taxes
    118,186       (2,130 )     116,056       23,866       (2,066 )     21,800  
Net income
    109,804       (2,130 )     107,674       17,733       (2,066 )     15,667  
Net income applicable to common stockholders
    106,664       (2,130 )     104,534       14,662       (2,066 )     12,596  
 
                                               
Net income per common share applicable to common stockholders:
                                               
Basic
  $ 4.05     $ (0.08 )   $ 3.97     $ 0.57     $ (0.08 )   $ 0.49  
Diluted
  $ 3.99     $ (0.08 )   $ 3.91     $ 0.55     $ (0.08 )   $ 0.47  
 
                                               
Total comprehensive (loss) income
    98,210       (2,130 )     96,080       22,227       (2,066 )     20,161  
Condensed Consolidated Statement of Cash Flows
                                                 
    Twelve Months Ended  
    2008     2007  
    As Previously                     As Previously              
    Reported     Adjustment     As Adjusted     Reported     Adjustment     As Adjusted  
Net income
    109,804       (2,130 )     107,674       17,733       (2,066 )     15,667  
Amortization of debt issuance expense
    1,086       (396 )     690       1,042       (358 )     684  
Debt discount accretion
    631       2,526       3,157       631       2,424       3,055  
Net cash provided by operating activities
    114,543             114,543       16,440             16,440  
          As of December 31, 2009, all Notes have been repurchased, the majority of which occurred in the first quarter of 2009. The total cash paid for the debt repurchase of $84.8 million was allocated, based on the fair values of the liability component as required by ASC 470, $64.5 million to the repurchased debt and $20.3 million to the conversion feature included in equity.

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          The repurchase of the notes resulted in a loss on extinguishment of debt as follows:
         
    Twelve months ended  
    December 31, 2009  
Face value of debt repurchased
    86,250  
Unamortized discount
    (1,089 )
Debt issuance costs
    (1,239 )
Cash paid to repurchase debt
    (84,814 )
 
     
Loss on extinguishment of debt
    (892 )
          In connection with the issuance of our 5% senior convertible notes, we issued 484,889 warrants to purchase our common stock. We assessed the characteristics of the warrants and determined that they should be included in additional paid in capital in the stockholders’ equity portion of our condensed consolidated balance sheet, valued using a Black-Scholes model. The effect of recording the warrants as equity was that the 5% senior convertible notes were recorded at an original discount to their face value. The discount recorded was originally $3.1 million, and this discount was being accreted through earnings over five years. We determined a five-year life to be appropriate due to the conversion features of the 5% senior convertible notes and our assessment of the probability that the debt would be converted prior to the scheduled maturity. All of the warrants remain outstanding as of December 31, 2009.
     Other
          We issue letters of credit and collateralize those letters of credit with cash. As of December 31, 2009 approximately $5.3 million in letters of credit were outstanding and approximately $5.7 million in restricted cash was pledged as collateral. As of December 31, 2008, $4.0 million in letters of credit were outstanding and approximately $4.9 million in restricted cash was pledged as collateral.
7. Commitments and Contingencies
Derivative Action
          On October 23, 2007, a purported shareholder derivative lawsuit was filed in the Delaware Chancery Court against certain of our current and former officers and directors, naming the Company as a nominal defendant. The complaint, originally entitled John McPadden, Sr. v. Sanjiv S. Sidhu, Stephen Bradley, Harvey B. Cash, Richard L. Clemmer, Michael E. McGrath, Lloyd G. Waterhouse, Jackson L. Wilson, Jr., Robert L. Crandall and Anthony Dubreville and i2 Technologies, Inc., alleges breach of fiduciary duty and unjust enrichment based upon allegations that the Company sold its wholly-owned subsidiary, Trade Services Corporation, for an inadequate price in 2005. Since the filing of the complaint, Eugene Singer has been substituted for John McPadden as plaintiff. The defendants moved to dismiss the complaint on December 28, 2007. On August 29, 2008, the court granted the motion to dismiss as to all defendants but Mr. Dubreville (one of our former officers). The complaint, derivative in nature, does not seek relief from the Company, but does seek damages and other relief from the sole remaining defendant, Mr. Dubreville. On June 23, 2009, a related derivative action was filed in the Superior Court for the State of California, County of San Diego, styled Eugene Singer v. Sunrise Ventures, LLC; James A. Simpson; Trade Service Holdings LLC; Trade Service Holdings, Inc.; Steven Borgardt; (“Named Defendants”) and Does 1-50; and i2 Technologies, Inc as a nominal defendant. This action purports to arise out of the same set of facts as the aforementioned Singer v. Dubreville action pending in Delaware, and asserts a claim for aiding and abetting breach of fiduciary duty. The complaint, derivative in nature, does not seek relief from the Company, but does seek damages and other relief from the Named Defendants.
Proprietary Rights and Licenses — SAP
          On June 23, 2008, we entered into a settlement agreement to settle existing patent litigation with the SAP companies. Under the terms of the settlement agreement, each party licensed to the other party certain patents in exchange for a one-time cash payment to i2 of $83.3 million, which was received in the third quarter of 2008. In

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addition, each party agreed not to pursue legal action against the other party for its actions taken to enforce any of the licensed patents prior to the effective date of the agreement. As part of the settlement agreement, SAP received rights to all of the Company’s patents issued and patent applications filed as of the effective date of the settlement. The agreement also provides for general releases, indemnification for its violation, and dismisses the existing litigations between the parties with prejudice. The agreement also contains certain limitations on the patent licenses in the event of a change in control. We have satisfied all our obligations under the agreement and no additional contingencies exist. Consideration was made in regards to the bifurcation of the proceeds among the various elements of the settlement agreement by reviewing the nature of both the patent rights received as well as the covenant not to sue. We determined that the patent licenses we received in the settlement have no significant value. Due to the fact all obligations of the agreement were met as of the agreement date, allocation of value among deliverables was not necessary.
          During the twelve months ended December 31, 2008, we recorded $79.9 million as intellectual property settlement, net; representing the cash payment received by us of $83.3 million net of directly related external litigation expenses of $3.5 million.
Shareholder Class Action Lawsuits
          On August 11, 2008, two suits were filed in state district court in Texas against (among others) the Company and certain members of its Board of Directors. Each of the two suits sought injunctive relief prohibiting the closing of the sale of the Company’s common stock to an affiliate of JDA Software Group, Inc. (“JDA”), and each of the named plaintiffs purported to represent a class of holders of the Company’s common stock. One of the two suits was thereafter dismissed by the plaintiff; the other, styled John D. Norsworthy, on Behalf of Himself and All Others Similarly Situated, v. i2 Technologies, Inc., et al., remained pending in the 134th District Court of Dallas County, Texas. On November 5, 2008, the District Court held a hearing on Plaintiff Norsworthy’s motion for a temporary restraining order, and at the conclusion of the hearing denied the motion in its entirety. On May 29, 2009, Mr. Norsworthy non-suited this action as to all defendants.
Oracle Litigation
          On April 29, 2009, the Company 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, alleges infringement of 11 patents related to supply chain management, available to promise software and other enterprise software applications. We incurred expenses related to this matter of $0.9 million for the twelve months ended December 31, 2009.
Indemnification Agreements
          We have indemnification agreements with certain of our officers, directors and employees that may require us, among other things, to indemnify such officers, directors and employees against certain liabilities that may arise by reason of their status or service as directors, officers or employees and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. We have also entered into agreements regarding the advancement of costs with certain other officers and employees.
          We may continue to advance fees and expenses incurred by certain current and former directors, officers and employees in the future. The maximum potential amount of future payments we could be required to make under these indemnification and cost-advancement agreements is unlimited. Additionally, our corporate by-laws allow us to choose to indemnify any employee for certain events or occurrences while the employee is, or was, serving at our request in such capacity. We incurred $0.2 million, $0.0 million and $0.2 million of expenses during the twelve months ended December 31, 2009, 2008 and 2007, respectively.
          Under the terms of our software license agreements with our customers, we agree that in the event the licensed software infringes upon any patent, copyright, trademark, or any other proprietary right of a third-party, we will indemnify our customer licensees against any loss, expense, or liability from any damages that may be awarded against our customer. We include this infringement indemnification in substantially all of our software license

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agreements and selected managed service arrangements. In the event the customer cannot use the software or service due to infringement and we cannot obtain the right to use, replace or modify the software or service in a commercially feasible manner so that it no longer infringes, then we may terminate the license and provide the customer a pro-rata refund of the fees paid by the customer for the infringing software or service. We believe the estimated fair value of these intellectual property indemnification clauses is minimal.
India Tax Assessments
          We currently are under income tax examinations in India primarily related to our intercompany pricing for services rendered by our Indian subsidiary to other i2 companies, the taxability of certain payments received from our Indian customers, and our statutory qualification for a tax holiday. The tax authorities have assessed an aggregate of approximately $9.6 million for the Indian statutory fiscal years ended March 31, 2002 through March 31, 2006.
          We believe the Indian tax authorities’ positions regarding these matters to be without merit, that all intercompany transactions were conducted at arm’s length pricing levels, all payments received from our Indian customers have been properly treated for tax purposes, and that our operations qualify for the tax holiday claimed. Accordingly, we appealed all of these assessments and sought assistance from the United States competent authority under the mutual agreement procedure of the income tax treaty between the United States and the Republic of India. This provides us with an opportunity to resolve these matters in a forum that includes governmental representatives of both countries.
          Pending resolution of these matters, we have paid approximately $3.2 million of the assessed amount and have arranged for $4.7 million in bank guarantees in favor of the Indian government in respect of a portion of the balance as required. The bank guarantees are supported by letters of credit issued in the United States. Cash that is collateralizing these letters of credit is reflected on our condensed consolidated balance sheet as restricted cash.
          We expect subsequent tax years to be examined, assessments made similar to those discussed above, and no assurances can be given that these issues ultimately will be resolved in our favor. We continue to monitor and assess these issues as they progress through the relevant processes and believe that the ultimate resolution of these matters will not exceed the tax contingency reserves we have established for them.
Derivative Financial Instruments
          On January 1, 2009, we adopted a FASB statement related to “Disclosures about Derivative Instruments and Hedging Activities“, contained in ASC 815 — Derivatives and Hedging. The adoption of the statement had no financial impact on our consolidated financial statements and only required additional financial statement disclosures. We have applied the requirements of ASC 815 on a prospective basis. Accordingly, disclosures related to interim periods prior to the date of adoption have not been presented.
          The Company utilizes a foreign currency risk mitigation program that uses foreign currency forward exchange contracts (“Contracts”) to economically reduce exposure to various amounts denominated in nonfunctional currencies. These foreign currency exposures typically arise from intercompany transactions, cash balances and accounts receivable held in non-functional currencies. The objective of this program is to reduce the effect of changes in foreign currency exchange rates on our results of operations. Although the Company does not designate these Contracts as hedges for accounting purposes, the objective of the program is to offset foreign currency transaction gains and losses recorded for accounting purposes with gains and losses realized on the Contracts.
          Our Contracts generally settle within 30 days, maturing at month end. We do not use these forward contracts for trading purposes. We do not designate these forward contracts as hedging instruments pursuant to ASC 815. Accordingly, we record the fair value of these contracts as of the end of our reporting period to our consolidated balance sheet with changes in fair value recorded in our consolidated statement of operations. The balance sheet classification for the fair values of these forward contracts is to other current assets for unrealized gains and to accrued liabilities for unrealized losses. The statement of operations classification for the fair values of these forward contracts is to other income (expense), net, for both realized and unrealized gains and losses.

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     The tables below summarize the Company’s outstanding forward contracts held in USD functional currency.
                                 
    December 31, 2009     December 31, 2008  
            Estimated             Estimated  
    Notional     Fair Value*     Notional     Fair Value*  
Commitments to purchase foreign currency
  $ 36,087     $     $ 41,399     $  
Commitments to sell foreign currency
    674             1,133        
 
                       
Total
  $ 36,761     $     $ 42,532     $  
                                                         
                    Amount of Gain (Loss) Recognized in Income                
            Three Months Ended   Twelve Months Ended
            December 31,   December 31,
Derivatives Not Designated as                            
Hedging Instruments   Classification   2009   2008   2007   2009   2008   2007
Foreign Currency Forward Contracts
  Other Income(Expense)   $ 139     $ 2,718     $ (296 )   $ 357     $ (7,645 )   $ 3,599  
 
*   Estimated fair value is zero due to contracts maturing at end of reporting period.
Certain Accruals
     We have accrued for estimated losses in the accompanying consolidated financial statements for matters where we believe the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable.
     We are subject to various claims and legal proceedings that arise in the ordinary course of our business from time to time, including claims and legal proceedings that have been asserted against us by former employees and certain customers, and have been in negotiations to settle certain of those contingencies. The adverse resolution of any one or more of those matters or the matters described above, over and above the amount, if any, that has been estimated and accrued in our condensed consolidated financial statements could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.
8. Stock Transactions
     On June 28, 2005 we entered into a Common Stock Purchase Agreement with R2 Investments, LDC, an affiliate of Q Investments. Pursuant to the terms and conditions of the Purchase Agreement, R2 purchased 1,923,077 shares of i2’s common stock, par value $0.00025 per share, at $7.80 per share, the closing price on June 23, 2005 when the transaction was approved by i2’s Board of Directors. The sale resulted in proceeds of $14.9 million after issuance costs of approximately $0.1 million.
     On June 3, 2004, we sold 100,000 shares of our 2.5% Series B Convertible Preferred Stock to Amalgamated Gadget, L.P. for and on behalf or R2 Investments, LDC or its subsidiary R2 Top Hat, Ltd. (collectively “R2”), pursuant to a Preferred Stock Purchase Agreement, dated April 27, 2004. The purchase price for the Series B preferred stock was $1,000 per Series B share, or $100.0 million in the aggregate. Pursuant to the terms of the Preferred Stock Purchase Agreement, R2 had certain preemptive rights upon the issuance of certain of our securities during the three-year period ended June 3, 2007. Dividends on the Series B preferred stock, which may be paid in cash or in additional shares of Series B preferred stock, at our option, are payable semi-annually at the rate of 2.5% per year. The Series B preferred stock will automatically convert into shares of our common stock on June 3, 2014 and will be convertible into shares of common stock at the option of the holder at any time prior thereto. The conversion price of $23.15 per share is subject to certain adjustments. If we were entitled to effect a conversion we would issue approximately 4.8 million shares in 2009 and approximately 4.7 million shares in 2008, with a value of approximately $91.4 million at December 31, 2009 and approximately $30.2 million at December 31, 2008. Under certain circumstances, we will also have the right to redeem the Series B preferred stock. Upon a change in control,

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unless otherwise agreed to by holders of a majority of outstanding Series B shares, we will be required to exchange the outstanding shares of Series B preferred stock for cash at 110% of face value plus all accrued but unpaid dividends. The exchange amount pursuant to this provision as of December 31, 2009 would be approximately $121.7 million and as of December 31, 2008 would be approximately $120.2 million. Upon the change in control discussed in Note 16 – Subsequent Events, we paid $121.7 million in exchange for the outstanding shares of Series B preferred stock plus $0.2 million in accrued but unpaid dividends. We may, at our option, redeem the Series B shares at any time after June 3, 2008 for cash at 104% of face value plus all accrued but unpaid dividends. The redemption amount pursuant to this provision as of December 31, 2009 would be approximately $115.1 million and as of December 31, 2008 would be $113.7 million. The Series B preferred stock is recorded net of $4.7 million of issuance costs, consisting of legal and investment-banking fees incurred to complete the transaction. The issuance costs are being accreted over a ten-year period through the date of automatic conversion. In 2009, 2008 and 2007 we recorded issuance cost accretion of approximately $0.4 million per year, and issued 1,355 shares or $1.4 million, 2,689 shares or $2.7 million, and 1,327 shares or $1.3 million, respectively, of our Series B preferred stock as payment of our dividend to R2 Investments, LDC. In 2009 and 2007 we also paid a cash dividend of $1.4 million and $1.3 million, respectively on our Series B preferred stock. Subsequent to this transaction, R2 became a related party.
9. Stockholders’ Equity and Income Per Common Share
     Stock Rights Plan. On January 17, 2002, our Board of Directors approved adoption of a stockholder rights plan and declared a dividend of one preferred share purchase right for each outstanding share of common stock. After adjusting for the 1-for-25 reverse stock split we implemented on February 16, 2005, each share of common stock has attached to it one right to purchase 25 units of one one-thousandth of a share of Series A junior participating preferred stock at a price of $75.00 per unit. The rights, which expire on January 17, 2012, will only become exercisable upon distribution. Distribution of the rights will not occur until ten days after the earlier of (i) the public announcement that a person or group has acquired beneficial ownership of 15.0% or more of our outstanding common stock or (ii) the commencement of, or announcement of an intention to make, a tender offer or exchange offer that would result in a person or group acquiring the beneficial ownership of 15.0% or more of our outstanding common stock.
     The purchase price payable, and the number of units of Series A preferred stock issuable, upon exercise of the rights are subject to adjustment from time to time to prevent dilution in the event of a stock dividend or the grant of certain rights to purchase units of Series A preferred stock at a price less than the then current market price of the units of Series A preferred stock, among other things. The number of outstanding rights and the number of units of Series A preferred stock issuable upon exercise of each right are also subject to adjustment in the event of a stock split of the common stock or a stock dividend on the common stock payable in common stock prior to the distribution date.
     Shares of Series A preferred stock purchasable upon exercise of the rights are not redeemable. Each share of Series A preferred stock will be entitled to a dividend of 40 times the dividend declared per share of common stock. In the event of liquidation, each share of Series A preferred stock will be entitled to a payment of the greater of (i) 40 times the payment made per share of common stock or (ii) $1,000. Each share of Series A preferred stock will have 40 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each share of Series A preferred stock will be entitled to receive 40 times the amount received per share of common stock. These rights are protected by customary anti-dilution provisions. Because of the nature of the dividend, liquidation and voting rights, the value of the 25 units of Series A preferred stock purchasable upon exercise of each right should approximate the value of one share of common stock.
     If, after the rights become exercisable, we are acquired in a merger or other business combination transaction, or 50% or more of our consolidated assets or earnings power are sold, proper provision will be made so that each holder of a right will thereafter have the right to receive upon exercise that number of shares of common stock of the acquiring company having a market value of two times the exercise price of the right.
     If any person or group becomes the beneficial owner of 15.0% or more of the outstanding shares of common stock, proper provision will be made so that each holder of a right, other than rights beneficially owned by the

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acquiring person (which will thereafter be void), will have the right to receive upon exercise that number of shares of common stock or units of Series A preferred stock (or cash, other securities or property) having a market value of two times the exercise price of the right.
     We may redeem the rights in whole, but not in part, at a price of $0.25 per right at the sole discretion of our Board of Directors at any time prior to distribution of the rights. At December 31, 2009 and December 31, 2008, none of the rights had been exercisable. The terms of the rights may be amended by our Board of Directors without the consent of the holders of the rights except that after the distribution of the rights, no amendment may adversely affect the interests of the holders of the rights and the consent of the holders of the shares of Series B preferred stock is required. Until a right is exercised, the holder of a right will have no rights by virtue of ownership as a stockholder of the company, including, without limitation, the right to vote or to receive dividends.
     The rights have significant anti-takeover effects by causing substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. The rights should not interfere with any merger, or other business combination approved by the Board of Directors and the holders of the shares of Series B preferred stock. The rights may be redeemed by us at the redemption price of $0.25 per right prior to the occurrence of a distribution date.
     Net Income Per Common Share. Basic net income per common share was computed by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding for the reporting period following the two-class method. Our Series B Convertible Preferred Stock is a participating security because in the event dividends are declared on our common stock it participates in those dividends on a 1:1 ratio on an as-converted basis. Under the two-class method, participating convertible securities are required to be included in the calculation of basic net income per common share when the effect is dilutive. Accordingly, for the periods presented, the effect of the convertible preferred stock is included in the calculation of basic net income per common share. We present our Earnings Per Share (EPS) calculation combined for common and preferred stock under the two-class method due to the fact the calculation yields the same result as if presented separately.
     Diluted net income per common share includes the dilutive effect of stock options, share rights awards, and warrants granted using the treasury stock method, and the effect of contingently issuable shares earned during the period and shares issuable under the conversion feature of our convertible preferred stock using the two-class method. A loss causes all common stock equivalents to be anti-dilutive due to an increase of the weighted average shares from the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. ASC 260 – Earnings Per Share requires the inclusion of the effect of contingently convertible instruments in the calculation of diluted income per share including when the market price of our common stock is below the conversion price of the convertible security and the effect is not anti-dilutive. Accordingly, the effect of our convertible preferred stock is included in basic earnings per share under the two-class method per ASC 260; therefore, it is similarly included in diluted income per share when the effect is dilutive.
     The following is a reconciliation of the number of shares used in the calculation of basic net income per common share under the two-class method and diluted earnings per share and the number of anti-dilutive shares excluded from such computations for 2009, 2008 and 2007.

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    December 31,  
    2009     2008     2007  
Common and common equivalent shares outstanding using two-class method — basic:
                       
Weighted average common shares outstanding
    22,337       21,619       21,268  
Unissued vested RSUs to be included in basic
    40       80        
Participating convertible preferred stock
    4,751       4,634       4,548  
 
                 
 
                       
Total common and common equivalent shares outstanding using two-class method — basic
    27,128       26,333       25,816  
 
                       
Effect of dilutive securities:
                       
Outstanding stock option and share right awards
    398       378       840  
Warrants associated with 5% debt
                  92  
 
                 
Weighted average common and common equivalent shares outstanding — diluted
    27,526       26,711       26,748  
 
                 
 
                       
Anti-dilutive shares excluded from calculation:
                       
Outstanding stock option and share right awards
    1,488       2,988       1,906  
Convertible debt
                736  
 
                 
Total anti-dilutive shares excluded from calculation
    1,488       2,988       2,642  
 
                 
10. Stock Compensation Expense and 401k Plans.
     401k Company Match. The company provides a 100% match on the first 3% of the employee contribution. During 2009, 2008 and 2007 we had expense related to the employee match of approximately $1.4 million, $1.5 million and $1.0 million, respectively.
     1995 Stock Option/Stock Issuance Plan. The 1995 Stock Option/Stock Issuance Plan, a stockholder approved stock-based compensation plan, replaced our original 1992 Stock Plan. All options outstanding under the 1992 Plan were incorporated into the 1995 Plan; however, all outstanding options under the 1992 Plan continue to be governed by the terms and conditions of the existing option agreements for those options. The 1995 Plan is divided into three equity programs: (i) the Discretionary Grant Program, (ii) the Stock Issuance Program and (iii) the Automatic Grant Program.
     The Discretionary Grant Program provides for the grant of stock appreciation rights and incentive stock options to employees and for the grant of stock appreciation rights and nonqualified stock options to employees, directors and consultants. Exercise prices may not be less than 100% and 85% of the fair market value per share of our common stock on the date of grant for incentive options and nonqualified stock options, respectively. Options granted under this program generally expire ten years after the date of grant. Prior to March 2001, options granted under the Discretionary Option Grant Program generally vested in four equal annual increments. Options granted after March 2001 generally vest 1% on the date of grant, 24% on the first anniversary of the grant date and the remaining options vest in 36 equal monthly increments thereafter. Some options granted under the Discretionary Option Grant Program may be immediately exercisable, subject to a right of repurchase at the original exercise price for all unvested shares.
     The Stock Issuance Program provides for the issuance of shares of our common stock to any person at any time, at such prices and on such terms as established by the plan administrator. The purchase price per share cannot be less than 85% of the fair market value of our common stock on the issuance date. Shares of our common stock may also be issued pursuant to share right awards, restricted stock units and restricted stock awards that entitle the recipients to receive those shares upon the attainment of designated performance goals or the satisfaction of specified service requirements.

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     Effective with the 2007 Annual Meeting of Stockholders, the Automatic Grant Program provides that each person who is first elected or appointed as a non-employee member of our Board of Directors shall automatically be granted an award with a value equal to $175,000; with 50% of the value (or $87,500) in the form of an option grant issued at the fair market value on the date of grant, and the remaining value (or $87,500) in the form of a restricted stock award. On the date of each Annual Meeting of Stockholders, and provided that the individual has served as a non-employee Board member for at least six (6) months prior to the date of the Annual Meeting of Stockholders, will automatically be granted an award with a value equal to $125,000; with 50% of the value (or $62,500) in the form of an option grant issued at the fair market value on the date of grant, and the remaining value (or $62,500) in the form of a restricted stock award. Options granted to eligible non-employee Board members under the Automatic Option Grant Program vest in three equal annual installments, with the first such installment vesting one year from the option grant date.
     The 1995 Plan has an automatic share increase feature whereby the number of shares of our common stock reserved for issuance under the plan will automatically increase on the first trading day of January each calendar year by an amount equal to 5.0% of the sum of (a) the total number of shares of our common stock outstanding on the last trading day in December of the immediately preceding calendar year, plus (b) the total number of shares of our common stock repurchased by us on the open market during the immediately preceding calendar year pursuant to a stock repurchase program. In no event shall any such annual increase exceed 1,600,000 shares of our common stock or such lesser number of shares of our common stock as determined by our Board of Directors in its discretion. Through December 31, 2009, we have reserved a total of 12,906,610 shares of our common stock for issuance under the plan. The number of shares for which an individual may receive options, stock appreciation rights and other stock-based awards in his or her initial year of hire is limited to 1,000,000. Unless extended or terminated earlier, the plan will terminate on October 14, 2014.
     2001 Non-officer Stock Option/Stock Issuance Plan. In March 2001, the Board of Directors adopted the 2001 Non-officer Stock Option/Stock Issuance Plan. Based on the provisions of the 2001 Plan, its adoption did not require stockholder approval and accordingly such approval was not obtained. Under the provisions of this plan, 800,000 shares have been reserved for issuance. The 2001 Plan is divided into two equity programs: (i) the Discretionary Option Grant Program and (ii) the Stock Issuance Program.
     The Discretionary Option Grant Program provides for the grant of nonqualified stock options to non-officer employees and consultants. Exercise prices may be less than, equal to or greater than the fair market value per share of our common stock on the date of grant. Options granted under this program generally expire ten years after the date of grant. Prior to March 2001, options granted under the Discretionary Option Grant Program generally vested 25% on the first anniversary of the grant date with the remaining options vesting in 36 equal monthly increments. Options granted after March 2001 generally vest 1% on the date of grant, 24% on the first anniversary of the grant date and the remaining options vest in 36 equal monthly increments thereafter. Some options granted under the Discretionary Option Grant Program may be immediately exercisable, subject to a right of repurchase at the original exercise price for all unvested shares.
     The Stock Issuance Program provides for the issuance of shares of our common stock to non-officer employees and consultants at any time, at such prices and on such terms as established by the plan administrator. Shares of our common stock may also be issued pursuant to share right awards that entitle the recipients to receive those shares upon the attainment of designated performance goals or the satisfaction of specified service requirements.
     Assumed Stock Option Plans. We have assumed the stock option plans of various companies we have acquired. While our stockholders approved some of the acquisitions, our stockholders have not specifically approved any of the assumed stock option plans. Approximately 1,500,000 shares of our common stock have been reserved for issuance under the assumed plans.
     Modification of Stock Options Granted to our Former CEO. On December 21, 2006, we entered into an amendment to the employment agreement with our then CEO, Michael McGrath, to modify the period during which Mr. McGrath’s vested equity instruments are exercisable following a termination of Mr. McGrath’s employment resulting from death or disability, a voluntary termination or a termination without cause. Mr. McGrath resigned July 31, 2007 and under the terms of this modification, he had until December 31, 2008 to exercise his vested options. Notwithstanding the foregoing, any equity instrument shall be cancelled and no longer exercisable upon the expiration of the stated term of such equity instrument. In connection with the amended employment agreement, we

25


 

recorded non-cash stock option expense of $1.3 million in December 2006 and recorded an additional $0.5 million during the first half of 2007.
     Exchange of Stock Options for Restricted Stock Units. In April 2006, we announced that we filed an exchange offer with the SEC under which eligible employees had the opportunity to exchange certain stock options for restricted stock units. We offered to exchange restricted stock units for outstanding options with exercise prices per share equal to or greater than $45.00. The number of restricted stock units issued in exchange for a properly tendered eligible option was based on exchange ratios that depended on the exercise price of the tendered option. The exchange ratios represented the number of option shares to be exchanged for one restricted stock unit and ranged from 5-for-1 to 72-for-1. The exchange offer expired on May 31, 2006; 797 employees were eligible to participate and 549 employees participated, 1,033,498 options were tendered and cancelled, and 133,033 restricted stock units were issued under such exchange offer. For the years ended December 31, 2009, 2008 and 2007, we recorded $0.0 million, $0.3 million and $0.8 million, respectively, of expense related to the amortization of the grant date fair value of options subject to exchange and the restricted stock units issued.
     Stock Based Compensation. The Company accounts for share-based compensation under the provisions of ASC 718. In accordance with this guidance the estimated fair value of share based awards granted under stock incentive plans are recognized as compensation expense over the vesting period.
     We elected to apply the simplified method to determine the hypothetical additional paid-in capital (APIC) pool provided by ASC 718, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards”. There was no effect on our financial statements from making this election. Since we have significant tax net operating loss carryforwards, any excess tax benefit will not be realized until the period in with the losses have been fully utilized and the benefit reduces income taxes payable. In the event of a shortfall (i.e., the tax benefit realized is less than the amount previously recognized through periodic stock compensation expense recognition and related deferred tax accounting), the shortfall would be charged against APIC to the extent of previous excess benefits, if any, including the hypothetical APIC pool, and then to income tax expense. During 2006, the shortfalls had no net impact on income tax expense because of our valuation allowance. We intend to settle our stock-based awards with new shares.
     We calculate our stock-based compensation expense on a straight-line basis over the vesting periods of the related options. The table below shows the allocation on our Statements of Operations of our total stock-based compensation expense. Due to our net operating losses, there was no tax expense or benefit recorded in connection with our stock-based compensation.
                                                                         
    Year Ended
    December 31, 2009   December 31, 2008   December 31, 2007
            Restricted                   Restricted                   Restricted    
    Option   Stock   Total   Option   Stock   Total   Option   Stock   Total
    Expense   Expense   Expense   Expense   Expense   Expense   Expense   Expense   Expense
Services
  $ 361     $ 303     $ 664     $ 1,040     $ 510     $ 1,550     $ 1,785     $ 467     $ 2,252  
Maintenance
    102       64     $ 166       157       74       231       212       40       252  
Sales and marketing
    1,463       914     $ 2,377       1,877       1,106       2,983       2,044       743       2,787  
Research and development
    1,170       520     $ 1,690       1,851       641       2,492       2,465       564       3,029  
General and administrative
    1,739       2,788     $ 4,527       4,018       2,411       6,429       3,335       733       4,068  
         
Total
  $ 4,835     $ 4,589     $ 9,424     $ 8,943     $ 4,742     $ 13,685     $ 9,841     $ 2,547     $ 12,388  
         
     Fair values of stock options and employee stock purchase plan (ESPP) shares are estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

26


 

                                                 
    Stock Options   ESPP
    Year Ended   Year Ended
    December 31,   December 31,
    2009   2008   2007   2009   2008   2007
Expected term (years)
    4       4       4       n/a       n/a       0.5  
Volatility factor
    0.65       0.67       0.81       n/a       n/a       0.32  
Risk-free interest rate
    1.97 %     2.74 %     4.67 %     n/a       n/a       4.67 %
Dividend yield
    0 %     0 %     0 %     n/a       n/a       0 %
     The Black-Scholes option-pricing model requires the input of highly subjective assumptions. We continue to assess the assumptions and methodologies used to calculate the estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, which could materially impact our fair value determinations.
     A combined summary of activity in our 1995 Plan, 2001 Plan and our assumed stock option plans during the years ended December 31, 2009, 2008 and 2007 is as follows (in thousands, except per share amounts and contractual life):

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            Weighted             Aggregate  
            Average     Weighted Remaining     Intrinsic  
    Number of     Exercise Price     Contractual Life     Value  
    Options     ($)     (Years)     ($)  
Outstanding balance, December 31, 2006
    3,582       22.24       7.80       30,775  
 
                             
Granted
                               
Grant price = fair market value
    202       19.09                  
Grant price > fair market value
    567       25.67                  
Exercised
    (189 )     12.09                  
Forfeited
    (465 )     18.60                  
Expired
    (202 )     101.11                  
 
                             
Outstanding balance, December 31, 2007
    3,495       19.05       5.71       4,238  
 
                             
Granted
                               
Grant price = fair market value
    1,033       11.97                  
Grant price > fair market value
                           
Exercised
    (57 )     9.19                  
Forfeited
    (152 )     15.10                  
Expired
    (1,046 )     16.75                  
 
                             
Outstanding balance, December 31, 2008
    3,273       17.90       5.19        
 
                             
Granted
                               
Grant price = fair market value
    61       12.25                  
Grant price > fair market value
                           
Exercised
    (819 )     11.19                  
Forfeited
    (155 )     15.10                  
Expired
    (179 )     16.75                  
 
                             
Outstanding balance, December 31, 2009
    2,181       18.97       6.09       9,334  
 
                             
Options exercisable at December 31, 2008
    2,102       19.42       5.19        
Options exercisable at December 31, 2009
    1,737       19.86       5.67       7,084  
Weighted average grant date fair value of options granted during 2007
  $ 14.84                          
Weighted average grant date fair value of options granted during 2008
  $ 6.26                          
Weighted average grant date fair value of options granted during 2009
  $ 6.89                          
     A summary of activity in our restricted stock plan as of the three years ended December 31, 2009, 2008 and 2007 is as follows (in thousands, except per share amounts and contractual life):

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            Weighted             Aggregate  
            Average     Weighted Remaining     Intrinsic  
    Number of     Exercise Price     Contractual Life     Value  
    Shares     ($)     (Years)     ($)  
Outstanding balance, December 31, 2006
    408             1.57       9,299  
 
                             
Granted
                               
Grant price = fair market value(1)
    400                        
Grant price < fair market value
    218                        
Vested
    (157 )                      
Forfeited
    (145 )                      
 
                             
Outstanding balance, December 31, 2007
    724             1.89       9,124  
 
                             
Granted
                               
Grant price < fair market value
    262                        
Vested
    (452 )                      
Forfeited
    (68 )                      
 
                             
Outstanding balance, December 31, 2008
    466             2.41       2,977  
 
                             
Granted
                               
Grant price < fair market value
    986                        
Vested
    (389 )                      
Forfeited
    (64 )                      
 
                             
Outstanding balance, December 31, 2009
    999             1.56       19,099  
 
                             
Weighted average grant date fair value of restricted shares granted during 2009
  $ 8.55                          
 
(1)   Represents a grant of restricted stock units to certain key employees that may vest based on the company achieving specified increases in GAAP Diluted Earnings per Share in 2008 and 2009 compared to 2006 Diluted Earnings per Share. This performance period for one-third of the award was from January 1, 2008 to December 31, 2008 and for the remaining two-thirds of the award is from January 1, 2009 to December 31, 2009. We are required to assess whether the performance criteria is probable of being achieved, and only recognize compensation expense if the vesting is considered probable. On a quarterly basis, we assess whether vesting is probable and based on that assessment record the appropriate expense. Based on our assessments during 2009, compensation expense associated with these performance-based RSUs was not recorded in our results of operations in the twelve-month period ended December 31, 2009.
     In connection with stock option and restricted stock awards, we recognized compensation expense of $9.4 million, $13.7 million, and $12.4 million for the twelve months ended December 31, 2009, 2008 and 2007, respectively. Total compensation cost related to nonvested awards not yet recognized was $4.1 million at December 31, 2009. The total fair value of options vested during the twelve-month periods ended December 31, 2009, 2008 and 2007 was $5.9 million, $7.7 million, and $8.2 million, respectively. The aggregate intrinsic value of options exercised was $3.3 million, $0.3 million, and $2.0 million during the twelve-month periods ended December 31, 2009, 2008 and 2007. The intrinsic value of a stock option is the amount by which the fair market value of the underlying stock exceeds the exercise price of the option. When we issue shares upon stock option exercises, our policy is to first issue any available treasury shares and then issue new shares.

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     A summary of nonvested stock option awards for the years ended December 31, 2009 and 2008, and changes during the respective periods is presented below:
                 
            Weighted
            Average Grant Date
    Nonvested   Fair Value
    Shares   ($)
Outstanding unvested balance, December 31, 2007
    1,348       17.64  
 
               
Granted
               
Grant price = fair market value
    1,033       11.97  
Forfeited
    (152 )     15.10  
Vested
    (950 )     15.41  
 
               
Outstanding unvested balance, December 31, 2008
    1,279       15.02  
 
               
Granted
               
Grant price = fair market value
    61       12.25  
Forfeited
    (120 )     15.82  
Vested
    (663 )     14.73  
 
               
Outstanding unvested balance, December 31, 2009
    557       14.86  
 
               
     Of the options outstanding at December 31, 2009, and in the absence of acceleration of vesting or cancellations, approximately 316,450 options will vest in 2010, 189,935 in 2011, and 48,227 in 2012.
     A summary of nonvested share awards as of December 31, 2009 and 2008, and changes during the respective periods is presented below:
                 
            Weighted
            Average Grant Date
    Nonvested   Fair Value
    Shares   ($)
Outstanding unvested balance, December 31, 2007
    724       19.64  
 
               
Granted
               
Grant price < fair market value
    262       11.21  
Vested
    (452 )     15.47  
Forfeited
    (68 )     21.27  
 
               
Outstanding unvested balance, December 31, 2008
    466       16.79  
 
               
Granted
               
Grant price < fair market value
    986       8.55  
Vested
    (389 )     9.64  
Forfeited
    (64 )     9.24  
 
               
Outstanding unvested balance, December 31, 2009
    999       8.77  
 
               

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     The following table summarizes information about our stock options outstanding at December 31, 2009:
                                         
    Options Outstanding   Options Exercisable
                    Weighted Average            
            Weighted Average   Remaining           Weighted Average
    Number of   Exercise Price   Contractual Life           Exercise Price
Range of Exercise Prices   Shares   ($)   (Years)   Shares   ($)
$7.25 -$12.50
    825     $ 10.89       7.32       537     $ 10.24  
$12.51-$62.50
    1,329     $ 20.86       5.41       1,173     $ 20.74  
$93.76-$137.50
    14     $ 107.03       1.61       14     $ 107.03  
$137.50 -$2,301.00
    13     $ 252.13       1.74       13     $ 252.13  
 
                                       
 
    2,181     $ 18.97       6.09       1,737     $ 19.86  
 
                                       
11. Restructuring Charges and Adjustments
     2009 Restructuring Plan. In the first quarter of 2009, we implemented a restructuring plan to reduce our overhead to increase efficiency and reduce operating expense. We eliminated approximately 80 positions, resulting in severance costs of $3.0 million.
     2007 Restructuring Plan. During the second half of 2007 we initiated reorganization and eliminated approximately 55 positions. The purpose of the restructuring was to reduce management layers to both decrease cost and increase speed around decision-making and internal processes. The realignment included the elimination of certain management levels as well as other targeted cost reductions. We recorded a charge of approximately $4.0 million primarily related to severance costs.
Consolidated Restructuring Accrual
     The following table summarizes the 2009 and 2008 restructuring related payments and accruals. There was no remaining estimated sublease income at December 31, 2008.
         
    Employee  
    Severance  
    and  
    Termination  
Remaining accrual balance at December 31, 2007
    283  
 
     
 
       
Restructuring charges
    (95 )
Cash payments
    (182 )
 
     
Remaining accrual balance at December 31, 2008
  $ 6  
 
     
 
       
Adjustments to restructuring plans
  $ (31 )
Restructuring charges
    3,006  
Cash payments
    (2,971 )
 
     
Remaining accrual balance at December 31, 2009
  $ 10  
 
     
12. Foreign Currency Risk Management
     Because we conduct business on a global basis in various foreign currencies, we are exposed to adverse movements in foreign currency exchange rates. We maintain a program to mitigate foreign currency exposures that utilize foreign currency forward contracts to reduce selected non-functional currency exposures. The objective of this program is to reduce the effect of changes in foreign currency exchange rates on our results of operations.

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Furthermore, our goal is to offset foreign currency transaction gains and losses recorded for accounting purposes with gains and losses realized on the forward contracts.
     We generally enter into forward contracts to purchase or sell various foreign currencies as of the last day of each month. These forward contracts generally have original maturities of up to one month and are net-settled in U.S. Dollars. Each forward contract is based on the current market forward exchange rate as of the contract date and no premiums are paid or received. Accordingly, these forward contracts have no fair value as of the contract date. Changes in the applicable foreign currency exchange rates subsequent to the contract date will cause the fair value of the forward contracts to change. These changes in the fair value of forward contracts are recorded through earnings and the corresponding assets or liabilities are recorded on our balance sheet. Gains and losses on the forward contracts are included as a component of non-operating expense, net, in our Consolidated Statements of Operations and offset foreign exchange gains and losses from the revaluation of current monetary assets and liabilities denominated in currencies other than the functional currency of the reporting entity. During 2009, we recognized net gains of $4.3 million on foreign currency forward contracts and net losses of $3.9 million on foreign currency transactions. During 2008, we recognized net losses of $7.6 million on foreign currency forward transactions and net gains of $5.9 million from the revaluation of current monetary assets and liabilities. During 2007, we recognized net gains of $3.6 million on foreign currency forward transactions and net losses of $4.3 million on foreign currency transactions.
     A summary of our foreign currency forward contracts by currency as of December 31, 2009 and 2008 is presented in the following table (in thousands). All of these contracts originated, without premiums, on December 31, 2009 and 2008, respectively, based on then-current market forward exchange rates. Accordingly, these forward contracts had no fair value on December 31, 2009 and 2008 and no amounts related to these forward contracts were recorded in our financial statements.
                                         
            2009     2008  
            Notional     Notional     Notional     Notional  
            Amount of     Amount of     Amount of     Amount of  
            Forward     Forward     Forward     Forward  
            Contract     Contract in     Contract     Contract in  
            in Foreign     U.S.     in Foreign     U.S.  
            Currency     Dollars     Currency     Dollars  
Forward contracts to purchase:
                                       
Australian Dollars
  AUD         $       690     $ 472  
British Pounds
  GBP     2,368       3,846       2,344       3,445  
Canadian Dollars
  CAD                 12,548       10,371  
European Euros
  EUR     2,677       3,831       4,089       5,773  
Indian Rupees
  INR     1,065,588       22,847       883,319       18,186  
Japanese Yen
  JPY     363,332       3,905       172,064       1,904  
Singapore Dollars
  SGD     1,564       1,119       1,112       779  
Taiwanese Dollars
  TWD     17,185       539       15,270       469  
 
                                   
Total forward contracts to purchase
                  $ 36,087             $ 41,399  
 
                                   
 
                                       
Forward contracts to sell:
                                       
Australian Dollars
  AUD     27       25              
South Korean Won
  KRW     760,570       649       1,338,000       987  
South African Rand
  ZAR                 1,410       146  
 
                                   
Total forward contracts to sell
                  $ 674             $ 1,133  
 
                                       
 
                                   
Total forward contracts
                  $ 36,761             $ 42,532  
 
                                   
     Our foreign currency forward contracts include credit risk to the extent that the bank counterparties may be unable to meet the terms of agreements. We reduce such risk by limiting our counterparties to major financial

32


 

institutions. Additionally, the potential risk of loss with any one party resulting from this type of credit risk is monitored and risks are also mitigated by utilizing multiple counterparties.
Income Taxes
     The components of income before income taxes from domestic and foreign operations for the years ended December 31, 2009, 2008 and 2007 are as follows:
                         
    2009     2008     2007  
            (as adjusted)     (as adjusted)  
Domestic
  $ 19,831     $ 107,233     $ 8,648  
Foreign
    11,624       8,823       13,152  
 
                 
Total
  $ 31,455     $ 116,056     $ 21,800  
 
                 
     Our provision (benefit) for income taxes consists of the following:
                         
    2009     2008     2007  
Current:
                       
State
    207       729       126  
Federal
          1,381        
Foreign
    3,971       4,414       6,241  
Deferred:
                       
State
    (252 )            
Federal
    (5,438 )            
Foreign
    1,365       1,858       (234 )
 
                 
Total
  $ (147 )   $ 8,382     $ 6,133  
 
                 
     Our provision (benefit) for income taxes reconciles to the amount computed by applying the statutory U.S. federal rate of 35% to income from continuing operations before income taxes as follows:
                         
    2009     2008     2007  
            (as adjusted)     (as adjusted)  
Expense computed at statutory rate
    11,034       40,620       7,629  
Stock based compensation
    1,429       2,054       1,749  
Foreign operations
    284       3,184       1,541  
Decrease in valuation allowance
    (14,373 )     (40,565 )     (4,936 )
Dividend received from foreign subsidiary
    579       16        
Alternative minimum tax
          1,381        
Other
    900       1,692       150  
 
                 
Provision for income taxes
  $ (147 )   $ 8,382     $ 6,133  
 
                 

33


 

          Components of deferred tax assets and liabilities at December 31, 2009 and 2008 are comprised of the following:
                 
    2009     2008  
            (as adjusted)  
Deferred Tax Assets
               
Deferred revenue
  $ 4,158     $ 5,335  
Accrued liabilities
    6,497       7,872  
Acquired intangibles
    33,724       40,179  
Capitalized expenses
    34,421       43,344  
Other
    12,441       11,958  
 
           
Total future deductible items
  $ 91,241     $ 108,688  
 
           
 
               
Loss carryforwards
    663,165       661,792  
Tax credits
    40,209       39,226  
 
           
Total tax loss carryforwards and credits
    703,374       701,018  
 
           
 
               
Total deferred tax assets
    794,615       809,706  
 
               
Valuation allowance against deferred tax assets
    (783,330 )     (802,098 )
 
           
 
               
Net deferred tax assets
  $ 11,285     $ 7,608  
 
           
     At December 31, 2009 and 2008, we had approximately $1.73 billion and $1.72 billion of U.S. federal net operating loss carryforwards for domestic federal tax purposes, respectively. These loss carryforwards are subject to certain annual limitations and are scheduled to expire as follows:
         
2019-2022
    1,402,372  
Thereafter
    328,499  
 
     
Total
  $ 1,730,871  
 
     
     At December 31, 2009, our U.S. federal net operating loss carryforwards for tax purposes was approximately $2.0 million greater than our net operating loss carryforwards for financial reporting purposes due to our inability to realize excess tax benefits under ASC 740 until such benefits reduce income taxes payable.
     In addition to the tax loss carryforwards reflected above, at December 31, 2009, we had approximately $247.3 million in future deductible expenses for tax purposes. See the table above for a description of these deferred tax assets. These tax deductible items have varying schedules of amortization and deductibility with no expiration and will reduce taxable income in the years of deduction and may create or increase tax net operating losses in the years of deduction. Utilization of these future deductible expenses will reduce or delay our ability to utilize existing tax loss carryforwards, possibly resulting in the expiration of a portion of the existing loss carryforwards. Under current tax law, tax net operating losses created or increased as a result of these future tax-deductible items will have a carryforward period of 20 years from the year in which the loss is incurred.
     At December 31, 2009 and 2008, we had approximately $38.7 and $38.9 million of U.S. federal research and development tax credit carryforwards. These tax credits expire in the years 2010 through 2028.
     At December 31, 2009 and 2008, we had approximately $82.7 million and $85.4 million, respectively, of U.S. federal capital loss carryforwards. These loss carryforwards expire in the years 2010 through 2013. Capital losses may be offset only by capital gains.

34


 

     We had no foreign net operating loss carryforwards at December 31, 2009. We had $5.1 million of foreign net operating loss carryforwards at December 31, 2008. At December 31, 2009 and 2008, we had $3.0 million and $2.9 million, respectively, of foreign research and development tax credit carryforwards. The foreign research and development tax credit carryforwards expire between 2022 and 2029.
     As of December 31, 2009, we released $5.0 million of our domestic valuation allowance. Each quarter, we review the necessity and amounts of the domestic valuation allowance taking into account various judgments and factors, including our historical and projected financial performance. Despite the valuation allowance, the future tax-deductible benefits and tax credits related to these deferred tax assets remain available to offset future taxable income or reduce income taxes payable over the remaining useful lives of the underlying deferred tax assets. Except for items on which Alternative Minimum Tax may apply, we do not anticipate paying domestic federal income taxes for the foreseeable future. We will continue to incur state and local income taxes due to the manner in which they are determined.
     We consider the earnings of certain foreign subsidiaries to be permanently reinvested outside the U.S. Aggregate unremitted earnings of foreign subsidiaries that are considered permanently reinvested and for which U.S. income taxes have not been provided totaled $32.5 million and $49.2 million as of December 31, 2009 and 2008, respectively.
     In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes” — an Interpretation of FASB Statement No. 109 (“SFAS 109”) contained in ASC 470 – Income Taxes. This interpretation, which became effective for fiscal years beginning after December 15, 2006, introduces a new approach that significantly changes how enterprises recognize and measure tax benefits associated with tax positions and how enterprises disclose uncertainties related to income tax positions in their financial statements.
   This interpretation applies to all tax positions within the scope of ASC 470 and establishes a single approach in which a recognition and measurement threshold is used to determine the amount of tax benefit that should be recognized in the financial statements. ASC 470 also provides guidance on (1) the recognition, derecognition, and measurement of uncertain tax positions in a period subsequent to that in which the tax position is taken; (2) the accounting for interest and penalties; (3) the presentation and classification of recorded amounts in the financial statements; and (4) disclosure requirements.
     On January 1, 2007, we adopted the provisions of ASC 470. As a result of the implementation of ASC 470, there was no adjustment to the January 1, 2007 balance of our accumulated deficit.
     At December 31, 2009 and 2008, we have recorded approximately $6.2 million and $6.4 million, respectively, in tax contingency reserves in our taxes payable accounts relating to tax positions we have taken during tax years that remain open for examination by tax authorities.
     The change in unrecognized tax benefits for the twelve months ended December 31, 2009 and 2008 is as follows:
                 
    2009     2008  
Balance at January 1,
  $ 29,428     $ 30,513  
Additions for tax positions of prior year
    2,747       2,881  
Additions for tax positions of prior year
    275       1,278  
Reductions related to lapses of statutes of limitations
          (835 )
Reductions for settlements
    (2,070 )     (4,409 )
 
           
Balance at December 31,
  $ 30,380     $ 29,428  
 
           
          The additions for tax positions of prior years and the current year are related to global transfer pricing and foreign tax credits.

35


 

          The total amount of unrecognized tax benefits at December 31, 2009, that would affect the company’s effective tax rate, and not be offset by our valuation allowance, if recognized is $9.9 million. Of this amount, we have paid approximately $3.0 million related to India transfer pricing as required under Indian tax law. There is a reasonable possibility that unrecognized tax benefits will increase or decrease by December 31, 2010 due to a lapse in the statute of limitations for assessing tax, settlements of prior year’s uncertain tax positions, additional tax assessments and accruals related to our global transfer pricing. However, it is not possible to reasonably estimate a range of such potential increase or decrease.
          We account for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties as of December 31, 2009 and 2008 was $2.4 million and $2.2 million, respectively.
          Income tax expense (benefit) for the twelve months ended December 31, 2009, includes $0.2 million of interest expense related to uncertain tax positions.
          We or one of our subsidiaries file income tax returns in the United States (U.S.) federal jurisdiction and various state and foreign jurisdictions. We have open tax years for the U.S. federal return back to 1993 with respect to our net operating loss (“NOL”) carryforwards, where the IRS may not raise tax for these years, but can reduce NOLs. Otherwise, with few exceptions, we are no longer subject to federal, state, local or foreign income tax examinations for years prior to 2005.
14. Segment Information, International Operations and Customer Concentrations
     We operate our business in one segment, supply chain management solutions designed to help enterprises optimize business processes both internally and among trading partners. Disclosures about Segments of an Enterprise and Related Information” contained in ASC 280 – Segment Reporting, establishes standards for the reporting of information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, who is our Chief Executive Officer (CEO), in deciding how to allocate resources and in assessing performance.
     We market our software and services primarily through our worldwide sales organization augmented by other service providers, including both domestic and international systems consulting and integration firms and other industry-related partners. Our chief executive officer evaluates resource allocation decisions and our performance based on financial information, presented on a consolidated basis, accompanied by disaggregated information by geographic regions. Sales to our customers generally include products from some or all of our product suites. We have not consistently allocated revenues from such sales to individual products for internal or general-purpose financial statements.
     Revenues are attributable to regions based on the locations of the customers’ operations. Total revenues by geographic region, as reported to our CEO, were as follows:
                         
    2009     2008     2007  
United States
  $ 116,966     $ 148,490     $ 149,613  
International revenue:
                       
Non-US Americas
    7,730       5,605       6,486  
Europe, Middle East and Africa
    41,741       55,002       54,323  
Greater Asia Pacific
    56,373       46,716       49,888  
 
                 
Total international revenue
    105,844       107,323       110,697  
 
                 
Total Revenue
  $ 222,810     $ 255,813     $ 260,310  
 
                 
 
                       
International revenue as a percent of total revenue
    48 %     42 %     43 %

36


 

     No individual customer accounted for more than 10% of our total revenues during 2009, 2008 or 2007.
     Long-lived assets by geographic region excluding deferred taxes, as reported to our CEO, were as follows:
                 
    2009     2008  
            (as adjusted)  
Americas (United States, Canada)
  $ 18,912     $ 21,346  
Europe, Middle East, Africa
    105       137  
Greater Asia Pacific
    4,830       5,140  
 
           
Total Long Lived Assets
  $ 23,847     $ 26,623  
 
           
15. Related Parties
     On January 1, 2009, Rick Clemmer, an outside director became CEO of NXP Semiconductors. NXP is a customer, and has purchased maintenance and consulting services in each of the last 3 years. In each year, revenue from NXP accounted for less than 1% of our operating revenues.
16. Subsequent Events
     On January 28, 2010, i2 Technologies, Inc. (“i2”) completed its merger with Alpha Acquisition Corp. (“Merger Sub”), a wholly-owned subsidiary of JDA Software Group, Inc. (“JDA”), whereby Merger Sub merged with and into i2 with i2 continuing as the surviving corporation (the “Merger”). The Merger was effected pursuant to an Agreement and Plan of Merger, dated as of November 4, 2009 (the “Merger Agreement”), by and among JDA, Merger Sub and i2. Due to the change in control, the vesting of 0.3 million shares of performance based restricted stock units issued to Executives was accelerated, resulting in compensation expense of $5.2 million in January.

37

EX-99.5 8 p17827exv99w5.htm EX-99.5 exv99w5
Exhibit 99.5
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Description of the Transaction
     On January 28, 2010, we completed the acquisition of i2 Technologies, Inc. (“i2”) for approximately $599.8 million, which includes cash consideration of approximately $431.8 million and the issuance of approximately 6.2 million shares of our common stock with an acquisition date fair value of approximately $168.0 million, or $26.88 per share, determined on the basis of the closing market price of our common stock on the date of acquisition (the “Merger”).
     Under the terms of the Merger Agreement, each issued and outstanding share of i2 common stock was converted into the right to receive $12.70 in cash and 0.2562 of a share of JDA common stock (the “Merger Consideration”). Holders of i2 common stock did not receive any fractional JDA shares in the Merger. Instead, the total number of shares that each holder of i2 common stock received in the Merger was rounded down to the nearest whole number, and JDA paid cash for any resulting fractional share determined by multiplying the fraction by $26.65, which represents the average closing price of JDA common stock on Nasdaq for the five consecutive trading days ending three days prior to the effective date of the Merger.
     Each outstanding option to acquire i2 common stock was canceled and terminated at the effective time of the Merger and converted into the right to receive the Merger Consideration with respect to the number of shares of i2 common stock that would have been issuable upon a net exercise of such option, assuming the market value of the i2 common stock at the time of such exercise was equal to the value of the Merger Consideration as of the close of trading on the day immediately prior to the effective date of the Merger. Any outstanding option with a per share exercise price that was greater than or equal to such amount was cancelled and terminated and no payment was made with respect thereto. In addition, each i2 restricted stock unit award outstanding immediately prior to the effective time of the Merger was fully vested and cancelled, and each holder of such awards became entitled to receive the Merger Consideration for each share of i2 common stock into which the vested portion of the awards would otherwise have been convertible. Each i2 restricted stock award was vested immediately prior to the effective time of the Merger and was entitled to receive the Merger Consideration.
     Each outstanding share of i2’s Series B Preferred Stock was converted into the right to receive $1,100 per share in cash, which is equal to the stated change of control liquidation value of each such share plus all accrued and unpaid dividends thereon through the effective date of the Merger.
     At the effective time of the Merger, each outstanding warrant to purchase shares of i2’s common stock ceased to represent a right to acquire i2’s common stock and was assumed by JDA and converted into a warrant with the right to receive upon exercise, the Merger Consideration that would have been received as a holder of i2 common stock if such i2 warrant had been exercised prior to the Merger. In total, 420,237 warrants to purchase i2 common stock at an exercise price of $15.4675 were assumed and converted into the right to receive the Merger Consideration upon exercise, including 107,663 shares of JDA common stock.
     The Merger is being accounted for using the acquisition method of accounting, with JDA identified as the acquirer, and the operating results of i2 have been included in our consolidated financial statements from the date of acquisition. Under the acquisition method of accounting, all assets acquired and liabilities assumed will be recorded at their respective acquisition-date fair values. We have allocated all goodwill recorded in the i2 acquisition ($66.0 million) to our Supply Chain reportable business segment. None of the goodwill recorded in the i2 acquisition is deductible for tax purposes. In addition, we have initially recorded $116.1 million in other intangible assets including $76.2 million for customer-based intangibles (maintenance relationships and future technological enhancements, service relationships and a covenant not-to-complete), $25.6 million for technology-based intangibles consisting of developed technology and $14.3 million for marketing-based intangibles consisting of trademark and trade names. The purchase price allocation on this acquisition has not been finalized. We have retained an independent third party appraiser for the intangible assets to assist management in its valuation; however, we are still in the process of obtaining all information necessary to determine the fair values of the

1


 

acquired assets. This could result in adjustments to the carrying value of the assets and liabilities acquired, the useful lives of intangible assets and the residual amount allocated to goodwill. The initial allocation of the purchase price is based on the best estimates of management and is subject to revision based on the final valuations and estimates of useful lives. The initial estimated weighted average amortization period for all intangible assets acquired in this transaction that are subject to amortization is 6.7 years.
     The following table summarizes our initial estimate of the fair values of the assets acquired and liabilities assumed at the date of acquisition.
                         
                    Weighted  
                    Average  
            Useful     Amortization  
            Life     Period  
Cash
  $ 218,348                  
Fair value of trade accounts receivable acquired
    31,711                  
Fair value of other current assets acquired
    50,038                  
Fair value of fixed assets acquired
    3,116                  
Customer-based intangibles
    76,200     1-7 years   6 years
Technology-based intangibles
    25,600     7 years   7 years
Marketing-based intangibles
    14,300     5 years   5 years
Long-term deferred tax assets acquired
    218,322                  
Fair value of other non-current assets
    3,925                  
 
                     
Total assets acquired
    641,560                  
Goodwill
    66,041                  
 
                     
Total assets acquired
  $ 707,601                  
 
                     
 
                       
Fair value of deferred revenue assumed
  $ (62,614 )                
Fair value of other current liabilities assumed
    (41,128 )                
Fair value of other non-current liabilities assumed
    (4,105 )                
 
                     
Total liabilities assumed
    (107,847 )                
 
                     
Net assets acquired from i2 Technologies, Inc
  $ 599,754                  
 
                     
     As of the date of the acquisition, the gross contractual amount of trade accounts receivable acquired were $35.4 million, of which approximately $3.7 million is expected to be uncollectable.
     Liabilities have been recognized for certain assumed customer and labor disputes of $7.7 million and $268,000, respectively. The potential undiscounted amount of all future payments that we could be required to make to settle the customer and labor disputes is estimated to range between $5.2 million and $9.4 million and $73,000 and $1.2 million, respectively.
Basis of Pro Forma Presentation
     The unaudited pro forma condensed combined statement of income for the year ended December 31, 2009 combines the historical JDA consolidated statement of income for the year ended December 31, 2009 with the historical i2 consolidated statement of operations for the year ended December 31, 2009 giving effect to the merger as if it had occurred on January 1, 2009. The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2010 combines the historical JDA consolidated statement of operations for the three months ended March 31, 2010 with the i2’s internal consolidated statement of operations for the month of January 2010, giving effect to the Merger as if it had occurred on January 1, 2010.
     The unaudited pro forma condensed combined financial information provided herein does not purport to represent the results of operations or financial position of JDA that would have actually resulted had the Merger been completed as of the dates indicated, nor should the information be taken as indicative of the future results of operations or financial position of the combined company. The unaudited pro forma condensed combined financial statements do not reflect the impacts of any potential operational efficiencies, cost savings or economies of scale that JDA may achieve with respect to the combined operations of JDA and i2.

2


 

     The unaudited pro forma condensed combined pro forma financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes of JDA and i2 that appear elsewhere herein.

3


 

JDA SOFTWARE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2009
(in thousands, except per share data)
                                         
    Historical             Pro Forma          
Description   JDA     i2     Reclassification     Adjustments     Pro Forma  
Revenues:
                                       
Software licenses
    88,786               31,766 (1)           $ 120,552  
Software solutions
    0       55,093       (55,093) (1)             0  
Subscriptions and other recurring revenues
            0       23,327 (1)             23,327  
Maintenance services
    179,336       73,134                       252,470  
 
                             
Product Revenues
    268,122       128,227       0       0       396,349  
 
                             
 
                                       
Consulting services
    107,618       94,583                       202,201  
Reimbursed expenses
    10,060       0                       10,060  
 
                             
Service Revenues
    117,678       94,583       0       0       212,261  
 
                             
Total Revenues
    385,800       222,810       0       0       608,610  
 
                             
Cost of Revenues:
                                       
Cost of software licenses and subscriptions
    3,241               9,564 (1)             12,805  
Cost of software solutions
    0       9,564       (9,564) (1)             0  
Amortization of acquired software technology
    3,920       0               3,657 (3)     7,577  
Cost of maintenance services
    43,165       8,929                       52,094  
 
                             
Cost of Product Revenues
    50,326       18,493       0       3,657       72,476  
 
                             
 
                                       
Cost of consulting services
    85,285       59,973                       145,258  
Reimbursed expenses
    10,060       0                       10,060  
 
                             
Cost of Service Revenues
    95,345       59,973       0       0       155,318  
 
                             
Total Cost of Revenues
    145,671       78,466       0       3,657       227,794  
 
                             
 
                                       
Gross Profit
    240,129       144,344       0       (3,657 )     380,816  
 
                                       
Operating Expenses:
                                       
Product development
    51,318       26,629                       77,947  
Sales and marketing
    66,001       36,962                       102,963  
General and administrative
    47,664       41,000                       88,664  
Amortization of intangibles
    23,633       25               17,749 (3)     41,407  
Restructuring charges and adjustments to reserves
    6,865       2,975                       9,840  
Acquisition-related costs
    4,768       0                       4,768  
Intellectual property settlement, net
    0       935                       935  
 
                             
Total Operating Expense
    200,249       108,526       0       17,749       326,524  
 
                             
Operating Income (Loss)
    39,880       35,818       0       (21,406 )     54,292  
Interest expense and amortization of loan fees
    (2,712 )     (899 )             (22,367) (2), (5)     (25,978 )
Finance costs on abandoned acquisition
    767       0                       767  
Foreign currency hedge and transaction gain (loss), net
    0       (1,755 )     677 (1)             (1,078 )
Loss on extinguishment of debt
    0       (892 )                     (892 )
Interest income and other, net
    1,253       325       (967) (1)     (611) (4)     0  
Other income (expense), net
    0       (1,142 )     290 (1)             (852 )
 
                             
Income (Loss) Before Income Taxes
    39,188       31,455       0       (44,384 )     26,259  
Income tax (provision) benefit
    (12,849 )     147               15,534 (7)     2,832  
 
                             
Net Income
    26,339       31,602       0       (28,850 )     29,091  
Consideration paid in excess of carrying value of the repurchase of redeemable preferred stock
    (8,593 )     0                       (8,593 )
Preferred stock dividends and accretion of discount
            (3,215 )             3,215 (6)     0  
 
                             
Income Applicable to Common Shareholders
    17,746       28,387       0       (25,635 )     20,498  
 
                             
 
                                       
Earnings Per Share Applicable to Common Shareholders:
                                       
Basic earnings per share
  $ 0.51     $ 1.05                     $ 0.50  
 
                                 
Diluted earnings per share
  $ 0.50     $ 1.03                     $ 0.49  
 
                                 
 
                                       
Shares Used to Compute Earnings Per Share:
                                       
Basic earning per share
    34,936       27,128               6,249 (8)     41,185  
 
                                 
Diluted earnings per share
    35,258       27,526               6,249       41,507  
 
                                 
See accompanying notes to unaudited pro forma condensed combined financial statements

4


 

JDA SOFTWARE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(in thousands, except per share data)
                                         
    Historical             Pro Forma        
Description   JDA     i2     Reclassification     Adjustments     Pro Forma  
Revenues:
                                       
Software licenses
    24,437               2,029 (1)             26,466  
Software solutions
            3,450       (3,450) (1)             0  
Subscription services
    4,287       0       1,421               5,708  
Maintenance services
    57,060       5,416                       62,476  
 
                             
Product Revenues
    85,784       8,866       0               94,650  
 
                             
 
                                       
Consulting services
    43,002       6,160                       49,162  
Reimbursed expenses
    2,845       0                       2,845  
 
                             
Service Revenues
    45,847       6,160       0       0       52,007  
 
                             
Total Revenues
    131,631       15,026       0       0       146,657  
 
                             
Cost of Revenues:
                                       
Cost of software licenses and subscriptions
    1,008       0       (396) (1)             612  
Cost of software solutions
            (396 )     396 (1)             0  
Amortization of acquired software technology
    1,576       0               305 (3)     1,881  
Cost of maintenance services
    12,033       873                       12,906  
 
                             
Cost of Product Revenues
    14,617       477       0       305       15,399  
 
                             
 
                                       
Cost of consulting services
    35,269       5,651                       40,920  
Reimbursed expenses
    2,845       0                       2,845  
 
                             
Cost of Service Revenues
    38,114       5,651       0       0       43,765  
 
                             
Total Cost of Revenues
    52,731       6,128       0       305       59,164  
 
                             
 
                                       
Gross Profit
    78,900       8,898       0       (305 )     87,493  
Operating Expenses:
                                       
Product development
    17,277       4,025                       21,302  
Sales and marketing
    21,112       6,140                       27,252  
General and administrative
    17,697       7,121                       24,818  
Amortization of intangibles
    8,566       0               1,481 (3)     10,047  
Restructuring charges and adjustments to reserves
    7,758       0                       7,758  
Acqusition-related costs
    6,743       0                       6,743  
 
                             
Total Operating Expense
    79,153       17,286       0       1,481       97,920  
 
                             
Operating Income (Loss)
    (253 )     (8,388 )     0       (1,786 )     (10,427 )
Interest expense and amortization of loan fees
    (6,086 )     0                       (6,086 )
Foreign currency hedge and transaction gain (loss), net
    0       (184 )     961 (1)             777  
Loss on extinguishment of debt
    0       0                       0  
Interest income (loss)
    1,123       3       (1,084) (1)     (42) (4)     0  
Other income (expense), net
    0       (4,455 )     123 (1)             (4,332 )
 
                             
Income (Loss) Before Income Taxes
    (5,216 )     (13,024 )     0       (1,828 )     (20,068 )
Income tax provision (benefit)
    (948 )     223               (640) (7)     (1,365 )
 
                             
Net Income (loss)
    (4,268 )     (13,247 )     0       (1,188 )     (18,703 )
 
                             
 
                                       
Earnings Per Share Applicable to Common Shareholders:
                                       
Basic earnings per share
    ( $0.11 )                             ( $0.45 )
 
                                     
Diluted earnings per share
    ( $0.11 )                             ($0.45 )
 
                                     
 
                                       
Shares Used to Compute Earnings Per Share:
                                       
Basic earning per share
    39,343                       1,875 (8)     41,218  
 
                                 
Diluted earnings per share
    39,343                       1,875       41,218  
 
                                 
See accompanying notes to unaudited pro forma condensed combined financial statements

5


 

JDA SOFTWARE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands, except per share data and as otherwise noted)
Unaudited Pro Forma Condensed Combined Statements of Income
  (1)   Entry records certain reclassifications to conform the JDA and i2 presentations.
 
  (2)   Entry records the increase in interest expense and amortization of loan fees arising from the amortization of underwriter fees, original issue discount (“OID”) and other loan origination fees on the issuance of $275 million in five-year, 8.0% senior notes in order to finance the transaction. The pro forma assumes straight-line amortization of the placement fees and other loan origination fees over an estimated five-year term. The pro forma assumes amortization of the OID over an estimated five-year term using the effective interest method. These calculations only apply to the year ended December 31, 2009 as the historical financial statements for the three months ended March 31, 2010 already reflect a full quarter of related amortization.
                 
    Year     Three Months  
    Ended     Ended  
    12-31-09     3-31-10  
Amortization of underwriter fees
  $ 1,100     $  
Amortization of OID
    479        
Amortization of other loan origination fees
    242        
 
           
 
  $ 1,821     $  
 
             
Less amounts recorded in the JDA historical financial statements
    (110 )        
 
             
 
  $ 1,711          
 
             
  (3)   Entry eliminates i2 historical amortization expense and records the increase in amortization expense arising from the purchase accounting adjustments as follows:
                         
                    Three Months  
    Amortization     Ended     Ended  
    Period     12-31-09     3-31-10  
Technology-based intangibles
  7 Years   $ 3,657     $ 914  
Less amounts recorded in the JDA historical financial statements
                  (609 )
Less amounts recorded in the i2 historical financial statements
                   
 
                   
 
          $ 3,657     $ 305  
 
                   
 
                       
Customer-based intangibles
  1 -7 Years   $ 14,914     $ 3,729  
Marketing-based intangibles
  5 Years     2,860       715  
 
                   
 
            17,774       4,444  
 
                       
Less amounts recorded in the JDA historical financial statements
                  (2,963 )
Less amounts recorded in the i2 historical financial statements
            (25 )      
 
                   
 
          $ 17,749     $ 1,481  
 
                   

6


 

  (4)   The pro forma adjustment for the year ended December 31, 2009 and the three months ended March 31, assumes that all interest income would be eliminated as the remaining cash balances would be used for operating purposes and would not be available for investment.
                 
    Year     Three Months  
    Ended     Ended  
    12-31-09     3-31-10  
JDA — historical interest income
    286       39  
i2 — historical interest income
    325       3  
 
           
 
    611       42  
Less interest income on combined cash balances used to fund cash obligations of the Merger
    (611 )     (42 )
 
           
 
  $     $  
 
           
  (5)   Entry records interest expense on the senior unsecured notes used to effect the Merger as of January 1, 2009 and 2010. These calculations only apply to the year ended December 31, 2009 as the historical financial statements for the three months ended March 31, 2010 already reflect this interest.
                 
    Year     Three Months  
    Ended     Ended  
    12-31-09     3-31-10  
Interest expense on $275 million of senior unsecured notes calculated at an interest rate of 8.0%
  $ 22,000     $  
 
             
Less amounts recorded in the JDA historical financial statements
    (1,344 )        
 
             
 
  $ 20,656          
 
             
  (6)   Entry eliminates i2’s historical preferred stock dividend and related accretion of discount on their Series B convertible preferred stock.
 
  (7)   Entry records an incremental income tax (provision) benefit on the pro forma adjustments at the statutory rate of 35% for the year ended December 31, 2009 and the three months ended March 31, 2010.
 
  (8)   Adjusts the shares used to compute earnings per share applicable to common shareholders to include 6,249,213 JDA common shares issued as share consideration to i2 common equity holders. The shares were issued on January 28, 2010; accordingly, the historical weighted average shares for the three months ended March 31, 2010 already include approximately 2/3 of the shares issued in connection with the acquisition. The adjustment for the three months ended March 31, 2010 includes the additional 1/3 of the shares or approximately 1,874,764.

7

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