e10vq

MANUGISTICS CALIFORNIA, INC.,

/s/ Kristen L. Magnuson

Name:

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2007


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

For the Transition Period from to

Commission File Number: 0-27876

JDA SOFTWARE GROUP, INC.

(Exact name of registrant as specified in its charter)


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

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

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

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

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value, was 29,920,578 as of August 3, 2007.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts, unaudited)


	June 30,			December 31,
	2007			2006
ASSETS
Current Assets:
Cash	$	65,438		$	53,559
Accounts receivable, net		76,455			79,491
Deferred tax asset		16,764			16,736
Prepaid expenses and other current assets		18,568			17,011

Total current assets		177,225			166,797
Non-Current Assets:
Property and equipment, net		45,094			48,391
Goodwill		138,571			145,976
Other Intangibles, net:
Customer lists		151,431			158,519
Acquired software technology		32,441			35,814
Trademarks		3,852			4,691
Deferred tax asset		59,604			54,164
Other non-current assets		10,187			10,392

Total non-current assets		441,180			457,947

Total Assets	$	618,405		$	624,744


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	5,103		$	4,843
Accrued expenses and other current liabilities		45,725			47,183
Income tax payable		6,032			3,725
Current portion of long-term debt		3,281			3,281
Deferred revenue		80,925			66,662

Total current liabilities		141,066			125,694

Non-Current Liabilities:
Long-term debt		102,813			137,813
Accrued exit and disposal obligations		13,608			20,885
Income taxes payable		3,540			—

Total non-current liabilities		119,961			158,698

Total Liabilities		261,027			284,392


Redeemable Preferred Stock		50,000			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 30,903,922 and 30,569,447 shares, respectively		309			305
Additional paid-in capital		287,549			275,705
Deferred compensation		(6,462	)		(904	)
Retained earnings		36,861			27,628
Accumulated other comprehensive gain		2,575			1,018

		320,832			303,752
Less treasury stock, at cost, 1,181,014 and 1,176,858 shares, respectively		(13,454	)		(13,400	)

Total stockholders’ equity		307,378			290,352

Total liabilities and stockholders’ equity	$	618,405		$	624,744

See notes to consolidated financial statements.

JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except earnings per share data, unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
REVENUES:
Software licenses	$	18,626		$	10,353		$	35,654		$	17,496
Maintenance services		42,961			21,673			87,439			43,326

Product revenues		61,587			32,026			123,093			60,822

Consulting services		26,458			17,865			53,207			35,273
Reimbursed expenses		2,705			1,871			5,167			3,520

Service revenues		29,163			19,736			58,374			38,793

Total revenues		90,750			51,762			181,467			99,615


COST OF REVENUES:
Cost of software licenses		724			370			1,189			762
Amortization of acquired software technology		1,502			1,150			3,373			2,403
Cost of maintenance services		11,696			6,965			22,749			12,928

Cost of product revenues		13,922			8,485			27,311			16,093

Cost of consulting services		20,326			12,715			41,600			24,769
Reimbursed expenses		2,705			1,871			5,167			3,520

Cost of service revenues		23,031			14,586			46,767			28,289

Total cost of revenues		36,953			23,071			74,078			44,382


GROSS PROFIT		53,797			28,691			107,389			55,233

OPERATING EXPENSES:
Product development		11,996			11,245			25,783			22,003
Sales and marketing		15,103			9,292			29,911			17,508
General and administrative		10,558			6,347			21,134			13,312
Amortization of intangibles		3,963			891			7,926			1,784
Restructuring charges		2,232			521			6,276			521
Gain on sale of office facility		—			—			(4,128	)		—

Total operating expenses		43,852			28,296			86,902			55,128


OPERATING INCOME		9,945			395			20,487			105

Interest expense and amortization of loan fees		(3,175	)		(27	)		(6,625	)		(80	)
Interest income and other, net		795			1,321			1,464			2,304


INCOME BEFORE INCOME TAXES		7,565			1,689			15,326			2,329

Income tax provision		2,742			614			5,087			767


NET INCOME	$	4,823		$	1,075		$	10,239		$	1,562


BASIC EARNINGS PER SHARE	$	.15		$	.04		$	.31		$	.05

DILUTED EARNINGS PER SHARE	$	.14		$	.04		$	.30		$	.05


SHARES USED TO COMPUTE:
Basic earnings per share		33,225			29,172			33,148			29,139

Diluted earnings per share		33,955			29,648			33,760			29,661

See notes to consolidated financial statements.

JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Six Months
	Ended June 30,
	2007			2006
OPERATING ACTIVITIES:
Net income	$	10,239		$	1,562
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,940			7,990
Provision for doubtful accounts		1,590			—
Amortization of loan origination fees		1,096			—
Tax benefit – stock options		(357	)		(10	)
Stock-based compensation expense		1,879			445
Net gain on sale of office facility		(4,128	)		—
Net (gain) loss on disposal of property and equipment		10			(28	)
Deferred income taxes		(155	)		(179	)

Changes in assets and liabilities:
Accounts receivable		4,010			5,652
Prepaid expenses and other current assets		(3,140	)		(3,545	)
Accounts payable		(156	)		(240	)
Accrued expenses and other liabilities		(2,192	)		375
Income tax payable		3,286			35
Deferred revenue		15,385			6,329

Net cash provided by operating activities		43,307			18,386


INVESTING ACTIVITIES:
Purchase of marketable securities		—			(26,075	)
Sales of marketable securities		—			41,695
Maturities of marketable securities		—			19,864
Payment of direct costs related to acquisitions		(4,414	)		(119	)
Payments received on promissory note receivable		—			1,213
Purchase of other property and equipment		(3,983	)		(1,972	)
Proceeds from disposal of property and equipment		6,821			60

Net cash (used in) provided by investing activities		(1,576	)		34,666


FINANCING ACTIVITIES:
Issuance of common stock – equity plans		4,054			994
Excess tax benefits from stock-based compensation		357			10
Purchase of treasury stock		(54	)		(139	)
Principal payments on term loan agreement		(35,000	)		—

Net cash (used in) provided by financing activities		(30,643	)		865


Effect of exchange rates on cash		791			907

Net increase in cash		11,879			54,824


CASH, BEGINNING OF PERIOD		53,559			71,035

CASH, END OF PERIOD	$	65,438		$	125,859

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. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to interim financial statements. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three and six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. 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, 2006.

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

Certain reclassifications have been made to the business segment and geographic data disclosures for the three and six months ended June 30, 2006 in order to conform to the current presentation (see Note 12). Beginning in third quarter 2006, we organized and began managing our operations across the following reportable business segments: Retail, Manufacturing and Distribution, and Services Industries. The Retail reportable business includes activity previously reported by JDA under the Retail Enterprise Systems and In-Store Systems reportable business segments. Manufacturing and Distribution includes activity previously reported by JDA under the Collaborative Solutions reportable business segment. All customers in the Services Industry reportable business segment are new to JDA and represent the former revenue management business acquired from Manugistics Group, Inc. (“Manugistics”). We have also reclassified the goodwill and other intangibles previously allocated to the Retail Enterprise Systems, In-Store Systems and Collaborative Solutions reportable business segments in a similar manner (see Note 4).

2. Derivative Instruments and Hedging Activities

We account for derivative financial instruments in accordance with Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”). We use derivative financial instruments, primarily forward exchange contracts, to manage a majority of the foreign currency exchange exposure associated with net short-term foreign denominated assets and liabilities which exist as part of our ongoing business operations 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 less than 90 days and are not designated as hedging instruments under SFAS No. 133. The forward exchange contracts are marked-to-market at the end of each reporting period, with gains and losses recognized in other income offset by the gains or losses resulting from the settlement of the underlying foreign denominated assets and liabilities.

swap with decreasing notional amounts to match the expected pay down of the debt. The notional value of the interest rate swap was $104.4 million at June 30, 2007 and represented approximately 100% of the aggregate term loan balance. The interest rate swap agreement is effective through October 5, 2009 and has been designated a cash flow hedge derivative. We evaluate the effectiveness of the cash flow hedge derivative on a quarterly basis. During the six months ended June 30, 2007 the hedge was highly effective and a net unrealized gain of $258,000 was recorded in “Accumulated other comprehensive income (loss).”

3. Promissory Note Receivable

On March 13, 2006 we received payment in full of the remaining $1.2 million outstanding balance under the Second Amended and Restated Secured Promissory Note with Silvon Software, Inc.

4. Goodwill and Other Intangibles, net

Goodwill and other intangible assets consist of the following:


			June 30, 2007					December 31, 2006
	Estimated		Gross Carrying		Accumulated			Gross Carrying		Accumulated
	Useful Lives		Amount		Amortization			Amount		Amortization
Goodwill			$	138,571	$	—		$	145,976	$	—


Other intangibles:

Amortized intangible assets
Customer Lists		8 to 13 years		183,383		(31,952	)		183,383		(24,864	)
Acquired software technology		5 to 15 years		65,847		(33,406	)		65,847		(30,033	)
Trademarks		3 to 5 years		5,191		(1,339	)		5,191		(500	)

				254,421		(66,697	)		254,421		(55,397	)

			$	392,992	$	(66,697	)	$	400,397	$	(55,397	)

We recorded a $7.4 million reduction in goodwill in the six months ended June 30, 2007 as a result of certain adjustments made to the estimated fair values of the assets and liabilities assumed in the acquisition of Manugistics. These net adjustments related primarily to receivable balances recorded in the initial purchase accounting for which subsequent collections were received, an increase in the long-term deferred tax assets recorded in the initial purchase accounting, adjustments to the reserves for the estimated costs to exit certain activities of Manugistics (see Note 5), a $2.9 million accrual for uncertain tax position liabilities (see Note 11) and a reduction of deferred revenue balances. The final purchase price allocation for the Manugistics acquisition is complete. No further adjustments will be made to the initial fair values of the assets and liabilities acquired. We recorded $78.1 million in goodwill on the Manugistics acquisition which has been allocated to our reporting units as follows: $46.9 million to Retail, $27.3 million to Manufacturing and Distribution and $3.9 million to Services Industries. We found no indication of impairment of our goodwill balances during the six months ended June 30, 2007 and, absent future indicators of impairment, the next annual impairment test will be performed in fourth quarter 2007.

As of June 30, 2007, the combined goodwill balance has been allocated to our reporting units as follows: $89.0 million to Retail, $45.7 million to Manufacturing and Distribution, and $3.9 million to Services Industries.

Amortization expense for the three and six months ended June 30, 2007 was $5.5 million and $11.3 million, respectively. Amortization expense for the three and six months ended June 30, 2006 was $2.0 million and $4.2 million, respectively. The increase results from the amortization of intangible assets recorded in the acquisition of Manugistics. Amortization expense is reported as separate line items in the consolidated statements of income within cost of revenues and operating expenses. As of June 30, 2007, we expect amortization expense for the remainder of 2007 and the next four years to be as follows:


2007	$	10,993
2008	$	21,175
2009	$	19,140
2010	$	17,847
2011	$	17,511

5. Acquisition Reserves

In conjunction with the acquisition of Manugistics, we recorded initial acquisition reserves of $47.4 million for restructuring charges and other direct costs associated with the acquisition. These costs related primarily to facility closures, employee severance and termination benefits, investment banker fees, change-in-control payments, and legal and accounting costs. In the six months ended June 30, 2007, we decreased the acquisition reserves by $3.2 million based on our revised estimates of the restructuring costs to exit certain of the activities of Manugistics. The unused portion of the acquisition reserves was $21.4 million at June 30, 2007, of which $7.8 million is included in accrued expenses and other current liabilities and $13.6 million is included in non-current 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		Cash			Exchange		December 31,		Adjustments			Cash			Exchange			June 30,
Description of charge	Reserve		Charges			Rates		2006		to Reserves			Charges			Rates			2007

Restructuring charges under EITF 95-3:
Office closures, lease terminations and sublease costs	$	29,212	$	(3,332	)	$	395	$	26,275	$	(3,369	)	$	(3,169	)	$	(272	)	$	19,465
Employee severance and termination benefits		3,607		(1,535	)		—		2,072		(190	)		(711	)		6			1,177
IT projects, contract termination penalties, capital lease buyouts and other costs to exit activities of Manugistics		1,450		(695	)		—		755		294			(485	)		—			564

		34,269		(5,562	)		395		29,102		(3,265	)		(4,365	)		(266	)		21,206

Direct costs under SFAS No. 141:
Legal and accounting costs		3,367		(3,237	)		—		130		90			(39	)		—			181
Investment banker fees		4,555		(4,555	)		—		—		—			—			—			—
Dealer manager, paying agent, depository and information agent fees		259		(259	)		—		—		—			—			—			—
Due diligence fees and expenses		335		(335	)		—		—		—			—			—			—
Filing fees, valuation services and other		242		(186	)		—		56		(46	)		(10	)		—			—
Change-in-control payments		4,367		(4,367	)		—		—		—			—			—			—

		13,125		(12,939	)		—		186		44			(49	)		—			181

Total	$	47,394	$	(18,501	)	$	395	$	29,288	$	(3,221	)	$	(4,414	)	$	(266	)	$	21,387

The office closures, lease termination and sublease costs are costs of a plan to exit an activity of an acquired company as described in Financial Accounting Standards Board Emerging Issues Task Force Issue No. 95-3 (“EITF No. 95-3”), Recognition of Liabilities in Connection with a Purchase Business Combination, and include the estimated costs of management’s plan to shut down and/or vacate eight offices of Manugistics shortly after the acquisition date. These costs have no future economic benefit to the Company and are incremental to the other costs incurred by the Company or Manugistics. We decreased the reserves for facility closures by $3.4 million in the six months ended June 30, 2007. The decrease relates primarily to the finalization of market adjustments on unfavorable office facility leases in Rockville, Maryland and the United Kingdom and adjustments for sublease rentals, primarily in the Rockville facility.

Employee severance and termination benefits are costs resulting from a plan to terminate employees from the acquired company as described in EITF No. 95-3. As of the consummation date of the acquisition, executive management approved a plan to terminate approximately 110 of the 765 full time employees of Manugistics. In the first three months following the consummation of the Manugistics acquisition, management completed the assessment of which employees would be terminated and communicated the termination arrangements to the affected employees in accordance with statutory requirements of the local jurisdictions in which the employees were located. We decreased the reserves for employee severance and termination benefits by $190,000 in the six months ended June 30, 2007 due to our revised estimate of settlement costs on certain foreign employees. As of June 30, 2007, the remaining balance in the reserve is primarily related to foreign employees.

6. Restructuring Charges

2007 Restructuring Charges

We recorded a restructuring charge of $3.9 million in first quarter 2007 that included $3.8 million in termination benefits, primarily related to a workforce reduction of approximately 120 full-time employees (“FTE”) in our Scottsdale, Arizona product development group. This restructuring is a direct result of our decision to standardize future product offerings on the new JDA Enterprise Architecture platform. The restructuring charge also includes $145,000 for office closure and integration costs of a redundant office facility in Spain.

We recorded an additional restructuring charge of $2.3 million in second quarter 2007 that included $2.1 million in termination benefits related to a workforce reduction of approximately 40 FTE, primarily in our worldwide consulting services group, and $147,000 for office closures and integration costs of redundant office facilities.

As of June 30, 2007, all costs associated with the 2007 restructuring charges have been paid with the exception of a $748,000 reserve for termination benefits, primarily for foreign employees, and a $101,000 for office closures which are included in the caption “Accrued expenses and other current liabilities.” We expect substantially all of the remaining termination benefits and office closure costs to be paid during second half 2007.

A summary of the 2007 restructuring and office closure charges included in accrued expenses and other current liabilities is as follows:


								Impact of
								Changes in
	Initial		Additional		Cash			Exchange		Balance
Description of charge	Reserve		Reserves		Charges			Rates		June 30, 2007

Termination benefits	$	3,766	$	2,142	$	(5,163	)	$	3	$	748
Office closures		145		147		(191	)		—		101

Total	$	3,911	$	2,289	$	(5,354	)	$	3	$	849

2006 Restructuring Charges

We recorded restructuring charges of $6.2 million in 2006, including $521,000 in second quarter 2006. The restructuring charges were primarily related to the consolidation of two existing JDA offices in the United Kingdom into the Manugistics office facility in the United Kingdom and the elimination of certain accounting and administrative positions in Europe and Canada. The restructuring charges included $4.8 million in termination benefits and relocation bonuses and $1.4 million for office closure costs. We increased the reserves by $135,000 in the three months ended March 31, 2007 and decreased the reserves by $52,000 in the three months ended June 30, 2007 based on our revised estimates to complete the restructuring activities. We expect substantially all of the termination benefits and office closure costs to be paid during second half 2007.

A summary of the 2006 restructuring and office closure charges included in accrued expenses and other current liabilities is as follows:


						Impact of										Impact of
						Changes in		Balance								Changes in
	Initial		Cash			Exchange		December 31,		Additional			Cash			Exchange			Balance
Description of charge	Reserve		Charges			Rates		2006		Reserves			Charges			Rates			June 30, 2007

Termination benefits	$	4,807	$	(4,182	)	$	80	$	705	$	239		$	(587	)	$	(1	)	$	356
Office closures		1,418		(626	)		26		818		(156	)		(645	)		12			29

Total	$	6,225	$	(4,808	)	$	106	$	1,523	$	83		$	(1,232	)	$	11		$	385

7. Long-term Debt

During the six months ended June 30, 2007 we utilized $35.0 million of our excess cash balances to repay a portion of our long-term debt including the scheduled quarterly installments due in March and June 2007. As of June 30, 2007 and December 31, 2006 long-term debt consists of the following:


				December
	June 30,			31,
	2007			2006

Term loans, bearing variable interest based on LIBOR + 2.25% per annum, due in quarterly installments of $437,500 through July 5, 2013, with the remaining balance due at maturity	$	104,563		$	139,563
Convertible Subordinated Notes assumed in the Manugistics acquisition, bearing interest at 5% per annum, maturing in November 2007		1,531			1,531

		106,094			141,094
Less current portion		(3,281	)		(3,281	)

	$	102,813		$	137,813

We have entered into an interest rate swap agreement to fix LIBOR at 5.365% (see Note 2). As of June 30, 2007, scheduled principal maturities on outstanding debt over the next five years and thereafter are as follows:


2007	$	2,405
2008	$	1,750
2009	$	1,750
2010	$	1,750
2011	$	1,750
Thereafter	$	96,689

On July 26, 2007, the term loan credit agreement was amended to allow us to make open market cash purchases of our common stock in an aggregate amount not to exceed $75.0 million.

8. Sale of Office Facility

In March 2007, we sold a 15,000 square foot office facility in the United Kingdom for approximately $6.3 million and recognized a gain of $4.1 million.

9. Earnings per Share

The Company has two classes of outstanding capital stock, Common Stock and Series B Preferred Stock. The Series B Preferred Stock is a participating security, such that in the event a dividend is declared or paid on the common stock, the Company must 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. According to the Emerging Issues Task Force Issue No. 03-06, Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share, companies having 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.

The calculation of diluted earnings per share for the three and six months ended June 30, 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 is included in the diluted earnings per share calculations for 2007 and 2006 using the treasury stock method. Diluted earnings per share for the three months ended June 30, 2007 and 2006 exclude approximately 827,000 and 2.0 million, 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. Diluted earnings per share for the six months ended June 30, 2007 and 2006 exclude approximately 1.1 million and 1.9 million, 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 for three and six months ended June 30, 2007 exclude

467,946 contingently issuable restricted stock units for which all necessary conditions have not been met. Earnings per share for the three and six months ended June 30, 2007 and 2006 is calculated as follows:


	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2007		2006		2007		2006
Net income	$	4,823	$	1,075	$	10,239	$	1,562
Less dividends paid		—		—		—		—

Undistributed earnings	$	4,823	$	1,075	$	10,239	$	1,562


Allocation of undistributed earnings:
Common Stock	$	4,300	$	1,075	$	9,126	$	1,562
Series B Preferred Stock		523		—		1,113		—

	$	4,523	$	1,075	$	10,239	$	1,562


Weighted Average Shares:
Common Stock		29,621		29,172		29,544		29,139
Series B Preferred Stock		3,604		—		3,604		—

Shares – Basic earnings per share		33,225		29,172		33,148		29,139
Dilutive common stock equivalents		730		476		612		522

Shares – Diluted earnings per share		33,955		29,648		33,760		29,661


Basic earnings per share applicable to:
Common Stock	$	.15	$	.04	$	.31	$	.05

Series B Preferred Stock	$	.15	$	—	$	.31	$	—

Diluted earnings per share applicable to common shareholders	$	.14	$	.04	$	.30	$	.05

10. Stock-Based Compensation

The Board has subsequently approved modifications to certain of the awards granted to executive officers and approved additional awards for new participants in the Integration Plan. The restricted stock units, if any, under these modified awards will also be issued after the announcement of our 2007 financial results in January 2008 and will vest 50% upon the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month period. The Company’s performance against the defined performance threshold goal will be evaluated on a quarterly basis throughout 2007 and stock-based compensation recognized over the requisite service periods that run from the date of the various board approvals through January 2010, pursuant to the guidance in SFAS No. 123 (R). Through June 30, 2007, a total of 467,946 contingently issuable restricted stock units, net of forfeitures, have been awarded under the Integration Plan. A deferred compensation charge of approximately $7.5 million and related increase to additional paid-in capital has been recorded in the equity section of our balance sheet for the total grant date fair value related to the potential issuance of these restricted share units. Although all necessary service and performance conditions have not been met as of June 30, 2007, based on our results for the six months ended June 30, 2007 and the outlook for the remainder of 2007, management has determined that it is now probable that the performance condition will ultimately be met. As a result, we have recorded $1.7 million in stock-based compensation expense related to these awards in the six months ended June 30, 2007, including $890,000 during second quarter 2007. This charge 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.” If we achieve the defined performance threshold goal we would expect to recognize approximately $5.0 million of stock-based compensation on these awards in 2007.

During the six months ended June 30, 2007 and 2006, we recorded stock-based compensation expense of $209,000 and $445,000, respectively related to other 2005 Incentive Plan awards.

11. Income Taxes

We calculate income taxes on an interim basis using the year-to-date effective tax rate and record discrete tax adjustments in the reporting period in which they occur. A summary of the income tax provision is as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Income before income tax provision (benefit)	$	7,565		$	1,689		$	15,326		$	2,329
Effective tax rate		36.2	%		36.9	%		33.6	%		35.4	%

Income tax provision at effective tax rate		2,742			624			5,150			824

Discrete tax item benefits:
Changes in estimate		—			(10	)		(63	)		(57	)
Changes in foreign statutory rates		—			—			—			—

Total discrete tax item benefits		—			(10	)		(63	)		(57	)


Income tax provision	$	2,742		$	614		$	5,087		$	767

We exercise significant judgment in determining our income tax provision due to transactions, credits and calculations where the ultimate tax determination is uncertain. In addition, we obtain an external review of our income tax provision by an independent tax advisor prior to the filing of our quarterly reports. 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 recorded in the three and six months ended June 30, 2007 and 2006 takes into account the source of taxable income, domestically by state and internationally by country, and available income tax credits, and does not include the tax benefits realized from the employee stock options exercised during second quarter 2007 and 2006 of $265,000 and $23,000, respectively, and during the six months ended June 30, 2007 and 2006 of $357,000 and $88,000, respectively. These tax benefits reduce our income tax liabilities and are included as an increase to additional paid-in capital.

The effective tax rates in the three months ended June 30, 2007 and 2006 are higher than the federal statutory rate of 35% as a larger portion of the earnings in these quarters were in the United States which has a higher overall tax rate than the foreign jurisdictions in which we conduct business. The effective tax rate in the six months ended June 30, 2007 is lower than the federal statutory rate of 35% as a smaller portion of the earnings in this quarter were in the United States which has a higher overall tax rate than the foreign jurisdictions in which we conduct business.

We adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007. The amount of unrecognized tax benefits at January 1, 2007 was $3.5 million, of which $799,000 would impact our effective tax rate if recognized. With the adoption of FIN 48, we recognized a charge of approximately $1.0 million to beginning retained earnings for uncertain tax positions. In addition, a FIN 48 adjustment of $2.9 million was made to the purchase price allocation on the Manugistics acquisition to record a tax liability for uncertain tax positions which increased the goodwill balance.

The FIN 48 adjustments on January 1, 2007 include an accrual of approximately $599,000 for interest and penalties. 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. Going forward, interest and penalties related to uncertain tax positions will be recognized as a component of income 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 such major jurisdictions as Australia, Canada, China, France, Germany, Hong Kong, Italy, Japan, Singapore, Spain, the U.K. and the United States. 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 2002. We are currently under audit by the Internal Revenue Service for the 2003-2006 tax years. It is likely that the examination phase of this audit will conclude in 2007 without material adjustment. We are also under examination in Germany and Canada. We do not anticipate a material adjustment from either of these audits.

JDA Software Group, Inc. has 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. Our participation in the CAP program has commenced and the Internal Revenue Service is currently in the process of reviewing our first and second quarter 2007 tax provisions.

12. Business Segments and Geographic Data

We are a leading provider of sophisticated software solutions designed specifically to address the supply and demand chain management, business process, decision support, inventory transaction support, e-commerce, inventory optimization and replenishment, collaborative planning and forecasting, space and floor planning, and store operations requirements of the retail industry and its suppliers. Our solutions enable customers to manage and optimize the coordination of supply, demand and inventory flows throughout the demand chain to the consumer, to manage transportation and logistics operations, provide optimized labor scheduling for retail store operations and improve revenue management practices in service industries. With the acquisition of Manugistics, our customers now include approximately 5,500 of the world’s leading retail, manufacturing and wholesale-distribution organizations. We conduct business in three geographic regions that have separate management teams and reporting structures: the Americas (United States, Canada and Latin America), Europe (Europe, Middle East and Africa), and Asia/Pacific. Similar products and services are offered in each geographic region and local management is evaluated primarily based on total revenues and operating income. Identifiable assets are also managed by geographical region. The geographic distribution of our revenues and identifiable assets is as follows:


	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2007		2006		2007		2006
Revenues:

Americas	$	59,530	$	34,284	$	120,416	$	68,791
Europe		22,084		11,098		43,415		20,397
Asia/Pacific		9,136		6,380		17,636		10,427

Total revenues	$	90,750	$	51,762	$	181,467	$	99,615


	June 30,		December 31,
	2007		2006
Identifiable assets:

Americas	$	459,517	$	466,086
Europe		114,368		117,863
Asia/Pacific		44,520		40,795

Total identifiable assets	$	618,405	$	624,744

Revenues in the Americas for the three months ended June 30, 2007 and 2006 include $54.3 million and $29.2 million from the United States, respectively and $108.6 million and $58.4 million in the six months ended June 30, 2007 and 2006, respectively. Identifiable assets for the Americas include $435.1 million and $443.1 million in the United States as of June 30, 2007 and December 31, 2006.

We organize and manage our operations by type of customer. Beginning in third quarter 2006, we report revenues, operating income (loss) and depreciation by type of customer across the following reportable business segments:

	•		*Retail.* This reportable business segment includes all revenues related to applications sold to retail customers, including revenues previously reported by JDA under the Retail Enterprise Systems and In-Store Systems reportable business segments.

	•		*Manufacturing and Distribution. This reportable business segment includes all revenues related to applications sold to manufacturing and distribution companies, including consumer goods manufacturers, high tech organizations, oil and gas companies, automotive producers and other discrete manufacturers involved with government, aerospace and defense contracts. This reportable business segment also includes revenues previously reported by JDA under the Collaborative Solutions* reportable business segment.

	•		*Services Industries. This reportable business segment includes all revenues related to applications sold to customers in service industries such as travel, transportation, hospitality, media and telecommunications. All customers in this reportable business segment are new to JDA and represent the former Revenue Management business acquired from Manugistics. The Services Industries* segment is centrally managed by a team that has global responsibilities for this market.

A summary of the revenues, operating income (loss) and depreciation attributable to each of these reportable business segments for three and six months ended June 30, 2007 and 2006 is as follows:


	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2007			2006			2007			2006
Revenues:
Retail	$	47,632		$	42,078		$	96,249		$	79,583
Manufacturing and Distribution		39,137			9,684			77,823			20,032
Services Industries		3,981			—			7,395			—

	$	90,750		$	51,762		$	181,467		$	99,615


Operating income (loss):
Retail	$	11,539		$	5,087		$	21,763		$	9,947
Manufacturing and Distribution		14,938			3,067			30,435			5,775
Services Industries		221			—			(503	)		—
Other (see below)		(16,753	)		(7,759	)		(31,208	)		(15,617	)

	$	9,945		$	395		$	20,487		$	105


Depreciation:
Retail	$	1,012		$	1,310		$	2,134		$	2,626
Manufacturing and Distribution		832			301			1,725			664
Services Industries		85			—			164			—

	$	1,929		$	1,611		$	4,023		$	3,290


Other:
General and administrative expenses	$	10,558		$	6,347		$	21,134		$	13,312
Amortization of intangible assets		3,963			891			7,926			1,784
Restructuring charge		2,232			521			6,276			521
Gain on sale of office facility		—			—			(4,128	)		—

	$	16,753		$	7,759		$	31,208		$	15,617

Operating income in the Retail, Manufacturing and Distribution and Services Industry reportable business segments includes direct and allocated expenses for software licenses, maintenance services, service revenues, amortization of acquired software technology and product development expenses as well as allocations for certain other product development expenses, occupancy costs and depreciation expense. The “Other” caption includes general and administrative expenses and other charges that are not directly identified with a particular reportable business segment and which management does not consider in evaluating the operating income (loss) of the reportable business segment.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Significant Trends and Developments in Our Business

Outlook for Second Half 2007. Software license revenues in first half 2007 were $35.7 million and represent approximately 56% of the high end of our previously announced guidance for 2007. In addition, GAAP earnings in first half 2007 were $.30 per

share which, on an annualized basis, is also consistent with our previously announced guidance for 2007. Our historical experience indicates that quarterly software license revenues will continue to be subject to normal quarter-to-quarter variability and uncertainty still exists for the growth range of investment technology budgets or spending levels in second half 2007. However, based on our sales performance in first half 2007 and the increasing strength of our sales pipeline, particularly the pipeline of deals involving the applications acquired from Manugistics as we enter second half 2007, we currently believe the Company should be able to perform at least as well in second half 2007 as it did in first half 2007. Accordingly, we have revised our annual guidance for 2007 as follows:


	Previous Guidance	Revised Guidance
Software revenues	$58 million to $64 million	$65 million to $75 million
Total revenues	$358 million to $368 million	$353 million to $371 million
GAAP earnings per share	$0.60 to $0.70 per share	$0.56 to $0.72 per share

The incremental increase in the revised range for total revenues is less than the incremental increase in the revised range for software as we have reduced our expectations for consulting services. We continue to encounter a decline in our consulting business post-Manugistics acquisition. Our largest challenge has come from our North American consulting practice which has failed to meet our expectations throughout first half 2007. We believe this situation may begin to improve in third quarter 2007; however, any recovery will likely be slow and depressed results in comparison to the combined historical results of JDA and Manugistics may continue into 2008.

We do not currently anticipate any additional major adjustments to our overall cost structure in second half 2007 and other than potential fluctuations in bad debt expense, foreign exchange gains or losses and variable incentive compensation expense, we believe our overall cost structure will remain stable in third quarter 2007 when compared to second quarter 2007.

Summary of First Half 2007 Results and Developments in Our Business. During second quarter 2007, we completed the purchase price allocation on the acquisition of Manugistics Group, Inc. (“Manugistics”). The total cost to acquire Manugistics was $254 million which includes the cash purchase price of $211 million plus $13 million in direct costs of the acquisition and $30 million in costs to exit certain activities of Manugistics. Manugistics was a leading global provider of synchronized supply chain and revenue management solutions that enabled customers to achieve improved forecast and inventory accuracy and leverage industry leading pricing and yield management solutions to maximize profits while ensuring optimum supply for constantly changing demand. We believe the combination of the two companies has created a unique competitive position as we believe no other software company is currently able to offer a similar breadth and depth of vertically focused solutions to the supply and demand chain market. The acquisition has provided cross-selling opportunities for Manugistics’ advanced optimization solutions in our existing retail customer base and Manugistics’ supply chain and revenue management solutions have enabled us to significantly expand our presence with manufacturers, wholesalers and distributors. The Manugistics acquisition significantly impacts the comparability of results for the three and six months ended June 30, 2007 and 2006. The following tables summarize the changes in the various components of revenue with and without Manugistics.

Combined JDA and Manugistics:


	Three Months Ended June 30,									Six Months Ended June 30,
Revenues:	2007		2006		$Change		%Change			2007		2006		$Change		%Change
Software licenses	$	18,626	$	10,353	$	8,273		80	%	$	35,654	$	17,496	$	18,158		104	%
Maintenance services		42,961		21,673		21,288		98	%		87,439		43,326		44,113		102	%

Product revenues		61,587		32,026		29,561		92	%		123,093		60,822		62,271		102	%
Service revenues		29,163		19,736		9,427		48	%		58,374		38,793		19,581		50	%

Total revenues	$	90,750	$	51,762	$	38,988		75	%	$	181,467	$	99,615	$	81,852		82	%

JDA Only:


	Three Months Ended June 30,										Six Months Ended June 30,
Revenues:	2007		2006		$Change			%Change			2007		2006		$Change			%Change
Software licenses	$	11,726	$	10,353	$	1,373			13	%	$	24,595	$	17,496	$	7,099			41	%
Maintenance services		22,713		21,673		1,040			5	%		46,078		43,326		2,752			6	%

Product revenues		34,439		32,026		2,413			8	%		70,673		60,822		9,851			16	%
Service revenues		16,259		19,736		(3,477	)		(18	%)		34,230		38,793		(4,563	)		(12	%)

Total revenues	$	50,698	$	51,762	$	(1,064	)		(2	%)	$	104,903	$	99,615	$	5,288			5	%

Manugistics Only:


	Three Months Ended June 30,									Six Months Ended June 30,
Revenues:	2007		2006		$Change		%Change			2007		2006		$Change		%Change
Software licenses	$	6,900	$	—	$	6,900		—	%	$	11,059	$	—	$	11,059		—	%
Maintenance services		20,248		—		20,248		—	%		41,361		—		41,361		—	%

Product revenues		27,148		—		27,148		—	%		52,420		—		52,420		—	%
Service revenues		12,904		—		12,904		—	%		24,144		—		24,144		—	%

Total revenues	$	40,052	$	—	$	40,052		—	%	$	76,564	$	—	$	76,564		—	%

The following table summarizes the software license results by region with and without Manugistics.


	Three Months Ended June 30,										Six Months Ended June 30,
Region	2007		2006		$Change			% Change			2007		2006		$Change		% Change
Americas (JDA)	$	6,180	$	5,084	$	1,096			22	%	$	13,962	$	10,432	$	3,530		34	%
Americas (Manugistics)		4,633		—		4,633			—	%		6,488		—		6,488		—	%

Total Americas	$	10,813	$	5,084	$	5,729			113	%	$	20,450	$	10,432	$	10,018		96	%


Europe (JDA)	$	4,198	$	3,176	$	1,022			32	%	$	8,199	$	4,840	$	3,359		69	%
Europe (Manugistics)		828		—		828			—	%		2,257		—		2,257		—	%

Total Europe	$	5,026	$	3,176	$	1,850			58	%	$	10,456	$	4,840	$	5,616		116	%


Asia/Pacific (JDA)	$	1,348	$	2,093	$	(745	)		(36	%)	$	2,434	$	2,224	$	210		9	%
Asia/Pacific (Manugistics)		1,439		—		1,439			—	%		2,314		—		2,314		—	%

Total Asia/Pacific	$	2,787	$	2,093	$	694			33	%	$	4,748	$	2,224	$	2,524		113	%


Total JDA	$	11,726	$	10,353	$	1,373			13	%	$	24,595	$	17,496	$	7,099		41	%
Total Manugistics		6,900		—		6,900			—	%		11,059		—		11,059		—	%

Total	$	18,626	$	10,353	$	8,273			80	%	$	35,654	$	17,496	$	18,158		104	%

The increase in total revenues and software license results in first half 2007 compared to first half 2006, before considering the impact of the Manugistics acquisition, resulted primarily from an increase in software license sales in each of our geographic regions. Software license sales in first half 2007 include increases in our core JDA products in the Americas, European and Asia/Pacific regions of 34%, 69% and 9%, respectively compared to first half 2006.

Our competitive position remains strong and we are comfortable with our competitive win rates. Our competitive win rate was particularly strong in first half 2007 as we derived 40% of our software sales from new customers compared to 20% in first half 2006. In addition, we continue to have strong back selling opportunities with the JDA and Manugistics install-base customers where sales increased 53% in first half 2007 compared to first half 2006. We signed five larger software licenses (³$1.0 million) in first half 2007, including four in second quarter 2007, compared to three in first half 2006. These deals included applications from most of our major product lines and included various combinations of core JDA and acquired Manugistics products. We believe that the market

views us differently since the acquisition of Manugistics and recognizes that we are a specialized, domain-focused company that has the financial strength, products and the ability to invest in such a way that enables us to be a long-term contender in the market and compete successfully against large horizontal enterprise application companies in head-to-head sales opportunities.

Software sales performance in the Americas region, and in particular the United States, continues to reflect the positive impact of the organizational changes that were made to the regional sales management team during the second half of 2006. We believe the organizational changes have significantly increased our business development efforts and improved the sales force execution and the predictability of the sales performance in the region. We have a solid pipeline of sales opportunities in the Americas that include both mid-size and larger software deals (³$1.0 million). The Americas is our largest region and, as a result, we believe continued improvement in software sales performance from both core JDA and Manugistics applications in the region will be a key driver of our overall success in second half 2007.

The European region continues to show steady improvement. The sales organization has stabilized in the region and we believe the accuracy of the software forecast has significantly improved. The quality and number of opportunities in the sales pipeline continues to grow and includes larger software deals (³$1.0 million). We currently anticipate the European region will deliver improved software sales performance in second half 2007 compared to second half 2006. Software sales performance in the Asia/Pacific region improved sequentially in second quarter 2007 compared to first quarter 2006 and in first half 2007 compared to first half 2006, however, we continue to experience large fluctuations in quarterly software sales performance in the region. We continue to focus on improving our sales execution processes and the size and quality of our sales opportunity pipeline in the Asia/Pacific region in order to maximize the opportunities in this large and growing market. We also believe China and India are markets that have and will continue to provide meaningful opportunities for software companies in the near future. We intend to focus on sales execution processes, similar to those being implemented in the Americas and European regions, which we expect will improve the predictability of software license deals in the Asia/Pacific region.

Sales and marketing expense increased $295,000 or 2% sequentially in second quarter 2007 compared to first quarter 2007 and increased $5.8 million or 63% compared to second quarter 2006. The sequential increase in sales and marketing expense resulted primarily from an increase in commissions due to the $1.6 million increase in software sales in second quarter 2007 compared to first quarter 2007. The increase in sales and marketing expenses in second quarter 2007 compared to second quarter 2006 resulted from a 38% increase in average headcount primarily due to the acquisition of Manugistics, which resulted in higher salaries, benefits, travel, training and relocation costs, a $1.5 million increase in incentive compensation due to higher software license revenues and a $275,000 increase in stock-based compensation. We have rebuilt the sales force dedicated to the Manufacturing and Distribution reportable business segment and are developing a program to more effectively communicate the value proposition of the combined JDA and Manugistics solutions offering to this large and important portion of our customer base. Its still too early to confidently predict the timing of significant improvements in software license sales to customers in this reportable business segment. We believe the major changes in the sales and marketing functions that were precipitated by the Manugistics acquisition and by the poor performance of the JDA sales group in first half 2006 are now behind us and we only expect gradual increases in our sales headcount during second half 2007. As of June 30, 2007 we had 208 employees in the sales and marketing function, compared to 213 at March 31, 2007 and 153 at June 30, 2006, including quota carrying sales representatives and related sales management of 64, 64 and 51, respectively.

Maintenance services revenues decreased $1.5 million or 3% sequentially in second quarter 2007 compared to first quarter 2007 and increased $21.3 million or 98% in second quarter 2007 compared to second quarter 2006. The increase in second quarter 2007 compared to second quarter 2006 is primarily due to $20.2 million in maintenance services revenues attributable to the acquisition of Manugistics and favorable foreign exchange rate variances that provided a $1.2 million benefit to second quarter 2007 compared to second quarter 2006. Despite strong retention rates, growth in new maintenance services revenues on our core JDA applications has been hindered by lower software sales in first half 2006. The sequential decrease includes a $652,000 or 3% decrease in maintenance revenues from our core JDA products and an $865,000 or 4% decrease in maintenance services revenues from the Manugistics applications. The sequential decreases result primarily from a one-time benefit of $944,000 recorded in first quarter 2007 related to the release of maintenance services revenues that had been suspended pending resolution of certain customer-specific support issues or delayed payments. Maintenance services revenues were also impacted in second quarter 2007 by an increase in revenue suspensions due to delayed payments and customer push back on annual rate increases which resulted in the reversal of revenue on these accounts until negotiations are complete and the past due amounts are resolved. First half 2007 included the first major renewal cycle for most of the acquired Manugistics installed customer base and the application of our standard rate increases has led to protracted negotiations in several instances as Manugistics did not have a practice of increasing their maintenance rates on an annual basis. We are actively working with a group of customers that have not paid their annual renewal billings or cancelled their maintenance services in order to recover the suspended maintenance revenue. The sequential decreases were offset in part by the

addition of new maintenance streams from first quarter 2007 software sales, rate increases on annual renewals and favorable foreign exchange rate variances that provided a sequential benefit of approximately $300,000 to second quarter 2007 compared to first quarter 2007. We believe our overall average retention rate remains at approximately 95% in our installed customer base, and this rate is consistent with our historical averages.

Maintenance services margins were 73% in second quarter 2007 compared to 75% in first quarter 2007 and 68% in second quarter 2006. Maintenance services margins were positively impacted in second quarter 2007 compared to second quarter 2006 by the cost synergies and increased maintenance services revenue from the acquisition of Manugistics and the favorable foreign exchange rate variance. Maintenance costs increased $4.7 million or 68% in second quarter 2007 compared to second quarter 2006 primarily as a result of a 41% increase in average headcount to support the increased installed base resulting from the acquisition of Manugistics and increased customer directed development activities, an $823,000 increase in third party maintenance royalties and a $232,000 increase in incentive compensation. The sequential decrease in maintenance services margins in second quarter 2007 compared to first quarter 2007 results primarily from the $1.5 million sequential decline in maintenance services revenues. As of June 30, 2007, we had 267 employees in our customer support function compared to 271 at March 31, 2007 and 193 at June 30, 2006.

Service revenues, which include consulting services, hosting services, training revenues, net revenues from our hardware reseller business and reimbursed expenses, increased $9.4 million or 48% in second quarter 2007 compared to second quarter 2006. The Manugistics acquisition provided $12.9 million of new service revenues in second quarter 2007, offset in part by a $3.5 million decrease in services revenues from projects involving core JDA products due to delays in the start of certain projects and the lag effect of lower software licenses in the Americas and Asia/Pacific regions during 2006. Service revenues in second quarter 2007 were flat sequentially compared to first quarter 2007. Consulting services utilization and average billing rate trends vary significantly by geographic region. Our global utilization rate was 51% in second quarter 2007 compared to 49% in first quarter 2007 and 49% in second quarter 2006 and our average blended global billing rates were $198, $192 and $188 per hour, respectively in these quarterly periods.

Service margins, which include consulting and the other service revenues referred to above, were 21% in second quarter 2007 compared to 19% in first quarter 2007 and 26% in second quarter 2006. Service margins decreased in second quarter 2007 compared to second quarter 2006 as the $9.4 million increase in service revenues was substantially offset by an $8.4 million increase in cost of service revenues which resulted from a 63% increase in average headcount, primarily due to the acquisition of Manugistics, an $834,000 increase in reimbursed expenses, a $422,000 increase in outside contractor costs for ongoing consulting projects in the United States, a $391,000 increase in travel costs and a $283,000 increase in incentive compensation. Billable hours decreased sequentially in second quarter 2007 compared to first quarter 2007 due to a reduction in force of approximately 30 consulting FTE in second quarter 2007 which resulted in flat sequential revenues but an improved service margin result. As of June 30, 2007, we had 455 employees in our services organization compared to 498 at March 31, 2007 and 297 at June 30, 2006.

Product development expenses decreased $1.8 million or 13% sequentially to $12.0 million in second quarter 2007 compared to first quarter 2007 and increased $751,000 million or 7% compared to second quarter 2006. The sequential decrease in product development expenses results primarily from a $563,000 increase in the deferral of costs for on-going funded development projects and decreases in salaries, incentive compensation and benefits. The increase in product development expenses in second quarter 2007 compared to second quarter 2006 includes a 46% net increase in average headcount primarily from the acquisition of Manugistics, which resulted in higher salaries, benefits, travel, and occupancy costs. We added 269 product development employees through the acquisition of Manugistics and subsequently reduced our product development workforce by approximately 120 FTE in first quarter 2007 in connection with our decision to standardize future product offerings on the new JDA Enterprise Architecture platform. Product development expense in second quarter 2007 also includes a $365,000 increase in incentive compensation due to improved operating performance, offset in part by the deferral of $1.1 million in costs on certain ongoing customer development projects. We will continue to have deferred costs for on-going funded development projects in second half 2007. As of June 30, 2007, we had 408 employees in the product development function compared to 414 at March 31, 2007 and 288 at June 30, 2006.

General and administrative expenses were flat sequentially at $10.6 million in second quarter 2007 compared to first quarter 2007 and increased $4.2 million or 66% compared to second quarter 2006. A sequential increase in the bad debt provision from $300,000 in first quarter 2007 to $1.3 million in second quarter 2007 was offset by sequential decreases in legal costs, incentive compensation, and recruiting and relocation expenses. The increase in general and administrative expenses in second quarter 2007 compared to second quarter 2006 includes a 47% increase in average headcount primarily from the acquisition of Manugistics, which resulted in higher salaries and benefits. Second quarter 2007 also included a $338,000 increase in legal and accounting costs as a result of the larger combined company, a $277,000 increase in stock-based compensation, a $265,000 increase in insurance costs and a $220,000 increase in outside contractor costs for assistance with internal system initiatives. As of June 30, 2007, we had 221 employees in general and administrative functions compared to 203 at March 31, 2007 and 147 at June 30, 2006.

Our Board of Directors approved a special Manugistics Integration Incentive Plan (“Integration Plan”) on August 18, 2006. The Integration Plan provides for the issuance of contingently issuable restricted stock units under the 2005 Performance Incentive Plan to executive officers and certain other members of our management team if we are able to successfully integrate the Manugistics acquisition and achieve a defined performance threshold goal in 2007. The performance threshold goal is defined as $85.0 million of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) which excludes non-routine expenses such as restructuring charges that cannot be predicted and typically relate to a change in our business model, non-routine expenses such as a sale of an office facility that are not directly related to our core business and stock-based compensation that is not an expense that typically requires or will require cash settlement by the Company. A partial pro-rata issuance of restricted stock units will be made if we achieve a minimum performance threshold. The restricted stock units, if any, will be issued after the announcement of our 2007 financial results in January 2008 and will vest 50% upon the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month period. No stock-based compensation expense was recognized in 2006 related to the Integration Plan as management determined it was not probable that the performance condition would be met.

The Board has subsequently approved modifications to certain of the awards granted to executive officers and approved additional awards for new participants in the Integration Plan. The restricted stock units, if any, under these modified awards will also be issued after the announcement of our 2007 financial results in January 2008 and will vest 50% upon the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month period. The Company’s performance against the defined performance threshold goal will be evaluated on a quarterly basis throughout 2007 and stock-based compensation recognized over the requisite service periods that run from the date of the various board approvals through January 2010, pursuant to the guidance in SFAS No. 123 (R). Through June 30, 2007, a total of 467,946 contingently issuable restricted stock units, net of forfeitures, have been awarded under the Integration Plan. A deferred compensation charge of approximately $7.5 million and related increase to additional paid-in capital has been recorded in the equity section of our balance sheet for the total grant date fair value related to the potential issuance of these restricted share units. Although all necessary service and performance conditions have not been met through June 30, 2007, based on our results for the six months ended June 30, 2007 and the outlook for the remainder of 2007, management has determined that it is now probable that the performance condition will ultimately be met. As a result, we have recorded $1.7 million in stock-based compensation expense related to these awards in the six months ended June 30, 2007, including $890,000 during second quarter 2007. This charge 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.” If we achieve the $85.0 million EBITDA performance threshold goal, as defined, we would expect to recognize approximately $5.0 million of stock-based compensation on these awards in 2007.

During the six months ended June 30, 2007 and 2006, we recorded stock-based compensation expense of $209,000 and $445,000, respectively related to other 2005 Incentive Plan awards.

On February 6, 2007, the Board of Directors approved a 2007 cash incentive bonus plan (“Incentive Plan”) for our executive officers. The Incentive Plan provides for $2.6 million in targeted cash bonuses based upon defined annualized operational performance goals. A partial pro-rata cash bonus will be paid if we achieve a minimum annualized 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 Solid and We Are Generating Positive Cash Flow From Operations. We had working capital of $36.2 million at June 30, 2007 compared to $41.1 million at December 31, 2006. The working capital balances at June 30, 2007 and December 31, 2006 include $65.4 million and $53.6 million of cash, respectively. We generated $43.3 million in cash flow from operations in first half 2007 compared to $18.4 million in first half 2006. The increase in cash flow from operations in first half 2007 compared to first half 2006 resulted primarily from an $8.7 million increase in net income, a $9.1 million increase in deferred revenue balances due to the seasonally high annual renewal period for maintenance contracts assumed in the acquisition of Manugistics and a $7.4 million increase in amortization on intangible balances recorded in the acquisition of Manugistics. Net accounts receivable were $76.5 million or 76 days sales outstanding (“DSO”) at June 30, 2007 compared to $79.5 million or 81 days sales outstanding (“DSO”) at December 31, 2006. During first half 2007 we also received $6.3 million in proceeds from the sale of an office facility in the United Kingdom, paid $4.4 million of direct costs related to the Manugistics acquisition, spent $4.0 million on capital expenditures and utilized excess cash balances to repay $35.0 million of our long-term debt.

We expect cash flow from operations to be positive in second half 2007. We also believe our cash position is sufficient to meet our operating needs for the foreseeable future. We will continue to use excess cash flow to accelerate the payment of the remaining outstanding debt.

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:


	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2007			2006			2007			2006
REVENUES:

Software licenses		21	%		20	%		20	%		18	%
Maintenance services		47	%		42	%		48	%		43	%

Product revenues		68	%		62	%		68	%		61	%

Consulting services		29	%		34	%		29	%		35	%
Reimbursed expenses		3	%		4	%		3	%		4	%

Service revenues		32	%		38	%		32	%		39	%

Total revenues		100	%		100	%		100	%		100	%


COST OF REVENUES:

Cost of software licenses		1	%		1	%		1	%		1	%
Amortization of acquired software technology		2	%		2	%		2	%		2	%
Cost of maintenance services		13	%		14	%		12	%		13	%

Cost of product revenues		16	%		17	%		15	%		16	%

Cost of consulting services		22	%		24	%		23	%		25	%
Reimbursed expenses		3	%		4	%		3	%		4	%

Cost of service revenues		25	%		28	%		26	%		29	%

Total cost of revenues		41	%		45	%		41	%		45	%


GROSS PROFIT		59	%		55	%		59	%		55	%

OPERATING EXPENSES:

Product development		13	%		22	%		14	%		22	%
Sales and marketing		17	%		18	%		17	%		18	%
General and administrative		12	%		12	%		12	%		13	%
Amortization of intangibles		4	%		1	%		4	%		2	%
Restructuring charges		2	%		1	%		3	%		—	%
Gain on sale of office facility		—	%		—	%		(2	)%		—	%

Total operating expenses		48	%		54	%		48	%		55	%


OPERATING INCOME		11	%		1	%		11	%		—	%

Interest expense and amortization of loan fees		(4	%)		—	%		(4	%)		—	%
Other income, net		1	%		2	%		1	%		2	%


INCOME BEFORE INCOME TAX PROVISON		8	%		3	%		8	%		2	%

Income tax provision		3	%		1	%		3	%		1	%


NET INCOME		5	%		2	%		6	%		1	%


Gross margin on software licenses		96	%		96	%		97	%		96	%
Gross margin on maintenance services		73	%		68	%		74	%		70	%
Gross margin on product revenues		77	%		74	%		78	%		74	%
Gross margin on service revenues		21	%		26	%		20	%		27	%

The following table sets forth a comparison of selected financial information, expressed as a percentage change between quarters for the three and six months ended June 30, 2007 and 2006. In addition, the table sets forth cost of revenues and product development expenses expressed as a percentage of the related revenues:


	% Change									% Change
	Three Months Ended June 30,									Six Months Ended June 30,
	2007			2007 to 2006			2006			2007			2007 to 2006			2006
Revenues:

Software licenses	$	18,626			80	%	$	10,353		$	35,654			104	%	$	17,496
Maintenance		42,961			98	%		21,673			87,439			102	%		43,326

Product revenues		61,587			92	%		32,026			123,093			102	%		60,822
Service revenues		29,163			48	%		19,736			58,374			50	%		38,793

Total revenues		90,750			75	%		51,762			181,467			82	%		99,615


Cost of Revenues:

Software licenses		724			96	%		370			1,189			56	%		762
Amortization of acquired software technology		1,502			31	%		1,150			3,373			40	%		2,403
Maintenance services		11,696			68	%		6,965			22,749			76	%		12,928

Product revenues		13,922			64	%		8,485			27,311			70	%		16,093
Service revenues		23,031			58	%		14,586			46,767			65	%		28,289

Total cost of revenues		36,953			60	%		23,071			74,078			67	%		44,382


Gross Profit		53,797			88	%		28,691			107,389			94	%		55,233

Operating Expenses:

Product development		11,996			7	%		11,245			25,783			17	%		22,003
Sales and marketing		15,103			63	%		9,292			29,911			71	%		17,508
General and administrative		10,558			66	%		6,347			21,134			59	%		13,312

		37,657			40	%		26,884			76,828			45	%		52,823

Amortization of intangibles		3,963			345	%		891			7,926			344	%		1,784
Restructuring charge		2,232			328	%		521			6,276		NM		%		521
Gain on sale of office facility		—			—	%		—			(4,128	)		(100	%)		—

Operating Income	$	9,945		NM		%	$	395		$	20,487		NM		%	$	105

Cost of Revenues as a % of related revenues:
Software licenses		4	%					4	%		3	%					4	%
Maintenance services		27	%					32	%		26	%					30	%
Product revenues		23	%					26	%		22	%					26	%
Service revenues		79	%					74	%		80	%					73	%

Product Development as a % of product revenues		19	%					35	%		21	%					36	%

The following tables set forth selected comparative financial information on revenues in our business segments and geographical regions, expressed as a percentage change between the three and six months ended June 30, 2007 and 2006. In addition, the tables set forth the contribution of each business segment and geographical region to total revenues in the three and six months ended June 30, 2007 and 2006, expressed as a percentage of total revenues:


							Manufacturing &
	Retail						Distribution						Services Industries *
	June 30, 2007 vs. 2006						June 30, 2007 vs. 2006						June 30, 2007 vs. 2006
	Quarter			Six Months			Quarter			Six Months			Quarter			Six Months
Software licenses		34	%		75	%		198	%		132	%		100	%		100	%
Maintenance services		27	%		28	%		242	%		253	%		100	%		100	%

Product revenues		30	%		42	%		231	%		220	%		100	%		100	%
Service revenues		(7	%)		(3	%)		1,065	%		1,043	%		100	%		100	%

Total revenues		13	%		21	%		304	%		288	%		100	%		100	%

Product development		(38	%)		(29	%)		233	%		214	%		100	%		100	%
Sales and marketing		29	%		55	%		137	%		82	%		100	%		100	%
Operating income (loss)		127	%		119	%		387	%		427	%		100	%		100	%


										Contribution to Total Revenues
Retail										Manufacturing & Distribution												Services Industries*
Quarter				Six Months						Quarter						Six Months						Quarter						Six Months
2007	2006			2007			2006			2007			2006			2007			2006			2007			2006			2007			2006
53%		81	%		53	%		80	%		43	%		19	%		43	%		20	%		4	%		—	%		4	%		—	%


*	All customers in the Services Industry reportable business segment are new to JDA and were acquired in the acquisition of Manugistics on July 5, 2006.


	The Americas						Europe						Asia/Pacific
	June 30, 2007 vs. 2006						June 30, 2007 vs. 2006						June 30, 2007 vs. 2006
	Quarter			Six Months			Quarter			Six Months			Quarter			Six Months
Software licenses		113	%		96	%		58	%		116	%		33	%		113	%
Maintenance services		103	%		107	%		101	%		98	%		54	%		74	%

Product revenues		105	%		104	%		86	%		104	%		43	%		89	%
Service revenues		33	%		38	%		151	%		148	%		44	%		45	%

Total revenues		74	%		75	%		99	%		113	%		43	%		69	%


										Contribution to Total Revenues
The Americas										Europe												Asia/Pacific
Quarter				Six Months						Quarter						Six Months						Quarter						Six Months
2007	2006			2007			2006			2007			2006			2007			2006			2007			2006			2007			2006
66%		66	%		66	%		69	%		24	%		22	%		24	%		21	%		10	%		12	%		10	%		10	%

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

Product Revenues

Software Licenses.

Retail. Software license revenues in this reportable business segment increased 34% in second quarter 2007 compared to second quarter 2006. Before considering the impact of Manugistics, software license revenues in this reportable business segment

increased 11% in second quarter 2007 compared to second quarter 2006 primarily due to an increase in new software license sales. In total there were two large transactions ³ $1.0 million in this reportable business segment in second quarter 2007 and second quarter 2006. We closed 30 deals in this reportable business segment in second quarter 2007 compared to 31 in second quarter 2006.

Manufacturing & Distribution. Software license revenues in this reportable business segment increased 198% in second quarter 2007 compared to first quarter 2006. Before considering the impact of Manugistics, software license revenues in this reportable business segment increased 21% in second quarter 2007 compared to second quarter 2006 primarily due to an increase in follow-on sales to existing customers that expanded the scope of existing licenses. There were two large transactions of ³ $1.0 million in this reportable business segment in second quarter 2007, one of which included the Manugistics product lines, compared to none in second quarter 2006. We closed 37 deals in this reportable business segment in second quarter 2007 compared to 43 in second quarter 2006.

Services Industries. The increase in software license revenues in this reportable business segment in second quarter 2007 compared to second quarter 2006 resulted entirely from sales to customers of the Revenue Management business acquired from Manugistics.

Regional Results. Software license revenues in the Americas region in second quarter 2007, which include $4.6 million in software license revenues from the Manugistics product lines, increased 113% compared to second quarter 2006. Before considering the impact of Manugistics, software license revenues in the Americas region increased 22% in second quarter 2007 compared to second quarter 2006. There were two large transactions ³ $1.0 million in the Americas region in second quarter 2007 compared to none in second quarter 2006.

Software license revenues in the Europe region in second quarter 2007, which include $828,000 in software license revenues from the Manugistics product lines, increased 58% compared to second quarter 2006. Before considering the impact of Manugistics, software license revenues in the Europe region increased 32% primarily due to one large transaction ³ $1.0 million and an increase in follow-on sales to existing customers that expand the scope of existing licenses. The large transaction in second quarter 2007 also included some of the Manugistics product lines. Both quarterly periods included one large transaction ³ $1.0 million.

Software license revenues in the Asia/Pacific region in second quarter 2007, which include $1.4 million in software license revenues from the Manugistics product lines, increased 33% compared to second quarter 2006. Before considering the impact of Manugistics, software license revenues in the Asia/Pacific region decreased 36% primarily due to a decrease in sales to new customers. Both quarterly periods included one large transaction ³ $1.0 million.

Maintenance Services. Maintenance services revenues in second quarter 2007, which include $20.2 million from the acquired Manugistics product lines, increased 98% compared to second quarter 2006. Before considering the impact of Manugistics, maintenance services revenues increased 5% in second quarter 2007 compared to second quarter 2006 primarily due to a $1.2 million favorable foreign exchange rate variance.

Service Revenues

Service revenues in second quarter 2007, which include $12.9 million from the Manugistics product lines, increased 48% compared to second quarter 2006. Before considering the impact of Manugistics, services revenues decreased 18% in second quarter 2007 compared to second quarter 2006 due to a $3.5 million decrease in service revenues from projects involving core JDA products due to delays in the start of certain projects and the lag effect of lower software sales in the Americas and Asia/Pacific regions during 2006.

Fixed bid consulting services work represented 15% of total consulting services revenue in second quarter 2007 compared to 11% in second quarter 2006.

Cost of Product Revenues

Cost of Software Licenses. The increase in cost of software licenses in second quarter 2007 compared to second quarter 2006 resulted primarily from $426,000 in third party royalties on software sales involving Manugistics product lines.

Amortization of Acquired Software Technology. The increase in amortization of acquired software technology in second quarter 2007 compared to second quarter 2006 resulted from amortization of software technology acquired in the Manugistics

acquisition, offset in part by a decrease in amortization on software technology related to the Intactix suite of products that has now been fully amortized.

Cost of Maintenance Services. The increase in cost of maintenance services in second quarter 2007 compared to second quarter 2006 resulted from a 41% increase in average headcount to support the increased installed base resulting from the acquisition of Manugistics and increased customer directed development activities, an $823,000 increase in third party maintenance royalties and a $232,000 increase in incentive compensation.

Cost of Service Revenues

The increase in cost of service revenues in second quarter 2007 compared to second quarter 2006 resulted from a 63% increase in average headcount, primarily due to the acquisition of Manugistics, an $834,000 increase in reimbursed expenses, a $422,000 increase in outside contractor costs for ongoing consulting projects in the United States, a $391,000 increase in travel costs and a $283,000 increase in incentive compensation.

Gross Profit

The increase in gross profit dollars in second quarter 2007 compared to second quarter 2006 resulted primarily from the $40.1 million revenue contribution from Manugistics and the 13% increase in software sales of core JDA products, offset in part by increases in average headcount in our customer support and consulting services organizations to support the larger revenue streams and customer directed development activities. The gross margin percentage increased to 59% in second quarter 2007 compared to 55% in second quarter 2006 due to the higher mix of product revenues.

Although service margin dollars increased in second quarter 2007 compared to second quarter 2006, service margins as a percentage of service revenues decreased to 21% from 26%. The $9.4 million increase in service revenues was substantially offset by an $8.4 million increase in cost of service revenues which resulted from the 63% increase in average headcount, primarily due to the acquisition of Manugistics, an $834,000 increase in reimbursed expenses, a $422,000 increase in outside contractor costs for ongoing consulting projects in the United States, a $391,000 increase in travel costs and a $198,000 increase in incentive compensation. Our global utilization rate was 51% in second quarter 2007 compared to 49% in second quarter 2006 and our average blended global billing rates were $198 and $188 per hour, respectively.

Operating Expenses

Operating expenses, excluding amortization of intangibles and restructuring charges, increased $10.8 million, or 40% in second quarter 2007 compared to second quarter 2006, and represented 41% and 52% of total revenues in each period, respectively. The increase in operating expenses resulted primarily from an increase in average headcount from the acquisition of Manugistics, a higher bad debt provision, higher legal and accounting costs, higher incentive and stock-based compensation due to improved operating performance and an increase in outside contractor costs for assistance with internal system initiatives, offset in part by the cost savings from the first quarter 2007 workforce reduction in our product development group and the deferral of costs on certain ongoing customer funded development projects.

Product Development. The increase in product development expense in second quarter 2007 compared to second quarter 2006 includes a 46% net increase in average product development headcount, primarily from the acquisition of Manugistics, which resulted in higher salaries, benefits, training, and occupancy costs. Product development expense in second quarter 2007 also includes a $365,000 increase in incentive compensation due to improved operating performance, offset in part by the deferral of $1.1 million in costs on certain ongoing customer funded development projects.

Sales and Marketing. The increase in sales and marketing expense in second quarter 2007 compared to second quarter 2006 resulted from a 38% increase in average headcount, primarily from the acquisition of Manugistics, which resulted in higher salaries, benefits, travel and relocation costs, a $1.5 million increase in sales commissions due to higher software license revenues and a $275,000 increase in stock-based compensation.

General and Administrative. The increase in general and administrative expenses in second quarter 2007 compared to second quarter 2006 includes a 47% increase in average headcount, primarily from the acquisition of Manugistics, which resulted in higher salaries and benefits. Second quarter 2007 also included a $1.3 million higher bad debt provision, a $338,000 increase in legal and accounting costs as a result of the larger combined company, a $277,000 increase in stock-based compensation, a $265,000 increase in insurance costs and a $220,000 increase in outside contractor costs for assistance with internal system initiatives.

Amortization of Intangibles. The increase in amortization of intangibles in second quarter 2007 compared to second quarter 2006 resulted primarily from $3.0 million in amortization on the customer list and trademark intangibles recorded in the acquisition of Manugistics.

Restructuring Charges. We recorded a restructuring charge of $2.3 million in second quarter 2007 that included $2.1 million in termination benefits related to a workforce reduction of approximately 40 FTE, primarily in our worldwide consulting services group, and $147,000 for office closures and integration costs of redundant office facilities. We recorded a restructuring charge of $521,000 in second quarter 2006 for termination benefits related to the restructure and elimination of eight accounting and administrative positions in Europe and Canada.

Operating Income

We had operating income of $9.9 million in second quarter 2007 compared to operating income of $395,000 in second quarter 2006. The improvement in operating income resulted primarily from a $39.0 million or 75% increase in total revenues, which includes a $40.1 million revenue contribution from Manugistics, offset by the costs and expenses related to a 49% increase in average headcount, primarily related to the acquisition of Manugistics, a $3.7 million increase in amortization on intangibles recorded in the acquisition of Manugistics, a $1.7 million higher restructuring charge and a $1.3 million higher bad debt provision.

Operating income in our Retail reportable business segment increased to $11.5 million in second quarter 2007 compared to $5.1 million in second quarter 2006. The increase in operating income in this reportable business segment resulted primarily from a $6.9 million increase in product revenues and a 38% decrease in product development costs, offset in part by a $1.3 million decrease in service revenues and a 29% increase in allocated sales and marketing costs based upon the pro rata share of software sales that came from this reportable business segment.

Operating income in our Manufacturing and Distribution reportable business segment increased to $14.9 million in second quarter 2007 compared to $3.1 million in second quarter 2006. The increase resulted primarily from increases in product and service revenues of $20.4 million and $9.0 million, respectively, primarily from the Manugistics product lines, offset in part by a $10.8 million increase in maintenance and service revenue costs due to the Manugistics acquisition, a 233% increase in product development costs and a 137% increase in allocated sales and marketing costs based upon the pro rata share of software sales that came from this reportable business segment.

All customers in the Services Industries reportable business segment are new to JDA and represent the former Revenue Management business acquired from Manugistics. This reportable business segment had operating income of $221,000 in second quarter 2007 on total revenues of $4.0 million, total costs of revenue of $2.4 million and $1.4 million in operating costs for product development and sales and marketing activities.

The combined operating income reported in the reportable business segments excludes $16.8 million and $7.8 million of general and administrative expenses and other charges in second quarter 2007 and 2006, 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)

During second quarter 2007 we incurred interest expense of $2.6 million on aggregate term loan obligations and $548,000 in amortization of loan origination fees. To finance the acquisition of Manugistics and the repayment of their debt obligations, we entered into a credit agreement with a consortium of lenders that provided for $175 million in aggregate term loans with interest payable quarterly at the London Interbank Offered Rate (“LIBOR”) + 2.25%. Prior to this transaction, we had no debt obligations.

We recorded interest income and other, net of $795,000 in second quarter 2007 compared to $1.3 million in second quarter 2006. During second quarter 2006, we liquidated substantially all of our investments in marketable securities in order to generate cash to complete the acquisition of Manugistics on July 5, 2006. Our excess cash balances were invested primarily in money market accounts during second quarter 2007 and in a variety of financial instruments including bank time deposits and variable and fixed rate obligations of the U.S. Government and it agencies, states, municipalities, commercial paper and corporate bonds during second quarter 2006.

Income Tax Provision

A summary of the income tax provision recorded in the three months ended June 30, 2007 and 2006 is as follows:


	Three Months Ended
	June 30,
	2007			2006
Income before income tax provision (benefit)	$	7,565		$	1,689
Effective tax rate		36.2	%		36.9	%

Income tax provision at effective tax rate		2,742			624

Discrete tax item benefits:
Changes in estimate		—			(10	)
Changes in foreign statutory rates		—			—

Total discrete tax item benefits		—			(10	)


Income tax provision	$	2,742		$	614

The income tax provision recorded in three months ended June 30, 2007 and 2006 takes into account the source of taxable income, domestically by state and internationally by country, and available income tax credits, and does not include the tax benefits realized from the employee stock options exercised during second quarter 2007 and 2006 of $265,000 and $23,000, respectively. These tax benefits reduce our income tax liabilities and are included as an increase to additional paid-in capital. The effective tax rates in the three months ended June 30, 2007 and 2006 are higher than the federal statutory rate of 35% as a larger portion of the earnings in these quarters were in the United States which has a higher overall tax rate than the foreign jurisdictions in which we conduct business.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

Product Revenues

Software Licenses.

Retail. Software license revenues in this reportable business segment increased 75% in first half 2007 compared to first half 2006. Before considering the impact of Manugistics, software license revenues in this reportable business segment increased 49% in first half 2007 compared to first half 2006 primarily due to large transactions ³ $1.0 million and new software license sales in each of our geographic regions. In total there were three large transactions ³ $1.0 million in this reportable business segment in first half 2007 and in first half 2006. We closed 71 deals in this reportable business segment in first half 2007 compared to 54 in first half 2006.

Manufacturing & Distribution. Software license revenues in this reportable business segment increased 132% in first half 2007 compared to first half 2006. Before considering the impact of Manugistics, software license revenues in this reportable business segment increased 21% in first half 2007 compared to first half 2006 primarily due to an increase in follow-on sales to existing customers that expanded the scope of existing licenses. There were two large transactions ³ $1.0 million in this reportable business segment in first half 2007, one of which included the Manugistics product lines, compared to none in first half 2006. We closed 88 deals in this reportable business segment in first half 2007 compared to 79 in first half 2006.

Services Industries. The increase in software license revenues in this reportable business segment in first half 2007 compared to first half 2006 resulted entirely from sales to customers of the Revenue Management business acquired from Manugistics.

Regional Results. Software license revenues in the Americas region in first half 2007, which include $6.5 million in software license revenues from the Manugistics product lines, increased 96% compared to first half 2006. Before considering the impact of Manugistics, software license revenues in the Americas region increased 34% in first half 2007 compared to first half 2006. In addition, there were two large transactions ³ $1.0 million in first half 2007, one of which included the Manugistics product lines, compared to one large transaction ³ $1.0 million in first half 2006.

Software license revenues in the Europe region in first half 2007, which include $2.3 million in software license revenues from the Manugistics product lines, increased 116% compared to first half 2006. Before considering the impact of Manugistics,

software license revenues in the Europe region increased 69% primarily due to two large transaction ³ $1.0 million in first half 2007 compared to one in first half 2006, and an increase in follow-on sales to existing customers that expand the scope of existing licenses. The large transaction in first half 2007 also included the Manugistics product lines.

Software license revenues in the Asia/Pacific region in first half 2007, which include $2.3 million in software license revenues from the Manugistics product lines, increased 113% compared to first half 2006. Before considering the impact of Manugistics, software license revenues in the Asia/Pacific region increased 9% primarily due to an increase in follow-on sales to existing customers that expand the scope of existing licenses. Both periods included a large transaction ³ $1.0 million.

Maintenance Services. Maintenance services revenues in first half 2007, which include $41.4 million from the acquired Manugistics product lines, increased 102% compared to first half 2006. Before considering the impact of Manugistics, maintenance services revenues increased 6% in first half 2007 compared to first half 2006 primarily due to a $2.4 million favorable foreign exchange rate variance.

Service Revenues

Service revenues in first half 2007, which include $24.1 million from the Manugistics product lines, increased 50% compared to first half 2006. Before considering the impact of Manugistics, services revenues decreased 12% in first half 2007 compared to first half 2006 due to delays in the start of certain projects and the lag effect of lower software sales in the Americas and Asia/Pacific regions during 2006.

Fixed bid consulting services work represented 15% of total consulting services revenue in first half 2007 compared to 9% in first half 2006.

Cost of Product Revenues

Cost of Software Licenses. The increase in cost of software licenses in first half 2007 compared to first half 2006 resulted primarily from $528,000 in third party royalties on software sales involving Manugistics product lines.

Amortization of Acquired Software Technology. The increase in amortization of acquired software technology in first half 2007 compared to first half 2006 resulted from amortization of software technology acquired in the Manugistics acquisition, offset in part by a decrease in amortization on software technology related to the Intactix suite of products that has now been fully amortized.

Cost of Maintenance Services. The increase in cost of maintenance services in first half 2007 compared to first half 2006 resulted from a 41% increase in average headcount to support the increased installed base resulting from the acquisition of Manugistics and increased customer directed development activities, a $1.8 million increase in third party maintenance royalties and a $785,000 increase in incentive compensation.

Cost of Service Revenues

The increase in cost of service revenues in first half 2007 compared to first half 2006 resulted from a 66% increase in average headcount, primarily due to the acquisition of Manugistics, a $1.6 million increase in reimbursed expenses, a $1.5 million increase in outside contractor costs for ongoing consulting projects in the United States, a $1.3 million increase in incentive compensation due to the increase in headcount and a $1.0 million increase in travel costs, offset in part by the deferral of $300,000 in consulting costs on a large Manugistics implementation project in the United States for which revenue recognition has been deferred.

Gross Profit

The increase in gross profit dollars in first half 2007 compared to first half 2006 resulted primarily from the $76.6 million revenue contribution from Manugistics and the 41% increase in software sales of core JDA products, offset in part by increases in average headcount in our customer support and consulting services organizations to support the larger revenue streams and customer directed development activities. The gross margin percentage increased to 59% in first half 2007 compared to 55% in first half 2006 due to the higher mix of product revenues.

Service margins decreased in first half 2007 compared to first half 2006 as the $19.6 million increase in service revenues was substantially offset by an $18.5 million increase in cost of service revenues which resulted from the 66% increase in average headcount, primarily due to the acquisition of Manugistics, a $1.6 million increase in reimbursed expenses, a $1.5 million increase in outside contractor costs for ongoing consulting projects in the United States, a $1.3 million increase in incentive compensation due to the increase in headcount and a $1.0 million increase in travel costs, offset in part by the deferral of $300,000 in consulting costs on a large Manugistics implementation project in the United States for which revenue recognition has been deferred.

Operating Expenses

Operating expenses, excluding amortization of intangibles, restructuring charges and the gain on sale of office facility, increased $24.0 million, or 45% in first half 2007 compared to first half 2006, and represented 42% and 53% of total revenues in each period, respectively. The increase in operating expenses resulted primarily from an increase in average headcount from the acquisition of Manugistics, a higher bad debt provision, higher travel, legal and accounting costs related to the integration of Manugistics, higher incentive and stock-based compensation due to improved operating performance and an increase in outside contractor costs for assistance with internal system initiatives, offset in part by the cost savings from the first quarter 2007 workforce reduction in our product development group and the deferral of costs on certain ongoing customer funded development projects.

Product Development. The increase in product development expense in first half 2007 compared to first half 2006 resulted from a 53% net increase in average product development headcount, primarily from the acquisition of Manugistics, which resulted in higher salaries, benefits, training, and occupancy costs. We added 269 product development employees through the acquisition of Manugistics and subsequently reduced our product development workforce by approximately 120 FTE in first quarter 2007 in connection with our decision to standardize future product offerings on the new JDA Enterprise Architecture platform. Product development expense in first half 2007 also includes a $1.5 million increase in incentive compensation due to improved operating performance, offset in part by the deferral of $1.7 million in costs on certain ongoing customer funded development projects.

Sales and Marketing. The increase in sales and marketing expense in first half 2007 compared to first half 2006 resulted from a 41% increase in average headcount, primarily from the acquisition of Manugistics, which resulted in higher salaries, benefits, travel, training, relocation and marketing costs, a $2.9 million increase in sales commissions due to higher software license revenues and a $636,000 increase in stock-based compensation.

General and Administrative. The increase in general and administrative expenses in first half 2007 compared to first half 2006 resulted from a 44% increase in average headcount, primarily from the acquisition of Manugistics, which resulted in higher salaries and benefits. First half 2007 also included a $1.6 million higher bad debt provision, a $721,000 increase in legal and accounting costs as a result of the larger combined company, a $589,000 increase in outside contractor costs for assistance with internal system initiatives, an $863,000 increase in incentive compensation due to improved operating performance and a $473,000 increase in insurance costs.

Amortization of Intangibles. The increase in amortization of intangibles in first half 2007 compared to first half 2006 results primarily from $6.0 million in amortization on the customer list and trademark intangibles recorded in the acquisition of Manugistics.

Restructuring Charge. We recorded a restructuring charge of $6.3 million in first half 2007 that included $5.9 million in termination benefits, primarily related to a workforce reduction of approximately 120 FTE in our Scottsdale, Arizona product development group due to our decision to standardize future product offerings on the new JDA Enterprise Architecture platform. and an additional 40 FTE, primarily in our worldwide consulting services group. The restructuring charge also included $292,000 for office closures and integration costs of redundant office facilities. We recorded a restructuring charge of $521,000 in first half 2006 for termination benefits related to the restructure and elimination of eight accounting and administrative positions in Europe and Canada.

Gain on Sale of Office Facility. During first quarter 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.

Operating Income

We had operating income of $20.5 million in first half 2007 compared to operating income of $105,000 in first half 2006. The improvement in operating income resulted primarily from a $81.9 million or 82% increase in total revenues, which includes a $76.6 million revenue contribution from Manugistics, and a $4.1 million gain on the sale of an office facility, offset by the costs and expenses related to a 51% increase in average headcount, primarily related to the acquisition of Manugistics, a $7.4 million increase in

amortization on intangibles recorded in the acquisition of Manugistics, a $5.8 million higher restructuring charge and a $1.6 million higher bad debt provision.

Operating income in our Retail reportable business segment increased to $21.8 million in first half 2007 compared to $9.9 million in first half 2006. The increase in operating income in this reportable business segment resulted primarily from a $17.7 million increase in product revenues and a 29% decrease in product development costs, offset in part by a 55% increase in allocated sales and marketing costs based upon the pro rata share of software sales that came from this reportable business segment and a $3.5 million increase in maintenance and service revenue costs.

Operating income in our Manufacturing and Distribution reportable business segment increased to $30.4 million in first half 2007 compared to $5.8 million in first half 2006. The increase resulted primarily from increases in product and service revenues of $40.3 million and $17.4 million, respectively, primarily from the Manugistics product lines, offset in part by a $21.1 million increase in maintenance and service revenue costs due to the Manugistics acquisition, a 214% increase in product development costs and an 82% increase in allocated sales and marketing costs based upon the pro rata share of software sales that came from this reportable business segment.

All customers in the Services Industries reportable business segment are new to JDA and represent the former Revenue Management business acquired from Manugistics. This reportable business segment incurred an operating loss of $503,000 in first half 2007 on total revenues of $7.4 million, total costs of revenue of $5.0 million, and $2.9 million in operating costs for product development and sales and marketing activities.

The combined operating income reported in the reportable business segments excludes $31.2 million and $15.6 million of general and administrative expenses and other charges in first half 2007 and 2006, 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)

During first half 2007 we incurred interest expense of $5.5 million on aggregate term loan obligations and $1.1 million in amortization of loan origination fees. To finance the acquisition of Manugistics and the repayment of their debt obligations, we entered into a credit agreement with a consortium of lenders that provided for $175 million in aggregate term loans with interest payable quarterly at the London Interbank Offered Rate (“LIBOR”) + 2.25%. Prior to this transaction, we had no debt obligations.

We recorded interest income and other, net of $1.5 million in first half 2007 compared to $2.3 million in first half 2006. During second quarter 2006, we liquidated substantially all of our investments in marketable securities in order to generate cash to complete the acquisition of Manugistics on July 5, 2006. Our excess cash balances were invested primarily in money market accounts during first half 2007 and in a variety of financial instruments including bank time deposits and variable and fixed rate obligations of the U.S. Government and it agencies, states, municipalities, commercial paper and corporate bonds during first half 2006.

Income Tax Provision

A summary of the income tax provision recorded in the six months ended June 30, 2007 and 2006 is as follows:


	Six Months Ended
	June 30,
	2007			2006
Income before income tax provision (benefit)	$	15,326		$	2,329
Effective tax rate		33.6	%		35.4	%

Income tax provision at effective tax rate		5,150			824

Discrete tax item benefits:
Changes in estimate		(63	)		(57	)
Changes in foreign statutory rates		—			—

Total discrete tax item benefits		(63	)		(57	)


Income tax provision	$	5,087		$	767

The income tax provision recorded in six months ended June 30, 2007 and 2006 takes into account the source of taxable income, domestically by state and internationally by country, and available income tax credits, and does not include the tax benefits realized from the employee stock options exercised during the six months ended June 30, 2007 and 2006 of $357,000 and $88,000, respectively. These tax benefits reduce our income tax liabilities and are included as an increase to additional paid-in capital. The effective tax rate in the six months ended June 30, 2007 is lower than the federal statutory rate of 35% as a smaller portion of the earnings in this quarter were in the United States which has a higher overall tax rate than the foreign jurisdictions in which we conduct business.

Liquidity and Capital Resources

We had working capital of $36.2 million at June 30, 2007 compared to $41.1 million at December 31, 2006. The working capital balances at June 30, 2007 and December 31, 2006 include cash balances of $65.4 million and $53.6 million, respectively. The decrease in working capital resulted from the repayment of $35.0 million of long-term debt, payment of $4.4 million of direct costs related to the Manugistics acquisition, $4.0 million of capital expenditures and a $14.3 million higher deferred revenue balances, primarily due to deferred maintenance on agreements assumed from Manugistics, offset in part by $43.3 million in cash flow from operating activities and $6.8 million in proceeds from the disposal of property and equipment.

Net accounts receivable were $76.5 million or 76 day sales outstanding (“DSO”) at June 30, 2007 compared to $79.5 million or 81 DSO at December 31, 2006. Our DSO results may 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.

Operating activities provided cash of $43.3 million in first half 2007 compared to $18.3 million in first half 2006. 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 first half 2007 compared to first half 2006 resulted primarily from an $8.7 million increase in net income, a $9.1 million increase in deferred revenue balances due to the seasonally high maintenance renewals during the months of January, February and March which represent the peak annual renewal periods for both JDA and Manugistics customers and a $7.4 million increase in amortization on intangible balances recorded in the acquisition of Manugistics.

Investing activities utilized cash of $1.6 million in first half 2007 and provided cash of $34.7 million in first half 2006. Net cash utilized by investing activities in first half 2007 includes the payment of $4.4 million of direct costs associated with the Manugistics acquisition and capital expenditures of $4.0 million, offset in part by $6.8 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. Net cash provided by investing activities in first half 2006 includes $35.5 million in net proceeds from sales and maturities of marketable securities to

generate cash to complete the acquisition of Manugistics on July 5, 2006 and $1.2 million in payments received on the Silvon promissory note, offset in part by $2.0 million in capital expenditures.

Financing activities utilized cash of $30.6 million in first half 2007 and provided cash of $865,000 in first half 2006. Financing activities in first half 2007 include repayment of $35.0 million of long-term debt. The activity in both periods includes proceeds from the issuance of common stock under our stock option plans.

Changes in the currency exchange rates of our foreign operations had the effect of increasing cash by $791,000 in the six months ended June 30, 2007 and $907,000 in the six months ended June 30, 2006. We use derivative financial instruments, primarily forward exchange contracts, to manage a majority of the short-term foreign currency exchange exposure associated with foreign currency denominated assets and liabilities which exist as part of our ongoing business operations. The exposures relate primarily to the gain or loss recognized in earnings from the revaluation or settlement of current foreign denominated assets and liabilities. We do not enter into derivative financial instruments for trading or speculative purposes. The forward exchange contracts generally have maturities of less than 90 days, and are not designated as hedging instruments under Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”). Forward exchange contracts are marked-to-market at the end of each reporting period, with gains and losses recognized in other income, net, offset by the gains or losses resulting from the settlement of the underlying foreign currency denominated assets and liabilities.

Treasury Stock Purchases. During first half 2007 and 2006, we repurchased 4,156 and 10,688 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 $54,000 at prices ranging from $11.19 to $19.78 per share in first half 2007 and for $139,000 at prices ranging from $11.19 to $14.90 per share in first half 2006.

On July 26, 2007, the term loan credit agreement (see Contractual Obligations) was amended to allow us to make open market cash purchases of our common stock in an aggregate amount not to exceed $75.0 million.

Contractual Obligations. As of June 30, 2007, we had $104.6 million in outstanding borrowings under term loan agreements which are due in quarterly installments of $437,500 through July 5, 2013, with the remaining balance due at maturity, and $1.5 million in convertible subordinated notes assumed in the Manugistics acquisition that are scheduled to mature in November 2007. In addition to the scheduled maturities, the term loan agreements also require additional mandatory repayments on the term loans of 50% of our annual excess cash flow, as defined, beginning with the fiscal year which commences January 1, 2007. Interest is payable quarterly on the term loans 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 have structured the interest rate swap with decreasing notional amounts to match the expected pay down of the debt. The notional value of the interest rate swap was $104.4 million at June 30, 2007 and represented approximately 100% of the aggregate term loan balance. The interest rate swap agreement is effective through October 5, 2009 and has been designated a cash flow hedge derivative.

We lease office space in the Americas for 13 regional sales and support offices across the United States, Canada and Latin America, and for 14 international sales and support offices located in major cities throughout Europe, Asia, Australia, and Japan. The leases are primarily non-cancelable operating leases with initial terms ranging from 12 months to 240 months that expire at various dates through the year 2018. None of the leases contain contingent rental payments; however, certain of the leases contain insignificant scheduled rent increases and renewal options. We expect that in the normal course of business some or all of these leases will be renewed or that suitable additional or alternative space will be available on commercially reasonable terms as needed. In addition, we lease various computers, telephone systems, automobiles, and office equipment under non-cancelable operating leases with initial terms 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.

We believe our existing cash balances and net cash provided from operations will provide adequate liquidity to meet our normal operating requirements for the foreseeable future. We will continue to use excess cash flow to accelerate the payment of the remaining outstanding debt. 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. There have been no changes in our critical accounting policies during the three months ended June 30, 2007. 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 Quarterly Report on Form 10-Q 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. We recognize revenue in accordance with Statement of Position 97-2 (“SOP 97-2”), Software Revenue Recognition, as amended and interpreted by Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, with respect to certain transactions, as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants, Accounting Research Bulletin No. 45, Long-Term Construction-Type Contracts (“ARB No. 45”), Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (“SOP 81-1”) and Staff Accounting Bulletin No. 104, Revenue Recognition, that provides further interpretive guidance for public companies on the recognition, presentation and disclosure of revenue in financial statements.

			Software license revenue is generally recognized using the residual method when:

	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 as prescribed in the provisions of ARB No. 45 and SOP 81-1.

			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 contracts, including milestone-based arrangements, consulting services revenue is recognized using the percentage of completion method under the provisions of SOP 81-1. We measure progress-to-completion 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 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) pursuant to EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and recognized upon shipment of the hardware.

			Customers are reviewed for creditworthiness before we enter into a new arrangement that provides for software and/or a service element. We do not sell or ship our software, nor recognize any license revenue unless we believe that collection is probable. Payments for our software licenses are typically due within twelve months from the date of delivery. Although infrequent, where software license agreements call for payment terms of twelve months or more from the date of delivery, revenue is recognized as payments become due and all other conditions for revenue recognition have been satisfied.

	•		Accounts Receivable. Consistent with industry practice and to be competitive in the retail software marketplace, we typically provide 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 in accordance with the requirements of paragraph 8 in Statement of Position 97-2, Software Revenue Recognition, as amended. For those customers who are not credit worthy, we require prepayment of the software license fee or a letter of credit before we will ship our software. We have a history of collecting software payments when they come due without providing refunds or concessions. Consulting services are generally billed bi-weekly and maintenance services are billed annually or monthly. 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.

	•		Goodwill and Intangible Assets. Our business combinations typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and potential impairment charges we may incur. The determination of the value of such intangible assets and the annual impairment tests required by Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), requires management to make estimates of future revenues, customer retention rates and other assumptions that affect our consolidated financial statements.

			Goodwill is tested annually for impairment, or more frequently if events or changes in business circumstances indicate the asset might be impaired, using a two-step process that compares 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 goodwill allocated to our reporting units. No indications of impairment have been identified in 2007 with respect to our Retail, Manufacturing and Distribution and Services Industries reportable business segments.

			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 also obtain third party appraisals to support our allocation of the purchase price to these assets. We estimate the economic lives of these assets using the historical life experiences of the acquired companies as well as our historical experience with similar customer accounts for products that we have developed internally. We review customer attrition rates for each significant acquired customer group on annual basis, or more frequently if events or circumstances change, to ensure the rate of attrition is not increasing and if revisions to the estimated economic lives are required.

			Acquired software technology is capitalized if the related software product under development has reached technological

			feasibility or if there are alternative future uses for the purchased software. Amortization of software technology is reported as a cost of product revenues in accordance with Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (“SFAS No. 86”). Software technology is amortized on a product-by-product basis with the amortization recorded for each product being the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future revenue for that product, or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on. The estimated economic lives of our acquired software technology range from 5 years to 15 years.

			Trademarks have historically been assigned indefinite useful lives and tested annually for impairment using the “Relief from Royalty Method of the Income Approach.” The premise of this valuation method is that the value of an asset can be measured by the present worth of the net economic benefit (cash receipts less cash outlays) to be received over the life of the asset and assumes that in lieu of ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of this asset class. Substantially all of our trademarks were acquired in connection with the acquisitions of Manugistics and E3 Corporation (“E3”). The Company announced in fourth quarter 2006 that it would continue to support the E3 product suite through the end of 2012 at a minimum. With this announcement, the E3 trademarks have been classified as an amortizable intangible asset which will be amortized prospectively on a straight-line basis over an estimated remaining useful life of 3 years. Prior to 2007, we assigned indefinite useful lives to our E3 trademarks, and recorded no amortization, as we believed there were no legal, regulatory, contractual, competitive, economic, or other factors that would limit their useful lives and intended to indefinitely develop next generation products under our trademarks and expected them to contribute to our cash flows indefinitely. The Manugistics trademarks are being amortized on a straight-line basis over an estimated useful life of 3 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 in accordance with Statement of Financial Accounting Standards No. 86, Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed. 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. We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS No. 109”). Under SFAS No. 109, 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. In addition, we obtain an external review of our income tax provision by an independent tax advisor prior to the filing of our quarterly and annual reports. 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.

			In June 2006, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation No. 48, Accounting for Income Tax Uncertainties, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for income tax uncertainties and defines the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also prescribes a two-step approach for evaluating tax positions and requires expanded disclosures at each interim and annual reporting period. FIN 48 is effective for fiscal years beginning after December 15, 2006 and requires that differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption are to be accounted for as cumulative-effect adjustments to beginning retained earnings.

			We adopted the provisions of FIN 48 on January 1, 2007. The amount of unrecognized tax benefits at January 1, 2007 was $3.5 million, of which $799,000 would impact our effective tax rate if recognized. With the adoption of FIN 48, we

			recognized a charge of approximately $1.0 million to beginning retained earnings for uncertain tax positions. In addition, a FIN 48 adjustment of $2.9 million was made to the purchase price allocation on the Manugistics acquisition to record a tax liability for uncertain tax positions which increased the goodwill balance.

			The FIN 48 adjustments on January 1, 2007 include an accrual approximately $599,000 for interest and penalties. 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. Going forward, interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.

	•		Stock-Based Compensation. We adopted Statement of Financial Accounting Standard No. 123(R), Share Based Payment (“SFAS No. 123(R)”) effective January 1, 2006 using the “modified prospective” method. Under the “modified prospective” method, share-based compensation expense recognized in our financial statements will now include (i) compensation expense for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated under the requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), and (ii) compensation expense for all share-based payments granted subsequent to January 1, 2006 under the requirements of SFAS No. 123(R). Results for prior periods have not been restated. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow.

			We do not expect that our outstanding stock options will result in a significant compensation expense charge as all stock options were fully vested prior to the adoption of SFAS No. 123(R). Stock options are no longer used for share-based compensation. A 2005 Performance Incentive Plan (“2005 Incentive Plan”) was approved by our stockholders on May 16, 2005 that provides for the issuance of up to 1,847,000 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. With the adoption of the 2005 Incentive Plan, we terminated our 1996 Stock Option Plan, 1996 Outside Directors Stock Option Plan and 1998 Non-Statutory Stock Option Plan except for those provisions necessary to administer the outstanding options. The 2005 Incentive Plan contains certain restrictions that limit the number of shares that may be issued and cash awarded under each type of award, including a limitation that awards granted in any given year can be no more than one 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 will be in such form as the Compensation Committee shall from time to time establish and 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 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 awards are amortized over their applicable vesting period using the straight-line method.

			Our Board of Directors approved a special Manugistics Integration Incentive Plan (“Integration Plan”) on August 18, 2006. The Integration Plan provides for the issuance of contingently issuable restricted stock units under the 2005 Performance Incentive Plan to executive officers and certain other members of our management team if we are able to successfully integrate the Manugistics acquisition and achieve a defined performance threshold goal in 2007. The performance threshold goal is defined as $85.0 million of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) which excludes non-routine expenses such as restructuring charges that cannot be predicted and typically relate to a change in our business model, non-routine expenses such a sale of an office facility that are not directly related to our core business and stock-based compensation that is not an expense that typically requires or will require cash settlement by the Company. A partial pro-rata issuance of restricted stock units will be made if we achieve a minimum performance threshold. The restricted stock units, if any, will be issued after the announcement of our 2007 financial results in January 2008 and will vest 50% upon the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month period. No stock-based compensation expense was recognized in 2006 related to the Integration Plan as management determined it was not probable that the performance condition would be met.

			The Board has subsequently approved modifications to certain of the awards granted to executive officers and approved additional awards for new participants in the Integration Plan. The restricted stock units, if any, under these modified awards will also be issued after the announcement of our 2007 financial results in January 2008 and will vest 50% upon the date of issuance with the remaining 50% vesting ratably over the subsequent 24-month period. The Company’s performance against the defined performance threshold goal will be evaluated on a quarterly basis throughout 2007 and stock-based compensation

			recognized over the requisite service periods that run from the date of the various board approvals through January 2010, pursuant to the guidance in SFAS No. 123 (R). Through June 30, 2007, a total of 467,946 contingently issuable restricted stock units, net of forfeitures, have been awarded under the Integration Plan. A deferred compensation charge of approximately $7.5 million and related increase to additional paid-in capital has been recorded in the equity section of our balance sheet for the total grant date fair value related to the potential issuance of these restricted share units. Although all necessary service and performance conditions have not been met as of June 30, 2007, based on our results for the six months ended June 30, 2007 and the outlook for the remainder of 2007, management has determined that it is now probable that the performance condition will ultimately be met. As a result, we have recorded $1.7 million in stock-based compensation expense related to these awards in the six months ended June 30, 2007, including $890,000 during second quarter 2007. This charge 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.” If we achieve the $85.0 million EBITDA performance threshold goal, as defined, we would expect to recognize approximately $5.0 million of stock-based compensation on these awards in 2007.

	•		Derivative Instruments and Hedging Activities. We account for derivative financial instruments in accordance with Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”). We use derivative financial instruments, primarily forward exchange contracts, to manage a majority of the foreign currency exchange exposure associated with net short-term foreign denominated assets and liabilities which exist as part of our ongoing business operations. The exposures relate primarily to the gain or loss recognized in earnings from the settlement of current foreign denominated assets and liabilities. We do not enter into derivative financial instruments for trading or speculative purposes. The forward exchange contracts generally have maturities of less than 90 days, and are not designated as hedging instruments under SFAS No. 133. Forward exchange contracts are marked-to-market at the end of each reporting period, with gains and losses recognized in other income offset by the gains or losses resulting from the settlement of the underlying foreign denominated assets and liabilities.

			We are exposed to interest rate risk in connection with our long-term debt which provides for quarterly interest payments at the London Interbank Offered Rate (“LIBOR”) + 2.25%. To manage this risk, 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 have structured the interest rate swap with decreasing notional amounts to match the expected pay down of the debt. The notional value of the interest rate swap was $104.4 million at June 30, 2007 and represented approximately 100% of the aggregate term loan balance. The interest rate swap agreement is effective through October 5, 2009 and has been designated a cash flow hedge derivative. We evaluate the effectiveness of the cash flow hedge derivative on a quarterly basis. During the six months ended June 30, 2007 the hedge was highly effective and a net unrealized gain of $258,000 was recorded in “Accumulated other comprehensive income (loss).”

Other Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). Among other requirements, SFAS No. 157 defines fair value and establishes a framework for measuring fair value and also expands disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective beginning the first fiscal year that begins after November 15, 2007. We are evaluating the impact of SFAS No. 157 on our financial position, results of operations and cash flows.

In February 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS No. 159”). SFAS No. 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective beginning the first fiscal years that begins after November 15, 2007. We are evaluating the impact of SFAS No. 159 on our financial position, results of operations and cash flows and whether we will choose to measure any eligible financial assets and liabilities at fair value.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in foreign currency exchange rates and interest rates. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.

Foreign currency exchange rates. Our international operations expose us to foreign currency exchange rate changes that could impact translations of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from

transactions denominated in different currencies. International revenues represented 40% of our total revenues in the six months ended June 30, 2007 and in the year ended December 31, 2006. In addition, the identifiable net assets of our foreign operations totaled 30% of consolidated net assets at June 30, 2007, as compared to 28% at December 31, 2006. Our exposure to currency exchange rate changes is diversified due to the number of different countries in which we conduct business. We operate outside the United States primarily through wholly owned subsidiaries in Europe, Asia/Pacific, Canada and Latin America. We have determined that the functional currency of each of our foreign subsidiaries is the local currency and as such, foreign currency translation adjustments are recorded as a separate component of stockholders’ equity. Changes in the currency exchange rates of our foreign subsidiaries resulted in our reporting unrealized foreign currency exchange gains of $1.3 million in each of the six months ended June 30, 2007 and 2006.

Foreign currency gains and losses will continue to result from fluctuations in the value of the currencies in which we conduct operations as compared to the U.S. Dollar, and future operating results will be affected to some extent by gains and losses from foreign currency exposure. We prepared sensitivity analyses of our exposures from foreign net working capital as of June 30, 2007 to assess the impact of hypothetical changes in foreign currency rates. Based upon the results of these analyses, a 10% adverse change in all foreign currency rates from the June 30, 2007 rates would result in a currency translation loss of $1.3 million before tax. We use derivative financial instruments to manage this risk.

We use derivative financial instruments, primarily forward exchange contracts, to manage a majority of the foreign currency exchange exposure associated with net short-term foreign denominated assets and liabilities which exist as part of our ongoing business operations. The exposures relate primarily to the gain or loss recognized in earnings from the revaluation or settlement of current foreign denominated assets and liabilities. We do not enter into derivative financial instruments for trading or speculative purposes. The forward exchange contracts generally have maturities of less than 90 days, and are not designated as hedging instruments under SFAS No. 133. Forward exchange contracts are marked-to-market at the end of each reporting period, with gains and losses recognized in other income offset by the gains or losses resulting from the settlement of the underlying foreign denominated assets and liabilities.

At June 30, 2007, we had forward exchange contracts with a notional value of $29.5 million and an associated net forward contract receivable of $69,000. At December 31, 2006, we had forward exchange contracts with a notional value of $20.7 million and an associated net forward contract liability of $22,000. The forward contract receivables or liabilities are included in 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 prepared sensitivity analyses of the impact of changes in foreign currency exchange rates on our forward exchange contracts at June 30, 2007. Based on the results of these analyses, a 10% adverse change in all foreign currency rates from the June 30, 2007 rates would result in a net forward contract liability of $709,000 that would increase the underlying currency transaction loss on our net foreign assets. We recorded foreign currency exchange contract gains of $103,000 in the six months ended June 30, 2007 and foreign currency exchange contract gains of $76,000 in the six months ended June 30, 2006.

Interest rates. We have historically invested our cash in a variety of financial instruments denominated in U.S. dollars, including bank time deposits and variable and fixed rate obligations of the U.S. Government and its agencies, states, municipalities, commercial paper and corporate bonds, and have classified all of our investments as available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Cash balances in foreign currencies overseas are operating balances and are invested in short-term deposits of the local operating bank. Interest income earned on our investments is reflected in our financial statements under the caption “Other income (expense), net.” Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities that have suffered a decline in market value due to a change in interest rates. We hold our investment securities for purposes other than trading. During second quarter 2006, we liquidated substantially all of our investments through sales or maturities in order to generate cash to complete the acquisition of Manugistics on July 5, 2006. There were no securities held as of December 31, 2006 or June 30, 2007 and our excess cash balances were primarily invested in money market accounts.

We are exposed to interest rate risk in connection with our long-term debt which provides for quarterly interest payments at the London Interbank Offered Rate (“LIBOR”) + 2.25%. To manage this risk, 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 have structured the interest rate swap with decreasing notional amounts to match the expected pay down of the debt. The notional value of the interest rate swap was $104.4 million at June 30, 2007 and represented approximately 100% of the aggregate term loan balance. The interest rate swap agreement is effective through October 5, 2009 and has been designated a cash flow hedge derivative. We evaluate the effectiveness

of the cash flow hedge derivative on a quarterly basis. During the six months ended June 30, 2007 the hedge was highly effective and a net unrealized gain of $258,000 was recorded in “Accumulated other comprehensive income (loss).”

Item 4: Controls and Procedures

Disclosure controls and procedures. During and subsequent to the reporting period, and under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of our disclosure controls and procedures that were in effect at the end of the period covered by this report. Disclosure controls and procedures is defined under Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”) as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our principal executive officer and principal financial and accounting officer have concluded that our disclosure controls and procedures that were in effect on June 30, 2007 were effective to ensure that information required to be disclosed in our reports to be filed under the Exchange Act is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding disclosures and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Internal control over financial reporting. The term “internal control over financial reporting” is defined under Rule 13a-15(f) of the Act and refers to the process of a company that is designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements. There were no changes in our internal controls over financial reporting during the three months ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. 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.

Item 1A. Risk Factors

We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. The following section describes some, but not all, of these risks and uncertainties that we believe may adversely affect our business, financial condition, results of operations or the market price of our stock. This section should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations as of June 30, 2007 and for the three months then ended contained elsewhere in this Form 10-Q.

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

Because of the difficulty in predicting the timing of particular sales within any one quarter, we are providing annual guidance only. Our actual quarterly operating results have varied in the past and are expected to continue to vary in the future. Fluctuating quarterly results can affect our annual guidance. If our quarterly or annual operating results, particularly our software revenues, fail to meet management’s or analysts’ expectations, the price of our stock could decline. Many factors may cause these fluctuations, including:

	•		The difficulty of predicting demand for our software products and services, including the size and timing of individual contracts and our ability to recognize revenue with respect to contracts signed in a given quarter, particularly with respect to our larger customers;

	•		Changes in the length and complexity of our sales cycle, including changes in the contract approval process at our customers and potential customers that now require a formal proposal process, a longer decision making period and additional layers of customer approval, often including authorization of the transaction by senior executives, boards of directors and significant equity investors;

	•		Competitive pricing pressures and competitive success or failure on significant transactions;

	•		Customer order deferrals resulting from the anticipation of new products, economic uncertainty, disappointing operating results by the customer, management changes, corporate reorganizations or otherwise;

	•		The timing of new software product and technology introductions and enhancements to our software products or those of our competitors, and market acceptance of our new software products and technology;

	•		Lack of desired features and functionality in our individual products or our suite of products;

	•		Changes in the number, size or timing of new and renewal maintenance contracts or cancellations;

	•		Unplanned changes in our operating expenses;

	•		Changes in the mix of domestic and international revenues, or expansion or contraction of international operations;

	•		Our ability to complete fixed price consulting contracts within budget;

	•		Foreign currency exchange rate fluctuations;

	•		Lower-than-anticipated utilization in our consulting services group as a result of increased competition, reduced levels of software sales, reduced implementation times for our products, changes in the mix of demand for our software products, mergers and consolidations within our customer base, or other reasons; and

	•		Our limited ability to reduce costs in the short term to compensate for any unanticipated shortfall in product or services revenue.

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

	•		Loss on impairment of goodwill and/or other intangible assets;

	•		Changes in the useful lives or the amortization of identifiable intangible assets;

	•		Accrual of newly identified pre-merger contingent liabilities, in which case the related charges could be required to be included in earnings in the period in which the accrual is determined to the extent it is identified subsequent to the finalization of the purchase price allocation; and

	•		Charges to income to eliminate certain JDA pre-merger activities that duplicate those of the acquired company or to reduce our cost structure.

In addition, fluctuations in the price of our common stock may expose us to the risk of securities class action lawsuits. Defending against such lawsuits could result in substantial costs and divert management’s attention and resources. Furthermore, any settlement or adverse determination of these lawsuits could subject us to significant liabilities.

We may misjudge when software sales will be realized

Software license revenues in any quarter depend substantially upon contracts signed and the related shipment of software in that quarter. It is therefore difficult for us to accurately predict software license revenues. Because of the timing of our sales, we typically recognize the substantial majority of our software license revenues in the last weeks or days of the quarter, and we may derive a significant portion of our quarterly software license revenues from a small number of relatively large sales. In addition, it is difficult to forecast the timing of large individual software license sales with a high degree of certainty due to the extended length of

the sales cycle and the generally more complex contractual terms that may be associated with such licenses that could result in the deferral of some or all of the revenue to future periods. Our customers and potential customers, especially for large individual software license sales, are requiring that their senior executives, board of directors and significant equity investors approve such sales without the benefit of the direct input from our sales representatives. As a result, our sales process is less visible than in the past and our sales cycle is more difficult to predict. Accordingly, large individual sales have sometimes occurred in quarters subsequent to when we anticipated. We expect to experience continued difficulty in accurately forecasting the timing of deals. If we receive any significant cancellation or deferral of customer orders, or we are unable to conclude license negotiations by the end of a fiscal quarter, our operating results may be lower than anticipated.

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

Our revenue and profitability depend on the overall demand for our software and related services. A regional and/or global change in the economy and financial markets could result in delay or cancellation of customer purchases. Historically, developments associated with terrorist attacks on United States’ interests, continued violence in the Middle East, natural catastrophes or contagious diseases have resulted in economic, political and other uncertainties, and factors such as these could further adversely affect our revenue growth and operating results. If demand for our software and related services decrease, our revenues would decrease and our operating results would be adversely affected which, in turn, may cause our stock price to fall.

We may not receive significant revenues from our current research and development efforts.

Developing and localizing software is expensive and the investment in product development often involves a long payback cycle. We have and expect to continue making significant investments in software research and development and related product opportunities. Accelerated product introductions and short product life cycles require high levels of expenditures for research and development that could adversely affect our operating results if not offset by revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, it is difficult to estimate when, if ever, we will receive significant revenues from these investments.

Our decision to move to the JDA Enterprise Architecture may present new risks.

We are developing our next generation JDA Enterprise Architecture solutions based upon service oriented architecture technologies. The JDA Enterprise Architecture is the technical platform developed by Manugistics and is based on Java J2EE. We made a decision in January 2007 to use JDA Enterprise Architecture as our primary technology platform, rather than the Microsoft .NET platform that had been our primary technology platform for new product development. A significant factor in selecting the JDA Enterprise Architecture is that it is more mature than the Portfolio-Enabled platform we had been developing because Manugistics began its development efforts approximately two years before we began developing our Microsoft .NET based applications. As a consequence, there are already over 100 customers that have installed and are using the JDA Enterprise Architecture in production.

The risks of our commitment to the JDA Enterprise Architecture platform include, but are not limited to, the following:

	•		The possibility that it may be more difficult than we currently anticipate to develop additional products for the JDA Enterprise Architecture platform, and we could incur costs in excess of our projections to complete the planned transition of our product suite;

	•		The possibility that our sales organization may encounter difficulties in determining whether to propose existing products or the next generation JDA Enterprise Architecture products to current or prospective customers;

	•		The possibility we may not complete the transition to the JDA Enterprise Architecture platform in the time frame we currently expect;

	•		Our ability to transition our customer base onto the JDA Enterprise Architecture platform as additional products become available;

	•		The possibility that it may take several quarters for our consulting and support organizations to be fully trained and proficient on this new technology and, as a result, we may encounter difficulties implementing and supporting new products or versions of existing products based on the JDA Enterprise Architecture platform;

	•		We may be required to supplement our consulting and support organizations with JDA Enterprise Architecture proficient resources from our product development teams to support early JDA Enterprise Architecture

implementations which could impact our development schedule for the release of additional JDA Enterprise Architecture products.

The risk associated with developing products that utilize new technologies remains high. Despite our increasing confidence in this investment and our efforts to mitigate the risks of the JDA Enterprise Architecture platform project, there can be no assurances that our efforts to migrate many of our current products and to develop new JDA Enterprise Architecture solutions will be successful. If the JDA Enterprise Architecture platform project is not successful, it likely will have a material adverse effect on our business, operating results and financial condition.

It may be difficult to identify, adopt and develop product architecture that is compatible with emerging industry standards

The markets for our software products are characterized by rapid technological change, evolving industry standards, changes in customer requirements and frequent new product introductions and enhancements. We continuously evaluate new technologies and when appropriate implement into our products advanced technology such as our current JDA Enterprise Architecture platform effort. However, if we fail in our product development efforts to accurately address in a timely manner, evolving industry standards, new technology advancements or important third-party interfaces or product architectures, sales of our products and services will suffer.

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

We may face liability if our products are defective or if we make errors implementing our products

Our software products are highly complex and sophisticated. As a result, they may occasionally contain design defects, software errors or security problems that could be difficult to detect and correct. In addition, implementation of our products may involve customer-specific configuration by third parties or us, and may involve integration with systems developed by third parties. In particular, it is common for complex software programs such as ours to contain undetected errors when first released. They are discovered only after the product has been implemented and used over time with different computer systems and in a variety of applications and environments. Despite extensive testing, we have in the past discovered certain defects or errors in our products or custom configurations only after our software products have been used by many clients. For example, we will likely continue to experience undetected errors in our JDA Enterprise Architecture applications as we begin to implement them at early adopter customer sites. In addition, our clients may occasionally experience difficulties integrating our products with other hardware or software in their environment that are unrelated to defects in our products. Such defects, errors or difficulties may cause future delays in product introductions, result in increased costs and diversion of development resources, require design modifications or impair customer satisfaction with our products.

We believe that significant investments in research and development are required to remain competitive, and that speed to market is critical to our success. Our future performance will depend in large part on our ability to enhance our existing products through internal development and strategic partnering, internally develop new products which leverage both our existing customers and sales force, and strategically acquire complementary solutions that add functionality for specific business processes to an enterprise-wide system. If clients experience significant problems with implementation of our products or are otherwise dissatisfied with their functionality or performance or if they fail to achieve market acceptance for any reason, our market reputation could suffer, and we could be subject to claims for significant damages. There can be no assurances that the contract provisions in our customer agreements that limit our liability and exclude consequential damages will be enforced. Any such damages claim could impair our market reputation and could have a material adverse affect on our business, operating results and financial condition.

We may have difficulty implementing our products.

Our software products are complex and perform or directly affect mission-critical functions across many different functional and geographic areas of the enterprise. Consequently, implementation of our software products can be a lengthy process, and commitment of resources by our clients is subject to a number of significant risks over which we have little or no control. We believe the implementation of our Transaction Systems and Services Industries solutions can be longer and more complicated than our other applications as they typically (i) appeal to larger customers who have multiple divisions requiring multiple implementation projects, (ii) require the execution of implementation procedures in multiple layers of software, (iii) offer a customer more deployment options

and other configuration choices, and (iv) may involve third party integrators to change business processes concurrent with the implementation of the software. Delays in the implementations of any of our software products, whether by our business partners or us, may result in client dissatisfaction, disputes with our customers, or damage to our reputation.

In addition, certain of our services arrangements are fixed price arrangements whereby we are required to provide identified deliverables for a fixed fee. If we are unable to meet our contractual obligations under fixed-price contracts within our estimated cost structure, our operating results could suffer.

We may not be able to protect our intellectual property.

We rely on a combination of copyright, trade secrets, confidentiality procedures, contractual commitments and patents to protect our proprietary information. Despite our efforts, these measures can only provide limited protection. Unauthorized third parties may try to copy or reverse engineer portions of our products or otherwise obtain and use our intellectual property. In addition, the laws of some countries do not provide the same level of protection of our proprietary rights as do the laws of the United States or are not adequately enforced in a timely manner. If we cannot protect our proprietary technology against unauthorized copying or use, we may not remain competitive.

Third parties may claim we infringe their intellectual property rights.

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

	•		be time-consuming, costly and/or result in litigation;

	•		divert management’s time and attention from developing our business;

	•		require us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable;

	•		require us to stop selling or to redesign certain of our products; or

	•		require us to satisfy indemnification obligations to our customers.

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

If we lose access to critical third-party software or technology, our costs could increase and the introduction of new products and product enhancements could be delayed, potentially hurting our competitive position

We license and integrate technology from third parties in certain of our software products. For example, we license the Uniface client/server application development technology from Compuware, Inc. for use in Portfolio Merchandise Management, certain applications from Silvon Software, Inc. for use in Performance Analysis by IDEAS, Cognos for use in JDA Reporting and JDA Analytics, and BEA Systems, Inc.’s WebLogic application for use in most of the applications acquired in the Manugistics transaction. Our third party licenses generally require us to pay royalties and fulfill confidentiality obligations. We also resell Oracle database licenses. If we are unable to continue to license any of this third party software, or if the third party licensors do not adequately maintain or update their products, we would face delays in the releases of our software until equivalent technology can be identified, licensed or developed, and integrated into our software products. These delays, if they occur, could harm our business, operating results and financial condition. It is also possible that intellectual property acquired from third parties through acquisitions, mergers, licenses or otherwise obtained may not have been adequately protected, or infringes another parties intellectual property rights.

We may face difficulties in our highly competitive markets

We encounter competitive products from a different set of vendors in each of our primary product categories. We believe that while our markets are still subject to intense competition, the number of competitors in many of our application markets has decreased over the past five years. We believe the principal competitive factors in our markets are feature and functionality, product reputation and quality of referenceable accounts, vendor viability, retail and demand chain industry expertise, total solution cost, technology platform and quality of customer support.

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

The enterprise software market continues to consolidate and this has resulted in larger, new competitors with significantly greater financial, technical and marketing resources than we possess. This could create a significant competitive advantage for our competitors and negatively impact our business. The consolidation trend is evidenced by our acquisition of Manugistics Group, Inc., Oracle’s acquisitions of Retek, ProfitLogic, Inc., 360Commerce, and Global Logistics Technologies, Inc. (G-LOG), and SAP AG’s acquisitions of Triversity, Inc. and Khimetrics, Inc. Oracle did not compete with our retail specific products prior to its acquisitions of Retek, ProfitLogic, Inc., 360Commerce, and Global Logistics Technologies, Inc. It is difficult to estimate what long term effect these acquisitions will have on our competitive environment. We have encountered competitive situations with Oracle in certain of our international markets where, in order to encourage customers to purchase their retail applications, we suspect they have offered to license their database applications at no charge. We have also encountered competitive situations with SAP AG where, in order to encourage customers to purchase licenses of its non-retail applications and gain retail market share, they have offered to license at no charge certain of its retail software applications that compete with our JDA Enterprise Architecture solutions. If large competitors such as Oracle and SAP AG and other large private companies are willing to license their retail and/or other applications at no charge it may result in a more difficult competitive environment for our products. In addition, we could face competition from large, multi-industry technology companies that have historically not offered an enterprise solution set to the retail supply chain market. We cannot guarantee that we will be able to compete successfully for customers or acquisition targets against our current or future competitors, or that competition will not have a material adverse effect on our business, operating results and financial condition.

We are dependent upon the retail supply chain

Historically, we have derived over 75% of our revenues from the license of software products and the performance of related services to retail customers. This percentage decreased, as expected, to 52% in the second half of 2006 and 53% in the six months ended June 30, 2007 with the acquisition of Manugistics. However, since many of manufacturing and distribution customers acquired from Manugistics directly or indirectly supply products to the retail industry, the success of most of our customers is directly linked to general economic conditions, as well as those of the retail industry. In addition, we believe that the licensing of certain of our software products involves a large capital expenditure, which is often accompanied by large-scale hardware purchases or other capital commitments. As a result, demand for our products and services could decline in the event of instability or potential economic downturn.

We believe the retail industry has remained cautious with their level of investment in information technology during the uncertain economic cycle of the last few years. We remain concerned about weak and uncertain economic conditions, industry consolidation and the disappointing results of retailers in certain geographic regions. The retail industry will be negatively impacted if weak economic conditions or geopolitical concerns persist for an extended period of time. Weak and uncertain economic conditions have in the past, and may in the future, negatively impact our revenues, including a potential deterioration of our maintenance revenue base as customers look to reduce their costs, elongate our selling cycles, and delay, suspend or reduce the demand for our products. As a result, it is difficult in the current economic environment to predict exactly when specific software licenses will close within a six to nine month time frame. In addition, weak and uncertain economic conditions could impair our customers’ ability to pay for our products or services. Any of these factors could adversely impact our business, quarterly or annual operating results and financial condition.

There are many risks associated with international operations

International revenues represented 40% of our total revenues in the six months ended June 30, 2007 and during 2006. If our international operations grow, we may need to recruit and hire new consulting, sales and marketing and support personnel in the countries in which we have or will establish offices. Entry into new international markets typically requires the establishment of new marketing and distribution channels, as well as the development and subsequent support of localized versions of our software. International introductions of our products often require a significant investment in advance of anticipated future revenues. In addition, the opening of a new office typically results in initial recruiting and training expenses and reduced labor efficiencies associated with the introduction of products to a new market. If we are less successful in a new market than we expect, we may not be able to realize an adequate return on our initial investment and our operating results could suffer. We cannot guarantee that the

countries in which we operate will have a sufficient pool of qualified personnel from which to hire, that we will be successful at hiring, training or retaining such personnel or that we can expand or contract our international operations in a timely, cost effective manner. If we have to downsize certain international operations, the costs to do so are typically much higher than downsizing costs in the United States, particularly in Europe.

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

	•		Currency fluctuations;

	•		Higher operating costs due to local laws or regulations;

	•		Lower consulting margins due to higher labor costs;

	•		Unexpected changes in employment and other regulatory requirements;

	•		Tariffs and other trade barriers;

	•		Costs and risks of localizing products for foreign countries;

	•		Longer accounts receivable payment cycles in certain countries;

	•		Potentially negative tax consequences;

	•		Difficulties in staffing and managing geographically disparate operations;

	•		Greater difficulty in safeguarding intellectual property, licensing and other trade restrictions;

	•		Ability to negotiate and have enforced favorable contract provisions;

	•		Repatriation of earnings;

	•		The burdens of complying with a wide variety of foreign laws;

	•		Anti-American sentiment due to the war with Iraq, and other American policies that may be unpopular in certain regions;

	•		The effects of regional and global infectious diseases;

	•		Tsunamis, earthquakes and other acts of God;

	•		The challenges of finding qualified management for our international operations; and

	•		General economic conditions in international markets.

We expect that an increasing portion of our international software license, consulting services and maintenance services revenues will be denominated in foreign currencies, subjecting us to fluctuations in foreign currency exchange rates. If we expand our international operations, exposures to gains and losses on foreign currency transactions may increase. We use derivative financial instruments, primarily forward exchange contracts, to manage a majority of the foreign currency exchange exposure associated with net short-term foreign denominated assets and liabilities which exist as part of our ongoing business operations but we do not hedge ongoing or anticipated revenues, costs and expenses. We cannot guarantee that any currency exchange strategy would be successful in avoiding exchange-related losses.

Anti-takeover provisions in our organizational documents and stockholders’ rights plan and Delaware law could prevent or delay a change in control

Our certificate of incorporation, which authorizes the issuance of “blank check preferred” stock, our stockholders’ rights plan which permits our stockholders to counter takeover attempts, and Delaware state corporate laws which restrict business combinations between a corporation and 15% or more owners of outstanding voting stock of the corporation for a three-year period, individually or in combination, may discourage, delay or prevent a merger or acquisition that a JDA stockholder may consider favorable.

We sold 50,000 shares of a new designated series of preferred stock (the “Series B Convertible Preferred Stock”) to funds affiliated with Thoma Cressey Bravo Equity Partners in connection with our acquisition of Manugistics Group, Inc. on July 5, 2006. The Series B Convertible Preferred Stock contain certain voting rights that require us to get approval of a majority of the holders if we want to take certain actions, including a change in control. These voting rights could discourage, delay or prevent a merger or acquisition that another stockholder may consider favorable.

We may have difficulty attracting and retaining skilled personnel

Our success is heavily dependent upon our ability to attract, hire, train, retain and motivate skilled personnel, including sales and marketing representatives, qualified software engineers involved in ongoing product development, and consulting personnel who assist in the implementation of our products and provide other services. The market for such individuals is competitive. For example, it has been particularly difficult to attract and retain product development personnel experienced in object oriented development

technologies. Given the critical roles of our sales, product development and consulting staffs, our inability to recruit successfully or any significant loss of key personnel would adversely affect us. A high level of employee mobility and aggressive recruiting of skilled personnel characterizes the software industry. It may be particularly difficult to retain or compete for skilled personnel against larger, better known software companies. We cannot guarantee that we will be able to retain our current personnel, attract and retain other highly qualified technical and managerial personnel in the future, or be able to assimilate the employees from any acquired businesses. We will continue to adjust the size and composition of our workforce to match the different product and geographic demand cycles. If we are unable to attract and retain the necessary technical and managerial personnel, or assimilate the employees from any acquired businesses, our business, operating results and financial condition would be adversely affected.

We are dependent on key personnel

Our performance depends in large part on the continued performance of our executive officers and other key employees, particularly the performance and services of James D. Armstrong our Chairman and Hamish N. J. Brewer our Chief Executive Officer. We do not have in place “key person” life insurance policies on any of our employees. The loss of the services of Mr. Armstrong, Mr. Brewer, or other key executive officers or employees without a successor in place, or any difficulties associated with a successor, could negatively affect our financial performance.

We may have difficulty integrating acquisitions

We continually evaluate potential acquisitions of complementary businesses, products and technologies, including those that are significant in size and scope. In pursuit of our strategy to acquire complementary products, we have completed ten acquisitions over the past nine years, including Manugistics Group, Inc. in July 2006. The risks we commonly encounter in acquisitions include:

	•		We may have difficulty assimilating the operations and personnel of the acquired company;

	•		The challenge to integrate new products and technologies into our sales and marketing process, particularly in the case of smaller acquisitions;

	•		We may have difficulty effectively integrating the acquired technologies or products with our current products and technologies, particularly where such products reside on different technology platforms;

	•		Our ongoing business may be disrupted by transition and integration issues;

	•		We may not be able to retain key technical and managerial personnel from the acquired business;

	•		We may be unable to achieve the financial and strategic goals for the acquired and combined businesses;

	•		We may have difficulty in maintaining controls, procedures and policies during the transition and integration;

	•		Our relationships with partner companies or third-party providers of technology or products could be adversely affected;

	•		Our relationships with employees and customers could be impaired;

	•		Our due diligence process may fail to identify significant issues with product quality, product architecture, legal or tax contingencies, and product development, among other things;

	•		As successor we may be subject to certain liabilities of our acquisition targets; and

	•		We may be required to sustain significant exit or impairment charges if products acquired in business combinations are unsuccessful.

We have incurred significant indebtedness in order to finance the Manugistics acquisition, which will limit our operating flexibility

In order to finance the acquisition consideration and repay certain indebtedness of Manugistics, we incurred a significant amount of indebtedness. This significant indebtedness requires us to:

	•		Maintain a specific ratio of net debt to consolidated EBITDA;

	•		Dedicate a significant portion of our cash flow from operations to payments on this debt, thereby reducing the availability of cash flow to fund capital expenditures, to pursue other acquisitions or investments in new technologies and for general corporate purposes;

	•		Increase our vulnerability to general adverse economic conditions; and

	•		Limit our flexibility in planning for, or reacting to, changes in or challenges relating to its business and industry.

In addition, the terms of the financing obligations contain restrictions, including limitations on our ability to:

	•		Incur additional indebtedness;

	•		Create or incur liens;

	•		Dispose of assets;

	•		Consolidate or merge with or acquire another entity;

	•		Pay dividends, redeem shares of capital stock or effect stock repurchases; and

	•		Make loans and investments.

The requirements and limitations of the indebtedness increase our vulnerability to general adverse economic conditions, and limit our ability to respond to changes and challenges in our business. In addition, a failure to comply with these restrictions could result in a default under these financing obligations or could require us to obtain waivers from our lenders for failure to comply with these restrictions. The occurrence of a default that we are unable to cure or the inability to secure a necessary consent or waiver could have a material adverse effect on our business, financial condition or results of operations. We have repaid over $72 million of this debt since completing the acquisition of Manugistics.

Our convertible preferred stock may adversely impact JDA and our common stockholders or have a material adverse affect on JDA.

We have issued shares of Series B Preferred Stock in connection with the acquisition, the terms of which may have a material adverse effect on our financial condition and results of operations. With the filing of the Certificate of Correction on October 20, 2006, the Series B Preferred Stock has a liquidation preference in the amount of $50 million plus accrued and unpaid dividends, if any, which must be paid before common stockholders would receive funds in the event of liquidation, including some changes of control and a redemption right after September 6, 2013 to receive a redemption value of $50 million. In addition, we are required to redeem the shares of the Series B Preferred Stock in certain circumstances, including a change in control. We have also agreed not to issue securities senior to or on a par with the Series B Preferred Stock while the Series B Preferred Stock is outstanding, which could materially and adversely affect our ability to raise additional funds.

The Manugistics product development center in India poses significant risks

In 2005, Manugistics opened a product development facility in Hyderabad, India and moved a substantial portion of its product development to India. We have grown and plan to continue to grow our employee base in this facility. In addition, we maintain relationships with third parties in India to which we outsource a portion of our product development effort, as well as certain customer implementation and support services. We will likely continue to increase the proportion of our product development work being performed at our facility in India in order to increase product development resources and to take advantage of cost efficiencies associated with India’s lower wage scale. We may not achieve the cost savings and other benefits we anticipate from this program. We may not be able to find or retain sufficient numbers of developers with the necessary skill sets in India to meet our needs. Further, we have a heightened risk exposure to changes in the economic, security and political conditions of India as we invest greater resources in our India facility. Economic and political instability, terrorist activities, military actions and other unforeseen occurrences in India could impair our ability to develop and introduce new software applications and functionality in a timely manner, which could put our products at a competitive disadvantage whereby we lose existing customers and fail to attract new customers.

Government contracts are subject to unique costs, terms, regulations, claims and penalties.

Manugistics historically received a significant percentage of its revenue from time to time from contracts with the Federal Government. JDA has not historically received a significant percentage of its revenue from the Federal Government. As a result of the Manugistics acquisition, we acquired a number of contracts with the government. Government contracts entail many unique risks, including, but not limited to, the following: (i) early termination of contracts by the Government; (ii) costly and complex competitive bidding process; (iii) required extensive use of subcontractors, whose work may be deficient or not performed in a timely manner; (iv) significant penalties associated with employee misconduct in the highly regulated Government marketplace; (v) changes or delays in Government funding that could negatively impact contracts; and (vi) onerous contractual provisions unique to the Government such as “most favored customer” provisions.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds — Not applicable

Item 3. Defaults Upon Senior Securities – Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

Our 2007 Annual Meeting of Stockholders was held May 14, 2007 at our World Headquarters at 14400 North 87^th Street, Scottsdale, Arizona 85260. Three proposals were voted on at the Annual Meeting and the results of the voting are as follows:

EXHIBIT INDEX


Exhibit #		Description of Document
2.15555	—	Agreement and Plan of Merger by and between JDA Software Group, Inc., Stanley Acquisition Corp. and Manugistics Group, Inc. dated April 24, 2006.

2.2555	—	Voting Agreement by and among JDA Software Group, Inc., Manugistics Group, Inc. and other parties signatory thereto dated as of April 24, 2006.

3.1****	—	Third Restated Certificate of Incorporation of the Company together with Certificate of Amendment dated July 23, 2002.

3.2**	—	First Amended and Restated Bylaws of JDA Software Group, Inc.

3.35555	—	Certificate of Designation of rights, preferences, privileges and restrictions of Series B Convertible Preferred Stock of JDA Software Group, Inc filed with the Secretary of State of the State of Delaware on July 5, 2006.

3.4††††	—	Certificate of Correction filed to correct a certain error in the Certificate of Designation of rights, preferences, privileges and restrictions of Series B Convertible Preferred Stock of JDA Software Group, Inc. filed with the Secretary of State of the State of Delaware on July 5, 2006.

4.1*	—	Specimen Common Stock Certificate of JDA Software Group, Inc.

10.1*(1)	—	Form of Indemnification Agreement.

10.2¨¨ (1)	—	1996 Stock Option Plan, as amended on March 28, 2003.

10.3*(1)	—	1996 Outside Directors Stock Option Plan and forms of agreement thereunder.

10.4¨¨ (1)	—	Executive Employment Agreement between James D. Armstrong and JDA Software Group, Inc. dated July 23, 2002, together with Amendment No. 1 effective August 1, 2003.

10.5¨¨ (1)	—	Executive Employment Agreement between Hamish N. Brewer and JDA Software Group, Inc. dated January 22, 2003, together with Amendment No. 1 effective August 1, 2003.

10.6 ****(1)	—	Executive Employment Agreement between Kristen L. Magnuson and JDA Software Group, Inc. dated July 23, 2002.

10.7¨¨ (1)	—	1998 Nonstatutory Stock Option Plan, as amended on March 28, 2003.

10.95555	—	Credit Agreement dated as of July 5, 2006, among JDA Software Group, Inc., Manugistics Group, Inc., Citicorp North America, Inc., Citibank, N.A., Citigroup Global Markets Inc., UBS Securities LLC and Wells Fargo Foothill, LLC and the Lenders named therein.

10.9.1	—	Amendment No. 1 to Credit Agreement dated July 26, 2007, among JDA Software Group, Inc., Manugistics Group, Inc., Citicorp North America, Inc., Citibank, N.A., Citigroup Global Markets Inc., UBS Securities LLC and Wells Fargo Foothill, LLC and the Lenders named therein.

10.10¨¨ (2)	—	Value-Added Reseller License Agreement for Uniface Software between Compuware Corporation and JDA Software Group, Inc. dated April 1, 2000, together with Product Schedule No. One dated June 23, 2000, Product Schedule No. Two dated September 28, 2001, and Amendment to Product Schedule No. Two dated December 23, 2003.

10.11¨¨ (1)	—	JDA Software, Inc. 401(k) Profit Sharing Plan, adopted as amended effective January 1, 2004.

10.12**(1)	—	Form of Amendment of Stock Option Agreement between JDA Software Group, Inc and Kristen L. Magnuson, amending certain stock options granted to Ms. Magnuson pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan on September 11, 1997 and January 27, 1998.

10.13†(1)	—	Form of Rights Agreement between the Company and ChaseMellon Shareholder Services, as Rights Agent (including as Exhibit A the Form of Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as Exhibit B the Form of Right Certificate, and as Exhibit C the Summary of Terms and Rights Agreement).


Exhibit #		Description of Document
10.14††(1)	—	Form of Incentive Stock Option Agreement between JDA Software Group, Inc. and Kristen L. Magnuson to be used in connection with stock option grants to Ms. Magnuson pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.

10.15¨(1)(3)	—	Form of Incentive Stock Option Agreement between JDA Software Group, Inc. and certain Senior Executive Officers to be used in connection with stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.

10.16¨ (1)(3)	—	Form of Nonstatutory Stock Option Agreement between JDA Software Group, Inc. and certain Senior Executive Officers to be used in connection with stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.

10.17¨ (1)(4)	—	Form of Amendment of Stock Option Agreement between JDA Software Group, Inc and certain Senior Executive Officers, amending certain stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.

10.18¨ (1)(5)	—	Form of Incentive Stock Option Agreement between JDA Software Group, Inc. and certain Senior Executive Officers to be used in connection with stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.

10.19††† (1)	—	Executive Employment Agreement between Christopher Koziol and JDA Software Group, Inc. dated June 13, 2005.

10.205 (1)	—	Restricted Stock Units Agreement between Christopher Koziol and JDA Software Group, Inc. dated November 3, 2005.

10.215 (1)	—	Form of Restricted Stock Unit Agreement to be used in connection with restricted stock units granted pursuant to the JDA Software Group, Inc. 2005 Performance Incentive Plan.

10.2255 (1)	—	Standard Form of Restricted Stock Agreement to be used in connection with restricted stock granted pursuant to the JDA Software Group, Inc. 2005 Performance Incentive Plan.

10.2355 (1)	—	Form of Restricted Stock Agreement to be used in connection with restricted stock granted to Hamish N. Brewer pursuant to the JDA Software Group, Inc. 2005 Performance Incentive Plan.

10.2455 (1)	—	Form of Restricted Stock Agreement to be used in connection with restricted stock granted to Kristen L. Magnuson pursuant to the JDA Software Group, Inc. 2005 Performance Incentive Plan.

10.2555 (1)	—	Form of Restricted Stock Agreement to be used in connection with restricted stock granted to Christopher J. Koziol pursuant to the JDA Software Group, Inc. 2005 Performance Incentive Plan.

10.26555	—	Preferred Stock Purchase Agreement by and among JDA Software Group, Inc. and Funds Affiliated with Thoma Cressey Equity Partners Inc. dated as of April 23, 2006.

10.27555	—	Registration Rights Agreement Between JDA Software Group, Inc. and Funds Affiliated With Thoma Cressey Equity Partners Inc. dated as of April 23, 2006.

14.1¨¨	—	Code of Business Conduct and Ethics.

21.1¨¨¨	—	Subsidiaries of Registrant.

31.1	—	Rule 13a-14(a) Certification of Chief Executive Officer.

31.2	—	Rule 13a-14(a) Certification of Chief Financial Officer.

32.1	—	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-748), declared effective on March 14, 1996.

**		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998, as filed on August 14, 1998.

***		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005, as filed on May 10, 2005.


****		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, as filed on November 12, 2002.

†		Incorporated by reference to the Company’s Current Report on Form 8-K dated October 2, 1998, as filed on October 28, 1998.

††		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, as filed on November 13, 1998.

†††		Incorporated by reference to the Company’s Current Report on Form 8-K dated May 16, 2005, as filed on June 20, 2005.

††††		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, as filed on November 9, 2006.

¨		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, as filed on March 16, 2000.

¨¨		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed on March 12, 2004.

¨¨¨		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, as filed on March 16, 2007.

5		Incorporated by reference to the Company’s Current Report on Form 8-K dated October 28, 2005, as filed on November 3, 2005.

55		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, as filed on March 16, 2006.

555		Incorporated by reference to the Company’s Current Report on Form 8-K/A (Amendment No. 1) dated April 24, 2006, as filed on April 27, 2006.

5555		Incorporated by reference to the Company’s Current Report on Form 8-K dated July 5, 2006, as filed on July 7, 2006.

(1)		Management contracts or compensatory plans or arrangements covering executive officers or directors of the Company.

(2)		Confidential treatment has been granted as to part of this exhibit.

(3)		Applies to James D. Armstrong.

(4)		Applies to Hamish N. Brewer.

(5)		Applies to Senior Executive Officers with the exception of James D. Armstrong and Kristen L. Magnuson.


	Page No.
PART I: INTERIM FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006		3

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and June 30, 2006		4

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2007 and June 30, 2006		5

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and June 30, 2006		6

Notes to Condensed Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3. Quantitative and Qualitative Disclosures About Market Risk		38

Item 4. Controls and Procedures		40

PART II: OTHER INFORMATION

Item 1. Legal Proceedings		40

Item 1A. Risk Factors		40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		48

Item 3. Defaults Upon Senior Securities		48

Item 4. Submission of Matters to a Vote of Security Holders		48

Item 5. Other Information		49

Item 6. Exhibits		49

Signature		50
EX-10.9.1
EX-31.1
EX-31.2
EX-32.1


	Six Months
	Ended June 30,
	2007		2006
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes	$	1,850	$	849

Cash paid for interest	$	5,789	$	124

Cash received for income tax refunds	$	199	$	70


SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

Decrease in retained earnings from an accrual for uncertain tax position liabilities	$	1,006

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:

Decrease in goodwill recorded in the acquisition of Manugistics Group, Inc.	$	7,405


	JDA SOFTWARE GROUP, INC.
Dated: August 9, 2007	By:	/s/ Kristen L. Magnuson
	Kristen L. Magnuson
	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)


		JDA SOFTWARE GROUP, INC., as Borrower

		By:		/s/ Kristen L. Magnuson Name: Kristen L. Magnuson
				Title: CFO & EVP

		MANUGISTICS GROUP, INC., as Additional Borrower

		By:		/s/ Kristen L. Magnuson Name: Kristen L. Magnuson
				Title: EVP & CFO


		JDA SOFTWARE, INC.,

		By:		/s/ Kristen L. Magnuson Name:
				Title:

		JDA WORLDWIDE, INC.,

		By:		/s/ Kristen L. Magnuson Name:
				Title:

		STANLEY ACQUISITION CORP.,

		By:		/s/ Kristen L. Magnuson Name:
				Title:


		MANUGISTICS GROUP, INC.

		By:		/s/ Kristen L. Magnuson Name:
				Title:

		MANUGISTICS, INC.,

		By:		/s/ Kristen L. Magnuson Name:
				Title:

		MANUGISTICS HOLDINGS DELAWARE, INC.,

		By:		/s/ Kristen L. Magnuson Name:
				Title:

		MANUGISTICS HOLDINGS DELAWARE II, INC.,

		By:		/s/ Kristen L. Magnuson Name:
				Title:

		MANUGISTICS SERVICES, INC.,

		By:		/s/ Kristen L. Magnuson Name:
				Title:

1.		I have reviewed this quarterly report on Form 10-Q of JDA Software Group, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a.		All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.


Date: August 9, 2007	By:	/s/ Hamish N. J. Brewer

		Hamish N. J. Brewer
		President and Chief Executive Officer
		JDA Software Group, Inc.


Dated: August 9, 2007		/s/ Hamish N. J. Brewer Hamish N. J. Brewer President and Chief Executive Officer

		/s/ Kristen L. Magnuson Kristen L. Magnuson Executive Vice President and Chief Financial Officer