e10vq

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 September 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 (State or other jurisdiction of incorporation or organization)		86-0787377 (I.R.S. Employer 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 30,162,415 as of November 2, 2007.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts, unaudited)


	September 30,			December 31,
	2007			2006
ASSETS
Current Assets:
Cash	$	82,571		$	53,559
Accounts receivable, net		70,330			79,491
Deferred tax asset		8,872			16,736
Prepaid expenses and other current assets		16,848			17,011

Total current assets		178,621			166,797

Non-Current Assets:
Property and equipment, net		43,974			48,391
Goodwill		138,571			145,976
Other Intangibles, net:
Customer lists		147,887			158,519
Acquired software technology		30,939			35,814
Trademarks		3,432			4,691
Deferred tax asset		67,032			54,164
Other non-current assets		9,665			10,392

Total non-current assets		441,500			457,947


Total Assets	$	620,121		$	624,744


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	3,722		$	4,843
Accrued expenses and other liabilities		45,268			47,183
Income tax payable		8,780			3,725
Current portion of long-term debt		3,281			3,281
Deferred revenue		71,735			66,662

Total current liabilities		132,786			125,694


Non-Current Liabilities:
Long-term debt		98,250			137,813
Accrued exit and disposal obligations		12,758			20,885
Liability for uncertain tax positions		3,540			—

Total non-current liabilities		114,548			158,698


Total Liabilities		247,334			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 31,198,353 and 30,569,447 shares, respectively		312			305
Additional paid-in capital		292,709			275,705
Deferred compensation		(5,598	)		(904	)
Retained earnings		45,169			27,628
Accumulated other comprehensive income		3,754			1,018

		336,346			303,752
Less treasury stock, at cost, 1,186,498 and 1,176,858 shares, respectively		(13,559	)		(13,400	)

Total stockholders’ equity		322,787			290,352

Total liabilities and stockholders’ equity	$	620,121		$	624,744

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except earnings per share data)

(unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Revenues:
Software licenses	$	15,505		$	13,741		$	51,159		$	31,237
Maintenance services		43,753			42,923			131,192			86,249

Product revenues		59,258			56,664			182,351			117,486


Consulting services		31,499			29,872			84,706			65,145
Reimbursed expenses		2,888			2,667			8,055			6,187

Service revenues		34,387			32,539			92,761			71,332


Total revenues		93,645			89,203			275,112			188,818


Cost of Revenues:
Cost of software licenses		642			591			1,831			1,353
Amortization of acquired software technology		1,502			1,882			4,875			4,285
Cost of maintenance services		11,239			9,101			33,988			22,029

Cost of product revenues		13,383			11,574			40,694			27,667


Cost of consulting services		21,016			22,496			62,616			47,265
Reimbursed expenses		2,888			2,667			8,055			6,187

Cost of service revenues		23,904			25,163			70,671			53,452


Total cost of revenues		37,287			36,737			111,365			81,119

Gross Profit		56,358			52,466			163,747			107,699

Operating Expenses:
Product development		11,934			16,818			37,717			38,821
Sales and marketing		14,925			13,559			44,836			31,067
General and administrative		10,365			10,592			31,499			23,904
Amortization of intangibles		3,963			3,540			11,889			5,324
Restructuring charges		—			3,461			6,276			3,982
Gain on sale of office facility		—			—			(4,128	)		—

Total operating expenses		41,187			47,970			128,089			103,098


Operating Income		15,171			4,496			35,658			4,601

Interest expense and amortization of loan fees		(2,757	)		(4,067	)		(9,382	)		(4,147	)
Interest income and other, net		956			831			2,420			3,135
Change in fair value of Series B Preferred Stock conversion feature		—			(1,069	)		—			(1,069	)

Income Before Income Taxes		13,370			191			28,696			2,520
Income tax provision		5,062			339			10,149			1,106

Net Income (Loss)		8,308			(148	)		18,547			1,414
Adjustment to increase the carrying amount of the Series B Preferred Stock to its redemption value		—			(10,896	)		—			(10,896	)

Income (Loss) Applicable To Common Shareholders	$	8,308		$	(11,044	)	$	18,547		$	(9,482	)


Basic Earnings (loss) Per Share Applicable to Common Shareholders	$	.25		$	(.38	)	$	.56		$	(.33	)

Diluted Earnings (loss) Per Share Applicable to Common Shareholders	$	.24		$	(.38	)	$	.55		$	(.33	)

Shares Used To Compute:
Basic earnings (loss) per share applicable to common shareholders		33,525			29,241			33,275			29,173

Diluted earnings (loss) per share applicable to common shareholders		34,374			29,241			33,966			29,173

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)


	Nine Months
	Ended September 30,
	2007			2006
				(As Restated
				- See Note 2)
OPERATING ACTIVITIES:
Net income	$	18,547		$	1,414
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23,769			15,679
Provision for doubtful accounts		1,590			—
Amortization of loan origination fees		1,644			548
Tax benefit – employee stock benefit plans		(863	)		(254	)
Share-based compensation expense		4,172			530
Net gain on sale of office facility		(4,128	)		—
Net gain on disposal of property and equipment		(18	)		(73	)
Change in the fair value of the Series B Preferred Stock conversion feature		—			1,069
Deferred income taxes		309			(362	)
Changes in assets and liabilities, net of effects from business acquisition:
Accounts receivable		10,613			(901	)
Prepaid expenses and other current assets		(1,423	)		(2,513	)
Accounts payable		(1,456	)		(5,733	)
Accrued expenses and other liabilities		(2,162	)		260
Income tax payable		6,835			431
Deferred revenue		6,240			2,380

Net cash provided by operating activities		63,669			12,475


INVESTING ACTIVITIES:
Purchase of marketable securities		—			(26,075	)
Sales of marketable securities		—			46,645
Maturities of marketable securities		—			19,864
Acquisition of Manugistics Group, Inc., net of cash acquired		—			(72,886	)
Payment of direct and restructuring costs related to acquisitions		(6,333	)		(3,652	)
Payments received on promissory note receivable		—			1,213
Purchase of other property and equipment		(5,139	)		(4,058	)
Proceeds from disposal of property and equipment		6,849			107

Net cash used in investing activities		(4,623	)		(38,842	)


FINANCING ACTIVITIES:
Issuance of Series B Convertible Preferred Stock		—			50,000
Issuance of common stock – equity plans		7,282			2,200
Excess tax benefits from stock-based compensation		863			254
Purchase of treasury stock		(159	)		(165	)
Borrowings under term loan agreement		—			175,000
Loan origination fees		—			(6,576	)
Principal payments on term loan agreement and debt issuance costs		(39,563	)		(35,000	)
Repayment of 5% convertible subordinated notes		—			(173,954	)
Repayment of capital lease obligations		—			(546	)

Net cash (used in) provided by financing activities		(31,577	)		11,213


Effect of exchange rates on cash		1,543			984

Net increase (decrease) in cash and cash equivalents		29,012			(14,170	)

CASH, BEGINNING OF PERIOD		53,559			71,035

CASH, END OF PERIOD	$	82,571		$	56,865

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


	Nine Months
	Ended September 30,
	2007		2006
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes	$	4,234	$	2,276

Cash paid for interest	$	7,438	$	698

Cash received for income tax refunds	$	1,297	$	102


SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

Decrease in retained earnings from an accrual for uncertain tax positions	$	1,006	$	—

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:

Reduction of goodwill recorded in the acquisition of Manugistics Group, Inc.	$	7,405	$	—
Reduction of goodwill recorded in the acquisition of E3 Corporation	$	—	$	96

ACQUISITION OF MANUGISTICS GROUP, INC.:

Fair value of current assets acquired			$	(203,846	)
Fair value of fixed assets acquired				(5,861	)
Goodwill				(78,135	)
Customer lists				(142,800	)
Software technology				(26,300	)
Trademarks				(3,000	)
Net deferred tax assets acquired				(41,659	)
Fair value of other non-current assets acquired				(4,747	)

Total assets acquired				(506,348	)
Fair value of deferred revenue assumed				41,108
Fair value of other current liabilities assumed				28,374
Fair value of convertible debt and capital lease obligations assumed				176,046
Fair value of other non-current liabilities assumed				6,538

Total estimated cost of Manugistics Group, Inc				(254,282	)
Reserves for restructuring charges related to the acquisition				31,004
Cash acquired				150,392

Total cash expended to acquire Manugistics Group, Inc			$	(72,886	)

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except percentages, shares, per share amounts, or as otherwise stated)

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of JDA Software Group, Inc. (“we” or the “Company”) have been prepared in accordance with 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 nine months ended September 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 consolidated financial statements for the three and nine months ended September 30, 2006 in order to conform to the current presentation. In the consolidated statement of income, we have split the caption “Net investment income (interest expense)” into two separate captions, “Interest expense and amortization of loan fees” and “Interest income and other, net.” In addition, we have updated the supplemental disclosures in the consolidated statement of cash flows to reflect the final purchase price allocation on the acquisition of Manugistics Group, Inc.

2. Restatement of Cash Flow Statement

Subsequent to the issuance of the condensed consolidated financial statements for the quarterly period ended September 30, 2006, the Company determined that certain information presented in the condensed consolidated statement of cash flows for the nine months ended September 30, 2006 contained errors in classification. Restatement adjustments have been made to correct these errors in classification. The restatement adjustments include (i) the presentation of payments totaling $3.2 million for direct costs associated with the acquisition of Manugistics Group, Inc. (“Manugistics”) from a change in accrued expenses and other liabilities in net cash provided by operating activities to an investing activity under the caption “Payment of direct and restructuring costs related to acquisitions” and (ii) the presentation of $254,000 of excess tax benefits from employee stock plans as a financing activity under the caption “Excess tax benefits from stock-based compensation.” The correction of these errors in classification did not affect the carrying amount of assets and liabilities, net income or earnings per share reported for the nine months ended September 30, 2006. These items were properly presented in the consolidated statement of cash flows for the year ended December 31, 2006. The following summarizes the corrections made to the condensed consolidated statement of cash flows for the nine months ended September 30, 2006:


	As Previously			Restatement
	Reported			Adjustments			As Restated
OPERATING ACTIVITIES:
Tax benefit – employee stock benefit plans	$	254		$	(508	)	$	(254	)
Accrued expenses and other liabilities		(2,970	)		3,230			260
Income tax payable		142			289			431
Net cash provided by operating activities		9,464			3,011			12,475
INVESTING ACTIVITIES:
Payment of direct and restructuring costs related to acquisitions		(422	)		(3,230	)		(3,652	)
Net cash used in investing activities		(35,612	)		(3,230	)		(38,842	)
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation		35			219			254
Net cash provided by financing activities		10,994			219			11,213

3. 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, as amended (“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.

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 $94.9 million at September 30, 2007 and represented approximately 95% 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 nine months ended September 30, 2007 the hedge was highly effective and a net unrealized loss of $600,000 was recorded in “Accumulated other comprehensive income.”

4. 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.

5. Goodwill and Other Intangibles, net

Goodwill and other intangible assets consist of the following:


			September 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		(35,496	)		183,383		(24,864	)

Acquired software technology		5 to 15 years		65,847		(34,908	)		65,847		(30,033	)
Trademarks		3 to 5 years		5,191		(1,759	)		5,191		(500	)

				254,421		(72,163	)		254,421		(55,397	)

			$	392,992	$	(72,163	)	$	400,397	$	(55,397	)

We recorded a $7.4 million reduction in goodwill in the nine months ended September 30, 2007 as a result of certain adjustments made to the preliminary estimated fair values of the assets and liabilities assumed in the acquisition of Manugistics. The

purpose of these adjustments was primarily to finalize the fair value of the account receivable balances, to increase the long-term deferred tax assets, to adjust the reserves for the estimated costs to exit certain activities of Manugistics (see Note 6), to record a $2.9 million accrual for uncertain tax position liabilities (see Note 12) and to reduce the deferred revenue balances. The final purchase price allocation for the Manugistics acquisition is complete and 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 nine months ended September 30, 2007. The next annual impairment test will be performed in fourth quarter 2007.

As of September 30, 2007, the 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 nine months ended September 30, 2007 was $5.5 million and $16.8 million, respectively. Amortization expense for the three and nine months ended September 30, 2006 was $5.4 million and $9.6 million, respectively. The increase in the nine months ended September 30, 2007 results from the amortization of intangible assets recorded in the acquisition of Manugistics. Amortization expense is reported in the consolidated statements of income within cost of revenues under the caption “Amortization of acquired software technology” and operating expenses under the caption “Amortization of intangibles.” As of September 30, 2007, we expect amortization expense for the remainder of 2007 and the next four years to be as follows:


2007	$	5,528
2008	$	21,175
2009	$	19,140
2010	$	17,847
2011	$	17,511

6. 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. We decreased the acquisition reserves by $3.2 million in the nine months ended September 30, 2007 based on our revised estimates of the restructuring costs to exit certain of the activities of Manugistics. All of these adjustments were made by June 30, 2007 and were included in the final purchase price allocation. The unused portion of the acquisition reserves was $19.6 million at September 30, 2007, of which $6.8 million is included in current liabilities under the caption “Accrued expenses and other current liabilities” and $12.8 million is included in non-current liabilities under the caption “Accrued exit and disposal obligations.”

A summary of the charges and adjustments recorded against the reserves is as follows:


						Impact of										Impact of
						Changes in		Balance								Changes in			Balance
	Initial		Cash			Exchange		December 31,		Adjustments			Cash			Exchange			September 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	)	$	(4,734	)	$	(192	)	$	17,980
Employee severance and termination benefits		3,607		(1,535	)		—		2,072		(190	)		(714	)		65			1,233
IT projects, contract termination penalties, capital lease buyouts and other costs to exit activities of Manugistics		1,450		(695	)		—		755		294			(779	)		—			270

		34,269		(5,562	)		395		29,102		(3,265	)		(6,227	)		(127	)		19,483
Direct costs under SFAS No. 141:
Legal and accounting costs		3,367		(3,237	)		—		130		90			(96	)		—			124
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			(106	)		—			124

Total	$	47,394	$	(18,501	)	$	395	$	29,288	$	(3,221	)	$	(6,333	)	$	(127	)	$	19,607

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 nine months ended September 30, 2007 due primarily to our revised estimate and 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 nine months ended September 30, 2007 due to our revised estimate of settlement costs on certain foreign employees. As of September 30, 2007, the remaining balance in the reserve is related to certain foreign employees.

7. 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 included $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 September 30, 2007, all costs associated with the 2007 restructuring charges have been paid with the exception of a $317,000 reserve for termination benefits, primarily for foreign employees, and a $60,000 reserve 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 by December 31, 2007.

A summary of the 2007 restructuring and office closure charges is as follows:


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

Termination benefits	$	3,766	$	2,142	$	(5,598	)	$	7	$	317
Office closures		145		147		(232	)		—		60

Total	$	3,911	$	2,289	$	(5,830	)	$	7	$	377

2006 Restructuring Charges

We recorded restructuring charges of $6.2 million in 2006, including $3.5 million in third 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 $83,000 in first half 2007 based on our revised estimates to complete the restructuring activities. As of September 30, 2007, all costs associated with the 2006 restructuring charges have been paid with the exception of a $220,000 reserve for termination benefits, primarily for foreign employees, and $20,000 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 by December 31, 2007.

A summary of the 2006 restructuring and office closure charges is as follows:


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

Termination benefits	$	4,807	$	(4,182	)	$	80	$	705	$	239		$	(728	)	$	4	$	220
Office closures		1,418		(626	)		26		818		(156	)		(653	)		11		20

Total	$	6,225	$	(4,808	)	$	106	$	1,523	$	83		$	(1,381	)	$	15	$	240

8. Long-term Debt

During the nine months ended September 30, 2007 we utilized $39.6 million of our excess cash balances to repay a portion of our long-term debt including the scheduled quarterly installments due in March, June and September 2007. As of September 30, 2007 and December 31, 2006 long-term debt consists of the following:


	September 30,			December 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	$	100,000		$	139,563
Convertible Subordinated Notes assumed in the Manugistics acquisition, bearing interest at 5% per annum, maturing in November 2007		1,531			1,531

		101,531			141,094
Less current portion		(3,281	)		(3,281	)

	$	98,250		$	137,813

We have entered into an interest rate swap agreement to fix LIBOR at 5.365% (see Note 3). As of September 30, 2007, scheduled principal maturities on outstanding debt over the next five years and thereafter are as follows:


Year	Scheduled Maturities
2007	$	1,968
2008	$	1,750
2009	$	1,750
2010	$	1,750
2011	$	1,750
Thereafter	$	92,563

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. There were no open market cash purchases of our common stock during third quarter 2007.

9. 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.

10. 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 nine months ended September 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 September 30, 2007 and 2006 exclude approximately 736,000 and 1.2 million, respectively of vested options for the purchase of common stock that have grant prices in excess of the average market price and as a result would be anti-dilutive. Diluted earnings per share for the nine months ended September 30, 2007 and 2006 exclude approximately 976,000 and 1.7 million, respectively of vested options for the purchase of common stock that have grant prices in excess of the average market price and as a result would be anti-dilutive. In addition, diluted earnings per share for three and nine months ended September 30, 2007 exclude 508,999 contingently issuable restricted stock units for which all necessary conditions have not been met (see Note 11). Earnings per share for the three and nine months ended September 30, 2007 and 2006 is calculated as follows:


	Three Months					Nine Months
	Ended September 30,					Ended September 30,
	2007		2006			2007		2006
Net income (loss)	$	8,308	$	(148	)	$	18,547	$	1,414
Less dividends paid		—		—			—		—
Adjustment to increase the carrying amount of the Series B Preferred Stock to its redemption value		—		(10,896	)		—		(10,896	)

Income (loss) applicable to common shareholders	$	8,308	$	(11,044	)	$	18,547	$	(9,482	)

Undistributed earnings (loss):
Common Stock		7,415		(11,044	)		16,541		(9,482	)
Series B Preferred Stock		893		—			2,006		—

Total undistributed earnings (loss)	$	8,308	$	(11,044	)	$	18,547	$	(9,482	)


Weighted Average Shares:
Common Stock		29,921		29,241			29,671		29,173
Series B Preferred Stock		3,604		—			3,604		—

Shares – Basic earnings (loss) per share		33,525		29,241			33,275		29,173
Dilutive common stock equivalents		849		—			691		—

Shares – Diluted earnings (loss) per share		34,374		29,241			33,966		29,173


Basic earnings (loss) per share applicable to common shareholders:
Common Stock	$	.25	$	(.38	)	$	.56	$	(.33	)

Series B Preferred Stock	$	.25	$	—		$	.56	$	—

Diluted earnings (loss) per share applicable to common Shareholders	$	.24	$	(.38	)	$	.55	$	(.33	)

11. Stock-Based Compensation

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. 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 the day after our Audit Committee approves the Company’s 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 subsequently approved additional awards for executive officers and new participants in the Integration Plan. The restricted stock units, if any, under these awards will also be issued the day after our Audit Committee approves the Company’s 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 has been evaluated on a quarterly basis throughout 2007 and stock-based compensation recognized on a graded vesting basis over the requisite service periods that run from the date of the various board approvals through January 2010. Through September 30, 2007, a total of 508,999 contingently issuable restricted stock units, net of forfeitures, have been awarded under the Integration Plan. A deferred compensation charge of approximately $8.1 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 September 30, 2007, based on our results for the nine months ended September 30, 2007 and the outlook for the remainder of 2007, management has determined that it is probable that the performance condition will ultimately be met. As a result, we have recorded $3.5 million in stock-based compensation expense related to these awards in the nine months ended September 30, 2007, including $1.8 million during third 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 $5.4 million of total stock-based compensation on these awards in 2007.

During the nine months ended September 30, 2007 and 2006, we recorded stock-based compensation expense of $666,000 and $530,000, respectively related to other 2005 Incentive Plan awards.

12. Income Taxes

We calculate our tax provision 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. Because the Company is subject to income taxes in numerous jurisdictions and the timing of software and consulting income by jurisdiction can vary significantly, we are unable to reliably estimate an overall annual effective tax rate. In accordance with Financial Accounting Standards Board Interpretation No. 18, “Accounting for Income Taxes in Interim Periods - an interpretation of APB Opinion No. 28,” we calculate our tax provision 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 for the three and nine months ended September 30, 2007 and 2006 is as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Income before income tax provision	$	13,370		$	191		$	28,696		$	2,520
Effective tax rate		37.9	%		164.9	%		35.6	%		45.2	%

Income tax provision at effective tax rate		5,062			315			10,212			1,139

Discrete tax item benefits:
Changes in estimate		—			24			(63	)		(33	)

Total discrete tax item benefits		—			24			(63	)		(33	)


Income tax provision	$	5,062		$	339		$	10,149		$	1,106

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 effective tax rate used to record the income tax provision in the three and nine months ended September 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 third quarter 2007 and 2006 of $505,000 and $166,000, respectively, and during the nine months ended September 30, 2007 and 2006 of $863,000 and $254,000, 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 three and nine months ended September 30, 2007 is higher than the federal statutory rate of 35% due to nondeductible items and state income taxes. The effective tax rate in the three and nine months ended September 30, 2006 is higher than the federal statutory rate of 35% due primarily to the non-deductibility of the expense for the change in fair value of the conversion feature of the Series B Preferred Stock.

We adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“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. We do not believe there are uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

The FIN 48 adjustments on January 1, 2007 include an accrual of approximately $403,000 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. We have accrued additional interest and penalties related to uncertain tax positions of $115,000 and $445,000 in the three and nine months ended September 30, 2007, respectively which are included 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. The Internal Revenue Service has completed their examination of the 2003 and 2004 tax years without any material adjustments. We are currently under audit by the Internal Revenue Service for the 2006 tax year. We do not expect the examination phase of this audit to be completed in 2007 nor do we anticipate any material adjustments. We are also under examination in Germany and Canada. We do not anticipate material adjustments 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 has completed their review of our first and second quarter 2007 tax provisions. No material adjustments have been made as a result of these reviews.

We realized a cash tax benefit of approximately $3.2 million in our 2006 federal income tax return resulting from the utilization of net operating loss carryovers acquired from Manugistics which were recorded as a reduction of goodwill.

13. 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 the retail and service industries. With the acquisition of Manugistics, our customers now include approximately 5,600 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				Nine Months
	Ended September 30,				Ended September 30,
	2007		2006		2007		2006
Revenues:
Americas	$	63,817	$	60,336	$	184,233	$	129,127
Europe		21,250		18,851		64,665		39,248
Asia/Pacific		8,578		10,016		26,214		20,443

Total revenues	$	93,645	$	89,203	$	275,112	$	188,818


	September 30,		December 31,
	2007		2006
Identifiable assets:
Americas	$	466,838	$	466,086
Europe		110,491		117,863
Asia/Pacific		42,792		40,795

Total identifiable assets	$	620,121	$	624,744

Revenues in the Americas for the three months ended September 30, 2007 and 2006 include $57.9 million and $54.9 million from the United States, respectively and $166.5 million and $113.3 million in the nine months ended September 30, 2007 and 2006, respectively. Identifiable assets for the Americas include $442.5 million and $443.1 million in the United States as of September 30, 2007 and December 31, 2006, respectively.

We organize and manage our operations by type of customer. In third quarter 2006, we began reporting 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.

	•		*Manufacturing and Distribution*. This reportable business segment includes all revenues related to applications sold to manufacturing and distribution companies, including consumer goods manufacturers, life sciences companies, high tech organizations, oil and gas companies, automotive producers and other discrete manufacturers involved with government, aerospace and defense contracts.

	•		*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. 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 the three and nine months ended September 30, 2007 and 2006 is as follows:


	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2007			2006			2007			2006
Revenues:
Retail	$	48,845		$	48,127		$	145,094		$	127,710
Manufacturing and Distribution		40,325			38,381			118,148			58,413
Services Industries		4,475			2,695			11,870			2,695

	$	93,645		$	89,203		$	275,112		$	188,818


Operating income (loss):
Retail	$	13,746		$	11,183		$	35,509		$	21,130
Manufacturing and Distribution		15,361			11,725			45,796			17,500
Services Industries		392			(819	)		(111	)		(819	)
Other (see below)		(14,328	)		(17,593	)		(45,536	)		(33,210	)

	$	15,171		$	4,496		$	35,658		$	4,601


Depreciation:
Retail	$	1,070		$	1,082		$	3,204		$	3,708
Manufacturing and Distribution		883			863			2,608			1,527
Services Industries		98			61			262			61

	$	2,051		$	2,006		$	6,074		$	5,296


Other:
General and administrative expenses	$	10,365		$	10,592		$	31,499		$	23,904
Amortization of intangible assets		3,963			3,540			11,889			5,324
Restructuring charge		—			3,461			6,276			3,982
Gain on sale of office facility		—			—			(4,128	)		—

	$	14,328		$	17,593		$	45,536		$	33,210

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 Fourth Quarter and Year Ending December 31, 2007. Our software sales performance continues to improve and we have a strong sales pipeline as we enter fourth quarter 2007, in particular the pipeline of opportunities involving the applications acquired from Manugistics. Based on our operating results through the nine months ended September 30, 2007, management believes the Company is trending towards the high end of the previously announced annual guidance for total revenues and GAAP earnings per share. The following summarizes our current guidance for 2007 together with a comparison to the corresponding results achieved through the nine months ended September 30, 2007 and the percentage relationship of these results to the mid-point of the established annual guidance ranges.


	Current Guidance for 2007				Results for Nine Months		% Achievement of
	Low End		High End		Ended September 30, 2007		Mid-Point
Software revenues	$65million		$75million		$51.2 million			73	%
Total revenues	$353million		$371million		$275.1 million			76	%
GAAP earnings per share	$	0.56	$	0.72	$	0.55		86	%

We do not currently anticipate any significant adjustments to our overall cost structure in fourth quarter 2007 and other than lower funded development contributions to product development and potential fluctuations in bad debt expense, foreign exchange gains or losses and variable compensation expense, we believe our overall cost structure will remain consistent in fourth quarter 2007 when compared to third quarter 2007.

Summary of Nine Month Results and Developments in Our Business. We completed the final purchase price allocation on the acquisition of Manugistics Group, Inc. (“Manugistics”) in second quarter 2007 and have now owned Manugistics for a full year. We continue to believe that the combination of the two companies has created a unique competitive position for JDA and has enhanced our profile in the marketplace 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. For example, during third quarter 2007 we successfully completed an implementation at a large Tier 1 retailer (i.e., a retailer with revenues > $5 billion) in which we demonstrated that the Manugistics applications were scalable in a large retail environment and can process higher volumes than had previously been achieved in the history of the Company.

The Manugistics acquisition continues to significantly impact the comparability of our operating results for the nine months ended September 30, 2007. The operating results for the three months ended September 30, 2007 and 2006, and for the nine months ended September 30, 2007 include the impact of Manugistics for the entire period. The operating results for the nine months ended September 30, 2006 only include the impact of Manugistics from date of acquisition, (i.e., July 5, 2006) through September 30, 2006. The following tables summarize the changes in the various components of revenue with and without Manugistics.

Combined JDA and Manugistics:


	Three Months Ended September 30,									Nine Months Ended September 30,
	2007		2006		$Change		%Change			2007		2006		$Change		%Change
Revenues:
Software licenses	$	15,505	$	13,741	$	1,764		13	%	$	51,159	$	31,237	$	19,922		64	%
Maintenance services		43,753		42,923		830		2	%		131,192		86,249		44,943		52	%

Product revenues		59,258		56,664		2,594		5	%		182,351		117,486		64,865		55	%
Service revenues		34,387		32,539		1,848		6	%		92,761		71,332		21,429		30	%

Total revenues	$	93,645	$	89,203	$	4,442		5	%	$	275,112	$	188,818	$	86,294		46	%

JDA Only:


	Three Months Ended September 30,										Nine Months Ended September 30,
	2007		2006		$Change			%Change			2007		2006		$Change			%Change
Revenues:
Software licenses	$	10,347	$	10,556	$	(209	)		(2	%)	$	34,942	$	28,052	$	6,890			25	%
Maintenance services		23,267		21,954		1,313			6	%		69,345		65,280		4,065			6	%

Product revenues		33,614		32,510		1,104			3	%		104,287		93,332		10,955			12	%
Service revenues		16,675		20,013		(3,338	)		(17	%)		50,905		58,806		(7,901	)		(13	%)

Total revenues	$	50,289	$	52,523	$	(2,234	)		(4	%)	$	155,192	$	152,138	$	3,054			2	%

Manugistics Only:


	Three Months Ended September 30,										Nine Months Ended September 30,
	2007		2006		$Change			%Change			2007		2006		$Change		%Change
Revenues:
Software licenses	$	5,158	$	3,185	$	1,973			62	%	$	16,217	$	3,185	$	13,032		409	%
Maintenance services		20,486		20,969		(483	)		(2	%)		61,847		20,969		40,878		195	%

Product revenues		25,644		24,154		1,490			6	%		78,064		24,154		53,910		223	%
Service revenues		17,712		12,526		5,186			41	%		41,856		12,526		29,330		234	%

Total revenues	$	43,356	$	36,680	$	6,676			18	%	$	119,920	$	36,680	$	83,240		227	%

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


	Three Months Ended September 30,										Nine Months Ended September 30,
	2007		2006		$Change			% Change			2007		2006		$Change		% Change
Region
Americas (JDA)	$	6,384	$	6,308	$	76			1	%	$	20,346	$	16,740	$	3,606		22	%
Americas (Manugistics)		3,401		1,501		1,900			127	%		9,889		1,501		8,388		559	%

Total Americas	$	9,785	$	7,809	$	1,976			25	%	$	30,235	$	18,241	$	11,994		66	%


Europe (JDA)	$	2,381	$	2,525	$	(144	)		(6	%)	$	10,580	$	7,365	$	3,215		44	%
Europe (Manugistics)		1,595		1,125		470			42	%		3,852		1,125		2,727		242	%

Total Europe	$	3,976	$	3,650	$	326			9	%	$	14,432	$	8,490	$	5,942		70	%


Asia/Pacific (JDA)	$	1,582	$	1,723	$	(141	)		(8	%)	$	4,016	$	3,947	$	69		2	%
Asia/Pacific (Manugistics)		162		559		(397	)		(71	%)		2,476		559		1,917		343	%

Total Asia/Pacific	$	1,744	$	2,282	$	(538	)		(24	%)	$	6,492	$	4,506	$	1,986		44	%


Total JDA	$	10,347	$	10,556	$	(209	)		(2	%)	$	34,942	$	28,052	$	6,890		25	%
Total Manugistics		5,158		3,185		1,973			62	%		16,217		3,185		13,032		409	%

Total	$	15,505	$	13,741	$	1,764			13	%	$	51,159	$	31,237	$	19,922		64	%

Software license sales and total revenues increased 64% and 46%, respectively in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Before considering the impact of Manugistics, software license sales in our core JDA products in the nine months ended September 30, 2007 increased 22%, 44% and 2% in the Americas, European and Asia/Pacific regions, respectively compared to the nine months ended September 30, 2006. We are optimistic about the future performance of our core JDA products at this time and we believe the market is expressing a renewed interest in the Manugistics business. We also believe software license sales performance should be viewed on a combined basis when assessing the overall demand within our customer base, and viewed over a longer period of time in order to mitigate the significant variability that often occurs from quarter-to-quarter due to overlapping functionality of certain products, the size and timing of individual contracts and our ability to recognize revenue with respect to contracts signed in a given quarter.

We believe our competitive position remains strong and we continue to maintain consistent competitive win rates in both the Tier 1 and Tier 2 (i.e., a company with revenues of $100 million to $5 billion) markets. Our competitive win rate was particularly strong in the nine months ended September 30, 2007 as we derived 36% of our software sales from new customers compared to 19% in the nine months ended September 30, 2006. In addition, we continue to have strong back selling opportunities with the JDA and Manugistics install-base customers where sales increased 30% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Although we did not sign any larger software licenses (³ $1.0 million) in third quarter 2007, we have signed five larger software licenses in the nine months ended September 30, 2007, compared to four in the nine months ended September 30, 2006, and the sales pipeline as we enter fourth quarter 2007 includes multiple opportunities involving larger software licenses. We believe the market views us differently since the Manugistics acquisition and recognizes that the combined company is 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 during the nine months ended September 30, 2007, 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. These changes significantly increased our business development efforts and improved the sales force execution and sales performance in the region. We have a solid pipeline of sales opportunities in the Americas that includes both mid-size and larger software deals. The Americas is our largest region and, as a result, we believe the software sales performance from both core JDA and Manugistics applications in the region will continue to be a key driver of our overall success.

Software sales performance in the European region during the nine months ended September 30, 2007 continues to show steady improvement since we reorganized the region in 2005. 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. We continue to experience large fluctuations in quarterly software sales performance in the Asia/Pacific region. We believe this is due primarily to organizational issues and high turnover in the regional sales force. We will 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 improve the predictability of software license deals in the region, although the timeframe for the implementation of these processes remains uncertain. We also believe China and India are markets that will continue to provide meaningful opportunities for software companies in the near future.

Maintenance services revenues increased 2% sequentially to $43.8 million in third quarter 2007 compared to $43.0 million in second quarter 2007 and increased 2% compared to $42.9 million in third quarter 2006. Favorable foreign exchange rate variances provided a $339,000 benefit to maintenance services revenues in third quarter 2007 compared to $330,000 benefit in second quarter 2007 and a $1.1 million benefit compared to third quarter 2006. Our average annualized attrition rate is 5.7% through the nine months ended September 30, 2007. The impact of this attrition in the nine months ended September 30, 2007 was substantially offset by the addition of $2.3 million in new maintenance streams from first half 2007 software sales, rate increases on annual renewals and reinstatements of previously cancelled maintenance agreements.

Maintenance services margins were 74% in third quarter 2007 compared to 73% in second quarter 2007 and 79% in third quarter 2006. Maintenance service margins decreased in third quarter 2007 compared to third quarter 2006 primarily as a result of a 15% increase in average headcount to support the increased installed base and a $581,000 increase in incentive compensation due to improved operating performance of the Company overall, offset in part by the favorable foreign exchange rate variance. Maintenance services margins improved sequentially in third quarter 2007 compared to second quarter 2007 primarily due to a $268,000 or 14% decrease in third party royalty and agent fees. Maintenance services costs in second quarter 2007 included $144,000 in one-time charges related to certain royalty obligations. As of September 30, 2007, we had 262 employees in our customer support function compared to 267 at June 30, 2007 and 243 at September 30, 2006. We do not currently anticipate any significant changes in customer support headcount in fourth quarter 2007.

Service revenues, which include consulting services, hosting services, training revenues, net revenues from our hardware reseller business and reimbursed expenses, increased $5.2 million or 18% sequentially to $34.4 million in third quarter 2007 compared to second quarter 2007 and $1.8 million or 6% compared to third quarter 2006. The increase in service revenues in third quarter 2007 compared to second quarter 2007 and third quarter 2006 is due primarily to the release of approximately $3.4 million in previously deferred consulting revenue and customer liabilities upon completion and final acceptance of a fixed bid project inherited from Manugistics. This project contained a refund right that extended through final acceptance and as a result, all revenue and $1.4 million of related costs had been deferred until final acceptance by the customer. The increase in service revenues in third quarter 2007 also includes other new service revenues from Manugistics projects, offset in part by a $3.3 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. Our global utilization rate was 57% in third quarter 2007 compared to 51% in second quarter 2007 and 45% in third quarter 2006 and our average blended global billing rates were $196, $198, and $183 per hour, respectively in these quarterly periods.

Service margins were 30% in third quarter 2007 compared to 21% in second quarter 2007 and 23% in third quarter 2006. The increase in service margins in third quarter 2007 compared to second quarter 2007 and third quarter 2006 includes a $2.0 million favorable impact from the release of $3.4 million of previously deferred consulting revenue on the project referred to above, net of $1.4 million in related deferred costs that were also released. Excluding the impact of the deferred revenues and costs on this project, our service margin was 27% in third quarter 2007. Service margins were also favorably impacted in third quarter 2007 compared to third quarter 2006 by a 9% decrease in average headcount resulting from the workforce reduction in our worldwide consulting group in second quarter 2007 and a $1.3 million decrease in outside contractor costs on consulting projects in the United States. We expect service margins to be lower in fourth quarter 2007 due to the normal loss of utilization during the holiday season and should be more in line with the service margin for the nine months ended September 30, 2007 which averages the impact of the deferred consulting

revenue and related costs that were released in third quarter 2007 over the period of time that the work was actually performed. We currently expect service margins to be in the mid to high 20% range throughout 2008 now that we have completed most of the unbillable work acquired from Manugistics and our global utilization has improved. As of September 30, 2007, we had 433 employees in our services organization compared to 455 at June 30, 2007 and 516 at September 30, 2006.

Sales and marketing expense was flat sequentially at $14.9 million in third quarter 2007 compared to second quarter 2007 and increased $1.4 million or 10% compared to third quarter 2006. The increase in sales and marketing expense in third quarter 2007 compared to third quarter 2006 is primarily due to higher internal ($480,000) and third party ($300,000) commissions resulting from the 13% increase in software license sales and a $625,000 increase in stock-based compensation due to improved operating performance. As of September 30, 2007 we had 222 people in the sales and marketing function, compared to 208 at June 30, 2007 and 219 at September 30, 2006, including quota carrying sales associates and related sales management of 69, 64 and 65, respectively. We expect sales and marketing expense to increase sequentially in fourth quarter 2007 due to higher commissions on sequentially higher software performance and the seasonal timing of certain marketing activities.

Product development expense was flat sequentially at $11.9 million in third quarter 2007 compared to second quarter 2007 and decreased $4.9 million or 29% compared to third quarter 2006. The decrease in product development expense in third quarter 2007 compared to third quarter 2006 is primarily due to a 15% decrease in average headcount which resulted in a $3.3 million decrease in salaries and related benefits. We reduced our product development workforce by 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 third quarter 2007 was also reduced by the deferral of $1.2 million in costs related to ongoing funded development efforts, offset in part by a $612,000 increase in incentive compensation due to improved operating performance. We will continue to have deferred costs for on-going funded development projects in fourth quarter 2007 but at a reduced rate. As of September 30, 2007, we had 446 employees in the product development function compared to 408 at June 30, 2007 and 546 at September 30, 2006.

General and administrative expense was flat sequentially at $10.4 million in third quarter 2007 compared to second quarter 2007 and compared to third quarter 2006. Incentive compensation expense increased $1.2 million in third quarter 2007 compared to third quarter 2006 due to improved operating performance and includes $1.0 million in stock-based compensation primarily related to the Manugistics Integration Incentive Plan. This increase was substantially offset by a $479,000 decrease in legal costs and a $321,000 favorable swing in realized foreign currency exchange in third quarter 2007 compared to third quarter 2006. We recorded no bad debt provision in third quarter 2007 compared to $1.3 million in second quarter 2007 and none in third quarter 2006. As of September 30, 2007, we had 208 employees in general and administrative functions compared to 221 people at June 30, 2007 and 199 at September 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 certain non-routine items. 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 the day after our Audit Committee approves the Company’s 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 subsequently approved additional awards for executive officers and new participants in the Integration Plan. The restricted stock units, if any, under these awards will also be issued the day after the Audit Committee approves the Company’s 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 has been evaluated on a quarterly basis throughout 2007 and stock-based compensation recognized on a graded vesting basis over the requisite service periods that run from the date of the various board approvals through January 2010. Through September 30, 2007, a total of 508,999 contingently issuable restricted stock units, net of forfeitures, have been awarded under the Integration Plan. A deferred compensation charge of approximately $8.1 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 September 30, 2007, based on our results for the nine months ended September 30, 2007 and the outlook for the remainder of 2007, management has determined that it is probable that the performance condition will ultimately be met. As a result, we have recorded $3.5 million in stock-based compensation expense related to these awards in the nine months ended September 30, 2007, including $1.8 million during third 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 $5.4 million of total stock-based compensation on these awards in 2007.

During the nine months ended September 30, 2007 and 2006, we recorded stock-based compensation expense of $666,000 and $530,000, respectively related to other 2005 Incentive Plan awards.

A summary of total stock-based compensation by expense category for the three and nine months ended September 30, 2007 and 2006 is as follows:


	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2007		2006		2007		2006
Cost of maintenance services	$	161	$	2	$	302	$	2
Cost of consulting services		238		6		434		9
Product development		194		3		364		4
Sales and marketing		631		8		1,254		(5	)
General and administrative		1,070		66		1,818		520

Total stock-based compensation	$	2,294	$	85	$	4,172	$	530

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 $45.8 million at September 30, 2007 compared to $41.1 million at December 31, 2006. The working capital balances at September 30, 2007 and December 31, 2006 include $82.6 million and $53.6 million of cash, respectively. We generated $63.7 million in cash flow from operations in the nine months ended September 30, 2007 compared to $12.5 million in the nine months ended September 30, 2006, as restated (see Liquidity and Capital Resources). Net accounts receivable were $70.3 million or 68 days sales outstanding (“DSO”) at September 30, 2007 compared to $79.5 million or 81 days sales outstanding (“DSO”) at December 31, 2006. During the nine months ended September 30, 2007 we also received $6.3 million in proceeds from the sale of an office facility in the United Kingdom, paid $6.3 million of direct costs related to the Manugistics acquisition, spent $5.1 million on capital expenditures and utilized excess cash balances to repay $39.6 million of our long-term debt.

We expect cash flow from operations to be positive in fourth quarter 2007. We also believe our cash position is sufficient to meet our operating needs for the foreseeable future.

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 Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
REVENUES:
Software licenses		16	%		16	%		18	%		16	%
Maintenance services		47			48			48			46

Product revenues		63			64			66			62

Consulting services		34			33			31			35
Reimbursed expenses		3			3			3			3

Service revenues		37			36			34			38

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		12			10			12			12

Cost of product revenues		15			13			15			15

Cost of consulting services		22			25			23			25
Reimbursed expenses		3			3			3			3

Cost of service revenues		25			28			26			28

Total cost of revenues		40			41			41			43


GROSS PROFIT		60			59			59			57

OPERATING EXPENSES:
Product development		13			19			14			21
Sales and marketing		16			15			16			16
General and administrative		11			12			11			13
Amortization of intangibles		4			4			4			3
Restructuring charges		—			4			2			2
Gain on sale of office facility		—			—			(1	)		—

Total operating expenses		44			54			46			55


OPERATING INCOME		16			5			13			2

Interest expense and amortization of loan fees		(3	)		(5	)		(3	)		(2	)
Other income, net		1			1			1			2 2
Change in fair value of redeemable Series B Preferred Stock conversion feature		—			(1	)		—			—


INCOME BEFORE INCOME PROVISION		14			—			11			2


Income tax provision		5			—			4			1


NET INCOME		9	%		—	%		7	%		1	%


Gross margin on software licenses		96	%		96	%		96	%		96	%
Gross margin on maintenance services		74	%		79	%		74	%		74	%
Gross margin on product revenues		77	%		80	%		78	%		76	%
Gross margin on service revenues		30	%		23	%		24	%		25	%

The following table sets forth a comparison of selected financial information, expressed as a percentage change between periods for the three and nine months ended September 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 September 30,									Nine Months ended September 30,
	2007			2006 to 2007			2006			2007			2006 to 2007			2006
Revenues:

Software licenses	$	15,505			13	%	$	13,741		$	51,159			64	%	$	31,237
Maintenance		43,753			2	%		42,923			131,192			52	%		86,249

Product revenues		59,258			5	%		56,664			182,351			55	%		117,486
Service revenues		34,387			6	%		32,539			92,761			30	%		71,332

Total revenues		93,645			5	%		89,203			275,112			46	%		188,818


Cost of Revenues:

Software licenses		642			9	%		591			1,831			35	%		1,353
Amortization of acquired software technology		1,502			(20	%)		1,882			4,875			14	%		4,285
Maintenance services		11,239			23	%		9,101			33,988			54	%		22,029

Product revenues		13,383			16	%		11,574			40,694			47	%		27,667
Service revenues		23,904			(5	%)		25,163			70,671			32	%		53,452

Total cost of revenues		37,287			1	%		36,737			111,365			37	%		81,119


Gross Profit		56,358			7	%		52,466			163,747			52	%		107,699

Operating Expenses:

Product development		11,934			(29	%)		16,818			37,717			(3	%)		38,821
Sales and marketing		14,925			10	%		13,559			44,836			44	%		31,067
General and administrative		10,365			(2	%)		10,592			31,499			32	%		23,904

		37,224			(9	%)		40,969			114,052			22	%		93,792

Amortization of intangibles		3,963			12	%		3,540			11,889			123	%		5,324
Restructuring charges		—			NM*	%		3,461			6,276			58	%		3,982
Gain on sale of office facility		—			—	%		—			(4,128	)		NM*	%		—

Operating Income	$	15,171			227	%	$	4,496		$	35,658			665	%	$	4,601

Cost of Revenues as a % of related revenues:
Software licenses		4	%					4	%		4	%					4	%
Maintenance services		26	%					21	%		26	%					26	%
Product revenues		23	%					20	%		22	%					24	%
Service revenues		70	%					77	%		76	%					75	%

Product Development as a % of product revenues		20	%					30	%		21	%					33	%


*		= not meaningful

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 nine months ended September 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 nine months ended September 30, 2007 and 2006, expressed as a percentage of total revenues:


							Manufacturing &
	Retail						Distribution						Services Industries *
	Sept 30, 2007 vs. 2006						Sept 30, 2007 vs. 2006						Sept 30, 2007 vs. 2006
	Quarter			Nine Months			Quarter			Nine Months			Quarter			Nine Months
Software licenses		13	%		53	%		(4	%)		53	%		2,059	%		5,774	%
Maintenance services		9	%		21	%		(3	%)		89	%		(3	%)		188	%


Product revenues		10	%		30	%		(3	%)		80	%		102	%		474	%
Service revenues		(7	%)		(5	%)		40	%		225	%		40	%		244	%

Total revenues		1	%		14	%		5	%		102	%		66	%		340	%

Product development		(32	%)		(30	%)		(33	%)		47	%		62	%		325	%
Sales and marketing		19	%		42	%		(5	%)		33	%		127	%		465	%
Operating income (loss)		23	%		68	%		31	%		162	%		148	%		86	%

Contribution to Total Revenues

Retail

Manufacturing & Distribution

Services Industries*

Quarter

Nine Months

Quarter

Nine Months

Quarter

Nine Months

2007

2006

2007

2006

2007

2006

2007

2006

2007

2006

2007

2006

52%

54%

53%

68%

43%

31%


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


	The Americas						Europe						Asia/Pacific
	Sept 30, 2007 vs. 2006						Sept 30, 2007 vs. 2006						Sept 30, 2007 vs. 2006
	Quarter			Nine Months			Quarter			Nine Months			Quarter			Nine Months
Software licenses		25	%		66	%		9	%		70	%		(24	%)		44	%
Maintenance services		5	%		56	%		2	%		50	%		(21	%)		27	%

Product revenues		9	%		59	%		3	%		55	%		(22	%)		33	%
Service revenues		1	%		21	%		50	%		102	%		(4	%)		21	%

Total revenues		6	%		43	%		13	%		65	%		(14	%)		28	%

Contribution to Total Revenues

The Americas

Europe

Asia/Pacific

Quarter

Nine Months

Quarter

Nine Months

Quarter

Nine Months

2007

2006

2007

2006

2007

2006

2007

2006

2007

2006

2007

2006

68%

67%

68%

23%

21%

23%

21%

11%

10%

11%

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

Product Revenues

Software Licenses.

Retail. Software license revenues in this reportable business segment increased 13% in third quarter 2007 compared to third quarter 2006 primarily due to an increase in software license sales to new customers. In total there were no large transactions ³$1.0 million in this reportable business segment in third quarter 2007 compared to one in third quarter 2006. We closed 31 deals in this reportable business segment in third quarter 2007 compared to 18 in third quarter 2006.

Manufacturing & Distribution. Software license revenues in this reportable business segment decreased 4% in third quarter 2007 compared to third quarter 2006 primarily due to a decrease in follow-on sales to existing customers that expanded the scope of existing licenses. There were no large transactions of ³$1.0 million in this reportable business segment in third quarter 2007 or third quarter 2006. We closed 27 deals in this reportable business segment in third quarter 2007 compared to 44 in third quarter 2006.

Services Industries. The increase in software license revenues in this reportable business segment in third quarter 2007 compared to third quarter 2006 resulted from software license sales to new customers.

Regional Results. Software license revenues in the Americas region increased 25% in third quarter 2007 compared to third quarter 2006 due to continued improvement in our overall sales execution after our management reorganization in 2006. There were no large transactions ³$1.0 million in the Americas region in third quarter 2007 or third quarter 2006.

Software license revenues in the Europe region increased 9% in third quarter 2007 compared to third quarter 2006 due to an increased demand for our supply chain products. There were no large transactions ³$1.0 million in the Europe region in third quarter 2007 or third quarter 2006.

Software license revenues in the Asia/Pacific region decreased 24% in third quarter 2007 compared to third quarter 2006 due to organizational issues and high turnover in the regional sales force. There were no large transactions ³$1.0 million in the Asia/Pacific region in third quarter 2007 compared to one in third quarter 2006.

Maintenance Services. Maintenance services revenues increased 2% in third quarter 2007 compared to third quarter 2006 as maintenance on new software sales and rate increases were largely offset by attrition. Maintenance services revenues in third quarter 2007 include a $1.1 million favorable foreign exchange rate variance compared to third quarter 2006.

Service Revenues

Service revenues increased 6% in third quarter 2007 compared to third quarter 2006. The increase in service revenues in third quarter 2007 compared to third quarter 2006 is due primarily to the release of approximately $3.4 million in previously deferred consulting revenue and customer liabilities upon completion and final acceptance of a fixed bid project inherited from Manugistics. This project contained a refund right that extended through final acceptance and as a result, all revenue had been deferred until final acceptance by the customer. Excluding the impact of this project, services revenues decreased 5% in third quarter 2007 compared to third quarter 2006 due to a $3.3 million decrease in service revenues from projects involving core JDA products resulting from 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 26% of total consulting services revenue in third quarter 2007 compared to 17% in third quarter 2006.

Cost of Product Revenues

Cost of Software Licenses. The increase in cost of software licenses in third quarter 2007 compared to third quarter 2006 resulted primarily from increased royalties on software sales of products involving the resell of certain third party software applications.

Amortization of Acquired Software Technology. The decrease in amortization of acquired software technology in third quarter 2007 compared to third quarter 2006 resulted primarily from 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 third quarter 2007 compared to third quarter 2006 resulted primarily from a 15% increase in average headcount to support the increased installed base and a $581,000 increase in incentive compensation due to improved operating performance.

Cost of Service Revenues

The decrease in cost of service revenues in third quarter 2007 compared to third quarter 2006 is due primarily to a 9% decrease in average headcount resulting from the workforce reduction in our worldwide consulting group in second quarter 2007 and a $1.3 million decrease in outside contractor costs on consulting projects in the United States, offset in part by the release of $1.4 million in deferred costs related to the completion and acceptance of a fixed bid project inherited from Manugistics for which the related revenue was also deferred in prior quarters and recognized in third quarter 2007.

Gross Profit

The increase in gross profit dollars in third quarter 2007 compared to third quarter 2006 resulted primarily from the $4.4 million increase in revenue. The gross margin percentage increased to 60% in third quarter 2007 compared to 59% in third quarter 2006 due to the 13% increase in software license revenues which have a higher gross margin than maintenance and service revenues.

Service margin dollars increased $3.1 million in third quarter 2007 compared to third quarter 2006 and service margins as a percentage of services revenue were 30% and 23%, respectively. The increase service margin dollars and service margins as a percentage of services revenue in third quarter 2007 compared to third quarter 2006 includes a $2.0 million favorable impact from the release of $3.4 million of previously deferred consulting revenue and customer liabilities upon completion and final acceptance of a fixed bid project inherited from Manugistics, net of $1.4 million in related deferred costs that were also released. Excluding the impact of the deferred revenues and costs on this project, our service margin was 27% in third quarter 2007. Service margins were also favorably impacted in third quarter 2007 compared to third quarter 2006 by a 9% decrease in average headcount resulting from the workforce reduction in our worldwide consulting group in second quarter 2007 and a $1.3 million decrease in outside contractor costs on consulting projects in the United States. Our global utilization rate was 57% in third quarter 2007 compared to 45% in third quarter 2006 and our average blended global billing rates were $196 and $183 per hour, respectively.

Operating Expenses

Product Development. The decrease in product development expense in third quarter 2007 compared to third quarter 2006 is primarily due to a 15% decrease in average headcount which resulted in a $3.3 million decrease in salaries and related benefits. We reduced our product development workforce by 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 third quarter 2007 was also reduced by the deferral of $1.2 million in costs related to ongoing funded development efforts, offset in part by a $612,000 increase in incentive compensation due to improved operating performance.

Sales and Marketing. The increase in sales and marketing expense in third quarter 2007 compared to third quarter 2006 is primarily due to higher internal ($480,000) and third party ($300,000) commissions resulting from the 13% increase in software license sales and a $625,000 increase in stock-based compensation due to improved operating performance.

General and Administrative. General and administrative expense was flat in third quarter 2007 compared to third quarter 2006. Incentive compensation expense increased $1.2 million in third quarter 2007 compared to third quarter 2006 due to improved operating performance and includes $1.0 million in stock-based compensation primarily related to the Manugistics Integration Incentive Plan. This increase was substantially offset by a $479,000 decrease in legal costs and a $321,000 favorable swing in realized foreign currency exchange in third quarter 2007 compared to third quarter 2006. In addition, we recorded no bad debt provision in third quarter 2007 and 2006.

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

Restructuring Charges. We recorded a restructuring charge of $3.5 million in third quarter 2006 primarily related to the consolidation of existing JDA offices in the United Kingdom into the Manugistics office facility in the United Kingdom. The charges consist primarily of relocation bonuses and termination benefits paid to employees who chose not to relocate.

Operating Income

We had operating income of $15.2 million in third quarter 2007 compared to operating income of $4.5 million in third quarter 2006. The improvement in operating income resulted primarily from the $4.4 million or 5% increase in total revenues, a 29% decrease in product development expense and a $3.5 million reduction in restructuring charges.

Operating income in our Retail reportable business segment increased to $13.7 million in third quarter 2007 compared to $11.2 million in third quarter 2006. The increase in operating income in this reportable business segment resulted primarily from a $2.4 million increase in product revenues and a 32% decrease in product development costs, offset in part by a $1.7 million decrease in service revenues and a 19% 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 $15.4 million in third quarter 2007 compared to $11.7 million in third quarter 2006. The increase resulted primarily from a $2.9 million increase in service revenues, primarily from the Manugistics product lines, and a 33% decrease in product development costs, offset in part by a $995,000 decrease in product revenues.

The Services Industries reportable business segment had operating income of $392,000 in third quarter 2007 compared to an operating loss of $819,000 in third quarter 2006. The increase resulted primarily from a $1.8 million increase in total revenues, offset in part by an $867,000 increase in operating costs for product development and sales and marketing activities.

The combined operating income reported in the reportable business segments excludes $14.3 million and $17.6 million of general and administrative expenses and other charges in third 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)

Interest Expense and Amortization of Loan Fees. We incurred interest expense of $2.2 million and recorded $548,000 in amortization of loan origination fees in third quarter 2007 compared to $3.5 million and $548,000, respectively in third quarter 2006. The interest expense and loan origination fees relate primarily to $175 million in aggregate term loan borrowings on July 5, 2006 that were used to finance the acquisition of Manugistics and the repayment of their debt obligations. We have repaid $75.0 million of the aggregate term loan obligations through September 30, 2007.

Interest Income and Other, Net. We recorded interest income and other, net of $956,000 in third quarter 2007 compared to $831,000 in third quarter 2006. Our excess cash balances are invested primarily in money market accounts.

Change in Fair Value of Series B Preferred Stock Conversion Feature

We recorded a non-cash charge of $1.1 million in the three months ended September 30, 2006 to reflect the change in the fair value of the Series B Preferred Stock conversion feature from July 5, 2006 to September 30, 2006.

Income Tax Provision

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


	Three Months Ended
	September 30,
	2007			2006
Income before income tax provision	$	13,370		$	191
Effective tax rate		37.9	%		164.9	%
Income tax provision at effective tax rate		5,062			315
Less discrete tax item benefits:


	Three Months Ended
	September 30,
	2007		2006
Changes in estimate		—		24

Total discrete tax item benefits		—		24

Income tax provision	$	5,062	$	339

The effective tax rate used to record the income tax provision in the three months ended September 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 third quarter 2007 and 2006 of $505,000 and $166,000, 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 three months ended September 30, 2007 is higher than the federal statutory rate of 35% due to nondeductible items and state income taxes. The effective tax rate in the three months ended September 30, 2006 is higher than the federal statutory rate of 35% due primarily to the non-deductibility of the expense for the change in fair value of the conversion feature of the Series B Preferred Stock.

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

The operating results for the nine months ended September 30, 2007 include the impact of Manugistics for the entire nine-month period. The operating results for the nine months ended September 30, 2006 only include the impact of Manugistics from the date of acquisition (i.e., July 5, 2006) through September 30, 2006.

Product Revenues

Software Licenses.

Retail. Software license revenues in this reportable business segment increased 53% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Before considering the impact of Manugistics, software license revenues in this reportable business segment increased 34% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 primarily due to software license sales to new customers. There were three large transactions ³ $1.0 million in this reportable business segment in the nine months ended September 30, 2007 compared to four in the nine months ended September 30, 2006. We closed 102 deals in this reportable business segment in the nine months ended September 30, 2007 compared to 72 in the nine months ended September 30, 2006.

Manufacturing & Distribution. Software license revenues in this reportable business segment increased 53% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Before considering the impact of Manugistics, software license revenues in this reportable business segment increased 6% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 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 the nine months ended September 30, 2007 compared to none in the nine months ended September 30, 2006. We closed 115 deals in this reportable business segment in the nine months ended September 30, 2007 compared to 123 in the nine months ended September 30, 2006.

Services Industries. The increase in software license revenues in this reportable business segment in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 resulted entirely from sales to customers of the Revenue Management product lines acquired from Manugistics. Software license sales in the nine months ended September 30, 2006 only include the impact of Manugistics from the date of acquisition (July 5, 2006) through September 30, 2006.

Regional Results. Software license revenues in the Americas region increased 66% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Before considering the impact of Manugistics, software license revenues in the Americas region increased 22% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 due primarily to an increase in software license sales to new customers and improved sales execution. There were two large transactions ³ $1.0 million in the Americas region in the nine months ended September 30, 2007 compared to one large transaction ³ $1.0 million in the nine months ended September 30, 2006.

Software license revenues in the Europe region increased 70% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Before considering the impact of Manugistics, software license revenues in the Europe region increased 44% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 due to an increase in large transactions ³ $1.0 million and an increase in follow-on sales to existing customers that expand the scope of existing

licenses. There were two large transactions ³ $1.0 million in the Europe region in the nine months ended September 30, 2007 compared to one large transaction ³ $1.0 million in the nine months ended September 30, 2006.

Software license revenues in the Asia/Pacific region increased 44% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Before considering the impact of Manugistics, software license revenues in the Asia/Pacific region were flat in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. There was one large transactions ³ $1.0 million in the Asia/Pacific region in the nine months ended September 30, 2007 compared to two in the nine months ended September 30, 2006.

Maintenance Services. Maintenance services revenues increased 52% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Before considering the impact of Manugistics, maintenance services revenues increased 6% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Maintenance services revenues in the nine months ended September 30, 2007 include a $3.3 million favorable foreign exchange rate variance compared to the nine months ended September 30, 2006.

Service Revenues

Service revenues increased 30% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. Before considering the impact of Manugistics, services revenues decreased 13% in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 due to a $7.9 million decrease in service revenues from projects involving core JDA products resulting from 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 20% of total consulting services revenue in the nine months ended September 30, 2007 compared to 13% in the nine months ended September 30, 2006.

Cost of Product Revenues

Cost of Software Licenses. The increase in cost of software licenses in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 resulted primarily from a $514,000 increase in third party royalties due on software sales involving Manugistics product lines.

Amortization of Acquired Software Technology. The increase in amortization of acquired software technology in the nine months ended September 30, 2007 compared to the nine months ended September 30, 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 the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 resulted from a 31% 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 $1.4 million increase in incentive compensation due to improved operating performance.

Cost of Service Revenues

The increase in cost of service revenues in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 resulted from a 31% increase in average headcount, primarily due to the acquisition of Manugistics, a $1.9 million increase in reimbursed expenses, a $1.5 million increase in incentive compensation due to the increase in headcount and improved operating performance and a $739,000 increase in travel costs.

Gross Profit

The increase in gross profit dollars in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 resulted primarily from the $83.2 million increase in revenue contribution from Manugistics and the 25% increase in software sales of core JDA products, offset in part by the $7.9 million decrease in service revenues from projects involving core JDA products, the increases in average headcount in our customer support and consulting services organizations to support the larger revenue streams and customer directed development activities, a $2.9 million increase in incentive compensation due to improved

operating performance and the $1.8 million increase in third party maintenance royalties. The gross margin percentage increased to 60% in the nine months ended September 30, 2007 compared to 57% in the nine months ended September 30, 2006 due to the higher mix of product revenues.

Although service margin dollars increased $4.2 million in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006, service margins as a percentage of service revenues decreased to 24% from 25%. The increase in service margin dollars is due primarily to the $29.3 million increase in services revenue contribution from Manugistics, offset in part by the 13% decrease in service revenues from projects involving core JDA products. The service margin decreased in the nine months ended September 30, 2007 due to annual salary increase, higher incentive compensation as a percentage of revenue and lower utilization.

Operating Expenses

Product Development. The decrease in product development expense in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 is due primarily to the deferral of $2.9 million in costs on certain ongoing customer funded development projects and a decrease in salaries due to a lower headcount, offset in part by a $2.0 million increase in incentive compensation due to improved operating performance. 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.

Sales and Marketing. The increase in sales and marketing expense in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 resulted from a 24% increase in average headcount, primarily from the acquisition of Manugistics, which resulted in higher salaries, benefits, travel, training, relocation and marketing costs, a $3.6 million increase in sales commissions due to higher software license revenues and a $1.3 million increase in stock-based compensation due to improved operating performance.

General and Administrative. The increase in general and administrative expenses in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 resulted from a 27% increase in average headcount, primarily due to the acquisition of Manugistics, which resulted in higher salaries and benefits. The nine months ended September 30, 2007 also included a $2.1 million increase in incentive compensation due to improved operating performance, a $1.6 million higher bad debt provision, a $736,000 increase in outside contractor costs for assistance with internal system initiatives and a $405,000 increase in legal and accounting costs as a result of the larger combined company.

Amortization of Intangibles. The increase in amortization of intangibles in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 results primarily from amortization of the customer list and trademark intangibles recorded in the acquisition of Manugistics.

Restructuring Charges. We recorded restructuring charges of $6.3 million in the nine months ended September 30, 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 restructuring charges of $4.0 million in the nine months ended September 30, 2006, including a $3.5 million charge in third 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 consist primarily of termination benefits and relocation bonuses.

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 $35.7 million in the nine months ended September 30, 2007 compared to operating income of $4.6 million in the nine months ended September 30, 2006. The improvement in operating income resulted primarily from an $86.3 million or 46% increase in total revenues, which includes an $83.2 million increased 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 27% increase in average headcount and a $7.2 million increase in amortization on intangibles, both related primarily to the acquisition of Manugistics, a $2.3 million higher restructuring charge and a $1.6 million higher bad debt provision.

Operating income in our Retail reportable business segment increased to $35.5 million in the nine months ended September 30, 2007 compared to $21.1 million in the nine months ended September 30, 2006. The increase in operating income in this reportable business segment resulted primarily from a $20.2 million increase in product revenues and a 30% decrease in product development costs, offset in part by a 42% increase in allocated sales and marketing costs based upon the pro rata share of software sales that came from this reportable business segment, a $2.8 million decrease in services revenue and a $3.3 million increase in maintenance and service revenue costs due to the Manugistics acquisition.

Operating income in our Manufacturing and Distribution reportable business segment increased to $45.8 million in the nine months ended September 30, 2007 compared to $17.5 million in the nine months ended September 30, 2006. The increase resulted primarily from increases in product and service revenues of $39.4 million and $20.4 million, respectively, primarily from the Manugistics product lines, offset in part by a $22.2 million increase in maintenance and service revenue costs due to the Manugistics acquisition, a 47% increase in product development costs and a 33% increase in allocated sales and marketing costs based upon the pro rata share of software sales that came from this reportable business segment.

The Services Industries reportable business segment incurred an operating loss of $111,000 in the nine months ended September 30, 2007 compared to an operating loss of $819,000 in the nine months ended September 30, 2006. The improvement resulted primarily from a $9.2 million increase in total revenues, offset in part by a $4.4 million increase in total costs of revenue, and a $3.7 million increase in operating costs for product development and sales and marketing activities. The operating results in this reportable business segment for the nine months ended September 30, 2006 only include the impact of Manugistics from the date of acquisition (July 5, 2006) through September 30, 2006.

The combined operating income reported in the reportable business segments excludes $45.5 million and $33.2 million of general and administrative expenses and other charges in the nine months ended September 30, 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)

Interest Expense and Amortization of Loan Fees. We incurred interest expense of $7.7 million and recorded $1.7 million in amortization of loan origination fees in the nine months ended September 30, 2007 compared to $3.5 million and $548,000, respectively in the nine months ended September 30, 2006. The interest expense and loan origination fees relate primarily to $175 million in aggregate term loan borrowings on July 5, 2006 that were used to finance the acquisition of Manugistics and the repayment of their debt obligations. We have repaid $75.0 million of the aggregate term loan obligations through September 30, 2007.

Interest Income and Other, Net. We recorded interest income and other, net of $2.4 million in the nine months ended September 30, 2007 compared to $3.1 million in the nine months ended September 30, 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. Subsequent to this liquidation, our remaining excess cash balances have been invested primarily in money market accounts.

Change in Fair Value of Series B Preferred Stock Conversion Feature

We recorded a non-cash charge of $1.1 million in the nine months ended September 30, 2006 to reflect the change in the fair value of the Series B Preferred Stock conversion feature from July 5, 2006 to September 30, 2006.

Income Tax Provision

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


	Nine Months Ended
	September 30,
	2007			2006
Income before income tax provision	$	28,696		$	2,520
Effective tax rate		35.6	%		45.2	%
Income tax provision at effective tax rate		10,212			1,139
Less discrete tax item benefits:
Changes in estimate		(63	)		(33	)

Total discrete tax item benefits		(63	)		(33	)

Income tax provision	$	10,149		$	1,106

The effective tax rate used to record the income tax provision in the nine months ended September 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 nine months ended September 30, 2007 and 2006 of $863,000 and $254,000, 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 nine months ended September 30, 2007 is higher than the federal statutory rate of 35% due to nondeductible items and state income taxes. The effective tax rate in the nine months ended September 30, 2006 is higher than the federal statutory rate of 35% due primarily to the non-deductibility of the expense for the change in fair value of the conversion feature of the Series B Preferred Stock.

Liquidity and Capital Resources

We had working capital of $45.8 million at September 30, 2007 compared to $41.1 million at December 31, 2006. The working capital balances at September 30, 2007 and December 31, 2006 include $82.6 million and $53.6 million of cash, respectively. The increase in working capital resulted from cash flow from operating activities, $7.3 million from the issuance of common stock and $6.8 million in proceeds from the disposal of property and equipment, offset in part by the repayment of $39.6 million of long-term debt, payment of $6.3 million of direct costs related to the Manugistics acquisition and $5.1 million of capital expenditures.

Net accounts receivable were $70.3 million or 68 days sales outstanding (“DSO”) at September 30, 2007 compared to $79.5 million or 81 days sales outstanding (“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 $63.7 million in the nine months ended September 30, 2007 compared to $12.5 million in the nine months ended September 30, 2006, as restated. 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 the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 resulted primarily from a $17.1 million increase in net income, an $11.5 million decrease in accounts receivable due to improved collection efforts, a $7.8 million increase in amortization on intangible balances recorded in the acquisition of Manugistics, a $6.4 million increase in the change in income taxes payable due to the Company’s improved operating performance, a $3.9 million increase in the change in deferred revenue balances due to the timing of the annual renewal

period for maintenance contracts assumed in the acquisition of Manugistics and a $3.6 million increase in stock-based compensation primarily related to the Manugistics Integration Incentive Plan.

Investing activities utilized cash of $4.6 million in the nine months ended September 30, 2007 compared to $38.8 million in the nine months ended September 30, 2006, as restated. Net cash utilized by investing activities in the nine months ended September 30, 2007 includes the payment of $6.3 million of direct costs associated with the Manugistics acquisition and capital expenditures of $5.1 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 utilized by investing activities in the nine months ended September 30, 2006 includes $72.9 million in net cash expended to acquire Manugistics, payment of $3.7 million of direct costs associated with the Manugistics acquisition and capital expenditures of $4.1 million, offset in part by $40.4 million in net proceeds from sales and maturities of marketable securities to generate cash to complete the acquisition of Manugistics and $1.2 million in payments received on the Silvon promissory note.

Financing activities utilized cash of $31.6 million in the nine months ended September 30, 2007 and provided cash of $11.2 million in the nine months ended September 30, 2006, as restated. Financing activities in the nine months ended September 30, 2007 include repayment of $39.6 million of long-term debt. Financing activities in the nine months ended September 30, 2006 include proceeds of $168.4 million from term loan borrowings, net of nearly $6.6 million of loan origination and other administrative fees and the issuance of $50 million in Series B Preferred Stock in connection with the acquisition of Manugistics. We used the proceeds from the term loan borrowings and the Series B Preferred Stock, together with the companies’ combined cash balances at closing, to fund the cash obligations of the acquisition and to retire $174 million of Manugistics’ existing debt consisting primarily of 5% Convertible Subordinated Notes that were scheduled to mature in 2007. The activity in both periods includes proceeds from the issuance of common stock.

Changes in the currency exchange rates of our foreign operations had the effect of increasing cash by $1.5 million in the nine months ended September 30, 2007 and $984,000 in the nine months ended September 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, as amended (“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 the nine months ended September 30, 2007 and 2006, we repurchased 5,484 and 12,712 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 $159,000 at prices ranging from $11.19 to $22.61 per share in the nine months ended September 30, 2007 and for $165,000 at prices ranging from $11.19 to $17.00 per share in the nine months ended September 30, 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. There were no open market cash purchases of our common stock during third quarter 2007.

Contractual Obligations. As of September 30, 2007, we had $100 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 $94.9 million at September 30, 2007 and represented approximately 95% 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. 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 September 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 service contracts and milestone-based arrangements that include services that are not essential to the functionality of our software products, consulting services revenue is recognized using the proportional performance method. We measure progress-to-completion under the proportional performance method by using input measures, primarily labor hours, which relate hours incurred to date to total estimated hours at completion. We continually update and revise our estimates of input measures. If our estimates indicate that a loss will be incurred, the entire loss is recognized in that period. Training revenues are included in consulting revenues in the Company’s consolidated statements of income and are recognized once the training services are provided. VSOE for consulting and training services is based upon the hourly or per class rates charged when those services are sold separately. We offer hosting 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 issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — 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. We do not believe there are uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

			The FIN 48 adjustments on January 1, 2007 include an accrual of approximately $403,000 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. We have accrued additional interest and penalties related to uncertain tax positions of $115,000 and $445,000 in the three and nine months ended September 30, 2007, respectively which are included 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 certain non-routine items. 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 the day after our Audit Committee approves the Company’s 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 subsequently approved additional awards for executive officers and new participants in the Integration Plan. The restricted stock units, if any, under these awards will also be issued the day after our Audit Committee approves the Company’s 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 has been evaluated on a quarterly basis throughout 2007 and stock-based compensation recognized on a graded vesting basis over the requisite service periods that run from the date of the various board approvals through January 2010. Through September 30, 2007, a total of 508,999 contingently issuable restricted stock units, net of forfeitures, have been awarded under the Integration Plan. A deferred compensation charge of approximately $8.1 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 September 30, 2007, based on our results for the nine months ended September 30, 2007 and the outlook for the remainder of 2007, management has determined that it is probable that the performance condition will ultimately be met. As a result, we have recorded $3.5 million in stock-based compensation expense related to these awards in the nine months ended September 30, 2007, including $1.8 million during third 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 $5.4 million of total 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, as amended (“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 $94.9 million at September 30, 2007 and represented approximately 95% 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 nine months ended September 30, 2007 the hedge was highly effective and a net unrealized loss of $600,000 was recorded in “Accumulated other comprehensive gain.”

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 39% of our total revenues in the nine months ended September 30, 2007 and 40% of our total revenues in the year ended December 31, 2006. In addition, the identifiable net assets of our foreign operations totaled 29% of consolidated net assets at September 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 $3.1 million and $1.3 million in the nine months ended September 30, 2007 and 2006, respectively.

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 September 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 September 30, 2007 rates would result in a currency translation loss of $1.6 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 September 30, 2007, we had forward exchange contracts with a notional value of $27.8 million and an associated net forward contract receivable of $495,000. 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 under the captions “Prepaid expenses and other current assets” or “Accrued expenses and other liabilities” as appropriate. The notional value represents the amount of foreign currencies to be purchased or sold at maturity and does not represent our exposure on these contracts. We prepared sensitivity analyses of the impact of changes in foreign currency exchange rates on our forward exchange contracts at September 30, 2007. Based on the results of these analyses, a 10% adverse change in all foreign currency rates from the September 30, 2007 rates would result in a net forward contract liability of $724,000 that would increase the underlying currency transaction loss on our net foreign assets. We recorded a foreign currency exchange contract gain of $202,000 in the nine months ended September 30, 2007 and a foreign currency exchange contract loss of $148,000 in the nine months ended September 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 “Interest income and other, net.” Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. 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 September 30, 2007 and our excess cash balances were primarily invested in money market accounts.

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 September 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 September 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 September 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. 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, BEA Systems, Inc.’s WebLogic application for use in most of the applications acquired in the Manugistics transaction and Business Object S.A.’s Data Integrator application which is also used in certain of the Manugistics applications. 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, we suspect they have also 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.

Our consulting services business model is largely based on relatively high cost onshore resources and we are increasingly faced with competition from low cost offshore service providers. This competition is expected to continue to grow and while we continue to successfully command premium rates for our services which we believe offer good overall value for the money, our hourly rates are much higher than those offered by these offshore competitors. As these offshore competitors gain more experience with our products the quality gap between our offerings may diminish and result in decreased revenues and profits from our consulting practice. In addition, we face increased competition for services work from ex-employees of JDA who offer services through lower cost boutique consulting firms. These competitive service providers have taken business from JDA and while they are currently relatively small compared with our consulting services business, if they grow successfully then it will be largely at our expense. We are in the process of developing our own offshore consulting resource group to address this risk; however, we cannot guarantee these efforts will be successful or enhance our ability to compete.

We may be impacted by shifts in 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 nine months ended September 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 39% of our total revenues in the nine months ended September 30, 2007 and 40% of our total revenues in the year ended December 31, 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 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 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 – Not applicable

Item 5. Other Information – Not applicable

Item 6. Exhibits – See Exhibits Index

EXHIBIT INDEX


Exhibit #		Description of Document
2.1555	—	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.

10.2ww(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.

10.4ww (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.

10.5ww (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.

10.7ww (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.

10.10ww (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.

10.11ww (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.

10.15w (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.

10.16w (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.

10.17w (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.

10.18w (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.

14.1w w	—	Code of Business Conduct and Ethics.

21.1w w w	—	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 June 30, 2007, as filed on August 9, 2007.

****		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.

w		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.

w w		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.

w w w		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.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
NET INCOME (LOSS)	$	8,308		$	(148	)	$	18,547		$	1,414

OTHER COMPREHENSIVE INCOME:
Unrealized holding loss on marketable securities available for sale, net		—			—			—			(37	)
Change in fair value of interest rate swap		(600	)		—			(342	)		—
Foreign currency translation gain		1,779			50			3,078			1,337

Total other comprehensive income		1,179			50			2,736			1,300


COMPREHENSIVE INCOME (LOSS)	$	9,487		$	(98	)	$	21,283		$	2,714


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


	Page No.
PART I: INTERIM FINANCIAL INFORMATION

Item 1. Financial Statements

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

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

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

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and September 30, 2006 (As Restated)		6

Notes to Condensed Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures About Market Risk		40

Item 4. Controls and Procedures		41

PART II: OTHER INFORMATION

Item 1. Legal Proceedings		42

Item 1A. Risk Factors		42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		50

Item 3. Defaults Upon Senior Securities		50

Item 4. Submission of Matters to a Vote of Security Holders		50

Item 5. Other Information		50

Item 6. Exhibits		50

Signature		51
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1