-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vnk9UOpyvC5dBjqtrpSRMawChIF9l17tFrlRt1kjia7kK7mj9wyzN6w/ajHzh0Sw EaoKtpQRBJ/U5SfrKp58sQ== 0000950134-96-003964.txt : 19960812 0000950134-96-003964.hdr.sgml : 19960812 ACCESSION NUMBER: 0000950134-96-003964 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: I2 TECHNOLOGIES INC CENTRAL INDEX KEY: 0001009304 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 752294945 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28030 FILM NUMBER: 96606412 BUSINESS ADDRESS: STREET 1: 909 E LAS COLINAS BLVD STREET 2: 16TH FL CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 2148606000 10-Q 1 FORM 10-Q PERIOD END JUNE 30, 1996 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ----- EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR 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 - 28030 i2 TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 75-2294945 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 909 E. LAS COLINAS BLVD., 16TH FLOOR IRVING, TEXAS 75039 (Address of principal executive offices) (Zip code) (214) 860-6000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No --- --- As of August 6, 1996, the Registrant had outstanding 24,459,390 shares of Common Stock, $.00025 par value. ================================================================================ 2 i2 TECHNOLOGIES, INC. TABLE OF CONTENTS
Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996 3 Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 1995 and June 30, 1996 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1995 and June 30, 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS i2 TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
December 31, June 30, 1995 1996 ------------ ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 5,930 $24,281 Short-term investments -- 28,933 Accounts receivable, net 7,919 8,147 Contract receivables, net 1,176 4,069 Income tax receivable 1,151 1,746 Prepaid and other current assets 543 1,101 ------- ------- Total current assets 16,719 68,277 Furniture and equipment, net 3,127 4,980 Deferred income taxes and other assets 64 60 ------- ------- Total assets $19,910 $73,317 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,048 $ 1,622 Accrued liabilities 1,618 4,826 Current portion of long-term debt 278 -- Current portion of deferred revenue 7,474 11,765 Income taxes payable 425 199 ------- ------- Total current liabilities 10,843 18,412 Long-term debt 1,075 100 Deferred revenue 291 196 Deferred income taxes 141 118 ------- ------- Total liabilities 12,350 18,826 ------- ------- Commitments Stockholders' equity: Preferred Stock, $.001 par value, 5,000,000 shares authorized, none issued -- -- Common Stock, $.00025 par value, 50,000,000 shares authorized, 21,703,242 and 24,450,744 shares issued and outstanding, respectively 5 6 Additional paid-in capital 2,169 47,908 Deferred compensation (1,739) (2,235) Retained earnings 7,125 8,812 ------- ------- Total stockholders' equity 7,560 54,491 ------- ------- Total liabilities and stockholders' equity $19,910 $73,317 ======= =======
See accompanying notes. 3 4 i2 TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 1995 1996 1995 1996 ------- ------- ------- ------- Revenues: Software licenses $ 3,910 $10,592 $ 6,456 $20,212 Services 1,015 3,401 1,830 5,245 Maintenance 513 1,598 1,091 2,806 ------- ------- ------- ------- Total revenues 5,438 15,591 9,377 28,263 ------- ------- ------- ------- Costs and expenses: Cost of software licenses 6 118 11 1,633 Cost of services and maintenance 676 2,995 1,246 4,563 Sales and marketing 2,073 6,417 3,216 11,309 Research and development 726 2,973 1,243 5,681 General and administrative 595 1,622 1,111 2,914 ------- ------- ------- ------- Total costs and expenses 4,076 14,125 6,827 26,100 ------- ------- ------- ------- Operating income 1,362 1,466 2,550 2,163 Other income (expense) (24) 452 (22) 580 ------- ------- ------- ------- Income before income taxes 1,338 1,918 2,528 2,743 Provision for income taxes 458 738 865 1,056 ------- ------- ------- ------- Net income $ 880 $ 1,180 $ 1,663 $ 1,687 ======= ======= ======= ======= Net income per share $ 0.03 $ 0.04 $ 0.07 $ 0.06 Weighted average common and common equivalent shares outstanding 24,804 27,427 24,520 26,372
See accompanying notes. 4 5 i2 TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Six Months Ended June 30, ------------------------- 1995 1996 ------ ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,663 $ 1,687 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 288 992 Provision for losses on receivables 9 59 Amortization of deferred compensation -- 414 Deferred income taxes 169 26 Changes in operating assets and liabilities: Increase in accounts receivable (2,123) (287) Increase in contract receivables (682) (2,893) Increase in income tax receivable (265) (595) Increase in prepaid and other assets (82) (603) Increase in accounts payable 319 574 Increase in accrued liabilities 508 3,208 Decrease in income taxes payable (98) (226) Increase in deferred revenue 609 4,196 ------ ------- Net cash provided by operating activities 315 6,552 ------ ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of furniture and equipment (881) (2,845) Purchases of short-term investments -- (28,933) ------ ------- Net cash used in investing activities (881) (31,778) ------ ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 610 -- Payments on long-term debt (549) (1,253) Net proceeds from sale of common stock and exercise of stock options -- 44,493 Tax benefit of stock options -- 337 ------ ------- Net cash provided by financing activites 61 43,577 ------ ------- Net increase (decrease) in cash and cash equivalents (505) 18,351 Cash and cash equivalents at beginning of period 3,422 5,930 ------ ------- Cash and cash equivalents at end of period $2,917 $24,281 ====== =======
See accompanying notes. 5 6 i2 TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of i2 Technologies, Inc. and its wholly owned subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring entries) which, in the opinion of the Company's management, are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1995, included in the Company's Prospectus dated April 25, 1996 relating to the initial public offering of its Common Stock. The results of operations for the three and six month period ended June 30, 1996 are not necessarily indicative of results that may be expected for any other interim period or for the full year. 2. NET INCOME PER SHARE Net income per common share is computed based upon the weighted average number of common shares outstanding and the effect of dilutive common stock equivalents from the exercise of stock options using the treasury stock method. In accordance with Securities and Exchange Commission Staff Accounting Bulletins and Staff Policy, common and common equivalent shares issued during the twelve month period prior to the date of the initial filing of the Company's Registration Statement on Form S-1 have been included in the net income per share calculation for the three and six month period ended June 30, 1995 as if they were outstanding for the entire period using the treasury stock method. Fully diluted earnings per share is the same as, or not materially different from, primary earnings per share and accordingly, is not presented. Share and per share amounts for 1995 have been adjusted to reflect the April 1995 two- for-one stock split and the December 1995 two-for-one stock split. 3. SHORT-TERM INVESTMENTS Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each subsequent balance sheet date. The Company considers its securities as "available-for-sale" and, in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", would record its investments at fair value. However, as the difference between cost and fair value was immaterial, no adjustment has been made to the historical carrying value of the investments and no unrealized gains or losses have been recorded as a separate component of stockholders' equity. Realized gains and losses to date have not been material. As of June 30, 1996, the Company's investments consisted primarily of high quality municipal bonds and U.S. Treasury securities with maturities ranging from one to eight months. 4. BORROWINGS On June 11, 1996, the Company repaid all of the outstanding balances under the Term Note and the New Equipment Credit Agreement of approximately $1.2 million. The Company's Revolving Credit Agreement, which was recently amended and extended until June 1, 1998, contains customary restrictive covenants, including covenants requiring the Company to maintain certain financial ratios. The Revolving Credit Agreement is no longer subject to a borrowing base limitation and the borrowings under the Revolving Credit Agreement bear interest at the Lender's prime lending rate (8.25% at June 30, 1996). As of June 30, 1996, the Company had $100,000 of borrowings outstanding under the Revolving Credit Agreement. 6 7 5. DEFERRED COMPENSATION EXPENSE The Company recorded deferred compensation expense of $910,000 for the difference between the grant price and the deemed fair value of certain of the Company's common stock options granted in the first quarter of 1996. This amount is being amortized over the vesting period of the individual options, generally four years. Compensation expense recognized in the three and six months ended June 30, 1996 totaled $185,000 and $414,000, respectively, and at June 30, 1996, deferred compensation totaled $2.2 million. 6. INITIAL PUBLIC OFFERING On May 1, 1996, the Company completed the initial public offering of its Common Stock. A total of 2,390,400 shares of Common Stock were sold by the Company resulting in net proceeds to the Company of $43.7 million after deducting expenses of the offering of $745,000 and the underwriting discount. 7. 1995 STOCK OPTION/STOCK ISSUANCE PLAN On May 11, 1996, the board of directors approved an increase in the number of shares authorized for issuance under the Company's 1995 Stock Option/Stock Issuance Plan from 10,000,000 shares to 12,000,000 shares. This action taken by the board of directors is subject to the approval of the Company's stockholders, which is expected at the Company's 1997 annual meeting. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company develops, markets and sells supply chain management software under the name Rhythm(R). Supply chain management encompasses the planning and scheduling of manufacturing and related logistics, from raw materials procurement through work-in-process to customer delivery. The Company's revenues consist of software license revenues, service revenues and maintenance revenues. Software license revenues consist of sales of software licenses which are recognized upon execution of a contract and shipment of the software, provided that no significant vendor obligations remain outstanding, amounts are due within one year and collection is considered probable by management. Service revenues are derived from fees for consulting, training and development services and are recognized as services are performed. Maintenance revenues are derived from customer support agreements generally entered into in connection with the initial license sales and subsequent renewals. Maintenance revenues are recognized ratably over the term of the maintenance period. Payments for maintenance fees are generally made in advance. This report contains forward-looking statements that involve risks and uncertainties. The actual future results of the Company could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, uncertainties regarding market acceptance of new products and product enhancements, delays in the introduction of new products, and risks associated with managing the Company's rapid growth, as well as those factors discussed in the Company's Prospectus dated April 25, 1996 relating to the initial public offering of its Common Stock. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentages that selected items in the unaudited Condensed Consolidated Statements of Income bear to total revenues. The period to period comparisons of financial results are not necessarily indicative of future results.
Three Months Ended Six Months Ended June 30, June 30, ---------------------- --------------------- 1995 1996 1995 1996 ----- ----- ----- ----- Revenues: Software licenses 71.9 % 67.9 % 68.9 % 71.5 % Services 18.7 21.8 19.5 18.6 Maintenance 9.4 10.3 11.6 9.9 ----- ----- ----- ----- Total revenues 100.0 100.0 100.0 100.0 ----- ----- ----- ----- Costs and expenses: Cost of software licenses 0.1 0.8 0.1 5.8 Cost of services and maintenance 12.4 19.2 13.3 16.1 Sales and marketing 38.1 41.1 34.3 40.0 Research and development 13.4 19.1 13.3 20.1 General and administrative 11.0 10.4 11.8 10.3 ----- ----- ----- ----- Total costs and expenses 75.0 90.6 72.8 92.3 ----- ----- ----- ----- Operating income 25.0 9.4 27.2 7.7 Other income (expense) (0.4) 2.9 (0.2) 2.0 ----- ----- ----- ----- Income before income taxes 24.6 12.3 27.0 9.7 Provision for income taxes 8.4 4.7 9.3 3.7 ----- ----- ----- ----- Net income 16.2 % 7.6 % 17.7 % 6.0 % ===== ===== ===== =====
8 9 REVENUES Total revenues increased 186.7% to $15.6 million in the quarter ended June 30, 1996 from $5.4 million in the quarter ended June 30, 1995. In the first six months of 1996, total revenues increased 201.4% to $28.3 million from $9.4 million in the first six months of 1995. The Company currently derives all of its revenues from Rhythm licenses and related services and maintenance. The Company expects that Rhythm related revenues will continue to account for substantially all of the Company's revenues for the foreseeable future. As a result of the Company's dependence on the continued market acceptance of Rhythm and enhancements thereto, there can be no assurance that total revenues will continue to increase at the rates experienced in prior periods, if at all. SOFTWARE LICENSES. Revenues from software licenses increased 170.9% to $10.6 million in the quarter ended June 30, 1996 from $3.9 million in the quarter ended June 30, 1995. In the first six months of 1996, revenues from software licenses increased 213.1% to $20.2 million from $6.5 million in the first six months of 1995. The significant increases in software license revenues were primarily due to the growing market acceptance of Rhythm, the international expansion of the Company's sales and marketing organization and the release of a new version of the Rhythm software product in the fourth quarter of 1995. These factors contributed to increases in the number of Rhythm licenses sold and the average dollar amount of software license revenue recognized from individual license agreements in 1996 as compared to 1995. SERVICES. Revenues from services increased 235.1% to $3.4 million in the quarter ended June 30, 1996 from $1.0 million in the quarter ended June 30, 1995. In the first six months of 1996, revenues from services increased 186.6% to $5.2 million from $1.8 million in the first six months of 1995. The significant increase in the dollar amount of service revenues was primarily due to an increase in the number of Rhythm licenses sold during 1995 and 1996 and an increase in the use of third party consultants to provide services to the Company's customers partially offset by the sale of additional software licenses to existing customers who did not require significant additional implementation and training services. Service revenues as a percentage of total revenues have fluctuated and are expected to continue to fluctuate on a period to period basis based upon the demand for implementation, training and consulting services. MAINTENANCE. Revenues from maintenance increased 211.5% to $1.6 million in the quarter ended June 30, 1996 from $513,000 in the quarter ended June 30, 1995. In the first six months of 1996, revenues from maintenance increased 157.2% to $2.8 million from $1.1 million in the first six months of 1995. These increases were primarily due to a continued increase in the installed base of clients who have licensed Rhythm and a high percentage of maintenance agreement renewals. The Company expects that the dollar amount of maintenance revenues will continue to increase, but should not vary significantly from the percentage of total revenues achieved in the six months ended June 30, 1996. COSTS AND EXPENSES COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of (i) the cost of reproduction and delivery of the software, (ii) the cost of user documentation and (iii) royalty fees associated with third-party software included with the sales of Rhythm. Cost of software licenses was $118,000 and $6,000 in the quarters ended June 30, 1996 and 1995, representing 1.1% and 0.2% of software license revenues, respectively. Cost of software licenses was $1.6 million and $11,000 in the first six months of 1996 and 1995, representing 8.1% and 0.2% of software license revenues, respectively. The increases in cost of software licenses both in dollar amount and as a percentage of software license revenues were primarily due to the royalties paid to a third-party vendor during 1996 in connection with software license sales that included complementary software provided by such vendor. Although the Company did not incur expense obligations during 1995 under its agreements with third-party software vendors, the Company expects to continue to include third-party software with sales of Rhythm to the extent requested by customers. 9 10 COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance consists primarily of costs associated with consulting, training and development services. Cost of services and maintenance also includes the cost of providing software maintenance to customers such as hotline telephone support, new releases of software and updated user documentation, none of which costs have been significant to date. Cost of services and maintenance was $3.0 million and $676,000 in the quarters ended June 30, 1996 and 1995, representing 59.9% and 44.2% of service and maintenance revenues, respectively. Cost of services and maintenance was $4.6 million and $1.2 million in the first six months of 1996 and 1995, representing 56.7% and 42.7% of service and maintenance revenues, respectively. The increases in cost of services and maintenance both in dollar amount and as a percentage of service and maintenance revenues were primarily due to the increase in the number of consultants, product support and training staff and the increased use of third party consultants. The Company expects to continue to increase the number of consultants, product support and training staff in the future. SALES AND MARKETING. Sales and marketing expenses include personnel costs, commissions, office facilities, travel, promotional events such as trade shows, seminars and technical conferences, advertising and public relations programs. Sales and marketing expenses were $6.4 million and $2.1 million in the quarters ended June 30, 1996 and 1995, representing 41.1% and 38.1% of total revenues, respectively. These same expenses were $11.3 million and $3.2 million in the first six months of 1996 and 1995, representing 40.0% and 34.3% of total revenues, respectively. The increases in sales and marketing expenses both in dollar amount and as a percentage of total revenues were primarily due to (i) increased staffing as the Company established new domestic and international sales offices and expanded its existing direct sales force, (ii) increased sales commissions associated with significantly higher revenues and (iii) increased alliance and marketing activities. RESEARCH AND DEVELOPMENT. Research and development expenses were $3.0 million and $726,000 in the quarters ended June 30, 1996 and 1995, representing 19.1% and 13.4% of total revenues, respectively. These same expenses were $5.7 million and $1.2 million in the first six months of 1996 and 1995, representing 20.1% and 13.3% of total revenues, respectively. The increases in research and development expenses both in dollar amount and as a percentage of total revenues were primarily due to the hiring of additional research and development personnel and other related costs incurred in connection with expanding the Company's research and development department. The Company expects that the dollar amount of research and development expenses will continue to increase as the Company continues to invest in developing new products, applications and product enhancements. In accordance with Statement of Financial Accounting Standards No. 86, software development expenses are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. To date, the establishment of technological feasibility of the Company's products and general release of such software have substantially coincided. As a result, software development costs qualifying for capitalization have been insignificant, and therefore, the Company has not capitalized any software development costs. GENERAL AND ADMINISTRATIVE. General and administrative expenses include the personnel and other costs of the finance, human resources, information systems, administrative and executive departments of the Company and the fees and expenses associated with legal, accounting and other requirements. General and administrative expenses were $1.6 million and $595,000 in the quarters ended June 30, 1996 and 1995, representing 10.4% and 11.0% of total revenues, respectively. These same expenses were $2.9 million and $1.1 million in the first six months of 1996 and 1995, representing 10.3% and 11.8% of total revenues, respectively. The increase in dollar amount of general and administrative expenses was primarily the result of increased staffing and related costs associated with the growth of the Company's business during 1995 and the first six months of 1996. The decrease in general and administrative expenses as a percentage of total revenues was primarily due to the Company's ability to leverage its base of resources to support a larger organization. The Company expects that the dollar amount of general and administrative expenses will continue to increase in the foreseeable future. 10 11 OTHER INCOME (EXPENSE) Other income (expense) consists primarily of interest income on short-term investments and overnight repurchase agreements partially offset by interest expense on the Company's outstanding debt. Other income (expense) was $452,000 and ($24,000) in the quarters ended June 30, 1996 and 1995, representing 2.9% and (0.4%) of total revenues, respectively. Other income (expense) was $580,000 and ($22,000) in the first six months of 1996 and 1995, representing 2.0% and (0.2%) of total revenues, respectively. The increases in other income (expense) both in dollar amount and as a percentage of total revenues were primarily due to higher balances of cash, cash equivalents and short-term investments as a result of the initial public offering of the Company's common stock which was completed on May 1, 1996 and the repayment of a majority of the Company's outstanding debt in June 1996. PROVISION FOR INCOME TAXES The Company recorded income tax expense of $1.1 million and $865,000 in the first six months of 1996 and 1995, respectively. The Company's effective income tax rate was 38.5% in 1996 as compared to 34.2% in 1995. The Company's effective income tax rate was higher in 1996 due to the non-deductibility of the amortization of deferred compensation expense and higher effective state income tax rates. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has primarily financed its operations and met its capital expenditure requirements through cash flows from operations, long-term borrowings and recently, sales of equity securities. The Company's operating activities for the six months ended June 30, 1996 provided cash of $6.6 million. Cash provided by operations was primarily attributable to net income of $1.7 million, an increase in accrued liabilities of $3.2 million and an increase in deferred revenue of $4.2 million partially offset by an increase in contract receivables of $2.9 million. Cash used in investing activities for the six months ended June 30, 1996 was primarily related to the purchase of $2.8 million of computer equipment and office furniture and $28.9 million of short-term investments. At June 30, 1996, the Company did not have any material commitments for capital expenditures. As of June 30, 1996, the Company had $49.9 million of working capital, including $24.3 million in cash and cash equivalents and $28.9 million in short-term investments as compared to $5.9 million of working capital as of December 31, 1995, including $5.9 million of cash and cash equivalents. The increase in working capital was primarily caused by the initial public offering of 2,390,400 shares of its common stock which was completed on May 1, 1996 and generated net proceeds of $43.7 million after deducting offering expenses and the underwriting discount. Accounts receivable increased to $8.1 million at June 30, 1996 from $7.9 million at December 31, 1995 and the average days' sales outstanding, excluding contract receivables, was 37 days for the quarter ended June 30, 1996 as compared to 66 days for the year ended December 31, 1995. The decrease in average days' sales outstanding was primarily due to the collection of several large trade receivable balances outstanding at December 31, 1995. The Company expects its average days' sales outstanding to increase in future periods from the level at June 30, 1996. Average days' sales outstanding can fluctuate for a variety of reasons including the timing and billing of receivables in which the related revenues may not yet be recognizable. Contract receivables consist primarily of contractually scheduled amounts due from customers that, based on negotiations with the individual customers, provide for terms which are longer than typical trade terms. Contract receivables increased from $1.2 million at December 31, 1995 to $4.1 million at June 30, 1996 primarily due to the extended payment terms of a significant license agreement partially offset by collections of contract receivables outstanding at December 31, 1995. Based upon the nature of the Company's customers and its past collection experience, the Company does not expect to encounter collection difficulties with respect to such accounts that would have a material effect on the Company. Total deferred revenue increased to $12.0 million at June 30, 1996 from $7.8 million at December 31, 1995 primarily as a result of payments received from several customers for software expected to be delivered during the remainder of 1996 or the first six months of 1997. 11 12 The Company's revolving credit agreement with NationsBank of Texas, N.A. (the "Lender"), which was recently amended and extended until June 1, 1998, contains customary restrictive covenants, including covenants requiring the Company to maintain certain financial ratios. The revolving credit agreement is no longer subject to a borrowing base limitation and the borrowings under the revolving credit agreement bear interest at the Lender's prime lending rate (8.25% at June 30, 1996). As of June 30, 1996, the Company had $100,000 of borrowings outstanding under the revolving credit agreement. The maximum amount of borrowings under the credit agreement is $3.0 million. On June 11, 1996, the Company repaid all of the outstanding borrowings under the other credit agreements with the Lender of approximately $1.2 million. The Company believes that existing cash and cash equivalent balances, short-term investment balances, available borrowings under the revolving credit agreement and potential cash flow from operations will satisfy the Company's working capital and capital expenditure requirements for at least the next 12 months. However, any material acquisitions of complementary businesses, products or technologies could require the Company to obtain additional sources of financing. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS The Company's future operating results are dependent upon continued market acceptance of Rhythm and enhancements thereto. A decline in demand for, or market acceptance of, Rhythm as a result of competition, technological change or other factors would have a material adverse effect on the Company's business, operating results and financial condition. A significant portion of the Company's revenues in any quarter are typically derived from a limited number of large, non-recurring license sales. For example, a single customer accounted for a majority of the Company's revenues in the quarter ended June 30, 1996 and a different customer accounted for a majority of the Company's revenues in the quarter ended June 30, 1995. License agreements entered into during a quarter may not meet the Company's revenue recognition criteria and, as such, the Company could meet or exceed its forecast of aggregate license activity without meeting its forecast for license revenues. The Company's sales cycle is typically six to nine months and varies substantially from customer to customer. In addition, sales derived through indirect channels, which may have lower margins than direct sales and are harder to predict, may in the future increase as a percentage of total revenues. Quarterly fluctuations also depend on factors such as the size and timing of significant orders, increased competition, the timing of release and market acceptance of new or enhanced versions of the Company's products, changes in pricing policies of the Company or its competitors, budgeting cycles of its customers, changes in operating expenses, foreign currency exchange rate fluctuations and general economic factors. Furthermore, the Company believes that the purchase of its products is relatively discretionary and generally involves a significant commitment of capital. As a result, purchases of the Company's products may be deferred or canceled in the event of a downturn in any potential customer's business or the economy in general. The Company's expense levels are based, in part, on its expected future revenues. If revenues are below expectations, operating results and net income are likely to be adversely and disproportionately affected because a significant portion of the Company's expenses do not vary with revenues. The Company may choose to reduce prices or invest significant resources in research and development efforts in response to competition or to pursue new market opportunities. There can be no assurance that revenues will grow in future periods, that they will grow at historical rates, or that the Company will remain profitable. Amortization of deferred compensation was $185,000 and $414,000 in the three and six months ended June 30, 1996, respectively, and the unamortized balance of deferred compensation at June 30, 1996 was $2.2 million. The unamortized balance of the deferred compensation will be expensed ratably over the vesting periods of the options (primarily four years) and therefore, will continue to impact the Company's operating results through 2000. As a result of these and other factors, the Company's quarterly results are likely to be subject to significant fluctuations in the future. Furthermore, there can be no assurance that the Company's historical growth rates or operating margins can be sustained in the future. 12 13 i2 TECHNOLOGIES, INC. PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit Index Number Exhibit Description ------ --------------------------------------------- 10.1 Third Modification Agreement, dated April 26, 1996, between the Company and NationsBank of Texas, N.A. 10.2 Fourth Modification Agreement, dated June 26, 1996, between the Company and NationsBank of Texas, N.A. 10.3 Fifth Extension and Modification Agreement, dated June 30, 1996, between the Company and NationsBank of Texas, N.A. 11.1 Statement of Computation of Net Income Per Share 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended June 30, 1996. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. i2 TECHNOLOGIES, INC. ------------------------------------------------- August 9, 1996 /s/ Sanjiv S. Sidhu -------------- ------------------------------------------------- (Date) Sanjiv S. Sidhu Chairman of the Board and Chief Executive Officer (Principal executive officer) August 9, 1996 /s/ David F. Cary -------------- ------------------------------------------------- (Date) David F. Cary Vice President and Chief Financial Officer (Principal finance and accounting officer) 14 15 INDEX TO EXHIBITS
Number Exhibit Description Page - ------ ------------------- ---- 10.1 Third Modification Agreement, dated April 26, 1996, between the Company and NationsBank of Texas, N.A. 16 10.2 Fourth Modification Agreement, dated June 26, 1996, between the Company and NationsBank of Texas, N.A. 17-18 10.3 Fifth Extension and Modification Agreement, dated June 30, 1996, between the Company and NationsBank of Texas, N.A. 19-21 11.1 Statement of Computation of Net Income Per Share 22 27.1 Financial Data Schedule 23
15 EX-10.1 2 THIRD MODIFICATION AGREEMENT 1 THIRD MODIFICATION AGREEMENT THIS THIRD MODIFICATION AGREEMENT (the "Third Agreement") is entered into and effective as of April 26, 1996, by and among i2 Technologies, Inc., a Delaware corporation, with its principal office at 909 E. Las Colinas Boulevard, 16th Floor, Irving, Texas 75039 ("Borrower") and NationsBank of Texas, N.A., a national banking association, with offices at 901 Main Street, Dallas, TX 75202 ("Bank"). WITNESSETH: WHEREAS, Borrower and Bank entered into that certain Loan Agreement, dated as of August 11, 1994, as modified by the Loan Increase and First Modification Agreement dated May 26, 1995 and the Second Modification Agreement dated December 31, 1995, (as modified, the "Loan Agreement"), pursuant to which Bank agreed to make loans and advances to Borrower in accordance with the terms thereof. WHEREAS, Borrower and Bank now desire to amend the Loan Agreement in certain particulars. NOW THEREFORE, in consideration of these premises, the promises, mutual covenants and agreements contained in this Third Agreement, and fully intending to be legally bound by this Third Agreement, Borrower and Bank hereby agree as follows: 1. Effective April 26, 1996, the Section 5.C. of the Loan Agreement is hereby deleted in its entirety and replaced with the following: C. Extensions of Credit. Have any outstanding loans or advances to any individual, partnership, corporation or other entity, in excess of an aggregate of $1,500,000 at any one time. 2. Except as amended hereby, the Loan Agreement is and shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Third Agreement as of the date and year first above written. BORROWER: BANK: i2 TECHNOLOGIES, INC. NATIONSBANK OF TEXAS, N.A. BY: BY: --------------------------------- ---------------------------------- NAME: David F. Cary NAME: Rachel R. Johnston TITLE: Vice President & Chief TITLE: Vice President Financial Officer EX-10.2 3 FOURTH MODIFICATION AGREEMENT 1 FOURTH MODIFICATION AGREEMENT THIS FOURTH MODIFICATION AGREEMENT (the "Fourth Agreement") is entered into and effective as of June 26, 1996, by and among i2 Technologies, Inc., a Delaware corporation, with its principal office at 909 E. Las Colinas Boulevard, 16th Floor, Irving, Texas 75039 ("Borrower") and NationsBank of Texas, N.A., a national banking association, with offices at 901 Main Street, Dallas, TX 75202 ("Bank"). WITNESSETH: WHEREAS, Borrower and Bank entered into that certain Loan Agreement, dated as of August 11, 1994, as modified by the Loan Increase and First Modification Agreement dated May 26, 1995, the Second Modification Agreement dated December 31, 1995 and the Third Modification Agreement dated April 26, 1996, (as modified, the "Loan Agreement"). WHEREAS, the Bank has made the following loans to Borrower: (i) that certain revolving line of credit evidenced by that certain Amended and Restated Promissory Note (the "Revolving Note") dated May 26, 1995 in the original face amount of $3,000,000.00, (ii) that certain term loan evidenced by that certain Amended and Restated Promissory Note (the "Term Note") dated May 26, 1995 in the original face amount of $860,059.89, and (iii) that certain term loan evidenced by that certain Promissory Note (the "New Equipment Note") dated May 26, 1995 in the original amount of $500,000.00, (collectively, the "Loans"). WHEREAS, Borrower has paid off the Term Note and the New Equipment Note in full. WHEREAS, Borrower and Bank now desire to amend the Loan Agreement in certain particulars. NOW THEREFORE, in consideration of these premises, the promises, mutual covenants and agreements contained in this Fourth Agreement, and fully intending to be legally bound by this Fourth Agreement, Borrower and Bank hereby agree as follows: 1. Collateral is no longer required by the Bank on the Loans. Therefore, Section 2.F. of the Loan Agreement is hereby deleted in its entirety. 2. The Liquidity Test which was made a part of the Loan Agreement in the Loan Increase and First Modification Agreement is no longer required by the Bank. Thus, the Liquidity Test as described in Exhibit "B" of the Loan Agreement is deleted in its entirety. 3. Effective June 1, 1996, the interest rate on the revolving line of credit shall be reduced to Prime plus 0.0% from Prime plus 1.0% as evidenced by a new promissory note (the "New Revolving Note") dated June 1, 1996, in the face amount of $3,000,000.00, executed by the Borrower, payable to the order of the Bank. The New Revolving Note will replace the existing Revolving Note dated May 26, 1995. 4. Except as amended hereby, the Loan Agreement is and shall remain in full force and effect. 2 IN WITNESS WHEREOF, the parties hereto have executed this Fourth Agreement as of the date and year first above written. BORROWER: BANK: i2 TECHNOLOGIES, INC. NATIONSBANK OF TEXAS, N.A. BY: BY: ------------------------------- ---------------------------------- NAME: Sanjiv Sidhu NAME: Rachel R. Johnston TITLE: President TITLE: Vice President EX-10.3 4 FIFTH EXTENSION & MODIFICATION AGREEMENT 1 FIFTH EXTENSION AND MODIFICATION AGREEMENT THIS FIFTH EXTENSION AND MODIFICATION AGREEMENT (this "Agreement") is entered into as of the 30th day of June, 1996, by and between i2 TECHNOLOGIES, INC., a Delaware corporation ("Borrower") and NATIONSBANK OF TEXAS, N.A., a national banking association ("Bank"). Unless otherwise defined herein or the context indicates otherwise, any term herein beginning with a capitalized letter shall have the meaning ascribed to such term in that certain Loan Agreement (the "Loan Agreement") dated as of August 11, 1994, between Borrower and Bank, as modified pursuant to that certain (i) Loan Increase and First Modification Agreement dated as of May 26, 1995, executed by and between Borrower and Bank, and acknowledged and consented to by Sidhu and Singh, (ii) Second Modification Agreement dated as of December 31, 1995, executed by and between Borrower and Bank, and acknowledged and consented to by Sidhu and Singh, (iii) Third Modification Agreement dated as of April 26, 1996, executed by and between Borrower and Bank, and (iv) Fourth Modification Agreement dated as of June 26, 1996, executed by and between Borrower and Bank. W I T N E S S E T H: WHEREAS, Bank has offered to Borrower a revolving line of credit (the "Line") evidenced by that certain Renewal Promissory Note (the "Renewal Note") dated June 1, 1996, in the original face amount of $3,000,000.00, executed by Borrower and payable to the order of Bank; WHEREAS, Borrower has requested that (i) the commitment termination date with respect to the Line be extended from June 1, 1997 to June 1, 1998, and (ii) that the requirement for the Borrowing Base Agreement be eliminated, and Bank has agreed to Borrower's requests, provided that Borrower agrees to the terms and conditions of this Agreement. NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, That for and in consideration of the terms and conditions contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, Bank and Borrower hereby agree as follows: 1. Modification of Loan Agreement. The Loan Agreement is hereby modified as follows: (a) The commitment termination date of the Line is hereby extended from June 1, 1997 to June 1, 1998. (b) In the second line of Section 2.A. of the Loan Agreement "$4,360,059.89" is hereby changed to "$3,000,000" and Section 2.B. of the Loan Agreement is hereby deleted in its entirety and replaced with the following: FIFTH EXTENSION AND MODIFICATION AGREEMENT Page 1 2 B. LOAN FACILITY. The Loan provides for a revolving line of credit (the "Line") under which Borrower may from time to time, borrow, repay and re-borrow up to $3,000,000. (c) Section 2.D. and Exhibit "A" of the Loan Agreement are hereby deleted in their entirety. (d) Section 4.A.i. of the Loan Agreement is hereby deleted in its entirety and replaced with the following: i. Have, as of the last day of each calendar quarter, no less than the Required Minimum Tangible Net Worth. As used herein, the term "Required Minimum Tangible Net Worth" shall mean $40,000,000 for the calendar quarter ending June 30, 1996, and for each calendar quarter thereafter until June 30, 1998, an amount equal to (i) $40,000,000, plus (ii) an amount (not less than zero) equal to the sum of (a) at least fifty percent (50%) of the net income of Borrower calculated on a cumulative basis commencing July 1, 1996, plus (b) at least one hundred percent (100%) of the proceeds from any future equity offerings of Borrower. (e) Section 4.A.ii. of the Loan Agreement is hereby deleted in its entirety and replaced with the following: ii. Maintain a ratio of total liabilities less deferred revenue to Tangible Net Worth of not more than 1.0 to 1.0 for each calendar quarter. Calculation is defined as Total Liabilities (as determined in accordance with GAAP) less deferred revenue divided by Tangible Net Worth as previously defined. 2. Commitment Fee. In consideration of the commitment of Bank to make the Loan as provided herein and in the other Loan Documents, Borrower shall pay to Bank on or before the date hereof a nonrefundable commitment fee equal to one-fourth of one percent (1/4%) of the Line (being $7,500.00). Borrower and Bank acknowledge and agree that this commitment fee is a bona fide commitment fee and is intended as reasonable compensation to Bank for committing to make funds available to Borrower as described herein and in the other Loan Documents and for no other purpose. 3. Representations, Warranties and Agreements of Borrower. Borrower hereby represents and warrants to, and agrees with, Bank that (a) this Agreement has been duly and validly executed and delivered by Borrower, constitutes a valid and legally binding obligation of Borrower, enforceable in accordance with its terms, and shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, representatives, successors and assigns, (b) Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement and the other Loan Documents, (c) except as otherwise expressly modified by FIFTH EXTENSION AND MODIFICATION AGREEMENT Page 2 3 this Agreement, all terms and provisions of the Loan Agreement, the Renewal Note and the other Loan Documents shall remain unchanged and hereby are ratified and confirmed and shall be and shall remain in full force and effect, and (d) this Agreement shall control in the case of any inconsistency between the terms and provisions hereof and those contained in the other Loan Documents. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT FEDERAL LAWS PREEMPT THE LAWS OF THE STATE OF TEXAS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, this Agreement is executed effective as of the date first written above. BORROWER: BANK: i2 TECHNOLOGIES, INC., a NATIONSBANK OF TEXAS, N.A., a Delaware corporation national banking association By: By: ---------------------------- --------------------------------------- Sanjiv Sidhu, President Rachel R. Johnston, Vice President FIFTH EXTENSION AND MODIFICATION AGREEMENT Page 3 EX-11.1 5 STATEMENT OF COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11.1 i2 TECHNOLOGIES, INC. STATEMENT OF COMPUTATION OF NET INCOME PER SHARE (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 1995 1996 1995 1996 ------- ------- ------- ------- PRIMARY NET INCOME PER SHARE (1): Weighted average number of common shares outstanding 16,000 23,741 16,000 22,791 Common shares issuable on exercise of stock options, net of shares assumed to be repurchased at the average market price (2) 7,895 3,686 7,611 3,581 Common shares related to SAB No. 64 and 83 (2) (3) 909 -- 909 -- ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding 24,804 27,427 24,520 26,372 ======= ======= ======= ======= Net income $ 880 $ 1,180 $ 1,663 $ 1,687 ======= ======= ======= ======= Net income per share $ 0.03 $ 0.04 $ 0.07 $ 0.06 ======= ======= ======= ======= FULLY DILUTED NET INCOME PER SHARE: Weighted average number of common shares outstanding 16,000 23,741 16,000 22,791 Common shares issuable on exercise of stock options, net of shares assumed to be repurchased at the period-end market price, if higher than the average market price (2) 7,895 3,722 7,892 3,698 Common shares related to SAB No. 64 and 83 (2) (3) 909 -- 909 -- ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding 24,804 27,463 24,801 26,489 ======= ======= ======= ======= Net income $ 880 $ 1,180 $ 1,663 $ 1,687 ======= ======= ======= ======= Net income per share $ 0.03 $ 0.04 $ 0.07 $ 0.06 ======= ======= ======= =======
(1) The Company reports primary net income per share as the effect of dilutive securities is less than 3%. (2) In computing these amounts, the funds used in applying the treasury stock method include the compensation related to stock options which will be charged to expense in the future. (3) Common and common equivalent shares issued within 12 months of the initial filing of the Company's Registration Statement on Form S-1 are included in this line item for the three months and six months ended June 30, 1995. See Note 2 of Notes to Condensed Consolidated Financial Statements. 22 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 24,281 28,933 8,500 353 0 68,277 6,988 2,008 73,317 18,412 0 6 0 0 54,485 54,491 20,212 28,263 1,633 6,196 19,904 59 71 2,743 1,056 1,687 0 0 0 1,687 .06 .06
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