-----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, Mz8BFPSn5vg6Cm8vMsx+2EAMNgGeOY9rqMVSjBgcB7+zIuDpEPdJZrm1wL6a2x2D E+izpMiFQ4h2CLKQKmbTFg== 0000950134-97-005084.txt : 19970702 0000950134-97-005084.hdr.sgml : 19970702 ACCESSION NUMBER: 0000950134-97-005084 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970701 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28030 FILM NUMBER: 97634913 BUSINESS ADDRESS: STREET 1: 909 E LAS COLINAS BLVD STREET 2: 16TH FL CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 2148606000 MAIL ADDRESS: STREET 1: 909 E LAS COLINAS BLVD STREET 2: 16TH FLOOR CITY: IRVING STATE: TX ZIP: 75039 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 1, 1997 ------------------------------- i2 TECHNOLOGIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) Delaware 0-28030 75-2294945 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 909 E. Las Colinas Blvd., 16th Floor, Irving, Texas 75039 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Company's telephone number, including area code: (214) 860-6000 ------------------------------- - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) 2 ITEM 5. OTHER EVENTS. On May 15, 1997, i2 Technologies, Inc. (the "Registrant") acquired Think Systems Corporation, a New Jersey corporation ("Think"), by statutory merger of a wholly owned subsidiary of the Registrant with and into Think (the "Think Merger"). In connection with the Think Merger, the Registrant entered into an agreement to acquire all of the outstanding capital stock of Think Systems Private Limited, an Indian corporation ("Think India") controlled by the former principal shareholders of Think. The acquisition of Think India is subject to a number of conditions, including requisite Indian regulatory approval. Also on May 15, 1997, the Registrant acquired Optimax Systems Corporation, a Delaware corporation ("Optimax"), by statutory merger of a wholly owned subsidiary of the Registrant with and into Optimax. Additional information regarding each merger is presented in the Registrant's previously filed Current Report on Form 8-K dated May 15, 1997 and Current Report on Form 8-K dated June 12, 1997, as amended. Each merger was accounted for as a pooling of interests. The Registrant is providing supplemental management's discussion and analysis of financial condition and results of operations and supplemental condensed consolidated financial statements which give retroactive effect to the mergers and include the combined operations of the Registrant, Think, Think India and Optimax for all periods presented. The supplemental condensed consolidated financial statements will become the historical financial statements of the Registrant after financial statements that include the date of consummation of the mergers are issued. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) Exhibits.
No. Description --- ------------- 11.1 Supplemental Statement of Computation of Net Income per Share. 27.1 Supplemental Financial Data Schedule. 99.1 Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations of the Registrant for the Three Months ended March 31, 1996 and 1997.
-2- 3
99.2 The following Supplemental Condensed Consolidated Financial Statements of the Registrant: Page ---- 1. Supplemental Condensed Consolidated Balance Sheets as of December 31, 1996 and March 31, 1997 .................................F-1 2. Supplemental Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1996 and 1997...............................................................F-2 3. Supplemental Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1997...............................................................F-3 4. Notes to Supplemental Condensed Consolidated Financial Statements..................................................................F-4
-3- 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. i2 TECHNOLOGIES, INC. Dated: July 1, 1997 By: /s/ David F. Cary -------------------------------------- David F. Cary, Vice President and Chief Financial Officer -4- 5 EXHIBIT INDEX Exhibit Number - ------- 11.1 Supplemental Statement of Computation of Net Income per Share. 27.1 Supplemental Financial Data Schedule. 99.1 Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations of the Registrant for the Three Months ended March 31, 1996 and 1997. 99.2 The following Supplemental Condensed Consolidated Financial Statements of the Registrant:
Page ------ 1. Supplemental Condensed Consolidated Balance Sheets as of December 31, 1996 and March 31, 1997 ..............................F-1 2. Supplemental Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1996 and 1997 ...........................................................F-2 3. Supplemental Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1997 .............................................. ............F-3 4. Notes to Supplemental Condensed Consolidated Financial Statements...............................................................F-4
EX-11.1 2 STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11.1 i2 TECHNOLOGIES, INC. SUPPLEMENTAL STATEMENT OF COMPUTATION OF NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended March 31, ---------------------------- 1996 1997 ------- ------- PRIMARY NET INCOME PER SHARE (1): Weighted average number of common shares outstanding 25,798 29,007 Common shares issuable on exercise of stock options, net of shares assumed to be repurchased at the average market price (2) 3,560 4,445 ------- ------- Weighted average common and common equivalent shares outstanding 29,358 33,452 ======= ======= Net income $ 1,526 $ 1,491 ======= ======= Net income per share $ 0.05 $ 0.04 ======= ======= FULLY DILUTED NET INCOME PER SHARE: Weighted average number of common shares outstanding 25,798 29,007 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) 3,705 4,492 ------- ------- Weighted average common and common equivalent shares outstanding 29,503 33,499 ======= ======= Net income $ 1,526 $ 1,491 ======= ======= Net income per share $ 0.05 $ 0.04 ======= =======
(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. EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 38,359 24,794 32,517 1,171 0 98,418 15,863 5,662 109,817 38,346 0 0 0 7 71,107 109,817 22,583 35,765 1,291 34,074 (754) 772 7 2,445 954 1,491 0 0 0 1,491 0.04 0.04
EX-99.1 4 SUPPLEMENTAL MD&A 1 EXHIBIT 99.1 i2 TECHNOLOGIES, INC. SUPPLEMENTAL MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company develops, markets and sells client/server-based decision support software products for supply chain management and related applications. The Company also provides services such as consulting, training and maintenance related to these products. Supply chain management encompasses the planning and scheduling of manufacturing and related logistics, from raw materials procurement through work-in-process to customer delivery to demand forecasting. The Company's supply chain management software solution, Rhythm(R), enables customers to model complex, multi-site supply chains and rapidly generate integrated solutions to supply chain problems such as demand forecasting, production bottlenecks, supply interruptions and customer order changes. Rhythm utilizes a unique, constraint-based methodology which simultaneously considers a broad range of constraints -- from machine capabilities to individual customer commitments to changing revenue forecasts -- to optimize all aspects of the supply chain including manufacturing and logistics. This report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements and other statements made elsewhere in this report are made in reliance on the Private Securities Litigation Reform Act of 1995. The section below entitled "Factors That May Affect Future Results" sets forth and incorporates by reference certain factors that could cause actual future results of the Company to differ materially from these statements. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentages that selected items in the unaudited Supplemental 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 March 31, ---------------------------- 1996 1997 ------- ------- Revenues: Software licenses 72.3% 63.1% Services 18.5 26.2 Maintenance 9.2 10.7 ------- ------- Total revenues 100.0 100.0 ------- ------- Costs and expenses: Cost of software licenses 0.1 3.6 Cost of software and maintenance 16.2 22.8 Sales and marketing 37.7 38.1 Research and development 20.0 21.1 General and administrative 11.1 9.7 ------- ------- Total costs and expenses 85.1 95.3 ------- ------- Operating income 14.9 4.7 Other income 0.9 2.1 ------- ------- Income before income taxes 15.8 6.8 Provision for income taxes 5.9 2.6 ------- ------- Net income 9.0% 4.2% ======= =======
1 2 REVENUES 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 implementation, consulting and training services and are recognized as the services are performed. Maintenance revenues are derived from customer support agreements generally entered into in connection with 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. Total revenues increased 132.3% to $35.8 million in the quarter ended March 31, 1997 from $15.4 million in the quarter ended March 31, 1996. The Company currently derives substantially 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 in 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 102.8% to $22.6 million in the quarter ended March 31, 1997 from $11.1 million in the quarter ended March 31, 1996. Software license revenues constituted 63.1% and 72.3% of total revenues in the quarters ended March 31, 1997 and 1996, respectively. The significant increase in the dollar amount of software license revenues was primarily due to growing market acceptance of the Company's software products, a substantial investment in the Company's infrastructure and continued expansion into new geographic and vertical markets. These factors contributed to an increase in the number of Rhythm licenses sold during the quarter ended March 31, 1997 as compared to the quarter ended March 31, 1996. To date, sales of software licenses have principally been derived from direct sales to customers. Although the Company believes that direct sales will continue to account for a majority of software license revenues, the Company's strategy is to increase the level of indirect sales activities. The Company expects that sales of its software products through sales alliances, distributors, resellers and other indirect channels will increase as a percentage of software license revenues. However, there can be no assurance that the Company's efforts to expand indirect sales will be successful. SERVICES. Revenues from services increased 229.0% to $9.4 million in the quarter ended March 31, 1997 from $2.8 million in the quarter ended March 31, 1996. Service revenues constituted 26.2% and 18.5% of total revenues in the quarters ended March 31, 1997 and 1996, respectively. The significant increase in the dollar amount of service revenues was primarily due to the significant increase in the number of Rhythm licenses sold and a significant investment in the Company's consulting organization as a result of the increased demand for the Company's products. This increase was also due to an increase in the use of third party consultants to provide implementation services to the Company's customers which has allowed the Company to more rapidly penetrate international markets. 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, consulting and training services. MAINTENANCE. Revenues from maintenance increased 170.2% to $3.8 million in the quarter ended March 31, 1997 from $1.4 million in the quarter ended March 31, 1996. Maintenance revenues constituted 10.7% and 9.2% of total revenues in the quarters ended March 31, 1997 and 1996, respectively. The increase in dollar amount of maintenance revenues was primarily due to the continued increase in the number of Rhythm licenses sold 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 quarter ended March 31, 1997. 2 3 INTERNATIONAL REVENUES. The Company's international revenues, primarily generated from customers located in Asia, Canada and Europe, were approximately 33% and 16% of total revenues in the quarters ended March 31, 1997 and 1996, respectively. The significant increase in international revenues as a percentage of total revenues was primarily due to the continued international expansion of the Company's sales operations. The Company believes that continued growth and profitability will require expansion of its sales in international markets. In order to successfully increase international sales, the Company has utilized and will continue to utilize substantial resources to expand existing international operations, establish additional international operations and hire additional personnel. 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, (iii) royalty fees associated with third-party software included with the sales of Rhythm and (iv) commissions paid to third-parties in connection with joint marketing and other related agreements. Cost of software licenses was $1.3 million and $15,000 in the quarters ended March 31, 1997 and 1996, representing 5.7% and 0.1% 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 an increase in commissions paid to third-parties in connection with joint marketing and other related agreements. COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance consists primarily of costs associated with implementation, consulting and training 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 $8.2 million and $2.5 million in the quarters ended March 31, 1997 and 1996, representing 61.9% and 58.4% of total services and maintenance revenues, respectively. The increases in cost of services and maintenance both in dollar amount and as a percentage of total services 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 to provide implementation services. In addition, consulting and support centers were established in Canada, Europe and Japan in the latter half of 1996. The Company expects to continue to increase the number of its consulting, product support and training staff in the foreseeable future as a means to expand into different geographic and vertical markets. To the extent that the Company's license sales do not increase at anticipated rates, the hiring of additional consultants could adversely affect the Company's gross margins. 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 $13.6 million and $5.8 million in the quarters ended March 31, 1997 and 1996, representing 38.1% and 37.7% of total revenues, respectively. The increases in sales and marketing expenses 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 as a result of significantly higher revenues and (iii) increased marketing and promotional activities. The Company expects to continue to significantly increase its sales and marketing activities in order to expand its international sales operations and to enter into new vertical markets. The Company believes that the dollar amount of sales and marketing expenses will continue to increase, but should not vary significantly as a percentage of total revenues from the level experienced in the quarter ended March 31, 1997. RESEARCH AND DEVELOPMENT. Research and development expenses were $7.5 million and $3.1 million in the quarters ended March 31, 1997 and 1996, representing 21.1% and 20.0% of total revenues, respectively. The increase in research and development expenses was 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 for new vertical markets. 3 4 In accordance with Statement of Financial Accounting Standards No. 86, software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. To date, the establishment of technological feasibility of 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 $3.5 million and $1.7 million in the quarters ended March 31, 1997 and 1996, representing 9.7% and 11.1% 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 1996 and the first quarter of 1997. The decrease in general and administrative expenses as a percentage of total revenues was primarily due to the substantial increase in total revenues and 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. OTHER INCOME Other income 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 was $754,000 and $133,000 in the quarters ended March 31, 1997 and 1996, representing 2.1% and 0.9% of total revenues, respectively. The increase in other income both in dollar amount and as a percentage of total revenues was primarily due to interest earned on higher balances of cash, cash equivalents and short-term investments resulting from net proceeds of the initial public offering of the Company's common stock which was completed in May 1996 and a decrease in interest expense due to 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 $954,000 and $905,000 in the quarters ended March 31, 1997 and 1996, respectively. The Company's effective income tax rate was 39.0% in the quarter ended March 31, 1997 as compared to 37.2% in the quarter ended March 31, 1996. The Company's effective income tax rate was higher in the first quarter of 1997 primarily due to a higher expected federal income tax rate in 1997. 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 through sales of equity securities. The Company's operating activities provided cash of $11.2 million in the quarter ended March 31, 1997 as compared to $9.6 million in the quarter ended March 31, 1996. Operating cash flows have increased primarily due to an increase in accrued liabilities and a decrease in accounts receivable. Accrued liabilities have increased primarily as a result of increased third-party commissions, accrued compensation and related expenses. Accounts receivable, net of allowance for doubtful accounts, decreased to $31.3 million at March 31, 1997 from $33.6 million at December 31, 1996, primarily due to the collection of several large trade receivable balances outstanding at December 31, 1996. 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's financial position or results of operations. 4 5 Average days' sales outstanding was 82 days for the quarter ended March 31, 1997 as compared to 76 days for the year ended December 31, 1996. The increase in average days outstanding was primarily due to an increase in receivables from customers located in foreign countries which tend to have longer payment terms compared to customers located in the United States. 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. Cash used in investing activities was $9.0 million in the quarter ended March 31, 1997 as compared to $4.5 million in the quarter ended March 31, 1996. The increase in cash used in investing activities was primarily due to the increase in the net purchases of short-term investments. At March 31, 1997, the Company did not have any material commitments for capital expenditures. As of March 31, 1997, the Company had $60.1 million of working capital, including $38.4 million in cash and cash equivalents and $24.8 million in short-term investments as compared to $58.8 million of working capital as of December 31, 1996, including $36.1 million in cash and cash equivalents and $18.0 million in short-term investments. The Company has a revolving credit agreement with NationsBank of Texas, N.A. (the "Lender") which expires on June 1, 1998, is unsecured and contains customary restrictive covenants, including covenants requiring the Company to maintain certain financial ratios. The revolving credit agreement is not subject to a borrowing base limitation and the borrowings thereunder bear interest at the Lender's prime lending rate (8.50% at March 31, 1997). At March 31, 1997, the Company had $100,000 of borrowings outstanding under the revolving credit agreement, and the maximum amount of borrowings allowable under the revolving credit agreement was $3.0 million. The Company continues to review acquisition and joint venture candidates with leading-edge products and technologies that could enhance the Company's product offering. The technologies associated with the products of the acquired businesses would be incorporated into the Company's existing internally developed products or would be used in developing new client/server, open systems products. Any material acquisition or joint venture could result in a decrease to the Company's working capital depending on the amount, timing and nature of the consideration to be paid. 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. FACTORS THAT MAY AFFECT FUTURE RESULTS Numerous factors may affect the Company's business and results of operations. These factors include, but are not limited to, the potential for significant fluctuations in quarterly results; the reliance on Rhythm and related products and services for substantially all of the Company's revenues; the level and intensity of competition in the supply chain management market; the Company's ability to continue to improve its infrastructure (including personnel and systems) to manage the substantial growth of the Company; the integration of recent acquisitions; dependence upon key personnel; the timing of the release and market acceptance of new or enhanced versions of the Company's software products; intellectual property rights; the international expansion of the Company's operations; the complexity of the Company's existing software products and new products expected to be developed; and general economic and business conditions. The discussion below addresses some of these factors. For a more thorough discussion of these and other factors that may affect the Company's future results, see the discussion under the caption "Factors That May Effect Future Results" in Exhibit 99.2 to the Company's Current Report on Form 8-K dated June 12, 1997, as amended. MARKET ACCEPTANCE 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. 5 6 POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS; OPERATING LEVERAGE The Company's quarterly revenues, expenses and operating results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. Because the purchase of a supply chain management software solution generally involves a significant commitment of capital, the sales cycle associated with the purchase of the Company's products is typically six to nine months and subject to a number of significant risks, including customers' budgetary constraints, timing of budget cycles and concerns about the introduction of new products by the Company or its competitors, factors over which the Company has little or no control. Furthermore, 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. As a result, the timing of significant orders is unpredictable and, like many other software companies, the Company typically realizes a significant portion of its software license revenues in the last month of a quarter. In addition, the amount of revenues associated with particular licenses can vary significantly based upon the number of software modules purchased and the number of sites and users involved in the installation. The Company has experienced and may continue to experience from time to time very large, individual license sales which can cause significant variations in quarterly license revenues. Moreover, small delays in customer orders can cause significant variability in the Company's license revenues and results of operations for any particular period. 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 also choose to reduce prices, invest significant resources in research and development efforts or pursue new market opportunities in response to competition. There can be no assurance that revenues will grow in future periods, that they will grow at historical rates, or that the Company will maintain positive operating margins in future quarters. INTEGRATION OF RECENT ACQUISITIONS The acquisitions of Think Systems Corporation ("Think") and Optimax Systems Corporation ("Optimax") involve the integration of companies that have previously operated independently. Among the factors considered by the Company's Board of Directors in connection with its approval of each acquisition was the opportunity for the Company to broaden its product offering and provide a more comprehensive solution by incorporating the Think and Optimax software solutions into Rhythm. However, no assurance can be given that the Company will not encounter difficulties in integrating the respective operations of the Company, Think and Optimax or that the benefits expected from such integration will be realized. In addition, there can be no assurance that the Company will not experience the loss of key Think and Optimax personnel. Failure to successfully integrate Think's and Optimax's respective operations into the Company's operations could have a material adverse effect on the Company's business, operating results and financial condition. COMPLEXITY OF SOFTWARE PRODUCTS; RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS Rhythm is a client/server solution which can operate on platforms from Digital Equipment, Hewlett-Packard, IBM, Sun Microsystems, Solaris and Microsoft and can access data from most widely used SQL (structured query language) databases, including Informix, Oracle and Sybase. Based upon demand in the marketplace, the Company may identify additional platforms on which to port its software products; however, such platforms may not be architecturally compatible with Rhythm's software product design. Therefore, no assurance can be given concerning the continued successful porting of the Company's software products on these or additional platforms, the timing of completion of any such ports or the acceptance of the Company's applications in the marketplace. The market for the Company's software products is characterized by rapid technological advances, evolving industry standards in computer hardware and software technology, changes in customer requirements and frequent new product introductions and enhancements. The Company's future success will depend upon its ability to continue to enhance its current product line and to develop and introduce new products that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance. There can be no assurance that the Company will be successful in developing and marketing, on a timely and cost-effective basis, fully functional product enhancements or new products that respond to technological advances by others, or that its new 6 7 products will achieve market acceptance. The Company's failure to successfully develop and market product enhancements or new products could have a material adverse effect on the Company's business, operating results and financial condition. As a result of the complexities inherent in client/server computing environments and the broad functionality and performance demanded by customers for supply chain management products, major new products and product enhancements can require long development and testing periods. In addition, software programs as complex as those offered by the Company may contain undetected errors or "bugs" when first introduced or as new versions are released that, despite testing by the Company, are discovered only after a product has been installed and used by customers. While the Company has on occasion experienced delays in the scheduled introduction of new and enhanced products and products containing bugs, to date the Company's business has not been materially adversely affected by delays or the release of products containing errors. There can be no assurance, however, that errors will not be found in future releases of the Company's software, or that such errors will not impair the market acceptance of these products and adversely affect the Company's business, operating results and financial condition. While the Company generally takes steps to avoid interruptions of sales often associated with the pending availability of new products, customers may delay their purchasing decisions in anticipation of the general availability of new or enhanced Rhythm products, which could have a material adverse effect on the Company's business and operating results. Moreover, significant delays in the general availability of such new releases, significant problems in the installation or implementation of such new releases, or customer dissatisfaction with such new releases, could have a material adverse effect on the Company's business, operating results and financial condition. INTERNATIONAL OPERATIONS AND CURRENCY FLUCTUATIONS The Company has utilized, and intends to continue to utilize substantial resources to expand existing international operations, establish additional international operations and hire additional personnel. International expansion of the Company's operations has required, and will continue to require the Company to translate its software and manuals into foreign languages. To date, the Company has translated its software into Asian, European and Latin American languages. To the extent the Company is unable to expand its international operations or translate its software and manuals into foreign languages in a timely manner, it is likely to adversely impact the Company's operating results. In addition, even if international operations are successfully expanded, there can be no assurance that the Company will be able to maintain or increase international market demand for its products. The Company's international operations are subject to risks inherent in international business activities, including, in particular, management of an organization spread over various countries, longer accounts receivable payment cycles in certain countries, compliance with a variety of foreign laws and regulations, unexpected changes in regulatory requirements, overlap of different tax structures, foreign currency exchange rate fluctuations and general economic conditions. To date, the Company's revenues from international operations have primarily been denominated in United States dollars. However, to the extent significant sales have been in the past or are in the future denominated in foreign currencies, the Company has implemented and intends in the future to implement hedging programs to mitigate its exposure to foreign currency fluctuations. As a result of the continued expansion of the Company's international operations, the fluctuations in the value of foreign currencies in which the Company conducts its business have caused and will continue to cause currency transaction gains and losses. To date, currency transaction gains and losses have not been material. However, due to the number of foreign currencies involved, the constantly changing currency exposures and volatility of currency exchange rates, the Company cannot predict the effect of exchange rate fluctuations upon future operating results. Other risks associated with international operations include import and export licensing requirements, trade restrictions and changes in tariff rates. 7 EX-99.2 5 SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL STMT 1 EXHIBIT 99.2 i2 TECHNOLOGIES, INC. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, March 31, 1996 1997 ---------------- ---------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 36,078 $ 38,359 Short-term investments 18,031 24,794 Accounts receivable, net 33,615 31,346 Prepaid and other current assets 3,219 3,308 Deferred income taxes -- 611 ---------------- ---------------- Total current assets 90,943 98,418 Furniture and equipment, net 8,934 10,201 Deferred income taxes and other assets 1,256 1,198 ---------------- ---------------- Total assets $ 101,133 $ 109,817 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,583 $ 5,175 Accrued liabilities 8,184 10,370 Current portion of deferred revenue 18,932 22,147 Income taxes payable 363 654 Deferred income taxes 57 -- ---------------- --------------- Total current liabilities 32,119 38,346 Long-term debt 100 100 Deferred revenue 266 257 ---------------- ---------------- Total liabilities 32,485 38,703 ---------------- ---------------- 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, 28,883,410 and 29,097,169 shares issued and outstanding, respectively 7 7 Additional paid-in capital 58,074 58,864 Deferred compensation (1,865) (1,680) Retained earnings 12,432 13,923 ---------------- ---------------- Total stockholders' equity 68,648 71,114 ---------------- ---------------- Total liabilities and stockholders' equity $ 101,133 $ 109,817 ================ ================
See accompanying notes. F-1 2 i2 TECHNOLOGIES, INC. SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months ended March 31, ------------------------------------ 1996 1997 --------------- ---------------- Revenues: Software licenses $ 11,135 $ 22,583 Services 2,848 9,370 Maintenance 1,411 3,812 --------------- ---------------- Total revenues 15,394 35,765 --------------- ---------------- Costs and expenses: Cost of software licenses 15 1,291 Cost of services and maintenance 2,487 8,158 Sales and marketing 5,809 13,607 Research and development 3,080 7,540 General and administrative 1,705 3,478 --------------- ---------------- Total costs and expenses 13,096 34,074 --------------- ---------------- Operating income 2,298 1,691 Other income 133 754 --------------- ---------------- Income before income taxes 2,431 2,445 Provision for income taxes 905 954 --------------- ---------------- Net income $ 1,526 $ 1,491 =============== ================ Net income per share $ 0.05 $ 0.04 Weighted average common and common equivalent shares outstanding 29,358 33,452
See accompanying notes. F-2 3 i2 TECHNOLOGIES, INC. SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended March 31, ---------------------------------- 1996 1997 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,526 $ 1,491 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 716 931 Amortization of deferred compensation 229 185 Deferred income taxes 698 (582) Tax benefit of stock options -- 703 Changes in operating assets and liabilities: Accounts receivable, net 418 2,269 Income tax receivable 170 -- Prepaid and other assets (288) (117) Accounts payable 761 592 Accrued liabilities 397 2,186 Income taxes payable (284) 291 Deferred revenue 5,233 3,206 --------------- --------------- Net cash provided by operating activities 9,576 11,155 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of furniture and equipment (2,030) (2,198) Purchases of short-term investments (2,459) (18,763) Proceeds from maturities of short-term investments -- 12,000 --------------- --------------- Net cash used in investing activities (4,489) (8,961) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (54) -- Advances from stockholders, net (471) -- Net proceeds from exercise of stock options 52 87 --------------- --------------- Net cash provided by (used in) financing (473) 87 activities --------------- --------------- Net increase in cash and cash equivalents 4,614 2,281 Cash and cash equivalents at beginning of period 7,383 36,078 --------------- --------------- Cash and cash equivalents at end of period $ 11,997 $ 38,359 =============== ===============
See accompanying notes. F-3 4 i2 TECHNOLOGIES, INC. NOTES TO SUPPLEMENTAL 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. In May 1997, the Company acquired Think Systems Corporation ("Think"), a demand planner developer; acquired Optimax Systems Corporation ("Optimax"), a scheduling and sequencing software company; and entered into an agreement to acquire Think Systems Private Limited ("Think India"), an offshore development house (see Note 3). 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, 1996, included in the Company's Current Report on Form 8-K dated June 12, 1997, as amended. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of results that may be expected for any other interim period or for the full year. Certain prior year financial statement items have been reclassified to conform to the current year's format. 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. Fully diluted earnings per share is the same as, or not materially different from, primary earnings per share and accordingly, is not presented. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements, the Company will be required to present "basic" earnings per share which excludes the effect of common stock equivalents. Basic earnings per share for the quarters ended March 31, 1996 and 1997 was $0.06 and $0.05, respectively. The Company will also be required to present "diluted" earnings per share which includes the effect of common stock equivalents. Diluted earnings per share for the quarters ended March 31, 1996 and 1997 was $0.05 and $0.04, respectively. All net income per share computations give retroactive effect to the exchange of common shares in connection with the Think, Think India and Optimax mergers (see Note 3). 3. BUSINESS COMBINATIONS On May 15, 1997, the Company entered into definitive agreements to merge with Think and Optimax and to acquire Think India. Under the terms of these agreements, the Company will issue 3,823,337 shares, 1,372,618 shares and 35,663 shares of its common stock for all the outstanding capital stock and all unexpired and unexercised options of Think, Optimax and Think India, respectively. The acquisition of Think India is subject to a number of conditions, including requisite Indian regulatory approval. The Company expects to obtain the necessary regulatory approvals by the end of 1997. F-4 5 Think provides premium demand chain solutions, including an integrated line of flexible, client/server- based software applications, for sales, marketing and logistics departments representing a variety of industries including consumer packaged goods, high technology, pharmaceutical, apparel, automotive and other product driven specializations. Think India is controlled by the former principal shareholders of Think and is engaged primarily in research and development services provided to Think. Optimax develops, markets and implements supply chain sequencing software using unique genetic algorithms for customer-driven, make-to-order manufacturing. Each of these business combinations was accounted for as a pooling of interests, and accordingly, the accompanying condensed consolidated financial statements give retroactive effect to the mergers and include the combined operations of i2 Technologies, Think, Optimax and Think India for all periods presented. The following is a summary of the results of operations of the separate entities for periods prior to the mergers (in thousands):
i2 Technologies (Prior to Think Pooling Mergers) Think Optimax India Adjustments Combined ------------------ ----------- ----------- ------------- -------------- ---------- Three Months Ended March 31, 1997: Revenues $32,165 $3,382 $1,024 $451 $(1,257) $35,765 (Net)income (loss) 1,657 (586) 74 186 160 1,491 Three Months Ended March 31, 1996: Revenues $12,672 $2,306 $427 $142 $(153) $15,394 (Net)income (loss) 507 47 61 (5) 916 1,526
Pooling adjustments have been recorded to eliminate (i) revenues and expenses associated with software license royalties, consulting services and maintenance charges provided to i2 Technologies by Think, and (ii) revenues and expenses associated with research and development services provided to Think by Think India. The Company expects to incur approximately $5.3 million in certain expenses related to these transactions. These costs include, among other things, investment banking, legal and accounting fees and expenses. The Company anticipates that these expenses will be recorded in the second quarter of 1997. On April 1, 1997, the Company completed the acquisition of the Operations Planning Group ("OPG"), a business activity of Computer Sciences Corporation ("CSC"), for a cash purchase price of $1.0 million. OPG provides operation planning environment ("OPE") optimization software for planning and scheduling for customers in the consumer packaged goods industry. The Company has assumed and is committed to the contractual obligations of the OPE customer base in return for maintenance revenue, and as part of the agreement, all employees of OPG became employees of the Company. The acquisition will be accounted for under the purchase accounting method, and a substantial portion of the purchase price will be recorded as in-process research and development and expensed during the second quarter of 1997. Additionally, the Company has agreed to make available a certain amount of consulting revenue opportunities to CSC within a three-year period from the date of the acquisition. If the agreed upon consulting revenue opportunities are not made available to CSC, the Company will be required to make an additional cash payment to CSC at the end of the three-year period equal to the gross profit typically realized on such consulting revenue. Such payment, if any, would be recorded as an increase in the purchase price. F-5 -----END PRIVACY-ENHANCED MESSAGE-----