-----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, RawO4Yz4vm6n4sSSYilMvmqO5OUBQ8Ek/K8bCXrIbEM1JFZxUmfjzrBqp+xo4M+T OOJGkXUWbFu+y5SmnVtZIA== 0001047469-98-031197.txt : 19980814 0001047469-98-031197.hdr.sgml : 19980814 ACCESSION NUMBER: 0001047469-98-031197 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: SEC FILE NUMBER: 000-28030 FILM NUMBER: 98686835 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 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1998 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, 1998, the Registrant had outstanding 70,114,982 shares of Common Stock, $.00025 par value. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- i2 TECHNOLOGIES, INC. TABLE OF CONTENTS Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1998 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1998 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II OTHER INFORMATION Item 2. Changes in Securities 23 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 6. Exhibits and Reports on Form 8-K 25 SIGNATURES 27
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS i2 TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, June 30, 1997 1998 -------- -------- (unaudited) ASSETS Current assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $127,433 $132,599 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 14,538 37,023 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . 75,037 81,596 Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . 3,836 4,848 Income tax receivable. . . . . . . . . . . . . . . . . . . . . . . . . . 1,097 -- Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 3,823 6,562 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 225,764 262,628 Furniture and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . 20,895 22,694 Deferred income taxes and other assets. . . . . . . . . . . . . . . . . . . 3,604 7,242 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,263 $292,564 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,712 $ 8,337 Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 26,411 35,968 Revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . 657 -- Current portion of deferred revenue. . . . . . . . . . . . . . . . . . . 29,195 40,123 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,204 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 230 -- -------- -------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 64,205 85,632 Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518 307 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,780 438 -------- -------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 66,503 86,377 -------- -------- Stockholders' equity: Preferred Stock, $0.001 par value, 5,000,000 shares authorized, none issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- Common Stock, $0.00025 par value, 200,000,000 shares authorized, 67,810,274 and 69,965,756 shares issued and outstanding, respectively. . . . . . . . . . . . . . . . . . . . . 17 17 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 167,852 185,919 Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . . (1,125) (794) Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,016 21,045 -------- -------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 183,760 206,187 -------- -------- Total liabilities and stockholders' equity . . . . . . . . . . . . . . $250,263 $292,564 -------- -------- -------- --------
See accompanying notes. 3 i2 TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1997 1998 1997 1998 ---------- ----------- ---------- ---------- Revenues: Software licenses. . . . . . . . . . . . . . . . . . $ 34,300 $ 52,686 $ 57,817 $ 97,631 Services . . . . . . . . . . . . . . . . . . . . . . 12,305 21,491 23,266 40,252 Maintenance. . . . . . . . . . . . . . . . . . . . . 4,372 9,394 8,392 17,136 --------- --------- --------- --------- Total revenues . . . . . . . . . . . . . . . . . 50,977 83,571 89,475 155,019 --------- --------- --------- --------- Costs and expenses: Cost of software licenses. . . . . . . . . . . . . . 1,218 2,002 2,522 4,148 Cost of services and maintenance . . . . . . . . . . 10,874 16,719 19,927 31,981 Sales and marketing. . . . . . . . . . . . . . . . . 17,743 28,452 31,926 53,269 Research and development . . . . . . . . . . . . . . 12,638 19,290 21,821 37,651 General and administrative . . . . . . . . . . . . . 5,796 7,592 10,079 14,266 In-process research and development and acquisition costs. . . . . . . . . . . . . . . . . 5,649 6,484 5,649 6,484 --------- --------- --------- --------- Total costs and expenses . . . . . . . . . . . . 53,918 80,539 91,924 147,799 --------- --------- --------- --------- Operating income (loss) . . . . . . . . . . . . . . . . (2,941) 3,032 (2,449) 7,220 Other income, net . . . . . . . . . . . . . . . . . . . 702 1,947 1,454 3,389 --------- --------- --------- --------- Income (loss) before income taxes . . . . . . . . . . . (2,239) 4,979 (995) 10,609 Provision (benefit) for income taxes. . . . . . . . . . (919) 4,413 (433) 6,580 --------- --------- --------- --------- Net income (loss) . . . . . . . . . . . . . . . . . . . $ (1,320) $ 566 $ (562) $ 4,029 --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) per share . . . . . . . . . . . . . . $ (0.02) $ 0.01 $ (0.01) $ 0.06 Net income (loss) per share, assuming dilution. . . . . $ (0.02) $ 0.01 $ (0.01) $ 0.05 Weighted average common shares outstanding. . . . . . . 61,678 69,484 61,464 69,024 Weighted average common shares outstanding, assuming dilution . . . . . . . . . . . . . . . . . . 61,678 76,534 61,464 76,484
See accompanying notes. 4 i2 TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) Six Months Ended June 30, ------------------------- 1997 1998 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . $ (562) $ 4,029 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Write-off of in-process research and development . . . . . . . . 907 3,819 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 2,515 5,929 Amortization of deferred compensation. . . . . . . . . . . . . . 370 331 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 210 (7,086) Tax benefit of stock options . . . . . . . . . . . . . . . . . . 2,967 10,069 Changes in operating assets and liabilities: Accounts receivable, net . . . . . . . . . . . . . . . . . . . (12,553) (6,559) Income tax receivable/payable. . . . . . . . . . . . . . . . . (4,517) 2,301 Prepaid and other assets . . . . . . . . . . . . . . . . . . . (1,849) (764) Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 3,055 625 Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . 9,137 9,157 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . 4,372 10,717 ---------- ---------- Net cash provided by operating activities. . . . . . . . . 4,052 32,568 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisition, net of acquired cash . . . . . . . . . . . . (1,000) (1,822) Purchases of furniture and equipment . . . . . . . . . . . . . . . (9,582) (7,728) Purchases of short-term investments. . . . . . . . . . . . . . . . (20,812) (864,095) Proceeds from maturities of short-term investments . . . . . . . . 15,500 841,610 ---------- ---------- Net cash used in investing activities. . . . . . . . . . . (15,894) (32,035) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments on revolving line of credit . . . . . . . . . . . . . -- (657) Proceeds from sale of common stock and exercise of stock options. . . . . . . . . . . . . . . . . . . . 636 5,290 ---------- ---------- Net cash provided by financing activities. . . . . . . . . 636 4,633 ---------- ---------- Net increase (decrease) in cash and cash equivalents . . . . . . . . (11,206) 5,166 Cash and cash equivalents at beginning of period . . . . . . . . . . 41,390 127,433 ---------- ---------- Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 30,184 $ 132,599 ---------- ---------- ---------- ----------
See accompanying notes. 5 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. In April 1998, the Company acquired InterTrans Logistics Solutions ("ITLS") of Markham, Ontario. ITLS provides software designed to manage both the daily operations and the tactical and strategic planning aspects of transportation and logistics activities across the supply chain. See Note 3 for further discussion of business acquisitions. The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring entries, except as discussed in Note 3) 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 supplemental financial statements and notes thereto for the three-year period ended December 31, 1997, included in the Company's Current Report on Form 8-K dated June 19, 1998. The results of operations for the three and six months ended June 30, 1998 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 (LOSS) PER SHARE The Company computes net income (loss) per share in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Net income (loss) per share is based upon the weighted average number of common shares outstanding and excludes the effect of dilutive potential common stock from the exercise of stock options. Net income (loss) per share, assuming dilution, includes the effect of dilutive potential common stock from the exercise of stock options using the treasury stock method, except in loss periods where the effect would be antidilutive. Share amounts for all prior periods presented have been restated to reflect the two-for-one stock split on June 2, 1998 (See Note 4). In addition, all net income (loss) per share computations give retroactive effect to the exchange of shares in connection with the ITLS acquisition (see Note 3). Reconciliations of the net income (loss) per share and net income (loss) per share, assuming dilution, computations for the three and six months ended June 30, 1997 and 1998 are as follows (amounts in thousands, except per share amounts): 6 Three Months Six Months Ended June 30, Ended June 30, ------------------ ------------------ 1997 1998 1997 1998 ------- ------- ------- ------- NET INCOME (LOSS) PER SHARE: Weighted-average common shares outstanding. . . . . . . . . 61,678 69,484 61,464 69,024 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . $(1,320) $ 566 $ (562) $ 4,029 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) per share . . . . . . . . . . . . . . . . $ (0.02) $ 0.01 $ (0.01) $0.06 ------- ------- ------- ------- ------- ------- ------- ------- NET INCOME (LOSS) PER SHARE, ASSUMING DILUTION: Weighted-average common shares outstanding. . . . . . . . . 61,678 69,484 61,464 69,024 Common shares issuable on exercise of stock options, net of shares assumed to be repurchased (A) (B). . . . . . -- 7,050 -- 7,460 ------- ------- ------- ------- Weighted-average common shares outstanding, assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . . 61,678 76,534 61,464 76,484 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . $(1,320) $566 $ (562) $ 4,029 ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) per share, assuming dilution. . . . . . . $ (0.02) $ 0.01 $ (0.01) $ 0.05 ------- ------- ------- ------- ------- ------- ------- -------
_____________________ (A) 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 and the tax effects of nonqualified stock options. (B) For the three and six months ended June 30, 1997, approximately 10.6 million options to purchase the Company's common stock were not included in the computation of net income (loss) per share, assuming dilution because of their antidilutive effect. 3. BUSINESS COMBINATIONS In April 1998, the Company completed the acquisition of ITLS. Under the terms of the agreement, the Company has agreed to issue approximately 3.3 million shares of its common stock for all of the outstanding capital stock and all unexpired and unexercised options of ITLS. The ITLS acquisition was accounted for as a pooling of interests, and accordingly, the accompanying condensed consolidated financial statements give retroactive effect to the combination and include the combined operations of the Company and ITLS for all periods presented. 7 In connection with the ITLS acquisition, the Company incurred expenses which included, among other things, investment banking, legal and accounting fees and expenses. Also in the second quarter of 1998, the Company completed an acquisition, accounted for using the purchase method, for a total purchase price of $5.0 million, which included approximately 77,000 shares of the Company's common stock, cash and acquisition costs. A substantial portion of the purchase price represented the value of in-process research and development and was expensed by the Company in the second quarter of 1998. For the three and six months ended June 30, 1998, the total of all acquisition-related expenses resulted in a one-time charge to the Company's operating results of $6.5 million, or $0.08 per share, assuming dilution. In May 1997, the Company acquired Think Systems Corporation ("Think") and Optimax Systems Corporation ("Optimax"). Under the terms of these agreements, the Company issued approximately 7.7 million shares and approximately 2.7 million shares of its common stock for all the outstanding capital stock and all unexpired and unexercised options of Think and Optimax, respectively. These acquisitions were both accounted for as a pooling of interests. The Think product offerings broadened the Company's suite of decision support products by providing 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. Optimax provided supply chain sequencing software using unique genetic algorithms for customer-driven, make-to-order manufacturing, further expanding the Company's suite of decision support products. For the three and six months ended June 30, 1997, the Company incurred approximately $5.6 million in certain acquisition-related expenses in connection with the Think, Optimax and other business combinations that were consummated in the second quarter of 1997. These costs included, among other things, investment banking, legal and accounting fees and expenses and the write-off of in-process research and development. In total, these expenses resulted in a one-time charge to the Company's operating results and reduced net income by $3.1 million, or $0.05 per share, assuming dilution for the three and six months ended June 30, 1997. 4. STOCK SPLIT On April 22, 1998, the Company's Board of Directors authorized a two-for-one stock split of the Company's Common Stock, effected in the form of a 100% stock dividend, which was paid on June 2, 1998 to holders of record of 8 outstanding shares of Common Stock at the close of business on May 26, 1998. All share and per share amounts included in this report have been restated to reflect the stock split. 9 5. RECENT ACCOUNTING PRONOUNCEMENTS In the second quarter of 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which requires derivatives be marked-to-market on an ongoing basis along with the underlying hedged items. This standard becomes effective in 2000. The effect on the Company, if any, has yet to be determined. Accounting standard SOP 98-1 was issued in the first quarter of 1998 and is effective in 1999. It requires capitalization of costs incurred to acquire or develop software to be used internally. The Company expects to adopt the standard in the first quarter of 1999 for qualifying costs in that quarter and thereafter. The effect on the Company is not expected to be material. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS CONCERNING: GROWTH AND FUTURE OPERATING RESULTS; DEVELOPMENTS IN THE COMPANY'S MARKETS AND STRATEGIC FOCUS; NEW PRODUCTS AND PRODUCT ENHANCEMENTS; POTENTIAL ACQUISITIONS AND THE INTEGRATION OF ACQUIRED BUSINESSES, PRODUCTS AND TECHNOLOGIES; STRATEGIC RELATIONSHIPS; AND FUTURE ECONOMIC, BUSINESS AND REGULATORY CONDITIONS. SUCH FORWARD-LOOKING STATEMENTS ARE GENERALLY ACCOMPANIED BY WORDS SUCH AS "PLAN," "ESTIMATE," "EXPECT," "BELIEVE," "SHOULD," "WOULD," "COULD," "ANTICIPATE," "MAY" OR OTHER WORDS THAT CONVEY UNCERTAINTY OF FUTURE EVENTS OR OUTCOMES. 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. OVERVIEW The Company is the leading provider of 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, including demand forecasting, raw materials procurement, work-in-process, distribution and transportation across multiple enterprises. i2's client/server software solution, RHYTHM, is designed to provide customers with an end-to-end supply chain management solution, enabling customers to model complex, multi-enterprise supply chains to rapidly generate integrated solutions to supply chain challenges such as demand volatility, production bottlenecks, supply interruptions and distribution alternatives. RHYTHM utilizes a unique, constraint-based methodology which simultaneously considers a broad range of factors -- from changing revenue forecasts to machine capabilities to individual customer commitments -- to optimize all aspects of the supply chain. In April 1998, the Company completed the acquisition of InterTrans Logistics Solutions ("ITLS") of Markham, Ontario. ITLS provides software designed to manage both the daily operations and the tactical and strategic planning aspects of transportation and logistics activities across the supply chain. Under the terms of the acquisition agreement, the Company has agreed to issue approximately 3.3 million shares of its common stock for all of the outstanding capital stock and all unexpired and unexercised options of ITLS, the majority of which was issued in the second quarter of 1998. The ITLS acquisition was accounted for as a pooling of interests, and accordingly, the Condensed Consolidated Financial Statements included elsewhere herein give retroactive effect to the acquisition and include the combined operations of the Company and ITLS for all periods presented. The following discussion and analysis should be read in conjunction with such Condensed Consolidated Financial Statements. Also in the second quarter of 1998, the Company completed an acquisition, accounted for using the purchase method, for a purchase price of $5.0 million, of which a substantial portion of the purchase price was recorded as in-process research and development and expensed in the second quarter of 1998 along with other acquisition-related expenses in connection with the ITLS acquisition. 11 In May 1997, the Company acquired Think Systems Corporation ("Think") and Optimax Systems Corporation ("Optimax"). Under the terms of these agreements, the Company issued approximately 7.7 million shares and approximately 2.7 million shares of its common stock for all the outstanding capital stock and all unexpired and unexercised options of Think and Optimax, respectively. The Think and Optimax acquisitions were each accounted for as a pooling of interests, and accordingly, the Condensed Consolidated Financial Statements included elsewhere herein give retroactive effect to the combination and include the combined operations of the Company and Think and Optimax for all periods presented. Also in the second quarter of 1997, the Company completed an acquisition, accounted for using the purchase method, for a cash purchase price of $1.0 million, of which a substantial portion of the purchase price was recorded as in-process research and development and expensed in the second quarter of 1997 along with other acquisition-related expenses in connection with the Think and Optimax acquisitions. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentages that selected items in the unaudited Condensed Consolidated Statements of Operations 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, --------------------- --------------------- 1997 1998 1997 1998 ------ ------ ------ ------ Revenues: Software licenses . . . . . . . . . . . . . . 67.3% 63.1% 64.6% 63.0% Services. . . . . . . . . . . . . . . . . . . 24.1 25.7 26.0 26.0 Maintenance . . . . . . . . . . . . . . . . . 8.6 11.2 9.4 11.0 ----- ----- ----- ----- Total revenues . . . . . . . . . . . . . 100.0 100.0 100.0 100.0 ----- ----- ----- ----- Costs and expenses: Cost of software licenses . . . . . . . . . . 2.4 2.4 2.8 2.7 Cost of services and maintenance. . . . . . . 21.3 20.0 22.2 20.6 Sales and marketing . . . . . . . . . . . . . 34.8 34.0 35.7 34.3 Research and development. . . . . . . . . . . 24.8 23.1 24.4 24.3 General and administrative. . . . . . . . . . 11.4 9.1 11.3 9.2 In-process research and development and acquisition costs. . . . . . . . . . . . . 11.1 7.8 6.3 4.2 ----- ----- ----- ----- Total costs and expenses . . . . . . . . 105.8 96.4 102.7 95.3 ----- ----- ----- ----- Operating income (loss). . . . . . . . . . . . . . (5.8) 3.6 (2.7) 4.7 Other income, net. . . . . . . . . . . . . . . . . 1.4 2.4 1.6 2.1 ----- ----- ----- ----- Income (loss) before income taxes. . . . . . . . . (4.4) 6.0 (1.1) 6.8 Provision (benefit) for income taxes . . . . . . . (1.8) 5.3 (0.5) 4.2 ----- ----- ----- ----- Net income (loss). . . . . . . . . . . . . . . . . (2.6)% 0.7% (0.6)% 2.6% ----- ----- ----- ----- ----- ----- ----- -----
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, for periods subsequent to December 31, 1997, are recognized in accordance with the American Institute of Certified Public Accountants' Statement of Position ("SOP") 97-2, "Software Revenue Recognition." Under SOP 97-2, software license revenues are recognized upon execution of a contract and delivery of software, provided that the license fee is fixed and determinable, no significant production, modification or customization of the software is required and collection is considered probable by management. For periods prior to December 31, 1997, software license revenues were recognized in accordance with SOP 91-1, "Software Revenue Recognition." Under SOP 91-1, software license revenues were recognized upon execution of a contract and shipment of the software, provided that no significant vendor obligations remained outstanding, amounts 12 were due within one year and collection was considered probable by management. The application of SOP 97-2 did not have a material impact on the Company's consolidated financial statements for the three or six month periods ended June 30, 1998. However, because SOP 97-2 does not give specific implementation guidance and limited industry practice has been established regarding the provisions of SOP 97-2, there can be no assurance that SOP 97-2 will not have a material impact on the Company's revenue recognition in the future, which could be material to the Company's consolidated financial statements. Service revenues are primarily 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 63.9% to $83.6 million in the quarter ended June 30, 1998 from $51.0 million in the quarter ended June 30, 1997. In the first six months of 1998, total revenues increased 73.3% to $155.0 million from $89.5 million in the first six months of 1997. The Company currently derives substantially all of its revenues from licenses associated with its RHYTHM suite of decision support products which includes demand planning, factory planning, supply chain planning, distribution planning, transportation planning and other supply chain management related applications as well as related services and maintenance. The Company expects that revenues from the RHYTHM suite of products 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 the RHYTHM suite of products 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 53.6% to $52.7 million in the quarter ended June 30, 1998 from $34.3 million in the quarter ended June 30, 1997. In the first six months of 1998, revenues from software licenses increased 68.9% to $97.6 million from $57.8 million in the first six months of 1997. The significant increases in the dollar amount of software license revenues were primarily due to an increased awareness of the benefits of supply chain management, growing market acceptance of the Company's software products and continued expansion into new geographic and vertical markets. To date, sales of software licenses have been derived principally 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 74.7% to $21.5 million in the quarter ended June 30, 1998 from $12.3 million in the quarter ended June 30, 1997. In the first six months of 1998, revenues from services increased 73.0% to $40.3 million from $23.3 million in the first six months of 1997. The significant increases in the dollar amount of service revenues were 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. The increases were 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 114.9% to $9.4 million in the quarter ended June 30, 1998 from $4.4 million in the quarter ended June 30, 1997. In the first six months of 1998, revenues from maintenance increased 104.2% to $17.1 million from $8.4 million in the first six months of 1997. The significant increases in the dollar amount of maintenance revenues were 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 maintenance revenues as a percentage of total revenues should not vary significantly from the levels achieved in the three and six months ended June 30, 1998. CONCENTRATION OF REVENUES. The Company generally derives a significant portion of its software license revenues in each quarter from a small number of relatively large sales. For example, in the second quarter of 1998 and in each quarter of 1997, one or more customers each accounted for at least 15% of total software license revenues. While the Company believes that the loss of any of these particular customers would not have a material adverse effect upon the Company's business, operating results or financial condition, an inability to consummate 13 one or more substantial license sales in any future period could have a material adverse effect on the Company's operating results for that period. INTERNATIONAL REVENUES. The Company's international revenues, primarily generated from customers located in Europe, Asia and Canada, in the three and six months ended June 30, 1998, were approximately 17% and 19% of total revenues, respectively and were approximately 32% of total revenues in both the three and six months ended June 30, 1997. The decreases in international revenues were primarily due to execution issues related to the previous international management team and the resulting international management reorganization in 1998. The Company believes that continued growth and profitability will require expansion of its sales in international markets. In order to successfully increase the level of 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) commissions paid to third parties in connection with joint marketing and other related agreements, (ii) royalty fees associated with third-party software included with the sales of RHYTHM, (iii) the cost of user documentation and (iv) the cost of reproduction and delivery of the software. Cost of software licenses was $2.0 million and $1.2 million in the quarters ended June 30, 1998 and 1997, representing 3.8% and 3.6% of software license revenues, respectively. Cost of software licenses was $4.1 million and $2.5 million in the first six months of 1998 and 1997, representing 4.2% and 4.4% of software license revenues, respectively. The increases in the dollar amount of the cost of software licenses 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 and packaging and shipping costs related to new releases of software and updated user documentation, none of which costs have been significant to date. Cost of services and maintenance was $16.7 million and $10.9 million in the quarters ended June 30, 1998 and 1997, representing 54.1% and 65.2% of total services and maintenance revenues, respectively. Cost of services and maintenance was $32.0 million and $19.9 million in the first six months of 1998 and 1997, representing 55.7% and 62.9% of total services and maintenance revenues, respectively. The increases in the dollar amount of cost of services and maintenance 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. The decreases in cost of services and maintenance as a percentage of total services and maintenance revenues were primarily due to the Company's ability to leverage its growing base of consultants, product support and training staff to serve its growing customer base. The Company expects to continue to increase the number of its consulting, product support and training personnel 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 personnel could adversely affect the Company's gross margins. SALES AND MARKETING. Sales and marketing expenses consist primarily of 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 $28.5 million and $17.7 million in the quarters ended June 30, 1998 and 1997, representing 34.0% and 34.8% of total revenues, respectively. These same expenses were $53.3 million and $31.9 million in the first six months of 1998 and 1997, representing 34.3% and 35.7% of total revenues, respectively. The increases in the dollar amount of 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 increase its sales and marketing activities in order to expand its international sales operations and to enter into new vertical markets. As a result, the Company believes that the dollar 14 amount of sales and marketing expenses will continue to increase while sales and marketing expenses as a percentage of total revenues should not vary significantly from the levels attained in the three and six month periods ended June 30, 1998. 15 RESEARCH AND DEVELOPMENT. Research and development expenses were $19.3 million and $12.6 million in the quarters ended June 30, 1998 and 1997, representing 23.1% and 24.8% of total revenues, respectively. These same expenses were $37.7 million and $21.8 million in the first six months of 1998 and 1997, representing 24.3% and 24.4% of total revenues, respectively. The increases in the dollar amount of research and development expenses 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 centers, particularly its international development facilities. 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, but research and development expenses as a percentage of total revenues will decrease from levels attained in the three and six months ended June 30, 1998. In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," 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 $7.6 million and $5.8 million in the quarters ended June 30, 1998 and 1997 representing 9.1% and 11.4% of total revenues, respectively. These same expenses were $14.3 million and $10.1 million in the first six months of 1998 and 1997, representing 9.2% and 11.3% of total revenues, respectively. The increases in the dollar amount of general and administrative expenses were primarily the result of increased staffing and related costs associated with the growth of the Company's business. The decreases in general and administrative expenses as a percentage of total revenues were 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. IN-PROCESS RESEARCH AND DEVELOPMENT AND ACQUISITION COSTS. In April 1998, the Company completed the acquisition of ITLS, which was accounted for as a pooling of interests. In May 1998, the Company completed the acquisition of another software vendor for a total purchase price of $5.0 million. This acquisition was accounted for using the purchase method, and a substantial portion of the purchase price was recorded as in-process research and development. The Company incurred approximately $6.5 million in certain acquisition-related expenses in connection with these business combinations, which were recorded in the second quarter of 1998. These costs included, among other things, investment banking, legal and accounting fees and expenses and the write-off of in-process research and development. See Note 3 of the Notes to Condensed Consolidated Financial Statements for further discussion. In April 1997, the Company completed an acquisition for a cash purchase price of $1.0 million. The acquisition was accounted for using the purchase method, and a substantial portion of the purchase price was recorded as in-process research and development. In May 1997, the Company completed the acquisition of Think and Optimax in transactions each accounted for as a pooling of interests. The Company incurred approximately $5.6 million in certain acquisition-related expenses in connection with these business combinations, which were recorded in the second quarter of 1997. These costs included, among other things, investment banking, legal and accounting fees and expenses and the write-off of in-process research and development. See Note 3 of the Notes to Condensed Consolidated Financial Statements for further discussion. 16 OTHER INCOME, NET Other income, net consists primarily of interest income on short-term investments and overnight repurchase agreements partially offset by interest expense on the Company's debt. Other income, net was $1.9 million and $702,000 in the quarters ended June 30, 1998 and 1997, representing 2.4% and 1.4% of total revenues, respectively. Other income, net was $3.4 million and $1.5 million in the first six months of 1998 and 1997, representing 2.1% and 1.6% of total revenues, respectively. The increases in other income, net were primarily due to interest earned on higher balances of cash, cash equivalents and short-term investments resulting from net proceeds of the public offering of the Company's common stock which was completed in December 1997. PROVISION (BENEFIT) FOR INCOME TAXES The Company's effective tax rate for the three and six months ended June 30, 1998 was 89% and 62%, respectively, compared to 41% and 44%, respectively, for the three and six months ended June 30, 1997. The effective tax rates for the three and six months ended June 30, 1998 and 1997 significantly varied from the U.S. statutory rate due primarily to the non-deductibility of certain acquisition-related expenses. Without these expenses, the Company's effective tax rate for the three and six months ended June 30, 1998 would have been 38.5%. 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 sales of equity securities. The Company maintained a strong liquidity and financial position with $177.0 million of working capital as of June 30, 1998 as compared to $161.6 million as of December 31, 1997. The increase in working capital was primarily related to an increase in cash, cash equivalents and short-term investments to $169.6 million at June 30, 1998 from $142.0 million at December 31, 1997. Cash flows from operations were $32.6 million and $4.1 million for the six months ended June 30, 1998 and 1997, respectively. Operating cash flows increased primarily due to increases in net income, accrued liabilities, deferred revenue and the tax benefit from stock option activity offset somewhat by an increase in accounts receivable. Accrued liabilities have increased primarily as a result of increased accrued compensation and related expenses. The tax benefit from stock option activity is primarily the result of disqualifying dispositions of stock acquired under the Company's stock plans. Accounts receivable, net of allowance for doubtful accounts, increased to $81.6 million at June 30, 1998 from $75.0 million at December 31, 1997. However, quarter-end days' sales outstanding decreased to 89 days at June 30, 1998 from 103 days at December 31, 1997. This decrease was primarily due to the collection of several large trade receivable balances outstanding at December 31, 1997. Accounts receivable and days' sales outstanding can fluctuate for a variety of reasons including (i) the amount and timing of revenues earned; (ii) the Company's collection experience; (iii) the amount of receivables generated from international customers which generally have longer payment terms compared to customers in the United States and (iv) the number of large sales for which some amounts may not be due upon execution of the contract. The Company believes that the allowance for doubtful accounts at June 30, 1998 is adequate to cover any collection difficulties with respect to accounts receivable. However, a significant portion of the Company's accounts receivable are derived from sales of large licenses, often to new customers with whom the Company does not have a payment history. Accordingly, there can be no assurance that the allowance will be adequate to cover any receivables, which are later determined to be uncollectible, particularly if one or more large receivables become uncollectible. Cash used in investing activities was $32.0 million for the six months ended June 30, 1998 as compared to $15.9 million for the six months ended June 30, 1997. The increase in cash used in investing activities was primarily due to the continued investment in financial instruments classified as short-term investments as a result of improved operating cash flows. At June 30, 1998, the Company did not have any material commitments for capital expenditures. 17 Cash provided by financing activities was $4.6 million for the six months ended June 30, 1998 as compared to $636,000 for the six months ended June 30, 1997. The increase in cash provided by financing activities was due to an increase in net proceeds received by the Company upon the exercise of stock options by its employees offset by the payment of the remaining balance on the Company's revolving line of credit. The Company may in the future pursue additional acquisitions of businesses, products and technologies, or enter into joint venture arrangements, that could complement or expand the Company's business. 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 utilizes third-party vendor equipment, telecommunication products and software products that may or may not be Year 2000 compliant. Although the Company is currently taking steps to address the impact, if any, of the Year 2000 compliance issue surrounding such third-party products, failure of any critical technology components to be Year 2000 compliant may have an adverse impact on business operations or require the Company to incur unanticipated expenses to remedy any problems. Management has not yet determined the cost of achieving Year 2000 compliance. The Company believes that existing cash and cash equivalent balances, short-term investment balances 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 equity or debt financing. There can be no assurance that such financing will be available on acceptable terms, if at all. FACTORS THAT MAY AFFECT FUTURE RESULTS Numerous factors may affect the Company's business and future results of operations. These factors include, but are not limited to, the potential for significant fluctuations in quarterly results; dependence on significant individual sales; competition; management of growth; product concentration; dependence on product line expansion; integration of recent acquisitions; potential future acquisitions; international operations and currency fluctuations; risks associated with strategic relationships; dependence upon key personnel; intellectual property and proprietary rights; use of licensed technology; complexity of software products; rapid technological change and new products; dependence on technical and implementation personnel; Year 2000 compliance issues; product liability claims; and volatility of stock price. The discussion below addresses some of these factors. For a more thorough discussion of these and other factors that may affect the Company's business and future results, see the discussion under the caption "Factors That May Affect Future Results" in Exhibit 99.2 to the Company's Current Report on Form 8-K dated June 19, 1998. POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS; DEPENDENCE ON SIGNIFICANT INDIVIDUAL SALES 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 varies substantially and is subject to a number of significant risks, including customers' budgetary constraints, timing of budget cycles and concerns about the pricing or introduction of new products by the Company or its competitors, factors over which the Company has little or no control. Additional factors include foreign currency exchange rate fluctuations, the mix of direct or indirect sales, changes in joint-marketing relationships and changes in the Company's strategy. 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. 18 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 generally derives a significant portion of its software license revenues in each quarter from a small number of relatively large sales. For example, in the second quarter of 1998 and in each quarter of 1997, one or more customers each accounted for at least 15% of total software license revenues. While the Company believes that the loss of any of these particular customers would not have a material adverse effect on the Company's business, operating results or financial condition, an inability to consummate one or more substantial license sales in any future period could have a material adverse effect on the Company's operating results for that period. Moreover, similar to many other software companies, the Company typically realizes a significant portion of its software license revenues in the last month or even the last week of a quarter. The Company also believes that the tendency of customers to delay placing orders for software products until near the end of a quarter has become more pronounced in recent periods. As a result, small delays in customer orders can cause significant variability in the Company's license revenues and results of operations for any particular period. For all of the foregoing reasons, revenues are difficult to forecast. The Company intends to continue to invest heavily in its sales and marketing, consulting and research and development organizations, and sets investment and expense levels based on 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 are not variable in the short term, and cannot be quickly reduced to respond to decreases in revenues. In addition, the Company may reduce prices or accelerate its investment in research and development efforts in response to competition or to pursue new market opportunities. Any one of these activities may further limit the Company's ability to adjust spending in response to fluctuations in revenue levels. 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. The Company's quarterly results of operations are subject to certain seasonal fluctuations. Historically, the Company's revenues have tended to be strongest in the fourth quarter of the year and to increase only modestly in the first quarter of the following year. The Company believes that this seasonality is due to the calendar year budgeting cycles of many of its customers and to compensation policies that tend to compensate sales personnel for achieving annual revenue quotas. The Company expects that in future periods these seasonal trends may cause first quarter revenues to remain consistent with, or decrease from, the level achieved in the preceding quarter. COMPETITION The markets in which the Company operates are highly competitive. The Company's competitors are diverse and offer a variety of solutions directed at various segments of the supply chain as well as the enterprise as a whole. Competitors include: (i) enterprise resource application software vendors such as SAP AG ("SAP"), PeopleSoft, Inc., Oracle Corporation and Baan Company N.V., each of which currently offers sophisticated ERP solutions that currently or may in the future incorporate supply chain management modules or advanced planning and scheduling software; (ii) other suppliers of supply chain software including Manugistics Group, Inc. and Logility, Inc.; (iii) other business application software vendors who may broaden their product offerings by internally developing, or by acquiring or partnering with independent developers of, advanced planning and scheduling software; (iv) internal development efforts by corporate information technology departments; and (v) companies offering standardized or customized products for mainframe and/or mid-range computer systems. In connection with specific customer solicitations, a number of ERP vendors have from time to time jointly marketed the Company's products as a complement to their own systems. The Company believes that as its market share increases, and as the ranges of products offered by the Company and these ERP vendors expand and increasingly overlap, relationships which were cooperative in the past will become more competitive, thereby increasing the overall level of competition the Company faces. Specifically, in 1997, the Company and SAP terminated a license and distribution agreement, and SAP has announced its intention to develop a suite of advanced planning and scheduling products which are expected to be directly competitive with RHYTHM. The Company believes that additional ERP vendors are focusing significant resources on increasing the functionality of their own planning and scheduling 19 modules, and at least two ERP vendors have recently acquired independent developers of advanced planning and scheduling software which compete with RHYTHM. Many of the Company's competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, greater name recognition, a broader range of products to offer and a larger installed base of customers than the Company, each of which could provide them with a significant competitive advantage over the Company. In addition, the Company expects to experience increasing price competition as the Company and its competitors compete for market share. There can be no assurance that the Company will be able to compete successfully with existing or new competitors or that competition will not have a material adverse effect on the Company's business, operating results and financial condition. INTEGRATION OF RECENT ACQUISITIONS; POTENTIAL FUTURE ACQUISITIONS In the second quarter of 1998, the Company completed the acquisitions of ITLS and another software vendor. The success of these and all of the Company's acquisitions depends primarily on the Company's ability to (i) retain, motivate and integrate the acquired personnel with the Company's operations, (ii) integrate multiple information systems and (iii) integrate acquired software with RHYTHM. No assurance can be given that the Company will not encounter difficulties in integrating the respective operations and products of the Company and the recently acquired companies, or that the benefits expected from such integration will be realized. Failure to successfully integrate the recently acquired companies' operations and products into the Company's operations and products could have a material adverse effect on the Company's business, operating results and financial condition. The Company may in the future pursue additional acquisitions of businesses, products and technologies, or enter into joint venture arrangements, that could complement or expand the Company's business. The negotiation of potential acquisitions or joint ventures as well as the integration of an acquired business, product or technology could cause diversion of management's time and resources. Future acquisitions by the Company could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, amortization of goodwill and other intangibles, research and development write-offs and other acquisition-related expenses. Further, no assurances can be given that any acquired business will be successfully integrated with the Company's operations. If any such acquisition were to occur, there can be no assurance that the Company will receive the intended benefits of the acquisition. Future acquisitions, whether or not consummated, could have a material adverse effect on the Company's business, operating results and financial condition. INTERNATIONAL OPERATIONS AND CURRENCY FLUCTUATIONS The Company believes that continued growth and profitability will require expansion of its sales in international markets. Further penetration of international markets will require the Company to expand existing foreign operations, to establish additional foreign operations and to translate its software and manuals into additional foreign languages. This expansion may be costly and time-consuming and may not generate returns for a significant period of time, if at all. To the extent that the Company is unable to expand its international operations or translate its software and manuals into foreign languages in a timely manner, the Company's ability to further penetrate international markets would be adversely affected, which could have a material adverse effect on the Company's business, results of operations and financial condition. The Company's international operations are subject to risks inherent in international business activities, including: difficulty in staffing and managing geographically disparate operations; 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; greater difficulty in safeguarding intellectual property; import and export licensing requirements; trade restrictions; changes in tariff rates; and general economic conditions in international markets. In particular, countries in the Asia Pacific region have recently experienced weaknesses in their currency, banking and equity markets. In the future, these weaknesses could adversely affect the demand for the Company's products, the U.S. dollar value of the Company's foreign currency denominated sales and ultimately the Company's results of operations. There can be no assurance that the Company's business, results of operations or financial condition will not be adversely affected by these or other factors related to international operations. 20 To date, the Company's revenues from international operations have primarily been denominated in United States dollars. As a result, the Company's sales in international markets may be adversely affected by a strengthening United States dollar. Certain sales and the majority of the expenses incurred by the Company's international operations are denominated in currencies other than the United States dollar. In addition, with the expansion of international operations, the number of foreign currencies in which the Company must operate will increase, resulting in increased exposure to exchange rate fluctuations. The Company has implemented limited hedging programs to mitigate its exposure to currency fluctuations. Notwithstanding these hedging programs, exchange rate fluctuations have caused and will continue to cause currency transaction gains and losses. While such currency transaction gains and losses have not been material to date, there can be no assurance that currency transaction losses will not have a material adverse effect on the Company's business, results of operations or financial condition in future periods. COMPLEXITY OF SOFTWARE PRODUCTS; RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS RHYTHM is a client/server solution which can operate on hardware platforms from Digital Equipment, Hewlett-Packard, IBM and Sun Microsystems and operating systems from Sun Microsystems and Microsoft, and can access data from most widely used SQL (structured query language) databases, including Informix, Oracle and Sybase. To the extent that additional hardware or software platforms gain significant market acceptance, the Company may be required to port RHYTHM to such platforms in order to remain competitive. Such platforms may not be architecturally compatible with RHYTHM's software product design, and there can be no assurance that the Company will be able to port RHYTHM to such additional platforms on a timely basis or at all. Any failure to maintain compatibility with existing platforms or to port to new platforms that achieve significant market acceptance would 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 any 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. YEAR 2000 COMPLIANCE Many older computer systems and software products currently in use are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, in less than two years, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists in the software industry concerning the potential effects associated with such compliance. Based on the Company's assessment, the Company believes that its current versions of its software products are Year 2000 compliant. However, the Company believes some customers are running earlier versions of the software products developed by acquired companies that are not Year 2000 compliant, and the Company has been encouraging such customers to migrate to current product versions. Moreover, the Company's products are generally integrated into enterprise systems involving complicated software products developed by other vendors. Year 2000 problems inherent in a customer's transactional software 21 programs might significantly limit that customer's ability to realize the intended benefits offered by RHYTHM. The Company may in the future be subject to claims based on Year 2000 problems in others' products, custom scripts created by third parties to interface with the Company's products or issues arising from the integration of multiple products within an overall system. Although the Company has not been a party to any litigation or arbitration proceeding to date involving its products or services and related to Year 2000 compliance issues, there can be no assurance that the Company will not in the future be required to defend its products or services in such proceedings, or to negotiate resolutions of claims based on Year 2000 issues. The costs of defending and resolving Year 2000-related disputes, and any liability of the Company for Year 2000-related damages, including consequential damages, could have a material adverse effect on the Company's business, operating results and financial condition. The Company believes that Year 2000 issues may affect the purchasing patterns of customers and potential customers in a variety of ways. Many companies are expending significant resources to correct or patch their current hardware and software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase software products such as those offered by the Company. Any of the foregoing could result in a material adverse effect on the Company's business, operating results and financial condition. The Company utilizes third-party vendor equipment, telecommunication products and software products that may or may not be Year 2000 compliant. Although the Company is currently taking steps to address the impact, if any, of the Year 2000 compliance issue surrounding such third-party products, failure of any critical technology components to be Year 2000 compliant may have an adverse impact on business operations or require the Company to incur unanticipated expenses to remedy any problems. 22 i2 TECHNOLOGIES, INC. PART II ITEM 2. CHANGES IN SECURITIES. From April 1 through June 30, 1998, the Company issued approximately 1.0 million shares of its common stock to employees pursuant to exercises of stock options (with exercise prices ranging from $0.01 to $6.06 per share) under the Company's stock plans. These issuances were deemed exempt from registration under Section 5 of the Securities Act of 1933 in reliance upon Rule 701 thereunder. In addition, the recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to, or for sale in connection with, any distribution thereof and appropriate restrictive transfer legends were affixed to the share certificates issued in each such transaction. In the second quarter of 1998, the Company issued (i) approximately 3.2 million shares of its common stock to the shareholders of InterTrans Logistics Solutions ("ITLS") as a condition to the acquisition (the "ITLS Acquisition") of ITLS and (ii) approximately 77,000 shares of its common stock to the shareholders of another software vendor as a condition to the acquisition of this vendor. These issuances were deemed exempt from registration under Section 5 of the Securities Act of 1933 in reliance upon Section 4(2) thereof. In addition, the recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to, or for sale in connection with, any distribution thereof and appropriate restrictive transfer legends were affixed to the share certificates issued in each such transaction. In the second quarter of 1998, the Company issued approximately 7,000 shares of its common stock pursuant to the exercise of ITLS stock options (with exercise prices of $9.74 per share) assumed by the Company as a condition to the ITLS Acquisition. These issuances were deemed exempt from registration under Section 5 of the Securities Act of 1933 in reliance upon Section 4(2) thereof. 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the Company's Annual Meeting of Stockholders held on May 26, 1998 in Dallas, Texas, the Company's stockholders voted on the following matters (share amounts reflect the two-for-one stock split effected as a stock dividend paid on June 2, 1998): 1. The election of a Class I Director to hold office until the 2001 Annual Meeting of Stockholders. The nominee of the Board of Directors was elected. Name of Nominee Number of Votes For Number of Votes Withheld Number of Abstentions --------------- ------------------- ------------------------ --------------------- Thomas J. Meredith 53,114,026 26,376 12,570,372
The term of office of the Class II Directors (Harvey B. Cash and Sandeep R. Tungare) continues until the 1999 Annual Meeting of Stockholders and the term of office of the Class III Directors (Sanjiv S. Sidhu and Kanna N. Sharma) continues until the 2000 Annual Meeting of Stockholders. 2. Approval of an amendment to the Company's 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") to (i) increase the number of shares of Common Stock authorized to be issued under the 1995 Plan by 7,000,000 shares; (ii) allow members of the Compensation Committee which administers the 1995 Plan to receive discretionary grants and stock issuances under the Discretionary Option Grant and Stock Issuance Programs of the 1995 Plan; (iii) allow the shares issued under the 1995 Plan which are subsequently reacquired by the Company pursuant to the Company's exercise of its repurchase rights to be added back to the share reserve available for future issuance under the 1995 Plan; (iv) require stockholder approval of future amendments to the 1995 Plan only to the extent necessary to satisfy applicable laws or regulations; (v) provide that either the Board of Directors or the Compensation Committee may administer the 1995 Plan with respect to directors and officers subject to the "short-swing" profit liabilities under Section 16 of the Securities Exchange Act of 1934; (vi) allow non-statutory options granted under the 1995 Plan to be transferred to family members or trusts established for family members in connection with the optionee's estate planning; (vii) eliminate the six-month holding period requirement for the exercise of limited stock appreciation rights in connection with a hostile take-over and (viii) remove the six-month limitation on the frequency with which amendments may be made to the Automatic Option Grant Program of the 1995 Plan. The amendment was approved. Number of Votes For 42,415,406 Number of Votes Against 7,520,492 Number of Votes Withheld 162,376 Number of Broker Non-Votes 3,042,128 Number of Abstentions 12,570,372
3. Approval of an amendment of the Company's Certificate of Incorporation of the Company to increase the number of authorized shares of Common Stock of the Company from 50,000,000 to 200,000,000. The amendment was approved. Number of Votes For 47,049,200 Number of Votes Against 6,020,752 Number of Votes Withheld 70,450 Number of Abstentions 12,570,372
4. Approval of the appointment of Ernst & Young LLP as the Company's independent public accountants for the fiscal year ending December 31, 1998. The appointment was approved. Number of Votes For 53,068,084 Number of Votes Against 5,122 Number of Votes Withheld 67,196 Number of Abstentions 12,570,372
24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit Index ------------- Number Exhibit Description ------ ----------------------------------------------------------- 3.1 Certificate of Incorporation, as amended 27.1 Financial Data Schedule
(b) Reports on Form 8-K ------------------- During the three month period ended June 30, 1998, the Company filed the following Current Reports on Form 8-K: 1. The Company filed a Form 8-K dated May 5, 1998 (Items 5 and 7) in order to report that the Company had completed its acquisition of InterTrans Logistics Solution ("ITLS") of Markham, Ontario. 2. The Company filed a Form 8-K dated June 19, 1998 (Items 5 and 7) in order to provide supplemental consolidated financial statements giving retroactive effect to the acquisition of ITLS and including the combined operations of the Company and ITLS. The following financial statements were filed with the Form 8-K dated June 19, 1998: Supplemental Consolidated Balance Sheets as of December 31, 1996 and 1997 Supplemental Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997 Supplemental Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1996 and 1997 Supplemental Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 Notes to Supplemental Consolidated Financial Statements 25 3. The Company filed a Form 8-K dated June 22, 1998 (Items 5 and 7) in order to provide supplemental condensed consolidated financial statements giving retroactive effect to the acquisition of ITLS and including the combined operations of the Company and ITLS. The following financial statements were filed with the Form 8-K dated June 22, 1998: Supplemental Condensed Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998 Supplemental Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1997 and 1998 Supplemental Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1998 Notes to Supplemental Condensed Consolidated Financial Statements 26 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 13, 1998 /s/ Sanjiv S. Sidhu --------------- --------------------------------------- (Date) Sanjiv S. Sidhu Chairman of the Board and Chief Executive Officer (PRINCIPAL EXECUTIVE OFFICER) August 13, 1998 /s/ David F. Cary --------------- --------------------------------------- (Date) David F. Cary Vice President and Chief Financial Officer (PRINCIPAL FINANCE AND ACCOUNTING OFFICER) 27 Index to Exhibits Number Exhibit Description - ------ ------------------- 3.1 Certificate of Incorporation, as amended 27.1 Financial Data Schedule
28 EX-3.1 2 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF INTELLECTION, INC. FIRST: The name of the Corporation is Intellection, Inc. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: A. The total number of shares which the Corporation shall have authority to issue is 20,000,000 shares of capital stock. B. Of such authorized shares, Fifteen Million (15,000,000) shares shall be designated "Common Stock", and have a par value of $.001. C. Of such authorized shares, Five Million (5,000,000) shares shall be designated "Preferred Stock", and have a par value of $.001. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is authorized to determine or alter the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series, to determine the designation of any series, and to fix the number of shares of any series. In case the number or shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. FIFTH: The name and mailing address of the incorporator is as follows: NAME MAILING ADDRESS ---- --------------- Steven E. Bochner Wilson, Sonsini, Goodrich & Rosati Two Palo Alto Square Suite 900 Palo Alto, CA 94306 SIXTH: The Corporation is to have perpetual existence. SEVENTH: Elections of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins. EIGHTH: A. At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the Delaware General Corporation Law. At the annual meeting of stockholders (the "First Public Company Annual Meeting") following the closing of a public offering of the Corporation's Capital Stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (a "Public Offering"), the directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the next succeeding annual meeting of stockholders, the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so designated and elected at the First Public Company Annual Meeting. At each annual meeting after the First Public Company Annual Meeting, directors to replace those of a Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. B. Vacancies occurring on the Board of Directors for any reason may be filled by vote of a majority of the remaining members of the Board or Directors, although less than a quorum, at a meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy shall hold office until the next succeeding annual meeting of stockholders of the Corporation and until his or her successor shall have been duly elected and qualified. NINTH: The number of directors which constitute the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation. 2 TENTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. ELEVENTH: To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. TWELFTH: At the election of directors of the Corporation, each holder of stock of any class of series shall be entitled to as many votes as shall equal the number of votes which (except for such provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes; provided that, notwithstanding the above and any provision contained in this Certificate of Incorporation to the contrary, effective upon a Public Offering, the holders of stock of any class or series shall no longer be entitled to such cumulative voting rights. THIRTEENTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. FOURTEENTH: Effective upon the closing of a Public Offering, stockholders of the Corporation may not take action by written consent in lieu of a meeting but must take any actions at a duly called annual or special meeting. FIFTEENTH: Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or this Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds (2/3) of the combined voting power of all of the then-outstanding shares of the Corporation entitled to vote shall be 3 required to alter, amend or repeal Articles EIGHTH, TWELFTH, FOURTEENTH or FIFTEENTH or any provision thereof, unless such amendment shall be approved by a majority of the directors of the Corporation not affiliated or associated with any person or entity holding (or which has announced an intention to obtain) 26% or more of the voting power of the Corporation's outstanding capital stock. SIXTEENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly, has hereunto set his hand this 8th day of January, 1992. /s/ Steven E. Bochner --------------------- Steven E. Bochner CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION - -------------------------------------------------------------------------------- Intellection, Inc. a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: FIRST: That a meeting of the Board of Directors of Intellection, Inc. resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaration said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "First" so that, as amended, said Article shall be and read as follows: The name of the Corporation is I2 Technologies, Inc. (the "Corporation"). SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said Intellection, Inc. has caused this certificate to be signed by Sanjiv Sidhu, its President and Sanjiv Sidhu, its Secretary this 14th day of February, 1994. By: /s/ Sanjiv Sidhu -------------------- President Attest: /s/ Sanjiv Sidhu ---------------- Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF i2 TECHNOLOGIES, INC., A DELAWARE CORPORATION - -------------------------------------------------------------------------------- i2 Technologies, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: FIRST: The name of the Corporation is i2 Technologies, Inc. and the Corporation was originally incorporated on January 9, 1992 pursuant to the General Corporation Law of the State of Delaware; and SECOND: The following resolutions amending the Corporation's Certificate of Incorporation were approved by the Board of Directors of the Corporation at a special meeting of the Board of Directors of The Corporation held April 8, 1995, and were duly adopted by the sole stockholder of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law at a Special Meeting of Stockholder held on April 8, 1995. RESOLVED, that the Certificate of Incorporation of the Corporation is hereby amended by changing the Article thereof numbered "FIRST" so that, as amended, said Article shall read in full as follows: FIRST: The name of this Corporation is i2 Technologies, Inc. (the "Corporation") RESOLVED, that the Certificate of Incorporation of the Corporation is hereby amended by changing paragraph B. of the Article thereof numbered "FOURTH" so that, as amended, said paragraph of said Article shall read in full as follows: B. Of such authorized shares, Fifteen Million (15,000,000) shares shall be designated "Common Stock", and have a par value of $.0005 per share. Effective upon filing of this Certificate of Amendment of Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware, each outstanding share of the Corporation's previously authorized common Stock, par value $.001 per share, shall be split into two (2) shares of the Corporation's Common Stock authorized hereunder. * * * IN WITNESS WHEREOF, i2 Technologies, Inc. has caused this Certificate of Amendment to be signed by its President and attested to by its Secretary this 10th day of April, 1995. i2 Technologies, Inc. By: /s/ Sanjiv Sidhu ------------------ Sanjiv Sidhu President ATTEST: /s/ Ken Sharma - -------------- Ken Sharma Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF i2 TECHNOLOGIES, INC., A DELAWARE CORPORATION - -------------------------------------------------------------------------------- i2 Technologies, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: FIRST: The name of the Corporation is i2 Technologies, Inc. and the Corporation was originally incorporated on January 9, 1992 pursuant to the General Corporation Law of the State of Delaware; and SECOND: The following resolution amending the Corporation's Certificate of Incorporation was approved by an Action by Unanimous Written Consent of the Board of Directors of the Corporation dated June 26, 1995, and was duly adopted, in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, by the sole stockholder of the Corporation pursuant to a Written Consent of the Sole Stockholder of the Corporation dated June 26, 1995: RESOLVED, that the Certificate of Incorporation of the Corporation is hereby amended by amending paragraphs A. and B. of the Article thereof numbered "FOURTH" so that, as amended, said paragraphs of said Article shall read in full as follows: "A. The total number of shares which the Corporation shall have authority to issue is Thirty Million (30,000,000) shares of capital stock. B. Of such authorized shares, Twenty Five Million (25,000,000) shares shall be designated "Common Stock," and have a par value of $.0005 per share." * * * IN WITNESS WHEREOF, i2 Technologies, Inc. has caused this Certificate of Amendment to be signed by its President and attested to by its Secretary this 27th day of June, 1995. i2 Technologies, Inc. By: /s/ Sanjiv Sidhu --------------------------- Sanjiv Sidhu, President ATTEST: /s/ Ken Sharma - --------------------- Ken Sharma, Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF i2 TECHNOLOGIES, INC., A DELAWARE CORPORATION - -------------------------------------------------------------------------------- i2 Technologies, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify: FIRST: The name of the Corporation is i2 Technologies, Inc. and the Corporation was originally incorporated on January 6, 1992 pursuant to the General Corporation Law of the State of Delaware; and SECOND: The following resolution amending the Corporation's Certificate of Incorporation was approved by an Action by Unanimous Written Consent of the Board of Directors of the Corporation dated December 14, 1995, and was duly adopted, in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, by the sole stockholder of the Corporation pursuant to a Written Consent of the Sole Stockholder of the Corporation dated December 14, 1995: RESOLVED, that the Certificate of Incorporation of the Corporation is hereby amended by appending the following sentence to paragraph B. of the Article thereof numbered "FOURTH": "Effective upon filing of this Certificate of Amendment of Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware, each outstanding share of the Corporation's authorized Common Stock as of the date of such filing shall be split into two (2) shares of the Corporation's Common Stock authorized under the Certificate of Incorporation." * * * IN WITNESS WHEREOF, i2 Technologies, Inc. has caused this Certificate of Amendment to be signed by its President and attested to by its Secretary this 14th day of December, 1995. i2 Technologies, Inc. By: /s/ Sanjiv Sidhu ----------------------- Sanjiv Sidhu, President ATTEST: /s/ Ken Sharma - --------------------- Ken Sharma, Secretary CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF i2 TECHNOLOGIES, INC. i2 TECHNOLOGIES, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES: FIRST: That in lieu of a meeting and vote of the directors of the Corporation, by unanimous written consent filed with the Corporation in accordance with the provisions of Section 141(f) of the General Corporation Law of the State of Delaware, the directors of the Corporation adopted resolutions approving and declaring advisable the following amendment to the Corporation's Certificate of Incorporation: BE IT RESOLVED, that, subject to the approval of the Corporation's stockholders, the Certificate of Incorporation of the Corporation be amended by amending paragraphs A and B of the Article thereof numbered "FOURTH" so that, as amended, said paragraphs shall read in full as follows: "A. The total number of shares which the Corporation shall have authority to issue is TWO HUNDRED AND FIVE MILLION (205,000,000) shares of capital stock. B. Of such authorized shares, TWO HUNDRED MILLION (200,000,000) shares shall be designated "Common Stock," and have a par value of $.00025." SECOND: That at a meeting of the stockholders of the Corporation called and held upon notice in accordance with the provisions of Section 222 of the General Corporation Law of the State of Delaware, the required percentage of shares of stock of the Corporation voted in favor of said amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned officer of i2 Technologies, Inc. has hereunto set his hand this 26th day of May 1998. i2 TECHNOLOGIES, INC. By: /s/ DAVID F. CARY ------------------------------------------ David F. Cary Vice President and Chief Financial Officer EX-27.1 3 EXHIBIT 27.1
5 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 132,599 37,023 81,596 5,441 0 262,628 37,850 15,156 292,564 85,632 0 0 0 17 206,170 292,564 97,631 155,019 4,148 147,799 (3,389) 1,720 229 10,609 6,580 4,029 0 0 0 4,029 0.06 0.05
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