<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORT) JUNE 4, 1998
JDA SOFTWARE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-27876 86-0787377
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.
11811 NORTH TATUM BLVD., SUITE 2000, PHOENIX, ARIZONA 85028
(ADDRESS OF PRINCIPLE EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (602) 404-5500
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
(b) PRO FORMA FINANCIAL INFORMATION
(c) EXHIBITS
23.1 CONSENT OF ARTHUR ANDERSEN LLP
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
JDA SOFTWARE GROUP, INC.
DATE: AUGUST 14, 1998 BY: /S/ KRISTEN L. MAGNUSON
-------------------------
KRISTEN L. MAGNUSON
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, SECRETARY AND TREASURER
<PAGE> 3
COMSHARE, INCORPORATED RETAIL BUSINESS
FINANCIAL STATEMENTS
AS OF JUNE 30, 1997 AND APRIL 30, 1998
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 4
[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comshare, Incorporated:
We have audited the accompanying special purpose statements of net assets to be
sold of the COMSHARE, INCORPORATED RETAIL BUSINESS (as defined in Note 1) as of
June 30, 1997 and April 30, 1998 and the related special purpose statements of
operations to be sold and cash flows from operations to be sold for the years
ended June 30, 1996 and 1997 and the ten months ended April 30, 1998. These
financial statements are the responsibility of the Retail Business's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 1, these financial statements were prepared to present the
net assets to be sold of the Comshare, Incorporated Retail Business and the
related operations to be sold and cash flows from operations to be sold and are
not intended to be a complete presentation of the Retail Business's assets,
liabilities, operations and cash flows.
In our opinion, the special purpose statements referred to above present
fairly, in all material respects, the net assets to be sold of the Comshare,
Incorporated Retail Business as of June 30, 1997 and April 30, 1998 and the
related operations to be sold and cash flows from operations to be sold for the
years ended June 30, 1996 and 1997 and the ten months ended April 30, 1998 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Detroit, Michigan
June 2, 1998.
<PAGE> 5
COMSHARE, INCORPORATED RETAIL BUSINESS
STATEMENT OF NET ASSETS TO BE SOLD
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, April 30,
1997 1998
-------- ---------
<S> <C> <C>
ASSETS
Current assets
Accounts receivable, less allowance
for doubtful accounts of $190 and
$233 as of June 30, 1997 and
April 30, 1998, respectively $4,564 $5,320
Prepaid expenses and other current
assets 1,259 827
------ ------
Total current assets 5,823 6,147
Property and equipment, at cost
Computers and other equipment 3,447 2,727
Leasehold improvements 422 425
------ ------
3,869 3,152
Less -- accumulated depreciation 3,052 2,556
------ ------
Property and equipment, net 817 596
Computer software, net of accumulated
amortization of $3,128 and $4,390
as of June 30, 1997 and April 30,
1998, respectively 3,213 4,725
Other assets 129 79
------ ------
Total assets 9,982 11,547
------ ------
LIABILITIES
Current liabilities
Accounts payable 1,307 2,412
Accrued liabilities:
Payroll 702 796
Taxes 454 287
Other 234 529
------ ------
Total accrued liabilities 1,390 1,612
Deferred revenue 2,038 2,527
------ ------
Total current liabilities 4,735 6,551
------ ------
Commitments and contingencies
NET ASSETS TO BE SOLD $5,247 $4,996
====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
-2-
<PAGE> 6
COMSHARE, INCORPORATED RETAIL BUSINESS
STATEMENT OF OPERATIONS TO BE SOLD
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year Ended Ten Months
June 30, Ended April 30,
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
REVENUES
Software licenses................... $ 8,524 $ 7,764 $ 7,522
Software maintenance............... 5,116 5,688 5,658
Implementation, consulting and other
services.......................... 3,858 4,361 4,626
------- ------- -------
TOTAL REVENUES...................... 17,498 17,813 17,806
COSTS AND EXPENSES
Selling and marketing............... 5,675 6,660 5,089
Agent fees.......................... 779 490 927
Professional service................ 3,155 4,211 3,797
Cost of revenue and support......... 1,788 2,107 2,144
Internal research and product
development....................... 5,359 3,995 3,433
Internally capitalized software..... (2,206) (2,278) (2,773)
Software amortization.............. 1,230 2,027 1,262
General and administrative.......... 829 1,489 1,398
Unusual charge...................... 3,447 -- --
------- ------ -------
TOTAL COSTS AND EXPENSES............ 20,056 18,701 15,277
------- ------ -------
NET INCOME (LOSS)................... $(2,558) $ (888) $ 2,529
======= ====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
-3-
<PAGE> 7
COMSHARE, INCORPORATED RETAIL BUSINESS
STATEMENT OF CASH FLOWS FROM OPERATIONS TO BE SOLD
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, TEN MONTHS
------------------- ENDED APRIL 30,
1996 1997 1998
-------- ------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(2,558) $ (888) $ 2,529
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,374 2,167 1,538
Write-off capitalized software 3,447 -- --
Changes in operating assets and liabilities:
Accounts receivable (150) 329 (756)
Prepaid expenses and other assets (361) (58) 482
Accounts payable 986 (1,290) 1,105
Accrued liabilities (15) (208) 222
Deferred revenue (121) 168 489
------- ------- -------
Net cash provided by operating activities 2,602 220 5,609
------- ------- -------
INVESTING ACTIVITIES
Additions to computer software (2,206) (2,278) (2,773)
Payments for property and equipment (531) (468) (56)
------- ------- -------
Net cash used in investing activities (2,737) (2,746) (2,829)
------- ------- -------
FINANCING ACTIVITIES
Net transfers from (to) Comshare, Incorporated 135 2,526 (2,780)
------- ------- -------
NET CHANGE IN CASH -- -- --
CASH AT BEGINNING OF PERIOD -- -- --
------- ------- -------
CASH AT END OF PERIOD $ -- $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 8
COMSHARE, INCORPORATED RETAIL BUSINESS
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND ORGANIZATION. The accompanying special purpose
financial statements of Comshare, Incorporated Retail Business (the "Retail
Business") relate to the retail business of Comshare, Incorporated and its
subsidiaries ("Comshare"). The accompanying special purpose statements have been
derived from the historical financial statements of Comshare based upon
assumptions and allocations management believe represent a reasonable basis for
presenting the historical financial position and results of operations and cash
flows from operations of the Retail Business.
The accompanying special purpose financial statements have been prepared in
connection with the proposed sale of the Retail Business by Comshare to JDA
Software Group, Inc. and JDA Arthur Software, Ltd. ("JDA").
The Retail Business's revenue consists of software license, software maintenance
and implementation, consulting and other service revenue. This revenue includes
the revenue related to the retail products that are to be sold to JDA and the
non-retail products to be licensed by JDA and sold to retail customers. Some of
the non-retail products that are to be licensed to JDA will require JDA to pay
a royalty to Comshare. Software license revenue is recognized when a customer
contract is fully executed and the software has been shipped. Software
maintenance revenue, whether bundled with a product license or priced
separately, is recorded as deferred revenue on the balance sheet when invoiced
and is recognized over the term of the maintenance contract. Implementation,
consulting and other services revenue is recognized as the services are
performed.
The accompanying financial statements of the Retail Business include allocations
of Comshare corporate expenses for items such as human resources, legal,
accounting and information technology of approximately $370,000, $650,000 and
$540,000 in fiscal years 1996 and 1997 and the ten months ended April 30, 1998,
respectively. Additionally, allocations of certain insurance, employee benefit
and other costs based upon overall programs administered by Comshare were
included in the accompanying financial statements. These expenses have been
allocated to the Retail Business based upon management estimates. Management
believes the allocation methodology is reasonable and the allocated costs are
comparable to those that the Retail Business would have incurred on a standalone
basis. The accompanying financial statements include a royalty expense of
approximately $550,000, $510,000 and $520,000 in fiscal years 1996 and 1997 and
the ten months ended April 30, 1998, respectively. Management believes that
these expenses represent the Retail Business's share of product development
costs related to the non-retail products that are to be licensed by JDA. No
product development costs for the non-retail products has been included in the
accompanying financial statements. The Retail Business's accompanying financial
statements do not include allocated expenses related to the corporate office and
officers. These costs totalled $4.3 million, $3.5 million and $3.8 million for
Comshare in fiscal years 1996 and 1997 and the ten months ended April 30, 1998,
respectively. Additionally, no allocation of the $6.2 million restructuring
charge in 1997 nor the $1.6 million unusual charge in 1998 were made to the
accompanying financial statements of the Retail Business. The Retail Business's
accompanying financial statements do not include an allocation of certain of
Comshare's assets and liabilities not specifically identified to the Retail
Business, including cash and debt. Other assets such as prepaid expenses and
property and equipment have been allocated to the Retail Business based upon
estimates made by management. The financial information included in the
accompanying financial statements may not necessarily reflect the financial
position, results of operations and cash flows from operations of the Retail
Business in the future.
The Retail Business develops, markets and supports, client/server decision
support applications software for the retail industry designed for business
analysis, planning, reporting and decision making. The Retail Business also
provides services such as maintenance, training, consulting and support
services. The Retail Business markets its products through a direct sales force
in the United States, Canada, United Kingdom, France and Germany and has a
distributor network in certain other countries.
-5-
<PAGE> 9
COMSHARE, INCORPORATED RETAIL BUSINESS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
EXPENSE CLASSIFICATION. Selling and marketing expense primarily includes
employee costs, travel costs, facilities expenses and advertising. Cost of
revenue and support includes personnel and other costs related to implementation
and consulting services revenue, customer support costs and royalty expense for
products licensed from others for use in the Retail Business's product
offerings. Internal research and product development expense includes all such
expense before computer software capitalization and amortization.
FOREIGN CURRENCY TRANSLATION. All assets and liabilities of the Retail
Business's foreign operations are translated at current exchange rates and
revenue and expenses are translated at monthly exchange rates. Resulting
translation adjustments are reflected as a component of net assets.
COMPUTER SOFTWARE. The costs of developing and purchasing new software products
and enhancements to existing software products are capitalized after
technological feasibility is established. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenue, estimated economic product lives and changes in software and hardware
technology. Beginning October 1, 1995, capitalized development costs were
amortized using the straight-line method over a two-year service life (see Note
2). Previously, capitalized development costs were amortized using a rolling
three-year method, effectively a service life of approximately six years. The
policy is reevaluated and adjusted as necessary at the end of each accounting
period. On an ongoing basis, management reviews the valuation and amortization
of capitalized development costs. As part of this review, the Retail Business
considers the value of future cash flows attributable to the capitalized
development costs in evaluating potential impairment of the asset.
DEPRECIATION. The cost of depreciable assets is charged to operations on a
straight-line basis. Principal service lives for computers and other equipment
are three to five years. Leasehold improvements are amortized over the expected
life of the asset or term of the lease, whichever is shorter.
OTHER ASSETS. In fiscal 1997, the Retail Business adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" which requires an
evaluation of long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. There was no adjustment to the Retail Business's financial
statements in fiscal 1997 and the ten months ended April 30, 1998 as a result of
this evaluation.
INCOME TAXES. The Retail Business operates as part of Comshare and the related
Comshare income tax assets and provision have not been allocated to the Retail
Business in the accompanying financial statements. Comshare accounts for income
taxes under the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Comshare does not provide a valuation
allowance against certain deferred tax assets as management believes that it is
more likely than not that the deferred tax assets will be realized through
future taxable income or by using tax strategies currently available to
Comshare. As these strategies are not available to the Retail Business,
management has recorded a full valuation allowance against its deferred tax
assets.
-6-
<PAGE> 10
COMSHARE, INCORPORATED RETAIL BUSINESS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
STOCK PLANS. The Retail Business accounts for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
(APB) No. 25 "Accounting for Stock Issued to Employees", and related
interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the stock at grant date
over the amount an employee must pay to acquire the stock. As supplemental
information, the Retail Business has provided pro forma disclosure of the fair
value of stock options granted during fiscal years 1996 and 1997 and the ten
months ended April 30, 1998 in accordance with the requirements of Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." (See Note 5.)
SOFTWARE REVENUE RECOGNITION. The American Institute of Certified Public
Accountants has issued Statement of Position 97-2 "Software Revenue
Recognition" which establishes new guidance for recognizing revenue on software
transactions. The Retail Business has not yet adopted this statement but is
required to adopt this statement for the fiscal year ending June 30, 1999.
COMPREHENSIVE INCOME. The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" which establishes standards for reporting comprehensive income and its
components in a full set of financial statements. Comprehensive income is
defined as the total of net income and all other nonowner changes in equity.
The Retail Business has not yet adopted this statement but is required to adopt
this statement for the fiscal year ending June 30, 1999.
SEGMENTS OF AN ENTERPRISE. The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 131 "Disclosures About Segments
of an Enterprise and Related Information" which establishes standards for
disclosures of certain segment information based on the "management approach"
which organizes segments within a company the way the chief operating decision
maker of that company organizes the segments. The Retail Business has not yet
adopted this statement but is required to adopt this statement for the fiscal
year ending June 30, 1999.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the period. Actual results may differ from these estimates.
2. RESTRUCTURING AND UNUSUAL CHARGES
During the year ended June 30, 1996, the Retail Business recorded a $3,447,000
non-cash charge to write off certain capitalized software. The write-off
resulted from the Retail Business's acceleration of its product development
cycles in response to changes in the technological environment in the decision
support application software market.
The write-off reflected the reduction of the estimated useful service life of
the Retail Business's products and the amortization period for its capitalized
software costs, prompted by the Retail Business's acceleration of its product
development cycle. The reduction of the software amortization period to two
years and a review of projected revenues over this two-year service life
resulted in the write-off of unamortized capitalized software development costs.
-7-
<PAGE> 11
COMSHARE, INCORPORATED RETAIL BUSINESS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. EMPLOYEE STOCK PURCHASE PLAN
The Retail Business's employees participate in Comshare's Employee Stock
Purchase Plan (the "ESPP") which was approved by the shareholders in November
1994. A total of 300,000 shares of the Comshare's common stock have been
reserved for issuance under the ESPP. The ESPP allows participating employees
to purchase shares of the Comshare's common stock through payroll deductions at
85% of the lessor of fair market value at the beginning or end of each six
month purchase period. Substantially all employees of the Retail Business are
eligible to participate in the ESPP. Under the ESPP, 1,796 shares, 2,180 shares
and 1,663 shares were issued in fiscal 1996 and 1997 and the ten months ended
April 30, 1998, respectively. See Note 5 for pro forma SFAS 123 expense.
4. BENEFIT PLANS
The Retail Business's employees participate in Comshare's profit sharing plan
covering substantially all United States employees. The profit sharing plan
provides for a minimum annual Comshare contribution of 2% of an employee's
salary, and matching contributions based on employee 401(k) contributions.
Comshare contributions, other than the above, are discretionary and are
determined by the Board of Directors of Comshare. The total contributions for
the plan for the Retail Business employees were $154,000, $121,000 and $51,000
in fiscal 1996 and 1997 and the ten months ended April 30, 1998, respectively.
Certain of the Retail Business's employees participate in benefit plans
maintained by a Comshare subsidiary in the United Kingdom. These plans consist
of a defined benefit plan for employees hired before January 1, 1994 and a
defined contribution plan for employees hired after January 1, 1994. Effective
April 1, 1997, the defined benefit plan was frozen, with no further
contributions or benefits accruing under the plan. As of the same date, the
defined contribution plan was amended, providing a minimum annual Comshare
contribution of 2-1/2% of the employee's compensation, and matching
contributions up to an additional 2-1/2% of compensation based on employee
contributions. The defined contribution plan now covers substantially all
United Kingdom employees. Prior to April 1, 1997, the defined contribution plan
provided that participating employees contribute a minimum of 5% of their
pensionable salary with the Retail Business contributing 5%. The expense for
these plans, which was allocated to the Retail Business, was $105,000, $55,000
and $46,000 in fiscal 1996 and 1997 and the ten months ended April 30, 1998,
respectively.
5. STOCK OPTIONS
Employees of the Retail Business are eligible to participate in Comshare's
stock option plans. These plans provide for the grant of incentive stock
options to officers and key employees. Options under the plans are granted at
100% of market price on the date of the grant, and are exercisable at the rate
of 25% per year after one year from the date of the grant and have a term of
five years.
At April 30, 1998, Retail Business employees had 76,850 outstanding options and
9,000 exercisable options with exercise prices ranging from $4.08 to $27.25.
-8-
<PAGE> 12
COMSHARE, INCORPORATED RETAIL BUSINESS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Using the intrinsic value method of accounting for the value of stock options
granted to Retail Business employees during fiscal 1996 and 1997, and the ten
months ended April 30, 1998, no compensation cost was recorded in the
accompanying statement of operations to be sold. Had compensation costs been
determined on the fair value at the date of grant for awards in fiscal 1996 and
1997 and the ten months ended April 30, 1998, consistent with the provisions of
SFAS 123, additional expense of $89,000, $206,000 and $435,000 would have been
recognized, respectively.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model. Because the SFAS 123 method of accounting
has not been applied to options granted prior to July 1, 1995, the resulting
pro-forma compensation cost may not be representative of that to be expected in
future years. The following weighted average assumptions were used in valuing
the option grants:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Ten Months
Ended June 30, Ended June 30, Ended April 30,
1996 1997 1998
------------- -------------- ---------------
<S> <C> <C> <C>
Stock Option Plans:
Expected life (years) 3.26 3.26 3.26
Risk free interest rate 6.4% 6.1% 5.7%
Expected stock price volatility .59 .56 .71
Expected dividend yield - - -
Employee Stock Purchase Plan:
Expected life (years) .50 .50 .50
Risk free interest rate 6.4% 6.1% 5.7%
Expected stock price volatility .59 .56 .71
Expected dividend yield - - -
</TABLE>
6. LEASES
Comshare leases most of its office space, transportation and certain of its
equipment and noncancelable capital and operating leases. Initial lease terms
vary in length and several of the leases contain renewal options. The Retail
Business is not subject to these lease commitments although Comshare allocates a
portion of lease expense each year to the Retail Business. Total lease expense
allocated was $1,294,000 in fiscal 1996, $1,231,000 in fiscal 1997 and
$1,018,000 for the ten months ended April 30, 1998.
<PAGE> 13
COMSHARE, INCORPORATED RETAIL BUSINESS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
7. GEOGRAPHIC OPERATIONS AND SEGMENT INFORMATION
The following table summarizes selected financial information of the Retail
Business's operations by geographic location (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, April 30,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue from customers:
North America $12,461 $13,106 $ 8,308
International 5,037 4,707 9,498
------- ------- -------
Total revenue $17,498 $17,813 $17,806
======= ======= =======
Operating Income:
North America $ 115 $ (170) $ 757
International 774 (718) 1,772
------- ------- -------
Total operating income 889 (888) 2,529
Unallocated expenses, net (3,447) -- --
------- ------- -------
Income (loss) before taxes $(2,558) $ (888) $ 2,529
======= ======= =======
Identifiable assets:
North America $ 5,574 $ 5,415 $ 5,458
International 1,394 1,354 1,364
------- ------- -------
Total identifiable assets 6,968 6,769 6,822
Computer software 2,962 3,213 4,725
------- ------- -------
Total assets $ 9,930 $ 9,982 $11,547
======= ======= =======
</TABLE>
Unallocated expenses include $3,447,000 of unusual charges related to the
write-off of capitalized software in fiscal 1996.
The presentation of information on a geographical basis requires the use of
estimation techniques and does not take into account the extent to which the
Retail Business's marketing and management skills are interdependent.
The Retail Business operates in one business segment: the development and
marketing of computer software and related services.
No customer accounted for more than 5% of total revenues in the fiscal years
ended June 30, 1996 and 1997. For the ten months ended April 30, 1998, one
customer accounted for approximately 9% of total revenue.
-10-
<PAGE> 14
Comshare, Incorporated Retail Business
Notes to Financial Statements
(Continued)
8. BORROWINGS
Comshare entered into a $10 million credit agreement on September 23, 1997 with
a bank which matures on October 1, 2000. Borrowings are secured by the accounts
receivable of Comshare. The accounts receivable of the Retail Business are
subject to this agreement.
9. LITIGATION
The Retail Business is subject to certain litigation, being part of the business
operations of Comshare. Comshare was involved in the following significant
litigation:
Comshare and certain of its officers and directors are defendants in a
shareholder class action suit, In Re Comshare, Incorporated Securities
Litigation, filed in the United States District Court for the Eastern District
of Michigan. This suit was described in Item 3 of Comshare's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997. On September 18, 1997 the
Court dismissed all of the claims. The plaintiffs have filed an appeal of the
dismissal with the U.S. Court of Appeals for the Sixth Circuit. Comshare is
vigorously contesting the appeal.
-11-
<PAGE> 15
PRO FORMA FINANCIAL INFORMATION
In June 1998, JDA Software Group, Inc. acquired the Comshare, Incorporated
Retail Business ("Arthur Retail") from Comshare, Incorporated, a Michigan
corporation, for $44 million pursuant to an Asset Purchase Agreement dated June
4, 1998 (the "Acquisition"). Arthur Retail is a leading provider of strategic
merchandise management software applications, including the Arthur and Boost
Sales and Margin Planning applications marketed to the retail and packaged goods
industries (collectively the "Arthur Enterprise Suite"). The purchase price was
determined through an arms-length negotiation between the parties, and was
allocated to the underlying assets, namely the intellectual property and other
intangibles related to the Arthur Enterprise Suite, based on the Company's
estimate of fair values and remaining economic lives. The excess of the purchase
price over the fair value of the assets is being amortized over a period of ten
years.
The following unaudited consolidated pro forma statements of operations
combine the historical statements of income of JDA Software Group, Inc. and
Arthur Retail for the year ended December 31, 1997 and the six months ended June
30, 1998, giving effect to the Acquisition as if it had occurred at the
beginning of each period. The Acquisition is accounted for in the pro forma
financial information using the purchase method of accounting. A consolidated
pro forma balance sheet is not presented herein as the Acquisition has been
reflected in the condensed consolidated balance sheet filed by the Company in
connection with its quarterly report on Form 10-Q for the quarter ended June 30,
1998.
The detailed assumptions used to prepare the pro forma financial
information are contained in the notes to the unaudited consolidated pro forma
financial information. Pro forma adjustments for the acquisition of Arthur
Retail are based upon preliminary estimates, available information and certain
assumptions that the management of the Company deems appropriate. Final
adjustments may differ from the pro forma adjustments presented herein. The
unaudited consolidated pro forma financial information does not purport to
represent the results of operations or the financial position of the Company
that actually would have resulted had the Acquisition occurred as of the dates
indicated, nor should it be taken as indicative of the future results of the
operations or future financial position of the Company.
The unaudited consolidated pro forma financial information should be read
in conjunction with the separate historical financial statements and notes
thereto reported by the Company in its annual report on Form 10-K/A for the year
ended December 31, 1997 and quarterly report on Form 10-Q for the quarter ended
June 30, 1998, and the financial statements of Comshare, Incorporated Retail
Business as of June 30,1997 and April 30, 1998 (which are contained elsewhere
herein).
<PAGE> 16
JDA SOFTWARE GROUP, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
ARTHUR PRO FORMA
JDA RETAIL ADJUSTMENTS PRO FORMA
--- ------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses $42,041 $ 8,610 $ 50,651
Consulting, maintenance and other services 49,730 10,988 60,718
------- -------- -------- ---------
Total revenues 91,771 19,598 0 111,369
COST OF REVENUES:
Software licenses 1,145 1,333 2,478
Consulting, maintenance and other services 37,727 6,892 44,619
------- -------- -------- ---------
Total cost of revenues 38,872 8,225 0 47,097
GROSS PROFIT 52,899 11,373 0 64,272
------- -------- -------- ---------
OPERATING EXPENSES:
Product development 11,364 3,968 -- 15,332
Sales and marketing 12,633 6,499 -- 19,132
General and administrative 9,532 1,432 -- 10,964
Internally capitalized software 0 (2,980) 2,980 (2) 0
Amortization expense 0 1,850 (489)(1) 1,361
Purchased in-process research and development 0 0 -- 0
------- -------- -------- ---------
33,529 10,769 2,491 46,789
INCOME (LOSS) FROM OPERATIONS 19,370 604 (2,491) 17,483
Other income (expense) 1,407 0 (2,401)(3) (994)
------- -------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 20,777 604 (4,892) 16,489
Income tax (benefit) provision 8,311 0 (1,715)(5) 6,596
======= ======== ======== =========
NET INCOME (LOSS) $12,466 $ 604 ($ 3,177) $ 9,893
======= ======== ======== =========
BASIC AND DILUTED EARNINGS(LOSS) PER SHARE $ 0.64 $ 0.50
======= =========
SHARES USED TO COMPUTE:
Basic earnings per share 19,617 19,617
======= =========
Diluted earnings per share 19,664 19,664
======= =========
</TABLE>
<PAGE> 17
JDA SOFTWARE GROUP, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
ARTHUR PRO FORMA
JDA RETAIL ADJUSTMENTS PRO FORMA
--- ------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses $ 24,361 $ 3,417 $27,778
Consulting, maintenance and other services 42,218 4,813 47,031
-------- -------- -------- -------
Total revenues 66,579 8,230 0 74,809
COST OF REVENUES:
Software licenses 1,108 133 1,241
Consulting, maintenance and other services 29,889 2,842 32,731
-------- -------- -------- -------
Total cost of revenues 30,997 2,975 0 33,972
GROSS PROFIT 35,582 5,255 0 40,837
-------- -------- -------- -------
OPERATING EXPENSES:
Product development 9,032 1,702 10,734
Sales and marketing 8,496 2,530 11,026
General and administrative 6,540 674 7,214
Internally capitalized software 0 (1,026) 1,026 (2) 0
Amortization expense 0 464 216 (1) 680
Purchased in-process research and development 40,000 0 (40,000)(4) 0
-------- -------- -------- -------
64,068 4,344 (38,758) 29,654
INCOME (LOSS) FROM OPERATIONS (28,486) 911 38,758 11,183
Other income (expense) 1,175 0 (1,079)(3) 96
-------- -------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES (27,311) 911 37,679 11,279
Income tax (benefit) provision (11,463) 0 15,975 (4),(5) 4,512
-------- -------- -------- -------
NET INCOME (LOSS) ($15,848) $ 911 $ 21,704 $ 6,767
======== ======== ======== =======
BASIC AND DILUTED EARNINGS(LOSS) PER SHARE ($ 0.76) $ 0.32
SHARES USED TO COMPUTE:
Basic earnings (loss) per share 20,987 20,987
======== =======
Diluted earnings (loss) per share 20,987 21,342
======== =======
</TABLE>
<PAGE> 18
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following explanations describe the assumptions used in determining the pro
forma adjustments necessary to present the pro forma statements of operations of
the Company for the year ended December 31, 1997 and the six months ended June
30, 1998.
The historical operating results shown for Arthur Retail for the year ended
December 31, 1997 include the historical Statement of Operations to be Sold of
Comshare, Incorporated Retail Business for the ten months ended April 30, 1998,
as adjusted by subtracting the operating results for the four months ended April
30,1998 and adding the operating results for the six months ended June 30, 1997.
Management believes the operating results, as adjusted, include all adjustments
and reclassifications necessary for a fair and comparable presentation with
historical results.
The historical operating results shown for Arthur Retail in the Pro Forma
Statement of Operations for the six months ended June 30, 1998 include the
historical Statement of Operations to be Sold of Comshare, Incorporated Retail
Business for the ten months ended April 30, 1998, as adjusted by subtracting the
operating results for the six months ended December 31, 1997 and adding
operating results for the month of May 1998. Accordingly, the historical
operating results shown for Arthur Retail represent the period from January 1,
1998 to June 4, 1998. The June 1998 operating results of Arthur Retail have been
included in the historical financial statements of JDA Software Group, Inc. from
the date of acquisition. Management believes the operating results, as adjusted,
include all adjustments and reclassifications necessary for a fair and
comparable presentation with historical results.
The pro forma statements of operations for the year ended December 31, 1997 and
six months ended June 30, 1998 do not include the effect of a $40 million
one-time charge for purchased in-process technology and related income tax
benefit of $16.2 million. In-process technology includes the value of products
acquired from Arthur Retail that were in the development stage and for which
technological feasibility had not been established. The Company does not believe
these products have any alternative future use.
The pro forma statements of operations for the year ended December 31, 1997 and
the six months ended June 30,1998 include the effect of the Company's
three-for-two stock split effected in the form of a 50% stock dividend that
occurred on July 17, 1998.
1. Entry records the increase (decrease) in amortization expense arising from
the purchase accounting adjustments as follows:
<TABLE>
<CAPTION>
Amortization Year Ended Six Months Ended
Period 12-31-97 6-30-98
------ -------- -------
<S> <C> <C> <C>
Developed Software 7 Years $ 286 $ 143
Customer List 11 Years 291 145
Assembled Workforce 3 Years 500 250
Goodwill 10 Years 284 142
------- -----
$ 1,361 $ 680
Less amounts recorded in the
Historical financial statements of Arthur Retail (1,850) (464)
------- -----
Purchase accounting adjustment $ (489) $ 216
------- -----
</TABLE>
2. Entry reverses the internally capitalized software on Arthur Retail. The
Company's policy is to expense the costs to develop new software products
and enhancements to existing software products until technological
feasibility has been established. The Company believes its current
<PAGE> 19
process for developing software is essentially completed concurrent with
the establishment of technological feasibility, and accordingly, no costs
are capitalized. The Company considers technological feasibility to have
occurred when all planning, designing, coding and testing have been
completed according to design specifications.
3. Entry records the opportunity costs related to interest that would be
forfeited on invested cash balances and additional interest expense that
would be incurred on borrowings necessary to effect the Acquisition as of
January 1, 1997 and January 1, 1998, as appropriate. The entry presumes
the Company would utilize all but $1 million of its available cash
balances as of those dates to effect the Acquisition.
4. Entry reverses the one-time charge for purchased in-process technology and
related income tax benefit recorded by JDA in connection with the
Acquisition. The one-time charge is reflected in the historical operating
results of JDA for the six months ended June 30, 1998.
5. Entry records the income tax effect on the income of Arthur Retail and the
purchase accounting adjustments at a blended rate of 40% for the year
ended December 31, 1997 and six months ended June 30, 1998.
<PAGE> 20
Index to Exhibits
Exhibit
No. Description
------- -----------
23.1 CONSENT OF ARTHER ANDERSEN LLP
<PAGE> 1
ARTHUR ANDERSEN LLP
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated June 2, 1998, and to all references to our firm, included in or made a
part of this Form 8-K of JDA Software Group, Inc.
/s/ Arthur Andersen LLP
Ann Arbor, Michigan
August 14, 1998.
