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