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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 September 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 November 8, 1996, the Registrant had outstanding 24,574,239 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
September 30, 1996 3
Condensed Consolidated Statements of Income for the Three Months
and Nine Months Ended September 30, 1995 and September 30, 1996 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1995 and September 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 14
SIGNATURES 15
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
i2 TECHNOLOGIES,INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
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December 31, September 30,
1995 1996
-------- --------
(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 5,930 $ 26,158
Short-term investments -- 26,484
Accounts receivable, net 7,919 14,418
Contract receivables, net 1,176 6,501
Income tax receivable 1,151 892
Prepaid and other current assets 543 1,833
-------- --------
Total current assets 16,719 76,286
Furniture and equipment, net 3,127 5,910
Deferred income taxes and other assets 64 60
-------- --------
Total assets $ 19,910 $ 82,256
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,048 $ 2,504
Accrued liabilities 1,618 7,546
Current portion of long-term debt 278 --
Current portion of deferred revenue 7,474 15,354
Income taxes payable 425 48
-------- --------
Total current liabilities 10,843 25,452
Long-term debt 1,075 100
Deferred revenue 291 145
Deferred income taxes 141 80
-------- --------
Total liabilities 12,350 25,777
-------- --------
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 24,484,760 shares issued
and outstanding, respectively 5 6
Additional paid-in capital 2,169 47,964
Deferred compensation (1,739) (2,050)
Retained earnings 7,125 10,559
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Total stockholders' equity 7,560 56,479
-------- --------
Total liabilities and stockholders' equity $ 19,910 $ 82,256
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</TABLE>
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 Nine Months Ended
September 30, September 30,
------------------- ----------------------
1995 1996 1995 1996
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Revenues:
Software licenses $ 5,256 $ 14,106 $ 11,712 $ 34,319
Services 1,494 5,512 3,324 10,756
Maintenance 559 1,912 1,650 4,717
------- -------- -------- --------
Total revenues 7,309 21,530 16,686 49,792
------- -------- -------- --------
Costs and expenses:
Cost of software licenses 26 791 37 2,424
Cost of services and maintenance 1,007 4,774 2,253 9,336
Sales and marketing 2,445 7,930 5,661 19,239
Research and development 1,117 3,884 2,361 9,565
General and administrative 935 1,896 2,046 4,810
------- -------- -------- --------
Total costs and expenses 5,530 19,275 12,358 45,374
------- -------- -------- --------
Operating income 1,779 2,255 4,328 4,418
Other income (expense) (13) 584 (34) 1,164
------- -------- -------- --------
Income before income taxes 1,766 2,839 4,294 5,582
Provision for income taxes 604 1,092 1,469 2,148
------- -------- -------- --------
Net income $ 1,162 $ 1,747 $ 2,825 $ 3,434
======= ======== ======== ========
Net income per share $ 0.05 $ 0.06 $ 0.11 $ 0.13
Weighted average common and common
equivalent shares outstanding 25,030 28,102 24,836 26,970
</TABLE>
See accompanying notes.
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i2 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
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Nine Months Ended September 30,
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1995 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,825 $ 3,434
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 535 1,571
Provision for losses on receivables 12 119
Amortization of deferred compensation -- 599
Deferred income taxes 228 (5)
Changes in operating assets and liabilities:
Increase in accounts receivable (4,794) (6,618)
Increase in contract receivables (56) (5,325)
(Increase) decrease in income tax receivable (847) 259
Increase in prepaid and other assets (508) (1,342)
Increase in accounts payable 368 1,456
Increase in accrued liabilities 1,315 5,928
Decrease in income taxes payable (98) (377)
Increase in deferred revenue 2,929 7,734
-------- --------
Net cash provided by operating activities 1,909 7,433
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment (1,568) (4,354)
Purchases of short-term investments -- (37,484)
Proceeds from sale of short-term investments -- 11,000
-------- --------
Net cash used in investing activities (1,568) (30,838)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 3,110 --
Payments on long-term debt (589) (1,253)
Net proceeds from sale of common stock
and exercise of stock options -- 44,496
Tax benefit of stock options -- 390
-------- --------
Net cash provided by financing activities 2,521 43,633
-------- --------
Net increase in cash and cash equivalents 2,862 20,228
Cash and cash equivalents at beginning of period 3,422 5,930
-------- --------
Cash and cash equivalents at end of period $ 6,284 $ 26,158
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</TABLE>
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 nine month periods ended
September 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 nine month periods ended
September 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 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
September 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
In June 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 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 September 30, 1996). As
of September 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 nine
months ended September 30, 1996 totaled $185,000 and $599,000, respectively,
and at September 30, 1996, deferred compensation totaled $2.1 million.
6. INITIAL PUBLIC OFFERING
In May 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
In May 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 decision support, 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.
Rhythm enables customers to model complex, multi-site supply chains and rapidly
generate integrated solutions to planning and scheduling problems such as
production bottlenecks, supply interruptions and customer order changes.
Rhythm utilizes a unique, constraint-based methodology which simultaneously
considers a broad range of constraints -- from machine capabilities to
individual customer commitments -- to optimize all aspects of the supply chain
including manufacturing and logistics.
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 Nine Months Ended
September 30, September 30,
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1995 1996 1995 1996
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Revenues:
Software licenses 71.9 % 65.5 % 70.2 % 68.9 %
Services 20.5 25.6 19.9 21.6
Maintenance 7.6 8.9 9.9 9.5
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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 0.3 3.7 0.2 4.9
Cost of services and maintenance 13.8 22.2 13.5 18.7
Sales and marketing 33.5 36.8 33.9 38.6
Research and development 15.3 18.0 14.2 19.2
General and administrative 12.8 8.8 12.3 9.7
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Total costs and expenses 75.7 89.5 74.1 91.1
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Operating income 24.3 10.5 25.9 8.9
Other income (expense) (0.1) 2.7 (0.2) 2.3
------ ------ ------ ------
Income before income taxes 24.2 13.2 25.7 11.2
Provision for income taxes 8.3 5.1 8.8 4.3
------ ------ ------ ------
Net income 15.9 % 8.1 % 16.9 % 6.9 %
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REVENUES
The Company's revenues consist of software license revenues, service
revenues and maintenance revenues. Software license revenues consist of sales
of software licenses which are recognized upon execution of a contract and
shipment of the software, provided that no significant vendor obligations
remain outstanding, amounts are due within one year and collection is
considered probable by management. Service revenues are derived from fees for
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.
Total revenues increased 194.6% to $21.5 million in the quarter ended
September 30, 1996 from $7.3 million in the quarter ended September 30, 1995.
In the first nine months of 1996, total revenues increased 198.4% to $49.8
million from $16.7 million in the first nine 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.
The Company's international revenues, principally from customers
located in Europe and Asia, were approximately 25% and 17% of total revenues in
the quarters ended September 30, 1996 and 1995, respectively. International
revenues were approximately 22% and 8% of total revenues in the first nine
months of 1996 and 1995, respectively. The significant increase in
international revenues from 1995 is primarily due to the international
expansion of the Company's sales operations in 1995 and 1996.
SOFTWARE LICENSES. Revenues from software licenses increased 168.4%
to $14.1 million in the quarter ended September 30, 1996 from $5.3 million in
the quarter ended September 30, 1995. In the first nine months of 1996,
revenues from software licenses increased 193.0% to $34.3 million from $11.7
million in the first nine months of 1995. The significant increases in
software license revenues were primarily due to the growing market acceptance
of Rhythm and the international expansion of the Company's sales and marketing
organization. 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 268.9% to $5.5 million in
the quarter ended September 30, 1996 from $1.5 million in the quarter ended
September 30, 1995. In the first nine months of 1996, revenues from services
increased 223.6% to $10.8 million from $3.3 million in the first nine 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, a significant investment in the Company's consulting organization as
a result of the increased demand for the Company's products and an increase in
the use of third party consultants to provide services to the Company's
customers. 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 242.0% to $1.9
million in the quarter ended September 30, 1996 from $559,000 in the quarter
ended September 30, 1995. In the first nine months of 1996, revenues from
maintenance increased 185.9% to $4.7 million from $1.7 million in the first
nine 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 first
nine months of 1996.
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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 $791,000 and $26,000 in the quarters ended September 30, 1996 and
1995, representing 5.6% and 0.5% of software license revenues, respectively.
Cost of software licenses was $2.4 million and $37,000 in the first nine months
of 1996 and 1995, representing 7.1% and 0.3% 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.
Royalty fees were $767,000 in the quarter ended September 30, 1996 and $2.4
million in the first nine months of 1996. 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.
COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance
consists primarily of costs associated with consulting and training services.
Cost of services and maintenance also includes the cost of providing software
maintenance to customers such as hotline telephone support, new releases of
software and updated user documentation, none of which costs have been
significant to date. Cost of services and maintenance was $4.8 million and
$1.0 million in the quarters ended September 30, 1996 and 1995, representing
64.3% and 49.1% of service and maintenance revenues, respectively. Cost of
services and maintenance was $9.3 million and $2.3 million in the first nine
months of 1996 and 1995, representing 60.3% and 45.3% 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 $7.9 million and $2.4 million in
the quarters ended September 30, 1996 and 1995, representing 36.8% and 33.5% of
total revenues, respectively. These same expenses were $19.2 million and $5.7
million in the first nine months of 1996 and 1995, representing 38.6% and 33.9%
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. The Company expects to
continue to significantly increase its sales and marketing expenses in order to
expand its international sales operations and to enter into new vertical
markets.
RESEARCH AND DEVELOPMENT. Research and development expenses were $3.9
million and $1.1 million in the quarters ended September 30, 1996 and 1995,
representing 18.0% and 15.3% of total revenues, respectively. These same
expenses were $9.6 million and $2.4 million in the first nine months of 1996
and 1995, representing 19.2% and 14.2% 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.
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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 $1.9 million and
$935,000 in the quarters ended September 30, 1996 and 1995, representing 8.8%
and 12.8% of total revenues, respectively. These same expenses were $4.8
million and $2.0 million in the first nine months of 1996 and 1995,
representing 9.7% and 12.3% 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 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.
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
$584,000 and ($13,000) in the quarters ended September 30, 1996 and 1995,
representing 2.7% and (0.1%) of total revenues, respectively. Other income
(expense) was $1.2 million and ($34,000) in the first nine months of 1996 and
1995, representing 2.3% 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 in May 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 $2.1 million and $1.5
million in the first nine 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 nine months ended September 30, 1996
provided cash of $7.4 million. Cash provided by operations was primarily
attributable to net income of $3.4 million, an increase in accrued liabilities
of $5.9 million and an increase in deferred revenue of $7.7 million partially
offset by a net increase in accounts receivable of $6.5 million and a net
increase in contract receivables of $5.3 million. Cash used in investing
activities for the nine months ended September 30, 1996 was primarily related
to the purchase of $4.4 million of computer equipment and office furniture and
a net purchase in short-term investments of $26.5 million. At September 30,
1996, the Company did not have any material commitments for capital
expenditures.
As of September 30, 1996, the Company had $50.8 million of working
capital, including $26.2 million in cash and cash equivalents and $26.5 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 in May 1996 and
generated net proceeds of $43.7 million after deducting offering expenses and
the underwriting discount.
Accounts receivable increased to $14.4 million at September 30, 1996
from $7.9 million at December 31, 1995 and the average days' sales outstanding,
excluding contract receivables, was 48 days for both the three and nine months
ended September 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 September 30, 1996. Average days' sales
outstanding can fluctuate for a variety of reasons including the timing and
billing of receivables for which the related revenues may not yet be
recognizable.
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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 $6.5
million at September 30, 1996 primarily due to the extended payment terms of
several license agreements 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 $15.5 million at September 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 nine months
of 1997.
The Company's revolving credit agreement with NationsBank of Texas,
N.A. (the "Lender"), which was 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 September 30, 1996). As of September 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. In
June 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
MARKET ACCEPTANCE
The Company's future operating results are dependent upon continued
market acceptance of Rhythm and enhancements thereto. A decline in demand for,
or market acceptance of, Rhythm as a result of competition, technological
change or other factors would have a material adverse effect on the Company's
business, operating results and financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
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 September 30, 1996 and a different customer
accounted for a majority of the Company's revenues in the quarter ended
September 30, 1995. In addition, like many software companies, the Company
typically realizes a significant portion of its software license revenues in
the last month of a quarter. 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.
12
<PAGE> 13
OPERATING LEVERAGE
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 $599,000 in the
three and nine months ended September 30, 1996, respectively, and the
unamortized balance of deferred compensation at September 30, 1996 was $2.1
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.
INTERNATIONAL OPERATIONS
The Company believes that continued growth and profitability will
require expansion of its sales in international markets. In order to
successfully increase international sales, the Company has utilized, and will
continue to utilize substantial resources to expand existing foreign
operations, establish additional foreign operations and hire additional
personnel. International expansion of the Company's operations has required,
and will continue to require the Company to translate its software and manuals
into foreign languages. To date, the Company has translated its software into
Asian, European and Latin American languages. To the extent the Company is
unable to expand its international operations or translate its software and
manuals into foreign languages in a timely manner, it is likely to have a
negative impact on the Company's operating results.
To date, the Company's revenues from international operations have
primarily been denominated in United States dollars. However, to the extent
significant sales have been in the past or are in the future denominated in
foreign currencies, the Company has implemented and intends in the future to
implement hedging programs to mitigate its exposure to foreign currency
fluctuations.
COMPLEXITY OF SOFTWARE PRODUCTS AND NEW PRODUCTS
Rhythm is written in C++ language and utilizes a fully object-oriented
data structure for representing operations, resources and inventory buffer
stocks in supply chains. Rhythm is a client / server solution which can operate
on platforms from Digital Equipment, Hewlett-Packard, IBM, Sun Microsystems,
Solaris and Microsoft and can access data from most widely used SQL (structured
query language) databases, including Informix, Oracle and Sybase. Based upon
demand in the marketplace, the Company may identify additional platforms on
which to port its software products; however, such platforms may not be
architecturally compatible with Rhythm's software product design. Therefore,
no assurance can be given concerning the continued successful porting of the
Company's software products on these or additional platforms, the timing of
completion of any such ports or the acceptance of the Company's applications in
the marketplace.
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. There can be no assurance
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 its products.
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.
13
<PAGE> 14
i2 TECHNOLOGIES, INC.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Index
<TABLE>
<CAPTION>
Number Exhibit Description
------ ---------------------------------------------------
<S> <C>
10.1 Third Amendment to Lease Agreement between i2 Technologies, Inc.
and TRST Irving, Inc. dated as of July 25, 1996
10.2 Fifth Amendment to Lease Agreement between i2 Technologies, Inc.
and Principal Mutual Life Insurance Company dated as of August 29, 1996
11.1 Statement of Computation of Net Income Per Share
27.1 Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
14
<PAGE> 15
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.
November 13, 1996 /s/ Sanjiv S. Sidhu
----------------- ------------------------------------------
(Date) Sanjiv S. Sidhu
Chairman of the Board and Chief Executive Officer
(Principal executive officer)
November 13, 1996 /s/ David F. Cary
----------------- ------------------------------------------
(Date) David F. Cary
Vice President and Chief Financial Officer
(Principal finance and accounting officer)
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Exhibit Description Page
- ------ ------------------- ----
<S> <C> <C>
10.1 Third Amendment to Lease Agreement between i2 Technologies, Inc.
and TRST Irving, Inc. dated as of July 25, 1996 17-27
10.2 Fifth Amendment to Lease Agreement between i2 Technologies, Inc.
and Principal Mutual Life Insurance Company dated as of August 29, 1996 28-31
11.1 Statement of Computation of Net Income Per Share 32
27.1 Financial Data Schedule 33
</TABLE>
16
<PAGE> 1
EXHIBIT 10.1
THIRD AMENDMENT TO
LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (this "AMENDMENT") is by and
between TRST IRVING, INC., a Texas corporation ("LANDLORD"), and I2
TECHNOLOGIES, INC., a Texas corporation ("TENANT").
RECITALS
A. Landlord and Tenant have previously entered into a certain
Lease Agreement dated July 14, 1995 (the "ORIGINAL LEASE"), with respect to
Suite No. 1600 in the office building located at 909 Las Colinas Boulevard,
Irving, Texas. (Except as otherwise provided herein, all terms with initial
capital letters have the same meaning ascribed to them in the Original Lease.)
B. The Original Lease has been amended by (i) a certain First
Amendment to Lease Agreement dated February 6, 1996, whereby Landlord and
Tenant confirmed an increase in the Basic Rental, and (ii) a certain Second
Amendment to Lease Agreement (the "SECOND AMENDMENT") dated February 23, 1996,
whereby Tenant increased the size of the Premises by leasing Suite No. 1400 in
the Building. (The Original Lease, as amended, is hereinafter referred to as
the "LEASE.")
C. Tenant desires to lease additional space from Landlord.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant hereby agree as follows:
1. The Basic Lease Information, which sets forth various
definitions, is hereby amended as follows:
a. The definition of Premises is amended to read as follows:
"Premises: (i) Suite No. 1600 (the "Initial Lease
Area"), containing 36,534 rentable square
feet, and (ii) Suite No. 1400 containing
10,926 rentable square feet, and Suite
No. 1300 containing 18,197 rentable square
feet (Suite Nos. 1300 and 1400 are sometimes
collectively referred to as the "Additional
Lease Area"), in the office building known
as Computer Associates Tower, 909 E. Las
Colinas Blvd. (the "Building") located in
the City of Irving, Dallas County,
Texas, described on Exhibit 'I'. The
Premises are outlined on the plan attached
to the Lease as Exhibit 'A'."
b. The definition of Term is amended to read as follows:
1
<PAGE> 2
"Term: Commencing on the Commencement Date and
ending on October 31, 2000, subject to
adjustment or earlier termination as provided
in the Lease. As used herein, the term
'Commencement Date' shall mean the following:
(a) with respect to the Initial Lease
Area, the Commencement Date shall
mean October 15, 1995;
(b) with respect to Suite No. 1400, the
Commencement Date shall mean the
earlier of (i) the date upon which
Tenant commences business in Suite
No. 1400, or (ii) August 1, 1996;
and
(c) with respect to Suite No. 1300, the
Commencement Date shall mean the
earlier of (i) the date upon which
Tenant commences business in Suite
No. 1300, or (ii) October 1, 1996."
c. The definition of Basic Rental is amended to read as follows:
"Basic Rental: Payable monthly based on the
following annual amounts: Subject
to increase in accordance with
Exhibit 'C,' (i) the annual Basic
Rental for the Initial Lease Area
will be $15.94 per rentable square
foot per year during the first
twelve (12) month period (months
1-12), $15.94 per rentable square
foot per year during the second
twelve (12) month period (months
13-24), $16.44 per rentable square
foot per year during the third
twelve (12) month period (months
25-36), $16.94 per rentable square
foot per year during the fourth
twelve (12) month period (months
37-48), and $17.44 per rentable
square foot per year during the last
twelve (12) month period (months
49-60); (ii) the annual Basic Rental
for Suite No. 1400 will be $20.00
per rentable square foot per year
throughout the entire Term of Suite
No. 1400; and (iii) the annual Basic
Rental for Suite No. 1300 will be
$21.00 per rentable square foot per
year throughout the entire Term of
Suite No. 1300."
2. Exhibit "A" attached to this Amendment is hereby substituted
for the Exhibit "A" attached to the Lease.
2
<PAGE> 3
3. Tenant accepts Suite No. 1300 in its "as is" condition.
Landlord and Tenant hereby agree that Suite No. 1300 will be completed in
accordance with Exhibit "B" attached hereto and incorporated herein for all
purposes.
4. Landlord and Tenant confirm that Suite No. 1400 will be
completed in accordance with Exhibit "B" attached to the Second Amendment.
However, the parties hereby agree that paragraph 8.h. of Exhibit "B" attached
to the Second Amendment is amended to read as follows:
"h. Tenant shall not become entitled to the Construction
Allowance or a portion thereof until the following
occurs: Each installment of work has been
substantially completed in a workmanlike manner
acceptable to the Landlord's Construction Manager.
The Construction Allowance will be paid not more
often than monthly within thirty (30) days after
Landlord's Construction Manager's receipt of invoice
from Tenant or Tenant's Construction Manger, which
shall include (i) all invoices from contractors,
subcontractor, and suppliers evidencing the costs of
performing the work, together with lien waivers from
such parties, and a consent of the surety to the
finished work (if applicable), and (ii) with respect
to the final payment only, a certificate of occupancy
from the appropriate governmental authority, if
applicable to the Work, or evidence of governmental
inspection and approval of the Work. In no event
shall any one installment invoice by Tenant exceed an
amount equal to (a) the percentage of completion
times (b) the Total Construction Costs."
5. In addition to the parking spaces Tenant is entitled to use
pursuant to, and in accordance with, Exhibit "E" attached to the Lease, and the
parking spaces Tenant is entitled to use pursuant to paragraph 4 of the Second
Amendment, Tenant will also be permitted to use fifty-two (52) undesignated
vehicular parking spaces in the Parking Garage during the initial Term of Suite
No. 1300 (i.e., Tenant's rights to such additional parking spaces will not
commence until October 1, 1996). Of the fifty-two spaces, thirteen (13) will
be in the underground section of the Parking Garage and thirty-nine (39) will
be in the above ground section of the Parking Garage. Tenant may use such
additional parking spaces at no charge during the first 25 months of such Term,
but Tenant will pay $40.00 per space per month during the last 24 months of the
Term of the Lease. Tenant's use of such parking spaces will be subject to such
terms, conditions and regulations as are from time to time charged or
applicable to patrons of the Parking Garage. If, for any reason, Landlord
fails or is unable to provide, or Tenant is not permitted to use, all or any
portion of the parking spaces to which it is entitled under this paragraph,
then Tenant's obligation to pay for such spaces shall be abated for so long as
Tenant does not have the use thereof; this abatement shall be in full
settlement of all claims that Tenant might otherwise have against Landlord
because of Landlord's failure or inability to provide Tenant with such parking
spaces. If Tenant sublets any portion of the Premises or assigns any of its
interest in the Lease, then the total parking spaces allocated to Tenant under
the Lease, as amended hereby, shall be reduced to the extent the ratio between
the rentable square feet of the Premises and the parking spaces granted to
Tenant under the Lease as amended hereby exceeds the Building standard ratio of
parking space per rentable square foot as established by Landlord from time to
time.
6. Landlord and Tenant hereby confirm that Tenant has the right
to renew the Lease as
3
<PAGE> 4
it relates to the Additional Lease Area upon the terms and conditions set forth
in the Renewal Option described in Exhibit "F" attached to the Lease.
7. Landlord will pay The Amend Group a commission for the leasing
of Suite No. 1300 pursuant to a separate agreement between Landlord and The
Amend Group.
8. Except as amended hereby the Lease remains in full force and
effect. As of the effective date of this Amendment, Landlord and Tenant each
acknowledges to the other that neither party is in default under the Lease, as
amended hereby. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment
to be effective as of the latest date accompanying a signature below.
LANDLORD
TRST IRVING, INC., a Texas corporation
Date: July 25, 1996 By: /s/ M. KEITH GARRISON
-----------------------------------
Printed Name: M. Keith Garrison
--------------------------
Title: Vice President
---------------------------------
TENANT
i2 TECHNOLOGIES, INC., a Texas
corporation
Date: July 10, 1996 By: /s/ DAVID F. CARY
-----------------------------------
Printed Name: David F. Cary
--------------------------
Title: CFO
---------------------------------
4
<PAGE> 5
EXHIBIT "A"
[GRAPHIC]
EXHIBIT A - Page 1 of 4
<PAGE> 6
EXHIBIT A
[GRAPHIC]
EXHIBIT A - Page 2 of 4
<PAGE> 7
EXHIBIT A
[GRAPHIC]
EXHIBIT A - Page 3 of 4
<PAGE> 8
EXHIBIT A
[GRAPHIC]
EXHIBIT A - Page 4 of 4
<PAGE> 9
EXHIBIT B
TENANT FINISH-WORK: ALLOWANCE
1. Tenant accepts Suite No. 1300 in its "as is" condition on the date
that this Amendment is entered into and shall have the benefit of all
existing improvements in Suite No. 1300 only.
2. Tenant shall provide to Landlord for its approval space plans of Suite
No. 1300 prior to commencing working drawings. Following Landlord's
written approval of such space plans, such approval not to be
unreasonably withheld or delayed (such determination to be
communicated within five (5) working days following submission by
Tenant), Tenant shall provide to Landlord for its approval final
working drawings, prepared by an architect that has been approved by
Landlord (which approval shall not unreasonably be withheld), of all
improvements that Tenant proposes to install in Suite No. 1300; such
working drawings shall include the partition layout, ceiling plan,
electrical outlets and switches, telephone outlets, drawings for any
modifications to the mechanical and plumbing systems of the Building,
and detailed plans and specifications for the construction of the
improvements called for under this Exhibit in accordance with all
applicable governmental laws, codes, rules, and regulations. Landlord
agrees to communicate its determination regarding the acceptability of
such working drawing within ten (10) days following their submission
by Tenant. Further, if any of Tenant's proposed construction work
will affect the Building's HVAC, electrical, mechanical, or plumbing
systems, then the working drawings pertaining thereto shall be
prepared by the Building's engineer of record, whom Tenant shall at
its cost engage for such purpose. Landlord's approval of such working
drawings shall not be unreasonably withheld, provided that (a) they
comply with all applicable governmental laws, codes, rules, and
regulations, (b) such working drawings are sufficiently detailed to
allow construction of the improvements in a good and workmanlike
manner, and (c) the improvements depicted thereon conform to the rules
and regulations promulgated from time to time by Landlord for the
construction of tenant improvements (a copy of which has been
delivered to Tenant). As used herein, "Working Drawings" shall mean
the final working drawings approved by Landlord, as amended from time
to time by any approved changes thereto, and "Work" shall mean all
improvements to be constructed in accordance with and as indicated on
the Working Drawings. Approval by Landlord of the Working Drawings
shall not be a representation or warranty of Landlord that such
drawings are adequate for any use, purpose, or condition, or that such
drawings comply with any applicable law or code, but shall merely be
the consent of Landlord to the performance of the Work. All changes
in the Work must receive the prior written approval of Landlord, and
in the event of any such approved change Tenant shall, upon completion
of the Work, furnish Landlord with an accurate, reproducible
"as-built" plan (e.g., sepia) of the improvements as constructed,
which plan shall be incorporated into the Lease by this reference for
all purposes, as well as copies of all operating manuals,
specifications and warranties on equipment installed and connected to
the Building's systems.
3. The Work shall be performed only by contractors and subcontractors
approved in writing by Landlord, which approval shall not be
unreasonably withheld. All contractors and subcontractors shall be
required to procure and maintain (a) insurance against such risks, in
such amounts, and with such companies as Landlord may reasonably
require and (b) payment
<PAGE> 10
and performance bonds covering the cost of the Work and otherwise
reasonably satisfactory to Landlord. Certificates of such insurance,
with paid receipts therefor, and copies of such bonds must be received
by Landlord before the Work is commenced. The Work shall be performed
in a good and workmanlike manner that is free of defects and is in
strict conformance with the Working Drawings, and shall be performed
in such a manner and at such times as to maintain harmonious labor
relations and not to interfere with or delay Landlord's other
contractors, the operation of the Building, and the occupancy thereof
by other tenants. All contractors and subcontractors shall contact
Landlord and schedule time periods during which they may use Building
facilities in connection with the Work (e.g., elevators, excess
electricity, etc.).
4. Tenant shall bear the entire cost of performing the Work (including,
without limitation, design of the Work and preparation of the Working
Drawings, costs of construction labor and materials, electrical usage
during construction, additional janitorial services, general tenant
signage, related taxes and insurance costs, all of which costs are
herein collectively called the "Total Construction Costs") in excess
of the Construction Allowance (hereinafter defined).
5. Landlord shall provide to Tenant a construction allowance (the
"Construction Allowance") equal to the lesser of (a) $12.25 per
rentable square foot in Suite No. 1300, or (b) the Total Construction
Costs, as adjusted for any Landlord approved changes to the Work.
Tenant shall not become entitled to the Construction Allowance until
the Work has been substantially completed and Tenant has caused to be
delivered to Landlord (i) all invoices from contractors,
subcontractors, and suppliers evidencing the cost of performing the
Work, together with lien waivers from such parties, and a consent of
the surety to the finished Work (if applicable), and (ii) a
certificate of occupancy from the appropriate governmental authority,
if applicable to the Work, or evidence of governmental inspection and
approval of the Work. Landlord agrees that a portion of the
Construction Allowance may be allocated, at Tenant's option, as
follows:
a. Up to $2.00 per rentable square foot of Suite No. 1300 may be
paid for architectural and engineering design;
b. Up to $1.50 per rentable square foot of Suite No. 1300 may be
paid to Tenant's construction manager.
6. Tenant or its agent shall supervise the Work, make disbursements
required to be made to the contractor. Landlord or its agent
(Landlord's Construction Manager) shall supervise the Work, and act as
a liaison between the contractor and Tenant and coordinate the
relationship between the Work, the Building, and the Building's
systems. In consideration for such construction supervision
services, Tenant shall pay to Landlord or its Agent a construction
supervision fee equal to five percent (5%) of the Total Construction
Costs.
7. To the extent not inconsistent with this Exhibit, Sections 8a. and 8c
of the Lease shall govern the performance of the Work and the
Landlord's and Tenant's respective rights and obligations regarding
the improvements installed pursuant thereto.
8. a. Tenant is responsible for bringing all areas of Suite No. 1300
in compliance with existing codes. Without limiting the
generality of the preceding sentence, Tenant shall
<PAGE> 11
be responsible to cause all areas, including without
limitation the restrooms, in Suite No. 1300 to comply with
applicable ADA standards for handicapped persons. There are
no Common Areas in Suite No. 1300.
b. Normal wear would include holes in walls to hang pictures or
shelving, marks and scratches on the walls, and any electrical
or mechanical equipment that can wear out with use.
c. Tenant shall prepare the bid package in accordance with AIA
procedures.
d. A minimum of five contractors (acceptable to Landlord, and two
of which shall be recommended by Landlord) shall bid the work.
e. Tenant will contract with the lowest qualified bidder among the
contractors.
f. Tenant shall not become entitled to the Construction Allowance
or a portion thereof until the following occurs: Each
installment of work has been substantially completed in a
workmanlike manner acceptable to the Landlord's Construction
Manager. The Construction Allowance will be paid not more
often than monthly within thirty (30) days after Landlord's
Construction Manager's receipt of invoice from Tenant or
Tenant's Construction Manger, which shall include (i) all
invoices from contractors, subcontractor, and suppliers
evidencing the costs of performing the work, together with
lien waivers from such parties, and (ii) with respect to the
final payment only, a certificate of occupancy from the
appropriate governmental authority, if applicable to the Work,
or evidence of governmental inspection and approval of the
Work. In no event shall any one installment invoice by Tenant
exceed an amount equal to (a) the percentage of completion
times (b) the Total Construction Costs.
<PAGE> 1
EXHIBIT 10.2
FIFTH AMENDMENT OF LEASE
This Fifth Amendment of Lease (the "Fifth Amendment") is entered into
this 29th day of August, 1996, by and between Principal Mutual Life Insurance
Company ("Landlord") and i 2 Technologies, Inc., a Delaware corporation,
formerly known as Intellection, Inc. ("Tenant").
W I T N E S S E T H
WHEREAS, as of June 29, 1990, Park West E-2 Associates ("Park West
E-2") and Tenant entered into that certain lease agreement ("Lease") for leased
premises consisting of 1,998 square feet of Net Rentable Area located on the
seventh (7th) floor ("Original Premises") in the building located at 1603 LBJ
Freeway, Dallas, Texas ("Building"), which by this reference the Lease is
incorporated herein for all purposes.
WHEREAS, on June 18, 1991, Park West E-2 and Tenant entered into a
First Amendment of Lease ("First Amendment"), Tenant leased from Landlord, and
Landlord leased to Tenant, as an addition to the Original Premises, 1,041
square feet of Net Rentable Area adjacent to the Premises.
WHEREAS, on September 4, 1992, Park West E-2 and Tenant entered into a
Second Amendment of Lease ("Second Amendment") expanding the Premises by 3,039
square feet of Net Rentable Area.
WHEREAS, on November 16, 1993, Park West E-2 and Tenant entered into a
Third Amendment to Lease ("Third Amendment") expanding the Premises and
extending the Term.
WHEREAS, on August 18,1994, Park West E-2 and Tenant entered into a
Fourth Amendment to Lease ("Fourth Amendment") expanding the Premises.
WHEREAS, Landlord is the successor to Park West E-2 under the Lease.
WHEREAS, Landlord and Tenant desire to further amend the Lease to
increase the square footage of the Premises, and modify certain provisions of
the Lease.
NOW, THEREFORE, for in consideration of mutual terms and conditions
expressed herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Landlord and Tenant agree to increase the Net
Rentable Area of the Premises from 13,171 square feet to 23,019 square feet by
adding 9,848 square feet of Net Rentable Area ("Fifth Additional Premises") to
the Premises. All references in the Lease to the Premises shall refer to the
Premises, as previously expanded and the Fifth Additional Premises.
1
<PAGE> 2
The floor plan for the Fifth Additional Premises, Exhibit A-4, is attached
hereto and made a part of the Lease for all purposes. The Fifth Additional
Premises is leased co-terminous with the Term.
2. The Fifth Additional Premises shall be delivered to,
and accepted by Tenant, in "as is" condition.
3. The commencement date of the Lease as it applies to
the Fifth Additional Premises shall be October 15, 1996.
4. Base Rent and Landlord's Operating Costs Estimate for
calendar year 1996 for the Fifth Additional Premises shall be based upon $19.00
per square foot of Net Rentable Area. Tenant's Operating Costs Payment for the
Fifth Additional Premises shall not be subject to adjustment throughout the
remainder of calendar year 1996 and Tenant shall pay only $19.00 per square
foot of Net Rentable Area of the Fifth Additional Premises for Base Rent and
Tenant's Share of Operating Costs, without any adjustment until January 1,
1997. The seven percent (7%) annual cap on the components of Operating Costs,
other than taxes, insurance, and utilities, shall be applicable to the Fifth
Additional Premises.
5. Effective on October 15, 1996, the following
subsections of Section 1.01 of the Lease are deleted in their entirety and
replaced as follows:
<TABLE>
<S> <C> <C>
A. Premises: A portion of the seventh (7th) floor and a portion of the eighth (8th) floor
of the Building, known as Suite 780 and Suite 810, respectively, as said space
is identified by diagonal lines on the floor plans attached hereto as Exhibit
A-3 and A-4, respectively.
I. Net Rentable Area
of the Premises: 23,019 square feet.
K. Tenant's Share: 11.476%, representing a fraction, the numerator of which is the Net Rentable
Area of the Premises and the denominator which is the Net Rentable Area of the
Building.
M. Base Rent: Base Rent shall be $70,539.00 per annum ($5.00 per annum per square foot of
Net Rentable Area of the Original Premises, First Additional Premises, Second
Additional Premises and Third Additional Premises equalling $42,435.00. Base
Rent shall be $60,892.00 per annum ($13.00 per square foot of Net Rentable
Area of the Fourth Additional Premises, with Base Year Operating Costs based on
a 1994 actual grossed up Operating Costs. Base Rent
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
shall be $187,112.00 per annum ($19.00 per square foot of Net Rentable Area of
the Fifth Additional Premises, with Base Year Operating Costs based on a 1996
actual grossed up Operating Costs.
P. Parking Permits and Tenant shall be allowed to take up to sixty-nine (69) Parking
Permit Fees: Permits, at no charge, for unreserved parking spaces in the Parking
Facilities. Tenant shall be allowed to take thirteen (13) additional month-
to-month Parking Permits, at no charge during the Second Renewal Term, for
unreserved parking spaces in the Parking Facilities, said month-to-month
Parking Permits being terminable by Landlord upon thirty (30) days.
</TABLE>
6. The Lease and this Fifth Amendment shall be governed
by all respects by the laws in the State of Texas.
7. All capitalized terms used herein, and not otherwise
defined herein, shall have the meanings ascribed to said terms in the Lease.
8. The Lease, as amended herein and as previously
amended, is hereby ratified and confirmed and shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment
effective as of the date first set forth above.
[SIGNATURE PAGE TO FOLLOW]
3
<PAGE> 4
LANDLORD:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY,
an Iowa corporation
By: /s/ PAT G. HALTER By: /s/ DANIEL M. SCHULTE
---------------------------------- -------------------------------
Name: Pat G. Halter Name: Daniel M. Schulte
-------------------------------- ----------------------------
Title: Director, Commercial Real Estate Title: Assistant Director,
--------------------------------- Commercial Real Estate
---------------------------
TENANT:
i2 TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ DAVID F. CARY
----------------------------------
Name: David F. Cary
--------------------------------
Title: CFO
---------------------------------
4
<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 Nine Months Ended
September 30, September 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 24,464 16,000 23,357
Common shares issuable on exercise of stock options,
net of shares assumed to be repurchased at the
average market price (2) 8,121 3,638 7,927 3,613
Common shares related to SAB No. 64 and 83 (2) (3) 909 -- 909 --
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding 25,030 28,102 24,836 26,970
======== ======== ======== ========
Net income $ 1,162 $ 1,747 $ 2,825 $ 3,434
======== ======== ======== ========
Net income per share $ 0.05 $ 0.06 $ 00.11 $ 0.13
======== ======== ======== ========
FULLY DILUTED NET INCOME PER SHARE:
Weighted average number of common shares outstanding 16,000 24,464 16,000 23,357
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) 8,121 3,690 8,119 3,701
Common shares related to SAB No. 64 and 83 (2) (3) 909 -- 909 --
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding 25,030 28,154 25,028 27,058
======== ======== ======== ========
Net income $ 1,162 $ 1,747 $ 2,825 $ 3,434
======== ======== ======== ========
Net income per share $ 0.05 $ 0.06 $ 0.11 $ 0.13
======== ======== ======== ========
</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 nine months ended
September 30, 1995. See Note 2 of Notes to Condensed Consolidated
Financial Statements.
32
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,158
<SECURITIES> 26,484
<RECEIVABLES> 14,831
<ALLOWANCES> 413
<INVENTORY> 0
<CURRENT-ASSETS> 76,286
<PP&E> 8,445
<DEPRECIATION> 2,535
<TOTAL-ASSETS> 82,256
<CURRENT-LIABILITIES> 25,452
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 56,473
<TOTAL-LIABILITY-AND-EQUITY> 56,479
<SALES> 34,319
<TOTAL-REVENUES> 49,792
<CGS> 2,424
<TOTAL-COSTS> 11,760
<OTHER-EXPENSES> 33,614
<LOSS-PROVISION> 119
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 5,582
<INCOME-TAX> 2,148
<INCOME-CONTINUING> 3,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,434
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
