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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, 1997
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 October 29, 1997, the Registrant had outstanding 30,077,493 shares of
Common Stock, $0.00025 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, 1996 and
September 30, 1997 3
Condensed Consolidated Statements of Income for the Three Months
and Nine Months Ended September 30, 1996 and September 30, 1997 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and September 30, 1997 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 2. Changes in Securities 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 20
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
i2 TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
--------- ---------
(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 36,078 $ 36,578
Short-term investments 18,031 22,934
Accounts receivable, net 33,615 51,653
Prepaid and other current assets 3,219 2,972
Income tax receivable -- 2,463
Deferred income taxes -- 872
--------- ---------
Total current assets 90,943 117,472
Furniture and equipment, net 8,934 16,838
Deferred income taxes and other assets 1,256 2,084
--------- ---------
Total assets $ 101,133 $ 136,394
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,583 $ 7,150
Accrued liabilities 8,184 21,776
Current portion of deferred revenue 18,932 25,125
Income taxes payable 363 --
Deferred income taxes 57 --
--------- ---------
Total current liabilities 32,119 54,051
Long-term debt 100 --
Deferred revenue 266 617
--------- ---------
Total liabilities 32,485 54,668
--------- ---------
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000,000 shares authorized,
none issued -- --
Common Stock, $0.00025 par value, 50,000,000 shares
authorized, 28,883,410 and 29,935,769 shares issued
and outstanding, respectively 7 7
Additional paid-in capital 58,074 65,286
Deferred compensation (1,865) (1,310)
Retained earnings 12,432 17,743
--------- ---------
Total stockholders' equity 68,648 81,726
--------- ---------
Total liabilities and stockholders' equity $ 101,133 $ 136,394
========= =========
</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,
--------------------- ---------------------
1996 1997 1996 1997
-------- -------- -------- --------
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Revenues:
Software licenses $ 15,847 $ 36,823 $ 38,499 $ 92,696
Services 6,034 12,590 13,342 32,565
Maintenance 2,086 5,449 5,322 13,389
-------- -------- -------- --------
Total revenues 23,967 54,862 57,163 138,650
-------- -------- -------- --------
Costs and expenses:
Cost of software licenses 49 65 92 2,573
Cost of services and maintenance 5,402 11,698 11,932 29,694
Sales and marketing 9,222 18,005 22,646 48,617
Research and development 4,721 12,901 11,222 30,879
General and administrative 2,424 5,081 6,254 13,468
In-process research and development and acquisition costs -- -- -- 5,649
-------- -------- -------- --------
Total costs and expenses 21,818 47,750 52,146 130,880
-------- -------- -------- --------
Operating income 2,149 7,112 5,017 7,770
Other income 583 684 1,179 2,065
-------- -------- -------- --------
Income before income taxes 2,732 7,796 6,196 9,835
Provision for income taxes 1,018 3,586 2,308 4,524
-------- -------- -------- --------
Net income $ 1,714 $ 4,210 $ 3,888 $ 5,311
======== ======== ======== ========
Net income per share $ 0.06 $ 0.12 $ 0.13 $ 0.16
Weighted average common and common
equivalent shares outstanding 32,670 34,070 31,369 33,639
</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,
-------------------------------
1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,888 $ 5,311
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,813 2,816
Amortization of deferred compensation 599 555
Deferred income taxes 233 (1,139)
Tax benefit of stock options -- 5,810
Changes in operating assets and liabilities:
Accounts receivable, net (14,257) (18,038)
Income tax receivable/payable (115) (2,826)
Prepaid and other assets (1,611) (371)
Accounts payable 1,974 2,567
Accrued liabilities 6,252 13,592
Deferred revenue 9,183 6,544
-------- --------
Net cash provided by operating activities 7,959 14,821
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment (5,128) (10,720)
Purchases of short-term investments (37,484) (40,850)
Proceeds from maturities of short-term investments 11,000 35,947
-------- --------
Net cash used in investing activities (31,612) (15,623)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 400 --
Payments on long-term debt (1,253) (100)
Advances from stockholders, net (471) --
Net proceeds from sale of common stock
and exercise of stock options 44,886 1,402
-------- --------
Net cash provided by financing activities 43,562 1,302
-------- --------
Net increase in cash and cash equivalents 19,909 500
Cash and cash equivalents at beginning of period 7,383 36,078
-------- --------
Cash and cash equivalents at end of period $ 27,292 $ 36,578
======== ========
</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.
In May 1997, the Company acquired Think Systems Corporation ("Think"), a
demand planner software company; acquired Optimax Systems Corporation
("Optimax"), a scheduling and sequencing software company; and entered into an
agreement to acquire Think Systems Private Limited ("Think India"), an offshore
software development house (see Note 3).
The accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments (consisting only of normal recurring entries)
which, in the opinion of the Company's management, are necessary for a fair
presentation of the results for the interim periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission's rules
and regulations. These financial statements should be read in conjunction with
the audited financial statements and notes thereto for the year ended December
31, 1996, included in the Company's Current Report on Form 8-K dated June 12,
1997, as amended.
The results of operations for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of results that may be
expected for any other interim period or for the full year.
Certain prior year financial statement items have been reclassified to
conform to the current year's format.
2. NET INCOME PER SHARE
Net income per common share is computed based upon the weighted average
number of common shares outstanding and the effect of dilutive common stock
equivalents from the exercise of stock options using the treasury stock method.
Fully diluted earnings per share is the same as, or not materially different
from, primary earnings per share and accordingly, is not presented. In February
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements, the Company will be required to
present "basic" earnings per share which excludes the effect of common stock
equivalents. Basic earnings per share for the three months ended September 30,
1996 and 1997 was $0.06 and $0.14, respectively. Basic earnings per share for
the nine months ended September 30, 1996 and 1997 was $0.14 and $0.18,
respectively. The Company will also be required to present "diluted" earnings
per share which includes the effect of common stock equivalents. Diluted
earnings per share for the three months ended September 30, 1996 and 1997 was
$0.06 and $0.12, respectively. Diluted earnings per share for the nine months
ended September 30, 1996 and 1997 was $0.13 and $0.16, respectively. All net
income per share computations give retroactive effect to the exchange of common
shares in connection with the Think, Think India and Optimax acquisitions (see
Note 3).
3. BUSINESS COMBINATIONS
In May 1997, the Company acquired Think and Optimax and entered into an
agreement to acquire Think India. Under the terms of these agreements, the
Company has agreed to issue up to 3,823,337 shares, 1,372,618 shares and 35,663
shares of its common stock for all the outstanding capital stock and all
unexpired and unexercised options of Think, Optimax and Think India,
respectively.
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Think provides premium demand chain solutions, including an integrated line
of flexible, client/server-based software applications, for sales, marketing
and logistics departments representing a variety of industries including
consumer packaged goods, high technology, pharmaceutical, apparel, automotive
and other product driven specializations. Think India is engaged primarily in
research and development services provided to Think. Optimax develops, markets
and implements supply chain sequencing software using unique genetic algorithms
for customer-driven, make-to-order manufacturing.
Each of these business combinations was accounted for as a pooling of
interests, and accordingly, the accompanying condensed consolidated financial
statements give retroactive effect to the combinations and include the combined
operations of i2 Technologies, Think, Optimax and Think India for all periods
presented.
In April 1997, the Company completed the acquisition of the Operations
Planning Group ("OPG"), a business activity of Computer Sciences Corporation
("CSC"), for a cash purchase price of $1.0 million. OPG provides operation
planning environment ("OPE") optimization software for planning and scheduling
for customers in the consumer packaged goods industry. The Company assumed the
contractual obligations of the OPE customer base in return for $271,000
representing prepaid maintenance revenue. As part of the acquisition agreement,
all employees of OPG became employees of the Company. The acquisition was
accounted for under the purchase accounting method, and a substantial portion of
the purchase price was recorded as in-process research and development and
expensed during the second quarter of 1997. Additionally, the Company has agreed
to make available a certain amount of consulting revenue opportunities to CSC
within a three-year period from the date of the acquisition. If the agreed upon
consulting revenue opportunities are not made available to CSC, the Company will
be required to make an additional cash payment to CSC at the end of the
three-year period equal to the gross profit typically realized on such
consulting revenue. Such payment, if any, would be recorded as an increase in
the purchase price.
The Company incurred approximately $5.6 million in certain
acquisition-related expenses in connection with the business combinations
involving Think, Optimax, Think India and OPG. These costs include, among other
things, investment banking, legal and accounting fees and expenses and the
write-off of in-process research and development. The Company recorded these
expenses in the second quarter of 1997. Due to the non-deductibility of certain
of the acquisition-related expenses, the Company adjusted its estimated
effective income tax rate to 46.0% for the nine months ended September 30, 1997.
4. SUBSEQUENT EVENT
On October 23, 1997, the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission for the public offering of 5,000,000
shares of its common stock. Of the shares being offered, 2,500,000 shares are
being sold by the Company and 2,500,000 shares are being sold by certain selling
stockholders. The shares will be offered by an underwriting group managed by
Goldman, Sachs & Co., Deutsche Morgan Grenfell Inc., Hambrecht & Quist LLC and
UBS Securities LLC. The Company has granted the underwriters an option to
purchase up to an additional 750,000 shares to cover over-allotments, if any.
The Company plans to use the net proceeds from the offering for working capital
and other general corporate purposes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading provider of client/server-based decision support
software products for supply chain management and related applications. The
Company also provides services such as consulting, training and maintenance
related to these products. Supply chain management encompasses the planning and
scheduling of manufacturing and related logistics, including demand forecasting,
raw materials procurement, work-in-process, distribution and transportation
across multiple enterprises. The Company's client/server software solution,
Rhythm(R), is designed to provide customers with an end-to-end supply chain
management solution, enabling customers to model complex, multi-enterprise
supply chains to rapidly generate integrated solutions to supply chain
challenges such as demand volatility, production bottlenecks, supply
interruptions and distribution alternatives. Rhythm utilizes a unique,
constraint-based methodology which simultaneously considers a broad range of
factors -- from changing revenue forecasts to machine capabilities to individual
customer commitments -- to optimize all aspects of the supply chain.
In May 1997, the Company acquired Think Systems Corporation ("Think"), a
demand planner software company; acquired Optimax Systems Corporation
("Optimax"), a scheduling and sequencing software company; and entered into an
agreement to acquire Think Systems Private Limited ("Think India"), an offshore
software development house. Under the terms of the agreements, the Company has
agreed to issue up to 3,823,337 shares, 1,372,618 shares and 35,663 shares of
its common stock for all the outstanding capital stock and all unexpired and
unexercised options of Think, Optimax and Think India, respectively.
For accounting purposes, each of these business combinations was accounted
for as a pooling of interests. Accordingly, the Company's consolidated financial
statements have been restated to give retroactive effect to the Think, Optimax
and Think India acquisitions and include the combined operations of the Company,
Think, Optimax and Think India for all periods presented. The following
discussion and analysis should be read in conjunction with such consolidated
financial statements.
In April 1997, the Company acquired the Operations Planning Group ("OPG"),
a business activity of Computer Sciences Corporation, for a cash purchase price
of $1.0 million. OPG provides operation planning environment optimization
software for planning and scheduling for customers in the consumer packaged
goods industry. The acquisition was accounted for under the purchase accounting
method.
This report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, that involve risks and uncertainties, such as statements
concerning: growth and future operating results; developments in the Company's
markets and strategic focus; new products and product enhancements; potential
acquisitions and the integration of acquired businesses, products and
technologies; strategic relationships; and future economic, business and
regulatory conditions. These forward-looking statements and other statements
made elsewhere in this report are made in reliance on the Private Securities
Litigation Reform Act of 1995. The section below entitled "Factors That May
Affect Future Results" sets forth and incorporates by reference certain factors
that could cause actual future results of the Company to differ materially from
these statements.
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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.
<TABLE>
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Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ----------------
1996 1997 1996 1997
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Revenues:
Software licenses 66.1% 67.1% 67.4% 66.8%
Services 25.2 23.0 23.3 23.5
Maintenance 8.7 9.9 9.3 9.7
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Cost of software licenses 0.2 0.1 0.2 1.8
Cost of services and maintenance 22.5 21.3 20.9 21.4
Sales and marketing 38.5 32.8 39.6 35.1
Research and development 19.7 23.5 19.6 22.3
General and administrative 10.1 9.3 10.9 9.7
In-process research and development and acquisition costs -- -- -- 4.1
----- ----- ----- -----
Total costs and expenses 91.0 87.0 91.2 94.4
----- ----- ----- -----
Operating income 9.0 13.0 8.8 5.6
Other income 2.4 1.2 2.0 1.5
----- ----- ----- -----
Income before income taxes 11.4 14.2 10.8 7.1
Provision for income taxes 4.2 6.5 4.0 3.3
----- ----- ----- -----
Net income 7.2% 7.7% 6.8% 3.8%
===== ===== ===== =====
</TABLE>
REVENUES
The Company's revenues consist of software license revenues, service
revenues and maintenance revenues. Software license revenues consist of sales of
software licenses which are recognized upon execution of a contract and shipment
of the software, provided that no significant vendor obligations remain
outstanding, amounts are due within one year and collection is considered
probable by management. Service revenues are derived from fees for
implementation, consulting and training services and are recognized as the
services are performed. Maintenance revenues are derived from customer support
agreements generally entered into in connection with initial license sales and
subsequent renewals. Maintenance revenues are recognized ratably over the term
of the maintenance period. Payments for maintenance fees are generally made in
advance.
Total revenues increased 128.9% to $54.9 million in the quarter ended
September 30, 1997 from $24.0 million in the quarter ended September 30, 1996.
In the first nine months of 1997, total revenues increased 142.6% to $138.7
million from $57.2 million in the first nine months of 1996. The Company
currently derives substantially all of its revenues from Rhythm licenses and
related services and maintenance. The Company expects that Rhythm related
revenues will continue to account for substantially all of the Company's
revenues in the foreseeable future. As a result of the Company's dependence on
the continued market acceptance of Rhythm and enhancements thereto, there can be
no assurance that total revenues will continue to increase at the rates
experienced in prior periods, if at all.
SOFTWARE LICENSES. Revenues from software licenses increased 132.4% to
$36.8 million in the quarter ended September 30, 1997 from $15.8 million in the
quarter ended September 30, 1996. In the first nine months of 1997, revenues
from software licenses increased 140.8% to $92.7 million from $38.5 million in
the first nine months of 1996. The significant increases in software license
revenues were primarily due to an increased awareness of the benefits of
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supply chain management, growing market acceptance of the Company's software
products, a substantial investment in the Company's infrastructure and continued
expansion into new geographic and vertical markets. To date, sales of software
licenses have principally been derived from direct sales to customers. Although
the Company believes that direct sales will continue to account for a majority
of software license revenues, the Company's strategy is to increase the level of
indirect sales activities. The Company expects that sales of its software
products through sales alliances, distributors, resellers and other indirect
channels will increase as a percentage of software license revenues. However,
there can be no assurance that the Company's efforts to expand indirect sales
will be successful.
SERVICES. Revenues from services increased 108.7% to $12.6 million in the
quarter ended September 30, 1997 from $6.0 million in the quarter ended
September 30, 1996. In the first nine months of 1997, revenues from services
increased 144.1% to $32.6 million from $13.3 million in the first nine months of
1996. The significant increases in the dollar amount of service revenues were
primarily due to the significant increase in the number of Rhythm licenses sold
and a significant investment in the Company's consulting organization as a
result of the increased demand for the Company's products. These increases were
also due to an increase in the use of third party consultants to provide
implementation services to the Company's customers which has allowed the Company
to more rapidly penetrate international markets. Service revenues as a
percentage of total revenues have fluctuated, and are expected to continue to
fluctuate on a period-to-period basis based upon the demand for implementation,
consulting and training services.
MAINTENANCE. Revenues from maintenance increased 161.2% to $5.4 million in
the quarter ended September 30, 1997 from $2.1 million in the quarter ended
September 30, 1996. In the first nine months of 1997, revenues from maintenance
increased 151.6% to $13.4 million from $5.3 million in the first nine months of
1996. The significant increases in the dollar amount of maintenance revenues
were primarily due to the continued increase in the number of Rhythm licenses
sold and a high percentage of maintenance agreement renewals. The Company
expects that the dollar amount of maintenance revenues will continue to
increase, but maintenance revenues as a percentage of total revenues should not
vary significantly from the percentage of total revenues achieved in the nine
months ended September 30, 1997.
CONCENTRATION OF REVENUES. The Company generally derives a significant
portion of its software license revenues in each quarter from a small number of
relatively large sales. For example, in each quarter of 1996 and each quarter in
the first nine months of 1997, one or more customers each accounted for at least
15% of total software license revenues in such quarter. While the Company
believes that the loss of any of these particular customers would not have a
material adverse effect upon the Company's business, operating results or
financial condition, an inability to consummate one or more substantial license
sales in any future period could have a material adverse effect on the Company's
operating results for that period.
INTERNATIONAL REVENUES. The Company's international revenues, primarily
generated from customers located in Asia, Canada and Europe, were approximately
23% and 29% of total revenues in the three months and nine months ended
September 30, 1997, respectively, and were approximately 23% and 19% of total
revenues in the three months and nine months ended September 30, 1996,
respectively. The increase in international revenues as a percentage of total
revenues for the nine months ended September 30, 1997 as compared to the nine
months ended September 30, 1996 was primarily due to the continued expansion of
the Company's international sales and consulting operations as well as software
localization efforts. The Company believes that continued growth and
profitability will require expansion of its sales in international markets. In
order to successfully increase international sales, the Company has utilized and
will continue to utilize substantial resources to expand existing international
operations, establish additional international operations and hire additional
personnel.
COSTS AND EXPENSES
COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of
(i) commissions paid to third parties in connection with joint marketing and
other related agreements, (ii) royalty fees associated with third-party software
included with the sales of Rhythm, (iii) the cost of user documentation and (iv)
the cost of reproduction and delivery of the software. Cost of software licenses
was $65,000 and $49,000 in the quarters ended September 30, 1997 and 1996,
representing 0.2% and 0.3% of software license
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revenues, respectively. Cost of software licenses was $2.6 million and $92,000
in the first nine months of 1997 and 1996, representing 2.8% and 0.2% of
software license revenues, respectively. The significant increase in the dollar
amount of cost of software licenses in the first nine months of 1997 was
primarily due to an increase in commissions paid to third-parties in connection
with joint marketing and other related agreements. Cost of software licenses
decreased significantly in the third quarter of 1997 as compared to the second
quarter of 1997 as a result of the termination of the license and distribution
agreement with SAP pursuant to which the Company was required to pay SAP a
commission on Rhythm products sold to SAP's customers. The Company expects cost
of software licenses to vary in the future depending upon the amount of
commissions due to other third parties in connection with joint marketing and
other related agreements and the amount of royalty fees associated with third
party software included with the sales of Rhythm.
COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance consists
primarily of costs associated with implementation, consulting and training
services. Cost of services and maintenance also includes the cost of providing
software maintenance to customers such as hotline telephone support, new
releases of software and updated user documentation, none of which costs have
been significant to date. Cost of services and maintenance was $11.7 million and
$5.4 million in the quarters ended September 30, 1997 and 1996, representing
64.8% and 66.5% of total services and maintenance revenues, respectively. Cost
of services and maintenance was $29.7 million and $11.9 million in the first
nine months of 1997 and 1996, representing 64.6% and 63.9% of total services and
maintenance revenues, respectively. The increases in the dollar amount of cost
of services and maintenance were primarily due to the increase in the number of
consultants, product support and training staff and the increased use of third
party consultants to provide implementation services. In addition, consulting
and support centers were established and expanded in Canada, Europe and Japan in
the last three months of 1996 and the first nine months of 1997. The Company
expects to continue to increase the number of its consulting, product support
and training personnel in the foreseeable future as a means to expand into
different geographic and vertical markets. To the extent that the Company's
license sales do not increase at anticipated rates, the hiring of additional
personnel could adversely affect the Company's gross margins.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel costs, commissions, office facilities, travel, promotional events such
as trade shows, seminars and technical conferences, advertising and public
relations programs. Sales and marketing expenses were $18.0 million and $9.2
million in the quarters ended September 30, 1997 and 1996, representing 32.8%
and 38.5% of total revenues, respectively. These same expenses were $48.6
million and $22.6 million in the first nine months of 1997 and 1996,
representing 35.1% and 39.6% of total revenues, respectively. The increases in
the dollar amount of sales and marketing expenses were primarily due to (i)
increased staffing as the Company established new domestic and international
sales offices and expanded its existing direct sales force, (ii) increased sales
commissions as a result of significantly higher revenues and (iii) increased
marketing and promotional activities. The decreases in sales and marketing
expenses as a percentage of total revenues were primarily due to the Company's
ability to leverage its growing base of sales and marketing resources to
significantly increase revenues. The Company expects to continue to increase its
sales and marketing activities in order to expand its international sales
operations and to enter into new vertical markets. As a result, the Company
believes that the dollar amount of sales and marketing expenses will continue to
increase.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of the personnel and related costs associated with the Company's
research and development activities. Research and development expenses were
$12.9 million and $4.7 million in the quarters ended September 30, 1997 and
1996, representing 23.5% and 19.7% of total revenues, respectively. These same
expenses were $30.9 million and $11.2 million in the first nine months of 1997
and 1996, representing 22.3% and 19.6% 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 centers,
particularly its international development facilities. The Company expects that
the dollar amount of research and development expenses will continue to increase
as the Company continues to invest in developing new products, applications and
product enhancements for new vertical markets.
In accordance with Statement of Financial Accounting Standards No. 86,
software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. To date, the
establishment of technological feasibility of the Company's products and general
release of such software have substantially coincided. As a result, software
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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 consist
primarily of 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 $5.1 million and $2.4 million in the
quarters ended September 30, 1997 and 1996, representing 9.3% and 10.1% of total
revenues, respectively. These same expenses were $13.5 million and $6.3 million
in the first six months of 1997 and 1996, representing 9.7% and 10.9% of total
revenues, respectively. The increases in the dollar amount of general and
administrative expenses were primarily the result of increased staffing and
related costs associated with the growth of the Company's business during 1996
and the first nine months of 1997. The decreases in general and administrative
expenses as a percentage of total revenues were primarily due to the substantial
increase in total revenues and the Company's ability to leverage its base of
resources to support a larger organization. The Company expects that the dollar
amount of general and administrative expenses will continue to increase in the
foreseeable future.
IN-PROCESS RESEARCH AND DEVELOPMENT AND ACQUISITION COSTS. The Company
incurred approximately $5.6 million in certain acquisition-related expenses in
connection with the business combinations involving Think, Optimax, Think India
and OPG which were recorded in the second quarter of 1997. These costs included,
among other things, investment banking, legal and accounting fees and expenses
and the write-off of in-process research and development. See Note 3 of the
Notes to Condensed Consolidated Financial Statements.
OTHER INCOME
Other income consists primarily of interest income on short-term
investments and overnight repurchase agreements partially offset by interest
expense on the Company's debt. Other income was $684,000 and $583,000 in the
quarters ended September 30, 1997 and 1996, representing 1.2% and 2.4% of total
revenues, respectively. Other income was $2.1 million and $1.2 million in the
first nine months of 1997 and 1996, representing 1.5% and 2.0% of total
revenues, respectively. The increases in the dollar amount of other income were
primarily due to interest earned on higher balances of cash, cash equivalents
and short-term investments resulting from net proceeds of the initial public
offering of the Company's common stock which was completed in May 1996 and a
decrease in interest expense due to the repayment of a majority of the Company's
debt in June 1996.
PROVISION FOR INCOME TAXES
The Company recorded income tax expense of $4.5 million and $2.3 million in
the first nine months of 1997 and 1996, respectively. The Company's effective
income tax rate was 46.0% in the first nine months of 1997 as compared to 37.2%
in the first nine months of 1996. The Company's effective income tax rate was
higher in the first nine months of 1997 primarily due to the non-deductibility
of certain of the acquisition-related expenses.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily financed its operations and
met its capital expenditure requirements through cash flows from operations,
long-term borrowings and sales of equity securities. The Company's operating
activities provided cash of $14.8 million for the nine months ended September
30, 1997 as compared to $8.0 million for the nine months ended September 30,
1996. Operating cash flows have increased primarily due to an increase in
accrued liabilities and the tax benefit from stock option activity, partially
offset by an increase in accounts receivable. Accrued liabilities have increased
primarily as a result of increased accrued compensation and related expenses.
The tax benefit from stock option activity is primarily the result of
disqualifying dispositions of stock acquired under the Company's stock plans.
Accounts receivable, net of allowance for doubtful accounts, increased to
$51.7 million at September 30, 1997 from $33.6 million at December 31, 1996,
primarily due to the continued significant increases in revenues. Based upon the
nature of the Company's customers and its past collection experience, the
Company does not expect to encounter
12
<PAGE> 13
collection difficulties with respect to such accounts that would have a material
effect on the Company's financial position or results of operations.
Average days' sales outstanding was 81 days for the quarter ended September
30, 1997 as compared to 76 days for the year ended December 31, 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.
Cash used in investing activities was $15.6 million for the nine months
ended September 30, 1997 as compared to $31.6 million in the nine months ended
September 30, 1996. The decrease in cash used in investing activities was
primarily due to the initial investment of proceeds from the Company's initial
public offering in May 1996. At September 30, 1997, the Company did not have any
material commitments for capital expenditures.
Cash provided by financing activities was $1.3 million for the nine months
ended September 30, 1997 as compared to $43.6 million for the nine months ended
September 30, 1996. The amounts shown for the nine month period ended September
30, 1996 include the Company's net proceeds from its initial public offering in
April 1996 of approximately $43.7 million.
As of September 30, 1997, the Company had $63.4 million of working capital,
including $36.6 million in cash and cash equivalents and $22.9 million in
short-term investments as compared to $58.8 million of working capital as of
December 31, 1996, including $36.1 million in cash and cash equivalents and
$18.0 million in short-term investments.
The Company may in the future pursue additional acquisitions of businesses,
products and technologies, or enter into joint venture arrangements, that could
complement or expand the Company's business. Any material acquisition or joint
venture could result in a decrease to the Company's working capital depending on
the amount, timing and nature of the consideration to be paid.
The Company has a revolving credit agreement with NationsBank of Texas,
N.A. (the "Lender") which expires in June 1998, is unsecured and contains
customary restrictive covenants, including covenants requiring the Company to
maintain certain financial ratios. The revolving credit agreement is not subject
to a borrowing base limitation and the borrowings thereunder bear interest at
the Lender's prime lending rate. At September 30, 1997, the Company had no
borrowings outstanding under the revolving credit agreement.
On October 23, 1997, the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission for the public offering of 5,000,000
shares of its common stock. Of the shares being offered, 2,500,000 shares are
being sold by the Company and 2,500,000 shares are being sold by certain selling
stockholders. The shares will be offered by an underwriting group managed by
Goldman, Sachs & Co., Deutsche Morgan Grenfell Inc., Hambrecht & Quist LLC and
UBS Securities LLC. The Company has granted the underwriters an option to
purchase up to an additional 750,000 shares to cover over-allotments, if any.
The Company plans to use the net proceeds from the offering for working capital
and other general corporate purposes.
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 equity or debt
financing. There can be no assurance that such financing will be available on
acceptable terms, if at all.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Numerous factors may affect the Company's business and results of
operations. These factors include, but are not limited to, the potential for
significant fluctuations in quarterly results; dependence on significant
individual sales; competition; management of growth; product concentration;
dependence on product line expansion; integration of recent acquisitions;
potential future acquisitions; international operations and currency
fluctuations; risks associated with strategic relationships; dependence upon key
personnel; intellectual property and proprietary rights; use of licensed
13
<PAGE> 14
technology; complexity of software products; rapid technological change and new
products; dependence on implementation personnel; year 2000 compliance issues;
product liability claims; and volatility of market price. The discussion below
addresses some of these factors. For a more thorough discussion of these and
other factors that may affect the Company's future results, see the discussion
under the caption "Risk Factors" in the Company's registration statement on Form
S-3 filed with the Securities and Exchange Commission on October 23, 1997
related to the public offering of 5,000,000 shares of the Company's common
stock.
POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS; DEPENDENCE ON
SIGNIFICANT INDIVIDUAL SALES
The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly from
quarter to quarter in the future. Because the purchase of a supply chain
management software solution generally involves a significant commitment of
capital, the sales cycle associated with the purchase of the Company's products
varies substantially and is subject to a number of significant risks, including
customers' budgetary constraints, timing of budget cycles and concerns about the
pricing or introduction of new products by the Company or its competitors,
factors over which the Company has little or no control. In addition, other
factors include foreign currency exchange rate fluctuations, the mix of direct
or indirect sales, changes in joint-marketing relationships, and changes in the
Company's strategy. Furthermore, purchases of the Company's products may be
deferred or canceled in the event of a downturn in any potential customer's
business or the economy in general.
The amount of revenues associated with particular licenses can vary
significantly based upon the number of software modules purchased and the number
of sites and users involved in the installation. The Company generally derives a
significant portion of its software license revenues in each quarter from a
small number of relatively large sales. For example, in each quarter of 1996 and
each quarter in the first nine months of 1997, one or more customers each
accounted for at least 15% of total software license revenues in such quarter.
While the Company believes that the loss of any of these particular customers
would not have an adverse effect, an inability to consummate one or more
substantial license sales in any future period could have a material adverse
effect on the Company's operating results for that period. Moreover, similar to
many other software companies, the Company typically realizes a significant
portion of its software license revenues in the last month or even the last week
of a quarter. The Company also believes that the tendency of customers to delay
placing orders for software products until near the end of a quarter has become
more pronounced in recent periods. As a result, small delays in customer orders
can cause significant variability in the Company's license revenues and results
of operations for any particular period. For all of the foregoing reasons,
revenues are difficult to forecast.
The Company intends to continue to invest heavily in its sales and
marketing, consulting and research and development organizations, and sets
investment and expense levels based on expected future revenues. If revenues are
below expectations, operating results and net income are likely to be adversely
and disproportionately affected because a significant portion of the Company's
expenses are not variable in the short term, and cannot be quickly reduced to
respond to anticipated decreases in revenues. In addition, the Company may
reduce prices or accelerate its investment in research and development efforts
in response to competition or to pursue new market opportunities. Any one of
these activities may further limit the Company's ability to adjust spending in
response to fluctuations in revenue levels. There can be no assurance that
revenues will grow in future periods, that they will grow at historical rates,
or that the Company will maintain positive operating margins in future quarters.
The Company's quarterly results of operations are subject to certain
seasonal fluctuations. Historically, the Company's revenues have tended to be
strongest in the fourth quarter of the year and to increase only modestly in the
first quarter of the following year. The Company believes that this seasonality
is due to the calendar year budgeting cycles of many of its customers and to
compensation policies that tend to compensate sales personnel for achieving
annual revenue quotas. The Company expects that in future periods these seasonal
trends may cause first quarter revenues to remain consistent with, or decrease
from, the level achieved in the preceding quarter.
14
<PAGE> 15
COMPETITION
The markets in which the Company operates are highly competitive. The
Company's competitors are diverse and offer a variety of solutions directed at
various segments of the supply chain as well as the enterprise as a whole.
Competitors include: (i) enterprise resource application software vendors such
as SAP AG ("SAP"), PeopleSoft, Inc., Oracle Corporation ("Oracle") and Baan
Company N.V. ("Baan"), each of which currently offers sophisticated Enterprise
Resource Planning ("ERP") solutions that may incorporate supply chain management
modules or advanced planning and scheduling software; (ii) other suppliers of
advanced planning and scheduling software, including Manugistics Group, Inc.;
(iii) other business application software vendors who may broaden their product
offerings by internally developing, or by acquiring or partnering with
independent developers of, advanced planning and scheduling software; (iv)
internal development efforts by corporate information technology departments;
and (v) companies offering standardized or customized products for mainframe
and/or mid-range computer systems.
In connection with specific customer solicitations, a number of ERP vendors
have from time to time jointly marketed the Company's products as a complement
to their own systems. The Company believes that as its market share increases,
and as the ranges of products offered by the Company and these ERP vendors
expand and increasingly overlap, relationships which were cooperative in the
past will become more competitive, thereby increasing the overall level of
competition that the Company faces. Specifically, the Company and SAP recently
terminated a license and distribution agreement, and SAP has announced its
intention to develop a suite of advanced planning and scheduling products which
are expected to be directly competitive with Rhythm. The Company believes that
additional ERP vendors are focusing significant resources on increasing the
functionality of their own planning and scheduling modules, and at lease two ERP
vendors have recently acquired independent developers of advanced planning and
scheduling software which compete with Rhythm.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition, a broader range of products to offer and a larger
installed base of customers than the Company, each of which could provide them
with a significant competitive advantage over the Company. In addition, the
Company expects to experience increasing price competition as the Company and
its competitors compete for market share. There can be no assurance that the
Company will be able to compete successfully with existing or new competitors or
that competition will not have a material adverse effect on the Company's
business, operating results and financial condition.
INTEGRATION OF RECENT ACQUISITIONS; POTENTIAL FUTURE ACQUISITIONS
In April 1997, the Company completed the acquisition of the Operations
Planning Group ("OPG"), a business activity of Computer Sciences Corporation. In
May 1997, the Company acquired Think Systems Corporation, a New Jersey
Corporation ("Think"), and Optimax Systems Corporation, a Delaware corporation
("Optimax"). The success of acquisitions depends primarily on the Company's
ability to retain, motivate and integrate the acquired personnel with the
Company's operations and the Company's ability to integrate acquired software
with Rhythm. No assurance can be given that the Company will not encounter
difficulties in integrating the respective operations and products of the
Company, OPG, Think and Optimax or that the benefits expected from such
integration will be realized. Failure to successfully integrate OPG's, Think's
and Optimax's respective operations and products into the Company's operations
and products could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company may in the future pursue additional acquisitions of businesses,
products and technologies, or enter into joint venture arrangements, that could
complement or expand the Company's business. The negotiation of potential
acquisitions or joint ventures as well as the integration of an acquired
business, product or technology could cause diversion of management's time and
resources. Future acquisitions by the Company could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities, amortization of goodwill and other intangibles, research and
development write-offs and other acquisition-related expenses. In this regard,
the Company holds an option expiring in February 1998 to acquire the remaining
interest in a minority owned subsidiary for a purchase price of up to
approximately $6 million. If such acquisition is consummated, a substantial
portion of such purchase price could potentially be written-off as in-process
research and development. Further, no assurances can be given that any acquired
business will be successfully integrated with the Company's operations. If any
15
<PAGE> 16
such acquisition were to occur, there can be no assurance that the Company will
receive the intended benefits of the acquisition. Future acquisitions, whether
or not consummated, could have a material adverse effect on the Company's
business, operating results and financial condition.
INTERNATIONAL OPERATIONS AND CURRENCY FLUCTUATIONS
The Company believes that continued growth and profitability will require
expansion of its sales in international markets. Further penetration of
international markets will require the Company to expand existing foreign
operations, to establish additional foreign operations and to translate its
software and manuals into additional foreign languages. This expansion may be
costly and time-consuming and may not generate returns for a significant period
of time, if at all. To the extent that the Company is unable to expand its
international operations or translate its software and manuals into foreign
languages in a timely manner, the Company's ability to further penetrate
international markets would be adversely affected, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company's international operations are subject to risks inherent in
international business activities, including: difficulty in staffing and
managing geographically disparate operations; longer accounts receivable payment
cycles in certain countries; compliance with a variety of foreign laws and
regulations; unexpected changes in regulatory requirements; overlap of different
tax structures; greater difficulty in safeguarding intellectual property; import
and export licensing requirements; trade restrictions; changes in tariff rates;
and general economic conditions in international markets. There can be no
assurance that the Company's business, results of operations or financial
condition will not be adversely affected by these or other factors that may
affect international operations.
To date, the Company's revenues from international operations have
primarily been denominated in United States dollars. As a result, the Company's
sales in international markets may be adversely affected by a strengthening
United States dollar. Certain sales and the majority of the expenses incurred by
the Company's international operations are denominated in currencies other than
the United States dollar. In addition, with the expansion of international
operations, the number of foreign currencies in which the Company must operate
will increase, resulting in increased exposure to exchange rate fluctuations.
The Company has implemented limited hedging programs to mitigate its exposure to
currency fluctuations. Notwithstanding these hedging programs, exchange rate
fluctuations have caused and will continue to cause currency transaction gains
and losses. While such currency transaction gains and losses have not been
material to date, there can be no assurance that currency transaction losses
will not have a material adverse effect on the Company's business, results of
operations or financial condition in future periods.
COMPLEXITY OF SOFTWARE PRODUCTS; RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
Rhythm is a client/server solution which can operate on hardware platforms
from Digital Equipment, Hewlett-Packard, IBM and Sun Microsystems and operating
systems from Sun Microsystems and Microsoft, and can access data from most
widely used SQL (structured query language) databases, including Informix,
Oracle and Sybase. To the extent that additional hardware or software platforms
gain significant market acceptance, the Company may be required to port Rhythm
to such platforms in order to remain competitive. Such platforms may not be
architecturally compatible with Rhythm's software product design, and there can
be no assurance that the Company will be able to port Rhythm to such additional
platforms on a timely basis or at all. Any failure to maintain compatibility
with existing platforms or to port to new platforms that achieve significant
market acceptance would have a material adverse effect on the Company's
business, operating results and financial condition.
As a result of the complexities inherent in client/server computing
environments and the broad functionality and performance demanded by customers
for supply chain management products, major new products and product
enhancements can require long development and testing periods. In addition,
software programs as complex as those offered by the Company may contain
undetected errors or "bugs" when first introduced or as new versions are
released that, despite testing by the Company, are discovered only after a
product has been installed and used by customers. While the Company has on
occasion experienced delays in the scheduled introduction of new and enhanced
products and products containing bugs, to date the Company's business has not
been materially adversely affected by delays or the release of products
containing errors. There can be no assurance, however, that errors will not be
found in future
16
<PAGE> 17
releases of the Company's software, or that such errors will not impair the
market acceptance of these products and adversely affect the Company's business,
operating results and financial condition.
While the Company generally takes steps to avoid interruptions of sales
often associated with the pending availability of new products, customers may
delay their purchasing decisions in anticipation of the general availability of
new or enhanced Rhythm products, which could have a material adverse effect on
the Company's business and operating results. Moreover, significant delays in
the general availability of such new releases, significant problems in the
installation or implementation of such new releases, or customer dissatisfaction
with such new releases, could have a material adverse effect on the Company's
business, operating results and financial condition.
17
<PAGE> 18
i2 TECHNOLOGIES, INC.
PART II
All capitalized terms used and not defined in Part II of this Form 10-Q
shall have the meanings assigned to them in Part I of this Form 10-Q.
ITEM 2. CHANGES IN SECURITIES.
From July 1 through September 30, 1997, the Company issued an aggregate
158,663 shares of its common stock to employees pursuant to exercises of stock
options (with exercise prices ranging from $0.0175 to $12.11 per share) under
the Company's 1992 Stock Plan and 1995 Stock Option/Stock Issuance Plan which
were deemed exempt from registration under Section 5 of the Securities Act of
1933 in reliance upon Rule 701 thereunder. In addition, the recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to, or for sale in connection
with, any distribution thereof and appropriate legends were affixed to the share
certificates issued in each such transaction.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Index
Number Exhibit Description
------ -------------------
11.1 Statement of Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1997, the Company filed
the following Current Reports on Form 8-K:
1. The Company filed a Form 8-K/A on July 1, 1997 (Item 7) in order
to amend its Form 8-K dated June 12, 1997 to provide additional
financial information related to the mergers with Think and
Optimax. The following financial statements* were filed with the
Form 8-K/A filed July 1, 1997:
Supplemental Consolidated Balance Sheets as of December 31,
1995 and 1996
Supplemental Consolidated Statements of Income for the Years
Ended December 31, 1994, 1995 and 1996
Supplemental Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1994, 1995 and 1996
Supplemental Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1995 and 1996
Notes to Supplemental Consolidated Financial Statements
* Previously filed in their entirety in the Company's Form 8-K
dated June 12, 1997 except for Note 13 of Notes to Supplemental
Consolidated Financial Statements. The Supplemental
Consolidated Financial Statements were refiled for the sole
purpose of including Note 13.
18
<PAGE> 19
2. The Company filed a Form 8-K dated July 1, 1997 (Items 5 and 7)
in order to provide supplemental condensed consolidated financial
statements giving retroactive effect to the mergers with Think
and Optimax and including the combined operations of the Company,
Think, Optimax and Think India. The following financial
statements were filed with the Form 8-K dated July 1, 1997:
Supplemental Condensed Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1997
Supplemental Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 1996 and 1997
Supplemental Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1996 and 1997
Notes to Supplemental Condensed Consolidated Financial
Statements
19
<PAGE> 20
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.
---------------------
October 31, 1997 /s/ Sanjiv S. Sidhu
---------------- -------------------
(Date) Sanjiv S. Sidhu
Chairman of the Board and
Chief Executive Officer
(Principal executive officer)
October 31, 1997 /s/ David F. Cary
---------------- -------------------
(Date) David F. Cary
Vice President and Chief
Financial Officer
(Principal finance and
accounting officer)
20
<PAGE> 21
Index to Exhibits
<TABLE>
<CAPTION>
Number Exhibit Description
- ------ -------------------
<S> <C>
11.1 Statement of Computation of Net Income Per Share
27.1 Financial Data Schedule
</TABLE>
21
<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,
----------------- -----------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE (1):
Weighted average number of common shares outstanding 28,459 29,782 27,351 29,378
Common shares issuable on exercise of stock options,
net of shares assumed to be repurchased at the
average market price (2) 4,211 4,288 4,018 4,261
------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding 32,670 34,070 31,369 33,639
======= ======= ======= =======
Net income $ 1,714 $ 4,210 $ 3,888 $ 5,311
======= ======= ======= =======
Net income per share $ 0.06 $ 0.12 $ 0.13 $ 0.16
======= ======= ======= =======
FULLY DILUTED NET INCOME PER SHARE:
Weighted average number of common shares outstanding 28,459 29,782 27,351 29,378
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) 4,263 4,288 4,106 4,320
------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding 32,722 34,070 31,457 33,698
======= ======= ======= =======
Net income $ 1,714 $ 4,210 $ 3,888 $ 5,311
======= ======= ======= =======
Net income per share $ 0.06 $ 0.12 $ 0.13 $ 0.16
======= ======= ======= =======
</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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 36,578
<SECURITIES> 22,934
<RECEIVABLES> 54,092
<ALLOWANCES> (2,439)
<INVENTORY> 0
<CURRENT-ASSETS> 117,472
<PP&E> 24,385
<DEPRECIATION> (7,547)
<TOTAL-ASSETS> 136,394
<CURRENT-LIABILITIES> 54,051
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 81,719
<TOTAL-LIABILITY-AND-EQUITY> 136,394
<SALES> 92,696
<TOTAL-REVENUES> 138,650
<CGS> 2,573
<TOTAL-COSTS> 130,880
<OTHER-EXPENSES> (2,065)
<LOSS-PROVISION> 2,756
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 9,835
<INCOME-TAX> 4,524
<INCOME-CONTINUING> 5,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,311
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
