<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 9, 2000
-------------------------------------------------
i2 Technologies, Inc.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
75-2294945 Delaware 000-28030
------------- ---------------------------- ------------
(IRS Employer (State or Other Jurisdiction (Commission
Identification No.) of Incorporation) File Number)
One i2 Place, 11701 Luna Rd, Dallas, Texas 75234
---------------------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (469) 357-1000
-------------------
--------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 9, 2000, pursuant to an Agreement and Plan of Reorganization
(the "Merger Agreement"), dated as of March 12, 2000, by and among i2
Technologies, Inc. ("i2"), Hoya Merger Corp., a Delaware corporation and wholly
owned subsidiary of i2 ("Hoya"), and Aspect Development, Inc., as Delaware
corporation ("Aspect"), Hoya merged with and into Aspect, and Aspect became a
wholly owned subsidiary of i2 (the "Merger").
In connection with the Merger, each share of Aspect common stock
outstanding immediately prior to the consummation of the Merger was converted
into the right to receive 0.55 shares of i2 common stock (the "Exchange Ratio")
and i2 assumed Aspect's outstanding stock options and employee stock purchase
plan obligations based on the Exchange Ratio, issuing approximately 33.8 million
shares of i2 common stock and assuming options and employee stock purchase plan
rights to acquire approximately 14.2 million shares of i2 common stock. The
amount of the consideration in the Merger was determined based upon arm's-length
negotiations between i2 and Aspect. The transaction is intended to qualify as a
tax-free reorganization under the Internal Revenue Code of 1986, as amended, and
will be accounted for using the purchase method of accounting. After giving
effect to the issuance of shares in connection with the Merger, i2 will have
approximately 195,362,027 shares of i2 common stock outstanding, not including
shares reserved for issuance upon the exercise of assumed options and for
purchases under the assumed employee stock purchase plan.
The acquisition by i2 of shares of Aspect common stock pursuant to
the Merger Agreement is deemed an indirect acquisition of the assets of Aspect
represented thereby, including Aspect's plant, equipment and other physical
property. Aspect utilizes such assets in the conduct of its business as a
provider of collaborative solutions for business-to-business (B2B) e-commerce
and inbound supply for enterprises and their trading partners. Aspect solutions
provide decision support and content for procurement, product development,
operations, eCommerce, and marketplaces. i2 will continue to utilize such assets
in the conduct of its business as a leading provider of intelligent eBusiness
solutions.
Immediately prior to the Merger, all of the issued and outstanding
shares of capital stock of Aspect were owned by the stockholders of Aspect. i2
is not aware of any pre-existing material relationship between such stockholders
and i2, or between such stockholders and i2's affiliates, directors or officers,
or any associate of any such affiliate, director or officer.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
(b) Pro Forma Financial Information.
(c) Exhibits.
2.1 - Agreement and Plan of Reorganization, dated March
12, 2000, by and among i2 Technologies, Inc., Hoya
Merger Corp. and Aspect Development, Inc.
10.1 - Employment and Non-Compete Agreement, dated June 9,
2000 by and between i2 Technologies, Inc. and Robert
L. Evans.
10.2 - Employment and Non-Compete Agreement, dated June 9,
2000 by and between i2 Technologies, Inc. and Romesh
T. Wadhwani.
23.1 - Consent of Arthur Andersen LLP with respect to
Aspect's financial statements.
23.2 - Consent of Ernst & Young LLP with respect to Aspect's
financial statements.
99.1 - Press Release of i2 Technologies, Inc. dated June 9,
2000 (announcing the completion of the Merger).
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 21, 2000
i2 TECHNOLOGIES, INC.
By: /s/ WILLIAM M. BEECHER
-------------------------------
William M. Beecher
Executive Vice President and
Chief Financial Officer
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Aspect Development, Inc.:
We have audited the accompanying consolidated balance sheets of Aspect
Development, Inc., (a Delaware corporation) as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of Aspect Development, Inc., as of December 31, 1997 were audited by
other auditors whose report dated January 26, 1998, except with respect to
paragraph 3 of Note 4, as to which the date is August 15, 1998, and paragraph 4
of Note 4, as to which the date is March 10, 2000, expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aspect Development, Inc., as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
San Jose, California
January 24, 2000
except with respect to paragraph 4
of Note 4, as to which the date is
March 10, 2000, and Note 9, as to
which the date is March 13, 2000.
<PAGE> 5
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Aspect Development, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Aspect Development, Inc. for the year
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. In November 1997, the Company merged
with Cadis, Inc. in a transaction that was accounted for as a pooling of
interests. We did not audit the financial statements of Cadis, Inc., which
statements reflected net losses of $10.8 million for the year ended December 31,
1997. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Cadis, Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated results of operations and cash flows of Aspect Development,
Inc. for the year ended December 31, 1997, after giving retroactive effect to
the business combination with Cadis, Inc., as described in the notes to the
consolidated financial statements, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Palo Alto, California
January 26, 1998,
except with respect to paragraph 3 of Note 4,
as to which the date is August 15, 1998 and
paragraph 4 of Note 4, as to which the date is
March 10, 2000
<PAGE> 6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cadis, Inc.;
We have audited the consolidated balance sheets of Cadis, Inc. (a Delaware
corporation) and subsidiary as of December 31, 1997, and the related
consolidated statements of operations, mandatorily redeemable convertible
preferred stock, junior mandatorily redeemable preferred stock and stockholders'
equity (deficit) and cash flows for the year ended December 31, 1997, not
presented separately herein. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, not presented
separately herein, present fairly, in all material respects, the consolidated
financial position of Cadis Inc. and subsidiary as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1997, in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen LLP
Denver, Colorado
January 20, 1998
<PAGE> 7
Consolidated Balance Sheets
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 28,872 $ 7,877
Short-term investments................................... 47,332 73,596
Accounts receivable, net of allowance for doubtful
accounts of $732 and $421 in 1999 and 1998,
respectively............................................ 28,709 19,509
Prepaid expenses and other current assets................ 15,884 4,397
-------- --------
Total current assets................................... 120,797 105,379
Property and equipment, net................................ 12,342 9,121
Other assets, net.......................................... 2,765 282
-------- --------
Total assets........................................... $135,904 $114,782
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 3,221 $ 2,483
Accrued bonuses and commissions.......................... 7,266 5,233
Income taxes payable..................................... 3,863 2,946
Other accrued liabilities................................ 9,191 5,766
Deferred revenue......................................... 13,584 9,497
Capital lease obligations--current portion............... -- 17
-------- --------
Total current liabilities.............................. 37,125 25,942
Stockholders' equity:
Preferred stock, $0.001 par value per share; 2,000
authorized, none issued or outstanding.................. -- --
Common stock, $0.001 par value per share and additional
paid in capital; 100,000 authorized, 59,216 and 61,504
issued and outstanding in 1999 and 1998, respectively... 96,929 95,068
Deferred compensation.................................... (43) (210)
Unrealized loss on investments........................... (35) --
Accumulated translation adjustment....................... 159 12
Retained earnings (accumulated deficit).................. 1,769 (6,030)
-------- --------
Total stockholders' equity............................. 98,779 88,840
-------- --------
Total liabilities and stockholders' equity............. $135,904 $114,782
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 8
Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenues:
Licenses.......................................... $52,440 $51,132 $26,892
Subscription and maintenance...................... 24,514 17,509 13,594
Service and other................................. 18,191 17,724 9,443
------- ------- -------
Total revenues.................................. 95,145 86,365 49,929
------- ------- -------
Cost of revenues:
Licenses.......................................... 1,152 1,419 346
Subscription and maintenance...................... 5,278 3,737 2,676
Service and other................................. 9,120 6,400 5,027
------- ------- -------
Total cost of revenues.......................... 15,550 11,556 8,049
------- ------- -------
Gross profit....................................... 79,595 74,809 41,880
------- ------- -------
Operating expenses:
Research and development.......................... 20,061 15,882 11,213
Sales and marketing............................... 44,625 33,246 26,730
General and administrative........................ 11,136 7,909 5,304
Merger costs...................................... -- -- 4,312
------- ------- -------
Total operating expenses........................ 75,822 57,037 47,559
------- ------- -------
Operating income (loss)............................ 3,773 17,772 (5,679)
Interest and other income.......................... 6,872 3,526 3,066
Interest and other expense......................... (634) (751) (665)
------- ------- -------
Income (loss) before income taxes.................. 10,011 20,547 (3,278)
Provision for income taxes......................... 2,212 4,522 1,593
------- ------- -------
Net income (loss).................................. $ 7,799 $16,025 $(4,871)
======= ======= =======
Net income (loss) per share--basic................. $ 0.13 $ 0.27 $ (0.09)
======= ======= =======
Net income (loss) per share--diluted............... $ 0.12 $ 0.24 $ (0.09)
======= ======= =======
Number of shares used in computing per share
amounts-basic..................................... 58,726 59,862 55,268
Number of shares used in computing per share
amounts-diluted................................... 66,180 66,300 55,268
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 9
Consolidated Statement of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Notes
Common Stock Receivable Unrealized Accumulated
------------------------ From Deferred Loss on Translation
Shares Amount Stockholders Compensation Investments Adjustments
---------- ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............. 53,989 $ 76,729 $ (320) $ (544) -- $ 65
Comprehensive
loss:
Net loss......... -- -- -- -- -- --
Foreign currency
translation
adjustments...... -- -- -- -- -- (367)
Comprehensive
loss.............
======== ======== ======== ======== ======== ========
Issuance of
common stock
upon exercise of
options.......... 2,692 1,027 -- -- -- --
Amortization of
deferred
compensation..... -- -- -- 168 -- --
Issuance of
common stock
under Employee
Stock Purchase
Plan............. 728 1,307 -- -- -- --
Issuance of
common stock for
Redeemable
Preferred
Stock............ 168 1,986 -- -- -- --
Issuance of
common stock for
software......... 55 375 -- -- -- --
Issuance of
common stock upon
exercise of
options.......... -- -- -- -- -- --
settlement (see
Note 4).......... 100 203 -- -- -- --
-------- -------- -------- -------- -------- --------
Balance at
December 31,
1997............. 57,732 81,627 (320) -- (376) (302)
Comprehensive
income:
Net income....... -- -- -- -- -- --
Foreign currency
translation
adjustments...... -- -- -- -- -- 314
-------- -------- -------- -------- -------- --------
Comprehensive
income...........
======== ======== ======== ======== ======== ========
Issuance of
common stock
upon exercise of
options.......... 3,146 8,706 -- -- -- --
Issuance of
common stock
under Employee
Stock Purchase
Plan............. 626 1,770 -- -- -- --
Amortization of
deferred
compensation..... -- -- -- 166 -- --
Repayment of
notes
receivable....... -- -- 320 -- -- --
Income tax
benefit from
stock option
transactions..... -- 2,965 -- -- -- --
-------- -------- -------- -------- -------- --------
Balance at
December 31,
1998............. 61,504 95,068 -- (210) -- 12
Comprehensive
income:
Net income....... -- -- -- -- -- --
Foreign currency
translation
adjustments...... -- -- -- -- -- 147
Unrealized loss
on investments... -- -- -- -- (35) --
Comprehensive
income..........
Issuance of
common stock
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
upon exercise of
options......... 3,251 14,260 -- -- -- --
Repurchase and retirement of common stock (See Note 4).. (5,717) (20,636) -- -- -- --
Issuance of
common stock
under Employee
Stock Purchase
Plan............ 178 1,467 -- -- -- --
Amortization of
deferred
compensation.... -- -- -- 167 -- --
Income tax
benefit from
stock option
transactions.... -- 6,770 -- -- -- --
------ ------- ----- ----- ----- -----
Balance at
December 31,
1999............ 59,216 $96,929 $ -- $ (43) $ (35) $ 159
====== ======= ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Retained Total
Earnings Stock-
(Accumulated holders' Comprehensive
Deficit) Equity Income (Loss)
------------ ------------ -------------
<S> <C> <C> <C>
Balance at
December 31,
1996 ............ $(17,184) $ 58,746
Comprehensive
loss:
Net loss ........ (4,871) (4,871) $ (4,871)
Foreign currency
translation
adjustments ..... -- (367) (367)
------------
Comprehensive
loss ............ $ (5,238)
============ ============ ============
Issuance of
common stock
upon exercise of
options.......... -- 1,027
Amortization of
deferred
compensation..... -- 168
Issuance of
common stock
under Employee
Stock Purchase
Plan............. -- 1,307
Issuance of
common stock for
Redeemable
Preferred
Stock............ -- 1,986
Issuance of
common stock for
software......... -- 375
Issuance of
common stock
upon exercise of
options.......... --
settlement (see
Note 4).......... -- 203
------------ ------------
Balance at
December 31,
1997............. (22,055) 58,574
Comprehensive
income:
Net income....... 16,025 16,025 $ 16,025
Foreign currency
translation
adjustments...... -- 314 314
------------ ------------ ------------
Comprehensive
income........... $ 16,339
============ ============ ============
Issuance of
common stock
upon exercise of
options ........ -- 8,706
Issuance of
common stock
under Employee
Stock Purchase
Plan ........... -- 1,770
Amortization of
deferred
compensation ... -- 166
Repayment of
notes
receivable ..... -- 320
Income tax
benefit from
stock option
transactions ... -- 2,965
------------ ------------
Balance at
December 31,
1998 ........... (6,030) 88,840
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Comprehensive
income:
Net income ...... 7,799 7,799 $ 7,799
Foreign currency
translation
adjustments ..... -- 147 147
Unrealized loss
on investments .. -- (35) (35)
---------- ----------
Comprehensive
income .......... $ 7,911
............... ===========
Issuance of
common stock
upon exercise of
options ......... -- 14,260
Repurchase and retirement of common stock (See Note 4) .... -- (20,636)
Issuance of
common stock
under Employee
Stock Purchase
Plan ............ -- 1,467
Amortization of
deferred
compensation .... -- 167
Income tax
benefit from
stock option
transactions .... -- 6,770
Balance at
December 31,
1999 ............ $ 1,769 $ 98,779
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 12
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................ $ 7,799 $ 16,025 $ (4,871)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ................... 3,776 5,079 3,096
(Gain) loss on disposal of assets ............... (150) 30 61
Loss in joint ventures .......................... 54 489 612
Compensation expense ............................ 167 166 168
Provision for allowance for doubtful
accounts ....................................... 311 126 45
Changes in operating assets and liabilities:
Accounts receivable ........................... (9,511) (6,269) (3,918)
Prepaid expenses and other current assets ..... (4,717) (1,163) (1,956)
Other assets .................................. (1,037) 522 (1,160)
Accounts payable .............................. 738 474 1,058
Accrued bonuses and commissions ............... 2,033 3,156 1,167
Accrued merger costs .......................... -- (2,883) 2,883
Income taxes payable .......................... 917 4,303 1,563
Other accrued liabilities ..................... 3,425 2,690 (42)
Deferred revenue .............................. 4,087 (1,639) 4,480
Repayment of notes receivable from
stockholders ................................. -- 320 --
---------- ---------- ----------
Net cash provided by operating activities ........ 7,892 21,426 3,186
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment ............. (7,165) (5,459) (7,593)
Proceeds from sale of property and
equipment ...................................... 318 -- 15
Maturities of short-term investments ............ 169,001 117,376 56,662
Purchases of short-term investments ............. (142,772) (150,466) (56,020)
Purchase of long term investment ................ (1,500) -- --
---------- ---------- ----------
Net cash provided by (used in) investing
activities ...................................... 17,882 (38,549) (6,936)
---------- ---------- ----------
Cash flows from financing activities:
Principal payments on capital lease
obligations .................................... (17) (340) (553)
Buy back of common stock ........................ (20,636) -- --
Sale of common stock ............................ 15,727 10,476 2,537
---------- ---------- ----------
Net cash (used in) provided by financing
activities ..................................... (4,926) 10,136 1,984
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents .................................... 20,848 (6,987) (1,766)
Exchange rate impact on cash .................... 147 314 (367)
Cash and cash equivalents at beginning of
period ......................................... 7,877 14,550 16,683
---------- ---------- ----------
Cash and cash equivalents at end of period ...... $ 28,872 $ 7,877 $ 14,550
========== ========== ==========
Supplemental disclosure of cash flow
information
Cash paid during the period for interest ........ $ 4 $ 16 $ 44
========== ========== ==========
Income taxes paid ............................... $ 1,134 $ 40 $ 143
========== ========== ==========
Supplemental schedule of non-cash financing
activities
Equipment acquired under capital lease
obligations .................................... $ -- $ -- $ 49
========== ========== ==========
Conversion of preferred stock to common
stock .......................................... $ -- $ -- $ 1,986
========== ========== ==========
Issuance of common stock for software ........... $ -- $ -- $ 375
========== ========== ==========
Tax benefit from stock options .................. $ 6,770 $ 2,965 $ --
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 13
ASPECT DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Description of Business and Principles of Consolidation
Aspect Development, Inc. ("Aspect" or the "Company") is the leading global
provider of collaborative solutions for business-to-business (B2B) eCommerce and
inbound supply management. Aspect solutions for the enterprise and for eMarkets
and exchanges provide decision support and content for procurement, product
development, operations, and eCommerce between trading partners. The Aspect
solutions enable aggregation and collaboration among Design, Procurement and
Operations across multiple divisions within an enterprise, as well as solutions
for establishing a collaborative Internet Exchange, or portal.
The consolidated financial statements comprise the accounts of the Company
and its wholly-owned subsidiaries after elimination of all significant
intercompany balances and transactions. On November 25, 1997, the Company
acquired Cadis, Inc. in a merger transaction accounted for as a pooling of
interests (see Note 2).
Foreign Exchange
Assets and liabilities of the Company and its wholly-owned foreign
subsidiaries are translated from the local currency to United States dollars at
period-end exchange rates. Income and expense items are translated on a monthly
basis at the average rates of exchange prevailing during the month. The
adjustment resulting from translating the assets and liabilities of the Company
and its foreign subsidiaries is reflected in accumulated translation adjustment
within stockholders' equity. Foreign currency transaction gains and losses are
included in the results of operations and were immaterial for all periods
presented.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
License revenues are comprised of perpetual license fees, and are recognized
as revenue after execution of a license agreement or receipt of a definitive
purchase order, shipment of the product has occurred, vendor specific objective
evidence exists to allocate the fee from the arrangement between delivered and
undelivered elements, and collection of the resulting receivables is deemed
probable. For arrangements involving multiple products and services, the entire
arrangement is allocated among the elements based on each element's relative
value. Product returns and sales allowances (which were not significant through
December 31, 1999) are estimated and provided for at the time of sale. When
delivery involves significant installation obligations at multiple sites,
revenues are recognized on a per-site basis upon completion of installation.
Revenues from subscription and maintenance agreements are deferred and
recognized on a straight-line basis over the life of the related agreement,
which is typically one year.
<PAGE> 14
Service and other revenues are comprised of data services, process consulting
and training fees. These revenues are recognized upon completion of the work
performed.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per share is computed using the weighted average number of common shares
outstanding plus the dilutive effect of outstanding stock options and the
employee stock purchase plan using the "treasury stock" method.
The following is a reconciliation of the weighted average common shares used
to calculate basic net income (loss) per share to the weighted average common
and common equivalent shares used to calculate diluted net income (loss) per
share for the years ended December 31, 1999, 1998, and 1997 (in thousands except
per share amounts):
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic:
Weighted average common shares outstanding ............... 58,726 59,862 55,268
Net income (loss) ........................................ $ 7,799 $ 16,025 $ (4,871)
Net income (loss) per share .............................. $ 0.13 $ 0.27 $ (0.09)
Diluted:
Weighted average common shares outstanding ............... 58,726 59,862 55,268
Common stock equivalents (treasury stock method) ......... 7,454 6,438 --
Total weighted average common and common equivalent
shares outstanding ...................................... 66,180 66,300 55,268
Net income (loss) ........................................ $ 7,799 $ 16,025 $ (4,871)
Net income (loss) per share .............................. $ 0.12 $ 0.24 $ (0.09)
</TABLE>
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash investments and trade receivables. The
Company has a cash investment policy that limits investments to investment grade
securities. The Company's revenues consist primarily of license and subscription
fees for its applications software and reference data products from large
manufacturers in the United States, Europe and Asia. The Company has
historically sold primarily to large financially stable institutions and has not
obtained collateral. The Company has not incurred significant credit losses
during any of the periods presented. Increases in the Company's allowance for
bad debts (expense) in 1999, 1998 and 1997 were approximately $355,000, $126,000
and $52,000, respectively. Total write-offs of outstanding customer receivables
in the years 1999 and 1997 were approximately $44,000 and $7,000 respectively,
while no outstanding customer receivables were written off in fiscal 1998.
During the year ended December 31, 1999, two customers accounted for 26% of
revenues. During the years ended December 31, 1998 and 1997, no one customer
accounted for more than 10% of revenues.
Product Concentration
The Company currently derives substantially all of its revenues from the
licensing of its eXplore decision support software, reference data products, and
fees from related services. These products and services are expected to
<PAGE> 15
continue to account for substantially all of the Company's revenues for the
foreseeable future. While the Company believes that its customers have not
experienced significant problems with such products to date, if the Company's
customers were to do so in the future or if they were dissatisfied with product
functionality or performance, the Company's business, financial condition or
results of operations could be materially adversely affected.
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with minimum yield risks
and original maturities of 90 days or less to be cash equivalents. The Company's
investment policy is to protect the value of its investment portfolio and to
minimize principal risk by earning returns based on current interest rates.
At December 31, 1999, all of the Company's cash equivalents and short-term
investments were designated as "available-for-sale" and, in accordance with SFAS
No. 115, are presented at fair value in the financial statements. At December
31, 1999, the carrying value of the Company's short-term investments
approximated the current fair value. The Company recorded a $35,000 unrealized
loss on investments, which has been recorded as a separate component of equity
at December 31, 1999. Realized gains and losses to date have not been material.
The cost of securities sold is based on specific identification.
At December 31, 1999 and 1998, the Company's short-term investments consisted
of $9.9 million and $1.0 million of US Government Agency obligations,
respectively, and $37.4 million and $72.6 million of domestic corporate debt
issues, respectively, all of which mature within one year.
Property and Equipment
Office and computer equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the respective assets
(generally two to five years). Equipment under capital lease obligations is
recorded at cost and amortized on a straight-line basis over the shorter of its
estimated life or the term of the lease (generally three years). Property and
equipment as of December 31, 1999 and 1998, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Computer equipment ....................... $ 15,190 $ 10,323
Computer software ........................ 2,330 2,101
Leased computer equipment & software ..... -- 2,172
Office equipment and furniture ........... 3,724 3,384
Leasehold improvements ................... 5,170 1,992
---------- ----------
26,414 19,972
Less accumulated depreciation ............ (14,072) (10,851)
---------- ----------
Property and equipment, net .............. $ 12,342 $ 9,121
========== ==========
</TABLE>
Research and Development
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," requires the capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is
<PAGE> 16
established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have been insignificant. Through December 31, 1999,
all research and development costs have been expensed.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
requires companies to record derivative financial instruments on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. The Company will be required to adopt SFAS No. 133 in
fiscal 2001 in accordance with SFAS No. 137, which delays the required
implementation of SFAS No. 133 for one year. This Statement will not have a
material impact on the financial condition or results of the operations of the
Company.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
(SOP) 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition,"' which defers for one year the application of provisions
in SOP 97-2 which limit what is considered vendor specific objective evidence of
the fair value of the various elements in a multiple element arrangement. All
other provisions of SOP 97-2 remain in effect. This SOP was effective as of June
30, 1998. In December 1998, the AICPA issued SOP 98-9, "Modification of SOP
97-2, Software Revenue Recognition,' With Respect to Certain Transactions,"
which amends paragraphs 11 and 12 of SOP 97-2, Software Revenue Recognition, to
require recognition of revenue using the "residual value method" under certain
conditions. Effective December 15, 1998, SOP 98-9 amends SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition,"'
to extend the deferral of the application of certain passages of SOP 97-2
provided by SOP 98-4 through fiscal years beginning on or before March 15, 1999.
All other provisions of this SOP are effective for transactions entered into in
fiscal years beginning after March 15, 1999. The Company does not anticipate
that these statements will have a material adverse impact on its statement of
operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
will adopt SAB 101 as required in the second quarter of 2000. Management does
not expect the adoption of SAB101 to have a material effect on the financial
position or results of the operations of the Company.
2. Business Combination
On November 25, 1997, the Company acquired all of the outstanding shares of
Cadis, a privately held Delaware corporation which develops, markets, and
supports component and supplier management software, by issuing approximately
1,411,000 shares of the Company's common stock. The acquisition was accounted
for as a pooling-of-interests and the accompanying consolidated financial
statements of Aspect for the year ended December 31, 1997 have been restated to
include the operating results of Cadis. In connection with the transaction, the
Company incurred approximately $4.3 million in merger related expenses,
<PAGE> 17
including $0.9 million in consulting fees to financial advisors, $0.7 million
for legal and other professional fees, $0.7 million for personnel severance and
outplacement expenses and $0.6 million for facilities consolidation expense. Of
the merger expenses, a total of approximately $2.9 million was accrued at
December 31, 1997, which was fully utilized at December 31, 1998.
There were no materially significant intercompany transactions between the
Company and Cadis prior to the merger and there were no significant adjustments
required to conform the financial reporting of the two companies.
The following information shows revenue and net income (loss) of the separate
companies during the ten months ended October 31, 1997 preceding the combination
(in thousands):
<TABLE>
<CAPTION>
Unaudited
Ten Months
Ended
October
31, 1997
----------
<S> <C>
Revenue:
Aspect............................................................ $36,170
Cadis............................................................. 4,564
-------
$40,734
=======
Net income (loss):
Aspect............................................................ $ 6,614
Cadis............................................................. (6,725)
-------
$ (111)
=======
</TABLE>
3. Lease Obligations
The Company leases 18 office facilities under noncancelable operating leases,
which expire at various dates through November 2007. The Company also rents
certain property and equipment under operating leases. Rental expense for all
operating leases, net of sublease income, was $3,223,000, $2,439,000 and
$2,378,000 for 1999, 1998 and 1997, respectively.
Future minimum lease payments, net of sublease income, under operating lease
obligations which have initial or remaining non-cancelable lease terms in excess
of one year as of December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
Year ending December 31,
2000................................................................ $ 3,903
2001................................................................ 3,217
2002................................................................ 2,903
2003................................................................ 3,215
2004................................................................ 2,026
Thereafter.......................................................... 3,054
-------
Total minimum lease payments...................................... $18,318
=======
</TABLE>
<PAGE> 18
4. Stockholders' Equity
Cadis was authorized to issue a total of 1,985,705 shares of Junior
Mandatorily Redeemable Preferred stock ("Junior Preferred"), all of which had
been issued as of December 31, 1996. The holders of Junior Preferred were
entitled to liquidation preferences of $1.00 per share and were not entitled to
dividends. The Junior Preferred was mandatroily redeemable at $1.00 per share on
each of July 31, 2000, 2001 and 2002. In 1997, all of the outstanding Junior
Preferred of Cadis was converted to common stock of the Company at the time of
the acquisition of Cadis.
Stock Repurchase
In 1999, the Company's Board of Directors approved the repurchase of up to an
aggregate of $25 million of its common stock. During 1999, the Company
repurchased approximately 5.7 million shares of its common stock totaling
approximately $20.6 million.
Stock Split
In 1998, the Company effected a two for one stock split by declaring a
dividend payable in shares of the Common Stock of the Company, of one additional
share for each share outstanding. All share and per share numbers in the
accompanying financial statements have been adjusted to reflect the stock split.
The Company announced a two-for-one stock split payable to shareholders of
record as of the close of business on February 25, 2000. The stock split was
effected in the form of a 100% stock dividend. The Company's transfer agent
delivered new stock certificates representing the additional shares on March 10,
2000. As a result, all financial statement and earnings per share data have been
adjusted for the two for one stock split.
Share Purchase Rights Plan
On September 1, 1998 the Board of Directors approved the adoption of a Share
Purchase Rights Plan (the "Rights Plan"). Terms of the Rights Plan provide for a
dividend distribution of one preferred share purchase right (a "Right") for each
outstanding share of common stock, par value $.001 per share (the "Common
Shares"), of the Company. The dividend was payable on October 22, 1998 (the
"Record Date") to the stockholders of record on that date. Each Right entitles
the registered holder to purchase from the Company one one- hundredth of a share
of Series A Junior Participating Preferred Stock, par value $.001 per share (the
"Preferred Shares"), at a price of $187.50 per one one-hundredth of a Preferred
Share (the "Purchase Price"), subject to adjustment. Each one one-hundredth of a
share of Preferred Shares has designations and powers, preferences and rights,
and the qualifications, limitations and restrictions which make its value
approximately equal to the value of a Common Share.
Rights will not be distributed until the earlier of (i) the date of a public
announcement that a person, entity or group of affiliated or associated persons
have acquired beneficial ownership of 15% or more of the outstanding Common
Shares (an "Acquiring Person") or (ii) 10 business days (or such later date as
may be determined by action of the Board of Directors prior to such time as any
person or entity becomes an Acquiring Person) following the commencement of, or
announcement of an intention to commence, a tender offer or exchange offer the
consummation of which would result in any person or entity becoming an Acquiring
Person. The Rights will expire on October 7, 2008 unless the Rights are earlier
redeemed or exchanged by the Company.
<PAGE> 19
Stock Options
Amended and Restated 1992 Stock Option Plan. In 1996, the Company adopted its
Amended and Restated 1992 Stock Option Plan (the "Plan"), which authorizes the
board of directors to grant incentive and nonstatutory stock to purchase up to
7,860,000 shares of common stock to employees, officers, directors and
consultants of the Company. The 1992 Plan allows for the grant of incentive
stock options to employees and the grant of nonstatutory stock options to all
eligible participants. In 1998, the Company amended the 1992 Plan to increase
the number of shares of common stock reserved for issuance thereunder to
10,060,000. In 1999, the Company amended the 1992 Plan to increase the number of
shares of common stock reserved for issuance thereunder to 12,060,000 shares and
to modify the eligibility requirements to (i) permit directors who are not
employees of the Company ("non-employee directors") to participate in the plan
and (ii) increase the maximum number of options that may be granted to an
employee in any fiscal year from 1,000,000 to 2,000,000.
The exercise price shall be at least 100% and 85% of the fair market value of
the common stock on the date of the grant for incentive stock options and
nonstatutory stock options, respectively, except for options granted to a person
owning greater than 10% of the total voting power of the Company, for which the
exercise price of the options must not be less than 110% of the fair market
value at the time of grant. Options generally become exercisable upon grant
subject to repurchase rights in favor of the Company until vested. At December
1999, a total of 4,535 shares of common stock previously exercised under the
plan were subject to repurchase. Shares generally vest over a period of four
years, with 1/8 of the shares subject to option vesting at the end of the six
months after commencement of employment, and the remainder vesting ratably over
the next 42 months. Options may be granted with different vesting terms. Options
are exercisable for a term of ten years after the date of grant except those
options granted to a person owning greater than 10% of the total vesting power
of stock of the Company, which are exercisable for a term of five years after
the date of grant. The options are not transferable.
In the event of a sale or merger of the Company, the board may arrange with
the acquiring corporation for such corporation either to assume the Company's
rights and obligations under the outstanding options or to substitute new
options for the acquiring corporation's stock for such outstanding options.
Options that are neither assumed nor substituted by the acquiring corporation,
nor exercised as of the date of the sale or merger, terminate and cease to be
outstanding as of the date of the transaction.
On November 25, 1997, in connection with the merger of the Company and Cadis
described in Note 2, the Company substituted options covering 235,684 shares of
common stock for options granted under the Cadis option plan and assumed the
rights and obligations of Cadis with respect to the outstanding options. The
options are generally exercisable only when vested, and have similar vesting
terms as options granted under the 1992 Plan.
1996 Outside Directors Stock Option Plan. In 1996, the Company adopted its
1996 Outside Directors Stock Option Plan (the "Directors Plan") and reserved for
issuance a total of 200,000 shares of common stock. The Directors Plan provides
for the automatic grant of nonstatutory stock options to directors of the
Company who are not employees of the Company or any parent or subsidiary
corporation of the Company ("Outside Directors"). Under the Directors Plan, each
Outside Director who had not previously been granted an option under a stock
option plan of the Company was granted automatically on the effective date of
the IPO an option to purchase 10,000 shares of common stock. Each new Outside
Director elected after the date of the IPO is granted automatically on the date
of election an option to purchase 30,000 shares of common stock. Such options
will become vested in three annual installments on the anniversary of the date
of grant. In addition, each Outside Director previously granted an option under
the Directors Plan is granted automatically on the date of each annual meeting
of the stockholders after 1996 an option to purchase 10,000 shares of common
stock. Each such subsequent option will become vested in full on the third
anniversary of the date of grant. The exercise price of each option granted
under the Directors Plan is equal to the fair market value of the common stock
on the date of grant, and the term of each option is ten years. Options granted
under the Directors plan are nontransferable. In 1999, the Company terminated
future grants under the 1996 Directors Plan.
<PAGE> 20
1997 Nonstatutory Stock Option Plan. In 1997, the Company adopted its 1997
Nonstatutory Stock Option Plan (the "1997 Plan"), which authorizes the board of
directors to grant nonstatutory stock options to purchase up to 5,400,000 shares
of common stock to eligible participants. The option exercise price shall be at
least 85% of the fair market value of the Company's common stock on the date of
grant of the option. The options are not transferable. Shares vest ratably over
a 48-month period.
Information with respect to activity under the plans is as follows (in
thousands except per share and exercise price amounts):
<TABLE>
<CAPTION>
Outstanding Options
--------------------- Weighted
Options Number Price Average
Available of Per Exercise
for Grant Shares Share Price
--------- ------ ------------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996........... 3,688 8,880 $0.02--$ 6.69 $ 1.32
Additional Shares Authorized.......... 4,800 -- -- --
Options Granted....................... (6,800) 6,800 $0.75--$11.21 $ 7.25
Exercised............................. -- (2,692) $0.02--$ 8.44 $ 0.44
Canceled.............................. 760 (760) $0.05--$ 9.78 $ 5.07
------- ------ ------------- ------
Balance at December 31, 1997........... 2,448 12,228 $0.02--$11.21 $ 4.60
Additional Shares Authorized.......... 4,400 -- -- --
Options Granted....................... (5,000) 5,000 $8.88--$19.13 $13.53
Exercised............................. -- (3,146) $0.02--$15.94 $ 2.74
Canceled.............................. 1200 (1,200) $0.05--$19.13 $ 8.24
------- ------ ------------- ------
Balance at December 31, 1998........... 3,048 12,882 $0.02--$19.13 $ 8.20
Additional Shares Authorized.......... 14,000 -- -- --
Options Granted....................... (13,530) 13,530 $3.47--$24.22 $ 7.63
Exercised............................. -- (3,251) $0.05--$19.13 $ 4.41
Canceled.............................. 1,804 (1,804) $0.18--$19.13 $ 8.88
------- ------ ------------- ------
Balance at December 31, 1999........... 5,322 21,357 $0.05--$24.22 $ 8.36
======= ====== ============= ======
</TABLE>
At December 31, 1999, 5,784,460 options were vested (3,731,104 at December
31, 1998).
Compensation expense recognized in fiscal 1999, 1998, and 1997 total
approximately $167,000, $166,000, and $168,000, respectively. At December 31,
1999, deferred compensation totaled $43,000.
1996 Employee Stock Purchase Plan. In 1996, the Company adopted its 1996
Employee Stock Purchase Plan (the "Purchase Plan"). A total of 1,000,000 shares
of common stock have been reserved for issuance under the Purchase Plan, and
362,893 were issued in the year ended December 31, 1997, 312,939 in the year
ended December 31, 1998 and 89,301 in the year ended December 31, 1999. The
Purchase Plan permits eligible employees to purchase common stock at a discount,
but only through payroll deductions, during concurrent 24-month offering
periods. Each offering period is divided into four consecutive six-month
purchase periods. The price at which stock is sold under the Purchase Plan is
equal to 85% of the fair market value of the common stock on the first day of
the offering period or the last day of the purchase period, whichever is lower.
The initial offering period commenced approximately two weeks prior to the
effective date of the IPO. In 1999, the Company amended the Purchase
<PAGE> 21
Plan to increase the number of shares of common stock authorized for issuance
under the Purchase Plan from 1,000,000 to 1,200,000.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock-Based Compensation" requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, which also requires that the information be determined as if
the Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of SFAS No. 123. The fair value
for these options was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions for 1999,
1998, and 1997, respectively: risk-free interest rates of 5.59%, 5.26%, and
6.00%; a dividend yield of 0.0%; volatility factors of the expected market price
of the Company's common stock of .80, .84, and .70; and a weighted-average
expected life of the option of 0.03, 0.20, and 2.0 years beyond each respective
vesting period. The weighted average fair value of options granted during 1999,
1998, and 1997 was $7.04, $8.78, and $6.99, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ --------
<S> <C> <C> <C>
Pro forma net income (loss)....................... $(9,434) $4,366 $(13,157)
Pro forma earnings
Income (loss) per share (basic)................. $ (0.16) $ 0.07 $ (0.24)
Income (loss) per share (diluted)............... $ (0.16) $ 0.07 $ (0.24)
</TABLE>
<PAGE> 22
The following table summarizes information regarding stock options
outstanding at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- --------------------
Shares Weighted
Outstanding Average Weighted Weighted
Range of at Remaining Average Average
Exercise December 31, Contractual Exercise Number Exercise
Prices 1999 Life Price Exercisable Price
-------------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.05--$ 2.50 1,265,724 6.15 $ 1.39 923,383 $ 1.27
3.47-- 3.47 5,485,338 9.28 3.47 1,084,871 3.47
3.63-- 5.59 2,161,509 7.87 5.12 1,191,213 5.36
5.66-- 7.50 2,259,529 8.98 6.50 294,712 6.31
8.44-- 9.78 2,211,753 8.69 9.35 455,762 9.49
9.88-- 11.81 2,124,335 8.38 10.90 526,635 10.93
13.06-- 13.06 2,707,504 9.78 13.06 50,291 13.06
14.56-- 15.94 2,180,111 8.61 14.78 1,184,248 14.68
16.06-- 22.23 824,583 9.50 19.84 73,345 17.82
24.22-- 24.22 136,800 9.96 24.22 0 0
$ 0.05--$24.22 21,357,186 8.78 $ 8.32 5,784,460 $ 7.37
</TABLE>
5. Income Taxes
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 provides for an asset and liability approach to
accounting for income taxes under which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be recognized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period of
enactment.
The provision for taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal .......... $ 5,183 $ 0 $ 1,027
State ............ 1,587 100 466
Foreign .......... 29 475 100
-------- -------- --------
6,799 579 1,593
Deferred:
Federal .......... (4,715) 2,387 --
State ............ 128 1,556 --
-------- -------- --------
(4,587) 3,943 --
-------- -------- --------
$ 2,212 $ 4,522 $ 1,593
======== ======== ========
</TABLE>
<PAGE> 23
The Company's effective income tax provision differs from the Federal
statutory rate of 35% due to the following (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected tax provision (benefit) at federal
statutory rate .................................. $ 3,492 $ 6,668 $ (1,114)
State taxes (net of federal benefit) ............. 599 1,656 308
Change in valuation allowance .................... (1,303) (3,120) 2,598
Non-deductible acquisition costs ................. -- -- 519
Foreign taxes .................................... -- 479 100
Research credits ................................. 906 (750) (350)
Foreign tax credits .............................. (16) (411) --
Other ............................................ 346 -- 239
Prior year net operating losses not benefited .... -- -- (707)
-------- -------- --------
Provision for income taxes ....................... $ 2,212 $ 4,522 $ 1,593
======== ======== ========
Effective tax rate ............................... 22.10% 22.01% N.M.
</TABLE>
As of December 31, 1999, the Company had federal, state and foreign net
operating loss carryforwards of approximately $46.8 million, of which
approximately $22.2 million relate to Cadis pre-acquisition net operating
losses. The Company also had federal and state research and development tax
credit carryforwards of approximately $4.9 million. The net operating loss and
credit carryforwards will expire between 2007 and 2019 if not utilized.
Due to the change in ownership which resulted from Aspect Development, Inc.'s
acquisition of Cadis, there is an overall annual limitation of approximately
$3.5 million with respect to the entire $22.2 million of Cadis's pre-acquisition
net operating losses. The Company's net operating losses and credits may also be
subject to an annual limitation due to the ownership change provisions should
the Company itself experience an ownership change. Significant components of the
Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ..... $ 14,415 $ 11,319 $ 13,000
Research credit carryforwards ........ 4,919 2,450 1,700
Foreign tax credits .................. 442 811 400
Other timing differences ............. 5,229 2,000 2,000
---------- ---------- ----------
Total deferred tax assets .............. 25,005 16,580 17,100
Valuation allowance .................... (18,905) (15,000) (17,100)
---------- ---------- ----------
Net deferred tax assets ................ $ 6,100 $ 1,580 $ --
========== ========== ==========
</TABLE>
The valuation allowance increased by $3.9 million during the year ended
December 31, 1999. Approximately $7.4 million of the remaining valuation
allowance relates to net operating losses and other tax attributes acquired in
the Cadis acquisition (see Note 2) which have not been benefited. Approximately
$11.5 million of the remaining valuation allowance relates to benefits of stock
option deductions which, if recognized, will be allocated directly to
stockholders' equity.
<PAGE> 24
6. Joint Venture
The Company entered into a limited liability company joint venture agreement
with CMP Media Inc. ("CMP"), dated April 4, 1997. The joint venture, ChipCenter
LLC (formerly EDTN), was established to provide news, promotional materials,
literature, product data, reference material, application information tutorials,
seminars, product and software demonstrations and other services through the
Internet and corporate intranets to electronic systems designers and purchasing
managers. Initially, the ownership of the joint venture was shared equally
between the Company and CMP.
The Company's share of losses in the joint venture amounted to $0.5 million,
$0.6 million and $0.5 million, respectively in fiscal 1999, 1998 and 1997,
respectively. This amount is included in interest and other expense. During
1999, the interest in the joint venture was fully written down and no
commitments existed for additional funding. As a result, the Company no longer
recognizes net earnings or losses in the consolidated statements of operations.
In March 1999, both the Company and CMP each sold approximately one-third of
their respective interests in the joint venture to a third party. In connection
with this sale, the Company recorded a $3 million gain in interest and other
income. Subsequently in 1999, each of the three partners sold approximately
one-fourth of their respective interests to a fourth party in return for its
cash contribution to the joint venture.
7. Industry Segment and Geographic Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in fiscal 1998. SFAS No. 131 established
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services, and geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance.
The Company is organized based upon the nature of the products and services
it offers. Under this organizational structure, the Company operates in three
business segments' licenses, subscriptions and maintenance, and service. The
Company evaluates its segment's performance based on several factors including
revenue and gross profit. The Company does not allocate or report financial
operations by segment beyond revenue and cost of revenue, nor does it allocate
long-term assets by business segment. No additional segment information is
reported in this footnote as required segment disclosures are included in the
Consolidated Statements of Operations.
The Company's foreign operations consist of sales, marketing, and support
activities in subsidiaries and distributors throughout the world and development
and support activities in India. The Company's export sales were as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
Europe ............................... $ 182 $ 202 $ 976
Asia ................................. 249 2,344 1,046
-------- -------- --------
Total export sales ................. $ 431 $ 2,546 $ 2,022
======== ======== ========
</TABLE>
<PAGE> 25
Revenues and income (loss) before interest and taxes generated by the Company
and its corresponding identifiable assets classified by major geographic area
were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
North America................................ $ 84,324 $ 75,232 $41,431
Europe....................................... 8,180 8,413 7,452
Other international operations............... 2,641 2,720 1,046
-------- -------- -------
Total revenues............................. $ 95,145 $ 86,365 $49,929
======== ======== =======
Income (loss) before interest and taxes:
North America................................ $ 10,875 $ 17,661 $(9,328)
Europe....................................... (270) 3,051 3,520
Other international operations............... (6,832) (2,940) 129
-------- -------- -------
Income (loss) before interest and taxes.... $ 3,773 $ 17,772 $(5,679)
======== ======== =======
Identifiable assets:
North America................................ $123,440 $109,938
Europe....................................... 5,855 2,891
Other international operations............... 6,605 1,953
-------- --------
Total identifiable assets.................. $135,900 $114,782
======== ========
</TABLE>
8. 401(k) Plan
Under the Company's 401(k) Plan, all employees who are at least 21 years old
are entitled to participate on the first quarterly enrollment date following the
first day of employment. Under the 401(k) Plan, eligible employees are entitled
to make tax-deferred contributions up to 20% of compensation, subject to an
annual limitation. The Company may, at its discretion, make matching
contributions to the 401(k) Plan. For the years ended December 31, 1999, 1998
and 1997, the Company made no matching contributions.
9. Subsequent Events
TACTech acquisition
In January 2000, the Company announced that it had signed a definitive
agreement to acquire TACTech, Inc. Under the terms of the agreement, TACTech
shareholders will receive approximately 450,000 shares of Aspect common stock in
exchange for all the outstanding common stock of TACTech, for a total purchase
price at the time of announcement of approximately $16.1 million. The signed
definitive agreement, which is subject to the approval of TACTech's stockholders
and certain other conditions, will be accounted for by Aspect as a purchase.
i2 Technologies Merger Agreement
<PAGE> 26
On March 13, 2000, i2 Technologies, Inc. and the Company announced a
definitive agreement to merge in a stock-for-stock transaction pursuant to which
the stockholders of Aspect will receive 0.55 shares of i2 Technologies common
stock for each share of Aspect common stock. The merger has been unanimously
approved by the boards of directors of both companies and is subject to approval
by the stockholders of both companies and other regulatory approvals.
<PAGE> 27
Aspect Development, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 69,486 $ 28,872
Short-term investments 26,220 47,332
Accounts receivable, net 33,093 28,709
Prepaid expenses and other current assets 16,504 15,884
----------- -----------
Total current assets 145,303 120,797
Property and equipment, net 12,436 12,342
Other assets, net 6,038 2,765
----------- -----------
Total assets $ 163,777 $ 135,904
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,336 $ 3,221
Accrued bonuses and commissions 6,500 7,266
Income taxes payable 6,914 3,863
Other accrued liabilities 12,959 9,191
Deferred revenue 19,625 13,584
----------- -----------
Total current liabilities 48,334 37,125
Stockholders' equity:
Common stock 110,239 96,929
Deferred compensation (2) (43)
Accumulated components of comprehensive income 36 124
Retained earnings 5,170 1,769
----------- -----------
Total stockholders' equity 115,443 98,779
----------- -----------
Total liabilities and stockholders' equity $ 163,777 $ 135,904
=========== ===========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE> 28
Aspect Development, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues
Licenses $ 20,126 $ 4,932
Subscription and maintenance 8,451 5,406
Service and other 6,823 4,038
----------- -----------
Total revenues 35,400 14,376
----------- -----------
Cost of revenues
Licenses 605 162
Subscription and maintenance 1,489 1,051
Service and other 3,705 1,767
----------- -----------
Total cost of revenues 5,799 2,980
----------- -----------
Gross profit 29,601 11,396
Operating expenses:
Research and development 7,299 4,619
Sales and marketing 15,407 7,983
General and administrative 3,918 2,161
----------- -----------
Total operating expenses 26,624 14,763
----------- -----------
Operating income (loss) 2,977 (3,367)
Interest and other income, net 1,384 3,805
----------- -----------
Income before income taxes 4,361 438
Provision for income taxes 960 113
----------- -----------
Net income $ 3,401 $ 325
=========== ===========
Net income per share-basic $ 0.06 $ 0.01
=========== ===========
Net income per share-diluted $ 0.04 $ 0.00
=========== ===========
Number of shares used in computing per share
amounts-basic 60,299 62,038
=========== ===========
Number of shares used in computing per share
amounts-diluted 76,972 67,052
=========== ===========
Supplemental diluted earnings per share
excluding Infinite Supply* $ 0.06 $ 0.00
=========== ===========
</TABLE>
* Infinite Supply is a subsidiary created in Q3, 1999.
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE> 29
Aspect Development, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,401 $ 325
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,547 1,397
Loss in joint ventures -- (153)
Compensation expense 41 42
Provision for allowance for doubtful accounts (167) 50
Changes in operating assets and liabilities:
Accounts receivable (4,217) 4,212
Prepaid expenses and other current assets (620) 1,364
Other assets (540) (756)
Accounts payable (885) (429)
Accrued bonuses and commissions (766) (35)
Income taxes payable 3,051 (779)
Other accrued liabilities 3,768 (521)
Deferred revenue 6,041 (235)
---------- ----------
Net cash provided by operating activities 10,654 4,482
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (1,641) (1,069)
Purchases of short-term investments (19,538) (89,571)
Maturities of short-term investments 40,607 80,222
Purchase of long-term investment (2,733) --
---------- ----------
Net cash provided by (used in) investing activities 16,695 (10,418)
---------- ----------
Cash flows from financing activities:
Principal payments on capital lease obligations -- (17)
Sale of common stock 13,310 2,804
---------- ----------
Net cash provided by financing activities 13,310 2,787
---------- ----------
Net increase (decrease) in cash and cash equivalents 40,659 (3,149)
Exchange rate impact on cash (45) 121
Cash and cash equivalents at beginning of period 28,872 7,877
---------- ----------
Cash and cash equivalents at end of period $ 69,486 $ 4,849
========== ==========
Supplemental disclosure of cash flow information
Income taxes paid $ 12 $ 658
========== ==========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE> 30
ASPECT DEVELOPMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed consolidated financial statements included herein
have been prepared by Aspect Development, Inc. ("Aspect" or the "Company"). In
the opinion of management, such financial statements include all normal
recurring adjustments and accruals which are necessary to fairly state the
Company's consolidated financial position, results of operations and cash flows
for the periods presented. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto as included in the Company's Form 10-K for the fiscal year ended
December 31, 1999. The consolidated results of operations for the quarter ended
March 31, 2000 are not necessarily indicative of the results to be expected for
any subsequent interim or annual period.
The condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Investments in joint ventures
are accounted for by the equity method. Under such method, the Company's share
of net earnings or losses is included in interest and other income, net, in the
condensed consolidated statements of operations unless the investment is fully
written down and no commitments exist for additional funding.
Assets and liabilities of the Company and its wholly-owned foreign
subsidiaries are translated from the local currency to United States dollars at
period-end exchange rates. Income and expense items are translated on a monthly
basis at the average rates of exchange prevailing during the month. The
adjustment resulting from translating the assets and liabilities of the Company
and its foreign subsidiaries is reflected in accumulated components of
comprehensive income within stockholders' equity. Foreign currency transaction
gains and losses are included in the results of operations and were immaterial
for all periods presented.
Certain March 31, 1999 amounts have been reclassified to conform to the
current year presentation.
On February 15, 2000 the Board of Directors authorized a two-for-one stock
split of the Company's common stock, in the form of a 100% stock dividend. The
stock split was effected by distribution to each stockholder of record as of
February 25, 2000 of one share of the Company's common stock for each share of
common stock held, and was paid on March 10, 2000. The financial information
included in the accompanying financial statements give effect to the stock
split.
Recent Developments
In January 2000, the Company announced that it had signed a definitive
agreement to acquire TACTech, Inc. Under the terms of the agreement, TACTech
shareholders will receive 0.6647302 shares of Aspect common stock for each
TACTech share of common stock, for a total purchase price of approximately
$16.1 million. The signed definitive agreement will require the approval of
TACTech's shareholders, expected to be completed in May 2000, and will be
accounted for by Aspect as a purchase.
On March 13, 2000, i2 Technologies, Inc. and the Company announced a
definitive agreement to merge in a stock-for-stock transaction valued at $9.3
billion. Under the terms of the agreement, i2 will acquire all outstanding
stock and options of the Company in exchange for 0.55 shares of common stock of
i2 for each share of Aspect common stock. The merger has been unanimously
approved by
<PAGE> 31
the boards of directors of both companies. On May 3, 2000, i2 Technologies,
Inc. and the Company announced that the Federal Trade Commission granted early
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act. In addition, the SEC notified both companies of a "no review"
decision with respect to the S-4 Registration Statement filed by i2 on April
18, 2000. There are no other regulatory approvals anticipated.
Shareholder approval is required by shareholders of both companies at
shareholder meetings to be held on June 8, 2000. Pending shareholder approval,
the merger is expected to close before June 30, 2000.
2. Revenue Recognition
License revenues are comprised of perpetual license fees, and are
recognized as revenue after execution of a license agreement or receipt of a
definitive purchase order, shipment of the product has occurred, vendor
specific objective evidence exists to allocate the fee from the arrangement
between delivered and undelivered elements, and collection of the resulting
receivables is deemed probable. For arrangements involving multiple products
and services, the entire arrangement is allocated among the elements based on
each element's relative value. Product returns and sales allowances (which were
not significant through March 31, 2000) are estimated and provided for at the
time of sale. When delivery involves significant installation obligations at
multiple sites, revenues are recognized on a per-site basis upon completion of
installation.
Revenues from subscription and maintenance agreements are deferred and
recognized on a straight-line basis over the life of the related agreement,
which is typically one year.
Service and other revenues are comprised of data services, process
consulting and training fees. These revenues are recognized upon completion of
the work performed.
3. Comprehensive Income
Comprehensive income, net of related tax, for the three months ended March
31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
------------- -------------
<S> <C> <C>
(In thousands)
Net income $ 3,401 $ 325
Unrealized loss on investments (43) -
Foreign currency translation adjustment (45) 121
------------ -------------
Comprehensive income $ 3,313 $ 446
============ =============
</TABLE>
4. Net Income Per Share
Basic net income per share is computed using the weighted average number
of common shares outstanding during the period. Diluted net income per share is
computed using the weighted average number of common shares outstanding plus
the dilutive effect of outstanding stock options and the employee stock
purchase plan using the "treasury stock" method.
The following is a reconciliation of the weighted average common shares
used to calculate basic net income per share to the weighted average common and
common equivalent shares used to calculate diluted net income per share for the
three months ended March 31, 2000 and 1999 (in thousands):
<PAGE> 32
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
-------- --------
<S> <C> <C>
Diluted:
Weighted average common shares outstanding 60,299 62,038
Common stock equivalents (treasury stock method) 16,673 5,014
-------------- ------------
Total weighted average common and common equivalent
shares outstanding 76,972 67,052
============== ============
</TABLE>
5. Joint Venture
The Company entered into a limited liability company joint venture
agreement with CMP Media Inc. ("CMP"), dated April 4, 1997. The joint venture,
ChipCenter LLC (formerly EDTN), was established to provide news, promotional
materials, literature, product data, reference material, application
information tutorials, seminars, product and software demonstrations and other
services through the Internet and corporate intranets to electronic systems
designers and purchasing managers. Initially, the ownership of the joint
venture was shared equally between the Company and CMP.
In March 1999, both the Company and CMP sold approximately one-third of
their respective interests in the joint venture to a third party. In connection
with this sale, the Company recorded a $3 million gain during the quarter, which
is recorded in interest and other income, net. Subsequently in 1999, each of the
three partners sold approximately one-fourth of their respective interests to a
fourth party in return for its cash contribution to the joint venture.
The Company's share of net earnings or losses from the joint venture is
included in interest and other income, net, in the consolidated statements of
operations. During the second quarter of 1999, the interest in the joint
venture was fully written down and no commitments existed for additional
funding. As a result, the Company no longer recognizes net earnings or losses
in the consolidated statements of operations. In the three months ended March
31, 1999, the Company's share of losses in the joint venture amounted to
$128,000.
6. Infinite Supply
Infinite Supply is a wholly-owned subsidiary of Aspect which was founded
in the third quarter of 1999. Infinite Supply's mission is to be a leading
global Commerce Services Provider, providing content and application software
services for B2B portals, marketplaces and trade exchanges.
Revenues for the three months ended March 31, 2000 were $490,000 and the
operating expenses totaled $1,482,000. Infinite Supply had a net loss in the
first quarter of fiscal 2000 of $1,057,000 or $0.01 per diluted share.
7. Industry Segment Information
The Company is organized based upon the nature of the products and
services it offers. Under this organizational structure, the Company operates
in three business segments: licenses, subscriptions and maintenance, and
service. The Company evaluates its segments' performance based on several
factors, including total revenues and gross profit. The Company does not
allocate or report financial operations by segment beyond revenue and cost of
revenue, nor does it allocate long-term assets by business segment. No
additional segment information is reported in this footnote as required segment
disclosures are included in the Consolidated Statements of Operations.
<PAGE> 33
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On March 12, 2000, i2 Technologies, Inc. ("i2") entered into a
definitive agreement to acquire Aspect Development, Inc. ("Aspect") in a
transaction to be accounted for as a purchase. This transaction was completed on
June 9, 2000. Under the agreement, i2 acquired all of the outstanding capital
stock of Aspect and assumed all outstanding options and employee stock purchase
plan obligations of Aspect in exchange for approximately 48 million shares of i2
common stock and stock options valued at approximately $8.8 billion, including
acquisition expenses.
The following unaudited pro forma combined financial statements of i2
give effect to i2's acquisition of Aspect accounted for under the purchase
method of accounting. This information is based on preliminary valuations of the
fair market value of assets and liabilities acquired and the estimated useful
lives of intangible assets acquired in the respective transactions and are
subject to change pending finalization of the valuations.
The unaudited pro forma combined balance sheet of i2 as of March 31,
2000 assumes that the acquisition of Aspect took place on March 31, 2000, and
combines i2's historical consolidated balance sheet with Aspect's historical
consolidated balance sheet as of March 31, 2000, before pro forma adjustments.
The unaudited pro forma combined statement of operations for the year ending
December 31, 1999 assumes that i2's acquisition of Aspect took place as of
January 1, 1999 and combines i2's historical consolidated statement of
operations for the year ended December 31, 1999 with Aspect's historical
consolidated statement of operations for the year ended December 31, 1999,
before pro forma adjustments. The unaudited pro forma combined statement of
operations for the three months ended March 31, 2000 assumes that i2's
acquisition of Aspect took place as of January 1, 2000 and combines i2's
historical consolidated statement of operations for the three months ended March
31, 2000 with Aspect's historical consolidated statement of operations for the
three months ended March 31, 2000, before pro forma adjustments.
The unaudited pro forma financial statements are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the acquired assets or companies been
operated as a single entity during the period presented. The pro forma
adjustments are based on estimates, available information and various
assumptions and may be revised as additional information becomes available. The
unaudited pro forma combined financial statements as of and for the year ended
December 31, 1999 and the unaudited pro forma combined financial statements as
of and for the three months ended March 31, 2000 should be read in conjunction
with the other financial statements and notes thereto included elsewhere or
incorporated by reference in this current report.
i2 estimates that it will incur approximately $39.5 million in direct
expenses in connection with its acquisition of Aspect, which will be capitalized
as part of the purchase price in such transactions and amortized over three
years. The transaction costs consist of fees for investment bankers, attorneys,
accountants, financial printing costs and other related expenses. i2 cannot
assure you that it will not incur additional expenses in subsequent quarters to
reflect costs associated with the completed acquisitions.
<PAGE> 34
i2 AND ASPECT
TABLE OF CONTENTS FOR UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited combined balance sheet as of March 31, 2000 F-1
Unaudited combined statement of operations for the period ended December 31, 1999 F-2
Unaudited combined statement of operations for three months ended March 31, 2000 F-3
Notes to unaudited combined financial statements F-4
</TABLE>
<PAGE> 35
i2 AND ASPECT
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
i2 ASPECT ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 456,936 $ 69,486 $ -- $ 526,422
Short-term investments ........................... 181,464 26,220 -- 207,684
Accounts receivable .............................. 187,065 33,093 -- 220,158
Prepaids and other current assets ................ 44,288 16,504 -- 60,792
------------ ------------ ------------ ------------
Total current assets ......................... 869,753 145,303 -- 1,015,056
Furniture and equipment, net ......................... 59,907 12,436 -- 72,343
Other assets ......................................... 83,474 6,038 -- 89,512
Goodwill and intangible assets ....................... 246,880 -- 8,607,417(a) 8,934,922
80,625(d)
------------ ------------ ------------ ------------
Total assets ................................. $ 1,260,014 $ 163,777 $ 8,688,042 $ 10,111,833
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 22,471 $ 2,336 $ -- $ 24,807
Accrued liabilities and deferred income taxes .... 114,315 19,459 39,500(b) 253,899
80,625(d)
Income taxes payable ............................. 6,584 6,914 -- 13,498
Deferred revenue ................................. 136,689 19,625 -- 156,314
------------ ------------ ------------ ------------
Total current liabilities .................... 280,059 48,334 120,125 448,518
Long-term debt ....................................... 350,000 -- -- 350,000
------------ ------------ ------------ ------------
Total liabilities ............................ 630,059 48,334 120,125 798,518
============ ============ ============ ============
Commitments and contingencies
Stockholders' equity:
Common stock ..................................... 39 -- 8 (c) 47
Additional paid-in capital ....................... 584,008 110,237 (110,237)(c) 9,350,360
8,766,352 (c)
Accumulated other comprehensive loss ............. (4,209) 36 (36)(c) (4,209)
Retained earnings (deficit) ...................... 50,117 5,170 (88,170)(c) (32,883)
------------ ------------ ------------ ------------
Total stockholders' equity ................... 629,955 115,443 8,567,917 9,313,315
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity ... $ 1,260,014 $ 163,777 $ 8,688,042 $ 10,111,833
============ ============ ============ ============
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
F-1
<PAGE> 36
i2 AND ASPECT
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
i2 ASPECT ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses ........................................... $ 352,597 $ 52,440 $ -- $ 405,037
Services .................................................... 147,893 18,191 -- 166,084
Maintenance ................................................. 70,620 24,514 -- 95,134
----------- ----------- ----------- -----------
Total revenues ......................................... 571,110 95,145 -- 666,255
Costs and expenses:
Cost of software licenses ................................... 17,981 1,152 $ -- 19,133
Cost of services and maintenance ............................ 125,934 14,398 -- 140,332
Sales and marketing ......................................... 194,752 44,625 -- 239,377
Research and development .................................... 132,278 20,061 -- 152,339
General and administrative .................................. 53,188 11,136 -- 64,324
Amortization of goodwill and intangible assets .............. -- -- 2,883,972(e) 2,883,972
-- -- 26,875(f) 26,875
In-process research and development and acquisition-related
expenses ................................................. 6,552 -- -- 6,552
----------- ----------- ----------- -----------
Total costs and expenses ............................... 530,685 91,372 2,910,847 3,532,904
----------- ----------- ----------- -----------
Operating income (loss) ......................................... 40,425 3,773 (2,910,847) (2,866,649)
Other income, net ............................................... 7,642 6,238 -- 13,880
----------- ----------- ----------- -----------
Income before income taxes ...................................... 48,067 10,011 (2,910,847) (2,852,769)
Provision for income taxes ...................................... 24,552 2,212 (26,875)(f) 111
----------- ----------- ----------- -----------
Net income (loss) ............................................... $ 23,515 $ 7,799 $(2,883,972) $(2,852,658)
=========== =========== =========== ===========
Net income (loss) per share ..................................... $ 0.16 $ -- $ -- $ (15.49)
=========== =========== =========== ===========
Net income (loss) per share, assuming dilution .................. $ 0.14 $ -- $ -- $ (15.49)
=========== =========== =========== ===========
Weighted average common shares outstanding ...................... 150,419 184,192
Weighted average common shares outstanding, assuming dilution ... 167,839 184,192
Comprehensive income:
Net income .................................................. $ 23,515 $ 7,799 $(2,883,972) $(2,852,658)
Foreign currency translation adjustments, and unrealized loss
on investments net of income tax ......................... (3,293) 112 -- (3,181)
----------- ----------- ----------- -----------
Total comprehensive income ...................................... $ 20,222 $ 7,911 $(2,883,972) $(2,855,839)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
F-2
<PAGE> 37
i2 AND ASPECT
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
i2 ASPECT ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Software licenses ............................................ $ 113,584 $ 20,126 $ -- $ 133,710
Services ..................................................... 46,870 6,823 -- 53,693
Maintenance .................................................. 25,826 8,451 -- 34,277
---------- ---------- ---------- ----------
Total revenues .......................................... 186,280 35,400 -- 221,680
Costs and expenses:
Cost of software licenses .................................... 5,366 605 $ -- 5,971
Cost of services and maintenance ............................. 41,072 5,194 -- 46,266
Sales and marketing .......................................... 66,210 15,407 -- 81,617
Research and development ..................................... 39,846 7,299 -- 47,145
General and administrative ................................... 16,607 3,918 -- 20,525
Amortization of goodwill and intangible assets ............... -- -- 720,993(e) 720,993
6,719(f) 6,719
In-process research and development and acquisition-related
expenses .................................................. 557 -- -- 557
---------- ---------- ---------- ----------
Total costs and expenses ................................ 169,658 32,423 727,712 929,793
---------- ---------- ---------- ----------
Operating income (loss) .......................................... 16,622 2,977 (727,712) (708,113)
Other income, net ................................................ 2,499 1,384 3,883
---------- ---------- ---------- ----------
Income before income taxes ....................................... 19,121 4,361 (727,712) (704,230)
Provision for income taxes ....................................... 7,380 960 (6,719)(f) 1,621
---------- ---------- ---------- ----------
Net income (loss) ................................................ $ 11,741 $ 3,401 $ (720,993) $ (705,851)
========== ========== ========== ==========
Net income (loss) per share ...................................... $ 0.08 $ -- $ -- $ (3.71)
========== ========== ========== ==========
Net income (loss) per share, assuming dilution ................... $ 0.06 $ -- $ -- $ (3.71)
========== ========== ========== ==========
Weighted average common shares outstanding ....................... 156,500 190,273
Weighted average common shares outstanding, assuming dilution .... 183,025 190,273
Comprehensive income:
Net income ................................................... $ 11,741 $ 3,401 $ (720,993) $ (705,851)
Unrealized loss on investments ............................... -- (43) -- (43)
Foreign currency translation adjustment ...................... 83 (45) -- 38
---------- ---------- ---------- ----------
Total comprehensive income ....................................... $ 11,824 $ 3,313 $ (720,993) $ (705,856)
========== ========== ========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
F-3
<PAGE> 38
i2 AND ASPECT
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The total purchase price of Aspect reflects the issuance of approximately 48
million shares of i2 common stock, stock options and employee stock purchase
plan obligations. The total purchase price was determined as follows (in
thousands):
<TABLE>
<S> <C>
Value of shares of i2 common stock
options issued and employee stock purchase plan obligations.................. $ 8,766,360
Other direct acquisition expenses................................................ 39,500
-----------
$ 8,805,860
===========
</TABLE>
The valuation of the i2 common stock is based on its weighted average closing
price three days prior to and three days following the announcement of the
acquisition.
The total purchase price of the Aspect acquisition has been allocated to
acquired assets based on estimates of their fair value. The purchase price of
approximately $8.8 billion has been assigned to the assets acquired as follows
(in thousands):
<TABLE>
<CAPTION>
As of March 31, 2000
--------------------
<S> <C>
Net assets assumed..................................... $ 115,443
Acquired in process research and development........... 83,000
Acquired developed technology.......................... 79,000
Content database....................................... 84,000
Installed customer base................................ 42,000
Assembled workforce.................................... 10,000
Goodwill............................................... 8,392,417
-----------
$ 8,805,860
===========
</TABLE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
(a) To reflect the allocation of the purchase price to intangible assets.
(b) To reflect the direct expenses incurred as a result of the acquisition.
(c) To reflect (1) the elimination of Aspect's stockholders' equity upon
consolidation with i2 Technologies, (2) to adjust for the write off of
in-process research and development, and (3) to reflect the i2 common
stock issued and options assumed and the related additional paid in
capital.
(d) To reflect the goodwill and deferred tax liabilities related to the
$215 million of non-deductible intangible assets acquired, listed in
the table above excluding goodwill, based on an effective tax rate of
37.5%.
<PAGE> 39
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(e) To reflect the approximately $2.9 billion of amortization of intangible
assets for the period ended December 31, 1999, and the approximately
$721 million of amortization of intangible assets for the three months
ended March 31, 2000. The intangible assets will be amortized ratably
over the estimated lives of the assets, ranging from two to three
years. The assets are to amortized as follows:
<TABLE>
<CAPTION>
YRS
<S> <C>
Acquired developed technology....................... 2
Content database.................................... 3
Installed customer base............................. 3
Assembled workforce................................. 2
Goodwill............................................ 3
</TABLE>
(f) To reflect the amortization of the deferred tax liabilities recorded
for non-deductible intangible assets acquired.
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 - Agreement and Plan of Reorganization, dated March 12,
2000, by and among i2 Technologies, Inc., Hoya Merger
Corp. and Aspect Development, Inc.
10.1 - Employment and Non-Compete Agreement, dated June 9, 2000, by
and between i2 Technologies, Inc. and Robert L. Evans.
10.2 - Employment and Non-Compete Agreement, dated June 9, 2000, by
and between i2 Technologies, Inc. and Romesh T. Wadhwani.
23.1 - Consent of Arthur Andersen LLP with respect to
Aspect's financial statements.
23.2 - Consent of Ernst & Young LLP with respect to Aspect's
financial statements.
99.1 - Press Release of i2 Technologies, Inc. dated June 9, 2000
(announcing the completion of the Merger).
</TABLE>
