<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-22154
MANUGISTICS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1469385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2115 EAST JEFFERSON STREET, ROCKVILLE, MARYLAND 20852
(Address of principal executive offices) (Zip code)
</TABLE>
(301) 984-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------------ ------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 10,702,838 shares of common
stock, $.002 par value per share, as of October 4, 1996.
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MANUGISTICS GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
August 31, 1996 and February 29, 1996 3
Condensed Consolidated Statements of Income -
Three and Six months ended August 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Three and Six months ended August 31, 1996 and 1995 5
Notes to Consolidated Financial Statements - August 31, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security-Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
August 31, February 29,
1996 1996
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,652 $ 4,921
Marketable securities 15,443 18,558
Accounts receivable (net of allowance for returns and uncollectible 20,753 19,281
accounts - August 31, 1996, $1,368; February 29, 1996, $711)
Inventory 368 549
Deferred tax asset 1,991 809
Other current assets 671 805
---------- ---------
Total current assets 42,878 44,923
PROPERTY AND EQUIPMENT - NET 7,867 6,046
NONCURRENT ASSETS:
Capitalized software costs - net 7,983 6,084
Intangibles - net 2,678 2,927
Other noncurrent assets 442 451
---------- ---------
TOTAL $ 61,848 $ 60,431
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,255 $ 3,282
Other accrued expenses 5,901 4,911
Deferred revenue 7,295 6,652
Current portion of long-term debt 243 155
Income taxes payable 626 722
---------- ---------
Total current liabilities 15,320 15,722
LONG-TERM DEBT 348 182
DEFERRED INCOME TAXES 2,599 1,585
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,750,000 authorized; none issued -- --
Common stock, $.002 par value; 30,000,000 shares authorized;
shares issued, 11,062,943 at August 31, 1996; 10,846,502 at
February 29, 1996; shares outstanding, 10,672,688 at August 31,
1996; 10,456,247 at February 29, 1996 22 22
Additional paid-in capital 34,816 33,131
Retained earnings 9,497 10,628
Translation adjustment (10) (95)
Treasury stock - 390,255 shares, at cost (744) (744)
---------- ---------
Total stockholders' equity 43,581 42,942
---------- ---------
TOTAL $ 61,848 $ 60,431
========== =========
</TABLE>
See accompanying notes to the financial statements.
3
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MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
August 31, August 31,
---------------------- ----------------------
1996 1995 1996 1995
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Software products $ 10,376 $ 6,230 $ 19,109 $ 12,159
Consulting, maintenance
and other services 10,559 7,905 20,267 15,443
--------- ---------- --------- ---------
Total revenues 20,935 14,135 39,376 27,602
--------- ---------- --------- ---------
OPERATING EXPENSES:
Cost of software sold 893 727 2,237 1,379
Cost of consulting, maintenance
and other services 4,621 3,458 8,663 6,758
Sales and marketing 7,287 5,096 13,420 9,987
Product development 3,996 2,331 7,553 4,529
General and administrative 2,014 1,315 3,752 2,650
Purchased research and development - - 3,697 -
--------- ---------- --------- ---------
Total operating expenses 18,811 12,927 39,322 25,303
--------- ---------- --------- ---------
INCOME FROM OPERATIONS 2,124 1,208 54 2,299
OTHER INCOME (EXPENSE):
Interest income 274 303 525 592
Interest expense (13) (21) (29) (36)
Other (17) 7 (35) 67
--------- ---------- --------- ---------
Total other income 244 289 461 623
--------- ---------- --------- ---------
INCOME BEFORE INCOME TAXES 2,368 1,497 515 2,922
PROVISION FOR INCOME TAXES 921 569 1,646 1,114
--------- ---------- --------- ---------
NET INCOME (LOSS) $ 1,447 $ 928 $ (1,131) $ 1,808
========= ========== ========= =========
EARNINGS (LOSS) PER SHARE $ 0.13 $ 0.09 $ (0.11) $ 0.17
========= ========== ========= =========
WEIGHTED AVERAGE COMMON
SHARES AND EQUIVALENT SHARES
OUTSTANDING 11,189 10,819 10,546 10,742
========= ========== ========= =========
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE> 5
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended August 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,131) $ 1,808
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization 3,773 2,005
Write off of purchased research and development 3,697 -
Deferred income taxes 432 121
Other 28 34
Changes in assets and liabilities:
Accounts receivable (1,335) 1,629
Inventory 181 10
Other current assets 137 (199)
Other noncurrent assets 19 10
Accounts payable and accrued expenses (2,034) (1,086)
Income taxes payable 810 534
Deferred revenue (114) 31
----------- -----------
Net cash provided by operating activities 4,463 4,897
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Avyx, Inc. (3,582) -
Purchase of property and equipment (2,660) (1,963)
Capitalization of computer software development costs (3,093) (1,883)
Purchase of software licenses (669) (19)
Sale of marketable securities 5,414 807
Purchase of marketable securities (2,299) (1,202)
----------- -----------
Net cash used in investing activities (6,889) (4,260)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (104) (59)
Proceeds from stock options and stock purchases 1,218 478
----------- -----------
Net cash provided by financing activities 1,114 419
----------- -----------
EFFECTS OF EXCHANGE RATES ON CASH BALANCES 43 (78)
----------- -----------
NET (DECREASE) INCREASE IN CASH (1,269) 978
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,921 4,599
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,652 $ 5,577
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE> 6
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 31, 1996
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
reporting and in accordance with the instructions to the Quarterly
Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
only of normal, recurring adjustments) which are necessary for a fair
presentation of the unaudited results for the interim periods
presented have been included. The results of operations for the
periods presented herein are not necessarily indicative of the results
of operations for the entire fiscal year, which ends on February 28,
1997.
These consolidated financial statements should be read in conjunction
with the financial statements and notes thereto for the fiscal year
ended February 29, 1996, included in the Company's Annual Report on
Form 10-K for that year.
2. Acquisition of Avyx, Inc.
On May 24, 1996, the Company acquired by merger Avyx, Inc., a custom
developer and services provider of manufacturing scheduling software,
based in Colorado. The total purchase price was $3,799,000, primarily
comprised of cash, assumed liabilities, and acquisition costs.
The acquisition was accounted for as a purchase. Accordingly, the
purchase price was preliminarily allocated among the identifiable
tangible assets and liabilities based on their respective fair market
values. In addition, the purchase price was also preliminarily
allocated to certain intangible assets, such as existing software
products which had reached technological feasibility, and in-process
software development efforts which had not reached technological
feasibility ("purchased reseach and development"). The excess of
purchase price over these estimated fair values of the net assets
acquired was accounted for as goodwill.
The preliminary allocation resulted in $3,697,000 of the transaction
value being allocated to purchased research and development costs.
The amount was charged to operations in the quarter ended May 31,
1996. Along with the purchased research and development, amounts were
allocated to existing software products and goodwill. Such amounts
will be amortized on a straight-line basis over five years.
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<PAGE> 7
Consolidated pro forma revenues, income, and earnings per share would
not have been materially different from the reported amounts for the
six months ended August 31, 1996 and 1995, excluding the one-time
charge for purchased research and development costs. Such pro forma
amounts are not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisition had been
effective at the beginning of fiscal 1996.
In addition, the Company entered into a three-year non-compete
agreement with two of the principals of Avyx, Inc., who did not become
employees of the Company, in exchange for an option to purchase 30,000
shares of the Company's common stock. The agreement was valued at
$217,000, which represents the estimated fair value of the stock
options issued, and will be amortized over the life of the agreement.
3. Supplemental Cash Flow Information
Cash paid for interest amounted to approximately $20,000 and $24,000
for the six months ended August 31, 1996 and 1995, respectively. Cash
paid for income taxes amounted to approximately $1,035,000 and
$459,000 for the six months ended August 31, 1996 and 1995,
respectively.
Supplemental information of noncash investing and financing activities
is as follows:
During the quarter ended May 31, 1996, $345,000 relating to a leased
asset and obligation was capitalized.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company develops, markets and supports supply chain management
software products and services. Supply chain management refers to managing the
complex interactions involved in the flows of products across the supply chain
- -- from raw materials procurement, through the manufacturing and distribution
processes, to delivery as finished goods to customers. The Company's supply
chain management software assists managers in forecasting product demand and in
planning for the synchronization of distribution, manufacturing and
transportation of products and related logistics, not only across an entire
enterprise, but also among an enterprise and its suppliers and customers. The
Company believes it is the only provider of integrated supply chain planning
and decision-making software products that address the four key areas of supply
chain management: demand planning, supply planning, manufacturing scheduling
and transportation planning. Additionally, the Company markets and supports the
STATGRAPHICS personal systems product, which provides statistical tools for
quality management in manufacturing companies. Revenues from supply chain
management software and services represented approximately 96% and 89% of total
revenues during the quarters ended August 31, 1996 and 1995, respectively.
RESULTS OF OPERATIONS
REVENUES:
Software products. The Company's software products license revenues
increased primarily because the Company was successful in stimulating increased
demand and in closing licensing transactions for supply chain management
software products, and because of increased market acceptance of such products.
These factors more than offset decreased revenues from the personal systems
software product. Although the percentage of total revenues represented by
software products revenues has varied in the past and is likely to continue to
vary, for the quarter ended August 31, 1996, software products revenues
increased to 50% of total revenues. This increase resulted principally from the
fact that software products revenues increased at a greater rate than
consulting, maintenance and other services revenues.
<TABLE>
<CAPTION>
Software products revenues Three months ended Six months ended
------------------------------------ ------------------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 Change 1995 1996 Change 1995
---------- ------- ------------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Supply chain management $ 9,670 101% $ 4,812 $ 17,730 82% $ 9,754
Percentage of total revenues 46.2% 34.0% 45.0% 35.3%
Personal systems $ 706 -50% $ 1,418 $ 1,379 -43% $ 2,405
Percentage of total revenues 3.4% 10.0% 3.5% 8.7%
---------- --------- ----------- --------
Total software products revenues $ 10,376 67% $ 6,230 $ 19,109 57% $ 12,159
Percentage of total revenues 49.6% 44.1% 48.5% 44.0%
</TABLE>
Supply chain management. Software products license revenues increased
101% in the quarter ended August 31, 1996 from the quarter ended August 31,
1995 largely because some of the Company's sales productivity initiatives began
to generate results and because of increases in revenues from the Company's
international subsidiaries. In addition, revenues increased because of
increased market acceptance of the Company's products, which resulted from the
recognition
8
<PAGE> 9
by prospects and clients that they could rapidly realize significant benefits
from effective supply chain management. These companies licensed the Company's
software to help them obtain these benefits.
Software products license revenues increased 82% for the six months
ended August 31, 1996 from the six months ended August 31, 1995 because of
increases in the number of licenses and the average license fee per
transaction. These increases resulted in part from an increase in the Company's
sales and marketing efforts and sales productivity and from increased market
acceptance. Also, the Company's European operations and new distribution
channels made material contributions to total software products license
revenues during the six month period.
Personal systems. Software products license revenues decreased in the
quarter and six months ended August 31, 1996 from the quarter and six months
ended August 31, 1995 primarily because customers and prospective customers
selected competing products and because the Company sold the assets of its
APL*PLUS business for UNIX and personal computer systems effective October 1,
1995. Following this disposition, the number of employees involved with
personal systems products has decreased and the Company is only continuing to
market one personal systems product, STATGRAPHICS. Management of the Company
believes that demand for STATGRAPHICS will continue to decrease.
Consulting, maintenance and other services. Revenues from consulting,
maintenance and other services increased principally as a result of increased
demand for supply chain management consulting and maintenance services from a
growing base of customers that have licensed the Company's supply chain
management software.
<TABLE>
<CAPTION>
Consulting, maintenance and Three months ended Six months ended
other services ---------------------------------- ---------------------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 Change 1995 1996 Change 1995
----------- --------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Supply chain management 10,348 37% 7,579 19,829 34% 14,747
Percentage of total revenues 49.4% 53.6% 50.4% 53.4%
Personal systems $ 211 -35% $ 326 $ 438 -37% $ 696
Percentage of total revenues 1.1% 2.3% 1.1% 2.5%
---------- ---------- ---------- ---------
Total consulting, maintenance
and other services $ 10,559 34% $ 7,905 $ 20,267 31% $ 15,443
Percentage of total revenues 50.4% 55.9% 51.5% 55.9%
</TABLE>
Supply chain management. Revenues from consulting and other services
increased in conjunction with the licensing of software products by new and
existing clients and the purchase of additional services by established
clients.
Maintenance revenues have increased following the increase in the
installed base of customers that have licensed the Company's software products
and entered into maintenance contracts. Maintenance revenues tend to track
software products sold in prior periods. In the past few years, approximately
90% to 95% of customers that have maintenance contracts have renewed these
contracts.
Personal systems. Consulting, maintenance and other services revenues
decreased primarily because of a decline in maintenance revenues, which
decreased largely because the Company, consistent with its decision to focus on
its supply chain management business and in
9
<PAGE> 10
response to decreased demand for personal systems products, disposed of the
assets of its APL*PLUS business for UNIX and personal computer systems in
October 1995.
OPERATING EXPENSES:
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------------------ -------------------------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 Change 1995 1996 Change 1995
--------------- -------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cost of software sold $ 893 23% $ 727 $ 2,237 62% $ 1,379
Percentage of total revenues 4.3% 5.1% 5.7% 5.0%
Cost of consulting, maintenance,
and other services $ 4,621 34% $ 3,458 $ 8,663 28% $ 6,758
Percentage of total revenues 22.1% 24.5% 22.0% 24.5%
Sales and marketing $ 7,287 43% $ 5,096 $ 13,420 34% $ 9,987
Percentage of total revenues 34.8% 36.1% 34.1% 36.2%
Product development $ 3,996 71% $ 2,331 $ 7,553 67% $ 4,529
Percentage of total revenues 19.1% 16.5% 19.2% 16.4%
General and administrative $ 2,014 53% $ 1,315 $ 3,752 42% $ 2,650
Percentage of total revenues 9.6% 9.3% 9.5% 9.6%
In-process research and development $ - N/M $ - $ 3,697 N/M $ -
Percentage of total revenues 0.0% 0.0% 9.4% 0.0%
----------- ---------- ---------- ----------
Total operating expenses $ 18,811 46% $ 12,927 $ 39,322 55% $ 25,303
Percentage of total revenues 89.9% 91.5% 99.9% 91.7%
</TABLE>
Cost of software sold. Cost of software sold includes 1) amortization
of capitalized software development costs and 2) cost of goods and other. The
Company amortizes capitalized software development costs over a product's
estimated economic life, generally two years or less, commencing when a product
is available for general commercial release.
<TABLE>
<CAPTION>
Cost of software sold Three months ended Six months ended
---------------------------------- --------------------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 Change 1995 1996 Change 1995
---------- ------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Amortization of capitalized software $ 782 51% $ 518 $ 1,784 82% $ 982
Percentage of software products revenues 7.5% 8.3% 9.3% 8.1%
Cost of goods and other $ 111 -47% $ 209 $ 453 14% $ 397
Percentage of software products revenues 1.1% 3.4% 2.4% 3.3%
-------- --------- -------- ---------
Cost of software sold $ 893 23% $ 727 $ 2,237 62% $ 1,379
Percentage of software products revenues 8.6% 11.7% 11.7% 11.4%
</TABLE>
The cost of software sold increased primarily because amortization
increased following the general commercial release of additional supply chain
management software products for which costs had previously been capitalized.
The amount of capitalized software development costs has increased in recent
periods as the Company has increased its gross product development expenditures
for supply chain management software. See "Results of Operations -- Product
Development." Cost of goods and other expenses decreased largely because of
decreases in the number of units and the cost per unit of personal systems
software products that were sold. The decrease in the number of units sold
resulted in part from the disposition of the Company's APL*PLUS business for
UNIX and personal computer systems in October 1995. See "Results of Operations
- -- Revenues."
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<PAGE> 11
The cost of software sold decreased as a percentage of software
products revenues in the quarter ended August 31, 1996 from the quarter ended
August 31, 1995 largely because software products revenues increased more
rapidly than the cost of software sold. The cost of software sold increased as
a percentage of software products revenues in the six month period ended August
31, 1996 compared to the six month period ended August 31, 1995 principally
because the Company took some one-time write-offs during the first quarter for
obsolete and slow-moving inventory, and the amounts of these write-offs caused
the cost of software sold to increase at a greater rate than software products
revenues.
Cost of consulting, maintenance and other services. The cost of
consulting, maintenance and other services increased in the quarter ended
August 31, 1996 from the quarter ended August 31, 1995 primarily because the
Company added personnel to provide the consulting services that generated the
corresponding increase in supply chain management revenues from consulting,
maintenance and other services.
As a percentage of consulting, maintenance and other services
revenues, the cost of consulting, maintenance and other services remained
approximately the same in the quarter ended August 31, 1996 as compared to the
quarter ended August 31, 1995 because revenues and costs increased at the same
rate. For the six months ended August 31, 1996, the cost of consulting,
maintenance and other services decreased slightly from the six months ended
August 31, 1995, largely because a portion of the increase in the corresponding
revenues was generated by maintenance and product support, which can be
provided more efficiently by serving a larger client base. Furthermore, the
Company's support function has benefited from the higher level of quality of
the Company's products resulting from its ISO 9001-certified design and
development processes.
Sales and marketing. Sales and marketing expenses increased in the
quarter and six month period ended August 31, 1996 because the Company
increased its sales and marketing resources in the U.S. and Europe and
increased its marketing expenses in connection with expanded product offerings.
The Company also incurred increased commission expenses as a result of greater
software products license revenues. As a percentage of total revenues, sales
and marketing expenses decreased in the quarter and six month period ended
August 31, 1996 as compared to the quarter and six month period ended August
31, 1995 mainly because some of the Company's sales productivity initiatives
began to generate results.
Product development. The Company records product development expenses
net of capitalized software development costs.
<TABLE>
<CAPTION>
Product development expenses Three months ended Six months ended
----------------------------------- ----------------------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 Change 1995 1996 Change 1995
------------ ------ ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross product development costs $ 5,586 69% $ 3,298 $ 10,646 66% $ 6,412
Percentage of total revenues 26.7% 23.3% 27.0% 23.2%
Less: Capitalized product development costs $ 1,590 64% $ 967 $ 3,093 64% $ 1,883
Percentage of gross prod. dev. costs 28.5% 29.3% 29.1% 29.4%
---------- --------- --------- --------
Product development expenses $ 3,996 71% $ 2,331 $ 7,553 67% $ 4,529
Percentage of total revenues 19.1% 16.5% 19.2% 16.4%
</TABLE>
11
<PAGE> 12
Gross product development costs increased because the Company employed
significantly more developers of supply chain management software. The Company
hired these employees to develop new software products and to enhance versions
of existing products. In addition, these developers are modifying the Company's
software to be integrated with, or to inter-operate with, the complementary
products of certain Enterprise Resource Planning ("ERP"), or execution system,
vendors, such as Oracle Corporation and SAP AG. Furthermore, developers
continued working to develop the technology acquired from Avyx, Inc. in the
quarter ended May 31, 1996 into Manugistics' Advanced Manufacturing Scheduling
product. The Company commercially released the initial version of this product
in September 1996.
The Company is continuing to make product development expenditures
that it believes are necessary to preserve and strengthen the Company's
competitive position in the market for supply chain management software.
Capitalized product development costs increased primarily because of
the increase in the number and magnitude of the Company's supply chain
management product development projects. For the quarter and six month period
ended August 31, 1996, capitalized product development costs decreased slightly
as a percentage of gross product development costs from the quarter and six
month period ended August 31, 1995 because the amount capitalized increased at
a lower rate than gross product development costs.
Because the costs associated with the greater number of additional
development personnel more than offset the increase in capitalized product
development costs, net product development expenses increased in the quarter
and six month period ended August 31, 1996 from the quarter and six month
period ended August 31, 1995.
General and administrative. General and administrative expenses
increased in the quarter and six month period ended August 31, 1996 from the
quarter and six month period ended August 31, 1995 primarily because the
Company hired additional employees necessary to support the Company's growth,
including its international expansion.
Purchased research and development. During the quarter ended May 31,
1996, the Company acquired by merger all of the outstanding capital stock of
Avyx, Inc., a custom developer and services provider of manufacturing
scheduling systems. The Company incurred a non-recurring charge to operations
of $3.7 million in connection with the write-off of purchased in-process
research and development costs. The amount of this charge caused the Company to
have an operating loss of approximately $1.1 million for the six months ended
August 31, 1996.
Other income (expense).
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------------- --------------------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 Change 1995 1996 Change 1995
---------- --------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Other income (expense) $ 244 -16% $ 289 $ 461 -26% $ 623
Percentage of total revenues 1.2% 2.0% 1.2% 2.3%
</TABLE>
Other income decreased in the quarter and six months ended August 31,
1996 from the quarter and six months ended August 31, 1995 because interest
income has decreased as a result of a decrease in the amount of the Company's
short term investments. The balance of short term
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<PAGE> 13
securities has declined following cash payments in connection with the
acquisition of Avyx, Inc. and the expansion of the Company's international
operations.
Provision for income taxes.
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------------------- -------------------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 Change 1995 1996 Change 1995
----------- --------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income taxes $ 921 62% $ 569 $ 1,646 48% $ 1,114
Percentage of income before taxes 38.9% 38.0% N/M 38.1%
Percentage of total revenues 4.4% 4.0% 4.2% 4.0%
</TABLE>
The effective tax rate represented by the Company's provision for
income taxes in the quarter ended August 31, 1996 was approximately 38.9%.
Management of the Company believes that, in fiscal 1997, the effective tax rate
of the Company on a consolidated basis is likely to be approximately 39%,
excluding one-time charges in connection with acquisitions or other
transactions. This estimate is based on current tax law and is subject to
change.
Net (loss) income and earnings (loss) per share.
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------ ----------------------------------
Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1996 Change 1995 1996 Change 1995
--------- -------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 1,447 56% $ 926 $ (1,131) N/M $ 1,808
Percentage of total revenues 6.9% 6.6% N/M 6.6%
Earnings (loss) per share $ 0.13 44% $ 0.09 $ (0.11) N/M $ 0.17
Weighted average common shares
and equivalent shares outstanding 11,189 10,819 10,546 10,742
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
As of
-----------------------------------------------
August 31, February 29,
1996 1996
----------------- --------------------
<S> <C> <C>
Working capital $ 27,557 $ 29,201
Cash, cash equivalents
and marketable securities $ 19,094 $ 23,479
</TABLE>
The Company has historically financed its growth primarily through
funds generated from operations and through proceeds from offerings of capital
stock. The decrease in working capital at August 31, 1996 from February 29,
1996 resulted principally from the Company's use of cash flows from operations
and available cash balances and marketable securities to make cash payments in
May 1996 in connection with the Company's acquisition of Avyx, Inc. and the
expansion of the Company's international operations.
As of September 1996, the Company renewed its unsecured committed
revolving credit facility with one of the two commercial bank lenders involved
in the original facility. Under the revised terms of the facility, the Company
may request advances in the aggregate amount of up to
13
<PAGE> 14
$10 million. The Company may make borrowings under the facility for short-term
working capital purposes or for acquisitions (Acquisition-related borrowings
are limited to $7.5 million per acquisition.) The facility contains certain
reporting requirements and financial covenants that the Company believes are
typical for a facility of this nature and amount. This facility will expire in
September 1997, unless renewed.
The Company investigates potential candidates for acquisition, joint
venture opportunities or other relationships on an ongoing basis. Depending on
certain factors, including the amount, nature, method and timing of the
consideration to be paid, any such acquisitions may result in a decrease in
working capital.
The Company's investments in product development are discussed
generally under "Results of Operations -- Product Development."
The Company believes that existing cash balances, marketable
securities, funds generated from operations and amounts available under the
revolving credit facility will be sufficient to meet its anticipated liquidity
and working capital requirements for the next 12 to 18 months. If the Company
decides to expand its operations more rapidly, to broaden or enhance its
products more rapidly, to acquire businesses or technologies or to make other
significant expenditures to respond to market opportunities or competitive
pressures, then it may need additional funds at an earlier time.
FORWARD LOOKING STATEMENTS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section contains forward looking statements that are
subject to a number of risks and uncertainties. There are several important
factors that could cause actual results to differ materially from those
anticipated by the statements made above.
The Company believes that the market for supply chain management
software is expanding rapidly. If market demand for the Company's products does
not continue to grow rapidly, because of such factors as domestic or
international business and economic conditions, the timely availability and
acceptance of the Company's products, technological change or the effect of
competitive products and pricing, software license revenue growth could be
adversely affected.
Revenues for any period depend on the volume, timing and size of
license agreements. The Company typically ships software products shortly after
license agreements are signed, and therefore, does not maintain any material
contract backlog. The timing of license agreements is difficult to forecast
because software sales cycles are affected by the size of transactions and
other external factors such as general business or economic conditions. A small
variation in the timing of software licensing transactions, particularly at or
near the end of any quarter or year, can cause significant variations in
software products license revenues in any period.
The timing of releases of the Company's software products can be
affected by client needs, marketplace demands, technological advances, and
competitors' activities. Development plans frequently change, and it is
difficult to predict with accuracy the release dates for products in
development.
14
<PAGE> 15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In September 1996, Weseley Software Development Corp. ("Weseley")
brought suit against an individual employee of the Company and against the
Company in the U.S. District Court for the District of Connecticut, in
connection with the termination of the individual's employment with Weseley and
his subsequent employment by the Company. Weseley has alleged that the
individual breached the non-competition and confidentiality provisions of his
employment agreement with Weseley, and has asserted related claims against the
Company. Weseley is seeking injunctive relief and damages in an unspecified
amount. The Company is currently evaluating its response to this action.
Management of the Company does not believe that it is likely that the ultimate
disposition of this matter would have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On July 26, 1996, the Company held its Annual Meeting of Shareholders
(the "Annual Meeting"). At the Annual Meeting, the shareholders elected as
Class I directors Jack A. Arnow (with 7,499,198 affirmative votes and 17,860
votes withheld), Lynn C. Fritz (with 7,499,298 affirmative votes and 17,760
votes withheld), and J. Michael Cline (with 7,499,148 affirmative votes and
17,910 votes withheld).
In addition to the election of the Class I directors at the Annual
Meeting, the shareholders approved an amendment of the Company's Employee Stock
Option Plan (the "Employee Plan") increasing the number of shares of common
stock reserved for issuance thereunder by 600,000 shares (with 4,756,767
affirmative votes, 552,570 votes against, 9,239 abstentions and 2,198,482
non-votes).
The shareholders approved an amendment to the Employee Incentive Stock
Option Plan to permit employees whose employment is terminated to exercise any
vested options for a period of thirty days from his or her last day of
employment and to permit the Company's Compensation Committee to determine the
date of the last day of work for purposes of determining when stock options of
terminating employees will vest (with 7,336,942 affirmative votes, 95,878 votes
against, 9,925 abstentions and 74,313 non-votes).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1* Fourth Amended and Restated Employee Incentive Stock
Option Plan
10.2* Fifth Amended and Restated Employee Stock Option Plan
11 Statements Regarding Computation of Per Share Earnings
* Incorporated by reference from Appendices A and B to
the Company's definitive Proxy Statement relating to the 1996 Annual Meeting of
Shareholders held on July 26, 1996.
15
<PAGE> 16
(b) Reports on Form 8-K
As previously reported in the Form 10-Q for the quarter ended
May 31, 1996, on June 10, 1996, the Company filed a Current Report on Form 8-K
following its issuance of a press release announcing that the Company had
completed its acquisition by merger of all of the issued and outstanding common
stock of Avyx, Inc., a closely held software company located in Colorado.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Manugistics Group, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MANUGISTICS GROUP, INC.
(Registrant)
Date: October 11, 1996 By: /s/ William M. Gibson
---------------------------------
William M. Gibson
President, Chief Executive Officer and
Chairman of the Board of Directors
Date: October 11, 1996 By:/s/ Peter Q. Repetti
-----------------------------------
Peter Q. Repetti
Vice President, Finance and Administration,
and Chief Financial Officer
(Principal Financial Officer and Chief
Accounting Officer)
17
<PAGE> 1
EXHIBIT 11
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
---------------------------------------
1996 1995 1996 1995
--------- --------- --------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Weighted Average Number of Shares of Common Stock
Outstanding 10,603 10,275 10,546 10,214
Net Effect of Dilutive Stock Options Based on Treasury
Stock Method 586 544 - 528
-------- -------- -------- -------
Weighted Average Shares Outstanding 11,189 10,819 10,546 10,742
======== ======== ======== =======
Net Income $ 1,447 $ 928 $ (1,131) $ 1,808
======== ======== ======== =======
Earnings Per Share $ 0.13 $ 0.09 $ (0.11) $ 0.17
======== ======== ======== =======
Fully-diluted Earnings Per Share $ 0.13 $ 0.09 $ (0.11) $ 0.17
======== ======== ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR THE PERIOD ENDED AUGUST 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<CASH> 3,652
<SECURITIES> 15,443
<RECEIVABLES> 22,121
<ALLOWANCES> 1,368
<INVENTORY> 368
<CURRENT-ASSETS> 42,878
<PP&E> 14,462
<DEPRECIATION> 6,595
<TOTAL-ASSETS> 61,848
<CURRENT-LIABILITIES> 15,320
<BONDS> 348
0
0
<COMMON> 22
<OTHER-SE> 43,559
<TOTAL-LIABILITY-AND-EQUITY> 61,848
<SALES> 19,109
<TOTAL-REVENUES> 39,376
<CGS> 2,237
<TOTAL-COSTS> 22,083
<OTHER-EXPENSES> 15,002
<LOSS-PROVISION> 650
<INTEREST-EXPENSE> 461
<INCOME-PRETAX> 515
<INCOME-TAX> 1,646
<INCOME-CONTINUING> 1,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,131
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
