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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 MAY 31, 2000
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)
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)
(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: 28.5 million shares of common
stock, $.002 par value per share, as of July 12, 2000.
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MANUGISTICS GROUP, INC.
TABLE OF CONTENTS
<TABLE>
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
May 31, 2000 (Unaudited) and February 29, 2000 3
Condensed Consolidated Statements of Income -
Three months ended May 31, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Three months ended May 31, 2000 and 1999 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements -
May 31, 2000 (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MANUGISTICS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
May 31, February 29,
2000 2000
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,071 $ 34,051
Marketable securities 18,877 17,496
Accounts receivable, net of allowance for doubtful
accounts of $2,468 and $1,875 at May 31, 2000 and
February 29, 2000, respectively 47,072 38,705
Other current assets 7,900 9,252
--------- ---------
Total current assets 97,920 99,504
--------- ---------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 13,935 14,157
NONCURRENT ASSETS:
Software development costs, net of accumulated amortization 15,756 16,514
Intangible assets, net of accumulated amortization 6,938 7,317
Deferred tax asset 15,462 12,776
Other non-current assets 3,173 2,160
--------- ---------
Total non-current assets 41,329 38,767
--------- ---------
TOTAL ASSETS $ 153,184 $ 152,428
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,216 $ 5,792
Accrued compensation 6,463 8,345
Other current liabilities 13,533 10,679
Deferred revenue 26,908 26,727
Current portion of restructuring accrual 3,456 5,130
Line of credit 6,000 6,000
--------- ---------
Total current liabilities 61,576 62,673
--------- ---------
LONG-TERM LIABILITIES 235 283
RESTRUCTURING ACCRUAL - LONG-TERM 2,582 2,754
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock, $0.002 par value per share;100,000,000 shares
authorized; 29,208,796 and 29,047,162 shares issued, and
28,456,286 and 28,294,652 shares outstanding at May 31,
2000 and February 29, 2000, respectively 58 58
Additional paid-in capital 192,937 189,480
Accumulated deficit (103,354) (102,203)
Accumulated other comprehensive (loss) income (133) 100
Treasury stock - 752,510 shares, at cost (717) (717)
--------- ---------
Total stockholders' equity 88,791 86,718
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 153,184 $ 152,428
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
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MANUGISTICS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
Three months ended May 31,
2000 1999
---- ----
REVENUES:
License fees $ 25,973 $ 13,097
Consulting, solution support and other
services 24,546 26,096
-------- --------
Total revenues 50,519 39,193
-------- --------
OPERATING EXPENSES:
Cost of license fees 5,257 2,857
Cost of consulting, solution support and
other services 11,678 11,619
Sales and marketing costs 22,977 13,839
Product development expenses 7,770 6,994
General and administrative costs 5,004 3,940
Restructuring costs -- 82
-------- --------
Total operating expenses 52,686 39,331
-------- --------
LOSS FROM OPERATIONS (2,167) (138)
OTHER INCOME-NET 283 357
-------- --------
NET (LOSS) INCOME BEFORE INCOME TAXES (1,884) 219
BENEFIT FOR INCOME TAXES (733) (170)
-------- --------
NET (LOSS) INCOME $ (1,151) $ 389
======== ========
BASIC NET (LOSS) INCOME PER SHARE $ (0.04) $ 0.01
======== ========
DILUTED NET (LOSS) INCOME PER SHARE $ (0.04) $ 0.01
======== ========
SHARES USED IN COMPUTATION:
BASIC 28,433 27,011
======== ========
DILUTED 28,433 27,279
======== ========
See accompanying notes to the condensed consolidated financial statements.
4
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MANUGISTICS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three months ended May 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,151) $ 389
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 5,104 5,331
Deferred tax asset (833) (95)
Tax benefit from stock options exercised -- 246
Restructuring charge -- 82
Other 160 (74)
Changes in assets and liabilities:
Accounts receivable - net (8,367) 4,222
Other current assets 1,352 1,842
Other noncurrent assets (13) 24
Accounts payable and accrued expenses 396 (7,790)
Restructuring accrual (1,846) (3,099)
Deferred revenue 181 2,843
-------- --------
Net cash (used in) provided by operating activities (5,017) 3,921
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - net (1,681) (62)
Capitalization of software development costs (2,520) (1,538)
Purchase of software licenses for resale (88) (187)
Investments and purchases of marketable securities - net (2,381) (2,413)
-------- --------
Net cash used in investing activities (6,670) (4,200)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt and capital
lease obligations - net (48) (45)
Proceeds from stock options and employee stock purchases 1,586 364
-------- --------
Net cash provided by financing activities 1,538 319
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH BALANCES 169 (56)
-------- --------
NET DECREASE IN CASH (9,980) (16)
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,051 20,725
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,071 $ 20,709
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
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MANUGISTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MAY 31, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Manugistics Group, Inc. ("the Company") 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
period presented herein are not necessarily indicative of the results
of operations for the entire fiscal year, which ends on February 28,
2001.
These condensed consolidated financial statements should be read
in conjunction with the financial statements and notes thereto for the
fiscal year ended February 29, 2000 included in the Annual Report on
Form 10-K of the Company for that year filed with the Securities and
Exchange Commission.
2. NET (LOSS) INCOME PER SHARE
Basic (loss) income per share is computed using the weighted
average number of shares of common stock outstanding. Diluted (loss)
income per share is computed using the weighted average number of
shares of common stock and, when dilutive, common equivalent shares
from options to purchase common stock using the treasury stock method.
Common equivalent shares from options were excluded from the
calculation of diluted loss per share for the three month period ended
May 31, 2000, as including them would have been anti-dilutive. The
following table sets forth the computation of basic and diluted (loss)
income per share for the three month periods ended May 31, 2000 and
1999 (amounts in thousands, except per share amounts):
Three months ended May 31,
2000 1999
---- ----
Weighted average common shares 28,433 27,011
Dilutive potential common shares -- 268
-------- --------
Shares used in diluted computation 28,433 27,279
======== ========
Net (loss) income $ (1,151) $ 389
-------- --------
Basic (loss) income per share $ (0.04) $ 0.01
-------- --------
Diluted (loss) income per share $ (0.04) $ 0.01
-------- --------
3. COMMITMENTS AND CONTINGENCIES
The Company is involved from time to time in disputes and
litigation in the ordinary course of business. The Company does not
believe that the outcome of any pending disputes or litigation will
have a material effect on the Company's business, operating results,
financial condition or cash flows. However, the ultimate outcome of
these proceedings, as with litigation generally, is inherently
uncertain and it is possible that these matters may be resolved
adversely to the Company. The adverse resolution of any one or more of
these matters could have a material effect on the Company's business,
operating results, financial condition or cash flows.
The Company has previously reported its legal proceedings with
Information Resources, Inc. ("IRI") arising from the acquisition of
certain assets. A dispute over revenue streams that IRI alleges it is
entitled to is being arbitrated. IRI seeks a total of $15,930,563 in
damages. The Company contends that the conditions to these amounts
becoming due have not been satisfied and that no amounts are due IRI,
because, among other reasons, of a failure of consideration in the
overall transaction. A related claim concerning the breach
6
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of a separate Non-Competition and Non-Solicitation Agreement is
proceeding in the Circuit Court of Cook County, Illinois. There were no
significant developments in these matters during this quarter.
4. COMPREHENSIVE (LOSS) INCOME
In fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive (loss) income and its components in the
Company's financial statements. SFAS No. 130 requires unrealized gains
and losses on the Company's available-for-sale securities and foreign
currency translation adjustments to be included in other comprehensive
(loss) income. The following table sets forth the comprehensive (loss)
income for the three month periods ended May 31, 2000 and 1999 (dollar
amounts in thousands):
Three months ended
May 31,
2000 1999
---- ----
Net (loss) income $(1,151) $ 389
Other comprehensive (loss) income (233) 166
------- -------
Total comprehensive (loss) income $(1,384) $ 555
======= =======
5. RESTRUCTURING ACCRUAL
During the second half of fiscal 1999, the Company recorded
restructuring and unusual charges primarily associated with the
implementation of the Company's restructuring plan. This plan
reorganized the Company to focus on its core business of providing
supply chain solutions to companies with dynamic supply chains. The
table below presents the activity for the first quarter of fiscal 2001
relating to the restructuring charge reserves established in the second
half of fiscal 1999. The Company believes that the reserves as of May
31, 2000 are adequate and that no further revisions of estimates are
necessary at this time. The following table sets forth restructuring
activity for the three month period ended May 31, 2000 (dollar amounts
in thousands):
Beginning Cash Ending
Balance utilization Balance
March 1, 2000 of accrual May 31, 2000
------------- ---------- ------------
Severance costs $ 920 $ (488) $ 432
Lease obligations costs 6,964 (1,358) 5,606
------- ------- -------
Total $ 7,884 $(1,846) $ 6,038
======= ======= =======
6. NEW ACCOUNTING PRONOUNCEMENTS
In December, 1999 the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), which provides
the SEC staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. The implementation
date of SAB 101 is no later than the fourth fiscal quarter of fiscal
years beginning after December 15, 1999. Management does not believe
the adoption of SAB 101 will have a material effect on the Company's
consolidated financial position or results of operations in fiscal
2001.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Manugistics Group, Inc. is a leading global provider of intelligent
supply chain optimization solutions for enterprises and evolving eBusiness
trading networks. Our solutions, which include client assessment, software
products, consulting services for implementation and solution support, can be
optimized to the supply chain requirements of companies. Our solutions provide
our clients with the business intelligence to participate in various forms of
trading relationships, from traditional linear supply chains to eBusiness
trading networks. Our broad suite of solutions can help companies power
profitable growth, increase revenues, lower overall costs and improve capital
allocation through more effective operational decisions. Other operational
benefits of implementing our solutions can include greater speed to market,
strengthened customer service, improved relationships among trading partners and
increased inventory turns within and across our clients' supply chains and
eBusiness trading networks.
Building on our supply chain solution expertise, we were an innovator
in trading partner collaboration with our first Internet-ready products
commercially available in late 1997. These initial products were focused on the
prediction of demand and sourcing of supply between an enterprise and its
trading partners ("one-to-many"). Our expanded solutions currently address new
complexities and increased operational challenges as trading partner
collaboration has evolved to include multiple enterprises and trading partners
("many-to-many"). These solutions are enabled by our WebWORKSTM architecture
with advanced integration to disparate systems through our WebConnectTM product.
We believe that our solutions address the supply chain requirements for
one-to-many and many-to-many trading networks. Our technology initiatives will
continue to focus on the changing needs of clients and evolving market dynamics.
RESULTS OF OPERATIONS
REVENUES:
Our revenues consist of software license fees, consulting revenues and
solution support revenues. Software license revenues are recognized upon
execution of a software license agreement, provided that the software product
has been shipped, there are no uncertainties surrounding product acceptance, the
license fees are fixed and determinable, collection is considered probable and
no significant production, modification or customization of the software is
required, in accordance with the American Institute of Certified Public
Accountants' ("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," and SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition with respect to Certain Transactions," for fiscal periods subsequent
to December 31, 1997, as well as, the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101. Fees are allocated to the various elements of
software license agreements based on our historical fair value experience.
Consulting revenues are recognized as the services are performed. Solution
support revenues are recognized ratably over the support period defined in the
software license agreement. The following table sets forth revenues for the
three month periods ended May 31, 2000 and 1999 (dollar amounts in thousands):
Three months ended May 31,
2000 Change 1999
---- ------ ----
License fees $ 25,973 98.3% $ 13,097
Percentage of total revenues 51.4% 33.4%
Consulting, solution support and
other services $ 24,546 (5.9%) $ 26,096
Percentage of total revenues 48.6% 66.6%
-------- --------
Total revenue $ 50,519 28.9% $ 39,193
Percentage of total revenues 100.0% 100.0%
License fees. Our license fees consist primarily of software license
revenues from direct sales. We also earn license fees through indirect channels,
primarily through complementary software vendors, consulting firms, distributors
and systems integrators.
8
<PAGE>
License fees increased for the three months ended May 31, 2000 compared
to the comparable period in 1999, primarily because we fielded a larger and more
effective direct sales organization during the three month period ended May 31,
2000. We also benefited from an improved market environment for supply chain
optimization solutions and the developing demand for eBusiness trading networks.
In addition, we experienced increases in both the number of transactions closed
and average size of transactions during the three month period ended May 31,
2000.
Consulting, solution support and other services ("Services"). Services
revenues primarily consist of fees from software implementation engagements and
the related training, consulting and solution support revenues. Revenues from
software implementation, training and consulting engagements are primarily
recognized as the services are performed and are billed on a time and materials
basis. The software implementation process typically requires two to twelve
months to complete, depending on the complexity, scope of the project and client
resources available. Solution support revenues are recognized ratably over the
solution support term defined in the contract. Payments for solution support
fees are typically made annually in advance of the support period.
Consulting and other services revenue decreased slightly for the three
months ended May 31, 2000 compared to the comparable period in 1999, primarily
due to differences in the timing of implementation services provided for
software licensed in prior periods.
Solution support revenues increased following the increase in the
number of clients that have licensed our software products and entered or
renewed annual solution support contracts. Solution support revenues tend to
track software license fee transactions in prior periods. In the past three
fiscal years, a high percentage of customers with maintenance contracts have
renewed these contracts. There can be no assurance that this level of renewal
will continue in the future. See "Factors That May Affect Future Results" and
"Forward-Looking Statements."
9
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OPERATING EXPENSES:
The following table sets forth operating expenses for the three month
periods ended May 31, 2000 and 1999 (dollar amounts in thousands):
Three months ended May 31,
Operating expenses 2000 Change 1999
---- ------ ----
Cost of license fees $ 5,257 84.0% $ 2,857
Percentage of total revenues 10.4% 7.3%
Cost of consulting, solution support
and other services 11,678 0.5% 11,619
Percentage of total revenues 23.1% 29.7%
Sales and marketing costs 22,977 66.0% 13,839
Percentage of total revenues 45.5% 35.3%
Product development expenses 7,770 11.1% 6,994
Percentage of total revenues 15.4% 17.9%
General and administrative costs 5,004 27.0% 3,940
Percentage of total revenues 9.9% 10.0%
Restructuring costs -- (100.0%) 82
Percentage of total revenues 0.0% 0.2%
------- -------
Total operating expenses $ 52,686 34.0% $39,331
Percentage of total revenues 104.3% 100.4%
Cost of license fees. Cost of license fees consists of amortization of
capitalized software development costs, cost of goods and other expenses, which
includes royalty fees associated with third-party software included with our
licensed software and amortization of goodwill associated with certain
acquisitions. Capitalized software development costs and acquired research and
development costs are amortized at the greater of the amount computed using
either the straight-line method over the estimated economic life of the product,
commencing with the date the product is first available for general release, or
the ratio that current gross revenues from the product bears to the total
current and anticipated future gross revenues. Generally, an economic life of
two to five years is assigned to capitalized software development costs.
Goodwill is amortized over five years. The following table sets forth
amortization of capitalized software development costs, cost of goods and other
and cost of license fees for the three month periods ended May 31, 2000 and 1999
(dollar amounts in thousands):
Three months ended May 31,
2000 Change 1999
---- ------ ----
Amortization of capitalized software
development costs $ 2,628 44.3% $ 1,821
Percentage of license fees 10.1% 13.9%
Cost of goods and other 2,629 153.8% 1,036
Percentage of license fees 10.1% 7.9%
------- -------
Cost of license fees $ 5,257 84.0% $ 2,857
Percentage of license fees 20.2% 21.8%
Cost of license fees increased for the three months ended May 31, 2000
compared to the comparable period in 1999, primarily due to both an increase in
amortization of previously capitalized software development costs and increases
in the amount of royalties paid to third parties as a result of the particular
mix of products licensed in the quarter.
Cost of consulting, solution support and other services. Cost of
consulting, solution support and other services increased slightly for the three
months ended May 31, 2000 compared to the comparable period in 1999, primarily
due to an increase in the number of solution support staff.
Sales and marketing. Sales and marketing expenses consist primarily of
personnel costs, commissions, promotional events and advertising. Sales and
marketing expenses increased for the three months ended May 31, 2000 compared to
the comparable period in 1999, primarily due to increased promotion and
advertising, increased sales and marketing headcount and increased commissions
due to increased software license fees.
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Product development. We record product development expenses net of
capitalized software development costs for products that have reached
technological feasibility in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed." The following table sets forth product
development costs for the three month periods ended May 31, 2000 and 1999
(dollar amounts in thousands):
Three months ended May 31,
2000 Change 1999
---- ------ ----
Gross product development costs $ 9,885 15.9% $ 8,532
Percentage of total revenues 19.6% 21.8%
Less: Capitalized product development
costs $ 2,115 37.5% $ 1,538
Percentage of gross product
development costs 21.4% 18.0%
------- -------
Product development expenses $ 7,770 11.1% $ 6,994
Percentage of total revenues 15.4% 17.8%
Gross and net product development expenses increased for the three
month period ended May 31, 2000 compared to the comparable period in 1999,
primarily due to the increase of product development headcount during the second
half of fiscal year 2000 and the first quarter of fiscal year 2001.
General and administrative. General and administrative expenses consist
primarily of personnel costs, infrastructure expenses and the fees and expenses
associated with legal, accounting and other functions. General and
administrative expenses increased for the three month period ended May 31, 2000,
compared to the comparable period in 1999, primarily due to the increase in
headcount during the second half of fiscal year 2000 and the first quarter of
fiscal year 2001.
OTHER INCOME - NET:
The following table sets forth other income for the three month periods
ended May 31, 2000 and 1999 (dollar amounts in thousands):
Three months ended May 31,
2000 Change 1999
---- ------ ----
Other income $ 283 (20.7%) $ 357
Percentage of total revenues 0.6% 0.9%
Other income includes interest income from short-term investments,
interest expense from borrowings, foreign currency exchange gains or losses and
other gains or losses. Other income decreased for the three months ended May 31,
2000 compared to the comparable period in 1999, primarily due to decreased
interest earned as a result of our investment balances being reduced to fund
operating and investing activities during the second half of fiscal year 2000
and the first quarter of fiscal year 2001.
BENEFIT FOR INCOME TAXES:
The following table sets forth income tax benefit for the three month
periods ended May 31, 2000 and 1999 (dollar amounts in thousands):
Three months ended May 31,
2000 Change 1999
---- ------ ----
Income tax benefit $ (733) 331.2% $ (170)
Percentage of (loss) income
before income taxes 38.9% (77.6%)
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The income tax benefit for the three months ended May 31, 2000 was
approximately $733 thousand. The quarterly tax benefit for the three month
period ended May 31, 2000 relates to the current quarter net loss multiplied by
the expected annual income tax rate of approximately 38.9%.
NET (LOSS) INCOME AND NET (LOSS) INCOME PER SHARE:
The following table sets forth net (loss) income for the three month
periods ended May 31, 2000 and 1999 (dollar amount in thousands, except per
share data):
Three months ended May 31,
2000 1999
---- ----
Net (loss) income $ (1,151) $ 389
Net (loss) income per share - basic $ (0.04) $ 0.01
Net (loss) income per share - diluted $ (0.04) $ 0.01
Shares used in basic computation 28,433 27,011
-------- -------
Shares used in diluted calculation 28,433 27,279
-------- -------
LIQUIDITY AND CAPITAL RESOURCES:
The following table sets forth liquidity and capital resources as of
May 31, 2000 and February 29, 2000 (amounts in thousands):
As of As of
May 31, 2000 Change February 29, 2000
------------ ------ -----------------
Working capital $ 36,344 (1.3%) $ 36,831
We have historically financed our growth primarily with funds generated
from operations, proceeds from offerings of capital stock and to a lesser
extent, short-term borrowings under a revolving credit facility. The slight
decrease in working capital at May 31, 2000 as compared to February 29, 2000
primarily resulted from a decrease in cash and cash equivalents which had been
used to fund operations.
Operating activities used cash of approximately $5.0 million for the
three months ended May 31, 2000, primarily because the net loss for the period
and the net change in the accounts receivable and restructuring accrual balances
were only partially offset by the change in non-cash operating items, such as
depreciation and amortization.
Investing activities used cash of approximately $6.7 million for the
three months ended May 31, 2000, primarily consisting of investments and
purchases of marketable securities, the capitalization of software development
costs and the purchase of fixed assets and software licenses.
Financing activities provided cash of approximately $1.5 million for
the three months ended May 31, 2000, primarily consisting of proceeds from the
exercise of employee stock options and purchases of our common stock through our
employee stock purchase plan.
We believe that our allowance for doubtful accounts as of May 31, 2000
is adequate to cover any forseeable difficulties with the collection of our
accounts receivable balance. However, a significant portion of our accounts
receivable are a result of the sales of large software licenses. Therefore,
there can be no assurance that the allowance will be adequate to cover any
receivables that are later deemed to be uncollectible.
We have a one-year committed unsecured revolving credit facility with a
commercial bank. The current agreement will expire in September of 2000, unless
renewed. Under its terms, we may request cash advances, letters of credit or
both in an aggregate amount of up to $20 million. We 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.) As
of May 31, 2000, $6.0 million was outstanding under the revolving credit
facility. In June 2000, we repaid all of the $6.0 million outstanding on the
revolving credit facility.
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We believe that our existing cash balances and marketable securities,
funds generated from operations and amounts available under our revolving credit
facility will be sufficient to meet our anticipated liquidity and working
capital requirements in the near term. In light of our operating results for
fiscal 2000 and the first three months of fiscal 2001, the cost of any
additional funds that we could obtain might be greater than the cost of funds
available to us under our existing revolving credit facility. In the event that
we require additional financing and are unable to obtain it on terms
satisfactory to us, our liquidity, results of operations and financial condition
may be materially adversely affected. We believe that inflation did not have a
material effect on our results of operations in the three month period ended May
31, 2000.
Certain information regarding commitments and contingencies, including
pending litigation, which may have an adverse impact on our liquidity and
financial condition is set forth below under "Factors That May Affect Future
Results" and under "Legal Proceedings" in Part II of this Quarterly Report.
13
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FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information in this Quarterly Report on Form
10-Q, the following factors and those previously reported should be considered
in evaluating us and our business. Our operating results have varied in the past
and might vary significantly in the future because of factors such as domestic
and international business conditions, the timely availability and acceptance of
our products, technological change, the effect of competitive products and
pricing, the effects of marketing pronouncements by competitors or potential
competitors, changes in our strategy, the mix of direct and indirect sales, the
effectiveness of our sales and marketing organization, changes in operating
expenses, personnel changes and foreign currency exchange rate fluctuations.
Furthermore, clients may defer or cancel their purchases of our products if they
experience a downturn in their business or if there is a downturn in the general
economy. For a more thorough discussion of these and other factors that may
affect our business and future results, see the discussion under the caption
"Factors That May Affect Future Results" in our Annual Report on Form 10-K filed
for the year ended February 29, 2000.
Stock Option Repricing
In response to the poor performance of our stock price, we offered to
reprice employee stock options, other than those held by our executive officers
or directors, effective January 29, 1999, to bolster employee retention. The
effect of this repricing resulted in approximately 1.52 million shares being
repriced and the four-year vesting period starting over. The repricing may have
a material adverse impact on future financial performance based on the amendment
to the Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued
to Employees," which requires us to record compensation expense associated with
the change in the price of these options.
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FORWARD-LOOKING STATEMENTS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of this Quarterly Report on Form 10-Q contains
certain forward-looking statements that are subject to a number of risks and
uncertainties. In addition, we may publish forward-looking statements from time
to time relating to such matters as anticipated financial performance, business
prospects and strategies, sales and marketing efforts, technological
developments, new products, research and development activities, consulting
services, employee recruiting and retention efforts and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, we note that a variety of factors could cause our actual results and
experience to differ materially from the anticipated results or other
expectations expressed in our forward-looking statements in this Quarterly
Report or elsewhere. The risks and uncertainties that may affect our business,
operating results or financial condition include those set forth above under
"Factors That May Affect Future Results" and the following:
Revenues for any period depend on the number, size and timing of
license agreements. The number, size and timing of license agreements depends in
part on our ability to hire and thereafter to train, integrate and deploy our
sales force effectively. The size and timing of license agreements is difficult
to forecast because software sales cycles are affected by the nature of the
transactions, including the breadth of the solution to be licensed and the
organizational and geographic scope of the licenses. In addition, the number,
size and timing of license agreements also may be affected by certain external
factors such as general domestic and international business or economic
conditions, including the effects of such conditions on our customers and
prospects, alliance partners or competitors' actions. A small variation in the
timing of software licensing transactions, particularly near the end of any
quarter or year, can cause significant variations in software product license
revenues in any period.
We believe that the market for supply chain planning software solutions
and eCommerce initiatives continues to expand. However, if market demand for our
products does not manifest itself or grow as rapidly as we expect, revenue
growth, margins or both could be adversely affected. If competitors make
acquisitions of other competitors or establish relationships among themselves or
with third parties to enhance the ability of their products to address the
supply chain planning needs of prospects and customers or other software vendors
that have announced plans to develop or incorporate functionality that could
compete with our products successfully develop and market such functionality,
our revenue growth, margins or both could be adversely affected.
There can be no assurance that we will be able to attract complementary
software vendors, consulting firms or other organizations that will be able to
market our products effectively or that will be qualified to provide timely and
cost-effective customer support and services. In addition, there can be no
assurance that a sufficient number of organizations will continue their
involvement with us and our products and the loss of current relationships with
important organizations could materially adversely affect our results of
operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency. In the three months ended May 31, 2000, we generated
approximately 21% of our revenues outside the United States and Canada.
International sales usually are made by our foreign subsidiaries in the local
currencies and the expenses incurred by foreign subsidiaries are denominated in
the local currencies.
In certain circumstances, we enter into foreign currency contracts with
banking institutions to protect large foreign currency receivables against
currency fluctuations. When the foreign currency receivable is collected, the
contract is liquidated and the foreign currency receivable is converted to U.S.
dollars.
Interest rates. We manage our interest rate risk by maintaining an
investment portfolio of available-for-sale instruments with high credit quality
and relatively short average maturities. These instruments include, but are not
limited to, commercial paper, money-market instruments, bank time deposits and
taxable and tax-advantaged variable rate and fixed rate obligations of
corporations, municipalities and national, state and local government agencies,
in accordance with an investment policy approved by our Board of Directors.
These instruments are denominated in U.S. dollars. The fair market value of
securities held at May 31, 2000 was approximately $18.9 million.
We also hold cash balances in accounts with commercial banks in the
United States and foreign countries. These cash balances represent operating
balances only and are invested in short-term time deposits of the local bank.
Such operating cash balances held at banks outside the United States are
denominated in the local currency.
Many of our investments carry a degree of interest rate risk. When
interest rates fall, our income from investments in variable-rate securities
declines. When interest rates rise, the fair market value of our investments in
fixed-rate securities declines. We attempt to mitigate interest rate risk by
holding fixed-rate securities to maturity. However, should our liquidity needs
force us to sell fixed-rate securities prior to maturity, we may experience a
loss of principal.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have previously reported our legal proceedings with Information
Resources, Inc. ("IRI") arising from the acquisition of certain assets. A
dispute over revenue streams that IRI alleges it is entitled to is being
arbitrated. IRI seeks a total of $15,930,563 in damages. We contend that the
conditions to these amounts becoming due have not been satisfied and that no
amounts are due IRI, because, among other reasons, of a failure of consideration
in the overall transaction. A related claim concerning the breach of a separate
Non-Competition and Non-Solicitation Agreement is proceeding in the Circuit
Court of Cook County, Illinois. There were no significant developments in these
matters during this quarter.
As disclosed in our Quaterly Report on Form 10-Q for the three months
ended November 30, 1999, we reached an agreement for the settlement of the class
action federal securities litigation in which we, our Chairman of the Board of
Directors (the"Board") and our former Chief Financial Officer were defendants
(the "Defendants"). As reported by us in our Current Report on Form 8-K dated
August 17, 1999, the United States District Court for the District of Maryland
had issued an order dismissing the consolidated class action complaint against
the Defendants. The plaintiffs then filed an appeal of the ruling. During the
pendency of the appeal, the parties reached a settlement in principle to resolve
the matter. By Order dated June 1, 2000, the Fourth Circuit remanded the action
to the District Court for settlement proceedings. The parties subsequently
entered into a definitive settlement agreement subject to the approval of the
Distrcit Court. A hearing date for the District Court's consideration of
settlement approval has not yet been set. The amounts to be paid by Defendants
pursuant to the settlement are being funded by our insurer and thus settlement,
if finally consummated on terms substantially the same as those set forth in the
settlement agreement, would not have a material adverse effect on us.
We are involved from time to time in disputes and other litigation in
the ordinary course of business. We do not believe that the outcome of any
pending disputes or litigation (including matters we have previously reported)
will have a material adverse effect on our business, operating results,
financial condition and cash flows. However, the ultimate outcome of these
matters, as with litigation generally, is inherently uncertain and it is
possible that some of these matters may be resolved adversely to us. The adverse
resolution of any one or more of these matters could have a material adverse
effect on our business, operating results, financial condition and cash flows.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.44(c) Stock Option Agreement dated December 6, 1999, between the Company and
Richard F. Bergmann.
27 Financial Data Schedule
(b) Reports on Form 8-K
1. On March 2, 2000 we filed a Current Report on Form 8-K announcing that
we had reached a settlement agreement and general release which
provided for the dismissal of the previously reported lawsuit filed by
Template Software, Inc.
2. On April 27, 2000 we filed a Current Report on Form 8-K following our
issuance of a press release on April 19, 2000 announcing that Hau L.
Lee had been named to the Board of Directors.
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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: July 14, 2000 By:
/s/ Gregory J. Owens
--------------------
Gregory J. Owens
President and Chief Executive Officer
/s/ Raghavan Rajaji
-------------------
Raghavan Rajaji
Executive Vice-President
and Chief Financial Officer
19
