<PAGE>
================================================================================
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 November 30, 1999
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: 27.8 million shares of common
stock, $.002 par value per share, as of January 11, 1999.
================================================================================
<PAGE>
MANUGISTICS GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
November 30, 1999 (Unaudited) and February 28, 1999 3
Condensed Consolidated Statements of Income -
Three and Nine months ended November 30, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended November 30, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements -
November 30, 1999 (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MANUGISTICS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 31,997 $ 20,725
Marketable securities 14,387 22,637
Accounts receivable, net of allowance for doubtful
accounts of $2,969 and $6,299 at November 30, 1999 and
February 28, 1999, respectively 40,092 50,987
Other current assets 11,211 14,805
--------- --------
Total current assets 97,687 109,154
--------- --------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 14,848 21,832
NONCURRENT ASSETS:
Software development costs, net of accumulated amortization 17,572 20,540
Intangibles, net of accumulated amortization 7,727 9,382
Deferred tax asset 10,891 9,240
Other noncurrent assets 2,197 2,182
--------- --------
Total noncurrent assets 38,387 41,344
--------- --------
TOTAL ASSETS $ 150,922 $172,330
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,302 $ 8,142
Accrued compensation 4,847 7,815
Other accrued expenses 11,485 14,060
Deferred revenue 23,474 24,710
Restructuring accrual 7,413 13,789
Line of credit 13,200 9,500
--------- --------
Total current liabilities 64,721 78,016
--------- --------
LONG-TERM LIABILITIES 320 454
RESTRUCTURING ACCRUAL - LONG-TERM 3,242 8,138
COMMITMENTS AND CONTINGENCIES (Note 3) -- --
STOCKHOLDERS' EQUITY
Preferred stock -- --
Common stock, $0.002 par value per share;100,000,000 shares
authorized; 28,438,191 and 27,705,382 shares issued, and
27,685,681 and 26,952,872 shares outstanding at November 30,
1999 and February 28, 1999, respectively 57 55
Additional paid-in capital 184,719 179,996
Accumulated deficit (101,351) (93,258)
Accumulated other comprehensive loss (69) (354)
Treasury stock - 752,510 shares, at cost (717) (717)
--------- --------
Total stockholders' equity 82,639 85,722
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 150,922 $172,330
========= ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
MANUGISTICS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
License fees $ 14,571 $ 15,365 $ 38,423 $ 58,617
Consulting, solution support and other
services 21,223 27,679 70,359 78,490
---------- ---------- --------- ----------
Total revenues 35,794 43,044 108,782 137,107
---------- ---------- --------- ----------
OPERATING EXPENSES:
Cost of license fees 3,686 3,349 9,596 9,635
Cost of consulting, solution support and
other services 10,789 13,219 32,703 37,733
Sales and marketing 15,074 25,262 43,212 73,334
Product development 7,516 11,712 21,977 37,506
General and administrative 3,896 4,686 11,736 15,753
Restructuring costs (17) 701 (699) 701
Acquisition-related costs - - - 3,095
---------- ---------- --------- ----------
Total operating expenses 40,944 58,929 118,525 177,757
---------- ---------- --------- ----------
LOSS FROM OPERATIONS (5,150) (15,885) (9,743) (40,650)
OTHER INCOME-NET 360 551 1,235 2,282
---------- ---------- --------- ----------
LOSS BEFORE INCOME TAXES (4,790) (15,334) (8,508) (38,368)
PROVISION (BENEFIT) FOR INCOME TAXES 15 (4,927) (657) (13,456)
---------- ---------- --------- ----------
NET LOSS $ (4,805) $ (10,407) $ (7,851) $ (24,912)
========== ========== ========= ==========
BASIC NET LOSS PER SHARE $ (0.17) $ (0.39) $ (0.29) $ (0.95)
========== ========== ========= ===========
DILUTED NET LOSS PER SHARE $ (0.17) $ (0.39) $ (0.29) $ (0.95)
========== ========== ========= ===========
SHARES USED IN COMPUTATION:
BASIC 27,590 26,520 27,297 26,285
========== ========== ========= ===========
DILUTED 27,590 26,520 27,297 26,285
========== ========== ========== ===========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
MANUGISTICS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended November 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (7,851) $(24,912)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 16,274 17,930
Deferred tax asset (657) (13,386)
Tax benefit from stock options exercised - 2,223
Write-off of purchased research and development - 1,300
Other (420) 334
Changes in assets and liabilities:
Accounts receivable - net 10,895 2,084
Other current assets (302) (2,773)
Other noncurrent assets (15) (844)
Accounts payable and accrued expenses (9,383) (14,047)
Restructuring accrual (9,809) -
Deferred revenue (1,235) 2,689
Income taxes payable/receivable 2,903 (1,868)
-------- --------
Net cash provided by (used in) operating activities 400 (31,270)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - net (1,521) (13,521)
Capitalization of software development costs (3,713) (8,462)
Purchase of software licenses for resale (206) (521)
Net change in cash due to conforming year ends - 446
Sale of marketable securities - net 8,250 33,936
-------- --------
Net cash provided by investing activities 2,810 11,878
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings of long-term debt and capital
lease obligations - net (133) 275
Net change in line of credit 3,700 -
Proceeds from stock options and employee stock purchases 4,722 4,774
-------- --------
Net cash provided by financing activities 8,289 5,049
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH BALANCES (227) 107
-------- --------
NET INCREASE (DECREASE) IN CASH 11,272 (14,236)
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,725 19,891
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,997 $ 5,655
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE>
MANUGISTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOVEMBER 30, 1999
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
periods presented herein are not necessarily indicative of the results of
operations for the entire fiscal year, which ends on February 29, 2000.
The unaudited condensed consolidated financial statements for the nine
month period ended November 30, 1998 have been revised to give effect to
the acquisition by merger of TYECIN Systems, Inc. on June 1, 1998, which
has been accounted for as a pooling of interests.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto for the fiscal
year ended February 28, 1999 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 Per Share
Basic loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted loss 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 and
nine month periods ended November 30, 1999 and 1998, as including them
would be anti-dilutive. The following table sets forth the computation of
basic and diluted loss per share for such periods (amounts in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
1999 1998 1999 1998
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares 27,590 26,520 27,297 26,285
Dilutive potential common shares - - - -
--------- ---------- --------- ----------
Shares used in diluted computation 27,590 26,520 27,297 26,285
========= ========== ========= ==========
Net loss $ (4,805) $ (10,407) $ (7,851) $ (24,912)
========= ========== ========= ==========
Basic loss per share $ (0.17) $ (0.39) $ (0.29) $ (0.95)
========= ========== ========= ==========
Diluted loss per share $ (0.17) $ (0.39) $ (0.29) $ (0.95)
========= ========== ========= ==========
</TABLE>
3. Commitments and Contingencies
On January 15, 1999, Information Resources, Inc. ("IRI") filed a
complaint against the Company in the Circuit Court of Cook County,
Illinois, alleging that the Company had breached a Data Marketing and
Guaranteed Revenue Agreement (the "Data Marketing Agreement") and a Non-
Competition and Non-Solicitation Agreement (the "Non-Competition
Agreement"), both of which the Company had entered into with IRI as part of
the acquisition of certain assets from IRI. IRI's allegations arising under
the Data Marketing Agreement have been removed to an arbitration proceeding
which has commenced under the auspices of the American Arbitration
Association. In the arbitration, IRI seeks a total of $15,930,563 in
damages, consisting of amounts which IRI alleges are due or will become due
under various revenue streams. The Company contends that the conditions to
these amounts becoming due from time to time under the Data Marketing
Agreement have not been satisfied, and that no amounts are due to IRI,
because, among other reasons, of a failure of consideration in the overall
acquisition transaction. In the court proceeding concerning IRI's
allegations under the Non-Competition Agreement, IRI seeks damages in an
amount in excess of $100,000. The Company denies that it has violated the
Non-Competition Agreement. Both the Cook County action and the arbitration
proceeding are in the early stages.
6
<PAGE>
On July 15, 1999, Template Software, Inc. ("Template") filed suit
against Manugistics, Inc. ("Manugistics"), the Company's principal
subsidiary, in the United States District Court for the Eastern District of
Virginia, Alexandria Division, alleging that Manugistics provided software
that did not satisfy the requirements of a software license agreement
Template entered into with Manugistics in November, 1998 (the "Agreement").
Template seeks damages of at least $1.25 million, which represents the
amount of software license fees paid by Template under the Agreement.
Manugistics has responded to the complaint and filed counterclaims against
Template including a counterclaim for recovery of approximately $600,000
for unpaid consulting services provided by Manugistics. Discovery in the
case is almost complete; trial is scheduled to begin on February 15, 2000.
The Company and Template have engaged in settlement discussions from time
to time; however, the Company cannot predict whether the matter will be
settled.
It is not possible at this time to predict the outcome of the
arbitration or litigation or the amount or nature of any loss. Furthermore,
it is possible that these matters may be resolved adversely to the Company.
The adverse resolution of either of these proceedings could have a material
adverse effect on the Company's business, operating results, financial
condition and cash flows.
4. Supplemental Cash Flow Information
Cash paid for income taxes amounted to approximately $60,000 and
$1,160,000 for the nine months ended November 30, 1999 and 1998,
respectively.
5. Comprehensive Loss
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 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 income (loss). The
following table sets forth the comprehensive loss for the three and nine
month periods ended November 30, 1999 and 1998 (dollar amounts in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
November 30, November 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(4,805) $(10,407) $(7,851) $(24,912)
Other comprehensive income (loss) 804 238 285 (636)
------- -------- ------- --------
Total comprehensive loss $(4,001) $(10,169) $(7,566) $(25,548)
======= ======== ======= ========
</TABLE>
7
<PAGE>
6. Restructuring
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 in the first
three quarters of fiscal 2000 relating to the restructuring charge reserves
established in the second half of fiscal 1999 in connection with the
restructuring. The adjustments to the restructuring accrual relate to changes
to the original restructuring estimates based on finalization of agreements
and the incurrence of additional costs related to the restructuring plan that
were incurred in fiscal 2000. The Company believes that the reserves as of
November 30, 1999 are adequate and that no further revisions of estimates
are necessary at this time. The following table sets forth restructuring
activity through November 30, 1999 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Ending
Beginning Balance
Balance Adjustments to Utilization of Accrual November30,
March 1, 1999 Charge Cash Non-cash 1999
-------------- -------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Severance costs $ 1,152 $ 1,473 $ (1,594) $ 147 $ 1,178
Lease obligations costs 18,914 (1,988) (7,754) (83) 9,089
Impairment of long-lived assets 1,709 (94) (461) (777) 377
Other 152 (90) - (51) 11
------------- --------------- --------- --------- ------------
Total $ 21,927 $ (699) $ (9,809) $ (764) $ 10,655
============= =============== ========= ========= ============
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Manugistics Group, Inc. (the "Company") is a leading provider of eBusiness
solutions that enable intelligent decisions across trading networks. The
Company's solutions are comprised of software products and related services that
enable clients to improve the efficiency of the flow of materials within and
between organizations (e.g., the flow of raw materials through the manufacturing
process and the delivery of finished product to the end-user). The Company's
solutions empower network trading partners to make the right decisions for
profitable growth.
With the Company's broad suite of supply chain software products, clients
can make improved operational decisions, resulting in increased revenues,
reduced inventories, improved customer service, improved relationships among
trading partners, greater speed to market, and lower overall costs throughout
the supply chain. The Company currently has clients in a broad spectrum of
industries around the world. The Company's products are primarily targeted at
companies with dynamic supply requirements across trading networks.
The Company's integrated suite of strategic, tactical and operational
supply chain planning software products enables collaboration within and among
enterprises by addressing the four key operational areas of supply chain
planning, which are: demand planning; supply planning; manufacturing scheduling;
and transportation management. The Company's products allow its clients to
collaborate with their suppliers, their customers and other third parties.
In the second half of fiscal 1999, the Company instituted company-wide
restructuring activities that included overall cost containment initiatives as
the Company pursued its business strategies of returning to profitability,
expanding product innovation to enable companies to take advantage of e-
commerce, interface, and integration technology, and expanding its indirect
distribution channels through alliances with complementary software vendors and
consulting and implementation organizations. The Company's restructuring
included significant headcount reduction, hiring a new Chief Executive Officer,
reorganization and replacement of the Company's senior management team, and
increased investments in the Company's initiatives in e-commerce enabled supply
chain solutions. In addition, the Company experienced increased employee
attrition since the restructuring actions. During the second and third quarters
the attrition rate decreased to levels approaching those prior to the
restructuring activities. There can be no assurances that the Company's
restructuring actions and decrease in operating expenses will be sufficient to
offset the Company's decrease in license fee revenues and return the Company to
sustainable profitability.
Results of Operations
Revenues:
The Company licenses software under non-cancelable license agreements and
provides related services, including installation, consulting, solution support,
and maintenance. License fees are generally recognized when a non-cancelable
license agreement has been signed, the software product has been shipped, there
are no uncertainties surrounding product acceptance, the fees are fixed and
determinable, no significant production, modification, or customization of the
software is required, and collection is considered probable in accordance with
Statement of Position 97-2, "Software Revenue Recognition"("SOP 97-2"). Fees are
allocated to the various elements included in license agreements based on the
Company's historical fair value experience. Fees related to consulting and
implementation services are recognized as the services are performed. When the
Company enters into a license agreement with a client which requires the Company
to significantly customize its pre-existing software products, the Company
recognizes revenue related to the license agreement using contract accounting.
When the company enters into an agreement with a client to jointly fund the
Company's software development, the funds received are treated as a direct
reduction of capitalized costs in accordance with SOP 97-2. The following table
sets forth revenues for the three and nine month periods ended November 30, 1999
and 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
1999 Change 1998 1999 Change 1998
------ ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
License fees $14,571 (5.2%) $15,365 $ 38,423 (34.5%) $ 58,617
Percentage of total revenues 40.7% 35.7% 35.3% 42.8%
Consulting, solution support and other
services $21,223 (23.3%) $27,679 $ 70,359 (10.4%) $ 78,490
Percentage of total revenues 59.3% 64.3% 64.7% 57.2%
------- ------- --------
Total revenue $35,794 (16.8%) $43,044 $108,782 (20.7%) $137,107
Percentage of total revenues 100.0% 100.0% 100.0% 100.0%
</TABLE>
9
<PAGE>
License fees. The Company's license fees consist primarily of software
license revenues from direct sales. The Company also earns license fees through
licenses to customers via indirect channels, including complementary software
vendors, consulting firms, distributors, and systems integrators.
License fees decreased for the three and nine months ended November 30,
1999 as compared to the comparable periods in 1998 primarily because the Company
fielded a smaller direct sales organization during the periods in fiscal 2000,
compared to fiscal 1999, and the Company experienced decreases in the number of
transactions closed during the fiscal 2000 periods.
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 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.
Services revenue decreased for the three and nine months ended November 30,
1999 as compared to the comparable periods in 1998, primarily because revenues
from consulting and other services decreased due to a decrease in the number of
customer implementations from fewer license fee transactions in prior periods.
The Company begins to recognize service revenue in the months following
initiation of the implementation of software, which generally occurs within a
few weeks after execution of the license agreement.
Solution support revenues increased following the increase in the
cumulative number of clients that have licensed the Company's software products
and entered into annual maintenance contracts. Solution support revenues tend to
track software license fee transactions in prior periods. In the past three
fiscal years, approximately 95% 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."
10
<PAGE>
Operating Expenses:
General. In the second half of fiscal 1999, the Company executed company-
wide restructuring activities that included overall cost containment initiatives
as the Company pursued its business strategies of returning to profitability,
expanding product innovation to enable companies to take advantage of e-
commerce, interface, and integration technology, and expanding its indirect
distribution channels through alliances with complementary software vendors and
consulting and implementation organizations.
Due to the Company's cost containment actions, such as headcount and
occupancy reductions, total operating expenses decreased for the three and nine
month periods ended November 30, 1999 compared to the three and nine months
ended November 30, 1998. The following table sets forth operating expenses for
the three and nine month periods ended November 30, 1999 and 1998 (dollar
amounts in thousands):
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
Operating expenses 1999 Change 1998 1999 Change 1998
-------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cost of license fees $ 3,686 10.1% $ 3,349 $ 9,596 (0.4%) $ 9,635
Percentage of total revenues 10.3% 7.8% 8.8% 7.0%
Cost of consulting, solution support
and other services 10,789 (18.4%) 13,219 32,703 (13.3%) 37,733
Percentage of total revenues 30.1% 30.7% 30.1% 27.5%
Sales and marketing 15,074 (40.3%) 25,262 43,212 (41.1%) 73,334
Percentage of total revenues 42.1% 58.7% 39.7% 53.5%
Product development 7,516 (35.8%) 11,712 21,977 (41.4%) 37,506
Percentage of total revenues 21.0% 27.2% 20.2% 27.4%
General and administrative 3,896 (16.9%) 4,686 11,736 (25.5%) 15,753
Percentage of total revenues 10.9% 10.9% 10.8% 11.5%
Restructuring costs (17) (102.4%) 701 (699) (199.7%) 701
Percentage of total revenues 0.0% 1.6% (0.6%) 0.5%
Acquisition-related expenses - - - (100%) 3,095
Percentage of total revenues 0.0% 0.0% 0.0% 2.3%
------- ------- -------- --------
Total operating expenses $40,944 (30.5%) $58,929 $118,525 (33.3%) $177,757
Percentage of total revenues 114.4% 136.9% 109.0% 129.7%
</TABLE>
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 the
Company's 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, cost of goods and other, and
cost of license fees for the three and nine month periods ended November 30,
1999 and 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
1999 Change 1998 1999 Change 1998
-------- ---------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Amortization of capitalized software $2,654 9.9% $2,416 $6,387 1.7% $6,275
Percentage of license fees 18.2% 15.7% 16.6% 10.7%
Cost of goods and other $1,032 10.6% $ 933 $3,209 (4.5%) $3,360
Percentage of license fees 7.1% 6.1% 8.4% 5.7%
------ ------ ------ ------
Cost of license fees $3,686 10.1% $3,349 $9,596 (0.4%) $9,635
Percentage of license fees 25.3% 21.8% 25.0% 16.4%
</TABLE>
Cost of license fees increased for the three months ended November 30, 1999
compared to the same period last year primarily due to an increase in
amortization of capitalized software because of new Company software becoming
available for general release during the quarter ended November 30, 1999. In
addition, cost of license fees increased as a percentage of total license fees
primarily due to a decrease in license fee revenues generated for the three and
nine months ending November 30, 1999 compared to the same periods last year.
11
<PAGE>
Cost of consulting, solution support and other services. Cost of
consulting, solution support and other services increased as a percentage of
total revenues for the nine months ending November 30, 1999, as a result of an
overall decrease in revenues generated for the nine months ending November 30,
1999 compared to the same period last year. Cost of consulting, solution support
and other services decreased as a percentage of total revenues for the three
months ending November 30, 1999, primarily due to the reduction of expenses in
connection with the company-wide restructuring activities, which were partially
offset by the decrease in total revenues generated for the three months ending
November 30, 1999 compared to the same period last year.
Sales and marketing. Sales and marketing expenses consist primarily of
personnel costs, commissions, promotional events, and advertising. Sales and
marketing expenses decreased for the three and nine months ended November 30,
1999 as a percentage of total revenues primarily due to the reduction of
headcount implemented under the company-wide restructuring activities during the
second half of fiscal 1999.
Product development. The Company records product development costs 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 and nine month periods ended November 30, 1999
and 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
1999 Change 1998 1999 Change 1998
--------- ----------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gross product development costs $8,676 (41.6%) $14,857 $25,690 (43.9%) $45,778
Percentage of total revenues 24.2% 34.5% 23.6% 33.4%
Less: Capitalized product development
cost $1,160 (63.1%) $ 3,145 $ 3,713 (55.1%) $ 8,272
Percentage of gross product
development costs 13.4% 21.2% 14.5% 18.1%
------- ------- ------- -------
Product development costs $7,516 (35.8%) $11,712 $21,977 (41.4%) $37,506
Percentage of total revenues 21.0% 27.2% 20.2% 27.4%
</TABLE>
Gross product development costs and net product development costs decreased
for the three and nine month periods ended November 30, 1999, versus the
comparable periods in 1998, primarily due to the reduction of headcount
implemented under the Company's restructuring plan during the second half of
fiscal 1999. In addition, the Company has consolidated and focused its research
and development efforts.
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 decreased for the three and nine month periods ended
November 30, 1999, versus the comparable periods in 1998, due to the reduction
of headcount implemented under the Company's restructuring plan during the
second half of fiscal 1999 and the focus by the Company to control discretionary
spending.
Restructuring costs. In connection with the fiscal 1999 corporate-wide
restructuring plan the Company reduced its previously recorded restructuring
charges by approximately $17,000 and $699,000 (resulting in a credit to
expenses), respectively, for the three and nine month periods ended November 30,
1999. The adjustments primarily relate to the sub-lease of property that
management had believed, at the time of the restructuring, would not be sublet,
which were offset by increases in the accrual for severance costs.
12
<PAGE>
Other income - net:
The following table sets forth other income for the three and nine month
periods ended November 30, 1999 and 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
1999 Change 1998 1999 Change 1998
--------- ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Other income $ 360 (34.7%) $ 551 $1,235 (45.9%) $2,282
Percentage of total revenues 1.0% 1.3% 1.1% 1.7%
</TABLE>
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 and nine months ended
November 30, 1999 primarily due to decreased interest earned as a result of the
Company's investment balances being reduced to fund operating activities during
fiscal 2000.
Provision (benefit) for income taxes:
The following table sets forth income tax provision (benefit) for the three
and nine month periods ended November 30, 1999 and 1998 (dollar amounts in
thousands):
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
1999 Change 1998 1999 Change 1998
-------- -------- -------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Income tax provision (benefit) $ 15 100.3% $(4,927) $(657) 95.1% $(13,456)
Percentage of loss before
income taxes (0.3%) 32.1% 7.7% 35.1%
</TABLE>
The income tax provision for the three months ended November 30, 1999 was
$15,100 and the income tax benefit for the nine months ended November 30, 1999
was $657,400. The quarterly tax expense for the three month period ended
November 30, 1999 primarily relates to foreign withholding and state income
taxes. The net increase for the nine months ended November 30, 1999 is primarily
from an increase in US federal and state deferred tax assets related to
depreciation and a decrease in the deferred tax liability related to software
development which results in an income tax benefit.
Net loss and net loss per share:
The following table sets forth net loss for the three and nine month
periods ended November 30, 1999 and 1998 (dollar amount in thousands, except per
share data):
<TABLE>
<CAPTION>
Three months ended November 30, Nine months ended November 30,
1999 1998 1999 1998
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net loss $(4,805) $(10,407) $(7,851) $(24,912)
Net loss per share - basic $ (0.17) $ (0.39) $ (0.29) $ (0.95)
Net loss per share - diluted $ (0.17) $ (0.39) $ (0.29) $ (0.95)
Shares used in basic computation 27,590 26,520 27,297 26,285
======= ======== ======= ========
Shares used in diluted calculation 27,590 26,520 27,297 26,285
======= ======== ======= ========
</TABLE>
13
<PAGE>
Liquidity and capital resources:
The following table sets forth liquidity and capital resources as of
November 30, 1999 and February 28, 1999 (amounts in thousands):
<TABLE>
<CAPTION>
As of
November 30, 1999 Change Feburary 28, 1999
----------------- ------ -----------------
<S> <C> <C> <C>
Working capital $32,966 5.9% $31,138
</TABLE>
The Company has historically financed its growth primarily through funds
generated from operations, through proceeds from offerings of capital stock, and
to a lesser extent, through short-term borrowings under a revolving credit
facility. The increase in working capital at November 30, 1999 as compared to
February 28, 1999 primarily resulted from a decrease in current liabilities,
a large component of which was the utilization of the restructuring accrual
recorded in the second half of fiscal 1999.
The Company's operating activities provided cash of approximately $400,000
for the nine months ended November 30, 1999. Operating cash flows increased for
the period primarily because non-cash operating expenses were partially offset
by the net loss for the period and the net change in assets and liabilities.
Investing activities provided cash of approximately $2.8 million for the
nine months ended November 30, 1999, because of the sale of marketable
securities which were partially offset by the capitalization of software
development costs and the purchase of fixed assets and software licenses.
Financing activities provided cash of approximately $8.3 million for the
nine months ended November 30, 1999, consisting primarily of additional short-
term borrowings by the Company under a revolving credit facility and proceeds
from the exercise of employee stock options and purchases of stock through the
Company's employee stock purchase plan.
The Company has an unsecured revolving credit facility commitment with a
commercial bank. During the third quarter, the Company renewed its revolving
credit facility. The current agreement, unless renewed, will expire in September
of 2000. Under its terms, the Company may request cash advances, letters of
credit, or both in an aggregate amount of up to $20 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 financial covenants that the Company
believes are typical for a facility of this nature and amount. As of November
30, 1999, $13.2 million was outstanding on the revolving credit facility. On
December 7, 1999, the Company repaid all of the $13.2 million outstanding on the
revolving credit facility.
For the fiscal year ended February 28, 1999, the Company incurred a loss of
approximately $96 million, which included restructuring charges of approximately
$34 million. As noted above, the Company restructured certain of its business
operations during the second half of fiscal 1999 to reduce operating expenses,
continue its efforts to improve execution and efficiencies, better align
expenses with revenues, and enhance its sales and marketing activities to meet
the challenges of the marketplace. The Company's restructuring activities
included significant headcount reductions, simplification and reorganization of
the Company's senior management team, hiring a new Chief Executive Officer and
other members of the Executive Team, and an increased focus on and increased
investments in the Company's e-commerce enabled supply chain solutions. The
restructuring actions effected in fiscal 1999 decreased operating expenses in
the three and nine month periods ended November 30, 1999 compared with the same
periods in fiscal 1999. There can be no assurances that the Company's
restructuring actions and decrease in operating expenses will be sufficient to
return the Company to profitability.
The Company believes that its existing cash balances and marketable
securities, anticipated funds generated from operations, and amounts available
under its revolving credit facility and other possible sources of funding will
be sufficient to meet its anticipated liquidity and working capital requirements
in the near term. The Company anticipates that, in light of its operating
results for fiscal 1999 and the first nine months of fiscal 2000, the cost of
any additional funds which the Company might obtain, might be greater than the
cost of funds available to the Company under its existing revolving credit
facility or otherwise. In the event that the Company requires additional
financing and is unable to obtain it on terms satisfactory to the Company, its
liquidity, results of operations, and financial condition would be materially
adversely affected. The Company believes that inflation did not have a material
effect on its results of operations in the nine month period ended November 30,
1999.
14
<PAGE>
In June, 1999, the Company negotiated and executed agreements with a
developer and other parties to terminate certain obligations related to the
development of a new office building. The Company has agreed to pay a total of
approximately $3.7 million in installment payments. The Company has made
payments of $2 million and will pay the balance in installments through March
31, 2001. The Company believes that it will have adequate funds available to
meet the remaining payment obligations on a timely basis.
Certain information regarding commitments and contingencies, including
pending litigation, which may have an adverse impact on the Company's 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.
15
<PAGE>
Year 2000 Compliance
General. Prior to January 1, 2000, there was a great deal of concern
regarding the ability of computers to adequately distinguish 21st century
dates from 20th century dates due to the two-digit date fields used by many
systems. The Company believes that its compliance and remediation efforts
leading up to the Year 2000 were effective in preventing any material problems,
since the Company has not received any reports to date of any erroneous results
or system failures in the software products it markets or in the software and
hardware it utilizes internally due to the changeover to the Year 2000. There
may, however, still be residual problems related to the change in centuries. Any
such difficulties could result in a decrease in the sales of the software and
services the Company provides, an increase in the allocation of both the
Company's and our clients' resources to address Year 2000 problems without
additional revenue commensurate with such dedication of resources, or an
increase in litigation costs relating to losses suffered by the Company or its
clients due to such Year 2000 problems.
While the Company believes that it has adequately tested and modified the
products it currently actively markets, the Company did not test or modify all
prior versions of its software products or certain software products that the
Company replaced with either new software products or Year 2000 compliant
releases prior to the end of calendar 1999. All clients that licensed the
Company's software have been contacted and strongly encouraged to upgrade to a
Year 2000 compliant version of the Company provided software. The Information
Technology Association of America ("ITAA") has certified the Company's software
development processes as part of the Company's comprehensive effort to address
the Year 2000 issues.
Corporate infrastructure state of readiness. The Company believes that its
identification of Year 2000 compliance issues is complete with respect to the
Company's internal operating systems. The infrastructure is composed of
Information Technology ("IT") systems (e.g., financial, human resources, order
entry, client support tracking, and voicemail) and non-IT systems (i.e.,
elevators, fire suppression systems, and United Parcel Service systems). The
Company believes that all identified systems that were at risk were made Year
2000 compliant or replaced before December 31, 1999 and that its business-
critical systems that have date sensitivity were fixed, tested, and in place
before the year 2000. The Company believes that it has communicated with all its
material vendors, suppliers, landlords, and other third parties regarding Year
2000 compliance of embedded processors in computers, facilities, software, other
information technology, and other products and services which the Company
obtains from such third parties. The Company believes that affected embedded
processors were replaced before the year 2000. The Company has tested all
business-critical systems for Year 2000 compliance, whether or not these systems
were warranted Year 2000 compliant by the manufacturer. The Company made
required modifications to the IT and non-IT systems within the corporate
infrastructure. The Company continues to monitor and assess Year 2000 issues
relating to such products, facilities, and services.
Costs. The Company has expensed approximately $466,000 through November 30,
1999 in its Year 2000 compliance program, mainly for consulting services and
hardware costs. Approximately sixty percent (60%) of the costs were for
modification and replacement, approximately twenty-seven percent (27%) were for
testing, and approximately thirteen percent (13%) of the costs were for
identification and assessment of the Year 2000 issue. The portion of this amount
attributable to fiscal 2000 constitutes approximately two percent (2%) of the IT
budget for fiscal 2000. The Company incurred no further material costs prior to
January 1, 2000 in connection with the implementation of its Year 2000
compliance program.
Risks. Software products as complex as those offered by the Company might
contain undetected errors or failures when first introduced or when new versions
are released. This includes the risk that products thought to be Year 2000
compliant were not Year 2000 compliant. While the Company believes that it
adequately assessed, corrected, and tested its products to address the Year 2000
issue, there can be no assurances that the Company's software products contain
all necessary date code changes or that errors will not be found in new products
or product enhancements after commercial release, which could result in loss of
or delay in market acceptance or potential liability to our client or other
third parties. In addition, the Company might experience unforeseen difficulties
that could delay or prevent the continued successful development and release of
products that are Year 2000 compliant. If the Company experiences any unforeseen
delays, there could be a material adverse effect upon the Company's business,
operating results, financial condition, and cash flows.
The Company utilizes third-party vendor equipment, telecommunications
products, and software products, all of which appear to be functioning normally
in the Year 2000. There may, however, still be residual problems related to the
change in centuries. The failure of any critical technology components to
operate properly may have a material impact on business operations or require
the Company to incur unanticipated expenses to remedy any problems.
16
<PAGE>
Factors That May Affect Future Results
In addition to the other information in this Quarterly Report on Form 10-Q,
the following factors should be considered in evaluating the Company and its
business. The Company's operating results have varied in the past and might vary
significantly in the future because of factors such as domestic and
international business conditions or the general economy, the timely
availability and acceptance of the Company's products, technological change,
issues with the Year 2000 problem faced by clients and prospects, the effect of
competitive products and pricing, the effects of marketing pronouncements by
competitors or potential competitors, changes in the Company's strategy, the mix
of direct and indirect sales, changes in operating expenses, personnel changes,
and foreign currency exchange rate fluctuations. Furthermore, clients may defer
or cancel their purchases of the Company's products if they experience a
downturn in their business or if there is a downturn in the general economy. The
discussion below addresses risk factors that have arisen or changed in the
Company's third quarter. 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 the Company's
Annual Report on Form 10-K filed for the year ended February 28, 1999.
Year 2000 Issues
A discussion of certain risks relating to Year 2000 issues is set forth
above in Item 2 under "Year 2000 Compliance."
Recent Senior Management Changes
After the end of the third quarter, the Company hired Raghavan Rajaji as
new Chief Financial Officer and Executive Vice President.
The Company's success depends on the ability of its new management team to
work together and lead the Company effectively. The Company's business, revenues
and financial condition will be materially adversely affected if its new senior
management team does not manage the Company effectively or if it is unable to
attract additional senior management in a timely manner or retain existing
senior management personnel.
17
<PAGE>
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, the Company 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, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements in
this Quarterly Report or elsewhere. The risks and uncertainties that may affect
the business, operating results or financial condition of the Company 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 the ability of the Company to hire and thereafter to train, integrate, and
deploy its 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 the Company's customers
and prospects, 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.
The Company believes that the market for supply chain planning software
continues to expand. However, if market demand for the Company's products does
not manifest itself or grow as rapidly as the Company expects, revenue growth,
margins, or both could be adversely affected. If competitors make acquisitions
of other competitors or establish cooperative 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 the Company's products successfully develop and market such
functionality, revenue growth could be adversely affected.
There can be no assurance that the Company will be able to attract
complementary software vendors, consulting firms, or other organizations that
will be able to market the Company's 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 the Company and its products, and the loss
of current relationships with important organizations could materially adversely
affect the Company's results of operations.
18
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency. In the three and nine months ended November 30, 1999, the
Company generated approximately 33% of its revenues outside the United States
and Canada. International sales usually are made by the Company's foreign
subsidiaries in the local currencies and the expenses incurred by foreign
subsidiaries are denominated in the local currencies.
In certain circumstances, the Company enters 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. The Company manages its 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, 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 the Company's Board of Directors. These
instruments are denominated in U.S. dollars. The fair market value of securities
held at November 30, 1999 was approximately $14.4 million.
The Company also holds 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 the Company's investments carry a degree of interest rate risk.
When interest rates fall, the Company's income from investments in variable-rate
securities decline. When interest rates rise, the fair market value of the
Company's investments in fixed-rate securities declines. The Company attempts to
mitigate interest rate risk by holding fixed-rate securities to maturity.
However, should the Company's liquidity needs force it to sell fixed-rate
securities prior to maturity, the Company may experience a loss of principal.
19
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company is a party to legal
proceedings and claims. In addition, from time to time, the Company may have
contractual disagreements with certain clients concerning the Company's products
and services. The Company has established accruals related to such matters that
are probable and reasonably estimable. In management's opinion, any liability
that may ultimately result from the resolution of these matters in excess of
amounts provided would not be likely to have a material adverse effect on the
financial position of the Company.
As previously reported by the Company, most recently in its Quarterly
Report on Form 10-Q for the quarter ended August 31, 1999, Information
Resources, Inc. ("IRI") commenced legal proceedings against the Company in
January, 1999, in which IRI seeks damages for the alleged breach of a Data
Marketing and Guaranteed Revenue Agreement and certain related agreements. These
proceedings remain in the early stages.
On July 15, 1999, Template Software, Inc. ("Template") filed suit against
Manugistics, Inc. ("Manugistics"), the Company's principal subsidiary, in the
United States District Court for the Eastern District of Virginia, Alexandria
Division, alleging that Manugistics provided software that did not satisfy the
requirements of a software license agreement Template entered into with
Manugistics in November, 1998 (the "Agreement"). Template seeks damages of at
least $1.25 million, which represents the amount of software license fees paid
by Template under the Agreement. Manugistics has responded to the complaint and
filed counterclaims against Template including a counterclaim for recovery of
approximately $600,000 for unpaid consulting services provided by Manugistics.
Discovery in the case is almost complete; trial is scheduled to begin on
February 15, 2000. Manugistics and Template have engaged in settlement
discussions from time to time; however, Manugistics cannot predict whether the
matter will be settled.
As previously reported in the Current Report on Form 8-K which the Company
filed with the SEC on August 17, 1999, the United States District Court for the
District of Maryland, issued an order dismissing the previously reported class
action complaint against the Company, its chairman, and its former chief
financial officer. The court dismissed the complaint for failure to state a
claim on which relief can be granted. The plaintiffs filed an appeal of the
ruling. The parties have reached an agreement in principle for the settlement of
the litigation, subject to preparation of a formal settlement agreement and
approval of the settlement agreement by the court. The settlement would be
funded by the Company's insurance carrier.
The ultimate outcome of these lawsuits, 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 these lawsuits could have a
material adverse effect on the Company's business, operating results, financial
condition and cash flows.
20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.39 Employment Agreement dated December 6, 1999 between Manugistics, Inc.
and Raghavan Rajaji.
27 Financial Data Schedule
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the
quarter ended November 30, 1999.
21
<PAGE>
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: January 13, 2000 By:
--
/s/ Gregory J. Owens
---------------------------------------
Gregory J. Owens
President and Chief Executive Officer
/s/ Raghavan Rajaji
---------------------------------------
Raghavan Rajaji
Chief Financial Officer
22
<PAGE>
EXHIBIT 10.39
[LETTERHEAD OF MANUGISTICS]
December 6, 1999
Mr. Raghavan Rajaji
2612 Regatta Drive
Plano, Texas 75093
Dear Raj,
On behalf of Manugistics, Inc., as well as its parent company, Manugistics
Group, Inc., and the Board of Directors of both, we are very pleased to confirm
our verbal offer for the position of Executive Vice President and Chief
Financial Officer as of December 6, 1999. This position reports to the President
and CEO of Manugistics.
Cash Compensation. In this position, your annual base salary is $275,000. In
addition, you are eligible to receive an annual incentive bonus of up to
$180,000. The incentive bonus is payable as follows: 50% based on the financial
performance of the Company and 50% based upon management objectives. This will
be paid on a quarterly basis. The bonuses will be payable under the plan
submitted by you within the first ninety (90) days of your employment and
approved by the President and CEO.
Stock Options. We are also pleased to offer you a stock option package as
follows:
An option, granted as of your date of hire, to purchase 225,000 shares of
Manugistics Group, Inc. common stock ("Manugistics Stock") in accordance with
the Manugistics 1998 Stock Option Plan (the fair market value on your date of
hire is determined by taking the average of the high and low stock price for the
previous business day).
The vesting period for the stock options under this first option shall commence
on the date of grant and vest over a four (4) year period, in equal monthly
increments.
<PAGE>
Mr. Raghavan Rajaji
December 6, 1999
Page Two
Additional Stock Award. In addition, you will receive an option to purchase
additional shares of Manugistics Stock as follows:
. If Manugistics Stock price reaches $35/share or a $200M annualized run rate
defined by a $50M revenue quarter, which ever comes first, you will have
the option to purchase 35,000 shares on the last day of the fifteen (15)
day period during which the stock maintains a closing price of at least
$35/share.
In keeping with Manugistics policy, all offers are contingent upon successful
completion of employment references.
Benefits. Effective on your first day of employment and as a key executive in
the Company, you will be eligible for the comprehensive Manugistics benefits
program in accordance with the Company's written plans and which includes:
. Stock Options - as set forth above
. Employee Stock Purchase Plan
. 401(k) Retirement Plan
. Comprehensive Medical Care
. Dental Care
. Employee Vision Care
. Life Insurance
. Accidental Death and Dismemberment Insurance
. Long Term Disability
. Vacation (please refer to the attached benefits sheet)
Relocation. You are also eligible to receive relocation benefits. Please see
the attached Manugistics Relocation Expense Reimbursement Agreement and
Relocation Policy. The details of your relocation package will be agreed upon by
you and the President and CEO.
<PAGE>
Mr. Raghavan Rajaji
December 6, 1999
Page Three
Termination. If the Company terminates your employment for reasons other than
cause, you will receive your base salary and benefits in accordance with the
Company's payroll practices during the six (6) month period commencing on your
termination date ("severance period"). The foregoing salary and benefits
payments will cease if you secure alternative employment during the severance
period. In addition, if the Company terminates your employment for reasons other
than cause, the Company will continue the monthly vesting of the options granted
to you pursuant to this letter for a period of six (6) months following your
termination date.
Change of Control. In the event that the Company has a change of control, which
is defined as fifty one percent (51%) of the Company's voting stock having a
change in ownership: (a) if your responsibilities are not affected, fifty
percent (50%) of your outstanding options set out above shall immediately vest;
(b) if your responsibilities are significantly diminished or you are
constructively terminated, i.e., your responsibilities no longer consist of
those reasonably associated with the position of Executive Vice President and
Chief Financial Officer, one hundred percent (100%) of the outstanding options
set out above shall immediately vest.
Final Determination by Board. All compensation and benefits included as part of
this offer will conform to the Company's standard policies, practices and plans.
In the event of any question with regard to the compensation and benefits
described in this letter, the Compensation Committee of the Board of Directors
will make the final determination with regard to any interpretation relating to
the elements of your compensation package.
In keeping with Manugistics policy, all offers are contingent upon execution of
Manugistics, Inc.'s Conditions of Employment.
<PAGE>
Mr. Raghavan Rajaji
December 6, 1999
Page Four
Please signify your acceptance of this offer by signing and dating this letter.
We look forward to your joining Manugistics as Executive Vice President and
Chief Financial Officer and we are confident that the association will be
mutually rewarding.
Sincerely,
/s/ Gregory J. Owens
- ------------------------------------
Gregory J. Owens
Accepted by Raghavan Rajaji
/s/ Raghavan Rajaji
- ------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR THE PERIOD ENDED NOVEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-END> NOV-30-1999
<CASH> 31,997
<SECURITIES> 14,387
<RECEIVABLES> 43,061
<ALLOWANCES> 2,969
<INVENTORY> 56
<CURRENT-ASSETS> 97,687
<PP&E> 40,940
<DEPRECIATION> 26,092
<TOTAL-ASSETS> 150,922
<CURRENT-LIABILITIES> 64,721
<BONDS> 320
0
0
<COMMON> 57
<OTHER-SE> 82,582
<TOTAL-LIABILITY-AND-EQUITY> 150,922
<SALES> 38,423
<TOTAL-REVENUES> 108,782
<CGS> 9,596
<TOTAL-COSTS> 75,915
<OTHER-EXPENSES> 21,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,508)
<INCOME-TAX> (657)
<INCOME-CONTINUING> (7,851)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,851)
<EPS-BASIC> (.29)
<EPS-DILUTED> (.29)
</TABLE>
