MANHATTAN ASSOCIATES, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2005
OR
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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: 000-23999
Manhattan Associates, Inc.
(Exact Name of Registrant As Specified in Its Charter)
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Georgia |
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58-2373424 |
(State or Other Jurisdiction of
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(I.R.S. Employer Identification No.) |
Incorporation or Organization) |
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2300 Windy Ridge Parkway, Suite 700 |
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Atlanta, Georgia
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30339 |
(Address of Principal Executive Offices)
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(Zip Code) |
Registrants telephone number, including area code: (770) 955-7070
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Name of Each Exchange on Which Registered |
None
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None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section
13 or 15(d) of the Act. Yes o No þ
Note Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated
filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer
in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer o
Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates
of the Registrant as of June 30, 2005 was $543,004,671, which was calculated based upon a closing sales
price of $19.21 per share of the Common Stock as reported by the Nasdaq Stock Market on the same
day. As of March 10, 2006, the Registrant had
outstanding 27,265,566 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrants definitive Proxy Statement for the Annual Meeting of Shareholders to be held
May 19, 2006 is incorporated by reference in Part III of this Form 10-K to the extent stated
herein.
TABLE OF CONTENTS
Forward-Looking Statements
In addition to historical information, this Annual Report may contain forward-looking
statements relating to Manhattan Associates, Inc. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those contemplated by such
forward-looking statements. Among the important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements are delays in product
development, undetected software errors, competitive pressures, technical difficulties, market
acceptance, availability of technical personnel, changes in customer requirements and general
economic conditions. Additional factors are set forth in the Risk Factors in Part I, Item 1A of
this annual report. We undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes in future operating
results. Our Annual Report on Form 10-K is available through our Website at www.manh.com.
PART I
Overview
We are a leading developer and provider of technology-based supply chain software solutions
that help companies manage the effectiveness and efficiency of their supply chain. Our solutions
consist of software, services and hardware and are used for both the planning and execution of
supply chain activities. These solutions help coordinate the actions and communication of
manufacturers, suppliers, distributors, retailers, transportation providers and consumers.
All of our solutions also include services such as design, configuration, implementation,
product assessment and training plus customer support and software enhancement subscriptions. Some
key benefits of implementing our solutions include:
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Optimizing inventory levels; |
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Improving inventory and order accuracy; |
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Improving compliance with customer requirements, including RFID/EPC requirements; |
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Facilitating multi-channel planning and fulfillment; |
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Improving visibility of inventory, order status and delivery status; |
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Enhancing communication with other participants in the supply chain, including
suppliers, customers and transportation providers; |
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Increasing the productivity of labor, facilities and materials-handling equipment; and |
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Lowering transportation costs. |
We are a Georgia corporation formed in February 1998 to acquire all of the assets and
liabilities of Manhattan Associates Software, LLC, our predecessor. References in this filing to
the Company, Manhattan, Manhattan Associates, we, our, and us refer to Manhattan
Associates, Inc., our predecessors, and our wholly-owned and consolidated subsidiaries. Our
principal executive offices are located at 2300 Windy Ridge Parkway, Suite 700, Atlanta, Georgia
30339, and our telephone number is 770-955-7070.
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Industry Background
Modern companies face increased globalization, outsourcing, channel convergence and regulatory
and security requirements. In addition, technological innovations, such as RFID, rising logistics
costs, increasing competition and smaller margins are causing companies to closely examine their
supply chain operations. These companies have realized that, if planned and executed properly, the
supply chain can be a major competitive differentiator.
The traditional push methodology, where companies would dictate customers options, has given
way to a more customer demand-driven, pull methodology. The result has been an increased need for
better plans, increased communication with trading partners and a closer examination of business
process and systems. Unlike in the past, when companies were looking to simply establish supply
chain management systems, they are now looking to maximize their investments across the supply
chain. In doing so, they are seeking to solve specific operational pain points with solutions that
can scale as their business grows and integrate with other systems, such as their ERP system,
material handling equipment or other solutions. In addition, companies are increasingly seeking to
reduce the number of vendors they work with and increase overall integration without compromising
quality or performance.
Manhattan Associates Solutions and Services
Solutions. Our solutions are designed to enable our customers to manage their supply chain.
They include planning components that allow companies to plan inventory, create forecasts and
replenish inventory on an ongoing basis. They also include execution components that help companies
manage the efficient flow of goods through distribution centers and transportation networks, while
maintaining ongoing communication with trading partners. Our solutions operate across the Unix,
iSeries (AS/400) and Microsoft .NET computing platforms. Our solutions operate on multiple
hardware platforms utilizing various hardware systems and inter-operate with many third-party
software applications and legacy systems. This interfacing and open system capability enables
customers to continue using their existing computer resources and to choose among a wide variety of
existing and emerging computer hardware and peripheral technologies. We provide adapters for most
ERP systems to enhance communication and reduce implementation costs between our core products and
our clients host systems. We currently offer interfacing adapters to systems developed by Oracle,
SAP, Lawson, JDA Software, Essentus and Intentia.
We call the combination of our supply chain planning solutions Integrated Planning Solutions
which consist of the following:
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Advanced Planning allows companies to plan their inventory using several methodologies.
Included in Advanced Planning are: Financial and Item Planningwhich enables companies to
develop top-down and bottom-up plans across multiple channels and multiple levels of the
product hierarchy; Catalog Planning and Web Planningwhich support the unique planning
requirements of the catalog and Web channels; and Promotion Planningwhich allows
companies to plan and manage promotional events and assortments. |
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Demand Forecasting enables companies to generate and maintain forecasts at different
levels of product data. It also includes a Promotion Forecasting solution which generates a
promotion forecast and promotional lift based on historical sales. |
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Replenishment helps companies regulate, maintain and deploy inventory. It is also
offered to companies for Vendor Managed Inventory, as a solution to allow them to manage
their own replenishment. |
We refer to the combination of our supply chain execution solutions as Integrated Logistics
Solutions which consist of the following:
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Distributed Order Management manages the order fulfillment process, capturing and
allocating orders across multiple supply chain channels to balance supply with demand. |
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Warehouse Management manages the processes that take place in a distribution center,
beginning with the placement of an order by a customer and ending with the order
fulfillment process. It includes a dynamic billing solution called Billing Management,
which captures information from supply chain systems to enable logistics service providers
to track and bill clients for inventory handling, storage, fulfillment and transportation
activities. |
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Slotting Optimization helps determine the optimal layout and placement of products in a
distribution facility. |
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Labor Management enables the tracking, monitoring and management of employee activities
within the warehouse. |
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Transportation Management allows companies to plan, procure and execute transportation
services. Within Transportation Management are the following solutions: Transportation
Procurementwhich enables the development and management of a transportation strategy that
considers business factors while soliciting bids from transportation providers and
designing the execution plan around it; Transportation Planning and Executionwhich allows
shippers to execute on transportation plans and adjust their transportation network in real
time based on events; Fleet Managementwhich allows companies to manage both private and
dedicated fleets; Audit Payment and Claimswhich automates freight invoicing processing,
payment and reconciliation to provide closed loop financial reconciliation of
transportation processes; and Carrier Managementwhich allows carriers to manage their
overall transportation network and their use of resources and assets. |
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Yard Management plans, executes, tracks and audits all incoming and outgoing loads,
providing visibility into yard activities and managing both the yard and dock doors. |
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Trading Partner Management synchronizes the business processes and communication of
suppliers, manufacturers, distributors, logistics service providers and customers. It
includes Supplier Enablementwhich extends execution capabilities to vendors and factories
trading partners through purchase order management and fulfillment and shipping management;
Logistics Hub Managementwhich extends execution capabilities to hubs, enabling them to
manage and create advance ship notices; Carrier Enablementwhich provides visibility to
in-transit shipments and allows carriers to provide shipment status to create greater
visibility; and Customer/Store Enablementwhich provides order and inventory visibility
and Web-based order entry for both customers and shippers. |
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Reverse Logistics Management manages and automates the returns processtracking,
storing, referencing and reporting on returned merchandise to increase net asset recovery. |
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RFID Solutions help capture and track EPC data and utilize this information to better
manage and track inventory. They include: EPC Managerwhich captures and tracks unique EPC
event data and integrates with other applications and existing systems to share this data;
Enterprise EPC Managerwhich collects EPC data across the entire enterprise into a single
repository; and Integration Manager for RFIDwhich enables the integration of RFID
capabilities with other solutions, includes other Manhattan Associates solutions. |
Our Business Intelligence solution is called Performance Management. Performance Management
captures transaction-related data from our planning and execution solutions and transforms that
data into actionable information.
Our Business Process Platform, which we call Logistics Event Management Architecture (LEMA),
manages the flow of data between our solutions.
Professional Services. Our professional services provide our customers with expertise and
assistance in planning and implementing our solutions. To ensure a successful product
implementation, consultants assist customers with the initial installation of a system, the
conversion and transfer of the customers historical data onto our system, and ongoing training,
education and system upgrades. We believe that our professional services enable the customer to
implement our software rapidly, ensure the customers success with our solution, strengthen the
relationship with the customer, and adds to our industry-specific knowledge base for use in future
implementations and product development efforts.
Although our professional services are optional, substantially all of our customers use at
least some portion of these services for the implementation and ongoing support of our software
solutions. Professional services are typically rendered under time and materials-based contracts,
with services typically billed on an hourly basis. Professional services are sometimes rendered
under fixed-fee based contracts, with payments due on specific dates or milestones. We believe
that increased sales of our software solutions will drive higher demand for our consulting
services.
Our professional services group consists of business consultants, systems analysts and
technical personnel devoted to assisting customers in all phases of the implementation of our
systems, including planning and design,
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customer-specific configuring of modules, and on-site implementation or conversion from
existing systems. Our consulting personnel undergo extensive training on supply chain operations
and our products. We believe that this training enables us to productively use newly-hired
consulting personnel. At times, we use third-party consultants, such as those from major systems
integrators, to assist our customers in certain implementations.
We have developed a proprietary, standardized implementation methodology called PRISM, which
leverages our solutions architecture with the knowledge and expertise gained from completing more
than 2,500 installations worldwide. The modular design of our solutions significantly reduces the
complexities associated with integrating to existing systems, including ERP, Supply Chain
Management (SCM), Customer Relationship Management (CRM), e-business systems and complex
material handling systems. As a result, we have been able to deploy a fully automated inbound and
outbound system in less than two months.
Customer Support Services and Software Enhancements. We offer a comprehensive program that
provides our customers with timely software upgrades that offer additional or improved
functionality and technological advances incorporating emerging supply chain and industry
initiatives. Over the last three years, our annual renewal rate of customers subscribing to
comprehensive support and enhancements has been approximately 90%. We have the ability to remotely
access the customers system in order to perform diagnostics, on-line assistance and assist in
software upgrades. We offer 24x7 customer support plus software upgrades for an annual fee paid in
advance, determined based on the level of service needed by the customer.
Training. We offer training in a structured environment for new and existing users. Training
programs are provided on a per-person, per-class basis at fixed fees. We currently have courses
available to provide training on solution use, configuration, implementation and system
administration. We have also developed several computer-based training programs that can be
purchased for a fixed fee for use at client sites.
Hardware. In conjunction with the licensing of our software, we resell a variety of hardware
products developed and manufactured by third parties in order to provide our customers with an
integrated supply chain execution solution. These products include computer hardware, radio
frequency terminal networks, RFID chip readers, bar code printers and scanners, and other
peripherals. We resell all third-party hardware products pursuant to agreements with manufacturers
or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase
hardware products at discount prices and to receive technical support in connection with product
installations and any subsequent product malfunctions. We generally purchase hardware from our
vendors only after receiving an order from a customer. As a result, we do not maintain significant
hardware inventory.
Strategy
Our objective is to extend our position as a leading supply chain solutions provider. These
solutions help global manufacturers, retailers and transportation providers successfully manage
growing demands as well as the increasing complexity and volatility of their local and global
supply chains. Our solutions are advanced, highly functional, highly scalable and allow our
customers to improve relationships with suppliers, customers and transportation providers, leverage
their investments across the supply chain, effectively manage costs and meet dynamically changing
customer requirements. Our strategies to accomplish our objective include the following:
Develop and Enhance Software Solutions. We intend to continue to focus our product
development resources on the development and enhancement of our software solutions. We offer what
we believe to be the broadest solution set in the supply chain solutions marketplace, to address
all aspects of advanced planning, demand forecasting, replenishment, distributed order management,
warehouse management, slotting optimization, labor management, yard management, transportation
management, trading partner management, reverse logistics management, RFID and performance
management. In order to provide additional functionality and value to our solutions, we plan to
continue to provide enhancements to existing solutions and to introduce new solutions to address
evolving industry standards and market needs. We identify further enhancements to our solutions
and opportunities for new solutions through our customer support organization as well as ongoing
customer consulting engagements and implementations, interactions with our user groups and
participation in industry standards and research committees. Our solutions address the needs of
customers in various vertical markets including retail, consumer goods, food and grocery, logistics
service providers, industrial and wholesale, high technology and
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electronics, life sciences and government. We intend to continue to enhance the functionality
of our solutions to meet the dynamic requirements of these vertical markets as well as new vertical
markets.
Expand International Sales. We believe that our solutions offer significant benefits to
customers in international markets. We have over 700 employees outside the United States focused
on international sales, servicing our international clients and product development. In addition
to offices in Australia, China, France, India, Japan, the Netherlands, Singapore and the United
Kingdom, we have also established reseller partnerships in Latin America to complement our office
in Mexico. Our international strategy includes leveraging the strength of our relationships with
current customers that also have significant overseas operations and the pursuit of strategic
marketing partnerships with international systems integrators and third-party software application
providers.
Expand Our Strategic Alliances and Indirect Sales Channels. We currently sell our products
primarily through our direct sales personnel and select resellers. We have worked on joint
projects and joint sales initiatives with industry-leading consultants and software systems
implementers, including most of the large consulting firms and other systems consulting firms
specializing in our targeted industries, to supplement our direct sales force and professional
services organization. We have been expanding our indirect sales channels through reseller
agreements, marketing agreements, agreements with third-party logistics providers and Microsoft
business partners. These alliances extend our market coverage and provide us with new business
leads and access to trained implementation personnel. We have strategic alliances with
complementary software providers, third party integrators/consultants and hardware vendors
including CSC Consulting, HP Technology, IBM, KSA Consulting, Microsoft, Q4 Logistics, Sedlak,
Tompkins, UPS Technology and Vocollect.
Acquire or Invest in Complementary Businesses. We intend to pursue strategic acquisitions of
technologies, solutions and businesses that enable us to enhance and expand our supply chain
planning and execution solutions and service offerings. More specifically, we intend to pursue
acquisitions that will provide us with complementary solutions and technologies, expand our
geographic presence and distribution channels, extend our presence into other vertical markets with
similar challenges and requirements of those we currently meet and/or further solidify our
leadership position within the primary components of supply chain planning and execution.
Sales and Marketing
We employ multiple discipline sales teams that consist of professionals with industry
experience in sales and technical sales support. To date, we have generated the majority of our
revenue from sales of software through our direct sales force. We plan to continue to invest
significantly to expand our sales, services and marketing organizations within the United States,
Europe, the Middle East and Africa (EMEA) and Asia Pacific and to pursue strategic marketing
partnerships. We conduct comprehensive marketing programs that include lead generation, public
relations, trade shows, joint programs with vendors and consultants and ongoing customer
communication programs. The sales cycle typically begins with the generation of a sales lead,
through in-house telemarketing efforts, trade shows or other means of referral, or the receipt of a
request for proposal from a prospective customer. The sales lead or request for proposal is
followed by the qualification of the lead or prospect, an assessment of the customers
requirements, a formal response to the request for proposal, presentations and product
demonstrations, site visits to an existing customer using our supply chain solutions and contract
negotiation. The sales cycle can vary substantially from customer to customer, but typically
requires three to nine months.
In addition to sales to new customers, we will continue to leverage our existing customer base
to provide for system upgrades, sales of additional licenses of purchased solutions and sales of
new or add-on solutions. We also plan to further develop and expand our indirect sales channels,
including sales through reseller agreements, marketing agreements and agreements with third-party
logistics providers. To extend our market coverage and to provide us with new business leads and
access to trained implementation personnel, we further intend to develop and expand our strategic
alliances with systems integrators capable of performing implementations of our solutions.
Business referrals and leads helping us to grow our business continue to be positively influenced
by systems integrators, which include most of the large consulting firms and other systems
consulting firms specializing in our targeted industries. We believe that our leadership position
in providing supply chain solutions perpetuates the willingness of systems integrators to recommend
our solutions where appropriate.
We have an established program intended to foster joint sales and marketing efforts with our
business partners. In some cases, this included joint development work to make our products and
our partners products interface
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seamlessly. Among others, partnerships arising from our Manhattan Associates Partner Program
(MAP2) include: CSC Consultingglobal information technology (IT) services company;
Hewlett-Packardtechnology solutions provider to consumers, businesses and institutions globally;
IBMworlds largest information technology company which develops, manufactures and markets
semiconductor and interconnect technologies, products and services; KSA Consultingpremier global
management consulting firm offering integrated strategy, process and technology deployment
solutions to the consumer products & retail and health care industries; Microsoftworldwide leader
in software, services and solutions that help people and businesses realize their full potential;
Q4 Logisticssupply chain design and implementation solutions provider; Sedlaka supply chain
consulting company; Tompkinsthe leading operations-focused consulting and integration firm,
specializing in end-to-end supply chain solutions; UPS Technologythe worlds largest package
delivery company and a leading global provider of specialized transportation and logistics
services; and Vocollectthe global leader in Voice-Directed Work.
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Customers
To date, our customers have been suppliers, manufacturers, distributors, retailers and
transportation providers in a variety of industries. The following table sets forth a
representative list of customers that contracted to purchase solutions and services from us in
2005.
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Accra Pac Group
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Korus Consulting |
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Al-Azizia Panda United Inc.
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Legrand (fka Wiremold, Inc.) |
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Alliance UniChem
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Limited Brands, Inc. |
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American Mart DBA DeLuca Liquors
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Logix FZCO |
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AmeriCold Logistics
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Meridian IQ |
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Asbjorn Olafsson ehf
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Mervyns LLC |
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AtomicBox, Inc.
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Nippon Express USA, Inc. |
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Ballantine Produce Co., Inc.
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Nissin Corporation |
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BDI Laguna, Inc.
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Nobex ehf. |
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Belk, Inc.
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NYK Logistics (UWDC), Inc. |
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Belkin Components
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Olympus America, Inc. |
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Beretta USA Corp.
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OReilly Automotive, Inc. |
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Bosch Security Systems DE
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Party City Corporation |
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Bulova Corporation
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Patagonia, Inc. |
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Casio, Inc.
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PBM Nutritionals |
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Cheney Brothers, Inc.
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Perfect 10 Satellite Distribution |
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Clark Material Handling Company
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Proview Electronics Co. Ltd. |
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Coles Myer, Ltd.
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PT. Matahari Putra Prima Tbk |
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Columbia Sportswear Company
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Remington Arms Company, Inc. |
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Conair Corporation
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Revlon Consumer Products Corp. |
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Copernica, Inc. DBA Amplifier
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Roger & Roger NV |
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Cornerstone Brands, Inc.
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S.P. Richards Company |
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Davids Bridal, Inc.
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Sai Cheng Logistics International Co. Ltd. |
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DealEasy Information Technology
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Scholastic, Inc. |
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Deluxe Film Services (Deluxe Labs)
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simplehuman, LLC |
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DSC Logistics
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Sit-Up Ltd. |
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Egilsson hf
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Super Cheap Auto |
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Electronics Boutique of America, Inc.
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Tally-Weijl |
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Electronics for Imaging, Inc.
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TDG (UK) Limited |
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Elektra del Milenio S.A. de C.V.
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The Dannon Company, Inc. |
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Ellis Hosiery Mills, Inc.
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The Harvard Drug Group, LLC |
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Exel (Australia) Pty. Ltd.
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The Hillman Group, Inc. |
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Exel Plc.
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The Metropolitan Museum of Art |
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Federated Systems Group, Inc.
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The Standard Register Company |
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Genco Distribution System, Inc.
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Thomson Learning, Inc. |
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Genesco, Inc.
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Tibbett and Britten Limited |
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Gerber Childrenswear, Inc.
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TNT China |
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Global Home Products
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TNT Fashion Logistics, B.V. |
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Guess?, Inc.
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TNT Logistics North America, Inc. |
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Healthcare Logistics Limited
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Totes Isotoner |
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HP Products Corp.
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Transports Graveleau |
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Hudd Distribution Services, Inc.
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Tuck Sun |
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I y S Comerciales Trans Warrants
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Urban Brands |
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IBS Logistics
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USF Glen Moore, Inc. |
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Innovate Logistics
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Vandeputte Holding |
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Jockey International, Inc.
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Vertrue Incorporated |
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Jones Apparel Group, Inc.
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VF Services, Inc. |
Our top five customers in aggregate accounted for 16%, 14% and 14% of total revenue for each
of the years ended December 31, 2003, 2004 and 2005, respectively. No single customer accounted
for more than 10% of revenue in 2003, 2004 or 2005.
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Product Development
Our development efforts are focused on adding new functionality to existing solutions,
integrating the various solution offerings, enhancing the operability of our solutions across
distributed and alternative hardware platforms, operating systems and database systems and
developing new solutions. We believe that our future success depends in part upon our ability to
continue to enhance existing solutions, to respond to dynamically changing customer requirements
and to develop new or enhanced solutions that incorporate new technological developments and
emerging supply chain and industry standards. To that end, our development efforts frequently
focus on base system enhancements and the incorporation into our solutions of new user requirements
and features identified and created through customer and industry interactions and systems
implementations. As a result, we are able to continue to offer our customers a packaged, highly
configurable solution with increasing functionality rather than a custom-developed software
program. We have also developed interface toolkits for most major ERP systems to enhance
communication and improve data flows between our core solutions and our clients host systems.
We plan to principally conduct our development efforts internally in order to retain
development knowledge and promote the continuity of programming standards; however, some projects
that can be performed separately and/or require special skills may be outsourced. Periodically, we
use third-party research and development companies to localize our products into Chinese, Danish,
French, German, Japanese, Korean Spanish and Swedish. We also established an off-shore development
center in Bangalore, India during 2002, which now has nearly 350 research and development
professionals. The off-shore development center also employs several Indian citizens currently
working for and holding extensive development experience with us.
We continue to devote a significant portion of our research and development efforts to the
enhancement and integration of all of our solutions. We have developed a release program for all
solutions, which provides our customers with updates to our solutions. Our product development
efforts will principally be focused on enhancement of our existing solutions, development of new
solutions and modules and continued localization of our solutions into various international
markets.
Our research and development expenses for the years ended December 31, 2003, 2004 and 2005
were $27.0 million, $28.8 million, and $34.1 million, respectively. We intend to continue to
invest significantly in product development.
Competition
Our solutions are targeted at the supply chain planning and execution markets, which are
rapidly consolidating, intensely competitive and characterized by rapid technological change. The
principal competitive factors affecting the market for our solutions include:
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Vendor and product reputation; |
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Compliance with industry standards; |
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Solution architecture; |
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Solution functionality and features; |
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Integration experience, particularly with ERP providers and material handling equipment providers; |
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Industry expertise; |
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Ease and speed of implementation; |
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Return on investment; |
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Solution quality and performance; |
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Total cost of ownership; |
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Solution price; and |
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Level of support. |
We believe that we compete favorably with respect to each of these factors. Our competitors
are diverse and offer a variety of solutions directed at various aspects of the supply chain, as
well as the enterprise as a whole. Our existing competitors include:
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The corporate information technology departments of current or potential customers
capable of internally developing solutions; |
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Supply chain execution vendors, including Catalyst International, Inc., Highjump (3M),
Nistivo, Provia Software, Inc., RedPrairie Corporation and SSA Global Technologies, Inc.,
among others; |
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Supply chain planning vendors including Compass, Demandtech, JDA, Lawson and
SAS/Marketmax, among others; |
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ERP or supply chain management application vendors with solutions or modules of their
solution offering varying degrees of planning and execution functionality, such as i2
Technologies, Manugistics Group, Inc., Oracle Corp. and SAP AG; and |
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Smaller independent companies that have developed or are attempting to develop software
that competes with our supply chain solutions. |
We will continue to face competition in the future from ERP and supply chain management
applications vendors and business application software vendors that may broaden their solution
offerings by internally developing or by acquiring or partnering with independent developers of
supply chain planning and execution software. To the extent such ERP and supply chain management
vendors develop or acquire systems with functionality comparable or superior to our solutions,
their significant installed customer bases, long-standing customer relationships and ability to
offer a broad solution could provide a significant competitive advantage over our solutions. In
addition, it is possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. Increased competition could result in price
reductions, fewer customer orders, reduced gross margins and loss of market share. Both Oracle and
SAP have entered the market for supply chain management applications. We believe that the domain
expertise required to compete provides us with a competitive advantage and is a significant barrier
to market entry. However, some of our competitors have significant resources at their disposal,
and the degree to which we will compete with these new products in the marketplace is still
undetermined.
Many of our competitors and potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources, greater name recognition
and a larger installed base of customers than we do. In order to be successful in the future, we
must continue to respond promptly and effectively to technological change and competitors
innovations. We cannot assure you that our current or potential competitors will not develop
solutions comparable or superior in terms of price and performance features to those developed by
us. In addition, we cannot assure you that we will not be required to make substantial additional
investments in connection with our research, development, marketing, sales and customer service
efforts in order to meet any competitive threat, or that we will be able to compete successfully in
the future. Increased competition may result in reductions in market share, pressure for price
reductions and related reductions in gross margins, any of which could materially and adversely
affect our ability to achieve our financial and business goals. We cannot give assurance that in
the future we will be able to successfully compete against current and future competitors.
International Operations
Our international revenue was approximately $39.3 million, $48.7 million and $54.7 million for
the years ended December 31, 2003, 2004 and 2005, respectively, which represents approximately 20%,
23% and 22% of our total revenue for the years ended December 31, 2003, 2004 and 2005,
respectively. International revenue includes all revenue derived from sales to customers outside
the United States. We now have over 700 employees outside the
-10-
United States. We have offices in Australia, China, France, Germany, India, Japan, the
Netherlands, Singapore and the United Kingdom, as well as representatives in Mexico and reseller
partnerships in Latin America.
Proprietary Rights
We rely on a combination of copyright, trade secret, trademark, service mark and trade dress
laws, confidentiality procedures and contractual provisions to protect our proprietary rights in
our products and technology. We have registered trademarks for PkMS, PickTicket Management System,
PTRS, Have/Needs Analysis, LogisticsPRO, InfoLink, InfoLink Order, Infolink Source, PkCost, PkView,
PkAllocate, WorkInfo, SmartInfo, SlotInfo, SystemLink, DCMS, Logistics.com, RFID in a Box,
Integrated Logistics Solutions, Integrated Planning Solutions, Manhattan Associates and the
Manhattan Associates logo as a design mark. We have no registered copyrights. We generally enter
into confidentiality agreements with our employees, consultants, clients and potential clients and
limit access to, and distribution of, our proprietary information. We license our solutions to our
customers and restrict the customers use for internal purposes without the right to sublicense the
solutions. However, we believe that this provides us only limited protection. Despite our efforts
to safeguard and maintain our proprietary rights both in the United States and abroad, we cannot
assure you that we will successfully deter misappropriation or independent third-party development
of our technology or prevent an unauthorized third party from copying or obtaining and using our
products or technology. In addition, policing unauthorized use of our solutions is difficult, and
while we are unable to determine the extent to which piracy of our software solutions exist,
software piracy could become a problem.
As the number of supply chain management solutions in the industry increases and the
functionality of these solutions further overlaps, companies that develop software may increasingly
become subject to claims of infringement or misappropriation of intellectual property rights.
Third parties may assert infringement or misappropriation claims against us in the future for
current or future products. Any claims or litigation, with or without merit, could be
time-consuming, result in costly litigation, divert managements attention and cause product
shipment delays or require us to enter into royalty or licensing arrangements. Any royalty or
licensing arrangements, if required, may not be available on terms acceptable to us, if at all,
which could have a material adverse effect on our business, financial condition and results of
operations. Adverse determinations in such claims or litigation could also have a material adverse
effect on our business, financial condition and results of operations.
We may be subject to additional risks as we enter into transactions in countries where
intellectual property laws are not well developed or are poorly enforced. Legal protections of our
rights may be ineffective in such countries. Litigation to defend and enforce our intellectual
property rights could result in substantial costs and diversion of resources and could have a
material adverse effect on our business, financial condition and results of operations, regardless
of the final outcome of such litigation. Despite our efforts to safeguard and maintain our
proprietary rights both in the United States and abroad, we cannot assure that we will be
successful in doing so, or that the steps taken by us in this regard will be adequate to deter
misappropriation or independent third party development of our technology or to prevent an
unauthorized third party from copying or otherwise obtaining and using our products or technology.
Any of these events could have a material adverse effect on our business, financial condition and
results of operations.
Employees
As of December 31, 2005, we had more than 1,600 full-time employees. None of our employees
are covered by a collective bargaining agreement. We consider our relations with our employees to
be good. As of December 31, 2005, certain of our employees were employed pursuant to the H-1(B),
non-immigrant work-permitted visa classification.
-11-
Available Information
We file annual, quarterly and current reports and other information with the Securities and
Exchange Commission (the SEC or the Commission). These materials can be inspected and copied at
the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of these
materials may also be obtained by mail at prescribed rates from the SECs Public Reference Room at
the above address. Information about the Public Reference Room can be obtained by calling the SEC
at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the
SEC. The address of the SECs Internet site is www.sec.gov.
On our website, www.manh.com, we provide free of charge our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as soon as reasonably practicable
after they have been electronically filed or furnished to the SEC. Information contained on our
website is not part of this Form 10-K or our other filings with the SEC.
You should consider the following factors in evaluating our business or an investment in our
common stock. If any of the following or other risks actually occurs, our business, financial
condition and results of operations could be adversely affected. In such case, the trading price
of our common stock could decline.
Our operating results are difficult to predict and could cause our stock price to fall. Our
quarterly revenue and operating results are difficult to predict and may fluctuate significantly
from quarter to quarter. If our quarterly revenue or operating results fall below the expectations
of investors or public market analysts, the price of our common stock could fall substantially.
Our quarterly revenue is difficult to forecast for several reasons, including the following:
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the varying sales cycle for our products and services from customer to customer; |
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demand for our products; |
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customers budgeting and purchasing cycles; |
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delays in our implementations at customer sites; |
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timing of hiring new services employees and the rate at which these employees become productive; |
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development and performance of our distribution channels; and |
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timing of any acquisitions and related costs. |
As a result of these and other factors, our license revenue is difficult to predict. Because
our revenue from services is largely correlated to our license revenue, a decline in license
revenue could also cause a decline in our services revenue in the same quarter or in subsequent
quarters. In addition, an increase or decrease in hardware sales, which provide us with lower gross
margins than sales of software licenses or services, may cause variations in our quarterly
operating results.
Most of our expenses, including employee compensation and rent, are relatively fixed. In
addition, our expense levels are based, in part, on our expectations regarding future revenue
increases. As a result, any shortfall in revenue in relation to our expectations could cause
significant changes in our operating results from quarter to quarter and could result in quarterly
losses. As a result of these factors, we believe that period-to-period comparisons of our revenue
levels and operating results are not necessarily meaningful. Although we have grown significantly
during the past six years, we do not believe that our prior growth rates are sustainable or a good
indicator of future operating results. You should not rely on our historical quarterly revenue and
operating results to predict our future performance.
-12-
Delays in implementations of our products could adversely impact us. Due to the size and
complexity of most of our software implementations, our implementation cycle can be lengthy and may
result in delays. These delays could cause customer dissatisfaction, which could harm our
reputation. Additional delays could result if we fail to attract, train and retain services
personnel, or if our alliance companies fail to commit sufficient resources towards implementing
our software. These delays and resulting customer dissatisfaction could harm our reputation and
cause our revenue to decline.
Our ability to successfully compete with other companies may fail. We compete in markets that
are intensely competitive and are expected to become more competitive as current competitors expand
their product offerings and new competitors enter the market. Our current competitors come from
many segments of the software industry and offer a variety of solutions directed at various aspects
of the extended supply chain, as well as the enterprise as a whole. We face competition for
product sales from:
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the corporate information technology departments of current or potential customers
capable of internally developing solutions; |
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supply chain execution vendors, including Catalyst International, Inc., RedPrairie
Corporation, Optum, Inc., Provia Software, Inc., Highjump (3M) and SSA Global
Technologies, Inc. among others; |
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Enterprise resource planning (ERP) or supply chain management (SCM) application
vendors with products or modules of their product suite offering varying degrees of
supply chain execution (SCE) functionality, such as Retek, Inc., Manugistics Group,
Inc., i2 Technologies, Oracle Corp. and SAP AG; and |
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smaller independent companies that have developed or are attempting to develop
distribution center management software that competes with our SCE solutions. |
We may face competition in the future from ERP and SCM applications vendors and business
application software vendors that may broaden their product offerings by internally developing or
by acquiring or partnering with independent developers of supply chain execution software. To the
extent such ERP and SCM vendors develop or acquire systems with functionality comparable or
superior to our products, their significant installed customer bases, long-standing customer
relationships and ability to offer a broad solution could provide a significant competitive
advantage over our products. In addition, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market share. Increased
competition could result in price reductions, fewer customer orders, reduced gross margins and loss
of market share. Both Oracle and SAP have entered the market for SCM applications. We believe
that the domain expertise required to compete provides us with a competitive advantage and is a
significant barrier to market entry. However, some of our competitors have significant resources
at their disposal, and the degree to which we will compete with these new products in the
marketplace is still undetermined.
Many of our competitors and potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources, greater name recognition
and a larger installed base of customers than we do. In order to be successful in the future, we
must continue to respond promptly and effectively to technological change and competitors
innovations. We cannot assure you that our current or potential competitors will not develop
products comparable or superior in terms of price and performance features to those developed by
us. In addition, we cannot assure you that we will not be required to make substantial additional
investments in connection with our research, development, marketing, sales and customer service
efforts in order to meet any competitive threat, or that we will be able to compete successfully in
the future. Increased competition may result in reductions in market share, pressure for price
reductions and related reductions in gross margins, any of which could materially and adversely
affect our ability to achieve our financial and business goals. We cannot give assurance that in
the future we will be able to successfully compete against current and future competitors.
-13-
Our performance may be negatively impacted by macro-economic or other external influences.
Beginning in the fourth quarter of 2000, a declining United States economy began to adversely
impact the performances of many businesses particularly within the technology sector. We are a
technology company selling technology-based solutions with total pricing, including software and
services, in many cases, exceeding $1.0 million. Reductions in the capital budgets of our
customers and prospective customers could have an adverse impact on our ability to sell our
solutions. During 2005, we continued to experience effects from a weak spending environment for
information technology in both the United States and Europe, in the form of delayed and cancelled
buying decisions by customers for our software, services and hardware, deferrals by customers of
service engagements previously scheduled and pressure by our customers and competitors to discount
our offerings. We believe that prolonged continuation of or further deterioration in the current
business climates, and the continued delay in capital spending within the United States and/or
other geographic regions in which we operate, principally the United Kingdom and continental
Europe, could have a material adverse impact on our business and our ability to compete, and is
likely to further intensify our intensely competitive markets.
Our international operations have many associated risks. We continue to expand our
international operations, and these efforts require significant management attention and financial
resources. We may not be able to successfully penetrate international markets or if we do, there
can be no assurance that we will grow these markets at the same rate as in North America. Because
of the complex nature of this expansion, it may adversely affect our business and operating
results.
In the last three years, we opened new international offices in China, Germany, France,
Australia, India, Singapore and Japan. These openings constituted a substantial expansion of our
international presence, which, prior to 2002, consisted principally of offices in the United
Kingdom and the Netherlands. We have committed resources to the opening and integration of
international sales offices and the expansion of international sales and support channels. Our
efforts to develop and expand international sales and support channels may not be successful.
International sales are subject to many risks, including the following:
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difficulties in staffing and managing foreign operations; |
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difficulties in managing international systems integrators; |
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difficulties and expenses associated with complying with a variety of foreign laws; |
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difficulties in producing localized versions of our products; |
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import and export restrictions and tariffs; |
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difficulties in collecting accounts receivable; |
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unexpected changes in regulatory requirements; |
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currency fluctuations; and |
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political and economic instability abroad. |
Seasonal fluctuations may arise from the lower sales that typically occur during the summer
months in Europe and other parts of the world. Additionally, our moves into other geographical
markets may give rise to greater foreign currency exchange risk, in addition to further
concentration of risk in Europe.
Our operating results are substantially dependent on one line of business. We continue to
derive a substantial portion of our revenues from sales of our software and related services and
hardware. Any factor adversely affecting the markets for SCE solutions could have an adverse
effect on our business, financial condition and results of operations. Accordingly, our future
operating results will depend on the demand for our products and related services and hardware by
our customers, including new and enhanced releases that we subsequently introduce. We cannot
assure you that the market will continue to demand our current products or that we will be
successful in marketing any new or enhanced products. If our competitors release new products that
are superior to our products in performance or price, demand for our products may decline. A
decline in demand for our products as a result of competition, technological change or other
factors would reduce our total revenues and harm our ability to maintain profitability.
-14-
Our failure to manage growth of operations may adversely affect us. We plan to continue to
increase the scope of our operations domestically and internationally. This growth may place a
significant strain on our management systems and resources. If we are unable to manage our growth
effectively, our business, financial condition and results of operations will be adversely
affected. We may further expand domestically or internationally through internal growth or through
acquisitions of related companies and technologies. For us to effectively manage our growth, we
must continue to:
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maintain continuity in our executive officers; |
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improve our operational, financial and management controls; |
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improve our reporting systems and procedures; |
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enhance management and information control systems; |
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develop the management skills of our managers and supervisors; and |
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train and motivate our employees. |
Our inability to attract, integrate and retain management and other personnel may adversely
affect us. Our success greatly depends on the continued service of our executives, as well
as our other key senior management, technical and sales personnel. In 2004 we entered into an
employment agreement with Peter F. Sinisgalli, which provides for Mr. Sinisgalli to serve as our
Chief Executive Officer. Our success will depend on the ability of any new executive officers,
including Mr. Sinisgalli, to integrate themselves into our daily operations, to gain the trust and
confidence of our other employees and to work together as a team. The loss of any of our senior
management or other key professional services, research and development, sales and marketing
personnel, particularly if lost to competitors, could impair our ability to grow our business. We
do not maintain key man life insurance on any of our executive officers. Our future success will
depend in large part upon our ability to attract, retain and motivate highly skilled employees. We
face significant competition for individuals with the skills required to perform the services we
offer. We cannot assure you that we will be able to attract and retain sufficient numbers of these
highly skilled employees or to motivate them. Because of the complexity of the SCE market, we may
experience a significant time lag between the date on which technical and sales personnel are hired
and the time at which these persons become fully productive.
Fluctuations in our hardware sales may adversely affect us. A portion of our revenue in any
period is comprised of the resale of a variety of third-party hardware products to purchasers of
our software. Our customers may choose to purchase this hardware directly from manufacturers or
distributors of these products. We view sales of hardware as non-strategic. We perform this
service to our customers seeking a single source for their supply chain execution needs. Hardware
sales are difficult to forecast and fluctuate from quarter to quarter, leading to unusual
comparisons of total revenue and fluctuations in profits. Revenue from hardware sales as a
percentage of total revenue decreased in 2003, 2004 and 2005, and may continue to decrease in the
future. If we are not able to increase our revenue from software licenses and services or maintain
our hardware revenue, our profitability may be adversely affected.
Our employee retention and hiring may be hindered by immigration restrictions. A number of
our employees are Indian nationals employed pursuant to non-immigrant work-permitted visas issued
by the United States Immigration and Naturalization Service, or INS. There have been many changes
within the INS as a result of the events of September 11, 2001. We anticipate that there will be
additional restrictions placed on non-immigrant work-permitted visas, and we do not know how such
changes may affect us. In 2003, the INS reduced the number of new non-immigrant work-permitted
visas that will be issued each year. In years in which this limit is reached, we may be unable to
retain or hire additional foreign employees. If we are unable to retain or hire additional foreign
employees, we may incur additional labor costs and expenses or not have sufficient qualified
personnel to carry on our business, which could harm our ability to successfully continue and grow
our business.
-15-
Our business and our profitability may be adversely affected if we cannot integrate acquired
companies. We acquired ReturnCentral, Inc. in June 2003, Streamsoft, L.L.C. in October
2003, Avere, Inc. in January 2004 and Evant, Inc. in August 2005. We may from time to time acquire
companies with complementary products and services. These acquisitions will continue to expose us
to increased risks and costs, including the following:
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difficulties in assimilating new operations and personnel; |
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diverting financial and management resources from existing operations; and |
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difficulties in integrating acquired technologies. |
We may not be able to generate sufficient revenue from any of these acquisitions to offset the
associated acquisition costs. We will also be required to maintain uniform standards of quality
and service, controls, procedures and policies. Our failure to achieve any of these standards may
hurt relationships with customers, employees and new management personnel. In addition, future
acquisitions may result in additional issuances of stock that could be dilutive to our
shareholders.
We may also evaluate joint venture relationships with complementary businesses. Any joint
venture we enter into would involve many of the same risks posed by acquisitions, particularly the
following:
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risks associated with the diversion of resources; |
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the inability to generate sufficient revenue; |
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the management of relationships with third parties; and |
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potential additional expenses. |
Many acquisition candidates have significant intangible assets, and an acquisition of these
businesses would likely result in significant amounts of goodwill and other intangible assets.
Under new accounting rules, goodwill and certain other intangible assets will no longer be
amortized to income, but will be subject to at least annual impairment reviews. If the
acquisitions do not perform as planned, future charges to income arising from such impairment
reviews could be significant. Likewise, future quarterly and annual earnings could be
significantly adversely affected. In addition, these acquisitions could involve
acquisition-related charges, such as one-time acquired research and development charges. During
2003 and 2005, we recorded expenses of approximately $0.9 million and $0.5 million, respectively,
relating to fees incurred in connection with potential acquisitions that we decided not to
consummate.
Our growth is dependent upon the successful development of our direct and indirect sales
channels. We believe that our future growth also will depend on developing and maintaining
successful strategic relationships with systems integrators and other technology companies. Our
strategy is to continue to increase the proportion of customers served through these indirect
channels. We are currently investing, and plan to continue to invest, significant resources to
develop these indirect channels. This investment could adversely affect our operating results if
these efforts do not generate license and service revenue necessary to offset this investment.
Also, our inability to partner with other technology companies and qualified systems integrators
could adversely affect our results of operations. Because lower unit prices are typically charged
on sales made through indirect channels, increased indirect sales could reduce our average selling
prices and result in lower gross margins. In addition, sales of our products through indirect
channels will reduce our consulting service revenues, as the third-party systems integrators
provide these services. As indirect sales increase, our direct contact with our customer base will
decrease, and we may have more difficulty accurately forecasting sales, evaluating customer
satisfaction and recognizing emerging customer requirements. In addition, these systems
integrators and third-party software providers may develop, acquire or market products competitive
with our products.
Our strategy of marketing our products directly to customers and indirectly through systems
integrators and other technology companies may result in distribution channel conflicts. Our
direct sales efforts may compete with those of our indirect channels and, to the extent different
systems integrators target the same customers, systems integrators may also come into conflict with
each other. Any channel conflicts that develop may have a material adverse effect on our
relationships with systems integrators or harm our ability to attract new systems integrators.
-16-
Our technology must be advanced if we are to remain competitive. The market for our products
is characterized by rapid technological change, frequent new product introductions and
enhancements, changes in customer demands and evolving industry standards. Our existing products
could be rendered obsolete if we fail to continue to advance our technology. We have also found
that the technological life cycles of our products are difficult to estimate, partially because of
changing demands of other participants in the supply chain. We believe that our future success
will depend upon our ability to continue to enhance our current product line while we concurrently
develop and introduce new products that keep pace with competitive and technological developments.
These developments require us to continue to make substantial product development investments.
Although we are presently developing a number of product enhancements to our product sets, we
cannot assure you that these enhancements will be completed on a timely basis or gain customer
acceptance.
Our liability to clients may be substantial if our systems fail. Our products are often
critical to the operations of our customers businesses and provide benefits that may be difficult
to quantify. If our products fail to function as required, we may be subject to claims for
substantial damages. Courts may not enforce provisions in our contracts that would limit our
liability or otherwise protect us from liability for damages. Although we maintain general
liability insurance coverage, including coverage for errors or omissions, this coverage may not
continue to be available on reasonable terms or in sufficient amounts to cover claims against us.
In addition, our insurer may disclaim coverage as to any future claim. If claims exceeding the
available insurance coverage are successfully asserted against us, or our insurer imposes premium
increases, large deductibles or co-insurance requirements on us, our business and results of
operations could be adversely affected.
Our software may contain undetected errors or bugs, resulting in harm to our reputation and
operating results. Software products as complex as those offered by us might contain undetected
errors or failures when first introduced or when new versions are released. We cannot assure you,
despite testing by us and by current and prospective customers, that errors will not be found in
new products or product enhancements after commercial release. Any errors found may cause
substantial harm to our reputation and result in additional unplanned expenses to remedy any
defects as well as a loss in revenue.
Our failure to adequately protect our proprietary rights may adversely affect us. Our success
and ability to compete is dependent in part upon our proprietary technology. We cannot assure you
that we will be able to protect our proprietary rights against unauthorized third-party copying or
use. We rely on a combination of copyright, trademark and trade secret laws, as well as
confidentiality agreements and licensing arrangements, to establish and protect our proprietary
rights. Despite our efforts to protect our proprietary rights, existing copyright, trademark and
trade secret laws afford only limited protection. In addition, the laws of certain foreign
countries do not protect our rights to the same extent, as do the laws of the United States.
Attempts may be made to copy or reverse engineer aspects of our products or to obtain and use
information that we regard as proprietary. Any infringement of our proprietary rights could
negatively impact our future operating results. Furthermore, policing the unauthorized use of our
products is difficult, and litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Litigation could result in substantial costs and diversion of
resources and could negatively impact our future operating results.
Our liability for intellectual property claims can be costly and result in the loss of
significant rights. It is possible that third parties will claim that we have infringed their
current or future products. We expect that SCE software developers like us will increasingly be
subject to infringement claims as the number of products grows. Any claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment delays or require us
to enter into royalty or licensing agreements, any of which could negatively impact our operating
results. We cannot assure you that these royalty or licensing agreements, if required, would be
available on terms acceptable to us, if at all. We cannot assure you that legal action claiming
patent infringement will not be commenced against us, or that we would prevail in litigation given
the complex technical issues and inherent uncertainties in patent litigation. If a patent claim
against us was successful and we could not obtain a license on acceptable terms or license a
substitute technology or redesign to avoid infringement, we may be prevented from distributing our
software or required to incur significant expense and delay in developing non-infringing software.
-17-
Our business may require additional capital. We may require additional capital to finance our
growth or to fund acquisitions or investments in complementary businesses, technologies or product
lines. Our capital requirements may be impacted by many factors, including:
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demand for our products; |
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the timing of and extent to which we invest in new technology; |
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the timing of and extent to which we acquire other companies; |
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the level and timing of revenue; |
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the expenses of sales and marketing and new product development; |
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the success and related expense of increasing our brand awareness; |
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the extent to which competitors are successful in developing new products and
increasing their market share; and |
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the costs involved in maintaining and enforcing intellectual property rights. |
To the extent that our resources are insufficient to fund our future activities, we may need
to raise additional funds through public or private financing. However, additional funding, if
needed, may not be available on terms attractive to us, or at all. Our inability to raise capital
when needed could have a material adverse effect on our business, operating results and financial
condition. If additional funds are raised through the issuance of equity securities, the
percentage ownership of our company by our current shareholders would be diluted.
Our stock price has been highly volatile. The trading price of our common stock has
fluctuated significantly since our initial public offering in April 1998. In addition, the trading
price of our common stock could be subject to wide fluctuations in response to various factors,
including:
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quarterly variations in operating results; |
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announcements of technological innovations or new products by us or our competitors; |
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developments with respect to patents or proprietary rights; and |
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changes in financial estimates by securities analysts. |
In addition, the stock market has experienced volatility that has particularly affected the
market prices of equity securities of many technology companies and that often has been unrelated
or disproportionate to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of our common stock.
Investor confidence and share value may be adversely impacted as a result of the inability of
our independent registered public accounting firm to provide us with their attestation regarding
our maintenance of effective internal control over financial reporting. The Securities and
Exchange Commission, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
requiring public companies to include a report of our managements assessment of the effectiveness
of our internal control over financial reporting in our annual reports on Form 10-K. In addition,
our independent registered public accounting firm must attest to and report on managements
assessment of the effectiveness of the companys internal control over financial reporting.
Our management assessed the effectiveness of our internal control over financial reporting as
of December 31, 2005, and this assessment identified material weaknesses in our internal controls.
A material weakness is a control deficiency, or combination of control deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. The material
-18-
weaknesses related to the accounting for sales taxes and the accounting for income taxes. Our
review and approval controls over the accounting for sales taxes and income taxes, including the
determination and reporting of income taxes payable, determination and reporting of sales taxes
payable, deferred income tax assets and liabilities and the related income tax provision have been
determined as insufficient. These control deficiencies resulted in the restatement of the annual
consolidated financial statements for 2002, 2003 and 2004 and for each of the quarters in the years
ended December 31, 2003 and 2004 for which an amended Form 10K/A for the fiscal year of 2004 was
filed with the SEC on March 1, 2006. The 2005 quarterly data included in this Form 10-K was also
restated. As a result of the identification of these material weaknesses, our independent
registered public accounting firm determined that we did not maintain effective internal control
over financial reporting during the year ended December 31, 2005. This determination could result
in an adverse reaction in the financial marketplace due to a loss of investor confidence in the
reliability of our financial statements, which ultimately could negatively impact the market price
of our shares.
Our articles of incorporation and bylaws and Georgia law may inhibit a takeover of our
company. Our basic corporate documents and Georgia law contain provisions that might enable our
management to resist a takeover of our company. These provisions might discourage, delay or
prevent a change in the control of our company or a change in our management. These provisions
could also discourage proxy contests and make it more difficult for you and other shareholders to
elect directors and take other corporate actions. The existence of these provisions could also
limit the price that investors might be willing to pay in the future for shares of our common
stock.
|
|
|
Item 1B. |
|
Unresolved Staff Comments |
As of December 31, 2005, we do not have any unresolved written comments which we received from
the SEC not less than 180 days before December 31, 2005.
Our principal administrative, sales, marketing, support and research and development facility
is located in approximately 137,868 square feet of modern office space in Atlanta, Georgia.
Substantially all of this space is leased to us through March 31, 2008. We have additional offices
throughout the United States under multi-year agreements in California, Massachusetts, Indiana and
Delaware. We also occupy facilities outside of the United States under multi-year agreements in
the United Kingdom, the Netherlands, Japan, China, Singapore, India and Australia. We also occupy
offices under short-term agreements in other geographical regions. Our office space is adequate to
meet our immediate needs; however, we may expand into additional facilities in the future.
|
|
|
Item 3. |
|
Legal Proceedings |
Many of our installations involve products that are critical to the operations of our clients
businesses. Any failure in our products could result in a claim for substantial damages against
us, regardless of our responsibility for such failure. Although we attempt to limit contractually
our liability for damages arising from product failures or negligent acts or omissions, there can
be no assurance the limitations of liability set forth in our contracts will be enforceable in all
instances.
We
are currently having challenging discussions with a large German customer
regarding their delayed implementation of our warehouse management
system, although no legal claims have been filed by either party to
date. During the second quarter of 2005, we recorded a
$2.8 million bad debt provision for the entire amount of the
accounts receivable due from the large customer, as we considered
collection to be doubtful. The $2.8 million bad debt provision
is our best estimate of costs to be incurred from the challenging
relationship. However, this amount may change if the issue results in
litigation or if a settlement is reached that is not covered by our
corporate insurance policies. It is not possible at this time to
estimate the amount of any such potential costs. While no assurance
can be given regarding the outcome of the matter discussed, because
of the nature and inherent uncertainties of disputes, should the
outcome of this matter be unfavorable, our business, financial
condition, results of operations and cash flows could be materially
adversely affected.
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
There were no matters submitted to a vote of security holders during the fourth quarter of the
fiscal year ended December 31, 2005.
-19-
PART II
|
|
|
Item 5. |
|
Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities |
Our common stock is traded on the Nasdaq National Market under the symbol MANH. The
following table sets forth the high and low closing sales prices of the common stock as reported by
the Nasdaq National Market for the periods indicated:
|
|
|
|
|
|
|
|
|
Fiscal Period |
|
High Price |
|
Low Price |
2004 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
29.65 |
|
|
$ |
26.06 |
|
Second Quarter |
|
|
30.88 |
|
|
|
25.81 |
|
Third Quarter |
|
|
29.56 |
|
|
|
22.64 |
|
Fourth Quarter |
|
|
25.94 |
|
|
|
20.10 |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
24.02 |
|
|
$ |
19.29 |
|
Second Quarter |
|
|
22.38 |
|
|
|
17.44 |
|
Third Quarter |
|
|
23.53 |
|
|
|
19.30 |
|
Fourth Quarter |
|
|
23.79 |
|
|
|
20.48 |
|
On
March 13, 2006, the last reported sales price of our common stock on the Nasdaq
National Market was $21.44 per share. The number of shareholders of record of our common stock as
of March 13, 2006 was approximately 44.
We do not intend to declare or pay cash dividends in the foreseeable future. Our management
anticipates that all earnings and other cash resources, if any, will be retained by us for
investment in our business.
The following table provides information regarding our current equity compensation plans as of
December 31, 2005:
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to |
|
Weighted-average |
|
Number of securities remaining |
|
|
be issued upon exercise |
|
exercise price of |
|
available for future |
|
|
of outstanding options, |
|
outstanding options, |
|
issuance under |
Plan Category |
|
warrants and rights |
|
warrants and rights |
|
equity compensation plans |
Equity compensation
plans approved by
security holders |
|
|
8,149,215 |
|
|
$ |
23.83 |
|
|
|
250,488 |
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8,149,215 |
|
|
$ |
23.83 |
|
|
|
250,488 |
|
|
|
|
Additional information regarding our equity compensation plans can be found in Note 3 of
the Notes to our Consolidated Financial Statements.
-20-
The following table provides information regarding our purchases under our publicly-announced
repurchase program for the quarter ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
Shares (or Units) |
|
Value) of Shares (or |
|
|
Total Number of |
|
Average Price |
|
Purchased as Part of |
|
Units) that May Yet Be |
|
|
Shares (or Units) |
|
Paid per Share |
|
Publicly Announced |
|
Purchased Under the |
Period |
|
Purchased |
|
(or Unit) |
|
Plans or Programs (1) |
|
Plans or Programs (1) |
|
October 1 October 31, 2005 |
|
|
87,700 |
|
|
$ |
22.77 |
|
|
|
2,038,600 |
|
|
$ |
26,701,939 |
|
November 1 November 30, 2005 |
|
|
617,700 |
|
|
$ |
22.63 |
|
|
|
2,656,300 |
|
|
$ |
12,726,295 |
|
December 1 December 31, 2005 |
|
|
170,900 |
|
|
$ |
22.01 |
|
|
|
2,827,200 |
|
|
$ |
8,965,463 |
|
Total |
|
|
876,300 |
|
|
$ |
22.52 |
|
|
|
2,827,200 |
|
|
$ |
8,965,463 |
|
|
|
|
(1) |
|
In February 2005, our Board of Directors authorized us to purchase up to $20 million of our
common stock, including the amount that had previously been approved but not yet repurchased, over
a period ending no later than February 3, 2006. In July 2005, our Board of Directors authorized us
to purchase an additional $50 million of our common stock, over a period ending no later than July
21, 2006. |
-21-
Item 6. Selected Consolidated Financial Data
You should read the following selected consolidated financial data in conjunction with our
Consolidated Financial Statements and related Notes thereto and with Managements Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.
The statement of income data for the years ended December 31, 2003, 2004 and 2005, and the balance
sheet data as of December 31, 2004 and 2005, are derived from, and are qualified by reference to,
the audited financial statements included elsewhere in this Form 10-K. The statement of income
data for the year ended December 31, 2002 and the balance sheet data as of December 31, 2003 are derived from the audited financial statements not included herein. The statement of
income data for the year ended December 31, 2001 and the balance sheet data as of December 31,
2001 and 2002, are derived from unaudited financial statements not included herein. Historical results are
not necessarily indicative of results to be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
Statement of Income Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and hosting fees |
|
$ |
35,436 |
|
|
$ |
40,233 |
|
|
$ |
43,229 |
|
|
$ |
49,886 |
|
|
$ |
57,119 |
|
Services |
|
|
97,510 |
|
|
|
110,516 |
|
|
|
129,320 |
|
|
|
141,492 |
|
|
|
166,091 |
|
Hardware and other |
|
|
27,760 |
|
|
|
22,675 |
|
|
|
23,417 |
|
|
|
23,541 |
|
|
|
23,194 |
|
Recovery (allowance) relating to bankrupt customer (1) |
|
|
(4,328 |
) |
|
|
2,297 |
|
|
|
848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
156,378 |
|
|
|
175,721 |
|
|
|
196,814 |
|
|
|
214,919 |
|
|
|
246,404 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software and hosting fees |
|
|
1,455 |
|
|
|
1,927 |
|
|
|
4,470 |
|
|
|
4,085 |
|
|
|
4,700 |
|
Amortization of acquired developed technology |
|
|
1,500 |
|
|
|
1,500 |
|
|
|
1,999 |
|
|
|
2,079 |
|
|
|
2,333 |
|
Cost of services |
|
|
42,372 |
|
|
|
46,611 |
|
|
|
54,218 |
|
|
|
65,853 |
|
|
|
76,641 |
|
Cost of hardware and other |
|
|
23,092 |
|
|
|
19,027 |
|
|
|
20,123 |
|
|
|
20,071 |
|
|
|
19,914 |
|
Research and development |
|
|
19,413 |
|
|
|
20,780 |
|
|
|
26,982 |
|
|
|
28,822 |
|
|
|
34,139 |
|
Sales and marketing |
|
|
22,334 |
|
|
|
26,413 |
|
|
|
31,200 |
|
|
|
34,049 |
|
|
|
40,302 |
|
General and administrative |
|
|
20,186 |
|
|
|
22,136 |
|
|
|
24,117 |
|
|
|
26,855 |
|
|
|
29,629 |
|
Other charges (2) |
|
|
|
|
|
|
1,470 |
|
|
|
1,778 |
|
|
|
|
|
|
|
6,310 |
|
Amortization of acquisition-related intangibles |
|
|
3,740 |
|
|
|
272 |
|
|
|
1,433 |
|
|
|
1,496 |
|
|
|
2,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
134,092 |
|
|
|
140,136 |
|
|
|
166,320 |
|
|
|
183,310 |
|
|
|
216,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
22,286 |
|
|
|
35,585 |
|
|
|
30,494 |
|
|
|
31,609 |
|
|
|
30,277 |
|
Other income, net |
|
|
2,059 |
|
|
|
2,801 |
|
|
|
2,746 |
|
|
|
3,257 |
|
|
|
2,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
24,345 |
|
|
|
38,386 |
|
|
|
33,240 |
|
|
|
34,866 |
|
|
|
32,954 |
|
Income tax expense |
|
|
9,197 |
|
|
|
14,781 |
|
|
|
12,659 |
|
|
|
13,232 |
|
|
|
14,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,148 |
|
|
$ |
23,605 |
|
|
$ |
20,581 |
|
|
$ |
21,634 |
|
|
$ |
18,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.49 |
|
|
$ |
0.78 |
|
|
$ |
0.67 |
|
|
$ |
0.70 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share |
|
|
30,742 |
|
|
|
30,451 |
|
|
|
30,882 |
|
|
|
31,067 |
|
|
|
29,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
|
(unaudited) |
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments |
|
$ |
104,189 |
|
|
$ |
121,857 |
|
|
$ |
155,403 |
|
|
$ |
172,656 |
|
|
$ |
93,675 |
|
Total assets |
|
|
182,179 |
|
|
|
221,864 |
|
|
|
266,608 |
|
|
|
290,239 |
|
|
|
273,398 |
|
Long-term portion of capital lease obligations and note payable |
|
|
2,182 |
|
|
|
240 |
|
|
|
288 |
|
|
|
148 |
|
|
|
|
|
Total shareholders equity |
|
|
137,127 |
|
|
|
179,618 |
|
|
|
224,158 |
|
|
|
239,017 |
|
|
|
205,398 |
|
|
|
|
(1) |
|
In connection with a significant customer filing for bankruptcy under Chapter 11 of the
United States Bankruptcy Code, an allowance of $4.3 million was recorded to effectively defer
revenues arising in the fourth quarter of 2001 from the significant customer, but unpaid at
the time of the bankruptcy declaration. In the fourth quarter of 2002 and the second quarter
of 2003, $2.3 million and $0.8 million of the receivable was recovered, respectively. See
Note 1 of Notes to Consolidated Financial Statements for further details. |
|
(2) |
|
During 2002, we recorded $1.5 million of in-process research and development in connection
with the acquisition of Logistics.com. In 2003, these charges consisted of: (i) $0.9 million
relating to fees incurred in connection with two potential acquisitions that we decided not to
consummate; and (ii) a restructuring charge of $0.9 million relating to an internal
reorganization. In 2005, these charges consisted of: (i) a $2.8 million bad debt provision
for the entire amount of the accounts receivable due from a large customer with which we have
had a challenging relationship and for which we consider collection to be doubtful; (ii)
approximately $1.1 million in severance-related costs associated with the consolidation of our
European operations into the Netherlands, United Kingdom and France; (iii) $1.9 million of
severance-related costs and amortization of prepaid retention bonuses associated with the
acquisition of Evant; and (iv) $0.5 million in acquisition-related costs associated with an
attempted acquisition that did not close. See Note 7 of Notes to Consolidated Financial
Statements for further details. |
-22-
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
All statements, trend analyses and other information contained in the following discussion
relative to markets for our products and trends in revenue, gross margins and anticipated expense
levels, as well as other statements including words such as anticipate, believe, plan,
estimate, expect, and intend and other similar expressions constitute forward-looking
statements. These forward-looking statements are subject to business and economic risks and
uncertainties, including those discussed under the caption Risk Factors in Item 1A of this Form
10-K, and our actual results of operations may differ materially from those contained in the
forward-looking statements.
Business
We are a leading provider of technology-based supply chain solutions that help companies
manage the effectiveness and efficiency of their supply chain. Our solutions consist of software,
services and hardware and are used for both the planning and execution of supply chain activities.
These solutions help coordinate the actions and communication of manufacturers, suppliers,
distributors, retailers, transportation providers and consumers. Our solutions consist of two main
areassupply chain planning and supply chain execution, which on a combined basis represent our
supply chain management solution.
We call the combination of our supply chain planning solutions Integrated Planning Solutions.
Integrated Planning Solutions consist of Advanced Planning, Demand Forecasting and Replenishment.
With our Advanced Planning solutionsFinancial and Item Planning, Catalog Planning, Web Planning
and Promotion Planningcompanies can plan their inventory using several methodologies. Financial
and Item planning enables companies to develop top-down and bottom-up plans across multiple
channels and multiple levels of the product hierarchy. Catalog Planning and Web Planning support
the unique planning requirements of the catalog and Web channels. With Promotion Planning,
companies are able to plan and manage promotional events and assortments. Demand Forecasting
enables companies to generate and maintain forecasts at different levels of product data. It also
includes a Promotion Forecasting solution which generates a promotion forecast and promotional lift
based on historical sales. Finally, Replenishment helps companies regulate, maintain and deploy
inventory, as well as supports Vendor Managed Inventory, which allows suppliers to manage their own
replenishment.
We refer to the combination of our supply chain execution solutions as Integrated Logistics
Solution. Integrated Logistics Solutions consist of Distributed Order Management, Warehouse
Management, Slotting Optimization, Labor Management, Yard Management, Transportation Management,
Trading Partner Management, Reverse Logistics Management and RFID Solutions. Distributed Order
Management manages the order fulfillment process, capturing and allocating orders across the supply
chain to balance supply with demand. Warehouse Management manages the processes that take place in
a distribution center, beginning with the placement of an order by a customer and ending with order
fulfillment. Slotting Optimization determines the optimal layout of a facility. Labor Management
enables the tracking, monitoring and management of employee activities within the warehouse.
Transportation Management allows companies to optimally plan and execute transportation services.
Yard Management plans, executes, tracks and audits all incoming and outgoing loads, managing both
the yard and dock door. Trading Partner Management synchronizes the business processes and
communication of suppliers, manufacturers, distributors, logistics service providers and customers.
Reverse Logistics Management manages and automates the returns processtracking, storing,
referencing and reporting on returned merchandise to increase net asset recovery. Our RFID
Solutions help capture and track EPC data and utilize this information to better manage and track
inventory.
All of our solutions also include services such as design, configuration, implementation,
product assessment and training plus customer support and software enhancement subscriptions.
Application of Critical Accounting Policies and Estimates
The SEC defines critical accounting policies as those that require application of
managements most difficult, subjective or complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain and may change in subsequent
periods.
-23-
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions in certain
circumstances that affect amounts reported in the accompanying consolidated financial statements
and related footnotes. In preparing these financial statements, management has made estimates and
judgments relating to certain amounts included in the financial statements. As a result,
application of these accounting policies, could cause actual results to differ from these
estimates.
We have identified the following as our critical accounting policies:
Revenues and Revenue Recognition
Our revenue is derived from (i) Software and Hosting Fees, which consist of revenue from the
licensing and hosting of software and revenue from funded research and development efforts; (ii)
Services Revenue, which consist of fees from consulting, implementation and training services
(collectively, professional services), plus customer support services and software enhancement
subscriptions; and (iii) Hardware and Other Revenue, which consists of sales of hardware and
reimbursed project expenses.
Revenue recognition rules for software companies are very complex. We recognize software fees
in accordance with Statement of Position No. 97-2, Software Revenue Recognition (SOP 97-2), as
amended. Although we follow very specific and detailed guidelines in measuring revenue, the
application of those guidelines requires judgment including: (i) whether a software arrangement
includes multiple elements, and if so, whether vendor-specific objective evidence of fair value
exists for those elements; (ii) whether customizations or modifications of the software are
significant; and (iii) whether collection of the software fee is probable. Additionally, we
specifically evaluate any other terms in our license transactions, including but not limited to,
options to purchase additional software at a future date, extended payment terms, functionality
commitments not delivered with the software and existing outstanding receivable balances in making
the determination of the amount and timing of revenue recognition.
Most of our software arrangements include professional services. Professional services
revenues are generally accounted for separately from the software license revenues because the
arrangements qualify as service transactions as defined by SOP 97-2. The most significant
factors considered in determining whether the revenue should be accounted for separately include
the nature of the services (i.e., consideration of whether the services are essential to the
functionality of the licensed product), degree of risk, availability of services from other vendors
and timing of payments. We provide our professional services under services agreements on a time
and material basis or based on a fixed-price and/or fixed-time arrangement. The revenues from our
time and material based professional consulting and implementation services are recognized as the
work is performed, provided that the customer has a contractual obligation to pay, the fee is
non-refundable and collection is probable. Delays in project implementation will result in delays
in revenue recognition. For our professional consulting services under fixed-price and/or
fixed-time arrangements, we recognize the related revenues on a proportional performance basis,
with progress-to-completion measured by using labor costs input compared to estimated cost of
completion. Revisions to the estimates are reflected in the period in which changes become known.
Project losses are provided for in their entirety in the period they become known, without regard
to the percentage-of-completion. If we do not accurately estimate the resources required or the
scope of work to be performed, or if we do not manage our projects properly within the planned
periods of time, then future consulting margins on our projects may be negatively affected or
losses on existing contracts may need to be recognized.
Hardware revenue is generated from the resale of a variety of hardware products, developed and
manufactured by third parties, which are integrated with and complementary to our software
solutions. These products include computer equipment, radio frequency terminal networks, RFID chip
readers, bar code printers and scanners and other peripherals. We generally purchase hardware from
our vendors only after receiving an order from a customer, and revenue is recognized upon shipment
by the vendor to the customer.
Accounts Receivable
We continuously monitor collections and payments from our customers and maintain an allowance
for estimated credit losses based upon our historical experience and any specific customer
collection issues that we have identified. Additions to the allowance for doubtful accounts
generally represent a sales allowance on services
-24-
revenue, which are recorded to operations as a reduction to services revenue. While such
credit losses have historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same credit loss rates that we have in the
past. Our top five customers in aggregate accounted for 16%, 14% and 14% of total revenue for each
of the years ended December 31, 2003, 2004, and 2005, respectively. No single customer accounted
for more than 10% of revenue in 2003, 2004 or 2005.
During 2005, we recorded a
$2.8 million bad debt provision for the entire amount of the
accounts receivable due from a large German customer with which we have had a challenging relationship and
for which we consider collection to be doubtful. The $2.8 million bad debt provision is our best
estimate of costs to be incurred from the termination of our business relationship with the large
challenging customer. However, this amount may change if the
issue results in litigation or if a settlement is reached that is not covered by our corporate insurance policies. It is not possible at this time to
estimate the amount of any such potential costs.
On January 22, 2002, a significant customer from 2001 filed for bankruptcy under Chapter 11 of
the United States Bankruptcy Code. As a result of the filing, the uncertainties around the
bankruptcy proceedings and the ultimate timing of payment, we recorded an allowance of $4.3 million
in 2001 to effectively defer revenues arising in the fourth quarter of 2001 from the significant
customer, but unpaid at the time of the bankruptcy declaration. We recorded a recovery of
approximately $2.3 million of the receivable in the fourth quarter of 2002. Upon receiving the
final cash settlement in June 2003, subsequent to the significant customer emerging from
bankruptcy, we recovered an additional $848,000 of the receivable during the second quarter of
2003. The recoveries were recorded as separate revenue line items in the Consolidated Statements
of Income and reductions to the allowance for doubtful accounts in the Consolidated Balance Sheets
during the respective quarters.
Valuation of long-lived and intangible assets and goodwill
In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets, we do not amortize goodwill and other intangible assets with indefinite
lives. Our long-lived and intangible assets and goodwill are subject to annual impairment tests,
which require us to estimate the fair value of our business compared to the carrying value. The
impairment reviews require an analysis of future projections and assumptions about our operating
performance. Should such review indicate the assets are impaired, we would record an expense for
the impaired assets.
Annual tests or other future events could cause us to conclude that impairment indicators
exist and that our goodwill is impaired. For example, if we had reason to believe that our
recorded goodwill and intangible assets had become impaired due to decreases in the fair market
value of the underlying business, we would have to take a charge to income for that portion of
goodwill or intangible assets that we believed was impaired. Any resulting impairment loss could
have a material adverse impact on our financial position and results of operations. At December
31, 2005, our goodwill balance was $54.6 million and our intangible assets with definite lives
balance was $19.2 million, net of accumulated amortization.
Income Taxes
We provide for the effect of income taxes on our financial position and results of operations
in accordance with SFAS No. 109, Accounting for Income Taxes. Under this accounting pronouncement,
income tax expense is recognized for the amount of income taxes payable or refundable for the
current year and for the change in net deferred tax assets or liabilities resulting from events
that are recorded for financial reporting purposes in a different reporting period than recorded in
the tax return. Management must make significant assumptions, judgments and estimates to determine
our current provision for income taxes and also our deferred tax assets and liabilities and any
valuation allowance to be recorded against our net deferred tax asset. Our judgments, assumptions
and estimates relative to the current provision for income tax take into account current tax laws,
our interpretation of current tax laws, allowable deductions, projected tax credits and possible
outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes
in tax law or our interpretation of tax laws and the resolution of current and future tax audits
could significantly impact the amounts provided for income taxes in our financial position and
results of operations. Our assumptions, judgments and estimates relative to the value of our net
deferred tax asset take into account predictions of the amount and category of future taxable
income. Actual operating results and the underlying amount and category of income in future years
could render our current
-25-
assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus
materially impacting our financial position and results of operations.
Acquisition
On August 31, 2005, we acquired all of the issued and outstanding stock of Evant, Inc.
(Evant), and Evant became a wholly-owned subsidiary. Evant is a provider of demand planning and
forecasting and replenishment solutions to more than 60 customers in the retail, manufacturing and
distribution industries. The acquisition further diversifies our product suite and expands our
customer base. We paid an aggregate of $47.2 million in cash, and incurred $0.3 million in
acquisition costs and $0.8 million of severance to eliminate duplicative functions. The $47.2
million includes $2.3 million of bonuses paid to employees not retained by us pursuant to an
employee bonus plan approved by Evants management (the Evant Bonus Plan). In addition to the
$47.2 million cash paid, we paid $2.8 million into escrow at closing for employee retention
purposes pursuant to the Evant Bonus Plan. These funds are being distributed to employees upon
completion of up to 12 months of service with us. The $2.8 million has been recorded as a prepaid
asset, and we are recording compensation expense ratably over the required employee retention
period. As of December 31, 2005, the prepaid asset balance was $1.6 million relating to the
bonuses. Of the cash paid, $4.0 million is being held in escrow for 14 months to reimburse us,
subject to certain limitations, for potential losses resulting from, among other things, breaches
of representations, warranties or covenants in the merger agreement and certain pending and
potential claims and other matters specified in the merger agreement; $0.4 million is being held in
escrow for six months to satisfy a potential customer obligation; and $0.6 million is being held in
escrow for dissenting shareholders as of December 31, 2005 until certain shareholder issues are
resolved. The acquisition of Evant was accounted for using the purchase method of accounting in
accordance with SFAS No. 141, Business Combinations. The operating results of Evant are included
in our operations beginning September 1, 2005.
Results of Operations
Overview
Over the past several years, our primary goal has been and continues to be to expand our
position as a leading provider of technology-based supply chain solutions that help companies
manage the effectiveness and efficiency of their supply chain by delivering integrated, modular
solutions to our customers. With the addition and integration of new products resulting from the
acquisitions completed during the last three years, along with releases of new versions of our
product suite with enhanced functionality, we have been able to accomplish continued revenue
growth. During 2005, we were able to expand our target market to include supply chain planning as
a result of the acquisition of Evant.
During 2005, we continued to experience the effects of a weak spending environment for
information technology in Europe, in the form of delayed and cancelled buying decisions by
customers for our software, services and hardware, deferrals by customers of service engagements
previously scheduled and pressure by our customers and competitors to discount our offerings. We
believe that a deterioration in the current business climates within the United States and/or other
geographic regions in which we operate or continued delay in capital spending could have a material
adverse impact on our future operations.
In 2006, we plan to continue to enhance both our supply chain planning and supply chain
execution solutions, expand globally and further develop our sales and marketing, including
strategic alliances and indirect sales channels. Our success could be limited by several factors,
including spending on information technology, the timely release of quality new products and
releases, continued market acceptance of our solutions and the introduction of new products by
existing or new competitors.
-26-
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
% Change |
|
|
December 31, |
|
|
% Change |
|
|
December 31, |
|
|
|
2003 |
|
|
2003 to 2004 |
|
|
2004 |
|
|
2004 to 2005 |
|
|
2005 |
|
Software and hosting fees |
|
$ |
43,229 |
|
|
|
15 |
% |
|
$ |
49,886 |
|
|
|
14 |
% |
|
$ |
57,119 |
|
Percentage of total revenues |
|
|
22 |
% |
|
|
|
|
|
|
23 |
% |
|
|
|
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
129,320 |
|
|
|
9 |
% |
|
|
141,492 |
|
|
|
17 |
% |
|
|
166,091 |
|
Percentage of total revenues |
|
|
66 |
% |
|
|
|
|
|
|
66 |
% |
|
|
|
|
|
|
67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware and other |
|
|
23,417 |
|
|
|
1 |
% |
|
|
23,541 |
|
|
|
(1 |
%) |
|
|
23,194 |
|
Percentage of total revenues |
|
|
12 |
% |
|
|
|
|
|
|
11 |
% |
|
|
|
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery relating to bankrupt customer |
|
|
848 |
|
|
|
* |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
196,814 |
|
|
|
9 |
% |
|
$ |
214,919 |
|
|
|
15 |
% |
|
$ |
246,404 |
|
|
|
* |
Percentage is not meaningful |
Our revenue consists of fees generated from the licensing and hosting of software; fees
from professional services, customer support services and software enhancement subscriptions; and
sales of complementary radio frequency and computer equipment. We believe our revenue growth in
the last two years is attributable to several factors, including, among others, the acquisition of
Evant which provided us with a strong supply chain planning solution, increased sales of our
expanded supply chain execution product suite, geographic expansion, our market leadership
positions as to breadth of product offerings and financial stability and a compelling return on
investment proposition for our customers.
Software and hosting fees. The increase in software and hosting fees from 2003 to 2004 was
attributable to an increase of $1.3 million, or 5%, in sales of our warehouse management solution
group and an increase of $5.4 million, or 29%, for all other solution groups. The increase in
software and hosting fees from 2004 to 2005 was due to an increase of $5.1 million, or 20%, in
sales of our warehouse management solution group and sales of approximately $2.2 million of our new
demand forecasting and replenishment solutions obtained as part of the Evant acquisition, which was
closed in the third quarter of 2005. From period to period, we continue to see an increase in the
diversity of products purchased from us by new and existing customers as our newer products gain
greater market acceptance. This is contributing to the fluctuations in the sales mix of our
solutions groups.
Also impacting the changes from 2003 to 2004 and 2004 to 2005 was the sales by operating
segment. Americas sales increased by $3.4 million, or 9%, from 2003 to 2004, while sales outside
Americas increased by $3.3 million, or 52%, from 2003 to 2004. The increase outside of Americas
was primarily in Asia/Pacific, which increased by $2.9 million. Americas sales increased by $7.7
million, or 19%, from 2004 to 2005, while sales outside Americas decreased by $0.4 million, or 5%,
from 2004 to 2005. The decrease outside Americas was from decreased sales in Europe, which
decreased by $0.7 million, or 11%, from 2004 to 2005.
Services revenue. The increases in services revenue from 2003 to 2004 and from 2004 to 2005
were principally due to: (i) increases of 13% and 10% in 2004 and 2005, respectively, in the number
of active engagements required to implement the increased amount of software sold and to upgrade
existing customers to more current versions of our offerings; and (ii) renewals of customer support
services and software enhancement subscription agreements on a growing installed base. Revenue
from software enhancement subscription agreements increased by 20% and 21% during 2004 and 2005,
respectively. Included in the increase from 2004 to 2005 was approximately $4.4 million of
additional revenue resulting from the addition of Evant in 2005. Over the past several years, we
have experienced some pricing pressures with regard to our services. We believe that the pricing
pressures are attributable to global macro-economic conditions and competitive pressures. Our
services revenue growth has been and will likely continue to be affected by the mix of products
sold. The individual engagements involving our newer products, including TMS, RFID and TPM,
typically require less implementation services; however, the number of engagements continues to
grow.
Hardware and other. Sales of hardware are non-strategic and largely dependent upon
customer-specific desires. Sales of hardware decreased $0.4 million, or 2%, from approximately
$16.9 million in 2003 to
-27-
approximately $16.5 million in 2004 and decreased an additional $1.4 million, or 9%, to
approximately $15.1 million in 2005. The decreases in hardware sales from 2003 to 2004 and from
2004 to 2005 are attributable to customers desires in the current macro-economic environment to
buy hardware from other suppliers offering greater discounts. As described in the Notes to
Consolidated Financial Statements, reimbursements for out-of-pocket expenses are required to be
classified as revenue and are included in hardware and other revenue. For 2003, 2004 and 2005,
reimbursements by customers for out-of-pocket expenses were approximately $6.5 million, $7.0
million and $8.1 million, respectively.
Recovery relating to bankrupt customer. On January 22, 2002, a significant customer for 2001
filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. As a result of the
filing, the uncertainties around the bankruptcy proceedings and the ultimate timing of payment, we
recorded an allowance of $4.3 million in 2001 to effectively defer revenues arising in the fourth
quarter of 2001 from the significant customer, but unpaid at the time of the bankruptcy
declaration. We recorded a recovery of approximately $2.3 million of the receivable in the fourth
quarter of 2002. Upon receiving the final cash settlement in June 2003, subsequent to the
significant customer emerging from bankruptcy, we recovered an additional $848,000 of the
receivable during the second quarter of 2003. The recoveries were recorded as separate revenue
line items in the Consolidated Statements of Income and reductions to the allowance for doubtful
accounts in the Consolidated Balance Sheets during the respective quarters.
Geographic regions. We manage our business based on geographic regions. Our operating
segments are the Americas, Europe, Middle East and Africa (EMEA), and Asia/Pacific. Geographic
revenue information is based on the location of sale. During 2003, 2004 and 2005, we derived the
majority of our revenues from sales to customers within our Americas region. Revenues by region
represented the following percentages of total revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2003 |
|
2004 |
|
2005 |
Americas |
|
|
83 |
% |
|
|
80 |
% |
|
|
82 |
% |
EMEA |
|
|
16 |
% |
|
|
17 |
% |
|
|
12 |
% |
Asia/Pacific |
|
|
1 |
% |
|
|
3 |
% |
|
|
6 |
% |
The relative revenue decrease in EMEA during 2005 was the result of delayed commitments for
capital investments in supply chain solutions, lower revenues resulting from the termination of our
business relationship with a large customer in Germany, and the overall weakness of the European
economy. We have realized increases in revenues from 2003 to 2004 and from 2004 to 2005 in
Asia/Pacific as a result of the additional investments made in Australia, China and Japan.
Incremental revenues in Asia/Pacific are primarily the result of increased revenues in Australia
from a large retail customer. Additional financial data for each operating segment can be found in
Note 8 to the Consolidated Financial Statements.
-28-
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
Year Ended |
|
|
|
|
|
Year Ended |
|
|
December 31, |
|
% Change |
|
December 31, |
|
% Change |
|
December 31, |
|
|
2003 |
|
2003 to 2004 |
|
2004 |
|
2004 to 2005 |
|
2005 |
Cost of software and hosting fees |
|
$ |
4,470 |
|
|
|
(9 |
%) |
|
$ |
4,085 |
|
|
|
15 |
% |
|
$ |
4,700 |
|
Percentage of software and hosting fees |
|
|
10 |
% |
|
|
|
|
|
|
8 |
% |
|
|
|
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired developed technology |
|
|
1,999 |
|
|
|
4 |
% |
|
|
2,079 |
|
|
|
12 |
% |
|
|
2,333 |
|
Percentage of software and hosting fees |
|
|
5 |
% |
|
|
|
|
|
|
4 |
% |
|
|
|
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
54,218 |
|
|
|
21 |
% |
|
|
65,853 |
|
|
|
16 |
% |
|
|
76,641 |
|
Percentage of services revenues |
|
|
42 |
% |
|
|
|
|
|
|
47 |
% |
|
|
|
|
|
|
46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of hardware and other |
|
|
20,123 |
|
|
|
0 |
% |
|
|
20,071 |
|
|
|
(1 |
%) |
|
|
19,914 |
|
Percentage of hardware and other revenues |
|
|
86 |
% |
|
|
|
|
|
|
85 |
% |
|
|
|
|
|
|
86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
26,982 |
|
|
|
7 |
% |
|
|
28,822 |
|
|
|
18 |
% |
|
|
34,139 |
|
Percentage of total revenues |
|
|
14 |
% |
|
|
|
|
|
|
13 |
% |
|
|
|
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
31,200 |
|
|
|
9 |
% |
|
|
34,049 |
|
|
|
18 |
% |
|
|
40,302 |
|
Percentage of total revenues |
|
|
16 |
% |
|
|
|
|
|
|
16 |
% |
|
|
|
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
24,117 |
|
|
|
11 |
% |
|
|
26,855 |
|
|
|
10 |
% |
|
|
29,629 |
|
Percentage of total revenues |
|
|
12 |
% |
|
|
|
|
|
|
12 |
% |
|
|
|
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquisition-related intangibles |
|
|
1,433 |
|
|
|
4 |
% |
|
|
1,496 |
|
|
|
44 |
% |
|
|
2,159 |
|
Percentage of total revenues |
|
|
1 |
% |
|
|
|
|
|
|
1 |
% |
|
|
|
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance, restructuring, acquisition, and accounts
receivable charges |
|
|
1,778 |
|
|
|
* |
|
|
|
|
|
|
|
* |
|
|
|
6,310 |
|
|
|
* |
Percentage is not meaningful |
Cost of Software and Hosting Fees. Cost of software and hosting fees consists of the
costs associated with software reproduction; hosting services; funded development; media, packaging
and delivery, documentation and other related costs; royalties on third-party software sold with or
as part of our products; and the amortization of capitalized research and development costs. The
decrease in cost of software fees, as a percentage of software and hosting fees and in absolute
dollars in 2004 is attributable to lower telecommunication costs associated with hosting certain of
our software solutions and lower amortization expense. There was approximately $300,000 of
amortization expense in 2003 associated with capitalized development costs, which were fully
amortized by the end of 2003. The increase in cost of software fees from 2004 to 2005 was
attributable to an increase in costs of approximately $200,000 relating to funded software
development arrangements. In addition, royalties expense was higher by approximately $150,000 in
2005 relating to the $7.2 million increase in software and hosting fees and we incurred
approximately $200,000 of additional costs in providing hosting services to certain clients.
Amortization of Acquired Developed Technology. Amortization of acquired developed technology
increased from $2.0 million in 2003 to $2.1 million in 2004 to $2.3 million in 2005. The increases
were the result of the acquisitions of Logistics.com in December 2002, ReturnCentral in June 2003,
Streamsoft in October 2003, Avere in January 2004, and Evant, Inc. in August 2005.
Cost of Services. Cost of services consists primarily of salaries and other personnel-related
expenses of employees dedicated to professional and technical services and customer support
services. The increases in cost of services from 2003 to 2004 and from 2004 to 2005 were
principally due to increases in salary-related costs resulting from: (i) increases of 19% during
both 2004 and 2005 in the number of personnel dedicated to the delivery of professional and
technical services to support the increase in services revenue; and (ii) annual compensation
increases. The increase in headcount during 2005 excluding India services personnel was
approximately 12%, while the India technical and customer services headcount nearly doubled to 109
at December 31, 2005. During 2005, we incurred approximately $2.0 million in higher bonus expense
as we achieved better financial results relative to internal plans and also higher contract labor
of approximately $1.2 million, relating primarily to one project that had a high demand for
resources during the summer months. The decrease in the services gross margin from 58% in 2003 to
53% during 2004 was attributable to the shift in product mix to open systems, fixed price
contracts, including unusually high costs associated with the implementation for one particularly
challenging customer, and increased costs due to international expansion and training. The
implementation of our warehouse management open
-29-
systems products is more costly than the implementation of our legacy warehouse management
product, the iSeries or AS400, due to the lower maturity level of the product and limited
experience of the services personnel and integration requirements with multiple third party
hardware and software products. Due to the shift towards open systems sales and less
implementation services on our other products outside of warehouse management, we anticipate our
services gross margin to be in line with the 54% gross margin achieved during 2005.
Cost of Hardware and other. Cost of hardware decreased from approximately $13.6 million in
2003 to approximately $13.1 million in 2004 to approximately $11.9 million in 2005 as a direct
result of lower sales of hardware. Cost of hardware and other includes out-of-pocket expenses to
be reimbursed by customers of approximately $6.5 million, $7.0 million and $8.1 million for 2003,
2004 and 2005, respectively. The increase in reimbursed out-of-pocket expenses is due to increased
travel related to the increase in services projects.
Research and Development. Research and development expenses primarily consist of salaries and
other personnel-related costs for personnel involved in our research and development activities.
The increases in research and development expenses from 2003 to 2004 and from 2004 to 2005 are
principally attributable to: (i) increases in the number of full-time and contracted personnel
dedicated to our ongoing research and development activities; (ii) the expansion of our offshore
development center in India, which was formed in 2002; and (iii) annual compensation increases. In
addition, bonus expense increased by approximately $1.3 million from 2004 to 2005 as we achieved
better financial results relative to internal plans. Domestic research and development personnel
increased by approximately 4% from the end of 2003 to the end of 2004 and 10% from the end of 2004
to the end of 2005. The increase during 2005 was primarily attributable to the Evant acquisition.
The number of personnel related to our offshore development center increased from 164 at December
31, 2003 to 279 at December 31, 2004 to 355 at December 31, 2005. Our principal research and
development activities during 2004 and 2005 focused on the expansion and integration of new
products acquired and new product releases and expanding the product footprint of both our
comprehensive Integrated Logistics Solutions and Integrated Planning Solutions product suites. In
addition, during 2005, we invested in our LEMA platform, which is designed to provide our customers
with a comprehensive, services-oriented supply chain platform. LEMA delivers database independence,
a common data model, single sign-on functionality and an event-driven, long-running transaction
processing environment.
Computer software development costs are charged to research and development expense until
technological feasibility is established, after which remaining software production costs are
capitalized. We have defined technological feasibility as the point in time at which we have a
detailed program design or a working model of the related product, depending upon the type of
development effort. For the years ended December 31, 2003, 2004 and 2005, we capitalized no
research and development costs because the costs between the attainment of technological
feasibility for the related software product through the date of general release were
insignificant.
Sales and Marketing. Sales and marketing expenses include salaries, commissions, travel and
other personnel-related costs of sales and marketing personnel and the costs of our marketing and
alliance programs and related activities. The increases in sales and marketing expenses from 2003
to 2004 and from 2004 to 2005 are principally attributable to: (i) greater incentive compensation
paid on 15% and 14% higher license and hosting fees in 2004 over 2003 and 2005 over 2004; and (ii)
continued global expansion of our sales and marketing programs. During 2005, there was also an
increase in salary-related costs resulting from a 7% increase in the number of international and
domestic sales and marketing personnel, of which 4% resulted from the Evant acquisition in August
2005. There was no increase in headcount in 2004 compared to 2003.
General and Administrative. General and administrative expenses consist primarily of salaries
and other personnel-related costs of executive, financial, human resources, information technology
and administrative personnel, as well as facilities, depreciation, legal, insurance, accounting and
other administrative expenses. The increase in general and administrative expenses from 2003 to
2004 was attributable to an increase in salary-related costs from the 16% increase in the average
number of general and administrative personnel, primarily from our
international expansion, additional fees of approximately $800,000
relating to audit, tax and Sarbanes-Oxley work performed by
3rd parties, partially offset by a decrease in sales tax expense of approximately $200,000 and a $400,000
decrease in depreciation expense. The increase in general and administrative expenses from 2004 to
2005 was attributable to: (i) an increase in salary-related costs from the 15% increase in the
average number of general and administrative personnel; (ii) an increase in annual bonuses of
approximately $1.2 million as we achieved better financial results relative to internal plans;
(iii) an increase in depreciation expense of approximately $400,000; and (iv) additional fees of
approximately $950,000 relating to audit, tax and Sarbanes-Oxley work performed by 3rd
parties. These increases were partially offset by approximately $1.0 million in recoveries of
previously expensed
-30-
sales tax resulting from the expiration of the sales tax audit statutes in certain states and
lower legal fees of $550,000. Depreciation expense is included in general and administrative
expenses and was $7.6 million, $7.2 million and $7.6 million during 2003, 2004 and 2005,
respectively.
Amortization of Acquisition-Related Intangibles. We have recorded goodwill and other
acquisition-related intangible assets as part of the purchase accounting associated with various
acquisitions, including the acquisitions of Logistics.com in December 2002, ReturnCentral in June
2003, Streamsoft in October 2003, Avere in January 2004, eebiznet in July 2004, and Evant. Inc. in
August 2005. The increase in the amortization of acquisition-related intangibles is the result of
amortization of intangible assets with finite lives that were purchased as part of the various
acquisitions.
Severance, Restructuring, Acquisition, and Accounts Receivable Charges (other charges).
During 2003, we recorded expenses of $885,000 relating to fees incurred in connection with two
potential acquisitions that we decided not to consummate and a restructuring charge of $893,000
relating to an internal reorganization. The acquisition-related charges consist primarily of
legal, accounting and travel expenses associated with the two transactions. The reorganization
more closely aligned our implementation teams and customer support organization with our technical
teams. The charge consisted primarily of severance payments. Approximately $857,000 was paid
prior to December 31, 2003 and the remaining $36,000 was paid out in January 2004.
During 2005, we recorded $6.3 million of other charges. Included in the other charges were:
(i) a $2.8 million bad debt provision for the entire amount of the accounts receivable due from a
large German customer with which we have had a challenging relationship and for which we consider
collection to be doubtful; (ii) approximately $1.1 million in severance-related costs associated
with the consolidation of our European operations into the Netherlands, United Kingdom and France;
(iii) $1.9 million of severance-related costs and amortization of prepaid retention bonuses
associated with the acquisition of Evant; and (iv) $0.5 million in acquisition-related costs
associated with an attempted acquisition that did not close. The $2.8 million bad debt provision
is our best estimate of costs to be incurred from the termination of our business relationship with
the large challenging customer. However, this amount may change
if the issue results in litigation or if a settlement is reached that
is not covered by our corporate insurance policies. It is not possible at this time to
estimate the amount of any such potential costs. As part of the restructuring in Europe, we
eliminated 17 sales and professional services positions throughout Europe. We anticipate that there
will be no further costs relating to the restructuring in future quarters. The severance-related
costs associated with Evant consisted primarily of one-time payments to employees not retained due
to duplicative functions. The acquisition-related costs incurred consisted of outside legal and
accounting due diligence expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
Year Ended |
|
|
|
|
|
Year Ended |
|
|
December 31, |
|
% Change |
|
December 31, |
|
% Change |
|
December 31, |
|
|
2003 |
|
2003 to 2004 |
|
2004 |
|
2004 to 2005 |
|
2005 |
Income from operations |
|
$ |
30,494 |
|
|
|
4 |
% |
|
$ |
31,609 |
|
|
|
(4 |
%) |
|
$ |
30,277 |
|
Percentage of total revenues |
|
|
15 |
% |
|
|
|
|
|
|
15 |
% |
|
|
|
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
|
2,746 |
|
|
|
19 |
% |
|
|
3,257 |
|
|
|
(18 |
%) |
|
|
2,677 |
|
Percentage of total revenues |
|
|
1 |
% |
|
|
|
|
|
|
2 |
% |
|
|
|
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
12,659 |
|
|
|
5 |
% |
|
|
13,232 |
|
|
|
8 |
% |
|
|
14,319 |
|
Percentage of income before income taxes |
|
|
38 |
% |
|
|
|
|
|
|
38 |
% |
|
|
|
|
|
|
43 |
% |
Income from Operations. The increase in operating income from 2003 to 2004 resulted from
the growth in higher margin software fees. Operating income for 2003 reflects a recovery relating
to the bankrupt customer totaling $0.8 million; acquisition-related expenses of $0.9 million; a
restructuring charge of $0.9 million; and non-cash, acquisition-related intangible asset
amortization totaling $3.4 million. Operating income for 2004 reflects acquisition-related
intangible asset amortization totaling $3.6 million and the recovery of approximately $200,000 of
previously expensed sales taxes. The decrease in operating income from 2004 to 2005 was
attributable to the increase in other charges and amortization of intangibles, partially offset by
the contribution growth in software and services. Operating income for 2005 reflects other charges
of $6.3 million, as described above, acquisition-related intangible asset amortization totaling
$4.5 million and the recovery of approximately $1.2 million of previously expensed sales taxes.
-31-
Other Income, Net. Other income, net includes interest income and interest expense and
foreign currency gains and losses. Interest income increased from $1.5 million in 2003 to $2.4
million in 2004 due to an overall increase in market interest rates along with an increase in the
cash available to invest. Interest income increased from $2.4 million in 2004 to $3.8 million in
2005 due to an overall increase in market interest rates. The amount of cash available to invest
decreased during the 2nd half of 2005 due to the cash paid as part of the Evant
acquisition and the approximately $61 million used to purchase Manhattan common stock. The
weighted-average interest rate on investment securities at December 31, 2003 was approximately
1.1%, as compared to 2.2% at December 31, 2004 and 2.9% at December 31, 2005. Interest expense was
$13,000 in 2003, $26,000 in 2004, and $34,000 in 2005. We recorded net foreign currency gains of
$1.3 million in 2003 and $0.9 million in 2004, and a net foreign currency loss of $1.15 million in
2005. The foreign currency gains and losses resulted from gains or losses on intercompany
transactions denominated in U.S. dollars with subsidiaries due to the fluctuation of the U.S.
dollar relative to other foreign currencies, primarily the British Pound and Euro.
Income Tax Provision. The fluctuation in the income tax provision during 2003 and 2004 is
directly attributable to the decrease during 2003 and increase during 2004 of income before income
taxes. Our effective income tax rates were 38.1%, 38.0% and 43.5% in 2003, 2004 and 2005,
respectively. Our effective income tax rate takes into account the source of taxable income,
domestically by state and internationally by country, and available income tax credits. The
increase in the tax rate in 2005 was attributable to the inability to recognize significant tax
benefit from the accounts receivable and restructuring charges described above due to the recent
losses in the foreign locations where most of these charges occurred, in addition to operating
losses in certain foreign locations, including Germany, the Netherlands, Japan and China, where the
expectation of realizing the tax benefit of those losses is not yet probable. The increase is also
attributable to tax contingency reserves recorded of $0.7 million. The provisions for income taxes
for 2003, 2004 and 2005 do not include the $14.2 million, $9.7 million and $1.9 million of tax
benefits realized from stock options exercised during the years, respectively. These tax benefits
reduce our income tax liabilities and are included in additional paid-in capital.
Liquidity and Capital Resources
During 2004 and 2005, we funded our operations primarily through cash generated from
operations. As of December 31, 2004, we had $172.7 million in cash, cash equivalents and
investments compared to $93.7 million at December 31, 2005.
Our operating activities provided cash of $37.0 million in 2003, $44.5 million in 2004 and
$33.4 million in 2005. Cash from operating activities for both 2003 and 2004 arose principally
from operating income, income tax benefits arising from exercises of stock options by employees,
increases in deferred revenue, partially off-set by the increases in accounts receivable each year.
Cash from operating activities for 2005 arose principally from operating income, income tax
benefits arising from exercises of stock options by employees, increases in accrued liabilities and
deferred revenue, partially off-set by the increase in accounts receivable and other assets. Days
sales outstanding increased from 76 days at December 31, 2003 and 2004 to 81 days at December 31,
2005, partially attributable to slightly weaker cash collections at year end on December revenue
recorded.
Our investing activities used approximately $77.8 million and $20.9 million of cash during the
years ended December 31, 2003 and 2004, respectively. Our investing activities provided cash of
approximately $3.8 million during the year ended December 31, 2005. During 2003, our principal uses
of cash were for net purchases of $65.3 million in investments, purchases of capital equipment of
$7.7 million to support our business and infrastructure, $2.6 million for the acquisitions of
ReturnCentral and Streamsoft, and the $2.0 million investment in Alien Technology. During 2004, our
principal uses of cash were $7.6 million for purchases of capital equipment to support our business
and infrastructure, $1.7 million for acquisitions and net purchases of $11.6 million in
investments. During 2005, our source of cash was from net maturities and sales of investments of
$61.1 million, partially offset by payments in connection with the Evant acquisition of
approximately $48.3 million and purchases of capital equipment of $8.5 million to support our
business and infrastructure.
Our financing activities provided approximately $9.0 million of cash in 2003 and used cash of
approximately $17.9 million in 2004 and $54.4 million in 2005. The principal source of cash
provided by financing activities in 2003 was the $9.3 million in proceeds from the issuance of
common stock pursuant to the exercise of stock options. The principal use of cash for financing
activities in 2004 was for repurchase of 885,400 shares of our common stock for approximately $21.8
million, partially off-set by the proceeds from the issuance of common stock pursuant to the
-32-
exercise of stock options of approximately $4.0 million. The principal use of cash for
financing activities in 2005 was for repurchase of 2,827,200 shares of our common stock for
approximately $61.0 million, partially off set by the proceeds from the issuance of common stock
pursuant to the exercise of stock options of approximately $6.7 million. The stock purchases in
2004 and 2005 were through open market transactions as part of a publicly-announced repurchase
program.
We believe there are opportunities to grow our business through the acquisition of
complementary and synergistic companies, products and technologies. Any material acquisition could
result in a decrease to our working capital depending on the amount, timing and nature of the
consideration to be paid. In February 2005, our Board of Directors authorized us to purchase up to
$20 million of our common stock, over a period ending no later than February 3, 2006. In July
2005, our Board of Directors authorized us to purchase an additional $50 million of our common
stock, over a period ending no later than July 21, 2006. We expect to fund purchases under the
program through existing cash, cash equivalents and investments.
We believe that our existing liquidity and expected cash flows from operations will satisfy
our capital requirements for normal operations for the foreseeable future. We believe that existing
balances of cash, cash equivalents and short-term investments will be sufficient to meet our
working capital and capital expenditure needs at least for the next twelve months, although there
can be no assurance that this will be the case.
New Accounting Pronouncements
In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment,
which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB
Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar
to the approach described in Statement 123. However, Statement 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an alternative.
Statement 123(R) must be adopted no later than January 1, 2006. Early adoption will be
permitted in periods in which financial statements have not yet been issued.
Statement 123(R) permits public companies to adopt its requirements using one of two methods:
1. A modified prospective method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of Statement 123(R) for all share-based payments
granted after the effective date and (b) based on the requirements of Statement 123 for all
awards granted to employees prior to the effective date of Statement 123(R) that remain unvested
on the effective date.
2. A modified retrospective method, which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the amounts
previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all
prior periods presented or (b) prior interim periods of the year of adoption.
We will adopt Statement 123(R) beginning on January 1, 2006 using the modified prospective
method.
As permitted by Statement 123, we currently account for share-based payments to employees
using Opinion 25s intrinsic value method and, as such, generally recognize no compensation cost
for employee stock options. Accordingly, the adoption of Statement 123(R)s fair value method will
have a significant impact on our results of operations. We expect to
incur an additional $6 million to $8 million of after tax
expense in 2006 for employee stock compensation. This estimated range
could be impacted by significant changes in our stock price, changes
in the level of share-based payments, and changes in employee
turnover rates. Statement
123(R) also requires the benefits of tax
-33-
deductions in excess of recognized compensation cost to be reported as a financing cash flow,
rather than as an operating cash flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash flows in periods after adoption.
While we cannot estimate what those amounts will be in the future (because they depend on, among
other things, when employees exercise stock options), the amount of operating cash flows recognized
in prior periods for such excess tax deductions were $14.2 million, $9.7 million, and $1.9 million
in 2003, 2004 and 2005, respectively.
In December 2004, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard
(FAS) 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004
(the Act) that provides tax relief to U.S. domestic manufacturers. The FSP states that the
manufacturers deduction provided for under the Act should be accounted for as a special deduction
in accordance with Statement 109 rather than as a tax rate reduction. Also in December 2004, the
FASB issued FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004, addressing accounting and
disclosure guidance relating to a companys repatriation program. The additional disclosures
required under this staff position are included in Note 2, Income Taxes. Both FSPs were effective
upon issuance.
In December 2004, the FASB issued SFAS 153, Exchange of Non-monetary Assets (SFAS 153).
SFAS 153 addresses the measurement of exchanges of non-monetary assets. The guidance in APB
Opinion No. 29, Accounting for Non-monetary Transactions (APB 29), is based on the principle
that exchanges of non-monetary assets should be measured based on the fair value of the assets
exchanged. The guidance in APB 29, however, included certain exceptions to that principle. SFAS
153 amends APB 29 to eliminate the exception for non-monetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. A non-monetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the exchange. This
Statement is effective for financial statements for fiscal years beginning after June 15, 2005.
The adoption of this statement is not expected to have a material impact on our consolidated
financial statements.
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections A
replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). The FASB issued SFAS 154
to provide guidance on the accounting for and reporting of error corrections. Unless otherwise
impracticable, it establishes retrospective application as the required method for reporting a
change in accounting principle in the absence of explicit transition requirements specific to the
newly adopted accounting principle. SFAS 154 also provides guidance for determining whether
retrospective application is impracticable and for reporting an accounting change when
retrospective application is impracticable. Furthermore, this statement addresses the reporting of
a correction of an error in previously issued financial statements by restating previously issued
financial statements. This Statement is effective for financial statements for fiscal years
beginning after December 15, 2005. The adoption of this statement is not expected to have a
material impact on our consolidated financial statements.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Our principal commitments as of December 31, 2005, consist of obligations under operating
leases. We expect to fulfill all of the following commitments from our working capital.
Lease Commitments
We lease certain of our facilities and some of our equipment under noncancelable operating
lease arrangements that expire at various dates through 2008. Rent expense for these leases
aggregated $5.0 million, $5.9 million and $6.3 million during fiscal 2003, 2004 and 2005,
respectively.
The following table summarizes our contractual commitments as of December 31, 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After |
|
|
Total |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2010 |
Non-cancelable operating leases |
|
$ |
19,818 |
|
|
$ |
7,215 |
|
|
$ |
6,885 |
|
|
$ |
3,299 |
|
|
$ |
1,924 |
|
|
$ |
495 |
|
|
$ |
|
|
Capital leases |
|
$ |
152 |
|
|
$ |
152 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
-34-
Indemnifications
Our sales agreements with customers generally contain infringement indemnity provisions.
Under these agreements, we agree to indemnify, defend and hold harmless the customer in connection
with patent, copyright or trade secret infringement claims made by third parties with respect to
the customers authorized use of our products and services. The indemnity provisions generally
provide for our control of defense and settlement and cover costs and damages finally awarded
against the customer, as well as our modification of the product so it is no longer infringing or,
if it cannot be corrected, return of the product for a refund. Our sales agreements with customers
sometimes also contain indemnity provisions for death, personal injury or property damage caused by
our personnel or contractors in the course of performing services to customers. Under these
agreements, we agree to indemnify, defend and hold harmless the customer in connection with death,
personal injury and property damage claims made by third parties with respect to actions of our
personnel or contractors. The indemnity provisions generally provide for our control of defense
and settlement and cover costs and damages finally awarded against the customer. The indemnity
obligations contained in sales agreements generally have no specified expiration date and no
specified monetary limitation on the amount of award covered. We have not previously incurred
costs to settle claims or pay awards under these indemnification obligations. We account for these
indemnity obligations in accordance with SFAS No. 5, Accounting for Contingencies, and record a
liability for these obligations when a loss is probable and reasonably estimable. We have not
recorded any liabilities for these agreements as of December 31, 2005.
We warrant to our customers that our software products will perform in all material respects
in accordance with our standard published specifications in effect at the time of delivery of the
licensed products to the customer for 90 days after first use of the licensed products, but no more
than 24 months after execution of the license agreement. Additionally, we warrant to our customers
that our services will be performed consistent with generally accepted industry standards or
specific service levels through completion of the agreed upon services. If necessary, we would
provide for the estimated cost of product and service warranties based on specific warranty claims
and claim history. However, we have not incurred significant recurring expense under our product
or service warranties. As a result, we believe the estimated fair value of these agreements is
nominal. Accordingly, we have no liabilities recorded for these agreements as of December 31,
2005.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Business
Our international business is subject to risks typical of an international business,
including, but not limited to: differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions, and foreign exchange rate volatility.
Our international operations currently include business activity out of offices in the United
Kingdom, the Netherlands, Germany, France, Australia, Japan, China, Singapore and India. When the
U.S. dollar strengthens against a foreign currency, the value of our sales and expenses in that
currency converted to U.S. dollars decreases. When the U.S. dollar weakens, the value of our sales
and expenses in that currency converted to U.S. dollars increases.
We recognized foreign exchange rate gains of approximately $1.3 million in 2003 and $0.9
million in 2004, and a foreign exchange rate loss of $1.1 million in 2005 classified in Other
income, net on our Consolidated Statements of Income. A fluctuation of 10% in the period end
exchange rates at December 31, 2004 and December 31, 2005 relative to the US dollar would result in
changes of approximately $1.0 million and $1.3 million in the reported foreign currency gain or
loss, respectively.
Interest Rates
We invest our cash in a variety of financial instruments, including taxable and
tax-advantaged floating rate and fixed rate obligations of corporations, municipalities, and
local, state and national governmental entities and agencies. These investments are denominated
in U.S. dollars. Cash balances in foreign currencies overseas are derived from operations.
-35-
We account for our investment instruments in accordance with Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No.
115). All of the cash equivalents and investments are treated as available-for-sale under SFAS
No. 115.
Investments in both fixed rate and floating rate interest earning instruments carry a degree
of interest rate risk. Fixed rate securities may have their fair market value adversely impacted
due to a rise in interest rates, while floating rate securities may produce less income than
expected if interest rates fall. Due in part to these factors, our future investment income may
fall short of expectations due to changes in interest rates, or we may suffer losses in principal
if forced to sell securities that have seen a decline in market value due to changes in interest
rates. The weighted-average interest rate on investment securities at December 31, 2004 was
approximately 2.2%, as compared to 2.9% at December 31, 2005. The fair value of cash equivalents
and investments held at December 31, 2004 and 2005 was $161.3 million and $81.7 million,
respectively. Based on the average investments outstanding during 2004 and 2005, increases or
decreases of 25 basis points would result in increases or decreases to interest income of
approximately $400,000 and $330,000 in 2004 and 2005, respectively, from the reported interest
income.
Item 8. Financial Statements and Supplementary Data
Financial Statements
|
|
|
|
|
Index |
|
Page |
|
|
|
|
|
Managements Annual Report on Internal Control over Financial Reporting |
|
|
37 |
|
Report of Independent Registered Public Accounting Firm on Internal
Control over Financial Reporting |
|
|
39 |
|
Report of Independent Registered Public Accounting Firm on the
Consolidated Financial Statements |
|
|
41 |
|
Consolidated Balance Sheets as of December 31, 2004 and 2005 |
|
|
42 |
|
Consolidated Statements of Income for the Years Ended December 31,
2003, 2004 and 2005 |
|
|
43 |
|
Consolidated Statements of Shareholders Equity for the Years Ended
December 31, 2003, 2004 and 2005 |
|
|
44 |
|
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2003, 2004 and 2005 |
|
|
45 |
|
Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2004 and 2005 |
|
|
46 |
|
Notes to Consolidated Financial Statements |
|
|
47 |
|
-36-
MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining effective internal
control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of
1934. The companys internal control over financial reporting is designed to provide reasonable
assurance regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our Chief
Financial Officer and Principal Accounting Officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2005 based on the framework in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal
control over financial reporting was not effective as of December 31, 2005 due to material
weaknesses.
A material weakness is a control deficiency, or a combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. As of December 31, 2005, management has
determined that:
|
|
|
The Companys controls over monitoring the completeness and
accuracy of the determination and reporting of sales taxes
payable were insufficient. Specifically, the Company did not have
personnel with sufficient skills and experience to enable the
Company to properly determine whether certain consulting and
maintenance services were considered taxable transactions in
certain states. These control deficiencies resulted in material
adjustments to the general and administrative expense and accrued
liability accounts in the 2005 annual and quarterly consolidated
financial statements and the restatement of the annual
consolidated financial statements for 2002, 2003 and 2004, and
for each of the quarters in the years ended December 31, 2003 and
2004 for which an amended Annual Report on Form 10-K was filed
with the Securities and Exchange Commission on March 1, 2006. |
|
|
|
|
The Companys review and approval controls over the accounting
for income taxes, including the determination and reporting of
income taxes payable, deferred income tax assets and liabilities
and the related income tax provision were insufficient.
Specifically, the Company did not have personnel with sufficient
skills and experience to enable the Company to properly consider
and apply generally accepted accounting principles for taxes, and
ensure that the rationale for certain tax positions was
adequately documented and appropriately communicated.
Additionally, the Company did not maintain effective controls to
review and monitor the accuracy of the components of the income
tax provision calculations and the related deferred income taxes
and income taxes payable. These control deficiencies resulted in
the restatement of the annual consolidated financial statements
for 2002, 2003 and 2004, and for each of the quarters in the
years ended December 31, 2003 and 2004 for which an amended
Annual Report on Form 10-K was filed with the Securities and
Exchange Commission on March 1, 2006. No adjustments were
necessary to the 2005 annual or interim financial statements as a
result of these deficiencies. However, until this material
weakness is remediated, there is a more than remote likelihood
that a misstatement of the income tax provision and the related
deferred income taxes and income taxes payable accounts could
occur that would not be prevented or detected by the Companys
internal controls. |
Because of these material weaknesses, we have concluded that the Company did not maintain
effective internal control over financial reporting as of December 31, 2005 based on the criteria
in the Internal Control Integrated Framework.
-37-
Managements assessment of the effectiveness of internal control over financial reporting as
of December 31, 2005 has been audited by Ernst & Young LLP, the independent registered public
accounting firm who also audited the Companys consolidated financial statements. Ernst & Youngs
attestation report on managements assessment of the Companys internal controls over financial
reporting appears beginning on page 39 hereof.
|
|
|
|
|
|
|
/s/ Steven R. Norton |
|
|
|
|
|
|
|
|
|
Steven R. Norton |
|
|
|
|
Senior Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
/s/ Peter F. Sinisgalli |
|
|
|
|
|
|
|
|
|
Peter F. Sinisgalli |
|
|
|
|
President and Chief Executive Officer |
|
|
-38-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders
Manhattan Associates, Inc.
We have audited managements assessment, included in the accompanying Managements Annual
Report on Internal Control over Financial Reporting, that Manhattan Associates, Inc. did not
maintain effective internal control over financial reporting as of December 31, 2005, because of
the effect of the material weaknesses identified in managements assessment and described below,
based on criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Manhattan Associates,
Inc.s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The following material weaknesses have been
identified and included in managements assessment:
The Companys controls over monitoring the completeness and accuracy of the determination and
reporting of sales tax payable were insufficient. Specifically, the Company did not have personnel
with sufficient skills and experience to enable the Company to properly determine whether certain
consulting and maintenance services were considered taxable transactions in certain states. These
control deficiencies resulted in material adjustments to the general and administrative expense and
accrued liability accounts in the 2005 annual and quarterly consolidated financial statements and
the restatement of the annual consolidated financial statements for 2002, 2003 and 2004, and for
each of the quarters in the years ended December 31, 2003 and 2004, for which an amended Annual
Report on Form 10-K was filed with the Securities and Exchange Commission on March 1, 2006.
The Companys review and approval controls over the accounting for income taxes, including the
determination and reporting of income taxes payable, deferred income tax assets and liabilities and
the related income tax provision were insufficient. Specifically, the Company did not have
personnel with sufficient skills and experience to enable the Company to properly consider and
apply generally accepted accounting principles for taxes, and ensure
-39-
that the rationale for certain tax positions was adequately documented and appropriately
communicated. Additionally, the Company did not maintain effective controls to review and monitor
the accuracy of the components of the income tax provision calculations and the related deferred
income taxes and income taxes payable. These control deficiencies resulted in the restatement of
the annual consolidated financial statements for 2002, 2003 and 2004, and for each of the quarters
in the years ended December 31, 2003 and 2004, for which an amended Annual Report on Form 10-K was
filed with the Securities and Exchange Commission on March 1, 2006. No adjustments were necessary
to the 2005 annual or interim financial statements as a result of these deficiencies. However,
until this material weakness is remediated, there is a more than remote likelihood that a
misstatement of the income tax provision and the related deferred income taxes and income taxes
payable accounts could occur that would not be prevented or detected by the Companys internal
controls.
These material weaknesses were considered in determining the nature, timing, and extent of
audit tests applied in our audit of the 2005 consolidated financial statements, and this report
does not affect our report dated March 13, 2006 on those consolidated financial statements.
In our opinion, managements assessment that Manhattan Associates, Inc. did not maintain
effective internal control over financial reporting as of December 31, 2005, is fairly stated, in
all material respects, based on the COSO control criteria. Also, in our opinion, because of the
effect of the material weaknesses described above on the achievement of the objectives of the
control criteria, Manhattan Associates, Inc. has not maintained effective internal control over
financial reporting as of December 31, 2005, based on the COSO control criteria.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 13, 2006
-40-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Shareholders
Manhattan Associates, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Manhattan Associates, Inc. and
subsidiaries (the Company) as of December 31, 2004 and 2005, and the related consolidated
statements of income, shareholders equity, comprehensive income and cash flows for each of the
three years in the period ended December 31, 2005. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial statements and schedule are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company at December 31, 2004 and
2005, and the consolidated results of their operations and their cash flows for each of the three
years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 13, 2006 expressed an unqualified opinion on managements assessment and an
adverse opinion on the effectiveness of internal control over financial reporting.
|
|
|
Atlanta, Georgia
March 13, 2006
|
|
/s/ ERNST & YOUNG LLP |
-41-
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2005 |
|
ASSETS |
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
37,429 |
|
|
$ |
19,419 |
|
Short-term investments |
|
|
88,794 |
|
|
|
36,091 |
|
Accounts receivable, net of a $4,171 and $4,892 allowance
for doubtful accounts in 2004 and 2005, respectively |
|
|
45,996 |
|
|
|
58,623 |
|
Deferred income taxes |
|
|
4,939 |
|
|
|
6,377 |
|
Refundable income taxes |
|
|
776 |
|
|
|
449 |
|
Prepaid expenses |
|
|
4,511 |
|
|
|
7,497 |
|
Other current assets |
|
|
1,800 |
|
|
|
3,771 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
184,245 |
|
|
|
132,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
13,598 |
|
|
|
14,240 |
|
Long-term investments |
|
|
46,433 |
|
|
|
38,165 |
|
Acquisition-related intangible assets, net |
|
|
8,320 |
|
|
|
19,213 |
|
Goodwill, net |
|
|
32,469 |
|
|
|
54,607 |
|
Deferred income taxes |
|
|
2,639 |
|
|
|
11,995 |
|
Other assets |
|
|
2,535 |
|
|
|
2,951 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
290,239 |
|
|
$ |
273,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
6,800 |
|
|
$ |
7,904 |
|
Accrued compensation and benefits |
|
|
6,639 |
|
|
|
15,224 |
|
Accrued liabilities |
|
|
12,647 |
|
|
|
13,427 |
|
Current portion of capital lease obligations |
|
|
139 |
|
|
|
147 |
|
Income taxes payable |
|
|
1,479 |
|
|
|
2,535 |
|
Deferred rent |
|
|
203 |
|
|
|
544 |
|
Deferred revenue |
|
|
22,710 |
|
|
|
27,204 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
50,617 |
|
|
|
66,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of capital lease obligations |
|
|
148 |
|
|
|
|
|
Deferred rent |
|
|
457 |
|
|
|
689 |
|
Deferred revenue |
|
|
|
|
|
|
326 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see footnotes 1, 5 and 6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 20,000,000 shares
authorized, no shares issued or outstanding in 2004 or 2005 |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 100,000,000 shares
authorized, 29,580,724 shares issued and outstanding in
2004 and 27,207,260 shares issued and outstanding in 2005 |
|
|
296 |
|
|
|
272 |
|
Additional paid-in-capital |
|
|
139,871 |
|
|
|
87,476 |
|
Retained earnings |
|
|
98,355 |
|
|
|
116,990 |
|
Accumulated other comprehensive income |
|
|
882 |
|
|
|
863 |
|
Deferred compensation |
|
|
(387 |
) |
|
|
(203 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
239,017 |
|
|
|
205,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
290,239 |
|
|
$ |
273,398 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Balance Sheets.
-42-
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Software and hosting fees |
|
$ |
43,229 |
|
|
$ |
49,886 |
|
|
$ |
57,119 |
|
Services |
|
|
129,320 |
|
|
|
141,492 |
|
|
|
166,091 |
|
Hardware and other |
|
|
23,417 |
|
|
|
23,541 |
|
|
|
23,194 |
|
Recovery relating to bankrupt customer |
|
|
848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
196,814 |
|
|
|
214,919 |
|
|
|
246,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software and hosting fees |
|
|
4,470 |
|
|
|
4,085 |
|
|
|
4,700 |
|
Amortization of acquired developed technology |
|
|
1,999 |
|
|
|
2,079 |
|
|
|
2,333 |
|
Cost of services |
|
|
54,218 |
|
|
|
65,853 |
|
|
|
76,641 |
|
Cost of hardware and other |
|
|
20,123 |
|
|
|
20,071 |
|
|
|
19,914 |
|
Research and development |
|
|
26,982 |
|
|
|
28,822 |
|
|
|
34,139 |
|
Sales and marketing |
|
|
31,200 |
|
|
|
34,049 |
|
|
|
40,302 |
|
General and administrative |
|
|
24,117 |
|
|
|
26,855 |
|
|
|
29,629 |
|
Severance, restructuring, acquisition, and
accounts receivable charges |
|
|
1,778 |
|
|
|
|
|
|
|
6,310 |
|
Amortization of acquisition-related intangibles |
|
|
1,433 |
|
|
|
1,496 |
|
|
|
2,159 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
166,320 |
|
|
|
183,310 |
|
|
|
216,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
30,494 |
|
|
|
31,609 |
|
|
|
30,277 |
|
|
Interest income |
|
|
1,503 |
|
|
|
2,383 |
|
|
|
3,830 |
|
Interest expense |
|
|
(13 |
) |
|
|
(26 |
) |
|
|
(34 |
) |
Other income (loss), net |
|
|
1,256 |
|
|
|
900 |
|
|
|
(1,119 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
33,240 |
|
|
|
34,866 |
|
|
|
32,954 |
|
Income tax provision |
|
|
12,659 |
|
|
|
13,232 |
|
|
|
14,319 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
20,581 |
|
|
$ |
21,634 |
|
|
$ |
18,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.70 |
|
|
$ |
0.72 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.67 |
|
|
$ |
0.70 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
29,532 |
|
|
|
30,056 |
|
|
|
28,690 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
30,882 |
|
|
|
31,067 |
|
|
|
29,297 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Statements of Income.
-43-
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Comprehensive |
|
|
|
|
|
Total |
|
|
Common Stock |
|
Paid-In |
|
Retained |
|
Income |
|
Deferred |
|
Shareholders |
|
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
(Loss) |
|
Compensation |
|
Equity |
Balance, December 31, 2002 |
|
|
29,031,107 |
|
|
$ |
290 |
|
|
$ |
122,977 |
|
|
$ |
56,140 |
|
|
$ |
253 |
|
|
$ |
(42 |
) |
|
$ |
179,618 |
|
Cancellation of
common stock options |
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
|
|
Exercise of common
stock options |
|
|
1,046,948 |
|
|
|
11 |
|
|
|
9,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,270 |
|
Issuance of restricted
stock |
|
|
8,109 |
|
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
|
|
|
|
(232 |
) |
|
|
|
|
Tax benefit from
stock options exercised |
|
|
|
|
|
|
|
|
|
|
14,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,170 |
|
Amortization of
deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
52 |
|
Foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482 |
|
|
|
|
|
|
|
482 |
|
Unrealized loss on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
(15 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,581 |
|
|
|
|
|
|
|
|
|
|
|
20,581 |
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance, December 31, 2003 |
|
|
30,086,164 |
|
|
|
301 |
|
|
|
146,614 |
|
|
|
76,721 |
|
|
|
720 |
|
|
|
(198 |
) |
|
|
224,158 |
|
Exercise of common
stock options |
|
|
334,157 |
|
|
|
3 |
|
|
|
4,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,039 |
|
Issuance of restricted
stock |
|
|
45,803 |
|
|
|
1 |
|
|
|
1,289 |
|
|
|
|
|
|
|
|
|
|
|
(1,290 |
) |
|
|
|
|
Buyback of
Manhattan common stock |
|
|
(885,400 |
) |
|
|
(9 |
) |
|
|
(21,754 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,763 |
) |
Tax benefit from
stock options exercised |
|
|
|
|
|
|
|
|
|
|
9,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,686 |
|
Amortization of
deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,101 |
|
|
|
1,101 |
|
Foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421 |
|
|
|
|
|
|
|
421 |
|
Unrealized loss on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(259 |
) |
|
|
|
|
|
|
(259 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,634 |
|
|
|
|
|
|
|
|
|
|
|
21,634 |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance, December 31, 2004 |
|
|
29,580,724 |
|
|
|
296 |
|
|
|
139,871 |
|
|
|
98,355 |
|
|
|
882 |
|
|
|
(387 |
) |
|
|
239,017 |
|
Exercise of common
stock options |
|
|
453,736 |
|
|
|
4 |
|
|
|
6,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,672 |
|
Buyback of
Manhattan common stock |
|
|
(2,827,200 |
) |
|
|
(28 |
) |
|
|
(60,983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,011 |
) |
Tax benefit from
stock options exercised |
|
|
|
|
|
|
|
|
|
|
1,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,920 |
|
Amortization of
deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184 |
|
|
|
184 |
|
Foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
(37 |
) |
Unrealized loss on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
18 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,635 |
|
|
|
|
|
|
|
|
|
|
|
18,635 |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance, December 31, 2005 |
|
|
27,207,260 |
|
|
$ |
272 |
|
|
$ |
87,476 |
|
|
$ |
116,990 |
|
|
$ |
863 |
|
|
$ |
(203 |
) |
|
$ |
205,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Statements of Shareholders Equity.
-44-
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Net income |
|
$ |
20,581 |
|
|
$ |
21,634 |
|
|
$ |
18,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
of $248, $222, and $28 in 2003, 2004 and 2005, respectively |
|
|
482 |
|
|
|
421 |
|
|
|
(37 |
) |
Unrealized gain (loss) on investments, net of taxes
of $8, $136, and $14 in 2003, 2004 and 2005, respectively |
|
|
(15 |
) |
|
|
(259 |
) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
467 |
|
|
|
162 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
21,048 |
|
|
$ |
21,796 |
|
|
$ |
18,616 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Statements of Comprehensive Income.
-45-
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
20,581 |
|
|
$ |
21,634 |
|
|
$ |
18,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
7,982 |
|
|
|
7,207 |
|
|
|
7,582 |
|
Amortization of acquired developed technology and
acquisition-related intangibles |
|
|
3,432 |
|
|
|
3,575 |
|
|
|
4,492 |
|
Stock compensation |
|
|
52 |
|
|
|
1,101 |
|
|
|
184 |
|
Loss on disposal of equipment |
|
|
|
|
|
|
42 |
|
|
|
76 |
|
Unrealized foreign currency loss (gain) |
|
|
(281 |
) |
|
|
(643 |
) |
|
|
1,346 |
|
Tax benefit of options exercised |
|
|
14,170 |
|
|
|
9,686 |
|
|
|
1,920 |
|
Deferred income taxes |
|
|
(586 |
) |
|
|
286 |
|
|
|
1,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(6,814 |
) |
|
|
(4,018 |
) |
|
|
(8,692 |
) |
Other assets |
|
|
(1,345 |
) |
|
|
(1,878 |
) |
|
|
(4,383 |
) |
Prepaid retention bonus |
|
|
|
|
|
|
|
|
|
|
(1,599 |
) |
Accounts payable |
|
|
(1,750 |
) |
|
|
1,413 |
|
|
|
377 |
|
Accrued liabilities |
|
|
(628 |
) |
|
|
1,898 |
|
|
|
7,280 |
|
Income taxes |
|
|
(1,048 |
) |
|
|
(175 |
) |
|
|
1,359 |
|
Deferred rent |
|
|
863 |
|
|
|
(203 |
) |
|
|
(254 |
) |
Deferred revenue |
|
|
2,367 |
|
|
|
4,556 |
|
|
|
3,694 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
36,995 |
|
|
|
44,481 |
|
|
|
33,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(7,733 |
) |
|
|
(7,572 |
) |
|
|
(8,488 |
) |
Purchases of investments |
|
|
(609,078 |
) |
|
|
(1,095,608 |
) |
|
|
(870,123 |
) |
Maturities and sales of investments |
|
|
543,751 |
|
|
|
1,083,982 |
|
|
|
931,247 |
|
Payments in connection with the investment in Alien Technologies |
|
|
(2,000 |
) |
|
|
|
|
|
|
|
|
Payments in connection with the Evant acquisition,
net of cash acquired (see footnote 6) |
|
|
|
|
|
|
|
|
|
|
(48,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Payments in connection with other various acquisitions,
net of cash acquired (see footnote 6) |
|
|
(2,750 |
) |
|
|
(1,698 |
) |
|
|
(444 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(77,810 |
) |
|
|
(20,896 |
) |
|
|
3,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of capital lease obligations |
|
|
(234 |
) |
|
|
(133 |
) |
|
|
(104 |
) |
Purchase of Manhattan common stock |
|
|
|
|
|
|
(21,763 |
) |
|
|
(61,011 |
) |
Proceeds from issuance of common stock from option exercises |
|
|
9,270 |
|
|
|
4,039 |
|
|
|
6,672 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
9,036 |
|
|
|
(17,857 |
) |
|
|
(54,443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency impact on cash |
|
|
22 |
|
|
|
294 |
|
|
|
(799 |
) |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(31,757 |
) |
|
|
6,022 |
|
|
|
(18,010 |
) |
Cash and cash equivalents, beginning of year |
|
|
63,164 |
|
|
|
31,407 |
|
|
|
37,429 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
31,407 |
|
|
$ |
37,429 |
|
|
$ |
19,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
14 |
|
|
$ |
26 |
|
|
$ |
19 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
163 |
|
|
$ |
2,816 |
|
|
$ |
9,098 |
|
|
|
|
|
|
|
|
|
|
|
Non-cash transaction: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock |
|
$ |
232 |
|
|
$ |
1,290 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Statements of Cash Flows.
-46-
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2004 and 2005
1. Organization and Summary of Significant Accounting Policies
Organization and Business
Manhattan Associates, Inc. (Manhattan or the Company) is a developer and provider of
technology-based supply chain software solutions that help companies manage the effectiveness and
efficiency of their supply chain. The solutions consist of software, services and hardware and are
used for both the planning and execution of supply chain activities. These solutions help
coordinate the actions and communication of manufacturers, suppliers, distributors, retailers,
transportation providers and consumers.
The Companys operations are in North America, Europe and Asia/Pacific. Its European
operations are conducted through its wholly-owned subsidiaries, Manhattan Associates Limited,
Manhattan Associates Europe B.V., Manhattan France SARL, and Manhattan Associates GmbH, in the
United Kingdom, the Netherlands, France, and Germany, respectively. The Companys Asia/Pacific
operations are conducted through its wholly-owned subsidiaries, Manhattan Associates Pty Ltd.,
Manhattan Associates KK, Manhattan Associates Software (Shanghai), Co. Ltd., Manhattan Associates
Software Pte Ltd., and Manhattan Associates (India) Development Centre Private Limited in
Australia, Japan, China, Singapore, and India, respectively. The Company occasionally sells its
products and services in other countries, such as countries in Latin America, through its direct
sales channel as well as various reseller channels.
Principles of Consolidation and Foreign Currency Translation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
The financial statements of foreign subsidiaries have been translated into United States
dollars in accordance with Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 52, Foreign Currency Translation. Revenues and expenses from
international operations were denominated in the respective local currencies and translated using
the average monthly exchange rates for the year. All balance sheet accounts have been translated
using the exchange rates in effect at the balance sheet date and the effect of changes in exchange
rates from year to year are disclosed as a separate component of shareholders equity and
comprehensive income.
Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of
three months or less to be cash or cash equivalents.
-47-
1. Organization and Summary of Significant Accounting Policies (continued)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of
credit risk consist principally of cash and cash equivalents, short- and long-term investments and
accounts receivable. The Company maintains cash and cash equivalents and short- and long-term
investments with various financial institutions. The Companys sales are primarily to companies
located in the United States, Europe and Asia. The Company performs periodic credit evaluations of
its customers financial condition and does not require collateral. Accounts receivable are due
principally from large U.S., European and Asia Pacific companies under stated contract terms.
Accounts receivable as of December 31, 2004 for the United States, Europe and Asia Pacific
companies were $32.3 million, $11.0 million and $2.7 million, respectively. Accounts receivable as
of December 31, 2005 for the United States, Europe and Asia Pacific companies were $45.5 million,
$9.1 million and $4.0 million, respectively.
The Companys top five customers in aggregate accounted for 16%, 14% and 14% of total revenue
in the period the related sales were recorded for each of the years ended December 31, 2003, 2004,
and 2005, respectively. No single customer accounted for more than 10% of revenue in the years
ended December 31, 2003, 2004, and 2005 or for more than 10% of accounts receivable as of December
31, 2004 and 2005. On January 22, 2002, a significant customer for 2001 filed for bankruptcy under
Chapter 11 of the United States Bankruptcy Code. As a result of the filing, the uncertainties
around the bankruptcy proceedings and the ultimate timing of payment, we recorded an allowance of
$4.3 million in 2001 to effectively defer revenues arising in the fourth quarter of 2001 from the
significant customer, but unpaid at the time of the bankruptcy declaration. The allowance included
approximately $2.3 million of software fees, $1.6 million of fees for professional services and
$0.4 million of hardware. In September 2002, the United States Bankruptcy Court for the Northern
District of Illinois Eastern Division authorized the significant customers request to assume the
software license, services, support and enhancement agreement. With the appeals process completed
in October 2002, the Company recovered approximately $2.3 million of the receivable during the
fourth quarter of 2002. Upon receiving the final cash settlement in June 2003, subsequent to the
significant customer emerging from bankruptcy, the Company recovered an additional $848,000 of the
receivable during the second quarter of 2003. The recoveries were recorded as separate revenue line
items in the Consolidated Statements of Income and reductions to the allowance for doubtful
accounts in the Consolidated Balance Sheets during the respective quarters.
Investments
The Companys investments in marketable securities consist of debt instruments of the U.S.
Treasury, U.S. government agencies, state and local government agencies and corporate commercial
paper. These investments are categorized as available-for-sale securities and recorded at fair
market value, as defined by SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Investment gains and losses are determined on a specific identification basis.
Investments with original maturities of 90 days or less are classified as cash equivalents;
investments with original maturities of greater than 90 days but less than one year are generally
classified as short-term investments; and those with original maturities of greater than one year
are generally classified as long-term investments. The long-term investments consist of corporate
or U.S. government debt instruments and mature after one year through five years. The Company
holds investments in Auction Rate Securities, which have original maturities greater than one year,
but which have auctions to reset the yield every 7 to 35 days. The Company has classified these
assets as short-term investments as the assets are viewed as available to support current
operations, based on the provisions of Accounting Research Bulletin No. 43, Chapter 3A, Working
Capital-Current Assets and Liabilities. Unrealized holding gains and losses are reflected as a
net amount in a separate component of shareholders equity until realized. For the purposes of
computing realized gains and losses, cost is identified on a specific identification basis.
-48-
1. Organization and Summary of Significant Accounting Policies (continued)
The following is a summary of the available-for-sale securities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
|
Cash and |
|
|
Short-term |
|
|
Long-term |
|
December 31, 2004 |
|
Cost |
|
|
gains |
|
|
losses |
|
|
Value |
|
|
Equivalents |
|
|
Investments |
|
|
Investments |
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations |
|
$ |
7,659 |
|
|
$ |
|
|
|
$ |
16 |
|
|
$ |
7,643 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,643 |
|
State and local obligations |
|
|
87,450 |
|
|
|
|
|
|
|
1 |
|
|
|
87,449 |
|
|
|
|
|
|
|
85,949 |
|
|
|
1,500 |
|
U.S. corporate commercial paper |
|
|
66,568 |
|
|
|
|
|
|
|
373 |
|
|
|
66,195 |
|
|
|
26,060 |
|
|
|
2,845 |
|
|
|
37,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
161,677 |
|
|
$ |
|
|
|
$ |
390 |
|
|
$ |
161,287 |
|
|
$ |
26,060 |
|
|
$ |
88,794 |
|
|
$ |
46,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
|
Cash and |
|
|
Short-term |
|
|
Long-term |
|
December 31, 2005 |
|
Cost |
|
|
gains |
|
|
losses |
|
|
Value |
|
|
Equivalents |
|
|
Investments |
|
|
Investments |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State and local obligations |
|
|
43,542 |
|
|
|
|
|
|
|
10 |
|
|
|
43,532 |
|
|
|
2,718 |
|
|
|
36,091 |
|
|
|
4,723 |
|
U.S. corporate commercial paper |
|
|
38,503 |
|
|
|
1 |
|
|
|
375 |
|
|
|
38,129 |
|
|
|
4,687 |
|
|
|
|
|
|
|
33,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
82,045 |
|
|
$ |
1 |
|
|
$ |
385 |
|
|
$ |
81,661 |
|
|
$ |
7,405 |
|
|
$ |
36,091 |
|
|
$ |
38,165 |
|
As of December 31, 2005, $10.0 million, $36.5 million, $0 and $35.2 million of the
Companys investments mature within 1 year, after 1 year through 5 years, after 5 years through 10
years and after 10 years, respectively.
On July 11, 2003, the Company made a cash investment of $2 million in Alien Technology Corp.
(Alien), a provider of ultra-low cost radio frequency identification (RFID) tags and hardware.
The investment represents approximately a 1.5% ownership interest in the privately-held
corporation. The Companys maximum exposure to loss as a result of its involvement with Alien is
its investment of $2 million. The investment has been accounted for under the cost method, and is
included in Other Assets on the Consolidated Balance Sheets. The Company has not identified any
events or changes in circumstances that could have had a significant adverse effect on the fair
value of the investment. Accordingly, the carrying value of the investment as of December 31, 2005
is its cost of $2 million.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Significant estimates include the allowance for doubtful accounts, which is
based upon an evaluation of historical amounts written-off, the Companys customers ability to pay
and general economic conditions; the useful lives of intangible assets; self insurance accruals;
legal accruals; the recoverability or impairment of intangible asset values; and the Companys
effective income tax rate and deferred tax assets, which are based upon the Companys expectations
of future taxable income, allowable deductions, and projected tax credits. Actual results could
differ from these estimates.
Fair Value of Financial Instruments
The carrying values of cash, accounts receivable, accounts payable, and other financial
instruments included in the accompanying Consolidated Balance Sheets approximate their fair values
principally due to the short-term maturities of these instruments. Unrealized gains and losses on
investments are included as a separate component of Accumulated other comprehensive income, net
of any related tax effect, in the Consolidated Balance Sheets.
-49-
1. Organization and Summary of Significant Accounting Policies (continued)
Risks Associated with Single Business Line, Technological Advances, and Foreign Operations
The Company currently derives a substantial portion of its revenues from sales of its software
and related services and hardware. The markets for supply chain execution and supply chain
planning solutions are subject to rapid technological change, changing customer needs, frequent new
product introductions, and evolving industry standards that may render existing products and
services obsolete. As a result, the Companys position in these markets could be eroded rapidly by
unforeseen changes in customer requirements for application features, functions, and technologies.
The Companys growth and future operating results will depend, in part, upon its ability to enhance
existing applications and develop and introduce new applications that meet changing customer
requirements that respond to competitive products and that achieve market acceptance. Any factor
adversely affecting the markets for supply chain execution and supply chain planning solutions
could have an adverse effect on the Companys business, financial condition, and results of
operations.
The Companys international business is subject to risks typical of an international business,
including, but not limited to: differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions, and foreign exchange rate volatility.
Accordingly, the future results could be materially adversely impacted by changes in these or
other factors. The Company recognized foreign exchange rate gains on intercompany balances of
approximately $1,283,000 in 2003 and $927,000 in 2004 and a foreign exchange rate loss on
intercompany balances of $1,144,000 in 2005, classified in Other income (loss), net on the
Consolidated Statements of Income.
Revenue Recognition
The Companys revenue consists of revenues from the licensing and hosting of software; fees
from consulting, implementation and training services (collectively, professional services), plus
customer support services and software enhancement subscriptions; and sales of hardware.
The Company recognizes software license revenue under Statement of Position No. 97-2,
Software Revenue Recognition (SOP 97-2), as amended, specifically when the following criteria
are met: (1) a signed contract is obtained; (2) delivery of the product has occurred; (3) the
license fee is fixed or determinable; and (4) collectibility is probable. The Company recognizes
revenue using the residual method when (1) there is vendor-specific objective evidence of the
fair values of all undelivered elements in a multiple-element arrangement that is not accounted for
using long-term contract accounting; (2) vendor-specific objective evidence of fair value does not
exist for one or more of the delivered elements in the arrangement; and (3) all revenue-recognition
criteria in SOP 97-2, other than the requirement for vendor-specific objective evidence of the fair
value of each delivered element of the arrangement are satisfied. For those contracts that contain
significant customization or modifications, license revenue is recognized using contract
accounting.
The Companys services revenue consists of fees generated from professional services, customer
support services and software enhancement subscriptions related to the Companys software products.
Fees from professional services performed by the Company are generally billed on an hourly basis,
and revenue is recognized as the services are performed. Professional services are sometimes
rendered under agreements in which billings are limited to contractual maximums or based upon a
fixed-fee for portions of or all of the engagement. Revenue related to fixed-fee based contracts
is recognized on a proportional performance basis based on the hours incurred. Project losses are
provided for in their entirety in the period in which they become known. Revenue related to
customer support services and software enhancement subscriptions are generally paid in advance and
recognized ratably over the term of the agreement, typically 12 months.
-50-
1. Organization and Summary of Significant Accounting Policies (continued)
Hardware revenue is generated from the resale of a variety of hardware products, developed and
manufactured by third parties, that are integrated with and complementary to the Companys software
solutions. As part of a complete solution, the Companys customers frequently purchase hardware
from the Company in conjunction with the licensing of software. These products include computer
hardware, radio frequency terminals networks, RFID chip readers, bar code printers and scanners,
and other peripherals. Hardware revenue is recognized upon shipment to the customer when title
passes. The Company generally purchases hardware from its vendors only after receiving an order
from a customer. As a result, the Company does not maintain significant hardware inventory.
In accordance with the FASBs Emerging Issues Task Force Issue No. 01-14 (EITF No. 01-14),
Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred,
the Company recognizes amounts associated with reimbursements from customers for out-of-pocket
expenses as revenue. Such amounts have been classified to hardware and other revenue. The total
amount of expense reimbursement recorded to revenue was $6.5 million, $7.0 million and $8.1 million
for 2003, 2004 and 2005, respectively.
Deferred Revenue
Deferred revenue represents amounts collected prior to having completed performance of
professional services, customer support services and software enhancement subscriptions and
significant remaining obligations under license agreements. The Company expects to complete such
services or obligations within the next twelve months.
Returns and Allowances
The Company has not experienced significant returns or warranty claims to date and, as a
result, has not recorded a provision for the cost of returns and product warranty claims at
December 31, 2004 or 2005.
The Company records an allowance for doubtful accounts based on the historical experience of
write-offs and a detailed assessment of accounts receivable. Additions to the allowance for
doubtful accounts generally represent a sales allowance on services revenue, which are recorded to
operations as a reduction to services revenue. The total amounts charged to operations were $3.5
million, $4.0 million and $3.8 million for 2003, 2004 and 2005, respectively. In estimating the
allowance for doubtful accounts, management considers the age of the accounts receivable, the
Companys historical write-offs, and the credit worthiness of the customer, among others. Should
any of these factors change, the estimates made by management will also change accordingly, which
could affect the level of the Companys future provision for doubtful accounts. Uncollectible
accounts are written off when it is determined that the specific balance is not collectible.
During 2005,
the Company recorded a $2.8 million bad debt provision for the entire amount of the
accounts receivable due from a large German customer with which the
Company terminated its business
relationship during 2005. Due to the challenging relationship with the customer and the
difficulties encountered during the software implementation process,
collection was determined to be
doubtful. The $2.8 million bad debt provision is the best estimate of costs to be incurred from
the termination of this business relationship. However, this amount
may change if the issue results in litigation or if a settlement is
reached that is not covered by corporate insurance policies. It is
not possible at this time to estimate the amount
of any such potential costs.
-51-
1. Organization and Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is recorded at cost and consists of furniture, computers, other office
equipment, purchased software for internal use, and leasehold improvements recorded at cost. The
Company depreciates the cost of furniture, computers, other office equipment and purchased software
on a straight-line basis over their estimated useful lives (three years for computer equipment and
software, five years for office equipment, seven years for furniture). Leasehold improvements are
depreciated over the lesser of their useful lives or the term of the lease. Included in computer
equipment and software are assets under a capital lease of approximately $247,000 as of December
31, 2004 and 2005. Accumulated depreciation relating to the assets under a capital lease was
$82,000 and $165,000 as of December 31, 2004 and 2005, respectively. Depreciation and amortization
expense for property and equipment, including assets under a capital lease, for the years ended
December 31, 2003, 2004 and 2005 was approximately $7,639,000, $7,207,000 and $7,582,000,
respectively, and was included in general and administrative expenses in the Consolidated
Statements of Income.
Property and equipment, at cost, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2005 |
|
Computer equipment and software |
|
$ |
29,198 |
|
|
$ |
31,979 |
|
Furniture and office equipment |
|
|
8,221 |
|
|
|
9,148 |
|
Leasehold improvements |
|
|
5,258 |
|
|
|
6,496 |
|
|
|
|
|
|
|
|
|
|
|
42,677 |
|
|
|
47,623 |
|
Less accumulated depreciation and amortization |
|
|
(29,079 |
) |
|
|
(33,383 |
) |
|
|
|
|
|
|
|
|
|
$ |
13,598 |
|
|
$ |
14,240 |
|
|
|
|
|
|
|
|
Acquisition-Related Intangible Assets
Acquisition-related intangible assets are stated at historical cost and include acquired
software and certain other intangible assets with definite lives. The acquired software is being
amortized over the greater of the amount computed using (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross revenues for that product
or (b) the straight-line method over the remaining estimated economic life of the product including
the period being reported on. The other intangible assets are being amortized on a straight-line
basis over a period of two to ten years. Total amortization expense related to acquisition-related
intangible assets was approximately $3,432,000, $3,575,000 and $4,492,000 for the years ended
December 31, 2003, 2004 and 2005, respectively, and is included in amortization of acquired
developed technology and amortization of acquisition-related intangibles in the accompanying
Consolidated Statements of Income.
Acquisition-Related Intangible Assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2005 |
|
Cost: |
|
|
|
|
|
|
|
|
Acquired software |
|
$ |
11,171 |
|
|
$ |
15,791 |
|
Other intangible assets with definite lives |
|
|
8,597 |
|
|
|
19,087 |
|
|
|
|
|
|
|
|
|
|
|
19,768 |
|
|
|
34,878 |
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
Acquired software |
|
|
7,528 |
|
|
|
9,855 |
|
Other intangible assets with definite lives |
|
|
3,920 |
|
|
|
5,810 |
|
|
|
|
|
|
|
|
|
|
|
11,448 |
|
|
|
15,665 |
|
Net book value: |
|
|
|
|
|
|
|
|
Acquired software |
|
$ |
3,643 |
|
|
$ |
5,936 |
|
Other intangible assets with definite lives |
|
|
4,677 |
|
|
|
13,277 |
|
|
|
|
|
|
|
|
|
|
$ |
8,320 |
|
|
$ |
19,213 |
|
|
|
|
|
|
|
|
-52-
1. Organization and Summary of Significant Accounting Policies (continued)
The Company expects amortization expense for the next five years to be as follows based on
intangible assets as of December 31, 2005 (in thousands):
|
|
|
|
|
2006 |
|
$ |
4,788 |
|
2007 |
|
|
4,538 |
|
2008 |
|
|
3,405 |
|
2009 |
|
|
3,010 |
|
2010 |
|
|
2,288 |
|
Thereafter |
|
|
1,184 |
|
Total |
|
|
19,213 |
|
Goodwill
Goodwill represents the excess of purchase price over fair value of net identified tangible
and intangible assets and liabilities acquired. The Company does not amortize goodwill, but
instead tests goodwill for impairment on at least an annual basis. Goodwill as of December 31, 2004
and December 31, 2005 was $32,469,000 and $54,607,000, respectively. Approximately $36.0 million
of the gross Goodwill is deductible for income tax purposes.
Software Development Costs
Research and development expenses are charged to expense as incurred. The Company determines
the amount of development costs capitalizable under the provisions of SFAS No. 86, Accounting for
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. Computer software
development costs are charged to research and development expense until technological feasibility
is established, after which remaining software production costs are capitalized in accordance with
SFAS No. 86. The Company has defined technological feasibility as the point in time at which the
Company has a detailed program design or a working model of the related product, depending on the
type of development efforts. For the years ended December 31, 2003, 2004 and 2005, the Company
capitalized no internal research and development costs because the costs incurred between the
attainment of technological feasibility for the related software product through the date when the
product was available for general release to customers has been insignificant. Total amortization
expense related to software development costs capitalized prior to 2002 was approximately $343,000,
$0 and $0 for the years ended December 31, 2003, 2004 and 2005, respectively, and is included in
cost of software and hosting fees in the accompanying Consolidated Statements of Income. As of
December 31, 2004, all capitalized development costs were fully amortized.
Impairment of Long-Lived and Intangible Assets
The Company periodically reviews the values assigned to long-lived assets, including property
and certain intangible assets, to determine whether events and circumstances have occurred which
indicate that the remaining estimated useful lives may warrant revision or that the remaining
balances may not be recoverable. In such reviews, undiscounted cash flows associated with these
assets are compared with their carrying value to determine if a write-down to fair value is
required. During 2004 and 2005, the Company did not recognize any impairment charges associated
with its long-lived or intangible assets.
The evaluation of asset impairment requires management to make assumptions about future cash
flows over the life of the asset being evaluated. These assumptions require significant judgment,
and actual results may differ from assumed and estimated amounts.
-53-
1. Organization and Summary of Significant Accounting Policies (continued)
Impairment of Goodwill
The Company evaluates the carrying value of goodwill and other intangible assets annually as
of December 31 and between annual evaluations if events occur or circumstances change that would
more likely than not reduce the fair value of the reporting unit below its carrying amount. Such
circumstances could include, but are not limited to, (1) a significant adverse change in legal
factors or in business climate, (2) unanticipated competition, or (3) an adverse action or
assessment by a regulator. When evaluating whether the goodwill or other intangible asset is
impaired, the Company compares the fair value of the reporting unit to which the goodwill or other
intangible asset is assigned to its carrying amount, including goodwill and the other intangible
assets. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the
impairment loss must be measured. The impairment loss would be calculated by comparing the implied
fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair
value of goodwill or other intangible assets, the fair value of the reporting unit is allocated to
all of the other assets and liabilities of that unit based on their fair values. The excess of the
fair value of a reporting unit over the amount assigned to its other assets and liabilities is the
implied fair value of goodwill. The Company performed its periodic review of its goodwill and
other intangible assets for impairment as of December 31, 2003, 2004 and 2005, and did not identify
any asset impairment as a result of the review.
Accrued Liabilities
As of December 31, 2004 and 2005, accrued liabilities consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2005 |
|
Sales tax liability |
|
$ |
6,675 |
|
|
$ |
5,421 |
|
Other accrued liabilities |
|
|
5,972 |
|
|
|
8,006 |
|
|
|
|
|
|
|
|
Total |
|
$ |
12,647 |
|
|
$ |
13,427 |
|
|
|
|
|
|
|
|
Guarantees and Indemnifications
The Company accounts for guarantees in accordance with Financial Interpretation No. 45 (FIN
45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The Companys sales agreements with customers generally
contain infringement indemnity provisions. Under these agreements, the Company agrees to
indemnify, defend and hold harmless the customer in connection with patent, copyright or trade
secret infringement claims made by third parties with respect to the customers authorized use of
the Companys products and services. The indemnity provisions generally provide for the Companys
control of defense and settlement and cover costs and damages finally awarded against the customer,
as well as the Companys modification of the product so it is no longer infringing or, if it cannot
be corrected, return of the product for a refund. The sales agreements with customers sometimes
also contain indemnity provisions for death, personal injury or property damage caused by the
Companys personnel or contractors in the course of performing services to customers. Under these
agreements, the Company agrees to indemnify, defend and hold harmless the customer in connection
with death, personal injury and property damage claims made by third parties with respect to
actions of the Companys personnel or contractors. The indemnity provisions generally provide for
the Companys control of defense and settlement and cover costs and damages finally awarded against
the customer. The indemnity obligations contained in sales agreements generally have no specified
expiration date and no specified monetary limitation on the amount of award covered. The Company
has not previously incurred costs to settle claims or pay awards under these indemnification
obligations. The Company accounts for these indemnity obligations in accordance with SFAS No. 5,
Accounting for Contingencies, and records a liability for these obligations when a loss is probable
and reasonably estimable. The Company has not recorded any liabilities for these agreements as of
December 31, 2005.
The Company warrants to its customers that its software products will perform in all material
respects in accordance with the standard published specifications in effect at the time of delivery
of the licensed products to the customer for 90 days after first use of the licensed products, but
no more than 24 months after execution of the license agreement. Additionally, the Company
warrants to its customers that services will be performed consistent with generally accepted
industry standards or specific service levels through completion of the agreed upon services. If
necessary, the Company will provide for the estimated cost of product and service warranties based
on specific warranty claims and claim history. However, the Company has not incurred significant
recurring expense under product or service warranties. As a result, the Company believes the
estimated fair value of these agreements is nominal. Accordingly, the Company has no liabilities
recorded for these agreements as of December 31, 2005.
-54-
1. Organization and Summary of Significant Accounting Policies (continued)
Segment Information
The Company has three operating segments: Americas, EMEA, and Asia Pacific as defined by SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information. See Note 8 for
discussion of our operating segments.
Advertising Costs
Advertising costs are expensed as incurred and totaled approximately $855,000, $534,000 and
$380,000 in 2003, 2004 and 2005, respectively. Advertising costs are included in sales and
marketing on the Consolidated Statements of Income.
Basic and Diluted Net Income Per Share
Basic net income per share is computed using net income divided by the weighted average number
of shares of common stock outstanding (Weighted Shares) for the period presented.
Diluted net income per share is computed using net income divided by Weighted Shares, and the
treasury stock method effect of common equivalent shares (CESs) outstanding for each period
presented. The following is a reconciliation of the shares used in the computation of net income
per share for the years ended December 31, 2003, 2004 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
Weighted shares |
|
|
29,532,466 |
|
|
|
29,532,466 |
|
|
|
30,055,916 |
|
|
|
30,055,916 |
|
|
|
28,689,556 |
|
|
|
28,689,556 |
|
Effect of CESs |
|
|
|
|
|
|
1,349,210 |
|
|
|
|
|
|
|
1,010,873 |
|
|
|
|
|
|
|
607,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,532,466 |
|
|
|
30,881,676 |
|
|
|
30,055,916 |
|
|
|
31,066,789 |
|
|
|
28,689,556 |
|
|
|
29,296,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 1,866,351 shares, 3,020,952 shares and 5,873,108 shares of common
stock were outstanding during the years ended December 31, 2003, 2004 and 2005, respectively, but
were not included in the computation of diluted earnings per share because the options exercise
price was greater than the average market price of the common shares during the respective years.
See Note 3 for further information on those securities.
Stock-Based Compensation
The Company accounts for its stock-based compensation plan for stock issued to employees under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, records deferred compensation for options granted at an exercise price below the
fair value of the underlying stock. The deferred compensation is presented as a component of
equity in the accompanying Consolidated Balance Sheets and is amortized over the periods to be
benefited, generally the vesting period of the options. Effective in fiscal year 1996, the Company
adopted the pro forma disclosure option for stock-based compensation issued to employees of SFAS
No. 123, Accounting for Stock-Based Compensation.
Pro forma information regarding net income and net income per share is required by SFAS No.
123, which also requires that the information be determined as if the Company had accounted for its
employee stock option grants under the fair value method required by SFAS No. 123. The fair value
of each option grant has been estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
2004 |
|
2005 |
Dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
73 |
% |
|
|
62 |
% |
|
|
56 |
% |
Risk-free interest rate at the date of grant |
|
|
3.3 |
% |
|
|
4.3 |
% |
|
|
4.1 |
% |
Expected life |
|
6 years |
|
7.5 years |
|
5.2 years |
Using these assumptions, the fair values of the stock options granted during the years
ended December 31, 2003, 2004 and 2005 are $24,980,000,
$32,257,000 and $25,207,000, respectively,
which would be amortized over the vesting period of the options.
-55-
1. Organization and Summary of Significant Accounting Policies (continued)
The weighted average fair values of options at the date of grant for the years ended December
31, 2003, 2004 and 2005 was $17.52, $16.95 and $11.72 per share, respectively.
The following pro forma information adjusts the net income and net income per share of common
stock for the impact of SFAS No. 123:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
|
(restated) |
|
|
(restated) |
|
|
|
|
Net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
20,581 |
|
|
$ |
21,634 |
|
|
$ |
18,635 |
|
Add: Stock-based employee compensation
expense included in reported net income, net of taxes |
|
|
32 |
|
|
|
683 |
|
|
|
113 |
|
Deduct: Stock-based employee compensation expense
determined under the fair-value method for all awards, net of taxes |
|
|
(21,796 |
) |
|
|
(25,740 |
) |
|
|
(44,517 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma in accordance with SFAS No. 123 |
|
$ |
(1,183 |
) |
|
$ |
(3,423 |
) |
|
$ |
(25,769 |
) |
|
|
|
|
|
|
|
|
|
|
Basic net
income or pro forma net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.70 |
|
|
$ |
0.72 |
|
|
$ |
0.65 |
|
Pro forma in accordance with SFAS No. 123 |
|
$ |
(0.04 |
) |
|
$ |
(0.11 |
) |
|
$ |
(.90 |
) |
Diluted net
income or pro forma net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.67 |
|
|
$ |
0.70 |
|
|
$ |
0.64 |
|
Pro forma in accordance with SFAS No. 123 |
|
$ |
(0.04 |
) |
|
$ |
(0.11 |
) |
|
$ |
(.90 |
) |
Pro
forma
stock compensation expense in 2003 and 2004 had erroneously included
expenses associated with employees that had forfeited awards in
earlier periods. As a result, the pro forma information was restated. The impact of the restatement is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
|
As previously |
|
|
|
|
|
|
As previously |
|
|
|
|
|
|
reported |
|
|
As restated |
|
|
reported |
|
|
As restated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(7,747 |
) |
|
$ |
(1,183 |
) |
|
$ |
(8,998 |
) |
|
$ |
(3,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.26 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.11 |
) |
Diluted |
|
$ |
(0.26 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.11 |
) |
On December 12, 2005, the Board of Directors approved an Option Acceleration Agreement
that accelerated the vesting of unvested stock options held by the Companys employees with an
exercise price of $22.09 or higher. As a result of the acceleration, the Company recorded pro
forma expense of approximately $26.9 million equal to the unamortized fair value of the options.
On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based
Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and
amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R)
is similar to the approach described in Statement 123. However, Statement 123(R) requires all
share-based payments to employees, including grants of employee stock options, to be recognized in
the income statement based on their fair values. Pro forma disclosure is no longer an alternative.
Statement 123(R) must be adopted no later than January 1, 2006. Early adoption will be
permitted in periods in which financial statements have not yet been issued.
Statement 123(R) permits public companies to adopt its requirements using one of two methods:
1. A modified prospective method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of Statement 123(R) for all share-based payments
granted after the effective date and (b) based on the requirements of Statement 123 for all
awards granted to employees prior to the effective date of Statement 123(R) that remain unvested
on the effective date.
2. A modified retrospective method, which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the amounts
previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all
prior periods presented or (b) prior interim periods of the year of adoption.
We will adopt Statement 123(R) beginning on January 1, 2006 using the modified prospective
method.
-56-
1. Organization and Summary of Significant Accounting Policies (continued)
As permitted by Statement 123, the Company currently accounts for share-based payments to
employees using Opinion 25s intrinsic value method and, as such, generally recognize no
compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)s fair
value method will have a significant impact on the Companys
results of operations. The Company expects to incur an additional
$6 million to $8 million of after tax expense in 2006 for
employee stock compensation. This estimated range could be impacted
by significant changes in the Companys stock price, changes in
the level of share-based payments, and changes in employee turnover
rates. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as required under current
literature. This requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the Company cannot estimate what those amounts will be in
the future (because they depend on, among other things, when employees exercise stock options), the
amount of operating cash flows recognized in prior periods for such excess tax deductions were
$14.2 million, $9.7 million, and $1.9 million in 2003, 2004 and 2005, respectively.
Comprehensive Income
The Companys comprehensive income includes net income, foreign currency translation
adjustments and unrealized gains and losses on short-term investments. The components of
accumulated other comprehensive income (loss) as of December 31, 2004 and 2005, net of tax, are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2005 |
|
Foreign currency translation adjustment |
|
$ |
1,138 |
|
|
$ |
1,101 |
|
Unrealized gain (loss) on investments |
|
|
(256 |
) |
|
|
(238 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
882 |
|
|
$ |
863 |
|
|
|
|
|
|
|
|
New Accounting Pronouncements
In December 2004, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard
(FAS) 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004
(the Act) that provides tax relief to U.S. domestic manufacturers. The FSP states that the
manufacturers deduction provided for under the Act should be accounted for as a special deduction
in accordance with Statement 109 rather than as a tax rate reduction. Also in December 2004, the
FASB issued FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004, addressing accounting and
disclosure guidance relating to a companys repatriation program. The additional disclosures
required under this staff position are included in Note 2, Income Taxes. Both FSPs were effective
upon issuance.
In December 2004, the FASB issued SFAS 153, Exchange of Non-monetary Assets (SFAS 153).
SFAS 153 addresses the measurement of exchanges of non-monetary assets. The guidance in APB
Opinion No. 29, Accounting for Non-monetary Transactions (APB 29), is based on the principle
that exchanges of non-monetary assets should be measured based on the fair value of the assets
exchanged. The guidance in APB 29, however, included certain exceptions to that principle. SFAS
153 amends APB 29 to eliminate the exception for non-monetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. A non-monetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the exchange. This
Statement is effective for financial statements for fiscal years beginning after June 15, 2005.
The adoption of this statement is not expected to have a material impact on our consolidated
financial statements.
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections A
replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). The FASB issued SFAS 154
to provide guidance on the accounting for and reporting of error corrections. Unless otherwise
impracticable, it establishes retrospective application as the required method for reporting a
change in accounting principle in the absence of explicit transition requirements specific to the
newly adopted accounting principle. SFAS 154 also provides guidance for determining whether
retrospective application is impracticable and for reporting an accounting change when
retrospective application is impracticable. Furthermore, this statement addresses the reporting of
a correction of an error in previously issued financial statements by restating previously issued
financial statements. This Statement is effective for financial statements for fiscal years
beginning after December 15, 2005. The adoption of this statement is not expected to have a
material impact on our consolidated financial statements.
-57-
2. Income Taxes
The Company is subject to future federal and state income taxes and has recorded net deferred
tax assets on the Consolidated Balance Sheets at December 31, 2004 and 2005. Deferred tax assets
and liabilities are determined based on the difference between the financial accounting and the tax
bases of assets and liabilities. Significant components of the Companys deferred tax assets and
liabilities as of December 31, 2004 and 2005 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2004 |
|
|
2005 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
1,069 |
|
|
$ |
1,819 |
|
Accrued liabilities |
|
|
3,445 |
|
|
|
3,799 |
|
Stock compensation expense |
|
|
368 |
|
|
|
77 |
|
Intangible assets |
|
|
2,293 |
|
|
|
|
|
Depreciation |
|
|
542 |
|
|
|
1,709 |
|
Capitalized research and development |
|
|
|
|
|
|
13,548 |
|
Unrealized foreign currency gain |
|
|
|
|
|
|
424 |
|
Research and development credits |
|
|
85 |
|
|
|
|
|
AMT Credit |
|
|
242 |
|
|
|
|
|
Other |
|
|
|
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
8,044 |
|
|
|
21,611 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
3,239 |
|
Other |
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
7,578 |
|
|
$ |
18,372 |
|
|
|
|
|
|
|
|
The components of income from domestic and foreign operations before income tax expense
for the years ended December 31, 2003, 2004 and 2005 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Domestic |
|
$ |
31,468 |
|
|
$ |
33,525 |
|
|
$ |
34,843 |
|
Foreign |
|
|
1,772 |
|
|
|
1,341 |
|
|
|
(1,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
33,240 |
|
|
$ |
34,866 |
|
|
$ |
32,954 |
|
|
|
|
|
|
|
|
|
|
|
The components of the income tax provision for the years ended December 31, 2003, 2004
and 2005 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
11,056 |
|
|
$ |
12,222 |
|
|
$ |
10,082 |
|
State |
|
|
1,361 |
|
|
|
1,752 |
|
|
|
1,869 |
|
Foreign |
|
|
375 |
|
|
|
759 |
|
|
|
1,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,792 |
|
|
|
14,733 |
|
|
|
13,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(202 |
) |
|
|
(1,492 |
) |
|
|
1,094 |
|
State |
|
|
(35 |
) |
|
|
50 |
|
|
|
74 |
|
Foreign |
|
|
104 |
|
|
|
(59 |
) |
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(133 |
) |
|
|
(1,501 |
) |
|
|
1,084 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,659 |
|
|
$ |
13,232 |
|
|
$ |
14,319 |
|
|
|
|
|
|
|
|
|
|
|
The income tax benefits related to the exercise of stock options were allocated to
additional paid-in capital. Such amounts were approximately $14,170,000, $9,686,000, and
$1,920,000 for 2003, 2004 and 2005, respectively.
As a result of losses in foreign locations, the Company has net operating loss carry-forwards
(NOLs) of approximately $5.7 million available to offset future income. Approximately
$1.4 million of the NOLs expire in 2010 to 2012, and the remainder does not expire.
The Company currently has a tax holiday in India through March 2009. As a result of this
holiday, the Company had income of approximately $771,000, $2,028,000 and $2,417,000 in 2003, 2004,
and 2005 that was not subject to tax. The impact on diluted earnings per share if the income had
been taxable was decreases of $0.01, $0.02 and $0.03 per share in 2003, 2004, and 2005,
respectively.
-58-
2. Income Taxes (continued)
Deferred taxes are not provided for temporary differences of approximately $5.5 million, $8.7
million, and $13.1 million as of December 31, 2003, 2004 and 2005, respectively, representing
earnings of non-U.S. subsidiaries that are intended to be permanently reinvested. Those earnings
are considered to be indefinitely reinvested; accordingly, no provision for U.S. federal and state
income taxes has been provided thereon. Upon repatriation of those earnings, in the form of
dividends or wise, the Company would be subject to both U.S. income taxes (subject to
adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.
In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The
Act provides for a special one-time deduction of 85% of certain foreign earnings that are
repatriated. This provision did not impact the Company as the Company did not repatriate any funds
in 2005.
The following is a summary of the items that cause recorded income taxes to differ from taxes
computed using the statutory federal income tax rate for the years ended December 31, 2003, 2004
and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
2004 |
|
2005 |
Statutory federal income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal benefit |
|
|
4.0 |
|
|
|
4.1 |
|
|
|
4.0 |
|
Research and development credits |
|
|
0.0 |
|
|
|
(1.5 |
) |
|
|
(1.4 |
) |
Foreign operations |
|
|
(0.8 |
) |
|
|
0.1 |
|
|
|
4.7 |
|
Tax exempt income |
|
|
(0.5 |
) |
|
|
(1.2 |
) |
|
|
(1.7 |
) |
Meals and entertainment |
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Intangibles |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Tax contingencies |
|
|
0.0 |
|
|
|
0.9 |
|
|
|
2.0 |
|
Other |
|
|
0.0 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
38.1 |
% |
|
|
38.0 |
% |
|
|
43.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2005, the Company has provided a tax accrual of
$1.5 million for potential tax liabilities related to research
and development credits and intercompany transactions.
3. Stock Option Plans
The Manhattan Associates LLC Option Plan (the LLC Option Plan) became effective on January
1, 1997. The LLC Option Plan is administered by a committee appointed by the Board of Directors.
The options are granted at terms determined by the committee; however, the options cannot have a
term exceeding ten years. Options granted under the LLC Option Plan have vesting periods ranging
from immediately to six years. Subsequent to February 28, 1998, no additional options could be
granted pursuant to the LLC Option Plan.
Prior to the establishment of the LLC Option Plan, the Company issued options to purchase
661,784 shares of common stock to certain employees. These grants contain provisions similar to
options issued under the LLC Option Plan.
The Manhattan Associates, Inc. 1998 Stock Incentive Plan (the Stock Incentive Plan) was
adopted by the Board of Directors and approved by the shareholders in February 1998. The Stock
Incentive Plan provides for the grant of incentive stock options. Optionees have the right to
purchase a specified number of shares of common stock at a specified option price and subject to
such terms and conditions as are specified in connection with the option grant. The Stock
Incentive Plan is administered by the Compensation Committee of the Board of Directors. The
committee has the authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the Stock Incentive Plan generally and to interpret the provisions thereof.
Options granted under the Stock Incentive Plan cannot have a term exceeding ten years and typically
vest over a period of two to six years.
-59-
3. Stock Option Plans (continued)
As of December 31, 2005, the Stock Incentive Plan provides for issuance of up to 14,962,257
shares of common stock (subject to adjustment in the event of stock splits and other similar
events), less the number of shares issued under the LLC Option Plan, in the form of stock options
and other stock incentives. The number of shares available for issuance under the Plan is
automatically adjusted, without shareholder approval, on the first day of each fiscal year,
beginning with the 2000 fiscal year, by a number of shares such that the total number of shares
reserved for issuance under the Plan equals the sum of (i) the aggregate number of shares
previously issued under the Plan and the LLC Option Plan; (ii) the aggregate number of shares
subject to then outstanding stock incentives granted under the Plan and the LLC Option Plan; and
(iii) 5% of the number of shares of common stock outstanding on the last day of the preceding
fiscal year. However, no more than 1,000,000 of the shares available for grant each year shall be
available for issuance pursuant to incentive stock options, and no more than 10,000,000 shares
resulting from such automatic adjustments may ever be issued during the term of the Plan.
A summary of changes in outstanding options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Options |
|
|
Exercise Price |
|
December 31, 2002 |
|
|
6,328,442 |
|
|
$ |
21.08 |
|
Granted |
|
|
1,541,075 |
|
|
$ |
26.40 |
|
Canceled |
|
|
(444,541 |
) |
|
$ |
27.90 |
|
Exercised |
|
|
(1,046,948 |
) |
|
$ |
8.86 |
|
|
|
|
|
|
|
|
|
December 31, 2003 |
|
|
6,378,028 |
|
|
$ |
23.90 |
|
Granted |
|
|
1,938,825 |
|
|
$ |
25.15 |
|
Canceled |
|
|
(600,184 |
) |
|
$ |
30.86 |
|
Exercised |
|
|
(334,157 |
) |
|
$ |
12.09 |
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
7,382,512 |
|
|
$ |
24.19 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,140,450 |
|
|
$ |
22.00 |
|
Canceled |
|
|
(920,011 |
) |
|
$ |
27.03 |
|
Exercised |
|
|
(453,736 |
) |
|
$ |
14.68 |
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
8,149,215 |
|
|
$ |
23.83 |
|
|
|
|
|
|
|
|
|
Details of options outstanding at December 31, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
Exercisable |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
|
Exercise |
|
Options |
|
Remaining |
|
Average |
|
Options |
|
Average |
Prices |
|
Outstanding |
|
Contractual Life |
|
Exercise Prices |
|
Exercisable |
|
Exercise Price |
$0.56 3.50
|
|
|
245,750 |
|
|
|
0.9 |
|
|
$ |
2.04 |
|
|
|
245,750 |
|
|
$ |
2.04 |
|
3.51 7.50
|
|
|
151,900 |
|
|
|
2.7 |
|
|
|
5.94 |
|
|
|
151,900 |
|
|
|
5.94 |
|
7.51 15.00
|
|
|
573,282 |
|
|
|
3.8 |
|
|
|
10.37 |
|
|
|
551,482 |
|
|
|
10.23 |
|
15.01 22.08
|
|
|
2,473,975 |
|
|
|
7.5 |
|
|
|
20.93 |
|
|
|
789,275 |
|
|
|
19.50 |
|
22.09 27.00
|
|
|
2,258,702 |
|
|
|
7.2 |
|
|
|
24.48 |
|
|
|
2,258,702 |
|
|
|
24.48 |
|
27.01 31.00
|
|
|
1,778,806 |
|
|
|
7.1 |
|
|
|
28.16 |
|
|
|
1,778,806 |
|
|
|
28.16 |
|
31.01 40.00
|
|
|
413,300 |
|
|
|
5.0 |
|
|
|
37.68 |
|
|
|
413,300 |
|
|
|
37.68 |
|
40.01 68.38
|
|
|
253,500 |
|
|
|
4.5 |
|
|
|
55.52 |
|
|
|
253,050 |
|
|
|
55.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,149,215 |
|
|
|
6.5 |
|
|
$ |
23.83 |
|
|
|
6,442,265 |
|
|
$ |
24.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003 and 2004, the Company had options exercisable of 2,977,321 and
4,084,665, respectively.
At December 31, 2005, the Company has 8,416,654 shares of common stock reserved for issuance
and 250,488 shares available for future grant under the Stock Incentive Plan. On January 1, 2006,
the number of shares of common stock available for future grant under the Stock Incentive Plan was
increased by 1,047,853 in accordance with the automatic adjustment described above.
-60-
3. Stock Option Plans (continued)
On December 12, 2005, the Board of Directors approved an Option Acceleration Agreement that
accelerated the vesting of unvested stock options held by the Companys employees with an exercise
price of $22.09 or higher. The accelerated vesting affected options for approximately 1.9 million
shares of the Companys common stock, including options for approximately 570,000 shares held by
the Companys executive officers. In order to prevent unintended personal benefits to individuals
resulting from the accelerated vesting of options, the Company imposed sales restrictions on shares
acquired upon exercise of these options that parallel the vesting requirements of the original
options. These sales restrictions on the shares acquired continue following termination of
employment until the original vesting dates are reached.
The decision to accelerate vesting of these stock options with exercise prices greater than
the then-current market value (underwater) when the acceleration agreement was approved was made
primarily to avoid recognizing compensation expense in the Companys future income statements upon
the Companys adoption on January 1, 2006 of SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS 123R). SFAS 123R will require all share-based payments to Company employees and
non-management directors, including grants of stock options, to be recognized in the Companys
financial statements based on their fair values. Because the options subject to the accelerated
vesting are underwater, the Company believes that these options may not be offering a sufficient
incentive to its employees when compared to the future compensation expense that the Company would
incur under SFAS 123R with respect to these options.
The Company recorded deferred compensation of $232,000 and $1,290,000 during 2003 and 2004,
respectively, for the issuance of 8,109 and 45,803 shares of restricted stock under the stock
incentive plan. No shares of restricted stock were issued during 2005. The weighted average grant
date fair value of the restricted stock issued during 2003 and 2004 was $28.59 and $28.16,
respectively. The Company amortizes deferred compensation over the vesting periods on a
straight-line basis. The Company recorded compensation expense of $52,000, $1,101,000 and $184,000
for the years ended December 31, 2003, 2004 and 2005, respectively, and had deferred compensation
expense of $387,000 and $203,000 at December 31, 2004 and 2005, respectively.
4. Shareholders Equity
During 2004 and 2005, the Company purchased 885,400 and 2,827,200 shares of the Companys
common stock for approximately $21,763,000 and $61,011,000, respectively, through open market
transactions as part of a publicly-announced buy-back program. No shares of the Companys common
stock were purchased during 2003.
5. Commitments and Contingencies
Leases
Rents charged to expense were approximately $5,020,000, $5,907,000 and $6,257,000 for the
years ended December 31, 2003, 2004 and 2005, respectively. The leases for the Companys
headquarters in Atlanta, Georgia expire on March 31, 2008, at which time the Company has the option
to renew for an additional five years at then current market rates. The lease on the Companys
headquarters included a lease incentive which was recorded as an increase in leasehold improvements
and deferred rent. The Company assumed a facility lease through the Evant acquisition with
rates in excess of market value. The Company recorded the fair value of this unfavorable lease
obligation in deferred rent and is amortizing the amount over the remaining lease term.
-61-
5. Commitments and Contingencies (continued)
Aggregate future minimum lease payments under the capital lease and noncancellable operating
leases as of December 31, 2005 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
Operating |
|
Year Ended December 31, |
|
Leases |
|
|
Leases |
|
2006 |
|
$ |
152 |
|
|
$ |
7,215 |
|
2007 |
|
|
|
|
|
|
6,885 |
|
2008 |
|
|
|
|
|
|
3,299 |
|
2009 |
|
|
|
|
|
|
1,924 |
|
2010 |
|
|
|
|
|
|
495 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
152 |
|
|
$ |
19,818 |
|
Less amount representing interest |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net present value of future minimum lease payments |
|
|
147 |
|
|
|
|
|
Less current portion of capital lease obligation |
|
|
(147 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of capital lease obligation |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment Agreements
The Company has
entered into employment contracts with certain executives and other key
employees. The agreements provide for total severance payments of up to approximately $2.0 million
for termination of employment for any reason other than cause. Payment terms vary from a lump sum
payment to equal monthly installments over a period of not more than 24 months. No amounts have
been accrued because the amounts cannot be reasonably estimated.
Legal and Other Matters
The Company
has continued to have challenging discussions with a large German customer
regarding their delayed implementation of Manhattans warehouse management system. During the
second quarter of 2005, the Company recorded a $2.8 million bad debt provision for the entire
amount of the accounts receivable due from the large customer, as the collection was determined to be
doubtful. The $2.8 million bad debt provision is the
Companys best estimate of costs to be incurred from
the termination of this business relationship. However, this amount may change
if the issue results in litigation or if a settlement is reached that
is not covered by corporate insurance policies. It is not possible at this time to estimate the amount
of any such potential costs. While no assurance can be given regarding the outcome of the matter
discussed, because of the nature and inherent uncertainties of disputes, should the outcome of this
matter be unfavorable, the Companys business, financial condition, results of operations and cash flows
could be materially adversely affected.
From time to
time, the Company may be involved in litigation relating to claims arising out of
its ordinary course of business. Many of the Companys installations involve products that are
critical to the operations of its clients businesses. Any failure in a Company product could
result in a claim for substantial damages against the Company, regardless of the Companys
responsibility for such failure. Although the Company attempts to limit contractually its liability
for damages arising from product failures or negligent acts or omissions, there can be no assurance
the limitations of liability set forth in its contracts will be enforceable in all instances. Other
than the matter with the large German customer, the Company is not presently involved in any
material litigation. However, it is involved in various legal proceedings. The Company believes
that any liability that may arise as a result of these proceedings will not have a material adverse
effect on its financial condition. The Company expenses legal costs associated with loss
contingencies as such legal costs are incurred.
-62-
6. Acquisitions
ReturnCentral
On June 30, 2003, the Company acquired certain assets of ReturnCentral for a cash payment of
approximately $1.75 million. The purchase price includes the earnout of approximately $1.2 million
recorded through December 31, 2005, based upon the total ReturnCentral software and services fees
received and recognized prior to August 31, 2005. The earnout payment for the first twelve months
was the sum of: (i) 30% of all ReturnCentral software fees up to and including $800,000; plus 33%
of all ReturnCentral software fees greater than $800,000 and up to and including $1.3 million; plus
36% of all ReturnCentral software fees greater than $1.3 million and up to and including $2.0
million; plus 40% of all ReturnCentral software fees greater than $2.0 million; and (ii) 13% of all
ReturnCentral service fees. The earnout payment for the following fourteen month period was the
sum of: (i) 30% of all ReturnCentral software fees up to and including $2.0 million; plus 33% of
all ReturnCentral software fees greater than $2.0 million and up to and including $3.0 million;
plus 36% of all ReturnCentral software fees greater than $3.0 million and up to and including $4.0
million; plus 40% of all ReturnCentral software fees greater than $4.0 million; and (ii) 13% of all
ReturnCentral service fees. The results of operations are included in operations after June 30,
2003. The entire purchase price has been recorded as acquired developed technology and is being
amortized over the greater of the amount computed using (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross revenues for that product
or (b) the straight-line method over the remaining estimated economic life of the product (5 years)
including the period being reported on.
Streamsoft
On October 14, 2003, the Company closed an Asset Purchase Agreement with Streamsoft, a
provider of warehouse optimization software. The Company acquired substantially all of the assets
of Streamsoft for a purchase price of approximately $2.2 million. The purchase price includes the
earnout of approximately $425,000 recorded through December 31, 2005, based upon the total
Streamsoft software fees received and recognized prior to September 30, 2005. The earnout payment
was calculated as 10% of all net software fees recognized, subject to additional terms and
conditions, as defined in the purchase agreement. The acquisition has been accounted for under the
purchase method of accounting, and the results of operations are included in operations after
October 14, 2003. The purchase price has been allocated to net assets acquired of $0.2 million,
acquired developed technology of $0.2 million, and other
intangible assets of $1.8 million.
Acquired developed technology is being amortized over the greater of the amount computed using (a)
the ratio that current gross revenues for a product bear to the total of current and anticipated
future gross revenues for that product or (b) the straight-line method over the remaining estimated
economic life of the product (5 years) including the period being reported on. Approximately $0.1
million of other intangible assets is being amortized over a ten-year useful life. The remaining
$1.7 million of other intangible assets is goodwill, which is not being amortized, but is being
reviewed for impairment on an annual basis.
Avere
On January 23, 2004, the Company acquired certain assets of Avere, Inc. (Avere), a provider
of order management software. The Company completed the acquisition to enhance its product
offering. The Company acquired substantially all of the assets of Avere for a purchase price of
approximately $305,000. The purchase prices includes the earnout of approximately $75,000 based
upon the total Avere software fees recognized by the Company during the period starting on December
31, 2003 and ending on December 31, 2005. The earnout payment was calculated based on the
following percentages of all Avere software fees recognized during the earnout period: (i) 25% of
the Avere software fees greater than $200,000 and up to and including $2 million; (ii) 30% of the
Avere software fees greater than $2 million and up to and including $4 million; and (iii) 35% of
the Avere software fees greater than $4 million. The entire purchase price has been recorded as
acquired developed technology and is being amortized over the greater of the amount computed using
(a) the ratio that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product or (b) the straight-line method over the
remaining five-year estimated economic life of the product, including the period being reported on.
The operating results of Avere were included in the Companys operations after January 23, 2004.
-63-
6. Acquisitions (continued)
eebiznet
On July 9, 2004, the Company acquired certain assets of eebiznet (eebiznet), whose primary
business activities consist of the marketing and sale of supply software in France. The Company
acquired eebiznet to expand its presence in Europe. The Company acquired all the outstanding
shares of eebiznet for approximately $493,000 in cash plus a potential earnout based upon the sales
of its software and service solutions in France during the period starting April 1, 2004 through
March 31, 2006. The earnout payment, if any, will be calculated based on the following percentages
of all license sales in France recognized during the period: (i) 30% of the software fees in
France up to 1.5 million ($1.8 million as of December 31, 2005); (ii) 40% of the software fees
in France over 1.5 million ($1.8 million as of December 31, 2005); and (iii) 2% of all service
revenues. The entire purchase price has been recorded on a preliminary basis to goodwill, as
eebiznets assets and liabilities were immaterial. The operating results of eebiznet were included
in the Companys operations after July 9, 2004.
Evant
On August 31, 2005, the Company acquired all of the issued and outstanding stock of Evant, and
Evant became a wholly-owned subsidiary of the Company. Evant is a provider of demand planning and
forecasting and replenishment solutions to more than 60 customers in the retail, manufacturing and
distribution industries. The acquisition further diversifies Manhattans product suite and expands
its customer base. The Company paid an aggregate of $47.2 million in cash, and incurred $0.3
million in acquisition costs and $0.8 million of severance to eliminate duplicative functions. The
$47.2 million includes $2.3 million of bonuses paid to employees not retained by Manhattan pursuant
to an employee bonus plan approved by Evants management (the Evant Bonus Plan). In addition to
the $47.2 million cash paid, the Company paid $2.8 million into escrow at closing for employee
retention purposes pursuant to the Evant Bonus Plan. These funds are being distributed to
employees upon completion of up to 12 months of service with Manhattan. The $2.8 million has been
recorded as a prepaid asset, and is being recorded as compensation expense ratably over the
required employee retention period. As of December 31, 2005, the prepaid asset balance was $1.6
million relating to the bonuses. Of the cash paid, $4.0 million is being held in escrow for 14
months to reimburse the Company, subject to certain limitations, for potential losses resulting
from, among other things, breaches of representations, warranties or covenants in the merger
agreement and certain pending and potential claims and other matters specified in the merger
agreement; $0.4 million is being held in escrow for six months to satisfy a potential customer
obligation; and $0.6 million is being held in escrow as of December 31, 2005 for dissenting
shareholders until certain shareholder issues are resolved. The acquisition of Evant was accounted
for using the purchase method of accounting in accordance with SFAS No. 141, Business
Combinations. The operating results of Evant are included in the Companys operations beginning
September 1, 2005.
The following table summarizes the preliminary estimated fair values of the assets acquired
and liabilities assumed, based on management estimates and a third party appraisal, at the date of
acquisition, August 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
$ |
7,101 |
|
Property and equipment |
|
|
|
|
|
|
247 |
|
Other assets |
|
|
|
|
|
|
26 |
|
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
Core product technology (5 year life) |
|
|
3,992 |
|
|
|
|
|
Current product technology (2 year life) |
|
|
339 |
|
|
|
|
|
Customer contracts (6 year life) |
|
|
10,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,121 |
|
Goodwill |
|
|
|
|
|
|
37,202 |
|
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
|
|
|
$ |
59,697 |
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
1,422 |
|
Other current liabilities |
|
|
|
|
|
|
3,814 |
|
Non-current liabilities |
|
|
|
|
|
|
6,116 |
|
|
|
|
|
|
|
|
|
Total liabilities assumed |
|
|
|
|
|
|
11,352 |
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
|
|
|
|
$ |
48,345 |
|
|
|
|
|
|
|
|
|
-64-
6. Acquisitions (continued)
During the fourth quarter of 2005, the Company adjusted the purchase price allocation and
recorded deferred tax assets of $15.2 million for deductible research and development costs
previously capitalized by Evant for tax purposes as well as book and tax basis differences in
property and equipment. The Company also adjusted and reduced the value assigned to customer
contracts by $0.3 million. Goodwill decreased by a corresponding amount of $14.9 million.
The allocation of purchase price is based on preliminary estimates of fair value and is
subject to revision mainly based upon the finalization of managements assessment of the fair value
of the acquired deferred tax assets.
The weighted average amortization period of the intangible assets subject to amortization is
approximately 5.6 years. Goodwill of $2.2 million was allocated to the EMEA operating segment; the
remaining goodwill of $20.1 million was allocated to the Americas operating segment. The Goodwill
will not be amortized, but will be reviewed for impairment on an annual basis. Goodwill is not
deductible for tax purposes.
Unaudited pro forma operating results for the years ended December 31, 2004 and 2005, assuming
that the Evant acquisition had occurred at the beginning of each respective year, is as follows (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2004 |
|
|
2005 |
|
Pro forma revenues |
|
$ |
234,290 |
|
|
$ |
263,964 |
|
Pro forma net income |
|
|
11,812 |
|
|
|
13,046 |
|
Pro forma diluted net income per share |
|
|
0.38 |
|
|
|
0.45 |
|
7. Severance, Restructuring, Acquisition, and Accounts Receivable Charges
During the third quarter of 2003, the Company recorded expenses of approximately $885,000 in
the Americas relating to fees incurred in connection with two potential acquisitions that the
Company decided not to consummate. The acquisition-related expenses are presented as a separate
line item in the Consolidated Statements of Income. The expenses consist primarily of legal,
accounting and travel expenses associated with the two transactions.
During the second quarter of 2003, the Company recorded a restructuring charge relating to an
internal reorganization of $893,000 in the Americas. The restructuring charge is presented as a
separate line item in the Consolidated Statements of Income. The reorganization more closely
aligns the Companys customer advocates with implementation teams, and the customer support
organization with the technical teams. The charge consists primarily of one-time severance
payments to 25 employees. The Company anticipates no further costs relating to this reorganization.
Approximately $857,000 of the charge was paid during 2003 and the remaining $36,000 was paid
during 2004.
During 2005, the Company recorded $6.3 million of severance, restructuring, acquisition, and
accounts receivable charges. Included in the charges were: (i) a $2.8 million EMEA bad debt
provision for the entire amount of the accounts receivable due from a large German customer with which the
Company has had a challenging relationship and for which collection is considered to be doubtful;
(ii) approximately $1.1 million in EMEA severance-related costs associated with the consolidation
of the Companys European operations into the Netherlands, United Kingdom and France; (iii) $1.9
million of Americas severance-related costs and amortization of prepaid retention bonuses
associated with the acquisition of Evant; and (iv) $0.5 million in Americas acquisition-related
costs associated with an attempted acquisition that did not close. The $2.8 million bad debt
provision is the Companys best estimate of costs to be incurred from the termination of the
business relationship with the large challenging customer.
However, this amount may change if the issue results in litigation or
if a settlement is reached that is not covered by corporate insurance policies.
It is not possible at this time to estimate the amount of any such potential costs. As part of the
restructuring in Europe, the Company eliminated 17 sales and professional services positions
throughout Europe. All payments relating to the restructuring of the European operations were paid
during 2005. The Company does not anticipate any further costs relating to the restructuring in
future quarters. The severance-related
-65-
7. Severance, Restructuring, Acquisition, and Accounts Receivable Charges (continued)
costs and amortization of prepaid retention bonuses associated with Evant consisted primarily of
one-time payments to employees not retained due to duplicative functions. Approximately $1.6
million of the $1.9 million of Americas severance-related costs and amortization of prepaid
retention bonuses was paid prior to December 31, 2005, and the remaining $0.3 million will be paid
during 2006. The acquisition-related costs incurred consisted of outside legal and accounting due
diligence expenses.
8. Operating Segments
In 2003 and 2004, the Company conducted business in one operating segment, providing supply
chain execution solutions. During 2005, the Company changed its management structure and began
managing the business by geographic segment. The Company has identified its Americas segment, its
EMEA segment and its Asia Pacific segment as operating segments. The information for all periods
presented reflects these new segments. All segments derive revenue from the sale and
implementation of the Companys supply chain execution and planning solutions, of which the
individual products are similar in nature and help companies manage the effectiveness and
efficiency of their supply chain. The Company uses the same accounting policies for each operating
segment. The chief executive officer and chief financial officer evaluate performance based on
revenue and operating results for each region.
The Americas segment charges royalty fees to the other segments based on software licenses
sold by those operating segments. The royalties, which totaled
$1.5 million, $1.5 million, and
$2.1 million in 2003, 2004, and 2005, respectively, are included in cost of revenue for each
segment with a corresponding reduction in Americas cost of revenue. The revenues represented below
are from external customers only. The geographical-based costs consist of costs of professional
services personnel, direct sales and marketing expenses, cost of infrastructure to support the
employees and customer base, billing and financial systems and management and support team. There
are certain corporate expenses included in the Americas region that are not charged to the other
segments including research and development, certain marketing and general and administrative costs
that support the global organization and the amortization of acquired developed technology.
Included in the Americas costs are all research and development costs including the costs
associated with the offshore development center in India. The operating expenses for the Americas
segment include $3.4 million, $3.6 million, and $4.5 million of amortization expense of intangible
assets in 2003, 2004 and 2005, respectively.
In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, the Company has included a summary of the financial information by operating segment.
The following table presents the revenues, expenses and operating income (loss) by operating
segment for the years ended December 31, 2003, 2004 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2003 |
|
|
|
Americas |
|
|
EMEA |
|
|
Asia/Pacific |
|
|
Total |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and hosting fees |
|
$ |
36,984 |
|
|
$ |
5,914 |
|
|
$ |
331 |
|
|
$ |
43,229 |
|
Services |
|
|
105,330 |
|
|
|
22,811 |
|
|
|
1,179 |
|
|
|
129,320 |
|
Hardware and other |
|
|
21,070 |
|
|
|
3,195 |
|
|
|
|
|
|
|
24,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
163,384 |
|
|
|
31,920 |
|
|
|
1,510 |
|
|
|
196,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
59,194 |
|
|
|
20,778 |
|
|
|
838 |
|
|
|
80,810 |
|
Operating expenses |
|
|
74,438 |
|
|
|
10,644 |
|
|
|
428 |
|
|
|
85,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
133,632 |
|
|
|
31,422 |
|
|
|
1,266 |
|
|
|
166,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
29,752 |
|
|
$ |
498 |
|
|
$ |
244 |
|
|
$ |
30,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-66-
8. Operating Segments (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2004 |
|
|
|
Americas |
|
|
EMEA |
|
|
Asia/Pacific |
|
|
Total |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and hosting fees |
|
$ |
40,380 |
|
|
$ |
6,275 |
|
|
$ |
3,231 |
|
|
$ |
49,886 |
|
Services |
|
|
111,600 |
|
|
|
26,709 |
|
|
|
3,183 |
|
|
|
141,492 |
|
Hardware and other |
|
|
20,967 |
|
|
|
2,548 |
|
|
|
26 |
|
|
|
23,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
172,947 |
|
|
|
35,532 |
|
|
|
6,440 |
|
|
|
214,919 |
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
63,862 |
|
|
|
25,245 |
|
|
|
2,981 |
|
|
|
92,088 |
|
Operating expenses |
|
|
76,462 |
|
|
|
12,142 |
|
|
|
2,618 |
|
|
|
91,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
140,324 |
|
|
|
37,387 |
|
|
|
5,599 |
|
|
|
183,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
32,623 |
|
|
$ |
(1,855 |
) |
|
$ |
841 |
|
|
$ |
31,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005 |
|
|
|
Americas |
|
|
EMEA |
|
|
Asia/Pacific |
|
|
Total |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and hosting fees |
|
$ |
48,050 |
|
|
$ |
5,579 |
|
|
$ |
3,490 |
|
|
$ |
57,119 |
|
Services |
|
|
132,182 |
|
|
|
23,064 |
|
|
|
10,845 |
|
|
|
166,091 |
|
Hardware and other |
|
|
20,690 |
|
|
|
2,029 |
|
|
|
475 |
|
|
|
23,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
200,922 |
|
|
|
30,672 |
|
|
|
14,810 |
|
|
|
246,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
74,824 |
|
|
|
19,051 |
|
|
|
9,713 |
|
|
|
103,588 |
|
Operating expenses |
|
|
91,378 |
|
|
|
15,974 |
|
|
|
5,187 |
|
|
|
112,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
166,202 |
|
|
|
35,025 |
|
|
|
14,900 |
|
|
|
216,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
34,720 |
|
|
$ |
(4,353 |
) |
|
$ |
(90 |
) |
|
$ |
30,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas goodwill, long-lived assets, and total assets were approximately $27.0 million,
$97.2 million, and $270.5 million as of December 31, 2004, respectively, and $47.3 million, $130.4
million, and $255.1 million as of December 31, 2005, respectively. EMEA goodwill, long-lived
assets, and total assets were approximately $3.5 million, $6.1 million, and $15.2 million as of
December 31, 2004, respectively, and $5.4 million, $8.1 million, and $13.4 million as of December
31, 2005, respectively. Asia Pacific goodwill, long-lived assets, and total assets were
approximately $2.0 million, $2.7 million, and $4.6 million as of December 31, 2004, respectively,
and $2.0 million, $2.6 million, and $4.9 million as of December 31, 2005, respectively.
9. Employee Benefit Plan
The Company sponsors the Manhattan Associates 401(k) Plan and Trust (the 401(k) Plan), a
qualified profit sharing plan with a 401(k) feature covering substantially all employees of the
Company. Under the 401(k) Plans deferred compensation arrangement, eligible employees who elect
to participate in the 401(k) Plan may contribute up to 60% of eligible compensation up to $14,000,
as defined, to the 401(k) Plan. On January 1, 2006, the eligible compensation limit was increased
to $15,000. The Company provides for a 50% matching contribution up to 6% of eligible compensation
being contributed after the participants first year of employment. During the years ended
December 31, 2003, 2004 and 2005, the Company made matching contributions to the 401(k) Plan of
$1,250,000, $1,314,000 and $1,298,000, respectively.
-67-
10. Related Party Transactions
During the years ended December 31, 2003, 2004 and 2005, the Company purchased software and
services for approximately $250,000, $63,000 and $57,000, respectively, from a company whose
President and Chief Executive Officer is a member of Manhattans Board of Directors. As of
December 31, 2005, there was $1,400 outstanding relating to the purchases.
During the year ended December 31, 2003 and 2004, the Company sold software and services for
approximately $400,000 and $90,000, respectively, to a company whose Chief Executive Officer is a
relative of a member of the Companys executive management team. There were no 2005 sales to this
customer. As of December 31, 2005, there was $0 accounts receivable outstanding.
During the years ended December 31, 2003, 2004 and 2005, the Company purchased hardware of
approximately $75,000, $200,000 and $192,000, respectively, from Alien Technology, a party in which
the Company made a $2 million investment during 2003. See Note 1 for further details on the
investment. As of December 31, 2005, there was approximately $8,000 outstanding relating to the
purchases.
During the year ended December 31, 2005, the Company purchased services of $10,000 from a
company whose board of directors includes the chairman of Manhattans board of directors. As of
December 31, 2005, there was approximately $2,500 outstanding relating to the purchases.
11. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations of the Company for the years
ended December 31, 2004 and 2005. The unaudited quarterly results have been prepared on
substantially the same basis as the audited Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
Mar. 31, |
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
Mar. 31, |
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
|
2004 |
|
|
2004 |
|
|
2004 |
|
|
2004 |
|
|
2005 |
|
|
2005 |
|
|
2005 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(restated) |
|
|
(restated) |
|
|
(restated) |
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
Statement of Income Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software and hosting fees |
|
$ |
12,306 |
|
|
$ |
13,784 |
|
|
$ |
10,257 |
|
|
$ |
13,539 |
|
|
$ |
13,814 |
|
|
$ |
14,633 |
|
|
$ |
12,531 |
|
|
$ |
16,141 |
|
Services |
|
|
33,606 |
|
|
|
36,328 |
|
|
|
36,759 |
|
|
|
34,799 |
|
|
|
37,437 |
|
|
|
41,266 |
|
|
|
43,621 |
|
|
|
43,767 |
|
Hardware and other |
|
|
5,381 |
|
|
|
5,858 |
|
|
|
4,853 |
|
|
|
7,449 |
|
|
|
5,056 |
|
|
|
5,470 |
|
|
|
6,155 |
|
|
|
6,513 |
|
Recovery (allowance) relating to bankrupt customer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
51,293 |
|
|
|
55,970 |
|
|
|
51,869 |
|
|
|
55,787 |
|
|
|
56,307 |
|
|
|
61,369 |
|
|
|
62,307 |
|
|
|
66,421 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software and hosting fees |
|
|
823 |
|
|
|
850 |
|
|
|
977 |
|
|
|
1,435 |
|
|
|
1,311 |
|
|
|
1,249 |
|
|
|
1,022 |
|
|
|
1,118 |
|
Amortization of acquired developed technology |
|
|
493 |
|
|
|
518 |
|
|
|
521 |
|
|
|
547 |
|
|
|
556 |
|
|
|
559 |
|
|
|
641 |
|
|
|
577 |
|
Cost of services |
|
|
15,096 |
|
|
|
16,523 |
|
|
|
17,009 |
|
|
|
17,225 |
|
|
|
17,822 |
|
|
|
18,131 |
|
|
|
19,952 |
|
|
|
20,736 |
|
Cost of hardware and other |
|
|
4,578 |
|
|
|
5,071 |
|
|
|
4,211 |
|
|
|
6,211 |
|
|
|
4,518 |
|
|
|
4,584 |
|
|
|
5,078 |
|
|
|
5,734 |
|
Research and development |
|
|
7,200 |
|
|
|
7,281 |
|
|
|
7,090 |
|
|
|
7,251 |
|
|
|
7,678 |
|
|
|
7,869 |
|
|
|
9,037 |
|
|
|
9,555 |
|
Sales and marketing |
|
|
7,920 |
|
|
|
8,942 |
|
|
|
8,062 |
|
|
|
9,125 |
|
|
|
9,688 |
|
|
|
10,507 |
|
|
|
9,649 |
|
|
|
10,458 |
|
General and administrative |
|
|
6,460 |
|
|
|
6,487 |
|
|
|
6,727 |
|
|
|
7,181 |
|
|
|
6,699 |
|
|
|
7,113 |
|
|
|
8,076 |
|
|
|
7,741 |
|
Severance, restructuring, acquisition, and
Accounts receivable charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400 |
|
|
|
1,081 |
|
|
|
829 |
|
Amortization of acquisition-related intangibles |
|
|
377 |
|
|
|
373 |
|
|
|
373 |
|
|
|
373 |
|
|
|
368 |
|
|
|
648 |
|
|
|
520 |
|
|
|
623 |
|
Total costs and expenses |
|
|
42,947 |
|
|
|
46,045 |
|
|
|
44,970 |
|
|
|
49,348 |
|
|
|
48,640 |
|
|
|
55,060 |
|
|
|
55,056 |
|
|
|
57,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
8,346 |
|
|
|
9,925 |
|
|
|
6,899 |
|
|
|
6,439 |
|
|
|
7,667 |
|
|
|
6,309 |
|
|
|
7,251 |
|
|
|
9,050 |
|
Other income, net |
|
|
389 |
|
|
|
304 |
|
|
|
540 |
|
|
|
2,024 |
|
|
|
485 |
|
|
|
609 |
|
|
|
877 |
|
|
|
706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
8,735 |
|
|
|
10,229 |
|
|
|
7,439 |
|
|
|
8,463 |
|
|
|
8,152 |
|
|
|
6,918 |
|
|
|
8,128 |
|
|
|
9,756 |
|
Income taxes |
|
|
3,016 |
|
|
|
3,536 |
|
|
|
2,724 |
|
|
|
3,956 |
|
|
|
3,170 |
|
|
|
3,966 |
|
|
|
3,162 |
|
|
|
4,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,719 |
|
|
$ |
6,693 |
|
|
$ |
4,715 |
|
|
$ |
4,507 |
|
|
$ |
4,982 |
|
|
$ |
2,952 |
|
|
$ |
4,966 |
|
|
$ |
5,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.19 |
|
|
$ |
0.22 |
|
|
$ |
0.16 |
|
|
$ |
0.15 |
|
|
$ |
0.17 |
|
|
$ |
0.10 |
|
|
$ |
0.17 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.18 |
|
|
$ |
0.21 |
|
|
$ |
0.15 |
|
|
$ |
0.15 |
|
|
$ |
0.16 |
|
|
$ |
0.10 |
|
|
$ |
0.17 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic net income per share |
|
|
30,135 |
|
|
|
30,178 |
|
|
|
29,891 |
|
|
|
29,954 |
|
|
|
29,620 |
|
|
|
29,174 |
|
|
|
28,392 |
|
|
|
27,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted net income per share |
|
|
31,349 |
|
|
|
31,403 |
|
|
|
30,786 |
|
|
|
30,770 |
|
|
|
30,276 |
|
|
|
29,764 |
|
|
|
29,055 |
|
|
|
28,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The quarterly data above for the quarters ended March 31, 2005, June 30, 2005 and
September 30, 2005 have been restated from what was previously reported in the Form 10-Qs for the
respective periods. The restatement resulted from the Company not providing the appropriate sales
tax liability for sales taxes in certain states during the years ended December 31, 2000 through
December 31, 2004. General and administrative expenses decreased by $327,000, $291,000, and
$241,000 from what was previously reported in the Form 10-Qs for the quarters ended March 31,
2005, June 30, 2005, and September 30, 2005, respectively, due to recoveries of previously expensed
sales tax resulting from the expiration of sales tax audit statutes in certain states. As a
direct result of the decrease in general and administrative expenses, income taxes increased by
$127,000, $112,000, and $94,000 from what was previously reported in the Form 10-Qs for the
quarters ended March 31, 2005, June 30, 2005, and September 30, 2005, respectively. See the Form
10-K/A filed on March 1, 2006 for further details on the restatement.
-68-
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information
relating to the Company, including its consolidated subsidiaries, is made known to the officers who
certify the Companys financial reports and to other members of senior management and the Board of
Directors.
Based on their evaluation as of December 31, 2005, the principal executive officer and
principal financial officer of the Company have concluded that, due to the material weaknesses
discussed in Managements Report on Internal Control over Financial Reporting on pages 37 and 38
hereof, the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) were not effective to ensure that the
information required to be disclosed by the Company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms.
The material weaknesses identified by management relate to the accounting for sales taxes and
the accounting for income taxes.
Accounting for Sales Taxes. As of December 31, 2005, the Companys controls over monitoring
the completeness and accuracy of sales taxes, including the determination and reporting of sales
taxes payable were insufficient. Specifically, the Company did not have personnel with sufficient
skills and experience to enable the Company to properly determine whether certain consulting and
maintenance services were considered taxable transactions in certain states. These control
deficiencies resulted in material adjustments to the general and administrative expense and accrued
liability accounts in the 2005 annual and quarterly consolidated financial statements and the
restatement of the annual consolidated financial statements for 2002, 2003 and 2004, and for each
of the quarters in the years ended December 31, 2003 and 2004 for which an amended Annual Report on
Form 10-K was filed with the Securities and Exchange Commission on March 1, 2006.
Accounting for Income Taxes. As of December 31, 2005, the Companys review and approval
controls over the accounting for income taxes, including the determination and reporting of income
taxes payable, deferred income tax assets and liabilities and the related income tax provision were
insufficient. Specifically, the Company did not have personnel with sufficient skills and
experience to enable the Company to properly consider and apply generally accepted accounting
principles for taxes, and ensure that the rationale for certain tax positions was adequately
documented and appropriately communicated. Additionally, the Company did not maintain effective
controls to review and monitor the accuracy of the components of the income tax provision
calculations and the related deferred income taxes and income taxes payable. These control
deficiencies resulted in the restatement of the annual consolidated financial statements for 2002,
2003 and 2004,and for each of the quarters in the years ended December 31, 2003 and 2004 for which
an amended Annual Report on Form 10-K was filed with the Securities and Exchange Commission on
March 1, 2006. No adjustments were necessary to the 2005 annual or interim financial statements as
a result of these deficiencies. However, until this material weakness is remediated, there is a
more than remote likelihood that a misstatement of the income tax provision and the related
deferred income taxes and income taxes payable accounts could occur that would not be prevented or
detected by the Companys internal controls.
We have improved our internal controls over our tax function related to accounting for income
taxes and sales taxes by:
|
|
|
Increasing the Companys internal tax resources through the hiring of a Sales and Use Tax Manager; |
|
|
|
|
Retaining external tax advisors to prepare the quarterly tax provision and offer tax technical advice; |
|
|
|
|
Expanding the level of review and discussion of significant tax matters and supporting
documentation with senior finance management; and |
|
|
|
|
Reviewing, with a third-party tax expert, our sales tax systems and the criteria set for
the identification of transactions subject to sales tax liability. |
-69-
However, since these improved internal controls have not been put in place and functioning for more
than 1 quarter of the year, it was not practically possible to appropriately test the controls and
ensure their effectiveness during the year.
Managements Report on Internal Control over Financial Reporting
Managements assessment of the effectiveness of the Companys internal control over financial
reporting as of December 31, 2005 and the attestation report of Ernst & Young LLP on managements
assessment of the Companys internal control over financial reporting are contained on pages 37
through 40 of this report.
Change in Internal Control over Financial Reporting
There are no changes in the Companys internal control over financial reporting that occurred
during the Companys last fiscal quarter that have materially affected or are reasonably likely to
materially affect the Companys internal control over financial reporting, other than as described
above relating to the improved controls over our tax function related to accounting for income
taxes and sales taxes.
Item 9B. Other Information
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference from the information
contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with
the SEC on or prior to April 28, 2006 under the captions Code of Ethics, Election of Directors,
Executive Officers and Section 16(a) Beneficial Ownership Reporting Compliance.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the information
contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with
the SEC on or prior to April 28, 2006 under the caption Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
The information required by this item is incorporated by reference from the information
contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with
the SEC on or prior to April 28, 2006 under the caption Security Ownership of Certain Beneficial
Owners and Management and Related Shareholder Matters.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the information
contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with
the SEC on or prior to April 28, 2006 under the caption Certain Transactions.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference from the information
contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with
the SEC on or prior to April 28, 2006.
-70-
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) 1. Financial Statements.
The response to this item is submitted as a separate section of this Form 10-K. See Item 8.
2. Financial Statement Schedule.
The following financial statement schedule is filed as a part of this report:
SCHEDULE II
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
Balance at |
|
|
Additions |
|
|
|
|
|
|
Balance |
|
|
|
Beginning of |
|
|
Charged to |
|
|
Net |
|
|
at End of |
|
Classification: |
|
Period |
|
|
Operations |
|
|
Deductions |
|
|
Period |
|
Allowance for doubtful accounts
For the year ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 |
|
$ |
5,173,000 |
|
|
$ |
3,453,000 |
|
|
$ |
5,445,000 |
(1) |
|
$ |
3,181,000 |
|
December 31, 2004 |
|
$ |
3,181,000 |
|
|
$ |
4,048,000 |
|
|
$ |
3,058,000 |
|
|
$ |
4,171,000 |
|
December 31, 2005 |
|
$ |
4,171,000 |
|
|
$ |
3,831,000 |
|
|
$ |
3,110,000 |
(2) |
|
$ |
4,892,000 |
|
|
|
|
(1) |
|
Included in the net deductions for 2003 is the recovery of approximately $0.8 million
relating to the significant customer. Also included is a true-up of approximately $0.2
million relating to the allowance balance acquired as part of the Logistics.com acquisition,
which did not impact operations. Excluding these amounts, the net deduction amount for 2003
was $4.4 million. |
|
(2) |
|
Included in the net deductions for 2005 is approximately $0.1 million relating to the
allowance balance acquired as part of the Evant acquisition, which did not impact operations.
Excluding this amount, the net deduction amount for 2005 was $3.2 million. |
All other schedules are omitted because they are not required or the required information
is shown in the consolidated financial statements or notes thereto.
3. Exhibits.
See the response to Item 15(b) below.
-71-
(b) |
|
Exhibits. The following exhibits are filed as part of, or are incorporated by reference
into, this report on Form 10-K: |
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
2.1
|
|
Agreement and Plan of Merger, by and among the Registrant, Madison
Acquisition Corp., Evant, Inc. and Ted Schlein, as Shareholder
Representative, dated August 10, 2005 (Incorporated by reference to Exhibit
2.1 to the Companys Form 8-K (File No. 000-23999), filed on August 16,
2005). |
|
|
|
2.2
|
|
Voting Agreement, by and between the Registrant and the shareholders of
Evant, Inc., dated August 10, 2005 (Incorporated by reference to Exhibit
2.2 to the Companys Form 8-K (File No. 000-23999), filed on August 16,
2005). |
|
|
|
2.3
|
|
Amendment Number 1 to Agreement and Plan of Merger, by and among Evant,
Inc., the Registrant, Madison Acquisition Corp. and Ted Schlein, as
Shareholder Representative, dated as of August 15, 2005 (Incorporated by
reference to Exhibit 2.3 to the Companys Form 8-K (File No. 000-23999),
filed on August 16, 2005). |
|
|
|
3.1
|
|
Articles of Incorporation of the Registrant (Incorporated by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 (File No.
333-47095), filed on February 27, 1998). |
|
|
|
3.2
|
|
Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the
Companys Quarterly Report for the period ended September 30, 2003 (File
No. 000-23999), filed on November 14, 2003). |
|
|
|
4.1
|
|
Provisions of the Articles of Incorporation and Bylaws of the Registrant
defining rights of the holders of common stock of the Registrant
(Incorporated by reference to Exhibit 4.1 to the Companys Registration
Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998). |
|
|
|
4.2
|
|
Specimen Stock Certificate (Incorporated by reference to Exhibit 4.2 to the
Companys Pre-Effective Amendment No. 1 to its Registration Statement on
Form S-1 (File No. 333-47095), filed on April 2, 1998). |
|
|
|
10.1
|
|
Lease Agreement by and between Wildwood Associates, a Georgia general
partnership, and the Registrant dated September 24, 1997 (Incorporated by
reference to Exhibit 10.1 to the Companys Registration Statement on Form
S-1 (File No. 333-47095), filed on February 27, 1998). |
|
|
|
10.2
|
|
First Amendment to Lease between Wildwood Associates, a Georgia general
partnership, and the Registrant dated October 31, 1997 (Incorporated by
reference to Exhibit 10.2 to the Companys Registration Statement on Form
S-1 (File No. 333-47095), filed on February 27, 1998). |
|
|
|
10.3
|
|
Second Amendment to Lease Agreement between Wildwood Associates, a Georgia
general partnership, and the Registrant, dated February 27, 1998
(Incorporated by reference to Exhibit 10.8 to the Companys Pre-Effective
Amendment No. 1 to its Registration Statement on Form S-1 (File No.
333-47095), filed on April 2, 1998). |
|
|
|
10.4
|
|
Third Amendment to Lease Agreement between Wildwood Associates and the
Registrant, dated October 24, 2000 (Incorporated by reference to Exhibit
10.9 to the Companys Annual Report for the period ended December 31, 2000
(File No. 000-23999), filed on April 2, 2001). |
|
|
|
10.5
|
|
Lease Agreement by and between Wildwood Associates, a Georgia general
partnership, and the Registrant, dated June 25, 2001 (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report for the period
ended June 30, 2001 (File No. 000-23999), filed August 14, 2001). |
-72-
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.6
|
|
Lease Agreement by and between Tektronix UK Limited, Manhattan Associates
Limited and Manhattan Associates, Inc., dated October 21, 1999
(Incorporated by reference to Exhibit 10.27 to the Companys Annual Report
for the period ended December 31, 1999 (File No. 000-23999), filed on March
30, 2000). |
|
|
|
10.7
|
|
Lease (Burlington Business Center) by and between Gateway Rosewood, Inc.
and Manhattan Associates, Inc., dated August 23, 2004 (Incorporated by
reference to Exhibit 10.7 to the Companys Annual Report for the period
ended December 31, 2004 (File No. 000-23999), filed on March 16, 2005). |
|
|
|
10.8
|
|
Agreement to Build and Lease between Orchid Apartments Private Limited and
Manhattan Associates India Development Centre Private Limited, executed on
November 19, 2004 (Incorporated by reference to Exhibit 10.8 to the
Companys Annual Report for the period ended December 31, 2004 (File No.
000-23999), filed on March 16, 2005). |
|
|
|
10.9
|
|
Lease Agreement between IGE Energy Services (UK) Limited, Manhattan
Associates Limited and Manhattan Associates, Inc., dated February 1, 2005
(Incorporated by reference to Exhibit 10.9 to the Companys Annual Report
for the period ended December 31, 2004 (File No. 000-23999), filed on March
16, 2005). |
|
|
|
10.10
|
|
Sub-Sublease Agreement between Scientific Research Corporation, a Georgia
corporation, and the Registrant, dated July 2, 1998 (Incorporated by
reference to Exhibit 10.19 to the Companys Annual Report for the period
ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999). |
|
|
|
10.11
|
|
Sub-Sublease Agreement between The Profit Recovery Group International 1,
Inc., a Georgia corporation, and the Registrant, dated August 19, 1998
(Incorporated by reference to Exhibit 10.20 to the Companys Annual Report
for the period ended December 31, 1998 (File No. 000-23999), filed on March
31, 1999). |
|
|
|
10.12
|
|
Standard Sublease Agreement between Life Office Management Association,
Inc. and the Registrant, dated October 20, 2000 (Incorporated by reference
to Exhibit 10.17 to the Companys Annual Report for the period ended
December 31, 2000 (File No. 000-23999), filed on April 2, 2001). |
|
|
|
10.13
|
|
Standard Sublease Agreement between Chevron USA Inc. and the Registrant,
dated November 20, 2000 (Incorporated by reference to Exhibit 10.18 to the
Companys Annual Report for the period ended December 31, 2000 (File No.
000-23999), filed on April 2, 2001). |
|
|
|
10.14
|
|
Form of Indemnification Agreement with certain directors and officers of
the Registrant (Incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report for the period ended June 30, 2004 (File No.000-23999),
filed on August 9, 2004). |
|
|
|
10.15
|
|
Form of Tax Indemnification Agreement for direct and indirect shareholders
of Manhattan Associates Software, LLC (Incorporated by reference to Exhibit
10.7 to the Companys Registration Statement on Form S-1 (File No.
333-47095), filed on February 27, 1998). |
|
|
|
10.16
|
|
Summary Plan Description of the Registrants Money Purchase Plan & Trust,
effective January 1, 1997 (Incorporated by reference to Exhibit 10.3 to the
Companys Registration Statement on Form S-1 (File No. 333-47095), filed on
February 27, 1998). |
|
|
|
10.17
|
|
Summary Plan Description of the Registrants 401(k) Plan and Trust,
effective January 1, 1995 (Incorporated by reference to Exhibit 10.4 to the
Companys Registration Statement on Form S-1 (File No. 333-47095), filed on
February 27, 1998). |
|
|
|
10.18
|
|
Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by
reference to Exhibit 10.10 to the Companys Registration Statement on Form
S-1 (File No. 333-47095), filed on February 27, 1998). |
-73-
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.19
|
|
First Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.22 to the Companys Annual Report
for the period ended December 31, 1998 (File No. 000-23999), filed on March
31, 1999). |
|
|
|
10.20
|
|
Second Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive
Plan (Incorporated by reference to Exhibit 10.23 to the Companys Annual
Report for the period ended December 31, 1998 (File No. 000-23999), filed
on March 31, 1999). |
|
|
|
10.21
|
|
Third Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.24 to the Companys Annual Report
for the period ended December 31, 1998 (File No. 000-23999), filed on March
31, 1999). |
|
|
|
10.22
|
|
Fourth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive
Plan (Incorporated by reference to Exhibit 10.25 to the Companys Annual
Report for the period ended December 31, 1999 (File No. 000-23999), filed
on March 30, 2000). |
|
|
|
10.23
|
|
Fifth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 4.8 to the Companys Form S-8 (File
No. 333-68968), filed on September 5, 2001). |
|
|
|
10.24
|
|
Sixth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Annex A to the Companys Annual Report for
the period ended December 31, 2001 (File No. 000-23999), filed on April 1,
2002). |
|
|
|
10.25
|
|
Amendment No. 7 to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 4.10 to the Companys Form S-8 (File
No. 333-105913), filed on June 6, 2003). |
|
|
|
10.26
|
|
Manhattan Associates, LLC Option Plan (Incorporated by reference to Exhibit
10.11 to the Companys Registration Statement on Form S-1 (File No.
333-47095), filed on February 27, 1998). |
|
|
|
10.27
|
|
Executive Employment Agreement by and between the Registrant and Peter F.
Sinisgalli, effective as of February 25, 2004 (Incorporated by reference to
Exhibit 10.28 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
|
|
|
10.28
|
|
Separation and Non-Competition Agreement by and between the Registrant and
Peter F. Sinisgalli, effective as of February 25, 2004 (Incorporated by
reference to Exhibit 10.29 to the Companys Annual Report for the period
ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004). |
|
|
|
10.29
|
|
Executive Employment Agreement by and between the Registrant and Steve
Norton, effective as of January 24, 2005 (Incorporated by reference to
Exhibit 10.1 to the Companys Form 8-K (File No. 000-23999), filed on
January 12, 2005). |
|
|
|
10.30
|
|
Severance and Non-Competition Agreement by and between the Registrant and
Steve Norton, effective as of January 24, 2005 (Incorporated by reference
to Exhibit 10.2 to the Companys Form 8-K (File No. 000-23999), filed on
January 12, 2005). |
|
|
|
10.31
|
|
Executive Employment Agreement by and between the Registrant and Richard M.
Haddrill, dated October 11, 1999 (Incorporated by reference to Exhibit
10.26 to the Companys Annual Report for the period ended December 31, 1999
(File No. 000-23999), filed on March 30, 2000). |
|
|
|
10.32
|
|
Executive Employment Agreement Modification by and between the Registrant
and Richard M. Haddrill, effective July 19, 2001 (Incorporated by reference
to Exhibit 10.1 to the Companys Quarterly Report for the period ended
September 30, 2001 (File No. 000-23999), filed on November 14, 2001). |
-74-
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.33
|
|
Executive Employment Agreement Second Modification by and between the
Registrant and Richard M. Haddrill, effective November 10, 2003
(Incorporated by reference to Exhibit 10.1 to the Companys Quarterly
Report for the period ended September 30, 2003 (File No. 000-23999), filed
on November 14, 2003). |
|
|
|
10.34
|
|
Executive Employment Agreement Third Modification by and between the
Registrant and Richard M. Haddrill, effective February 25, 2004
(Incorporated by reference to Exhibit 10.27 to the Companys Annual Report
for the period ended December 31, 2003 (File No. 000-23999), filed on March
15, 2004). |
|
|
|
10.35
|
|
Executive Employment Agreement by and between the Registrant and Edward K.
Quibell, effective as of April 25, 2003 (Incorporated by reference to
Exhibit 10.30 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
|
|
|
10.36
|
|
Severance and Non-Competition Agreement by and between the Registrant and
Edward K. Quibell, dated April 25, 2003 (Incorporated by reference to
Exhibit 10.31 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
|
|
|
10.37
|
|
Executive Employment Agreement by and between the Registrant and Jeffrey
Mitchell, effective as of September 3, 1999 (Incorporated by reference to
Exhibit 10.32 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
|
|
|
10.38
|
|
Executive Non-Competition and Severance Agreement by and between the
Registrant and Jeffrey S. Mitchell, dated June 22, 2004 (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report for the period
ended June 30, 2004 (File No. 000-23999), filed on August 9, 2004). |
|
|
|
10.39
|
|
Executive Employment Agreement by and between the Registrant and Jeffry
Baum, effective as of October 30, 2000 (Incorporated by reference to
Exhibit 10.36 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
|
|
|
10.40
|
|
Executive Employment Agreement by and between the Registrant and Ramesh
Srinivasan, effective as of January 1, 2004 (Incorporated by reference to
Exhibit 10.33 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
|
|
|
10.41
|
|
Severance and Non-Competition Agreement by and between the Registrant and
Ramesh Srinivasan, dated January 1, 2004 (Incorporated by reference to
Exhibit 10.34 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
|
|
|
10.42
|
|
Separation and Non-Competition Agreement by and between the Registrant and
Ramesh Srinivasan, dated January 25, 2005 (Incorporated by reference to
Exhibit 10.42 to the Companys Annual Report for the period ended December
31, 2004 (File No. 000-23999), filed on March 16, 2005). |
|
|
|
10.43
|
|
Employment Agreement by and between the Registrant and Eric Peters, dated
April 23, 2002 (Incorporated by reference to Exhibit 10.35 to the Companys
Annual Report for the period ended December 31, 2003 (File No. 000-23999),
filed on March 15, 2004). |
|
|
|
10.44
|
|
Separation Agreement and Release, by and between the Registrant and Neil
Thall, dated March 26, 2003 (Incorporated by reference to Exhibit 10.28 to
the Companys Annual Report for the period ended December 31, 2002 (File
No. 000-23999), filed on March 31, 2003). |
|
|
|
10.45
|
|
Non-Competition Agreement, by and between the Registrant and Neil Thall,
dated March 26, 2003 (Incorporated by reference to Exhibit 10.29 to the
Companys Annual Report for the period ended December 31, 2002 (File No.
000-23999), filed on March 31, 2003). |
-75-
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.46
|
|
Executive Employment Agreement by and between the Registrant and Steve
Norton, dated January 24, 2005 (Incorporated by reference to Exhibit 10.1
to the Companys Form 8-K (File No. 000-23999), filed on January 12, 2005). |
|
|
|
10.47
|
|
Severance and Non-Competition Agreement by and between the Registrant and
Steve Norton, dated January 24, 2005 (Incorporated by reference to Exhibit
10.2 to the Companys Form 8-K (File No. 000-23999), filed on January 12,
2005). |
|
|
|
10.48
|
|
Form of License Agreement, Software Maintenance Agreement and Consulting
Agreement (Incorporated by reference to Exhibit 10.18 to the Companys
Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1
(File No. 333-47095), filed on April 2, 1998). |
|
|
|
10.49
|
|
Form of Software License, Services and Maintenance Agreement (Incorporated
by reference to Exhibit 10.21 to the Companys Annual Report for the period
ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999). |
|
|
|
10.50
|
|
Asset Purchase Agreement, dated December 31, 2002, by and between the
Registrant and Logistics.com, Inc. (Incorporated by reference to Exhibit
2.1 to the Companys Form 8-K (File No. 000-23999), filed on January 15,
2003). |
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16.1
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Letter from Arthur Andersen LLP, dated April 25, 2002, to the Securities
and Exchange Commission (Incorporated by reference to Exhibit 16.1 to the
Companys Form 8-K (File No. 000-23999), filed on April 29, 2002). |
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21.1
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List of Subsidiaries. |
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23.1
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Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. |
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31.1
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Certificate of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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31.2
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Certificate of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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32.1
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Certificate of Chief Executive Officer and Chief Financial Officer. |
-76-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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MANHATTAN ASSOCIATES, INC. |
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By:
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/s/ Peter F. Sinisgalli |
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Peter F. Sinisgalli |
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Chief Executive Officer, President and Director |
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Date: March 15, 2006 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the capacities and on the
dates indicated.
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Signature |
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Title |
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Date |
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/s/ JOHN J. HUNTZ, JR.
John J. Huntz, Jr.
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Chairman of the Board
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March 15, 2006 |
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/s/ PETER F. SINISGALLI
Peter F. Sinisgalli
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Chief Executive Officer,
President and Director
(Principal Executive Officer)
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March 15, 2006 |
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Senior Vice President, Chief
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March 15, 2006 |
Steven R. Norton
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Financial Officer and Treasurer |
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(Principal Financial and |
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Accounting Officer) |
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Director
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March 15, 2006 |
Richard M. Haddrill |
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Director
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March 15, 2006 |
Brian J. Cassidy |
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Director
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March 15, 2006 |
Paul R. Goodwin |
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Director
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March 15, 2006 |
Thomas E. Noonan |
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Director
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March 15, 2006 |
Deepak Raghavan |
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EXHIBIT INDEX
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Exhibit |
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Number |
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Description |
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2.1
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Agreement and Plan of Merger, by and among the Registrant, Madison
Acquisition Corp., Evant, Inc. and Ted Schlein, as Shareholder
Representative, dated August 10, 2005 (Incorporated by reference to Exhibit
2.1 to the Companys Form 8-K (File No. 000-23999), filed on August 16,
2005). |
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2.2
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Voting Agreement, by and between the Registrant and the shareholders of
Evant, Inc., dated August 10, 2005 (Incorporated by reference to Exhibit
2.2 to the Companys Form 8-K (File No. 000-23999), filed on August 16,
2005). |
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2.3
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Amendment Number 1 to Agreement and Plan of Merger, by and among Evant,
Inc., the Registrant, Madison Acquisition Corp. and Ted Schlein, as
Shareholder Representative, dated as of August 15, 2005 (Incorporated by
reference to Exhibit 2.3 to the Companys Form 8-K (File No. 000-23999),
filed on August 16, 2005). |
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3.1
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Articles of Incorporation of the Registrant (Incorporated by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 (File No.
333-47095), filed on February 27, 1998). |
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3.2
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Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the
Companys Quarterly Report for the period ended September 30, 2003 (File
No. 000-23999), filed on November 14, 2003). |
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4.1
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Provisions of the Articles of Incorporation and Bylaws of the Registrant
defining rights of the holders of common stock of the Registrant
(Incorporated by reference to Exhibit 4.1 to the Companys Registration
Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998). |
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4.2
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Specimen Stock Certificate (Incorporated by reference to Exhibit 4.2 to the
Companys Pre-Effective Amendment No. 1 to its Registration Statement on
Form S-1 (File No. 333-47095), filed on April 2, 1998). |
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10.1
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Lease Agreement by and between Wildwood Associates, a Georgia general
partnership, and the Registrant dated September 24, 1997 (Incorporated by
reference to Exhibit 10.1 to the Companys Registration Statement on Form
S-1 (File No. 333-47095), filed on February 27, 1998). |
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10.2
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First Amendment to Lease between Wildwood Associates, a Georgia general
partnership, and the Registrant dated October 31, 1997 (Incorporated by
reference to Exhibit 10.2 to the Companys Registration Statement on Form
S-1 (File No. 333-47095), filed on February 27, 1998). |
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10.3
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Second Amendment to Lease Agreement between Wildwood Associates, a Georgia
general partnership, and the Registrant, dated February 27, 1998
(Incorporated by reference to Exhibit 10.8 to the Companys Pre-Effective
Amendment No. 1 to its Registration Statement on Form S-1 (File No.
333-47095), filed on April 2, 1998). |
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10.4
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Third Amendment to Lease Agreement between Wildwood Associates and the
Registrant, dated October 24, 2000 (Incorporated by reference to Exhibit
10.9 to the Companys Annual Report for the period ended December 31, 2000
(File No. 000-23999), filed on April 2, 2001). |
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10.5
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Lease Agreement by and between Wildwood Associates, a Georgia general
partnership, and the Registrant, dated June 25, 2001 (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report for the period
ended June 30, 2001 (File No. 000-23999), filed August 14, 2001). |
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10.6
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Lease Agreement by and between Tektronix UK Limited, Manhattan Associates
Limited and Manhattan Associates, Inc., dated October 21, 1999
(Incorporated by reference to Exhibit 10.27 to the Companys Annual Report
for the period ended December 31, 1999 (File No. 000-23999), filed on March
30, 2000). |
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Exhibit |
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Number |
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Description |
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10.7
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Lease (Burlington Business Center) by and between Gateway Rosewood, Inc.
and Manhattan Associates, Inc., dated August 23, 2004 (Incorporated by
reference to Exhibit 10.7 to the Companys Annual Report for the period
ended December 31, 2004 (File No. 000-23999), filed on March 16, 2005). |
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10.8
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Agreement to Build and Lease between Orchid Apartments Private Limited and
Manhattan Associates India Development Centre Private Limited, executed on
November 19, 2004 (Incorporated by reference to Exhibit 10.8 to the
Companys Annual Report for the period ended December 31, 2004 (File No.
000-23999), filed on March 16, 2005). |
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10.9
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Lease Agreement between IGE Energy Services (UK) Limited, Manhattan
Associates Limited and Manhattan Associates, Inc., dated February 1, 2005
(Incorporated by reference to Exhibit 10.9 to the Companys Annual Report
for the period ended December 31, 2004 (File No. 000-23999), filed on March
16, 2005). |
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10.10
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Sub-Sublease Agreement between Scientific Research Corporation, a Georgia
corporation, and the Registrant, dated July 2, 1998 (Incorporated by
reference to Exhibit 10.19 to the Companys Annual Report for the period
ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999). |
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10.11
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Sub-Sublease Agreement between The Profit Recovery Group International 1,
Inc., a Georgia corporation, and the Registrant, dated August 19, 1998
(Incorporated by reference to Exhibit 10.20 to the Companys Annual Report
for the period ended December 31, 1998 (File No. 000-23999), filed on March
31, 1999). |
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10.12
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Standard Sublease Agreement between Life Office Management Association,
Inc. and the Registrant, dated October 20, 2000 (Incorporated by reference
to Exhibit 10.17 to the Companys Annual Report for the period ended
December 31, 2000 (File No. 000-23999), filed on April 2, 2001). |
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10.13
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Standard Sublease Agreement between Chevron USA Inc. and the Registrant,
dated November 20, 2000 (Incorporated by reference to Exhibit 10.18 to the
Companys Annual Report for the period ended December 31, 2000 (File No.
000-23999), filed on April 2, 2001). |
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10.14
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Form of Indemnification Agreement with certain directors and officers of
the Registrant (Incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report for the period ended June 30, 2004 (File No.000-23999),
filed on August 9, 2004). |
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10.15
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Form of Tax Indemnification Agreement for direct and indirect shareholders
of Manhattan Associates Software, LLC (Incorporated by reference to Exhibit
10.7 to the Companys Registration Statement on Form S-1 (File No.
333-47095), filed on February 27, 1998). |
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10.16
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Summary Plan Description of the Registrants Money Purchase Plan & Trust,
effective January 1, 1997 (Incorporated by reference to Exhibit 10.3 to the
Companys Registration Statement on Form S-1 (File No. 333-47095), filed on
February 27, 1998). |
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10.17
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Summary Plan Description of the Registrants 401(k) Plan and Trust,
effective January 1, 1995 (Incorporated by reference to Exhibit 10.4 to the
Companys Registration Statement on Form S-1 (File No. 333-47095), filed on
February 27, 1998). |
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10.18
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Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by
reference to Exhibit 10.10 to the Companys Registration Statement on Form
S-1 (File No. 333-47095), filed on February 27, 1998). |
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10.19
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First Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.22 to the Companys Annual Report
for the period ended December 31, 1998 (File No. 000-23999), filed on March
31, 1999). |
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Exhibit |
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Number |
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Description |
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10.20
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Second Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive
Plan (Incorporated by reference to Exhibit 10.23 to the Companys Annual
Report for the period ended December 31, 1998 (File No. 000-23999), filed
on March 31, 1999). |
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10.21
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Third Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.24 to the Companys Annual Report
for the period ended December 31, 1998 (File No. 000-23999), filed on March
31, 1999). |
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10.22
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Fourth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive
Plan (Incorporated by reference to Exhibit 10.25 to the Companys Annual
Report for the period ended December 31, 1999 (File No. 000-23999), filed
on March 30, 2000). |
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10.23
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Fifth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 4.8 to the Companys Form S-8 (File
No. 333-68968), filed on September 5, 2001). |
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10.24
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Sixth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Annex A to the Companys Annual Report for
the period ended December 31, 2001 (File No. 000-23999), filed on April 1,
2002). |
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10.25
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Amendment No. 7 to the Manhattan Associates, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 4.10 to the Companys Form S-8 (File
No. 333-105913), filed on June 6, 2003). |
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10.26
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Manhattan Associates, LLC Option Plan (Incorporated by reference to Exhibit
10.11 to the Companys Registration Statement on Form S-1 (File No.
333-47095), filed on February 27, 1998). |
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10.27
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Executive Employment Agreement by and between the Registrant and Peter F.
Sinisgalli, effective as of February 25, 2004 (Incorporated by reference to
Exhibit 10.28 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
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10.28
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Separation and Non-Competition Agreement by and between the Registrant and
Peter F. Sinisgalli, effective as of February 25, 2004 (Incorporated by
reference to Exhibit 10.29 to the Companys Annual Report for the period
ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004). |
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10.29
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Executive Employment Agreement by and between the Registrant and Steve
Norton, effective as of January 24, 2005 (Incorporated by reference to
Exhibit 10.1 to the Companys Form 8-K (File No. 000-23999), filed on
January 12, 2005). |
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10.30
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Severance and Non-Competition Agreement by and between the Registrant and
Steve Norton, effective as of January 24, 2005 (Incorporated by reference
to Exhibit 10.2 to the Companys Form 8-K (File No. 000-23999), filed on
January 12, 2005). |
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10.31
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Executive Employment Agreement by and between the Registrant and Richard M.
Haddrill, dated October 11, 1999 (Incorporated by reference to Exhibit
10.26 to the Companys Annual Report for the period ended December 31, 1999
(File No. 000-23999), filed on March 30, 2000). |
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10.32
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Executive Employment Agreement Modification by and between the Registrant
and Richard M. Haddrill, effective July 19, 2001 (Incorporated by reference
to Exhibit 10.1 to the Companys Quarterly Report for the period ended
September 30, 2001 (File No. 000-23999), filed on November 14, 2001). |
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10.33
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Executive Employment Agreement Second Modification by and between the
Registrant and Richard M. Haddrill, effective November 10, 2003
(Incorporated by reference to Exhibit 10.1 to the Companys Quarterly
Report for the period ended September 30, 2003 (File No. 000-23999), filed
on November 14, 2003). |
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Exhibit |
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Number |
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Description |
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10.34
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Executive Employment Agreement Third Modification by and between the
Registrant and Richard M. Haddrill, effective February 25, 2004
(Incorporated by reference to Exhibit 10.27 to the Companys Annual Report
for the period ended December 31, 2003 (File No. 000-23999), filed on March
15, 2004). |
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10.35
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Executive Employment Agreement by and between the Registrant and Edward K.
Quibell, effective as of April 25, 2003 (Incorporated by reference to
Exhibit 10.30 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
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10.36
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Severance and Non-Competition Agreement by and between the Registrant and
Edward K. Quibell, dated April 25, 2003 (Incorporated by reference to
Exhibit 10.31 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
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10.37
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Executive Employment Agreement by and between the Registrant and Jeffrey
Mitchell, effective as of September 3, 1999 (Incorporated by reference to
Exhibit 10.32 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
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10.38
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Executive Non-Competition and Severance Agreement by and between the
Registrant and Jeffrey S. Mitchell, dated June 22, 2004 (Incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report for the period
ended June 30, 2004 (File No. 000-23999), filed on August 9, 2004). |
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10.39
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Executive Employment Agreement by and between the Registrant and Jeffry
Baum, effective as of October 30, 2000 (Incorporated by reference to
Exhibit 10.36 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
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10.40
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Executive Employment Agreement by and between the Registrant and Ramesh
Srinivasan, effective as of January 1, 2004 (Incorporated by reference to
Exhibit 10.33 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
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10.41
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Severance and Non-Competition Agreement by and between the Registrant and
Ramesh Srinivasan, dated January 1, 2004 (Incorporated by reference to
Exhibit 10.34 to the Companys Annual Report for the period ended December
31, 2003 (File No. 000-23999), filed on March 15, 2004). |
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10.42
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Separation and Non-Competition Agreement by and between the Registrant and
Ramesh Srinivasan, dated January 25, 2005 (Incorporated by reference to
Exhibit 10.42 to the Companys Annual Report for the period ended December
31, 2004 (File No. 000-23999), filed on March 16, 2005). |
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10.43
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Employment Agreement by and between the Registrant and Eric Peters, dated
April 23, 2002 (Incorporated by reference to Exhibit 10.35 to the Companys
Annual Report for the period ended December 31, 2003 (File No. 000-23999),
filed on March 15, 2004). |
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10.44
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Separation Agreement and Release, by and between the Registrant and Neil
Thall, dated March 26, 2003 (Incorporated by reference to Exhibit 10.28 to
the Companys Annual Report for the period ended December 31, 2002 (File
No. 000-23999), filed on March 31, 2003). |
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10.45
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Non-Competition Agreement, by and between the Registrant and Neil Thall,
dated March 26, 2003 (Incorporated by reference to Exhibit 10.29 to the
Companys Annual Report for the period ended December 31, 2002 (File No.
000-23999), filed on March 31, 2003). |
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10.46
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Executive Employment Agreement by and between the Registrant and Steve
Norton, dated January 24, 2005 (Incorporated by reference to Exhibit 10.1
to the Companys Form 8-K (File No. 000-23999), filed on January 12, 2005). |
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10.47
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Severance and Non-Competition Agreement by and between the Registrant and
Steve Norton, dated January 24, 2005 (Incorporated by reference to Exhibit
10.2 to the Companys Form 8-K (File No. 000-23999), filed on January 12,
2005). |
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Exhibit |
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Number |
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Description |
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10.48
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Form of License Agreement, Software Maintenance Agreement and Consulting
Agreement (Incorporated by reference to Exhibit 10.18 to the Companys
Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1
(File No. 333-47095), filed on April 2, 1998). |
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10.49
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Form of Software License, Services and Maintenance Agreement (Incorporated
by reference to Exhibit 10.21 to the Companys Annual Report for the period
ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999). |
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10.50
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Asset Purchase Agreement, dated December 31, 2002, by and between the
Registrant and Logistics.com, Inc. (Incorporated by reference to Exhibit
2.1 to the Companys Form 8-K (File No. 000-23999), filed on January 15,
2003). |
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16.1
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Letter from Arthur Andersen LLP, dated April 25, 2002, to the Securities
and Exchange Commission (Incorporated by reference to Exhibit 16.1 to the
Companys Form 8-K (File No. 000-23999), filed on April 29, 2002). |
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21.1
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List of Subsidiaries. |
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23.1
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Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. |
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31.1
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Certificate of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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31.2
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Certificate of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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32.1
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Certificate of Chief Executive Officer and Chief Financial Officer. |
EX-21.1 LIST OF SUBSIDIARIES
EXHIBIT 21.1
MANHATTAN ASSOCIATES, INC. AND ITS SUBSIDIARIES
Manhattan Associates Limited
Manhattan Associates Europe B.V.
Manhattan Associates France SARL
Manhattan Associates GmbH
Manhattan Associates KK
Manhattan Associates Software (Shanghai), Co. Ltd.
Manhattan Associates Pty Ltd.
Manhattan Associates Software Pte Ltd.
Manhattan Associates (India) Development Centre Private Limited
EX-23.1 CONSENT OF ERNST & YOUNG LLP
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements of Manhattan
Associates, Inc. listed below of our reports dated March 13, 2006, with respect to the consolidated
financial statements and schedule of Manhattan Associates, Inc. and subsidiaries, Manhattan
Associates, Inc. managements assessment of the effectiveness of internal control over financial
reporting, and the effectiveness of internal control over financial reporting of Manhattan
Associates, Inc. and subsidiaries, included in the Annual Report (Form 10-K) for the year ended
December 31, 2005.
1. |
|
Registration Statement on Form S-8 pertaining to the Manhattan
Associates, Inc. 1998 Stock Incentive Plan (File No. 333-68968); |
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2. |
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Registration Statement on Form S-8 pertaining to the Manhattan
Associates, Inc. 1998 Stock Incentive Plan (File No. 333-45802); |
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3. |
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Registration Statement on Form S-8 pertaining to the Manhattan
Associates, LLC Option Plan, Manhattan Associates, Inc. Stock
Incentive Plan and Other Stock Options (File No. 333-60635); |
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4. |
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Registration Statement on Form S-8 pertaining to the Manhattan
Associates, Inc. Stock Incentive Plan (File No. 333-105913); |
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5. |
|
Registration Statement on Form S-8 pertaining to the Manhattan
Associates, Inc. Stock Incentive Plan (File No. 333-129272). |
/s/ Ernst & Young LLP
Atlanta, Georgia
March 13, 2006
EX-31.1 SECTION 302 CERTIFICATION OF PRINCIPAL EXE
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter F. Sinisgalli, Chief Executive Officer of Manhattan Associates, Inc. (the registrant),
certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this annual report is being prepared; |
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(b) |
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Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principals; |
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(c) |
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Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
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(d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
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(a) |
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All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
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(b) |
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Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Dated
this 15th day of March, 2006.
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/s/ Peter F. Sinisgalli
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Peter F. Sinisgalli, Chief Executive Officer |
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EX-31.2 SECTION 302 CERTIFICATION OF PRINCIPAL FIN
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(d), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven R. Norton, Chief Financial Officer of Manhattan Associates, Inc. (the registrant),
certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
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(a) |
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Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this annual report is being prepared; |
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(b) |
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Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principals; |
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(c) |
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Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
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(d) |
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Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
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(a) |
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All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
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(b) |
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Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Dated
this 15th day of March, 2006.
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/s/ Steven R. Norton
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Steven R. Norton, Chief Financial Officer |
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EX-32.1 SECTION 906 CERTIFICATION OF CEO AND CFO
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63
(Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code and shall not
be relied on by any person for any other purpose.
The undersigned, who are the Chief Executive Officer and Chief Financial Officer, respectively, of
Manhattan Associates, Inc. (the Company), hereby each certify that, to the undersigneds
knowledge:
1. the Annual Report on Form 10-K of the Company for the twelve month period ended December 31,
2005 (the Report), which accompanies this Certification, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. all information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated
this 15th day of March, 2006.
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/s/ Peter F. Sinisgalli
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Peter F. Sinisgalli, Chief Executive Officer |
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/s/ Steven R. Norton
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Steven R. Norton, Chief Financial Officer |
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In accordance with SEC Release No. 34-47986, this Exhibit is furnished to the SEC as an
accompanying document and is not deemed filed for purposes of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be
deemed incorporated by reference into any filing under the Securities Act of 1933. A signed
original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has
been provided to the registrant and will be retained by the registrant and furnished to the
Securities and Exchange Commission or its staff upon request.